In Re Richard G. Sherman in Re Andrea Pearl Sherman, Debtors, Richard G. Sherman Andrea Pearl Sherman v. Securities and Exchange Commission

AMENDED OPINION

Richard Sherman (Sherman) was the attorney for several defendants in an enforcement action brought by the Securities and Exchange Commission (SEC) and in other actions in which those defendants were parties. Sherman and his wife, Andrea Sherman, filed a Chapter 7 bankruptcy petition. The SEC brought a motion to dismiss the Shermans’ Chapter 7 bankruptcy petition pursuant to 11 U.S.C. § 707 (a), maintaining that there was “cause” for dismissal. Although the bankruptcy court denied the SEC’s motion, the district court reversed.

We are presented with three questions on appeal. First, we must consider whether the SEC has standing. The SEC has an interest in the Shermans’ bankruptcy petition because part of the debt that the Shermans sought to discharge resulted from orders against Sherman issued in the SEC enforcement action. Before the district court decided the appeal, however, Sherman and Thomas Lennon, the receiver appointed in the SEC action (Receiver), entered into a settlement agreement. We must initially decide whether the SEC had an interest in the Shermans’ bankruptcy petition sufficient to confer standing. We must then decide whether the settlement…