Securities and Exchange Commission v. Terax Energy Inc et al

Filing 82

MEMORANDUM ORDER Sustaining in part and Overruling in part Objection to 69 Motion to Approve Plan of Distribution. (See order for specifics). (Ordered by Magistrate Judge Jeff Kaplan on 10/28/09) (jca) Modified on 10/29/2009 (skt).

IN THE LINITED STATESDISTRICTCOURT F O RTHE NORTHERNDISTRICTOF TEXAS D A L L A S DIVISION AND EXCHANGE SECURITIES COMMISSION,
Plaintiff,

VS. T E R A X ENERGY,[NC., WESTAROIL, and I N C . , MARK ROY ANDERSON, L I N D A CONTRERAS. Defendants. TRUST,ANd T H E SEPTEMBER C A M D E NHOLDINGS.INC.
Relief Defendants.

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

C i v i l ActionNo. 3:07-CV-1554-BD

H e a r i n gDate: October16,2009

M E M O R A N D U M ORDER SUSTAININGIN PART AND OVERRULING IN PART O B J E C T I O N OF KEYSTONE EXPLORATION, LTD. TO THE DISTRIBUTION A G E N T ' S MOTION TO-APPROVEPLAN OF DISTRIBUTION T O WESTAR INVESTORS O n April 27,2009, the Court enteredits Order AppointingDistributionAgent (the (DocketNo. 68), underwhich RobertP. Shepard the became Court-appointed "Appointment") Pursuant Agent")for investors Westar Inc.("Westar"). in Oil, Agent(the"Distribution Distribution Agent of OrderandotherOrdersandJudgments the Court,the Distribution t o the Appointment (the TeraxEnergy, Inc. ("Terax"), Fund")by Westar, disgorged "Disgorged collected $3,041,966 ("Contreras"), the September ("Anderson"),Linda Contreras and Trust. Mark Roy Anderson Planof Distribution Distribution AgentfiledhisMotionto Approve O nAugust12,2009,the (DocketNo. 69) (the"Motion"). The Courtseta deadline September 17, of Investors t o Westar upon set to 2 0 0 9for objections theMotion,if any. Noticeof thedeadline by theCourtwasserved

all parties in interest. Keystone Exploration, Ltd. ("Keystone"), filed a timely objection to the M o t i o n (Docket No. 72) (the "Objection"), assertinga claim againstthe DisgorgedFunds in the but a m o u n tof$ I,000,000that the DistributionAgent hadpreviouslyexamined, rejected.Keystone's that the claims of two "non-cash" investors,identified in the Motion as Objection fuither asserted D K I I I and PII(Jr) (the "Non-CashInvestors"),againstthe DisgorgedFunds should be disallowed for purposesof distribution. No party in interest other than Keystone objected to the Motion. On August 16,2009, the Court held an evidentiary hearing on the Motion and the Objection t h e r e t o . The Distribution Agent, the Securitiesand ExchangeCommission (the "SEC"), and at K e y s t o n eappeared the hearing. Despitenotice,no otherparty in interestappeared the hearing. at the Basedupon the evidencepresented, Court finds that Keystoneshould receive an allowed c l a i m againstthe DisgorgedFundsin the amountof $500,000andthat the remainderof Keystone's without prejudice c l a i m , in the amountof $500,000shouldbe disallowedfor distributionpu{poses, to Keystone's right to reassertsuch claim if additional funds become available for distribution to W e s t a r investors. F u r t h e r , basedupon the evidencepresentedand the legal principles governing plans of distribution, asmore fully setforth below, the Court finds that the claims of the Non-CashInvestors to a r e subordinated the claims of all cashinvestors(including Keystone).Accordingly, suchclaims s h o u l d be disallowed for distribution purposesuntil all cash investors are paid in full, without prejudice to the right of suchNon-Cash Investorsto reassertsuchclaims if additional funds become a v a i l a b l efor distribution to Westarinvestors. conference held by the Court on October 16,2009,the Distribution D u r i n g the post-hearing A g e n t informed the Court that he had received an additional claim for $200,000 against the

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Disgorged Funds that he believed to be valid. Including the additional claim for $200,000,the pro Distribution Agent holds sufficient funds to make a94o/o rata distribution to the cashinvestors. The SEC further informed the Court that it was consideringpursuingAnderson,Westarand/orTerax more to provide full restitutionto all Westarinvestors.The Court f o r at least$200,000and perhaps t h e r e f o r e finds that the Distribution Agent should distributeany additional funds collectedfrom A n d e r s o n ,Westar, andlorTerax, up to $200,000,to the cashinvestors(including Keystone)who r e c e i v ethe initial distribution. O n October22,2009,Keystoneandthe SEC submittedto the Court ajoint lettersettingforth positionsregarding matter.The positionsofthe SECandKeystonecloselyparallel the t h e respective with the Court's findings of fact and with the information given e a c hother and are fully consistent ofposition t o the Court bythe SEC and the Distribution Agent. The Court finds thejoint statement herein. and equitable,and its principlesare incorporated t o be reasonable T h e Court enjoysbroad equitablediscretionin fashioninga plan of distribution. SeeSEC plan because v . Forex AssetMgmt. LLC,242F.3d325,331 (5thCir. 2001) (affirmingdistribution i t was "a logical way to divide the money") (internal quotation marks omitted) (approval of v. of d i s t r i b u t i o nplan reviewedfor abuse discretion);UnitedStates Durham,86 F.3d 70,73 (5'hCir. 1996) (same). Put another way, the plan need only be "fair and reasonable,"subject to abuse-ofd i s c r e t i o nreview. SEC v. FischbachCorp., 133 F.3d 170,175 (2d Cir. 1997). "So long as the the the d i s t r i c t court is satisfiedthat in the aggregate, plan is equitableand reasonable, SEC" - and, b y extension,the Court -"may engagein the kind of line drawing that invariably leavesout some p o t e n t i a l claimants." Worldcom v. SEC, 467 F.3d 73,82 (2d Cir. 2006). Thus, the Non-Cash I n v e s t o r s , whose claims are of a different characterthan the cash investors' claims, may be

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subordinatedto the cashinvestors. Further, pro rata distributions to similar situatedinvestorsplace a l l victims on equalfooting, andhavebeenuniformly approved the Fifth Circuit in similar cases. by See, e.9.,Forex,242F.3dat 331 Durham,86F.3dat73. B a s e dupon its own findings of fact and the legalprinciplesgoverningplansof distribution, it is therefore ORDERED that: 1. 2. Keystone'sObjectionto the Motion is sustained part and ovemrled in part; in The plan of distribution set forth in the Motion is approved,as modified by this Order:
t J.

K e y s t o n e ' sclaim againstthe DisgorgedFundsis allowed in the amountof $500,000 f o r purposesof distribution and shall be paid pro-ratawith the allowed claims of of o t h e rcashinvestors.The remainder Keystone'sclaim, in the amountof $500,000, such claim later in i s disallowed without prejudiceto Keystone'sright to reassert accordancewith paragraph6 below;

4.

to T h e claims of the Non-CashInvestorsare subordinated the allowed claims of the of The claimsof the Non-CashInvestorsaredisallowedfor purposes c a s hinvestors. to such d i s t r i b u t i o n ,without prejudiceto the right of theNon-CashInvestors reassert claims later in accordancewith paragraph6 below;

5.

I f the SEC seeksand obtains additional funds from Anderson, Westar, Terax or o t h e r s ,the SEC shall file a motion to modifu thejudgment(s)againstthoseentities. Keystoneshall cooperatewith the SEC in its efforts to recoveradditional funds from Anderson, Westar, Terax, or others for the benefit of Westar investors;

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6.

Any additionalrecoveryby the SEC for the benefit of Westarinvestors,up to $ 2 0 0 , 0 0 0 ,shall be distributedpro rata to all cashinvestors,including Keystone, w h o previouslyreceiveda distribution of DisgorgedFundsfrom the Distribution A g e n t . If additionalfunds, in excess $200,00,are recovered the SEC for the of by b e n e f i t of Westarinvestors,Keystoneand the Non-CashInvestorsshall be entitled t o re-assert their previouslydisallowedclaims againstsuch funds; and.

7.

The Distribution Agent is herebydirectedto distributethe DisgorgedFundsto the c a s hinvestors,including Keystoneand the holder of the new $200,000claim, in accordance with the Motion, as modified by this Order.

S O ORDERED this 28th dav of October,2009.

S I " A T E S l"{A GISI'RATE .IUDG E

A G R E E D AS TO FORM AND CONTENT: B A R L O W , GARSEK & SIMON, L.L.P. / s / Robert Simon A. By:
H e n r y W. Simon, Jr. T e x a sBar No. 18394000 R o b e r tA. Simon T e x a sBar No. 18390000 3 8 1 5LisbonStreet F o r t Worth, Texas76107 T e l e p h o n e : [phone] F a c s i m i l e : [phone] Attorneys for Keystone Exploration, Ltd,
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PARKS HUFFMAN McVAY SHEPARD & W E L L S , P.C. / s / Robert Shepard P.

By:
RobertP. Shepard T e x a s No. 18218990 Bar 5 0 3EastBorderStreet A r l i n g t o nTexas , 76010 (81 861-1000 T e l e p h o n e : 7) (817) Facsimile: 469-1000 DistributionAgent Attorneysfor

U N I T E D STATES SECURITIESAND E X C H A N G ECOMMISSION / s / TobyM. Galloway By: T o b yM. Galloway, Trial Attorney Bar T e x a s No. 00790733 F o r tWorthRegional Office 8 0 1CherryStreet, Suite1900 F o r tWorth,Texas76102 [phone] Telephone: F a c s i m i l e(817)978-4927 :

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