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Case 3:18-cv-00252-CWR-FKB Document 13 Filed 05/11/18 Page 1 of 4

UNITED STATES DISTRICT COURT


FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION

SECURITIES AND EXCHANGE


COMMISSION,

Plaintiff,

v. Civil Action No.


3:18 –cv-252-CWR-FKB
ARTHUR LAMAR ADAMS AND
MADISON TIMBER PROPERTIES,
LLC

Defendants,

MISSISSIPPI SECRETARY OF STATE’S UNOPPOSED


MOTION TO INTERVENE FOR THE LIMITED PURPOSE
OF OPPOSING THE SEC’S EXPEDITED MOTION
TO APPOINT TEMPORARY RECEIVER

The Mississippi Secretary of State (the “Secretary”) respectfully moves this Court, pursuant to

Fed. R. Civ. P. 24, for an order permitting the Secretary to intervene in the above-captioned action (the

“Madison Timber Action”) for the limited purpose of opposing the Securities and Exchange

Commission’s (“SEC”) Expedited Motion to Appoint Temporary Receiver and making his own

recommendation for the candidate to be chosen as the receiver in the above-styled action. In support of

this motion to intervene, the Secretary states as follows:

1. The Madison Timber Action was filed on April 20, 2018. The SEC filed its

complaint based on information and belief that Defendants committed securities fraud by operating a

Ponzi scheme, and it alleged that Defendants defrauded more than 150 investors out of at least $85

million.
Case 3:18-cv-00252-CWR-FKB Document 13 Filed 05/11/18 Page 2 of 4

2. The SEC requested injunctive relief that included freezing the assets of Defendants, relief

which requires the appointment of a receiver.

3. Defendant Adams, on April 20, 2018, entered a Consent Order, consenting to the

freezing of Defendants’ assets, to the appointment of a receiver, and to the transfer of all seized assets to

the Court-Appointed Receiver or the Registry of the Court.

4. On May 9, 2018, Defendant Adams pled guilty to a criminal charge of wire fraud.

5. On May 10, 2018, the SEC notified the Secretary of its intention to file its Expedited

Motion to Appoint Temporary Receiver with this Court, and it notified the Secretary that it was proposing

a Miami, Florida-based candidate for the position of receiver.

6. Defendants are Mississippi citizens. Upon information and believe, a large majority of

the investors in Defendants’ Ponzi scheme are Mississippi citizens.

7. Upon information and belief, most of the assets are situated in Mississippi.

8. The securities law violations alleged against Defendants, if proven, also constitute

violations of the Mississippi Security Act, under which the Secretary can assess fines, penalties, and other

sanctions such as restitution on behalf of Mississippi investors.

9. The Secretary has a significant interest in the appointment of receiver in this action, given

the number of Mississippi investors involved, significant assets being located in the State, the Secretary’s

own interest in the assets with respect to fines, penalties, and restitution to Mississippi investors, and the

receiver’s obligations and abilities to administer the recovery and restitution of investors’ funds. The

Secretary does not believe the SEC’s recommended appointment can protect those interests adequately

and effectively.

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10. The Secretary has an alternative receiver candidate, situated in Mississippi, to

recommend to this Court, as to avoid any undue delay or prejudice. A copy of the Secretary’s alternative

receiver is attached hereto as Exhibit “A”.

11. Because the Secretary is not a party to the Madison Timber action, the Secretary has no

avenue to oppose the SEC’s recommendation for appointment of receiver in this action, or recommend

an alternative candidate. But the Secretary is charged with enforcing the Mississippi Securities Act and

protecting Mississippi investors and has significant interests in the property that is the subject of the action

and therefore seeks to intervene.

12. The Secretary therefore respectfully submits that he is entitled to intervene as of right

pursuant to Fed. R. Civ. P. Rule 24(a)(2) because the Court’s appointment of receiver may impair the

Secretary’s ability to protect the interests of Mississippi investors harmed by this scheme and may impair

the Secretary’s ability to discharge his duties under the Mississippi Securities Act.

13. In accordance with Local Rule 7(b)(10), the Secretary has conferred with counsel for

Defendants and counsel for the SEC. The Motion is unopposed by both counsel for the Defendants and

counsel for the SEC.

THIS the 11th day of May 2018.

Respectfully Submitted,
C. DELBERT HOSEMANN, JR., in his Official
Capacity as MISSISSIPPI SECRETARY OF
STATE

BY: JIM HOOD, ATTORNEY GENERAL FOR THE


STATE OF MISSISSIPPI

BY: /s/ Douglas T. Miracle


DOUGLAS T. MIRACLE, MSB # 9648
SPECIAL ASSISTANT ATTORNEY GENERAL
OFFICE OF THE ATTORNEY GENERAL
CIVIL LITIGATION DIVISION
Post Office Box 220

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Jackson, Mississippi 39205


Telephone No. (601) 359-5654
Facsimile No. (601) 359-2003
dmira@ago.state.ms.us

OF COUNSEL
Jessica Leigh Long
Assistant Secretary of State
MSB #103316

Jeffrey L. Lee
Senior Attorney
MSB # 103180

Office of the Mississippi Secretary of State


Securities Division
125 S. Congress Street
Jackson, MS 39201
Telephone No. (601) 359-1650
Facsimile No. (601) 359-9070

CERTIFICATE OF SERVICE
I, Douglas T. Miracle, Special Assistant Attorney General for the State of Mississippi, do

hereby certify that on this date I electronically filed the foregoing document with the Clerk of

this Court using the ECF system, which sent notification of this filing to all counsel of record.

THIS the 11th day of May, 2018.

/s/ Douglas T. Miracle


DOUGLAS T. MIRACLE

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Case 3:18-cv-00252-CWR-FKB Document 12 Filed 05/10/18 Page 1 of 10

UNITED STATES DISTRICT COURT


SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION

SECURITIES AND EXCHANGE


COMMISSION,

Plaintiff,

v. Case No.

ARTHUR LAMAR ADAMS AND 3:18-cv-252-CWR-FKB


MADISON TIMBER PROPERTIES, LLC,

Defendants,

MEMORADUM OF LAW IN SUPPORT OF


EXPEDITED MOTION TO APPOINT TEMPORARY RECEIVER

In this securities fraud action, Plaintiff Securities and Exchange Commission

(“Commission”) respectfully moves the Court to appoint a temporary receiver over

Defendants’ assets to preserve them for the benefit of investors. Due to the continued

risk of dissipation of those assets, the Commission asks that the motion be heard as

expeditiously as the Court’s schedule permits.

I. Introduction and Background

In its Complaint, the Commission claims that, beginning in approximately

2004, Defendant Arthur Lamar Adams (“Adams”), through his wholly-owned


Case 3:18-cv-00252-CWR-FKB Document 12 Filed 05/10/18 Page 2 of 10

company, Madison Timber Properties, LLC (“MT Properties”), committed securities

fraud by operating a Ponzi scheme. [Dkt. 3, Compl., ¶ 1]. The Commission alleges

that Adams and MT Properties have raised at least $85 million from over 150

investors in multiple states. [Dkt. 3, Compl., ¶ 2].

Defendant Adams does not contest that he used MT Properties to conduct a

Ponzi scheme. At Adams’ change of plea hearing on May 9, 2018 in United States v.

Adams, No. 3:18-CR-88-CWR-LRA (S.D. Miss.), Adams pled guilty to the Bill of

Information filed against him for bank and wire fraud based on the same conduct.

Defendants and their agents still have control and possession of investor funds

as well as certain assets purchased with investor funds. Counsel for Defendant

Adams has identified interests owned by Adams in at least four real estate ventures.

See Exhibit A (May 8, 2018, Letter from John M. Colette). Upon information and

belief, Adams acquired at least some of these interests while the scheme alleged in

the Complaint was on-going. It is, thus, highly likely that such interests were

acquired, in whole or in part, with investor funds. Counsel for Adams has also

advised that several payments are coming due this month to maintain Adams’

ownership interests in these ventures. Id.

In addition, individual investors recently have filed lawsuits against Adams

and Madison Timber related to this scheme. See, e.g., Exhibit B. Absent a receiver

and the associated stay of third party litigation that would accompany his or her

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appointment, there will be a “race to the courthouse” and the attendant possibility for

certain investors to obtain preferential treatment with respect to Defendants’ assets.

The Commission’s ability to seek receivership serves as a critical tool in

enforcing the federal securities laws. In light of the estimated size of the fraud –

nearly $100 million – and the number of investors, a receiver is necessary in this case

to preserve and analyze Defendants’ and third parties’ documents and financial

records to determine the full extent of investor losses, to discover if there are viable

claims against third parties, and to establish a claims process to facilitate a fair and

orderly distribution of remaining assets to investors. Moreover, in order to marshal

and preserve Defendants’ assets and identify other possible assets for the benefit of

the defrauded investors, the Commission asks the Court to use its equitable powers to

appoint a receiver to take control of those assets.

The Commission therefore seeks the appointment of a temporary receiver who

will, within 60 days, file a report that includes a preliminary plan for the

administration of the receivership estate, including recommendations as to the most

efficient means for marshalling, liquidating and distributing assets within that estate.

The Court, with input from the Commission, can then better determine whether the

receivership should be continued.

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II. Equitable Power of District Courts to Order a Receivership

The Fifth Circuit and other courts have repeatedly emphasized the broad

equitable powers of district courts to shape remedies necessary to effectuate the

purposes of the federal securities laws, to preserve a defendant’s assets, and to ensure

that wrongdoers do not profit from their unlawful conduct. SEC v. Wencke, 622 F.2d

1393, 1371 (9th Cir. 1980); SEC v. Safety Fin. Serv., Inc., 674 F.2d 368, 372-73 (5th

Cir.1982) (“the district court has broad powers and wide discretion to determine . . .

relief in an equity receivership”); SEC v. Blatt, 583 F.2d 1325, 1335-1336 (5th Cir.

1978).

Based on long-standing principles of equity, a receiver serves as a disinterested

court officer who collects and possesses all property subject to the receivership,

known as the receivership “estate.” See, e.g., Atlantic Trust Co. v. Chapman, 208

U.S. 360, 370-71 (1908). The court holds custody of the receivership estate and

administers it through the receiver. Id.; see also Chicago Deposit Vault Co. v.

McNulta, 153 U.S. 554 (1894). The receiver’s possession, therefore, is the court’s

possession. Id. When a district court creates a receivership, the receiver’s focus is

“to safeguard the assets, administer the property as suitable, and to assist the district

court in achieving a final, equitable distribution of the assets if necessary.” Liberte

Capital Group, LLC v. Capwill, 462 F.3d 543, 551 (6th Cir. 2006).

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The decision to create a receivership rests in the Court’s discretion. Bookout v.

First Nat. Mortg. & Discount Co., Inc., 514 F.2d 757, 758 (5th Cir. 1975).

III. Appointment of an SEC Receiver is Well-Established in the Fifth Circuit

The Fifth Circuit has recognized that “[t]he appointment of a receiver is a

well-established equitable remedy available to the SEC in its civil enforcement

proceedings for injunctive relief.” SEC v. First Fin. Group of Texas, 645 F.2d 429,

438 (5th Cir. 1981); see also Netsphere, Inc. v. Baron, 703 F.3d 296, 306 (5th Cir.

2012) (“Thus, in cases of non-compliance with SEC regulations, a receiver may be

appointed to prevent the corporation from dissipating corporate assets and to pay

defrauded investors.”). This discretion derives from the inherent powers of an equity

court to fashion relief. Id.

The Fifth Circuit has also recognized that an evidentiary hearing is not

required on the Commission’s request to appoint a receiver where the record

discloses sufficient facts to warrant such an appointment. Bookout v. Atlas Fin.

Corp., 395 F. Supp. 1338, 1342 (N.D. Ga. 1974), aff’d, 514 F.2d 757 (5th Cir. 1975).

The Court may appoint a receiver on a prima facie showing of fraud and

mismanagement. See First Fin. Group, 645 F.2d at 438. Factors courts have

considered that indicate the need for a receivership include the following: “a valid

claim by the party seeking the appointment; the probability that fraudulent conduct

has occurred or will occur to frustrate that claim; imminent danger that property will

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be concealed, lost, or diminished in value; inadequacy of legal remedies; lack of a

less drastic equitable remedy; and likelihood that appointing the receiver will do

more good than harm.” Santibanez v. Wier McMahon & Co., 105 F.3d 234, 242 (5th

Cir. 1997), quoting Aviation Supply Corp. v. R.S.B.I. Aerospace, Inc., 999 F.2d 314,

316-17 (8th Cir. 1993).

IV. This Court Should Create a Receivership in this Case

Defendants do not dispute that they operated a Ponzi scheme that involved

hundreds of investors and close to a $100 million dollars. Indeed, Defendant Adams

has pled guilty to criminal charges of wire fraud and bank fraud based on the same

conduct. Thus, there is no dispute that fraudulent conduct occurred. It is in the

interest of justice, and to the benefit to the investors, to have a court-appointed

receiver to oversee the process of returning the remaining funds in as fair and

economical manner as possible. The appointment of a receiver will also prevent

investors from obtaining preferential treatment to Defendants assets by filing

individual lawsuits.

Moreover, in addition to the funds frozen in various accounts, there are a

number of illiquid assets at stake. Mr. Adams has invested in various real estate

projects. See Exhibit A (Letter from John M. Colette). These investments will likely

be included in the receivership estate because, among other things, Adams

presumably purchased or maintained some or all of those real estate projects with

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investor funds. Indeed, Adams’ counsel has advised that almost $200,000 in

payments to various real estate investments are coming due, and that such payments

must be made to preserve Adams’ interest in those investments. Id. A receiver is

needed to determine whether maintaining those investments is in the best interest of

defrauded investors, particularly because the potential estate has minimal liquid

assets at the moment.

Accordingly, the Court should appoint a receiver over Defendants’ assets to

marshal Defendants’ assets, and preserve and maximize their value for the benefit of

the defrauded investors.

V. The SEC’s Receiver Recommendation

Generally, courts rely on the SEC to recommend a receiver to the court.

Anticipating that the Court may ask the Commission to recommend a potential

receiver here, the Commission sought three proposals from individuals who have

served as receivers in other SEC cases. If the Court prefers to rely on the

Commission’s recommendation rather than select its own receiver, the Commission

respectfully recommends that the Court appoint Kenneth D. Murena, Esq., of

Damian & Valori, LLP, in Miami, Florida, as the receiver in this matter. See Exhibit

C (Murena’s résumé and list of receivership cases). Mr. Murena has extensive

experience serving as a receiver, both in SEC matters and other civil contexts, and in

particular he is very familiar with this sort of fraud and the types of assets that the

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Commission believes will compose the estate. While Mr. Murena is located in

Miami, he has committed that, if appointed, he will not bill the estate for expenses

incurred while traveling between Miami and Mississippi.

The Commission respectfully requests that this Court enter the proposed order

appointing Kenneth D. Murena as a temporary receiver over the Defendants’ assets.

VI. Conclusion

Based on the foregoing, the Commission respectfully requests that the Court

grant its motion and enter the proposed order appointing Kenneth D. Murena, Esq.,

of Damian & Valori LLP, as a temporary receiver over Defendants’ assets.

Dated this 10th day of May, 2018.

Respectfully submitted,

s/ W. Shawn Murnahan
W. Shawn Murnahan
Senior Trial Counsel
Georgia Bar No. 529940
Tel: (404) 842-7669
Email: murnahanw@sec.gov

M. Graham Loomis
Regional Trial Counsel
Georgia Bar No. 457868
Tel: (404) 842-7622
Email: loomism@sec.gov

Justin Delfino
Senior Counsel
Georgia Bar No. 570206
Tel: (404) 942-0698
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Email: delfinoj@sec.gov

COUNSEL FOR PLAINTIFF


Securities and Exchange Commission
Atlanta Regional Office
950 East Paces Ferry Road, N.E., Suite 900
Atlanta, GA 30326-1382
Tel (main): (404) 842-7600
Fax: (703) 813-9364

OF COUNSEL

D. Michael Hurst, Jr.


United States Attorney

s/Kristi H. Johnson
Kristi H. Johnson
Assistant United States Attorney
MS Bar No. 102891

Marc Perez
Assistant United States Attorney
WA Bar No. 33907

Civil Division
United States Attorney's Office
Southern District of Mississippi
501 East Court Street, Suite 4-430
Jackson, MS 39201
Tel: (601) 973-2887
Fax: (601) 965-4409

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UNITED STATES DISTRICT COURT


SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION

SECURITIES AND EXCHANGE


COMMISSION,

Plaintiff,

v. Case No. 3:18-CV-252-


CWR-FKB

ARTHUR LAMAR ADAMS AND


MADISON TIMBER PROPERTIES, LLC,

Defendants,

CERTIFICATE OF SERVICE

I hereby certify that on this day, I served a true and correct copy of the

Plaintiff’s Memorandum of Law in Support of its Expedited Motion to Appoint

Receiver on John M. Colette, Esq., as counsel for Defendants, via email and by

United Parcel Service.

Dated this 10th day of May, 2018.


Respectfully submitted,

s/Kristi H. Johnson
Kristi H. Johnson
Case 3:18-cv-00252-CWR-FKB Document 11 Filed 05/10/18 Page 1 of 6

UNITED STATES DISTRICT COURT


SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION

SECURITIES AND EXCHANGE


COMMISSION,

Plaintiff,

v. Case No.

ARTHUR LAMAR ADAMS AND 3:18-cv-252-CWR-FKB


MADISON TIMBER PROPERTIES, LLC,

Defendants,

EXPEDITED MOTION TO APPOINT TEMPORARY RECEIVER

Plaintiff Securities and Exchange Commission (“Commission”) files this

Expedited Motion for the Appointment of a Temporary Receiver for Defendants in

this matter. Due to the continued risk of dissipation of those assets, the Commission

asks that the motion be heard as expeditiously as the Court’s schedule permits.

In support of its motion, the SEC contemporaneously files a memorandum

brief and the following supportive exhibits:

Exhibit A: Letter from John M. Colette

Exhibit B: Individual Investor Lawsuit


Case 3:18-cv-00252-CWR-FKB Document 11 Filed 05/10/18 Page 2 of 6

Exhibit C: Murena’s résumé and list of receivership cases

As set forth in the Complaint, the Commission alleges that Defendants

defrauded numerous investors via a Ponzi scheme. While Defendants have not yet

responded to the Complaint, Defendants’ counsel has indicated that Defendants do

not contest the core allegation that they conducted a Ponzi scheme. Indeed, during

the change of plea hearing on May 9, 2018 in United States v. Adams, No. 3:18-CR-

88-CWR-LRA (S.D.Miss.), Defendant Adams pled guilty to the Bill of Information

filed against him for bank and wire fraud based on the same conduct.

Under these circumstances, a receiver is necessary to take control of the

Defendants’ assets for the benefit of investors in order to marshal and preserve those

assets. The primary purpose of equity receiverships in an SEC action is to promote

orderly and efficient administration of the estate by the district court for the benefit of

investors. SEC v. Hardy, 803 F.2d 1034, 1038 (9th Cir. 1986). “The appointment of

a receiver is a well-established equitable remedy available to the SEC in its civil

enforcement proceedings for injunctive relief.” SEC v. First Fin. Group of Texas,

645 F.2d 429, 438 (5th Cir. 1981). Moreover, because the Commission remains

concerned about the potential for dissipation of investor funds and assets, the

Commission requests that this motion be heard on an expedited basis.

Based on common law principles of equity, a receiver serves as a disinterested

court officer who collects and possesses all property subject to the receivership,

known as the receivership “estate.” See, e.g., Atlantic Trust Co. v. Chapman, 208
2
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U.S. 360, 370-71 (1908). The court holds custody of the receivership estate and

administers it through the receiver. Id.; see also Chicago Deposit Vault Co. v.

McNulta, 153 U.S. 554 (1894). The receiver’s possession, therefore, is the court’s

possession. Id. In this case, the Commission anticipates the receiver ultimately

distributing the estate assets back to defrauded investors.

The Commission’s ability to seek receivership serves as a critical tool in

enforcing the federal securities laws. In light of the estimated size of the fraud –

nearly $100 million – and the number of investors, a receiver is necessary in this case

to preserve and analyze Defendants’ and third parties’ documents and financial

records to determine the full extent of investor losses, to discover if there are viable

claims against third parties, and to establish a claims process to facilitate a fair and

orderly distribution of remaining assets to investors.

The Commission seeks the appointment of a temporary receiver who will,

within 60 days, file a report that includes a preliminary plan for the administration of

the receivership estate, including recommendations as to the most efficient means for

marshalling, liquidating and distributing assets within that estate. The Court, with

input from the Commission, can then better determine whether the receivership

should be continued.

The Commission, therefore, respectfully asks that the Court enter an order in

the form filed concurrently herewith appointing a temporary receiver in this case.

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Dated this 10th day of May, 2018.

Respectfully submitted,

s/ W. Shawn Murnahan
W. Shawn Murnahan
Senior Trial Counsel
Georgia Bar No. 529940
Tel: (404) 842-7669
Email: murnahanw@sec.gov

M. Graham Loomis
Regional Trial Counsel
Georgia Bar No. 457868
Tel: (404) 842-7622
Email: loomism@sec.gov

Justin Delfino
Senior Counsel
Georgia Bar No. 570206
Tel: (404) 942-0698
Email: delfinoj@sec.gov

COUNSEL FOR PLAINTIFF


Securities and Exchange Commission
Atlanta Regional Office
950 East Paces Ferry Road, N.E., Suite 900
Atlanta, GA 30326-1382
Tel (main): (404) 842-7600
Fax: (703) 813-9364

4
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OF COUNSEL

D. Michael Hurst, Jr.


United States Attorney

s/Kristi H. Johnson
Kristi H. Johnson
Assistant United States Attorney
MS Bar No. 102891

Marc Perez
Assistant United States Attorney
WA Bar No. 33907

Civil Division
United States Attorney's Office
Southern District of Mississippi
501 East Court Street, Suite 4-430
Jackson, MS 39201
Tel: (601) 973-2887
Fax: (601) 965-4409

5
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UNITED STATES DISTRICT COURT


SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION

SECURITIES AND EXCHANGE


COMMISSION,

Plaintiff,

v. Case No. 3:18-CV-252-


CWR-FKB

ARTHUR LAMAR ADAMS AND


MADISON TIMBER PROPERTIES, LLC,

Defendants,

CERTIFICATE OF SERVICE

I hereby certify that on this day, I served a true and correct copy of the

Plaintiff’s Expedited Motion to Appoint Temporary Receiver on John M. Colette,

Esq., as counsel for Defendants, via email and by United Parcel Service.

Dated this 10th day of May, 2018.

Respectfully submitted,

s/Kristi H. Johnson
Kristi H. Johnson
Case 3:18-cv-00252-CWR-FKB Document 11-1 Filed 05/10/18 Page 1 of 1

EXHIBIT
A