O.C. Businessman Ordered by Judge to Repay $12.3 Million : Lawsuit: Judgment includes additional $12.3 million in fines against three firms Gartner controls, all based in Costa Mesa.
Orange County businessman Michael Gartner has been ordered by a federal judge to repay $12.3 million he allegedly took from investors in his video telephone business, and three companies Gartner controlled have been hit with an additional $12.3 million in fines.
The judgment settled a lawsuit filed in June by the federal Securities and Exchange Commission against Gartner, who told investors he was building a video network to link downtown office buildings in Los Angeles.
In issuing the summary judgment order Monday, U.S. District Judge Manuel Real in Los Angeles also disclosed that Gartner--who has been living in a $3.8-million home in San Juan Capistrano--is subject of an arrest warrant issued Nov. 10 for contempt of court.
The warrant was issued when Gartner failed to meet a court deadline for either repaying $22,000 allegedly spent in violation of a freeze on his assets or showing the court that he is impoverished and unable to repay the money.
The court judgment named Interlink Data Network of Los Angeles Inc., Interlink Fiber Optics Partners L.P. and Interlink Video Phone Partners L.P. as Gartner-controlled companies subject to the repayment and penalty orders. All three companies are based in Costa Mesa.
Gartner could not be reached for comment Tuesday. Robert C. Rosen, attorney for Gartner and his companies, called the fines and the warrant examples of “abuse of power” by the government.
A receptionist at his new company, Videotel Technologies Inc. in Irvine, said Gartner was not available. Rosen said he was not aware of Gartner’s location.
Asked if his client intends to surrender on the arrest warrant, Rosen said he had complied with the court order “two days late” when he filed a financial statement from Gartner showing that the businessman is broke. He said he does not consider Gartner a fugitive “because he has complied with the court order.”
He said that attorneys for the SEC have blocked Gartner from defending himself by seizing all of his personal and corporate books and records, and by refusing to return them.
“How can I comment” on federal allegations that Gartner used million of dollars in investor funds for personal expenses, Rosen complained, “when the government has his records?”
Greg Bruch, an SEC attorney in Washington, said the judgment was issued after Gartner cited his Fifth Amendment right to protection from self-incrimination and refused to cooperate with the government’s investigation.
Gartner also is subject of a criminal investigation by federal postal investigators.
Bruch said Tuesday the SEC requested that Gartner not be included in the $12.3-million penalty levied against his three companies in order to keep open the possibility of a criminal case later.
There was concern, he said, that if Gartner had been subjected to a civil fine, his attorney could claim immunity from criminal prosecution under constitutional protection against double jeopardy--being held accountable twice for the same offense.
Gartner was held liable along with the three companies under the court’s so-called disgorgement order for repayment of $12.3 million in funds collected from investors in the video telephone business.
In its motion for a judgment, the SEC said that Gartner caused at least $2 million of investors’ money to be transferred from Interlink to another company and that he then used the funds for personal expenses that included $750,000 for an option to purchase the San Juan Capistrano mansion he leases; about $240,000 in monthly rent on the mansion; $105,000 for interior decorating services; $450,000 for furniture; $60,000 for an aquarium; and $10,000 for a personal fitness trainer’s fees.
In September, federal marshals seized a new $127,000 Mercedes-Benz, a $114,000 racing boat and a 1990 BMW 735 sedan from Gartner.
The SEC suit alleged that Gartner funded his lavish lifestyle with money collected from 450 investors who expected the businessman to use their funds to construct a high-tech video telephone network linking hundreds of businesses in downtown Los Angeles.
Rosen said Tuesday that that network was never built “because the SEC created a self-fulfilling prophecy” by freezing the companies’ assets and seizing the books and records, thus “making it impossible for them to operate and do what (Gartner) said they would do.”
