Securities and Exchange Commission v. Nadel et al

Filing 1308

Unopposed MOTION for miscellaneous relief, specifically to approve Seventh Interim Distribution by Burton W. Wiand. (Attachments: # 1 Exhibit A - Distribution Amounts, # 2 Exhibit B - Reserves, # 3 Exhibit C - Proposed Order)(Lamont, Michael)

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 APPROVE
SEVENTH INTERIM DISTRIBUTION
Burton W. Wiand, as Receiver (the “Receiver”), respectfully moves this Court for an
Order approving a seventh interim distribution of $5,000,000.00 as set forth in this motion
and in Exhibit A, representing an additional recovery of 3.81% of the Allowed Amounts1 of
Class 1 Claims2 receiving a distribution at this time.3

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)

BACKGROUND
The Receiver has sought and received the Court’s approval of six prior interim
distributions. (Motions, Docs. 825, 945, 1085, 1113, 1212, 1253; Orders, Docs. 839, 946,
1087, 1114, 1213, 1259). Through these distributions the Receiver has distributed a total of
approximately $62 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
48.18% of the Allowed Amounts for those claims.4 All interim distribution checks have been
mailed to Claimants holding claims which were determined to be entitled to participate in the
interim distributions. Distribution checks from the sixth interim distribution for five claims
in the total amount of $31,344.15 have not been negotiated yet. The negotiation of these
checks was delayed due to various reasons which include the deaths of claimants and a
merger involving a business entity claimant. The Receiver’s counsel has been working with
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, $74,640.76 of this $5,000,000.00
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 amounts apportioned to those claims 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
48.81% to such Class 1 Claims, this claim was not entitled to participate in the prior interim
distributions. Accordingly, the amounts apportioned to Claim Number 391 were not
distributed and reverted to the Receivership.

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these claimants or representatives of these claimants to ensure that the appropriate parties are
able to recover these funds.
PROPOSED PLAN FOR SEVENTH INTERIM DISTRIBUTION
The Receiver now seeks leave to make a seventh interim distribution totaling
$5,000,000.00 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 3.81% recovery for these

Claimants’ Allowed Amounts, bringing these Claimants’ total recovery to approximately
51.99% 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
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 seventh interim distribution is
specified in Exhibit A.

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As noted above, 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.
The proposed seventh interim distribution will bring the total combined recovery to
approximately 51.99% for such Class 1 Claims. As such, this claim is entitled to participate
in the seventh interim distribution to the extent the percentage of recovery exceeds 50% and
thus, is only entitled to receive 1.99% of its Allowed Amount.

3

As of August 30, 2017, the total funds in all Receivership accounts are approximately
$6,753,507.70, which includes a tax refund payment from the Internal Revenue Service in
the amount of $2,920,359.71, which was received and deposited into a Receivership account
on August 28, 2017. The Receiver believes that by distributing $5,000,000.00 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 a final
distribution at the close of this Receivership.
The Receiver requests leave to make the seventh interim distribution in the amounts
specified on Exhibit A within 15 business 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.

A deadline for

negotiating distribution checks is necessary for the orderly administration of the
Receivership. If a check is not negotiated by a Claimant within 120 days, the Receiver will
make reasonable efforts to provide the Claimant an opportunity to recover the funds. If the
Receiver is unable to locate the Claimant or obtain sufficient information and/or
documentation to reissue the check, he will turn over the funds to the Division of Unclaimed
Property in the appropriate state.

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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). All objections relating to the 23 claims identified above have been resolved
and no reserves are necessary for these claims.
Wells Fargo, which filed Claim Number 502, petitioned the Court for relief with
respect to its claim and to other purported interests it asserted in Receivership property. The
Receiver and Wells Fargo entered into a settlement agreement to resolve the majority of
these matters. On June 12, 2017, the Receiver filed a motion to approve this settlement
agreement (Doc. 1291). The Court granted this motion on June 21, 2017 (Doc. 1296). In
pertinent part, the agreement provides that (1) the Receiver will disburse $2,224,563.15 from
the proceeds received in connection with the sale of the Rite-Aid property to Wells Fargo, (2)
the Receiver will disburse $2,106,140.29 from the proceeds received in connection with the
sale of the La Bellasara property to Wells Fargo, and (3) within ninety-days of the motion,
Wells Fargo will notify the Receiver in writing if it intends to pay the Receiver $254,073.76
for expenses incurred in maintaining the Laurel Preserve property and foreclose on it or
waive its security interest in the property in favor of the Receiver.
The Receiver has disbursed the funds to Wells Fargo as set forth above. In its
January 10, 2017 Order, the Court approved total reserves of $1,078,547.03 for Wells
Fargo’s purported claim relating to the Laurel Preserve property and total reserves of
$1,123,256.09 for Wells Fargo’s purported claims relating to the La Bellasara property (Doc.

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1259). As set forth above and in Exhibit B, these reserves are no longer needed due to the
settlement as approved by the Court’s June 21, 2017 Order.
During the time the Receiver maintained the Rite-Aid property, the Receivership
collected rental income in the amount of approximately $1,322,923.20. Wells Fargo is
claiming an interest in this rental income. The Receiver opposes this position and believes he
is entitled to retain these funds. The parties have agreed to mediate this issue on September
28, 2017. The Receiver will increase the reserves currently held in connection with the RiteAid property by a total of $755,538.60 as set forth in Exhibit B to include the full amount of
rental income received by the Receivership until that issue is resolved (see Claim No. 502).
The Receiver will maintain these specified reserves so that this purported interest does not
impede or delay a seventh interim distribution and will hold these reserves until this dispute
is resolved.
ARGUMENT
As explained above, the Receiver asks the Court to approve the seventh interim
distribution as set forth in this Motion and in the attached Exhibits.6

The Court has

previously approved the Receiver’s plan of distribution and six 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;
December 15, 2015 Order, Doc. 1213; January 10, 2017 Order, Doc. 1259.) The seventh
interim distribution sought herein is consistent with the plan of distribution approved by the

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For the Court’s convenience, a proposed order is provided as Exhibit C.

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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
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.

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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
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 authorizing a seventh interim distribution in the total amount of $5,000,000.00 as set
forth in this Motion and in the attached Exhibits.7

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 No. 365). The Receiver has also honored
technical requests for a business entity claimant which merged into another entity (see Claim
No. 13), and for claimants who are deceased (see Claim Nos. 293, 294, 296, and 374). These
changes are noted on Exhibit A.

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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.
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on August 31, 2017, I electronically filed the foregoing
with the Clerk of the Court by using the CM/ECF system.
s/Michael Lamont
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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