Securities and Exchange Commission v. Nadel et al

Filing 1212

Unopposed MOTION for miscellaneous relief, specifically to approve fifth interim distribution by Burton W. Wiand. (Attachments: # 1 Exhibit Distribution Schedule, # 2 Exhibit Reserves, # 3 Exhibit Proposed Order)(Morello, Gianluca)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
v.

Case No. 8:09-cv-87-T-26TBM

ARTHUR NADEL;
SCOOP CAPITAL, LLC;
SCOOP MANAGEMENT, INC.
Defendants,
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 UNOPPOSED MOTION TO (1) APPROVE FIFTH
INTERIM DISTRIBUTION, (2) INCREASE CERTAIN
RESERVES, AND (3) RELEASE CERTAIN OTHER RESERVES
Burton W. Wiand, as Receiver (the “Receiver”), respectfully moves this Court for an
Order: (1) approving a fifth interim distribution of $3,000,000.00 as set forth in this motion
and in Exhibit A, representing an additional recovery of 2.28% of the Allowed Amounts 1 of

1

The phrase “Allowed Amount” is defined in the Receiver’s Motion to (1) Approve
Determination and Priority of Claims, (2) Pool Receivership Assets and Liabilities, (3)
(footnote cont’d)

Class 1 Claims 2 receiving a distribution at this time; 3 (2) increasing reserves by $154,709.51;
and (3) releasing reserves in the amount of $301,131.73, which will leave in place a total
reserve amount of $2,657,224.36 for Wells Fargo Bank, N.A.’s and TRSTE, Inc.’s purported
interests in Receivership assets and the Receivership estate as set forth in Exhibit B. A
proposed order is provided as Exhibit C.
BACKGROUND
The Receiver has sought and received the Court’s approval of four prior interim
distributions. (Motions, Docs. 825, 945, 1085, 1113; Orders, Docs. 839, 946, 1087, 1114).
Through these distributions the Receiver has distributed a total of approximately $57 million
on a pro rata basis to Claimants with Allowed Claims who were entitled to receive
distributions at that time, representing a total recovery of approximately 44.37% of the
Allowed Amounts for those claims. 4 In these prior interim distributions, the Receiver also

Approve Plan of Distribution, and (4) Establish Objection Procedure (the “Claims
Determination Motion”) (Doc. 675 at 8 n.8).
2

Class 1 is comprised of (i) claims made by investors which were allowed or allowed
in part and (ii) claims asserted by taxing authorities which were allowed. (See Doc. 675 at
34-38.)
3

As discussed in more detail below and in Exhibit A, $45,693.76 of this $3,000,000.00
will not be distributed and instead will revert to the Receivership. (See Claim No. 391.)
4

As discussed in detail in each of the motions for interim distribution and on the
exhibits attached to each motion, certain claims were not entitled to participate in the
distribution and the distribution amount apportioned to that claim reverted to the
Receivership. For example, Claim Number 391 is not entitled to participate in any
distributions of Receivership assets until and if all Class 1 Claims receive 50% of their
Allowed Amounts. Because the interim distributions have provided a combined recovery of
44.37% to such Class 1 Claims, this claim was not entitled to participate in the interim
(footnote cont’d)
2

sought the Court’s approval of the establishment of reserves for claims for which timely
objections were received and for Wells Fargo’s and TRSTE, Inc.’s purported interests in
Receivership assets and the Receivership estate. With the Court’s approval, the Receiver
increased reserves as needed for each interim distribution and released reserves as
appropriate when objections were resolved. All interim distribution checks have been mailed
to Claimants holding claims which were determined to be entitled to participate in the interim
distributions and have been negotiated.
PROPOSED PLAN FOR FIFTH INTERIM DISTRIBUTION
The Receiver now seeks leave to make a fifth interim distribution totaling
$3,000,000.00 as specified in Exhibit A to holders of Class 1 Claims on a pro rata basis
subject to applicable exceptions, priorities, and other parameters discussed in the Claims
Determination Motion – the same method and parameters used for all of the prior interim
distributions.

This distribution will result in an additional 2.28% recovery for these

Claimants’ Allowed Amounts bringing these Claimants’ total recovery to approximately
46.65% of their Allowed Amounts. 5
The distribution plan approved by the Court provides that Class 1 Claimants receive a
percentage of their Allowed Amount from the aggregate amount distributed to Claimants in
distributions. Accordingly, the amounts apportioned to Claim Number 391 were not
distributed and reverted to the Receivership.
5

Again because Claim Number 391 is not allowed to participate in any distributions of
Receivership assets until and if all Class 1 Claims receive 50% of their Allowed Amounts
and the proposed fifth interim distribution will bring the total combined recovery to 46.65%
for such Class 1 Claims, this claim is not entitled to participate in the fifth interim
distribution.

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any particular distribution based upon the following formula, which achieves a pro rata
distribution: each claim’s Allowed Amount divided by the total Allowed Amount of all
allowed claims multiplied by the aggregate distribution amount. The amount each Class 1
Claim would receive based on this formula as part of a fifth interim distribution is specified
in Exhibit A.
As of December 1, 2015, the total funds in all Receivership accounts are
approximately $13,293,498.10, which includes $2,803,646.58 currently being held in
reserves for objections and $4,377,456.84 being held separately until a claim to these funds is
resolved. The Receiver believes that by distributing $3,000,000.00 he will be able to provide
a significant amount of money to Claimants now while still maintaining adequate funds,
including to cover the expenses of (1) continuing ongoing litigation and post-judgment
collection efforts, (2) administering the Receivership, and (3) paying the Receiver’s
professionals for services already provided and yet to be provided. Further, as discussed
below, the Receiver will be left with sufficient funds and assets to cover asserted interests in
the Receivership by Wells Fargo. The Receiver believes he has reserved more than is
necessary for the payment of these items and intends to distribute the excess in one or more
future distributions as appropriate.
The Receiver requests leave to make the fifth interim distribution in the amounts
specified on Exhibit A within 10 days of the date of the order authorizing the distribution.
The Receiver will mail checks by U.S. Mail. The Receiver requests that the Claimants be
allowed 120 days to negotiate the distribution checks. If a check is not negotiated by a
Claimant within 120 days, the money will revert to the Receivership and likely will be

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distributed on a pro rata basis in a future distribution. A deadline for negotiating distribution
checks is necessary for the orderly administration of the Receivership and to avoid future
expenses for tracing unnegotiated checks and having the bank place “stop payments” on any
such checks.
OBJECTIONS AND RESERVES
The Receiver received objections relating to 23 claims (see Claim Nos. 157, 403, 404,
405, 406, 407, 408, 444, 445, 449, 450, 462, 463, 464, 465, 466, 467, 469, 471, 476, 477,
483, and 504). These objections were raised by twelve Claimants, four of whom have
multiple claims. Further, Wells Fargo, which filed Claim Number 502, petitioned the Court
for relief with respect to its claim and to other interests it has asserted in Receivership
property.
As of the filing of this motion, all objections relating to the 23 claims identified above
have been resolved. (See Claim Nos. 157, 403, 404, 405, 406, 407, 408, 444, 445, 449, 450,
462, 463, 464, 465, 466, 467, 469, 471, 476, 477, 483, and 504). Five of the objections were
withdrawn after communications with the Receiver’s counsel (see Claim Nos. 157, 449, 450,
476, and 483); one was resolved in connection with the settlement of ancillary litigation (see
Claim No. 444); and one was resolved in connection with the First Distribution Motion (see
Claim No. 471). Sixteen objections were overruled by the Court (see Claim Nos. 403, 404,
405, 406, 407, 408, 445, 462, 463, 464, 465, 466, 467, 469, 477, and 504; Docs. 928, 1061,
1121, 1194, 1198).
In its April 24, 2014, Order the Court approved the following reserves:

5

Claim
Number
404
405
407
408
467
469
477
TOTAL

Total Amount Reserved as of
Fourth Interim Distribution
Motion
$6,614.53
$14,142.21
$27,175.03
$11,156.61
$69,000.35
$135,328.50
$37,714.50
$301,131.73

(Doc. 1114). As specified in Exhibit B, the Receiver requests the Court release these
reserves to him now that the determinations of these claims are no longer in dispute. The
Court released reserves for other claims for which objections were received but were
previously resolved in its November 16, 2012 and November 22, 2013 Orders (Docs. 946
and 1087).
With respect to Wells Fargo’s purported interests in Receivership assets and the
Receivership estate, the Receiver seeks leave to increase the pertinent reserves until those
issues also are resolved. The Receiver seeks an increase in the specified reserves so that
these purported interests do not impede or delay a fifth interim distribution.

More

specifically, as set forth in Exhibit B, the Receiver seeks leave to increase reserve funds in
connection with Claim Number 502, which was submitted by Wells Fargo, and other
purported interests it has asserted in Receivership assets. 6 (See Docs. 689, 690, 718, 719,

6

With respect to Wells Fargo’s claim and asserted interests, the Receiver has
previously asserted that, assuming arguendo Wells Fargo is entitled to any recovery, (1) such
(footnote cont’d)
6

740.) The Receiver seeks leave to increase those reserves by a total of $154,709.51 as set
forth and itemized in Exhibit B. Assuming the Court releases the reserves discussed above
and increases reserves relating to Wells Fargo as requested, total reserves will be
$2,657,224.36. Reserves will be held until the corresponding asserted interest is resolved.
ARGUMENT
As explained above, the Receiver asks the Court to approve the fifth interim
distribution as set forth in this motion and in Exhibit A. The Court has previously approved
the Receiver’s plan of distribution and four interim distributions. (See March 2, 2012 Order,
Doc. 776; May 7, 2012 Order, Doc. 839; November 16, 2012 Order, Doc. 946; November
22, 2013 Order, Doc. 1087; April 24, 2014 Order, Doc. 1114.) The fifth interim distribution
sought herein is consistent with the plan of distribution approved by the Court and the prior
interim distributions. Further, the relief requested in this motion is in the best interest of the
Receivership and the Claimants as a whole; is fair, reasonable, and equitable; and satisfies
due process.
The Court’s power over an equity receivership and to determine appropriate
procedures for administering a receivership is “extremely broad.” SEC v. Hardy, 803 F.2d

recovery could only come from proceeds of the sale of collateral; (2) Wells Fargo would not
be able to recover any deficiency from the Receivership estate; and (3) even assuming
arguendo Wells Fargo could recover a deficiency from the Receivership estate, any such
deficiency claim would be a Non-Investor Unsecured Claim and thus would receive lower
priority than Class 1 claims (Class 1 claims are the ones which will receive this proposed
interim distribution). As such, any deficiency claim would not be paid until all Investor
Claims’ Allowed Amounts have been fully satisfied. Nevertheless, and out of an abundance
of caution, the Receiver proposes maintaining and increasing certain reserves for Wells
Fargo’s claim and asserted interests as detailed in Exhibit B.

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1034, 1037 (9th Cir. 1986); see SEC v. Basic Energy, 273 F.3d 657, 668 (6th Cir. 2001); SEC
v. Elliot, 953 F.2d 1560, 1566 (11th Cir. 1992).

The primary purpose of an equity

receivership is to promote the orderly and efficient administration of the estate for the benefit
of the creditors. Hardy, 803 F.2d at 1038. The relief requested by the Receiver best serves
this purpose.
The Court has wide latitude when it exercises its inherent equitable power in
approving a plan of distribution of receivership funds. SEC v. Forex Asset Mgmt. LLC, 242
F.3d 325, 331 (5th Cir. 2001) (affirming District Court’s approval of plan of distribution
because court used its discretion in “a logical way to divide the money”); Quilling v. Trade
Partners, Inc., 2007 WL 107669, *1 (W.D. Mich. 2007) (“In ruling on a plan of distribution,
the standard is simply that the district court must use its discretion in a logical way to divide
the money” (internal quotations omitted)).

In approving a plan of distribution in a

receivership, “the district court, acting as a court of equity, is afforded the discretion to
determine the most equitable remedy.” Forex, 242 F.3d at 332. The Court may adopt any
plan of distribution that is fair and reasonable. SEC v. Wang, 944 F.2d 80, 83-84 (2d Cir.
1991); Basic Energy, 273 F.3d at 671.
Consistent with the features of Nadel’s Ponzi scheme, “Courts have favored pro rata
distribution of assets where, as here, the funds of defrauded victims were commingled and
where victims were similarly situated with respect to their relationship to the defrauders.”
SEC v. Credit Bancorp, Ltd., 290 F.3d 80, 88 (2d Cir. 2002); see Quilling, 2007 WL 107669
at *2 (“The use of a pro rata distribution plan is especially appropriate for fraud victims of a
Ponzi scheme, in which earlier investors’ returns are generated by the influx of fresh capital

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from unwitting newcomers rather than through legitimate investment activity.”). A fair and
reasonable distribution plan may provide for reimbursement to certain claimants, while
excluding others. See Wang, 944 F.2d at 84 (citations omitted); Basic Energy, 273 F.3d at
660-61. The Receiver believes that the interim distribution set forth above is fair and
reasonable and is consistent with the distribution plan approved by the Court.
WHEREFORE, Burton W. Wiand, as Receiver, respectfully requests the Court enter
an order: (1) authorizing a fifth interim distribution in the total amount of $3,000,000.00 as
set forth above and in Exhibit A; 7 (2) increasing reserves by $154,709.51; and (3) releasing
reserves in the amount of $301,131.73. The total reserve amount will then be $2,657,224.36
for Wells Fargo Bank, N.A.’s and TRSTE, Inc.’s purported interests in Receivership assets
and the Receivership estate as set forth in Exhibit B.
LOCAL RULE 3.01(g) CERTIFICATION
The undersigned counsel for the Receiver has conferred with counsel for the
Securities and Exchange Commission and is authorized to represent to the Court that the
Commission has no objection to the relief sought herein.

7

As specified in Exhibit A, the Receiver has honored technical requests related to the
distribution of funds. For instance, as authorized by the Court, the Receiver has honored
requests for the reissuance of distribution checks made payable to custodians which were no
longer being used by the Claimant (see Claim Nos. 21, 48, 93, 135, 139, 140, 169, 179, 186,
187, 194, 213, 214, 221, 259, 262, 266, 281, 297, 304, 315, 413). These custodian changes
are noted on Exhibit A.

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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on December 11, 2015, I electronically filed the
foregoing with the Clerk of the Court by using the CM/ECF system.

s/Gianluca Morello
Gianluca Morello, FBN 034997
[e-mail]
Michael S. Lamont, FBN 0527122
[e-mail]
Maya M. Lockwood, FBN 0175481
[e-mail]
WIAND GUERRA KING P.A.
5505 West Gray Street
Tampa, Florida 33609
Tel.: [phone]
Fax: [phone]
Attorneys for Burton W. Wiand, Receiver

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