Securities Exchange, et al v. Mutual Benefits Corp, et al

Filing 2825

ORDER Adopting 2723 Report and Recommendation and Denying Acheron's Wind Down Motion 2593 and Granting the Trustee's Amended Motion to Authorize the Initiation of Trust Wind Down and Termination 2640 . Signed by Judge Federico A. Moreno on 11/16/2020. See attached document for full details. (mmd)

Case 0:04-cv-60573-FAM Document 2825 Entered on FLSD Docket 11/16/2020 Page 1 of 6

UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF FLORIDA
Fort Lauderdale Division
Case Number: 04-60573-CIV-MORENO
SECURITIES AND EXCHANGE
COMMISSION et al.,
Plaintiff,
vs.
MUTUAL BENEFITS CORP. et al.,
Defendants.
_________________________________________/
ORDER ADOPTING MAGISTRATE JUDGE’S REPORT AND RECOMMENDATION
AND DENYING ACHERON’S WIND DOWN MOTION AND GRANTING THE
TRUSTEE’S AMENDED MOTION TO AUTHORIZE INITIATION OF TRUST WIND
DOWN AND TERMINATION
THE MATTER was referred to the Honorable Jared M. Strauss, United States Magistrate
Judge, for a Report and Recommendation on Acheron Capital Ltd.'s Motion for Order Directing
(A) the Wind Down and End of the Mutual Benefits Keep Policy Trust and (B) Disbursement of
Certain Assets to the Non-Acheron Related Investors in Keep Policies (D.E. 2593) and the
Trustee's Amended Motion to Authorize the Initiation of Trust Wind Down and Termination (D.E.
2640). The Magistrate Judge filed a Report and Recommendation (D.E. 2723) on July 27, 2020.
The Court has reviewed the entire file and record. The Court has made a de novo review of the
issues that the objections to the Magistrate Judge’s Report and Recommendation present, and
being otherwise fully advised in the premises, it is
ADJUDGED that United States Magistrate Judge Jared M. Strauss’s Report and
Recommendation is AFFIRMED and ADOPTED. Accordingly, it is
ADJUDGED that Acheron Capital Ltd.'s Motion for Order Directing (A) the Wind Down

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and End of the Mutual Benefits Keep Policy Trust and (B) Disbursement of Certain Assets to the
Non-Acheron Related Investors in Keep Policies (D.E. 2593) is DENIED without prejudice and
the Trustee's Amended Motion to Authorize the Initiation of Trust Wind Down and Termination
(D.E. 2640) is GRANTED.
Acheron’s Wind Down Motion seeks, inter alia, to transfer to Acheron, within 30 days of
Court approval of the Trust’s termination, title to all Keep Policies subject to the interests of nonAcheron investors in the policies. In exchange, Acheron agrees to pay the future servicing fees for
the policies. The Trustee’s Amended Wind Down Motion seeks Court approval and confirmation
of his authority to initiate a process “that could serve as the basis for wind down and eventual Trust
Termination.” He seeks confirmation of his authority to communicate with Keep Policy Investors
about preparations for Trust termination, to value the Keep Policies in anticipation, if necessary,
of their sale, and to seek out as many options as reasonably possible to offer to Keep Policy
Investors during the period preceding termination and liquidation of the Trust’s assets. The
Magistrate Judge correctly concluded for a variety of reasons that Acheron’s motion to wind down
the Trust should be denied and the Trustee’s motion should be granted as consistent with the terms
of the Keep Policy Trust.
Acheron’s primary objection to the Report and Recommendation is the Magistrate Judge’s
unwillingness to find that Acheron is a Keep Policy Investor or a qualified beneficiary under the
Trust. The Florida Trust Code, § 736.04113, provides that a trustee or a qualified beneficiary may
apply to a court to modify an irrevocable trust. Because the Magistrate Judge found that Acheron
Capital Ltd. cannot presently assert the rights of a qualified beneficiary, he found the Court lacks
the authority under the statute to grant Acheron the relief to modify the Trust’s termination
provision. In its objection, Acheron asserts that there is nothing precluding the Court from finding

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that it is a qualified beneficiary under the Keep Policy Trust in the context of this wind down
motion. The Court agrees with that statement insofar as the Court is not bound to decide Acheron’s
status as a Keep Policy Investor in the related case, Acheron Portfolio Trust v. Mukamal, Case No.
18-25099-CIV-MORENO. Nevertheless, the Court finds the Magistrate Judge’s decision sound in
this regard. Even if the Court finds that Acheron is a Keep Policy Investor who can request the
Trust’s termination under Florida law in this action, the Court lacks the authority to wind down
the Trust for other reasons set forth in the Report and Recommendation. Stated differently,
deciding whether Acheron is a Keep Policy Investor in the context of these wind down motions
would be pointless because that would not change the result here. The Report and
Recommendation details the other reasons why granting Acheron’s motion would contravene the
terms of the Keep Policy Trust.
The Magistrate Judge correctly found that granting Acheron’s motion would contravene
the language of the Trust instrument. The Trust Agreement governs its termination. § 736.0105(2),
Fla. Stat. (recognizing that the terms of the trust instrument control). Here, the Keep Policy Trust
section 8 provides that “[the] Trust Agreement shall terminate upon the final disposition of all
Keep Policies, whether by maturity, sale, surrender, or lapse, and the distribution of all other Trust
Assets in accordance with the terms of the Servicing Agreement.” The parties do not dispute that
the purpose of the Keep Policy Trust was to administer the policies through maturity, if possible,
for the benefit of the Keep Policy Investors until termination is proper. Even though Acheron’s
proposal attempts to cast itself as a proper “sale” under section 8, the proposal would create a
premature termination, at a point in time where the Keep Policy Investors continue to hold valuable
interests in the policies. The Trust has “$90 million worth of death benefits on insureds that are over
90 years old.” (D.E. 2693 at 161). The Court agrees with the Magistrate Judge’s finding that the

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proposal is contrary to the provisions governing timing and mechanics of trust termination. Thus,
the Court need not decide at this juncture whether Acheron is a Keep Policy Investor and a
qualified beneficiary because even if it is statutorily able to request the relief, the relief Acheron
seeks is inconsistent with the language of the Trust instrument.
The Magistrate Judge also correctly added that Acheron’s request contravenes the purpose
of the Keep Policy Trust. See Featherston v. Tompkins, 339 So. 2d 306, 307 (Fla. 3d DCA 1976)
(stating a court cannot terminate a trust without a determination that the purpose for which the
trust was established has been accomplised). To reiterate, the purpose of the Keep Policy Trust
was to allow the victims of the fraud an opportunity to realize the face value of the insurance
policies in which they invested, upon the maturity of the policies. The Trust, therefore, was created
as a vehicle to allow the victims to keep the policies, and Acheron’s request would short-circuit
that purpose. Even Acheron acknowledged at the Status Conference before the Magistrate Judge
that the victims who have been paying premiums for 15-20 years deserve to be paid. This is yet
another reason why the Court need not decide Acheron’s status as a Keep Policy Investor or a
qualified beneficiary in the context of this motion because Acheron’s proposal conflicts with the
Trust’s purpose, precluding the Court from granting it.
Acheron also objects to the Magistrate Judge’s position regarding the appointed
ombudsman under its wind down proposal. Acheron states in its objection that it always
contemplated that the ombudsman would owe a fiduciary duty to the non-Acheron Keep Policy
Investors and such duties would be detailed in a Court order. The Magistrate Judge correctly found
that the purpose of the Trust was to maintain and administer the Trust Assets for the Keep Policy
Investors. The structure proposed in Acheron’s wind down motion is misaligned with this purpose.
Under Acheron’s proposal, the party responsible for administering the Keep Policies would be Acheron
itself, which, as the Magistrate Judge noted, would “put [Acheron’s] interests ahead of the Keep Policy
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Investors.” Id. The appointment of an ombudsman does not make Acheron’s request consistent with
the purpose of the Keep Policy Trust, which was intended by the Receiver to continue a standard of
fiduciary care that the receivership provided to the victims of the fraud. The Court agrees with the
Magistrate Judge’s concern that even if there is an “ombudsman” with fiduciary obligations, that party
is not the one actually responsible for administering the policies. It would be Acheron under Acheron’s
plan. Therefore, Acheron’s proposed “ombudsman” is not an adequate substitute for the current
fiduciary structure as set forth in the Trust instrument.

Lastly, Acheron objects to the Report and Recommendation to the extent it addresses the
possibility of future sales of whole Keep Policies. As noted by the Magistrate Judge, the March
2015 Agreement (D.E. 2500-2 at § 4) allows the Trustee to sell whole policies if he is liquidating
the Trust or selling the entire portfolio of policies. Section 4 provides that “[i]n the event of such
a sale, Acheron will have the right to bid upon any sale of a policy in which it has an interest and
the right to top any bid submitted by another party.” The Court does not find the Magistrate Judge
erred in this statement contained in the March 2015 Agreement.
DONE AND ORDERED in Chambers at Miami, Florida, this 16th of November 2020.

______________________________________
FEDERICO A. MORENO
UNITED STATES DISTRICT JUDGE
Copies furnished to:
United States Magistrate Judge Jared M. Strauss
Counsel of Record
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