Securities and Exchange Commission v. Nadel et al

Filing 753

RESPONSE re #745 Response, #733 Order filed by Securities and Exchange Commission. (Masel, Scott)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
v.
CASE NO. 8:09-cv-87-T-26TBM
ARTHUR NADEL,
SCOOP CAPITAL, LLC,
SCOOP MANAGEMENT, INC.
Defendants,
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
Relief Defendants.
/
PLAINTIFF SECURITIES AND EXCHANGE COMMISSION’S
MEMORANDUM ON JURISDICTION
PURSUANT TO THE COURT’S FEBRUARY 3, 2012 ORDER
I. Introduction
Wells Fargo Bank’s Memorandum on Jurisdiction in Response to the Court’s February 3,
2012 Order attempts to create a jurisdictional conflict where one neither exists nor is likely. For
three years, this Court and the Receiver it appointed have overseen and conducted the
receivership proceedings with both the awareness and cooperation of the criminal court in the
Southern District of New York and the United States Attorney (“USAO”) for the Southern
District. This Court, the Receiver, the Securities and Exchange Commission, the Southern

District, and the USAO all understood that both cases could operate in parallel, with coexisting
jurisdiction.
From almost the beginning of the criminal case against Arthur Nadel, the Southern
District has involved the Receiver – twice even ordering the Receiver’s participation at key
points. The Southern District and USAO employed this concurrent jurisdiction to resolve the
Nadel criminal case while allowing the Receiver, as an extension of this Court in the
Commission’s suit, to help Nadel’s victims by marshaling assets for their benefit. Far from
perceiving any conflict, jurisdictional or otherwise, the Southern District and the USAO recently
implemented a stipulated order removing Wells Fargo’s North Carolina parcel from the
forfeiture order, and the USAO now indicates it will seek to vacate the entire forfeiture order by
next week.
Contrary to Wells Fargo’s contention, this Court does not have to decide what might have
happened if the Southern District or USAO had tried to implement the Southern District’s
forfeiture order in a way that caused a jurisdictional or other dispute between the Courts or
between the Receiver and the USAO. Even the theoretical possibility of a clash between the two
Courts’ jurisdictions is about to vanish, and since receiverships are creatures of equity intended
to have flexibility to achieve fair and effective results, the Court should permit Wells Fargo and
the Receiver to resolve their claims dispute on the merits within this action.
II. Both Courts Have Parallel Jurisdiction.
This Court and the Southern District derive jurisdiction from different sources, and, as
demonstrated by the Southern District and the USAO, this leads to no conflict. On the contrary,
the Southern District acknowledged the Receiver’s mission by explicitly including the Receiver

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in key parts of the criminal proceedings.

The USAO not only had no objection, but

communicated extensively with the Receiver on asset and evidence issues.
This Court is “vested with complete jurisdiction and control of all property” in the
receivership estate, even if that property is “situated in different districts.” 28 U.S.C. § 754.
This means the Court’s jurisdiction over the North Carolina property claimed by Wells Fargo is
“as if the property lay wholly within” the Middle District of Florida. 28 U.S.C. 1692. See also
American Freedom Train Foundation v. Spurney, 747 F.2d 1069, 1073 (1st Cir.1984) (Sections
754 and 1692 give “the appointing court jurisdiction over property . . . wherever such property
may be located”). This is consistent with the traditional approach of the court having in rem
jurisdiction over receivership assets, with the Receiver’s possession of those assets actually “the
possession of the court, for the benefit of the parties to the suit and all concerned.” Ex parte
Tyler, 149 U.S. 164, 181 (1893). See also Barton v. Barbour, 104 U.S. 126, 136-37 (1881)
(noting power of courts to appoint receivers over property in their jurisdiction and restricting
suits against receivers because such actions make it “impossible for the court to discharge its
duty to preserve the property and distribute its proceeds . . . .”); Federal Sav. and Loan Ins.
Corp. v. PSL Realty Co., 630 F.2d 515, 521 (7th Cir. 1980) (property held by receiver is in legal
custody of the appointing court, removed from other courts’ jurisdiction, and remains with court
if receiver is discharged without disposing of the asset).
Simultaneously, the Southern District has had in personam jurisdiction over Nadel. U.S.
v. Dean, 835 F. Supp. 1383, 1394 (M.D. Fla. 1993) (“criminal forfeiture is an in personam action
against the alleged criminal”). See also United States v. Vampire Nation, 451 F.3d 189, 198-201
(3d Cir. 2006) (discussing criminal forfeiture orders and acknowledging their in personam
jurisdictional basis); United States v. Day, 524 F.3d 1361, 1378 (D.C. Cir. 2008) (“criminal

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forfeiture is a sanction against the individual defendant rather than a judgment against the
property itself . . . . [with] the sanction following the defendant). These in personam forfeiture
proceedings proceeded in parallel with the in rem receivership proceedings in this Court. See
generally, Penn General Casualty Co. v. Pennsylvania ex rel. Shnader, 294 U.S. 189, 195-196
(1935) (in personam and in rem actions have concurrent jurisdiction). The Southern District
action, including the forfeiture proceedings, determined Nadel’s criminal liability, the amount
Nadel owed, and whether (and when) Nadel forfeited to the United States any right he had in
property under this Court’s jurisdiction. See Riehle v. Margolies, 279 U.S. 218, 223-24 (1929)
(comparing and distinguishing in rem receivership and other, in personam proceedings, and
finding no problem in the two types of proceedings progressing simultaneously).

The

receivership court “deals directly with the property,” and fixes “the time and manner of
distribution.” Id. at 224.
That is exactly what is happening here. The criminal court determined through its
judgment against Nadel that he forfeited his rights in property under this Court’s jurisdiction to
the United States. U.S. v. Nadel, 1:09-MJ-00169-UA, (S.D.N.Y. Dec. 2, 2010, D.E. 78, ¶2).
This Court still has to determine the ultimate disposition of the property; the United States would
be but one participant in that process if the USAO chose to complete the forfeiture litigation and
obtain a judgment it could enforce (and, as discussed above, the USAO has indicated it will not
do this). The United States’ acquisition of the “right to share in property” under this Court’s
control would “in no way interfere with the possession and control” of this Court. United States
v. Bank of New York & Trust Co., 296 U.S. 463, 478 (1936); Riehle, 279 U.S. at 224. As the
Supreme Court has recognized, “[t]he establishment of a claim constituting the basis of the right

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to participate in the distribution of property in the possession of one court is often conclusively
determined by a judgment obtained in another court.” Id. at 225.
III. There Was No Jurisdictional Clash Because the Southern District and
USAO Knew About and Included the Receiver in Their Proceedings
The USAO and Southern District have known since the almost the beginning of the
criminal case that this Court had appointed a Receiver, and that he was busily seeking assets
funded by Nadel’s crimes. As the Receiver’s memorandum details, starting early in the Nadel
prosecution, the Receiver had in-depth communications with the USAO regarding assets. It is
also significant the Southern District included the Receiver in Nadel’s criminal case, focusing on
the Receiver’s hunt for assets.
Early in the Nadel prosecution, as reflected in minutes entered on the criminal docket, the
Southern District ordered Nadel as part of his bail conditions to “cooperate with the receiver and
the SEC to trace all of the financial transactions, to uncover any assets and recover any assets.”
U.S. v. Nadel, (February 25, 2009) (emphasis added). Several months later, the Southern District
requested the Receiver to send a representative to Nadel’s bail hearing and asked the USAO to
inform the Receiver of that order. Id. at D.E.30 (July 9, 2009). The Southern District also
addressed a dispute between the USAO and the Receiver over the procedure and costs for
providing the USAO copies of the extensive documentary evidence the Receiver had obtained.
Id. at D.E. 36 (September 9, 2009). Finally, Nadel included receivership reports and filings from
this Court in his own submissions to the Southern District. This also deflates Wells Fargo’s
description of a “secret” agreement between the Receiver and USAO, since the Southern District
and the USAO openly included the Receiver in the criminal proceedings, with no doubt as to the
Receiver’s ongoing role in seeking assets.

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There is no jurisdictional conflict. Not only did both courts overseeing litigation against
Nadel preside over their cases at the same time, but the Southern District approved of the
Receiver’s pursuit of assets.
Furthermore, the USAO’s actions indicate a lack of any jurisdictional conflict. As in
other cases, if the USAO pursued the forfeiture proceedings and obtained a judgment, it would
be entitled to “enforce a right to specific property in the possession of a receiver . . . upon
application to the court which appointed [the receiver].” Riehle, 279 U.S. at 224. The United
States could then enforce its forfeiture order by asserting a claim against the receivership estate
in this Court or taking some other action to seize the assets its forfeiture judgment covers. See
Wolff v. Cash 4 Titles, 351 F.3d 1348 (11th Cir. 2003) (plaintiffs who obtained RICO judgment
in Florida district court against defendants still needed to apply to receivership court in Illinois to
enforce that judgment against defendants’ assets); SEC v. United Fin. Group, Inc., 576 F.2d 217,
222-23 (9th Cir. 1978) (holding that California state court’s judgment of liability “cannot control
the manner or timing of distributions by the receivership court,” therefore the receivership court
must “fashion appropriate procedures for payment” of the judgment).1
Despite the ability to enforce the forfeiture order, the Southern District and the USAO
refrained from doing so, preferring to allow the Receiver to collect assets to benefit investors.
The USAO saw no inconsistency between the Receivership proceedings and its ability to address
the forfeiture. Seeing no need to continue parallel forfeiture and receivership proceedings, the

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Even considering the “relation-back” doctrine Wells Fargo cites, the government would have to pursue
additional legal steps before it was entitled to possession of the North Carolina parcel after entry of the
forfeiture order. “[A]dditional judicial proceedings were then necessary to reduce [the Government’s]
ownership interest to a right to possession” because while “the forfeiture takes effect immediately upon
the commission of the act,” the right to the property then vests in the United States, although their title is
not perfected until judicial condemnation . . . .” U.S. v. Bailey, 419 F.3d 1208, 1217 (11th Cir. 2005). As
discussed above, the USAO chose not to take such actions, since it knew the Receiver already controlled
the relevant assets.

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USAO is now preparing to seek permission to vacate the forfeiture order.2 Additionally, when
the Southern District asked the USAO to comment on whether the Southern District or this Court
was more appropriate to adjudicate the status of the Wells Fargo North Carolina property, the
USAO stipulated to removing that parcel from the Southern District’s forfeiture order and
concluded it was “not aware of any reason for the status of the property to be further adjudicated
before” the Southern District. U.S. v. Nadel, D.E. 94 (February 12, 2012). The cases against
Nadel in the Southern District and this Court have progressed with parallel jurisdiction, and with
the USAO seeking to vacate the forfeiture order there, there is now not even a possibility of a
jurisdictional dispute.
IV. The Court Should Allow Receivership Claims to Proceed on their Merits Based on the
Imminent Vacating of the Forfeiture Order and the Equitable Nature of Receiverships.
Even assuming hypothetically there once had been an incongruity between the
jurisdictions of the two Courts presiding over Nadel’s cases, this Court should reject Wells
Fargo’s contention that the Receiver’s actions were a nullity. Now that the USAO not only has
removed Wells Fargo’s parcel from the ambit of the forfeiture order but is seeking to vacate the
forfeiture order completely, Wells Fargo’s approach would epitomize putting form over
substance. Neither the Southern District nor the USAO ever implemented the forfeiture order,
and to now force the Receiver to revisit all the actions he took to marshal, preserve, and liquidate
assets would cause a huge waste of money more rightfully distributed to those investors Nadel
defrauded.
A Receiver is a neutral court officer appointed by the district court, which has
supervision over the Receiver and jurisdiction over the property in receivership. Atlantic Trust
2

On February 22, 2012, undersigned counsel confirmed the USAO’s position with Assistant United
States Attorney Jeffrey Alberts, who explained the only reason he has not sought such an order is that he
has been seriously ill for the last few days.

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Co. v. Chapman, 208 U.S. 360, 371 (1908); Tyler, 149 U.S. at 181; American Freedom Train
Foundation v. Spurney, 747 F.2d at 1073; see also, 1 Clark on Receivers, § 11(a) (3d ed. 1959)
(“A receiver appointed by the court is an arm or hand of the court”). District Courts have “broad
powers and wide discretion to determine relief in an equity receivership . . .” derived “from the
inherent powers of an equity court to fashion relief.” SEC v. Elliot, 953 F.2d 1560, 1566 (11th
Cir. 1992) (citations omitted). “The government’s and parties’ interests in judicial efficiency
underlie the use of a single receivership proceeding.” Id. (citing Smith v. American Indust.
Research Corp., 665 F.2d 397, 399 (1st Cir. 1981)). In determining if the receivership process
adequately protects a claimant’s interests, courts “look at the actual substance, not the name or
form, of the procedure . . . .” SEC v. Elliot, 953 F.2d at 1567. The Court can ensure Wells Fargo
enjoys all the procedural protections to which it is entitled while avoiding a pointless drain on the
investor funds the Receiver has been augmenting for three years.
WHEREFORE, the Commission urges the Court to overrule Wells Fargo’s jurisdictional
objection, and consider the claims disputes on the merits.
February 23, 2012

Respectfully submitted,
By:

s/ Scott A. Masel
Scott A. Masel
Senior Trial Counsel
Florida Bar No. 0007110
Direct Dial: [phone]
E-mail: [e-mail]
Lead and Trial Counsel
Attorney for Plaintiff
SECURITIES AND EXCHANGE
COMMISSION
801 Brickell Avenue, Suite 1800
Miami, Florida 33131
Telephone: [phone]
Facsimile: [phone]

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CERTIFICATE OF SERVICE
I hereby certify that on February 23, 2012, I electronically filed the foregoing with the
Clerk of the Court by using the CM/ECF system which will send a notice of electronic filing to
the following:
Burton W. Wiand, Esq.
Wiand Guerra King P.L.
3000 Bayport Drive, Suite 600
Tampa, FL 33607
Telephone: [phone]
Facsimile: [phone]
Court-appointed Receiver for Corporate Defendants
and Relief Defendants
Gianluca Morello, Esq.
Wiand Guerra King P.L.
3000 Bayport Drive, Suite 600
Tampa, FL 33607
Telephone: [phone]
Facsimile: [phone]
Email: [e-mail]
Counsel for Receiver Burton W. Wiand
Sean P. Keefe, Esq.
James, Hoyer, Newcomer, Smiljanich & Yanchunis, PA
Suite 550
4830 W Kennedy Blvd
Tampa, FL 33609
813/286-4100
Fax: [phone]
Email: [e-mail]
Counsel for Receiver Burton W. Wiand
Terry Alan Smiljanich , Esq.
James, Hoyer, Newcomer, Smiljanich & Yanchunis, PA
Suite 550
4830 W Kennedy Blvd
Tampa, FL 33609
813/286-4100
Fax: [phone]
Email: [e-mail]
Counsel for Receiver Burton W. Wiand

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Maya M. Lockwood, Esq.
Wiand Guerra King P.L.
3000 Bayport Drive, Suite 600
Tampa, FL 33607
Telephone: [phone]
Facsimile: [phone]
Email: [e-mail]
Co-counsel for Receiver Burton W. Wiand
Louis Joseph Shaheen, Jr. . Esq.
Akerman Senterfitt
Suite 1700
401 E Jackson St
Tampa, FL 33602-5803
813-209-5016
Fax: [phone]
Email: [e-mail]
Counsel for Wells Fargo Bank, N.A.
Steven R. Wirth, Esq.
Akerman Senterfitt
Suite 1700
401 E Jackson St
Tampa, FL 33602-5803
813/223-7333
Fax: [phone]
Email: [e-mail]
Counsel for Wells Fargo Bank, N.A.
Ana T. Barnett, Esq.
Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson, PA
Suite 2200
150 W Flagler St
Miami, FL 33130
305/789-3514
Fax: [phone]
Email: [e-mail]
Counsel for Wells Fargo Bank, N.A.

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Julie Fishman Berkowitz, Esq.
Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson, PA
Suite 2200
150 W Flagler St
Miami, FL 33130
305/789-3353
Fax: [phone]
Email: [e-mail]
Counsel for Wells Fargo Bank, N.A.
I further certify that on the same date I mailed the foregoing document and the notice of
electronic filing by U.S. Mail or as indicated below to the following non-CM/ECF participant:
Arthur G. Nadel
Register No. 50690-018
FCI Butner Low - Federal Correctional Institution
P.O. Box 999
Butner, NC 27509
Via U.S. Mail
Jeffrey Alberts
Assistant United States Attorney
300 Quarropas Street
White Plains, New York 10601
Telephone: [phone]
E-mail: [e-mail]
s/ Scott A. Masel
Scott A. Masel, Esq.

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