good morning ladies and gentlemen we're pleased to have george michael reagan of the southern district of illinois sitting with us today reagan welcome thank you our first case for argument this morning is the commodity futures trading commission against  we have the appeal of headley chil from further damage into minimize the danger of further violations of law by the defendants however by the time of the filing of the appellant's motion to modify almost two years later that danger had all been dissolved let me let me try the british virgin islands liquidators appointment had been confirmed by the british virgin aman courts pursuant to an insolvency act in the british virgin islands of two thousand and three and they had begun collecting the assets of these funds that were the british virgin island funds under b v i law and under the supervision of the high court of the b v i the british virgin islands in addition the district court recognizing this you say under the supervision of the british virgin islands like court exactly what role does the court have of dealing with the receiver while the receiver or the liquidators in this case are and the court they have to seek permission of the court for example to go and collect the assets in this particular case they sought recognition by the court because there was some question as to their appointment that was raised by the c d c and its receiver so those are the nature yes your honor my understanding in this is pursuing to be the island i'm not to be i war but my understanding is that pursuant to the law the court did authorize them and direct them to go and recover the assets of the and the district court itself concluded that the defendants removal from a position of authority over the b v i funds had in the words i quote the just report the alleviated concerns regarding the withdrawal or misapplication of funds intrusted to the defense thus by the filing of our motion to modify the legal and equitable justification for the injunction that disappeared and we contend that what remain loss that is incurred from waiting for a final distributional clear on i think the problem is that the seizure itself is without a legal notice i wish you would address my question  concretely what is the loss from waiting for a final distribution order well it's unclear at this point in time what that whether they're what the law says i think no i didn't see you arguing in your brief that there was any will from way well your honor we do believe that there we believe it's in the legal seizure and anyway i understand that you argue that it shouldn't occur but i'm trying to figure out whether there's any laws now i could imagine a law shift for example the farms are currently being poorly invested they're being invested in low return opportunities compared to what they would be but i don't understand you to be arguing correct well actually your honor part of the funds where done by the district court or whether the funds are distributed under the laws of the b v i at the investors in those funds and to subpoenaed they would be i realize the court is very familiar with the underlying facts but i want to emphasize two factual points which i don't believe are in dispute before addressing the district court's opinion specifically first of all the underlying fraudulent conduct that's alleged in this case the misrepresentations and the misappropriation british virgin islands funds which were seeds the alliance head the p idea and investors had only an indirect investment in alliance and represented at most a minority evidence in the record that the b v i funds ever engaged in any improper or wrongful conduct or that they were ever used or operated as anything other than waffle investment funds under the b v i law and their own governing doc its the district court in maintaining the seizure of these assets relied principally on two factual conclusions to support its denial of the motion of mo first there was a factual finding made by the district court that the b v i funds furthered the scheme in several places in the opinion without quite citation to the record the district court states that the defendant but you exercised his control over the funds in furtherance of the fraudulent scheme not only is there no citation in the record for that allegation but the allegations themselves were never made by the c f t c united their complaint  the underlying affidavit or it anywhere in the preliminary injunction motion or nor is there the c f p c does not even allege that the b b i funds or any of their investors were ever comp so what we have here is a situation with no allegations of wrongdoing by the b v i funds and no allegation that these are in fact any proceeds for fruits of a crime  most what they are or the p ideal when victims in direct investments in the b v i funds the second point that the court relied upon was the notion that there was the district court stated that this co mingling in and of itself required a seizure and that just report finally concluded that because it was impossible at the stage to calculate much less carve out any one investor share that that yet again was another reason why the funds should continue to be seized but in fact there is no dispute as to what the what alliances share in the various v i funds which the district court subsets court and even if the district court were correct in its finding that there was co mingling and it was in some way improper that would not justify the seizure in this case i want to just go right now to the law which the district court which governs the notion of seizure i think the most relevant case in this is as you see vs black which is the third circuit case from one thousand nine hundred eight were justice alito was on the panel at the time that case also involved the district court modifying the freeze order for certain investor accounts that like the accounts in the b v i were controlled by the defendants in that case but the court concluded that the owners of the funds were not culpable in since the property did not belong to the defendants there was no legal basis to see that property if i could in fact the black court relied heavily on this court's opinion in this court's holding in s c c versus sharif nine thirty three at second four whom no wrongdoing is waged this court recognize that the only option the only options open to the f c c in that particular instance were either to join the nonparty as a nominal defendant or if they truly believe the assets were illegally obtained profits to which the owner had no legitimate claim then he could in fact name the owner as a defendant in kids and neither of those of alternatives is appropriate here in concert with the defendants and are no longer and that there is no longer any risk of additional wrongdoing or devaluation so i think our argument just to be clear is not that in the ultimate distribution that there will be that the b v i funds will ultimately be harmed by that ultimate distribution in terms of a dollar figure argument here is there is no basis at this point in time to continue there is no legal basis for the c f p c for the government to continue to see spawns of a nonparty who is not ques of any wrong fact that the defendant's control at one point in time the assets in the funds is in and of itself sufficient to warrant the seizure but if a careful reading of black shows that's not in fact what happened what happened in black is the and it just to be clear in black there was actual alegate there were actual allegations of wrongdoing in wrongful co mingling amongst the funds but what the district court in the f c c agreed with this at the time with the district court concluded it is because at least three of the funds the defendant no longer controlled those funds had to be released and there was no legal basis to continue to hold those funds as to the fourth fund the reason the fourth fund was not released was not as the district court suggests that the defendants had controlled those funds the reason the fourth fund was not released was because that fund was still being held in the name of the defendant in the court concluded the defendant still had control over and it was still arguably the defendants ask so first of all the co mingling even wrongful  commingling did not entitle b s e see the government to continue to seize those assets in addition the fact that there was control and if you look at the facts in s c c versus black there is no difference in terms of the type of control that the defendants had over those assets as the defense had been these assets in the b v i funds so the fact the defendants did at one time control those assets and control the investment decisions of those assets had no legal effect after the defendants were taken out of control the only thing that had legal effect as far as the court was concerned was whether or not the defendant still controlled and maintain arguably ownership of that remaining c fund it and so i think it is we're we're in a situation here where there there is no dispute that the facts have changed these funds are no longer under the control defendant there is no longer the risk of the assets being depleted there is no longer risk of any wrongdoing and at this point there is no legal basis that they see if t c can articulate or ha articulated to continue to hold those funds based on the fact that either but to the defendant at one point did control the funds or the fact those bonds were in there were in the district court's terms combing and i want to explain one thing about the funds which is in the record used these funds are there are b v i mutual funds they're in essence in theory at least no different than us mutual funds in the notion that there are number of pooled investments that are made in individual or particular organization names and in exchange for those investments they are given a share of the proceeds if and when they make a distribution  liquidated the notion that there is co mingling you know in a mutual fund that there is anything inherently wrong or suspect about that it is simply not based on the law so for this reason we would urge this court to find that the polygamy junction are should not be intended were not intended and should not be used by the government as substitutes for forfeit for for  preacher or traditional asset recovery there is no legal basis for the continued seizure of property crew in its nonpartisans absent a finding that they were involved in the fraudulent scheme or there were there was a risk of ongoing violations because neither fact existed in relation to the the i phones we would ask this court to reverse the district court's order denying the modification of the pulmonary injunction with directions to immediately immediately release the dispute true however the b v i funds appeared at the september twenty fourth two thousand and twelve hearing for the preliminary injunction it was mr peter cooper on behalf of the b v i finds he did not make a formal notice of appearance however he did say on the record and this is that docket one forty eight the transcript at pages three and four he did say on the record that the b v i funds had a superior legal and beneficial interest in some of the assets that were go swept into the asset freeze and into the receiver's control the district court took note of that objection and a few pages later on pages eight nine of that same transcript asked the commission why it was still appropriate to appoint a receiver in light of the b v i pons objection that they would have a superior legal and beneficial interest in some of the assets the commission responded that it makes sense to go ahead and appoint a receiver and that they can come in at the claims process at this point it made sense to go ahead and of point a receiver to gather the assets so the district court heard the substance of that objection asked the commission whether it was appropriate and then responded if you make a good point and entered the commission entered the asset freeze in the pr dissolved concededly the danger that mr about to now controls the b v i funds has changed it has changed hands we do not argue that the be the i like waiters are acting in anything other than accordance with their court court appointed duties however the preliminary injunction and asset freeze was not only instituted to take care of the further fraudulent conduct issue it was also to preserve the assets going forward for the return to the d liquidators appointment does nothing to change that concern in fact if you look at the b v i look i'm sorry not b b i british virgin islands liquidators brief at page eighteen or their motion intervene at page seven they make clear that they purport to represent creditors direct creditors of the british virgin island funds who would receive priority under b v i insolvency law that to me would dissipate the assets available for distribution to the defrauded investors that this proceeding was intended for whom this proceeding was instituted as a protection so while mr about control over the funds is no longer true the district court still has an interest in enforcing its judgment as to preventing dissipation of these assets i did want to also address your question judge ripple about what is the loss to the british virgin islands liquidators they have not proved any harm here they have not conclusively established that they own these assets nor have they established that the delay in returning to them owner was no longer making payments on the house and the housing market was in decline the asset was losing value and so there in order to prevent dissipation you actually had to lift the asset freeze get the money out of the house to preserve the assets for eventual distribution to the defrauded investors that is not the case here and with apologies to my colleague if i missed if i misunderstood his answer i understood him to say some of the guernsey assets are in the form of securit guernsey assets are not the subject of this appeal and so to my understanding the did the four categories of disputed assets are all in the form of cash and i also wanted to take on this liquidators to argue that the assets are being underemployed that their investors are not earning their ordinary rate of return but the liquidators have made no such argument but that seems to be understand your concern and i would hope that the receiver is keeping the assets in a way that best preserves their value frankly i it because it's not been an issue in this litigation i'm not entirely sure what the receiver is doing with the assets in terms of holding them but the b b i liquidators certainly have not put it issue the manner of their holding and having failed to put it at issue i find it hard to believe that the district court abused its discretion in maintaining the status quo they never made that objection the kind of objection that was made and smith p s e c and i did want to take on this point that the b v i funds never operated and on lawful manner this case is similar to shoals v only men which is a case from the circuit that the british virgin islands liquidators cite in their opening brief in that case this court asked the question when you have a legitimate investor and funds but the funds were so controlled by a proxy war and contained investments that were solicited through fraudulent means what is the moral claim of that other investor to the profits generated from the fraudulent scheme like that case here at the district court found and this is a page a seven appendix a seven page seven of it's opinion that the defendants thoroughly controlled the b v i funds this is not at issue and that they could use that control they could use the b b i funds in furtherance of their fraudulent scheme the district court further found that it made some eight hundred ensure an intra fund transfers so it is a little hard to imagine that the b v i funds had some personality distinct from the person who control the individual who control them and in fact use them in further scheme and i did not understand the british virgin islands liquidators to be challenging that fact finding of the district court or to be saying that that fact finding was an abuse of the district court's discretion  cherif was using his relatives bank account if he actually thoroughly control that bank account then the injunction should stay if he didn't if in fact the relative who i believe name was son show if he was complicit in the fraud then the injunction had to be lifted because there was a lack of subject matter jurisdiction so they had to then lift the injunction name the coconspirator and then reissue the injunction so the operative issue in both of those cases control and that control here is undisputed that mr about to and his co defendants control the b v i pons and use them during the course of their fraud i also wanted to address my colleagues point about the p r alliance investors being minority investors there are many ways to carve up this pie the british virgin island the quitters have given us one way by share classes they have also said that they were one of twenty nine investors and in the british people virgin islands funds however if you look at the complaint the claim complaint alleges and the facts are now taken as true although i will admit they are being fine tuned as the litigation goes on  some three hundred forty million dollars worth of investments from eight hundred investors individual investors worldwide it is believed that about two hundred fifty of those investors were from the united states and about two and who contributed about two hundred seventy million dollars of total investments and so that's about one two thirds of a three hundred forty million dollar total solicitation so there are many ways to pile which is why we don't have enough facts in the record at this point i think to make a determination oh essential about distribution which is really what i understand the british virgin island islands liquidators to be arguing about and if there are no further questions from the court for all of these reasons we respectfully request that the decision below be affirmed and that this court find the district  your honor i'd like to respond to a few points first off we are not here because we don't like the way the pi and the unscripted we are here because our claim is it is not there high to distribute we are not claiming it was illegal seizure when judge cheney enter the mot the order what we are saying is it is currently in the legal and unauthorized seizure since mr but to no longer has control over those disagree with my colleagues reading of sharif i don't i think what sharif is dealing with granted is control but it is not looking at control before the end when the injunction is entered and then saying well that's enough to equal control from then on what sharif is looking at me saying ok who is actually in control of the assets at this time and because the court could not be it was not convinced that  control of the assets the court would not authorize the seizure of those assets i want to come back to judge easterbrook point again about the harm here judge i think the harm here that we are arguing this these are not the see if he sees funds they're not the refunds of the receivership whether those assets could be invested in i must say according to the district court that is the very thing the district court says i'm going to come to in the future who is the ultimate owner of these funds was a matter not yet determined by the district all due respect your honor i disagree with that i think the record and we've cited a number your your point is the district court should have made that decision now rather than postponing it but usually the timing which decisions are made is within the discretion of the district judge i just i must there is harm from waiting and you haven't argued there's any or will your honor i disagree but i don't think the district court is saying we're going to wait until the ownership issue is decided i think the judge said that explicitly your honor i would refer you to our reply brief on foot footnote three where there are ample cites in the record where the judge does recognized is a small minority investor these are mutual funds that are being held in the british virgin islands in accordance with the british virgin islands law just like dreyfus is being held in the us ok and so what they are saying it is happened and the judge has determined that the ownership of the b v i funds is with the b v i liquidators so i see my time is up i just want to emphasize that our issue here is not how the assets are distributed our issue here is whether there is a legal right to seize those assets now the defendants are no longer in control of those that's thank your honor we would we would urge you to reverse the decision just thank you very much the case was taken under advi