Professional Documents
Culture Documents
Plaintiff,
v. Case No.
Defendants,
candidate for receiver over the assets of Defendants Arthur Lamar Adams (“Adams”)
and Madison Timber Properties, LLC (“MT Properties”). While the Commission
does not object to the Secretary proposing a receivership candidate to this Court, the
Secretary has not offered any persuasive reason for selecting his recommended
Mississippi professionals to assist him if appointed. For these reasons, the Court
receiver, Mr. Murena, is that Mr. Murena allegedly cannot adequately or efficiently
Mississippi. [Dkt. No. 14 at 6.] This argument is not persuasive for at least three
reasons.
brought by the Commission and other federal agencies. Indeed, he has served as
either the counsel for the receiver or the receiver in nine other Commission cases,
three cases filed by the Commodity Futures Exchange Commission and one case
filed by the Federal Trade Commission. [Dkt. No. 11-3 at p. 2.] Each of these cases
states, and most of them involved real and personal property, accounts, and/or
businesses located in multiple states. Moreover, Mr. Murena’s law firm specializes
in this sort of work and has significant resources at its disposal. While the candidate
not appear to have any experience with federal court receiverships, or, to the
2
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Second, Mr. Murena has agreed that, if appointed, he will not charge for travel
Moreover, Mr. Murena has proposed a competitive billing rate of $275 per hour.
Third, based on concerns raised by the Secretary, Mr. Murena has arranged to
has arranged for Kristina M. Johnson and Chad J. Hammons of Jones Walker, LLP in
Jackson, Mississippi to assist him as legal counsel. Ms. Johnson and Mr. Hammons
have also agreed to bill at $275 per hour if retained in this matter, which is a
significant discount from their normal billing rates. 1 Jones Walker is a national law
firm with offices across the southeast and in states known to have investors such as
Texas and Florida. Mr. Murena has also arranged to retain accountants from the
Mississippi offices of Horne, LLP, a certified public accounting firm with multiple
offices throughout Mississippi and across the southeast. These professionals have
1
Ms. Johnson has relevant experience of her own, having worked with the Department of
Justice in a multi-million fraud to develop the most effective plan for distribution, including
evaluating the practicality of using criminal restitution and other means of recovering and
distributing assets. See, e.g., United States v. William Butch Dixon, Case No. 3:14-cr-78 (S.D.
Miss); http://www.joneswalker.com/professionals-494.html (Ms. Johnson’s bio);
http://www.joneswalker.com/professionals-487.html (Mr. Hammons’ bio).
3
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The Commission is also informed that Ms. Johnson, Mr. Hammons and the
abundance of caution, however, Mr. Murena has arranged to hire specific conflicts
counsel if issues arise during the receivership on which Jones Walker is subject to a
conflict.
represent Mississippi investors. Yet the Commission understands that the scheme
California, Texas and Florida. Indeed, the two largest investors currently known to
the Commission reside in California and Texas. In selecting a receiver, the Court
should evaluate which candidate is best positioned to represent all victims of the
fraud, not just those located in Mississippi. Mr. Murena and the professionals he
proposes to hire are well situated to represent all investors, as Mr. Murena has
states and his professionals have offices in multiple states. The Commission has
some concern that, if appointed under these circumstances, the Secretary’s candidate
might tend to favor Mississippi investors over investors from other states.2
2
The Commission also understands that there is potential receivership property outside of
Mississippi. For example, Mr. Adams appears to have invested in several condominiums in
Florida. The existence of potential receivership property outside of Mississippi further
undermines the Secretary’s argument that a Mississippi-based receiver is required.
4
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the Defendants’ assets for the benefit of all MT Properties investors, identify other
potential receiverships assets and develop a preliminary plan for administering the
receivership estate. For the reasons stated herein, the Commission submits that Mr.
Respectfully submitted,
s/ W. Shawn Murnahan
W. Shawn Murnahan
Senior Trial Counsel
Georgia Bar No. 529940
Tel: (404) 842-7669
Email: murnahanw@sec.gov
M. Graham Loomis
Regional Trial Counsel
Georgia Bar No. 457868
Tel: (404) 842-7622
Email: loomism@sec.gov
Justin Delfino
Senior Counsel
Georgia Bar No. 570206
Tel: (404) 942-0698
Email: delfinoj@sec.gov
OF COUNSEL
s/Kristi H. Johnson
Kristi H. Johnson
Assistant United States Attorney
MS Bar No. 102891
Marc Perez
Assistant United States Attorney
WA Bar No. 33907
Civil Division
United States Attorney's Office
Southern District of Mississippi
501 East Court Street, Suite 4-430
Jackson, MS 39201
Tel: (601) 973-2887
Fax: (601) 965-4409
6
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Plaintiff,
Defendants,
CERTIFICATE OF SERVICE
Response to Motion to Intervene using the ECF system, which will automatically
Respectfully submitted,
s/ W. Shawn Murnahan
W. Shawn Murnahan
Case 3:18-cv-00252-CWR-FKB Document 13 Filed 05/11/18 Page 1 of 4
Plaintiff,
Defendants,
The Mississippi Secretary of State (the “Secretary”) respectfully moves this Court, pursuant to
Fed. R. Civ. P. 24, for an order permitting the Secretary to intervene in the above-captioned action (the
“Madison Timber Action”) for the limited purpose of opposing the Securities and Exchange
Commission’s (“SEC”) Expedited Motion to Appoint Temporary Receiver and making his own
recommendation for the candidate to be chosen as the receiver in the above-styled action. In support of
1. The Madison Timber Action was filed on April 20, 2018. The SEC filed its
complaint based on information and belief that Defendants committed securities fraud by operating a
Ponzi scheme, and it alleged that Defendants defrauded more than 150 investors out of at least $85
million.
Case 3:18-cv-00252-CWR-FKB Document 13 Filed 05/11/18 Page 2 of 4
2. The SEC requested injunctive relief that included freezing the assets of Defendants, relief
3. Defendant Adams, on April 20, 2018, entered a Consent Order, consenting to the
freezing of Defendants’ assets, to the appointment of a receiver, and to the transfer of all seized assets to
4. On May 9, 2018, Defendant Adams pled guilty to a criminal charge of wire fraud.
5. On May 10, 2018, the SEC notified the Secretary of its intention to file its Expedited
Motion to Appoint Temporary Receiver with this Court, and it notified the Secretary that it was proposing
6. Defendants are Mississippi citizens. Upon information and believe, a large majority of
7. Upon information and belief, most of the assets are situated in Mississippi.
8. The securities law violations alleged against Defendants, if proven, also constitute
violations of the Mississippi Security Act, under which the Secretary can assess fines, penalties, and other
9. The Secretary has a significant interest in the appointment of receiver in this action, given
the number of Mississippi investors involved, significant assets being located in the State, the Secretary’s
own interest in the assets with respect to fines, penalties, and restitution to Mississippi investors, and the
receiver’s obligations and abilities to administer the recovery and restitution of investors’ funds. The
Secretary does not believe the SEC’s recommended appointment can protect those interests adequately
and effectively.
2
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recommend to this Court, as to avoid any undue delay or prejudice. A copy of the Secretary’s alternative
11. Because the Secretary is not a party to the Madison Timber action, the Secretary has no
avenue to oppose the SEC’s recommendation for appointment of receiver in this action, or recommend
an alternative candidate. But the Secretary is charged with enforcing the Mississippi Securities Act and
protecting Mississippi investors and has significant interests in the property that is the subject of the action
12. The Secretary therefore respectfully submits that he is entitled to intervene as of right
pursuant to Fed. R. Civ. P. Rule 24(a)(2) because the Court’s appointment of receiver may impair the
Secretary’s ability to protect the interests of Mississippi investors harmed by this scheme and may impair
the Secretary’s ability to discharge his duties under the Mississippi Securities Act.
13. In accordance with Local Rule 7(b)(10), the Secretary has conferred with counsel for
Defendants and counsel for the SEC. The Motion is unopposed by both counsel for the Defendants and
Respectfully Submitted,
C. DELBERT HOSEMANN, JR., in his Official
Capacity as MISSISSIPPI SECRETARY OF
STATE
3
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OF COUNSEL
Jessica Leigh Long
Assistant Secretary of State
MSB #103316
Jeffrey L. Lee
Senior Attorney
MSB # 103180
CERTIFICATE OF SERVICE
I, Douglas T. Miracle, Special Assistant Attorney General for the State of Mississippi, do
hereby certify that on this date I electronically filed the foregoing document with the Clerk of
this Court using the ECF system, which sent notification of this filing to all counsel of record.
4
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Plaintiff,
v. Case No.
Defendants,
Defendants’ assets to preserve them for the benefit of investors. Due to the continued
risk of dissipation of those assets, the Commission asks that the motion be heard as
fraud by operating a Ponzi scheme. [Dkt. 3, Compl., ¶ 1]. The Commission alleges
that Adams and MT Properties have raised at least $85 million from over 150
Ponzi scheme. At Adams’ change of plea hearing on May 9, 2018 in United States v.
Adams, No. 3:18-CR-88-CWR-LRA (S.D. Miss.), Adams pled guilty to the Bill of
Information filed against him for bank and wire fraud based on the same conduct.
Defendants and their agents still have control and possession of investor funds
as well as certain assets purchased with investor funds. Counsel for Defendant
Adams has identified interests owned by Adams in at least four real estate ventures.
See Exhibit A (May 8, 2018, Letter from John M. Colette). Upon information and
belief, Adams acquired at least some of these interests while the scheme alleged in
the Complaint was on-going. It is, thus, highly likely that such interests were
acquired, in whole or in part, with investor funds. Counsel for Adams has also
advised that several payments are coming due this month to maintain Adams’
and Madison Timber related to this scheme. See, e.g., Exhibit B. Absent a receiver
and the associated stay of third party litigation that would accompany his or her
2
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appointment, there will be a “race to the courthouse” and the attendant possibility for
enforcing the federal securities laws. In light of the estimated size of the fraud –
nearly $100 million – and the number of investors, a receiver is necessary in this case
to preserve and analyze Defendants’ and third parties’ documents and financial
records to determine the full extent of investor losses, to discover if there are viable
claims against third parties, and to establish a claims process to facilitate a fair and
and preserve Defendants’ assets and identify other possible assets for the benefit of
the defrauded investors, the Commission asks the Court to use its equitable powers to
will, within 60 days, file a report that includes a preliminary plan for the
efficient means for marshalling, liquidating and distributing assets within that estate.
The Court, with input from the Commission, can then better determine whether the
3
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The Fifth Circuit and other courts have repeatedly emphasized the broad
purposes of the federal securities laws, to preserve a defendant’s assets, and to ensure
that wrongdoers do not profit from their unlawful conduct. SEC v. Wencke, 622 F.2d
1393, 1371 (9th Cir. 1980); SEC v. Safety Fin. Serv., Inc., 674 F.2d 368, 372-73 (5th
Cir.1982) (“the district court has broad powers and wide discretion to determine . . .
relief in an equity receivership”); SEC v. Blatt, 583 F.2d 1325, 1335-1336 (5th Cir.
1978).
court officer who collects and possesses all property subject to the receivership,
known as the receivership “estate.” See, e.g., Atlantic Trust Co. v. Chapman, 208
U.S. 360, 370-71 (1908). The court holds custody of the receivership estate and
administers it through the receiver. Id.; see also Chicago Deposit Vault Co. v.
McNulta, 153 U.S. 554 (1894). The receiver’s possession, therefore, is the court’s
possession. Id. When a district court creates a receivership, the receiver’s focus is
“to safeguard the assets, administer the property as suitable, and to assist the district
Capital Group, LLC v. Capwill, 462 F.3d 543, 551 (6th Cir. 2006).
4
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First Nat. Mortg. & Discount Co., Inc., 514 F.2d 757, 758 (5th Cir. 1975).
proceedings for injunctive relief.” SEC v. First Fin. Group of Texas, 645 F.2d 429,
438 (5th Cir. 1981); see also Netsphere, Inc. v. Baron, 703 F.3d 296, 306 (5th Cir.
appointed to prevent the corporation from dissipating corporate assets and to pay
defrauded investors.”). This discretion derives from the inherent powers of an equity
The Fifth Circuit has also recognized that an evidentiary hearing is not
Corp., 395 F. Supp. 1338, 1342 (N.D. Ga. 1974), aff’d, 514 F.2d 757 (5th Cir. 1975).
The Court may appoint a receiver on a prima facie showing of fraud and
mismanagement. See First Fin. Group, 645 F.2d at 438. Factors courts have
considered that indicate the need for a receivership include the following: “a valid
claim by the party seeking the appointment; the probability that fraudulent conduct
has occurred or will occur to frustrate that claim; imminent danger that property will
5
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less drastic equitable remedy; and likelihood that appointing the receiver will do
more good than harm.” Santibanez v. Wier McMahon & Co., 105 F.3d 234, 242 (5th
Cir. 1997), quoting Aviation Supply Corp. v. R.S.B.I. Aerospace, Inc., 999 F.2d 314,
Defendants do not dispute that they operated a Ponzi scheme that involved
hundreds of investors and close to a $100 million dollars. Indeed, Defendant Adams
has pled guilty to criminal charges of wire fraud and bank fraud based on the same
receiver to oversee the process of returning the remaining funds in as fair and
individual lawsuits.
number of illiquid assets at stake. Mr. Adams has invested in various real estate
projects. See Exhibit A (Letter from John M. Colette). These investments will likely
presumably purchased or maintained some or all of those real estate projects with
6
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investor funds. Indeed, Adams’ counsel has advised that almost $200,000 in
payments to various real estate investments are coming due, and that such payments
defrauded investors, particularly because the potential estate has minimal liquid
marshal Defendants’ assets, and preserve and maximize their value for the benefit of
Anticipating that the Court may ask the Commission to recommend a potential
receiver here, the Commission sought three proposals from individuals who have
served as receivers in other SEC cases. If the Court prefers to rely on the
Commission’s recommendation rather than select its own receiver, the Commission
Damian & Valori, LLP, in Miami, Florida, as the receiver in this matter. See Exhibit
C (Murena’s résumé and list of receivership cases). Mr. Murena has extensive
experience serving as a receiver, both in SEC matters and other civil contexts, and in
particular he is very familiar with this sort of fraud and the types of assets that the
7
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Commission believes will compose the estate. While Mr. Murena is located in
Miami, he has committed that, if appointed, he will not bill the estate for expenses
The Commission respectfully requests that this Court enter the proposed order
VI. Conclusion
Based on the foregoing, the Commission respectfully requests that the Court
grant its motion and enter the proposed order appointing Kenneth D. Murena, Esq.,
Respectfully submitted,
s/ W. Shawn Murnahan
W. Shawn Murnahan
Senior Trial Counsel
Georgia Bar No. 529940
Tel: (404) 842-7669
Email: murnahanw@sec.gov
M. Graham Loomis
Regional Trial Counsel
Georgia Bar No. 457868
Tel: (404) 842-7622
Email: loomism@sec.gov
Justin Delfino
Senior Counsel
Georgia Bar No. 570206
Tel: (404) 942-0698
8
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Email: delfinoj@sec.gov
OF COUNSEL
s/Kristi H. Johnson
Kristi H. Johnson
Assistant United States Attorney
MS Bar No. 102891
Marc Perez
Assistant United States Attorney
WA Bar No. 33907
Civil Division
United States Attorney's Office
Southern District of Mississippi
501 East Court Street, Suite 4-430
Jackson, MS 39201
Tel: (601) 973-2887
Fax: (601) 965-4409
9
Case 3:18-cv-00252-CWR-FKB Document 12 Filed 05/10/18 Page 10 of 10
Plaintiff,
Defendants,
CERTIFICATE OF SERVICE
I hereby certify that on this day, I served a true and correct copy of the
Receiver on John M. Colette, Esq., as counsel for Defendants, via email and by
s/Kristi H. Johnson
Kristi H. Johnson
Case 3:18-cv-00252-CWR-FKB Document 11 Filed 05/10/18 Page 1 of 6
Plaintiff,
v. Case No.
Defendants,
this matter. Due to the continued risk of dissipation of those assets, the Commission
asks that the motion be heard as expeditiously as the Court’s schedule permits.
defrauded numerous investors via a Ponzi scheme. While Defendants have not yet
not contest the core allegation that they conducted a Ponzi scheme. Indeed, during
the change of plea hearing on May 9, 2018 in United States v. Adams, No. 3:18-CR-
filed against him for bank and wire fraud based on the same conduct.
Defendants’ assets for the benefit of investors in order to marshal and preserve those
orderly and efficient administration of the estate by the district court for the benefit of
investors. SEC v. Hardy, 803 F.2d 1034, 1038 (9th Cir. 1986). “The appointment of
enforcement proceedings for injunctive relief.” SEC v. First Fin. Group of Texas,
645 F.2d 429, 438 (5th Cir. 1981). Moreover, because the Commission remains
concerned about the potential for dissipation of investor funds and assets, the
court officer who collects and possesses all property subject to the receivership,
known as the receivership “estate.” See, e.g., Atlantic Trust Co. v. Chapman, 208
2
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U.S. 360, 370-71 (1908). The court holds custody of the receivership estate and
administers it through the receiver. Id.; see also Chicago Deposit Vault Co. v.
McNulta, 153 U.S. 554 (1894). The receiver’s possession, therefore, is the court’s
possession. Id. In this case, the Commission anticipates the receiver ultimately
enforcing the federal securities laws. In light of the estimated size of the fraud –
nearly $100 million – and the number of investors, a receiver is necessary in this case
to preserve and analyze Defendants’ and third parties’ documents and financial
records to determine the full extent of investor losses, to discover if there are viable
claims against third parties, and to establish a claims process to facilitate a fair and
within 60 days, file a report that includes a preliminary plan for the administration of
the receivership estate, including recommendations as to the most efficient means for
marshalling, liquidating and distributing assets within that estate. The Court, with
input from the Commission, can then better determine whether the receivership
should be continued.
The Commission, therefore, respectfully asks that the Court enter an order in
the form filed concurrently herewith appointing a temporary receiver in this case.
3
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Respectfully submitted,
s/ W. Shawn Murnahan
W. Shawn Murnahan
Senior Trial Counsel
Georgia Bar No. 529940
Tel: (404) 842-7669
Email: murnahanw@sec.gov
M. Graham Loomis
Regional Trial Counsel
Georgia Bar No. 457868
Tel: (404) 842-7622
Email: loomism@sec.gov
Justin Delfino
Senior Counsel
Georgia Bar No. 570206
Tel: (404) 942-0698
Email: delfinoj@sec.gov
4
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OF COUNSEL
s/Kristi H. Johnson
Kristi H. Johnson
Assistant United States Attorney
MS Bar No. 102891
Marc Perez
Assistant United States Attorney
WA Bar No. 33907
Civil Division
United States Attorney's Office
Southern District of Mississippi
501 East Court Street, Suite 4-430
Jackson, MS 39201
Tel: (601) 973-2887
Fax: (601) 965-4409
5
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Plaintiff,
Defendants,
CERTIFICATE OF SERVICE
I hereby certify that on this day, I served a true and correct copy of the
Esq., as counsel for Defendants, via email and by United Parcel Service.
Respectfully submitted,
s/Kristi H. Johnson
Kristi H. Johnson
Case 3:18-cv-00252-CWR-FKB Document 11-1 Filed 05/10/18 Page 1 of 1
EXHIBIT
A