8:15-cv-00317-LES-FG3 Doc # 41 Filed: 10/30/15 Page 1 of 21 - Page ID # 237

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEBRASKA
COR CLEARING, LLC, a Delaware limited
liability company,
Plaintiff,
v.
CALISSIO RESOURCES GROUP, INC., a
Nevada corporation, ADAM CARTER, an
individual, SIGNATURE STOCK TRANSFER,
INC., a Texas corporation; and DOES 1-50.
Defendants.
_______________________________________

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Case No.: 8:15-CV-317

TD AMERITRADE CLEARING,
INC.S BRIEF IN OPPOSITION
TO COR CLEARING, LLCS
MOTION FOR ORDER
APPOINTING LIMITED
PURPOSE RECEIVER
(FILING NO. 20)

TD Ameritrade Clearing, Inc. submits this Brief in response to COR Clearing, LLCs
Expedited Motion for Order Appointing Limited Purpose Receiver (Filing No. 20).
INTRODUCTION AND SUMMARY OF ARGUMENT
This action was commenced on August 26, 2015 by COR Clearing, LLC (COR), a
clearing and settlement firm based in Omaha, Nebraska. In this action, COR sought to recover
roughly $4 million from Calissio Resources Group, Inc. (Calissio), Calissios CEO Adam
Carter and Calissios stock transfer agent Signature Stock Transfer, Inc. In its Complaint, COR
alleges that it was the victim of Defendants calculated scheme to defraud the marketplace and
the clearing system in order to obtain millions of dollars from unsuspecting market participants .
. . . (Complaint 1). Defendants scheme, according to COR, was perpetrated in connection
with a $.011 per share cash dividend on Calissios stock to be distributed on August 17, 2015
(the payable date) to the holders of record of its stock as of close of business on June 30, 2015
(the record date).

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COR seeks to recover roughly $4 million in charges to its clearing account with the
Depositary Trust Clearing Corporation (DTCC) in connection with the conversion and
subsequent sale of roughly 400 million shares of Calissio stock from July 29, 2015 through
August 19, 2015.

According to the Complaint, roughly 327 million of these shares were

acquired during that period by its customer Nobilis Consulting LLC (Nobilis) who, acting
through its broker J.H. Darbie & Co. (Darbie), obtained the shares through a conversion of
debt to equity. (Complaint 34). COR alleges another of its customersBeaufort Capital
Partners (Beaufort)converted over 150 million shares during the same time period.
(Complaint 44). Nobilis and Beaufort collectively sold over 400,000,000 of these shares on the
open market (netting gross proceeds in excess of $700,000) during the weeks leading up to the
date on which the previously declared cash dividend was to be paid. (Complaint 3-7). DTCC
then charged COR, as the clearing broker for these sales, roughly $4 million for due bills that
ostensibly had attached to the stock when it was sold by Nobilis and Beaufort. (Id.).1
On October 5, 2015, after Calissio and its CEO failed to respond to the Complaint, COR
filed an Expedited Motion for Order Appointing Receiver (the Receiver Motion) (Filing No.
20) (emphasis in original). This motion, which was supported by only a scant evidentiary record,
seeks what amounts to a final judgment reversing the $4 million charge DTCC made to its
clearing account at the expense of thousands of innocent investors who purchased the stock
which Nobilis and Beaufort dumped on the market.
This Brief is submitted on behalf of TD Ameritrade Clearing, Inc. (TDAC) on its own
behalf and on behalf of its affiliated company TD Ameritrade, Inc. (TDA) in response to a
notice provided by COR to TDAC and other clearing broker dealers which gave them seven days
1

As explained in the text infra, when stock that qualifies for a dividend is sold between the record date and the exdividend date, a due bill attaches to the stock which results in a debit (i.e., charge) to the account of the selling
shareholder.

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from receipt of the notice to respond to the Receiver Motion.2 TDAC respectfully submits that
the Receiver Motion be denied for the following reasons, which are discussed in more detail
below.
First, it must be emphasized that the Receiver Motion is not, like most motions requesting
the appointment of a receiver, simply a request for a temporary remedy, i.e., the appointment of a
person or entity to manage the affairs of a defendant due to, among other things, evidence of
fraud, waste or other conduct that might impact the plaintiffs ability to recover a money
judgment or other relief sought in the action. To the contrary, the relief sought by the Receiver
Motion is, in effect, a final judgment which, if granted, will result in DTCC reversing a credit to
CORs clearing account for approximately $4 million in due bills that ostensibly attached to
roughly 400 million shares of Calissio stock that, according to the allegations of the Complaint
and the evidence submitted in support of the Receiver Motion, two of CORs customers flooded
the market with in the weeks leading up to the date the dividend in question was to be paid. In
light of the fact that the Receiver Motion seeks final rather than temporary equitable relief,
TDAC submits that this Court should deny the motion or at least apply a heightened standard of
review than it normally would apply if presented with a request for appointment of a receiver.
Moreover, granting the Receiver Motion will undoubtedly not cause more good than
harm, a key factor to consider in deciding whether to appoint a receiver. See Aviation Supply
Corp. v. R.S.B.I., Aerospace, Inc., 999 F.2d 314, 316-17 (8th Cir. 1993). Thousands of investors
purchased Calissio stock without any knowledge of Calissios fraudulent scheme. Due to that
fraudulent scheme, those innocent investors were credited with dividends that, in hindsight,
should not have been credited to them. Nonetheless, it is inequitable to shift the losses to
2

Although providing interested persons and entities such as TDAC with notice and an opportunity to be heard with
respect to the Receiver Motion was certainly appropriate, TDAC submits that this hardly comports with due process
requirements of what is now, in substance, a defendant class action case. See, generally, F.R.Civ.P 23.

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innocent companies and individuals like TDA and its clients. The loss should not now be borne
by the broker-dealers and other individual account holders who were not at fault.

The

evidentiary record before the Court shows that CORs customers (Nobilis and Beaufort) were
instrumental in allowing Calissio to succeed in its fraud by helping create the roughly 400
million shares that were ineligible for the previously declared dividend and then dumping those
shares on an unsuspecting market.

But for the alleged debt to equity conversion and the

subsequent sales of those shares, no due bills would have attached to those shares, no credit
would have been issued by DTCC to COR with respect to those shares and no debits would have
been made to the accounts of innocent purchases of those shareslike TDAs customersthat
COR now seeks to reverse. This is not to suggest that COR, Nobilis or Beaufort were somehow
involved in Calissios fraudulent scheme.

At this juncture, TDAC has no evidence to support

such a claim. On the other hand, it is beyond dispute that none of TDAs customers took any
actionsother than purchasing Calissio stock that was offered in the public market, including
shares sold by Nobilis and Beufortthat caused COR the losses in question. TDAC respectfully
submits that the proper remedy here is to require COR to pursue whatever remedies it may have
against Calissio or possibly Nobilis and Beaufort, rather than shift those losses to an
unsuspecting market. In short, appointing a receiver and providing him with the directions that
COR requests will, in fact, do more harm than good.
Furthermore, the relief sought by the Receiver Motion is based on evidence that has not
been subjected to the rigors of cross-examination. Although such cross-examination would not
normally be required prior to the appointment of a receiver, nothing about the Receiver Motion,
or this case in general, can fairly said to be normal. Similarly, although TDAC and other
interested persons are being given the opportunity to submit papers in response to the Receiver

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Motion, their ability to do so is hamperedif not handcuffedby their inability to conduct any
discovery to not only test the allegations of the Complaint and the evidence submitted in support
of the Receiver Motion, but to obtain evidence germane to the most important issue before the
Court, i.e., whether it is equitable to shift CORs alleged losses, as well as those of its customers
Nobilis and Beaufort, to admittedly innocent companies and persons such as TDA and its
customers. For example, if allowed to pursue discovery, TDAC and others similarly situated
could explore evidence surrounding the alleged debt to equity conversion whereby Nobilis and
Beaufort obtained the roughly 475 million shares of Calissio stock, the majority of which it sold
into the market in the weeks and days leading up to the date the previously declared dividend
was to be paid. Likewise, discovery may show what, if any, knowledge Nobilis and Beaufort
had of Calissios financial condition, its efforts to perpetrate the fraud in question and what steps
Nobilis and Beaufort could have taken to detect the alleged fraud.
STATEMENT OF FACTS
TDA maintains a direct relationship with its customers with respect to trading and other
activity within its customers accounts held through TDA. (Johnsen Decl. 3.) In order to
effectuate trades in its customers accounts, TDA uses TDAC as its clearing broker. (Id.) TDA
and TDAC have a fully disclosed clearing relationship. (Id). Generally, IBDs like TDA interact
with the end client, while a clearing broker, TDAC, is responsible for the confirmation, receipt,
settlement, delivery and record-keeping tasks involved in processing securities transactions and
other back-office functions. (Id.)

TDAC is specifically responsible for the clearance and

settlement of transactions effected in TDA client accounts. (Id.) TDAC is a member of the
DTCC. (Id.) DTCC provides net clearance and settlement services for clearing broker-dealers to
facilitate book-entry transfers. (Id.)

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TDAC performs custody and clearance activities for the customers of TDA. (Johnsen
Decl. 4.) Through TDACs normal course of business, securities that are beneficially owned by
clients are held at TDAC for ease of trade settlement, automated transfers, reorganization
services, and other benefits. (Id.) For domestic securities, TDAC uses DTCC to facilitate these
transactions. (Id.) When an issuer of a security declares a corporate action eventsuch as a
dividend on stock held in a customers accountDTCC will follow the processes set out in its
DTC Distributions Services Guide. (Id.) DTCC will receive funds from the paying agent on
behalf of the issuer, track any trading activity if applicable (referred to as interim tracking),
and pay participants the correct funds as determined by relevant dates. (Id.)

TDAC, as a

recipient of those funds, then further credits the beneficial client, according to the clients
respective ownership interest. (Id.)
For purposes of this matter it is important to understand when and to whom a dividend
will be paid once it is declared. (Johnsen Decl. 5.) After the dividend is declared, the company
sets a record date. (Id.) The record date establishes the deadline by which an individual must be
on the company books as a shareholder in order to receive the dividend. (Id.) If a stock is not
purchased until on or after August 19, 2015 (the ex-dividend date), the purchasing shareholder
is not entitled to the dividend. (Id.) If during the interim period between the record date and the
ex-dividend date, a shareholder sells shares that are eligible for a dividend a due bill attaches
to the shares because the shareholder has, in effect, sold his or her right to receive the dividend to
the buyer. (Id.)
The process described above is illustrated by the following hypothetical transactions:
Scenario 1 Client held 100 shares of ABC Corp stock electronically with a broker-dealer, and
has held them prior to any dividend event. On Record Date of a dividend event of $1/share,
DTCC would notate that the broker held 100 shares of ABC Corp and indicate that the broker is

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currently expected to be due $100 for the dividend event. If the client sells the shares before exdividend date, DTCC would adjust the amount due to the broker by adjusting for interim
activityspecifically by debiting (i.e., charging) the selling brokers payable date
payment. Since the broker-dealer was originally set to receive $100, and was adjusted
downward by $100 in this example, the broker would receive $0 on payable date since it has no
eligible shares for dividend treatment.
Scenario 1a - Likewise, if a client bought 100 shares of ABC Corp stock electronically with a
broker after record date but before ex-dividend date, DTCC would (via interim activity tracking)
notate a credit of $100 for the brokers account, to be paid on payable date.
Scenario 2 Broker-dealer holds 0 shares of ABC Corp stock with DTCC on record date for a
$1/share dividend event and, therefore, initially is set to receive a payment of $0. A client
deposits 100 shares of ABC Corp stock on a physical certificate and sells the shares before exdividend date. DTCC would notate the sale and adjust the amount due to the broker by
adjusting for interim activityspecifically by debiting the selling brokers payable date
payment. Since the broker-dealer originally had 0 shares that qualified for dividend payment
and has now sold 100 shares, instead of receiving any credit, or even not getting paid anything,
they would be debited $100 for the dividend event by DTCC. A broker-dealer would typically
look to its client who deposited the shares to be made whole. In the specific example of a
physical certificate deposit, the client would have typically been the record date holder on the
physical certificate and would therefore have the funds to pay the broker for the debit they have
incurred.
(Johnsen Decl. 6.)
According to the allegations of the Complaint filed in this action, from July 29, 2015
through August 19, 2015, two companiesNobilis and Beaufortallegedly converted debt
owed by Calissio to those companies into equity ownership in those companies in the form of
roughly 475 million shares of Calissio stock. (Johnsen Decl. 10.) According to the Complaint,
during this same time period, i.e., July 29, 2015 through August 19, 2015, Nobilis sold its shares
in Calissio resulting in gross proceeds of $700,000.

(Id.)

During the same time period,

according to the Complaint, Beaufort sold over $90 [sic] million shares during the due bill
period. (Id.)
A chart of trading activity in Calissio stock from July 29, 2015 through August 19, 2015
shows a dramatic increase in trading activity during that time period. (Johnsen Decl. 9.)

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During the month prior to that period, i.e., from June 29, 2015 through July 28, 2015, the daily
average trading in Calissio stock fluctuated from approximately 90,000 shares per day (on July 6,
2015) to roughly 50,000,000 shares per day (on July 24, 2015). (Id.) During the period from July
29, 2015 through August 19, 2015, the daily average trading in Calissio stock at least tripled to
approximately 105,000,000 shares per day. (Id.) On a single day during that period, i.e., August
18, 2015, nearly 225,000,000 shares were traded. (Id.)
As of the date that the dividend in question was to be paid, 764 of TDAs customers
collectively owned a total of 84,926,667 shares of Calissios stock. (Johnsen Decl. 7.)
Subsequently, DTCC credited TDACs account with $934,193.35 for dividends from Calissio
attributable to the shares of Calissio stock held by TDAs customers. (Id.) TDAC, in turn,
credited TDAs customers accounts for the amount of dividends attributable to stock held in
those accounts. (Id.)
Subsequent to August 21, 2015, substantial activity occurred in the accounts of TDAs
customers that held Calissio stock as of August 21, 2015. (Johnsen Decl. 8.) If, as requested by
COR in this action, DTCC were to reverse the credit of $934,193.35, TDAC would, in turn, have
to reverse the credit to the accounts of the TDA customers who received the Calissio dividend
described above. (Id.) Aside from the obvious inequity to TDAs customers as a result, based
upon a review of TDAs account records a large portion of the debits would result in negative
account balances that TDA would be forced to pursue through collection efforts with no guaranty
of being paid. (Id.) Although on paper, COR would have this Court believe that this is a simple
accounting transaction, the reality is that ordering the Receiver to make this post-payable
adjustment places the financial and administrative burden on both TDA and its clients. Clients
who have received their funds will be dissatisfied. The funds may or may not be used for

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collateral for other securities. This action may lead to margin calls or the forced sale of
securities, and could cause additional losses.
As a result, based on the status of the accounts in question as of the close of business on
October 28, 2015, TDA could incur losses of approximately $200,000 if the Court grants the
relief requested by the Plaintiff in this action.3 (Id.) Depending on activity in the accounts in
question after October 28, 2015, TDA could actually lose much more than thatconceivably as
much as the amount of the dividends paid to clients, or $934,193.35, plus collection costs. (Id.)
LEGAL STANDARDS
A federal court has the power in equity to appoint a receiver in order to protect a partys
interest in property. See Fed.R.Civ.P. 66; see also Aviation Supply Corp., 999 F.2d at 317 (The
appointment of a receiver in a diversity case is a procedural matter governed by federal law and
federal equitable principles.) (citations omitted). The purpose of a receivership is to protect a
partys interest in property pending resolution of a dispute over ownership or control between it
and another party with a claim to the property. Varsames v. Palazzo, 96 F.Supp.2d 361, 366
(S.D.N.Y. 2000) (citing Citibank v. Nyland (CF8) Ltd., 839 F.2d 93, 96 (2d Cir. 1988);
Prudential Ins., 1995 WL 758781, at *1)).
Before a federal receiver may be appointed, the burden is on the moving party to show
sufficient grounds for the appointment. Midwest Savings Association v. Riversbend Associates
Partnership, 724 F.Supp. 661 (D. Minn. 1989). This is a heavy burden as the appointment of a
receiver is an extraordinary remedy that should be granted only in cases of clear necessity to
protect a plaintiffs interest in property. Aviation Supply Corp., 999 F.2d at 317. Because a
receivership may seriously interfere with an owners property rights by ousting them from
3

TDA understands that another broker-dealer has either restricted its clients from accessing these funds or
has already reversed said funds. Removing funds from client accounts absent a court order directing a broker-dealer
to do so is unusual and contrary to TDA policies. Accordingly, no such action has been taken at this time.

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control and sometimes possession, the party seeking it must show that he or she has some legally
recognized right in the property that amounts to more than a claim. See 12 C. Wright & A.
Miller, Federal Practice and Procedure Sec. 2983. Furthermore, although a court may have the
power to appoint a receiver or custodian and grant other preliminary relief, in determining the
appropriate relief the court must balance the potential harm of such relief to the parties, and a
receiver should not be appointed where it would result in a risk of substantial harm. See
Aldeman v. CGS Scientific Corp., 332 F.Supp. 137, 1477 (E.D. Pa. 1971).
Factors to be considered upon a motion to appoint a receiver are as follows: (1) a valid
claim by the party seeking the appointment; (2) the probability that fraudulent conduct has
occurred or will occur to frustrate that claim; (3) imminent danger that property will be
concealed, lost, or diminished in value; (4) inadequacy of legal remedies; (5) lack of a less
drastic equitable remedy; (6) and likelihood that appointing the receiver will do more good than
harm. Aviation Supply Corp., at 316-17 (citations omitted). As is true in an injunction, the
appointment of a receiver is not a matter of positive right but rather lies in the discretion of the
court which is to be exercised only when the existence of grounds and conditions such as stated
above are shown. Midwest Savings Association, 724 F.Supp. at 662 (citation omitted).
Principles of equity favor placing losses incurred as the result of unrecorded
arrangements on the person who best could have avoided the loss. Wurzl v. Holloway, 46
Cal.App.4th 1740, 1752 (1996) (citations omitted). In such cases where one of two parties must
suffer because of the fraud of a third, the loss must be borne by the person whose negligence or
misplaced confidence made the injury possible. Id. at 1753 (citations omitted). In other words,
the party who sets in motion the chain of events resulting in the loss is the party that should bear
the result of those actions. Id. (citations omitted). In addition, where property has passed into

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the hands of a bona fide purchaser, subsequent purchasers, even those with notice of asserted
defenses, take clear of the defense. Abraham Lincoln Co. v. Franklin Savings & Loan Assn,
434 F.2d 264, 266 (1970). The rationale is to protect the bona fide purchaser so that he can sell
what he has purchased. Id. (citing Hatcher v. Hall, 292 S.W.2d 619 (Mo.App. 1956); Hellweg
v. Bush, 228 Mo.App. 876, 74 S.W.2d 89, 92 (1934); 77 C.J.S. Sales 296d (1952)). In Abraham
Lincoln Ins., the Eighth Circuit held:
Although the defendant was not aware of the apparent failure of consideration at
the time it reissued [investment] certificates Nos. 583 and 584, Missouri law is
settled that as between two relatively innocent parties the responsibility for the
loss must fall on the one who put the wrongdoer in a position to cause the loss. . .
. Here it was the defendant who took a postdated personal check in a large amount
without investigating as to its sufficiency and thereby permitted the apparent
failure of consideration to arise. As between such a party and a bona fide
purchaser, or one who takes from a bona fide purchaser, the former must clearly
bear the loss, if any.
Id. (internal citations omitted); see also Wichell v. Moffat County State Bank, 307 F.2d 280, 282
(1962) (Both Colorado and this circuit have recognized the rule that where two innocent parties
have both been deceived, the loss must be borne by the one who primarily made the loss
possible.) Furthermore, the benefit received by the innocent party furthest from the fraudulent
conduct will not be considered unjust enrichment. In re Berkman, 517 B.R. 288, 304 (2014)
(Where a party obtains a benefit through lawful means, courts will not characterize the
circumstances surrounding that partys acquisition of the benefit as being inequitable or unjust.)
Certain equitable doctrines, such as the doctrine of equitable mootness, may also preclude
appointment of a receiver. The doctrine of equitable mootness essentially derives from the
principle that in formulating equitable relief, a court must consider the effects of the relief on
innocent third parties. Duff v. Central Sleep Diagnostics, LLC, 801 F.3d 833 (7th Cir. 2015)
(quoting SEC v. Wealth Mgmt., LLC, 628 F.3d 323, 331 (7th Cir. 2010) (quotation marks
omitted); accord United States v. Segal, 432 F3d 767, 773-74 (7th Cir. 2005); SEC v. Wozniak,
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33 F.3d 13, 15 (7th Cir. 1994), overruled on other grounds by SEC v. Enter. Trust Co., 559 F.3d
649 (7th Cir. 2009)). A court may properly refuse to decide the merits of a challenge to a
receivership plan where unwinding it, even if legally justifiable, would be difficult and
inequitable in light of the complexity of the transactions and the reliance interests involved. Id.
This is not real mootness; the court has jurisdiction to alter the outcome, but equitable
considerations make it unfair or impracticable to intervene. Id. (citing In re UNR Indus., 20 F.3d
766, 769 (7th Cir. 1994).
Finally, in cases where the extreme remedy of receivership is deemed proper, the court
may limit the powers of the receiver pursuant to the order of appointment. See Aviation Supply
Corp., 999 F.2d 314; Walker v. Walker, 854 F.Supp. 1443, 1458 (D. Neb. 1994).
ARGUMENT
I.

THE EXTRAORDINARY REMEDY OF RECIEVERSHIP IS NOT

JUSTIFIED BECAUSE COR SEEKS TO USE THE RECIEVERSHIP TO
OBTAIN WHAT IS, IN EFFECT, A FINAL JUDGMENT.
CORs stated purpose for requesting the appointment of a receiver is to reverse a charge

to CORs account for approximately $4 million in due bills that attached to roughly 400
million shares of Calissio stock sold by two of CORs customers after CORs customers obtained
the stock as a result of an alleged debt to equity conversion. The purpose of this receivership
is not to protect CORs interest in property pending resolution of a dispute over ownership or
control between it and another party with a claim to the property. Varsames v. Palazzo, 96
F.Supp.2d 361, 366 (S.D.N.Y. 2000) (citing Citibank v. Nyland (CF8) Ltd., 839 F.2d 93, 96 (2d
Cir. 1988); Prudential Ins., 1995 WL 758781, at *1)). Rather, the effect of the Receiver Motion
is to effectuate a final remedy, not against the Defendant Callisio, but against admittedly
innocent buyers of Calissios stock. Under these circumstances, TDAC submits that the remedy

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of appointment of a receivership should not be available to COR. At a minimum, the Court

should place a heavy burden on COR to show that the equities weigh in favor of the relief
sought, i.e., that the requested relief will do more good than harm. See Aviation Supply Corp.
v. R.S.B.I. Aerospace, Inc., 999 F.2d 314, 317 (8th Cir. 1993).
II.

THE EQUITES WEIGHT HEAVILY AGAINST THE REMEDY COR SEEKS

EXTRAORDINARY REMEDY OF RECIEVERSHIP IS NOT JUSTIFIED
BECAUSE PLAINTIFFS SEEK TO USE THE RECIEVERSHIP TO OBTAIN
WHAT IS, IN EFFECT, A FINAL JUDGMENT.
Not only will the relief sought by COR not do more good than harm, the contrary is

true. The relief sought by COR will have the net effect of allowing COR to collect the roughly
$4 million default judgment it has obtained in this action (CORs Brief at page 16) not from
Calissio, but from innocent customers of IBDs like TDA and, in some instances, from TDA
itself. The inequity in allowing this result is manifest. COR has submitted no evidencenor
could itto suggest that the individuals who purchased the Calissio stock which CORs
customers dumped on the market in the weeks leading up to the date the previously declared
dividend was to be paid, had any reason to believe that the stock they purchased was not entitled
to receive the dividend payment. Likewise, it cannot seriously be disputed that when those
dividend payments were credited to those individuals accounts at TDA and other broker-dealers,
those individuals believed that they were entitled to the dividends. Furthermore, it is fair to
assume that the individuals who purchased the Calissio stock in question have taken actions in
reliance upon their belief that they were entitled to the dividend credits they received. In short,
the record demonstrates that the individuals that purchased the Calissio stock that gave rise to the

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$4 million in dividend credits and the $4 million in charges to COR and its customers were
totally innocent and took no part in the events that caused those charges and credits to be made.4
Conversely, the record demonstrates that CORs customers were directly involved in the
series of events that gave rise to CORs claimed loss. By CORs admission, Nobilis obtained
over 327 million shares of Calissio stock between July 29, 2015 and August 19, 2015 through an
alleged debt to equity conversion. (COR Brief p.7-8). This conversion took place well after
Calissios June 16, 2015, announcement of a $0.011 per share dividend. Nobilis then sold those
shares on the open market with knowledge that no dividend rights were attached to its shares.
(COR Brief p.8: Because Nobilis determined that no dividend rights attached to its shares,
Nobilis sold its shares to the open market.). The gross proceeds of these sales received by
Nobilis was approximately $700,000. Likewise, another of CORs clientsBeaufortsold
approximately 90 million shares during the same time period. Although the amount of the gross
proceeds Beaufort received from the sales is not in the record, extrapolating from the proceeds
received by Nobilis would suggest Beaufort received proceeds of approximately $200,000 (90
million/327 million x $700,00 = $192,660). Given the fact that CORs own customers set the
wheels in motion that led to CORs loss and, in the process, realized as much as $900,000 as a
result, it is far more equitable to require COR and its customers to bear the brunt of Calissios
fraudulent scheme, rather than innocent shareholders that acquired the Calissio shares that
Nobilis and Beaufort sold on the open market.
As was noted above, the appointment of a receiver by a court is a discretionary equitable
remedy. See Aviation Supply Corp., supra, 999 F.3d at 316. Principles of equity favor placing

COR asserts on information and belief that Calissio itself purchased many of the converted shares sold by
Nobilis and Beaufort. Although Calissio appears to be far from innocent, COR does not seek to reverse the charge
only with respect to the shares Calissio purchased.

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losses incurred as the result of unrecorded arrangements on the person who best could have
avoided the loss. Wurzl v. Holloway, 46 Cal.App.4th 1740, 1752 (1996) (citations omitted). In
forming equitable relief, a court must consider the effects of the relief on innocent third
parties. Duff v. Central Sleep Diagnostics, LLC, 801 F.3d 833 (7th Cir. 2015)(Citations
omitted). Assuming that COR and its customers Nobilis and Beaufort are innocent parties, it is a
long standing equitable principle that where two innocent parties have both been deceived, the
loss must be borne by the one who primarily made the loss possible. Winchell v. Moffat County
State Bank, 307 F.2d 280, 282 (10th Cir. 1962). COR and its clients primarily made this loss
possible. Indeed, but for the sales by Nobilis and Beaufort of roughly 400 million shares of
Calissios stock during the due bill period, DTCC would not have attached due bills to the
transactions and COR would not have suffered the loss it is trying to remedy.
Clients of TDA and other similarly situated broker-dealers are innocent and should not
suffer the loss. It is equitable for this Court to protect the bona fide purchasers of Calissios
stock. If CORs allegations are accepted at face value, the investors who will suffer the loss, if
COR is granted the relief it seeks in this case, are the investors who purchased the stock sold by
Nobilis and Beaufort which should not have had due bills attached. These investors paid
market value, a value based in part on an announced dividend, for Nobilis and Beauforts shares
without notice of any issues surrounding Calissio.

As such, the investors are bona fide

purchasers of the stock sold by CORs clients. As between such a party and a bona fide
purchaser, or one who takes from a bona fide purchaser, the former must clearly bear the loss, if
any. Abraham Lincoln Co. v. Franklin Savings & Loan Assn, 434 F.2d 264, 266 (8th Cir.
1970).

Similarly, as bona fide purchasers for value, the innocent investors were not unjustly

enriched as COR claims. The benefit received by the innocent party furthest from the fraudulent

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conduct will not be considered unjust enrichment. In re Berkman, 517 B.R. 288, 304 (2014)
(Where a party obtains a benefit through lawful means, courts will not characterize the
circumstances surrounding that partys acquisition of the benefit as being inequitable or unjust.)
Moreover, Nobilis and Beaufort, as the alleged holders of Calissios debt prior to
converting it to equity, were in the best position to detect Calissios fraudulent scheme. The
circumstances of how or when Nobilis and Beaufort acquired Calissios debt are not known to
TDAC at this time. Since the stock was allegedly acquired through a debt to equity conversion,
however, it is fair to assume that Nobilis and Beaufort as significant creditors of Calissio had
greater access to information regarding Calissios financial condition and affairs than the
unsuspecting public to whom Nobilis and Beaufort sold the converted shares did have. In
addition, according to COR, Nobilis at least was aware that its converted shares did not qualify
for a dividend, yet there is nothing in the record that suggests that Nobilis took any action to
inform the investing public of that fact. In sum, when the equities are balanced hereand the
Court considers whether the relief requested will do more good than harmTDAC
respectfully submits that the Court should conclude that the equities weigh heavily in favor of
denying the Receiver Motion.
III.

THE EXTRAORDINARY RELIEF SOUGHT BY PLAINTIFF IS

PREMATURE IN LIGHT OF THE LACK OF DISCOVERY ON THE ISSUES.
The relief sought by the Receiver Motion is based on evidence that has not been

subjected to the rigors of cross-examination. Although such cross-examination would not

normally be required prior to the appointment of a receiver, nothing about the Receiver Motion,
or this case in general, can fairly said to be normal. This Motion does not seek to temporarily
preserve property pending resolution over a dispute. See Varsames v. Palazzo, 96 F.Supp.2d 361,

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366 (S.D.N.Y. 2000). This Motion is an attempt to collect on a default judgment from innocent
investors and entities such as TDA.
Under these circumstances, it would be inappropriate to grant the extraordinary relief
requested without affording interested parties the opportunity to conduce discovery relating to
the facts of this case. Such discovery would allow interested parties to explore, among other
things:
1. The alleged debt to equity conversion whereby Nobilis and Beaufort obtained and
approximately 475 million shares of Calissio stock in the days leading up to the date
on which a previously announced dividend on Calissio stock was to be paid. For
example, nothing in the record developed thus far demonstrates what debt of Calissio
was owed to Nobilis and Beaufort, whether those companies were, in effect, insiders
of Calissio and had knowledge of its allegedly fraudulent scheme and whether those
companies have benefited from a windfall of something in excess of $700,000 that
would have resulted if the debt that was converted was actually worthless. All of
this evidence, if developed during discovery that has thus far not been available to
parties opposing the Receiver Motion, would have a bearing on a weighing of the
equities of who should bear the brunt of the loss of CORs fraudulent scheme.
2.

What, if any, knowledge Nobilis and Beaufort had regarding the Calissio dividend
and what, if anything, they did to alert an unsuspecting market that the stock they
dumped on the market in the days leading up to previously declared dividend
payment date that the stock they were selling would not result in dividends being paid
on that stock. According to the evidence submitted in support of the Receiver Motion,
Nobilis at least was aware that the roughly 327 million shares it was selling were not

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eligible for the dividend that had earlier been declared and, therefore, sold the stock
for only $700,000. (Declaration of Carlos Salas 12.) Did Nobilis know that the
market which it was inundating with Calissio stock was also unaware that the stock
was not eligible for the previously declared dividend?

If not, did it consider

somehow informing the market of this fact? Again, such evidence, if developed
through discovery, would have a direct bearing on the necessary weighing of the
equities in connection with the Receiver Motion.
This receivership may seriously interfere with the property rights of thousands of
investors as well as TDA and similar entities. In this case, there is a risk of substantial harm to
innocent parties and is simply premature based on the scant evidence before this Court. This
Court should seek to avoid this risk of substantial harm. See Aldeman v. CGS Scientific Corp.,
332 F.Supp. 137, 147 (E.D. Pa. 1971). COR asks this Court to grant the COR an extreme final
remedy based on a few declarations without any discovery regarding the many entities involved
in this case, including most notably Nobilis and Beaufort.
IV.

THE REMEDY PROPOSED BY PLAINTIFF IS CONTEMPLATED IN THE

EVENT OF ERRORS, NOT AS A REMEDY FOR FRAUD.

The procedures for charge-backs as given in DTCCs Distributions Service Guide do not
contemplate the DTCC charge-back procedure being used to remedy fraud. The DTCC states
that its reasons for a post-allocation adjustment include but are not limited to, an error of the
part of DTCC, the paying agent, trustee, or issuer or a change in the principal factor or rate on a
CMO/ABS security. (DTCC Distributions Service Guide p.32). DTCC also accommodates
paying agents requests to process these types of post-payable adjustments where the adjustments
are within [90] calendar days from the initial payment date. (Id.)(emphasis added). If COR is

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granted the requested relief of a receiver for Calissio, the request for an adjustment would be a
paying agent request.

However, per DTCC policy, DTCC only accommodates requests

relating to error on the part of DTC, the paying agent, trustee or issuer Remedying a fraud
perpetrated on the market is not contemplated as a reason to institute a charge-back. Intentional
fraud committed by an issuer is a far cry from an error committed by DTCC or others.
DTCCs rules and procedures simply do not authorize an adjustment or charge-back for the
circumstances prevalent in this case. The appointment of a receiver to effectuate such an
adjustment sets a dangerous precedent for future cases involving allegations of fraud, especially
considering there has been no discovery in this case to determine the extent of the fraud.
V.

IN THE EVENT THIS COURT APPOINTS A RECEIVER, A BOND IN THE

AMOUNT OF $4 MILLION SHOULD BE REQUIRED.

In Walker v. Walker, 854 F.Supp. 1443 (D. Neb. 1994), the court, in a diversity case,
appointed a receiver to wind up a contentious partnership upon dissolution. Citing Neb.Rev.Stat.
25-1084, the court required a $500,000 bond. Neb.Rev.Stat. 25-1084 states that:
Every order appointing a receiver shall require the applicant to give a good
sufficient bond, conditioned to pay all damages which the other parties to the suit
or any of them may sustain by reason of the appointment of a receiver and shall
also require the receiver to give a bond conditioned to faithfully discharge his
duties as receiver and obey all orders of the court.
Although the court in Walker did not detail how it arrived at the $500,000 bond amount, the
court estimated that partnership had roughly $700,000 in assets and $1,200,000 in liabilities.
Walker, 854 F.Supp. at 1464.
Here, COR has stated that the amount in issue is roughly $4 million. If a receiver is
appointed and the due bills on the Nobilis and Beaufort shares are unwound, innocent
shareholders would be debited for some portion of that amount. Those shareholders, in turn,
may have claims against Calissio (and potentially others) for some if not all of that amount.

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Furthermore, if it is determined on appeal that the Court erred in appointing a receiver, a bond in
the amount that innocent investors might be impacted should be in place so as to right the ship
with respect to those innocent investors. Accordingly, TDAC respectfully submits that if the
Court is inclined to appoint a receiver as requested by COR, the Receiver should be required to
post a bond in the amount of $4 million.
CONCLUSION
For the foregoing reasons, TD Ameritrade Clearing, Inc. respectfully requests that the
Court deny the Expedited Motion for Order Appointing Limited Purpose Receiver (Filing No.
20).
Dated this 30th day of October 2015.

TD AMERITRADE CLEARING, INC.

By: ____s/William F. Hargens______________
William F. Hargens (#16578)
McGrath North Mullin & Kratz, PC LLO
First National Tower, Suite 3700
1601 Dodge St.
Omaha, Nebraska 68102
Phone: (402) 341-3070
Fax: (402) 341-0216
whargens@mcgrathnorth.com
Attorneys for TD Ameritrade Clearing, Inc.

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CERTIFICATE OF SERVICE
The undersigned hereby certifies that on October 30, 2015, I electronically filed the
foregoing document with the Clerk of the United States District Court using the CM/ECF
system, which will send a notice of electronic filing to the following:
Andrew G. Smith
agsmith@winston.com
Saul S. Rostamian
srostamian@winston.com
David L. Aronoff
daronoff@winston.com
Michael T. Hilgers
mhilgers@goberhilgers.com
Carrie S. Dolton
cdolton@goberhilgers.com
Gail E. Boliver
bolivar@boliverlaw.com
__s/William F. Hargens________
William F. Hargens

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