Hodges Transcript of Proceedings

Case 8:10-cv-00031-JVS-MLG Document 38 Filed 03/11/11 Page 1 of 19 Page ID #:292
4 UNITED STATES DISTRICT COURT
5 CENTRAL DISTRICT OF CALIFORNIA
6 SOUTHERN DIVISION
7 - - -
8 THE HONORABLE JAMES V. SELNA, JUDGE PRESIDING
9
DAVID ANDERSON, et al.,
10 Plaintiffs,
vs.
11
SACV-10-00031-JVS
12 CHRISTOPHER COX, et al.,
Defendants.
13 --------------------------
14
15
16 REPORTER'S TRANSCRIPT OF PROCEEDINGS
17 Santa Ana, California
18 August 2, 2010
19
20
SHARON A. SEFFENS, RPR
21 United States Courthouse
411 West 4th Street, Suite 1-1053
22 Santa Ana, CA 92701
(714) 543-0870
23
24
25
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER

1 APPEARANCES OF COUNSEL:
2 For the Plaintiffs:
3 A. CLIFTON HODGES
HODGES AND ASSOCIATES
4 4 East Holly Street, Suite 202
Pasadena, CA 91103
5 (626) 564-9797
6 For the Defendants:
7 ANDRE BIROTTE, JR.

United States Attorney
8 LEON W. WEIDMAN
Assistant United States Attorney
9 Chief, Civil Division
KEITHM. STAUB
10 Assistant United States Attorney
Room 7516 Federal Building
11 300 North Los Angeles Street
Los Angeles, CA 90012
12 (213) 894-7423
13
14
15
16
17
18
19
20
21
22
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1 SANTA ANA, CALIFORNIA; MONDAY, AUGUST 2, 2010; P.M. SESSION
2 THE CLERK: Item No. 15, SACV-10-00031-JVS, David
3 Anderson, Lt. Col., et al., versus Christopher Cox, et al.
4 Counsel, please step forward and state your
5 appearances for the record.
6 MR. HODGES: Good afternoon, Your Honor. A.
7 Clifton Hodges on behalf of the plaintiffs.
8 MR. STAUB: Good afternoon, Your Honor. assistant
9 United States Attorney Keith Staub on behalf of the federal
10 defendants.
11 THE COURT: Good afternoon.
12 Have you both had a change to review the
13 tentative?
14 MR. STAUB: Yes.
15 THE COURT: Mr. Hodges, I think I would like to
16 hear from you first, please.
17 MR. HODGES: Your Honor, first of all, let me
18 concede a point raised in your tentative that this is not
19 your usual Bivens case. That's clear to everyone I think.
20 As a housekeeping matter, I would indicate on page
21 one there is a typographical error. In the middle
22 paragraph, the administrative law judge finding was in 2005,
23 not in 2010.
24 THE COURT: Thank you.
25 MR. HODGES: Having said that, let me turn to the

1 second issue raised by the government first, and that's the
2 question about whether or not there are property rights at
3 issue in this case. Very simply what we have alleged is
4 that -- let me back up a second. We have alleged a scheme
5 in effect that is a sting operation judged from the outside
6 and not from the inside. Basically the sting operation was
7 an operation put into effect through the Department of
8 Homeland Security, the Department of Justice, and the SEC
9 commissioners.
10 What we have alleged is that the SEC commissioners
11 as opposed to the Agency itself coordinated with these other
12 institutions and at their request and in concert with them
13 began a program whereby this company was raided. The SEC
14 Commission was fully aware at all times of the amount of
15 naked shorting that was going on in this company. The then
16 chairman of the Commission has been quoted on several
17 occasions as saying this was the most heavily naked shorted
18 company in the history of the world.
19 As we have alleged in our complaint, on one day,
20 which I believe was sometime in April of 2005, more than
21 90 billion shares of this company traded in one day. I have
22 testimony from -- which is not alluded to in our current
23 complaint, but I can provide testimony from registered ANSD
24 companies that were in business at this time who report that
25 they were told it's free money. You can sell as many shares

1 as you can find buyers for and put all of the money in your
2 pocket. You don't have to ever buy the shares. They were
3 on a no borrow list to begin with at that point in time,
4 which was in 2005 primarily, and if you were going to borrow
5 shares as a legitimate broker at that point in time they had
6 a $2.50 requirement for buying -- or for borrowing.
7 You can imagine what -- I think the average during
8 that period was 17 billion shares a day being sold. This is
9 an enormous amount of money for people to be borrowing
10 shares to be sold into the market. They were being sold for
11 nothing. That's how they drove this company into the
12 ground. They did it because there was evidence by the
13 government and by others associated both directly and
14 indirectly with the government that this money was being
15 sent offshore. It was being accumulated by hedge funds
16 offshore. It was being sent to Iraq. It was being sent to
17 Iran. It was being sent to Afganistan. This is one of the
18 means which these terrorist organizations were utilizing to
19 fund their operation.
20 Having said that, I recognized when I prepared
21 this complaint that at the time the company was delisted,
22 and at the time that this original agreement was made we did
23 not have a basis to sue the SEC, the SEC commissioners, or
24 anybody else because in fact as the Court correctly pointed
25 out in that regard -- the Broad versus Sealaska case I think

1 says that shareholders don't have the right. They don't
2 have a property interest. They did not have that right at
3 the time the agreement was made and at the time the original
4 criminal acts by these commissioners took place. However,
5 what this complaint speaks to is at quite a later date after
6 the company was delisted in October 2005 and they stipulated
7 to that delistment.
8 Then we go forward, and what immediately happened
9 was a task force, including one of the primary and past
10 board of director members, Mr. Bob Maheu, who is no longer
11 with us unfortunately, became the head of that task force.
12 His appointed duties -- his task force appointed duties were
13 to have the shareholders have full copies of their shares,
14 full certificates for every share that was legitimately then
15 owned because it had been bought and paid for and based upon
16 that share certificate pool to then around and liquidate the
17 company.
18 At the time that the company decided it was going
19 to liquidate itself and distribute its remaining assets to
20 its shareholders, the property rights attached to each of
21 the shareholders because at that point in time, which was in
22 early 2006, they had a right to believe that what was in
23 their future was a prorata per share distribution for the
24 assets that the company then owned. The company then owned
25 all of these monies that had been accumulated and put in the

1 trust. The company also owned shares of stock in a company
2 called Entourage, and they had other assets. They did not
3 have any substantial liabilities, so the shareholders from
4 that point forward had a property right that is protectable
5 under the Constitution. It is that claim that we are making
6 in our complaint.
7 Having said that, once we get past the property
8 right issue, I certainly understand the Court's concern and
9 I have reviewed my complaint about perhaps the use of some
10 inartful language when I referred to the SEC rather than
11 specifying that it was the SEC commissioners that we are
12 aiming this at. The reason we are aiming it only at the SEC
13 commissioners is because under the statutory scheme that was
14 set up after the first great depression the SEC Commission
15 and the commissioners individually have the sole and
16 exclusive right to make the decisions.
17 For example, with this firm, when this company was
18 delisted in October 2005, it was pursuant to an
19 administrative law hearing that took place here in
20 Los Angeles all day down in the Federal Court that I
21 attended. The administrative law judge then rendered a
22 tentative decision. It was her decision, but it was
23 tentative in the sense that it had no power and had no
24 effect. The only time that it became effective and the
25 company became delisted was on October 24th or 25th of that

1 year when the Commission met and together agreed that this
2 company should be delisted.
3 They are the only people who have the power to
4 make these kinds of decisions. They are the people who
5 spoke to the other governmental agencies and to the people
6 representing ostensibly the company at that point in time
7 when this agreement to utilize this company without
8 knowledge of the shareholders in part of a sting operation
9 to trap all these hedge fund people, which started way back
10 in 2004, but it was those commissioners acting in an
11 improper and probably criminal way because their mandate
12 under the law is to protect shareholders. They were doing
13 exactly the opposite. They were entering into an agreement
14 they knew was going to damage the shareholders. It was
15 going to drive this company out of business, which it did,
16 and without notice. It was a big secret.
17 It was only those commissioners who took that
18 action that we are aiming this complaint at. We have named
19 the commissioners who have sat since that time, because it
20 is our position that having denied these people payment,
21 these commissioners have signed on, ratified the acts of
22 their fellow criminals, and at the end of the day refused to
23 release this money, money that has been collected. We are
24 not suing the SEC. We are not suing the government.
25 THE COURT: Who in your analysis is the trustee of

1 the funds? Who holds the funds?
2 MR. HODGES: There are actual several trustees who
3 hold the funds, one is whom currently is the DTCC, and I
4 only say that because I know the funds are deposited with
5 the DTCC.
6 THE COURT: Spin that out for me, that acronym.
7 MR. HODGES: The Depository Trust Clearing
8 Corporation. They are the clearing house for all of the
9 financial transactions basically that take place in the
10 United States.
11 THE COURT: Private or public?
12 MR. HODGES: It is a private company, but they act
13 as a public one.
14 THE COURT: Well, as opposed to a governmental
15 agency.
16 MR. HODGES: It's not a governmental agency in the
17 same sense that the federal reserve banks are not
18 governmental agencies.
19 THE COURT: What document governs the terms under
20 which they hold those funds?
21 MR. HODGES: A trust agreement.
22 THE COURT: Between?
23 MR. HODGES: Between the people who originally set
24 this up, one of whom was Bob Maheu.
25 THE COURT: As an employee of the SEC?

10
1 MR. HODGES: Not as an employee of the SEC in any
2 sense of the word. He was at one time on the board of
3 directors of the company CMKM Diamonds. He never acted on
4 behalf of the SEC.
5 THE COURT: What control does the SEC have over
6 this trust fund?
7 MR. HODGES: They don't have any direct control
8 over the trust fund. The agreement, however, that was
9 originally entered into as I understand the testimonial
10 evidence that I have been able to accumulate without the
11 opportunity to do actual discovery -- my understanding is
12 that Bob Maheu and several of his associates entered into a
13 deal first with the Department of Justice. They got the SEC
14 on board through the commissioners by talking to several
15 defendants, primarily Christopher Cox who is a named
16 defendant.
17 The essence of the agreement they made was that in
18 order to make this thing effective the company would go and
19 pump its stock up, which it did. The government would
20 assist in that operation, which it did.
21 THE COURT: How?
22 MR. HODGES: There is evidence that they paid for
23 some of the expenses associated with a drag racing car that
24 had CMKX painted on the outside of it that was being very
25 publicly bantied about on the Internet and raced in various

11
1 jurisdictions. One of their ex-employees, a gentleman named
2 Roger Glenn, who was an attorney or used to be an attorney
3 in New York with the law firm of Angels & Edwards, signed on
4 to increase the stock at the request of the SEC I am told.
5 He came into CMKX in 2004, and when he arrived
6 there, the number of authorized shares of the company were
7 on the order of either 100 billion or 200 billion. I forget
8 exactly what. When he left some nine or ten months later,
9 the authorized shares had illegally and improperly under
10 every law I am aware of had been raised to 800 billion
11 shares. This company eventually sold some 700 billion
12 shares of stock, and there is over that many outstanding at
13 the moment, 703 billion plus.
14 THE COURT: Why isn't your claim against the
15 clearing house asking the trustee for these funds?
16 MR. HODGES: Because that would be like suing the
17 escrow company.
18 THE COURT: But if the escrow company has the
19 funds --
20 MR. HODGES: Here is the simple answer as I
21 started to say a few minutes ago, and I probably did not
22 finish. The original agreement -- there was a war that
23 ensued after the sting got under operation, because what the
24 sting always contemplated was that Mr. Maheu would collect
25 all of these bad doers -- the hedge fund people and the

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1 people like Waterhouse and all the other stockbrokerage
2 houses around who were naked shorting this company, collect
3 them all in a big room and offer them a deal for two
4 reasons: first of all, to collect money for CMKX for what
5 had been done to them in effect; second of all, to teach
6 these people a lesson that there were people out there
7 watching what was going on, and hopefully that would head
8 them off in continuing in such illicit, illegal, and
9 improper behavior.
10 That was in fact done, and I have a witness who
11 was there when it was done. They had a room about three
12 times the size of your courtroom in which they had
13 representatives from all these brokerages from all over the
14 world who were there present. They watched a video
15 presentation, because Mr. Maheu as the Court may be aware
16 was at one time closely associated with the CIA and Howard
17 Hughes and all kinds of other people.
18 THE COURT: I was going to ask you if it was the
19 same Robert Maheu.
20 MR. HODGES: It is indeed the same one, a
21 gentleman I happened to make acquaintanceship with in the
22 '70s. At any rate, all of these people were accumulated in
23 this room, and they were shown a video and a slide
24 presentation of all of the evidence of their wrongdoing, and
25 they were offered an opportunity that you could either step

13
1 up and sign away your money and pay a reasonable amount for
2 each transaction that you did illegally and improperly, or
3 you can walk out of here and get prosecuted and go to jail
4 because what you did is criminal. Every single person in
5 that room stepped and made a deal.
6 After that time, they became a big conflict
7 between the SEC commissioners and the other governmental
8 entries who were supporting the SEC commissioners about who
9 was going to have the right to release this money to the
10 shareholders and when. My understanding is this went on for
11 some number of months, but ultimately the SEC commissioners
12 prevailed and convinced Mr. Maheu and his associates that it
13 had to be their decision because only they and the rest of
14 the government could determine whether the sting had
15 fulfilled its function.
16 That was the basis upon which he gave them the
17 power to make this decision about when the money is to be
18 released. It's my understanding that every trust that is
19 currently being held for release of this money is being held
20 by a person who was sworn to observe that requirement, that
21 the SEC and the U.S. Government, whoever is going to make
22 this payment, goes first. My information is that it was the
23 SEC commissioners who have this power, and that's why they
24 are defendants in this case.
25 THE COURT: Let's return to your Bivens theory.

14
1 It's a taking claim.
2 MR. HODGES: It is. This money was supposed to
3 have been released within a year of the time that the
4 company was originally delisted in October 2005. This is
5 now almost October of 2010, some four years past that time.
6 It is a taking only because they refuse -- notwithstanding
7 information that they have continued to give to various
8 shareholders, they continue to refuse to release this money.
9 If they don't release the money, then it's a taking because
10 they are preventing what is rightfully ours for us to
11 receive. That's why it is a taking.
13 Mr. Staub.
14 MR. STAUB: Thank you, Your Honor.
15 I'll submit that much of what I have just heard I
16 have heard for the first time because most of it wasn't pled
17 in the complaint.
18 THE COURT: I found it very educational.
19 MR. STAUB: Indeed. True or not, I don't know,
20 but we are here to discuss what's in the complaint today.
21 We are not here to give oral argument and present testimony
22 about facts that no one has any idea about, certainly not
23 myself. We are here to talk about what's in the complaint,
24 whether it's properly pled under Rule 8, under the Iqbal
25 decision, and under Twombly. As this Court pointed out in

15
1 the tentative, it's not properly pled.
2 THE COURT: I'm satisfied with that in the
3 tentative. The best case for the plaintiff here would be
4 to dismiss with leave to replead. I guess what I am really
5 interested in is whether this is a Bivens claim given the
6 nature of the asset and whether sovereign immunity applies.
7 MR. STAUB: I suppose you could sue a government
8 officical under Bivens for any violation of civil rights
9 whether it has to do with money or not. I don't know that.
10 I don't know any distinguishing facts in this case that
11 would prevent them from being sued individually under Bivens
12 if there are sufficient facts pled.
13 THE COURT: Well, do you concede in theory that a
14 constitutional violation of a taking clause could be
15 asserted against an individual government worker in his
16 individual capacity?
17 MR. STAUB: I haven't researched that, so I don't
18 know the answer to that specifically. I think we asserted
19 in our brief that there is no vested property right because
20 pursuant to the complaint the SEC had the discretion to
21 release funds if in fact there are these funds in existence.
22 That discretion alone under the case law that we have cited
23 suggests that they don't have any property right to it, but
24 in answer to your, I don't know.
25 THE COURT: Well, there are two questions I guess.

16
1 One, is there a property right and if it's a contingent
2 asset, if you will, subject to distribution per the
3 plaintiffs at the will of the Commission? But there is a
4 separate issue as to whether the nature of relief sought
5 here is such that it can only be asserted against the
6 commissioners in their official capacity.
7 MR. STAUB: I don't think the government has
8 waived sovereign immunity in their official capacity in any
9 way.
10 THE COURT: Well, I understand that, but the issue
11 is is there some manner in which these claims could be
12 asserted against the individual defendants in their
13 individual capacity, or is the relief sought by definition
14 relief that it can only be sought against them in their
15 official capacity, in which case, there would be no private
16 claim, and they would be entitled to sovereign immunity in
17 their officical capacity?
18 MR. STAUB: That may be the case. I don't know
19 the answer.
20 I do want to -- well, I think the Court is
21 inclined to be consistent with its tentative as far as the
22 pleading requirements. I think that the plaintiff has an
23 opportunity to replead to amend the complaint. We will
24 certainly deal with that issue if it's raisded on further
25 briefing. I imagine there will be an additional motion to

17
1 dismiss in the future.
2 That being said, clearly these are high level
3 government officials. They don't deserve to be sued and
4 discovery taken of them unless specific allegations have
5 been made, and none have been made in this complaint. I
6 have heard some issues that were addressed during oral
7 argument. I didn't see those in the complaint, but even
8 assuming those are true, there is nothing specific as to
9 these SEC commissioners other than the fact that they
10 somehow have the sole discretion to make every single
11 decision at the SEC. I don't buy that.
12 THE COURT: Would you agree that it might be
13 easier to assess whether claims can be asserted against the
14 commissioners as individuals if we had a complaint that
15 complied with Iqbal?
16 MR. STAUB: That may be true, yes, if in fact they
17 comply with the pleading requirements of Iqbal and they get
18 past qualified immunity, which we also raised, and the Court
19 obviously doesn't need to address right now, but if and when
20 the Court decides it's been properly pled, then I think
21 qualified immunity should be addressed.
22 THE COURT: What I am inclined is to dismiss with
23 leave to replead for failure to meet the Rule 8 requirements
24 and not -- and to dismiss the claims against them in their
25 official capacity as a matter of sovereign immunity and

18
1 leave the other issues until we have got a pleading that
2 passes muster.
3 MR. STAUB: Agreed. I would only ask that the
4 government have 30 days to respond to the amended complaint.
6 Mr. Hodges.
7 MR. HODGES: I certainly recognize the need to be
8 more specific in the complaint, and I appreciate the Court's
9 willingness to give us the opportunity.
10 THE COURT: How much time do you want?
11 MR. HODGES: Forty-five days would be helpful.
12 THE COURT: Any objection?
13 MR. STAUB: No.
14 THE COURT: And then 30 days to respond by answer
15 of a motion.
16 MR. HODGES: That's fine.
17 THE COURT: Okay. Then we will modify the
18 tentative accordingly.
19 -oOo-
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4 CERTIFICATE
6 I hereby certify that pursuant to Section 753,
7 Title 28, United States Code, the foregoing is a true and
8 correct transcript of the stenographically reported
9 proceedings held in the above-entitled matter and that the
10 transcript page format is in conformance with the
11 regulations of the Judicial Conference of the United States.
12
13 Date: October 4, 2010
14
15
Sharon A. Seffens 10/4/10
16 _________________________________
SHARON A. SEFFENS, U.S. COURT REPORTER
17
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4 UNITED STATES DISTRICT COURT
5 CENTRAL DISTRICT OF CALIFORNIA
6 SOUTHERN DIVISION
7 - - -
8 THE HONORABLE JAMES V. SELNA, JUDGE PRESIDING
9
DAVID ANDERSON, et al.,
10 Plaintiffs,
vs.
11
SACV-10-00031-JVS
12 CHRISTOPHER COX, et al.,
Defendants.
13 --------------------------
14
15
16 REPORTER'S TRANSCRIPT OF PROCEEDINGS
17 Santa Ana, California
18 December 6, 2010
19
20
SHARON A. SEFFENS, RPR
21 United States Courthouse
411 West 4th Street, Suite 1-1053
22 Santa Ana, CA 92701
(714) 543-0870
23
24
25

1 APPEARANCES OF COUNSEL:
2 For the Plaintiffs:
3 A. CLIFTON HODGES
HODGES AND ASSOCIATES
4 4 East Holly Street, Suite 202
Pasadena, CA 91103
5 (626) 564-9797
6 For the Defendants:
7 ANDRE BIROTTE, JR.

United States Attorney
8 LEON W. WEIDMAN
Assistant United States Attorney
9 Chief, Civil Division
KEITH M. STAUB
10 Assistant United States Attorney
Room 7516 Federal Building
11 300 North Los Angeles Street
Los Angeles, CA 90012
12 (213) 894-7423
13
14
15
16
17
18
19
20
21
22
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1 SANTA ANA, CALIFORNIA; MONDAY, DECEMBER 6, 2010; 1:30 P.M.
2 THE CLERK: Item No. 9, SACV-10-00031-JVS, David
3 Anderson, Lt. Col., et al., versus Christopher Cox, et al.
4 Counsel, please step forward and state your
5 appearances for the record.
6 MR. HODGES: Good afternoon, Your Honor. A.
7 Clifton Hodges on behalf of the plaintiffs.
8 MR. STAUB: Good afternoon, Your Honor. assistant
9 United States Attorney Keith Staub on behalf of the federal
10 defendants.
11 THE COURT: Good afternoon.
12 Have you both had a chance to review the
13 tentative?
14 MR. HODGES: Yes, Your Honor.
15 MR. STAUB: Yes, Your Honor.
16 THE COURT: Mr. Staub, I think I would like to
17 hear from Mr. Hodges first.
18 Mr. Hodges.
19 MR. HODGES: Thank you, Your Honor.
20 May it please the Court, needless to say, I am not
21 pleased with the tenor of the Court's tentative decision.
22 THE COURT: Tenor or the result?
23 MR. HODGES: All of the above. I disagree
24 strongly with some of the conclusions in the decision, as
25 well as the final result, but let me go back and start this

1 way recognizing as we have discussed at the last hearing
2 that this is not a typical Bivens case, and this is not a
3 typical Kagens case.
4 Having that in mind, I thought it would be helpful
5 to think about how we got from the beginning of this country
6 to here. I'm not going to bore the Court or anybody else
7 with a recitation of everything that has happened since
8 then, but I think it is important to recall that when this
9 country was founded one of the serious problems of the 13
10 states coming together was the very lack of a Bill of Rights
11 in the Constitution.
12 It became such a problem that by 1789 James
13 Madison was appointed to prepare and circulate these items.
14 They started out to be a lot more than ten items. As they
15 were finally approved by Congress, there were some 12 items,
16 and it took several years after that before at least ten of
17 the then 13 states had ratified these, but four or five of
18 those states withheld ratifying the Constitution pending
19 receipt of these ten amendments to the U.S. Constitution,
20 what we refer to as the Bill of Rights. One of those is the
21 Fifth Amendment. The fifth Amendment is what our Complaint
22 talks about. We are complaining of a taking under the Fifth
23 Amendment by virtue of the facts that we have set forth.
24 Part of the Court's tentative decision relies in a
25 way that is more than passing in emphasizing the fact that

1 there are no personal property takings cases that have been
2 decided in Federal Courts under the Fifth Amendment Taking
3 Clause. It seems to me that that is not because there is
4 anything wrong with personal property. It's clearly
5 contemplated by the founding fathers and by the Fifth
6 Amendment itself, which does not discriminate between
7 personal and real property, so it clearly was intended to
8 cover personal property.
9 I think the reason that when you look at the case
10 law that has been decided to this point that you find no
11 such cases is a very simple one. In most personal property
12 takings actions, they can be brought under some statute that
13 is a federal statute, or they can be brought under a state
14 statute, or they can be remedied by bringing a mandamus
15 action or some other action.
16 That's exactly the problem we have in this case.
17 We can't do any of those things. The taking of personal
18 property -- I understand the Court does not believe we have
19 a personal property interest that is constitutionally
20 viable, and I will get to that in a minute. For the sake of
21 argument, if we have a constitutionally viable personal
22 property interest that is at stake here, the only way we can
23 support that and attack the people that we think are
24 responsible for taking that is through a Bivens action.
25 Why is that? The reason is a very simple one.

1 Normally, Bivens cases from 1971 when the Supreme Court
2 talked about this case, first of all, and created, if you
3 will, out of whole cloth this remedy -- the Supreme Court
4 was thinking about and looking at a situation where they
5 were protecting an invasion under the Fourth Amendment
6 namely, not under the Fifth Amendment -- they were
7 protecting the invasion that had occurred in that case under
8 the Fourth Amendment because there was no other remedy for
9 the plaintiff in that case.
10 As I went back and reread that decision again over
11 the weekend, a couple of things kind of jumped out at me.
12 One of them was a line which is set forth in that decision
13 from -- even though they don't cite the case specifically --
14 they give the U.S. citation, which is 5 U.S. 163, which is
15 actually the page number, not the cite of the case. 5 U.S.
16 137 is the case cite, and that's the case of Marbury versus
17 Madison, one of our founding axioms, if you will, in the
18 law. It's one of the first cases that I ever heard about in
19 law school. It's one of the first cases I ever experienced
20 when I was being taught what the law is all about.
21 The sentence that the Court in the original Bivens
22 case cites is the following: "The very essence of civil
23 liberty certainly consists of the right of every individual
24 to claim the protection of the laws whenever he receives an
25 injury."

1 It was really based upon this concept that the
2 U.S. Supreme Court in Bivens crafted, that exception which
3 said we don't have a right to sue the government unless the
4 government has been kind enough to tender us that right.
5 The Court said, no, that's not right. Under the
6 Constitution in the United States, you have that right.
7 Anybody who is harmed in a constitutional fashion under the
8 Constitution by an officer of the government acting under
9 color of law has that right.
10 That's all we are pleading here. Why are we
11 pleading it here? Because we have no other choice. We
12 cannot attack or recover the personal right that we think we
13 have lost that has been taken by the U.S. government in
14 effect by any other means. We can't bring a mandamus action
15 because these commissioners were not acting in their
16 official capacity at the time that they, No. 1, began this
17 sting operation without any knowledge or consent on behalf
18 of the shareholders, and, No. 2, today we can't mandate that
19 they take any action that is outside the purview of their
20 agency's responsibility. Responding to a request to undo
21 something or to let loose something that they had promised
22 years earlier or that their predecessors in part had
23 promised years earlier is not something that is cognizable
24 under the current statutory scheme. We can't sue for
25 damages. We can't sue the SEC. We can't sue anybody.

1 What I am suggesting to the Court is that at the
2 end of the day the only chance these 40,000 to 50,000
3 shareholders have of forcing the U.S. government to do what
4 it promised to do five years ago -- or more than five years
5 ago actually was when the promise was given, but they
6 promised to complete it about five years ago -- the only
7 chance they have is this lawsuit.
8 Now, the Court in its intended decision seems to
9 take a lot of time discussing the Broad case, and I submit
10 that the Broad case, which does stand for the proposition
11 that the Court suggests, that some shareholder shares are
12 not cognizable as a constitutionally mandated item of
13 personal property because of the tenuousness of that
14 property -- in the typical situation, that is the case. I
15 would certainly not argue against that were this an ongoing
16 firm that was in business, that was generating income, that
17 had an opportunity to issue dividends, that had an
18 opportunity to do all kinds of different things, where one
19 could anticipate as the Court certainly does in the Broad
20 case that the price and the value, if any, of their stock
21 shares could fluctuate wildly so they didn't have a
22 categorical value that could be attached to their shares.
23 The situation would be quite different I think and
24 as I understand the reasoning of the Court in Broad if in
25 that case they weren't two competing shareholder groups

1 arguing about whether the effect of some law was to give one
2 a put-up over the other. If instead in that case the issue
3 had been an attempt to rectify some dividend interest that
4 they had, I don't believe the Court could possibly reach the
5 same conclusion.
6 There is a clear definable property interest in a
7 dividend, and I have seen no evidence to the contrary. I
8 have seen no Court decision to the contrary. It is a
9 definable fixed personal property interest. It goes to a
10 day certain because. It goes to an amount certain, and it
11 is a prorata distribution of a pot of money to shareholders
12 who --
13 THE COURT: Isn't it the case with respect to
14 every dividend that the board of directors makes a decision
15 what to pay and when to pay, and until they do that, there
16 is no interest?
17 MR. HODGES: I agree. There is no interest until
18 they do that, but once they do it, then there is an interest
19 even though it's a shareholder interest. It is personal
20 property, and it is a definable interest in personal
21 property under the Constitution because you know the amount.
22 You know the exact amount. You know how and where it's
23 coming from because it's been a decision by the board of
24 directors of the corporation to do that.
25 It seems to me that it's absolutely no different

10
1 than the situation we have in this case where we have
2 alleged in some detail in the Complaint the board of
3 directors of CMKX as it existed way back in October of 2005
4 made a determination that they were going to wind up the
5 affairs of the corporation. They made a determination that
6 they would not longer engage in business. They made a
7 determination that they would distribute the assets,
8 including shares of a company called Entourage, on a prorata
9 basis to the shareholders as they then existed.
10 This company has not sold shares since that point
11 in time. That is a definable protectable property interest,
12 and for this Court to hold otherwise, I think is not only
13 erroneous but is a way of just telling 50,000 shareholders
14 I'm sorry there is nothing that we can do to uphold the
15 promise of the Fifth Amendment, to uphold the promise that
16 the Supreme Court made in Marbury, to uphold the promise
17 that the Court made in Bivens. I think we have laid that
18 out crystal clear in our Complaint, and I think any other
19 decision would be inappropriate.
21 Mr. Staub.
22 MR. STAUB: Thank you, Your Honor.
23 Just briefly, I'm sure it's no surprise to the
24 Court that the government agrees with the Court's tentative
25 and with the reasoning therein, but I want to touch on a few

11
1 comments made by counsel. It appears to me based on the
2 argument that I have heard that counsel is suggesting that
3 there is no remedy available, but that is the case often
4 when the federal government is involved. That's what
5 sovereign immunity is about. That is what all the case law
6 is about. There is not always a remedy available, and
7 plaintiffs cannot in this case try to circumvent that
8 sovereign immunity by somehow trying to dream up a new
9 remedy, a new way of thinking, a new law.
10 The Court addressed and pointed to the Broad case,
11 which is right on point here. It's the same case. It's
12 money put in trust, and the Ninth Circuit decided that the
13 investors didn't have a property interest in those trust
14 funds. That's the case here. The funds are held by a
15 private company, not the federal government. That came out
16 at the last hearing, and it's still the case. The
17 government doesn't have any control over the trust funds of
18 a private company.
19 In that regard, the plaintiffs contend that the
20 government has taken those funds when in fact they are in
21 the custody and possession of a private company. I think
22 that's what the Broad Court was talking about, and that's
23 what this Court I think is addressing in its tentative
24 ruling. I think the -- notwithstanding the fact that there
25 is no constitutionally protected property interest here, and

12
1 that's right on point in Broad.
2 There has also been no clear specific allegations
3 against any of these high level commissioners. There is
4 nothing but vageries. There is nothing but innuendo. There
5 is nothing but allegations that ordinarily would be nothing
6 more than respondeat superior allegations. These
7 commissioners run the Commission, and, therefore, they are
8 responsible for anything and everything that goes on within
9 the SEC.
10 I might also point out that in the Complaint often
11 the allegation is that these SEC commissioners in
12 conjunction with the Department of Justice and Homeland
13 Security engaged in this vast conspiracy of which we see no
14 specific facts that would survive muster under the Iqbal
15 standard.
16 That being said, I have nothing else to add.
17 THE COURT: Anything further, Mr. Hodges?
18 MR. HODGES: Just very briefly. I'm troubled by
19 counsel's complaint about there is a government involved
20 here, and you don't always have a remedy against the
21 government. That's probably a clear statement.
22 THE COURT: It's an accurate one, too, isn't it?
23 MR. HODGES: It's a very accurate one. I suggest,
24 however, that it is not accurate, nor should it be the law,
25 nor is it the law when what the government is accused of is

13
1 a taking under the Constitution. That is what is proscribed
2 and prohibited in very plain language in the Fifth
3 Amendment. You can't take property from your citizens
4 unless you exercise due process of law, none of which has
5 been alleged here, or unless you compensate them, none of
6 which has been done here.
7 At the end of day, we are left with a protectable
8 interest in what the company's wound up asset base was, the
9 assets that they promised to distribute and got permission
10 from the government to exercise a sting operation and gave
11 the government the right to determine when these funds that
12 were collected and are in trust would be released. It is a
13 taking only because they have failed and refused after more
14 than five years to allow them to be released.
16 Well, I think the arguments are clearly drawn, and
17 the tentative is going to be the order of the Court. It may
18 well be that the Ninth Circuit concludes that its own
19 authority, Broad, is not controlling. It may well be that
20 the Ninth Circuit concludes that the Takings Clause extends
21 to personal property, but as I read the current state of the
22 law, neither of those two things are true, and I think that
23 requires that the motion be granted, so the tentative will
24 be the order of the Court.
25 Thank you very much.

14
1 I want to thank the ladies and gentlemen in the
2 audience for your cooperation today. I very much appreciate
3 it.
4 -oOo-
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15
3 CERTIFICATE
5 I hereby certify that pursuant to Section 753,
6 Title 28, United States Code, the foregoing is a true and
7 correct transcript of the stenographically reported
8 proceedings held in the above-entitled matter and that the
9 transcript page format is in conformance with the
10 regulations of the Judicial Conference of the United States.
11
12 Date: December 10, 2010
13
14
Sharon A. Seffens 12/10/10
15 _________________________________
SHARON A. SEFFENS, U.S. COURT REPORTER
16
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25

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA
DAVID ANDERSON, et al., CASE NUMBER
SAcv-10-00031-JVS
Plaintiff(s),
v.
CHRISTOPHER COX, et al., NOTICE OF FILING OF

✔ OFFICIAL G REDACTED TRANSCRIPT
G
Defendant(s).
TO ALL COUNSEL OF RECORD:
✔
G Notice is hereby given that an official transcript of a proceeding, document number(s)
38, 39 ,
has been filed by the court reporter/electronic court recorder in the above-captioned matter. The parties
have seven (7) business days from the filing of the official transcript to file with the court a Notice of Intent
to Request Redaction of this transcript and/or 21 calendar days from the filing of the official transcript to
file with the court a Redaction Request. If no such Notice or Redaction Request is filed, the transcript will
be made electronically available to the public without redaction after 90 calendar days. Any party needing
a copy of the transcript to review for redaction purposes may purchase a copy from the court
reporter/electronic court recorder or view the document at the clerk’s office public terminal.
G Notice is hereby given that a redacted transcript of a proceeding, document number(s)

,
has been filed by the court reporter/electronic court recorder in the above-captioned matter.
CLERK U.S. DISTRICT COURT
Date: 3/11/11 Sharon Seffens

Court Reporter/Deputy Clerk
G-46 (5/08) NOTICE OF FILING OF OFFICIAL TRANSCRIPT

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Case 8:10-cv-00031-JVS-MLG Document 38 Filed 03/11/11 Page 1 of 19 Page ID #:292

4 UNITED STATES DISTRICT COURT

5 CENTRAL DISTRICT OF CALIFORNIA

8 THE HONORABLE JAMES V. SELNA, JUDGE PRESIDING

16 REPORTER'S TRANSCRIPT OF PROCEEDINGS

17 Santa Ana, California

SHARON SEFFENS, U.S. DISTRICT COURT REPORTER

2 For the Plaintiffs:

6 For the Defendants:

7 ANDRE BIROTTE, JR.

SHARON SEFFENS, U.S. DISTRICT COURT REPORTER

1 SANTA ANA, CALIFORNIA; MONDAY, AUGUST 2, 2010; P.M. SESSION

2 THE CLERK: Item No. 15, SACV-10-00031-JVS, David

3 Anderson, Lt. Col., et al., versus Christopher Cox, et al.

4 Counsel, please step forward and state your

5 appearances for the record.

6 MR. HODGES: Good afternoon, Your Honor. A.

7 Clifton Hodges on behalf of the plaintiffs.

8 MR. STAUB: Good afternoon, Your Honor. assistant

9 United States Attorney Keith Staub on behalf of the federal

11 THE COURT: Good afternoon.

12 Have you both had a change to review the

14 MR. STAUB: Yes.

15 THE COURT: Mr. Hodges, I think I would like to

16 hear from you first, please.

17 MR. HODGES: Your Honor, first of all, let me

18 concede a point raised in your tentative that this is not

19 your usual Bivens case. That's clear to everyone I think.

20 As a housekeeping matter, I would indicate on page

21 one there is a typographical error. In the middle

22 paragraph, the administrative law judge finding was in 2005,

24 THE COURT: Thank you.

25 MR. HODGES: Having said that, let me turn to the

SHARON SEFFENS, U.S. DISTRICT COURT REPORTER

1 second issue raised by the government first, and that's the

2 question about whether or not there are property rights at

3 issue in this case. Very simply what we have alleged is

4 that -- let me back up a second. We have alleged a scheme

5 in effect that is a sting operation judged from the outside

7 an operation put into effect through the Department of

8 Homeland Security, the Department of Justice, and the SEC

10 What we have alleged is that the SEC commissioners

11 as opposed to the Agency itself coordinated with these other

12 institutions and at their request and in concert with them

13 began a program whereby this company was raided. The SEC

14 Commission was fully aware at all times of the amount of

15 naked shorting that was going on in this company. The then

16 chairman of the Commission has been quoted on several

17 occasions as saying this was the most heavily naked shorted

18 company in the history of the world.

19 As we have alleged in our complaint, on one day,

20 which I believe was sometime in April of 2005, more than

21 90 billion shares of this company traded in one day. I have

22 testimony from -- which is not alluded to in our current

23 complaint, but I can provide testimony from registered ANSD

24 companies that were in business at this time who report that