Securities and Exchange Commission v. Nadel et al

Filing 1291

Unopposed MOTION for Settlement with Wells Fargo; Entry of an Order Authorizing Disbursement of Sale Proceeds to Wells Fargo; and Relief from Injunction, Permitting Wells Fargo to Foreclose on the Laurel Mountain Property by Burton W. Wiand. (Attachments: # 1 Composite Exhibit A, # 2 Composite Exhibit B, # 3 Composite Exhibit C, # 4 Composite Exhibit D, # 5 Exhibit E)(Sharp, Susan)

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.: 8:09-0087-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 UNOPPOSED MOTION FOR: (I) APPROVAL OF
SETTLEMENT WITH WELLS FARGO, N.A; (II) ENTRY OF AN ORDER
AUTHORIZING DISBURSEMENT OF SALE PROCEEDS TO WELLS
FARGO, N.A.; (III) AND RELIEF FROM INJUNCTION, PERMITTING
WELLS FARGO TO FORECLOSE ON THE LAUREL MOUNTAIN PROPERTY
Burton W. Wiand, as Receiver (the “Receiver”) respectfully requests the Court to enter an
order approving a proposed partial settlement with Wells Fargo Bank, N.A. ("Wells Fargo")1
under which the Receiver would disburse to Wells Fargo: (i) sale proceeds less expenses from the
sale of the Rite Aid Property (defined below) in the amount of $2,224,563.15; (ii) and sale proceeds

1

Wells Fargo is successor by merger to Wachovia Bank, N.A. ("Wachovia").

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less expenses from the sale of the La Bellasara Property (defined below) in the amount of
$2,106,140.29. In addition, the parties have agreed that Wells Fargo shall have 90-days from the
filing of this Motion to perform its due diligence on the Laurel Mountain Property (defined below)
and to either: (i) pay to the Receiver the expenses for maintaining the property, in the amount of
$254,073.76, and foreclose on the Laurel Mountain Property (the Receiver having consented to
relief from the injunction on the condition that he receives $254,073.76 from Wells Fargo); or (ii)
waive its security interest in the Laurel Mountain Property in favor of the Receiver. The Receiver
has determined that the proposed settlement is in the best interest of the Receivership Estate and
the investors for whose benefit the Securities and Exchange Commission initiated the securities
fraud action. In support of this Motion, the Receiver states as follows:
BACKGROUND
On January 21, 2009, the Securities and Exchange Commission initiated this action to
prevent the defendants from further defrauding investors of hedge funds operated by them. That
same day, the Court entered an order appointing Burton W. Wiand as Receiver for Defendants
Scoop Capital, LLC and Scoop Management, Inc. and Relief Defendants Scoop Real Estate, L.P.,
Valhalla Investment Partners, L.P., Valhalla Management, Inc., Victory Fund, Ltd., Victory IRA
Fund, Ltd., Viking IRA Fund, LLC, Viking Fund, LLC, and Viking Management, LLC (the
"Order Appointing Receiver"). (See generally Order Appointing Receiver, Doc. 8). The Court
subsequently granted several motions to expand the scope of the Receivership to include other
entities owned or controlled by Arthur Nadel. (See generally Docs. 17, 44, 68, 81, 153, 172, 454.)
All of the entities in receivership are hereinafter collectively referred to as the "Receivership
Estate."

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Pursuant to the Order Appointing Receiver, the Receiver has the duty and authority to
"administer and manage the business affairs, funds, assets, choses in action and any other property
of the Defendants and Relief Defendants; marshal and safeguard all of the assets of the Defendants
and Relief Defendants; and take whatever actions are necessary for the protection of the investors."
(Order Appointing Receiver at 1-2.). In addition, the Receiver is responsible for reviewing and
resolving all claims against the Receivership Estate and making recommendations to the Court
regarding the plan of distributions of assets to qualifying claimants.
On April 21, 2010, the Court entered an order establishing a claims administration process
by which potential claimants could file their claims against the Receivership Estate. The claims
bar date for claims against the Receivership Entities was September 2, 2010. The order also barred
any claims asserted after that date. (Doc. No. 391). On December 7, 2011, the Receiver filed a
proposed plan for claims determination and priority of claims, which the Court granted. (Doc. Nos.
675 and 776). Simply stated, the order established the claim priority as (1) allowed investor claims
and tax lien claims would receive the highest priority, (2) allowed non-investor secured claims to
be paid from the sale of collateral less certain fees and costs, and (3) allowed non-investor
unsecured claims.
As a result of the Order Appointing Receiver, the Receiver took possession of a
commercial building located at 841 South Main Street in the City of Graham, Alamance County,
North Carolina (the "Rite Aid Property"), along with a condominium unit located in Sarasota,
Florida at 464 Golden Gate Point, Unit 703 (the "La Bellasara Property"), and partially
developed land consisting of approximately 420 acres near Asheville, North Carolina in Buncombe
and McDowell counties (the "Laurel Mountain Property" and together with the Rite Aid
Property and the La Bellasara Property, the “Properties”).

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As a result of various loan transactions with the Receivership Entities, Wells Fargo claims
a security interest in the Properties based upon certain loan documents as discussed below. Wells
Fargo timely filed a proof of claim in this case with respect to the Rite Aid Property loan, which
claim has been designated No. 502 by the Receiver. However, Wells Fargo failed to file a proof of
claim for loans concerning the La Bellasara Property and the Laurel Mountain Property. On or
about February 8, 2012, Wells Fargo filed a motion seeking a determination that the filing of a
proof of claim was unnecessary to preserve its security interests in the La Bellasara Property and
the Laurel Mountain Property. (Doc. No. 740). After an appeal, the Eleventh Circuit Court of
Appeal held that Wells Fargo’s security interests remained intact as to the La Bellasara Property
and the Laurel Mountain Property even though Wells Fargo did not file a proof of claim. See SEC
v. Wells Fargo Bank, N.A., 848 F.3d 1339 (11th Cir. 2017).
A.

THE RITE AID PROPERTY

The Receivership Entity Scoop RE purchased the Rite Aid Property in May 2005 by
executing a promissory note with Wells Fargo (formerly Wachovia Bank) in the amount of
$2,655,000 (the “Rite Aid Note”). The Rite Aid Note is secured by a Deed of Trust and Security
Agreement (the “Rite Aid Security Agreement”). Copies of the Rite Aid Note and Rite Aid
Security Agreement are attached hereto as Composite Exhibit “A”. As of December 31, 2016, the
total indebtedness on the Rite Aid Note was not less than $4,093,039.48.
On January 6, 2012, the Receiver filed a motion to approve the sale of the Rite Aid Property
(Doc. Nos. 706 and 823) free and clear of all liens. Although Wells Fargo objected to the sale of
the Rite Aid Property based upon the Rite Aid Note and Rite Aid Security Agreement, the Court
entered its Order authorizing the sale of the Rite Aid Property over Wells Fargo’s objection (Doc.
No. 840). On May 8, 2012, the Court entered an order approving the sale of the Rite Aid Property

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to Trinet West, LLC free and clear of all claims, liens, and encumbrances (the “Rite Aid Sale
Order”) (Doc. No. 842). In relevant part, the Rite Aid Sale Order provided—
Any and all existing claims, liens, and encumbrances relating to the
property located in Alamance County, North Carolina (the
"Property"), including any held by Wells Fargo Bank, N.A. as
successor to Wachovia Bank, N.A., arising from a loan provided to
Scoop Real Estate, L.P., shall be transferred to the proceeds of the
sale ordered herein, and the Property shall become free and clear of
any and all such existing claims, liens, and encumbrances.
Emphasis added.
After certain closing costs the proceeds from the sale of the Rite Aid Property were
approximately $2,229,463.15 (the “Rite Aid Sale Proceeds”). The Receiver incurred expenses in
connection with the Rite Aid Property of approximately $9,200 for an appraisal of the Rite Aid
Property and $300 for certain processing fees. Wells Fargo has agreed to reimburse the Receiver
half of the appraisal $4,600 and $300 for these processing fees.
Wells Fargo is claiming an interest in the rental income collected by the Receivership
Estate, which the Receiver disputes. As such, the Receiver and Wells Fargo have agreed to
participate in mediation to resolve this dispute.
Therefore, this Motion seeks authority for the Receiver to disburse to Wells Fargo
$2,224,563.15 (the Rite Aid Sale Proceeds less $4,600 for the appraisal and $300 for processing
fees) on account of its lien on the Rite Aid Property. The Receiver will disburse the entire amount
to Wells Fargo within three days of the Court's Order granting this Motion.
B.

LA BELLASARA PROPERTY

Following the entry of the Order Appointing Receiver, Neil V. Moody in his capacity as
Trustee of the Neil V. Moody Revocable Trust Agreement dated February 9, 1995, transferred title
and possession of the La Bellasara Property to the Receiver. The Receiver actively marketed the

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La Bellasara Property for five years resulting in an offer on March 3, 2015. Pursuant to an order
from the Court (the “La Bellasara Sale Order”)(Doc. No. 1177), the Receiver, with the consent
of Wells Fargo, sold La Bellasara Property for $2,300,000 less closing costs, resulting in net sale
proceeds of approximately $2,147,805.19 (the “La Bellasara Sale Proceeds”). Pursuant to the La
Bellasara Sale Order any and all existing claims, liens, and encumbrances relating to the La
Bellasara Property, including claims held by Wells Fargo, Bank of America, N.A., and La La
Bellasara Condominium Association, Inc. were transferred to the La Bellasara Sale Proceeds.
During the time that the Receivership Estate was attempting to sell the La Bellasara Property, the
Receiver incurred costs for condominium association dues, storage, appraisals, and utilities,
totaling approximately $41,664.90. Wells Fargo has agreed to reimburse the Receiver for these
costs. As described below, the Senior Loan/Mortgage and the Junior Mortgage exceed the La
Bellasara Sale Proceeds.
Therefore, this Motion seeks authority for the Receiver to disburse to Wells Fargo
$2,106,140.29 (the La Bellasara Sale Proceeds less $41,664.90 costs incurred by the Receivership
Estate). The Receiver will disburse the entire amount to Wells Fargo within three days of the
Court's Order granting this Motion.
(i)

THE SENIOR LOAN/MORTGAGE

On May 23, 2006, MSC Mortgage, LLC ("MSC"), as lender, and Neil V. Moody as Trustee
of the Neil V. Moody Revocable Trust Agreement dated February 9, 1995, as borrower, entered
into a loan transaction pursuant to which Wells Fargo served as servicer of the loan made in
connection with the Neil Moody Trust's purchase of the La Bellasara Property. The Senior Loan
Documents (defined below) were subsequently assigned to Bank of America, N.A. (“BOFA”)
with Wells Fargo acting as servicer of the La Bellasara Property loan. As of December 30, 2016,

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the total indebtedness on the Senior Loan/Mortgage was not less than $1,537,026.12 pursuant to
that certain Note dated as of May 23, 2006 (as amended, restated, supplemented, or otherwise
modified from time to time, the “Senior Note”), between MSC and the Neil Moody Trust.
In order to secure the indebtedness under the Senior Note, the Neil Moody Trust executed
and delivered to MSC a Purchase Money Mortgage (as amended, restated, supplemented, or
otherwise modified from time to time, the "Senior Mortgage") dated May 23, 2006.2 Thereafter,
the Senior Loan Documents were assigned to BOFA. Among other things, pursuant to the Senior
Loan Documents, BOFA held a security interests in and liens upon the La Bellasara Property. The
Senior Note and Senior Mortgage are attached hereto as Composite Exhibit B.
(ii)

THE JUNIOR LOAN/MORTGAGE

On May 23, 2006, Wells Fargo, as lender, and Neil V. Moody, individually and as Trustee
of the Neil V. Moody Revocable Trust Agreement dated February 9, 1995, and Sharon G. Moody
(collectively the “Home Equity Borrowers”), entered into a home equity line of credit loan
transaction with Wells Fargo. As of December 31, 2016, the total indebtedness on the home equity
line of credit loan (i.e. the Junior Loan/Mortgage) was not less than $1,314,955.10 pursuant to that
certain SmartFit Home Equity Account Agreement and Disclosure Statement dated as of May 23,
2006 (as amended, restated, supplemented, or otherwise modified from time to time, the “Junior
Note”), between Wells Fargo and the Home Equity Borrowers.
In order to secure the indebtedness under the Junior Note, the Home Equity Borrowers
executed and delivered to Wells Fargo a Mortgage (as amended, restated, supplemented, or
otherwise modified from time to time, the "Junior Mortgage") dated May 23, 2006. Among other

2

The Senior Note and Senior Mortgage are collectively referred to herein as the "Senior Loan Documents", copies
of which are annexed hereto as Composite Exhibit B.

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things, pursuant to the Junior Loan Documents, the Home Equity Borrowers granted Wells Fargo
security interests in and liens upon the La Bellasara Property. The Junior Note and the Junior
Mortgage are attached hereto as hereto as Composite Exhibit C.
C.

LAUREL MOUNTAIN PROPERTY

On May 2, 2008, Wachovia and Laurel Preserve, LLC entered into a loan transaction to
acquire the Laurel Mountain Property in the principal amount of $1,900,000. As of January 3,
2017, the total indebtedness on the Laurel Mountain Preserve loan is not less than $2,650,453.38
pursuant to that certain Promissory Note dated as of May 2, 2008 (as amended, restated,
supplemented, or otherwise modified from time to time, the “Laurel Mountain Note”), between
Wachovia and Laurel Preserve.
In order to secure the indebtedness under the Laurel Mountain Note, Laurel Preserve, LLC
executed and delivered to Wachovia a Deed of Trust and Assignment of Rents (as amended,
restated, supplemented, or otherwise modified from time to time, the "Laurel Mountain Deed of
Trust"), to the Laurel Mountain Property dated May 2, 2008. The Laurel Mountain Note and
Laurel Mountain Deed of Trust are attached hereto as Composite Exhibit D. While the Receiver
has actively marketed the Laurel Mountain Property, as of the date of this Motion the Receiver has
been unable to sell the Laurel Mountain Property. The Receivership Estate has incurred
approximately $254,073.76 to maintain the Laurel Mountain Property.
The parties have agreed that Wells Fargo shall have 90-days from the filing of this Motion
to perform its due diligence on the Laurel Mountain Property (e.g., new appraisal and
environmental survey, which have already been ordered). After the expiration of that deadline (or
sooner if the due diligence is completed sooner), Wells Fargo shall either (i) pay to the Receiver
the expenses for maintaining the property, in the amount of $254,073.76, in exchange for the

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Court's lifting of the injunction and authorizing Wells Fargo to foreclose on the property; or (ii)
waive its security interest in the Laurel Mountain Property in favor of the Receiver.
LEGAL STANDARD
It is generally recognized that the law favors compromise of disputes over litigation. In re
Bicoastal Corp., 164 B..R. 1009, 1016 (Bankr. M.D. Fla. 1993) (Paskay, C.J.). Some courts have
held that a proposed settlement should be approved unless it yields less than the lowest amount
that the litigation could reasonably produce. In re Holywell Corp., 93 B.R. 291, 294 (Bankr. S.D.
Fla. 1988) (Weaver, J.). In In re Justice Oaks II, Ltd, 898 Fl.2d 1544 (11th Cir. 1990), cert. denied
498 U.S. 959, (1990), the Eleventh Circuit Court of Appeals enunciated certain factors which must
be considered in determining whether to approve a compromise. These factors include the
following:
a. The probability of success in the litigation;
b. The difficulties, if any, to be encountered in the matter of collection;
c. The complexity of the litigation involved, and the expense, inconvenience, and delay
necessarily attending it; and
d. The paramount interest of the creditors and a proper deference to their reasonable views
in the premises.
Id.
In summary, the Receiver recommends approval of this settlement because of Wells
Fargo’s security interests in the Properties, the absence of equity in the Properties, the continuing
costs of maintaining the Laurel Mountain Property, and further continued litigation with Wells
Fargo.

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WHEREFORE, the Receiver respectfully requests that the Court enter an order in the form
attached as Exhibit “E” (i) granting this Motion; (ii) authorizing the Receiver to disburse
$2,224,563.15 to Wells Fargo on account of the Rite Aid Property, within three days of the Court's
Order; (iii) authorizing the Receiver to disburse $2,106,140.29 to Wells Fargo on account of the
La Bellasara Property, within three days of the Court's Order; (iv) lifting the injunction to (a) allow
Wells Fargo to foreclose on the Laurel Mountain Property after payment of $254,073.76 to the
Receiver, or (b) waive its security interest in the Laurel Mountain Property in favor of the Receiver;
and (v) granting such other and further relief as this Court deems just and proper.
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 along with
Wells Fargo, N.A. have no objection to the relief sought herein.
/s/ Susan Heath Sharp
Susan Heath Sharp (FBN 716421)
Stichter Riedel Blain & Postler, P.A.
110 E. Madison St., Ste. 200
Tampa, FL 33602
Telephone: [phone]
Facsimile:
813-229-1811
Email: [e-mail]
And
/s/Sean P. Keefe
Sean P. Keefe (FBN 413828)
James Hoyer, P.A.
4830 West Kennedy Boulevard, Suite 550
Tampa, Florida 33609
Phone: [phone]
Fax: [phone]
Email: [e-mail]
Attorneys for the Receiver

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CERTIFICATE OF SERVICE
I hereby certify that on June 12, 2017, I electronically filed the foregoing with the Clerk of
the Court by using the CM/ECF system.
/s/Susan Heath Sharp
Attorney

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