UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff(s) Case No: 09-cv-3332 MJD/FLN v. TREVOR COOK d/b/a CROWN FOREX, LLC, PATRICK KILEY d/b/a CROWN FOREX, LLC, UNIVERSAL BROKERAGE FX and UNIVERSAL BROKERAGE FX DIVERSIFIED, OXFORD GLOBAL PARTNERS, LLC, OXFORD GLOBAL ADVISORS, LLC, UNIVERAL BROKERAGE FX ADVISORS, LLC f/k/a UBS DIVERSIFIED FX ADVISORS, LLC, UNIVERSAL BROKERAGE FX GROWTH, L.P. f/k/a UBS DIVERSIFIED FX GROWTH L.P., UNIVERSAL BROKERAGE FX MANAGEMENT, LLC f/k/a UBS DIVERSIFIED FX MANAGEMENT, LLC and UBS DIVERSIFIED GROWTH, LLC, Defendant(s) R.J. ZAYED, Receiver. Case 0:09-cv-03332-MJD-FLN Document 494 Filed 10/18/10 Page 1 of 21
21
Embed
DISTRICT OF MINNESOTA U.S. COMMODITY FUTURES …stmedia.startribune.com/documents/cook101910.pdfFOREX, LLC, PATRICK KILEY d/b/a CROWN FOREX, LLC, UNIVERSAL ... involving gold, silver,
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
UNITED STATES DISTRICT COURTDISTRICT OF MINNESOTA
U.S. COMMODITY FUTURES TRADING COMMISSION,
Plaintiff(s) Case No: 09-cv-3332 MJD/FLN
v.
TREVOR COOK d/b/a CROWN FOREX, LLC, PATRICK KILEY d/b/aCROWN FOREX, LLC, UNIVERSALBROKERAGE FX and UNIVERSAL BROKERAGE FX DIVERSIFIED, OXFORDGLOBAL PARTNERS, LLC, OXFORDGLOBAL ADVISORS, LLC, UNIVERAL BROKERAGE FX ADVISORS, LLC f/k/a UBS DIVERSIFIED FX ADVISORS, LLC, UNIVERSAL BROKERAGE FX GROWTH, L.P. f/k/a UBS DIVERSIFIED FXGROWTH L.P., UNIVERSAL BROKERAGEFX MANAGEMENT, LLC f/k/a UBS DIVERSIFIED FX MANAGEMENT, LLCand UBS DIVERSIFIED GROWTH, LLC,
Defendant(s)
R.J. ZAYED,
Receiver.
Case 0:09-cv-03332-MJD-FLN Document 494 Filed 10/18/10 Page 1 of 21
UNITED STATES DISTRICT COURTDISTRICT OF MINNESOTA
UNITED STATES SECURITIESAND EXCHANGE COMMISSION, Case No: 09-cv-3333 MJD/FLN
Plaintiff(s)
v.
TREVOR G. COOK, PATRICK J. KILEY, UBS DIVERSIFIED GROWTH, LLC, UNIVERSAL BROKERAGE FXMANAGEMENT, LLC,OXFORD GLOBAL ADVISORS, LLC, and OXFORD GLOBAL PARTNERS, LLC,
Defendants
and
BASEL GROUP, LLC, CROWN FOREX, LLC, MARKET SHOT, LLC, PFG COIN AND BULLION, OXFORD DEVELOPERS, S.A., OXFORD FX GROWTH, L.P., OXFORD GLOBAL MANAGED FUTURES FUND, L.P., UBS DIVERSIFIED FX ADVISORS, LLC, UBS DIVERSIFIED FX GROWTH, L.P., UBS DIVERSIFIED FX MANAGEMENT, LLC, CLIFFORD BERG, and ELLEN BERG,
Relief Defendants.
R.J. ZAYED,
Receiver.
Case 0:09-cv-03332-MJD-FLN Document 494 Filed 10/18/10 Page 2 of 21
1
MEMORANDUM IN SUPPORT OF THE RECEIVER’S MOTION FOR AN ORDER APPROVING INTERIM DISTRIBUTION PLAN
AND CLAIM FINALIZATION PROCEDURES
The Court-appointed Receiver, R.J. Zayed, respectfully moves for entry of an
Order approving the Receiver’s plan to make an interim distribution in these civil cases
of $2,250,000.00 to investors who lost money to Trevor Cook’s Ponzi scheme. An
additional $363,700.00 in Receivership funds, which currently are held in the Court
Registry of the United States District Court, will be used for criminal restitution in United
States of America v. Trevor Cook, 10-cr-00075 (D. Minn. 2010). The Receiver further
moves for an Order approving his plan to finalize all claims for civil restitution and
claims for payment by other creditors of the Receiver Estates.
I. BACKGROUND
This case concerns one of the biggest Ponzi schemes in Minnesota history,
involving hundreds of investors who lost over $150 million to a fraud perpetrated by
Trevor Cook and others. This Court has appointed the Receiver to recover assets and
return funds to the victims of Cook’s fraud.
A. The Receivership Was Established To Collect And Liquidate Assets Of The Fraud.
On November 23, 2009, the Securities and Exchange Commission (“SEC”) and
the Commodity Futures Trading Commission (“CFTC”) filed lawsuits against Trevor
Cook, Patrick Kiley, and various entities controlled by them (collectively referred to as
The Receiver’s proposed interim distribution list for civil restitution closely
parallels the Probation Office’s list for criminal restitution, with two exceptions. First,
the criminal restitution list includes claims submitted by employee investors.1 See
Amended Judgment in a Criminal Case, 10-cr-00075, Doc. No. 21, at 5 (Oct. 7, 2010). 1 Employee investors include anyone who received compensation of any type from the fraudulent entities, including salaried employees, independent contractors, brokers, and partners, as well as spouses of these individuals.
Case 0:09-cv-03332-MJD-FLN Document 494 Filed 10/18/10 Page 10 of 21
9
The Receiver is still investigating claims made by employee investors and as such, they
are not included in the proposed interim distribution. See infra Part III(A). Second, the
criminal restitution list includes those possible investors who are identified in the SEC
tables, but who have not submitted a claim to the Receiver, the Probation Office, or the
government agencies. See Amended Judgment in a Criminal Case, 10-cr-00075, Doc.
No. 21, at 5 (Oct. 7, 2010); Declaration of Scott J. Hlavacek, SEC Docket No. 4, Ex. 2, at
3-27. The Receiver will advise these possible investors of their right to submit a claim
for civil restitution to the Receiver and the process and deadline for doing so. See infra
Part III(B). Claims from investors in either of these groups that are later verified will be
made part of the Receiver’s final distribution. The Receiver will make a final accounting
to ensure that every verified claim is paid out on an equal pro rata basis, whether the
claim was included in the interim distribution or not. In other words, the final accounting
will take into account whether a particular claimant did or did not receive an interim
distribution in these civil cases.
7. The Receiver Has Worked With Counsel For The Victims.
A number of investors have retained private counsel to represent their interests in
their case against Cook and his colleagues. The Receiver has worked with the law firm
of Messerli and Kramer to obtain claim data for the 105 investors represented by that
firm. (Norgard Decl. ¶ 17.)
E. The Receiver Has Undertaken A Claim Reconciliation Process To Ensure That All Investor Claims Are Legitimate, Accurately Calculated, And Properly Substantiated.
The Receiver has diligently worked with Cook’s victims to ensure that there is
Case 0:09-cv-03332-MJD-FLN Document 494 Filed 10/18/10 Page 11 of 21
10
proper documentation for and verification of their claims. (Id. ¶¶ 2-7, 17-20.) Wherever
possible, the Receiver used the seized and subpoenaed hard copy and electronic files to
help investors who did not have third party proof to calculate and substantiate their
claims. (Id. ¶ 19.) The Receiver has also verified claims against the information
obtained through his independent investigation. (Id. ¶ 20.)
To date, the Receiver has verified claims for 668 investors with losses totaling
$142,327,921.81. (Norgard Decl. ¶ 21.) As explained above, this total does not include
losses claimed by employee investors or by investors who have yet to submit claims to
the Receiver, Probation Office, or government agencies. The Receiver has calculated a
recognized claim amount for each of the 668 claimants by adding all verified deposits
and subtracting all receipts. Receipts are payments or benefits of any kind from the
Receiver Estates, such as withdrawals of principal, “interest” payments, employee
compensation, commissions, medical or other insurance benefits, mortgage payments,
vehicles, personal property, and gifts. The Receiver also has subtracted any claims for
profits shown on fraudulent account statements; these profits were never in fact made. In
the final claim reconciliation process the Receiver also will deduct any recovery an
investor makes in another forum for losses related to Cook’s scheme. For example, the
Receiver will deduct from each victim’s claim any criminal restitution paid from United
States v. Cook, 10-cr-00075 (D. Minn. 2010). To the extent an investor recovers from
any third parties, such as Associated Bank or Entrust, that recovery will be subtracted
from the final claim amount recognized by the Receiver, as well.
Case 0:09-cv-03332-MJD-FLN Document 494 Filed 10/18/10 Page 12 of 21
11
II. THE RECEIVER’S PROPOSED INTERIM DISTRIBUTION PLAN
The Receiver proposes to make an interim civil distribution of $2,250,000.00 to
This translates to a rate of 1.581 cents paid out in the interim distribution for every dollar
lost to Cook’s fraud. (Id. ¶ 22) The proposed interim distribution will be made on a pro
rata basis, such that every investor’s interim payout in these civil cases will be
proportionate to his or her verified loss in Cook’s scheme. On an individual basis, these
proposed interim payouts range from $67.98 to $110,820.95, with an average payout of
$3,368.26. (Id.) Although only a fraction of what was lost, the Receiver submits that the
interim civil distribution proposed herein will provide some measure of relief to as many
investors as possible in the short-term.
The Receiver proposes to effectuate the interim distribution through the Clerk of
Court for the United States District Court for the District of Minnesota (“Clerk”). The
Clerk will issue a check to each of the 668 victims identified on the Receiver’s interim
distribution list in the pro rata amount calculated by the Receiver. (Id. ¶¶ 21-22.) Each
check will be accompanied by a letter from the Receiver informing the investor of the
amount of his or her recognized claim amount. (Id. ¶ 23, Ex. 6.) This letter also will
explain the process for accepting or challenging the Receiver’s recognized claim amount.
(Id.; Id. ¶ 26, Ex. 9); see also infra Part III(E).
The number and in some cases the amount of the claims recognized by the
Receiver for purposes of the interim distribution likely will be adjusted in the final
accounting and distribution. For example, investors who are part of the interim
Case 0:09-cv-03332-MJD-FLN Document 494 Filed 10/18/10 Page 13 of 21
12
distribution may challenge the claim amount recognized by the Receiver. See infra Part
III(E). Claims by employee investors and by those who have not yet submitted claims to
the Receiver will not be part of the interim distribution, but may later be recognized and
confirmed by the Court. See infra Parts III(A), III(B). The Receiver will make a final
accounting and distribution to ensure that all verified claims ultimately are paid out on an
equal pro rata basis.
III. THE RECEIVER’S PROPOSED CLAIM FINALIZATION PROCEDURES
A. The Receiver Will Provide Employee Investors With A Recognized Claim Amount.
Upon completion of his investigation of claims by employee investors, the
Receiver will attempt to contact these individuals by U.S. Mail with a calculation of their
deposits, less any payments or other benefits received from the Receiver Estates, which
will equal the claim the Receiver will recognize for civil restitution. (Id. ¶ 24, Ex. 7.)
This mailing also will explain the process and deadline for challenging the recognized
claim amount. (Id.; Id. ¶ 26, Ex. 9); see also infra Part III(E).
B. The Receiver Will Notify Investors Who Have Not Yet Made A Claim Of The Process And Deadline For Doing So.
Through his investigative efforts, the Receiver has identified a number of
individuals and entities that may have been investors but that have not submitted claims
for losses to the Receiver, the Probation Office, or the government agencies. The
Receiver will attempt to contact these known individuals and entities by U.S. Mail with a
packet explaining the case, the appointment of the Receiver, how to submit and
substantiate a claim, and the date by which all claims must be received. (Id. ¶ 25, Ex. 8;
Case 0:09-cv-03332-MJD-FLN Document 494 Filed 10/18/10 Page 14 of 21
13
Id. ¶ 7, Ex. 2; Id. ¶ 28, Ex. 11.) Any investors who have not yet been identified by the
Receiver will be notified by publication. See infra Part III(D). The Receiver will review
any new claim and respond in writing with an explanation of the amount of the claim the
Receiver recognizes and the process for accepting or challenging that figure. See infra
Part III(E).
C. Claims By Non-Investor Creditors Will Be Processed And Finalized In The Same Manner As Investor Claims.
Other creditors of the Receiver Estates, such as trade creditors, who claim they are
owned remuneration for goods sold or services provided to the Receiver Estates prior to
November 23, 2009, also will be given the opportunity to submit a claim to the Receiver.
These creditors will be advised by public notice of the process and deadline for
submitting a claim. See infra Part III(D). The Receiver will then review any such
creditor claim and respond in writing with an explanation of the amount of the claim the
Receiver recognizes and the process for accepting or challenging that figure. See infra
Part III(E). All such claims that are recognized by the Receiver and confirmed by the
Court will be paid out on the same pro rata basis as investor claims.
D. The Receiver Proposes January 14, 2011, As The Bar Date By Which Date All Claims Must Be Submitted To The Receiver.
The Receiver requests that the Court set Friday, January 14, 2011, as the final date
by which all claims for civil restitution and payments to creditors must be submitted to
the Receiver (“Claim Bar Date”). Any claim that is not submitted to the Receiver by
January 14, 2011, will be barred. The exception to the Claim Bar Date will be any claims
for civil restitution arising from clawback litigation initiated by the Receiver that have
Case 0:09-cv-03332-MJD-FLN Document 494 Filed 10/18/10 Page 15 of 21
14
not been resolved by the Claim Bar Date. Upon confirmation of this date by the Court,
the Receiver will publish the Notice of Claim Bar Date to inform all possible claimants.
(Norgard Decl. ¶ 28, Ex. 11.)
First, the Receiver will post the Notice of Claim Bar Date on the Receiver’s
website. The Receiver also will request that the United States District Court, the SEC,
the CFTC, the FBI, and the U.S. Attorney publish the Notice of Claim Bar Date on their
respective websites, as well.
Second, the Receiver will publish the Notice of Claim Bar Date in the Minneapolis
Star Tribune, the St. Paul Pioneer Press, and Investor’s Business Daily. (Id. ¶¶ 29-30.)
With investors scattered across at least forty-three states and several foreign countries,
the Receiver believes publication of the Claim Bar Notice in a national publication, as
well as the two regional papers, is necessary. (See id. ¶ 27, Ex. 10.) The Receiver
anticipates the total cost for publication in these papers will be at least $5,634.00. (Id. ¶¶
29-30.)
Third, the Receiver will send the Notice of Claim Bar Date by U.S. Mail to the
individuals and entities who the Receiver has identified as possible victims but who have
not yet filed a claim for civil restitution. (Id. ¶ 28, Ex. 11; see Id. ¶ 25, Ex. 8.)
E. Claimants May Challenge The Receiver’s Recognized Claim Amount.
Any claimant who receives a letter from the Receiver detailing his or her
recognized claim amount will have thirty (30) days from the date of the Receiver’s letter
to challenge that amount. (Id. ¶ 26, Ex. 9; see id. ¶ 23, Ex. 6; Id. ¶ 24, Ex. 7.) This
process will apply equally to all claimants, whether they are a part of the interim
Case 0:09-cv-03332-MJD-FLN Document 494 Filed 10/18/10 Page 16 of 21
15
distribution or later recognized as having a verified claim. Any challenging claimant
must submit to the Receiver a sworn statement detailing the basis for the challenge and a
complete listing of the dates and amounts of his or her deposits to and receipts from the
Receiver Estates, along with documentation to support the sworn statement. (See id.)
Challenges that are not timely submitted within the thirty (30) day period will be denied.
(See id.)
Upon receipt of a timely challenge, the Receiver will review any new information
and inform the claimant in writing of his decision. Any claimant who wishes to appeal
the Receiver’s decision on a challenge will have the opportunity to bring that issue to the
Court. See infra Part III(G).
F. Unchallenged Claim Amounts Will Be Recognized As Final.
Any claimant who receives a letter from the Receiver detailing his or her
recognized claim amount and does not challenge it within the thirty (30) day period will
be deemed to have accepted the recognized claim amount. The Receiver will move to
have all such unchallenged claim amounts entered as final claim amounts for civil
restitution in these cases.
G. On Or Before March 15, 2011, The Receiver Will Move The Court To Accept The Final Recognized Claim Amounts For All Resolved Claims And Update The Court On Any Claims That Remain Unresolved.
On or before March 15, 2011, the Receiver will file a motion with the Court
seeking acceptance of the Receiver’s recognized claim amounts for all settled and
undisputed claims and seek entry of the amounts as the final civil restitution amount for
those claimants. At the same time, the Receiver will file a complete list of all unresolved
Case 0:09-cv-03332-MJD-FLN Document 494 Filed 10/18/10 Page 17 of 21
16
claims and the current status of any settlement negotiations relating to those claims. The
Receiver also will ask the Court to establish a process for judicial resolution of any
challenges to the Receiver’s recognized claim amount.
IV. LEGAL STANDARD
It is well established that the Court has broad discretion in determining relief in an
equity receivership. SEC v. Lincoln Thrift Ass’n, 577 F.2d 600, 606 (9th Cir. 1978)
(“The district court has broad powers and wide discretion to determine the appropriate
relief in an equity receivership.”) As noted by the Ninth Circuit, “reasonable
administrative procedures, crafted to deal with the complex circumstances of each case,
will be upheld. A district judge simply cannot effectively and successfully supervise a
receivership and protect the interests of its beneficiaries absent broad discretionary
power.” SEC v. Hardy, 803 F.2d 1034, 1038 (9th Cir. 1986). The district court’s choice
of distribution plan is reviewed for abuse of discretion. SEC v. Fischbach Corp., 133
F.3d 170, 175 (2d Cir. 1997) (holding that “the district court's distribution plan will not
be disturbed on appeal unless that discretion has been abused”).
Courts have consistently held that the most any victim of a Ponzi scheme can
recover is the invested principal. See Terry v. June, 432 F. Supp. 2d 635, 642 (W.D. Va.
2006) (“[W]here the existence of a Ponzi scheme is established, the transferee's proof that
it made a 'capital' investment in the scheme does not constitute reasonably equivalent
value for the receipt of fictitious profits.”); Donell v. Kowell, 533 F.3d 762, 776 (9th Cir.
2008) (“[C]ourts have long held that is more equitable to attempt to distribute all
recoverable assets among the defrauded investors who did not recover their initial
Case 0:09-cv-03332-MJD-FLN Document 494 Filed 10/18/10 Page 18 of 21
17
investments rather than to allow the losses to rest where they fell.”); Scholes v. Lehmann,
56 F.3d 750, 757-58 (7th Cir. 1995) (“[One investor] should not be permitted to benefit
from a fraud at [a later investors’] expense merely because [the investor] was not himself
to blame for the fraud.”)
Courts have also consistently found pro rata distributions to be appropriate,
especially for fraud victims of Ponzi schemes, where “earlier investors' returns are
generated by the influx of fresh capital from unwitting newcomers rather than through