Securities and Exchange Commission v. Founding Partners Capital Management, Co. et al

Filing 430

OPINION AND ORDER APPROVING RECEIVER'S RECOMMENDATIONS AND FAIRNESS OF DISTRIBUTION OF FP DESIGNEE INTERESTS PURSUANT TO SECTION 3(a)(10) OF THE SECURITIES LAWS deeming withdrawn 412 Cligiuri Objection; sustaining 411 Arnolds' Objection ; adopting Allowed Amounts and adopting the FP Designee membership interest percentages in 417 Revised Schedule A except Claimant #156's FP Designee interest; approving interim distribution without the need to file a registration statement. See Opinion and Order for details. Signed by Judge John E. Steele on 7/3/2014. (RKR)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
FORT MYERS DIVISION
CASE NO.: 2:09-CV-229-FTM-29SPC
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
vs.
FOUNDING PARTNERS CAPITAL MANAGEMENT
and WILLIAM L. GUNLICKS,
Defendants,
FOUNDING PARTNERS STABLE-VALUE FUND, LP,
FOUNDING PARTNERS STABLE-VALUE FUND II, LP,
FOUNDING PARTNERS GLOBAL FUND, LTD., and
FOUNDING PARTNERS HYBRID-VALUE FUND, LP,
Relief Defendants.
/
OPINION AND ORDER
APPROVING RECEIVER'S RECOMMENDATIONS
AND FAIRNESS OF DISTRIBUTION OF FP DESIGNEE INTERESTS
PURSUANT TO SECTION 3(a)(10) OF THE SECURITIES LAWS
The issues before the Court are: (i) whether to approve the Receiver's recommendations
concerning Investor1 claims; (ii) whether to approve an interim distribution of interests in the FP
Designee to approved Claimants2 pursuant to the Settlement Agreement with the Sun Entities;3
and (iii) whether the proposed distribution of Founding Partners Designee LLC ("FP Designee")
1

"Investors" are defined as investors in the Receivership Funds. The Receiver mailed Proof of Claim Forms
to all Investors listed in the books and records of the Receivership Funds. "Non-Investor Creditors" are trade
creditors, i.e. law firms and utilities, which did not receive claims process mailings from the Receiver, and which are
not entitled to participate in the Settlement Agreement, and are not subject to this Order. (Sun Litigation Doc. #248
at 3).

2

Claimants are defined as "Investors" that submitted Proof of Claim Forms.

3

The Sun Entities are defined as Sun Capital, Inc.; Sun Capital Healthcare, Inc.; and HLP Properties of Port
Arthur, Inc.

1

membership interests meets the fairness criteria for the Section 3(a)(10) exemption under the
securities laws. Two objections to the Receiver's recommendations were filed, one of which was
subsequently withdrawn4 and the other was recommended for approval5. For the reasons set
forth below, the Court approves the Receiver's recommendations concerning claims and the
interim distribution, and finds that the distribution of FP Designee interests meets the fairness
standard for a Section 3(a)(10) exemption from filing a registration statement under the securities
laws.
I.
Summary
This matter comes before the Court on the Receiver's Motion for Court Approval of: (a)
the Receiver’s recommendations concerning claims (the proposed "Allowed Amounts"); (b) an
interim distribution of interests in the FP Designee;6 and (c) the Receiver’s proposed objection
and hearing schedule (the “Receiver's Recommendations”). (Doc. # 395). Two objections to the
Receiver's Recommendations were filed: one by Randy Caligiuri (Doc. #412) and one by Alan
Arnold and Elizabeth Arnold (the "Arnolds") (Doc. #411).

The Court hereby grants the

Receiver's Recommendations, as modified both in the Receiver's Omnibus Response to
Objections (Doc. #417) and by the Receiver's counsel at the fairness hearing on June 10, 2014.
Specifically, the Court: (i) agrees with and adopts the Receiver's recommendations
concerning claims of Investor, reflected as Allowed Amounts on Revised Schedule A (Doc.
#417-5); (ii) agrees with and adopts the Receiver's recommendations concerning the interim

4

See Docs. ## 424, 425.

5

See Doc. #417, p. 16.
The FP Designee is an entity created as a result of the Settlement Agreement between the Receiver and the
Sun Entities.

6

2

distribution of interests in the FP Designee to approved Investors7 pursuant to the Settlement
Agreement with the Sun Entities, reflected on Revised Schedule B (Doc. #417-6);8 and (iii)
concludes that the proposed distribution of FP Designee membership interests meets the fairness
criteria for a Section 3(a)(10) registration exemption under the securities laws.
II.
Background
A.

The Settlement Agreement and FP Designee
Pursuant to the Receivership Order (Doc. #73), on July 14, 2009, the Receiver initiated

Newman v. Sun Capital, Inc., et al., Case No. 2:09-cv-445-FtM-229SPC (the “Sun Litigation”)
by filing an ancillary proceeding against the Sun Entities, seeking the recovery of over $500
million, and asserting, among other things, claims arising from the loan agreements between the
Founding Partners Stable Value Fund ("Stable Value"), one of the Receivership Funds,9 and the
Sun Entities. (Sun Litigation Doc. #1).
On December 9, 2011, after months of settlement negotiations, the Receiver and Sun
Entities filed a Joint Motion for Expedited Approval of the Proposed Procedure to Obtain Court
Approval of a Proposed Settlement Transaction (the "Joint Motion"). (Sun Litigation Docs.
#248-249).
In essence, the Settlement Agreement provided that the ownership interests in the Sun
Entities, their factoring companies, hospital companies, and associated real estate holding
companies, including Promise Healthcare, Inc. ("Promise") and Success Healthcare LLC

7

Per the Settlement Agreement and the Court's order approving the same (Sun Litigation Doc #308), this
interim distribution of interests in the FP Designee is for Investors only. (Sun Litigation Doc. #248 at 3).

8
With a single modification to Revised Schedule B recommended by the Receiver at the June 10, 2014
fairness hearing, which is explained herein.
9

The Receivership Funds are defined as Stable Value; Founding Partners Stable-Value Fund II, L.P.;
Founding Partners Global Fund, Ltd.; and Founding Partners Hybrid-Value Fund, L.P.

3

("Success"), would be transferred to the FP Designee – a newly formed Delaware limited
liability company and a wholly-owned subsidiary of Stable Value – in exchange for releases of
Investor and Receiver claims and potential claims (the "Investor Releases").
The Court preliminarily approved the Settlement Agreement on December 27, 2011 (Sun
Litigation Doc. #255), and set an objection procedure for Investors who opposed the Settlement
Agreement. During the objection procedure, three different objections were filed.
The first objection filed was by the Archdiocese of New Orleans, which argued that the
Settlement Agreement was unfair based on alleged concerns about restrictions on cooperating
with law enforcement and based on the First Amendment. (Sun Litigation Doc. #259). The
second objection was filed by certain Investors in Hybrid Value, who filed an objection that was
really a premature argument about how the Receiver should treat their claims in the Receiver's
Recommendations. (Sun Litigation Doc. #264). The third and final objection to the Settlement
Agreement was filed by Boies Schiller on behalf of a group of Investors representing
approximately 1/3 of the investor base measured by estimated net invested capital.10 See (Sun
Litigation Doc. #260 at 5, 6 n. 6, 13-15).
After the briefing of the objections to the Settlement Agreement, the Court held a fairness
hearing on the proposed settlement on March 30, 2012. At the hearing, the Court heard from
counsel for the parties, counsel for the objectors, and any other Investors who had concerns
about the terms of the settlement. (Sun Litigation Doc. #300). Thereafter, the Court entered its
May 17, 2012 Opinion and Order (Sun Litigation Doc. #304) stating that the Court would
approve the Settlement Agreement except for one non-financial provision. The Court suggested a
modification of that provision; gave the parties an opportunity to consider such a modification;

10

The objection filed by the Boies Schiller objectors is discussed in detail infra at Section V(B)(4) in the
Court's discussion of the fairness factors.

4

and withheld a final decision pending notification by the parties as to their positions on the
proposed modification. Id.
On June 11, 2012, the Receiver and the Sun Entities filed their Joint Motion for Approval
of Revised Settlement Agreement and Amendment of May 17 Opinion and Order (Sun Litigation
Doc. #306), which amended the provision that gave the Court concern. Given the amendments
to the Settlement Agreement described therein and attached thereto, the Court entered its August
28, 2012 Amended Opinion and Order approving the Settlement Agreement (Sun Litigation Doc
#308).
B.

The Claims Process
On April 10, 2012, the Receiver filed his Amended Motion for Approval of the Claims

Process (the "Claims Motion"). (Doc. #338). In the Claims Motion, the Receiver, among other
things: (1) set forth his proposed claims administration procedure (the "Claims Process") and
attached a proposed Proof of Claim Form for Court approval; (2) proposed a Claims Bar Date;
and (3) proposed a notice procedure for the Claims Process and Claims Bar Date.
On August 28, 2012, the Court entered its Order Approving the Receiver's Claims
Motion (Doc. #349), which adopted the Receiver's proposed Claims Process and set a Claims
Bar Date for October 12, 2012, forty-five (45) days later.
On July 10, 2013, the Receiver filed his Recommendations regarding claims. (Doc.
#395). In his Recommendations, the Receiver reported that he received 218 claims during the
claims process. Id. Of the 218 claims received, the Receiver recommended approval of 156
claims, rejection in full of 32 claims, and rejection in part of 30 claims. Id. Of the 156 approved
claims, 152 submitted Investor Releases and were deemed eligible to receive an interim
distribution of interests in the FP Designee, pursuant to the terms of the Settlement Agreement
with the Sun Entities. Id.
5

As part of the Receiver's Recommendations, the Receiver proposed an objection
procedure. (Doc. #395 at 15). The Receiver recommended that Claimants be given forty (40)
days from the order setting the objection procedure to respond in writing to the Receiver’s
Recommendations, and that the Receiver be given forty (40) days thereafter to respond to timelyfiled objections. Id. Finally, the Receiver recommended that the Court set a hearing date to
resolve objections and rule on the Receiver’s Recommendations, as well as rule on the fairness
of the issuance of FP Designee interests pursuant to the Securities Act of 1933, Section 3(a)(10).
Id.
On March 6, 2014, the Court approved the Receiver's proposed objection procedure (the
"Objection Procedure"). (Doc. #409).
Pursuant to the Objection Procedure, Claimants had forty (40) days, until April 15, 2014,
to object in writing to the Receiver’s Recommendations. Objecting Claimants were required to
file their objections with the Court and send their objections to the Receiver at the law office of
Broad and Cassel, to be received no later than April 18, 2014. Id. at ¶2(A). Any Claimant that
did not object to the Receiver's Recommendations within the time frame provided under the
Objection Procedure irrevocably waived the right to object at a later date. Id. at ¶2(C).
Two objections to the Receiver's Recommendations were filed.
III.
The Objections to the Receiver's Recommendations
As noted, only two objections to the Receiver's Recommendations were filed: one by
Randy Caligiuri (Doc. #412) and one by the Arnolds (Doc. #411).
A.

Mr. Caligiuri's Objection
Mr. Caligiuri's letter objection to the Receiver's Recommendations was filed with the

Court on April 14, 2014. (Doc. #412). In his letter, Mr. Caligiuri explained the history of his
6

investments in the Receivership Entities, which included an explanation of how his personal
funds were invested with The Private Trust Corporation Limited-Trustee (the "PTCLT"), which
in turn invested in Global Fund, Inc. ("Global Inc.") Id. at 1. Mr. Caligiuri admitted that he is
not a direct investor in Global Ltd.,11 but rather is an investor in the PTCLT, which is an investor
in Global Inc., which is an investor in Global Ltd. Id.
Mr. Caligiuri stated in his letter that he was objecting to the Receiver's Recommendations
because he could not "either agree or disagree with the Receiver's Recommendations Concerning
Claims" and because he did not know how his own sub-claim was being treated within the
Global Inc. claim. Id.
According to the Receiver, the Joint Official Liquidator ("JOL") for Global Inc.,
appointed by the Cayman court, was the only person who had the ability to satisfy Mr. Caligiuri's
request for additional information. (Doc. #417 at 12). The Receiver represented in his response
to the objection (id.) and at the fairness hearing on June 10, 2014, that upon receipt of this
objection, the Receiver put the JOL for Global Inc. and Mr. Caligiuri in contact.
On June 9, 2014, Mr. Caligiuri withdrew his objection. (Doc #425). Thus, no further
attention to this objection is required.
B.

The Arnolds' Objection
The Arnolds’ Objection was filed with the Court on April 15, 2014. (Doc. #411). The

sum and substance of the Arnolds’ objection is that that they always intended to execute the
Investor Releases necessary for their participation in the Settlement Agreement and that if the
Investor Release were not executed and returned to the Receiver, it was an oversight on the

11

Although it is not the subject of his objection, Mr. Caligiuri also submitted a claim for an investment in
Stable Value. (Doc. #395 at 8, n.11). The Receiver recommended that Mr. Caligiuri's Stable Value claim (Claimant
#159) be rejected for being a Net Redeemer (defined below). Notably, Mr. Caligiuri did not object to that
recommendation.

7

Arnolds' part. Id. at 3. The Arnolds submitted late Investor Releases with their objection and
requested that the Investor Releases be accepted and that they be permitted to participate in the
Settlement Agreement. Id.
The Arnolds also recounted conversations they allege occurred with Berkowitz Pollack
Brant ("BPB"), the Receiver's accountants. Id. at 4. The Arnolds claimed in their objection that
BPB purportedly told them that it would forward its findings regarding the Arnolds' claims to the
Court "in an effort to remedy the situation." Id.
The Arnolds argued that their late Investor Releases should be accepted by the Court and
the Receiver for two reasons: (1) receiverships are equitable in nature and designed to benefit
investors; and (2) the Receiver has accepted late claims in the past and recommended their
approval by the Court. Id. at 6-8.
The Receiver does not challenge the Arnolds' request to be included in the Settlement
Agreement (Doc. #417). However, the Receiver does disagree with the Arnolds' characterization
of the facts; specifically, the Receiver contends that the Arnolds' failure to execute the Investor
Releases necessary for participation in the Settlement Agreement was intentional, and that the
Mr. Arnold's description of his conversations with BPB are inaccurate. Id. at 13-15.
Nonetheless, as the Receiver agrees with the Arnolds' request and believes that
acceptance of the Arnolds' two Investor Releases is in the best interests of the Investors as a
whole, the Court accepts the Investor Releases and will allow the Arnolds to participate in the
Settlement Agreement.12

12

It is for this reason that all references in this Opinion and Order are to the Revised Schedules A and B
(Docs. #417-5 and 417-6). The Revised Schedules reflect the Arnolds as Investors participating in the Settlement
Agreement with valid Investor Releases, but are otherwise identical to the original schedules attached to the
Receiver's Recommendations (Docs. # 395-2 and 395-3).

8

C.

Conclusion on Objections
The Court makes the following rulings with respect to the objection filed by Mr. Caligiuri

and the objection filed by the Arnolds:
First, the objection filed by Mr. Caligiuri is moot, as it was withdrawn. (Doc. #425).
Mr. Caligiuri's objection has no effect on the Receiver's Recommendations or the Court's ruling
on the Receiver's Recommendations.
Second, the Court upholds the Arnolds' objection, which was a request that their Investor
Releases be accepted and they be permitted to participate in the Settlement Agreement. The
Receiver concurs and believes upholding the Arnolds' objection is in the best interests of the
Claimants as a whole.
IV.
Methodology for Calculating Receiver's Recommended Allowed Amounts
A.

Net Invested Capital
The Receiver recommended that the Court adopt the Net Invested Capital (“NIC”)

calculation method for determining each Claimant’s Allowed Amount, as opposed to the Net
Asset Value (“NAV”) that was previously proposed by some Investors. (Doc. #395 at 26-29).
The Receiver indicated in his Recommendations that he considered other calculation
methodologies, but ultimately settled on the NIC calculation because of its ease of calculation
and because it made the most sense relative to the facts of this case. Id.
The NIC method calculates each Claimant’s claim amount by totaling, for each Investor,
the amount of cash that was contributed to the fund minus the amount of cash that was received
as a distribution from the fund. As defined by the Ninth Circuit, NIC is “the total amount
deposited by [each] claimant with the Receivership Entities less amounts returned to such

9

claimant by the Receivership Entities and less any illegal trading profits reinvested by or credited
to such claimant.” CFTC v. Topworth Int’l., Ltd., 205 F.3d 1107, 1115 (9th Cir. 1999).
The Receiver ultimately rejected the NAV calculation because it credits some Investors
for their fictional account balances, which the Receiver maintains are not a fair representation of
the true value of the underlying assets of the Receivership Funds. (Doc. #395 at 27). The Court
agrees with the Receiver's recommendation to use the NIC calculation because there was no
objection with regard to that decision and, in general, courts have demonstrated a preference for
the use of calculations other than NAV in equity receiverships brought about by an underlying
fraud. See SEC v. Amerifirst Funding, Inc., No. 3:07-cv-1188-D, 2008 WL 919546, *6 (N.D.
Tex. Mar. 13, 2008) (deferring to the receiver’s decision to use the NIC calculation method);
CFTC v. Barki, LLC, No. 3:09-cv-106-MU, 2009 WL 3839389, *1–3 (W.D.N.C. Nov. 12, 2009)
(considering multiple calculation methods for distributions and ultimately ruling NIC to be the
most equitable); CFTC v. Topworth Int'l, Ltd., 205 F.3d 1107, 1115 (9th Cir. 1999) (approving
the NIC calculation method recommended by the receiver); and CFTC v. Walsh, 712 F.3d 735,
749 (2d Cir. 2013) (A receiver “is not required to apportion assets in conformity with
misrepresentations and arbitrary allocations that were made by the defrauder, otherwise, the
whim of the defrauder would . . . control[ ] the process that is supposed to unwind the
fraud.”(internal quotation marks and citations omitted)). No Claimant objected to the NIC
calculation used to determine proposed Allowed Amounts.
B.

Pooling/Consolidation of Receivership Funds
Second, the Receiver recommended that the Court approve the pooling13 of the

Receivership Funds for purposes of a pro rata distribution to Claimants.14 (Doc. #395 at 18-26).

13

The Receiver used the term "pooling" and "consolidation" interchangeably.

10

Equity receiverships are governed by equitable principles. SEC v. Elliot, 953 F.2d 1560,
1572 (11th Cir. 1992). As such, the fundamental principal of a receivership distribution plan is
that it should be equitable and fair, with similarly-situated investors treated alike. SEC v. Credit
Bancorp, Ltd., 99-CIV-11395-RWS, 2000 WL 1752979, *13 (S.D.N.Y. Nov. 29, 2000).
The Receiver suggested, and the Court agrees, that courts may authorize the treatment of
various receivership entities as one substantively pooled estate for the purpose of distribution,
upon good cause shown. See SEC v. One Equity Corp., 2:08-cv-667, 2011 WL 1002702, *1
(S.D. Ohio Mar. 16, 2011) (permitting pooling of six receivership entities upon good cause
shown).
Under the “good cause” test for pooling, courts have examined a number of different
factors, including whether: (1) a unified scheme to defraud existed among the receivership
entities; (2) the investors across the various receivership entities are similarly situated; and (3)
funds were commingled among the receivership entities. See Amerifirst Funding, 2008 WL
919546 at *4 (pooling receivership entities because they were all involved in a unified scheme to
defraud investors, even where there was no commingling of funds); Walsh, 712 F.3d at 749
(upholding district court’s finding that investors are similarly situated for purposes of a pro rata
distribution plan when they are similarly situated in relationship to the fraud, in relationship to

14

As the Receiver stated in his Recommendations:
The alternative to pooling the Receivership Funds is to analyze and calculate
each eligible claimant’s ownership percentage based only on the specific
Receivership Fund with which he/she/it invested. For example, if pooling is not
permitted: (i) Stable Value II, Hybrid Value, and Global Ltd. would each receive
a distribution from Stable Value, and then Stable Value II, Hybrid Value, and
Global Ltd. would have to conduct their own distributions of ownership interests
to the individual investors in their respective funds; and (ii) Global Ltd. would
receive a distribution of its interest in Hybrid Value, which would then be
distributed to the individual investors in Global Ltd., because Global Ltd.
invested in Hybrid Value.

(Doc. #395 at 18, n.9).

11

the losses, in relationship to the fraudsters, and in relationship to the nature of their investments);
CFTC v. Eustace, No. 05-2973, 2008 WL 471574, *3 (E.D. Penn. Feb. 19, 2008) (approving
pooling of assets and pro rata distribution in light of evidence of joint marketing of receivership
entities and commingling of funds).
(1)

Unified Scheme to Defraud a Similarly Situated Investor Base

According to the Receiver, the Investors were all victims of false assurances by principal
William L. Gunlicks, and the investment opportunities offered by the Receivership Funds were
all part of the same overall fraudulent scheme. (Doc. #395 at 20-21).
To support this claim, the Receiver argued in his Recommendations that: (i) the
investment strategies of Stable Value and Stable Value II were predicated on the same fraudulent
scheme carried out by Gunlicks, i.e. the purported investing of funds under credit and security
agreements with the Sun Entities; (ii) Hybrid Value Investors fell victim to the same fraud
because Hybrid Value invested approximately 9% of its Investors’ funds into Stable Value, and
the remainder of Hybrid Value’s monies were mostly invested in volatile, illiquid, private
companies that were materially different from investments the Hybrid Value memoranda
represented were permissible; and (iii) the Global Ltd. Investors fell victim to both the Stable
Value and Hybrid Value schemes because Global Ltd. invested the vast majority of its funds into
Stable Value, and Global Ltd. also invested in Hybrid Value, enough to make it the largest
Investor in Hybrid Value. Id.
Based on the foregoing, all Investors were similarly situated and victims of the same
fraud – perpetrated by Founding Partners and William Gunlicks – and for that reason, the
Receiver recommended that the Claimants should share equally in the pooled assets in
accordance with the Receiver’s distribution plan. The Court agrees, based on the Receiver's
description of the investments, that there was a unified scheme to defraud Investors. In addition,
12

there were no objections from the Investors themselves to the Receiver's argument that that they
had all fallen victim to the same scheme.
(2)

Commingling of Monies

While evidence of commingling is not required for the Court to approve pooling and pro
rata distribution,15 the Receiver argued in his Recommendations that there was evidence of
comingling, and this fact supports the pooling methodology he and his professionals
recommended. Id. at 21-23.
In support of his claim that there is evidence of commingling in the Receivership Funds,
the Receiver asserted that: (i) Stable Value II, Hybrid Value, and Global Ltd. all invested monies
into Stable Value, which in turn used those monies, and the monies it received directly from its
own Investors, to make loans to the Sun Defendants; (ii) Global Ltd. monies were commingled
with Hybrid Value monies for the purchase of illiquid private investments unrelated to the Sun
Litigation; (iii) FPCMC aggregated and commingled monies from all of the Receivership Funds
to pay the operating expenses of FPCMC and to provide Gunlicks with reserves to pay himself
distributions (in essence, his salary); and (iv) Hybrid Value's investment in Strategic Stable
Return Fund (ID), LP (“SSR”) and Strategic Stable Return Fund II, LP (“SSR II”) (collectively,
along with related entities, the “SSR Entities”)16 may have triggered the SSR Entities'
investments in Stable Value, constituting an alternative means of distributing funds from Hybrid
Value to Stable Value, as further evidence of commingling. Id.

15

See Amerifirst, 2008 WL 919546, at *3 (“[T]he absence of commingling between various receivership
entities does not render a pooled, pro rata distribution inequitable.”)

16

SSR and SSR II are Investors in the Receivership Funds.

13

Based on the foregoing, the Court agrees that evidence of commingling exists in the
Receivership Funds. There has been no objection to the Receiver's recommendation for a
pooled, pro rata distribution.
C.

Conclusion as to Methodology for Calculating Allowed Amounts
First, the Court finds that the NIC calculation utilized by the Receiver to determine each

Claimant's proposed Allowed Amount strikes an appropriate balance between early Investors
who earned fictionalized returns on their investments in the Receivership Funds and later
Investors who did not.
Second, the Court further finds that a pooled, pro rata distribution is appropriate under
the circumstances because: (i) a unified scheme to defraud Investors existed; (ii) there is
sufficient evidence to demonstrate that monies in the Receivership Funds may have been
commingled;17 (iii) good cause exists to permit pooling; and (iv) the burden of conducting a nonpooled distribution weighs heavily in favor of permitting pooling.
V.
The Receiver's Recommendations Concerning Allowed Amounts
A.

Claims Received
As mentioned above, the Receiver received 218 claims from Investors, including one

creditor claim submitted by SSR Capital Partners, LP.18 Revised Schedule A identifies, by
Claimant number, each Investor that filed a Proof of Claim Form, and also includes the
Receiver’s recommendation whether each claim should be approved, rejected, or rejected in part,
the reasons for proposed rejections, whether each claim included a valid Investor Release
17

As mentioned, the Court's agreement with and adopting of the Receiver's recommendation for pooling and
pro rata distribution is not dependent upon or based upon a finding of commingling. Amerifirst, 2008 WL 919546,
at *3.

18

Although the Receiver did not mail Proof of Claim Forms to Non-Investor Creditors, the Receiver received
a claim from SSR Capital Partners LP, a Non-Investor Creditor, evidently because it is an affiliate of Investors SSR
and SSR II.

14

sufficient to establish participation in the Settlement Agreement, the applicable Receivership
Fund invested in, the amount claimed in the Proof of Claim Form, the NIC amount per the
Receivership Entities’ records, and the proposed Allowed Amount.
There have been no objections to the Receiver's recommendations concerning the
proposed Allowed Amounts listed in Revised Schedule A (Doc. #417-5), which are as follows:
(1)

Approved Claims

Claimants 1 through 156 on Revised Schedule A submitted claims that the Receiver
recommended be approved in full. (Doc. #395 at 9). Accordingly, the Receiver has listed the
full NIC amount of these Investor claims as their Allowed Amounts in column 9 of Revised
Schedule A.
The Court agrees with and adopts the Receiver's recommendations concerning Claimants
1 to 156, and approves the proposed Allowed Amounts reflected in column 9 of Revised
Schedule A (Doc. 417-5).
(2)

Rejected Claims

Claimants 157 to 218 on Revised Schedule A have claims that the Receiver
recommended be rejected either in full or in part. (Doc. #395 at 9). The Receiver noted in his
Recommendations that some claims are objectionable for more than one reason, but did not set
out all of the reasons in the Recommendations. Id. at n.10.
(a)

Rejected in Full

For Claimants numbered 157 to 166 on Revised Schedule A, the Receiver recommended
that these claims be rejected in full because using the NIC calculation to determine Allowed
Amounts, these Claimants received more in redemptions than they contributed to the
Receivership Funds (the Receiver styles these Claimants “Net Redeemers”). Id. at 9-10. As a
matter of equity, the Receiver recommended that all Net Redeemer claims be rejected, as Net
15

Redeemers have already recovered more than they invested in the Receivership Funds and
should not be permitted to take any portion of a recovery away from Claimants who have not
recovered their full investments. Id.
For Claimants numbered 167 to 179 on Revised Schedule A, the Receiver recommended
these claims be rejected in full because they are duplicative of the claim of the JOL of Global
Inc. (“Global Inc.”) (Claimant 217), who was appointed by the court in the Cayman Islands to
represent all Global Inc. investors. Id. at 10. The JOL is thus the only person who had standing
to make a claim against the Receivership Funds for monies invested in the Receivership Funds
through Global Inc., and the Court agrees that Claimants 167 to 179 lack standing to submit
claims that are subsumed within the claim of the JOL.
For Claimants numbered 180 and 181 on Revised Schedule A, the Receiver
recommended that these claims be rejected in full as they are claims from the same entity,
which received more in redemptions than it contributed to the Receivership Funds. . Id. The
Receiver recommended denying both claims, one in Hybrid Value and the other in Stable Value,
because the entity received approximately $416,000 more than it invested in Hybrid Value, and
invested approximately $126,000 more than it redeemed in Stable Value. Id. Thus, the entity
reflected as Claimant 180 and 181 is in total a Net Redeemer of approximately $290,000 when
the Hybrid Value and Stable Value claims are pooled together.
For Claimant number 182 on Revised Schedule A, the Receiver recommended that this
claim be rejected in full because Claimant 182 was not an Investor in any of the Receivership
Funds. Id. at 10-11. Claimant 182 was contacted by the Receiver’s professionals, and agreed
with the Receiver’s professionals that its claim was filed in error. Id.
For Claimant number 183 on Revised Schedule A, the Receiver recommended that this
claim be rejected in full because it is a claim on behalf of Global Ltd, which is not an Investor
16

under the pooling principles applied in the Recommendations, and even if it were, the claim
would be duplicative of the Global Inc. claim. Id. at 11.
Accordingly, Claimants 157 to 183 were not given proposed Allowed Amounts in
column 9 of Revised Schedule A, and the Receiver recommended that these claims be rejected in
full.

Id.

The Court agrees with and adopts the Receiver's recommendations concerning

Claimants 157 to 183.
(b)

Rejected in Part

For Claimants numbered 184, 185, and 186 on Revised Schedule A, the Receiver
recommended that these claims be rejected in part because all three submitted claims for the
same investment. (Doc. #395 at 11). The Receiver contacted Claimants 184, 185, and 186, and
all three agreed that they should receive equal 1/3 shares of future distributions in connection
with their identical claims. Id. Given these Claimants' agreement, the Receiver recommended
that Claimants 184, 185, and 186 each be given a proposed Allowed Amount totaling 1/3 of the
sole investment claimed, as reflected in Revised Schedule A. Id. The Court agrees with and
adopts the Receiver's Recommendations regarding these claims, and approves the proposed
Allowed Amounts reflected in column 9 of Revised Schedule A (Doc. #417-5).
For Claimants numbered 187 to 207 on Revised Schedule A, the Receiver recommended
that these claims be rejected in part because the submitted claim amounts did not match the
Receivership Entities’ books and records. (Doc. #395 at 11-12). After reviewing the books and
records of the Receivership, as well as the supporting documentation submitted by these
Claimants, the Receiver recommended that the NIC amount reflected in the books and records of
the Receivership Entities be approved for all twenty-one (21) of these Claimants. Id. In
instances where the discrepancy between the amount claimed and the NIC reflected in the books
and records of the Receivership Entities was not readily explainable, the Receiver’s professionals
17

contacted those Claimants to seek further explanation from them. Id. The contacted Claimants
either agreed with the Receiver’s analysis that the books and records were accurate or failed to
provide support or an explanation for the amounts they claimed on their Proof of Claim Forms.
Id. Thus, the Receiver recommended that Claimants 187 to 207 each be granted an Allowed
Amount totaling the amount reflected on the Receivership Entities’ books and records, as
reflected in Revised Schedule A.

Id.

There were no objections to the Receiver's

recommendations concerning Claimants 187 to 207, thus the Court agrees with and adopts the
Receiver's Recommendations regarding these claims, and approves the proposed Allowed
Amounts reflected in column 9 of Revised Schedule A (Doc. #417-5).
For Claimant numbered 208 on Revised Schedule A, the Receiver recommended that this
claim be rejected in part because Claimant 208 has been liquidated and its assets transferred to
a liquidating trust. (Doc. #395 at 12). On December 19, 2012, approximately two months after
the claims deadline, Claimant 208 submitted a notice of transfer to the liquidating trust, along
with the liquidating trust agreement. Id. As such, Claimant 208 no longer exists, and the new
entity, the liquidating trust, is entitled to the claim formerly belonging to Claimant 208. Thus,
the Receiver recommended that Claimant 208’s proposed Allowed Amount should be approved
for the liquidating trust, as reflected in Revised Schedule A and in footnote 7 thereon. Id. The
Court agrees with and adopts the Receiver's recommendation concerning Claimant 208, and
approves the proposed Allowed Amount reflected in column 9 of Revised Schedule A (Doc.
#417-5).
For Claimants numbered 209 to 214 on Revised Schedule A, all six of which submitted
Proof of Claim Forms for the same two claims, the Receiver recommended that the claims
submitted by Claimants 209 to 212 be rejected in full, and the claims submitted by Claimants
213 and 214 be rejected in part. (Doc. #395 at 13). According to the Receiver, these six (6) of
18

these claims relate to investments made by SSR and investments made by SSSR II. Id. After
receiving these claims, the Receiver consulted with the SSR Entities and Credit Value Partners,
LLC (“CVP”), a non-Claimant entity. Id. As a result of the discussions between the Receiver,
the SSR Entities, and CVP, a letter agreement was entered into and signed by all the SSR
Entities and CVP, directing the Receiver to make all distributions, including interim distributions
of FP Designee ownership interests, to CVP. Id. CVP will receive the initial interim distribution
of FP Designee ownership interests for these Claimants’ overlapping claims. Id. Thus, the
Receiver recommended that Claimants 209 through 212 be rejected, while the proposed Allowed
Amounts for Claimants 213 and 214 on Revised Schedule A should be approved for CVP, as
further reflected at footnote 8 on Revised Schedule A. Id. As all involved parties agreed on this
recommendation, and there were no objections to the Receiver's recommendation concerning
Claimants 209 to 214, the Court agrees with and adopts the Receiver's Recommendations
regarding these claims, and approves the proposed Allowed Amounts reflected in column 9 of
Revised Schedule A (Doc. #417-5).
For Claimants numbered 215 and 216 on Revised Schedule A, the Receiver
recommended that these claims be rejected in part because Claimants 215 and 216 received
payments, including referral fees and unwarranted bonuses prior to the establishment of the
Receivership. (Doc. #395 at 13-14). It is the Receiver’s position that these payments should be
treated as redemptions/offsets against the claims of Claimants numbered 215 and 216. Id.
Therefore, according to the Receiver, Claimants 215 to 216 each have a proposed Allowed
Amount that was reduced for the pre-Receivership payments they received, which is reflected in
Revised Schedule A. Id. The Court agrees with and adopts the Receiver's recommendations
concerning Claimants 215 and 216, and approves the proposed Allowed Amounts reflected in
column 9 of Revised Schedule A (Doc. #417-5).
19

For Claimant numbered 217 – Global Inc. – on Revised Schedule A, the Receiver
recommended that this claim be rejected in part because: (i) the claim contained computational
errors on Global Inc.'s end; (ii) certain individual investors in Global Inc. received referral fees
that should be offset against Global Inc.'s total claim; and (iii) Global Inc.'s claim should be
offset by its prior recoveries in Bermuda – defined as the "Bermuda Funds" by the Receiver.
(Doc. #395 at 14, 34-39).

Therefore, according to the Receiver, Claimant 217's proposed

Allowed Amount was reduced for these reasons, as reflected in Revised Schedule A. (Doc. #395
at 1). The Court agrees with and adopts the Receiver's recommendation concerning Claimant
217, and approves the proposed Allowed Amount reflected in column 9 of Revised Schedule A
(Doc. #417-5).
(c)

SSR Creditor Claim

For the claim numbered 218 – SSR Capital Partners LP – the Receiver recommended that
this creditor claim be rejected in full. (Doc. #395 at 14, 39-40). Based on the information
obtained by the Receiver from SSR Capital Partners LP, and based upon the input of the
Receiver's advisors, the Receiver concludes that SSR Capital Partners LP failed to provide
sufficient evidence to support its creditor claim.

Id.

For these reasons, the Receiver

recommended that SSR Capital Partners LP not be given a proposed Allowed Amount in
Revised Schedule A. Id at 14. As there was no objection to this recommendation, the Court
agrees with and adopts it.
VI.
The Receiver's Recommendations Concerning the Interim Distribution
In addition to seeking approval of the proposed Allowed Amounts in Revised Schedule
A, the Receiver also seeks approval to make an interim distribution of ownership interests in the
FP Designee to eligible Claimants in the amount set forth in column 5 of Revised Schedule B.
20

Revised Schedule B lists all Claimants that: (1) filed a Proof of Claim Form; (2) are either
an Approved Claimant or a Rejected Claimant with a claim that should only be partially rejected;
and (3) submitted a valid and fully-executed Investor Release. (Doc. #417-6). Revised Schedule
B includes each eligible Claimant’s number, the Receivership Fund invested in, proposed
Allowed Amount, and correlating proposed Approved FP Designee Distribution percentage. Id.
The percentages for Approved FP Designee Distributions listed in column 5 of Revised
Schedule B were calculated by taking each eligible Claimant’s proposed Allowed Amount and
dividing it by the total amount of proposed Allowed Amounts. (Doc. #395 at 15). For example,
Claimant 1 has a proposed Allowed Amount of $7,595,976, which is reflected in column 4 of
Revised Schedule B. (Doc. #417-6). The total amount of proposed Allowed Amounts for
Claimants listed on Revised Schedule B is $385,285,693. Id. Thus, Claimant 1’s proposed
Approved FP Designee Distribution is calculated by dividing $7,595,976 by $385,285,693,
which rounded to two decimal places equals the 1.97% reflected in column 5 of Revised
Schedule B. Id.
Because the Receiver rounded the proposed FP Designee membership percentages to two
decimal places, the total percentage of interests to be distributed pursuant to Revised Schedule B
totals 100.05%, or .05% more than is possible. At the June 10 fairness hearing, counsel for the
Receiver acknowledged this issue and proposed that the .05% overage be set off against
Claimant #156, the largest of the three FPCMC claims recommended to receive a distribution.
The Court agrees that this is a sufficient means of handling the .05% overage and does not
prejudice any of the Claimants. As such, the Court further revises Revised Schedule B to reflect
a .23% ownership percentage for Claimant #156 as opposed to the .28% ownership percentage
reflected in column 5 of Revised Schedule B. Thus, the Court approves all other percentages as
reflected in column 5 of Revised Schedule B.
21

The Court notes that, other than the Arnolds' objection, which was upheld and
incorporated in Revised Schedule B, no Claimants objected to the Receiver's Recommendations
regarding the distribution of membership interests in the FP Designee.
VII.
The Fairness of the Distribution of FP Designee Interests
A.

Jurisdiction of the Court
As noted in prior filings (Sun Litigation, Doc. #248 at 19, Doc. #395 at 29), the Receiver

seeks to issue membership interests in the FP Designee to eligible Claimants pursuant to Section
3(a)(10) of the Securities Act of 1933 (the "Securities Act"). See 15 U.S.C. § 77c(a)(10). Section
3(a)(10) exempts from registration:
[A]ny security which is issued in exchange for one or more bona
fide outstanding securities, claims or property interests, or partly in
such exchange and partly for cash, where the terms and conditions
of such issuance and exchange are approved, after a hearing upon
the fairness of such terms and conditions at which all persons to
whom it is proposed to issue securities in such exchange shall have
the right to appear, by any court . . .
15 U.S.C. § 77c(a)(10).
In accordance with section 3(a)(10) of the Securities Act, the Receiver requested a
fairness hearing to be held contemporaneously with the hearing on objections to the Receiver's
Recommendations made in this Motion.
The Court has jurisdiction to hold the fairness hearing required by section 3(a)(10) of the
Securities Act because it has jurisdiction over the Settlement Agreement entered into between
the parties in the Sun Litigation, and has already approved the Settlement Agreement as fair.
(Sun Litigation, Docs. #255, 308); see also SEC v. Blinder Robinson & Co., Inc., 511 F. Supp.
799 (D. Col. 1981) (finding that the Court had jurisdiction to hold a fairness hearing pursuant to

22

section 3(a)(10) of the Securities Act because it had jurisdiction over the settlement agreement in
the SEC’s civil enforcement action).
B.

Fairness Standard
The District Court in Blinder Robinson set forth five factors for consideration in

determining whether a section 3(a)(10) issuance of exempt securities is “fair”: (1) the
recommendations of counsel; (2) the scope of discovery; (3) apparent alternatives to the
settlement; (4) the nature and volume of responses from those receiving notice of the hearing;
and (5) opportunity for direct participation by those who would receive issued securities.
Blinder Robinson, 511 F. Supp. at 801.
Here, all five factors demonstrate that a section 3(a)(10) issuance of ownership interests
in the FP Designee would be fair and weigh heavily in favor of approving the issuance. Indeed,
the Court has already analyzed these factors in connection with its finding that the Settlement
Agreement itself was a fair and reasonable conclusion to the Sun Litigation. (Sun Litigation
Docs. #205, 308).
(1)

Recommendations of Counsel

Regarding this factor, the Blinder court stated:
Counsel for the parties to this settlement, as officers of the court,
have summarized the negotiating history in their statements at the
hearing. Additionally, judicial notice was taken of earlier adversary
proceedings in this case. There is nothing to suggest any collusion
in the preparation and submission of the agreement. To the
contrary, it is apparent that these attorneys have represented the
interests of their clients aggressively throughout this case; that the
settlement is the product of arms-length bargaining; and that their
recommendation that this court accept this agreed resolution of the
disputed issues results from their exercise of professional judgment
as to what is in the best interests of those for whom they appeared.
Blinder, 511 F. Supp. at 801.

23

The Blinder court also found that counsel for the settling parties "represented the interests
of their clients aggressively throughout this case," "the settlement [was] the product of armslength bargaining," and counsel's recommendation "result[ed] from their exercise of professional
judgment. Id.
The same is true here. This Court has already opined on the hotly-contested nature of the
Sun Litigation. In its Order approving the Settlement Agreement, the Court observed that,
"[i]ssues seem to abound, and no issue seems too small to demand close attention." (Sun
Litigation Doc. #308 at 26). The parties could not agree even on who should participate in the
settlement negotiations, and the Defendants initially sought to have the Court approve an earlier
version of the Settlement Agreement, to which the Receiver had not agreed. (Sun Litigation Doc.
#244).
In addition, the Settlement Agreement was supported by the SEC and by counsel for the
Investor Group,19 which played a key role in the settlement process and negotiations.
For these reasons, the first factor – recommendations of counsel (and in this case, other
important third parties) – favors a finding that the issuance of interests in the FP Designee
pursuant to Section 3(a)(10) is fair.
(2)

Scope of Discovery

In Blinder, the court found that "[t]here ha[d] been time for a complete investigation into
the facts in this case and it is apparent that counsel have made full use of discovery
procedures."20 That is also the case here, as is evident from the court docket in the Sun

19

The Investor Group is also known as the "Investor Steering Committee" and includes a number of Investors
that took an active role in the settlement of the Sun Litigation.
20

However, the Blinder Court stated that it was unwilling to examine the discovery record, and noted that it
did not ask counsel for its views on the merits of the case. 511 F. Supp. at 801-802. Here, by contrast, those issues
were explored in connection with the Court's approval of the Settlement Agreement. (Sun Litigation Doc. # 308).

24

Litigation.
The Investors actually received substantial disclosure far beyond normal litigation
discovery. The Receiver and the Defendants in the Sun Litigation provided the Investors with
financial and business information to allow the Investors to make informed decisions about
whether to participate in the Settlement Agreement, including:


Consolidating balance sheets and profit and loss statements for Promise for the years
ended December 31, 2008, 2009, 2010 and 2011 (profit and loss only for 2011), as well
as interim year to date financial consolidating balance sheets and profit and loss
statements through March 2010, April 2010 (profit and loss only), May 2010, June, 2010,
July 2010, August 2010, September 2010, November 2010, February 2011, March 2011,
April 2011, May 2011 (profit and loss only), June 2011, August 2011;



Consolidating balance sheets and profit and loss statements for Success for the years
ended December 31, 2009, 2010 and 2011 as well as interim year to date financial
consolidating balance sheets and profit and loss statements through March 2010, May
2010, June 2010, September 2010, February 2011, March 2011, April 2011, May 2011
(profit and loss only), July 2011 and August 2011;



Promise budgets for 2008, 2009, 2010 and 2011;



Promise cash flow budgets for 2011;



Monthly Operating Statistics and Census Trends for the Promise Hospitals;



Monthly Operating Statistics and Admission Trends for the Success Hospitals;



Accounts Receivable Statistics; and



Certificates of Need in Florida and related studies.
In addition, the Joint Motion for Approval of the Settlement Agreement and its exhibits

provided additional information, including information about the terms of the Settlement
Agreement, the operating entities at issue, the negotiation process, and nature of the due
diligence performed. (Sun Litigation Doc. #248).

The Joint Motion for Approval of the

Settlement Agreement also attached a copy of the proposed Settlement Agreement, an estimated

25

calculation of value by the Receiver's accounting firm, BPB, and other materials. (Sun Litigation
Docs. #248-4, 289).
Further, investors were given the opportunity to obtain, by providing executed
confidentiality provisions, additional information, including:


The disclosure statement exhibit to the Settlement Agreement (redacted only to block out
the names of the payees);



Consolidated cash flow statements and financial statements for the health care facilities;



A post-closing organizational chart;



Mr. Baronoff's employment agreement;



The due diligence report by Focus Management Group;



Audited Financial Statements for Promise; and



The report of the investment banker, MTS Health.
Viewing all of this information in its totality, the Court has already observed:
It is a fact of litigation life that no one wants to make a settlement
decision until the last tidbit of information has been obtained. It is
also a fact of litigation life, however, that by the time all
information sought is obtained, the benefits of settlement have long
since evaporated. It is clear to the Court that a tremendous amount
of information has been obtained and shared, although clearly not
as exhaustive as it will be if the case is not settled. Further, even if
the settlement is rejected and litigation proceeds, not all of the
sought by the objectors will necessarily be available. The Court
finds that the information obtained and shared by the Receiver, as
summarized at Doc. #229.pp. 16-22, is sufficient to allow the
investors to make intelligent decisions as to the Settlement
Agreement.

(Sun Litigation Doc. #308 at 28).
For these reasons, the second factor – scope of discovery – favors a finding that the
issuance of interests in the FP Designee pursuant to Section 3(a)(10) is fair.

26

(3)

Apparent Alternatives to Settlement

The Blinder court's concerns regarding the alternatives to settlement mirror the Court's
concerns here. Namely, both the Blinder court and this Court were concerned about the risks of
not settling:
The alternative to this settlement suggested by those who have
made objections is a full refund of the public investment. That
would require the liquidation of the business entity involved and
the result would be only a partial recovery. There is not enough
cash for complete restitution. Additionally, there would be no
future business activity in developing the hotel-casino and the
value of the expenditures made in obtaining regulatory approval
and other such capital asset values would be lost. The litigation
costs involved in resisting such relief would also be a substantial
strain on the resources of the settling defendants, thereby further
reducing the value of a recovery if the plaintiff ultimately
prevailed.
511 F. Supp. at 802.
Here, the Court first provided its view on the need for settlement in its Order on the
Defendants' motion for stay, when it stated: "This particular case is not typical and literally cries
out for a good faith effort at resolution before the only people left standing are the lawyers and
other litigation professionals." (Sun Litigation Doc. #202 at 1-1). The Court also recognized in
its approval of the Settlement Agreement advocated by the Receiver that "even a litigation win
[for the Receiver] may be simply a pyrrhic victory." (Sun Litigation Doc. #308 at 25).
Finally, after full briefing and a hearing, the Court approved the Settlement Agreement –
which was premised on the distribution of membership interests in FP Designee through a Rule
3(a)(10) exemption (Sun Litigation Doc. #248 at 3, 19) – as "fair, reasonable, and adequate."
(Sun Litigation Doc. #308 at 40).
For these reasons, the third factor – apparent alternatives to settlement – favors a finding
that the issuance of interests in the FP Designee pursuant to Section 3(a)(10) is fair.
27

(4)

Nature and Volume of Objections

The Court recognizes that, despite early objections, the Settlement Agreement was
supported by a majority of the investor base. (Sun Litigation Doc. #279 at 37-38).
The principal investor objection to the Settlement Agreement was filed by Boies Schiller
on behalf of a group of Investors representing approximately 1/3 of the investor base, measured
by estimated NIC. Boies Schiller's clients had objected because they wanted, principally: (i)
better settlement terms than what was the proposed or what the Sun Entities were willing to
provide; and (ii) updated audited financial statements that did not exist. (Sun Litigation Doc.
#260 at 5, 6 n.6, 13-15). Neither concern suggested that the investors were not on notice of the
risks inherent in ownership of membership interests in FP Designee, or that a formal registration
was needed.
To the contrary, it is precisely because of the objecting Investors' concerns about the risks
inherent in obtaining equity in the entities that they sought better terms and an update to the audit
(which was not realistic or warranted as this Court found, see Sun Litigation Doc. #308 at 2728). As noted, the objecting Investors expected the entities to file for bankruptcy if the Sun
Litigation was not settled. (Sun Litigation Doc. #300 at 45-46). Clearly then, these Investors
and all others were on notice of the risk of equity ownership.
Finally, all investors were given the chance to "opt out" of the settlement, and preserve
their claims, as in Blinder. 511 F. Supp. at 801. As the Court noted in its approval of the
Settlement Agreement: rather than accept the Settlement Agreement, "an investor can simply
walk away, not sign the Consent or Release, and pursue its own individual claims against
defendants, or if the Settlement Agreement is approved, against FP Designee." (Sun Litigation
Doc. #308 at 24). But notwithstanding their objection, all of Boies Schiller's clients "opted in" to

28

obtain equity interests by submitting Investor Releases.21 Indeed, over ninety-nine percent of all
investors opted to submit Investor Releases to participate in the Settlement Transaction and
receive equity interests in the FP Designee.
For these reasons, the fourth factor – nature and volume of objections – also favors a
finding that the issuance of interests in the FP Designee pursuant to Section 3(a)(10) is fair.
(5)

Opportunity for Investor Participation

The Blinder court found that this factor was satisfied because:
There [was] a full and fair opportunity for all affected persons to
participate directly in the process of obtaining full disclosure of the
matters involved in this settlement agreement. The mailed notices
gave an accurate and adequate summary of the terms and
conditions of the settlement. The settlement documents have been
available for public inspection in the office of the Clerk. No formal
method of making objections was required. Participation at the
hearing was invited, without limitation, and the settling defendants
appeared at the hearing prepared to respond to any relevant
inquiries and to produce relevant documents.
511 F. Supp. at 802.
Such due process standards were observed in this case, as well. While the parties were
negotiating the Settlement Agreement, investors that executed Court-approved confidentiality
agreements had access to a data room that was filled with financial and business information.
See (Sun Litigation Doc. #248 at 19-20; Sun Litigation Doc. #279 at 16-17).
In addition, well in advance of the deadline for objections to the Settlement Agreement,
the parties filed and described in detail the proposed Settlement Agreement [(Sun Litigation Doc.
21

In addition, as noted, certain Investors in Hybrid Value filed an objection to the settlement agreement (Sun
Litigation Doc. #264), which was not actually an objection but a premature argument about how the Receiver should
treat their claim in the Receiver's eventual Claims Submission. Those Investors also "opted in" by submitting
Investor Releases. Those Investors did not file an objection to the Receiver's Claims Submission.
Finally, as noted, an objection to the settlement agreement was filed by the Archdiocese based on alleged
concerns about restrictions on cooperating with law enforcement and based on the First Amendment (Sun Litigation
Doc. #259); that objection was partially overruled. The Archdiocese "opted out" of the Settlement Agreement by
not submitting an Investor Release. The Archdiocese did not object to the Receiver's Claims Submission.

29

#248 at 10-18), explaining why they were seeking Court approval. (Sun Litigation Doc. #248 at
3, 19). The parties also filed, among other things, an estimated calculation of the value of the
assets to be transferred, prepared by the Receiver's accounting firm, BPB. (Sun Litigation Doc.
#248-4).
Upon the Court's preliminary approval of the Settlement Agreement, the Receiver
provided all Investors with a package of additional information, including a notice, the Joint
Motion itself, and another confidentiality agreement for the Investors to obtain more due
diligence. (Sun Litigation Doc. #255). Those Investors who submitted the proper confidentiality
agreements received reports by the professionals who conducted due diligence, an investment
banker's report, audited financial statements, and other highly confidential information. (Sun
Litigation Doc. #279 at 19-22).
Unlike the Blinder Court, here the Court also provided a formal objection procedure. The
Investors were given an opportunity to object, and many did object, to the Settlement
Agreement, as noted above. Investors were permitted to appear at the hearing on the approval of
the Settlement Agreement alongside counsel for the parties, all of whom were given a full
opportunity to make their arguments and direct pointed questions to the parties and their counsel.
Further, those Investors who are members of the Investor Group (as defined in previous
filings) had additional direct participation in the process.
Thus, the Investors – who have been on notice that the Receiver would seek to use the
Section 3(a)(10) exemption since at least the Joint Motion for Approval of the Settlement
Agreement filed on December 9, 2011 (Sun Litigation Doc. #248 at 3, 19) – plainly have had
ample opportunity to directly participate in the process of evaluating the Settlement Agreement,
satisfying the fifth and final element of the Blinder test.

30

For these reasons, the fifth factor – opportunity for investor participation – favors a
finding that the issuance of interests in the FP Designee pursuant to Section 3(a)(10) is fair.
VIII.
Conclusion
Accordingly, it is now
ORDERED:
1.

The Caligiuri letter objection (Doc. #412) is deemed withdrawn;

2.

The Arnolds’ Objection (Doc. #411) is sustained.

The Court accepts the

Investors’ Releases and the Arnolds are permitted to participate in the Settlement Agreement;
3.

The Court agrees with and adopts the proposed Allowed Amounts reflected in

Revised Schedule A (Doc. #417-5), which amounts shall serve as the basis for all planned and
future distributions to Investors;
4.

Investors, whether they submitted claims or not, are hereby barred: (i) from

submitting any further claims upon the Receivership; and (ii) from challenging to the Allowed
Amounts reflected in Revised Schedule A (Doc. #417-5);
5.

SSR Capital Partners LP, which is a creditor affiliated with Investors that filed a

claim that was rejected in full, is hereby barred: (i) from submitting any further claims upon the
Receivership; and (ii) from challenging to the Allowed Amounts reflected in Revised Schedule
A (Doc. #417-5);
6.

Those Investors who submitted Investor Releases and are participating in the

Settlement Agreement, in accordance with the Investor Releases, are hereby barred from
bringing any actions or claims against, among others, the FP Designee, any of the related entities
or individuals, including Promise and Success, or the Receivership, Receiver, or any of the

31

Receiver's professionals, as well as all other entities and individuals identified in the Investor
Releases and the Settlement Agreement;
7.

The Court agrees with and adopts the proposed FP Designee membership interest

percentages reflected in Revised Schedule A (Doc. #417-6), except that the Court revises
Claimant #156's FP Designee interest to .23% to account for the rounding issue raised by the
Receiver's counsel at the June 10 fairness hearing;
8.

Claimants are hereby barred from any further challenge to the FP Designee

interests reflected in Revised Schedule B (Doc. #417-6);
9.

The Court finds that an interim distribution of FP Designee membership interests

pursuant to Section 3(a)(10) of the securities laws is fair, and approves such interim distribution
without the need to file a registration statement; and
10.

To effectuate the distribution, within thirty (30) days of the entry of this Order,

the FP Designee shall record in its books and records the membership interests reflected in
Revised Schedule B, column 5, to the Receiver’s Response to Objections (Doc. #417-6), with
claimant #156's membership interest modified to .23%, without the need for the filing of a
registration statement in accordance with Section 3(a)(10) of the Securities Act of 1933, 15
U.S.C. § 77c(a)(10), and further the FP Designee shall be authorized to bestow such rights upon
such members in accordance with Delaware law and its governing documents, as amended and
as may be further amended.
DONE AND ORDERED at Fort Myers, Florida, this 3rd day of July, 2014.

Copies:
Counsel of record
32