Securities and Exchange Commission v. Nadel et al

Filing 1421

MOTION for miscellaneous relief, specifically to Approve (1) Settlement of Objection, (2) Waiver of Objections, and (3) Amended Claim Determinations by Burton W. Wiand. (Attachments: # 1 Exhibit A, # 2 Exhibit B)(Perez, Jared)

COMPOSITE
EXHIBIT A

BURTON W. WIAND, COURT-APPOINTED RECEIVER
FOR QUEST ENERGY MANAGEMENT GROUP, INC.
June 14, 2019
Ernest Cozzi
10460 Ridgewood Drive
Palos Park, Illinois 60464
Re:

Quest Receivership
Claimant Name: RBC Capital Markets Corp FBO Ernest Cozzi IRA
Claim Number: 73

Dear Mr. Cozzi:
Notification of Receiver’s Determination Of Objection
I am writing to you as the Court-appointed Receiver in the above matter. On March 15, 2019,
the Court entered an order granting my 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 (the “Order”). Pursuant to the Order, claimants had until April 19, 2019 to
submit an objection to my determination of their respective claims, claim priority, or plan of
distribution. On April 3, 2019, I received an objection from you regarding the above claim. I have
carefully reviewed your objection and pertinent documents and, as discussed in more detail below,
have determined that your objection should be overruled.
As set forth in the Motion, I denied the above claim, Claim Number 73, because you cannot
satisfy your good faith obligations and because it would be inequitable to allow you to receive
Receivership distributions given your role in the scheme. As a “sales agent” for Quest, you were
responsible for soliciting victims for Quest’s fraudulent scheme. Acting in this capacity, you had
either actual or inquiry notice of Quest’s fraud, and/or conspired, aided and abetted, or otherwise
participated in the fraud. Courts regularly deny claims where the claimants did not show they acted in
good faith. See, e.g., S.E.C. v. Nadel, Case No. 8:09-cv-0087-RAL-TBM, Doc. 1061 (M.D. Fla. Aug.
29, 2013) (“Whether the claimant acted in good faith is a consideration in the claims process”); 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). The concept of good faith derives from fraudulent conveyance
statutes, including the Florida Uniform Fraudulent Transfer Act, Fla. Stats. §§ 726.101 et seq.
(“FUFTA”). Under 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. 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
5505 WEST GRAY STREET | TAMPA, FL 33609
TELEPHONE [phone] | FAX [phone] | www.nadelreceivership.com

June 14, 2019
Page 2 of 3
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). Put simply, if a sales agent’s reasonable inquiry would have revealed any questions
or concerns about Quest or anyone associated with Quest, that sales agent could not have acted in good
faith unless he or she subsequently conducted a diligent and reasonable inquiry that ameliorated those
questions or concerns. Without satisfying these obligations, the sales agent was, at a minimum, on
inquiry notice of fraud.
Florida courts have specifically addressed whether a securities broker – like you as a sales agent
– acted in good faith when receiving commissions for selling interests in a fraudulent investment
scheme. Under Florida law, “any 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. This includes reviewing audited financial statements, companyprovided 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, as a sales agent, you had a legal duty to:
(i) investigate Quest’s financial statements, its business performance, and the background of its
personnel; (ii) ensure the associated risk factors and costs surrounding the investment strategy were
evaluated and disclosed to investors; and (iii) not rely solely on information provided by scheme
insiders regarding Quest. You also could not “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.
In your objection you do not claim that you acted in good faith or conducted proper due
diligence. Rather, you argue that you made this investment as an individual and that there is a
separation between you as an advisor and you as an individual investor. You ask to be awarded “the
same rights as any other investor.” It is clear, however, that you are not similarly situated to other
victim investors. Receivership records reflect that you were involved in the investments of at least
$275,000 by at least six victims of the Quest scheme. The Receiver further has information and belief
that you received commissions and/or overrides in connection with the solicitation of these
investments. The above known victims suffered losses of nearly $200,000.
Courts routinely hold that treating similarly situated parties alike in claims processes is fair and
equitable. See S.E.C. v. Elliott, 953 F. 2d 1556, 1566 (11th Cir. 1992); 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., S.E.C. v. Byers, 637 F. Supp. 2d 166, 184 (S.D.N.Y. 2009) (“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.”); Quilling v. Trade Partners, Inc., 2006 WL 3694629, *1
(W.D. Mich. 2006) (distinguishing between fraud victims and general creditors). In the end, “[a]n
5505 WEST GRAY STREET | TAMPA, FL 33609
TELEPHONE [phone] | FAX [phone] | www.nadelreceivership.com

June 14, 2019
Page 3 of 3
equitable plan is not necessarily a plan that everyone will like.” S.E.C. v. Credit Bancorp, 2000 WL
1752979, *29 (S.D.N.Y. 2000). 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. 2006)). Funds are extremely limited in this Receivership. It is unlikely that
there will be funds available to distribute to investors. Most of the funds recovered from the sale of
Quest’s assets likely will be distributed to Class 1 and Class 2 creditors, as those classes are described
in the Motion. As a matter of equity, if any minimal amount of funds is available to distribute to
investors, those funds should go to victims of the fraud.
As set forth in the Order, if you wish to maintain your objection, you must serve me with a
written response to this Notification on or before July 15, 2019. Your written response must clearly
state whether you maintain the objection or accept my further determination of the claim as set forth in
this Notification. Your response must be served on me, Burton W. Wiand, as Receiver c/o Maya M.
Lockwood, Esq., Wiand Guerra King P.A., 5505 West Gray Street, Tampa, FL 33609, and should not
be filed with the Court. Proper service may be accomplished by sending your written response by one
of the following means: (1) U.S. mail to the above address; (2) hand delivery to the above individual at
the above address; (3) facsimile to the above address at [phone]; or (4) overnight or other
express delivery to the above address. Service by mail is completed upon mailing, service by facsimile
is completed upon transmission, and service by hand delivery is completed upon receipt of delivery.
Failure to properly and timely serve a written response to this Notification will be deemed as an
acceptance of my determination as set forth above.
If you choose to maintain your objection, I will file with the Court: (1) my further
determination of your claim with any supporting documents or statements I consider are appropriate, if
any; and (2) the unresolved objection, with any supporting statements and documentation you serve on
me. The Court may make a final determination based on the submissions identified above or may set
the matter for hearing and, following the hearing, make a final determination. You will have the
burden to prove that your position should prevail. I will provide you notice of the hearing if the Court
sets a hearing on your particular objection.
If you have any questions, please feel free to call or email Mary Gura at [phone] or
[e-mail].
Sincerely yours,

Burton W. Wiand
as Court-Appointed Receiver
MML/meg

5505 WEST GRAY STREET | TAMPA, FL 33609
TELEPHONE [phone] | FAX [phone] | www.nadelreceivership.com

BURTON W. WIAND, COURT-APPOINTED RECEIVER
FOR QUEST ENERGY MANAGEMENT GROUP, INC.
June 14, 2019
John P. Grasso
178 Shelby Ave
Holbrook, NY 11741
Re:

Quest Receivership
Claimant Name: John P. Grasso
Claim Number: 75

Dear Mr. Grasso:
Notification of Receiver’s Determination Of Objection
I am writing to you as the Court-appointed Receiver in the above matter. On March 7, 2019, I
filed a 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 (the “Claims
Determination Motion”) (Doc. 1383). The Court entered an order granting the Claims Determination
Motion on March 15, 2019 (the “Order”) (Doc. 1384). Pursuant to the Order, claimants had until
April 19, 2019 to submit an objection to my determination of their respective claims, claim priority, or
plan of distribution. On April 19, 2019, I received another Proof of Claim Form from you which I am
treating as an objection regarding the above claim (“Second Proof of Claim Form”). I have carefully
reviewed the Second Proof of Claim Form and pertinent documents and, as discussed in more detail
below, have determined that to the extent you intended to object to the determination of your claim, it
should be overruled.
The above claim, Claim Number 75, was denied because the investment was made in an entity
distinct from Quest, Callahan Energy Partners (“Callahan”), and I was unable to identify any transfer
of funds from Callahan to Quest for this claim. On the Second Proof of Claim Form, you indicate that
you invested $25,000 with Callahan and you attach a balance sheet from Callahan showing your
$25,000 investment. There is no mention of Quest on the balance sheet you provided. As such, you
did not provide any documents evidencing that the claimed $25,000 investment was actually received
by Quest. The Receivership does not extend to all victims of fraud but is limited to the scope of the
order appointing me as Receiver of Quest and other Court orders relating to this Receivership. It is
important to note, however, that funds are extremely limited in this Receivership. It is unlikely that
there will be funds available to distribute to investors with allowed claims. Most of the funds
recovered from the sale of Quest’s assets likely will be distributed to Class 1 and Class 2 creditors, as
those classes are described in the Claims Determination Motion.
On June 15, 2016, I 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 (“Claims Motion”) (Doc. 1240). As set forth 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. See Claims Motion at 10. The Claims Motion also sought
5505 WEST GRAY STREET | TAMPA, FL 33609
TELEPHONE [phone] | FAX [phone] | www.nadelreceivership.com

June 14, 2019
Page 2 of 3
the approval of a Proof of Claim Form which required claimants to provide all documents
substantiating the claim. The Court granted the Claims Motion in its entirety on June 17, 2016 (Doc.
1241).
This claim does not fall within the parameters for an allowed claim as set forth above. The
claim you submitted is for a $25,000 investment in Callahan. Callahan is not a Receivership Entity.
Investments made in Callahan did not arise out of Quest’s activities. I have not found any evidence in
the Receivership’s books and records that the investment amount you claim was deposited into any
account for Quest. Consistent with the Net Investment Method set forth in the Claims Determination
Motion, 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 I have been unable to find any
evidence of actual dollars deposited into Quest for this investment, it would inequitable and unfair to
investors who invested in Quest to allow this claim. See S.E.C. v. Homeland Communications Corp.,
2010 WL 2035326, at *5 (S.D. Fla 2010) (“The Court finds compensating victims of other investment
schemes which are outside of the SEC’s complaint (and thus the Receivership) would lead to
inequitable and unfair results to those victims who were defrauded directly by the Homeland
scheme.”); S.E.C. v. Callahan, 193 F. Supp. 3d 177 (E.D.N.Y. 2016) (upholding the receiver’s
reduction of a claim because the claimants failed to provide any evidence that the money invested in a
non-receivership entity was co-mingled or placed into the same account as money invested in the
receivership entities).
As set forth in the Order, if you wish to maintain your objection, you must serve me with a
written response to this Notification on or before July 15, 2019. Your written response must clearly
state whether you maintain the objection or accept my further determination of the claim as set forth in
this Notification. Your response must be served on me, Burton W. Wiand, as Receiver c/o Maya M.
Lockwood, Esq., Wiand Guerra King P.A., 5505 West Gray Street, Tampa, FL 33609, and should not
be filed with the Court. Proper service may be accomplished by sending your written response by one
of the following means: (1) U.S. mail to the above address; (2) hand delivery to the above individual at
the above address; (3) facsimile to the above address at [phone]; or (4) overnight or other
express delivery to the above address. Service by mail is completed upon mailing, service by facsimile
is completed upon transmission, and service by hand delivery is completed upon receipt of delivery.
Failure to properly and timely serve a written response to this Notification will be deemed as an
acceptance of my determination as set forth above.
If you choose to maintain your objection, I will file with the Court: (1) my further
determination of your claim with any supporting documents or statements I consider are appropriate, if
any; and (2) the unresolved objection, with any supporting statements and documentation you serve on
me. The Court may make a final determination based on the submissions identified above or may set
the matter for hearing and, following the hearing, make a final determination. You will have the
burden to prove that your position should prevail. I will provide you notice of the hearing if the Court
sets a hearing on your particular objection.

5505 WEST GRAY STREET | TAMPA, FL 33609
TELEPHONE [phone] | FAX [phone] | www.nadelreceivership.com

June 14, 2019
Page 3 of 3
If you have any questions, please feel free to call or email Mary Gura at [phone] or
[e-mail].
Sincerely yours,

MML/meg

Burton W. Wiand
as Court-Appointed Receiver

5505 WEST GRAY STREET | TAMPA, FL 33609
TELEPHONE [phone] | FAX [phone] | www.nadelreceivership.com

BURTON W. WIAND, COURT-APPOINTED RECEIVER
FOR QUEST ENERGY MANAGEMENT GROUP, INC.
June 14, 2019
Michael and Elizabeth Oben
11203 Ballantre Lane
Glenn Dale, MD 20769
Re:

Quest Receivership
Claimant Name: Michael and Elizabeth Oben
Claim Number: 79

Dear Mr. and Mrs. Oben:
Notification of Receiver’s Determination Of Objection
I am writing to you as the Court-appointed Receiver in the above matter. On March 7, 2019, I
filed a 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 (the “Claims
Determination Motion”) (Doc. 1383). The Court entered an order granting the Claims Determination
Motion on March 15, 2019 (the “Order”) (Doc. 1384). Pursuant to the Order, claimants had until
April 19, 2019 to submit an objection to my determination of their respective claims, claim priority, or
plan of distribution. On March 29, 2019, I received an objection from you regarding the above claim. I
have carefully reviewed your objection and pertinent documents and, as discussed in more detail
below, have determined that your objection should be overruled.
The above claim, Claim Number 79, was denied because the investment was made in an entity
distinct from Quest, Callahan Energy Partners (“Callahan”), and I was unable to identify any transfer
of funds from Callahan to Quest for this claim. You objected to the determination of this claim stating
that “we gave $55,000 of our hard-earned money into an investment (perhaps it was
Gibralter/Callahan?), which was then converted into the Quest group at some point.” You did not
provide any documents evidencing that the claimed $55,000 was actually received by Quest. While I
am sympathetic to your position, the Receivership does not extend to all victims of fraud but is limited
to the scope of the order appointing me as Receiver of Quest and other Court orders relating to this
Receivership. It is important to note, however, that funds are extremely limited in this Receivership.
It is unlikely that there will be funds available to distribute to investors with allowed claims. Most of
the funds recovered from the sale of Quest’s assets likely will be distributed to Class 1 and Class 2
creditors, as those classes are described in the Claims Determination Motion.
On June 15, 2016, I 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 (“Claims Motion”) (Doc. 1240). As set forth 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. See Claims Motion at 10. The Claims Motion also sought
the approval of a Proof of Claim Form which required claimants to provide all documents
5505 WEST GRAY STREET | TAMPA, FL 33609
TELEPHONE [phone] | FAX [phone] | www.nadelreceivership.com

June 14, 2019
Page 2 of 3
substantiating the claim. The Court granted the Claims Motion in its entirety on June 17, 2016 (Doc.
1241).
This claim does not fall within the parameters for an allowed claim as set forth above. The
claim you submitted is for an alleged $55,000 investment in Callahan or Gibralter, which you claim
was converted into an investment in Quest. Neither Callahan nor Gibralter are Receivership Entities.
Investments made in Callahan or Gibralter did not arise out of Quest’s activities. I have not found any
evidence in the Receivership’s books and records that the investment amount you claim was deposited
into any account for Quest. Consistent with the Net Investment Method set forth in the Claims
Determination Motion, 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 I have been
unable to find any evidence of actual dollars deposited into Quest for this investment, it would
inequitable and unfair to investors who invested in Quest to allow this claim. See S.E.C. v. Homeland
Communications Corp., 2010 WL 2035326, at *5 (S.D. Fla 2010) (“The Court finds compensating
victims of other investment schemes which are outside of the SEC’s complaint (and thus the
Receivership) would lead to inequitable and unfair results to those victims who were defrauded
directly by the Homeland scheme.”); S.E.C. v. Callahan, 193 F. Supp. 3d 177 (E.D.N.Y. 2016)
(upholding the receiver’s reduction of a claim because the claimants failed to provide any evidence that
the money invested in a non-receivership entity was co-mingled or placed into the same account as
money invested in the receivership entities).
As set forth in the Order, if you wish to maintain your objection, you must serve me with a
written response to this Notification on or before July 15, 2019. Your written response must clearly
state whether you maintain the objection or accept my further determination of the claim as set forth in
this Notification. Your response must be served on me, Burton W. Wiand, as Receiver c/o Maya M.
Lockwood, Esq., Wiand Guerra King P.A., 5505 West Gray Street, Tampa, FL 33609, and should not
be filed with the Court. Proper service may be accomplished by sending your written response by one
of the following means: (1) U.S. mail to the above address; (2) hand delivery to the above individual at
the above address; (3) facsimile to the above address at [phone]; or (4) overnight or other
express delivery to the above address. Service by mail is completed upon mailing, service by facsimile
is completed upon transmission, and service by hand delivery is completed upon receipt of delivery.
Failure to properly and timely serve a written response to this Notification will be deemed as an
acceptance of my determination as set forth above.
If you choose to maintain your objection, I will file with the Court: (1) my further
determination of your claim with any supporting documents or statements I consider are appropriate, if
any; and (2) the unresolved objection, with any supporting statements and documentation you serve on
me. The Court may make a final determination based on the submissions identified above or may set
the matter for hearing and, following the hearing, make a final determination. You will have the
burden to prove that your position should prevail. I will provide you notice of the hearing if the Court
sets a hearing on your particular objection.

5505 WEST GRAY STREET | TAMPA, FL 33609
TELEPHONE [phone] | FAX [phone] | www.nadelreceivership.com

June 14, 2019
Page 3 of 3
If you have any questions, please feel free to call or email Mary Gura at [phone] or
[e-mail].
Sincerely yours,

MML/meg

Burton W. Wiand
as Court-Appointed Receiver

5505 WEST GRAY STREET | TAMPA, FL 33609
TELEPHONE [phone] | FAX [phone] | www.nadelreceivership.com