Securities and Exchange Commission v. Nadel et al

Filing 1190

MOTION for miscellaneous relief, specifically Motion to Overrule Objections to Claims 403, 404, 405, 406, 407, 408, and 477 by Burton W. Wiand. (Morello, Gianluca)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION

SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
v.
ARTHUR NADEL,
SCOOP CAPITAL, LLC,
SCOOP MANAGEMENT, INC.,
Defendants.

CASE NO.: 8:09-cv-0087-T-26TBM

SCOOP REAL ESTATE, L.P.,
VALHALLA INVESTMENT PARTNERS, L.P.,
VALHALLA MANAGEMENT, INC.,
VICTORY IRA FUND, LTD,
VICTORY FUND, LTD,
VIKING IRA FUND, LLC,
VIKING FUND, LLC, AND
VIKING MANAGEMENT, LLC.
Relief Defendants.
/
RECEIVER’S MOTION TO OVERRULE
OBJECTIONS TO CLAIMS 403, 404, 405, 406, 407, 408, AND 477
Burton W. Wiand (the “Receiver”), as Receiver for Valhalla Investment Partners,
L.P. (“Valhalla Investment”); Viking Fund, LLC (“Viking Fund”); Viking IRA Fund,
LLC, (“Viking IRA Fund”); Victory Fund, Ltd. (“Victory Fund”); Victory IRA Fund, Ltd.
(“Victory IRA Fund”); and Scoop Real Estate, LP (“Scoop Real Estate”) (collectively, the
“Hedge Funds”); and for Traders Investment Club (“Traders”) moves the Court to overrule

the objections submitted by investors Chester and Patricia Vincentz (the “Vincentz”) to the
Receiver’s determination of Claims 403, 404, 405, 406, 407, 408, and 477 (the “Claims”).
BACKGROUND
Each of the Claims seeks recovery of the Vincentz’ principal investment amount plus
the purported investment profits attributed to them in statements they received from Hedge
Funds and Traders. In the Receiver’s Unopposed Motion to (1) Approve Determination and
Priority of Claims, (2) Pool Receivership Assets and Liabilities, (3) Approve Plan of
Distribution and (4) Establish Objection Procedure (the “Claims Determination Motion”)
(Doc. 675), the Receiver determined Claims 403, 404, 405, 406, 407, and 408 should be
allowed only in part: the Vincentz lost money in connection with the scheme, but their
recoveries should be limited to their net investment amounts (i.e., the amounts they invested
in the scheme minus the amounts they received back), they are not entitled to recover any
false paper profits from Traders or the Hedge Funds.

For example, the Receiver’s

determination of Claim 405 is as follows:
This account has a Net Investment Amount of $53,019.92. The amount
claimed by the Claimant includes a transfer from an “investment account”
with Receivership Entity Traders Investment Club in the amount of
$84,893.29. However, only $53,019.92 was deposited into the transferring
account. The difference of $31,873.37 represents False Paper Profits to which
the Claimant is not entitled. Accordingly, this claim should be allowed for the
Net Investment Amount of $53,019.92.
Doc. 675, Ex. D. at 13; see also id. at 14. Similarly, the Receiver determined Claim 477
should be denied because there were no losses in the pertinent account; rather, the account
contained false paper profits of $85,000. See id. Ex. G at 12 (collectively with the relevant
determinations in Ex. D, the “Determinations”).

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The Vincentz served identical objections to the Determinations:
We object to the inclusion of Traders Investment Club being categorized as a
Ponzi scheme and the subsequent reduction of the so called false paper profits
in this club. We do not believe a Ponzi scheme existed during this period of
time and to date this has not been proven.
The amount stated by you in our claim is a minimum amount owed us and can
be increased when forensic accounting and the courts determine the actual
start date of any Ponzi scheme and the performance of Traders Investment
Club prior to the start date of any Ponzi scheme.
See Morello Decl., Ex. A (compilation of objections). In other words, the Vincentz disagreed
with the Receiver’s determination that Traders also was operated as a Ponzi scheme, and
consequently they wanted to be credited not only with the amount they invested in Traders,
but also with the purported investment profits reflected on statements they received from
Traders.
On November 6, 2013, the Receiver responded to the Vincentz’ objections to the
Determinations, explaining that the Court had recently decided this exact issue – i.e., whether
Traders was part of Nadel’s Ponzi scheme – in a related clawback action:
After the Claimant submitted the Objections, the Magistrate Judge and,
subsequently, the District Court Judge for the United States District Court for
the Middle District of Florida determined that Arthur Nadel operated the
Hedge Funds and Traders as a Ponzi scheme from at least 2000 through 2008.
See Wiand, as Receiver v. Vernon M. Lee, et al., Case No. 8:10-CV-210-T17MAP (M.D. Fla.). Lee is similar to the matter at hand. In Lee, the
defendants invested in Traders beginning in 1999 and later invested in the
Hedge Funds. The Court found that the record “overwhelmingly” showed that
Nadel was operating a Ponzi scheme at the time of the first distribution to the
defendants in 2000 and that the scheme continued through 2008. Like the
Claimant here, the Lee defendants had purportedly “rolled over” funds from
Traders into two Hedge Fund accounts. The Lee defendants argued that they
should receive credit for the amount of the purported roll overs and thus those
amounts should be deducted from the total amount of False Profits the
Receiver sought to recover. The Court found that those “winnings” were an
illusory transfer of purported profits and were not the defendants’ to keep.

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The Court further noted “[h]ad they opted for a distribution in-hand, as
opposed to a roll over, the Receiver could have justly demanded an avoidance
of that transfer . . . .” See Lee, Report and Recommendation, Doc. 163, at 3637.
See Morello Decl., Exs. B & C (Receiver’s responses). As such, the Receiver concluded the
Vincentz’ objections to the Determinations should be overruled. Id.
On November 9, 2013, the Vincentz submitted six identical reply letters, in which
they asserted their “position is unchanged” because they “do not believe your [and
presumably the Court’s] interpretation of the Traders profitability in the early years is
correct.” See Morello Decl., Ex. D (compilation of replies).
On April 2, 2015, the Vincentz wrote the Court and appeared to withdraw their
objections to the Determinations:
Although we do not agree that Traders being lumped into the Ponzi scheme is
valid because no one can find any factual data to confirm any of this. At this
time it is mere supposition by Wiand, however, we would rather forgo this
contention and wrap the entire situation up with the distribution of any
remaining funds.
Doc. 1170. On April 6, 2015, counsel for the Receiver emailed the Vincentz to confirm
whether they intended to withdraw their objections to the Determinations. See Morello
Decl., Ex. E (email chain). On April 9, 2015, Mr. Vincentz clarified he and Mrs. Vincentz
“weren’t withdrawing [their] objections to the handling of Traders without closing the entire
case down and distributing the remaining funds. On that basis we wouldn’t hold up any
decision but we still feel Wiand did not prove anything as to when Traders became a Ponzi
scheme.” Id. Because the Vincentz withdrawal of their objections is contingent on closing
the Receivership, which is not yet possible at this time, the Receiver moves the Court to
overrule the objections.

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ARGUMENT
I.

THE DECLARATION OF MARIA YIP ESTABLISHES NADEL
OPERATED TRADERS AND THE HEDGE FUNDS AS A PONZI
SCHEME
Pursuant to a summary judgment standard, the Vincentz bear the burden of proof with

respect to the Claims and their contention that Traders was not part of Nadel’s Ponzi scheme.
See Doc. 675 at 82 (“The Claimant shall have the burden of proof.”); Doc. 776 (approving
procedures set forth in Doc. 675); Doc. 1061 at 8-9 (“[T]he burden of proof in this
proceeding lies on the claimant who filed the proof of claim pursuant to the objection
procedure approved by this Court.”). The Receiver, however, has litigated the issue of
whether Traders was part of Nadel’s Ponzi scheme, and he has prevailed on summary
judgment in every case that did not reach a settlement. In each of those cases, the Receiver
relied primarily on the Declaration Of Maria M. Yip, CPA, CFE, CIRA (see, e.g., Lee Doc.
99, which is also being filed along with this motion) (the “Yip Declaration” or “YD”), and
he will continue to do so here. To conserve Receivership resources, the Receiver has not
asked Yip to produce another declaration for purposes of this motion. Instead, the Receiver
submits and relies on the Yip Declaration filed in the Lee action because it squarely
addresses Nadel’s operation of Traders as part of his Ponzi scheme, and no additional
analysis is necessary here, especially because the burden of proof with respect to the Claims
and resolving these objections rests with the Vincentz.
Yip is a forensic accountant, and as detailed in the Yip Declaration, she performed
extensive analyses of the Hedge Funds and Traders. According to Yip, Nadel controlled
Traders and operated it as a part of his Ponzi scheme. YD ¶¶ 28, 91, 92. Traders was

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purportedly independent from the Hedge Funds, but in truth, Nadel comingled money among
Traders and the Hedge Funds.

YD ¶¶ 65-77.

As with the Hedge Funds, Nadel

misrepresented the performance of Traders. Id. Nadel made distributions to existing Traders
investors using either money from new investors or money from the Hedge Funds. Id.
Specifically, Yip concluded that between July 1999 and June 2003 (which includes the
Claims), “[t]here is no evidence that any trading was conducted by Nadel on behalf of
Traders in any account.” Id. ¶ 71. Nevertheless, Nadel caused Traders to pay purported
profits and management fees on those fictitious profits as early as May 1999. Id. ¶ 91. He
made those payments using the principal investment amounts of Traders’ investors. When
that money ran out, he diverted money from the Hedge Funds to Traders. Id. ¶¶ 74, 92.
For example, “on January 29, 2003, Traders’ Wachovia Account 8115 had a balance
of $2,051. On January 30, 2003, Traders received two wires into this account in the amounts
of $22,000 and $60,000. On January 31, 2003, Traders received funds in the amount of
$200,000 into this account directly from a Victory Fund bank account. On February 5, 2003,
these funds were used to pay $280,000 to Traders investor, Vernon Lee.” Id. ¶ 72. In 2005,
Nadel purported to close and liquidate Traders, and its money was transferred to investors,
the Hedge Funds, or Nadel. Id. ¶ 75, 76. Based on the foregoing, Yip concluded that,
“[s]imilar to the Hedge Funds, Traders also operated as a Ponzi scheme misrepresenting
purported profits to investors and using the monies of new investments from existing
investors or monies from new investors to meet the redemption of existing investors, in
furtherance of Nadel’s Ponzi scheme.” Id. ¶ 92.

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Based on Yip’s analysis, the Court has previously determined Nadel operated Traders
as part of his Ponzi scheme. As noted above, in Lee, the Court reviewed the Yip Declaration
and other record evidence and concluded “the evidentiary record supports a finding that
Nadel ran the hedge funds and Traders as a Ponzi scheme.” Lee Doc. 163 at 26. There is
nothing warranting a different result here. The Vincentz have never provided any evidence
to support their conclusion that Traders was not part of Nadel’s Ponzi scheme. In contrast,
the Receiver has extensively litigated the issue and prevailed. Although the rulings in the
Receiver’s clawback cases are not binding here, the Vincentz nevertheless bear the burden of
proof with respect to the Claims and their objections, and they have not offered and cannot
offer evidence sufficient to create a genuine issue of material fact regarding Traders’
involvement in the scheme in light of Yip’s extensive and unrebutted analysis.
CONCLUSION
For the foregoing reasons, the Receiver moves the Court to overrule the objections by
the Vincentz to the Receiver’s determination of Claims 403, 404, 405, 406, 407, 408, and
477.
CERTIFICATE UNDER LOCAL RULE 3.01(g)
Undersigned counsel for the Receiver has conferred with counsel for the SEC and is
authorized to represent to the Court that the SEC does not oppose the relief requested in this
motion.

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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on August 12, 2015, I electronically filed the foregoing
with the Clerk of the Court by using the CM/ECF system.
I FURTHER CERTIFY that on August 12, 2015, I caused a true and correct copy of
the foregoing to be sent via email and mailed by first-class mail delivery to the following
non-CM/ECF participants:
Chester and Patricia Vincentz
6500 Lakeview Drive
Falls Church, VA 22041

s/Gianluca Morello
Gianluca Morello, FBN 034997
[e-mail]
Michael S. Lamont, FBN 0527122
[e-mail]
Jared J. Perez, FBN 0085192
[e-mail]
WIAND GUERRA KING P.A.
5505 West Gray Street
Tampa, FL 33609
Tel: [phone]
Fax: [phone]
Attorneys for the Receiver, Burton W. Wiand

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