Securities and Exchange Commission v. Nadel et al

Filing 767

RESPONSE in opposition re #765 MOTION to continue Hearing Scheduled for March 2, 2012 on Pending Motions filed by Burton W. Wiand. (Smiljanich, Terry)

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.
/
THE RECEIVER’S OPPOSITION TO MOTION OF WELLS
FARGO BANK, N.A. FOR THE COURT TO CONTINUE THE
HEARING SCHEDULED FOR MARCH 2, 2012 ON PENDING MOTIONS
On December 7, 2011, Burton W. Wiand (the “Receiver”) filed a claims
determination motion (Doc. 675) (the “Claims Motion”), which, inter alia, proposed a plan
to distribute $18 million to victims of Arthur Nadel’s Ponzi scheme who complied with the
claims process requirements and have allowed claims. On February 3, 2012, the Court set a
hearing on the Claims Motion for March 2, 2012 at 9:00 a.m. (Doc. 734) – i.e., tomorrow.
Yesterday, less than 48 hours before the scheduled hearing, Wells Fargo Bank, N.A. (“WF

Bank”) filed a motion, based on purported conflicts of interest, seeking to continue the
hearing indefinitely (Doc. 765) (the “Continuance Motion”). In addition, WF Bank filed a
second motion seeking to disqualify both the Receiver and the Receiver’s law firm, Wiand
Guerra King, P.L. (“WGK”), with respect to the entire Receivership, and not just those
discrete matters WF Bank contends are implicated by the purported conflicts (Doc. 766) (the
“Disqualification Motion” and, collectively with the Continuance Motion, the “Motions”) –
i.e., disputes between the Receivership and WF Bank.
Importantly, WF Bank filed a claim in the claims process as a secured creditor with
respect to only one property in Receivership, but the Receiver determined the claim should
be denied due to WF Bank’s misconduct in connection with Nadel’s scheme, including its
execution of numerous transactions through “shadow accounts” Nadel used to perpetrate his
scheme and its investment in that scheme.1 See Claims Mot. § II.D.2. WF Bank failed to file
claims with respect to other properties in Receivership, and the Receiver has taken the
position that WF Bank’s failure extinguishes its purportedly secured interests in those
properties.2 The Receiver also recently sued WF Bank because of its misconduct, a case in

1

Also as part of this Receivership, in 2010 the Receiver filed a “clawback” case
against Wells Fargo Securities International, Ltd., an affiliate of WF Bank. See Wiand, as
Receiver v. Wells Fargo Secs. Int’l, Ltd., Case No. Case No. 8:10-cv-243-T-17MAP (M.D.
Fla.). In that case, the Receiver was represented by Johnson, Pope, Bokor, Ruppell & Burns,
LLP, and not by WGK. The Disqualification Motion conveniently omits this information
although it is important: that matter could not raise a conflict for two reasons – (i) because
WGK was not involved in the case and (ii) because the case was not against a client of
WGK. Cf. Disq. Mot. at 8 (arguing that WGK failed to seek conflict waiver relating to that
case).
2

These issues have been the subject of numerous WF Bank filings, which already have
delayed these proceedings. See Docs. 689, 690, 712, 714, 740, 745, 755, 757, 762.

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which, with the Court’s approval, the Receiver is represented by James, Hoyer, Newcomer &
Smiljanich, P.A. (“James Hoyer”) and not by WGK. Given the Receiver’s lawsuit against
WF Bank, the years that WF Bank has known of the matters it now claims present a conflict,
the fact that this issue was only raised after the Receiver announced he was going to sue WF
Bank, the late-filing of the Motions, their misleading content, the extreme relief they seek,
and their failure to identify any harm whatsoever to the Receivership, WF Bank’s motive for
filing the Motions is clear: retaliation for the Receiver’s lawsuit against WF Bank and his
determination that it is more equitable to pay the $7.8 million to which WF Bank contends it
has an entitlement to defrauded investors than to an entity that enabled Nadel to defraud
those investors and then slept on its rights.
The Receiver (and WGK) intend to separately respond to the Disqualification Motion
in detail.

For purposes of ruling on the Continuance Motion, however, the Receiver

impresses two significant points upon the Court: (1) nothing in the Disqualification Motion
warrants further delaying a ruling on the Claims Motion with respect to every claim and
other matters addressed in that motion except for the single claim submitted by WF Bank – in
fact, the Receiver’s response will show that he should not be disqualified from directing
Receivership matters with respect to that claim either; and (2) the Disqualification Motion is
baseless.
I.

NOTHING IN THE DISQUALIFICATION MOTION WARRANTS ANY
ADDITIONAL DELAY IN DECIDING THE CLAIMS MOTION WITH
RESPECT TO EVERY MATTER OTHER THAN THE SINGLE CLAIM
SUBMITTED BY WF BANK
Although the Receiver (and WGK) will submit a full response to the Disqualification

Motion, the case of CFTC v. Eustace, 2007 WL 1314663 (E.D. Pa. 2007), alone

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demonstrates the relief sought in that motion is not warranted. At most, to remove any
appearance of impropriety, the Court could appoint a substitute Receiver for the limited
purpose of overseeing the few discreet matters between the Receivership and WF Bank. As
Eustace shows, the Court can still proceed now with a final decision on the Claims
Determination Motion with respect to every other Claimant.
Eustace is analogous to the issues raised in the Disqualification Motion, although it
still has several important distinctions (which will be addressed in response to that motion).
That case involved a receiver who was represented by his law firm, and a party sued by the
receiver raised a conflict of interest involving the receiver and his firm on one hand and a
non-party who also was potentially liable for the claims brought by the receiver on the other
hand. See id. at *2-4. The potentially liable non-party was an affiliate of the receiver’s and
his firm’s clients, and the concern was that the receiver’s failure to also sue that non-party
could appear to be favoritism. In contrast, here WF Bank is upset precisely because it was
sued and the Receiver has vigorously contested its efforts to obtain Receivership assets.
After noting that neither the same rule of professional conduct that governs conflicts
in Florida nor the Bankruptcy Code controlled an equity receiver, the court found the issue
should be decided under the following standard:
the Court must balance the lack of disclosure about [the receiver’s and his
firm’s relationship with the non-party] and consider how serious it is in the
context of the actual events that have unfolded, and whether any party will be
prejudiced or whether the integrity of the proceedings themselves will be
subject to question after the case is completed. Considering this matrix of
various interests, the Court believes that it should also consider the interests of
the investors, the position of the CFTC as the government agency designated
by Congress with regulatory authority over futures markets ..., and the
interests of the public.

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Id. at *6.

The court then observed that “disqualification is disfavored;” a change in

“[r]eceiver and/or his counsel would require delay ... and additional expense;” the receiver
was “highly regarded,” “reputable,” and experienced; and that the receiver’s law firm had
done “a very satisfactory job ... as evidenced by a high degree of diligence in the handling of
the cases before the Court, with well prepared briefs and highly respectable motions ....” Id.
at *10. After considering alternatives for remedying the issue, the court concluded that under
the circumstances of that case it should replace the receiver with a substitute receiver only
with respect to the specific dispute which raised the conflict issue. Id. at *11-12 (“The Court
believes that the above determination of this issue is feasible and fair, and that it will ensure
integrity and finality of the proceedings in this Court and that all parties be treated fairly.”).
The Eustace court’s observations about disfavoring disqualification, the delay and
expense resulting from any disqualification, and the receiver’s and his law firm’s reputation,
experience, and work quality apply equally to the Receiver and WGK here.

And the

equivalent here of the resolution reached by that court would be simply to appoint a
substitute receiver to direct only the discreet disputes between the Receivership and WF
Bank. Further, in reaching its conclusion, the court explained that it had to “take into
consideration the Receiver’s arguments that no significant damage has been done to the
receivership efforts in this case ....” Id. at *10.

Here too there has been no damage

whatsoever to the Receivership and the Disqualification Motion does not even try to identify
any. In fact, unlike in Eustace there can be no damage here because the Disqualification
Motion is based entirely on the fact that the Receiver has pursued claims against WF Bank
and has vigorously contested its efforts to receive Receivership assets at the expense of

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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 Claims Mot.) (“[T]his is an SEC enforcement action designed to
protect the investors, not the creditors....”). In addition, Eustace observed that the advocacy
of the party that raised the conflict issue deserved “very little weight” because it had “an
obvious motive to have [the Receiver] ... discharged ....” Id. at *10 n.9. Here, the issue has
been raised by the only party that could plausibly benefit from the Receiver’s
disqualification, WF Bank.

In sum, while the Receiver (and WGK) will address the

Disqualification Motion in its entirety in another filing, Eustace demonstrates that even
assuming arguendo that motion has merit, which it does not, the relief sought by WF Bank to
further delay a ruling on anything but WF Bank’s interests is still not warranted.
When Nadel’s scheme collapsed in January 2009, hundreds of investors collectively
lost well over $100 million dollars. In many cases, investors lost all or a large portion of
their life savings. Since his appointment, the Receiver and his counsel, including WGK,
have always acted in the Receivership’s best interests and with utmost integrity, and the
Receiver’s efforts have always been undertaken in consultation with the Securities and
Exchange Commission (“SEC”) and subject to this Court’s review. To date, those efforts
have generated approximately $30 million of net cash assets for the benefit of defrauded
investors, and the Receiver is ready to make an interim distribution of at least $18 million,
which will provide many investors with badly needed funds. WF Bank’s eleventh hour
posturing should not be allowed to further delay relief to investors. The damage that Nadel
inflicted on investors is done, but the same cannot be said for WF Bank.

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II.

THE DISQUALIFICATION MOTION IS FACTUALLY AND LEGALLY
BASELESS
The Disqualification Motion is fundamentally inconsistent with the facts here. The

relevant overall concern is that a receiver or other fiduciary may show favoritism to someone
with whom the receiver has a relationship. This matter, however, involves the exact opposite
scenario: WF Bank is upset that it has not received any favoritism from the Receiver. In
other words, while the Disqualification Motion states that it is premised on some unidentified
potential damage to the Receivership, in reality, it is premised on the fact that by pursuing
WF Bank the Receiver actually refused to damage the Receivership and to breach his
obligations to it. This Court tasked the Receiver with marshalling assets for the benefit of
defrauded investors, and the Receiver and his different lawyers have at all times exercised
those duties in good faith, with utmost integrity, in consultation with the SEC, and under the
Court’s scrutiny and supervision.
As mentioned above, the Receiver (and WGK) will address the allegations of the
Disqualification Motion as soon as possible (which, however, will not be before tomorrow’s
hearing), but for the purpose of ruling on the Continuance Motion, the Court should know
that WF Bank’s arguments about a conflict are misleading and, in many respects, false.3
Following are just a few examples of why:
3

This is not the first time WF Bank has acted with less than good faith in this case.
See Doc. 690 at 5-6 (falsely arguing the Receiver never made a 28 U.S.C. § 754 filing with
respect to the Laurel Mountain Property); Doc. 690 at 7-9 (falsely arguing no notice of the
Laurel Mountain Property’s inclusion in the Receivership); Doc. 745 at 7-9 (falsely arguing
no knowledge that the Laurel Mountain Property was being administered in this Court rather
than in Nadel’s criminal forfeiture proceedings); Doc. 757 at 9-11 (explaining that WF Bank
petitioned NY court in violation of injunction entered in this case and without disclosing it to
Receiver or this Court).

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

Except for only one small matter in which WF Bank’s motion to dismiss was
granted early in the case before it proceeded to discovery – which matter was
disclosed to the Court (see Doc. 730) – WGK did not represent WF Bank and
instead represented Wells Fargo Advisors, LLC (“WFA”), a separate entity
with no connection to this Receivership (virtually all of the fees referenced in
WF Bank’s Motions were generated from services performed for WFA – not
WF Bank). There is no conflict as a result of WGK’s representation of a
separate and distinct entity from WF Bank;



To the extent WGK represented WF Bank in one matter, the Receiver and WF
Bank became adverse in this Receivership only at the end of 2011 and in early
2012, and the Receiver then retained the James Hoyer firm (instead of WGK)
to represent him in connection with the Receivership’s dealings with WF
Bank (see Doc. 691);



The Disqualification Motion assumes, without analyzing facts, that the
Receiver appreciated the full scope of WF Bank’s involvement in Nadel’s
scheme from the beginning of the Receivership, when that is not the case;



As noted above in footnote 1, just as with the recent case brought by the
Receiver against WF Bank, in the only other previous adverse matter between
the Receivership and an WF Bank affiliate, out of an abundance of caution the
Receiver retained the Johnson Pope firm (instead of WGK) to represent him in
that matter even though there was no conflict because the defendant was a
separate entity from WF Bank; and



No later than January 2011, a senior in-house WF Bank lawyer was fully
aware of the Receiver’s involvement in this Receivership, of WGK’s
relationship with WFA and its representation of WF Bank in one matter, and
of the Receiver’s control of several properties that served as purported
collateral for WF Bank loans. Nevertheless, WF Bank never complained and
only raised the matters in its Disqualification Motion shortly after the
Receiver disclosed in a filing that he was preparing to sue WF Bank (see Doc.
691) and WF Bank became upset about that and the press’ reporting of that
information.

These are only a few examples of why the Disqualification Motion has no merit, but
they further show the Motions are designed to (i) retaliate against the Receiver and WGK for
fulfilling their obligations to the Receivership and (ii) indefinitely delay the Court’s
resolution of WF Bank’s interests in this Receivership, hoping that down the road everything

8

will be dropped and WF Bank will walk away with $7.8 million of Receivership assets at the
expense of the victims it enabled Nadel to defraud.
CONCLUSION
For all of these reasons, the Continuance Motion should be denied in full or, at a
minimum, the Court should proceed with a ruling on all aspects of the Claims Motion except
for the merits of the single claim filed by WF Bank. Under the latter course, the claims
process would proceed, relief to defrauded investors would not be further delayed, and the
Court could address WF Bank’s claim after the Receiver has the opportunity to fully brief the
Disqualification Motion.

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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on March 1, 2012, I electronically filed the foregoing
with the Clerk of the Court by using the CM/ECF system.
I FURTHER CERTIFY that on March 1, 2012, I will mail the foregoing document
and the notice of electronic filing by first-class mail to the following non-CM/ECF
participants:
Arthur G. Nadel
Register No. 50690-018
Butner Low
Federal Correctional Institution
P.O. Box 999
Butner, NC 27509

Respectfully submitted,
s/Terry A. Smiljanich
Terry A. Smiljanich, FBN 145349
[e-mail]
Jonathan B. Cohen, FBN 0027620
[e-mail]
Sean P. Keefe, FBN 413828
[e-mail]
JAMES, HOYER, NEWCOMER &
SMILJANICH, P.A.
One Urban Centre, Suite 550
4830 West Kennedy Blvd.
Tampa, FL 33609
Tel: [phone]
Fax: [phone]
-andGianluca Morello, FBN 034997
[e-mail]
Michael S. Lamont, FBN 0527122
[e-mail]

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Jared J. Perez, FBN 0085192
[e-mail]
WIAND GUERRA KING P.L.
3000 Bayport Drive, Suite 600
Tampa, FL 33607
Tel: [phone]
Fax: [phone]
Attorneys for the Receiver, Burton W. Wiand4

4

Wiand Guerra King P.L. participates in this filing only to the extent the continuation
of the scheduled hearing on the Claims Motion would impact claims or Receivership
property with no relation to Wells Fargo.

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