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RECEIVERSHIP OVERVIEWPresented By
Michael I. GoldbergAkerman Senterfitt
Fort Lauderdale, Florida
Florida – Ground Zero for FraudFlorida is first in:
• Medicare Fraud• Insurance Fraud• Mortgage Fraud• Ponzi Schemes
Why is Florida prone to Fraud?
• Large population of retirees with their life savings creates a pool of easy targets
• Fast paced culture – "keep up with the Joneses" attitude
• Liberal exemption laws• Nice weather – if you are going to commit a
fraud, you might as well do it in a place with nice weather, good golf courses and beaches
Equitable Emergency Remedies
Temporary restraining orders
Temporary removal of company officers
Asset freezes
Appointment of receivers
Actions Warranting a Receiver
• Partnership Disputes, Business Operations Disputes, Liquidation
• Dissolution, Partition, Divorce, Enforcement of Judgments
• Collections Process • Regulatory Actions – ie… Fraud, Securities
law violations
Justification for Seeking a Receiver
On-going fraud
Existing/significant assets
Danger of immediate dissipation
Protection of innocent investors and public
What is a Receiver?
• Receiver is an Officer of the Court• Receiver is a Fiduciary • Receiver is a Neutral Independent Third Party• Receiver does not work for the Regulators • Receiver Assumes the Decisions, Duties, Risks and Responsibilities of a Prudent Owner• Receiver is Completely Transparent• Receiver Reports Directly to the Court
Who Are Receivers
Lawyers
o Bankruptcy experienceo Asset protection/collectiono Not all SEC/DOJ alumni
Accountants
o Forensic experience
Bankruptcy trustees Property, probate and other specializations depending
on the circumstance
Receivership Basics
Court appoints at regulator's request
Receiver is agent/fiduciary of the Court, not the regulatory agency
General charge in receivership cases is to marshal assets for benefit of investors
Orders give receiver broad authority over all aspects of business
Receivership Procedural Issues• Complaint if prepared and filed with the Court alleging the elements of
fraud and violations of the applicable regulatory scheme
• Motion for Preliminary Injunction, Asset Freeze and the Appointment of a Receiver filed along with Complaint
• Affidavits filed in Support of Motion
• Appointment by Ex-Parte Emergency Application
• Appointment by Noticed Motion - rare for a regulator to give notice
• Court Order Describes the Receivership Scope of Duties of Receiver
Order Appointing Receiver• The Receiver derives his authority from the Court’s Order
Appointing the Receiver• Important for the Regulator to take time drafting it. Must
look ahead to see what type of receivership it is and what Receiver’s duties will be
• Regulator should speak with the Receiver prior to submitting the order and allow the Receiver to comment on the Order
• In the end, the scope of the Receiver’s duties will be up to the Court
• The Receiver can petition the Court to expand powers
Order Appointing Receiver Take physical custody/control
o Employeeso Computerso Lockso Security
Access to/control of all financial/other recordso Bankso Brokerage accountso All other financial records
Physical assetso Buildingso Equipmento Propertyo Vehicles
Order Appointing Receiver
• Operate/shut down businesso Typical fraud case does not involve ongoing, legitimate businesso Occasional exceptions – (Worldwide Entertainment)
Leases/property disposal
Liabilities/creditors – typically creditor actions will be enjoined
Taxes
Change bank accounts
Permission to send official communications to parties in interest by email or web posting
Order Appointing Receiver Undertake new litigation to recover assets –
“clawbacks”
Employees/principals required to cooperate
Communicate with investors, creditors, suppliers, vendors, etc.
Retain professionals – lawyers, accountants, others
Resolve/continue existing litigation
General Receivership Guidelines
• Regular Financial Reports Filed with Court • Receiver’s Fees and Expenses Must be Approved by Court • Distribution of Funds According to the Court Order Only• “Ordinary” versus “Out of Ordinary” course of
business• Transparency is the key – when it doubt, err on the
side of caution
First Days of a Typical Receivership• File Surety Bond with the Court if required• SEC Actions - Record a copy of the Order Appointing
Receiver and Complaint in all jurisdictions where you believe property or defendants are located within first 10 days
• Serve Freeze Order on Financial Institutions• Subpoena Financial Institutions • Secure Computers and back-up all files—”ghost
image” – shut down remote access• Demand Turnover of Books, Records, Reports, Mail,
etc…
First Days of Typical Receivership
• Interview Management and Employees and replace as necessary
• Secure Real Estate and Physical Assets• File Suggestions of Receivership in pending
actions• Communicate with creditors by letter• Set up Website and toll free numbers to
communicate with investors• Hire Professionals
First Days of a Receivership
• Set Up New Receivership Bank Accounts• Take Inventory of All Property• Start Forensic Analysis of Income• Create Master “Ins and Outs” Database. This
Database will serve as the cornerstone of all dealings with creditors – claim amount, “clawbacks”, etc…
Regulator vs. Receiver Role
Regulator prosecutes underlying lawsuit. Typically seeks an injunction preventing further violations of the law and a judgment against the Defendant
Receiver marshals assets, investigates claims and deals with creditors. Even though independent, the Receiver may assist regulator.
Receiver brings fraudulent transfer (ie… “clawback”) actions, third party claims, malpractice claims, etc…