UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

Transcription

1 UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA United States Securities and Exchange Commission v. Plaintiff Providence Financial Investments, Inc., Providence Fixed Income Fund, LLC Jeffory Churchfield, and Jack Jarrell Case No. 16-cv-1877 (SRN/FLN) TRUSTEE S STATUS REPORT FOR ADMINISTRATION THROUGH AUGUST 2018 Defendants. Maria Yip, the Chapter 7 Trustee (the Trustee ) of Defendants Providence Financial Investments, Inc. and Providence Fixed Income Fund, LLC (the Providence Defendants ) hereby files her monthly status report and states as follows: BACKGROUND On June 7, 2016, Plaintiff United States Securities and Exchange Commission (the SEC ) filed a Complaint against the above-captioned defendants for violations of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940 in the United States District Court for the District of Minnesota (the District Court ). See Dkt. 1. On July 28, 2016, the Providence Defendants filed voluntary petitions for relief under Chapter 7 of Title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of Florida (the Bankruptcy Court ). The Providence Defendants cases were randomly assigned to the Trustee and, since receiving notification of her appointment, the Trustee has been discharging her duties as Chapter 7 trustee for the Providence Defendants.

2 I. Plea Agreements by Providence Principals. On April 19, 2018 Antonio Carlos de Godoy Buzaneli ("Buzaneli"), the key principal behind the Providence Defendants, entered into a plea agreement with the United States in his criminal case pending in this District (17-cr MJD-HB). In his criminal case, Buzaneli was charged with 13 counts of conspiracy to commit mail fraud in regards to his administration of the Providence Defendants. In his plea, Buzaneli pled guilty to one count of conspiracy to commit mail fraud and admits to running a Ponzi scheme through the Providence Defendants, not investing investor funds into Brazilian factoring as promised, making false representations to investors, and to a panoply of other wrongful conduct. His other two main co-conspirators in operating the Providence Defendants, Jose Manuel Ordoñez Jr. ("Ordoñez") (17-cr MJD-HB) and Julio Enrique Rivera (17-cr MJD) both entered into similar plea agreements on February 23, 2018 and November 9, 2017 respectively in their own criminal cases. In the pleas, all three criminal defendants admit to similar wrongful conduct in the operation of the Providence Defendants. For purposes of the administration of the estate of the Providence Defendants, the pleas corroborate what the Trustee's forensic financial examination has equally concluded: that the Providence Defendants were utilized as part of a Ponzi scheme orchestrated by its principals to defraud investors for personal gain. The pleas will allow the Trustee to question the three key officers which entered into the pleas and will reduce the burden of the Trustee in lawsuits filed against Buzaneli and Ordoñez. II. The SEC Disgorgement Judgment The United States Securities and Exchange Commission ("SEC"), with the agreement of the Trustee, obtained from the District Court in Minnesota a Final Judgment as to Defendants Providence Financial Investments, Inc. and Providence Fixed Income Fund, LLC [ECF No. 144] 2

3 (the "Disgorgement Judgment"). The Disgorgement Judgment, among other things, finds the Providence Defendants jointly and severally liable for $49,511,186 and prejudgment interest, but deems this debt satisfied from the "distribution of funds to allowed claims of defrauded investors" by the Trustee in the Providence Defendants' bankruptcy cases. The SEC has also agreed to withdraw its civil claim for monetary penalties from the bankruptcy cases, which further effects the purpose of the Disgorgement Judgment to focus on the recovery by investors. The Disgorgement Judgment not only provides a concrete figure of the damages suffered by investors of the Providence Defendants, but also clears any uncertainly as to the Trustee's administration of the estates of the Providence Defendants to the exclusive benefit of investors and other victims. A copy of the Disgorgement Judgment shall be uploaded to the Providence website and can be downloaded without any charges. III. Judgments and Settlements in Pending Cases The Trustee has settled an adversary proceeding against John Abio/Tre Brandenberg ("Abio"), one of the Providence Defendants most prominent "originators," with the entry of a $3.1 million consent judgment against Abio individually and against his wholly owned corporation Defendant Abio Financial Group Inc [Adv. No AJC, ECF No. 50]. The Trustee is now proceeding with post-judgment collection efforts. Alternatively, the Trustee may sell the Estate's interest in the judgment through a public auction if the Trustee locates a purchaser providing the Estate with a reasonable opening bid. The Trustee has also settled an adversary proceeding against Defendant Amanda Francis ("Francis"), an investor of the Providence Debtors, who the Trustee alleged received commission payments from Abio. Defendant Francis, in settlement of the Trustee's claims against her, provided the Trustee with the exclusive right to sell real property located at Brookwood Drive, Boca 3

4 Raton, Florida, with the net profits from the sale to go to the estate. [Adv. No AJC, ECF No. 50] (the "Boca Raton Property"). The Trustee has sought Bankruptcy Court approval and obtained same to retain Jason Welt as a broker to market and sell the Boca Raton Property for the benefit of the estate. Mr. Welt has listed the Boca Raton Property at $1,695,000 in the MLS. The Trustee believes that there are two mortgages on the Boca Raton Property totaling approximately $1,090,000, which depending on the ultimate sale price, might generate a recovery to the estate. IV. Additional Adversary Proceedings Commenced by Trustee a) Lawsuits Against "Originators" The "originators" were tasked with marketing and selling the Providence Defendants' notes in exchange for commission payments. The originators were key in perpetrating the investment scheme hatched by the Providence Defendants' principals. The Trustee is seeking to recover commission payments paid to producers as fraudulent transfers or under theories of unjust enrichment. The Trustee has filed the following additional lawsuits against the most prominent originators: i. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Visionary Concepts, LLC. ii. iii. iv. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Integrated Performance Optimization, Inc.. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against EMC Health Service Corp. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Jeffory Churchfield. v. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against K. Ellis LTD. 4

5 vi. vii. viii. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Tranxact Holdings, LLC. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Jack Jarrell, JTVentures, Inc. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Jerry Chafetz. ix. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Mega Global, Corp. x. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Manuel Gandara. xi. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Manuel E Gandara. b) Lawsuits Against Principals The principals of the Providence Debtors, who perpetrated a Ponzi scheme on investors, caused the Providence Debtors to not only to be indebted to investors with no possibility of payment, but also, because of their wrongful conduct, caused the Providence Debtor's to become indebted to the SEC in the amount of the Disgorgement Judgment. Additionally, certain of the principals, also marketed and sold providence notes to investors and received commission payments as a result. These lawsuits primarily seek to obtain damages against the principals totaling at least $49,511,186 as a result of their breaches of their fiduciary duties to the Providence Defendants, and other related legal theories: i. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Antonio Carlos De Godoy Buzaneli. ii. iii. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Jose Manuel Ordonez. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Julio Enrique Rivera. 5

6 iv. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Sanjiv Matta. c) Lawsuits Against Net Winners Although a majority of Providence investors lost money, certain investors profited from their investments, which came at the expense of all other investors who did not receive a profit. The Trustee has therefore filed lawsuits to collect from investors who derived a profit from their Providence investments under fraudulent transfer and unjust enrichment theories: i. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Betty Slaughter, in her capacity as the Trustee of the Clements Family Trust. ii. iii. iv. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Mildred Morgan. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Philip Giordano.) Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Anne Tower Krauss. v. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Data Crypt LLC. vi. vii. viii. ix. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Gaetano Di Zio, Maria Cuesta. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Ovie Torres, Isabel Rodriguez. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Shirley Walker. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against Natalia Guzman Seda. 6

7 d) Lawsuits Against Recipients of Fraudulent Transfers The Principals of the Providence Defendants, instead of investing investor funds into Brazilian factoring as promised, diverted company funds to a variety of enterprises unrelated to the advertised purpose of the Providence Defendants. These outgoing transfers, which do not appear to have any business purpose and for which there was no reasonably equivalent value provided, are the basis of the following lawsuits filed by the Trustee: i. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against HML Export/Import USA, Inc., HNH USA Corp. d/b/a Sterling Distributor & Supplies, Henrique Souza. ii. iii. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against BPA Restaurants, LLC. Adversary case Complaint by Maria Yip, as Chapter 7 Trustee against MOGL Capital, LLC. e) Claims Against Attorney for Providence The Trustee is pursuing potential claims against the attorney for the Providence Defendants, Hector Formoso-Murias, and his law firm, Formoso-Murias P.A. The Trustee has a mediation scheduled regarding these potential claims in September 18, f) Lawsuits Against Professionals Special litigation counsel was asked to investigate potential business tort and fraudulent transfer claims that might be brought to obtain recoveries for the Chapter 7 estates. Based on the investigation of special litigation the Trustee has identified claims against two law firms and an accounting firm that were engaged by one or more of the Debtors. The complaint was recently filed as an adversary complaint before Judge Cristol. Special litigation counsel continues to 7

8 investigate potential claims against PriceWaterhouseCoopers, who acted as sponsoring accountants to the United Kingdom affiliates of the Debtors. g) Substantive Consolidation Motion The Trustee sought to substantively consolidate the estates of the U.S. Providence entities with the estates of the United Kingdom affiliates of the Debtors. The substantive consolidation request would have created one single estate under the administration of the Trustee, with all creditors sharing equally to any recovery obtained by the Trustee. The Liquidators for the United Kingdom affiliates of the Debtors objected to the relief sought by the Trustee. The Trustee ultimately settled with the U.K. Liquidators by dismissing, with the possibility of again asking the bankruptcy court to enter such relief, the substantive consolidation motion, in exchange for the U.K liquidators providing access to financial documents of the U.K. Providence affiliates, which will aid the Trustee in her efforts to trace investor funds. V. Instructions for Creditors who Have Filed Claims Who Change Addresses For creditors who have filed timely proofs of claims, the address in the proof of claim determines where the Trustee and other parties in interest will contact you regarding this bankruptcy case and regarding your claim. If you have timely filed a proof of claim and relocate to a new address, to inform the Court and parties in interest of your address change, you may file an amended proof of claim with the new address. To file an amended proof of claim, please follow the instructions on this website: Please click on Frequently Asked Questions and make sure you follow the instructions for filing an amended claim, rather than a new claim altogether, that includes your new address. 8

9 VI. How to Provide Information to the Trustee If you are a creditor of the Providence Debtors and have any information that you think might be useful to the Trustee in her efforts to recover estate assets, please send that information to trustee@providencetrustee.com. CONCLUSION The Trustee continues to work diligently on behalf of the bankruptcy estates of the Providence Defendants. Based upon all the information available to the Trustee and her professionals to date, the Trustee anticipates that the complexity of this case will require a substantial length of time to pursue all viable claims on behalf of the Providence Defendants and provide for an ultimate disposition to holders of allowed claims against the Providence Defendants' bankruptcy estates. 9