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Securities and Exchange Commission v. Alleca

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

November 16, 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. UNITED STATES DISTRICT JUDGE

         This matter is before the Court on The Meyers Group, Inc.'s (“TMG”) Motion for Court Conference [132] and Receiver Robert D. Terry's (the “Receiver”) Motion to Modify the Distribution Plan [133].

         I. BACKGROUND

         A. The Appointment of the Receiver

         On September 18, 2012, the SEC filed its Complaint [1], asserting securities fraud claims against Defendants Angelo A. Alleca (“Alleca”), Summit Wealth Management, Inc (“SWM”), Summit Investment Fund, LP (“SIF”), Asset Class Diversification Fund, LP (“ACDF”) and Private Credit Opportunities Fund, LLC (“PCOF” and together with SIF and ACDF, the “Summit Funds”). 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 SWM and the Summit Funds (the “Receivership Entities.”) ([9] at 2).

         B. The Receiver's Distribution Plan

         On June 6, 2017, the Receiver filed his original plan of distribution ([120], as amended [125], the “Original 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 Original Plan. ([125]).

         As of the filing of the Receiver's motion to approve the Original Plan, the receivership had approximately $1, 811, 065 in cash, of which the Receiver sought to distribute $1, 394, 736.25 to the claimants. ([120] at 14; [129] at 3). The Receiver further sought 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 Receivership Assets, terminating the Receivership, and other administrative costs.” ([120] at 14; [129] at 3).

         C. The September 19, 2017, Hearing

         On September 19, 2017, the Court held a hearing on the Receiver's Original Plan, his Motion for Special Distribution, and Alexandria Capital's Objection to the Original Plan. Only the Receiver and his counsel attended the hearing. The Receiver told the Court that his proposed Original Plan should be modified (the “Modified Plan”) to ensure that claimants are treated consistently. (Plan of Distribution Hearing Transcript (Sept. 19, 2017) (“Tr.”) at 3). Specifically, the Receiver sought to cancel his proposed distributions to TMG and the Bank of North Georgia (“BNG”).[1]

         The Original Plan proposed distributing $123, 829.67 to TMG and $28, 722.08 to BNG. ([125.1] at 6). Both claims are based on promissory notes under which Defendants agreed to pay the TMG and BNG a certain sum of money. (Tr. at 3). Before the Receiver was appointed, Defendants paid some, but not all, of the money owed to TMG and BNG under the promissory notes. The Original Plan reduces the value of TMG's and BNG's “allowed claims”-that is, the amount from which they are entitled to a 14.5% recovery-by the amount of the partial payments they previously received. ([125.1] at 6). The Receiver argued at the hearing that, to conform to his treatment of other claimants, the partial payments should be deemed “pre-receivership withdrawals” rather than amounts by which the “allowed claims” are reduced. The Receiver stated that, if the partial payments constitute pre-receivership withdrawals, TMG and BNG are not entitled to any distributions because they previously received more than 14.5% of the value of their promissory notes. (Tr. at 3-4, 7-8, 10). The Receiver asked the Court to approve the Original Plan except for the proposed distributions to TMG and BNG.

         The Receiver provided further information about TMG to illustrate the basis of his request. He stated that, in 2010, TMG sold several brokerage accounts to Defendants for $1, 221, 582. Defendants agreed to pay this purchase price in three installments of $407, 194. Defendants made the first payment but defaulted on the remaining payments required under the promissory note. The Original Plan reduces TMG's $1, 221, 582 claim by $407, 194, the amount of the payment that TMG previously received from Defendants. This produces an allowed claim of $814, 338, from which the Original Plan proposed to distribute at least $118, 086, or 14.5%, to TMG. (See [120] at 25; [125]). The Receiver argued at the hearing that the allowed claim should be the full price of the promissory note, $1, 221, 582, and that the $407, 194 payment previously ...


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