A U.S. District Court judge on Tuesday ordered four defendants in a recently decided case against former Mortgages Ltd. investor Radical Bunny LLC to appear in court to face charges of civil contempt for failing to pay a judgment of about $3.7 million.
Judge Susan R. Bolton had issued an order on April 12 requiring former Radical Bunny partners Tom Hirsch, Harish Shah, Howard Walder and his wife, Berta "Bunny" Walder, to each pay their share of the penalty by May 12.
As of Tuesday, none of the defendants had paid their share of the $3.7 million judgment or submitted an explanation to the court as to why they had not paid, according to court documents.
The outstanding judgment stems from a 2009 fraud lawsuit filed by the U.S. Securities and Exchange Commission against the former, Phoenix-based Radical Bunny and its principals.
The SEC lawsuit accused the defendants of violating federal rules against fraud and failing to register with the SEC.
Hirsch, Shah and the Walders filed an appeal on May 20 in connection with the case. They also recently settled a civil class-action lawsuit brought by a group of former investors, agreeing to pay an undisclosed sum.
Still, SEC attorneys Spencer Bendell and David Brown argued in a brief submitted to Judge Bolton that neither the appeal nor the class-action settlement excused the defendants from paying the $3.7 million penalty as ordered.
Bolton's order issued Tuesday requires the defendants to appear in court on July 28 to explain why they should not be held in contempt for failing to pay.
According to the SEC, the punishment for being held in civil contempt can range from "incarceration, or monetary fines, or such other sanction the Court deems just and proper."
The SEC filed fraud charges against Radical Bunny in July 2009. The firm has since filed for bankruptcy protection.
Radical Bunny raised more than $197 million from nearly 900 investors and then used the money to make high-interest loans to Mortgages Ltd. According to the SEC, the defendants then told investors that their money could only be used for commercial development, when in fact Mortgages Ltd. could use the money for anything.
Attorneys for the defendants could not be reached for comment Tuesday, but they have argued throughout the case that Hirsch, Shah and the Walders had operated Radical Bunny in good faith and had relied on the advice of attorneys and others they knew and trusted. When Mortgages Ltd. went into bankruptcy, it had almost $1 billion in loans outstanding to developers. Since then, most of those projects have stalled because of a shortage of money and the real-estate market's downturn. Several developers, who had been getting loans from Mortgages Ltd., have since gone into bankruptcy.
Radical Bunny's investors forced it into bankruptcy in late 2008.
Purposefully misleading investors is a violation of federal security laws. According to the SEC, the defendants allegedly told investors they weren't subject to securities law.
The SEC also said Radical Bunny was not registered with them and did not register any offering under securities laws. In addition to the securities-fraud charges, Hirsch, Shah and the Walders are charged with offering and selling unregistered securities and acting as unregistered broker-dealers.
The SEC also alleges that Hirsch received at least $3 million, the Walders received at least $2 million, and Shah received at least $700,000 as part of a "vendor fee" for the money they pooled from investors to lend to Mortgages Ltd.
The former Radical Bunny executives' attorneys have insisted all along that the business was not selling "investments" and that the SEC did not have proper jurisdiction to prosecute the case.
by J. Craig Anderson The Arizona Republic Jun. 21, 2011 05:27 PM
Former Radical Bunny partners face contempt charges
