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Civil Action No.





The Securities and Exchange Commission (the “SEC” or “Commission”)

respectfully submits this memorandum of law in support of its Application for an

Order to Show Cause and for an Order Requiring Obedience to Subpoena

(“Application”). For the reasons set forth below, and in the accompanying

Declaration of Kyle Bradley (“2/02/18 Bradley Decl.”) and the exhibits thereto, the

Commission asks that the Court enter an order, in the form attached to the

Commission’s Application, directing Respondent King & Oliason, PLLC (“K&O”)

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to comply with an administrative subpoena.


The Commission is conducting an investigation entitled In the Matter of

West Mountain LLC (Internal File No. A-03767) (the “West Mountain

Investigation”) to determine whether certain persons and entities violated the

federal securities laws in connection with certain investment funds, including

hedge funds managed by Atlanta-based West Mountain LLC. In connection with

the West Mountain Investigation, the Commission staff has issued an

administrative subpoena to Respondent K&O, a Seattle, Washington-based

accounting firm.

Respondent, through counsel, advised the SEC that, because counsel for

Steven Goran Stevanovich (“Stevanovich”), whose records would be included in

the subpoenaed materials, objected to K&O’s compliance with the subpoena,

Respondent K&O would not comply absent a court order. The Commission

therefore needs such an order to enforce compliance with its lawful subpoena.


A. The SEC Investigation

The SEC is investigating, among other things, whether Stevanovich and

other persons affiliated with him made misrepresentations to investors regarding

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the value of hedge fund portfolios under their management. 1 Accordingly, a

critical fact in the investigation is whether Stevanovich benefited from the possible

misstatements at issue in this matter or otherwise misappropriated client assets. As

Stevanovich’s personal accounting firm, K&O likely has in its possession

documents that show the extent to which Stevanovich has benefited from his work

as an investment adviser.

1. The Westford Funds

Beginning in or about 1998, Stevanovich founded the first of several

investment advisers to manage a family of hedge funds, all of which were (and still

are) under his control. 2/02/18 Bradley Decl., ¶14. Stevanovich later expanded his

fund offerings and formed another investment adviser, Westford Asset

Management LLC (“Westford Management”). Id., ¶15. The Westford Special

Situations Master Fund L.P. (“Westford Master Fund”) was formed in 2003. 2 Id.,

On July 23, 2017, the Commission issued an Order Directing Private Investigation and
Designating Officers to Take Testimony (the “Formal Order”) pursuant to Section 20(a) of the
Securities Act of 1933 (“Securities Act”), 15 U.S.C. § 77t(a), Section 21(a) of the Securities
Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78u(a), and Section 209(a) of the
Investment Advisers Act of 1940 (“Advisers Act”), 15 U.S.C. § 80b-9(a). 2/02/18 Bradley
Decl., ¶4. Pursuant to Section 19(c) of the Securities Act, 15 U.S.C. § 77s(c), Section 21(b) of
the Exchange Act, 15 U.S.C. § 78u(b), and Section 209(b) of the Advisers Act, 15 U.S.C. § 80b-
9(b), the Formal Order designated certain individuals as officers of the Commission empowered
to administer oaths and affirmations, subpoena witnesses, compel their attendance, take
evidence, and require the production of any books, papers, correspondence, memoranda, or other
records deemed relevant or material to the investigation. Id.
The Westford Master Fund has a number of “feeder funds”: Epsilon Global Master Fund LP,
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¶17. Two additional funds, Westford Special Situations Fund II LP and Westford

Special Situations Fund II Ltd. were formed in 2009 (the “New Westford Funds,”

and collectively with the Westford Master Fund and its feeders, the “Westford

Funds” or the “Funds”). Id. 3

People have invested in the Westford Funds based on the perceived value

and potential growth in value of those funds. Although we have not been provided

with up-to-date information, it appears that investors ‒ including pension funds ‒

have invested more than $100 million in the Westford Funds. Id., ¶18. According

to what appears to be its last audited financials, the Westford Master Fund had

$273 million of total assets as of December 31, 2007, of which $47 million related

to certain debt investments ($44 million in preferred shares and a $3 million note)

in Groen Brothers Aviation, Inc. (“GBA”). 4 Id., ¶¶19 and 20.

Epsilon Global Active Value Fund LP, Epsilon Global Active Value Fund Ltd., Epsilon Global
Master Fund II LP, Epsilon Global Active Value Fund II-B LP, Epsilon Global Active Value
Fund II Ltd., Westford Special Situations Fund LP, and Westford Special Situations Fund Ltd.
2/02/18 Bradley Decl., ¶16.
Stevanovich may control more than a dozen funds and other entities, but the SEC has been
unable to confirm the existence and value of all such entities. Despite repeated requests over the
past three and a half months, none of the three law firms that have represented Stevanovich at
various times in this investigation have been able or willing to provide the SEC with even a list
of names for these funds and entities.
The Commission has filed a subpoena enforcement action against GBA principal David Groen
(SEC v. David Groen, Civil Action No. 1:18-mi-00004-RWS-CMS) in this Court, because he
failed to respond to a subpoena calling for production of documents and testimony. David Groen
is represented by counsel for Stevanovich.
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The Westford Funds’ Dutch auditor, PricewaterhouseCoopers Accountants

N.V. (“PwC”), never completed the next year’s audit (2008), and the Westford

Master Fund does not appear to have had audited financials since 2007, 5 even

though the fund’s governing documents require annual audits. Id., ¶21, Ex. 7.6

Prior to 2013, through a series of transactions, the Westford Funds

exchanged their debt interests in GBA and Alternative Petroleum Technologies

Holdings Corp. (“APT”) for equity interests in those companies.7 It appears that,

in or about July 2013, the Westford Master Fund ceased using their fund

administrator. Id., ¶23. Fund administrators help protect investors’ interests by

PwC was not the auditor for the New Westford Funds. To date, it is unclear whether the New
Westford Funds have ever been audited.
Through 2009 into 2010, the value of the Westford Master Fund’s assets remained an issue of
contention with PwC. Although PwC had indicated throughout the 2008 audit that there was
insufficient evidence to support certain asset values, including the GBA debt, Westford
Management misleadingly told investors on February 4, 2010 that, “[f]rom the beginning of the
2008 audits, we and PwC have gone to unusual lengths, including independent audits and
valuations of several of these investments by leading independent accountants and valuation
experts, all for the purpose of determining beyond reasonable doubt whether each of these
investments was unimpaired and thus correctly valued.” Id., ¶22, Ex. 8. On February 23, 2010,
PwC wrote Westford Management and objected to the statement in the February 4 investor
update “suggest[ing] that PwC has already concluded on the fair presentation of the valuations of
the respective investments in the 2008 accounts. . . . [U]ntil we have fully concluded our audit
work, we are not in a position to raise any such conclusions.” Id., Ex. 8.
As of June 2014, GBA and APT comprised 99% of the Westford Master Fund’s assets, and the
Westford Master Fund owned nearly 29% of GBA and 33% of APT. Id., ¶28. It appears that
Stevanovich-controlled entities, including the Westford Funds, own majority interests in GBA
and APT; however, due to the limited nature of the production from Westford Management, the
SEC has not been able to ascertain the full extent of the ownership interests in these companies
or how and when those ownership interests were acquired.

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providing independent, third-party verification of a fund’s asset values and trading


2. The Westford Funds Purportedly Owe Stevanovich More Than $200

Million in Adviser Fees
In early 2014, apparently with no auditor and no fund administrator to

monitor the fund’s performance, Stevanovich significantly increased the value of

the fund, raising the Westford Master Funds’ value by at least 250% to $741

million. 8 As of June 30, 2014, the Westford Master Fund’s unaudited financial

statements indicated that the fund owed Stevanovich and Westford Management

roughly $107 million in adviser fees. Id., ¶29. Westford Management’s adviser

fees are based on the fund’s performance, so higher fund values equate to higher

fees. As of September 2017, the funds managed by Stevanovich purportedly owed

over $250 million in adviser fees. Id., ¶30. The SEC has not been provided with

information sufficient to discern what, if any, financial benefit Westford

The Westford Funds’ new – and much higher – asset values were based on the reports prepared
in early 2014 by the Hong Kong office of Jones Lang LaSalle (“JLL”). See 2/02/2018 Bradley
Decl., ¶24, Exs. 11 and 12. These JLL reports estimated that, under certain scenarios, GBA and
APT had a combined value of almost $2.5 billion. See id., Ex. 11 at WAM0000039 and Ex. 12
at WAM000005. The GBA JLL report, which purportedly shows a $1.6 billion value, is based
on assumptions about the future. However, while the report discusses several product lines (id.,
Ex. 11 at WAM0000044-46), none of those product lines existed on the “as of” date of the
report, October 31, 2013. Id., ¶26. Moreover, for the prior year (2012), GBA had total annual
income of $12,000 and an annual net loss of $3.5 million. Id., ¶27. Currently, GBA is doing
business under the name Skyworks Global, Inc.; it has one full-time employee and is involved in
involuntary bankruptcy proceedings in the Bankruptcy Court for the District of Utah (Case No.

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Management or Stevanovich received as a result of the supposed increase in value

of GBA and APT. Id., ¶31.9

B. The K&O Subpoena

Staff from the Commission’s Atlanta Regional Office, acting on behalf of

the Commission pursuant to the Formal Order, issued a subpoena to K&O on

December 5, 2017 via UPS. Id., at ¶5, Ex. 1. 10 UPS reported delivery of the

subpoena package on December 7, 2017 to the address identified as the principal

place of business for K&O at the time and was signed for by “Cunningham.” Id.,

at ¶¶8 and 9, Ex. 2. The subpoena required K&O to produce documents to the

Commission’s Atlanta Regional Office on January 12, 2018, but was modified by

agreement to require production by January 26, 2018. Id., at ¶7.

On January 25, 2018, through counsel, K&O informed the SEC by email

that it would not produce responsive documents due to a letter it received from the

client’s attorney, Harry Lipman of Rottenberg Lipman Rich P.C., which directed

K&O to withhold the documents on two grounds: (1) the accountant-client

The Formal Order in this matter expressly empowers the Commission staff to investigate
whether Westford Management, or its officers or agents, while acting as an investment adviser,
misappropriated or abused client assets by, among other things, taking fees based on fraudulently
inflated or misvalued assets in the portfolios of the managed funds.
Given the confidential nature of Commission formal orders, the Commission has not included
a copy of the Formal Order with this Application. The Commission stands ready to provide a
copy of the Formal Order, but requests that the Court review it in camera.

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privilege under Washington law (RCWA §18.04.405), and (2) the supposed

violation of 26 U.S.C. § 7216 that the disclosure of Stevanovich’s records would

cause. Id., at ¶11, Ex. 3 & 4.

On January 26, 2018, the SEC informed K&O that RCW §18.04.405 does

not apply to subpoenas by an agency of the United States and that there is no

federal accountant-client privilege. Id., at ¶12, Ex. 5. On January 29, 2018, the

SEC further notified K&O that 26 U.S.C. § 7216 does not apply to disclosures of

tax information made pursuant to a subpoena issued by a federal agency in

performance of its duties, citing 26 C.F.R. § 301.7216-2(f). Id., at ¶13, Ex. 6. On

January 29, 2018, K&O responded and indicated that it would not produce the

requested documents but would abide a court order. Id., Ex. 6.


A. The Subpoena Satisfies the Criteria For Enforcement

Section 21(c) of the Exchange Act, 15 U.S.C § 78u(c), authorizes the

Commission to seek an order from this Court compelling respondent to comply

with the subpoena.11 The law is clear that a federal district court must enforce an

The Commission is the Congressionally-created agency charged with civil enforcement of the
federal securities laws. The Commission issued the Formal Order pursuant to Section 20(a) of
the Securities Act, 15 U.S.C. § 77t(a), and Section 21(a) of the Exchange Act, 15 U.S.C. §
78u(a), and Section 209(a) of the Advisers Act, 15 U.S.C. § 80b-9(a), and designated officers
authorized to issue subpoenas pursuant to Section 19(c) of the Securities Act, 15 U.S.C. § 77s(c),
and Section 21(b) of the Exchange Act, 15 U.S.C. § 78u(b), and Section 209(b) of the Advisers
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administrative subpoena if the information sought is “within the authority of the

agency, the demand is not too indefinite and the information sought is reasonably

relevant.” United States v. Morton Salt Co., 338 U.S. 632, 652 (1950). “It is well-

settled that the role of a district court in a proceeding to enforce an administrative

subpoena is sharply limited; inquiry is appropriate only into whether the evidence

sought is material and relevant to a lawful purpose of the agency.” United States v.

Florida Azalea Specialists, 19 F.3d 620, 623 (11th Cir. 1994), quoting, EEOC v.

Kloster Cruise Ltd., 939 F.2d 920, 922 (11th Cir. 1991).

In evaluating SEC subpoena enforcement requests, courts have required the

SEC to demonstrate the following: “‘(1) that the investigation will be conducted

pursuant to a legitimate purpose, (2) that the inquiry may be relevant to the

purpose, (3) that the information sought is not already within the Commissioner’s

possession, and (4) that the administrative steps required … have been followed.’”

SEC v. Huff, 664 F. Supp. 2d 1288, 1294 (S.D. Fla. 2009), quoting, United States

v. Powell, 379 U.S. 48, 57-58 (1964). A respondent seeking to defeat enforcement

of a Commission subpoena “shoulders the burden of showing that the subpoena is

unreasonable or was issued in bad faith or for an improper purpose, or that

compliance would be unnecessarily burdensome.” Huff, 664 F. Supp. 2d at 1294

Act, 15 U.S.C. § 80b-9(b).

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(internal citations omitted).

In the present matter, the Commission satisfies each of the requirements for

enforcement of the subpoena issued to K&O, as evidenced by the Bradley

Declaration. See RNR Enters., Inc. v. SEC, 122 F.3d at 97 (“‘An affidavit from a

government official is sufficient to establish a prima facie showing that these

requirements have been met.’”) (quoting In re McVane, 44 F.3d 1127, 1136 (2d

Cir. 1995)).

First, the Commission’s West Mountain Investigation is being conducted for

a legitimate purpose within the Commission’s authority to investigate whether any

persons or entities have violated provisions of the federal securities laws. (For

example, Section 21(a)(1) of the Exchange Act, 15 U.S.C. § 78u(a)(1), expressly

authorizes the Commission to investigate suspected violations of the Exchange Act

and the rules thereunder). Thus, the West Mountain Investigation is being

conducted for a legitimate purpose within the Commission’s authority.

Second, the information that the Commission is seeking from K&O is

relevant to the West Mountain Investigation. To satisfy this requirement, the

Commission need only show that the information sought is “not plainly

incompetent or irrelevant to any lawful purpose.” SEC v. Arthur Young & Co., 584

F.2d 1018,1029 (D.C. Cir. 1978) (quoting Endicott Johnson Corp. v. Perkins, 317

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U.S. 501, 509 (1943)); see also SEC v. Jerry T. O’Brien, Inc., 467 U.S. 735, 741

(1984) (the Commission has “broad authority to conduct investigations into

possible violations of the federal securities laws and to demand the production of

evidence relevant to such investigations”); SEC v. Dresser Industries, Inc., 628

F.2d 1368, 1379 (D.C. Cir. 1980) (en banc) (Congress authorized the Commission

“in its discretion, [to] make such investigations as it deems necessary” into

possible violations of the securities laws).

The subpoena to K&O calls for the production of documents concerning

Stevanovich, his household, and any entities under his control, including, but not

limited to, any client files, financial statements, and filings, as well as documents

received from any of the aforementioned persons. It also calls for the production

of communications between Stevanovich and K&O. The documents and

communications are necessary for the staff to ascertain, among other things, the

scope and nature of moneys received by Stevanovich in relation to his management

of investor funds, the propriety of transactions between entities under his control

and the funds he manages (or has managed), and the location of assets held

overseas. Thus, the subpoena seeks information that is relevant to the

Commission’s statutory duties. RNR Enters., Inc., 122 F.3d at 97.

Third, to the knowledge of the Commission staff, the Commission does not

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possess the information sought in the subpoena. 2/02/18 Bradley Decl., ¶32.

Finally, the subpoena complies with applicable administrative procedures.

In particular, an officer designated by the Commission issued the subpoena. Id.,

¶¶4(ii) and 5; see also Exchange Act Section 21(b), 15 U.S.C. § 78u(b)

(authorizing issuance of subpoenas). Further, the Commission staff properly

served the subpoena. 2/02/18 Bradley Decl., ¶¶5, 8, and 9; see also 17 C.F.R. §§

201.150(c)(3) and 201.232(c) (authorizing service of administrative subpoenas via

commercial courier service).

B. Washington’s Accountant Privilege Does Not Apply

Under Rev. Code Wash. § 18.04.405, the State of Washington recognizes an

accountant-client privilege subject to several exceptions. One such exception

relates to subpoenas issued by an agency of the United States. See RCW §

18.04.405(2) (“This section shall not be construed as limiting the authority of . . .

an agency of this state, the board, or of the United States to subpoena and use such

confidential information obtained by a licensee, or any of their employees in the

course of a professional transaction in connection with any investigation . . . .”).

Therefore, Washington law provides no basis to withhold documents in this


There is no federally recognized accountant-client privilege, and state confidentiality laws
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C. There Is No Statutory Basis For Withholding the Subpoenaed Records

Nothing in Section 7216 of the Internal Revenue Code prevents disclosure

here. Although 26 U.S.C. § 7216(a) does generally prohibit the disclosure of tax

records by tax preparers, that section does not apply to disclosures permitted by

regulation. See 26 U.S.C. § 7216(b)(3). 13 According to applicable regulations,

“[t]he provisions of section 7216(a) and § 301.7216-1 will not apply to any

disclosure of tax return information if the disclosure is made pursuant to any of the

following documents: . . . (4) An administrative order, demand, summons or

subpoena that is issued in the performance of its duties by—(i) Any Federal agency

as defined in 5 U.S.C. 551(1) and 5 U.S.C. 552(f) . . . .” 26 C.F.R. § 301.7216-



For the foregoing reasons, the Commission respectfully requests that the

must yield where federal law requires disclosure. SEC v. Fuhlendorf, No. 10-01691, 2010 U.S.
Dist. LEXIS 98600, at *5-*7 (D. Colo. Sept. 7, 2010), citing 1 Am. Jur. 2d Accountants § 11
(2010) (noting that because no accountant-client privilege exists in federal law, “[a] client's
disclosure of documents directly to an auditor, accountant, or tax analyst destroys confidentiality
. . . [and a]ll information contained in an accountant’s workpapers that pertains to financial
affairs of the accountant’s client is a proper subject for discovery”); see also In re Grand Jury
Proceedings, 607 F. Supp. 2d 803, 807 (W.D. Tex. 2009) (recognizing that state confidentiality
laws are preempted by federal subpoena authority).
The statute also permits disclosure pursuant to a court order. See 26 U.S.C. § 7216(b)(1)(B).
“Agency” includes “any independent regulatory agency.” See 5 U.S.C. § 552(f). The term
“independent regulatory agency” expressly includes the “Securities and Exchange Commission.”
See 44 U.S.C. § 3502(5).

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Court order Respondent K&O to show cause why it should not comply with the

subpoena, and thereafter order it to comply fully with the subpoena.

Dated: February 02, 2018

Respectfully Submitted,

/s/ Pat Huddleston II

Pat Huddleston II
Senior Trial Counsel
Georgia Bar No. 373984



Atlanta Regional Office

950 East Paces Ferry Road, Suite 900
Atlanta, GA 30326
404.842.7679 (fax)