FINDINGS AND RECOMMENDATIONS
This case has been referred to the undersigned for an evidentiary hearing to resolve disputed issues of fact related to the receiver's motion to order disgorgement of $2.0 million transferred to Michael Callahan and Matthew Tucker (Doc. No. 171).
In accordance with the referral order filed by the district judge on December 11, 2009, the undersigned held an evidentiary hearing on March 29-30, 2010. Below the undersigned will review the issues referred for hearing, summarize the evidence elicited at the evidentiary hearing and make recommendations as to the resolution of the motion pending before the assigned district judge.
On July 31, 2009, the assigned district judge appointed a permanent Receiver to marshal and recover the assets of Equity Investment Management and Trading (EIMT). The assets recovered are to be distributed to the defrauded investors of EIMT. The Receiver discovered that EIMT had several sub-funds, one of which was Veritas Investments, LLC (Veritas). The Receiver also discovered that in December 2008, Veritas had wired $125,000 to Michael Callahan (Callahan) and $1.875 million to Matthew Tucker (Tucker) in connection with the purchase of an investment referred to as a Collateralized Mortgage Obligation (CMO). After standards were established for summary proceedings for the recovery of EIMT assets and following failed efforts to recover the CMO, the Receiver moved the court for an order of disgorgement with respect to the $2.0 million from interested parties. Callahan opposed the motion. Tucker did not.
On December 11, 2009, the assigned district judge granted the Receiver's motion with respect to Tucker as unopposed and ordered Tucker to disgorge the $2 million received from EIMT/Veritas. The district judge also referred the motion for disgorgement with respect to Callahan to the undersigned for an evidentiary hearing.*fn1 (Doc. No. 202 at 7.) In the referral order, the court observed that the Receiver and Callahan disputed whether the CMO invested in by Veritas was ever purchased by Callahan and Tucker as well as the extent of Callahan's involvement in the transaction. (Doc. No. 202 at 2.) The court directed that through the evidentiary hearing it be determined whether the CMO exists and, if so, whether it is legitimate. (Id. at 6.)*fn2 In addition, the court directed that at the evidentiary hearing it be determined whether:
(1) Callahan was aware of the falsity of statements he made to EIMT with respect to the multi-stage process of purchasing the CMO*fn3 ; (2) whether Callahan intended to defraud EIMT/Veritas if it were shown that the CMO was never purchased and/or was illegitimate; and (3) whether Callahan's role in the transaction was limited to that of a facilitator who merely introduced Veritas and Tucker, thereby limiting Callahan's liability to the return of the $125,000 that he received as a commission or facilitator fee.*fn4
Below, the evidence elicited at the evidentiary hearing and the arguments of the parties with respect to that evidence and its import with respect to the pending disgorgement motion will be summarized. The court will then set forth its findings and recommendations.
Stephen Anderson, the court-appointed receiver charged with seeking to recover any EIMT assets, testified about his investigation of Anthony Vassallo and his "hedge fund" (EIMT) that purportedly operated through the use of a sophisticated computer program for stock trading.*fn5 According to Receiver Anderson, as Vassallo's fraud began to unravel all legitimate trading by EIMT stopped and Vassallo began to invest EIMT funds into exotic, highly vulnerable private investments with astronomical, unbelievable promises of returns such as this one.
Following his initial investigation, the Receiver determined that the EIMT assets that should first be targeted for recovery on behalf of investors were certain parcels of real property and the CMO at issue here. The latter, according to the receiver, was a complicated transaction in which EIMT/Veritas had invested in mortgage-backed securities. In the transaction, EIMT/Veritas was to purchase $1 billion in CMO's from Tucker for a total of $2 million ($1,875,000 sent to Tucker's Bank of America account for the CMO's and $125,000 sent to Callahan as a facilitator fee) and then sell the CMO, through Tucker's securities account either the same day it was purchased or at the latest the following day, for $7 million to an "exit buyer" whose name was not to be disclosed to EIMT/Veritas in advance.*fn6 (Evid. Hrg., Ex. 1.) In an email to a Jerry Garvin who was apparently acting on behalf of EIMT/Veritas, Callahan memorialized their discussions regarding the various stages of this agreement and contemplated CMO transaction which included Callahan receiving an additional $500,000 once the $7 million was received from the unidentified "exit buyer." (Id.) 1.)*fn7 Other documents, however, indicate that Callahan himself was to receive an additional $1,500,000 upon payment by the undisclosed exit buyer. (Ex. 5.)
In late December of 2008, EIMT/Veritas wired the $125,000 to Callahan and the $1,875,000 to Tucker. Predictably, however, EIMT/Veritas never received the promised $7 million despite following instructions to provide the "coordinates" for payment of the funds or delivery of the CMO to be made.
By May of 2009, the Receiver's efforts to contact Tucker and Stone Crest Contractors had met no significant degree of success. The Receiver was, however, able to contact Callahan and they communicated on several occasions about the Receiver's desire to collect on the CMO. In general, Callahan indicated that he was in contact with Tucker and expressed confidence that if certain obstacles could be overcome that the transaction could be completed as originally planned. Despite attempting to comply with each of Callahan's requests in connection with these various obstacles, neither the CMO nor the promised funds were ever delivered to the Receiver.*fn8
On June 15, 2009, counsel for the Receiver obtained an order from this court directing Bank of America to provide information and documentation tracing the $1,875,000 transferred to Tucker's account by EIMT/Veritas on or about December 31, 2008. The bank records produced pursuant to that order reflected that on December 31, 2008, after receiving the $1,875,000, Tucker immediately transferred $100,000 into his own checking account. (Ex. 12.) On January 2, 2009, Tucker transferred $650,000 to Legent Clearing with those funds finding their way to Chicago Investment Group (CIG) where they were used to purchase twenty-six $50 million Greenwich CMO's that were placed in Tucker's CIG account. (Ex. 12, 16.) On January 12, 2009, Tucker wired attorney Jon Divens $200,000. (Ex. 12.) Tucker appears to have spent several hundred thousand more of the EIMT/Veritas funds within a month of their receipt. (Id.)
On July 30, 2009, counsel for the receiver obtained an order from this court directing CIG to provide the Receiver with information and documentation concerning all of Tucker's accounts for the time period following December 1, 2008. The account documents provided to the Receiver by CIG pursuant to the court's order revealed that Tucker opened an account with CIG on December 4, 2008. (Ex. 16.) On December 16, 2008, a little over two weeks prior to receiving funds from EIMT/Veritas, Tucker purchased four $50 million Greenwich Capital CMO's for $114,062 and held them in his CIG account. (Id.) On January 2, 2009, immediately after receiving the EIMT/Veritas funds, Tucker purchased another twenty-six $50 million Greenwich Capital CMO's for $737,111.56. (Id.) This latter purchase resulted in $1.5 billion in Greenwich Capital CMO's on deposit in Tucker's CIG account as of January 2, 2009. (Id.)
Documents produced by CIG also revealed that on January 26, 2009, Stone Crest Contractors, LLC, through a Anna Sanders, opened a CIG account. (Ex. 17.) The CIG documents also revealed for the first time that Tucker was a Director of Stone Crest with full authority to manage and control its CIG account.*fn9 (Id.) A journal entry also indicated that on January 26, 2009, Tucker transferred the $1.5 billion of CMO's into the Stone Crest CIG account. (Ex. 18.) On January 29, 2009, Stone Crest sold $500 million of the CMO's, apparently for a mere $47,818. (Id.) CIG account documents indicated that as of February 28, 2009, Stone Crest still held $1 billion in CMO's in its account. (Ex. 19.) However, it appears that as of March ...