IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT

Transcription

Case 1:14-cv-01002-CRC Document 79 Filed 05/19/15 Page 1 of 30
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
SECURITIES AND EXCHANGE COMMISSION,
Case No. 1:14-cv-01002 (CRC)
Plaintiff,
v.
LAWRENCE P. SCHMIDT; FUTUREGEN
COMPANY d/b/a FUTUREGEN CAPITAL;
COMMERCIAL EQUITY PARTNERS, LTD.;
FGC DISTRESSED ASSETS INVESTMENT #1,
LLC; FUTUREGEN CAPITAL DDA CG FUND
LLC; FGC TAX LIEN FUND #2, LLC; FGC
TRADING FUND #1 LLC; FGC SPE NO 1 LLC;
FGC SPE NO 2 LLC; AND FGC CM NOTE
FUND LLC,
Defendants.
RECEIVER MARION A. HECHT’S MOTION FOR APPROVAL OF THIRD
INTERIM FEE APPLICATION FOR THE PERIOD FROM
JANUARY 1, 2015 THROUGH MARCH 31, 2015
WITH SUPPORTING LEGAL AUTHORITY
Pursuant to the Court's Order dated July 3, 2014, Marion A. Hecht, Receiver for
FutureGen Company, et al. (“Receiver”), moves for approval of payment of fees and expenses
for the period January 1, 2015 through March 31, 2015 (the “Third Fee Application”) incurred
by the Receiver and her supporting staff at CliftonLarsonAllen LLP (“Clifton”), by her counsel,
Whiteford, Taylor & Preston L.L.P. (“Whiteford” or “Receiver’s Counsel”), and three other law
firms retained as special counsel, Law Offices of Eric Howell Sayles, P.L.L.C. (“Receiver’s
Special DC Counsel”), Leach Johnson Song & Gruchow (“Receiver’s Special NV Counsel”) and
Flamm, Teibloom & Stanko, Ltd. (“Receiver’s Special IL Counsel”) In support of this Motion,
the Receiver states as follows:
I. BACKGROUND
On June 12, 2014, the U.S. Securities Exchange Commission (“SEC”) filed a Complaint
(“Complaint”) (Docket Entry No. 1) against Defendant Lawrence P. Schmidt (“Defendant
Schmidt”) and FutureGen Company d/b/a FutureGen Capital (“FutureGen”); Commercial Equity
Partners, Ltd. (“Commercial Partners”); FGC Distressed Assets Investment #1, LLC; FutureGen
Capital DDA CG Fund LLC; FGC Tax Lien Fund #2, LLC; FGC Trading Fund #1 LLC; FGC
SPE NO 1 LLC; FGC SPE NO 2 LLC; and FGC CM Note Fund LLC (collectively the
“FutureGen Funds”) alleging that from 2008 through 2014, Defendant Schmidt defrauded
investors by creating a web of seemingly legitimate companies that were in fact simply designed
to entice investment and conceal his misuse and commingling of funds. In its Complaint, the
SEC sought an order: (i) Permanently restraining and enjoining Defendants Schmidt, FutureGen,
the FutureGen Funds, and Commercial Partners from violating Sections 5(a), 5(c), and 17(a) of
the Securities Act [15 U.S.C. §§ 77e(a), 77e(c), and 77q(a)] and Section 10(b) of the Exchange
Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]; (ii) Ordering
Defendants Schmidt, FutureGen, the FutureGen Funds, and Commercial Partners to disgorge any
and all ill-gotten gains, together with prejudgment interest, derived from the activities set forth in
the Complaint; (iii) Ordering Defendants Schmidt, FutureGen, the FutureGen Funds, and
Commercial Partners to pay civil penalties pursuant to Section 20(d) of the Securities Act [15
U.S.C. §77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)]; (iv)
2
Permanently barring Defendant Schmidt from acting as an officer or director of any issuer that
has a class of securities registered pursuant to Section 12 of the Exchange Act [15 U.S.C. § 781]
that is required to file reports under Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)]
pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and Section 2l(d)(2) of the
Exchange Act [15 U.S.C. § 78u(d)(2)]; and (v) retaining jurisdiction of this action for purposes
of enforcing any final judgments and orders.
Pursuant to the Order Appointing Receiver entered June 16, 2014 (Docket Entry No. 7),
the Court appointed Marion A. Hecht of Clifton, to act as temporary Receiver pending further
order of this Court (the “Temporary Order”).
Pursuant to the Order Establishing Receivership Estate and Appointing a Receiver
entered July 3, 2014 (Docket Entry No. 17) (the “Receivership Order”), this Court took
exclusive jurisdiction and possession of the Receivership Assets, including but not limited
to, assets of whatever kind and wherever situated, of the following Defendants: FutureGen
Company d/b/a FutureGen Capital; Commercial Equity Partners, Ltd.; FGC Distressed
Assets Investment #1, LLC; FutureGen Capital DDA CG Fund LLC; FGC Tax Lien Fund
#2, LLC; FGC Trading Fund # 1 LLC; FGC SPE NO 1 LLC; FGC SPE NO 2 LLC; and
FGC CM Note Fund LLC (collectively, the "Receivership Defendants"). (Receivership
Order ¶ 1).
The Receivership Order appointed Marion A. Hecht as Receiver and empowered her to
assume control of, marshal, pursue, and preserve the Receivership Assets. (Receivership Order
¶ 2). It further provided applications for compensation are to be filed within forty-five (45) days
after the end of each calendar quarter. (Receivership Order ¶ 62).
3
Pursuant to the Receivership Order, the Receiver was appointed for the purposes of
marshaling and preserving all assets of the Receivership Defendants and Defendant Schmidt that:
(a) are attributable to funds derived from investors or clients of the Defendants; (b) are held in
constructive trust for the Defendants; (c) were fraudulently transferred by the Defendants; and/or
(d) may otherwise be includable as assets of the estates of the Defendants (collectively, the
“Receivership Assets” or “Receivership Estate”). (Receivership Order 1-2).
The Receivership Order provided that Receiver and retained personnel are entitled to
reasonable compensation and expense reimbursement from the Receivership Estate as described
in the “Billing Instructions for Receivers in Civil Actions Commenced by the U.S. Securities and
Exchange Commission” (the “Billing Instructions”), subject to the prior approval of the Court.
(Receivership Order ¶ 61).
II. RECEIVER’S FEES AND COUNSEL’S FEES
Pursuant to the Receivership Order, Quarterly Fee Applications are subject to a holdback
in the amount of 20% of fees and expenses for each application filed with the Court
The Court approved the following hourly rates for work performed by the Receiver and
others at Clifton at her direction:
Receiver and Clifton Forensic Fees1:
Receiver
$425
1
There are occasions when a Manager will perform assignments that in the estimation of the Receiver could also be
performed by lower level staff; however, for expediency and in the net best interest of the estate, the Receiver has
reduced the manager rate to $100 in those circumstances.
4
Other CLA Principals
$350 – 400
Director
$300 – 350
Manager
$250
Senior Associate
$200
Associate
$100
Paraprofessional
$90
Receiver’s Counsel Fees:
The Court approved Whiteford as Receiver’s Counsel at the following hourly rates for
work performed at the Receiver’s direction:
Partner
$400
Associate
$250
Paraprofessional
$210
Receiver Special DC Counsel Fees:
The Court approved the Receiver’s retention of the Law Offices of Eric Howell Sayles,
P.L.L.C. (“Receiver’s Special DC Counsel”) to represent the Receiver at her direction in several
cases pending in the District of Columbia arising from certain Receivership Defendants’
purchase of tax liens at the following hourly rates:
Partner
$300
Paralegal
$150
(Docket Entry No. 30, ¶ 10).
Receiver Special NV Counsel Fees:
5
The Court approved the Receiver’s retention of Leach Johnson Song & Gruchow
(“Receiver’s Special NV Counsel”) to represent the Receiver at her direction in several cases
pending in Nevada arising from certain Receivership Defendants’ purchase of HOA foreclosure
liens at the following hourly rates:
Partner
$300
Associate
$200
Paralegal
$125
Receiver Special IL Counsel Fees:
The Court approved the Receiver’s retention of Flamm, Teibloom & Stanko, Ltd.
(“Receiver’s Special IL Counsel”) to represent the Receiver at her direction in several cases
pending in the state of Illinois arising from certain Receivership Defendants’ purchase of tax
liens at the following hourly rates:
Partner
$272
Associate
$225
Paralegal
$100
At the close of the Receivership, the Receiver will file a final fee application, describing
in detail the costs and benefits associated with all litigation and other actions pursued by the
Receiver and counsel during the course of the receivership. (Receivership Order ¶ 63).
The Receiver is requesting approval of 80% of her fees as well as Receiver’s Counsel,
Receiver’s Special DC Counsel, Receiver’s Special NV Counsel, and Receiver’s Special IL
Counsel as Approved Fees for this Third Fee Application (the “Approved Fees”). Further, the
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Receiver is requesting 80% of the out-of-pocket expenses incurred by each of the firms, which
expenses were incurred as necessary administrative expenses of the Receivership Estate.
III. CASE STATUS
Since the Receiver’s appointment and as a result of the Receiver’s on-going
investigation, the Receiver has determined an additional six (6) entities that appear to also be
Receivership Defendants (the “Additional Receivership Defendants” or “Additional
Receivership Defendants”). Those Additional Receivership Defendants include the following:
FGC Tax Lien Fund #3 LLC2; FGC Distressed Debt SPE No2 LLC; F G C Indiana TLC 2014
LLC; FGC Indiana Reo LLC; FGC Indiana Lake Co 2014 LLC; FGC Servicing Limited; and
FGC SFR Holdings LLC3. As the Receiver’s investigation continues, there could be additional
Receivership Defendants identified. The Receiver will keep the Court informed.
The Receiver and her team have spent time since her appointment determining the nature,
location and value of all Receivership Assets which investigation is ongoing. In addition, the
Receiver and her team have communicated with most of the former employees of the
Receivership Defendants, the investors and other stakeholders of the Receivership Defendants,
and other parties in order to gain an understanding of the pre-receivership activities of the
Receivership Defendants and Defendant Schmidt.
2
As reported in the Receiver’s First Quarterly Status Report (Docket Entry No. 45), FGC Tax Lien #3 LLC had title
to at least one property, e.g., 16 Swallow Street, Pittston, PA, which has been sold pursuant to this Court’s Order.
3
Defendant Schmidt confirmed in a written communication dated December 18, 2013 that FGC SFR Holdings LLC
is an affiliate of FutureGen Company. Further, the Nevada Secretary of State website reflects Defendant Schmidt as
an Officer/Manager of that entity.
7
As reported to the Court, the Receiver terminated seven leases with a waiver of all past
due, present and future rental obligations for one residential condominium and six offices in five
states.
In addition to the four law firms discussed above, the Receiver retained Triumph Property
Management as the property manager of the Nevada Properties effective June 16, 2014 as
approved by the Court on October 2, 2014 (Docket Entry No. 36). Further, the Receiver retained
R. Scott Dugan, as the appraiser for the ten properties in Nevada as approved by this Court.
A. Cash on Hand
Cash on deposit in the Receivership Estate cash accounts as of April 10, 2015, is
$1,444,487.25 as reflected in the Standardized Fund Accounting Report (the “SFAR”) attached
as Exhibit A. This represents a net increase of $468,078.23 recovered since the date of the
January 15, 2015 SFAR appended to the Receiver’s Second Fee Application less $172,467.70
paid to professionals as authorized pursuant to this Court’s Order dated March 4, 2015 with
respect to the Receiver’s Second Fee Petition Application. (Docket Entry No. 64).
B. Administration of the Case
During the period covered by this Third Fee Application, the Receiver submitted her
Second Quarterly Status Report on January 30, 2015 (Docket Entry No. 58). The Receiver also
submitted her Third Quarterly Status Report on April 30, 2015. (Docket Entry No. 76). During
this period of the Third Fee Application, the Receiver’s tasks essentially consisted of:

Continuing to marshal, protect, manage and liquidate the Receivership Assets.

Updating the public website at www.futuregenreceivership.com with all public
Receivership documents.

Providing notice to additional entities in jurisdictions in which the Receivership
Defendants acquired assets.
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
Paying ordinary and necessary disbursements as proper for collecting, marshalling,
maintaining, maximizing the value of, or preserving the Receivership Estate, or for the
operation of the Receivership.

Continuing review of pre-receivership records and work on the reconstruction of investor
accounts.

Consulting with pre-receivership tax and accounting professionals to gain an
understanding of the pre-receivership status of the Receivership Defendants.

Negotiating abatements of penalties assessed to real property in the receivership estate.

Sending subpoenas to Dawn Kil, Jeff Bowers, Esq., and Google.

Soliciting and negotiating offers on receivership assets as fully described in the
Receiver’s Third Status Report (Docket Entry No.76).

Initiating litigation against Footprints Investments, LLC and the Guarantors.

Initiating a foreclosure action on 14206 Greenview Drive, Laurel, MD (collateral for the
loan to Footprints Investments, LLC.
C. Assets Recovered to Date
In addition to the above discussion of the Receiver’s actions from January 1, 2015
through April 10, 20154, the total asset recoveries and interest earned of $1,830,518.59 have
been added to the Receivership Estate and are identified on the SFAR appended as Exhibit A to
the Third Fee Application. Specific aggregate information is detailed below. The SFAR also
reports changes since the filing of the Second Fee Petition.
1. Rental Income of $3,400 from 51 Terrace Street, Wilkes-Barre, PA.
2. Interest income on bank deposits.
3. Redemptions of tax liens in Lake County, Illinois of $49,731.94 and $183,325.01
in the District of Columbia.
4
The Receiver used the cut off of April 10, 2015, two weeks after the reporting period, which date coincides with
the SFAR filed with the Receiver’s Third Report dated April 30,2015.
9
4. Sold office equipment from the District of Columbia and Georgia offices for a
total recovery of $3,600.
5. Proceeds from loan to Luxury Properties & Interiors LLC (4425 Bradley Lane,
Chevy Chase, MD) from FutureGen of $131,800.00.
6. Proceeds from loan to Home Solvestors, Inc. (3829 Massaponax Church Road,
Fredericksburg, VA) from FutureGen of $21,635.56.
7. Proceeds from loan to Nova Ventures VIII, LLC (3002 Barton Avenue,
Richmond, VA) from FutureGen of $129,133.33.
8. Proceeds from loan to Nova Ventures VIII, LLC (2402 Lamb Avenue, Richmond,
VA) of $109,977.78.
9. Proceeds from loan to Serene Holdings, LLC (19426 Ebenezer Church Road,
Round Hill, VA) from FutureGen of $659,397.19.
10. Sold real property at 16 Swallow Street, Pittston, Pennsylvania (“16 Swallow
Street”) for the sum of $30,000 with a net amount of $26,823.82 to the
Receivership after taxes and expenses.
11. Sold real property at 2007 Fairlawn Avenue SE, Washington, DC (“2007
Fairlawn”) for the sum of $85,000 with a net amount of $74,288.12 to the
Receivership after taxes and expenses.
12. Proceeds from Alaska Financial Company III, LLC on its purchase of a loan to
IMT (2857 28th Street SE, Washington, DC) from FutureGen of $257,988.73.
13. Sold Personal Property items for cash in the amount of $500.00.
14. Recovered $19.20 from Allied Collection Services, Inc. and $1,959.30 from
Professional Bureau of Collections of Maryland, Inc., both related to debt pools
serviced by those companies for FutureGen.
15. Recovered $15,000 from JPMorgan Chase and $6,800 from Auto Dealer in
settlement on Range Rover purchased with assets from Commercial Equity
Partners, Ltd.
10
16. Sold real property at 1309 Parkview Lane, Kennesaw, Georgia for $283,000 on
April 3, 2015 with net recovery of $149,765.82 to the estate after payment of the
mortgage and other closing costs.
D. Remaining Receivership Estate Assets
1. Real Property
a. 279 Mountain View, Marietta, Georgia
The Receiver previously reported to the Court that the Receivership Estate likely has an
interest in a second property in Georgia identified as 279 Mountain View Drive, N.W., Marietta,
GA (“279 Mountain View”). Dawn Kil (“Ms. Kil”) claims this is the alleged marital residence
of Defendant Schmidt and herself. The Receiver notes that Mr. Schmidt rented a DC residential
condo in the District of Columbia for approximately three years during the time of the asserted
marital residence until he fled the country in approximately April 2014. Ms. Kil previously
advised the Receiver that Defendant Schmidt:
“handled the financial affairs associated with the asserted marital residence, and paid
most, if not all, costs of the residence acquired in July 2011.”
Despite numerous requests for documentation, and the service of a subpoena requesting
records for the purpose of determining the extent to which Receivership Assets were utilized,
directly or indirectly, for the acquisition and maintenance of 279 Mountain View and 1309
Parkview, there have been no documents produced to support Ms. Kil’s asserted interest in the
alleged marital residence. In fact, it is unknown if Ms. Kil is actually married to Defendant
Schmidt because she has failed to produce a marriage certificate and the former employees of the
11
Receivership Defendants seemed to be unaware that one of their fellow employees (Dawn Kil)
was married to Defendant Schmidt.
As reported to the Court, the Receiver’s subpoena was served upon Jeff Bowers, Esq. on
March 30, 20155. The responsive date for documents was April 20, 2015. Mr. Bowers has failed
to respond to the Receiver’s subpoena, voice messages, and email messages from Receiver’s
counsel.
Despite the lack of cooperation by Mr. Bowers or Mr. Barnes6, the Receiver advised the
Court in her Third Quarterly Status Report that documents demonstrate that Mr. Schmidt stole
funds from the Receivership Defendants for his personal use and caused Commercial Equity
Partners, Ltd. to wire the sum of $265,349.60 (approximately 96% of the sale price of $275,000)
to the Bowers Law Firm with the reference “279 Mountain View.” Further, the Receiver has
documented approximately $56,000 of payments from Defendant Schmidt’s salary from the
Receivership Defendants to Ms. Kil during the period 2011 until he fled in approximately April
2014. The reason is unknown for those payments but that they may represent what Ms. Kil
refers to as Defendant Schmidt “taking care of the financial aspects of 279 Mountain View” as
discussed above.
In as much as the 96% of the $275,000 purchase price has been documented as funds
stolen from investors, and while the Receiver is waiting for documentation of the deposit of
approximately $10,000, the Receiver is evaluating her options to recover these stolen assets from
the Receivership Estate.
5
6
Mr. Bowers’ law firm was the settlement company for the purchase of 279 Mountain View.
Mr. Barnes is counsel to Ms. Kil.
12
Preliminary information suggests a market value close to $350,000 and rental income of
approximately $1,650 for 279 Mountain View. It appears the taxes may be delinquent on 279
Mountain View, which delinquency may be indicative of Ms. Kil’s inability to pay the Receiver
rent and to maintain the property.
According to Ms. Kil, Defendant Schmidt and Ms. Kil resided at 1309 Parkview Lane
before acquiring 279 Mountain View and her mother resided at 1309 Parkview Lane sometime
after 2011 until shortly after the appointment of the Receiver. The Receiver’s subpoena to Ms.
Kil also requested documentation with respect to 1309 Parkview Lane, none of which has been
produced. The Receiver is evaluating legal remedies and will keep the Court informed.
b. Real Property - Residential Properties in Luzerne County,
Pennsylvania (now 4 parcels)
The Receivership Estate includes four residential properties in Luzerne County,
Pennsylvania, acquired via Tax Claim Bureau Deeds at judicial sales prior to the entry of the
Receivership Order. See Exhibit 3 to the Receiver’s Third Receiver’s Report for a list of the four
properties.
One of the four properties (51 Terrace) is inhabited. The person living there is sporadic
with her rent payments; however, she recently agreed to bring the payments current. The
Receiver expects a contract to be executed shortly for 51 Terrace, and will submit it to the Court
for approval.
The Receiver analyzed the net realizable value of the three other uninhabited properties
(the “Three Properties”) given tax and other liens. On April 15, 2015 the Receiver filed her
Motion with the Court seeking approval to sell those Three Properties on Craigslist for not less
than $1 on the proviso the buyer of each property will take each property with the outstanding
13
tax amounts and other liens; the Court approved the Receiver’s Motion on April 29, 2015.
(Docket Entry No. 74). The Receiver made this recommendation to the Court after she contacted
Habitat for Humanity and their Executive Director determined that the properties were beyond
their scope. The Receiver has tried on numerous occasions to request an abatement and/or
reduction in taxes and other liens with no success.
The Receiver listed the three Properties on Craigslist as authorized by this Court. On
May 8, 2015, the Receiver received an offer for the Three Properties from an investor as a result
of the advertisement on Craigslist. The Receiver discussed with the offeror that there are
outstanding taxes and other matters, as well as the conveyance by the Receiver will be via a quit
claim deed with no warranties whatsoever. The offeror acknowledged he lives near the Three
Properties and has conducted his due diligence, and will execute a contract. The Receiver
anticipates the closing will take place shortly.
2. Loan-Footprint Investments, LLC (“Footprint”)
Footprint received two loans from FutureGen Company. On August 12, 2013, Footprint
executed a Promissory Note in favor of FutureGen Company in the principal amount of
$295,500.00, with interest accruing thereon at 14%, and at a default rate of 20%, plus late
charges equal to 5% of any delinquent payment (the “$295,500 Note). On October 1, 2013,
Footprint executed a second Promissory Note in favor of FutureGen Company in the principal
amount of $13,500.00 with interest accruing thereon at 18%, plus late charges of 5% of overdue
any payments (the “$13,500 Note”). The $295,500 Note and the $13,500 Note (collectively, the
“Footprint Notes”) have matured and no payments have been made. The $295,500 Note is
secured by a Deed of Trust on property identified as 14206 Greenview Drive, Laurel, Maryland
and an Unconditional Guaranty Agreement executed by four individuals who are the members of
14
Footprint Investments, LLC (the “Guarantors”). The $13,500 Note is secured by a Second Deed
of Trust on 14206 Greenview Drive.
Counsel for Footprint sent an offer dated December 22, 2014 to the Receiver of $50,000
in settlement of the Receiver’s claims. The Receiver rejected this offer on January 7, 2015 and
again requested Counsel provide the documents requested months ago. The Receiver and
Counsel waited for Footprint’s Counsel to make an improved offer which was not forthcoming.
Meanwhile, the Receiver made demand to the guarantors on January 26, 2015. Because there
was no response from either Counsel or the guarantors, the Receiver filed a Motion to
Commence Ancillary Proceedings Relating to Footprint and obtained approval from the Court on
March 13, 2015 (Docket Entry 67) to pursue all remedies available at law including but not
limited to a potential foreclosure on the real estate collateral and a lawsuit against the Guarantors
for payment under their Guaranty.
Counsel for the Receiver filed on March 23, 2015, a Complaint for Confession of
Judgment in the Circuit Court for Prince George’s County, Maryland against Footprint, Case
number CAL 15-06978. Receiver’s Counsel awaits the signed Order entering the Judgment by
Confession which will then be served upon the Defendants. Once served, the Defendants will
have thirty (30) days to file a Motion to Vacate the Judgment or risk that the Judgment shall be
deemed final. Once the judgment is final, the Receiver will have the right to pursue post
judgment collection rights and remedies under Maryland State law.
Receiver’s counsel ordered a title report and is in the process of preparing the foreclosure
action on the 14206 Greenview Dr. property and a proposed Order to Docket Foreclosure
together with related forms necessary to proceed with an auction of that property. Apparently
15
real property taxes of $5,287.80 are due and unpaid by Footprint for the 2014-15 tax year.
Earlier taxes were presumably paid by Footprint. A broker opinion of value dated January 15,
2015 suggests a potential market value of $329,000. The Receiver will keep the Court informed.
3.
Tax Liens and Judgments
As authorized by this Court, the Receiver sent notice of her solicitation of offers for the
Maryland and District of Columbia tax liens and the District of Columbia judgments acquired
pre-receivership. Details of the solicitation are included in the Receiver’s motion filed April 15,
2015 seeking approval to sell: (1) DC Tax Liens for an amount not less than $24,250; and (2)
DC Judgments for not less than $18,627; and (3) Maryland tax liens for not less than $1,500
(Docket Entry No. 70). Please refer to the list on Exhibit 4 to this Receiver’s Report. The
Receiver also sought approval to abandon certain forfeited (before the Receiver’s appointment)
DC tax liens.
On April 23, 2015, Judge Cooper held a conference call in chambers with the Receiver,
Receiver’s Counsel, and SEC Counsel regarding the Receiver’s Motion filed on April 15, 2015.
As requested by Judge Cooper on April 29, 2015, the Receiver filed her Notice in Support of
Motions of Receiver to Approve: (1) Sale of Maryland Tax Liens, DC Tax Liens and DC
Judgments and (2) Sale of Luzerne County, Pennsylvania Properties. (Docket Entry No. 72, No.
72-1, No. 72-2, No. 72-3, No. 72-4 and 72-5). The Court approved the Receiver’s Motion and
entered an Order on April 29, 2015. (Docket Entry No. 73 and 74). As authorized, the Receiver
posted notice on her website and requested any additional offers must be received by May 8,
2015 at 5:00 p.m. eastern. No additional offers were received, and the Receiver will proceed to
consummate the sales as discussed below.
16
a. District of Columbia
On August 14, 2014, the Court entered an Order authorizing the Receiver to employ the
Law Offices of Eric Howell Sayles, P.L.L.C. (“Sayles Law Firm”) as Special Counsel (Docket
Entry No. 31) to represent the Receiver in several cases pending in the District of Columbia
arising from certain Receivership Defendants’ purchase of tax liens (“DC Tax Liens”) and
judgments (the “DC Judgments”). The Receiver recovered to date $183,325.01 from the District
of Columbia with respect to the tax liens, and one additional lien recovery is expected from the
government of the District of Columbia. See Section III.D above for a discussion of the
Receiver’s Motion and Notice, and this Court’s Order entered April 29, 2015.
As authorized, the Receiver posted notice on her website of: (a) the $24,500 offer to
purchase six DC tax liens; (b) the $5,127 offer to purchase nine DC judgments; and (c) $13,500
offer to purchase three DC judgments. No additional offers were received, and the Receiver will
proceed to consummate the sales for the amounts stated above.
b. Illinois
As authorized by the Court’s Order entered October 28, 2014 the Receiver retained the
law firm of Flamm, Teibloom & Stanko, Ltd., as special counsel in Illinois, to assist the Receiver
with Illinois Certificates of Purchase regarding real estate taxes in multiple jurisdictions in
Illinois. (Docket Entry No. 40). In particular, the law firm (1) prepared and filed requests for
extensions with respect to the remaining tax liens acquired in Lake County; (2) followed up on
one certificate in DuPage County and the Receiver submitted a request for a duplicate Sales
Certificate in order to redeem the tax lien; and (3) confirmed that there are no outstanding liens
in other Illinois jurisdictions. There remain 40 certificates for 2011 taxes purchased by the
17
Receivership Defendants in Lake County. To date the Receiver has recovered $49,731.94 from
two jurisdictions in Illinois.
Receiver’s Special IL Counsel advised the next step in potential recovery assuming the
Receiver retains the liens is conducting a title search, paying subsequent years’ unpaid taxes,
filing a tax deed petition with costs for the Sheriff, clerk’s mailing, and publication, among
others, which costs about $2,000 or more per file. Receiver’s Counsel believes many of the
parcels are vacant land and has provided some background on the type of property in Exhibit 5
appended to this Receiver’s Report.
On March 9, 2015 the Receiver filed her Motion to Solicit Offers to Purchase IL Tax
Liens and Proposed Order on which this Court approved on March 13, 2015 (Docket Entry
Numbers 66 and 68). Pursuant to the Court’s Order, the Receiver sent notices to investors
seeking offers for the 40 Certificates. No offers were submitted by the due date of April 13,
2015, despite many conversations with investors prior to April 13, 2015.
Subsequent to April 13, 2015, the Receiver spoke at length to the largest buyer of tax
certificates in Lake County, who offered a nominal amount of $500 for only one tax lien and
explained his firm had no interest in the other 40 certificates. The investor (“Investor A”)
explained why he, and likely other investors, are not interested in the other 40 items: (1)
property locations in neighborhoods that investors may not want to invest in; (2) significant
taxes outstanding for periods after 2011 tax year and subsequent tax sales resulted in investors
acquiring those certificates or Lake County took back the certificates and re-auctions them
during later periods; (3) many parcels appear to be in wetland areas and are unimproved land
with little value to investors; and (4) most significantly, the 18% bid by Defendant Schmidt at
18
the auction in 2012 (for the 2011 tax liens) means no other bidders were competing at that point
and, if Defendant Schmidt had not bid, Lake County would have acquired the liens. According
to the seasoned investor, the 18% is indicative of a property considered less than worthwhile due
to the fact most investors in last couple of years, bid 1-2% interest and a more seasoned investor
would have no interest in 18% certificates.
The Receiver learned on April 27, 2015 that one of the remaining 41 certificates
redeemed late April 2015, and an additional recovery of $3,811.27 is anticipated later in May.
Investor A suggested the Receiver could send letters to the tax payers for the Lake County,
Illinois parcels which may or may not result in redemptions. On April 30, 2015, the Receiver
sent letters to all taxpayers for the remaining 40 tax certificates at the address the most recent tax
bills were sent. The Receiver will also file an extension request with Lake County prior to June
1, 2015 to seek an additional six months through November 25, 2015 (and final statutory period
of extensions). Investor A appears to continue to have an interest in one tax certificate; the
Receiver anticipates an improved offer will be submitted to the Receiver in the near future.
Investor B made similar comments as described above, and made an offer of $1,000 (also
after the deadline of April 13, 2015) for the entire 41 certificates, which the Receiver countered
at $5,000, to which Investor B again countered on April 24, 2015 at $1,500. The Receiver has
since rejected this offer because she is now aware that one of the properties on Exhibit 5 is
actively marketed for sale, and will likely redeem at an amount much higher that the $1,500 offer
for the entire portfolio.
19
The Receiver also contacted investors who purchased 2012 certificates on the same 41
parcels to ascertain any interest and learned there was no interest. Many of the 2012 certificates
were acquired by Lake County.
The Receiver’s strategy over the course of the next couple of months is to pursue
recovery on the remaining tax certificates. Exhibit 5 reflects the outstanding taxes due for the
2012 unpaid taxes according to the Lake County website; however, the amount of 2013 and
successive taxes are unknown and not available on the website. The Receiver will keep the
Court informed.
c. Maryland
In May 2013, FGC Tax Lien Fund # 2 LLC purchased tax liens on real property located
in Baltimore City, Maryland (“Maryland Tax Liens”). A list of the Maryland Tax Liens is
attached as Exhibit 4 to the Receiver’s Report.
As authorized by this Court’s Order entered November 7, 2014, the Receiver sent notice
on March 9, 2015 to investors regarding the solicitation procedures for the Maryland Tax Liens;
DC Tax Liens and DC Judgments. On April 15, 2015 the Receiver filed her Motion seeking
approval to accept an offer of not less than $1,500 for the two Baltimore City tax liens on Exhibit
6 appended to this Receiver’s Report. (Docket Entry No. 70). See Section III.D above for a
discussion of the Receiver’s Motion and Notice, and this Court’s Order entered April 29, 2015.
As authorized, the Receiver posted notice on her website of the $1,500 offer to purchase
two Baltimore City tax liens. No additional offers were received, and the Receiver will proceed
to consummate the sale for the amount stated above.
4.
HOA Liens (“Nevada Real Property”)
20
On October 24, 2014, this Court entered an Order Approving Receiver’s Solicitation of
Offers to Purchase the Nevada Properties (the “Nevada Properties”) and Authorizing Payment of
any Outstanding Amounts Due to Homeowners’ Associations with Respect to the Nevada
Properties was entered on October 24, 2014. (Docket Entry No. 38). The list of the ten Nevada
Properties is reflected in Exhibit 7 of the Receiver’s Third Status Report.
As previously reported to the Court, the Receiver obtained a Broker’s Price Opinion for
the Nevada Properties. (Solicitation Procedures Motion ¶ 16). Based on such Broker’s Price
Opinion, the market value of the Nevada Properties is $1,630,000.00.
Further, as reported to the Court in the Third Receiver’s Report filed April 30, 2015 at
Section III.E the Receiver did not did not receive an acceptable offer to purchase the Nevada
Properties, and countered an offer from an investor on April 24, 2015. (Docket Entry No. 76).
The Receiver also reported two unacceptable offers based on the face amount paid by the
Receivership Defendants ($203,600), and another offer that she countered on April 24, 2015.
Receiver has ascertained that investor is conducting his due diligence and will make a revised
counter to the Receiver. The Receiver will keep the Court informed.
5. Distressed Assets
The Receiver’s investigation is ongoing and she will keep the Court informed.
Recoveries to date total $1,978.50
IV. FACTORS TO BE CONSIDERED BY THE COURT IN AWARDING FEES
This Court has the power to appoint a receiver and to award the receiver fees for the
receiver’s services and for expenses incurred by the receiver in the performance of his or her
duties. See Sec. & Exch. Comm’n v. Byers, 590 F. Supp. 2d 637, 644 (S.D.N.Y. 2008) (”A
receiver appointed by a court who reasonably and diligently discharges his duties is entitled to be
21
fairly compensated for services rendered and expenses incurred.”) (citations omitted). The case
law on equity receiverships sets forth the standards for approving receiver compensation and the
fees and expenses for the receiver’s counsel. The District Court has discretion to determine
compensation to be awarded to a court-appointed equity receiver and the receiver’s counsel. Id.;
see also Gaskill v. Gordon, 27 F.3d 248, 253 (7thCir. 1994); United States v. Code Prods. Corp.,
362 F.2d 669, 673 (3d Cir. 1966). The court may “consider all of the factors involved in a
particular receivership in determining an appropriate fee.” Gaskill, 27 F.3d at 253. Many
authorities provide “convenient guidelines,” but in the final analysis, “the unique fact situation of
each case renders direct reliance on precedent impossible.” Sec. & Exch. Comm’n v. W.L.
Moody & Co., 374 F. Supp. 465, 480 (S.D. Tex. 1974), aff d, 519 F. 2d 1087 (5th Cir. 1975).
In allowing counsel fees in Securities Act receiverships, “[t]he court will consider . . . the
complexity of problems faced, the benefit to the receivership estate, the quality of work
performed, and the time records presented.” Sec. & Exch. Comm’n v. Fifth Ave. Coach Lines,
Inc., 364 F. Supp. 1220, 1222 (S.D.N.Y. 1973); see also Code Prods. Corp., 362 F.2d at 673
(noting that the court should consider the time, labor and skill required (but not necessarily
expended), the fair value of such time, labor and skill, the degree of activity, integrity and
dispatch with which the work is conducted and the result obtained). “[R]esults are always
relevant.” Sec. & Exch. Comm’n v. Elliott, 953 F.2d 1560, 1577 (11th Cir. 1992) (quoting
Moody, 374 F Supp. at 480). However, a good result may take a form other than a bare increase
in monetary value. Id. (“Even though a receiver may not have increased, or prevented a decrease
in, the value of the collateral, if a receiver reasonably and diligently discharges his duties, he is
entitled to compensation.”). Obviously, overall results can be determined only at the conclusion
of the case.
22
Another “basic consideration is the nature and complexity of the legal problems
confronted and the skill necessary to resolve them.” Moody, 374 F. Supp. at 485. Moreover,
“[t]ime spent cannot be ignored.” Id. at 483.
Under these standards the Receiver has demonstrated that the amount of fees requested
for payment at this time is appropriate.
The following exhibits as well as the narrative descriptions in this Third Fee Application
evidence the time and labor employed in processing this case.
Exhibit A –
Standard Fund Accounting Report
Exhibit B –
Summary of Clifton’s Fees by Each Professional
Exhibit C –
Summary of Clifton’s Fees by Month and Activity
Exhibit D –
Summary of Clifton’s Expenses by Month
Exhibit E –
Summary of Clifton’s Fees and Expenses by Activity
Exhibit F –
Summary of Clifton’s Fees by Task Code and Expenses
Exhibit G –
Detailed invoices of Clifton’s Professional Time
Exhibit H –
Certification of Receiver
Exhibit I –
Summary of Receiver’s Counsel’s Fees by Each Professional
Exhibit J –
Summary of Receiver’s Counsel’s Fees by Month and Activity
Exhibit K –
Summary of Receiver’s Counsel’s Expenses by Month
Exhibit L –
Summary of Receiver’s Counsel’s Fees and Expenses by Activity
Exhibit M –
Summary of Receiver’s Counsel’s Fees by Task Code and Expenses
Exhibit N –
Detailed Invoices of Receiver’s Counsel Professional Time
Exhibit O –
Receiver’s Counsel’s Certification
Exhibit P –
Detailed Invoices of Receiver’s Special DC Counsel
23
Exhibit Q –
Receiver’s Special DC Counsel Certification
Exhibit R –
Detailed Invoices of Receiver’s Special NV Counsel
Exhibit S –
Receiver’s Special NV Counsel Certification
Exhibit T –
Detailed Invoices of Receiver’s Special IL Counsel
Exhibit U –
Receiver’s Special IL Counsel Certification
Exhibit V –
Table of Receiver’s and Law Firms’ Fees and Costs by Project
The Receiver and her professionals’ compensation in this matter are subject to the final approval
of this Court. Based on the foregoing, the Receiver respectfully submits that the compensation
sought by the Receiver and her professional is reasonable and conducted in the best interest of
the Receivership Estate.
A table which includes a breakdown of the Receiver’s and the law firms’ and fees and
costs by project or matter during this billing period is attached hereto as Exhibit V.
The following table includes a breakdown of the Receiver’s and the law firms’ fees by
activity category during this billing period:7
7
Categories are determined and defined in the “SEC’s billing guidelines”.
24
Activities
Eric Sayles Receiver's
Special DC
Counsel
WTP Receiver's
Counsel
Clifton
Accounting/Auditing
2,687.00
Asset Analysis & recovery
8,287.50
7,788.00
40,254.00
9,130.00
Asset disposition
-
Leach
Johnson Receiver's
Special NV
Counsel
Stanko
TOTALS
-
-
-
2,687.00
-
-
-
16,075.50
1,710.00
2,533.50
1,088.00
54,715.50
Business Analysis
-
-
-
-
-
-
Business operations
-
-
-
-
-
-
Case Administration
992.50
-
Claims administration, objections
-
-
-
-
-
-
Court Hearings
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
35,316.50
-
14,736.75
Data analysis
33,381.25
15,058.00
1,350.00
50,781.75
-
Forensic accounting
35,316.50
Litigation consulting
526.25
9,208.00
-
Status reports
10,707.50
400.00
-
-
-
11,107.50
Tax issues
20,664.00
950.00
-
-
-
21,614.00
151,824.00
42,534.00
Total
3,060.00
5,002.50
8,528.50
1,088.00
207,034.50
By this application, the Receiver seeks the immediate payment of $121,459.20 in fees
and $162.23 in expenses to Clifton; payment of $34,027.20 in fees and $348.18 in expenses to
Receiver’s Counsel; payment of $2,448.00 in fees and $13.16 in expenses to Receiver’s Special
DC Counsel; payment of $6,822.80 in fees and $97.48 in expenses to Receiver’s Special NV
Counsel; and payment of $870.40 in fees to Receiver’s Special IL Counsel.
In light of the complexity of the problems presented in the Receivership Estate, the
quality and quantity of work performed, the benefits thus far rendered to the Receivership Estate,
and the prospects of future recoveries predicated in part on the preliminary work performed
during this Third Fee Application Period as reflected herein and in the attached Certifications,
the Receiver respectfully submits that the amounts requested to be paid at this time are fair and
reasonable.
Counsel for SEC has reviewed the Receiver’s Third Fee Application and exhibits thereto
and advised they have no objection.
25
WHEREFORE, the Receiver respectfully requests that the Court grant this Third Fee
Application and enter an Order approving and authorizing the following:
1.
Payment to Clifton in the amount of $121,459.20 for services performed during
the period January 1, 2015 through March 31, 2015, such payment representing eighty percent
(80%) of its fees; and
2.
Payment to Clifton in the amount of $162.23 for expenses incurred (80%) during
the period January 1, 2015 through March 31, 2015; and
3.
Payment to Receiver’s Counsel in the amount of $34,027.20 for services
performed during the period January 1, 2015 through March 31, 2015, such payment
representing eighty percent (80%) of its fees; and
4.
Payment to Receiver’s Counsel in the amount of $348.18 for expenses incurred
(80%) during the period January 1, 2015 through March 31, 2015; and
5.
Payment to Receiver’s Special DC Counsel in the amount of $2,448.00 for
services performed during the period January 1, 2015 through March 31, 2015, such payment
6.
Payment to Receiver’s Special DC Counsel in the amount of $13.16 for expenses
incurred (80%) during the period January 1, 2015 through March 31, 2015; and
7.
Payment to Receiver’s Special NV Counsel in the amount of $6,822.80 for
services performed during the period January 1, 2015 through March 31, 2015, such payment
8.
Payment to Receiver’s Special NV Counsel in the amount of $97.48 for expenses
incurred (80%) during the period January 1, 2015 through March 31, 2015; and
26
9.
Payment to Receiver’s Special IL Counsel in the amount of $870.40 for services
performed during the period January 1, 2015 through March 31, 2015, such payment
10.
Authorizing the Receiver to immediately pay all such approved fees and expenses
from funds held by the Receiver; and
11.
Granting such other relief as the Court deems just and proper.
Dated: May 19, 2015
Respectfully submitted,
/s/ David Daneman
David Daneman (DC Bar No. 467386)
Whiteford, Taylor & Preston L.L.P.
Counsel for the Receiver
Seven Saint Paul Street
Baltimore, Maryland 21202
Telephone: (410) 347.8737
Facsimile: (410) 223-3737
27
EXHIBIT LIST TO RECEIVER’S THIRD FEE APPLICATION
Exhibit A –
Standard Fund Accounting Report
Exhibit B –
Summary of Clifton’s Fees by Each Professional
Exhibit C –
Summary of Clifton’s Fees by Month and Activity
Exhibit D –
Summary of Clifton’s Expenses by Month
Exhibit E –
Summary of Clifton’s Fees and Expenses by Activity
Exhibit F –
Summary of Clifton’s Fees by Task Code and Expenses
Exhibit G –
Detailed invoices of Clifton’s Professional Time
Exhibit H –
Certification of Receiver
Exhibit I –
Summary of Receiver’s Counsel’s Fees by Each Professional
Exhibit J –
Summary of Receiver’s Counsel’s Fees by Month and Activity
Exhibit K –
Summary of Receiver’s Counsel’s Expenses by Month
Exhibit L –
Summary of Receiver’s Counsel’s Fees and Expenses by Activity
Exhibit M –
Summary of Receiver’s Counsel’s Fees by Task Code and Expenses
Exhibit N –
Detailed Invoices of Receiver’s Counsel Professional Time
Exhibit O –
Receiver’s Counsel’s Certification
Exhibit P –
Detailed Invoices of Receiver’s Special DC Counsel
Exhibit Q –
Receiver’s Special DC Counsel Certification
Exhibit R –
Detailed Invoices of Receiver’s Special NV Counsel
Exhibit S –
Receiver’s Special NV Counsel Certification
Exhibit T –
Detailed Invoices of Receiver’s IL Counsel
Exhibit U –
Receiver’s Special IL Counsel Certification
28
Exhibit V –
Table of Receiver’s and Law Firms’ Fees and Costs by Project
29
CERTIFICATE OF SERVICE
I HEREBY CERTIFY on this 19th day of May, 2015, that a copy of the forgoing
Receiver Marion A. Hecht’s Motion for Approval of Third Fee Application for the Period From
January 1, 2015 through March 31, 2015 with supporting legal authority was mailed via first
class mail, postage prepaid, and/or via electronic mail, to:
John V. Donnelly III
Securities & Exchange Commission
One Penn Center
1617 JFK Blvd., Ste. 520
Philadelphia, PA 19103
Seth Slomovitz, Esq.
Law Offices of Eric Howell Sayles, PLLC
11 DuPont Circle, Suite 750
Washington, DC 20036
Jack C. Easton
Securities & Exchange Commission
One Penn Center
1617 JFK Blvd., Ste. 520
Philadelphia, PA 19103
Sean L. Anderson, Esq.
Leach Johnson Song & Gruchow
8945 W. Russell Road, Suite 330
Las Vegas, NV 89148
Lawrence Schmidt
[email protected]
[email protected]
/s/ David Daneman
David Daneman (DC Bar No. 467386)
Case 1:14-cv-01002-CRC Document 79-1 Filed 05/19/15 Page 1 of 29

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT

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