Securities and Exchange Commission v. Adams et al
Filing
33
ORDER Appointing Receiver. Signed by District Judge Carlton W. Reeves on 6/22/2018. (cr)
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____________________
No. 3:18-CV-00252-CWR-FKB
SECURITIES & EXCHANGE COMMISSION,
Plaintiff,
v.
ARTHUR LAMAR ADAMS,
et al.,
Defendants.
____________________
ORDER APPOINTING RECEIVER
____________________
Before CARLTON W. REEVES, District Judge.
Defendants engaged in a multi-million dollar Ponzi scheme
that defrauded hundreds of investors. This order appoints a
receiver to manage Defendants’ estates and describes the
scope of receivership.
Thirty applicants submitted receivership applications to the
Court. This pool of men and women was extremely impressive and unusually diverse. Applicants included lawyers
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(ranging from solo practitioners to partners in law firms
larger than any in Mississippi), accountants, academics, and
other professionals from a dozen states across the country.
Out-of-state applicants recognized the talents of Mississippi
attorneys by proposing substantive alliances with them. The
Secretary of State was right to support an open application
process, without which many would never have had the opportunity to reveal their talents to this Court. Applicants offered compelling reasons for their appointment. The breadth
and depth of their experiences made this Court’s choice a difficult one.
The Court considered many factors when screening applications. A number of applicants lacked the appropriate professional experience for this case. Some with the right experience
proposed hourly rates that were too high to justify, including
rates of over $1,000 an hour. Others proposed to work with
partner professionals less qualified than others in the pool.
Occasionally, applicants or the firms they partnered with had,
in practicing before this Court, demonstrated that they are unsuited to serve as a receiver.
Nearly all candidates, however, proposed laudable and bold
steps to ensure that their recruitment and retention policies
were inclusive. The Court was particularly impressed with
members of the Mississippi bar who crossed long-established
lines to forge entrepreneurial partnerships. The diversity of
the applicant pool and the creativity of the respective proposals is worth noting.
Encouraging diversity in the judiciary is not a cure-all for the
lack of that feature in the broader legal profession. Nor is encouraging diversity destined to result in true representation,
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rather than tokenism masquerading as such. Nevertheless, in
order to do justice, the judiciary must incorporate a wide array of experiences, facts, and perspectives into its decisionmaking processes – including the decisionmaking process of receivers, who act as extensions of the courts. When
courts hire and appoint individuals to assist in their mission,
they must ensure those opportunities are extended to all
whom the judiciary serves. As this case proves, doing so enhances – rather than diminishes – the quality of the applicant
pool.
Of all the candidate qualifications the Court took into account,
perhaps the most important was the ability to exercise disinterested and informed judgment. This case involves what
may be the largest Ponzi scheme in Mississippi’s history, one
in which many Mississippi residents and entities are entangled. Mississippi is a small state. The Receiver and her staff
must be close enough to the state to understand its workings.
But the Receiver must also be distant enough to preserve her
impartiality, a key trait in a process that may involve clawing
back funds from the connected and powerful. Many otherwise capable candidates were unequipped to navigate the real
and apparent conflicts of interest their appointment would
create.1
After weighing the applicants’ professional experience,
hourly rates, candor, judgment, and other qualifications, the
Court believes that Alysson L. Mills, a member of the Mississippi bar and partner at the Louisiana firm of Fishman
1
This should come as no surprise to the parties, given their discussion of
a specific candidate’s conflicts of interest at the hearing on this matter.
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Haygood, LLP, is best suited to be Receiver. Mills is a graduate of the University of Mississippi School of Law, and clerked
for Fifth Circuit Judge E. Grady Jolly. She has extensive federal court experience, including representation of bankruptcy
trustees and securities purchasers in suits involving fraud and
mismanagement. She has authored Supreme Court briefs and
frequently argues in the Fifth Circuit.
Mills has proposed an experienced team of lawyers from Fishman Haygood to serve as her counsel, including individuals
who have handled matters involving Ponzi schemes, complex
bankruptcy disputes, and securities arbitration. Her team has
represented individuals, companies, pension funds, hospitals, cities, and states. Firm partner Brent B. Barriere’s experience makes him particularly qualified to serve as primary
counsel to the Receiver. Most team members will bill at rates
not to exceed $275 an hour, while two partners will bill at
rates not to exceed $325 an hour.
The Court is satisfied that Mills has the experience, judgment,
and talent to perform the duties and responsibilities of a receiver and act as an officer of the Court. Therefore, it is hereby
ORDERED that Alysson L. Mills is appointed to serve without bond as Receiver for the estate of the Receivership Defendants, Arthur Lamar Adams and Madison Timber Properties, LLC. The Receiver shall take possession of the entirety of
the Receivership Defendants’ assets. The Receiver is authorized to retain the services of Fishman Haygood, LLP and
other appropriate professionals. The scope of receivership is
as follows.
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I
General Powers & Duties of Receiver
The Receiver shall have all powers, authorities, rights, and
privileges now possessed by the officers, managers, and interest holders of and relating to the Receivership Defendants,
in addition to all powers and authority of a receiver at equity
under all applicable state and federal law in accordance the
provisions of 28 U.S.C. §§ 754, 959, and 1692, and Fed. R. Civ.
P. 66, and shall assume and control the operation of the Receivership Defendants and shall pursue and preserve all of
their claims.
No person holding or claiming any position of any sort with
the Receivership Defendants shall possess any authority to act
by or on behalf of the Receivership Defendants, with the exception that attorneys representing Defendant Adams in U.S.
v. Adams, Case No. 3:18-CR-0088-CWR-LRA (S.D. Miss) may
continue their representation.
The Receiver and her agents, acting within the scope of such
agency as Retained Personnel, are entitled to rely on all outstanding rules of law and Orders of this Court and shall not
be liable to anyone for their own good faith compliance with
any order, rule, law, judgment, or decree. In no event shall the
Receiver or Retained Personnel be liable to anyone for their
good faith compliance with their duties and responsibilities
as Receiver or Retained Personnel, nor shall the Receiver or
Retained Personnel be liable to anyone for any actions taken
or omitted by them except upon a finding by this Court that
they acted or failed to act as a result of malfeasance, bad faith,
gross negligence, or in reckless disregard of their duties.
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The Receivership Defendants shall indemnify, defend, and
hold harmless the Receiver and the Retained Personnel from
and against all actions (pending or threatened and whether at
law or in equity in any forum), liabilities, damages, losses,
costs, and expenses, including but not limited to reasonable
attorneys’ and other professionals’ fees, arising from conduct
or omission of the Receiver and the Retained Personnel under
the terms of this Order, except for any such conduct or omission adjudged by this Court to be the result of gross negligence or willful misconduct.
Subject to the specific provisions below, the Receiver shall
have the following general powers and duties:
(1) to use reasonable efforts to determine the nature,
location, and value of all property interests of the Receivership Defendants, including but not limited to
monies, funds, securities, credits, effects, goods, chattels, lands, premises, leases, claims, rights and other assets, together with all rents, profits, dividends, interest
or other income attributable thereto, of whatever kind
and description, wherever located, which the Receivership Defendants own, possess, have a beneficial interest in, or control directly or indirectly (“Receivership Property” or, collectively, the “Receivership Estate”), including, but not limited to, (i) the following
bank accounts: First Bank of Clarksdale, Account No.
7315736, Southern Bancorp Account Nos. 6454774,
6454367, and 6454359, and River Hills Bank Account
No. 6755060 and (ii) Defendant Adams’ principal residence located at 134 Saint Andrews Drive, Jackson,
Mississippi, 39211;
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(2) to use reasonable efforts to determine the nature
and location of the books and records, client lists, account statements, financial and accounting documents,
computers, computer hard drives, computer disks, internet exchange servers, telephones, personal digital
devices and other informational resources, of whatever
kind and description, wherever located, in possession
of the Receivership Defendants, or issued by the Receivership Defendants and in possession of third parties (“Receivership Records”);
(3) to take custody, control, and possession of all Receivership Property, Receivership Records, and any assets traceable to assets owned by the Receivership Estate; and, with prior approval of this Court upon ex
parte request, institute such actions or proceedings to
impose a constructive trust, to sue for and collect, recover, receive or take into possession from third parties
all Receivership Property, Receivership Records, and
any assets traceable to assets of the Receivership Estate;
(4) to manage, control, operate, and maintain the Receivership Estate and hold in her possession, custody,
and control all Receivership Property, pending further
Order of this Court;
(5) to open bank accounts for the Receivership Defendants;
(6) to use Receivership Property for the benefit of the
Receivership Estate, making payments and disbursements and incurring expenses as may be necessary or
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advisable in the ordinary course of business in discharging her duties as Receiver;
(7) to take any action which, prior to the entry of this
Order, could have been taken by the officers, managers, and agents of and relating to the Receivership Defendants; including the termination of any personnel
that the Receiver deems appropriate;
(8) to terminate any and all leases of the Receivership
Defendants’ personal or real property, or to sell any of
the Receivership Defendants’ personal or real property;
(9) to access all of the Receivership Defendants’ bank
accounts, securities accounts, and IT systems;
(10) to collect any management or advisory fees due
and owing to the Receivership Defendant;
(11) to produce Receivership Defendants’ records and
to share information as reasonably requested with the
staff of the Commission without a subpoena;
(12) with this Court’s approval, to engage and employ
persons in her discretion to assist her in carrying out
her duties and responsibilities hereunder, including
but not limited to accountants, attorneys, securities
traders, registered representatives, financial or business advisers, liquidating agents, real estate agents, forensic experts, brokers, traders, or auctioneers;
(13) to take such action as necessary and appropriate
for the preservation of Receivership Property or to prevent the dissipation or concealment of Receivership
Property;
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(14) to obtain, by presentation of this Order, documents, books, records, accounts, deposits, testimony,
or other information within the custody or control of
any person or entity sufficient to identify accounts,
properties, assets, liabilities, or agents of and relating
to the Receivership Estate or Receivership Defendants;
(15) without further order of this Court, to issue subpoenas for documents and testimony consistent with
the Federal Rules of Civil Procedure;
(16) to investigate and, following this Court’s approval
upon ex parte request, to bring such legal actions based
on law or equity in any state, federal, or foreign court
as the Receiver deems necessary or appropriate in discharging her duties as Receiver;
(17) following this Court’s approval upon ex parte request, to file a petition in bankruptcy for either or both
the Receivership Defendants if the Receiver determines it to be necessary; and
(18) to take such other action as may be approved by
this Court.
II
Duty to File Recommendation & Report
Within 60 days, the Receiver shall file a report with the Court
as to the status of the Receivership Estate. Such report shall
include:
(1) a description of all known assets of the Receivership
Estate, their location, and to the extent possible, the Receiver’s good faith estimate of the value of those assets;
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(2) a list of secured creditors and other financial institutions with an interest in the Receivership Estate;
(3) to the extent practicable, a list of investors in the securities sold by the Receivership Defendants;
(4) any other known liabilities of the Receivership Estate;
(5) the Receiver’s preliminary plan for the administration of the Receivership Estate, including a recommendation regarding whether bankruptcy cases should be
filed for all or a portion of the assets subject to the receivership, a recommendation as to the appropriateness of forfeiture proceedings for any assets subject to
the receivership, and a recommendation as to whether
litigation against third parties should be commenced
on a contingent fee basis to recover assets for the benefit of the receivership;
(6) to the extent not provided in response to the prior
subject matters, the Receiver’s preliminary recommendation as to the most reasonable and efficient methods
for recovery, liquidation, and distribution of the Receivership Estate;
(7) the Receiver’s recommendation as to whether the
receivership created by this Order should be continued
and the benefits of any such action; and
(8) any additional information that the Receiver deems
relevant.
Upon consideration of this report, the Court shall consider
whether to terminate the receivership or order such other relief as it deems appropriate.
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III
Injunction Against Interference with Receiver
The Receivership Defendants and all persons receiving notice
of this Order by personal service, facsimile, or otherwise, are
hereby restrained and enjoined from directly or indirectly taking any action or causing any action to be taken, without the
express written agreement of the Receiver, which would:
(1) interfere with the Receiver’s efforts to take control,
possession, or management of any Receivership Property; such prohibited actions include but are not limited to, using self-help or executing or issuing or causing the execution or issuance of any court attachment,
subpoena, replevin, execution, or other process for the
purpose of impounding or taking possession of or interfering with or creating or enforcing a lien upon any
Receivership Property;
(2) hinder, obstruct, or otherwise interfere with the Receiver in the performance of her duties; such prohibited actions include but are not limited to concealing,
destroying, or altering records or information;
(3) dissipate or otherwise diminish the value of any Receivership Property; such prohibited actions include
but are not limited to releasing claims or disposing,
transferring, exchanging, assigning, or in any way conveying any Receivership Property, enforcing judgments, assessments or claims against any Receivership
Property or any Receivership Defendant, attempting to
modify, cancel, terminate, call, extinguish, revoke, or
accelerate the due date of any lease, loan, mortgage, indebtedness, security agreement, or other agreement
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executed by any Receivership Defendant or which otherwise affects any Receivership Property; or
(4) interfere with or harass the Receiver, or interfere in
any manner with the exclusive jurisdiction of this
Court over the Receivership Estate.
The Receivership Defendants and their past or present officers, managers, and agents and all persons in active concert or
participation with them, including any financial institution,
shall provide the Receiver immediate access to and control
and possession of Receivership Records and the Receivership
Estate’s assets, including securities and property of any kind,
real and personal, as well as all keys, passwords, entry codes,
and the original of all books, records, documents, accounts,
computer printouts, disks, and the like.
The Receivership Defendants shall cooperate with and assist
the Receiver in the performance of her duties, including by
promptly acknowledging to third parties the Receiver’s authority to act on behalf of the Receivership Estate and by
providing such authorizations, signatures, releases, attestations, and access as the Receiver may reasonably request.
The Receiver shall promptly notify the Court and the Commission of any failure or apparent failure of any person or entity to comply in any way with the terms of this Order.
IV
Stay of Litigation
The following Ancillary Proceedings, excluding the instant
proceeding and all police or regulatory actions and actions of
the Commission related to the above-captioned enforcement
action, are stayed until further Order of this Court: all civil
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legal proceedings of any nature, including but not limited to
bankruptcy proceedings, arbitration proceedings, foreclosure
actions, default proceedings, or other actions of any nature involving:
(1) the Receiver, in her capacity as Receiver;
(2) any Receivership Property, wherever located;
(3) any of the Receivership Defendants, including subsidiaries and partnerships; or
(4) any of the Receivership Defendants’ or Receivership Estate’s past or present officers, directors, managers, agents, or general or limited partners sued for, or
in connection with, any action taken by them while acting in such capacity of any nature, whether as plaintiff,
defendant, third-party plaintiff, third-party defendant,
or otherwise.
The parties to any and all Ancillary Proceedings are enjoined
from commencing or continuing any such legal proceeding,
or from taking any action, in connection with any such proceeding, including but not limited to the issuance or employment of process.
All Ancillary Proceedings are stayed in their entirety, and all
Courts having any jurisdiction thereof are enjoined from taking or permitting any action until further Order of this Court.
Further, as to a cause of action accrued or accruing in favor of
one or more of the Receivership Defendants against a third
person or party, any applicable statute of limitation is tolled
during the period in which this injunction against commencement of legal proceedings is in effect as to that cause of action.
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These provisions bar any person or entity, other than the Receiver, from placing either of the Receivership Defendants in
bankruptcy proceedings.
V
Receiver Compensation
The Receiver is to be paid her reasonable compensation and
expense reimbursement from the Receivership Estate. Such
compensation and expense reimbursement shall require the
prior approval of this Court.
Within 30 days after the end of each full month while the Receivership is in effect, the Receiver shall apply to this Court
for compensation and expense reimbursement from the Receivership Estate through Monthly Fee Applications.
Monthly Fee Applications shall contain representations that:
(i) the fees and expenses included therein were incurred in the
best interests of the Receivership Estate; and (ii) with the exception of her Receivership application, the Receiver has not
entered into any agreement, written or oral, express or implied, with any person or entity concerning the amount of
compensation paid or to be paid from the Receivership Estate,
or any sharing thereof.
Monthly Fee Applications will be interim and will be subject
to cost-benefit and final reviews at the close of the receivership. At the close of the receivership, the Receiver will file a
final fee application, describing in detail the costs and benefits
associated with all litigation and other actions pursued by the
Receiver during the course of the receivership.
Monthly Fee Applications may, in the Court’s discretion, be
subject to a holdback in the amount of 25% of the amount of
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fees and expenses for each application filed with the Court.
The total amounts held back during the course of the receivership will be paid out at the discretion of the Court as part of
the final fee application submitted at the close of the receivership.
At the close of the receivership, the Receiver shall submit a
Final Accounting, in a format to be provided by Commission
staff, as well as the Receiver’s final application for compensation and expense reimbursement.
This Order supersedes prior orders of this Court only to the
extent they conflict.
SO ORDERED, this the 22nd day of June, 2018.
s/ CARLTON W. REEVES
United States District Judge
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