RECEIVERSHIP OVERVIEW

RECEIVERSHIP OVERVIEW Presented By Michael I. Goldberg Akerman 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 • Bankruptcy experience • Asset protection/collection • Not all SEC/DOJ alumni • Accountants • 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 • Employees • Computers • Locks • Security • Access to/control of all financial/other records • Banks • Brokerage accounts • All other financial records • Physical assets • Buildings • Equipment • Property • Vehicles

Order Appointing Receiver • Operate/shut down business • Typical fraud case does not involve ongoing, legitimate business • Occasional exceptions – (Worldwide Entertainment) • Leases/property disposal • Liabilities/creditors – typically creditor actions will be enjoined • Mail • 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…

Claims Process • Net Winner vs. Net Loser Approach • Rising Tide Formula

Terminating the Receivership • File Final Tax Returns – if you don't there is potential personal liability • Final Distribution • Final Report • Motion to Terminate Receivership, Discharge Receiver • Motion to Destroy All Documents

RECEIVERSHIP OVERVIEW