IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA CHARLOTTE DIVISION CASE NO. 3:16-CV-285

Transcription

1 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA CHARLOTTE DIVISION CASE NO. 3:16-CV-285 SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. RICHARD W. DAVIS, JR., MOTION TO APPROVE SETTLEMENT CLEARING TITLE TO GRAYSON COUNTY REAL PROPERTY and Defendant, DCG REAL ASSETS, LLC, et al., Relief Defendants. A. Cotten Wright, the duly-appointed receiver for the assets of DCG Real Assets, LLC; DCG Commercial Fund I, LLC; H20, LLC ( H20 ); DCG PMG, LLC; DCG PMF, LLC; Finely Limited, LLC; DCG Funds Underwriting, LLC; DCG ABF Management, LLC; DCG Funds Management, LLC; Davis Capital Group, Inc.; Davis Financial, Inc.; DCG Partners, LLC; DCG Real Estate Development, LLC; Huntersville Plaza Phase One, LLC; Huntersville Plaza Phase Two, LLC, North Lake Business Park, LLC, and Richard Davis Enterprises, LLC (collectively with the other above-named entities, the Receivership Defendants ) in the above-referenced case (the Receiver ), through counsel, hereby presents this Motion to Approve Settlement Clearing Title to Grayson County Real Property (this Motion ) and respectfully shows the Court the following in support: INTRODUCTION 1. Through this Motion, the Receiver seeks entry of an Order approving a settlement tentatively agreed upon between the Receiver and an investor who, prior to the receivership, sued Case 3:16-cv GCM Document 95 Filed 03/30/17 Page 1 of 7

2 to impose an equitable lien on certain real property now part of the receivership estate (the H20 Property ). The corresponding complaint seeks a lien against the H20 Property in the amount of $1,000,000; the H20 Property is estimated to be worth $1,250,000. The basic terms of the settlement are that the complainant-investor will receive 61.7% of the sale proceeds (capped at $771,250), with the remainder of the proceeds going to the receivership estate. PROCEDURAL AND FACTUAL BACKGROUND THE SEC ENFORCEMENT ACTION 2. On June 2, 2016, the Securities and Exchange Commission filed a civil complaint against Richard Wyatt Davis, Jr. as Defendant ( Davis ) and the Receivership Defendants as relief defendants, initiating this case. On June 3, 2016, the Court entered Judgment as to Davis. 3. On June 8, 2016, the Court entered a Temporary Receivership Order in this case (Doc. No. 8) imposing a temporary injunction and appointing the Receiver; and, by default judgments entered on August 5, 2016 and September 22, 2016 (Doc. No. 48 & 64), the Court extended the temporary receivership into a permanent receivership (collectively, the Receivership Order ). 4. In furtherance of her duties set forth in the Receivership Order, the Receiver has obtained an appraisal of the H20 Property, which appraisal estimated the fair market value of the H20 Property to be $1,250,000. THE GRAYSON COUNTY ACTION 5. Prior to initiation of this case, specifically on or around December 3, 2015, the Kenneth M. Hageman Revocable Trust dated April 12, 2001, by and through Kenneth M. Hageman, as Trustee ( Hageman ), filed a Complaint against Davis and H20 in the Circuit Court for Grayson County, Virginia, initiating case number CL (the Grayson County Case 3:16-cv GCM Document 95 Filed 03/30/17 Page 2 of 7

3 Action ). 6. Among other things, the complaint in the Grayson County Action avers that Hageman transferred $1,000, to Davis-controlled Basalt Exploration, LLC for an investment in that entity, but also that, within seven days, Davis allegedly misappropriated the $1,000,000 in order to purchase and maintain certain real property in Grayson County, Virginia, the H20 Property, which Davis titled in the name of H Based on such allegations, Hageman seeks to impose a lien against the H20 Property in the amount of $1,000,000 and has filed a Lis Pendens to that effect in the real property records, thereby burdening the H20 Property. 8. Hageman also argues in the Grayson County Action that Hageman is entitled to both pre- and post-judgment interest on his claim at the legal rate of 6% per annum (under Virginia law). Applying the legal rate of interest, compounded annually, to the $1,000, from the time Davis allegedly used Hageman s funds to purchase the H20 Property (circa November 2, 2014) through the date of this Motion results in an amount equal to $1,150, The Receiver s investigation indicates that only $703, of Hageman s investment in Basalt Exploration, LLC was used to purchase the H20 Property. Applying the legal rate of interest, compounded annually, to the $703, from November 2, 2014 through the date of this Motion results in an amount approximately equal to $808, Applying the legal rate of interest, compounded annually, to the $703, from November 2, 2014 through the initiation of this case results in an amount approximately equal to $771, THE PROPOSED SETTLEMENT 10. The Receiver entered into settlement discussions with Hageman, and Hageman provided thorough and detailed documents and other information relating to the transactions at Case 3:16-cv GCM Document 95 Filed 03/30/17 Page 3 of 7

4 issue in the Grayson County Action. 11. After review of the pertinent information and negotiations with Hageman, the Receiver has reached a settlement with Hageman resolving the Grayson County Action, which essentially provides that: (a) Hageman will dismiss the claims against H20 in the Grayson County Action and terminate the Lis Pendens burdening the H20 Property; (b) Hageman will allow the Receiver to market and sell the H20 Property; and (c) the Receiver will disburse 61.7% of the net proceeds generated by the sale of the H20 Property to Hageman, leaving the remainder for the benefit of the general receivership estate (provided, however, that, in no event, shall Hageman receive more than $771, from the Receiver s sale of the H20 Property). The terms of the settlement are set forth in the more detail in the settlement agreement attached hereto as Exhibit A and incorporated herein by reference (the Settlement Agreement ). RELIEF REQUESTED 12. Through this Motion, the Receiver respectfully requests that the Court approve the Receiver s settlement with Hageman and authorize the Receiver and Hageman to consummate the Settlement Agreement. 13. The Settlement Agreement avoids the costs and delays associated with litigation, as well as the uncertainty of litigation, which, especially considering the strength of Hageman s claims, could result in a severe reduction of the value of the receivership estate available to the general body of injured investors and other creditors. 14. Based in part on the foregoing, in the opinion of the Receiver, the Settlement Agreement reflects a fair, reasonable and adequate resolution with Hageman and is otherwise in the best interests of the receivership estate. 1 The $771, figure is approximately equal to $703, plus interest at the legal rate from the time Davis allegedly used Hageman s funds to purchase the H20 Property (circa November 2, 2014) through the initiation of this case. Case 3:16-cv GCM Document 95 Filed 03/30/17 Page 4 of 7

5 NOTICE 15. If you do not want the Court to approve this Motion, or if you want the Court to consider your views, then on or before April 17, 2017, you or your attorney must file with the Court a written response explaining your position. The response must be filed electronically with the United States District Court for the Western District of North Carolina, Under certain circumstances, if you are an individual who is not represented by an attorney, you may hand deliver your response to the Clerk of the United States District Court, 401 West Trade Street, Charlotte, NC On or before the date stated above for filing your written response, you must also mail, fax or a copy of your written response to: A. Cotten Wright, Grier Furr & Crisp, PA, 101 N. Tryon St., Ste. 1240, Charlotte, NC 28246; 704/ ; dcgreceivership@grierlaw.com. If the Court schedules a hearing, you or your attorney should attend the hearing, which will be held at a time and date which will be noticed only to any party who files a response, at the United States District Court, 401 West Trade Street, Charlotte, NC If you or your attorney do not to take these steps, then the Court may decide that you do not oppose the relief the Receiver requests herein and may enter an order approving this Motion. WHEREFORE, the Receiver prays that the Court will enter an Order: (1) Granting this Motion; (2) Approving the settlement reflected in the Settlement Agreement; and (3) Granting such further relief as is just and proper. Case 3:16-cv GCM Document 95 Filed 03/30/17 Page 5 of 7

6 Respectfully submitted, this 30th day of March, /s/ Michael L. Martinez A. Cotten Wright (N.C. Bar No ) Michael L. Martinez (State Bar No ) Grier Furr & Crisp, PA 101 North Tryon Street, Suite 1240 Charlotte, North Carolina Phone: Fax: Attorneys for the Receiver Case 3:16-cv GCM Document 95 Filed 03/30/17 Page 6 of 7

7 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA CHARLOTTE DIVISION CASE NO. 3:16-CV-285 SECURITIES AND EXCHANGE COMMISSION, v. Plaintiff, RICHARD W. DAVIS, JR., CERTIFICATE OF SERVICE and Defendant, DCG REAL ASSETS, LLC, et al., Relief Defendants. The undersigned hereby certifies that copies of the foregoing Motion to Approve Settlement Clearing Title to Grayson County Real Property were served by electronic notification on those parties registered with the United States District Court, Western District of North Carolina electronic case filing system to receive notices for this case, as well as on other parties, as noted below. Patrick R. Costello Securities and Exchange Commission Brian S. Cromwell Sarah F. Hutchins Parker Poe Adams & Bernstein LLP Attorneys for DCG Commercial, LLC and DCG Commercial Holdings, LLC Richard W. Davis, Jr. Via Investors in Receivership Defendants Via , U.S. Mail, and online publication Matthew R. Hale Polsinelli Attorneys for Kenneth M. Hageman Revocable Trust This is the 30th day of March, /s/ Michael L. Martinez Michael L. Martinez Grier Furr & Crisp, PA 101 North Tryon Street, Suite 1240 Charlotte, NC Case 3:16-cv GCM Document 95 Filed 03/30/17 Page 7 of 7