RECEIVERSHIP SOURCEBOOK. Presented by: STEPHEN J. KOROTASH, Dallas K& L Gates. Author: PHILLIP S. STENGER, Grand Rapids, MI Stenger & Stenger, P.C.

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1 RECEIVERSHIP SOURCEBOOK Presented by: STEPHEN J. KOROTASH, Dallas K& L Gates Author: PHILLIP S. STENGER, Grand Rapids, MI Stenger & Stenger, P.C. State Bar of Texas RECEIVERSHIPS IN TEXAS 2011 November 4, 2011 Austin CHAPTER 3

2 TABLE OF CONTENTS INTRODUCTION... 1 CHAPTER LEGAL AND STATUTORY BASIS... 4 CHAPTER JURISDICTIONAL ISSUES In General Ancillary or Supplemental Jurisdiction Personal Jurisdiction/ Removal and Transfer of Venue CHAPTER LITIGATION BY AND AGAINST THE RECEIVER AND THE RECEIVERSHIP ESTATE In General Fraudulent Transfer Actions Relief Defendants\Disgorgement Applications Other Causes of Action Statutes of Limitation Summary Proceedings CHAPTER ACTIONS FOR CONTEMPT In General Nature and Elements of Contempt The Impossibility Defense In General Self-Induced Impossibility Liability of Third Parties Procedure CHAPTER RECEIVER STANDING/IN PARI DELICTO CHAPTER JURISDICTION, VENUE AND SERVICE ISSUES RELATED TO A RECEIVER S ACTION AGAINST A FOREIGN THIRD PARTY In General Jurisdictional Issues Relating To Foreign Defendants Forum Non Conveniens Service Under The Hague Convention CHAPTER DISTRIBUTION OF DISGORGEMENT FUNDS TO INVESTORS Nature of Disgorgement Distribution Plans Use of Summary Procedures and Administration of the Estate Appeals CHAPTER iii

3 THE RIGHT OF THIRD PARTIES TO INTERVENE IN RECEIVERSHIP PROCEEDINGS In General Interventions in SEC Actions/ 15 U.S.C. 78u(g) Right to Appeal when Party has not Intervened CHAPTER SEC RECEIVERS IN FOREIGN COURTS In General There Must Be Sufficient Connection Between the Jurisdiction Appointing the Receiver and the Jurisdiction Where the Receiver Wishes to be Recognized SEC Receivers Will Generally Not Be Recognized in Foreign Jurisdictions Practical Suggestions CHAPTER SALE OF PROPERTY In General Implementing the Sales Procedures CHAPTER THE IMPACT OF BANKRUPTCY ON THE SEC RECEIVERSHIP In General The Bankruptcy Code The Bankruptcy Court Is Not An Appropriate Venue For The SEC To Conduct Its Case The SEC s Tool Against Bankruptcy; Withdrawal Of Reference CHAPTER RECEIVER S DUTY TO INVEST FUNDS CHAPTER RECEIVER S DUTY TO REPORT AND KEEP ACCURATE ACCOUNT CHAPTER TAX ISSUES EFFECTING RECEIVERSHIPS Qualified Settlement Fund Tax Filing Obligations Receiver Liability for Taxes IRS Notice Requirements Tax Effect on Investors CHAPTER A FEW PRACTICAL TIPS Secure the Records Control The Mail Understand The Case Post A Website Maintain An Investor Data Base CHAPTER CONCLUSION iv

4 APPENDICES Appendix 1 Selected Cases Haile v. Henderson National Bank, 657 F.2d 816, 822 (6 th Cir. 1981) Scholes v. Lehmann, 56 F.3d 750, 755 (7 th Cir. 1995) Appendix 2 Selected Statutes 28 U.S.C U.S.C USC USC 959 Federal Rule of Civil Procedure 66 Uniform Fraudulent Transfer Act Appendix 3 Table of Cases Appendix 4 Receivership Alerts CFTC v. Eustace (Distributions) CFTC v. Forefront Investments Corp. (Authority to File Pleadings) Commodity Futures Trading Com'n v. Lake Shore Asset Management Ltd. (Criminal Contempt Referral) Donell v. Kowell (Recovery of Investment Profits) Eberhard v. Marcu (Standing/In Pari Delicto) FTC v. Cleverlink Trading Limited & Quilling v. Stark (Nationwide Personal Jurisdiction/28 U.S.C. 754) Gradel v. Piranha Capital (Jurisdiction of Receivership Court) Gustin v. Hoffman (Standing) Hays v. Adam (Standing of Receiver) Hodgson v. Gilmartin (Venue/28 U.S.C. 754) v

5 Norwest Bank v. Malachi Corp. (Court has Broad Powers in Equity Receivership) Quilling v. Cristell (Nationwide Personal Jurisdiction/28 U.S.C. 754) SEC v. Byers (Injunction Against Bankruptcy Filing/Stay of Proceeding Against Receivership Entities) SEC v. Capital Consultants LLC (Appeal of Distribution Plan) SEC v. Ross, et al. (Nationwide Service/28 U.S.C. 754) SEC v. T-Bar Resources LLC (Sale of Real Property) Standifer, Le, & Krell v. SEC (Barton Doctrine) Terry v. June (Recovery of Profits plus Principal Investment) U.S. Small Business Administration v. Integrated Environmental Solutions (Jurisdiction/28 U.S.C. 754) USA v. Petters (Intervention/Lift of Stay) Warfield v. Alaniz (Standing/Status of Repose) Williamson v. PricewaterhouseCoopers LLP (In Pari Delicto Doctrine) vi