Okla. Dep't Of Sec. Ex Rel. Irving L. Faught v. Blair

231 P.3d 645

2010 OK 16

OKLAHOMA DEPARTMENT OF SECURITIES ex rel. Irving L. FAUGHT, Administrator, and Douglas L. Jackson, in his capacity as the court appointed receiver for the investors and creditors of Schubert & Assoc. and for the assets of Marsha Schubert, individually, and doing business as Schubert & Associates, and for Schubert & Associates, Plaintiffs/Appellees,

v.R. Kurt BLAIR, Wendy B. Blair, Neil Sheehan, and Robert Rains, Defendants/Appellants,

v.Robert W. Matthews, et al., Defendants.

Oklahoma Department of Securities ex rel. Irving L. Faught, Administrator, and Douglas L. Jackson, in his capacity as the court appointed receiver for the investors and creditors of Schubert & Associates. and for the assets of Marsha Schubert, individually, and doing business as Schubert & Associates, and for Schubert & Associates, Plaintiffs/Appellees,

v.Kenneth Young, Leslie Young, K.R. Larue, Dana Larue, Scott Wilcox, Rodney Martin, Wanda Martin, Raymond Laubach, Dan Jackson and Crystal Jackson, Defendants/Appellants,

v.Robert W. Matthews, et al., Defendants.

Oklahoma Department of Securities ex rel. Irving L. Faught, Administrator, and Douglas L. Jackson, in his capacity as the court appointed receiver for the investors and creditors of Schubert & Associates, and for the assets of Marsha Schubert, individually, and doing business as Schubert & Associates, and for Schubert & Associates, Plaintiffs/Appellees,

v.Kenneth Larue, Arthur Platt, Yvonne Platt, Marvin Wilcox, and Pamela Wilcox, Defendants/Appellants,

v.Robert W. Matthews, et al., Defendants.

Oklahoma Department of Securities ex rel. Irving L. Faught, Administrator, Plaintiff/Respondent,

v.Barry Pollard and Roxanne Pollard, Defendants/Petitioners.

Nos. 104,004, 104,161, 104,262, 105,682.

Supreme Court of Oklahoma.

Feb. 23, 2010.

As Corrected April 6, 2010.

Rehearing Denied April 12, 2010.

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ON CERTIORARI TO THE OKLAHOMA COURT OF CIVIL APPEALS, DIVISION 1, IN APPEALS NO. 104,004; NO. 104,161; and NO. 104,262/ NO. 104,304 AND ON CERTIORARI TO REVIEW A CERTIFIED INTERLOCUTORY ORDER OF THE DISTRICT COURT, OKLAHOMA COUNTY.

¶ 0 A receiver appointed in a proceeding in the District Court of Logan County joined with the Oklahoma Department of Securities and its Administrator and brought actions in the District Court for Oklahoma County against investors in a Ponzi scheme and sought judgments against them for any amounts they had received from the scheme in excess of their original investments. The Honorable Patricia G. Parrish, District Judge, granted summary judgment against the investors by separate orders in Oklahoma County causes CJ-2005-3796 (consolidated with CJ-2005-3299). Several of the defendants appealed in four separate appeals and the Court of Civil Appeals affirmed the judgments of the District Court by separate opinions in Supreme Court Nos. 104,004, 104,161, and consolidated 104,262/104,304. The investors requested that certiorari issue in this Court to the Court of Civil Appeals. In Oklahoma County Cause No. CJ-2005-3799, the Honorable Vicki Robertson, District Judge, granted a partial summary adjudication to the Oklahoma Department of Securities against investors, stayed proceedings in the District Court, and certified three issues for an immediate appeal that was brought in No. 105,682. We hold that the Oklahoma Uniform Securities Act provides authority for the Department of Securities to bring an action against innocent investors in a Ponzi scheme when they received a profit from the Ponzi scheme that is in excess of their original investment and when the profit is an unreasonable return on the investment. We hold that a District Court has subject matter jurisdiction to adjudicate competing claims of ownership to funds that were part of an investment scheme which violated the securities laws. We hold that a court-appointed receiver for the assets of a failed Ponzi-scheme operator may bring a proceeding for equitable relief against innocent investors for recovery of funds that qualify as an unjust enrichment obtained by the investors from the Ponzi scheme. We hold that an innocent investor in a Ponzi scheme may use equitable setoffs in defense against an unjust enrichment claim brought by the Department.

CERTIORARI PREVIOUSLY GRANTED IN NOS. 104,004; 104,161; 104,262/104,304; OPINIONS OF THE COURT CIVIL APPEALS VACATED IN NOS. 104,004; 104,161; AND 104,262/104,304; JUDGMENTS OF THE DISTRICT COURT REVERSED; CAUSES REMANDED TO THE DISTRICT COURT FOR FURTHER PROCEEDINGS CONSISTENT WITH THIS COURT'S OPINION.

CERTIORARI PREVIOUSLY GRANTED IN NO. 105,682; ORDER OF THE DISTRICT COURT REVERSED; CAUSE REMANDED TO THE DISTRICT COURT FOR FURTHER PROCEEDINGS CONSISTENT WITH THIS COURT'S OPINION.

G. David Bryant and Lisa Wilcox, Kline, Kline, Elliott & Bryant, P.C., Oklahoma City, OK, for Appellants in Nos. 104,004; 104,161; and 104,262 (Consolidated with No. 104,304).

Melanie Hall, Gerri Kavanaugh, and Amanda Cornmesser, Oklahoma City, OK, for Appellee Oklahoma Department of Securities in Nos. 104,004; 104,161; and 104,262 (Consolidated with No. 104,304).

Bradley E. Davenport, Gungoll, Jackson, Collins, Box, & Devoll, P.C., Enid, OK, for Appellee, Douglas L. Jackson, Receiver, in Nos. 104,004; 104,161; and 104,262 (Consolidated with No. 104,304).

Russell L. Mulinix, Amy G. Piedmont, Mulinix, Ogden, Hall, Andrews & Ludlam, P.L.L.C., Oklahoma City, OK, for Petitioners in No. 105,682.

Melanie Hall, Gerri Kavanaugh, and Amanda Cornmesser, Oklahoma City, OK, for Respondent, Oklahoma Department of Securities in No. 105,682.

EDMONDSON, C.J.

¶ 1 The first-impression principal issue in these appellate proceedings is whether an action may be maintained under the Oklahoma Uniform Securities Act against innocent victims of a Ponzi scheme to force them to pay to the Department of Securities those amounts they received from the Ponzi scheme which are in excess of their investments in that scheme. We hold that the Department may proceed against the innocent investors to recover unreasonable profits received in excess of their investments in the Ponzi scheme. We hold that a court-appointed receiver of a Ponzi-scheme operator may also proceed against innocent investors to recover unreasonable profits in excess of their investments in the scheme. We also hold that the Department's action is subject to equitable setoffs raised in defense by the innocent investors. We consolidate the proceedings for the sole purpose of a single pronouncement from this Court on the issues.¹

I. The Facts of the Controversy

¶ 2 Marsha Schubert, as a registered agent of registered investment broker-dealers, Schubert's business, Schubert and Associates, received over two hundred million dollars during the period of December 1999 to October 2004 to invest for other people.² She made verbal statements to investors that their money would be used to make trades in alleged options accounts and day trading accounts, and that their accounts with the broker-dealers held large balances.

¶ 3 Schubert deposited the funds into various personal bank accounts she controlled as well as her business bank account, in the name of Schubert & Associates. She also deposited some funds she received into brokerage accounts for the investors. For example, money received by Defendants, the Youngs, was split into deposits for the Youngs' brokerage account and the Schubert and Associates bank account. The investment monies deposited into the Schubert & Associate account and Schubert's various personal bank accounts were never directly used to make any investment trades through the broker-dealers on behalf of the investors, although Schubert continually made statements to the contrary to her investors. The money she received for option contracts or day trading, she appropriated as part of a Ponzi scheme. The majority of these funds were eventually deposited into personal accounts of Schubert where they were commingled with Schubert's personal funds.³

¶ 4 Schubert kept her Ponzi scheme from discovery by making payments to some of her investors. She paid them with checks drawn on her Schubert & Associates bank account, another bank account listing her name with a tax permit number, as well as payments by wire transfers from her bank accounts directly into the investors' broker-dealer accounts. Investors would receive statements from their broker-dealers showing funds in their accounts.

¶ 5 After discovery of the Ponzi scheme the Oklahoma Department of Securities (Department) brought an action in the District Court for Logan County against Schubert and sought injunctive relief and appointment of a receiver for her and her business, Schubert and Associates. The trial court appointed a receiver and by a subsequent order directed that Receiver, Douglas L. Jackson, also serve as “receiver for the benefit of claimants and creditors of Marsh Schubert and Schubert and Associates.” The order authorized the receiver to “institute actions ... Against paid investors ... that the Receiver deems necessary to recover assets and to protect the interests of and promote equity among the investors.” The order defined “assets” as including the “proceeds of the investment program described in the Petition (i.e., the Schubert Investment Program) by which certain participants were unjustly enriched or received fraudulent transfers.”

¶ 6 In May of 2005 the receiver and the Department brought a joint action in the District Court for Oklahoma County and named one-hundred and fifty-eight defendants. Approximately eighty-seven people allegedly lost in excess of nine million dollars, and over one-hundred and fifty people allegedly made approximately six million dollars from Schubert.⁴ The record appears to indicate that the 158 investors were paid with Schubert and Associates funds received from other investors. The defendants were not charged with securities violations.

¶ 7 The Petition asserted claims against the...