Securities and Exchange Commission v. Nadel et al
MOTION for miscellaneous relief, specifically to (1) Approve Determinations and Priority of Claims, (2) Pool Receivership Assets and Liabilities, (3) Approve Plan of Distribution and (4) Establish Objection Procedure by Burton W. Wiand. (Attachments: # 1 Exhibit A - Quest Blank Proof of Claim Form, # 2 Exhibit B - Secured Tax, # 3 Exhibit C - Secured, # 4 Exhibit D - Allowed, # 5 Exhibit E - Allowed in Part, # 6 Exhibit F - NI Allowed, # 7 Exhibit G - Denied, # 8 Exhibit H - NI Denied)(Perez, Jared)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
SECURITIES AND EXCHANGE
SCOOP CAPITAL, LLC,
SCOOP MANAGEMENT, INC.,
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.
RECEIVER’S MOTION TO (1) APPROVE
DETERMINATIONS AND PRIORITY OF CLAIMS, (2) POOL
RECEIVERSHIP ASSETS AND LIABILITIES, (3) APPROVE PLAN
OF DISTRIBUTION AND (4) ESTABLISH OBJECTION PROCEDURE
TABLE OF CONTENTS
THE RECEIVER’S DETERMINATIONS AND FURTHER PLANS FOR ADMINISTERING
THE CLAIMS PROCESS ...............................................................................................................9
THE RECEIVER’S DETERMINATION OF CLAIMS AND CLAIM PRIORITY ........10
Allowed In Part Tax Lien Claims Should Receive Highest Priority .....................12
Allowed In Part Secured Claims Should Receive The Second Highest
Allowed Investor Claims That Should Receive The Highest Priority
Among Unsecured Creditors..................................................................................21
Allowed In Part Investor Claims That Also Should Receive The Highest
Priority Among Unsecured Creditors ....................................................................22
Investor Claims Should Be Allowed Only For The Net Investment
Allowed In Part Investor Claim That Should Be Equitably Subordinated ............25
Allowed Non-Investor Claims That Should Receive The Lowest Priority
Among Allowed And Allowed In Part Claims ......................................................27
Denied Claims ........................................................................................................27
Claims That Should Be Denied Because They Do Not Involve A
Receivership Entity ....................................................................................33
Claims That Should Be Denied Because the Claimants Were on
Inquiry or Actual Notice of Fraud, and/or Conspired, Aided and
Abetted, or Otherwise Participated in the Fraud ........................................28
Claims For Royalties Should Be Denied ...................................................33
Priority Of Claims ..................................................................................................34
ALL OF QUEST’S ASSETS AND LIABILITIES SHOULD BE POOLED TO
FORM A SINGLE RECEIVERSHIP ESTATE ................................................................36
THE RECEIVER’S PROPOSED PLAN OF DISTRIBUTION........................................39
THE PROPOSED OBJECTION PROCEDURE ...............................................................41
CERTIFICATE OF SERVICE ......................................................................................................46
Burton W. Wiand, as Receiver (the “Receiver”) for Quest Energy Management
Group, Inc. (“Quest” or the “Receivership Entity”), respectfully moves this Court for an
approving his determinations and priority of claims as set forth in this
motion and in attached Exhibits B through H;
pooling all assets and liabilities of Quest;
approving a plan of distribution;
establishing a procedure for objections to the Receiver’s determinations of
claims, claim priority, and plan of distribution; and
barring and enjoining any further claims against or other efforts to enforce
or otherwise collect on any lien, debt, or other asserted interest in or against
the Receivership Entity, Receivership property, the Receivership estate, or
While it is necessary to resolve all submitted claims, it is important to note that the
Receiver anticipates that any distribution of Receivership funds will be modest at best.
Given the state of the oil and gas industry, coupled with lower than expected oil and gas
production, the Receiver believes that after payment of Receivership fees and expenses,
secured property tax liens, and other secured claims, there will be few, if any, funds
remaining to distribute to Quest’s investors.
The Receiver is endeavoring to conduct this claims process in a cost-effective
manner given Quest’s limited assets. This task has been complicated by Quest’s failure to
maintain adequate books and records or a customary accounting system. Given these
limitations, the Receiver has made the claim determinations discussed in this motion and its
exhibits based on the records available to him and did not undertake the very costly
expense of having a forensic accountant reconstruct the flow of funds through the
One prong of the relief sought by this motion should be emphasized: the Receiver
seeks to establish an objection procedure.
That procedure provides claimants the
opportunity to object to their respective claim determinations, claim priority, and the plan
of distribution through an orderly and fair process. If the Receiver and claimants are
unable to resolve any objections, then the Receiver will submit any such objections to the
Court for adjudication in an efficient manner, thus avoiding piecemeal adjudication of
objections and conserving both the Court’s and the Receivership’s time and limited
resources. The Court’s approval of matters requested in this motion is necessary to begin
Any objection to claim determinations, claim priority, or the plan of
distribution directly filed in Court in response to this motion should be denied without
prejudice to its submission to the Receiver in accordance with the pertinent parameters set
forth in Section IV of this motion.
On January 21, 2009, the Securities and Exchange Commission (“SEC”) instituted
this enforcement action following the collapse of a massive Ponzi scheme (the “scheme”)
perpetrated by Arthur Nadel (“Nadel”) through various hedge funds (the “Hedge Funds”)
from 1999 until January 2009. That same day, the Court entered an order appointing
Burton W. Wiand as Receiver for Defendants Scoop Capital 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 (Doc. 8) (the “Order Appointing
Receiver”). As part of the scheme, Nadel and his purported business partners, Neil and
Christopher Moody (collectively, the “Moodys”), paid themselves more than $90 million
in bogus management and performance fees based on fabricated asset values and
performance data. As a result of that conduct, Nadel was charged and pled guilty to
securities, mail, and wire fraud, and died in prison while serving a 14-year sentence.
During the course of the ten-year scheme, Nadel and the Moodys used scheme
proceeds – money stolen from the Hedge Funds’ investors – to found or otherwise fund
numerous businesses. Since the inception of this Receivership and in accordance with his
mandate to marshal assets for the benefit of defrauded investors, the Receiver has
successfully sought expansion of the Receivership to include those businesses. 1 Quest is
one such entity that was funded in large part with scheme proceeds.
Quest is an oil and gas exploration and production company based in Albany,
Texas. Paul Downey was its Chief Executive Officer, and his son Jeffry Downey was its
Chief Operating Officer (collectively, the “Downeys”).
The Moodys, through
Receivership Entity Viking Oil & Gas, LLC (“Viking Oil”), used scheme proceeds of
$4 million to fund Quest.
Through Hedge Fund Valhalla Investment Partners, L.P.
(“Valhalla”), the Moodys funneled an additional $1.1 million to Quest in exchange for a
Those businesses include Venice Jet Center, LLC; Tradewind, LLC; Laurel Mountain
Preserve, LLC; Laurel Preserve, LLC; Laurel Mountain Preserve Homeowners
Association, Inc.; Marguerite J. Nadel Revocable Trust UAD 8/2/07; Guy-Nadel
Foundation, Inc.; Lime Avenue Enterprises, LLC; A Victorian Garden Florist, LLC; Viking
Oil & Gas, LLC; Home Front Homes, LLC; Traders Investment Club; Summer Place
Development Corporation; Respiro, Inc.; and Quest.
promissory note from Quest and the Downeys to Valhalla. In February 2009, the Receiver
began communications with the Downeys to recover the scheme proceeds transferred to
Quest. After considerable time and effort, the Receiver reached a conditional agreement to
resolve his claims against Quest dependent upon receipt of $2.3 million from Quest. Quest
failed to make this payment and ignored the Receiver’s repeated demands for payment. In
February 2013, Quest informed the Receiver it was having cash flow problems. On March
21, 2013, the Receiver moved to expand the Receivership to include Quest. (Doc. 993.)
On May 24, 2013, the Court granted the Receiver’s motion and held that Quest is
“specifically included within the ambit of the Court’s previous orders appointing and
reappointing Burton W. Wiand as Receiver in this case.” (Doc. 1024.)
As demonstrated by an enforcement action filed against the Downeys by the SEC
on November 20, 2014, the Downeys ran Quest as a fraudulent scheme from the beginning.
The SEC filed this enforcement action in the U.S. District Court for the Northern District of
Texas against the Downeys and John M. Leonard, an individual who helped the Downeys
raise money. See S.E.C. v. P. Downey et al., Case No. 1:14-cv-185 (N.D. Tex.) (the
“Downey Enforcement Action”). The SEC asserted claims against the Downeys for their
violations of the anti-fraud provisions of the federal securities laws in connection with their
activities on behalf of Quest. On July 25, 2016, the court presiding over the Downey
Enforcement Action entered an order granting summary judgment in favor of the SEC on
its claims against the Downeys. On September 29, 2016, the court granted the SEC’s
motion for remedies and entered final judgments as to all defendants. In addition to
entering final judgments, the court also made specific findings as to the defendants,
including that Jeffry and Paul Downey (1) “raised $4.9 million from 17 investors in a
fraudulent offering of securities”; (2) “acted with a high level of scienter, knowingly
deceiving investors about virtually every aspect of the investment”; (3) concealed the
Receiver’s appointment from Quest’s investors; and (4) exhibited “misconduct [that] was
extremely egregious.” S.E.C. v. P. Downey et al., Case No. 1:14-cv-185, Order granting
SEC’s motion for summary judgment, Doc. 117, at 2-3 (N.D. Tex. Sept. 29, 1996). The
court ordered the Downeys to disgorge $4.9 million plus $1.1 million in interest and to pay
a civil penalty of $178,156 each. The Downeys have not paid anything toward the
disgorgement or penalty.
Pursuant to the Order Appointing Receiver, the Court empowered and authorized
the Receiver to engage in certain activities, including to:
Take immediate possession of all property, assets and
estates of every kind of the Defendants and Relief
Defendants, whatsoever and wheresoever located belonging
to or in the possession of the Defendants and Relief
Defendants, including but not limited to all offices
maintained by the Defendants and Relief Defendants
(including all buildings, structures and other property), rights
of action, books, papers, data processing records, evidences
of debt, bank accounts, savings accounts, certificates of
deposit, stocks, bonds, debentures and other securities,
mortgages, furniture, fixtures, office supplies and equipment,
and all real property of the Defendants and Relief Defendants
wherever situated, and to administer such assets as is
required in order to comply with the directions contained in
this Order, and to hold all other assets pending further order
of this Court . . . .
Present to this Court a report reflecting the existence
and value of the assets of the Defendants and Relief
Defendants and of the extent of liabilities, both those claimed
to exist by others and those the Receiver believes to be legal
obligations of the Defendants and Relief Defendants.
In accordance with the terms of the Order Appointing Receiver, on April 20, 2010,
the Receiver instituted a claims process for all claimants holding claims against the other
entities in this Receivership arising in any way out of the activities of those entities (the
“Hedge Funds Claims Process”). The Receiver has operated the Quest Receivership
separately from the operations and activities of the Nadel Receivership.
Receivership has not financially impacted the performance of the Nadel Receivership.
Accordingly and as explained in detail below, the Receiver determined that a separate
claims process was appropriate for Quest.
On June 15, 2016, the Receiver filed a motion to (1) Approve Procedure to
Administer Claims and Proof of Claim Form, (2) Establish Deadline for Filing Proofs of
Claim, and (3) Permit Notice by Mail and Publication (the “Claims Motion”). On June 17,
2016, the Court granted the Claims Motion in its entirety and established a Claim Bar Date
(as defined in the Claims Motion) of 90 days from the mailing of Proof of Claim Forms (as
also defined in the Claims Motion) to known possible claimants.
Pursuant to the Court’s order, any person or entity who failed to submit a proof of
claim to the Receiver so that it was received on or before the Claim Bar Date is forever
barred and precluded from asserting any claim against the Receivership or Quest. That
order further authorized the Receiver to provide sufficient and reasonable notice (1) by
mail to the last known addresses of all known potential claimants; (2) by publication on one
day in the national edition of The USA Today and in The Abilene Reporter-News; and
(3) by publication on the Receiver’s website (www.nadelreceivership.com).
In compliance with that order, on June 14, 2016, the Receiver mailed 501 claim
packages to known investors and their attorneys, if any, and any other known potential
creditors of the Receivership estate, thereby establishing October 12, 2016, as the Claim
Bar Date. Each package included a cover letter, claims process instructions, and a Proof
of Claim Form. The Receiver published notice of the claims process in the form approved
by the Court in the national edition of The USA Today and in The Abilene Reporter-News
on August 8, 2016. He also published and provided all pertinent documents for the claims
process on his website.
As of the date of this motion, the Receiver has received 72 claims from investors
(the “Investor Claimants” or “Investor Claims”). The Receiver has also received 21
claims from other purported creditors (the “Non-Investor Claimants” or “Non-Investor
Claims”) for a total of 92 submitted claims (the “Claims”). The Receiver has received
Investor Claims totaling approximately $17,012,780.79 and Non-Investor Claims totaling
approximately $1,351,629.14, for a total claim amount of approximately $18,364,409.93. 2
The Receiver has reviewed all submitted claims and finalized his determinations of those
The claims process approved by the Court for Quest is substantially similar to the
Hedge Funds Claims Process with the exception that the Receiver did not include the
These amounts do not include claims for unspecified amounts of interest, fees, or
penalties, which were sought by some claimants. Further, some claimants did not specify
the claim amount they are seeking. These numbers reflect the amounts to which claimants
assert they are entitled and not the amounts the Receiver has determined are appropriate
under law and equity.
claimants’ investment amounts, distributions received, or any other information on the
Proof of Claim Forms sent to known Quest investors and other potential claimants. As a
result, the claimants bore the burden of submitting documentation supporting their claims. 3
The Receiver identified deficiencies in certain Proof of Claim Forms and
communicated with those claimants to resolve the majority of those deficiencies. There are
six claims that have outstanding deficiencies (see Claim Nos. 29, 32, 33, 34, 35, and 44).
Specifically, five of these claimants indicated on their Proof of Claim Forms that they had
reached settlements with other parties in connection with their Quest investment but failed
to disclose the amount of that recovery (see Claim Nos. 29, 32, 33, 34, and 35). As stated
in Exhibit E, the Receiver has recommended that these claims be allowed in part,
contingent on the claimant providing an affidavit setting forth the amount he or she
recovered from any third party in connection with their investment within twenty (20) days
from the date of the Court’s order on this motion. Any amounts recovered will be added to
such claimant’s total payments if not already included and will reduce the claimant’s
allowed amount accordingly. Should the claimants fail to provide this information within
the allowed time, the Receiver has recommended that the pertinent claim be denied.
One of these six claims was submitted by an incorporated endowment (see Claim
No. 44). The president and founder of the endowment is a purported Quest sales agent. As
noted in Exhibit E, the Receiver recommends that this claim be allowed contingent upon
the receipt of an affidavit from the claimant identifying all beneficiaries of this endowment
For the Court’s ease of reference, a copy of a blank Proof of Claim Form is attached as
and stating whether the sales agent will receive any funds from a distribution to this claim
within twenty (20) days from the date of the order on this motion. If the claimant fails to
provide the affidavit within the prescribed twenty day period, the Receiver recommends
that this claim be denied. Further, if the sales agent is a beneficiary of the endowment, this
claim or the portion of the claim which may benefit the agent, should be denied.
After filing this motion, the Receiver promptly will mail a letter giving notice of
this motion to all claimants at the mailing address provided on each of their respective
Proof of Claim Forms and to their attorneys, if any were identified. The letter will explain
that this motion is available on the Receiver’s website or, upon request, from the
Receiver’s office, and it also will advise each claimant of his, her, or its respective claim
THE RECEIVER’S DETERMINATIONS AND FURTHER
PLANS FOR ADMINISTERING THE CLAIMS PROCESS
The Court’s power over an equity receivership and to determine appropriate
procedures for administering a receivership is “extremely broad.” S.E.C. v. Hardy, 803
F.2d 1034, 1037 (9th Cir. 1986); see Fugazy Travel Bureau, Inc. v. State by Dickinson, 188
So. 2d 842, 844 (Fla. 4th DCA 1966) (“The right of a receiver to settle claims and
To minimize public disclosure of claimants’ personal information and the risk that they
are targeted by additional scams, the Receiver has assigned each claim a number. By a
separately filed motion, the Receiver requested that he be allowed to file under seal a list
disclosing the identity of each claimant associated with each claim number listed in
Exhibits B through H instead of identifying the claimants by name in a public filing (Doc.
1362). The Court granted this motion on September 28, 2018 (Doc. 1363). However, in
instances where the claimant’s identity is important to the determination of a claim, this
motion discloses that information.
compromise actions with the approval and sanction of the court is well recognized ....”);
S.E.C. v. Basic Energy & Affiliated Res. Inc., 273 F.3d 657, 668 (6th Cir. 2001); S.E.C. v.
Elliot, 953 F.2d 1556, 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 creditors. Hardy, 803 F.2d at 1038. The relief requested by the Receiver in this
motion best serves this purpose.
THE RECEIVER’S DETERMINATION OF CLAIMS AND CLAIM
As discussed in the Claims Motion, a claim should be allowed if the claimant
properly completed and timely filed a Proof of Claim Form, and (1) the claim arises out of
Quest’s activities; (2) losses recognized by law resulted from such activities; (3) any
alleged claim and losses are consistent with the books and records available to the
Receiver; and (4) no other ground exists for denying the claim. The Receiver has carefully
reviewed all submitted claims and determined that each claim falls within one of five
Property tax lien claims, which should be allowed in part and receive
the highest priority among claims;
Secured claims, which should be allowed in part and receive the
second highest priority but which also should be paid only from the
proceeds of the sale of the collateral securing the claims, less fees
and costs for maintaining and selling the assets;
Investor Claims, which should be allowed (in whole or in part) and
should receive the highest priority among unsecured claims;
Unsecured Non-Investor Claims, which should be allowed but
should be paid only after tax lien claims, secured claims, and
Investor Claims have been paid in full; and
Claims that should be denied.
As detailed in Exhibits B through H, the Receiver has proposed an allowed amount
for each claim which will be used to determine the claimant’s share of distributions of
Receivership assets (the “Allowed Amount”).
The Receiver’s determination of a
claimant’s Allowed Amount is not indicative of the amount the claimant actually will
receive through distributions of Receivership assets. Rather, each claimant holding an
allowed claim with an Allowed Amount greater than zero will be eligible for distributions
on a pro rata basis depending on the priority of the claim (unless otherwise discussed in
this motion), and ultimately may only receive a percentage of the claimant’s Allowed
For example, claims submitted by unsecured Investor Claimants and Non-
Investor Claimants may receive no distributions despite having a positive Allowed Amount
because, as discussed below in Section I.H., those claims have a lower priority than other
As of February 26, 2019, the Receiver had approximately $87,092.33 in Quest’s
bank accounts. The Receiver does not have sufficient funds to warrant a distribution at this
time, but will petition the Court for authority to conduct a distribution when funds are
The Receiver anticipates that he will seek the Court’s relief to close the
Receivership and conduct a distribution of funds once a sale of Quest has been completed.
The Receiver expects that he will conduct only one distribution of funds to claimants.
The Receiver considered each submitted claim to determine its claim category, with
the goal that distribution of the Receivership’s assets be equitable and fair among all
Various types of claimants submitted claims, including but not limited to
individual investors, sales agents, taxing authorities, royalty interest holders, and a financial
institution. The majority of claimants had no reason to know of the scheme underlying this
case. Others were involved in the scheme or, at a minimum, should have recognized at
least some of the numerous “red flags.” To ensure fair and equitable treatment, the
Receiver established the categories of claimants discussed in this motion through the
review of (1) information each claimant provided, (2) the Receivership Entity’s books and
records, and (3) information obtained from non-parties.
The Receiver asks the Court to approve his recommended claim determinations as
set forth in Exhibits B through H. Further, as the Claim Bar Date has passed and all
claimants and other potential creditors have had appropriate notice of the claims process
and an opportunity to file claims and to seek enforcement of any liens or other purported
rights or interests in Receivership property, the Receiver asks the Court to issue an order
(1) confirming that no further claims will be considered and (2) barring and enjoining any
future claims against the Receivership Entity, Receivership property, the Receivership
estate, or the Receiver, and any proceedings or other efforts to enforce or otherwise collect
on any lien, debt, or other asserted interest in or against the Receivership Entity,
Receivership property, or the Receivership estate. Such an order is critical to bring finality
and is warranted in light of the ample time that has been available to address such matters.
Allowed In Part Tax Lien Claims Should Receive Highest Priority
Under the procedures set forth in the Claims Motion, the Receiver sent claims
packages to several taxing authorities, advising them of their opportunity to submit a claim.
The Receiver selected these recipients based on information in his possession indicating
ties between the Receivership and those jurisdictions. Specifically, the Receiver sent
claims packages to the Internal Revenue Service (“IRS”) and to state and certain county
taxing authorities in Texas. The Receiver received claims from five taxing authorities:
(1) Brown County Appraisal District, Brown County, Texas (“Brown County”); (2) The
County of Callahan, Texas (“Callahan County”); (3) The County of Guadalupe, Texas
(“Guadalupe County”); (4) Shackelford County Appraisal District, Texas (“Shackelford
County”); and (5) The County of Denton, Texas (“Denton County”). (See Claim Nos. 1,
2, 3, 4, and 73, respectively, on Exhibits B and G.) With the exception of Denton County,
these claims stem from taxes incurred from 2012 through 2016 on property and other assets
owned or leased by Quest. The Denton County claim appears to be for taxes on vehicles
and inventory for Quest Energy Services, Inc. This entity is not related to the Receivership
Entity, and the claim should thus be denied. As specified in Exhibit B, the remaining four
tax claims should be allowed in part as secured tax claims for only the amount of actual tax
owed – not for any claimed penalties, interest, or other fees. Because the Claim Bar Date
has long passed, the Court should order that the above taxing authorities are barred and
precluded from asserting any further claims against the Receiver, the Receivership estate,
or any Receivership Entity. See Callahan v. Moneta Capital Corp., 415 F.3d 114, 117-18
(1st Cir. 2005) (potential claimants that did not submit claims by bar date lacked “standing
to object to the adjudication of a pending claim in the Claims Disposition Order”); S.E.C. v.
Princeton Econ. Int’l Ltd., 2008 WL 7826694, *4 (S.D.N.Y. 2008) (“All persons or entities
with a claim that failed to file a proof of claim prior to the Bar Date and were not excused
from filing a proof of claim under the Plan are forever barred, estopped, and permanently
enjoined.”); C.F.T.C. v. Wall St. Underground, Inc., 2007 WL 1531856, *4 (D. Kan. 2007)
(same). Enforcement of the Claim Bar Date against any future claim is necessary to allow
the Receiver to proceed with his plan of distribution as discussed in Section III below.
Allowed In Part Secured Claims Should Receive The Second Highest
The Receiver received secured claims that should be allowed in part from two
entities that loaned money to Quest: (1) Van Operating Ltd. (“Van Operating”) and
(2) First National Bank of Albany (“Bank of Albany”). (See Exhibit C, Claim Nos. 5 and
6.) Van Operating submitted a claim for $795,201.59 based on a loan Quest assumed in
2007. (See Claim No. 6.) Specifically, Van Operating loaned Musselman Petroleum and
Land Company and John. E. Musselman (collectively, “Musselman”) $832,000 in 1998,
which loan was secured by certain oil and gas leases and related equipment (the
“Musselman Loan”). On January 1, 2007, Quest assumed the Musselman Loan along
with Musselman’s interests in the secured property. As part of that transaction, Quest
entered into an “assumption, modification and renewal agreement” with Van Operating
(the “Renewal Note”), pursuant to which the parties stipulated that, as of January 1, 2007,
the outstanding principal balance of the Renewal Note was $832,000, which amount “shall
bear interest at ten percent (10%) per annum.”
Due to the Downeys’ misappropriation of funds, Quest continually and repeatedly
struggled to make payments required by the Renewal Note. For example, on August 24,
2010, Van Operating’s Chief Financial Officer, Don Fitzgibbons, responded to an email in
which Paul Downey suggested various repayment options: “Paul, as we discussed, we do
not want to continue to be the payee of last resort. This issue has been outstanding much
longer than was ever contemplated.” The Receiver and his professionals have identified
numerous similar communications.
On December 29, 2011, Quest and Van Operating entered into a modification and
renewal agreement, pursuant to which the parties stipulated that the outstanding principal
balance of the Renewal Note was $652,005.86. The parties also extended the maturity date
of the Renewal Note to March 31, 2012, and provided that Quest would cause the
companies that purchased its oil and gas production to pay 50% of any future purchase
amounts directly to Van Operating. Paul Downey personally guaranteed all indebtedness
under the Renewal Note.
Between the issuance of the Renewal Note on January 1, 2007, and Quest’s
inclusion in this Receivership on May 24, 2013, Quest paid Van Operating $719,072.60,
which includes total principal payments of $335,385.48 and total interest payments of
$383,687.12. Van Operating thus has already received nearly 87% of the original loan
amount. The Renewal Note’s outstanding principal balance on or shortly before Quest’s
inclusion in this Receivership was $496,614.52. Van Operating arrives at its claim amount
by adding $89,011.85 in legal fees and $207,157.50 in interest, the recovery of which
would not be equitable under these circumstances.
As set forth in Exhibit C, Van
Operating’s claim should be allowed but only in the amount of the outstanding principal
balance of the Renewal Note at the time of the Receiver’s appointment – i.e., $496,614.52.
Bank of Albany submitted a claim for $198,250.14 plus unspecified “interest from
9/12/2013” based on two loans it made to Quest and the Downeys. First, on April 17,
2006, Bank of Albany loaned $76,000 to Quest, “by and through Jeff Downey, Vice-
President,” for the purchase of certain real property in Shackelford County, Texas, from
which the Downeys operated Quest (the “Office” and the “Office Loan”). (See Claim No.
5.) 5 On April 17, 2012, Bank of Albany and Quest entered into a “modification, renewal
and extension” of the Office Loan, pursuant to which the parties acknowledged that the
outstanding balance at the time of the modification was $52,463.74 and agreed to extend
the loan’s maturity date to April 17, 2015. Bank of Albany does not appear to have
provided any new funds to Quest in connection with this modification and extension. As
such and as set forth in Exhibit C, Bank of Albany’s claim with respect to the Office Loan
should be allowed in the amount of $46,522.00, which is the approximate outstanding
principal balance of that loan at the time of the Receiver’s appointment. But that amount
should only be paid from the proceeds of the eventual sale of the Office, less fees and costs
incurred by the Receivership to maintain and sell the property. Because the Receiver is
entitled to compensation for these fees and costs, they should be deducted from the
proceeds of the sale of the property first and then the remaining proceeds should be
distributed to Bank of Albany up to the Allowed Amount.
Second, on October 13, 2010, Bank of Albany loaned Quest $700,000 (the “2010
Loan”), which was secured by certain oil and gas leases, personal property, and
equipment. 6 The Downeys also personally guaranteed the 2010 Loan. On February 26,
Bank of Albany loaned additional money to Quest (the balance of which it also seeks to
recover through Claim No. 5), but as explained below, the portion of the bank’s claim
relating to that loan should be denied.
The 2010 Loan succeeded a similar $600,000 loan Bank of Albany made to Quest in
2008 (the “2008 Loan”) and a $500,000 loan it made to Quest in 2007 (the “2007 Loan”).
2013, Bank of Albany and Quest entered into a “modification, renewal and extension” of
the 2010 Loan, pursuant to which the parties acknowledged that the outstanding principal
balance of the loan at the time of the modification was $213,057.30. The Court expanded
this Receivership to include Quest shortly thereafter – on May 24, 2013, at which time the
outstanding principal balance of the 2010 Loan was approximately $151,728. During the
life of the 2010 Loan, Quest paid Bank of Albany approximately $555,739, which includes
total principal payments of approximately $492,247 and total interest payments of
approximately $63,492. Bank of Albany has thus already received nearly 80% of the
original loan amount.
For the reasons summarized below, Bank of Albany knew or should have known
that Quest was insolvent, at minimum, when it issued the 2010 Loan.
Quest’s financial viability was based, in substantial part, on the Moodys’
(misappropriated) assets and purported creditworthiness, but Nadel’s
scheme collapsed in January 2009 – almost two years before the bank made
the 2010 Loan.
The Court expanded this Receivership to include Viking Oil & Gas, LLC on
July 15, 2009.
The SEC sued the Moodys on January 11, 2010, and this Court entered
injunctive judgments against them on April 7, 2010. See S.E.C. v. Neil V.
Moody and Christopher D. Moody, Case No. 8:10-cv-0053-T-26TBM
(Docs. 1, 9, 9-1).
Van Operating knew that Quest could not pay its debts as they became due,
and that knowledge is chargeable to the bank because numerous individuals
Quest repaid the 2007 Loan in full, and Bank of Albany received $43,683.99 of interest in
connection with that loan. On October 13, 2010, a balance of $110,626.47 remained on the
2008 Loan, which appears to have been refinanced or otherwise combined with the 2010
Loan. Bank of Albany received $79,312.03 of interest from the 2008 Loan.
work for or are otherwise affiliated with both entities. For example, the
Receiver has reviewed numerous emails between Don Fitzgibbons and the
Downeys alternately asking them to make payments due under the Renewal
Note and threatening legal action. As noted above, Mr. Fitzgibbons is Van
Operating’s CFO, but he is also Bank of Albany’s “advisory director” for
the oil and gas industry. Other individuals have similar dual roles.
Bank of Albany never obtained complete records from Quest and the
Downeys. The Receiver has reviewed numerous letters from 2008 through
2013 requesting missing financial statements and tax returns. Indeed, the
bank’s own “Criticized Asset Action Plan” faults the “lack of reliable
financial information received” from Quest and the Downeys.
And finally, Bank of Albany knew or at least suspected that the Downeys
were operating Quest in a fraudulent manner. In one email the Receiver
reviewed, a petroleum engineer the bank hired to evaluate Quest wrote that
the company’s oil and gas recovery estimates were “a little ambitious, IMO,
about 30X!” In another email, the engineer wrote that Quest’s monthly
“overhead and supervision” costs “may be totally bogus….” Bank of
Albany nevertheless issued the 2010 Loan.
Given these factors, Bank of Albany knew or should have known that Quest was
insolvent and that the Downeys were operating Quest fraudulently. As such and as set
forth in Exhibit C, Bank of Albany’s claim with respect to the 2010 Loan should be
denied. Bank of Albany should only recover the portion of its claim related to the Office
and the Office Loan and only from the proceeds of the sale of that property after deducting
the Receivership’s fees and costs.
Courts regularly require that claims of secured creditors, like Bank of Albany and
Van Operating, be satisfied only from the proceeds of the secured collateral. See Petters,
2011 WL 281031 at *3 (establishing separate group of creditors, which included banks
holding secured loans, each of which received the specific assets assigned to it). If the
value of the collateral is insufficient to satisfy the secured creditor’s claim, that creditor
may not recover the deficiency from the receivership’s other assets.
See Clark on
Receivers § 660(a) at 1155; Byers, 637 F. Supp. 2d at 183 (adopting distribution plan
which “only permit[ted] secured creditors to recover out of their collateral” and
“prohibit[ed] them from recovering under the [p]lan for their deficiency claims”). This rule
exists because secured creditors typically enjoy a greater recovery, on a percentage basis,
than defrauded investors and general creditors. Id. at 183 (quoting Official Comm. of
Unsecured Creditors of WorldCom, Inc., 467 F.3d 73. Indeed, secured creditors have an
advantage because they have an identifiable asset over which they enjoy priority in relation
to other creditors, including defrauded investors. Accordingly, Bank of Albany’s and Van
Operating’s claims should be paid only from the proceeds of the sale of their collateral (i.e.,
the Office and the oil and gas leases, respectively).
The Receiver is entitled to compensation for fees and expenses related to managing
the properties underlying the secured creditors’ claims. In that regard, “an equity receiver
does not merely inherit an owner’s rights; the receiver is an officer of the court entrusted
with administration of the property.” Gaskill v. Gordon, 27 F.3d 248, 251 (7th Cir. 1994).
As a result, “[t]he district court appointing the receiver has discretion over who will pay the
costs of the receiver.” Elliott, 953 F.2d at 1576; Gaskill, 27 F.3d at 251 (noting “the
district court may, in its discretion, determine who shall be charged with the costs of the
receivership”). “The court in equity may award the receiver fees from property securing a
claim if the receiver’s acts have benefitted that property.” Elliott, 953 F.2d at 1576;
Gaskill, 27 F.3d at 251 (“As a general rule, the expenses and fees of a receivership are a
charge upon the property administered.”). To have “benefitted” a property, the Receiver’s
acts need not have increased the property’s monetary value. See Elliott, 953 F.2d at 1577.
“Even though a receiver may not have increased, or prevented a decrease in, the value of
the collateral, if a receiver reasonably and diligently discharges his duties, he is entitled to
compensation.” Id. (citing Donovan v. Robbins, 588 F. Supp. 1268, 1273 (N.D. Ill. 1984)
(district court awarded receiver a fee simply for determining how much money to release to
creditor)). Here, the Receiver has reasonably and diligently discharged his duties with
respect to the properties underlying the secured creditors’ claims. See Elliott, 953 F.2d at
1576 (“The district court found that it would be inequitable for the burden of the
receivership to fall solely on the unsecured investors since the secured investors had
substantially benefitted from the Receiver’s work.”); Gaskill, 27 F.3d at 251 (“Courts in
equity have allowed liens for receivership expenses to take priority over secured creditors’
interests in the property when the receiver’s acts have benefited the property.”).
Like investors who may not recover false profits, interest, or, more broadly, lost
opportunity costs on their “investment,” it is not fair or equitable to allow Bank of Albany
or Van Operating to recover post-Receivership interest on their loans, legal fees, or other
Cf. Warfield, 2007 WL 1112591 at *13 (defendants “could have no
reasonable expectation of profiting from an illegal Ponzi scheme”); S.E.C. v. Forte, 2010
WL 939042, *5 (E.D. Pa. 2010) (“A receiver’s legal entitlement to recover a winning
investor’s false profits is thus well-settled”). In other words, they should not be entitled to
any interest accrued on their loans since inception of this Receivership. This is particularly
true here where Bank of Albany knew that Quest was insolvent and had overvalued its oil
and gas interests by thirty times. Further, Bank of Albany and Van Operating had to be
aware that Quest was only managing to stay afloat from the influx of money raised from
investors. Payment of interest also would unfairly diminish funds available to pay the
claims of innocent defrauded investors.
As discussed above Bank of Albany loaned
approximately $1,765,373.53 to Quest and has already received payments totaling
approximately $1,712,432.22 representing a recovery to date of approximately 91% of the
principal loan amount.
Van Operating loaned $832,000 and has already received
$719,072.60, representing a recovery to date of nearly 87% of the principal loan amount.
Considering (i) the amounts these secured creditors have already received – all of which
consisted of scheme proceeds; (ii) their ability to absorb losses as compared to a typical
investor in this Receivership; and (iii) that the scheme was not directed at them, Claim
Numbers 5 and 6 should be allowed only in part and subjected to the limitations set forth in
this subsection and also reflected in Exhibit C.
Allowed Investor Claims That Should Receive The Highest Priority
Among Unsecured Creditors
The highest priority among unsecured claims should be given to investors who were
victimized by the scheme and who did not have reason to recognize “red flags” (the
Specifically, these investors invested a principal amount in the
scheme that exceeded any payments they received from the scheme. The Receiver has
determined that ten (10) Investor Claims should be allowed in full. These claims are
identified in Exhibit D and are consistent with the Receivership Entity’s books and records
and other documents recovered by the Receiver (collectively, the “Receivership
Records”). Accordingly, the Court should allow each of these claims as set forth in
Allowed In Part Investor Claims That Also Should Receive The Highest
Priority Among Unsecured Creditors
The Receiver received 52 Investor Claims which, because of various factors, should
not be allowed in full. These claims are set forth in Exhibit E.
Investor Claims Should Be Allowed Only For The Net
As a general matter, an Investor Claimant is not entitled to an Allowed Amount that
exceeds the claimant’s “Net Investment Amount.” The Net Investment Amount for an
investor is calculated by adding all amounts invested by that investor and subtracting all
payments made to that investor and/or in connection with that investment, regardless of
whether those payments were characterized as interest, returns of principal, or any other
terminology. The Court previously approved the Net Investment Method in the Hedge
Funds Claims Process.
The Court should also approve the Net Investment Method as the proper method for
determining Allowed Amounts for Investor Claims in the Quest Claims Process. Using the
Net Investment Method, the Allowed Amount only takes into account the actual dollars the
claimant “invested” less any amounts the claimant already received. This method of
calculating a claimant’s loss is regularly adopted by receivership courts, which consistently
hold that a defrauded investor’s claim should be limited to the total dollar amount of its
investment reduced by any funds it received. See, e.g., In re Old Naples Sec., Inc., 311
B.R. 607, 616 (Bankr. M.D. Fla. 2002); Warfield v. Carnie, 2007 WL 1112591, *12-13
(N.D. Tex. 2007); S.E.C. v. Homeland Commc’ns Corp., 2010 WL 2035326, *3 (S.D. Fla.
2010); S.E.C. v. Credit Bancorp, Ltd., 2000 WL 1752979, *40 (S.D.N.Y. 2000); In re
Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229, 233-35 (2d Cir. 2011). These cases
establish that the Net Investment Method represents the most equitable and practical
approach for determining investor claim amounts and a common approach for handling
investor claims in a receivership involving a fraudulent investment scheme. See Madoff,
654 F.3d at 233-35.
The Net Investment Method appropriately does not give claimants credit for scheme
misrepresentations, such as that investors had earned interest (“False Interest”). For
instance, it was falsely represented to many investors that they would receive 10% annual
interest paid quarterly and 125% redemption of the face value of the investment at
Any “interest payments,” “dividends,” “returns on investment,” or money
received by any other name other than principal redemptions, made or promised to
investors are collectively referred to as “False Interest Payments.” These False Interest
Payments were fictitious because Quest was operated as a Ponzi scheme, and the False
Interest Payments promised or paid were or would have been paid with investors’
commingled principal investment funds.
A Ponzi scheme is an illegal endeavor and thus creates no legal entitlement to
profits or interest for its investors. See Warfield, 2007 WL 1112591 at *12-13; In re
Pearlman, 484 B.R. 241, 244 (Bankr. M.D. Fla. 2012) (applying “Net Investment Method
to the investors’ claims, which will reduce the proofs of claim of those investors who
received interest or dividend payments, because those payments were, by their very nature,
illegal and fictitious”); Janvey v. Brown, 767 F.3d 430, 442 (5th Cir. 2014) (investors have
no claim for contractual interest from Ponzi scheme); see also Donell v. Kowell, 533 F.3d
762, 774-775 (9th Cir. 2008) (Ponzi investors “were not actually investors, but rather tort
creditors with a fraud claim for restitution equal to the amount [lost]”); Scholes v.
Lehmann, 56 F.3d 750, 755 (7th Cir. 1995) (defrauded Ponzi scheme investors have a
claim because they are tort creditors).
A Ponzi scheme generates no legitimate investment interest, and “recognizing
profits or other earnings in claims for distribution would be to the detriment of later
investors and would therefore be inequitable.” Commodity Futures Trading Com’n v.
Equity Fin’l Group, LLC, 2005 WL 2143975, *23 (D.N.J. 2005). Because early investors
would have the benefit of many more months of receiving False Interest Payments than
later investors who invested the same amount of actual dollars, the later investors would
ultimately recover less because they had less time to recover part of their principal through
such fictitious False Interest Payments. Early investors should not benefit at the expense of
later ones. See Cunningham v. Brown, 265 U.S. 1, 13 (1924); Abrams v. Eby, 294 F. 1, 4
(4th Cir. 1923); Madoff, 654 F.3d at 235 (if Net Investment Method is not adopted “those
claimants who have withdrawn funds from their ... accounts that exceed their initial
investments ‘would receive more favorable treatment by profiting from the principal
investments of those claimants who have withdrawn less money than they deposited,
yielding an inequitable result’”) (citations omitted).
As such, promised future False
Interest Payments should not factor into the determination of an Allowed Amount because
they do not reflect actual interest, while any False Interest Payments received by a claimant
must be factored into the claimant’s Allowed Amount.
Accordingly, the Court should (1) find that the Net Investment Method as proposed
above and as reflected in the Exhibits is the appropriate and equitable method for
determining Allowed Amounts for Investor Claims and (2) allow the claims set forth in
Exhibit E for the specified Allowed Amounts, which reflect the claimants’ Net Investment
Allowed In Part Investor Claim That Should Be Equitably
The Receiver submitted a claim in the Quest Claims Process on behalf of Nadel
Receivership Entity Viking Oil & Gas, LLC and Nadel Receivership Entity Valhalla
Investment Partners, L.P. (see Claim No. 65). The Viking Oil and Valhalla investments in
Quest were directed by Neil and Christopher Moody. The Moodys played a significant role
in the fraud perpetrated through the Hedge Funds, and together, they received
approximately $42 million in fees from certain Nadel Receivership Entities. 7 The Moodys
formed Viking Oil to make investments in oil and gas ventures. Between February 2006
and April 2007, through Viking Oil, the Moodys invested $4 million in Quest. The
On January 11, 2010, the Commission instituted an enforcement action against the
Moodys alleging that they violated antifraud provisions of the federal securities laws in
connection with their involvement in Nadel’s scheme. See generally SEC v. Neil V.
Moody, et al., Case No. 8:10-cv-00053-T-33TBM (M.D. Fla.) (the “Moody SEC Action”),
Compl. (attached as Exhibit A to Doc. 325). On the same day, the Moodys, without
admitting or denying the allegations of the complaint, consented to entry of a permanent
injunction and agreed to disgorge all ill-gotten gains upon the Commission’s request.
(Moody SEC Action, Consent of Def. Neil V. Moody ¶ 3, Doc. 2, Ex. 2) (also attached as
Ex. B to Doc. 325.); (Moody SEC Action, Consent of Def. Christopher D. Moody ¶ 3, Doc.
2, Ex. 1). On April 7, 2010, Judgments of Permanent Injunction and Other Relief were
entered against Neil and Chris Moody. (Moody SEC Action, Docs. 9 (Neil Moody) and 9-1
(Chris Moody)). The Judgments permanently enjoin Neil and Chris Moody from further
violations of the antifraud provisions of the federal securities laws.
Moodys also invested $1,100,000 through Valhalla, which was a purported hedge fund
created by Neil Moody in 1999 to invest and trade in securities.
As noted above, the Downeys inflated and misrepresented Quest’s viable assets. As
such, Quest’s investors are not likely to recover a substantial or even material portion of
their Allowed Amounts. This is especially true given the need to pay taxing authorities and
secured creditors first, as described above in Sections I.A. and I.B.
In contrast, the
Receiver has already distributed approximately $67 million to Nadel’s victims – i.e.,
defrauded investors in the Hedge Funds and other related creditors.
represents a 51.99% recovery, and the Receiver is likely to make at least one more
distribution in that claims process. Affording the Viking Oil and Valhalla claim the same
level of priority as claims from Quest’s other investors would only further dilute the
minimal value of those claims. As such and as set forth on Exhibit E, the Receiver
recommends that the Viking Oil and Valhalla claim be approved but equitably
subordinated to the Quest Investor Claims. In other words, the Viking Oil and Valhalla
claim will not be paid unless and until the Allowed Amounts of the Quest Investors Claims
are paid in full.
“Equitable subordination does not deal with the existence or non-existence of the
debt, but rather involves the question of order of payment.” In re Lockwood, 14 B.R. 374,
380–81 (Bankr. E.D.N.Y. 1981). “The fundamental aim of equitable subordination is ‘to
undo or offset any inequality in the claim position of a creditor that will produce injustice
or unfairness to other creditors....’” Id. (quoting In re Westgate Cal. Corp., 642 F.2d 1174,
1177 (9th Cir. 1981)). “Subordination is an equitable power and is therefore governed by
equitable principles.” Westgate Cal. Corp., 642 F.2d at 1177. As explained above, the
Viking Oil and Valhalla claim should be subordinated to the Quest Investor Claims because
Nadel and Moody-related creditors have already recovered approximately 51.99% of their
allowed amounts while Quest’s creditors will recover a much smaller percentage, if
Allowed Non-Investor Claims That Should Receive The Lowest Priority
Among Allowed And Allowed In Part Claims
Two unsecured, non-investor creditors submitted claims for amounts owed in
connection with their provision of services to Quest (“Unsecured Non-Investor
Claimants”). The total amount of those two claims is $6,431.10, and they are itemized in
Exhibit F. As discussed in Section I.H. below and in Exhibit F, these Unsecured NonInvestor Claims should be allowed but receive the lowest priority among allowed and
allowed in part unsecured claims, such that these claims are paid only after the Allowed
Amounts of all Investor Claims have been paid in full.
Twenty-five claims should be denied. 8 These claims are identified in Exhibits G
and H and are briefly summarized below. 9
One of these claims was submitted by the County of Denton, Texas for taxes on an entity
unrelated to Quest (see Claim No. 74). This claim is discussed in Section I.A. above.
One claim should be denied because it appears that the claimant submitted two separate
claims for one investment (See Claim Nos. 9 and 80). The Receivership Records reflect
that only one $50,000 investment was made by this claimant. Therefore, the Receiver
recommends that Claim Number 80 be denied as duplicative.
Claims That Should Be Denied Because the Claimants Were on
Inquiry or Actual Notice of Fraud, and/or Conspired, Aided and
Abetted, or Otherwise Participated in the Fraud
As set forth in Exhibit G, six claims should be denied because the claimants had
either actual or inquiry notice of fraud, and/or conspired, aided and abetted, or otherwise
participated in the fraud, and thus it would be inequitable to share Receivership assets with
these claimants. These six claims were submitted by Quest “sales agents,” the spouse of a
sales agent, and an individual who actively sought to raise capital for the benefit of Quest
(see Claim Nos. 68, 69, 70, 71, 72, and 73). Specifically, these claims were submitted by
(1) Ernest Cozzi, (2) Kristi Cain (the spouse of sales agent Sean Cain) on behalf of Caromil
Farm, LLC and Cain-Griffin Group, Inc.; 10 (3) Randy Birkinbine; 11 and Stephen Chastain12
(collectively, the “Sales Agents”).
The Sales Agents were directly responsible for
soliciting victims for Quest’s fraudulent scheme. As detailed below, these claims should be
denied because these agents and the respective spouse cannot satisfy their good faith
Kristi Cain filed three claims relating to two investments. Claim Number 69 and Claim
Number 71 appear to seek relief for the same $100,000 investment. The Receiver
recommends that this claim be denied for the reasons set forth herein and also as
Birkinbine submitted a claim for an investment made by a husband and wife which he
solicited on behalf of Quest and received $7,000 in commission (See Claim No. 68).
Birkinbine claims he received an assignment of the investment through a settlement of
litigation brought by the victim investors against him. This purported assignment does not
negate or diminish the inequity of allowing Birkinbine to participate in Receivership
distributions given his role in the scheme.
Chastain was not a traditional “sales agent” for Quest. However, he worked on behalf of
Quest to obtain capital to allow it to continue its fraudulent scheme. By seeking capital for
Quest, he acted as an agent of Quest, and as such, it would be inequitable to allow him to
share in distributions from the Receivership.
obligations and because it would be inequitable to allow them to receive Receivership
distributions in light of their roles in the scheme.
Courts sit as courts of equity over securities fraud receiverships. See, e.g., Elliott,
953 F.2d at 1566. As such, the Court has “broad powers and wide discretion” to fashion
appropriate relief, including to devise a plan for distributing receivership assets. See, e.g.,
id. In resolving claims submitted in a claims process, courts consider a wide variety of
factors, with the ultimate goal of fashioning an equitable system that treats similarly
situated claimants equally. See, e.g., Homeland Commc’ns Corp., 2010 WL 2035326 at *2
(“[I]n deciding what claims should be recognized and in what amounts, the fundamental
principle which emerges from case law is that any distribution should be done equitably
and fairly, with similarly situated investors or customers treated alike....”) (quotation
omitted); Cunningham, 265 U.S. at 13 (as among “equally innocent victims, equality is
equity”); Elliott, 953 F.2d at 1570 (same).
A Sales Agent’s (or their spouse’s) receipt of any Receivership assets is inequitable
because they lacked “good faith” or, put differently, they knew or should have known of
fraud. See, e.g., S.E.C. v. Megafund Corp., 2007 WL 1099640, *2 (N.D. Tex. 2007)
(claims disallowed because claimants did not show they acted in good faith); S.E.C. v.
Nadel, Case No. 8:09-cv-0087-RAL-TBM (M.D. Fla. 2013) (Doc. 1061 at *11-13). The
concept of good faith derives from fraudulent conveyance statutes, including the Florida
Uniform Fraudulent Transfer Act, Fla. Stats. §§ 726.101 et seq. (“FUFTA”).
FUFTA, the Receiver may recover transfers for the benefit of the Receivership estate that
were made with “actual intent to hinder, delay, or defraud” creditors (Fla. Stats.
§ 726.105(1)(a)), which intent is established as a matter of law when a transfer is made
during a Ponzi scheme. See, e.g., Wiand v. Lee, 753 F.3d 1194, 1201 (11th Cir. 2014)
(“[U]nder FUFTA’s actual fraud provision, proof that a transfer was made in furtherance of
a Ponzi scheme establishes actual intent to defraud under § 726.105(1)(a) without the need
to consider the badges of fraud ….”); In re Christou, 2010 WL 4008191, *3 (Bankr. N.D.
Ga. 2010) (“Any transfers made during the course of a Ponzi scheme are presumptively
made with intent to defraud.”); Wing v. Horn, 2009 WL 2843342, *4-5 (D. Utah 2009)
(“[I]nference of fraudulent intent applies to all transfers from a Ponzi scheme”;
categorizing transactions “is inconsistent with fraudulent transfer law’s focus on the
transferor”). FUFTA provides an affirmative defense, however, under which the Receiver
may not recover a transfer if, among other prerequisites, the transferee can demonstrate that
it received the transfer in “good faith.” See Fla. Stats. §§ 726.109(1), (2)(b).
Good faith is an objective standard. See Terry v. June, 432 F. Supp. 2d 635, 641
(W.D. Va. 2006). “The relevant inquiry is what the transferee objectively knew or should
have known instead of examining the transferee’s actual knowledge from a subjective
standpoint.” See Quilling v. Stark, 2007 WL 415351, *3 (N.D. Tex. 2007). “[I]f the
circumstances would place a reasonable person on inquiry notice of a debtor’s fraudulent
purpose, and diligent inquiry would have discovered the fraudulent purpose, then the
transfer is fraudulent.” In re World Vision Entm’t, Inc., 275 B.R. 641, 659 (Bankr. M.D.
Fla. 2002). “Importantly, a transferee may not remain willfully ignorant of facts which
would cause it to be on notice of a debtor’s fraudulent purpose, and then put on ‘blinders’
prior to entering into transactions with the debtor and claim the benefit of [the good faith
defense].” Id. (internal citations and quotations omitted). In turn, a diligent inquiry “must
ameliorate the issues that placed the transferee on inquiry notice in the first place” and
cannot consist of merely inquiring with the transferor about the suspicious circumstances.
In re Bayou Group, 396 B.R. 810, 846 (Bankr. S.D.N.Y. 2008).
In short, if a claimant’s reasonable inquiry would have revealed any questions or
concerns about the Receivership Entity or anyone associated with it, that claimant could
not have acted in good faith unless it subsequently conducted a diligent and reasonable
inquiry which ameliorated those questions or concerns.
Without satisfying these
obligations, the claimant was, at a minimum, on inquiry notice of fraud.
Courts have specifically addressed whether a securities broker – like the Sales
Agents – acted in good faith when receiving commissions for selling interests in a
fraudulent investment scheme. “[A]ny broker selling short-term promissory notes, even
unregistered promissory notes such as the debtor’s notes, has a minimal duty of care owed
to investors.” World Vision Entm’t, Inc., 275 B.R. at 654. At a minimum, this includes
reviewing audited financial statements, company-provided literature on sales history, and
key employees. Id. at 659; see also In re Evergreen Sec., Ltd., 319 B.R. 245, 255 (Bankr.
M.D. Fla. 2003). Thus, each of the Sales Agents had a legal duty to: (i) investigate the
financial, performance, and personnel background of the investment manager or the
offering company; (ii) ensure the associated risk factors and costs surrounding the
investment strategy or product were disclosed and evaluated; and (iii) not rely solely on a
sponsor’s or issuer’s word about an investment product. Nor could they “refrain from
asking hard questions about the legitimacy of the product, and then assume a proper
investigation was completed.” World Vision Entm’t, Inc., 275 B.R. at 660. In short,
“circumstances putting the transferee on inquiry notice as to a debtor’s insolvency, an
underlying fraud, or the improper nature of a transaction, will preclude a transferee from
asserting a good faith defense.” Evergreen Sec., Ltd., 319 B.R. at 255.
The Sales Agents ignored numerous red flags indicative of “insolvency, an
underlying fraud, or the improper nature of the transaction” and failed to satisfy the
minimum due diligence requirements discussed in Evergreen and World Vision
Entertainment. Had the Sales Agents conducted a reasonable investigation, they would
have quickly learned of the fraudulent nature of Quest investments. Because the Sales
Agents cannot demonstrate good faith, they are not entitled to receive any distribution of
Receivership Assets also for this reason.
While the Receiver has not yet uncovered evidence that Cain’s spouse was directly
involved in the sale of Quest investments, their familial relationship to the scheme warrants
imputing Cain’s lack of good faith to her and entities controlled by her. 13 See In re IFS
Fin’l Corp., 417 B.R. 419, 444-45 (Bankr. S.D. Tex. 2009); In re Bernard Madoff Inv. Sec.,
LLC, 440 B.R. 243, 259-60 (Bankr. S.D.N.Y. 2010); In re Manzanres, 345 B.R. 773, 792
(Bankr. S.D. Fla. 2006); In re Maxwell Newspapers, 164 B.R. 858, 866-869 (Bankr.
S.D.N.Y. 1994). Further, the money used for one of these investments came from a joint
Kristi Cain indicated on the Proof of Claim Forms for Caromil Farms that she is the
president, only officer and director, and sole member. On the Proof of Claim Form for
Cain-Griffin Group, Kristi Cain indicated that she is the president. The Receiver also
discovered an indication that Cain was the CEO, CFO, and secretary for the Cain Griffin
Group before it was administratively closed and then reinstated by Kristi Cain.
account shared by Cain with his wife. Simply put, it would be inequitable and unjust to
allow any Sales Agent, directly or indirectly with his spouse, to receive assets from the
Receivership estate because (a) they assisted with fraudulently obtaining those assets and
(b) those assets should be paid to the very investors they defrauded. See In re Bernard L.
Madoff Inv. Sec. LLC, 458 B.R. 87, 121 (Bankr. S.D.N.Y. 2011) (holding that in SIPA
liquidation, claims of Madoff family members should be subordinated).
Claims That Should Be Denied Because They Do Not Involve A
Five claims were received from claimants who invested in Callahan Energy
Partners (“Callahan”), an entity distinct from Quest. (See Claim Nos. 75, 76, 77, 78, and
79). 14 The Receiver has not been able to identify any transfer of funds from Callahan to
Quest for these claimants. Consistent with the Net Investment Method discussed in Section
I.D.1 above, an investor is only entitled to a claim for the amount of funds actually
deposited into the scheme less dollars the investor received from the scheme. Because the
Receiver has been unable to find any evidence of actual dollars deposited into Quest in
connection with these Callahan investments, the claimants do not have a claim to
Receivership assets. Accordingly, the Receiver recommends that these claims be denied.
Claims For Royalties Should Be Denied
The Receiver received twelve claims from individuals who own a royalty interest
percentage in certain wells. (See Claim Nos. 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, and
One of these claims also was received after the Claim Bar Date, which serves as an
additional basis for denial of the claim (see Claim No. 78).
92). The Receiver has been making royalty interest payments for the months in which
revenue was received from the sale of natural gas and intends to continue making royalty
payments if such revenue is received. 15 Accordingly, the claimants’ interests are protected,
and these claims should be denied.
Priority Of Claims
As discussed above, the Receiver has established the following categories of
claims: (a) property tax lien claims which should be allowed in part; (b) secured claims
which should be allowed in part; (c) Investor Claims which should be allowed (in whole, in
part, or subrogated); (d) Unsecured Non-Investor Claims which should be allowed; and (e)
claims which should be denied. From these categories, the Receiver has determined the
fair and equitable priority for each of these claims’ participation in distributions of
Receivership assets. The highest priority (“Class 1”) should be afforded to the property tax
lien claims which are allowed in part (Exhibit B).
Second highest priority (“Class 2”) should be afforded to allowed in part secured
claims (Exhibit C). Claimants holding Class 2 claims will only participate in a distribution
of Receivership assets after all Allowed Amounts for Class 1 claims have been satisfied in
full. However, as discussed in Section I.B. above, these claimants should be allowed to
recover only from proceeds of the sale of the asset securing their respective interest up to
With respect to the Musselman Caddo Unit lease (“MCU”), when the Receiver produces
and sells gas, the Receiver pays the gas royalties. When MCU produces oil, the gatherer,
TransOil, handles the payment of the royalties.
the outstanding principal amount of the debt at the time of the Receiver’s appointment less
fees and costs incurred by the Receivership to maintain and sell the asset.
All Investor Claims which are Allowed (Exhibit D) and Investor Claims which are
Allowed In Part (Exhibit E) should receive third priority (“Class 3”), which is the highest
among unsecured claims.
Each claimant holding a Class 3 claim would receive a
distribution on a pro rata basis as detailed below in Section III only after all Allowed
Amounts for Class 1 and Class 2 claims have been satisfied in full. The Viking Oil and
Valhalla claim is a Class 3 claim, but because it should be equitably subordinated, this
claim will not initially participate in the pro rata distribution. This claim will only receive
a distribution once the Allowed Amounts of the other Class 3 claims have been paid in full.
Unsecured Non-Investor Claims (Exhibit F) receive fourth priority (“Class 4”).
These claims only will participate in a distribution of Receivership assets if all preceding
classes are paid in full. The remaining claims (“Class 5”) are those which should be denied
(Exhibit G and Exhibit H).
Claimants holding Class 5 claims will not receive any
The Receiver’s proposed priority for claim categories is fair and equitable. The
Court’s broad power to approve the Receiver’s claim determinations and priority of claims
is settled. See Elliott, 953 F. 2d at 1566 (court has “broad powers and wide discretion” to
assure equitable distributions).
Further, courts routinely hold that treating similarly-
situated parties alike in claims processes is fair and equitable. Id. at 1570; United States v.
Petters, 2011 WL 281031, *7 (D. Minn. 2011). There is no requirement, however, that all
claimants be treated in the same manner; rather, fairness only requires that similarly
situated claimants should be treated alike.
See, e.g., Trade Partners, Inc., 2006 WL
3694629 at *1 (distinguishing between fraud victims and general creditors); Byers, 637 F.
Supp. 2d at 184 (“The Receiver’s proposal to treat differently those involved in the
fraudulent scheme when distributions are being made is eminently reasonable and is
supported by caselaw.”).
Further, no specific method of distribution is required; the
method of distribution should simply be “fair and equitable.” S.E.C. v. P.B. Ventures, 1991
WL 269982, *2 (E.D. Pa. 1991). In the end, “[a]n equitable plan is not necessarily a plan
that everyone will like.” Credit Bancorp, 2000 WL 1752979 at *29. Indeed, “when funds
are limited, hard choices must be made.” Byers, 637 F. Supp. 2d at 176 (quoting Official
Comm. of Unsecured Creditors of WorldCom, Inc. v. S.E.C., 467 F.3d 73, 84 (2d Cir.
ALL OF QUEST’S ASSETS AND LIABILITIES SHOULD BE POOLED TO
FORM A SINGLE RECEIVERSHIP ESTATE
Despite the complete disarray of Quest’s financial records, the Receiver was able to
determine that Quest was insolvent almost since its inception in 2006 and expenses were
outpacing revenue by more than two to one. At the time of the Receiver’s appointment,
Quest owed investors and others millions of dollars but had virtually no revenue with
which to repay this debt. One way the Downeys had raised money on behalf of Quest from
investors was through promises to repay the principal amount plus periodic interest. The
company had ceased making interest payments to those investors more than one year
before the Receiver’s appointment. Quest’s minimal income was insufficient even to
satisfy its operating expenses, let alone its debt obligations. As a result, there was no
potential for the Downeys to satisfy Quest’s obligations other than by using money
received from new investors to pay existing investors. As such, pooling all of Quest’s
assets is appropriate because it was operated as part of a single, continuous Ponzi scheme.
Treating all Receivership assets as a single fund to pay all collective liabilities of
Quest is consistent with the manner in which Quest was operated. This requested relief is
well within the Court’s broad power to administer this Receivership. See HKW Trading,
2009 WL 2499146 at *2; see also Hardy, 803 F.2d at 1040. The primary purpose of an
equity receivership is to promote the orderly and efficient administration of the estate for
the benefit of the creditors. See Hardy, 803 F.2d at 1038. Consolidating all of the assets
and liabilities of Quest best serves this purpose.
Courts routinely permit equity receivers to pool assets. See, e.g., HKW Trading,
2009 WL 2499146 at *6 (“The Court directs that all assets and liabilities of the
Receivership Entities be consolidated for all purposes.”); S.E.C. v. Credit Bancorp, Ltd.,
290 F.3d 80, 91 (2d Cir. 2002) (affirming district court’s equitable authority to treat all
fraud victims alike and order pro rata distribution of assets); Basic Energy, 273 F.3d at 663
(adopting receiver’s plan to create single pool of assets for all investors); Elliott, 953 F.2d
at 1584 (approving district court’s decision to reject tracing and treat three companies as
single entity); S.E.C. v. Forex Asset Mgmt. LLC, 242 F.3d 325, 332 (5th Cir. 2001)
(affirming district court’s order approving receiver’s plan to distribute funds to all
claimants on pro rata basis even though funds invested by two claimants were segregated
by fraudster and traced to separate account); Quilling v. Trade Partners, Inc., 2008 WL
4283359, *4 (W.D. Mich. 2008) (“In [r]eceivership cases where the fraud has features that
are similar or common to all victims, and at least some commingling of funds occurred, pro
rata distribution of pooled assets has been the standard.... ”); U.S. v. Durham, 86 F.3d 70,
72-73 (5th Cir. 1996) (approving receiver’s plan to distribute money to claimants on pro
rata basis even though majority of money could be traced to one claimant); see also U.S. v.
Real Property Located at 13328 & 13324 State Hwy., 89 F.3d 551, 553 (9th Cir. 1996)
(approving district court’s finding that “[i]nstead of engaging in a tracing fiction, the
equities demand that all [defrauded] customers share equally in the fund of pooled assets in
accordance with the SEC plan”).
Indeed, courts have held that “any comingling is enough to warrant treating all the
funds as tainted.” Byers, 637 F. Supp. 2d at 177. Because “money is fungible” it is
“impossible to differentiate between ‘tainted’ and ‘untainted’ dollars....” Lauer, 2009 WL
812719 at *4-5. “Once proceeds become tainted, they cannot become untainted.” Ward,
197 F.3d at 1083. In addition, “when tainted funds are used to pay costs associated with
maintaining ownership of [a] property, the property itself and its proceeds are tainted by the
Lauer, 2009 WL 812719 at *3 (citing United States v. One Single Family
Residence Located at 15603 85th Ave. North, Lake Park, Palm Beach County, Fla., 933
F.2d 976, 982 (11th Cir. 1991)).
In short, the most equitable and efficient approach is to pool all assets and liabilities
of Quest into one consolidated estate. See S.E.C. v. Vescor Capital Corp., 599 F.3d 1189,
1194 (10th Cir. 2010) (“[I]n a case involving a Ponzi scheme, the interests of the [r]eceiver
are very broad and include not only protection of the receivership res, but also protection of
defrauded investors and considerations of judicial economy”). To handle the estate in any
other manner would be very expensive and unworkable, especially given the limited value
of Quest’s assets.
THE RECEIVER’S PROPOSED PLAN OF DISTRIBUTION
As of February 26, 2019, total funds in all Quest Receivership accounts is
$87,092.33. The Receiver does not have sufficient funds to warrant a distribution at this
time. The Receiver anticipates that he will seek to distribute funds once a sale of Quest has
been completed. The Receiver will file a motion for the Court’s approval of a distribution
along with the close of the Receivership. To streamline this process, the Receiver has set
forth a proposed plan of distribution below, which will be followed should sufficient funds
be received from the sale of Quest. The Receiver’s Proposed Plan of Distribution 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 has wide latitude when it exercises its
inherent equitable power in approving a plan of distribution of receivership funds. Forex,
242 F.3d at 331 (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. S.E.C. v. Wang, 944 F.2d 80, 83-84 (2d Cir. 1991); Basic
Energy, 273 F.3d at 671.
The Receiver proposes that the distribution be made on a pro rata basis subject to
applicable exceptions, priorities, and other parameters discussed in this motion. The
Receiver will pay outstanding Receivership fees and expenses and will seek a reserve for
anticipated expenses to complete the distribution and the close of the Receivership. The
Receiver will distribute the remaining funds to each class by priority. Should the Receiver
not have sufficient funds to pay Class 1 claims in full, he will distribute the funds on a pro
rata basis. If there are sufficient funds to pay all Class 1 claims, the Receiver will
distribute funds to Class 2 claims as specified herein. Once the Allowed Amounts for
Class 2 claims are paid in full, the Receiver will distribute the remaining funds to Class 3
Investor Claimants entitled to participate in the distribution on a pro rata basis, subject to
the equitable subordination of the Viking Oil and Valhalla claim, as discussed above.
The Receiver will mail distribution checks by regular U.S. Mail, and he requests
that the claimants be allowed 120 days to negotiate the distribution checks. If a check is
not negotiated within 120 days, the money will be deposited into the unclaimed funds
division for the state of the pertinent claimant’s last known address. A deadline for
negotiating distribution checks is necessary for the orderly administration of the
The Receiver has proposed a procedure in Section IV below for claimants to object
to the Receiver’s determination of a claim, claim priority, or plan of distribution as
approved by the Court. The procedure provides, in relevant part, that each claimant will
have thirty (30) days from the date the Receiver mails each claimant notice of the Court’s
order on this motion to serve the Receiver with an objection.
The Proposed Plan of Distribution detailed above is fair and reasonable. Consistent
with the features of this scheme, “[c]ourts 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.” Credit Bancorp, 290
F.3d at 88; see Trade Partners, 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.”); U.S. S.E.C. v. Infinity Grp. Co., 226
Fed. App’x 217, 218 (3d Cir. 2007) (“the Courts of Appeals repeatedly have recognized
that pro rata distribution of a defrauder’s assets to multiple victims of the fraud is
appropriate and that District Courts act within their discretion in approving such
distributions.”). 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 PROPOSED OBJECTION PROCEDURE
For efficiency, the Court should adopt a formal procedure to address instances
where a claimant does not agree with the Receiver’s recommended determination of the
claimant’s claim or objects to claim priority or the plan of distribution as approved by the
Court. The procedure recommended below allows the Receiver to (1) address any disputed
matters in a fair and efficient manner and (2) present any unresolved objections to the
Court in an organized and, if appropriate, consolidated manner, which will be efficient and,
to the extent possible, avoid the Court’s receipt of objections on a piecemeal basis. The
procedure also provides each claimant with notice and an opportunity to be heard in
accordance with applicable due process obligations.
The Receiver respectfully requests the Court adopt the following objection
procedure (the “Proposed Objection Procedure”):
Within three (3) business days after the date of the order on this
motion, the Receiver will post the order on his website,
www.nadelreceivership.com. A copy of this motion will be
posted soon after it is filed.
Within ten business (10) days after the date of the Order on this
motion, the Receiver will mail each claimant by U.S. First Class
Mail at the address provided on the Proof of Claim Form a letter
setting forth the procedure for objecting to the Receiver’s
determination of a claim (the “Receiver’s Claim
Determination”), claim priority, or plan of distribution as
approved by the Court. The letter will provide notice that the
Court’s order on this motion is available on the Receiver’s
website. The letter will further provide that a claimant may
contact the Receiver’s office for a copy of the motion and/or
order if a claimant does not have access to the internet or cannot
otherwise access the motion and/or order.
Any claimant that is dissatisfied with the Receiver’s Claim
Determination, claim priority, or plan of distribution must serve
the Receiver in accordance with the service requirements of Rule
5 of the Federal Rules of Civil Procedure with a written
objection no later than thirty (30) days after the date of mailing
of the Receiver’s letter advising the claimant of the order on this
motion. All objections must be served on the Receiver at Burton
W. Wiand c/o Maya M. Lockwood, Esq., Wiand Guerra King
P.A., 5505 West Gray Street, Tampa, Florida 33609, and should
not be filed with the Court. Such objections shall clearly state
the nature and basis of the objection, and provide all supporting
statements and documentation the claimant wishes the Receiver
and the Court to consider.
Failure to properly and timely serve an objection to the
Receiver’s Claim Determination, claim priority, or plan of
distribution shall permanently waive the claimant’s right to
object to or contest the Receiver’s Claim Determination, claim
priority, and plan of distribution and the final claim amount shall
be set as the Allowed Amount determined by the Receiver as set
forth in the Exhibits attached to this motion as approved by the
If a claimant timely serves an objection, the Receiver will notify
the objecting claimant of his ruling on the pertinent objection no
later than forty-five (45) days after the end of the objection
period (the “Notification”). The claimant will then have thirty
(30) days from the date of the Notification to serve the Receiver
with a written response to the Notification which must clearly
state whether the claimant maintains the objection or accepts the
Receiver’s further determination of the claim as set forth in the
Notification. Failure to properly and timely serve this written
response will be deemed as an acceptance of the Receiver’s
ruling as set forth in the Notification.
Although each objecting claimant previously submitted to this
Court’s jurisdiction by filing a claim with the Receiver, by
serving an objection the objecting claimant shall be deemed to
have confirmed submission to the exclusive jurisdiction of this
Court. A person serving an objection to the Receiver’s Claim
Determination, claim priority, or plan of distribution, shall be
entitled to notice, but only as it relates to adjudication of the
particular objection and the claim to which the objection is
The Receiver may attempt to settle and compromise any claim or
objection subject to the Court’s final approval.
At such times as the Receiver deems appropriate, he will file
with the Court any settlements or compromises that the Receiver
wishes the Court to rule upon.
If the Receiver and an objecting claimant are unable to resolve
an objection, no later than forty-five (45) days from the date of
the claimant’s written response to the Receiver’s Notification,
the Receiver with file with the Court: (1) the Receiver’s further
determination of the claim with any supporting documents or
statements he considers are appropriate, if any; and (2) the
unresolved objection, with supporting statements and
documentation, as served on the Receiver by the claimant;
The Court may make a final determination based on the
submissions identified in the previous paragraph or may set the
matter for hearing and, following the hearing, make a final
determination. The claimant shall have the burden of proof. The
Receiver will provide notice of such hearing as provided in
paragraph (f) above.
The Proposed Objection Procedure satisfies due process and is similar to the
procedure approved by this Court in the Hedge Funds Claims Process.
essentially requires that the proceeding be fair and that affected parties be given notice and
an opportunity to be heard. See Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 542
(1985); Elliott, 953 F.2d at 1566. The use of summary proceedings to implement claims
procedures is customary in receiverships and satisfies due process requirements when
claimants receive an opportunity to be heard, to object to their claim determination, and to
have their claims considered by a court. See id; Basic Energy, 273 F.3d at 668-671. The
Proposed Objection Procedure achieves each of these requirements.
F.D.I.C. v. Bernstein explains,
One common thread keeps emerging out of the cases
involving equity receiverships – that is, a district court has
extremely broad discretion in supervising an equity
receivership and in determining the appropriate procedures to
be used in its administration.
In keeping with this broad discretion, “the use of summary
proceedings in equity receiverships as opposed to plenary
proceedings under the Federal Rules of [Civil Procedure] is
within the jurisdictional authority of a district court.” Such
procedures “avoid formalities that would slow down the
resolution of disputes. This promotes judicial efficiency and
reduces litigation costs to the receivership,” thereby
preserving receivership assets for the benefit of creditors.
786 F. Supp. 170, 177-78 (E.D.N.Y. 1992) (citations omitted). This Court should approve
the Proposed Objection Procedure because it satisfies due process and is logical, fair, and
reasonable. See Elliott, 953 F.2d at 1567 (summary proceedings are appropriate where
party has full and fair opportunity to present claims and defenses).
Proposed Objection Procedure provides for (1) notice to claimants of the Receiver’s
determination of their claims, claim priority, and plan of distribution; (2) the opportunity
for claimants to object to these matters; and (3) the review of unresolved objections by the
Importantly, the Proposed Objection Procedure eliminates the need for any
objections to be filed with the Court in direct response to this motion. In turn, that will
preclude inefficient piecemeal presentation and adjudication of objections by the Court.
Such a piecemeal process would result in an inefficient claims process for both the Court
and the Receivership.
As such, the Proposed Objection Procedure promotes judicial
efficiency and reduces litigation costs.
For these reasons, the Receiver respectfully requests the Court enter an order:
Approving the Receiver’s treatment and determination of claims as set forth
in this motion and in attached Exhibits B through H;
Authorizing the Receiver to pool and consolidate all of Quest’s assets and
liabilities for all purposes, including for payment of administrative costs,
receipt of third-party recoveries, and making distributions to holders of
Approving the Net Investment Method as set forth above and in the attached
Exhibits as the proper method for calculating Allowed Amounts for Investor
Approving the Proposed Plan of Distribution as set forth above in Section
Approving the Proposed Objection Procedure as set forth above in Section
IV for objections to the plan of distribution and the Receiver’s claim
determinations and claim priorities as set forth in this motion and attached
Exhibits B through H; and
Precluding and forever barring and enjoining further claims against the
Receivership Entity, Receivership property, the Receivership estate, or the
Receiver by any claimant, taxing authority, or any other public or private
person or entity and precluding and forever barring and enjoining any other
efforts to enforce or otherwise collect on any lien, debt, or other asserted
interest in or against the Receivership Entity, Receivership property, or the
LOCAL RULE 3.01(G) CERTIFICATION
The undersigned counsel for the Receiver has conferred with counsel for the
Commission and is authorized to represent to the Court that the Commission has no
objection to the relief sought herein.
s/Jared J. Perez
Jared J. Perez, FBN 0085192
WIAND GUERRA KING P.A.
5505 West Gray Street
Tampa, FL 33609
Tel.: (813) 347-5100
Fax: (813) 347-5198
Attorney for Burton W. Wiand, as Receiver
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 7th day of March, 2019, I electronically filed
the foregoing with the Clerk of the Court by using the CM/ECF system.
s/Jared J. Perez
Jared J. Perez, FBN 0085192
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