SEC v. Michael Lauer; Lancer Management Group, LLC; Lancer Management Group II, LLC; Lancer Offshore, Inc.; Lancer Partners, LP; Omnifund, Ltd., et al., Southern District of Florida (Mar. 6, 2006) — Complaint

UNITED STATES DISTRICT COURT
SOUTHERNDISTRICT OFFLORIDA
Case No.  03-80612
-Civ-MARRA/VITUNAC
SECURITIES AND EXCHANGE COMMISSION
Plaintiff
vs .
MICHAEL LAUER,
LANCER MANAGEMENT GROUP,  LLC, and
LANCER MANAGEMENT GROUP
II, LLC,
Defendants
and
LANCER OFFSHORE, INC
.,
LANCER PARTNERS, LP,
OMNIFUND, LTD. ,
LSPV, INC., and LSPV, LLC,
Relief Defendants.
In re :
LANCER PARTNERS L. P .
Debtor.
FILED by D
.C.
.SAN 2 4 200
6
CLARENCE MADDOX
CLERK U.
S. DIST. CT.
S . D . OF FLA
. FT. LAUD
.
ORDER AFFIRMINGIN PART MAGISTRATEJUDGE
'
S REPORT AND RECOMMENDATION
THIS CAUSE is before the Court upon
1) Order to Show Cause Why Defendant Michael Lauer Should Not be
Held in Contempt of the Court's Asset Freeze Order (DE 647), filed December 3, 2004
;

Lauer's Response to Plaintiff's Application for an Order to Show
Cause Why Lauer Should Not be Held in Contempt of the Court's Asset Freeze Order (DE
685), filed December 27, 2004;
Securities and Exchange Commission's ("SEC") Reply to Defendant
Lauer's Opposition to Plaintiff's Application for an Order to Show Cause (DE 727), filed
January 18, 2005;
Supplement to Plaintiff's Application for an Order to Show Cause
Why Defendant Lauer Should Not be Held in Contempt of the Court's Asset Freeze
Order (DE 728), filed January 18, 2005;
Receiver's Joinder With Plaintiff SEC's Application for an Order to
Show Cause Why Defendant Lauer Should Not be Held in Contempt of the Court's Asset
Freeze Order (DE 759), filed February 1, 2005;
2) Order to Show Cause Why Defendant Michael Lauer Should Not be
Held in Contempt of the Court's December 3, 2004 Order Requiring Him to Provide a
Disclosure Statement Within Five Days (DE 691), filed December 23, 2004;
Respondent Lauer's Compliance With Rule 26(a)(1) of the Federal
Rules of Civil Procedure (DE 703), filed January 3, 2005
;
3) Order to Show Cause Why Respondent Should Not be Held in
Contempt for Violating the November 8, 2004 Order (DE 675), filed December 17, 2004
;

Lauer's Response to the Court's Order to Show Cause Why the
Respondent Should Not be Held in Contempt for Violating the November 8, 2004 Order
(DE 726), filed Januaryl3, 2005;
SEC's Reply to Lauer's Opposition in Response to the Court's Order
to Show Cause Why Lauer Should Not be Held in Contempt for Violating the November
8, 2004 Order (DE 738), filed January 24, 2005;
4) Order to Show Cause Why Lauer Should Not be Held in Contempt of
this Court's December 22, 2004 and January 5, 2005 Orders Requiring Him to Appear for
His Duly Noticed Deposition (DE 719), filed January 13, 2005;
Lauer's Response Affidavit to Court's Order to Show Cause Why the
Respondent Should Not be Held in Civil Contempt (DE 754), filed January 27, 2005;
SEC's Reply to Lauer's Opposition to the Court's order to Show
Cause why Lauer Should Not be Held in Contempt of the Court's December 22, 2004
and January 4, 2005 Orders Requiring Him to Appear for His Duly Noticed Deposition
(DE 770), filed February 4, 2005
.
5) The SEC's Notice that Defendant Michael Lauer Has Failed to
Produce Responsive Documents in His Custody, Possession, or Control in Response to
the Court's February 28, 2005 Order (DE 897) filed April 5, 2005
.
THESE MATTERS were referred to the Honorable Ann E. Vitunac, Chief United
States Magistrate Judge. Reports and Recommendations dated March 23, 2005 (D
E

872) and May 27, 2005 (DE 956) were filed recommending, in pertinent part, that the
Court hold Lauer in contempt and sanction him as follows:
1 . Incarcerate Lauer until such time that he fully complies with all
outstanding Court Orders;
2 . Require Lauer to pay a daily monetary fine in the amount of $1,000
.00
until such time that Lauer complies with all outstanding Court Orders;
3 . Require Lauer to reimburse the SEC for its fees and costs incurred
because of Lauer's contemptuous behavior including, but not limited to, the travel
costs and expenses incurred in traveling to New York for the January 5-6, 2005
depositions;
5 . Strike Lauer's answer and affirmative defenses
.
An evidentiary hearing was conducted before the undersigned on December 6,
2005 wherein clear and convincing evidence was presented of Lauer's refusal, over
more than a two year period, to comply with clear and unambiguous Court orders to
fully and completely answer interrogatories; to produce documents; to appear for
deposition; to disclose numerous assets
; and of Lauer's diversion of at least $172,258
from the asset freeze. Lauer testified for several hours. His answers were evasive and
when confronted with his alleged contemptuous behavior, his attempts to explain his
actions were feeble. In addition, Lauer did not present evidence of any reasonable
efforts made by him to comply with the court's orders compelling him to appear at th
e

continuation of his deposition,  to answertruthfullyand completely interrogatories, to
assist the SEC in procuring documents,  or to comply with the asset freeze order.
Federal Rule of Civil Procedure37(b)(2)
provides that a court may issue
sanctions for failure to obey an order to provide or permit discovery,  including an
order compelling discovery issued under Rule 37( a) . Rule 37(b)(2) specifically
authorizes the following sanctions:
(a) an order that the matters regarding the order or any other designated facts
be taken to be established for the purposes of the action;
(b) an order refusing the disobedient party to support or oppose designated
claims or defenses,  or prohibiting the party from introducing designated matters in
evidence;
(c) an order striking the pleadings or parts thereof, or staying further
proceedings until the order is obeyed, or dismissing the action, or rendering a
judgment by default against the disobedient party;
(d) an order of contempt against the party for failing to obey a court order; and
(e) in certain cases,  an order requiring a party to produce another person for
examination.
Fed.R .Civ.P . 37(b)(2). In addition,  Rule 37( b)(2) provides that courts shall require the
party that failed to comply with the court' s discovery order to pay all reasonable

expenses, including attorney's fees, unless substantial justification is shown for the
failure to comply.
The sanctions listed in Rule 37(b)(2) are not mutually exclusive. Courts are not
limited to these sanctions and have broad discretion in imposing sanctions under Rule
37. SeeNational Hockey League v. Metropolitan Hockey Club, Inc,427 U.S
. 639, 643
(1976) (dismissal upheld where plaintiffs had acted in "flagrant bad faith" and counsel
had behaved with 'callous disregard' of [his] responsibilities");Guidry v. Continental
Oil Co.,  640 F.2d 523, 533 (5th Cir. 1981),cert. denied,454 U.S . 818 (1982);  Dorey v.
Dorey,609 F.2d 1128, 1135 (5th Cir. 1980).
The extensive sanctions available to courts under Rule 37 for failure to comply
with discovery orders are necessary to, among other things, facilitate discovery and
deter abuse of the discovery process' Additionally, it is important that the
non-offending party be compensated by the offending party for the added expenses
caused by the violation of discovery orders.  Pesaplastic v. Cincinnati Milacron Co,
' As stated by the Supreme Court, even the "most severe in the spectrum of
sanctions provided by statute or rule must be available to the district court in
appropriate cases,  not merely to penalize those whose conduct may be deemed to
warrant such a sanction but to deter those who might be tempted to such conduct in
the absence of such deterrent."National Hockey League,  427 U. S . at 643.   Accord
Gratton v
. Great American Communications178 F
. 3d 1373, 1374-75 (11th Cir.
1999)("The district court also has broad authority under Rule 37 to control discovery,
including dismissal as the most severesanction") ;BankAtlantic v. Blythe Eastman
Paine Webber,  Inc.,  130 F. R .D . 153,  154 (S. D .  Fla.1990) ("Enforcement of the sanctions
order is necessary to serve the punishment and deterrence goals of the rule and to
vindicate the integrity of the Court and discovery process").

799 F.2d 1510 (11th Cir. 1986) (court ordered defendant and defense counsel to pay
costs incurred in applying for relief for violation of discovery orders). Moreover, it is
proper in appropriate cases to strike pleadings and enter default judgment against
parties who violate discovery orders. Adolph Coors Co. v. Movement Against Racism,
777 F.2d 1538 (11th Cir
. 1985)(court ordered default judgment because defendants
refused to comply with discovery order);Buchanan v.  Bowman,820 F.2d 359 (11th Cir.
1987) (court struck answer and issued default judgment for failing to comply with
court order compelling discovery). Finally, parties can be held in contempt for
refusing to comply with discovery orders.  See In re Southeast Banking Corp.,  204 F.3d
1322, 1335 (11th Cir. 2000);  Securities and Exchange Commission v. First Fin. Group of
Texas, Inc., 659 F.2d 660 (5th Cir. 1981)
. As stated by the Supreme CourtinGompers
v
. Buck's Stove EtRange, 221 U.S . 418, 450 (1911), "the power of courts to punish for
contempts is a necessary and integral part of the independence of the judiciary, and is
absolutely essential to the performance of the duties imposed on them by taw." See
also Roadway Express v. Piper,447 U.S . 752, 764 (1980).
Similarly, the Eleventh Circuit recognizes the purposes sanctions should serve
.
They include
: "1) compensating the court and other parties for the added expense
caused by the abusive conduct; 2) compelling discovery; 3) deterring others from
engaging in similar conduct; and 4) penalizing the guilty party or attorney."See
Carlucci v. Piper Aircraft Corp,
775 F. 2d
1440, 1453 (11th Cir
. 1985).

In order to hold a person in contempt, the Court must determine whether there
is clear and convincing evidence that (1) the allegedly violated order was valid and
lawful;' (2) the order was clear, definite and unambiguous; and (3) the alleged
violator had the ability to comply with the order.  McGregor v. Chierico,206 F
.3
d
1378, 1383 (11th Cir. 2000); seealsoCitronelle-Mobile Gathering, Inc. v.  Watkins 943
F .2d 1297, 1301 (11th Cir. 1991);
Combs v. Ryan's Coal Co.,  785 F
.2d 970, 984 (11th
Cir.),cert. denied,479 U.S . 853 (1986). Once the moving party makes a prima facie
showing that the other party violated the court's discovery order, the non-moving party
must prove that it was impossible to comply in order to avoid sanctions. In re Chase £t
SanbornCorp. et at,872 F. 2d397, 400 (11th Cir
. 1989);
UnitedStates v.  Rylander,460
U .S . 752, 756-57 (1983);  United States v. Roberts,858 F. 2d698, 701 (11th Cir. 1988);
United States v. Hayes, 722F . 2d723, 725 (11th Cir. 1984). Moreover, the non-moving
party must show that all reasonable efforts were made to comply with the court's
order.   See Hayes,722 F.2d at 725. The non-moving party cannot prove impossibility
to comply with the discovery order through mere assertions.
Id . ; see also In re Chase
£t Sanborn Corp.,  872 F.2d at 400 (respondent failed to meet burden of production of
impossibility to comply in merely asserting that compliance with discovery order would
violate its domestic laws). The burden shifts back to the initiating party only upona
' Lauer has not asserted that the orders compelling his compliance were invalid
or unlawful.
' Again, Lauer has not alleged that any order was unclear or ambiguous
.

sufficient showing by the alleged contemnor. The party seeking to show contempt,
then, has the burden of proving ability to comply.
Combs,785 F.2d at 984 ("The party
seeking the contempt citation retains the ultimate burden of proof
.
. .")
.
The trial court's discretion regarding discovery sanctions is not unbridled.
Pesaplastic, C.A ., v. Cincinnati Milacron Co,799 F.2d 1510, 1519 (11th Cir. 1986)
. The
Eleventh Circuit has consistently held that while district courts have broad powers
under the rules to impose sanctions for a party's failure to abide by court orders,
dismissal is justified only in extreme circumstances and as a last resort. Malautea v.
Suzuki Motor Co.,  987 F.2d 1536, 1542 (11th Cir.) cert. denied,510 U.S . 863 (1993);
Ford v. Fogarty VanLines,Inc.,  780 F. 2d 1582, 1583 (11th Cir. 1986); StateExchange
Bank v.  Hart(ine,693 F.2d 1350, 1352 (11th Or. 1982).
Dismissal is warranted only where noncompliance with discovery orders is due to willful
or bad faith disregard for those orders.  Cox v. American CastIronPipeCo.,784 F
. 2d
1546, 1556 (11th Cir.),cert. denied,479 U.S . 883 (1986);  Wouters v. Martin County,
Fla.,  9 F. 3d 924, 933-34 (11th Cir. 1993).
Document Production
At the evidentiary hearing, it was established by clear and convincing evidence
that Lauer has violated numerous court orders, including Judge Vitunac's clear and
unambiguous February 28, 2005 Order granting the SEC's Emergency Motion to Compel
Lauer to produce all responsive documents in his custody, possession, or control to the

SEC's First and Second Requests for Production (DE 827)
. Lauer violated this Order by
failing to provide his SFT Bank records, his signed IRS tax returns, and additional
documents that he attached to his various pleadings
. Lauer failed to provide any
evidence that he attempted in good faith to follow the Court's directive.
Asset Freez
e
It was further established by clear and convincing evidence that Lauer violated
the July 17, 2003 Preliminary Injunction Order that froze all of Lauer's assets. This
asset freeze acted as a blanket freeze on all "assets or property owned by, controlled
by, or in the possession" of Lauer (DE 22 at 5-6). Evidence was presented which
showed by clear and convincing evidence that Lauer violated this injunction by
diverting into a Lauer/Carens account the proceeds from the sale of a Mini Cooper
automobile ($21,500), proceeds from the sale of a BMW motorcycle ($11,500), and
$139,258 recouped from surrendering a $412,467 life insurance policy!
I For a detailed review of the interactions between Lauer and the SEC regarding
the requests for production, please see The SEC's Emergency Motion to Compel Lauer
to Produce documents in response to the first and second requests for production (DE
740) and Judge Vitunac's Orders dated February 28, 2005 (DE 827) and March 23, 2005
(872).
5 The evidence regarding proceeds from the sale of furniture from a New York
City condominium was inconclusive and will not be included in the amount required to
be repatriated. The Court also finds that the use of dividend income from Millennium
shares held by Lauer was not a violation of the Asset Freeze Order
.

Appearanceat Deposition
If was further established by clear and convincing evidence that Lauer was
aware of the deposition scheduled for January 5-6, 2005 and deliberately did not
appear. There is no argument that the order compelling him to appear was clear and
unambiguous. The day before his deposition was scheduled, Lauer filed a Motion For
Reconsideration of the Magistrate Judge's Order compelling him to appear. The Order
denying his Motion for Reconsideration was e-mailed, faxed and sent via Federal
Express to Lauer on January 4, 2005, theverysame day Lauer filed the motion for
reconsideration. The Court expressly finds that Lauer received timely notice of the
deposition as well as the Order denying his Motion For Reconsideration and rejects
Lauer's claim to the contrary
. Lauer also testified that he felt the Magistrate Judge
was misled to believe that he had not yet fulfilled his obligation to sit for depositions
and she had erroneously compelled him to continue when he had already submitted to
four days. This assertion does not justify his failure to appear as ordered.
Lauer's unilateral decision to not appear was in willful disregard of the Order
compelling him to appear for the January 5-6, 2005 depositions and the Magistrate
Judge's Order denying his motion for reconsideration of the matter. Lauer did not
present any credible evidence of a good faith effort made by him to comply with the
order compelling him to appear for deposition
. Indeed, quite to the contrary, Lauer's

testimony demonstrated willful contempt of the order and complete disregard of its
mandate
.
Interrogatories
It was further established by clear and convincing evidence that Lauer
stonewalled the SEC for two years by refusing to answer interrogatories fully and
completely. On July 10, 2003, the SEC served its First Set of Interrogatories upon
Lauer. On December 10, 2003, the SEC requested that Lauer answer the
interrogatories by January 10, 2004. After Lauer failed to do so, the SEC filed a Motion
to Compel (DE 130). The Court entered an Order granting the Motion to Compel and
specifically ordered Lauer to provide full and complete responses to the interrogatories
no later than March 3, 2004 (DE 184). The SEC stated that Lauer provided wholly
inadequate responses to the interrogatories, and thus, the SEC filed a motion to hold
Lauer in contempt. On May 10, 2004, the Court issued an Order (DE 332) giving Lauer
until May 28, 2004 to serve full and complete responses to the interrogatories
. The
Court also warned Lauer that if he failed to comply with the Order, the Court would
entertain an appropriate motion for sanctions. On June 2, 2004, Lauer filed a Request
to Extend Time for a More Comprehensive Response to the SEC's Interrogatories (DE
372). On August 19, 2004, the Court issued an Order (DE 491) extending the deadline
to September 22, 2004. On September 22'd, Lauer again filed a Motion to Extend the
Amount of Time to respond to the interrogatories. On November 8, 2004, this Cour
t

entered an Order (DE 596) requiring Lauer to respond to Plaintiff's interrogatories by
no later than November 22, 2004. Lauer failed to follow this Court's instructions. On
December 16, 2004, this Court granted the SEC's Application for an Order to Show
Cause (DE 675).
Lauer responds that he answered the interrogatories to the best of his ability.
However, Lauer admits that he refused to answer interrogatories that he considered
irrelevant or too broad. Thus, rather than seeking specific redress from the Court,
Lauer chose to ignore certain interrogatories. Further, Lauer attempted to gain an
extension of time by claiming that he required copies of certain documents in order to
answer the interrogatories. These documents had been lawfully seized by the
Receiver. Upon receiving compact discs containing the documents requested, Lauer
was dissatisfied because the discs did not contain an index nor a directory. Lauer filed
a Motion to Compel an index or directory for the documents contained on the discs.
The Court denied Lauer's Motion
e
Importantly, Lauer does not assert that he is unable to comply with the Order
requiring answers to interrogatories. Instead, Lauer continues to maintain that the
scope of the SEC's interrogatories should be limited and narrowed. In doing so, Lauer
6 The Court found that no such index nor directory existed prior to the Receiver
lawfully seizing the documents in question. The Court refused to order the Receiver to
expend the time and resources required to create such an index. Although Lauer
suggests that the Court has not yet ruled on his Motion to Compel (Lauer's Response to
Order to Show Cause, at 4), the Court clearly denied Lauer's Motion
. See DE 596.

attempts to challenge the actual Order to Show Cause rather than establish that he has
made in good faith all reasonable efforts to meet the terms of the Order
.
The SEC has demonstrated by clear and convincing evidence that Lauer has
acted in bad faith throughout the discovery process
. The SEC sent Lauer a form which
would release his signed IRS tax records to them, but he never signed or returned the
form
. At the hearing, Lauer did not have any explanation as to why he did not reveal,
in response to the interrogatory which asked into which accounts he deposited funds,
the existence of the Lauer/Carens account
. When asked about his SFT off shore bank
account, Lauer stated he did not reveal the existence of that account because he
understood the interrogatory to ask for the accounts which were active and he
considered the SFT account inactive
. This account is, however, open and should have
been revealed
. Lauer never made any effort to supplement his answers to
interrogatories, even after promising the undersigned he would in an expeditious
manner at the August 2004 hearing.
The SEC urges this Court, in view of the totality of Lauer's actions (including his
steadfast refusal to this day to provide required documents, answer interrogatories,
appear for deposition and his violations of the asset freeze order), to incarcerate Lauer
until he repays the money he has illegally diverted
. The SEC also urges this Court to
strike Lauer's answer and affirmative defenses
.

The SEC met its burden of demonstrating Lauer's violations by clear and
convincing evidence
. The burden then shifted to Lauer to show why he was unable,
over a two and one-half year period, to comply with Court Orders
. Other than excuses
which were clearly contrived, the best he could was promise to comply now. Lauer
agreed, if requested by the Court, to ask his wife to turn over the money deposited
into the Lauer/Carens account for the assets which were frozen but sold by Lauer; he
promised to sign the IRS waiver, and he agreed to sit for two more days of deposition.
Lauer's attorney begged for mercy and urged the Court to be lenient because of
Lauer's pro se status.
The Court notes that Lauer has been instructed that he was not excused from
compliance with Court Orders and the Federal Rules of Civil Procedure, and warned of
the consequences of noncompliance despite his pro se status. Lauer is a sophisticated
and savvy businessman who is not timid when it comes to asserting his rights, seeking
extensions of time or filing lengthy motions for reconsideration. See DE 184. Lauer
has acted in bad faith, failed to fulfill his obligations in the discovery process, and
repeatedly and blatantly ignored this Court's specific orders
. Lauer has not offered any
credible evidence for the reasons of his noncompliance.
Federal Rules of Civil Procedure 37(d) authorizes the imposition of sanctions,
including rendering judgment by default against the disobedient party, when a party
fails to do just one of the discovery violations Lauer has been found to have violated
.

This Circuit, and others, has repeatedly affirmed the imposition of extreme sanctions
for just some of the flagrant discovery violations seen in this case. SeeUnited States
v
. $239,500 In U.S . Currency, 764
F
.2d 771 (11th Cir
.1985) (dismissal of claims for
failure to attend deposition);Hashemiv. Campaigner Publications,Inc, 737 F
.2d 1538
(11th Cir. 1984) (dismissal for plaintiff's failure to appear at scheduled depositions);
Bonaventure v. Butler,593 F.2d 625 (5th Cir.1979) (plaintiff's suit dismissed for
refusals to appear for scheduled depositions);ShawmutBoston International Banking
Corporation v
. Duque-Penq767 F.2d 1504 (11th Cir.1985) (default judgment entered
against defendant as a Rule 37 sanction forinteralia,failure to attend deposition);
Buchanan v
. Bowman,820 F. 2d359, 361 (11`h Cir. 1987) (striking of the answer and
entry of default judgment warranted where the defendant had failed to appear at his
first and second court ordered deposition, and failed to respond to interrogatories and
requests for production ofdocuments); Properties Intern. Ltd. v. Turner,706F .2d 308,
310 (11th Cir. 1983) (dismissal of the assignee's complaint seeking foreclosure of its
mortgage affirmed for failing to provide witnesses at depositions/ hearings and
incompletely replying to interrogatories);Jaffev. Grant,793 F.2d 1182, 1189 (11`h Cir.
1986) (district court did not abuse its discretion in entering order striking answer and
defenses to counterclaim as sanctions for plaintiffs' refusal to comply with discovery
orders).

The SEC, as well as this Court, has been more than patient and has given Lauer
the benefit of every doubt
. At this stage in the case, extreme sanctions are required.
Without them, Lauer clearly will continue to act with impunity. This Court believes
that Lauer is precisely the type of litigant that the United States Supreme Court had in
mind when it held that "Rule 37 sanctions must be applied diligently.  .  .
to penalize
those whose conduct may be deemed to warrant such a sanction.  .  ."Roadway
Express, Inc. v. Piper,
447 U.S . 752, 764 (1980)
. Lauer's appeal for one last
opportunity to comply with the Orders he has knowingly, wilfully, intentionally and
repeatedly violated comes too late.
While the striking of Lauer's defenses is a severe sanction, as the SEC
characterized it at the hearing, Lauer's actions in this case demonstrate a "perfect
storm" of discovery abuse
. Lauer's multitude of transgressions clearly evidence willful
disobedience to the rules of civil procedure and to direct court orders. Lauer's
flagrant and willful disregard for his discovery obligations and the Court's Asset Freeze
Order cannot be countenanced. Not only does it display contempt for the judicial
process, but it severely prejudices the SEC's ability to pursue this litigation
. Lauer's
actions prevent the SEC from being able to prepare adequately to meet his defenses
.
While the entry of a default judgment would be justified based upon Lauer's actions,
the Court will not today impose such a severe sanction. The SEC has asserted serious
charges against Lauer
. Although Lauer's actions have seriously prejudiced the SEC's

ability to meet his defenses, they should have minimal impact on the SEC's ability to
prove its claims which, presumably, it was prepared to do when it filed this case
.
Hence, while Lauer's actions should preclude him from asserting his defenses to the
SEC's claims, it should not give the SEC a victory by default. The SEC should be
required to prove its case on the merits to the extent it has not been prejudiced in
doing so by Lauer's contemptuous actions. In accordance with the findings above, it is
hereby
ORDERED AND ADJUDGED as follows:
The Magistrate Judge's Reports and Recommendations (DE 872 Et 956) are
AFFIRMED in part. The Court will exercise its broad discretion and finds as follows:
1 . Lauer is found to be in contempt of Court
.
2 . Lauer's affirmative defenses are stricken.
3 . At trial, Lauer will not be permitted to present any witness or introduce
any evidence that has not already been disclosed and produced by him to
the SEC. Lauer shall, however, be permitted to cross-examine and attack
the credibility of the evidence presented by the SEC.
4. Lauer shall return all assets that he transferred since his assets were
frozen on July 10, 2003. At a minimum $172,258 must be placed into an
escrow account controlled by the Receiver, Marty Steinberg, within
twenty (20) days of this Order ($21,500 Mini Cooper automobile, $11,500

BMW motorcycle and $139,258 recouped from surrendering life insurance
policy). If this money is not placed into the escrow account as mandated
here, on the twenty-first day, Lauer shall additionally pay a daily
monetary penalty of $1,000 per day until the money is deposited.
5 . Lauer shall reimburse the SEC its attorney's fees and costs in connection
with the bringing of the contempt proceeding, plus the SEC's travel costs
and expenses incurred in traveling to New York for the January 5-6
depositions. '
DONE AND ORDEREDin Chambers at Fort Lauderdale, Broward County, Florida,
this dayof January, 2006.
KENNETH A. MARRA
United States District Judge
copies to:
Magistrate Judge Vitunac
Michael Lauer,pro se
Christopher Martin, Esq.
Attorney Andrew D. Zaron, of Hunton Et Williams, shall serve copies of this Order upon all parties of
interest, and shall file a Certificate of Service with the Court confirming such service.
' When a motion compelling disclosure or discovery is granted,  in addition to
any other sanction,  the judge is required to order the responsible party to pay the
reasonable expenses incurred because of any noncompliance with Rules. See
Fed.R .Civ.P . 37(a)(4). The amount of the award will be determined once the SEC
submits its schedule of attorneys'  fees,  costs and expenses.  Jaffev
. Sundowner
Properties,  Inc.   808 F. 2d 1425, 1427 (11th Cir. 1987).

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORID A

Case No . 03-80612 -Civ-MARRA/VITUNAC

SECURITIES AND EXCHANGE COMMISSIO N

Plaintiff
vs .

MICHAEL LAUER ,
LANCER MANAGEMENT GROUP , LLC, and
LANCER MANAGEMENT GROUP II, LLC ,

Defendants
an d

LANCER OFFSHORE, INC .,
LANCER PARTNERS, LP,
OMNIFUND, LTD . ,
LSPV, INC ., and LSPV, LLC ,

Relief Defendants .

In re :

LANCER PARTNERS L . P .

Debtor .

FILED by D.C.

.SAN 2 4 2006
CLARENCE MADDOX

CLERK U . S. DIST. CT.
S . D . OF FLA. FT. LAUD .

ORDER AFFIRMING IN PART MAGISTRATE JUDGE ' S REPORT AND RECOMMENDATION

THIS CAUSE is before the Court upon

1) Order to Show Cause Why Defendant Michael Lauer Should Not be

Held in Contempt of the Court's Asset Freeze Order (DE 647), filed December 3, 2004 ;

Page 1 of 19



Lauer's Response to Plaintiff's Application for an Order to Show

Cause Why Lauer Should Not be Held in Contempt of the Court's Asset Freeze Order (DE

685), filed December 27, 2004 ;

Securities and Exchange Commission's ("SEC") Reply to Defendant

Lauer's Opposition to Plaintiff's Application for an Order to Show Cause (DE 727), filed

January 18, 2005 ;

Supplement to Plaintiff's Application for an Order to Show Cause

Why Defendant Lauer Should Not be Held in Contempt of the Court's Asset Freeze

Order (DE 728), filed January 18, 2005 ;

Receiver's Joinder With Plaintiff SEC's Application for an Order to

Show Cause Why Defendant Lauer Should Not be Held in Contempt of the Court's Asset

Freeze Order (DE 759), filed February 1, 2005 ;

2) Order to Show Cause Why Defendant Michael Lauer Should Not be

Held in Contempt of the Court's December 3, 2004 Order Requiring Him to Provide a

Disclosure Statement Within Five Days (DE 691), filed December 23, 2004 ;

Respondent Lauer's Compliance With Rule 26(a)(1) of the Federal

Rules of Civil Procedure (DE 703), filed January 3, 2005 ;

3) Order to Show Cause Why Respondent Should Not be Held in

Contempt for Violating the November 8, 2004 Order (DE 675), filed December 17, 2004 ;

Page 2 of 19



Lauer's Response to the Court's Order to Show Cause Why the

Respondent Should Not be Held in Contempt for Violating the November 8, 2004 Order

(DE 726), filed Januaryl3, 2005 ;

SEC's Reply to Lauer's Opposition in Response to the Court's Order

to Show Cause Why Lauer Should Not be Held in Contempt for Violating the November

8, 2004 Order (DE 738), filed January 24, 2005 ;

4) Order to Show Cause Why Lauer Should Not be Held in Contempt of

this Court's December 22, 2004 and January 5, 2005 Orders Requiring Him to Appear for

His Duly Noticed Deposition (DE 719), filed January 13, 2005 ;

Lauer's Response Affidavit to Court's Order to Show Cause Why the

Respondent Should Not be Held in Civil Contempt (DE 754), filed January 27, 2005 ;

SEC's Reply to Lauer's Opposition to the Court's order to Sho w

Cause why Lauer Should Not be Held in Contempt of the Court's December 22, 2004

and January 4, 2005 Orders Requiring Him to Appear for His Duly Noticed Deposition

(DE 770), filed February 4, 2005 .

5) The SEC's Notice that Defendant Michael Lauer Has Failed to

Produce Responsive Documents in His Custody, Possession, or Control in Response to

the Court's February 28, 2005 Order (DE 897) filed April 5, 2005 .

THESE MATTERS were referred to the Honorable Ann E. Vitunac, Chief United

States Magistrate Judge . Reports and Recommendations dated March 23, 2005 (D E

Page 3 of 19



872) and May 27, 2005 (DE 956) were filed recommending, in pertinent part, that the

Court hold Lauer in contempt and sanction him as follows :

1 . Incarcerate Lauer until such time that he fully complies with all

outstanding Court Orders ;

2 . Require Lauer to pay a daily monetary fine in the amount of $1,000 .00

until such time that Lauer complies with all outstanding Court Orders ;

3 . Require Lauer to reimburse the SEC for its fees and costs incurred

because of Lauer's contemptuous behavior including, but not limited to, the travel

costs and expenses incurred in traveling to New York for the January 5-6, 2005

depositions ;

5 . Strike Lauer's answer and affirmative defenses .

An evidentiary hearing was conducted before the undersigned on December 6,

2005 wherein clear and convincing evidence was presented of Lauer's refusal, over

more than a two year period, to comply with clear and unambiguous Court orders to

fully and completely answer interrogatories ; to produce documents; to appear for

deposition ; to disclose numerous assets ; and of Lauer's diversion of at least $172,258

from the asset freeze . Lauer testified for several hours . His answers were evasive and

when confronted with his alleged contemptuous behavior, his attempts to explain his

actions were feeble . In addition, Lauer did not present evidence of any reasonable

efforts made by him to comply with the court's orders compelling him to appear at th e

Page 4 of 19



continuation of his deposition , to answer truthfully and completely interrogatories, to

assist the SEC in procuring documents , or to comply with the asset freeze order .

Federal Rule of Civil Procedure 37(b)(2) provides that a court may issue

sanctions for failure to obey an order to provide or permit discovery , including an

order compelling discovery issued under Rule 37 ( a) . Rule 37(b)(2) specifically

authorizes the following sanctions :

(a) an order that the matters regarding the order or any other designated facts

be taken to be established for the purposes of the action ;

(b) an order refusing the disobedient party to support or oppose designated

claims or defenses , or prohibiting the party from introducing designated matters in

evidence ;

(c) an order striking the pleadings or parts thereof, or staying further

proceedings until the order is obeyed, or dismissing the action, or rendering a

judgment by default against the disobedient party ;

(d) an order of contempt against the party for failing to obey a court order ; and

(e) in certain cases , an order requiring a party to produce another person for

examination .

Fed .R .Civ.P . 37( b)(2) . In addition , Rule 37 ( b)(2) provides that courts shall require the

party that failed to comply with the court 's discovery order to pay all reasonabl e

Page 5 of 19



expenses, including attorney's fees, unless substantial justification is shown for the

failure to comply .

The sanctions listed in Rule 37(b)(2) are not mutually exclusive . Courts are not

limited to these sanctions and have broad discretion in imposing sanctions under Rule

37 . See National Hockey League v. Metropolitan Hockey Club, Inc, 427 U .S . 639, 643

(1976) (dismissal upheld where plaintiffs had acted in "flagrant bad faith" and counsel

had behaved with 'callous disregard' of [his] responsibilities") ;Guidry v. Continental

Oil Co., 640 F .2d 523, 533 (5th Cir . 1981), cert. denied, 454 U .S. 818 (1982) ; Dorey v.

Dorey, 609 F .2d 1128, 1135 (5th Cir . 1980) .

The extensive sanctions available to courts under Rule 37 for failure to comply

with discovery orders are necessary to, among other things, facilitate discovery and

deter abuse of the discovery process' Additionally, it is important that the

non-offending party be compensated by the offending party for the added expenses

caused by the violation of discovery orders . Pesaplastic v . Cincinnati Milacron Co,

' As stated by the Supreme Court, even the "most severe in the spectrum of
sanctions provided by statute or rule must be available to the district court in
appropriate cases , not merely to penalize those whose conduct may be deemed to
warrant such a sanction but to deter those who might be tempted to such conduct in
the absence of such deterrent ." National Hockey League , 427 U . S . at 643 . Accord
Gratton v. Great American Communications 178 F. 3d 1373, 1374-75 (11th Cir .
1999)("The district court also has broad authority under Rule 37 to control discovery,
including dismissal as the most severe sanction ") ;BankAtlantic v . Blythe Eastman
Paine Webber, Inc., 130 F . R .D. 153 , 154 (S . D . Fla.1990 ) ("Enforcement of the sanctions
order is necessary to serve the punishment and deterrence goals of the rule and to
vindicate the integrity of the Court and discovery process") .

Page 6 of 19



799 F.2d 1510 (11th Cir . 1986) (court ordered defendant and defense counsel to pay

costs incurred in applying for relief for violation of discovery orders) . Moreover, it is

proper in appropriate cases to strike pleadings and enter default judgment against

parties who violate discovery orders . Adolph Coors Co . v. Movement Against Racism,

777 F.2d 1538 (11th Cir . 1985)(court ordered default judgment because defendants

refused to comply with discovery order) ;Buchanan v . Bowman, 820 F .2d 359 (11th Cir .

1987) (court struck answer and issued default judgment for failing to comply with

court order compelling discovery) . Finally, parties can be held in contempt for

refusing to comply with discovery orders . See In re Southeast Banking Corp., 204 F.3d

1322, 1335 (11th Cir . 2000) ; Securities and Exchange Commission v . First Fin. Group of

Texas, Inc ., 659 F.2d 660 (5th Cir . 1981) . As stated by the Supreme Court inGompers

v. Buck's Stove Et Range, 221 U .S . 418, 450 (1911), "the power of courts to punish for

contempts is a necessary and integral part of the independence of the judiciary, and is

absolutely essential to the performance of the duties imposed on them by taw ." See

also Roadway Express v. Piper, 447 U .S. 752, 764 (1980) .

Similarly, the Eleventh Circuit recognizes the purposes sanctions should serve .

They include : "1) compensating the court and other parties for the added expense

caused by the abusive conduct ; 2) compelling discovery ; 3) deterring others from

engaging in similar conduct ; and 4) penalizing the guilty party or attorney ."See

Carlucci v. Piper Aircraft Corp, 775 F. 2d 1440, 1453 (11th Cir . 1985) .

Page 7 of 19



In order to hold a person in contempt, the Court must determine whether there

is clear and convincing evidence that (1) the allegedly violated order was valid and

lawful;' (2) the order was clear, definite and unambiguous ; and (3) the alleged

violator had the ability to comply with the order . McGregor v . Chierico, 206 F.3 d

1378, 1383 (11th Cir . 2000); see also Citronelle- Mobile Gathering, Inc . v. Watkins 943

F .2d 1297, 1301 (11th Cir . 1991); Combs v . Ryan's Coal Co ., 785 F .2d 970, 984 (11th

Cir.), cert . denied, 479 U.S . 853 (1986) . Once the moving party makes a prima facie

showing that the other party violated the court's discovery order, the non-moving party

must prove that it was impossible to comply in order to avoid sanctions . In re Chase £t

Sanborn Corp. et at, 872 F . 2d 397, 400 (11th Cir . 1989) ; United States v . Rylander, 460

U .S . 752, 756-57 (1983) ; United States v. Roberts, 858 F . 2d 698, 701 (11th Cir . 1988) ;

United States v . Hayes, 722 F . 2d 723, 725 (11th Cir . 1984) . Moreover, the non-moving

party must show that all reasonable efforts were made to comply with the court's

order. See Hayes, 722 F.2d at 725. The non-moving party cannot prove impossibility

to comply with the discovery order through mere assertions . Id . ; see also In re Chase

£t Sanborn Corp ., 872 F.2d at 400 (respondent failed to meet burden of production of

impossibility to comply in merely asserting that compliance with discovery order would

violate its domestic laws) . The burden shifts back to the initiating party only upon a

' Lauer has not asserted that the orders compelling his compliance were invalid
or unlawful .

' Again, Lauer has not alleged that any order was unclear or ambiguous .

Page 8 of 19



sufficient showing by the alleged contemnor . The party seeking to show contempt,

then, has the burden of proving ability to comply . Combs, 785 F.2d at 984 ("The party

seeking the contempt citation retains the ultimate burden of proof . . .") .

The trial court's discretion regarding discovery sanctions is not unbridled .

Pesaplastic, C .A., v. Cincinnati Milacron Co, 799 F.2d 1510, 1519 (11th Cir . 1986) . The

Eleventh Circuit has consistently held that while district courts have broad powers

under the rules to impose sanctions for a party's failure to abide by court orders,

dismissal is justified only in extreme circumstances and as a last resort . Malautea v.

Suzuki Motor Co ., 987 F .2d 1536, 1542 (11th Cir .) cert. denied, 510 U .S . 863 (1993) ;

Ford v . Fogarty Van Lines, Inc., 780 F. 2d 1582, 1583 (11th Cir. 1986) ; State Exchange

Bank v . Hart(ine, 693 F .2d 1350, 1352 (11th Or . 1982) .

Dismissal is warranted only where noncompliance with discovery orders is due to willful

or bad faith disregard for those orders . Cox v. American Cast Iron Pipe Co .,784 F . 2d

1546, 1556 (11th Cir .), cert. denied, 479 U .S . 883 (1986) ; Wouters v . Martin County,

Fla., 9 F. 3d 924, 933-34 (11th Cir. 1993) .

Document Productio n

At the evidentiary hearing, it was established by clear and convincing evidence

that Lauer has violated numerous court orders, including Judge Vitunac's clear and

unambiguous February 28, 2005 Order granting the SEC's Emergency Motion to Compel

Lauer to produce all responsive documents in his custody, possession, or control to th e

Page 9 of 19



SEC's First and Second Requests for Production (DE 827) . Lauer violated this Order by

failing to provide his SFT Bank records, his signed IRS tax returns, and additional

documents that he attached to his various pleadings . Lauer failed to provide any

evidence that he attempted in good faith to follow the Court's directive .

Asset Freez e

It was further established by clear and convincing evidence that Lauer violated

the July 17, 2003 Preliminary Injunction Order that froze all of Lauer's assets . This

asset freeze acted as a blanket freeze on all "assets or property owned by, controlled

by, or in the possession" of Lauer (DE 22 at 5-6) . Evidence was presented which

showed by clear and convincing evidence that Lauer violated this injunction by

diverting into a Lauer/Carens account the proceeds from the sale of a Mini Cooper

automobile ($21,500), proceeds from the sale of a BMW motorcycle ($11,500), and

$139,258 recouped from surrendering a $412,467 life insurance policy!

I For a detailed review of the interactions between Lauer and the SEC regarding
the requests for production, please see The SEC's Emergency Motion to Compel Lauer
to Produce documents in response to the first and second requests for production (DE
740) and Judge Vitunac's Orders dated February 28, 2005 (DE 827) and March 23, 2005
(872) .

5 The evidence regarding proceeds from the sale of furniture from a New York
City condominium was inconclusive and will not be included in the amount required to
be repatriated . The Court also finds that the use of dividend income from Millennium
shares held by Lauer was not a violation of the Asset Freeze Order .

Page 10 of 19



Appearance at Deposition

If was further established by clear and convincing evidence that Lauer was

aware of the deposition scheduled for January 5-6, 2005 and deliberately did not

appear. There is no argument that the order compelling him to appear was clear and

unambiguous . The day before his deposition was scheduled, Lauer filed a Motion For

Reconsideration of the Magistrate Judge's Order compelling him to appear . The Order

denying his Motion for Reconsideration was e-mailed, faxed and sent via Federal

Express to Lauer on January 4, 2005, the very same day Lauer filed the motion for

reconsideration . The Court expressly finds that Lauer received timely notice of the

deposition as well as the Order denying his Motion For Reconsideration and rejects

Lauer's claim to the contrary . Lauer also testified that he felt the Magistrate Judge

was misled to believe that he had not yet fulfilled his obligation to sit for depositions

and she had erroneously compelled him to continue when he had already submitted to

four days. This assertion does not justify his failure to appear as ordered .

Lauer's unilateral decision to not appear was in willful disregard of the Order

compelling him to appear for the January 5-6, 2005 depositions and the Magistrate

Judge's Order denying his motion for reconsideration of the matter . Lauer did not

present any credible evidence of a good faith effort made by him to comply with the

order compelling him to appear for deposition . Indeed, quite to the contrary, Lauer' s

Page 11 of 19



testimony demonstrated willful contempt of the order and complete disregard of its

mandate .

Interrogatories

It was further established by clear and convincing evidence that Lauer

stonewalled the SEC for two years by refusing to answer interrogatories fully and

completely . On July 10, 2003, the SEC served its First Set of Interrogatories upon

Lauer. On December 10, 2003, the SEC requested that Lauer answer the

interrogatories by January 10, 2004 . After Lauer failed to do so, the SEC filed a Motion

to Compel (DE 130) . The Court entered an Order granting the Motion to Compel and

specifically ordered Lauer to provide full and complete responses to the interrogatories

no later than March 3, 2004 (DE 184) . The SEC stated that Lauer provided wholly

inadequate responses to the interrogatories, and thus, the SEC filed a motion to hold

Lauer in contempt . On May 10, 2004, the Court issued an Order (DE 332) giving Lauer

until May 28, 2004 to serve full and complete responses to the interrogatories . The

Court also warned Lauer that if he failed to comply with the Order, the Court would

entertain an appropriate motion for sanctions . On June 2, 2004, Lauer filed a Request

to Extend Time for a More Comprehensive Response to the SEC's Interrogatories (DE

372) . On August 19, 2004, the Court issued an Order (DE 491) extending the deadline

to September 22, 2004 . On September 22'd, Lauer again filed a Motion to Extend the

Amount of Time to respond to the interrogatories . On November 8, 2004, this Cour t

Page 12 of 19



entered an Order (DE 596) requiring Lauer to respond to Plaintiff's interrogatories by

no later than November 22, 2004. Lauer failed to follow this Court's instructions. On

December 16, 2004, this Court granted the SEC's Application for an Order to Show

Cause (DE 675) .

Lauer responds that he answered the interrogatories to the best of his ability .

However, Lauer admits that he refused to answer interrogatories that he considered

irrelevant or too broad . Thus, rather than seeking specific redress from the Court,

Lauer chose to ignore certain interrogatories . Further, Lauer attempted to gain an

extension of time by claiming that he required copies of certain documents in order to

answer the interrogatories . These documents had been lawfully seized by the

Receiver . Upon receiving compact discs containing the documents requested, Lauer

was dissatisfied because the discs did not contain an index nor a directory . Lauer filed

a Motion to Compel an index or directory for the documents contained on the discs .

The Court denied Lauer's Motion e

Importantly, Lauer does not assert that he is unable to comply with the Order

requiring answers to interrogatories . Instead, Lauer continues to maintain that the

scope of the SEC's interrogatories should be limited and narrowed . In doing so, Lauer

6 The Court found that no such index nor directory existed prior to the Receiver
lawfully seizing the documents in question . The Court refused to order the Receiver to
expend the time and resources required to create such an index . Although Lauer
suggests that the Court has not yet ruled on his Motion to Compel (Lauer's Response to
Order to Show Cause, at 4), the Court clearly denied Lauer's Motion . See DE 596 .

Page 13 of 19



attempts to challenge the actual Order to Show Cause rather than establish that he has

made in good faith all reasonable efforts to meet the terms of the Order .

The SEC has demonstrated by clear and convincing evidence that Lauer has

acted in bad faith throughout the discovery process . The SEC sent Lauer a form which

would release his signed IRS tax records to them, but he never signed or returned the

form . At the hearing, Lauer did not have any explanation as to why he did not reveal,

in response to the interrogatory which asked into which accounts he deposited funds,

the existence of the Lauer/Carens account . When asked about his SFT off shore bank

account, Lauer stated he did not reveal the existence of that account because he

understood the interrogatory to ask for the accounts which were active and he

considered the SFT account inactive . This account is, however, open and should have

been revealed . Lauer never made any effort to supplement his answers to

interrogatories, even after promising the undersigned he would in an expeditious

manner at the August 2004 hearing .

The SEC urges this Court, in view of the totality of Lauer's actions (including his

steadfast refusal to this day to provide required documents, answer interrogatories,

appear for deposition and his violations of the asset freeze order), to incarcerate Lauer

until he repays the money he has illegally diverted . The SEC also urges this Court to

strike Lauer's answer and affirmative defenses .

Page 14 of 19



The SEC met its burden of demonstrating Lauer's violations by clear and

convincing evidence . The burden then shifted to Lauer to show why he was unable,

over a two and one-half year period, to comply with Court Orders . Other than excuses

which were clearly contrived, the best he could was promise to comply now. Lauer

agreed, if requested by the Court, to ask his wife to turn over the money deposited

into the Lauer/Carens account for the assets which were frozen but sold by Lauer ; he

promised to sign the IRS waiver, and he agreed to sit for two more days of deposition .

Lauer's attorney begged for mercy and urged the Court to be lenient because of

Lauer's pro se status .

The Court notes that Lauer has been instructed that he was not excused from

compliance with Court Orders and the Federal Rules of Civil Procedure, and warned of

the consequences of noncompliance despite his pro se status . Lauer is a sophisticated

and savvy businessman who is not timid when it comes to asserting his rights, seeking

extensions of time or filing lengthy motions for reconsideration . See DE 184 . Lauer

has acted in bad faith, failed to fulfill his obligations in the discovery process, and

repeatedly and blatantly ignored this Court's specific orders . Lauer has not offered any

credible evidence for the reasons of his noncompliance .

Federal Rules of Civil Procedure 37(d) authorizes the imposition of sanctions,

including rendering judgment by default against the disobedient party, when a party

fails to do just one of the discovery violations Lauer has been found to have violated .

Page 15 of 19



This Circuit, and others, has repeatedly affirmed the imposition of extreme sanctions

for just some of the flagrant discovery violations seen in this case . See United States

v. $239,500 In U.S . Currency, 764 F.2d 771 (11th Cir .1985) (dismissal of claims for

failure to attend deposition) ;Hashemi v. Campaigner Publications, Inc, 737 F .2d 1538

(11th Cir . 1984) (dismissal for plaintiff's failure to appear at scheduled depositions) ;

Bonaventure v. Butler, 593 F .2d 625 (5th Cir .1979) (plaintiff's suit dismissed for

refusals to appear for scheduled depositions) ;Shawmut Boston International Banking

Corporation v. Duque-Penq 767 F.2d 1504 (11th Cir .1985) (default judgment entered

against defendant as a Rule 37 sanction forinter alia, failure to attend deposition) ;

Buchanan v . Bowman, 820 F . 2d 359, 361 (11`h Cir . 1987) (striking of the answer and

entry of default judgment warranted where the defendant had failed to appear at his

first and second court ordered deposition, and failed to respond to interrogatories and

requests for production of documents) ; Properties Intern . Ltd. v. Turner,706 F.2d 308,

310 (11th Cir. 1983) (dismissal of the assignee's complaint seeking foreclosure of its

mortgage affirmed for failing to provide witnesses at depositions/ hearings and

incompletely replying to interrogatories) ;Jaffe v. Grant, 793 F.2d 1182, 1189 (11`h Cir .

1986) (district court did not abuse its discretion in entering order striking answer and

defenses to counterclaim as sanctions for plaintiffs' refusal to comply with discovery

orders) .

Page 16 of 19



The SEC, as well as this Court, has been more than patient and has given Lauer

the benefit of every doubt . At this stage in the case, extreme sanctions are required .

Without them, Lauer clearly will continue to act with impunity . This Court believes

that Lauer is precisely the type of litigant that the United States Supreme Court had in

mind when it held that "Rule 37 sanctions must be applied diligently . . . to penalize

those whose conduct may be deemed to warrant such a sanction . . ."Roadway

Express, Inc . v. Piper, 447 U .S. 752, 764 (1980) . Lauer's appeal for one last

opportunity to comply with the Orders he has knowingly, wilfully, intentionally and

repeatedly violated comes too late .

While the striking of Lauer's defenses is a severe sanction, as the SEC

characterized it at the hearing, Lauer's actions in this case demonstrate a "perfect

storm" of discovery abuse . Lauer's multitude of transgressions clearly evidence willful

disobedience to the rules of civil procedure and to direct court orders . Lauer's

flagrant and willful disregard for his discovery obligations and the Court's Asset Freeze

Order cannot be countenanced . Not only does it display contempt for the judicial

process, but it severely prejudices the SEC's ability to pursue this litigation . Lauer's

actions prevent the SEC from being able to prepare adequately to meet his defenses .

While the entry of a default judgment would be justified based upon Lauer's actions,

the Court will not today impose such a severe sanction . The SEC has asserted serious

charges against Lauer. Although Lauer's actions have seriously prejudiced the SEC' s

Page 17 of 19



ability to meet his defenses, they should have minimal impact on the SEC's ability to

prove its claims which, presumably, it was prepared to do when it filed this case .

Hence, while Lauer's actions should preclude him from asserting his defenses to the

SEC's claims, it should not give the SEC a victory by default . The SEC should be

required to prove its case on the merits to the extent it has not been prejudiced in

doing so by Lauer's contemptuous actions . In accordance with the findings above, it is

hereby

ORDERED AND ADJUDGED as follows :

The Magistrate Judge's Reports and Recommendations (DE 872 Et 956) are

AFFIRMED in part . The Court will exercise its broad discretion and finds as follows :

1 . Lauer is found to be in contempt of Court .

2 . Lauer's affirmative defenses are stricken .

3 . At trial, Lauer will not be permitted to present any witness or introduce

any evidence that has not already been disclosed and produced by him to

the SEC . Lauer shall, however, be permitted to cross-examine and attack

the credibility of the evidence presented by the SEC .

4. Lauer shall return all assets that he transferred since his assets were

frozen on July 10, 2003 . At a minimum $172,258 must be placed into an

escrow account controlled by the Receiver, Marty Steinberg, within

twenty (20) days of this Order ($21,500 Mini Cooper automobile, $11,50 0

Page 18 of 19



BMW motorcycle and $139,258 recouped from surrendering life insurance

policy) . If this money is not placed into the escrow account as mandated

here, on the twenty-first day, Lauer shall additionally pay a dail y

monetary penalty of $1,000 per day until the money is deposited .

5 . Lauer shall reimburse the SEC its attorney's fees and costs in connection

with the bringing of the contempt proceeding, plus the SEC's travel costs

and expenses incurred in traveling to New York for the January 5-6

depositions .'

DONE AND ORDERED in Chambers at Fort Lauderdale, Broward County, Florida ,

this day of January, 2006 .

KENNETH A. MARRA
United States District Judg e

copies to :

Magistrate Judge Vitunac

Michael Lauer, pro se

Christopher Martin, Esq .

Attorney Andrew D . Zaron, of Hunton Et Williams, shall serve copies of this Order upon all parties of
interest, and shall file a Certificate of Service with the Court confirming such service .

' When a motion compelling disclosure or discovery is granted , in addition to
any other sanction , the judge is required to order the responsible party to pay the
reasonable expenses incurred because of any noncompliance with Rules . See
Fed.R .Civ .P . 37(a)(4) . The amount of the award will be determined once the SEC
submits its schedule of attorneys ' fees , costs and expenses . Jaffe v. Sundowner
Properties , Inc . 808 F . 2d 1425 , 1427 (11th Cir. 1987) .

Page 19 of 19