Securities and Exchange Commission v. Nadel et al

Filing 1311

DECLARATION of Burton W. Wiand re 1310 Verified MOTION for miscellaneous relief, specifically to Enforce Constructive Trust through Turnover of Real Property, or in the Alternative, through Foreclosure of the Receiver's Equitable Lien by Burton W. Wiand. (Attachments: # 1 Exhibit A - Doc 29 Order granting partial motion for summary judgment, # 2 Exhibit B - Final Judgment, # 3 Exhibit C - BK Case Doc 39 Order Granting Motion to Confirm Termination or Absence of Stay or Alternatively Relief From the Automatic Stay, # 4 Exhibit D - AQ Doc 115 Motion to transfer, # 5 Exhibit E - AQ Doc 182 ORDER granting 115 Motion to transfer; granting 117 Motion to transfer, # 6 Exhibit F - AQ Doc 184 Turnover Order, # 7 Exhibit G - 1 (pages 1-25) - AQ Doc 258 MOTION for confirmation of sale of Realty - with exhibits, # 8 Exhibit G - 2 (pages 25-50) - AQ Doc 258 MOTION for confirmation of sale of Realty - with exhibits-2, # 9 Exhibit G - 3 (pages 51-101) - AQ Doc 258 MOTION for confirmation of sale of Realty - with exhibits-2, # 10 Exhibit H - AQ Doc 263 FINAL JUDGMENT CONFIRMING RECEIVER'S SALE OF REALTY, # 11 Exhibit I - Hudgins Doc 264 Order Approving Sale of Real Propert)(Lamont, Michael)

EXHIBIT E

Case 6:07-cv-00608-ACC-DAB Document 182 Filed 09/19/08 Page 1 of 6 PageID 1917

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
-vs-

Case No. 6:07-cv-608-Orl-22DAB

AQUACELL BATTERIES, INC.;
MICHAEL J. NASTE;
AQUACELL BATTERIES FLORIDA,
INC.; ETERNERGY, INC.;
GAMING SOFTWARE, INC., f/k/a: Bet-Net
Enterprises, Inc.;
GAMING SOFTWARE
INTERNATIONAL;
GODFATHER'S, INC.;
MIGHTY MUSCLE CARS, INC.;
HOLLYWOOD MOVIE HAIR
PRODUCTS, INC.,
Defendants.
______________________________________

ORDER
This cause came on for consideration with evidentiary hearing and oral argument on the
following motions filed herein:
MOTION:

MOTION FOR THE ENTRY OF AN ORDER
DIRECTING THE TURNOVER AND TRANSFER OF
CERTAIN REAL PROPERTY LOCATED IN NORTH
CAROLINA (Doc. No. 115)

FILED:
May 9, 2008
_______________________________________________________
THEREON it is ORDERED that the motion is GRANTED.

Case 6:07-cv-00608-ACC-DAB Document 182 Filed 09/19/08 Page 2 of 6 PageID 1918

MOTION:

MOTION FOR ENTRY OF AN ORDER DIRECTING
THE TRANSFER OF A 1997 BENTLEY AUTOMOBILE
(Doc. No. 117)

FILED:
May 9, 2008
_______________________________________________________
THEREON it is ORDERED that the motion is GRANTED.
In the motions, the Receiver seeks an Order transferring certain real and personal property
currently owned by or under the control of Michael W. Hennigan, M.D. (herein “Dr. Hennigan”), to
the Receivership Estate. Previously, the Court deferred ruling on the motions in order to give Dr.
Hennigan, who is not a named party in this matter but is President of Relief Defendant Gaming
Software, International, an opportunity to respond (Doc. No. 131). Following a delay, Dr. Hennigan
appeared and objected to the relief sought by the Receiver (Doc. No. 145-46). As it was not clear
to the Court whether Dr. Hennigan desired an evidentiary hearing or to proceed on the papers filed,
the Court ordered clarification of his intent (Doc. No. 161). Pursuant to his response (Doc. No. 167),
the Court held an evidentiary hearing and oral argument on the motions (Doc. No. 168) and Dr.
Hennigan appeared pro se (Doc. No. 179). The matter is now ready for resolution.
The Receiver asserts that certain real property (the “North Carolina property”) and certain
personal property (“the Bentley”) owned or controlled by Dr. Hennigan are rightfully part of the
Receivership Estate as they were purchased solely with funds directly traceable from Aquacell and
Dr. Hennigan has no legitimate claim to the property. In his papers and at hearing, Dr. Hennigan
concedes that “monies that were put into Aquacell were used to purchase the property” (Doc. No. 145,
p. 2, Allegation 3). Dr. Hennigan takes issue however, with the assertion that he has no legitimate
interest in the properties. Based on the evidence introduced at hearing and the papers and supporting
declarations of record, the Court finds that the transfers of the properties to Dr. Hennigan or his
-2-

Case 6:07-cv-00608-ACC-DAB Document 182 Filed 09/19/08 Page 3 of 6 PageID 1919

company were improper and in violation of the terms of the Court’s Temporary Restraining Order;
that Dr. Hennigan has no legitimate claim to the properties; and that the Receiver is entitled to
imposition of a constructive trust on the properties, and an Order directing their return to the
Receivership Estate.
The North Carolina Property
It is not disputed that funds from Aquacell were used to purchase the North Carolina property
in 2005. The property was held in the name of The Trophy Group, a company controlled by
Defendant Naste. Dr. Hennigan has represented, and for purposes of this Order the Court accepts the
representation, that over the years, he has “invested” hundreds of thousands of dollars into The
Trophy Group. Dr. Hennigan does not claim to have invested any money into Aquacell.
On April 13, 2007, Judge Conway entered the Temporary Restraining Order (Doc. No. 10)
and Order Appointing the Receiver (Doc. No. 11). On April 19, 2007, Defendant Naste, on behalf
of The Trophy Group, signed a “Quitclaim Deed” purporting to transfer the North Carolina Property
to MWH Investments LLC (“MWH”). MWH was organized on April 17, 2007 (two business days
after the entry of the TRO). The principal and sole owner of MWH is Dr. Hennigan (Michael W.
Hennigan). Dr. Hennigan did not pay any consideration to Aquacell for the North Carolina property.
The Bentley
The Bentley was in the possession of Mr. Naste at the time of the issuance of the TRO. It was
transferred to MWH on April 20, 2007, one week after the TRO was issued, purportedly for
consideration of $500.00. At hearing, Dr. Hennigan stated that the Bentley is presently in his
possession and estimates that it is worth approximately $25,000.00.1

1

In his papers, Dr. Hennigan notes that similar cars are trading on EBAY for about $35,000.00. (Doc. No. 145 at 4).

-3-

Case 6:07-cv-00608-ACC-DAB Document 182 Filed 09/19/08 Page 4 of 6 PageID 1920

Constructive Trust
In his brief, Dr. Hennigan contends that: “the Receiver has the burden of establishing (1) that
Aquacell fraudulently obtained funds from investors; (2) investor funds were then transferred to
Trophy Group for the benefit to obtain the above items; and (3) that I, Michael Hennigan, has [sic]
no legitimate claim to the items.” (Doc. No. 145 at 6). Dr. Hennigan does not contest the second
element, but asserts that the Receiver has not shown that Aquacell fraudulently obtained the funds nor
that he has no legitimate claim to the funds.
As noted previously by this Court, the underlying fraud of Defendants has been established
by the findings in the Preliminary Injunction (findings which were not disputed by the named
Defendants) and the wealth of supportive evidence of record, which now includes a Final Judgment
of Permanent Injunction and Other Relief (Doc. No. 174), with a stipulated finding in favor of the
SEC on the merits. While Dr. Hennigan may disagree with the final conclusions reached by the Court
on this matter, those conclusions are binding and not susceptible to re-litigation.
As for Dr. Hennigan’s entitlement to the properties, it appears that his claim is based on a form
of “self-help.” As stated by Dr. Hennigan in his papers: “I thought Michael was going to jail AND
I DEMANDED SOMETHING OF VALUE FOR ALL THE MONEY THAT I HAD PUT INTO THE
TROPHY GROUP.” (Doc. No. 145 at 3-4, capitalization original). The problem with this approach,
of course, is that the properties were not Naste’s or The Trophy Group’s to sell or otherwise transfer.
As this Court recognized with respect to other property in this Receivership, the purchase of property
with Aquacell funds renders the property receivership property, and subjects it to an equitable lien
or constructive trust. (See Doc. No. 161, citing In re Financial Federated Title and Trust, Inc., 347
F.3d 880, 887 (11th Cir. 2003) (equitable lien imposed on property purchased with fraudulently
obtained funds).) As the properties were purchased solely with funds from Aquacell, and neither
-4-

Case 6:07-cv-00608-ACC-DAB Document 182 Filed 09/19/08 Page 5 of 6 PageID 1921

Naste nor The Trophy Group paid anything in consideration for them (and thus, were not bona fide
purchasers for value), they were held at all times subject to Aquacell’s equitable lien. The subsequent
transfer to MWH was similarly not a transfer to a bona fide purchaser for value, and, at least with
respect to the Bentley, was in direct violation of the TRO’s mandate not to dispose of assets.
Dr. Hennigan has provided numerous exhibits, including bank statements and cancelled
checks, to support his contention that he has provided hundreds of thousands of dollars directly or
indirectly to Mr. Naste, and that he is therefore “the biggest victim in all of this mess.”2 These
motions, however, are not directed towards whether Mr. Naste acted appropriately or inappropriately
toward Dr. Hennigan. Indeed, for present purposes, even if the Court were to credit all of Dr.
Hennigan’s assertions, it would not serve to justify the transfer of property from Aquacell to
Hennigan. In passing, it is perhaps worth noting that Dr. Hennigan himself was unable to define the
nature of his investments in Mr. Naste’s ventures, due in part to Mr. Naste’s mysterious and abnormal
practice of not documenting his business relationships and in further part due to Dr. Hennigan’s casual
approach to making unsecured investments (despite a history of poor results).
The Receiver has carried its burden and has met each prong of the test for imposing a
constructive trust upon the North Carolina property and the Bentley. The motion with respect to the
North Carolina property is therefore granted to the extent that the North Carolina property is to be
transferred to, and title vested in, the Receiver, subject to all existing liens or mortgages (if any), and
the Receiver is granted authority to market and sell the property, subject to approval of the Court.
Dr. Hennigan is ordered to vacate the property within 30 calendar days of the date of this Order, and
to cooperate in the meantime, with readying the property for sale and allowing reasonable access to

2
None of Dr. Hennigan’s exhibits or testimony suggests he had any legal or equitable interest in these specific assets
based on his investments. He simply arranged to get title and possession of the assets because he felt he deserved “something.”

-5-

Case 6:07-cv-00608-ACC-DAB Document 182 Filed 09/19/08 Page 6 of 6 PageID 1922

the Receiver for the purposes of marketing the property. The Receiver is directed to provide the Court
with a proposed Order to effectuate the transfer of title.
The motion to transfer the Bentley is similarly granted. Dr. Hennigan is ordered to return
the Bentley to the Receiver and to complete whatever paperwork is necessary to effectuate transfer
of title. In the alternative, the Receiver shall prepare and provide the Court with a proposed Order
sufficient to effectuate the transfer. The Receiver is granted authority to sell the Bentley for the
benefit of the Receivership Estate, subject to the approval of the Court.
DONE and ORDERED in Orlando, Florida on September 19, 2008.

David A. Baker
DAVID A. BAKER
UNITED STATES MAGISTRATE JUDGE
Copies furnished to:
Counsel of Record
Unrepresented Parties

-6-