Securities and Exchange Commission v. Nadel et al

Filing 1402

Verified MOTION for miscellaneous relief, specifically to Approve Settlements of Claims and Objections with Certain Secured Creditors by Burton W. Wiand. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3)(Perez, Jared)

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

Plaintiff,

ARTHUR NADEL,
SCOOP CAPITAL, LLC,
SCOOP MANAGEMENT, INC.,
Defendants.

CASE NO.: 8:09-cv-0087-T-33CPT

SCOOP REAL ESTATE, L.P.,
VALHALLA INVESTMENT PARTNERS, L.P.,
VALHALLA MANAGEMENT, INC.,
VICTORY IRA FUND, LTD,
VICTORY FUND, LTD,
VIKING IRA FUND, LLC,
VIKING FUND, LLC, AND
VIKING MANAGEMENT, LLC.
Relief Defendants.

/

RECEIVER’S VERIFIED MOTION TO APPROVE SETTLEMENTS
OF CLAIMS AND OBJECTIONS WITH CERTAIN SECURED CREDITORS
Burton W. Wiand, as receiver (the “Receiver”) for Quest Energy Management
Group, Inc. (“Quest”), moves the Court for an order, in substantially the form attached as
Exhibit 1, approving settlements of claims and objections with five Texas-based taxing
authorities (see infra pp. 4-5) (the “Taxing Authorities”) and the First National Bank of
Albany/Breckenridge (the “Bank”). The Receiver believes these settlements are fair and
reasonable and will conserve limited resources by avoiding unnecessary litigation.

BACKGROUND
On January 21, 2009, the Securities and Exchange Commission (“SEC”) initiated this
action to prevent the defendants from further defrauding investors in hedge funds the
defendants operated. That same day, the Court entered an order appointing Burton W.
Wiand as Receiver for defendants Scoop Capital, LLC, and Scoop Management, Inc., and
relief defendants Scoop Real Estate, L.P.; Valhalla Investment Partners, L.P.; Valhalla
Management, Inc.; Victory Fund, Ltd.; Victory IRA Fund, Ltd.; Viking IRA Fund, LLC;
Viking Fund, LLC; and Viking Management, LLC. See Doc. 8. The Court subsequently
granted several motions to expand the scope of the Receivership to include other entities
owned or controlled by Arthur Nadel (“Nadel”). See generally Docs. 17, 44, 68, 81, 153,
172, 454, 911, 916, 1024. All of the entities in receivership are collectively referred to as the
“Receivership Entities.” The Court directed the Receiver to, among other things, administer
and manage the business affairs, funds, assets, and any other property of the Receivership
Entities. See, e.g., Doc. 8.
Quest And Its Assets
Quest is an oil and gas exploration and production company based in Texas. Paul
Downey was its Chief Executive Officer, and his son Jeff Downey was its Chief Operating
Officer (collectively, the “Downeys”). Viking Oil & Gas, LLC (“Viking Oil”) is a Florida
limited liability company formed in January 2006 by Neil and Christopher Moody (the
“Moodys”) to make investments in Quest. The Moodys funded Viking Oil with proceeds
from Nadel’s scheme, and as a result, the Court expanded the Receivership to include Viking
Oil on July 15, 2009. Doc. 153. Between February 2006 and April 2007, through Viking

2

Oil, the Moodys invested at least $4 million in Quest. As a result, the Receiver filed a motion
to expand the Receivership to include Quest (Doc. 993), and the Court granted that motion
on May 24, 2013 (Doc. 1024). Although Quest is one of the Receivership Entities, the
Receiver has administered Quest independently, as directed by the Hon. Richard A. Lazzara
(the “Quest Receivership” and the “Quest Estate”).
Since the inception of the Quest Receivership in May 2013, the Receiver has
managed and operated Quest, including its oil and gas leases. The company generates
revenue by selling its production, but that revenue has varied sharply with oil and gas prices,
and it has not historically exceeded Quest’s operating costs by a material margin. As such
and as explained in more detail below, the Receiver has long sought to sell Quest to monetize
its assets for the Quest Estate and eventual distribution to creditors. The Receiver’s efforts,
however, have been complicated by the fraudulent manner in which the Downeys operated
Quest. See, e.g., S.E.C. v. P. Downey et al., Case No. 1:14-cv-185 (N.D. Tex.). 1

1

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 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 Jeff 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. As far as the Receiver is aware, the Downeys have not paid
anything toward the disgorgement or penalty.

3

The Quest Claims Process
On June 15, 2016, the Receiver filed his Unopposed 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. See Doc. 1240 (the “Quest
Claims Motion”). The Court granted the motion on June 17, 2016, thus establishing the
“Quest Claims Process.” Doc. 1241. Investors and other creditors then submitted 93
claims, which the Receiver reviewed and evaluated.
On March 7, 2019, the Receiver filed his Motion to (1) Approve Determination and
Priority of Claims, (2) Pool Receivership Assets and Liabilities, (3) Approve Plan of
Distribution, and (4) Establish Objection Procedure.

See Doc. 1383 (the “Quest

Determination Motion”). In the Quest Determination Motion, the Receiver recommended
that claims be allowed in full, allowed in part, or denied.
Class 1 Claims From Taxing Authorities
Five Taxing Authorities 2 submitted claims in the Quest Claims Process:
•

The Brown County Appraisal District filed a proof of claim form with the
Receiver on behalf of Brown County, Texas for unpaid property taxes from
2012 through 2016 in the amount of $34,602.72 (see Claim No. 1);

•

The Callahan County Appraisal District filed a proof of claim form with the
Receiver on behalf of the County of Callahan, Texas for unpaid property taxes
from 2012 through 2016 in the amount of $9,136.84 (see Claim No. 2);

•

The Guadalupe County Appraisal District filed a proof of claim form with the
Receiver on behalf of the County of Guadalupe, Texas for unpaid property
taxes from 2012 through 2016 in the amount of $96.54 (see Claim No. 3);

2

The Taxing Authorities are all represented by Tara LeDay of the firm McCreary Veselka
Bragg & Allen P.C.

4

•

The Shackleford County Appraisal District filed a proof of claim form with
the Receiver on behalf of the County of Shackelford, Texas for unpaid
property taxes from 2012 through 2016 in the amount of $284,893.80 (see
Claim No. 4); and

•

The Denton County Appraisal District filed a proof of claim form with the
Receiver on behalf of the County of Denton, Texas for unpaid property taxes
from 2012 through 2016 in the amount of $12,633.36 (see Claim No. 74);

The Receiver denied the claim from Denton County because it appeared to be related
to a non-Receivership entity, but he assigned the other claims to Class 1 – i.e., the highest
priority. Given the limited assets available to all creditors, the Receiver also recommended
the claims be allowed only in part – i.e., without any entitlement to late fees or penalty
interest. The Taxing Authorities objected to the Receiver’s determination, and the parties
began working through the objection procedure set forth in the Quest Determination Motion.
Counsel for the Taxing Authorities informed the Receiver that the foregoing claim amounts
increased between 2016 and the present to a total of approximately $379,852 due to the
accrual of additional taxes, penalties, and interest.
To resolve all of Quest’s liabilities to the Taxing Authorities, the Receiver has agreed
to allow the claims submitted by the Taxing Authorities as Class 1 claims in the total amount
of $300,000. To be clear, the Receiver is not paying the Taxing Authorities that amount at
this time. Rather, he is consolidating their claims and adjusting their allowed amount to a
total of $300,000. When the Receiver moves the Court to make a distribution to creditors,
the Taxing Authorities – as Class 1 claimants – will be entitled to the first $300,000
distributed.

The Taxing Authorities will be responsible for allocating any distribution

amongst themselves. A Settlement of Claims and Objections memorializing this agreement
is attached as Exhibit 2.

5

The Bank’s Class 2 Claim
The Bank 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. On April 17, 2006, the
Bank 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 “Property” and the “Property Loan”). See Claim No. 5. As set forth in
Exhibit C to the Quest Determination Motion, the Receiver concluded that Bank of Albany’s
claim with respect to the Property 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. See Doc. 1383, Ex. C.
On October 13, 2010, the Bank loaned Quest $700,000 (the “2010 Loan”), which
was secured by certain oil and gas leases, personal property, and equipment. The Downeys
also personally guaranteed the 2010 Loan. On February 26, 2013, the Bank 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. As explained in the Quest Determination Motion,
the Receiver concluded that the portion of the Bank’s claim related to the 2010 Loan should
be denied. See Doc. 1383 at 16-18.
The Bank filed a motion with the Court regarding the Receiver’s determination (Doc.
1387), which the Receiver construed as an objection. Pursuant to the Court’s order on the

6

motion (Doc. 1397), the Receiver began attempts to resolve the objection through the Quest
Claims Process. Based on those negotiations, the Receiver agreed to allow the Bank to
foreclose on the Property and to take possession, custody, control, and ownership of the
Property in full satisfaction of the Bank’s claim. To accomplish this, the Receiver agreed to
move the Court (through the instant motion) to (1) approve the Receiver’s settlement with the
Bank; (2) abandon the Property, thereby removing it from the Quest Estate; and (3) lift the
stay and injunction (see Doc. 1024 at p. 8 ¶ 2 & Doc. 8 ¶ 15) with respect to the Bank and the
Property so that the Bank can commence foreclosure proceedings. The transfer of the
Property to the Bank through this process is in full satisfaction of the Bank’s claim against
the Quest Estate. If the Court grants this motion, the Receiver will have no further interest in
or responsibility for the Property, and the Bank will be entitled to all proceeds from the
foreclosure. A Settlement of Claim and Objection memorializing this agreement is attached
as Exhibit 3.
MEMORANDUM OF LAW
I.

THE COURT SHOULD APPROVE THE SETTLEMENTS BECAUSE THEY
ARE IN THE BEST INTERESTS OF THE QUEST ESTATE
The Court’s power to supervise an equity receivership and to determine the

appropriate actions to be taken in the administration of the receivership is extremely broad.
S.E.C. v. Elliott, 953 F.2d 1560, 1566 (11th Cir. 1992); S.E.C. v. Hardy, 803 F.2d 1034, 1038
(9th Cir. 1986). The Court’s wide discretion derives from the inherent powers of an equity
court to fashion relief. Elliott, 953 F.2d at 1566; S.E.C. v. Safety Finance Service, Inc., 674
F.2d 368, 372 (5th Cir. 1982). A court imposing a receivership assumes custody and control
of all assets and property of the receivership, and it has broad equitable authority to issue all

7

orders necessary for the proper administration of the receivership estate. See S.E.C. v. Credit
Bancorp Ltd., 290 F.3d 80, 82-83 (2d Cir. 2002); S.E.C. v. Wencke, 622 F.2d 1363, 1370 (9th
Cir. 1980). The court may enter such orders as may be appropriate and necessary for a
receiver to fulfill his duty to preserve and maintain the property and funds within the
receivership estate. See, e.g., Official Comm. Of Unsecured Creditors of Worldcom, Inc. v.
S.E.C., 467 F.3d 73, 81 (2d Cir. 2006).
Any action taken by a district court in the exercise of its discretion is subject to great
deference by appellate courts. See United States v. Branch Coal, 390 F. 2d 7, 10 (3d Cir. 1969).
Such discretion is especially important considering that one of the ultimate purposes of a
receiver’s appointment is to provide a method of gathering, preserving, and ultimately liquidating
assets to return funds to creditors. See S.E.C. v. Safety Fin. Serv., Inc., 674 F.2d 368, 372 (5th
Cir. 1982) (court overseeing equity receivership enjoys “wide discretionary power” related to its
“concern for orderly administration”) (citations omitted).

A.

The Settlement With The Taxing Authorities Is Fair And Reasonable

The Court should approve the settlement with the Taxing Authorities because it is fair
and reasonable and in the best interests of the Quest Estate. First, the settlement will avoid
unnecessary litigation by resolving five separate claims and their related objections. Second,
the collective nature of the settlement means that the Receiver does not have to spend time
and money to resolve factual and legal issues unique to each claimant. Third, the settled
claim amount is approximately $80,000 less than the total amount currently due. And fourth,
resolution of the claims by the Taxing Authorities will make the sale of Quest or its assets
substantially easier and thus conserve Receivership resources.

8

B.

The Settlement With The Bank Is Fair And Reasonable

The Court should also approve the settlement with the Bank because it is fair and
reasonable and in the best interests of the Quest Estate. First, the settlement will avoid
unnecessary litigation by resolving the Bank’s claim and objection. Second, by allowing the
Bank to foreclose on the Property, the Receiver will avoid numerous costs, including
(1) ongoing maintenance and repairs; (2) commissions and fees charged by real estate agents
or auction companies; and (3) the legal fees and costs required to seek the Court’s approval
of any private sale. Third, the Receiver believes the value of the Property is substantially less
than the Bank’s $198,250.14 claim amount. And fourth, the settlement also resolves the
Bank’s claim to unspecified “interest from 9/12/2013” and litigation over the Bank’s right to
the payment of interest.
To effectuate the settlement, the Receiver moves the Court to authorize the Receiver
to abandon the Property, thereby removing it from the Quest Estate. See, e.g., Doc. 1267
(authorizing abandonment of storage unit); S.E.C. v. Ryan, 2013 WL 12141502 (N.D.N.Y.
2013) (authorizing abandonment of property). Abandonment is appropriate here because the
value to the Quest Estate of resolving the Bank’s claim is greater (and perhaps substantially
so) than the value of the Property itself, especially given all the attendant maintenance,
marketing, and legal costs.
The Receiver also moves the Court to lift – with respect to the Bank’s foreclosure of
the Property only – the stay and injunction that prevents anyone “from in any way disturbing
the assets or proceeds of the receivership or from prosecuting any actions or proceedings
which involve the Receiver or which affect the property of the Defendants or Relief

9

Defendants.” Doc. 8 ¶ 15, made applicable to the Quest Estate by Doc. 1024 at p. 8 ¶ 2.
This relief is necessary to allow the Bank to commence foreclosure proceedings against the
Property. See Doc. 1365 (lifting stay to allow secured creditor to foreclose on property).
CONCLUSION
The Receiver moves the Court for entry of an order (in substantially the form of the
proposed order attached as Exhibit 1) approving the claim and objection settlements attached
as Exhibits A and B, authorizing the Receiver to abandon the Property, and lifting the stay
and injunction to allow the Bank to foreclose on the Property.
CERTIFICATE UNDER LOCAL RULE 3.01(g)
Undersigned counsel for the Receiver has conferred with counsel for the SEC and is
authorized to represent to the Court that the SEC does not oppose the relief requested in this
motion.

Counsel for the Receiver has not conferred with the other 87 claimants that

submitted claims in the Quest Claims Process, but the Receiver has posted this motion and its
exhibits on his website: www.nadelreceivership.com.
VERIFICATION OF RECEIVER
I, Burton W. Wiand, Court-Appointed Receiver in the above-styled matter, hereby
certify that the information contained in this motion is true and correct to the best of my
knowledge and belief.
s/ Burton W. Wiand
Burton W. Wiand, Court-Appointed Receiver

10

CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on July 24, 2019, I filed the foregoing with the Clerk of
the Court by using the CM/ECF system. I also served a copy of the foregoing via email and
U.S. Mail on the following counsel for Class 1 and Class 2 creditors:
Tara LeDay
McCreary Veselka Bragg & Allen P.C.
700 Jeffrey Way, #100
Round Rock, TX 78665
Counsel for the Taxing Authorities
Raymond J. Rotella
Kosto & Rotella P.A.
619 E Washington Street
Orlando, FL 32802
Counsel for the Bank
s/Jared J. Perez
Jared J. Perez, FBN 0085192
[e-mail]
WIAND GUERRA KING P.A.
5505 W. Gray Street
Tampa, FL 33609
Tel: [phone]
Fax: [phone]
Attorney for the Receiver

11