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

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