US SEC v. Infinity Grp Co , 226 F. App'x 217 ( 2007 )

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
4-5-2007
US SEC v. Infinity Grp Co
Precedential or Non-Precedential: Non-Precedential
Docket No. 06-4158
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 06-4158
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
v.
THE INFINITY GROUP COMPANY; GEOFFREY P. BENSON;
GEOFFREY J. O'CONNOR; FUTURES HOLDING COMPANY;
SLB CHARITABLE TRUST; SUSAN L. BENSON;
JGS TRUST; LINDSAY SPRINGER; BONDAGE BREAKER MINISTRIES
LINDSAY SPRINGER; BONDAGE BREAKER MINISTRIES,
THIRD-PARTY PLAINTIFFS
v.
THE UNION STATES OF THE CONSTITUTION, i.e.,
ALASKA; ALABAMA; ARKANSAS; ARIZONA; CALIFORNIA;
COLORADO; CONNECTICUT; DELAWARE; FLORIDA; GEORGIA;
HAWAII; IOWA; ILLINOIS; INDIANA; KANSAS; KENTUCKY;
LOUISIANA; MASSACHUSETTS; MARYLAND; MAINE; MICHIGAN;
MINNESOTA; MISSOURI; MISSISSIPPI; MONTANA; NORTH CAROLINA;
NORTH DAKOTA; NEBRASKA; NEW HAMPSHIRE; NEW JERSEY; NEW
MEXICO; NEVADA; NEW YORK; OHIO; OKLAHOMA; OREGON;
PENNSYLVANIA; RHODE ISLAND; SOUTH CAROLINA; SOUTH DAKOTA;
TENNESSEE; TEXAS; UTAH; VIRGINIA; VERMONT; WISCONSIN;
WEST VIRGINIA; WYOMING; WASHINGTON;
FEDERAL STATE DISTRICT OF COLUMBIA,
THIRD-PARTY DEFENDANTS
Edward W. Roberts,
Appellant
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
D.C. Civil Action No. 97-cv-5458
(Honorable Stewart Dalzell)
Submitted Pursuant to Third Circuit LAR 34.1(a)
March 6, 2007
Before: SCIRICA, Chief Judge, FUENTES and SMITH, Circuit Judges
(Filed: April 5, 2007)
OPINION OF THE COURT
PER CURIAM.
Edward W. Roberts invested $30,000 in an entity called the Infinity Group
Company Trust (“TIGC”), which turned out to be a “Ponzi” scheme that brought in some
$26.6 million from over 10,000 investors.1 The SEC obtained an order freezing TIGC’s
assets, and the District Court appointed a receiver to marshal those assets and hold them
in trust for distribution to the defrauded investors. Over 4,800 investors, including
Roberts, filed claims. The receiver ultimately recovered and distributed funds sufficient
to cover 55 percent of each claimant’s investment, which means that Roberts has
recouped $16,500.
1
The parties are familiar with the background of this case. All others are referred to
SEC v. Infinity Group Co., 212 F.3d 180 (3d Cir. 2000), which sets forth the nature and
history of the scheme in some detail.
2
The receiver decided that the only fair and practicable way of distributing TIGC’s
assets was on a pro rata basis to each investor. Roberts objected to this form of
distribution for the reason discussed below, but the District Court approved it and
overruled Roberts’s objection in 2000. Roberts filed an appeal, but we dismissed it for
lack of jurisdiction because the District Court had not yet entered a final order. The
District Court has now entered a final order terminating the receiver’s trusteeship and
again overruling Roberts’s (oft-renewed) objection, and Roberts appeals pro se from that
order. For the reasons that follow, we will affirm.2
District Courts have wide equitable discretion in fashioning distribution plans in
receivership proceedings, and we review the District Court’s order only for abuse of that
discretion. See Black, 163 F.3d at 199; SEC v. Fischbach, 133 F.3d 170, 175 (2d Cir.
1997). We do not believe that the District Court abused its discretion here. In the
original Ponzi scheme case, Cunningham v. Brown, 265 U.S. 1 (1924), the Supreme
Court held that “tracing” fictions should not be used to pursue individual recoveries when
a fraud ensnares multiple victims whose funds are commingled. See id. at 12-13.
Instead, the Court held that all innocent victims should share equally in the recovered
funds because equity demands equal treatment. See id.
Since then, the Courts of Appeals repeatedly have recognized that pro rata
distribution of a defrauder’s assets to multiple victims of the fraud is appropriate and that
2
We have jurisdiction pursuant to 28 U.S.C. § 1291.
3
District Courts act within their discretion in approving such distributions. See, e.g., SEC
v. Credit Bancorp, Ltd., 290 F.3d 80, 89 (2d Cir. 2002) (explaining that “the use of a pro
rata distribution has been deemed especially appropriate for fraud victims of a ‘Ponzi’
scheme” and collecting cases); United States v. 13328 and 13324 State Highway North,
89 F.3d 551, 553-54 (9th Cir. 1996) (collecting cases). This is so even when
circumstances that do not provide any equitable basis to distinguish between investors
make it possible to trace particular investors’ assets. See, e.g., Credit Bancorp, 290 F.3d
at 89 (affirming pro rata distribution where tracing possible as a result of “merely
fortuitous” events); United States v. Durham, 86 F.3d 70, 73 (5th Cir. 1996) (same); SEC
v. Forex Asset Mgmt. LLC, 242 F.3d 325, 331-32 (5th Cir. 2001) (affirming pro rata
distribution where objecting investors’ funds were segregated in a separate account and
never commingled).
Roberts, however, argues that he is entitled to the return of his full $30,000
investment because TIGC never actually had access to his money and $30,000 of the
funds remaining in its account when it was frozen can thus be traced directly to him.
Roberts invested his money by means of a $30,000 cashier’s check, which shows that
TIGC deposited it on August 25, 1997. According to Roberts, TIGC’s bank had a policy
of placing a three-day “hold” on cashier’s check funds and the actual funds thus would
not have become available to TIGC until August 28, 1997. On August 27, 1997,
however, the District Court entered two temporary restraining orders freezing TIGC’s
4
account. Thus, Roberts argues, his $30,000 never became available to TIGC and
necessarily remained in its account when the District Court froze it on August 27.
We will assume for present purposes the truth of Roberts’s allegations.3 Those
allegations, however, establish merely that it would have been possible to trace his
$30,000 to money remaining in the TIGC account, not that equity demanded he receive it
all back. According to Roberts, the bank policy on which he relies wound up depriving
TIGC of access to his funds solely by reason of the date on which TIGC deposited his
check. The mere fact that it did so just two days before its account was frozen does not
give Roberts equitable priority over the thousands of other victims of TIGC’s fraud.
Accordingly, the District Court determined that there is no equitable basis to distinguish
between early investors and those, like Roberts, who invested shortly before TIGC’s
account was frozen, and that all investors should thus be treated the same. (June 9, 2000
Order at 1; Aug. 28, 2006 Order at 2 n.1.) We cannot say that the District Court abused
its wide equitable discretion in so concluding. See, e.g., Credit Bancorp, 290 F.3d at 89;
Forex Asset Mgmt., 242 F.3d at 331-32.4
3
For this reason, we need not address Robert’s argument that he was denied “equal
protection” by the receiver’s or District Court’s alleged failure to investigate and establish
these allegations.
4
Roberts has not cited any legal authority. We have located one appellate decision that
potentially supports his position, but it is distinguishable. In Anderson v. Stephens, 875
F.2d 76 (4th Cir. 1989), a defrauder deposited certain of his victims’ checks in an account
one day after it had been frozen by court order, and the bank accepted the deposit despite
the freeze. Reasoning that the effect of the freeze was to prevent the defrauder from
(continued...)
5
The District Court’s order will be affirmed.
4
(...continued)
transacting business of any kind with the account, the Fourth Circuit held that the post-
freeze deposit was invalid and that the funds in question should have been returned in full
to the individual investors, not combined with the defrauder’s assets for pro rata
distribution. See id. at 79-80. Here, by contrast, TIGC deposited Roberts’s cashier’s
check two days before the District Court froze its account, so that deposit was perfectly
valid. Even if we were to find Anderson persuasive, that distinction is dispositive. We
further note that nothing in the District Court’s temporary restraining orders prevented
TIGC’s bank from crediting already-deposited funds to TIGC’s account after the freeze.
6