that's an excellent question your honor one i think course theory on this that we were never able to determine through discovery is they had announced a share buyback program prior to the announcement of the dividend and so the theory that cora was working under was that they were buying back their own shares and collecting the dividend payments on the back end of the transaction there's nothing in the record that actually harbor supports that this morning i intend to address the following three topics first whether the brokerage defendants are entitled to protection for the receipt of the funds under article a to the u c c second the related question of whether the brokerage defendants are liable for conversion under nebraska common law and finally whether summary judgment was proper on course claim against s s t the transfer agent for the fragile at misrepresentation of course i welcome the court's questions on and he's helping the brokerage defend the defendant's contention that article eight of the c protects financial intermediaries who irania slee receive funds in the convict and connection with a dividend that the issuer never paid cannot be squared with the plain language of that statute articulated the u c c creates a framework that supports the indirect holding system a system in which securities transactions are settled through book entries rather than the physical transfer of a pardon me rather than the physical transfer of stock certificates a straight transfer of cash which is what happened here when cor financial asset and that's the protections that the brokerage defendants are claiming for the course adverse claim to the financial asset we know specifically that the cash transferred out of course account is not a one zero two nine little sub one which applies only to securities and that cash in connection with the deal funds was clearly not a security we also know in this case that it doesn't fall under eight one zero two nine little sub three because in order to fall into that you need an stocks were trading during the interim period adams you say they were sold for they were sold they were sold under below the value of the dividend but then these were penny stocks so that doesn't surprise me i'm just asking somebody bought stock thinking they were going to get a  they didn't get it well actually who picked up the tab for that what i think what happened here is that the full amount of the dividend was debit out of course account transferred into the brokers defendants account and according to the brokerage dependents then paid t investors or the three or that three point seven million was debited out of course account and ended up in the investors hands so i think they received certainly more than they were entitled to but they received what your honor  characterizing as their expectations was over five hundred million shares correct where the money come from core that's the three point seven million we're trying to recover my client car clearing so the way the which it attempted to do but there were insufficient funds to collect on that side president's probably somewhere in the bahamas correct but so it's it's we're not we're not applying away at the innocence here i well i respectfully disagree with that characterization it whether it was innocent or for a fraudulent well under nebraska conversion law which is about core believes applies here and they absolutely meet the blackletter definition of converting the funds they took my call it i don't want to hear the argument i'm trying to if my position is if you see article eight doesn't apply a plain language argument that somehow these these do bills or whatever it is you're saying was a strictly cash transaction and so it should be outside of article eight in a series of exchanges that are clearly within the contemplation of article eight strikes me as you're pushing a heavy rock uphill one that we would disagree with that's when you look at it i started by saying are there any of that in you said sure there sure there's this and there's this and there's this but not this are not really arguing this that article eight does not apply and because of article eight on applying we're really dealing with nebraska law and at the end of the day we're sitting with the brask law which creates a conversion now wonder about ask a lot when there's a conversion there's a constructive trust in the corpus of the conversion the corpus of the conversion now sits within the custody of the ultimate shareholders who got paid the dividend but if you trace that back you either got to grab it from those folks where you got to grab it from the east security transfer agents right but whoever it is these folks on this side are holding this property without any rightful ownership of it right and isn't their argument saying hold on wait a minute stop these are people that were purchasers of good faith for value nebraska construct of trust water does not really is not going to be able to reach the corpus of these assets and that therefore judges you've got to decide right now we can like them decide that one article eight does in fact apply then you have troubles or we could say it doesn't apply and then we're going to have to say to these folks ok now prove to us why constructive trust doesn't allow us under brassica conversion law to get there is not really what we're all here about it is and i think the direct answer says that the securities and the entitlement holders are only entitled to distributions that the issuer actually pays which didn't happen here so i think that's reason number one why this is very clear a path outside of the the protections of article eight the second thing happening in eight five zero five is if you go down to comment three and there i think it draws another important distinction which it says even when the issuer pays a dividend if it's a it's treated as a monetary obligation like any other monetary obligation it's entailed at the securities intermediary is entitled to take for example or right of it as set off against it so that treatment of a monetary obligation stands in stark contrast to the other protections provided under part of article or part five of article eight where you see the holder of a security entitlement  come down to your saying nothing but money correct yes i'd say financial as absolutely we have to make that decision i think you do and so that's why i think it's really important to start with the definition of financial asset and i think the only place where there's real debate as to whether this could be a financial asset is under eight one zero nine or permeate one or two nine little sub two and what's happening there article is describing the protections provided for the indirect holdings system and so they're trying to describe different types of investment products but investment products that were in existence at the time of the drafting of article eight but also those that could possibly be imagined to come into existence in the future so they're looking at things like stocks and bonds and mutual funds but also sort of more exotic investment products like derivatives options futures  things that that fall maybe outside the traditional definition of a security but are nonetheless traded on markets that's the sort of thing they want to provide those are the unique pieces of property that it's very difficult to unwind a transaction on cash just doesn't fall within that the definition of an investment product it's not it's it doesn't i think there's two categories one is the obligation of a person a straight debit of cash isn't an obligation of a person the other side of it is a share participation or other interest in property or enterprise of a person and cash also doesn't fall within their at this simply isn't the type of product that th fall within the indirect holding system i'd like to briefly the cash is directly tied to an underlying security i don't think so i think the transactions here are entirely separate the transaction for the sale of the underlying share occurred at a different point in time concerned different subject matter the share versus the money and it was also deposited in the different accounts and i would very briefly say that  that score i know there's a lot of debate about securities accounts versus settlement accounts but one thing that's clear is if the court looks at the record there's absolutely nothing in the record that says this cash was deposited into a securities account  so i would absolutely make sure the court's aware of that the flipside of that i think talking about the cash it being maybe the cash is in a financial investment which is i think where the district court went apparently not a financial asset but rather a securities in title meant for the reasons i just discussed i don't think it actually can be characterized as a securities and hadn't meant under eight five zero five but even if it is i don't think characterizing it as securities and tell me gets you all the way the protections that the brokerage defendants are availing themselves of are specific to financial assets and not to securities entitlement and the other thing that i would say there is that they look to a one zero two nine to say that you can just interchange those two words financial asset and securities and title mint but that's not at all but eight one zero two nine says it simply says that a securities entitlement may be evidence of a financial asset that's talking about the language being used that a financial asset can be evidenced by a bookkeeping and tree but it doesn't say that a securities and title match is a financial asset so i think we have both the plain language of the statute supporting our interpretation as well as a common sense  block yes that was they characterize it as seven million dollars but the way that it actually appears in the case is that it was the transfer of one hundred fifty thousand shares of stock with a net worth of approximately seven million dollars so that was a security that was one where the says nothing i'll defer to him on that i did agree to claim the claims against s s t or take it on the briefs which is what i did agreed or is your maybe not a good use of all your time i did agree to reserve five minutes farm if he doesn't want to take it i'll be happy to use it court my name is bill hardin's and i represent the four as you refer to judge loken broker defendants we refer to him as the clearing firm defendant in this case your honor the clearing firm defendants acting merely as intermediaries received no benefit when they received an allocated you bill credits to end customers who had purchased shares which pursuant to  procedures had to do bills attached to them because the clearing from defendants received no benefit there can be no claim for unjust enrichment because there's simply no enrichment nebraska law now if the court agrees with us on those two propositions then we don't need to reach the u c c provision issues but if the court is inclined to consider and we believe that both sections eight dash five o two and eight dash one one five apply and as we just heard really the only argument core advances in that regard is whether the due bill credits in or the cash in the account is a financial asset and i think it's important to stress and i think this goes somewhat to judge eriksson's question to counsel who picks up because that is really what we're talking about here right who picks up the tab well who should pick up who should pick up the tab is who has picked up the tab who has picked up the tab because what chord did immediately upon learning of this alleged air is they went in and they debited the accounts of nobilis and beaufort for a combined one point four million dollars now they got in an arbitration proceeding with nobilis over that but they won and only got that plus another two point two million dollars award as of the close of the record in the court below the beaufort issue was still in arbitration but we did stablished that they were making the same allegations against both for it as they were against nobilis in the arbitration which was they were guilty of a pump and dump scheme when they set this whole process in motion which brings us before the court today and in addition to that one point four million they recovered from darby which was the introducing broker that put these shares on course platform five hundred thousand dollars in cash and got a promise to pay the one point seven million you add those up that's the tab right there i'm not going to touch on the end just enrichment claim because council didn't even address it in frankly i wouldn't expect them to because there's just simply nothing nothing there so i'd like to focus on the conversion claim and in particular the question of dominion and control or nebraska law that's recognized in this circuit in order to have a claim for conversion there has to be a wrongful which we discuss in some detail in our brief in order to have dominion over funds an intermediary has to have the ability to use those funds for its own purposes as  case in order to have dominion you have to be able to use the funds in in that case and he suggested to go buy lottery tickets or uranium stocks will hear the clarion from defendants who are acting in accordance with d t c procedures received credits net credits that were due to their customers because of these do bills and put them in their account it never had the right to go out and buy uranium stocks or lottery tickets or anything else they did exactly what the process called for so there can be no conversion  i said we don't need to get to the u c c provisions but but really the the guts of that issue is is it a financial asset and you got to tell you i hated the u c c in law school and i'm not anymore fun of it forty years later but what i like to do is just take a minute to walk the court through the definition of financial assets which counsel looted to is in section eight dash one zero two a nine but what counsel didn't mention is that the first category of financial asset is a security now what core would have this court do is  security the rights inherit in the security and that's contrary to the plain language of u c c section one zero two nine because at the end of that section it says as context requires the term means either the interest itself or the means by which a person's claim to it is evidence to include in a security in title meant a security in title meant in t is defined under section eight dash one zero two a seventeen as the rights and property interests of an entitlement holder with respect to a financial asset specified in part five which again includes the security it's as if cor would have you take a hand that's just that's a security and say we're going to sever from that security the fingers the right to a dividend in the case of  e right to interest in the case of these cliffs you know shares a do bill which indisputably attached to the cliffs you know shares when our customers purchase them now would be happy to walk through the provisions of a dash five o two and eight dash one one five with the court will like but frankly i again i don't think there's really an issue regarding whether those statutes apply if in fact this court were to conclude as i submit it should that the two bill credits in cash were a financial asset honour's corps is attempting to impose personal liability and that's what we're talking about here we're talking about they want to money judgment against the clearing firm defendants for three point seven million dollars but these securit pursuant to which d t c then determine which shares would qualify for the due bill payments it allocated the per its procedures to both cor sure if your clients are liable on their under whatever plan leaving aside whether they would seek to recover it what does that say about the liability of your we are held liable we would have the right under our agreements to seek indemnity from our customers that's what i was thinking that what your liability means there live it very well could be what we're really hearing today is whether corey does recover they're not going to spend the money which says something i think about whether they have an immediate right to position to hold on to because they know our customers are going to come out of the woodwork saying wait a minute that that's our money we bought the favor of our customers are because it was clear it was nobilis and beaufort they converted the shares had them issued with the same cusip number might have been a perfectly lawful well i'm not sure that world i'm not sure what it was but it was certainly them that did put this process in motion and not in as i said i agreed to give mr bolivar time i'm concluded unless you have any questions thank you very much my name is gail bolivar i represent secured stock transfer i believe that there is an overwhelming amount of uncontested facts in this case to affirm the district court's actions in all regards district court made a very thorough detailed examination of the facts of the law and held it and held it as he did first of all i want to suggest that as a simple matter i think there's a lot of complexities here but i like to try to look at it from a a thirty thousand foot view if you will and from that view i would suggest this that corps failed in its fundamental industry responsibilities by opening the door to this fraud to the united states capital markets it was its duty to ensure that that didn't happen when it failed in its responsibilities to the u s capital markets it turned around and said i want somebody else to be responsible for  this and we're i believe that responsibility comes from the course in both of our briefs fundamentally it's the securities laws as has been further defined by finra which published notice to members own i know five and the anti  money laundering requirements specifically for this particular case we look at darpa excuse me a corps duty to discover shell companies i think mr solace said in his  testimony part of the appendix during the receivership that collishaw was a ghost company that's his word my word is it was a shell company it was their duty to discover that it's an is a company without assets and again mr solace to greece he says goes company it didn't have any assets you see references there they owned a mining company is no evidence that corps ever investigated it was their duty the sec must my next argument so i want to start out by tell you why i think didn't do its argument now the second part of this discussion then is what is the seams your stock transfers responsibility for the transfer agent what is finra say the transfer agent is part of the definition the appendix says their duty is to note the shares and the owners there of stop that's it that was their responsibility but they didn't take on th responsibility of the loan they had attorney opinions and corporate resolutions those fundamentals backed their obligation at a contractual obligation to do what they were asked to do which is list the shares and the owners thereof that's all they were tasked to investigate the underlying firm core was core head is redo the to investigate the underlying firm vos how can you ever say that there's ever fraud because we know the onus of fraud but of a set out those elements of fraud indeed some of those require reliance how can corsi we relied upon u t a when two things one zero nine zero five says you can't rely upon a transfer agent another lawyer if it's at a tender because core that's your duty as the clearing firm keep in mind for stops shares that should not be entered into the capital markets of the united states they did not stop  suggest that there can be never could be any fraud brought against my clients signature stock transfer red flags were going up all over this particular ok i would say never in this i think that's factually different that's not what the finra transfer agent is obligated to do is obligated you saw the definition immaterial i'm i'm sorry thank  you you can have two minutes because you can argue your s s t playing right now if you want it's been opened up for oral argument it preserved on the briefs regard it is i and just for clarification i actually wanted to touch on something that mr harkins had said and it was actually in response to your question was limiting it because i i think your honor was really getting down to an important question which is who got defrauded in this particular situation and i think at the at the end of the day what happened is the issuer announced a dividend that it didn't make good on i think the investors were the victims of the fraud here and obviously while nobody celebrates fraud i do think that that's where that when you distill the transaction to what it is that the investors have been defrauded there's no obligation for a securities intermediary whether it's core or the brokerage defendants to pay a dividend that they don't receive from the issuer and so i think when you're trying to distill who has what role in this the people getting defrauded are in fact the investors  touching briefly on also on the conversion point the brokers defendants are urging the court to adopt fraudulent conveyance law from other jurisdictions but i think nebraska supreme court law dealing with conversion and in particular is  men is very clear here that they don't actually have to take possession of this of the securities in order to be liable on conversion and that it's really interfering with corps abilities that that's the essential element of conversion under blackletter nebraska