Document Page 1 of 9 In re: IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA Charlotte Division TSI Holdings, LLC, WSC Holdings, LLC, SouthPark Partners, LLC and Sharon Road Properties, LLC. DEBTORS. CASE NO. 17-30132 (LEAD) CASE NO. 17-30338 CASE NO. 17-30339 CASE NO. 17-30363 CHAPTER 7 Jointly Administered TRUSTEE S MOTION FOR APPROVAL OF SETTLEMENT WITH DENISE B. RHODES Joseph W. Grier, III, the duly appointed trustee ( Trustee ) for the above-referenced debtors (the Debtors ) in these jointly-administered bankruptcy cases, through counsel, hereby brings this Trustee s Motion for Approval of Settlement with Denise B. Rhodes (this Motion ), and in support, respectfully shows the Court as follows: BACKGROUND 1. On January 27, 2017, an involuntary bankruptcy petition (D.E. 1) pursuant to chapter 7 of the United States Bankruptcy Code, 11 U.S.C. 101 et seq. (the Code ), was filed against TSI Holdings, LLC ( TSI ), initiating this case (this Case ). On February 2, 2017, the Court held an emergency hearing on the petitioning creditors emergency motion to appoint an interim trustee for the Debtor in this Case (D.E. 5) (the Trustee Motion ). On February 8, 2017, the Court entered its Order granting the Trustee Motion (D.E. 17), appointing the Trustee. The Court subsequently entered its Order For Relief (D.E. 32) on February 22, 2017. 1
Document Page 2 of 9 2. Similar involuntary petitions and motions were filed against WSC Holdings, LLC ( WSC ), SouthPark Partners, LLC ( SPP ) and Sharon Road Properties, LLC ( SRP ), and the Court appointed the Trustee and entered orders for relief in those cases. 3. The Court authorized the joint administration of these four cases by order entered on May 23, 2017 (D.E. 63). 4. Evidence presented to the Court in the Trustee Motion, including an affidavit of Timothy Darin Stutheit, a Special Agent with the Federal Bureau of Investigation, showed that Rick Siskey ( Siskey ), prior to his death on December 28, 2016, operated TSI as a Ponzi scheme (the Ponzi Scheme ) (D.E. 5). 5. Based on the Debtor records, and other evidence, the Trustee and his professionals are of the opinion that TSI, WSC, and SPP were each operated as part of the Ponzi Scheme. Further, six investors, who Siskey qualified as Outside Investors, in SRP were also part of the Ponzi Scheme. 6. Siskey s decedent s estate (the Estate ) is being administered in Mecklenburg County, North Carolina by F. Lane Williamson (the Administrator ), in case number 17-E-243. 7. The Trustee and the Administrator have been investigating known and potential assets of the Debtors and the Estate and marshalling those assets. The Trustee and the Administrator have also agreed that they will make a good faith effort to see that investors in the Ponzi scheme are treated the same, whether they invested in one of the Debtors or in a non- Debtor entity. 8. The investigation of the Trustee and the Administrator has revealed that, prior to Siskey s death, Siskey held interests in several life insurance policies through Metropolitan Life Insurance Company ( MetLife ) including Policy 825 on his life. Policy 825 had a 2
Document Page 3 of 9 $10,000,000 death benefit which was paid on or about January 23, 2017 to four beneficiaries including Rhodes. 9. Rhodes was an employee of Siskey and generally assisted Siskey in day-to-day operations. 10. Siskey made Rhodes a beneficiary of Policy 825 by virtue of a Change of Beneficiary Form signed by Siskey on December 16, 2016, approximately twelve days prior to his death. The total benefit paid by MetLife to Rhodes was $250,008.58. 11. Based on the Debtors records, and other evidence, the Trustee believes that proceeds of the Ponzi Scheme were used to pay insurance premiums on Policy 825. In addition, policy records reveal that Policy 825 lapsed in June, 2015. The Trustee was able to trace payments from and after June, 2015 for all insurance premiums on Policy 825 to proceeds from the Ponzi Scheme. 12. The Trustee made demand upon Rhodes to turn over the sum of $250,008.58 (the Proceeds ) for the benefit of the Bankruptcy Estates (the Demand ). 13. Rhodes promptly responded to the Trustee s demand and entered into negotiations with the Trustee. In connection with the negotiations ensuing after the Demand, Rhodes provided the Trustee with sworn financial disclosures and other information regarding Rhodes s dealings with the Debtors and other personal financial information. 14. The Trustee, the Administrator and Rhodes have reached a settlement (the Settlement ) subject to bankruptcy court approval. The terms of the Settlement are incorporated into a Settlement Agreement, a copy of which is attached hereto as Exhibit A, which provides that Rhodes will remit to the Trustee the sum of $220,000.00 as full settlement of the Demand as well as any and all causes of action that the Trustee or the Administrator has standing to pursue as to Rhodes. The Settlement agreement further provides that the 3
Document Page 4 of 9 $220,000.00 shall be transferred to the Trustee immediately to be held in trust until an Order is entered approving the settlement. RELIEF REQUESTED 15. Through this Motion, the Trustee requests entry of an Order approving the Settlement between Rhodes, the Trustee, and the Administrator and authorizing the Trustee to enter into the Settlement. BASIS FOR RELIEF REQUESTED 16. The Trustee seeks approval of the Settlement pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure. In accordance with that Rule and Rule 2002(a)(3) of the Federal Rules of Bankruptcy Procedure, approval of a settlement is permitted upon 21-days notice. Local Rule 9013-1(e)(17) permits settlement motions to be noticed on a no protest basis. 17. Notice shall be sent pursuant to the Order Limiting Service of Process (D.E. 66) as follows: (a) upon the Bankruptcy Administrator and those parties requesting notice via ECF pursuant to Bankruptcy Rule 2002 via ECF; (b) on any party in interest where the Trustee has a valid electronic mail address by electronic mail only; (c) by posting all pleadings on the Siskey- Related Bankruptcy Case Webpage; and (d) upon Rhodes, through counsel. ARGUMENT 18. The Trustee asserts that the Proceeds are property of the Bankruptcy Estate. Section 541 of the Code states that a debtor s bankruptcy estate is comprised of all legal and equitable interests of the debtor in property as of the commencement of the case. 11 U.S.C. 541(a). Further, pursuant to Section 542 of the Code, any entity that holds property of the estate that the trustee may use, sell or lease is required to turn it over to the trustee unless that property is of inconsequential value. 4
Document Page 5 of 9 19. A majority of courts considering the issue have held that, when stolen funds are used to pay life insurance premiums, the victims of the theft should receive a proportional share of the policy proceeds based on the percentage of the premiums paid using stolen funds. See, e.g., Vorlander v. Keyes, 1 F.2d 67, 69 70 (8th Cir. 1924); Texas Life Ins. Co. v. Morgan, 1987 WL 44392, at *2 (N.D. Tex. Oct. 19, 1987); Marineau v. Gen. Am. Life Ins. Co., 898 S.W.2d 397, 403 (Tex. Ct. App. 1995). 1 20. In the case at hand, the Trustee and his professionals believe that proceeds of the Ponzi Scheme were used to pay insurance premiums on Policy 825. At the very least, from and after the June, 2015 lapse in Policy 825, 100% of the Policy 825 premiums were made with fruits of the Ponzi Scheme. 21. In reaching this Settlement, the Trustee has taken into consideration the financial condition of Rhodes as well as the cost of pursuing the Demand via litigation against the realistic prospective of recovery of 100% of the same. 22. The Settlement brings $220,000.00 into the Debtors bankruptcy estates. 2 The Trustee believes that it would be in the best interests of creditors of the Debtors bankruptcy estates for the Demand against Rhodes to be settled as proposed herein. 23. In the Trustee s opinion, the Settlement reflects a reasonable resolution of the Demand against Rhodes. For these reasons, the Trustee respectfully requests that it be approved. 1 This majority view on clawing back life insurance proceeds for the benefit of victims of a fraud is consistent with the principle recognized by Judge Mullen that [i]n cases involving Ponzi schemes, courts have taken a broad view of the constructive trust remedy, and the tracing requirement, in order to effectuate the goal of returning to the victims of the fraud their stolen property or proceeds of that property. Bell v. Disner, 2016 WL 7007522, at *13 (W.D.N.C. Nov. 29, 2016) (quoting S.E.C. v. Credit Bancorp, Ltd., 138 F.Supp.2d 512, 533 (S.D.N.Y. 2001)). 2 The Trustee proposes to deposit the settlement proceeds into the Trustee s TSI bank account, as property of the estate, subject to (1) the understanding that the four Debtor cases have been administratively but not substantively consolidated and the Court may at some time in the future allocate the settlement proceeds among the Debtor cases and (2) the understanding between the Trustee and the Administrator that they will work in good faith to see that investors in the Siskey Ponzi Scheme are treated equally, whether holding claims against one of the Debtors or against a non-debtor entity. 5
Document Page 6 of 9 WHEREFORE, the Trustee prays that the Court will enter an Order: 1) Granting this Motion and approving the Settlement as being a fair and reasonable resolution of the Demand; 2) Authorizing the Trustee to execute the Settlement Agreement and carry out its terms; and 3) Awarding such additional relief as is just and proper. This is the 9th day of January, 2018. /s/ Anna S. Gorman Joseph W. Grier, III (State Bar No. 7764) Anna S. Gorman (State Bar No. 20987) Michael L. Martinez (State Bar No. 39885) Grier Furr & Crisp, PA 101 North Tryon Street, Suite 1240 Charlotte, North Carolina 28246 Telephone: 704.375.3720; Fax: 704.332.0215 agorman@grierlaw.com Attorneys for Joseph W. Grier, III, Ch. 7 Trustee 6
Document Page 7 of 9 In re: IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA Charlotte Division TSI Holdings, LLC, WSC Holdings, LLC, SouthPark Partners, LLC and Sharon Road Properties, LLC. DEBTORS. CASE NO. 17-30132 (LEAD) CASE NO. 17-30338 CASE NO. 17-30339 CASE NO. 17-30363 CHAPTER 7 Jointly Administered NOTICE OF OPPORTUNITY FOR HEARING TAKE NOTICE that the Trustee in this case has filed his Trustee s Motion for Approval of Settlement with Denise B. Rhodes (the Motion ) with the Court. The Motion requests approval of a settlement Denise B. Rhodes for the sum of $220,000.00 after a demand to return $250,008.58 in life insurance proceeds received. A copy of the Motion is attached hereto and posted on the undersigned s website at https://tsiholdings.wordpress.com. It is also available from the undersigned or from the Bankruptcy Court s web site at: http://www.ncwb.uscourts.gov. Your rights may be affected. You should read the Motion and this Notice carefully and discuss it with your attorney, if you have one in this bankruptcy case. (If you do not have an attorney, you may wish to consult one.) If you agree with the relief requested in the Motion then you do not need to respond or attend the Court hearing noticed herein. If you do not want the Court to approve the Motion, or if you want the Court to consider your views on the Motion, then on or before January 31, 2018, you or your attorney must: 1. File with the Court a written response explaining your position and requesting that a court consider your position. File the response electrionically or by mail at: U.S. Bankruptcy Court Charles Jones Federal Building 401 W. Trade St. Charlotte, NC 28202 1
Document Page 8 of 9 If you mail your request to the Court for filing, you must mail it early enough so the Court will receive it on or before the date stated above. 2. Also on or before January 31, 2018 you must also mail, fax, or email a copy of your written request for hearing to: Joseph W. Grier, III, Chapter 7 Trustee Grier Furr & Crisp, P.A. jgrier@grierlaw.com or agorman@grierlaw.com 101 North Tryon Street, Suite 1240 Charlotte, NC 28246 Fax: (704) 332-0215 U.S. Bankruptcy Administrator 4023 West Trade St. Charlotte, NC 28202 3. If you file a timely response and request to be heard, you or your attorney must attend a hearing which will be held at 9:30 a.m. on February 12, 2018, in the Bankruptcy Courtroom on the first floor of the United States Courthouse, Charles Jonas Federal Building, 401 W. Trade Street, Courtroom 1-4, Charlotte, North Carolina. If you or your attorney do not take these steps, the Court may decide that you do not oppose the relief requested in the Motion and may enter an order approving the relief requested therein. This is the 9th day of January, 2018. /s/ Anna S. Gorman Joseph W. Grier, III (State Bar No. 7764) Anna S. Gorman (State Bar No. 20987) Michael L. Martinez (State Bar No. 39885) Grier Furr & Crisp PA 101 North Tryon Street, Suite 1240 Charlotte, North Carolina 28246 Telephone: 704/375.3720; Fax: 704/332.0215 agorman@grierlaw.com Attorneys for Joseph W. Grier, III, Trustee 2
Document Page 9 of 9 In re: IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA Charlotte Division TSI Holdings, LLC, WSC Holdings, LLC, SouthPark Partners, LLC and Sharon Road Properties, LLC. DEBTORS. CASE NO. 17-30132 (LEAD) CASE NO. 17-30338 CASE NO. 17-30339 CASE NO. 17-30363 CHAPTER 7 Jointly Administered CERTIFICATE OF SERVICE The undersigned hereby certifies that the Trustee s Motion for Approval of Settlement with Denise B. Rhodes (the Motion ) and Notice for Opportunity for Hearing was served on all parties requesting notice through the Court s electronic noticing system including the Bankruptcy Administrator, by electronic mail to each party in interest where the Trustee has a valid email address, and by posting on the website being maintained by the Trustee regarding these Cases at https://tsiholdings.wordpress.com and as set forth below. Claire J. Rauscher via email: Claire.Rauscher@wbd-us.com Womble Bond Dickson One Wells Fargo Center Suite 3500, 301 S. College St. Charlotte, NC 28202-6037 This is the 9th day of January, 2018. /s/ Anna S. Gorman Anna S. Gorman Grier Furr & Crisp, PA 101 North Tryon Street, Suite Charlotte, NC 28246 3