1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 SECURITIES AND EXCHANGE Case No.: 19-cv-1628-LAB-AHG

COMMISSION,

12

ORDER:

Plaintiff, 13 v. 1) APPROVING RECEIVER'S 14

RECOMMENDED TREATMENT

GINA CHAMPION-CAIN and ANI 15 OF CLAIMS (ALLOWED,

DEVELOPMENT, LLC,

DISALLOWED, DISPUTED),

16 Defendants, and [Dkt. 807-12, 807-15, 853-3]; 17

AMERICAN NATIONAL

2) APPROVING DISTRIBUTION 18 INVESTMENTS, INC., METHODOLOGY, [Dkt. 807]; 19 Relief Defendant. 3) APPROVING PROPOSED 20

DISTRIBUTION PLAN,

21 [Dkt. 807]; and

22 4) GRANTING LEAVE TO FILE 23 EXCESS PAGES, [Dkt. 806] 24 25 Krista Freitag (the “Receiver”), the Court-appointed permanent receiver for 26 Defendant ANI Development, LLC, Relief Defendant American National 27 Investments, Inc., and their subsidiaries and affiliates (the “Receivership 28 Entities”), moved for an order approving the Receiver’s (1) recommended 1 treatment of claims (allowed, disallowed, disputed), (2) distribution methodology, 2 and (3) proposed distribution plan (the “Distribution Motion”). (Dkt. 807). The 3 Receiver’s motion was opposed by numerous interested non-parties. (Dkt. 827, 4 831, 837, 838, 840, 921). 5 Following proper notice and a hearing on the motion, and having considered 6 the filings, arguments of counsel, and relevant law, the Court OVERRULES the 7 objections; GRANTS the Distribution Motion; and APPROVES the Receiver’s 8 recommended treatment of claims, distribution methodology, and distribution 9 plan. 10 I. BACKGROUND 11 A. SEC Action and Claims Process 12 In August 2019, the U.S. Securities and Exchange Commission (“SEC”) 13 initiated this enforcement action against Gina Champion-Cain, ANI Development, 14 LLC, and American National Investments, Inc., alleging that Champion-Cain 15 defrauded investors through a fraudulent, multi-level investment scheme she 16 operated through the defendant entities. (See generally Dkt. 1, Compl.). The 17 Court appointed the Receiver to manage the Receivership Entities, accounting for 18 their assets and distributing funds received through illegal conduct back to 19 investors. (Dkt. 6). 20 To determine the Receivership Estate’s liability, the Receiver conducted a 21 forensic accounting and, with the Court’s approval, (Dkt. 716), calculated (1) net 22 loss amounts for each investor with the money-in, money-out (“MIMO”) method 23 and (2) each investor’s prior recovery rate. (Dkt. 807-1 at 8). MIMO net losses 24 were found by taking the total amount an investor paid into the scheme (money-in) 25 and subtracting the total amount the investor received back in payments 26 (money-out). (Id.). The net loss amounts were then reduced by the amount each 27 investor received from settlements with third parties. (Id.). The calculations didn’t 28 consider additional amounts claimed by investors such as interest, lost profits, or 1 attorneys’ fees. (Dkt. 681-1 at 15). Following the Receiver’s motion, (Dkt. 681), 2 the Court approved procedures for the administration of investor claims against 3 the Receivership Estate; set the claims bar date; and approved claims bar date 4 notices, proof of claim forms, and W9 forms. (Dkt. 716). The Receiver sent claims 5 bar date notices, proof of claim forms, and W9 forms to all known investors. 6 (Dkt. 807-1 at 8). Each proof of claim form contained the recipient’s individualized 7 MIMO net loss calculation with transaction level detail. (Id.). Potential 8 investor-claimants were permitted to challenge the Receiver’s calculations by 9 providing additional documentation. (Id.) After reviewing all claimant submissions, 10 the Receiver sent additional materials to those claimants with deficiencies or 11 specific claim disputes. (Id. at 5). The Receiver also reviewed claims from the 12 Receivership Entities’ trade and tax creditors. (Dkt. 807 at 27–31). 13 In addition to administering the claims process, the Court authorized the 14 Receiver to pursue and, when possible, settle clawback claims against 15 non-parties that profited from the fraudulent scheme. (Dkt. 493, 551). The Court 16 recently approved the $24 million settlement agreement the Receiver reached 17 with Chicago Title Company and Chicago Title Insurance Company (collectively, 18 “Chicago Title”). (Dkt. 927). That settlement agreement will pay investors that 19 joined the settlement 70% of their MIMO net losses, while those that didn’t join 20 will receive 100% of their MIMO net losses. (Dkt. 795-1 at 18–19). The Receiver 21 estimates the Chicago Title settlement will “pave the way” for an aggregate 22 investor recovery between 90% and 95%. (Id. at 5). 23 // 24 // 25 // 26 // 27 // 28 // 1 B. Recommendation for the Treatment of Claims, Proposed 2 Distribution Methodology, and Proposed Distribution Plan 3 At the conclusion of the claims review process, the Receiver filed the 4 Distribution Motion, asking the Court to approve the recommended treatment of 5 claims, proposed distribution methodology, and proposed distribution plan.1 6 (Dkt. 807). The Distribution Motion details the Receiver’s forensic accounting and 7 review of disputed claims and recommends which claims should be allowed and 8 disallowed. The Receiver also recommends the claim amount for each allowed 9 claim based on her MIMO net loss calculations. The proposed allowed claims and 10 their amounts, as revised, are attached as Exhibit A to the Receiver’s 11 supplemental declaration in support of the motion (the “Receiver’s Supplemental 12 Declaration”). (Dkt. 853-3). The proposed disallowed claims are attached as 13 Exhibit I to the Receiver’s declaration in support of the motion (the “Receiver’s 14 Declaration”). (Dkt. 807-12). The proposed treatment of claims by trade and tax 15 creditors is attached as Exhibit L to the Receiver’s Declaration. (Dkt. 807-15). To 16 expedite distributions, the Receiver proposes procedures for making future 17 adjustments to approved claims (including amounts) and requests the authority to 18 file a “Notice of Allowed Claim Adjustment” as necessary. (Dkt. 807-1 at 31–32). 19 In addition to recommending treatment for each claim, the Receiver also 20 proposes a distribution plan and distribution methodology. (Id. at 10–11, 31–34). 21 To determine distribution amounts for each claimant, the Receiver recommends 22 using the Rising Tide distribution methodology. (Id. at 10–11). The Rising Tide 23 method seeks to bring all claimants to an equivalent rate of recovery by 24

25 1 The Receiver filed an ex parte motion for leave to file a memorandum in support of the Distribution Motion in excess of the twenty-five-page limit imposed by Civil 26 Local Rule 7.1(h). (Dkt. 806). The Receiver concurrently filed the Distribution 27 Motion and overlength supporting memorandum, (Dkt. 807-1), which the Court took into consideration in reaching its decision. Good cause appearing, the 28 1 considering pre- and post-receivership recoveries. (Id.) A detailed description of 2 the mechanics of the Rising Tide distribution methodology is attached as Exhibit B 3 to the Receiver’s Declaration. (Dkt. 807-5). The proposed distribution plan is 4 attached as Exhibit A to the Receiver’s Declaration. (Dkt. 807-4). The Receiver 5 also proposes procedures for making interim distributions to holders of allowed 6 claims and requests the authority to determine, in her business judgment, the 7 appropriate total amount of distributable Receivership funds and file a “Notice of 8 Interim Distribution.” (Dkt. 807-1 at 32–34). 9 The Receiver filed the Distribution Motion on May 31, 2022, (Dkt. 807), and 10 the Court set a set a ninety-day briefing and hearing schedule, (Dkt. 812). The 11 Court permitted interested non-parties opposing the Distribution Motion 12 (“Objectors”) to file opposition briefs, (id.); allowed interested claimants and 13 Objectors to attend the hearing both in person and telephonically, (Dkt. 874); 14 heard oral argument on the Distribution Motion, (see, e.g., Dkt. 884 at 6:22–9:21, 15 32:19–36:1, 48:14–49:25); and permitted supplemental briefing after the hearing, 16 (Dkt. 914, 921, 922). 17 II. LEGAL STANDARD 18 The “primary purpose of equity receiverships is to promote orderly and 19 efficient administration of the estate by the district court for the benefit of 20 creditors.” SEC v. Hardy, 803 F.2d 1034, 1038 (9th Cir. 1986). “[A] district court’s 21 power to supervise an equity receivership and to determine the appropriate action 22 to be taken in the administration of the receivership is extremely broad.” Id. 23 at 1037; see also SEC v. Lincoln Thrift Ass’n, 577 F.2d 600, 606 (9th Cir. 1978) 24 (“[I]t is a recognized principle of law that the district court has broad powers and 25 wide discretion to determine the appropriate relief in an equity receivership.”). This 26 “authority derives from the inherent power of a court of equity to fashion effective 27 relief,” SEC v. Wencke, 622 F.2d 1363, 1369 (9th Cir. 1980), and includes the 28 ability to distribute receivership assets, see, e.g., SEC v. Elliott, 953 F.2d 1560, 1 1569 (11th Cir. 1992). Any distribution should be done fairly and equitably. Id. 2 When administering the distribution of receivership assets, federal district 3 courts may “make rules which are practicable as well as equitable,” including 4 approving the use of summary procedures. Hardy, 803 F.2d at 1038, 1040; see 5 also Elliott, 953 F.2d at 1566 (citing Wencke, 783 F.2d at 837; United States v. 6 Ariz. Fuels Corp., 739 F.2d 455, 460 (9th Cir. 1984)) (“A summary proceeding 7 reduces the time necessary to settle disputes, decreases litigation costs, and 8 prevents further dissipation of receivership assets.”). Specifically, “[r]eceivership 9 courts have the general power to use summary procedure in allowing, disallowing, 10 and subordinating the claims of creditors.” Ariz. Fuels, 739 F.2d at 458; see also 11 Wencke, 783 F.2d at 836–38 (approving summary proceedings to adjudicate 12 claims on receivership assets); SEC v. Universal Fin., 760 F.2d 1034, 1037 13 (9th Cir. 1985) (same). Generally, it is the claimant’s burden to establish a valid 14 claim against the receivership estate. Lundell v. Anchor Constr. Specialists, Inc., 15 223 F.3d 1035, 1039 (9th Cir. 2000) (describing the general rule that, in the 16 bankruptcy context, creditors must establish a valid claim against the debtor); see 17 also SEC v. Cap. Consultants, LLC, 397 F.3d 733, 745 (9th Cir. 2005) (finding 18 bankruptcy law “analogous” to and, therefore, persuasive in the administration of 19 receivership estates). 20 The Court considers the Distribution Motion under traditional principles of 21 equity. First among these is the principle that “equity demands equal treatment of 22 victims in a factually similar case.” Cap. Consultants, 397 F.3d at 738–39; see 23 also SEC v. Enter. Tr. Co., No. 08 C 1260, 2008 WL 4534154, at *3 (N.D. Ill. 24 Oct. 7, 2008) (“There are no hard rules governing a district court’s decisions in 25 matters like these. The standard is whether a distribution is equitable and fair in 26 the eyes of a reasonable judge.”). 27 // 28 // 1 III. DISCUSSION 2 Objectors oppose the proposed treatment of their claims and the proposed 3 distribution plan. For the following reasons, the Court OVERRULES their 4 objections. 5 A. Claims Treatment 6 Objectors oppose the Receiver’s proposed treatment of claims, including 7 the Receiver’s use of the MIMO method to calculate net losses and the exclusion 8 of consequential losses. The Court received individualized oppositions from: 9 2Budz Holding, LLC, Wakefield Capital, LLC, and Wakefield Investments, LLC 10 (collectively, the “Wakefield Investors”), (Dkt. 840); and Peterson Funding, LLC 11 and ABC Funding, LLC (collectively, the “Peterson Entities”), (Dkt. 831).2 The 12 Wakefield Investors and the Peterson Entities object to the Receiver’s treatment 13 of their individual claims. For the following reasons, the Court agrees with the 14 Receiver’s proposed claims treatment and OVERRULES the objections. The 15 Court APPROVES the proposed allowed claim amounts set forth in Exhibit A to 16 the Receiver’s Supplemental Declaration, (Dkt. 853-3), and Exhibit L to the 17 Receiver’s Declaration, (Dkt. 807-15). The Court DISALLOWS the claims set 18 forth in Exhibits I and L to the Receiver’s Declaration. (Dkt. 807-12, 807-15). 19

20 2 The Court received an opposition and joinders to oppositions objecting to the 21 use of the MIMO method and exclusion of interest and attorneys’ fees from 22 Objectors Susan Heller Fenley Separate Property Trust, Susan Heller Fenley Inherited Roth IRA, Shelley Lynn Tarditi Trust, Payson R. Stevens, Kamaljit K. 23 Kapur, and the Payson R. Stevens & Kamaljit Kaur Kapur Trust. (Dkt. 828, 830, 24 836). The Court also received a joinder from Objector ROJ, LLC. (Dkt. 838). The Court considered these filings in reaching its decision, but, because they raise 25 objections applicable to all Objectors, they aren’t discussed individually. 26 The Court also received an opposition from Objector Chicago Title objecting to 27 the Receiver’s proposed treatment of their claims. (Dkt. 827). However, the Court approved the settlement agreement between Chicago Title and the Receiver, and 28 1 Additionally, the Court APPROVES the proposed procedures for making 2 adjustments to allowed claims (including amounts) and prior recovery rates and 3 AUTHORIZES the Receiver to a file a “Notice of Allowed Claim Adjustment.” 4 (Dkt. 807-1 at 31–32). 5 1. Money-in, Money-out Net Loss Calculation Method 6 The Receiver used the money-in, money-out (“MIMO”) method to calculate 7 net losses for each investor. Several investors object to the use of MIMO and the 8 exclusion of interest and attorneys’ fees from the net loss calculations. (See, e.g., 9 Dkt. 828 at 3, Dkt. 840 at 7–9). The Wakefield Investors also object to MIMO 10 because it excludes the value of their claims against Chicago Title. (Dkt. 840 at 8). 11 The MIMO method of calculating net losses has been endorsed by numerous 12 courts as an “administratively workable and equitable method of allocating the 13 limited assets of the receivership.” Cap. Consultants, 397 F.3d at 737–38; see 14 also CFTC v. Topworth Int’l, Ltd., 205 F.3d 1107, 1116 (9th Cir. 1999) (approving 15 a net loss calculation method equivalent to MIMO); In re Tedlock Cattle Co., 552 16 F.2d 1351, 1352 (9th Cir. 1977) (same); SEC v. Total Wealth Mgmt., Inc., No. 15- 17 cv-226-BAS-RNB, 2018 WL 4353151, at *2 (S.D. Cal. Sept. 11, 2018) (“[T]he 18 MIMO method thus appears to be a reasonable and practical method to ascertain 19 the size of allowable claims against distributable assets.”). MIMO remains an 20 equitable method when the amount of allowed claims is reduced by the amount 21 received from third-party settlements. See Cap. Consultants, 397 F.3d at 738–39 22 (describing MIMO calculations which allowed partial reduction in claims for 23 claimants receiving third-party recoveries as “administratively workable and 24 equitable”). A receivership court may delay recovery on claims for interest and 25 attorneys’ fees by excluding these claims from net loss calculations. See SEC v. 26 Francisco, No. 8:16-cv-2257-CJC-DFM, slip op. at 6–17 (C.D. Cal. May 13, 27 2019), ECF No. 340 (approving receiver’s proposal to allow investor claims based 28 on MIMO calculations and disallow non-investor claims for interest, consequential 1 damages, and attorneys’ fees). 2 This Court previously approved the Receiver’s proposal to use the MIMO 3 method to calculate net losses and to exclude additional amounts claimed as 4 consequential damages—including interest, lost profits, or attorneys’ fees—until 5 such time the Receivership pays all MIMO net losses in full. (Dkt. 716). Based on 6 that approval, the Receiver calculated net loss amounts and prior recovery rates 7 for each investor without considering amounts claimed as interest, lost profits, or 8 attorneys’ fees. (Dkt. 807-1 at 8, Dkt. 681-1 at 15). Rejecting these MIMO 9 calculations would require the Receiver to recalculate net losses for all investors, 10 further delay distributions, and reduce already limited Receivership resources. 11 The Court has considered the arguments opposing the use of the MIMO method 12 and supporting the inclusion of consequential damages and finds them 13 unpersuasive. The Court finds the MIMO method to be an “administratively 14 workable and equitable” means of “allocating the limited assets of the 15 [R]eceivership.” Cap. Consultants, 397 F.3d at 738. The objections to the MIMO 16 method are OVERRULED. 17 2. The Wakefield Investors 18 The Wakefield Investors object to the Receiver’s proposal to treat ANI 19 Development, LLC’s (“ANI”) purchase of a $750,000 membership interest in 20 2Budz Holding, LLC (“2Budz”) as money-out in 2Budz’s net loss calculation. 21 (Dkt. 840 at 9–13). The Wakefield Investors argue that ANI’s purchase was 22 unrelated to 2Budz’s investment in the liquor license loan program and, therefore, 23 shouldn’t be considered a distribution from the fraudulent scheme. (Id. at 10). 24 Additionally, they argue the Receiver’s proposed treatment of 2Budz’s claim 25 should be rejected because it doesn’t provide for an appropriate means to 26 liquidate the 2Budz membership interest held by ANI. (Id. at 12). In response, the 27 Receiver argues ANI’s purchase the membership interest was made to induce the 28 Wakefield Investors to make additional investments in the fraudulent scheme. 1 (Dkt. 853 at 19–20). The Receiver contends the history of transfers between ANI 2 and the Wakefield Investors indicates a “direct nexus” between the fraudulent 3 investment scheme and ANI’s transfer of $750,000 to 2Budz, and that this nexus 4 supports treating the $750,000 transfer as money-out in 2Budz’s MIMO net loss 5 calculation. (Id. at 20, Dkt. 807-1 at 12). The Receiver also argues that including 6 the $750,000 at issue in the MIMO calculation preserves Receivership assets by 7 avoiding the additional cost of litigating the fraudulent transfer claim the Receiver 8 has brought against 2Budz. (Dkt. 807-1 at 14–15); see also Compl., Freitag v. 9 2Budz Holding, LLC, No. 3:22-cv-885-LAB-AHG (S.D. Cal. June 17, 2022), ECF 10 No. 1. The Receiver maintains that, with the cooperation of 2Budz, she will take 11 whatever steps are necessary to terminate or cancel the membership interest. 12 (Dkt. 807-1 at 16). 13 The Wakefield Entities are three separate but related entities: Wakefield 14 Capital, LLC and Wakefield Investments, LLC—both owned by the Wakefield 15 family, (Dkt. 840 at 2)—and 2Budz, LLC—owned by Wade Wakefield (through 16 Wakefield Investments) and Greg Glassberg, (Dkt. 807-1 at 14). The relevant 17 transactions between these entities and ANI are as follows: 18 • On May 12, 2017, 2Budz invested $1.5 million in the fraudulent scheme and transferred its investment to 19 Chicago Title, (Dkt. 840 at 2); 20 • On February 7, 2018, Wakefield Capital invested $3.625 21 million in the fraudulent scheme and transferred its 22 investment to Chicago Title, (id.); 23 • On June 18, 2018, Wakefield Investments invested $2 million in the fraudulent scheme and transferred its 24 investment to Chicago Title, (id.); 25 • On June 19, 2018, and August 6, 2018, ANI transferred 26 $500,000 and $250,000, respectively, to 2Budz for a 27 membership interest, (id. at 6). 28 It is undisputed that Champion-Cain was operating a fraudulent Ponzi 1 scheme in which she would use money from new investors to pay back early 2 investors.3 ANI’s initial $500,000 transfer came one day after Wakefield 3 Investments made a $2 million dollar investment in the scheme. (Dkt. 807-2 ¶ 20). 4 And all the funds ANI transferred to 2Budz came from an account containing 5 commingled investor funds derived from the fraudulent scheme. (Dkt. 853-1 ¶ 7). 6 Against this backdrop, the Court find that ANI’s transfer of $750,000 to 2Budz was 7 part of the larger fraudulent scheme and may appropriately be treated as 8 money-out in 2Budz’s net loss calculation. See Lincoln Thrift Ass’n, 577 F.2d 9 at 606 (“[T]he district court has broad powers and wide discretion to determine the 10 appropriate relief in an equity receivership.”). 11 This conclusion isn’t disturbed by the Wakefield Investors’ claim that the 12 transfer is unrelated to the fraudulent scheme simply because ANI received a 13 membership interest in 2Budz. 2Budz received funds derived from the fraudulent 14 scheme in an apparent attempt to induce additional investment in the scheme. 15 (See Dkt. 807-2 ¶ 20). The Receiver has treated other funds distributed from the 16 scheme as money-out in the recipient’s net loss calculation. The most equitable 17 approach here is to treat the $750,000 transferred to 2Budz as a distribution from 18 the fraudulent scheme and, therefore, as money-out in 2Budz’s net loss 19 calculation. See Cap. Consultants, 397 F.3d at 738–39 (“[E]quity demands equal 20 treatment of victims in a factually similar case.”). 21 Even if the transfer of $750,000 was unrelated to the fraudulent scheme, the 22

23 3 The Court takes judicial notice of the plea agreement signed by Gina Champion-Cain in United States v. Champion-Cain, No. 3:20-cr-2115-LAB-1 24 (S.D. Cal. July 22, 2020), ECF No. 5. Courts may “judicially notice a fact that is 25 not subject to reasonable dispute because it . . . can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” 26 Fed. R. Evid. 201(b). Proper subjects for judicial notice include “proceedings in 27 other courts, both within and without the federal judicial system, if those proceedings have a direct relation to matters at issue.” Bias v. Moynihan, 508 F.3d 28 1 funds can still permissibly be included in 2Budz’s MIMO calculation because such 2 inclusion will expedite the resolution of the issue, avoiding additional litigation and 3 preserving Receivership assets. See Ariz. Fuels, 739 F.2d at 460. If the $750,000 4 isn’t included in the MIMO calculation, the Receiver will continue to pursue 5 recovery from 2Budz through the pending action for fraudulent transfer. See 6 Compl., Freitag v. 2Budz Holding, LLC, No. 3:22-cv-885-LAB-AHG. By including 7 the $750,000 in the calculation of 2Budz’s claim, the Court is essentially permitting 8 an equitable setoff via the claims and distribution process by reducing the value 9 of 2Budz’s claim against the Receivership. A court may permissibly approve such 10 an equitable setoff during the distribution process as a means of offsetting a 11 fraudulent transfer claim. See, e.g., Gordan v. Dadante (Gordan I), No. 1:05-cv- 12 2726, 2010 WL 148131, at *5 n.6 (N.D. Ohio Jan. 11, 2010) (approving proposed 13 distribution plan and empowering the receiver to offset “funds against individual 14 investors for equitable reasons”); Gordan v. Dadante (Gordan II), No. 1:05-cv- 15 2726, 2010 WL 4137289, at *2 (N.D. Ohio Oct. 14, 2010) (overruling objections to 16 proposed interim distribution when the receiver proposed offsetting commissions 17 an investor received for recruiting additional investors into a scheme against the 18 distributions to be made to the investor); SIPC v. Old Naples Secs., Inc. (In re Old 19 Naples Secs., Inc.), 343 B.R. 310, 320 (Bankr. M.D. Fla. 2006) (holding 20 commissions and returns on investments paid in furtherance of a Ponzi scheme 21 were avoidable as fraudulent transfers). 22 The Court finds the Receiver’s proposed treatment of 2Budz’s claim fair and 23 equitable. The Wakefield Investors’ objection is OVERRULED. 24 3. The Peterson Entities 25 The Receiver recommends disallowing the Peterson Entities’ claims and 26 instead allowing claims from investors whose investments in the scheme were 27 coordinated by the Peterson Entities (the “Peterson Investors”). The Peterson 28 Entities object to the Receiver’s recommendation, arguing the proposal to deny 1 their claims is “unfair and unreasonable.” (Dkt. 831 at 5). 2 i. Claims from Insiders can be Disallowed 3 The Receiver argues the Peterson Entities’ claims should be disallowed 4 because Kim Peterson—who controlled the Peterson Entities—and his 5 associated entities were insiders to Champion-Cain’s fraudulent scheme. 6 (Dkt. 853 at 25, Dkt. 922 at 2–4). In response, the Peterson Entities argue it is 7 inappropriate to exclude them on the basis of Peterson’s alleged wrongdoing. 8 (Dkt. 921 at 1–3). Receivership courts may approve distribution plans that exclude 9 those who participate in the fraudulent scheme as insiders, marketers, or 10 recruiters. See, e.g., SEC v. Byers, 637 F. Supp. 2d 166, 184 (S.D.N.Y. 2009) 11 (approving distribution plan that excluded “those involved in the fraudulent 12 scheme” and describing the plan as “eminently reasonable and [] supported by 13 caselaw”); SEC v. Basic Energy & Affiliated Res., Inc., 273 F.3d 657, 660–61, 667 14 (6th Cir. 2001) (upholding distribution plan that reduced the recovery for any 15 investor who received a commission for referring additional investors); SEC v. 16 Pension Fund of Am. L.C., 377 Fed. App’x 957, 963 (6th Cir. 2001) (upholding 17 distribution plan that excluded a sales agent who received commissions for 18 recruiting investors when the agent had no knowledge the pension fund was a 19 fraudulent investment scheme). A claimant can be excluded from receivership 20 distributions as an “insider” when they are involved with a scheme at a “more 21 intimate level” than the typical investor, even when the insider had no knowledge 22 the scheme was fraudulent. SEC v. Merrill Scott & Assocs., Ltd., No. 2:02 CV 39, 23 2006 WL 3813320, at *11 (D. Utah Dec. 26, 2006) (approving distribution plan 24 that excluded an investor who claimed to have no knowledge of the fraudulent 25 nature of the investment scheme because he was an “insider” who was involved 26 in the operation of the scheme and allowed his name to be used to recruit 27 additional investors). 28 The Peterson Entities had extensive business relationships with 1 Champion-Cain and the Receivership Entities. The Peterson Entities were 2 explicitly created to raise capital for investment in the liquor license lending 3 scheme. (Dkt. 831 at 2–3). “Kim Funding raised capital by borrowing funds . . . 4 under loan agreements that were often personally guaranteed by Mr. Peterson” 5 and ABC Funding “raised capital from investors through a private placement 6 memorandum.” (Id. at 3). Both Peterson Entities entered funding agreements with 7 ANI, which paid in proportion to the investments brought into the scheme. 8 (Dkt. 807-13 at 371–84, Dkt. 807-14 at 972–82). Additionally, Kim Funding was a 9 1% equity holder and 50% voting member of ANI. (Dkt. 922-4) Peterson also had 10 a personal friendship with Champion-Cain. (Dkt. 922-3). Champion-Cain testified 11 that Peterson wasn’t aware of the fraud, and Peterson has neither been found 12 liable for his role in the scheme nor been charged with any wrongdoing. (Dkt. 921 13 at 2). Notwithstanding Peterson’s ignorance of the fraud, the business 14 relationships, recruitment efforts, compensation structure, and personal 15 relationship all indicate that the Peterson Entities were involved in the scheme at 16 a “more intimate level” than the typical investor. Merrill Scott & Assocs., 2006 WL 17 3813320, at *11. The Court finds that the Peterson Entities were insiders in the 18 fraudulent scheme at issue here. 19 ii. The Peterson Investors’ Claims can be Allowed 20 The Receiver recommends allowing the Peterson Investors’ claims. 21 (Dkt. 807-1 at 25–26). The Peterson Entities object, arguing the Peterson 22 Investors have only indirect claims against the Receivership while the Peterson 23 Entities hold direct claims. (Dkt. 831 at 8). In support, the Peterson Entities cite 24 Kruse v. Securities Investor Protection Corp. (In re Bernard L. Madoff Investment 25 Securities LLC), 708 F.3d 422 (2d Cir. 2013). The Receiver contends Kruse has 26 no application here. (Dkt. 853 at 26). 27 In Kruse, the court held investors in “feeder funds” that then invested in the 28 Ponzi scheme at issue weren’t “customers” under the Securities Investor 1 Protection Act (“SIPA”). 708 F.3d at 426–27. Kruse doesn’t control the outcome 2 here. First, the court in Kruse was interpreting and applying SIPA, which applies 3 only to registered broker-dealers. ANI isn’t a broker-dealer, so Kruse’s 4 interpretation of SIPA isn’t relevant. Second, the reasoning in Kruse supports 5 allowing claims from the Peterson Investors. The Kruse court considered it 6 particularly important that the feeder fund investors had no direct relationship with 7 the Ponzi scheme, lacked control over the feeder funds’ investments, and weren’t 8 identified in the Ponzi scheme’s books or records. Id. By contrast, many of the 9 Peterson Investors communicated directly with Chicago Title, Champion-Cain, 10 and other ANI employees. (Dkt. 853 at 27). Many transferred their funds directly 11 to Chicago Title and retained control of when to invest and withdraw their funds, 12 and some even selected which fictitious liquor license loans to fund. (Id. at 27–28). 13 Additionally, the escrow ledgers maintained by Chicago Title list the names of the 14 Peterson Investors who directly transferred funds to Chicago Title. (Id. at 27). 15 Based on these considerations, the Court finds Kruse unpersuasive. 16 The Peterson Entities also argue that denying their claims while permitting 17 claims from the Peterson Investors is improper because it ignores existing 18 contractual relationships and would require distributions to investors who are 19 “strangers to the estate.” (Dkt. 831 at 7–8, Dkt. 921 at 5–6). They contend that the 20 Peterson Investors’ only relationship to the scheme was with the Peterson 21 Entities, not with ANI. The Receiver responds by arguing that the Peterson 22 Investors did, in fact, have substantial connections to ANI. (Dkt. 922 at 4). The 23 Court finds this objection unpersuasive. First, most of the funds solicited by 24 Peterson were transferred directly to Chicago Title without moving through the 25 Peterson Entities. (See Dkt. 922-1 ¶ 4). Second, many Peterson Investors had 26 escrow agreements with ANI and Chicago Title. (See, e.g., Dkt. 922-5). Pursuant 27 to these agreements—which were, like all agreements in the scheme, 28 fraudulent—the Peterson Investors transferred their funds to Chicago Title and 1 believed they maintained ownership and control over the funds. (Dkt. 922 at 4). 2 The Peterson Entities never gained control over or access to the funds. (Id.). The 3 Court finds that the relationship between the Peterson Investors, ANI, and 4 Chicago Title is such that the Peterson Investors—not the Peterson Entities—are 5 the proper claimants. 6 iii. The Peterson Entities Were Net Winners 7 Finally, the Peterson Entities argue that they are net losers in the fraudulent 8 scheme under the MIMO method and it would be inequitable to exclude them from 9 Receivership distributions. (Dkt. 921 at 5–6). As the Receiver points out, to reach 10 this conclusion, the Peterson Entities must include the money invested and lost 11 by the Peterson Investors in their net loss calculation. (Dkt. 922 at 5–6). Excluding 12 the Peterson Investors’ losses, the Peterson Entities received more than $12 13 million in net profits from the scheme. (Dkt. 853 at 25). The Peterson Entities also 14 point out that Kim Peterson personally guaranteed many of the loan agreements 15 with the Peterson Investors and that he remains exposed to personal liability in 16 state actions brought by these investors. (Dkt. 831 at 6). The Peterson Entities 17 contend that equity requires they receive distributions from the Receivership 18 instead of the Peterson Investors. The Court rejects this argument. “[E]quity 19 demands equal treatment of [similarly situated] victims.” Cap. Consultants, 397 20 F.3d at 738–39. The Peterson Investors are similar situated to investors that were 21 exclusively in contact with ANI and Chicago Title when investing. The Peterson 22 Entities, by contrast, were insiders that helped to bring approximately $258 million 23 of investments into the scheme. (Dkt. 807-1 at 25). Notwithstanding Peterson’s 24 personal exposure in other suits, it would be inequitable for entities controlled by 25 such an insider to receive distributions instead of the investors he recruited. See 26 Merrill Scott & Assocs., 2006 WL 3813320, at *11. 27 * * * 28 The Court finds the Receiver’s proposed treatment of the Peterson Entities’ 1 claims fair and equitable. The Peterson Entities objection is OVERRULED. 2 B. Distribution Plan 3 The Receiver proposes a detailed distribution plan which calls for making 4 distributions in accordance with the Rising Tide distribution method. (Dkt. 807-1 5 at 10–11, 31–34). The Wakefield Investors object to the use of the Rising Tide 6 method.4 (Dkt. 840 at 14–15). They also object to the distribution plan on due 7 process and “suitability” grounds. (Id.). For the following reasons, the Court 8 agrees with the Receiver’s proposals regarding the distribution method and 9 distribution plan and OVERRULES the objections. The Court APPROVES the 10 proposed distribution plan set forth in Exhibit A to the Receiver’s Declaration. 11 (Dkt. 807-4). Additionally, the Court APPROVES the proposed procedures for 12 making interim distributions to holders of allowed claims and AUTHORIZES the 13 Receiver to determine, in her business judgment, the appropriate total amount of 14 distributable Receivership funds (along with the corresponding reserve of 15 remaining Receivership funds) and to file a “Notice of Interim Distribution.” 16 (Dkt. 807-1 at 32–34). 17 1. Rising Tide Distribution Methodology 18 The Receiver proposes using the Rising Tide distribution methodology to 19 calculate distribution amounts for each claimant. (Dkt. 807-1 at 10–11). In highly 20

21 4 The Court also received an opposition from Objector CalPrivate Bank (“CalPrivate”) objecting to the proposed distribution plan. (Dkt. 837). CalPrivate 22 and the Receiver have since reached a settlement agreement. (Dkt. 956). 23 Pursuant to the terms of the agreement, CalPrivate has agreed to withdraw its objection and assign its claims against Kim Peterson and the Peterson Entities to 24 the Receiver. (Id. at 2–3). The settlement is contingent on the Court both 25 approving the settlement and authorizing the Receiver to pursue the assigned claims. (Id. at 3). The Court has set a briefing schedule and hearing date for the 26 joint motion (Dkt. 957), but now conditionally approves the settlement and 27 authorizes the Receiver to pursue the assigned claims. Therefore, CalPrivate’s objection is OVERRULED AS MOOT WITHOUT PREJUDICE. If the joint motion 28 1 simplified terms, the Rising Tide method aims to achieve equivalent recovery 2 rates for all claimants by considering each claimant’s pre- and post-receivership 3 recovery to determine prior recovery rates. (Dkt. 807-5 ¶¶ 1–2). Distributions are 4 then made to claimants with the lowest rates of recovery first. (Id. ¶¶ 3–9). As a 5 result, the Rising Tide method slowly brings all claimants to an equivalent rate of 6 recovery. A more detailed description of the mechanics of the Rising Tide method 7 is attached as Exhibit B to the Receiver’s Declaration. (Id.); see also SEC v. 8 Huber, 702 F.3d 903, 904–06 (7th Cir. 2012) (describing the mechanics of the 9 Rising Tide method and comparing it to the net loss method). The Wakefield 10 Investors object to the Rising Tide method and assert pro rata distributions would 11 be more appropriate. (Dkt. 840 at 15). They make no argument why pro rata 12 distributions would be more fair or equitable to the claimants as a whole. (Id.). 13 The Rising Tide method is widely endorsed as the most commonly used and 14 equitable method for distributing receivership assets in fraud cases. See, e.g., 15 Huber, 702 F.3d at 906 (“Rising tide appears to be the method most commonly 16 used (and judicially approved) for apportioning receivership assets.”); id. 17 (collecting cases approving the Rising Tide method); CFTC v. Wilson, No. 11-cv- 18 1651-GPC-BLM, 2013 WL 3776902, at *7 (S.D. Cal. July 17, 2013) (concluding 19 that “the Rising Tide Method is the most equitable remedy available”). The Rising 20 Tide method is especially equitable when there are widely varying rates of 21 recovery and factual circumstances distinguishing each claimant. See Wilson, 22 2013 WL 3776902, at *7. 23 The Court has considered the arguments against the Rising Tide distribution 24 method and finds them unavailing. The Court finds that the Rising Tide method is 25 the most equitable approach for distributing the Receivership’s assets. The 26 objection to the Rising Tide method is OVERRULED. 27 2. Due Process 28 The Wakefield Investors contend that the proposed distribution plan strips 1 them of their due process rights. (Dkt. 840 at 14). District Courts supervising 2 receiverships may “use summary procedure in allowing, disallowing, and 3 subordinating the claims of creditors.” Ariz. Fuels, 739 F.2d at 458; see also 4 Wencke, 783 F.2d at 836–38 (approving summary proceedings to adjudicate 5 claims on receivership assets); Universal Fin., 760 F.2d at 1037 (same). When 6 ruling on the fairness of a proposed plan to distribute receivership assets, a district 7 court must provide claimants with due process. See SEC v. Am. Cap. Inv., Inc., 8 98 F.3d 1133, 1146–47 (9th Cir. 1996), overruled on other grounds by Steel Co. 9 v. Citizens for a Better Env., 523 U.S. 83, 94 (1998); Wencke, 783 F.2d at 836–38. 10 Due process consists of adequate notice and an opportunity to be heard. 11 Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 542 (1985). 12 The Wakefield Investors and other Objectors received notice of the 13 Distribution Motion more than 90 days before the August 31, 2022 hearing, (see 14 Dkt. 807-22); had almost 60 days to file briefs opposing the Motion, (see Dkt. 812); 15 and were given a full and fair opportunity to present their objections during lengthy 16 oral argument at the hearing, (see Dkt. 878, 884). The Court finds these 17 procedures more than satisfy the requirements of due process. The Wakefield 18 Investors’ due process objection is OVERRULED. 19 3. Suitability 20 The Wakefield Investors also raise three additional objections, arguing the 21 distribution plan is “unsuitable.” (Dkt. 840 at 14). They argue that the plan: (1) “has 22 23 5 In a Court-ordered supplemental brief, the Peterson Entities argue the Court 24 denied them due process by not holding additional argument on the Distribution 25 Motion. (Dkt. 921). As the Court noted in its October 4, 2022 Order denying the Peterson Entities’ motion requesting additional oral argument, “it is well settled 26 that oral argument is not necessary to satisfy due process.” (Dkt. 914 (quoting 27 Toquero v. INS, 956 F.2d 193, 196 n.4 (9th Cir. 1992))). For the reasons discussed in its October 4 Order, the Court finds the Peterson Entities’ have been 28 1 too few specifics to be approved at this point” because it “is too open-ended with 2 no deadlines [or] no dollar figures, not even aspirational ones”; (2) “fails to account 3 for reserves or plan, or a deadline in the future, as to when all the pending litigation 4 will be resolved”; and (3) “goes too hard for the” settlement agreement reached 5 with Chicago Title. (Id. at 14–15). These objections lack merit. First, the 6 distribution plan provides a clear structure for how distribution amounts will be 7 calculated, (see Dkt. 807-1 at 10–11, Dkt. 807-5), and establishes clear 8 procedures for making interim distributions, (see Dkt. 807-1 at 32–34). Second, 9 the Court has already charged the Receiver to use her business judgment to 10 manage ongoing litigation to maximize the net recovery for the Receivership 11 Estate. (See Dkt. 493-1 at 11, Dkt. 551). Third, the Court has already approved 12 the settlement with Chicago Title, rendering the final objection moot. (See 13 Dkt. 926, 927). 14 The Wakefield Investors’ objections to the suitability of the distribution plan 15 are OVERRULED. 16 IV. CONCLUSION 17 The Court OVERRULES the objections and ORDERS as follows: 18 1. The Distribution Motion is GRANTED, (Dkt. 807); 19 2. The proposed allowed claim amounts set forth in Exhibit A to the 20 Receiver’s Supplemental Declaration, (Dkt. 853-3), and Exhibit L to the Receiver’s 21 Declaration, (Dkt. 807-15), are APPROVED; 22 3. The claims set forth in Exhibits I and L to the Receiver’s Declaration 23 are DISALLOWED, (Dkt. 807-12, 807-15); 24 4. The proposed procedures for making future adjustments to allowed 25 claims (including amounts) and prior recovery rates are APPROVED, and the 26 Receiver is AUTHORIZED to a file a “Notice of Allowed Claim Adjustment,” 27 (Dkt. 807-1 at 31–32); 28 5. The distribution plan, attached as Exhibit A to the Receiver’s 1 ||Declaration, is APPROVED, (Dkt. 807-4); and 2 6. The proposed procedures for making interim distributions to holders 3 allowed claims are APPROVED and the Receiver is AUTHORIZED to 4 determine, in her business judgment, the appropriate total amount of distributable 5 ||Receivership funds (along with the corresponding reserve of remaining 6 ||Receivership funds) and file a “Notice of Interim Distribution,” (Dkt. 807-1 7 at 32-34). 8 IT IS SO ORDERED. 9 ||Dated: February 24, 2023

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