1003 . 3_appendix_-_supp_brief_mtn_re_772_relief_from_rcvrship_order_bukrinsky (1)

Case 3:09-cv-00298-N Document 1003-3 Filed 02/09/2010 Page 1 of 444

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

SECURITIES AND EXCHANGE COMMISSION, §
§
Plaintiff, §
§
v. § Civil Action No. 3:09-CV-0298-N
§
STANFORD INTERNATIONAL BANK, LTD., et al., §
§
Defendants. §

APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF MOTION FOR
RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH 10(e) OF THE
RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER

MORGENSTERN & BLUE, LLC
885 Third Avenue
New York, NY 10022
Telephone: (212) 750-6776
Facsimile: (212) 750-3128

LACKEY HERSHMAN, L.L.P.
3102 Oak Lawn Avenue, Suite 777
Dallas, Texas 75219
Telephone: (214) 560-2201
Facsimile: (214) 560-2203

Attorneys for the Movants


TABLE OF CONTENTS

Declaration of Angela Shaw .............................................................................................................. 1

Joint Motion of the SEC and Receiver for Entry of Second Amended Order Appointing
Receiver and Appendix in Support of Joint Motion of the SEC and Receiver for Entry of
Second Amended Order Appointing Receiver [Dkt. No. 958].......................................................... 7

Receiver Ralph S. Janvey’s Motion to Amend Order Appointing Receiver [Dkt. No. 146]........... 43

Transcript of Oral Argument in Janvey v. Alguire, et al., Civil Action No. 09-10761
(5th Cir. Nov. 2, 2009)..................................................................................................................... 57

Receiver’s Second Amended Complaint Against Former Stanford Employees, filed in
Janvey v. Alguire, et al., Case no. 3:09-cv-0724-N, N.D. Tex. [Dkt No. 156].............................. 171

Defendant E. Randolph Robertson, Jr.’s Original Answer to Receiver’s Second Amended
Complaint Against Former Stanford Employees Affirmative Defenses and Counterclaims,
filed in Janvey v. Alguire, et al., Case no. 3:09-cv-0724-N, N.D. Tex. [Dkt. No. 207] ................ 197

Complaint in Frank, et al., v. The Commonwealth of Antigua and Barbuda,
(Case No. 3:09-cv-02165-N).......................................................................................................... 214

First Amended Complaint Against Certain Stanford Investors and Appendix in Support of
Receiver’s First Amended Complaint Against Certain Stanford Investors, filed in Janvey v.
Alguire, et al., Case no. 3:09-cv-0724-N, N.D. Tex. [Dkt Nos. 128 & 129],................................ 288

Answer to Receiver’s First Amended Complaint (Investor Defendants), filed by
investors Robert B. Crawford, Jr., et al., in Janvey v. Alguire, et al.
Case no. 3:09-cv-0724-N, N.D. Tex. [Dkt No. 242]...................................................................... 314

Transcript of Proceedings in Janvey v. Alguire, et al., July 31, 2009............................................ 331

Order of the Honorable David C. Godbey cancelling the January 21, 2010 hearing in In re
Stanford International Bank, Ltd., Case no. 3:09-cv-0721-N, N.D. Tex. [Dkt No. 66] ................ 382

Letter from Ralph S. Janvey to Sen. Christopher J. Dodd, dated August 12, 2009....................... 383

Case 3:09-cv-00298-N Document 1003-3
Case 3:09-cv-00298-N Document 958 Filed 02/09/2010
Filed 01/14/2010 Page 9 of 444
Page 1 of 9

DALLAS DIVISION

§
Plaintiff, §
§
v. § Case No.: 3-09-CV-0298-N
§
STANFORD INTERNATIONAL BANK, LTD., §
STANFORD GROUP COMPANY, §
STANFORD CAPITAL MANAGEMENT, LLC, §
R. ALLEN STANFORD, JAMES M. DAVIS, and §
LAURA PENDERGEST-HOLT, §
§
Defendants. §

JOINT MOTION OF THE SEC AND RECEIVER FOR ENTRY OF
SECOND AMENDED ORDER APPOINTING RECEIVER

Plaintiff Securities and Exchange Commission and Receiver Ralph S. Janvey

request that the Court enter the Second Amended Order Appointing Receiver.

Factual Background

On February 17, 2009 the Court entered the Order Appointing Receiver. (Doc.

10). Within 10 days, the Receiver complied with the requirements of 28 U.S.C. § 754 by filing

the Complaint and Order Appointing Receiver in 29 districts, located in 16 states, the District of

Columbia, the Virgin Islands, and Puerto Rico. On March 12, 2009 the Court entered the

Amended Order Appointing Receiver. (Doc. 157).

As a result of his investigation of the books and records of the Receivership

Estate, the Receiver has learned that Receivership Assets and Receivership Records exist in

additional districts where § 754 filings have not been made. The Court’s reappointment of the

Receiver will permit him to complete § 754 filings in additional districts in furtherance of his

duty to “[p]erform all acts necessary to conserve, hold, manage, and preserve the value of the

SECOND AMENDED ORDER APPOINTING RECEIVER PAGE 1
APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF Appx. Page 7
MOTION FOR RELIEF FROM THE INJUNCTION CONTAINED IN PARAGRAPH
10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED BY THE EXAMINER

Filed 01/14/2010 Page 10of 9444
Page 2 of

Receivership Estate, in order to prevent any irreparable loss, damage, and injury to the Estate.”

Doc. 157 at 5, ¶ 5(g); See Warfield v. Arpe, 2007 WL 549467, *12-13 (N.D. Tex. 2007); Order

Reappointing Temporary Receiver in Civil Action No. 3:02-cv-0605-R, filed 10/04/2006,

attached at Appdx. 1-9.

Additionally, the Receiver has determined that in order for him to carry out his

duties as receiver, it is not necessary for him to have the authority to file bankruptcy petitions on

behalf of any of the individual defendants. Accordingly, the proposed Second Amended Order

Appointing Receiver clarifies that the Receiver’s exclusive authority to file bankruptcy petitions

applies only to the corporate, and not the individual, defendants.

Finally, despite the litigation injunction contained in the Amended Order

Appointing Receiver, a number of lawsuits have been filed in state and federal courts against the

Receiver, Estate entities, and defendants. Many of these have been stayed or referred to the

MDL panel. However, a second wave of related litigation is now demanding significant

resources from the Receiver, his professionals, and the Estate. Plaintiffs have filed lawsuits

against former Stanford financial advisors and are taking the position that the litigation

injunction does not apply to terminated employees. Because the Estate is in possession of

documents relating to Stanford client accounts, the plaintiffs and defendants in these suits seek

discovery from the Receiver. Responding to these requests will consume more and more Estate

resources as additional cases are filed and proceed to trial.

There have now been more than 50 cases filed in state and federal courts that

somehow relate to the sale of Stanford CDs or the Receivership. Six cases have named Pershing

LLC (which was the clearing bank for Stanford Group Company) and four have named SEI

Investments Co. (which provided trust services to Stanford Trust Co.) as defendants in five


Filed 01/14/2010 Page 11of 9444
Page 3 of

different jurisdictions. A number of arbitrations have also been initiated against Pershing at

FINRA. The contracts between Pershing and SGC and SEI and STC require the Estate to

indemnify Pershing and SEI in these lawsuits and arbitrations. Despite the Estate’s pecuniary

interest in these cases, none of the them have been stayed pursuant to this Court’s litigation

injunction, either by agreement or court order. The Estate has already incurred some defense

costs pursuant to the indemnity provisions and if these cases continue, or multiply, they will

further deplete Estate resources. For example, after being referred to the MDL panel, one group

of plaintiffs simply filed a second, almost identical lawsuit against Pershing in another

jurisdiction; they refuse to stay the case and maintain that it is not appropriate for referral to the

MDL panel.

Argument and Authority

The Fifth Circuit, and other Circuit Courts, have upheld repeatedly a district

court’s authority to enjoin the commencement, or even the continuation of pre-existing litigation,

in other venues in order to protect the receivership and the receivership court’s exclusive

jurisdiction:

The district court may require all such claims to be brought before
the receivership court for disposition pursuant to summary process
consistent with the equity purpose of the court. The district court
may also authorize, to the extent that the court deems appropriate,
“satellite” litigation in forums outside of the receivership court to
address ancillary issues. However, the receivership court typically
retains jurisdiction over any attempt at execution of a judgment in
such situations.

Liberte Capital Group, LLC v. Capwill, 462 F.3d 543, 552 (6th Cir. 2006) (citations omitted);

see e.g., Schauss v. Metals Depository Corp., 757 F.2d 649 (5th Cir. 1985); S.E.C. v. Wencke,

622 F.2d 1363 (9th Cir. 1980).


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Because “[t]he receivership court has a valid interest in both the value of the

claims themselves and the costs of defending any suit as a drain on receivership assets,” the court

“may issue a blanket injunction, staying litigation against the named receiver and the entities

under his control unless leave of that court is first obtained.” Liberte Capital Group, LLC v.

Capwill, 462 F.3d 543, 551 (6th Cir. 2006). This injunction can even bind all non-parties with

notice, far exceeding normal limits on the scope of injunctions. See S.E.C. v. Wencke, 622 F.2d

1363, 1369 (9th Cir. 1980). Furthermore, the power to enjoin “extends to the institution of any

suit.” Liberte Capital, 462 F.3d at 551.

If the injunction so provides, leave of the receivership court must be obtained

before suit can be brought against the receiver. See In re Crown Vantage, Inc., 421 F.3d 963,

970–71 (9th Cir. 2005); Seaman Paper Co. of Mass., Inc. v. Polsky, 537 F. Supp. 2d 233, 236 (D.

Mass. 2007); Fed. Home Loan Mortgage Corp. v. Spark Tarrytown, Inc., 829 F. Supp. 82, 88

(S.D.N.Y. 1993). Failure to obtain leave of the receivership court deprives the second court of

subject matter jurisdiction. See Le v. S.E.C., 542 F. Supp. 2d 1318, 1321 (N.D. Ga. 2008).

In Liberte Capital, the district court had entered an injunction on litigation, but

carved out a very narrow exception for litigation against the Receiver for cases challenging the

validity of life insurance policies prior to the insured’s death. Liberte Capital, 462 F.3d at 549.

Insurance companies initiated suits against the entities in receivership that did not fall within the

narrow exception to the injunction, and the district court held them in contempt. The Sixth

Circuit affirmed, emphasizing the district court’s exclusive jurisdiction over the receivership. Id.

at 552.

Justice Anthony Kennedy, writing for the Ninth Circuit, has explained the

practical reasons that such an injunction can be necessary and reasonable. It protects the


Filed 01/14/2010 Page 13of 9444
Page 5 of

interests of the very persons enjoined from filing suit, and prevents the estate from becoming

overwhelmed by the expenses of multiple lawsuits:

The receiver and the district court also felt it essential for
the receiver to be given time to explore all the complex
transactions and aspects of the receivership estate so that innocent
shareholders suffered no further harm.

A receiver appointed by a court in the wake of a securities
fraud scheme may encounter difficulties sorting out the financial
status of the defrauded entity or entities. There may be a genuine
danger that some litigation against receivership entities amounts to
little more than a continuation of the original fraudulent scheme.
Similarly, the securities fraud may have left the finances of the
receivership entities so obscure or complex that the receiver is
hampered in conducting litigation. Moreover, the expense
involved in defending the many lawsuits which often are filed
against an entity in the wake of a securities fraud scheme may be
overwhelming unless some are temporarily deferred. A stay of
proceeding against receivership entities except by leave of the
court may be an appropriate response to the above concerns, and
the district court did not abuse its discretion in this case by entering
the blanket stay.

Wencke, 622 F.2d at 1373.

Even where the court entering the injunction was not the first in which suit was

filed, the Fifth Circuit has vacated a two-year-old judgment and ordered that funds disbursed to

the parties be paid back into the registry of the court. Schauss v. Metals Depository Corp., 757

F.2d 649, 655 (5th Cir. 1985). A customer filed suit against MDC in the Northern District of

Texas and MDC’s bank was joined as garnishee. Id. at 651. Soon thereafter, a fraud suit was

filed in the Southern District of New York. The New York court entered judgment against

MDC, appointed a receiver, and enjoined the commencement of new suits and continuation of

pending suits. Id. A second Texas suit was filed and the two Texas suits consolidated. Pursuant

to 28 U.S.C. § 754 the New York receiver filed the New York order appointing him, but did not

otherwise answer or enter an appearance in the Texas consolidated case. Id. at 652.


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Page 6 of

The Texas case then proceeded to bench trial and the court entered judgment

disposing of the funds interpleaded by the bank as garnishee. Id. Two years later, the receiver

moved to set aside the Texas judgment. The Fifth Circuit granted the motion in the interests of

justice and comity between federal courts, to discourage duplicative litigation, and in furtherance

of the important goal of preserving assets in receivership:

[S]everal courts have recognized the importance of
preserving a receivership court’s ability to issue orders preventing
interference with its administration of the receivership property. In
both securities fraud cases, and bankruptcy proceedings, Courts of
Appeals have upheld orders enjoining broad classes of individuals
from taking any action regarding receivership property. Such
orders can serve as an important tool permitting a district court to
prevent dissipation of property or assets subject to multiple claims
in various locales, as well as preventing “piecemeal resolution of
issues that call for a uniform result.”

Id. at 654 (citations omitted).

Conclusion

For these reasons, the SEC and the Receiver ask the Court to enter their proposed

Second Amended Order Appointing Receiver. For the Court’s convenience a red-line comparing

the proposed Second Amended Order Appointing Receiver and Amended Order Appointing

Receiver (Doc. 157) has been filed at Appendix 10-21.


Case 3:09-cv-00298-N Document 958
Case 3:09-cv-00298-N Document 1003-3 Filed 01/14/2010
Filed 02/09/2010 Page 15of 9444
Page 7 of

Dated: January 14, 2010 Respectfully submitted,

BAKER BOTTS L.L.P.

By: /s/ Kevin M. Sadler
Kevin M. Sadler
Texas Bar No. 17512450
kevin.sadler@bakerbotts.com
Robert I. Howell
robert.howell@bakerbotts.com
David T. Arlington
david.arlington@bakerbotts.com
1500 San Jacinto Center
98 San Jacinto Blvd.
Austin, Texas 78701-4039
(512) 322-2500
(512) 322-2501 (Facsimile)

Timothy S. Durst
tim.durst@bakerbotts.com
2001 Ross Avenue
Dallas, Texas 75201
(214) 953-6500
(214) 953-6503 (Facsimile)

ATTORNEYS FOR RECEIVER
RALPH S. JANVEY


Filed 01/14/2010 Page 16of 9444
Page 8 of

CERTIFICATE OF CONFERENCE

Counsel for the Receiver conferred with attorneys who have made appearances on
behalf of parties to this case.

Counsel for the Receiver conferred with David B. Reece, counsel for the SEC,
who stated that the SEC does not oppose the filing of this motion and relief sought herein.

Counsel for the Receiver provided the motion to Jeffrey M. Tillotson, counsel for
Laura Pendergest-Holt, who stated that Ms. Holt opposes the filing of this motion and relief
sought herein.

Counsel for the Receiver conferred with Ruth Schuster, counsel for R. Allen
Stanford, who stated that Mr. Stanford opposes the filing of this motion and relief sought herein.

Counsel for the Receiver conferred with Manuel Lena, counsel for the DOJ (Tax),
who stated that he does not oppose the filing of this motion and relief sought herein.

Counsel for the Receiver provided the motion to David Finn, counsel for James
Davis, but has not received a response to requests to confer on this motion and relief sought
herein.

Counsel for the Receiver conferred with John Little, Court-appointed Examiner, ,
who stated that he does not oppose the filing of this motion and relief sought herein.

Counsel for the Receiver conferred with Joe Kendall, counsel for Susan Stanford,
who stated that Mrs. Stanford takes no position on the filing of this motion and relief sought
herein.

/s/ Kevin M. Sadler
Kevin M. Sadler


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Page 9 of

CERTIFICATE OF SERVICE

On January 14, 2010 I electronically submitted the foregoing motion and the
proposed order with the clerk of court for the U.S. District Court, Northern District of Texas,
using the electronic case filing system of the court. I hereby certify that I have served all counsel
and/or pro se parties of record electronically or by another manner authorized by Federal Rule of
Civil Procedure 5(b)(2).

/s/ Kevin M. Sadler
Kevin M. Sadler


Filed 02/09/2010 Page 1 ofof 444
Page 18 27

DALLAS DIVISION

§
Plaintiff, §
§
v. § Case No.: 3-09-CV-0298-N
§
STANFORD GROUP COMPANY, §
STANFORD CAPITAL MANAGEMENT, LLC, §
R. ALLEN STANFORD, JAMES M. DAVIS, and §
LAURA PENDERGEST-HOLT, §
§
Defendants. §

APPENDIX IN SUPPORT OF JOINT MOTION OF THE SEC AND RECEIVER
FOR ENTRY OF SECOND AMENDED ORDER APPOINTING RECEIVER


Page 19 27

Dated: January 14, 2010 Respectfully submitted,

BAKER BOTTS L.L.P.

By: /s/ Kevin M. Sadler
Kevin M. Sadler
kevin.sadler@bakerbotts.com
Robert I. Howell
robert.howell@bakerbotts.com
David T. Arlington
david.arlington@bakerbotts.com
1500 San Jacinto Center
98 San Jacinto Blvd.
Austin, Texas 78701-4039
(512) 322-2500
(512) 322-2501 (Facsimile)

Timothy S. Durst
tim.durst@bakerbotts.com
2001 Ross Avenue
Dallas, Texas 75201
(214) 953-6500
(214) 953-6503 (Facsimile)

ATTORNEYS FOR RECEIVER
RALPH S. JANVEY

CERTIFICATE OF SERVICE

On January 14, 2010 I electronically submitted the foregoing motion and the
proposed order with the clerk of court for the U.S. District Court, Northern District of Texas,
using the electronic case filing system of the court. I hereby certify that I have served all counsel
and/or pro se parties of record electronically or by another manner authorized by Federal Rule of
Civil Procedure 5(b)(2).

/s/ Kevin M. Sadler
Kevin M. Sadler


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FOR THE NORTHERN DISTRICT 0F TEXAS
DALLAS DIVISION

§
SECURITIES AND EXCHANGE COMMISSION
§
Plaintiff, §
§
v. § Case No.: 3-09CV0298-N
§
ET AL. §
§
Defendants. §
§
§
§

SECOND AMENDED ORDER APPOINTING RECEIVER

This matter came before me, the undersigned United States District Judge, on the motion

of Plaintiff Securities and Exchange Commission (“Commission”) for the appointment of a

Receiver for corporate Defendants Stanford International Bank, Ltd., Stanford Group Company,

Stanford Capital Management, LLC, Robert Allen Stanford, James M. Davis, Laura Pendergest-

Holt, Stanford Financial Group, and The Stanford Financial Group Bldg Inc. (“Defendants”). It

appears that, and Individual Defendants Robert Allen Stanford, James M. Davis, and Laura

Pendergest-Holt, (together the “Defendants”).

On February 17, 2009 this AmendedCourt entered its Order Appointing Receiver (the

“Order”) is. (Doc. 10). On March 12, 2009 this Court entered its Amended Order

Appointing Receiver. (Doc. 157). The Receiver has informed the Court that after the

expiration of 10 days from the dates of these Orders, the Receiver identified Receivership

Assets and Receivership Records in districts in which copies of the Complaint and Order

Appointing Receiver have not been filed of record pursuant to 28 U.S.C. § 754. In order to

APPENDIX TO SUPPLEMENTAL BRIEF IN FURTHER SUPPORT OF 10
Appx. Page 27

Filed 02/09/2010 Page 30 of 444

allow the Court to obtain jurisdiction in these districts, the Court hereby enters this Second

Amended Order Appointing Receiver. The Court finds the entry of this Second Amended

Order Appointing Receiver to be both necessary and appropriate in order to prevent waste and

dissipation of the assets of the Defendants to the detriment of the investors.

IT IS THEREFORE ORDERED that:

1. This Court assumes exclusive jurisdiction and takes possession of the assets,

monies, securities, properties, real and personal, tangible and intangible, of whatever kind and

description, wherever located, and the legally recognized privileges (with regard to the entities),

of the Defendants and all entities they own or control (“Receivership Assets”), and the books and

records, client lists, account statements, financial and accounting documents, computers,

computer hard drives, computer disks, internet exchange servers telephones, personal digital

devices and other informational resources of or in possession of the Defendants, or issued by

Defendants and in possession of any agent or employee of the Defendants (“Receivership

Records”).

2. Ralph S. Janvey of Dallas, Texas, is hereby appointed Receiver for the

Receivership Assets and Receivership Records (collectively, “Receivership Estate”), with the

full power of an equity receiver under common law as well as such powers as are enumerated

herein as of the date of this Order. The Receiver shall not be required to post a bond unless

directed by the Court but is hereby ordered to well and faithfully perform the duties of his office:

to timely account for all monies, securities, and other properties which may come into his hands;

and to abide by and perform all duties set forth in this Order. Except for an act of willful

malfeasance or gross negligence, the Receiver shall not be liable for any loss or damage incurred

by the Receivership Estate, or any of Defendants, the Defendants’ clients or associates, or their

subsidiaries or affiliates, their officers, directors, agents, and employees, or by any of

2
Appx. Page 28

Filed 02/09/2010 Page 31 of 444

Defendants’ creditors or equity holders because of any’ act performed or not performed by him

or his agents or assigns in connection with the discharge of his duties and responsibilities

hereunder.

3. The duties of the Receiver shall be specifically limited to matters relating to the

Receivership Estate and unsettled claims thereof remaining in the possession of the Receiver as

of the date of this Order. Nothing in this Order shall be construed to require further investigation

of Receivership Estate assets heretofore liquidated and/or distributed or claims of the

Receivership Estate settled prior to issuance of this Order. However, this paragraph shall not be

construed to limit the powers of the Receiver in any regard with respect to transactions that may

have occurred prior to the date of this Order.

4. Until the expiration date of this Order or further Order of this Court, Receiver is

authorized to immediately take and have complete and exclusive control, possession, and

custody of the Receivership Estate and to any assets traceable to assets owned by the

Receivership Estate.

5. As of the date of entry of this Order, the Receiver is specifically directed and

authorized to perform the following acts and duties:

(a) Maintain full control of the Receivership Estate with the power to retain or

remove, as the Receiver deems necessary or advisable, any officer, director, independent

contractor, employee or agent of the Receivership Estate;

(b) Collect, marshal, and take custody, control, and possession of all the

funds, accounts, mail, and other assets of, or in the possession or under the control of, the

Receivership Estate, or assets traceable to assets owned or controlled by the Receivership

Estate, wherever situated, the income and profit therefrom and all sums of money now or

3
Appx. Page 29

Filed 02/09/2010 Page 32 of 444

hereafter due or owing to the Receivership Estate with full power to collect, receive, and

take possession of without limitation, all goods, chattel, rights, credits, monies, effects,

lands, leases, books and records, work papers, records of account, including computer

maintained information, contracts, financial records, monies on hand in banks and other

financial initiations, and other papers and documents of other individuals, partnerships, or

corporations whose interests are now held by or under the direction, possession, custody,

or control of the Receivership Estate;

(c) Institute such actions or proceedings to impose a constructive trust, obtain

possession, and/or recover judgment with respect to persons or entities who received

assets or records traceable to the Receivership Estate. All such actions shall be filed in

this Court;

(d) Obtain, by presentation of this Order, documents, books, records,

accounts, deposits, testimony, or other information within the custody or control of any

person or entity sufficient to identify accounts, properties, liabilities, causes of action, or

employees of the Receivership Estate. The attendance of a person or entity for

examination and/or production of documents may be compelled in a manner provided in

Rule 45, Fed. R. Civ. P., or as provided under the laws of any foreign country where such

documents, books, records, accounts, deposits, or testimony maybe located;

(e) Without breaching the peace and, if necessary, with the assistance of local

peace officers or United States marshals to enter and secure any premises, wherever

located or situated, in order to take possession, custody, or control of, or to identify the

location or existence of Receivership Estate assets or records;

4
Appx. Page 30

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(f) Make such ordinary and necessary payments, distributions, and

disbursements as the Receiver deems advisable or proper for the marshaling,

maintenance, or preservation of the Receivership Estate. Receiver is further authorized to

contract and negotiate with any claimants against the Receivership Estate (including,

without limitation, creditors) for the purpose of compromising or settling any claim. To

this purpose, in those instances in which Receivership Estate assets serve as collateral to

secured creditors, the Receiver has the authority to surrender such assets to secured

creditors, conditional upon the waiver of any deficiency of collateral;

(g) Perform all acts necessary to conserve, hold, manage, and preserve the

value of the Receivership Estate, in order to prevent any irreparable loss, damage, and

injury to the Estate;

(h) Enter into such agreements in connection with the administration of the

Receivership Estate, including, but not limited to, the employment of such managers,

agents, custodians, consultants, investigators, attorneys, and accountants as Receiver

judges necessary to perform the duties set forth in this Order and to compensate them

from the Receivership Assets;

(i) Institute, prosecute, compromise, adjust, intervene in, or become party to

such actions or proceedings in state, federal, or foreign courts that the Receiver deems

necessary and advisable to preserve the value of the Receivership Estate, or that the

Receiver deems necessary and advisable to carry out the Receiver’s mandate under this

Order and likewise to defend, compromise, or adjust or otherwise dispose of any or all

actions or proceedings instituted against the Receivership Estate that the Receiver deems

necessary and advisable to carry out the Receiver’s mandate under this Order;

5
Appx. Page 31

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(j) Preserve the Receivership Estate and minimize expenses in furtherance of

maximum and timely disbursement thereof to claimants;

(k) Promptly provide the Commission and other governmental agencies with

all information and documentation they may seek in connection with its regulatory or

investigatory activities;

(l) Prepare and submit periodic reports to this Court and to the parties as

directed by this Court;

(m) File with this Court requests for approval of reasonable fees to be paid to

the Receiver and any person or entity retained by him and interim and final accountings

for any reasonable expenses incurred and paid pursuant to order of this Court;

6. The Receiver shall have the sole and exclusive power and authority to manage

and direct the business and financial affairs of the Defendants, including without limitation, the

sole and exclusive power and authority to petition for relief under the United States Bankruptcy

Code, 11 U.S.C. §§ 101 et seq. (the “Bankruptcy Code”), for any or all of the corporate

Defendants. The Receiver is not authorized, without further Court order, to petition for

relief under the Bankruptcy Code for any of the Individual Defendants. Solely with respect

to the authorization to file and execution of a petition for relief under the Bankruptcy Code;

without limiting any powers of the Receiver under applicable law and this Order; and

irrespective of provisions in any Defendants’Defendant’s corporate organizing documents, by-

laws, partnership agreements, or the like, the Receiver shall be deemed to succeed to the position

of and possess the authority of any party with power to authorize and execute the filing of a

petition for relief under the Bankruptcy Code, including without limitation corporate directors,

general and limited partners, and members of limited liability companies.

6
Appx. Page 32

Filed 02/09/2010 Page 35 of 444

7. Before taking action under paragraph 6 of this Order, the Receiver must provide

the Commission and the Defendants with at least two business days’ written notice (unless

shortened or lengthened by court order) that the Receiver is contemplating action under the

Bankruptcy Code; provided that the Receiver may apply for an order under seal or a hearing in

camera, as circumstances require. To facilitate an efficient coordination in one district of all

bankruptcies of the Defendants, the Northern District of Texas shall be the Receiver’s principal

place of business for making decisions in respect of operating and disposing of each of the

Defendants and their respective assets.

8. Upon the request of the Receiver, the United States Marshal’s Office is hereby

ordered to assist the Receiver in carrying out his duties to take possession, custody, or control of,

or identify the location of, any Receivership Estate assets or records.

9. Creditors and all other persons are hereby restrained and enjoined from the

following actions, except in this Court and with leave of this Court, unless this Court,

consistent with general equitable principals and in accordance with its ancillary equitable

jurisdiction in this matter, orders that such actions may be conducted in another forum or

jurisdiction:

(a) The commencement or continuation, including the issuance or

employment of process, of any judicial, administrative, or other proceeding against the

Receiver, any of the defendants, any entity within the Receivership Estate, any current

or anyformer agent, officer, or employee related toof the Receivership Estate, or of any

entity within the Receivership Estate, Pershing LLC, and/or SEI Investment

Company arising from the subject matter of this civil action; or

7
Appx. Page 33

Filed 02/09/2010 Page 36 of 444

(b) The enforcement, against the Receiver, or any of the defendants, of any

judgment that would attach to or encumber the Receivership Estate that was obtained

before the commencement of this proceeding.

10. Creditors and all other persons are hereby restrained and enjoined, without prior

approval of the Court, from:

(a) Any act to obtain possession of the Receivership Estate assets;

(b) Any act to create, perfect, or enforce any lien against the property of the

Receiver, or the Receivership Estate;

(c) Any act to collect, assess, establish, litigate or recover a claim against the

Receiver or that, where such claim would attach to or encumber the Receivership

Estate or create or impose an obligation upon the part of the Receivership Estate;

(d) The set off of any debt owed by the Receivership Estate or secured by the

Receivership Estate assets based on any claim against the Receiver or the Receivership

Estate; or

(e) The filing of any case, complaint, petition, or motion under the

Bankruptcy Code (including, without limitation, the filing of an involuntary bankruptcy

petition under chapter 7 or chapter 11 of the Bankruptcy Code, or a petition for

recognition of foreign proceeding under chapter 15 of the Bankruptcy Code).

11. Creditors and all other persons are hereby restrained and enjoined from seeking

relief from the injunction contained in paragraph 10(e) of this Order for a period of 180 days

from the date of entry of this Order with respect to any Defendant.

11. 12. Defendants, their respective officers, agents, and employees and all persons in

active concert or participation with them who receive notice of this Order by personal service or

8
Appx. Page 34

Filed 02/09/2010 Page 37 of 444

otherwise, including, but not limited to, any financial institution, broker-dealer, investment

adviser, private equity fund or investment banking fun), and each of them, are hereby ordered,

restrained, and enjoined from, directly or indirectly, making any payment or expenditure of any

Receivership Estate assets that are owned by Defendants or in the actual or constructive

possession of any entity directly or indirectly owned or controlled or under common control with

the Receivership Estate, or effecting any sale, gift, hypothecation, assignment, transfer,

conveyance, encumbrance, disbursement, dissipation, or concealment of such assets. A copy of

this Order may be served on any bank, savings and loan, broker-dealer, or any other financial or

depository institution to restrain and enjoin any such institution from disbursing any of the

Receivership Estate assets. Upon presentment of this Order, all persons, including financial

institutions, shall provide account balance information, transaction histories, all account records

and any other Receivership Records to the Receiver or his agents, in the same manner as they

would be provided were the Receiver the signatory on the account.

12. 13. Defendants, and their respective agents, officers, and employees and all

persons in active concert or participation with them are hereby enjoined from doing any act or

thing whatsoever to interfere with the Receiver’s taking control, possession, or management of

the Receivership Estate or to in any way interfere with the Receiver or to harass or interfere with

the duties of the Receiver or to interfere in any manner with the. exclusive jurisdiction of this

Court over the Receivership Estate, including the filing or prosecuting any actions or

proceedings which involve the Receiver or which affect the Receivership Assets or Receivership

Records, specifically including any proceeding initiated pursuant to the United States

Bankruptcy Code, except with the permission of this Court. Any actions so authorized to

9
Appx. Page 35

Filed 02/09/2010 Page 38 of 444

determine disputes relating to Receivership Assets and Receivership Records shall be filed in

this Court.

13. 14. Defendants, their respective officers, agents, and employees and all persons in

active concert or participation with them who receive actual notice of this Order by personal

service or otherwise, including any financial institution, broker-dealer, investment adviser,

private equity fund or investment banking firm, and each of them shall:

(a) To the extent they have possession, custody, or control of same, provide

immediate access to and control and possession of the Receivership Estate assets and

records, including securities, monies, and property of any kind, real and personal,

including all keys, passwords, entry codes, and all monies deposited in any bank

deposited to the credit of the Defendants, wherever situated, and the original of all books,

records, documents, accounts, computer printouts, disks, and the like of Defendants to

Receiver or his duly authorized agents;

(b) Cooperate with the Receiver and his duly authorized agents by promptly

and honestly responding to all requests for information regarding Receivership Assets

and Records and by promptly acknowledging to third parties the Receiver’s authority to

act on behalf of the Receivership Estate and by providing such authorizations, signatures,

releases, attestations, and access as the Receiver or his duly authorized agents may

reasonably request;

(c) Provide the Commission with a prompt, full accounting of all

Receivership Estate assets and documents outside the territory of the United States which

are held either: (1) by them, (2) for their benefit, or (3) under their control;

10
Appx. Page 36

Filed 02/09/2010 Page 39 of 444

(d) Transfer to the territory of the United States all Receivership Estate assets

and records in foreign countries held either: (1) by them, (2) for their benefit, or (3) under

their control; and

(e) Hold and retain all such repatriated Receivership Estate assets and

documents and prevent any transfer, disposition, or dissipation whatsoever of any such

assets or documents, until such time as they may be transferred into the possession of the

Receiver.

14. 15. Any financial institution, broker-dealer, investment adviser; private equity

fund or investment banking firm or person that holds, controls, or maintains accounts or assets of

or on behalf of any Defendant, or has held, controlled, or maintained any account or asset of or

on behalf of any defendant or relief defendant since January 1, 1990, shall:

(a) Hold and retain within its control and prohibit the withdrawal, removal,

assignment, transfer, pledge, hypothecation, encumbrance, disbursement, dissipation,

conversion, sale, gift, or other disposal of any of the assets, funds, or other property held

by or on behalf of any defendant or relief defendant in any account maintained in the

name of or for the benefit of any defendant or relief defendant in whole or in part except:

(i) as directed by further order of this Court, or

(ii) as directed in writing by the Receiver or his agents;

(b) Deny access to any safe deposit boxes that are subject to access by any

Defendant; and

(c) The Commission and Receiver may obtain, by presentation of this Order,

documents, books, records, accounts, deposits, or other information within the custody or

control of any person or entity sufficient to identify accounts, properties, liabilities,

11
Appx. Page 37

Filed 02/09/2010 Page 40 of 444

causes of action, or employees of the Receivership Estate. The attendance of a person or

entity for examination and/or production of documents may be compelled in a manner

provided in Rule 45, Fed. R. Civ. P, or as provided under the laws of any foreign country

where such documents, books, records, accounts, deposits, or testimony may be located;

15. 16. The Defendants, their officers, agents, and employees and all persons in active

concert or participation with them and other persons who have notice of this Order by personal

service or otherwise, are hereby restrained and enjoined from destroying, mutilating, concealing,

altering, transferring, or otherwise disposing of, in any manner, directly or indirectly, any

contracts, accounting data, correspondence, advertisements, computer tapes, disks or other

computerized records, books, written or printed records, handwritten notes, telephone logs,

telephone scripts, receipt books, ledgers, personal and business canceled checks and check

registers, bank statements, appointment books, copies of federal, state, or local business or

personal income or property tax returns, and other documents or records of any kind that relate in

any way to the Receivership Estate or are relevant to this action.

16. 17. The Receiver is hereby authorized to make appropriate notification to the

United States Postal Service to forward delivery of any mail addressed to the Defendants, or any

company or entity under the direction and control of the Defendants, to himself. Further, the

Receiver is hereby authorized to open and inspect all such mail to determine the location or

identity of assets or the existence and amount of claims.

17. 18. Nothing in this Order shall prohibit any federal or state law enforcement or

regulatory authority from commencing or prosecuting an action against the Defendants, their

agents, officers, or employees.

So Ordered and signed, this ____ day of March 2009.______________, 2010.

12
Appx. Page 38

Filed 02/09/2010 Page 41 of 444

_______________________________________
UNITED STATES DISTRICT JUDGE

13
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Filed 02/09/2010 Page 42 of 444

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encumber"
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1

1 BEFORE THE FIFTH CIRCUIT COURT OF APPEALS

2
RALPH JANVEY, §
3 §
Appellee, §
4 § CIVIL ACTION NO.
v. §
5 § 09-10761
JAMES ALGUIRE, et al, §
6 §
Appellants. §
7

8

9 * * * * * * * * * * * * * * * * * *

10
ORAL ARGUMENTS BEFORE
11
SENIOR JUDGE WILL GARWOOD
12 JUDGE EDWARD C. PRADO
JUDGE JAMES L. DENNIS
13
November 2, 2009
14
(Via Online Recording)
15

16 * * * * * * * * * * * * * * * * * *

17

18

19

20
file:////client/c$/Documents%20and%20Settings/jethomas/Desktop/BB-hearing.txt (1 of 114)BY THE EXAMINER PM]
10(e) OF THE RECEIVERSHIP ORDER IN RESPONSE TO ISSUES RAISED [11/9/2009 9:02:26


21

22

23

24

25


2

1 APPEARANCES

2
FOR THE RECEIVER:
3
Kevin Sadler
4 Baker Botts, LLP
98 San Jacinto Blvd., Suite 1500
5 Austin, Texas 78701

6 FOR THE SECURITIES AND EXCHANGE COMMISSION:

7 Michael Post
US Securities & Exchange Commission
8 Burnett Plaza Suite 1900
801 Cherry St Unit # 18
9 Fort Worth, Texas 76102-6882

10 THE EXAMINER:

11 John Little
Little Pedersen Fankhauser
12 901 Main St., Suite 4110
Dallas, Texas 75202
13
FOR THE APPELLEES:
14
Michael Quilling
15 Quilling Selander Cummiskey & Lownds, P.C.
2001 Bryan St., Suite 1800
16 Dallas, Texas 75201

17

18 INDEX

19 Page

20 Oral Argument by Mr. Sadler - - - - - - - - - - - - 3



21 Oral Argument by Mr. Little - - - - - - - - - - - - 21

22 Oral Argument by Mr. Quilling - - - - - - - - - - - 35

23 Oral Argument by Mr. Post - - - - - - - - - - - - - 44

24 Rebuttal by Mr. Sadler - - - - - - - - - - - - - - 48

25 Reporter's Certification - - - - - - - - - - - - - 57


3

1 **********

2 PROCEEDING

3 **********

4

5 ORAL ARGUMENT

6 MR. SADLER: This case arises

7 out of one of the largest Ponzi schemes ever to be

8 perpetrated in the United States. It is rivaled

9 probably only by the Madoff Ponzi scheme scandal.

10 There are thousands of victims scattered across

11 almost all of the 50 states, as well as victims in

12 other countries. Since this scheme collapsed and

13 following the filing of a lawsuit by the SEC, which

14 was in February, the receiver has been doing what

15 receivers always do when these Ponzi schemes

16 collapse, and that is, carry out the specific

17 court-ordered duty.

18 And we have a very specific

19 court-ordered duty to prosecute litigation to

20 recover assets traceable to this estate, and we're


21 doing that simply so that those assets can be

22 brought back into the estate and used to compensate

23 all the victims of this fraud; and there are

24 thousands.

25 That duty and how we are carrying out


4

1 really brings us to why we're here today on this

2 appeal and two fundamental legal questions for you,

3 the resolution to which will really affect how this

4 receivership proceeds. The first basic question is,

5 as it always is in Ponzi schemes -- and we've all

6 read about them. The way a Ponzi scheme works is,

7 funds are taken in by fraud, and then they are

8 diverted to all manner of different purposes.

9 One purpose for the diversion of the

10 funds is to pay out selectively to mask the fraud

11 and to keep it going. Because, of course, someone

12 running a Ponzi scheme, as soon as they stop making

13 those payments to some investors, people make claims

14 and the fraud is exposed.

15 And so the first important question

16 for this panel is, when funds are taken by fraud

17 from one investor and then are simply turned around

18 and used to selectively make partial payments to

19 other investors, do those funds remain assets

20 traceable to the estate which our court-ordered


21 mandate requires us to return to the estate to

22 benefit all the victims of the fraud and to use

23 those as compensation for those victims? And that

24 is the first fundamental question before you.

25 I submit to you that if you follow


5

1 the case of SEC versus George -- and it is cited in

2 our briefs, it is discussed extensively -- and it is

3 a case from the Sixth Circuit involving Ponzi

4 schemes, involving claims against investors who

5 receive preferential payments. And the Sixth

6 Circuit decided that those investors had to return

7 the money they received. Not just a portion of it,

8 not just what might have been called interest, but

9 they had to return all of it even though there was

10 no allegation of wrongdoing, even though there was

11 no allegation of complicity.

12 And the Sixth Circuit in SEC versus

13 George relied on this Court's opinion in Forex

14 Management for the proposition that investors who

15 were paid with other investors' stolen money have no

16 preferential right to retain that money, and that

17 deals -- yes, sir?

18 JUDGE GARWOOD: Is that a legal

19 difference between paying a -- somebody for services

20 or buying something with what you call stolen money,


21 or are you using it to pay some other investor who

22 has a claim?

23 MR. SADLER: There can be a

24 difference, and the other case that we cite to this

25 Court --

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