Securities and Exchange Commission v. Nadel et al

Filing 787

DECLARATION of Burton W. Wiand re #786 Response in opposition to motion by Burton W. Wiand. (Cohen, Jonathan)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
v.
ARTHUR NADEL,
SCOOP CAPITAL, LLC,
SCOOP MANAGEMENT, INC.,
CASE NO.: 8:09-cv-0087-T-26TBM
Defendants,
SCOOP REAL ESTATE, L.P.,
VALHALLA INVESTMENT PARTNERS, L.P.,
VALHALLA MANAGEMENT, INC.,
VICTORY FUND, LTD,
VIKING IRA FUND, LLC,
VIKING FUND, LLC, AND
VIKING MANAGEMENT, LLC.
Relief Defendants.
_______________________________________/
DECLARATION OF BURTON W. WIAND IN SUPPORT OF THE RECEIVER’S AND
WIAND GUERRA KING P.L.’S RESPONSES IN OPPOSITION TO MOTION OF
WELLS FARGO, N.A. (I) TO DISQUALIFY RECEIVER, (II) TO DISQUALIFY WIAND
GUERRA KING P.L. AND (III) TO DISALLOW ALL FEES PAYABLE TO THE
RECEIVER AND HIS COUNSEL
Burton W. Wiand declares as follows:
1.

I am an attorney with Wiand Guerra King P.L. (“WGK”) in Tampa, Florida, and

am the court-appointed Receiver in this matter (“Receiver”), having been duly appointed by the
Court on January 21, 2009, pursuant to the recommendation of the Securities and Exchange
Commission (“SEC”), and subsequently reappointed on June 3, 2009, January 19, 2010, and

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September 23, 2010. (Docs. 8, 140, 316, 493.) I make this declaration in support of the
Receiver’s and Wiand Guerra King P.L.’s responses in opposition to Motion of Wells Fargo,
N.A. (I) to Disqualify Receiver, (II) to Disqualify Wiand Guerra King, P.L. and (III) to Disallow
All Fees Payable to the Receiver and His Counsel. (Doc. 766.) I make this declaration based on
information personally known to me or gathered by others at my request.
2.

At all times since my appointment as Receiver in January 2009, I have acted in

good faith and in the best interests of the Receivership in marshaling and safeguarding the assets
of the Defendants and Relief Defendants for the protection of the innocent and defrauded
investors in full cooperation with the SEC and under the supervision of the Court.
3.

In my capacity as Receiver, my efforts to date have generally included the

successful institution of a large volume of lawsuits and marshaling of Receivership assets in
excess of $30 million. I have seized, marketed and sold real and personal property on behalf of
Receivership Entities. I have negotiated settlement agreements with Wells Fargo Securities
International, Ltd., Goldman Sachs Execution & Clearing, LP, and hundreds of other entities and
individuals, including profiteers. As a direct result of my efforts, a partial distribution of at least
$18 million is ready to be made to defrauded investors with allowed claims, and that distribution
has received preliminary approval from the Court. (Doc. 776.) The complete details of my
accomplishments as Receiver in this matter through November 30, 2011 are discussed in the ten
Interim Reports I have periodically filed with the Court. (Docs. 103, 141, 176, 240, 362, 462,
540, 609, 685.)
4.

Wiand Guerra King P.L. (“WGK”) is the law firm that I have retained to

represent me in the vast majority of Receivership matters, and its lawyers have been instrumental
to this Receivership’s success.

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5.

I am currently pursuing a number of clawback cases against additional profiteers

and others who received Ponzi scheme proceeds, as well as preparing to initiate more of these
cases in arbitration pursuant to earlier court orders. Also, I am pursuing a malpractice action
against Receivership Entities’ former law firm, Holland & Knight, LLP. In addition, I am
pursuing a separate action against Wells Fargo Bank, N.A. (the “Bank”) for its complicity in
Nadel’s Ponzi scheme, and I am negotiating the settlement of claims against other parties. As is
evident from my Interim Reports, there are many other matters that this Receivership is actively
pursuing for the benefit of the Receivership estate and, ultimately, defrauded investors with
allowed claims.
6.

I selected my former law firm, Fowler White Boggs P.A. (“Fowler White”), at

the outset of this case to represent me in connection with legal work necessary for the successful
completion of my tasks as Receiver. (Doc. 8.) On November 9, 2009, WGK opened and I and
most of the lawyers, paralegals, and staff who had dedicated significant time to this Receivership
moved from Fowler White to WGK. (See Doc. 240 at 2 n.2.) At that time, WGK began
undertaking the primary representation of me in my capacity as Receiver.

Prior to my

appointment as Receiver, I disclosed to the Court my intent to retain Fowler White as counsel
(Doc. 6), and later also disclosed my intent to replace Fowler White with WGK as previously
discussed (Doc. 240 at 2 n.2). The Court has authorized payment of fees and costs to WGK as
my counsel. (Docs. 266, 395, 497, 582, 717.)
7.

As fully disclosed in my filing with this Court on February 2, 2012 (Doc. 730), I

briefly assisted one of my colleagues at Fowler White in connection with a case involving
Wachovia Securities, LLC – a predecessor-in-interest to Wells Fargo Advisors, LLC (“WFA”) –
in September, 2009.

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8.

I am aware of the fact that WGK has in the past represented WFA, a broker/dealer

with no connection to this Receivership as a creditor, debtor, or in any other role. I disclosed this
fact to the Court in my filing dated February 2, 2012. (Doc. 730.) However, shortly after James,
Hoyer, Newcomer & Smiljanich, P.A. (“James Hoyer”) initiated the above-described action for
damages against the Bank for its role in Nadel’s scheme, WFA terminated its relationships with
WGK. During WGK’s representation of WFA, neither the firm nor I received any confidential
information pertaining to WFA that was in any way relevant to or otherwise of benefit in the
Receivership.
9.

I am also aware that WGK previously represented the Bank on one matter

unrelated to this Receivership. After I determined that litigation against the Bank for its role in
Nadel’s Ponzi scheme was necessary, and that I also needed to address the Bank’s objections to
the claims determination motion (“Claims Motion”) (Doc. 675), WGK sought to obtain a waiver
from the Bank of any perceived conflict. When WGK did not receive a waiver from the Bank, I
retained James Hoyer to represent me in my capacity as Receiver on all Receivership matters
pertaining to the Bank. During WGK’s representation of the Bank on this single matter, neither
the firm nor I received any confidential information pertaining to the Bank that was in any way
relevant to or otherwise of benefit in the Receivership.
10.

At present, WGK does not represent the Bank or WFA in any legal matters, and

neither is a current client of the firm.
11.

During the pendency of this Receivership, there have been three separate

occasions that required my taking positions adverse to the interests of the Bank or one of its
affiliates. On each of these occasions, in an abundance of caution, I retained outside counsel to
represent me. WGK did not participate in my representation on these three occasions.

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12.

First, upon discovering that a brokerage account held in a nominal capacity by

Wachovia Securities International, Ltd. (“Wachovia Securities”) had participated in investments
in Scoop Real Estate, LP and Viking Fund, LLC – two of the Hedge Funds at the heart of
Nadel’s Ponzi scheme – and had received false profits in connection with those two investments,
I determined that I needed to pursue a clawback action against Wells Fargo Securities
International, Ltd. (“Wells Fargo Securities”), the successor-in-interest to Wachovia Securities.
Despite the fact that WGK has never represented Wells Fargo Securities, out of an abundance of
caution I retained the law firm of Johnson, Pope, Bokor, Ruppel & Burns, LLP (“Johnson
Pope”) to represent me in that lawsuit. (Docs. 174, 175.) Johnson Pope represented me in all
aspects of that clawback action from the initial filing of the complaint through the Courtapproved settlement of the action. (Doc. 640.) WGK did not represent me in that clawback
action.
13.

During the course of that case, a mediation was held telephonically on March 25,

2011, and two senior in-house lawyers for various Wells Fargo entities, including at least one of
whom represents the Bank, participated on behalf of Wells Fargo Securities. At that mediation I
was represented by Johnson Pope, but WGK attorney Michael Lamont, who has been one of my
attorneys for all other clawback cases that I have filed, was contacted by mediator Peter Grilli
and asked to explain a position taken by me which applied across all clawback cases. As a
result, Mr. Lamont called into the mediation and spoke with the two Wells Fargo lawyers (at
least one of whom also represents the Bank) and Mr. Grilli.
14.

I have known the Wells Fargo lawyer who represents the Bank for some time, and

he is a longstanding friend of several principals of WGK. Around the time of the mediation, I
explained to that lawyer the reason for my retaining Johnson Pope as opposed to having WGK
lawyers handle the matter. Specifically, I informed him that even though WGK was representing
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me in this Receivership, in light of WGK’s relationship with Wells Fargo Advisors, out of an
abundance of caution WGK did not want to become adverse to a Wells Fargo entity.
15.

The fact that Johnson Pope was retained and utilized due to a potential conflict

also was publicly disclosed in multiple fee applications filed with this Court. (See, e.g., Doc. 392
at 17-18 & Ex. 25; Doc. 496 at 16-17 & Ex. 14.)
16.

Second, while performing my duties as the Receiver in this matter, I concluded

that the Bank played an active and complicit role in Nadel’s Ponzi scheme. After attempts to
address the damages stemming from the Bank’s misconduct proved unproductive, I determined
that legal action was necessary. I had exploratory discussions with several law firms and sought
proposals from three of them, and that process lasted several months. During the second full
week of September 2011, I decided to retain James Hoyer to represent me in an action against
the Bank. (Docs. 691, 696.) James Hoyer researched and evaluated the merits of claims against
the Bank and relationship manager Timothy Ryan Best (“Best”), and drafted and filed the
complaint, which was filed in the Twelfth Judicial Circuit of Sarasota County. To date, James
Hoyer has represented me in all aspects of this action against the Bank and Best and will
continue to do so through its conclusion. Again, WGK did not represent me in connection with
this action.
17.

In October 2011, shortly after I decided to retain James Hoyer, the SEC was

informed about my selection of counsel and my intent to pursue claims against the Bank. Over
the ensuing few days, information was exchanged with the SEC relating to these matters, and the
SEC informed me that it had no objection to my retaining James Hoyer to proceed against the
Bank, but that it wanted me to first make another effort to resolve those claims before retaining
James Hoyer.

I agreed to do that, and then had several discussions – without WGK’s

involvement – with the in-house Bank lawyer mentioned above over the next several months
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about resolving the claims. During our first communications, I explained to the Bank’s lawyer
that I would be negotiating directly with the Bank as Receiver and that WGK would not be
involved. I also informed him that the Bank needed to execute a tolling agreement. After
several months it still had not done so. At that point, I determined that I needed to proceed with
litigation against the Bank so that James Hoyer would have sufficient time to investigate relevant
matters, formulate legal theories and claims, and prepare a complaint without prejudicing the
Receivership estate. I advised the SEC of my decision and received its concurrence. A motion
for leave to retain James Hoyer was promptly filed on my behalf on December 22, 2011 (Doc.
691).
18.

In the third instance, I filed a motion for approval of my claims determinations

(the “Claims Motion”) (Doc. 675) with the Court, which included my determination that the one
claim filed by the Bank as an alleged secured creditor in relation to a single property within the
Receivership should be denied due to the Bank’s role in Nadel’s scheme. The Bank objected to
the Claims Motion, thereby confirming that the Claims Motion would be met with adversity
from the Bank. (Doc. 690.) I asked James Hoyer to also represent me in all Receivership
matters involving the Bank and provided notice to the Court of my decision. (Doc. 730.) Since
entering notices of appearance, James Hoyer has represented me in all matters in the
Receivership action pertaining to the Bank. WGK is not representing me in the Receivership
action with respect to any matters involving the Bank.
19.

In an abundance of caution, I have exclusively turned to Johnson Pope and James

Hoyer to assist me in connection with the above-described matters to avoid even the appearance
of impropriety.
20.

I have kept the SEC apprised of each of these actions, and have taken these steps

after consulting with the SEC.
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21.

To date, I have received no communications from any defrauded investors, nor

any other creditors or debtors of the Receivership estate, objecting to my actions pertaining to the
Bank or alleging any perceived conflict of interest or other related impropriety or appearance of
impropriety. The only creditor or debtor raising any complaint regarding my actions against the
Bank has been the Bank itself.
22.

I intend to vigorously pursue, with advice and counsel from James Hoyer, the

Receivership’s claims against the Bank, and vigorously defend against any attempts by the Bank
to divert to itself any of the assets of the Receivership from payment to defrauded investors and
legitimate creditors who filed timely claims, as set forth in my Claims Motion. (Doc. 675)
23.

With respect to Arthur Nadel’s “shadow accounts” held at the Bank, I learned

shortly after I was appointed Receiver that Nadel had secretive bank accounts at the Bank. I,
with the assistance of WGK lawyers and paralegals, began investigating Nadel’s use of those
Bank accounts along with all other accounts that Nadel controlled at various financial institutions
beginning early on in the Receivership. As part of that process, we subpoenaed and reviewed
documents from a large number of sources, reviewed documents I was able to seize after being
appointed Receiver, interviewed Nadel and other “insiders,” and obtained other relevant publicly
available materials.

Among the materials that we obtained and reviewed was information

relating to the shadow accounts, including Nadel’s authority with respect to those accounts.
24.

We also investigated an offshore investment in two of the hedge funds underlying

this case held in a custodial capacity by Wells Fargo Securities. This is the same investment that
underlies the clawback case against Wells Fargo Securities discussed above. In mid-2011, it
became apparent from our investigation that the Bank itself (and not a Bank affiliate) had
become a holder of an interest in that investment account as a result of a transaction it entered
into with another holder of an interest in that same investment account.
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25.

All of this investigation, which took place at the same time as a large number of

other Receivership matters, took some time, and it was not until mid-2011 that I determined that
I had sufficient information of possible claims by Receivership Entities against the Bank to
warrant approaching outside law firms to advise me about these matters and represent me in a
potential lawsuit against the Bank.
26.

Before this matter, I was appointed by this same Court on June 9, 2005, as

Receiver in SEC v. Howard Waxenberg et al., Case No. 8:05-cv-1076-T-24TBM. In connection
with that receivership, I used Wachovia Bank, N.A., a Bank predecessor, as the primary bank for
the Receivership’s accounts and other banking activities, which included voluminous
distributions of receivership assets to hundreds of claimants through the claims process in that
case. As a result of those matters, over the course of a number of years both I and some of the
same lawyers and paralegals that have been involved in this Receivership communicated
numerous times with Wachovia Bank representatives, who clearly knew Fowler White and some
of the same lawyers and paralegals that represent me in this Receivership and who are now at
WGK, represented me in that receivership too. During those communications, we discussed the
nature of my activities in that case, including that I was pursuing clawback claims and that I was
gathering funds for distribution to defrauded investors. I kept the bank advised of the ongoing
activities of that receivership and the timing of when distributions of funds would be made.
27.

Further, at the inception of this Receivership, I met with representatives of the

Bank (and of other banks) about using the Bank as the primary bank for this Receivership as
well. For a number of reasons, I chose not to use the Bank as custodian for this Receivership’s
funds. My decision in that regard had nothing to do with the fact that the Bank had held
accounts for Nadel and some Receivership Entities. Indeed, it was not until the latter part of
2011 that I became aware that the same office that had provided private banking services in the
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Waxenberg Receivership and with whom I discussed the possibility of holding this
Receivership’s funds, was the same office that had acted as personal banker for Nadel.
28.

As far as I am aware, no representative of the Bank or of any of its affiliates, nor

anyone else, ever raised any conflict-of-interest issue relating to this Receivership, the Bank or
any affiliate, and WGK until after I announced that I was prepared to proceed with a lawsuit
against the Bank.
29.

In light of the long history between me as Receiver, my law firms (both Fowler

White and WGK), and the Bank as discussed in this declaration and in the responses in
opposition to the Bank’s motion for disqualification, the Bank’s contention that it did not “fully
realize[]” the conflict it claims exists until December 2011/January 2012 is not consistent with
my personal knowledge.

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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on March 14, 2012, I electronically filed the foregoing with
the Clerk of the Court by using the CM/ECF system.
I FURTHER CERTIFY that on March 15, 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
FCI BUTNER LOW
Federal Correctional Institution
P.O. Box 999
Butner, NC 27509

/s Jonathan B. Cohen
Jonathan B. Cohen, Esq.

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