Utsick’s Final Judgment

The three-year Securities and Exchange Commission fraud case against former Miami resident and concert promoter Jack Utsick is all but concluded, with a U.S. District Court judge entering a final judgment May 19 worth more than $4.1 million in disgorgement, not counting pre-judgment interest and civil penalties.

Judge Paul Huck may find the judgment difficult to collect, however, as Utsick has fled to Brazil and ignored several attempts to bring him back to American soil for depositions and hearings in the case, for which Utsick may also face sanction.

In a scathing, 28-page order, the words “Ponzi scheme” appear eight times and “piggy bank” four. In total, Huck set the total of disgorgement – the repayment of ill-gotten gains that “insures a wrongdoer does not profit from his actions” – at $4,035,479, ordered the SEC to submit a calculation of pre-judgment interest within 10 days and ordered a civil penalty of $120,000.

Huck also left no doubt the penalties could have been much worse.

The $120,000 civil penalty is a “third tier” – or most serious offense – with a maximum fine that can be levied for a single count. Because the SEC cited some 3,000 victims of Utsick, Worldwide Entertainment and The Entertainment Group Fund Inc., the potential penalty “would have been in the tens of millions of dollars,” the order said.

The pre-judgment interest is to be calculated according to the Internal Revenue Service’s delinquent tax rate and assessed on a quarterly basis from April 17, 2006 to May 19, 2009.

The judgment regurgitated much that was already well known – Utsick and partners Robert and Donna Yeager raised some $300 million dollars from approximately 3,000 investors to sustain WE and TEGFI. The court determined early investors were paid with funds raised from newer investors, the classic definition of an illegal Ponzi operation.

In addition, the court also found that more than $4 million was spent by WE and/or TEGFI on Utsick’s and former partner Jennifer Homan’s personal expenses.

However, the Yeagers agreed to pay penalties and transfer assets to receiver Michael Goldberg and the case against them was closed. Utsick did not reach an agreement and the SEC filed a motion for penalties in September.

Utsick, through his attorney, disputed many of the SEC’s claims against him and requested the opportunity to take discovery, which was granted and ordered completed by Jan. 16. But by then, Utsick was in Brazil and refused to appear for deposition.

Huck cited “several opportunities and orders from this Court for Utsick to appear for his deposition” and, when he failed to appear, Huck granted the SEC motion for sanctions.

Utsick was ordered to pay the SEC’s attorneys fees and costs incurred in attempting to take the deposition and ordered that he not be allowed to testify at the hearing unless he appeared for deposition in the SEC’s offices by March 30. He didn’t appear for that, either.

The judge blasted Utsick and Homan for not only running a fraudulent investment scheme, but for using WE and TEGFI accounts and credit cards for their personal use.

“The evidence … shows that Utsick and his girlfriend, Jennifer Homan, were using corporate accounts and credit cards as their personal ‘piggy banks’ on a routine, almost daily basis,” the judge wrote, “… for everyday, ordinary and extraordinary personal items and services.”

Huck rejected Utsick’s assertion that the payments were appropriate and in lieu of salary as CEO of two corporations, saying that because the corporations were operating fraudulently, he deserved no salary at all.

And in almost derisive terms, Huck detailed Utsick’s attempt to link his “compensation” to the salaries of executives of Clear Channel Communications and the spun-off Live Nation, presumably including CEO Michael Rapino.

“The only evidence Utsick presented on the compensation issue were experts from two periodic reports filed with the Commission by two publicly traded companies, the 2002 10-K of Clear Channel Communications and the 2006 report of Live Nation,” the judge wrote.

“There was no testimony or evidence that the circumstances of these companies were ever remotely comparable. The only support Utsick offers is his counsel’s unsupported suggestion that these reports set the standard for corporate officer compensation.”

The judge called the contention “ironic” because executive compensation “should be directly and materially linked to operating performance. Given that the evidence establishes that WEI and TEGFI, operating as a Ponzi scheme, consistently lost money, based on Utsick’s own exhibit, he was not entitled to compensation from 1997 through 2005,” Huck wrote.

The books aren’t completely closed on SEC v. Utsick, as the issue of pre-judgment interest has yet to be completed. And in a related case, receiver Goldberg got the go-ahead from another Miami judge to proceed with his suit against socialite Paris Hilton for $8.3 million.

In that case, Goldberg accuses Hilton of failing to promote the Utsick-produced bomb, “National Lampoon’s Pledge This!” which opened in just 25 theatres before going straight to DVD in 2006.