Securities and Exchange Commission v. Nadel et al
RESPONSE re 677 Objection filed by LandMark Bank filed by Burton W. Wiand. (Morello, Gianluca)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
SECURITIES AND EXCHANGE
Case No. 8:09-cv-87-T-26TBM
SCOOP CAPITAL, LLC,
SCOOP MANAGEMENT, INC.
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
RECEIVER’S RESPONSE TO LANDMARK BANK’S
OBJECTION TO PROPOSED OBJECTION PROCEDURE
Burton W. Wiand, as Receiver (the “Receiver”), recently filed a motion relating to
claims determinations and the claims process (the “Motion”) (Doc. 675). In relevant part, it
addressed two claims submitted by LandMark Bank (“LandMark”). Those claims involve a
line of credit extended to a principal of three of the funds used to perpetrate the scheme
underlying this case, Christopher Moody (“Moody”), by a bank whose Chairman and
Executive Officer was Moody’s accountant, and, specifically, to that bank’s attempt to
recover purported security interests in Moody’s (1) “investment” in one of those funds and
(2) Bonds.com stock and notes. 1 As the Motion explains, LandMark’s claims should be
denied for five independent reasons, including that LandMark had actual notice of fraud
when it received Moody’s Bonds.com interests and that transfer of those interests violated
the Court’s Temporary Restraining Order and Order Appointing Receiver. LandMark has
objected (the “Objection”) (Doc. 677) to the Motion’s Proposed Objection Procedure (the
“Proposed Procedure”) (see Mot. at 80-84) because, according to LandMark, it does not
permit discovery, “imposes unrealistic time schedules,” and violates due process.
discussed below, LandMark is wrong and its Objection should be overruled.
THE PROPOSED PROCEDURE SATISFIES DUE PROCESS
LandMark contends the Proposed Procedure violates due process.
In its place,
LandMark asserts the Receiver should first have to give a claimant whose claim has been
rejected – but before the claimant objects – all of the law, facts, and “documents, sworn
statements and other evidence” supporting his claim determination; then give the claimant 90
The Receiver and LandMark previously had a dispute over Moody’s Bonds.com interests. See Docs. 154,
155, 166, 168, 169. Contrary to LandMark’s assertion (see Obj. n.5), those very filings include proof that
Moodys’ Bonds.com interests were funded with scheme proceeds.
days to serve a “notice” of its objection with “initial disclosures” (but not, as the Receiver is
required to do, provide all of the law, facts, and evidence the objection is premised upon);
then give the claimant six months for discovery; then have some undisclosed process for
determining whether there are disputed material facts; and if there are, then set the matter for
a full-blown trial and require all pre-trial disclosures. Obj. at 7. 2
As an initial matter, LandMark ignores this claims process is focused on defrauded
investors. See SEC. v. Mutual Benefits Corp., Case No. 0:04-cv-60573, Order Granting
Receiver’s Mot. For Final Determination Of Allowed Claims at 3 (S.D. Fla. 2008) (attached
as Ex. K to Mot.) (“[T]his is an SEC enforcement action designed to protect the investors,
not the creditors....”). Further, the Objection reflects a misunderstanding of the Proposed
Procedure. In relevant part, any claimant that disputes the Receiver’s claim determination
can serve a written objection within 20 days after applicable notice, along with “all
supporting statements and documentation the Claimant wishes the Receiver and the Court to
consider.” Mot. at 81. The Receiver and the claimant will then have time to resolve the
objection and, if necessary, exchange additional information without the cost of formal
discovery. If they cannot resolve it, the Receiver will file the objection and all supporting
statements and documents provided by the claimant. 3 Id. at 82. Once submitted to the Court,
In fact, LandMark suggests the Receiver should have “to file separate lawsuits against the alleged fraudulent
transferees.” Obj. at 2 n.2. But this ignores the Receiver is not affirmatively attempting to recover anything
from LandMark; it ignores that summary proceedings are the norm in these circumstances; and it relies on cases
that did not involve claim determinations.
LandMark misrepresents the Proposed Procedure when it claims the Receiver will file with the Court “any
supporting documents or statements he considers as appropriate.” Obj. at 3. For unresolved objections, the
Receiver will file the objection “with supporting statements and documentation, as served on the Receiver by
the Claimant.” Mot. at 82. Separately, the Receiver did not propose a deadline for submitting unresolved
objections to the Court because he could not determine how much time would be appropriate to try to resolve
the Court can then set tailor-made procedures before ruling on the objection.
Contrary to LandMark’s contention, the Proposed Procedure satisfies due process.
As the Motion explains, due process 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); SEC v. Elliott, 953 F.2d 1560, 1566 (11th Cir. 1992).
The Proposed Procedure satisfies those requirements, and “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.” FDIC v. Bernstein, 786
F. Supp. 170, 177-78 (E.D.N.Y. 1992); Elliott, 953 F.2d at 1566. Importantly, a claimant
challenging summary procedures must show how it will be prejudiced by those procedures
and how it will be better able to defend its interests in a plenary proceeding. Elliott, 953 F.2d
at 1567. The Objection does not satisfy these requirements. Similarly, it is appropriate for
the claimant to bear the burden of proof to show entitlement to recovery and to “prove his or
her claim satisfactorily prior to obtaining recovery.” U.S. v. Penny Lane Partners, L.P., 2010
WL 5796465, *6 (D.N.J. 2010) (Rep. & Recommendation adopted at 2011 WL 550883).
The Proposed Procedure also is efficient because it avoids a one-size-fits-all approach
(like LandMark’s approach), which would unnecessarily deplete Receivership resources. For
example, with the latter, a claimant could immediately serve voluminous discovery requests
requiring expenditure of Receivership resources even though ultimately the objection could
be resolved amicably, thus rendering discovery unnecessary. The Proposed Procedure avoids
this by giving the Receiver and the claimant time to resolve the objection, and, if appropriate,
each objection. Of course, the Receiver is cognizant of the need to act expeditiously so that defrauded investors
may receive the relief the claims process is designed to provide.
exchange information without the burdensome obligations of full-blown discovery, before
the objection is submitted to the Court. Once before the Court, the Court can impose
whatever procedures are necessary and consistent with the goals of the claims process.
On the other hand, LandMark’s proposed procedure will significantly lengthen the
claims process and impose unnecessary burdens on the Receivership, even though it is
LandMark, and not the Receiver, that asserts an affirmative right to assets in the Receivership
estate. This is so because it requires the Receiver to give every claimant whose claim has
been rejected (presumably in whole or in part) all facts, law, and evidence; then gives the
claimant three months to decide whether to even lodge an objection; then allows for six
months for discovery; and only then is the dispute submitted to the Court, where LandMark
wants a full-blown trial and pre-trial procedures. That process is inconsistent with the goals
of receiverships, is burdensome for the Court and the Receivership, and is simply
See Elliott, 953 F.2d at 1566 (“A summary proceeding reduces the time
necessary to settle disputes, decreases litigation costs, and prevents further dissipation of
receivership assets.”); SEC v. Wencke, 783 F.2d 829, 837 (9th Cir. 1986). LandMark has
provided no cognizable reason or supporting authority to justify its efforts to convert the
claims process into conventional, full-blown litigation. 4
LANDMARK’S OBJECTION IGNORES FOUR ADDITIONAL
INDEPENDENT BASES FOR THE DENIAL OF ITS CLAIMS
The Objection focuses on fraudulent transfers and ignores that there are four other
LandMark’s claim that Elliot requires formal discovery (Obj. at 5) is incorrect. In relevant part, Elliott found
the receiver’s procedure in that case was improper because it only included a very limited opportunity to submit
information. Here, the Proposed Procedure places no limit on documents and information that LandMark can
submit to the Receiver and the Court.
independent bases for denying LandMark’s claims.
LandMark’s claim relating to the
security interest in Moody’s investment in Viking Fund also should be denied because (1)
Moody’s conduct severed his interest in Viking Fund as a matter of equity; and (2) in any
event, that interest is worthless as a matter of law. Mot. at 61-63. LandMark’s claim relating
to the purported security interest in Bonds.com collateral also should be denied because: (1)
LandMark Bank had actual notice of fraud when it entered into the transaction purportedly
giving rise to that claim; and (2) that transaction violated a Temporary Restraining Order
(Doc. 9) and the Order Appointing Receiver in this case (Doc. 8). Id. at 63-66.
It is apparent why LandMark did not address these additional grounds in its
Objection: they involve very narrow issues and thus would be inconsistent with LandMark’s
insistence on a lengthy and burdensome process. Further, these additional grounds for
denying LandMark’s claims help demonstrate the benefits of the Proposed Procedure.
Specifically, that procedure will allow the Receiver and the claimant to address all grounds
for denial of claims in trying to resolve an objection, and if it remains unresolved, the Court
will be able to tailor procedures to the specific needs and requirements of each particular
objection. So, if no factual issues exist with respect to one basis for denial of a claim, the
Court could decide it in an expeditious manner without having to address other bases that
might require a more burdensome process. See Elliott, 953 F.2d at 1566 (“[A] hearing is not
required if there is no factual dispute.”).
ALL TRANSFERS OF ASSETS FROM A PONZI SCHEME ARE
In support of its claimed need for a burdensome and lengthy procedure, LandMark
argues the Receiver must demonstrate the fraudulent transfers underlying LandMark’s claims
were made in furtherance of Nadel’s scheme.
Obj. at 6. But LandMark misstates an
important legal principle which significantly simplifies the matter. Although LandMark
acknowledges the existence of the so-called “Ponzi scheme presumption” – that every
transfer of an asset from a Ponzi scheme is made with “intent to hinder, delay, or defraud”
creditors under Section 726.105(1)(a) of the Florida Uniform Fraudulent Transfer Act
(“FUFTA”) – it claims that presumption does not apply here because it only applies to
transfers “in furtherance of the scheme.”
That argument, however, is inconsistent with the plain language of Section
726.105(1)(a), which does not limit avoidable transfers to only those “in furtherance of” a
scheme. The cases cited by LandMark are inconsistent with the weight of authority, which
applies the Ponzi scheme presumption to all transfers of assets from a Ponzi scheme entity,
and not only to transfers “in furtherance of” the scheme. See, e.g., Wing v. Horn, 2009 WL
2843342, *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”) (emphasis added); 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.”) (emphasis added). In other words, LandMark’s claim that it needs
lengthy discovery because of the supposed complexity of relevant fraudulent transfer
principles relies on an incorrect reading of applicable law. 5
Similarly, any claimed need for lengthy discovery on whether there was a Ponzi scheme ignores Nadel’s
guilty plea and its preclusive effect in this matter, which is currently the subject of the Receiver’s pending
motions for partial summary judgment in clawback cases. See, e.g., Case No. 10-cv-246 (Doc. 44).
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on December 22, 2011, I electronically filed the
foregoing with the Clerk of the Court by using the CM/ECF system.
I FURTHER CERTIFY that on December 23, 2011, I will mail the foregoing
document and the notice of electronic filing by first-class mail to the following non-CM/ECF
Arthur G. Nadel
Register No. 50690-018
Federal Correctional Institution
P.O. Box 999
Butner, NC 27509
Gianluca Morello, FBN 034997
Michael S. Lamont FBN 0527122
Jared J. Perez, FBN 0085192
Wiand Guerra King P.L.
3000 Bayport Drive
Tampa, FL 33607
Tel: (813) 347-5100
Fax: (813) 347-5198
Attorneys for the Receiver, Burton W. Wiand
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