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Securities and Exchange Commission v. Alleca

United States District Court, N.D. Georgia, Atlanta Division

September 21, 2017

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
ANGELO A. ALLECA, SUMMIT WEALTH MANAGEMENT, INC., SUMMIT INVESTMENT FUND, LP, ASSET CLASS DIVERSIFICATION FUND, LP, and PRIVATE CREDIT OPPORTUNITIES FUND, LLC, Defendants.

          OPINION AND ORDER

          WILLIAM S. DUFFEY, JR. I UNITED STATES DISTRICT JUDGE

         This matter is before the Court on Receiver Robert D. Terry's (“Receiver”) Motion to Approve Plan of Distribution [120], as amended [125] (“Distribution Plan”), Receiver's Motion for Special Distribution [129], and Claimant Alexandria Capital, LLC's (“Alexandria Capital”) Objection to Receiver's Motion to Approve Plan of Distribution [127] (“Objection”).

         I. BACKGROUND

         A. Defendants' Fraudulent Scheme

         Plaintiff Securities and Exchange Commission (the “SEC”) alleges that, in 2004, Defendant Angelo A. Alleca (“Alleca”) formed Summit Investment Fund, LP (“SIF”), a private fund for which he solicited investments from clients of his investment advisory firm, Summit Wealth Management, Inc (“Summit Wealth Management”). (Compl. ¶ 2). Alleca misrepresented to investors that SIF operated as a “fund-of-funds” when, in fact, starting in 2006, he used the funds' assets to trade securities, incurring substantial losses. (Compl. ¶ 2).

         To cover the losses, Alleca started at least two additional funds, Asset Class Diversification Fund, LP (“ACDF”) and Private Credit Opportunities Fund, LLC (“PCOF”). (Compl. ¶ 3). He raised capital for the funds by selling interests in them to clients of Summit Wealth Management. (Compl. ¶ 3). Alleca used these proceeds to satisfy redemption requests made by SIF investors. (Compl. ¶ 5). ACDF and PCOF ultimately incurred losses. (Compl. ¶ 3).

         Summit Wealth Management concealed the losses from its advisory clients, including by issuing false account statements to approximately 200 of its clients. (Compl. ¶¶ 4, 23). SIF, ACDF and PCOF (together, “Summit Funds”) also used false account statements to conceal the losses from their investors. (Compl. ¶ 4). Alleca exercised control over Summit Wealth Management and the Summit Funds (together, the “Receivership Entities”), and dissipated most of the $17 million invested in the funds. (Compl. ¶¶ 4, 6).

         On September 18, 2012, the SEC filed its Complaint [1], asserting securities fraud claims against Alleca and the Receivership Entities (together, “Defendants”). The next day, the Court froze Defendants' assets and enjoined Defendants from violating the securities laws. ([7]). On September 21, 2012, the Court appointed Robert D. Terry as receiver for the estate of the Receivership Entities. ([9] at 2). On November 21, 2012, the Court modified its September 21, 2012, Order to stay all litigation against the Receiver and the Receivership Entities. ([27]).

         On December 15, 2015, a grand jury in the Northern District of Georgia returned an Indictment charging Alleca with one count of conspiracy to commit mail and wire fraud, one count of conspiracy to commit wire fraud, one count of conspiracy to commit money laundering, six counts of mail fraud, and eight counts of wire fraud, all arising out of Alleca's alleged securities fraud. United States v. Angelo Alleca, No. 1:15-CR-458-LLM-AJB-1 (N.D.Ga. Dec. 15, 2015).[1]On May 26, 2016, Alleca pleaded guilty to one count of conspiracy to commit mail and wire fraud, and one count of conspiracy to commit wire fraud. Id.

         The remaining counts were dismissed. Id. Alleca was sentenced to 96 months in prison and 3 years of supervised release. Id.

         B. The Receiver's Distribution Plan

         On June 6, 2017, the Receiver filed his Distribution Plan, proposing to distribute the receivership assets pursuant to the “rising tide” methodology. Under this allocation method:

[T]he Receiver will deduct the amount of a Claimant's pre-receivership withdrawals after calculating the investor's pro rata share of any distribution. If the result is negative-meaning that the Claimant has already received pre-receivership withdrawals in excess of his or her calculated pro rata share of a distribution-that Claimant will not participate in that distribution, although he or she may participate in later distributions. This method preserves assets for those Claimants who have received nothing thus far and recognizes that some Claimants have already recovered a substantial percentage of their investment.

([120] at 18); see Commodity Futures Trading Comm'n v. Equity Fin. Grp., Inc., No. 04-cv-1512, 2005 WL 2143975, at *24 (D.N.J. Sept. 2, 2005) (discussing the rising tide methodology). “If approved, after taking into account any money received by investors prior to the Receivership, this distribution [plan] will represent a minimum recovery percentage among included Claimants of [14.5%].” ([120] at 14; [125] at 3; [125.1] at 1). On July 17, 2017, the Receiver filed minor amendments to his Distribution Plan. ([125]).

         On September 12, 2017, the Receiver filed his Motion for Special Distribution, proposing to distribute $34, 736.25 to a claimant who was inadvertently omitted from the Distribution Plan. This additional distribution does not affect the amounts distributed to other claimants under the Distribution Plan.

         The receivership has approximately $1, 811, 065 in cash, of which the Receiver seeks to distribute $1, 394, 736.25 to the claimants. ([120] at 14; [129] at 3). The Receiver intends to retain the remaining $416, 328.75 “for the purposes of paying accrued but unpaid expenses of the receivership (including the expenses of the Receiver, his counsel and his accountants), to cover the cost of disposing of ...


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