UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA

Transcription

1 Case 009-cv ADM -JSM Document 153 Filed 10/25/10 Page 1 of 6 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. CIVIL ACTION FILE NO. No. 09-cv-1750 THOMAS J. PETTERS,GREGORY M. ADM/JSM BELL, and LANCELOT INVESTMENT MANAGEMENT, LLC, Defendants, and INNA GOLDMAN, INNA GOLDMAN REVOCABLE TRUST, BLUE SKY TRUST, ASIA TRUST LTD., and GREGORY BELL REVOCABLE TRUST, Relief Defendants. PLAINTIFF'S MEMORANDUM IN SUPPORT OF ITS MOTION FOR APPOINTMENT OF A RECEIVER Plaintiff U.S. Securities and Exchange Commission ( Commission ) submits this Memorandum in support of its Motion for appointment of a receiver. On July 24, 2009 the Court in this matter entered Agreed Orders of Preliminary Injunction, Asset Freeze and Other Ancillary Relief (Docket Nos. 45, 46, hereinafter the Court s July 24, 2009 Orders ) pursuant to which the Commission froze certain assets of Defendants Gregory Bell, Lancelot Investment Management, LLC and Relief Defendants Inna Goldman, Inna Goldman Revocable Trust and Gregory Bell Revocable Trust. Defendant Bell

2 Case 009-cv ADM -JSM Document 153 Filed 10/25/10 Page 2 of 6 subsequently pleaded guilty to criminal charges that the United States filed against him and recently was sentenced to six years in prison. On October 5, 2010 this Court entered a Partial Final Judgment and Order of Permanent Injunction against Defendants Bell and Lancelot Investment Management, LLC. It is now time to marshal the Frozen Assets, liquidate them where necessary and distribute them to the defrauded investors. As discussed herein, these tasks can be executed most efficiently by a receiver. Pursuant to Rule 66 of the Federal Rules of Civil Procedure and the Court s July 24, 2009 Orders, the Commission accordingly moves this Court to appoint a receiver with duties and responsibilities as described in the Order attached hereto. BACKGROUND Section 22(a) of the Securities Act of 1933 [15 U.S.C. 77v(a)] ("Securities Act"), Section 27 of the Securities Exchange Act of 1934 [15 U.S.C. 78aa] ("Exchange Act") and Section 214 of the Investment Advisers Act of 1940 [15 U.S.C. 80b-14] ( Advisers Act ) confer general equity powers upon the Court in a Commission action brought pursuant to these provisions. SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1103 (2nd Cir. 1972); SEC. v. Texas Gulf Sulphur Co., 446 F.2d 1301, 1307 (2nd Cir. 1971); Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 19, ftnt. 9 (1979). Once the equity jurisdiction of the district court has been properly invoked, the full panoply of equitable remedies is available to the Court to effectuate the statutory purpose, including the ordering of non-injunctive relief in a variety of forms. See J.I. Case Co. v. Borak, 377 U.S. 426, 433 (1964); SEC v. Materia, 745 F.2d 197, 200 (2nd Cir. 1984), cert. denied, 2

3 Case 009-cv ADM -JSM Document 153 Filed 10/25/10 Page 3 of U.S (1985); SEC v. Jones, 476 F. Supp. 2d 374 (S.D. NY 2007) (court had power under Advisers Act to order civil penalties and disgorgement but did not do so because case record was insufficient to support such orders). In this regard, courts adjudicating Commission actions have the power to grant any form of ancillary relief where necessary and proper to effectuate the purposes of the federal securities laws. Materia, 745 F.2d at 200. Included in the court s equitable powers is the authority to appoint receivers. Exercise of this authority is particularly necessary where defendants have defrauded members of the investing public. SEC v. Brown, 643 F.Supp. 2d 1077, 1079, ftnt. 1 (D. Minn. 2009), citing SEC v. First Financial Group of Texas, 645 F.2d 429, 438 (5th Cir. 1981). Defendant Bell pleaded guilty on October 7, 2009 to criminal charges that he intentionally defrauded the investors in the hedge funds he operated through defendant Lancelot Investment Management, LLC by, among other things, engaging in 86 round-trip sham banking transactions that were designed to conceal and misrepresent the performance of the hedge funds these defendants managed. (Docket No. 97, 28) Defendant Bell was sentenced on September 30, 2010 to six years in prison for this conduct. The Commission s allegations of fraudulent conduct arise from the same conduct at issue in the criminal charges against him. 3

4 Case 009-cv ADM -JSM Document 153 Filed 10/25/10 Page 4 of 6 In the Interests of Defrauded Investors, the Frozen Assets should now be Distributed The Commission requests the appointment of a receiver to marshal those assets frozen by the Court s July 24, 2009 Orders and to distribute them to the Lancelot investor-victims. The assets include two pieces of real property in which individuals currently reside. The current residents accordingly will have to be moved and the properties sold. There also are vehicles and other tangible assets that will have to be located and liquidated. The Commission believes that appointing a receiver to perform this work is the fastest and most efficient way to ensure that all investors will receive an appropriate share of the assets that the Court froze at the commencement of this action. The asset freeze imposed by the Court s July 24, 2009 Orders (Docket Nos. 45, 46) would not apply to any receiver appointed by this Court nor to any agents, representatives and/or employees working at the direction of such receiver. In addition, any receiver appointed by this Court would have authority over only the assets frozen by the Court s July 24, 2009 Orders. (Docket Nos. 45, 46) These assets are the property of Defendants Bell and Lancelot Management and Relief Defendants Inna Goldman, the Inna Goldman Revocable Trust and the Gregory Bell Revocable Trust. The receiver would not have any authority over assets of Defendant Thomas J. Petters, or Relief Defendants Blue Sky Trust or Asia Trust Ltd. because these latter three parties were not subject to the Court s Asset Freeze Orders of July 24, The Commission Recommends Ronald Peterson as Receiver The Commission recognizes that it is the prerogative of the Court to decide whom to appoint as a receiver. 4

5 Case 009-cv ADM -JSM Document 153 Filed 10/25/10 Page 5 of 6 The Commission nonetheless respectfully submits to the Court its recommendation that Ronald R. Peterson be appointed receiver with the duties and responsibilities as described in the Order attached hereto. Mr. Peterson already is extremely familiar with the operations of Defendant Gregory Bell s business because since October 2008 he has been the Court-appointed Trustee in bankruptcy for the investment funds Bell operated, which invested in Defendant Petters s Ponzi scheme, and the special purpose vehicles Bell formed to facilitate his investment operations. Accordingly, the Commission believes that Mr. Peterson will be able to use his knowledge of the facts to efficiently operate the receivership and coordinate it with the bankruptcy proceedings. In addition, Mr. Peterson submitted one of the lowest cost proposals for the receivership. In Paragraph 6 of their Consent to the entry of a Partial Final Judgment and Order of Permanent Injunction and Other Relief (Doc. # filed September 28, 2010) Defendants Bell and Lancelot Management and Relief Defendant Gregory Bell Revocable Trust also stated specifically that they consented to the appointment of a receiver over the assets that were frozen pursuant to this Court s Orders of July 24, CONCLUSION For the foregoing reasons, the Commission respectfully requests that the Court issue the Order attached hereto. Respectfully submitted, s/ John E. Birkenheier John E. Birkenheier C.J. Kerstetter Sally J. Hewitt Attorneys for Plaintiff 5

6 Case 009-cv ADM -JSM Document 153 Filed 10/25/10 Page 6 of 6 U.S. Securities and Exchange Commission Chicago Regional Office 175 West Jackson Blvd. Suite 900 Chicago, Illinois (312) James S. Alexander Assistant United States Attorney District of Minnesota 600 U.S. Courthouse 300 South Fourth Street Minneapolis, MN Local Counsel Dated October 25,