Title: Depart. of Securities ex rel. Faught v. Wilcox

State: oklahoma

Issuer: Oklahoma Supreme Court

Document:

DEPT. OF SECURITIES ex rel. FAUGHT v. WILCOX2011 OK 82Case Number: 109111Decided: 10/11/2011THE SUPREME COURT OF THE STATE OF OKLAHOMA
NOTICE: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION IN 
THE PERMANENT LAW REPORTS. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR 
WITHDRAWAL. 

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, Plaintiffs/Appellees,v.MARVIN LEE WILCOX and 
PAMELA JEAN WILCOX, Defendants/Appellants.
APPEAL FROM THE DISTRICT COURT OF OKLAHOMA COUNTY, OKLAHOMA, 
HON. PATRICIA G. PARRISH, DISTRICT JUDGE
¶0 On remand after this Court's opinion in Dept. of Securities ex rel. 
Faught v. Blair, 2010 OK 16, 231 P.3d 645, the trial court granted partial summary 
judgment in favor of the plaintiffs on the issue of defendants' liability, 
finding that there was no question of material fact that the defendants were not 
innocent investors entitled to retain the reasonable dividend provided in 
Blair due to their active participation in the Ponzi check-kiting scheme. 
The amount of defendants' net profits was in dispute and was set for non-jury 
trial. After further discovery, the plaintiffs moved for summary judgment on the 
basis that there was no longer any dispute as to the amount of defendants' net 
profits. The trial court entered judgment in favor of the plaintiffs and against 
the defendants in the amount of $509,505.00, plus prejudgment and post-judgment 
interest, and ordered that amount to be paid to the receiver. Defendants raise 
four issues in their petition in error, three of which were not presented to the 
trial court and are raised for the first time on appeal. As to the remaining 
issue, we find that summary judgment was proper. The pending appellate motions 
are denied.
AFFIRMED.
Bradley E. Davenport, GUNGOLL, JACKSON, COLLINS, BOX & DEVOLL, P.C., and 
Oklahoma City, OK, for Appellee Douglas L. Jackson, Receiver.Amanda 
Cornmesser, Melanie Hall and Gerri Kavanaugh, OKLAHOMA DEPARTMENT OF SECURITIES, 
Oklahoma City, OK, for Appellee Oklahoma Department of Securities.Robert N. 
Sheets, PHILLIPS MURRAH, P.C., Oklahoma City, OK, for Appellants.
EDMONDSON, J.
¶1 This is a second appeal resulting from a Ponzi scheme perpetrated by 
Marsha Schubert, operating as Schubert and Associates (Schubert). The facts are 
set forth in the first appeal, Dept. Of Securities ex rel. Faught v. Blair, 
2010 OK 
16, 231 P.3d 645 (Blair). The defendants herein, Marvin and Pamela Wilcox, were among 
the appellants in Blair appealing from summary judgments obtained by the 
plaintiffs on the theory of unjust enrichment against 158 "relief" defendants 
who had received more money than they invested in the Ponzi scheme.1 Plaintiffs had sought to 
recover all amounts the relief defendants had received from the scheme in excess 
of their original investment. 
¶2 In Blair, the relief defendants had not been charged with violating 
the Oklahoma Securities Act of 2004, 72 O.S. Supp. 2003 §1-101, et seq., and the 
preliminary question was whether the Department could proceed against 
non-violators of the Act. We held that the Act provided authority for the 
Oklahoma Department of Securities to bring an action against innocent investors 
in a Ponzi scheme when they received a profit from the Ponzi scheme that was an 
unreasonable return on their investment. We held that the court-appointed 
receiver could 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 held that an Oklahoma District Court has 
subject matter jurisdiction to adjudicate competing equitable claims of 
ownership to funds that were part of an investment scheme which violated the 
securities laws. We also held that an innocent investor in a Ponzi scheme may 
use equitable setoffs in defense against an unjust enrichment claim brought by 
the plaintiffs. 
¶3 On remand, the Department of Securities and the Receiver (referred to 
herein as Department) moved for summary judgment against the defendants, Marvin 
and Pam Wilcox (Wilcoxes), on grounds that the Wilcoxes were not entitled to the 
equitable relief provided for innocent investors in Blair because they 
were partners with Schubert and were actively involved in the check-kiting 
scheme operated by Schubert that supported her Ponzi scheme.2 Department argued that 
more than $150,000,000.00 ran though the Wilcoxes' bank accounts, that they saw 
no statements from a day trading account and that they acted with reckless 
disregard for the legitimacy of Schubert's scheme. Department listed eighteen 
(18) undisputed material facts. 
¶4 Department asserts that it was undisputed that Schubert's Ponzi scheme was 
supported by a long-running check exchange or check-kiting scheme, primarily 
between the accounts of three individuals, including the defendant Marvin 
Wilcox, and the accounts of Schubert. The consistent movement of funds between 
these accounts created a "float" that Schubert used to pay purported investment 
returns. In exchange for a check drawn on an account of Marvin Wilcox, Schubert 
would write a check from one of her bank accounts, usually for a greater dollar 
amount, payable to Marvin Wilcox. 
¶5 Between December 12, 2002, and October 6, 2004, more than 650 transactions 
took place between Schubert and the Wilcoxes involving the check exchange. The 
Wilcoxes transferred $77,739,746.00 to Schubert and Schubert transferred back to 
the Wilcoxes $78,249,251.56. The Wilcoxes received $509,505.00 in profits paid 
to them by Schubert from Schubert's commingled funds. In support of these 
undisputed facts, Department attached the affidavit of Dan Clarke, a certified 
fraud examiner and supervisory investigator for Department, based on his 
analysis of deposits and disbursements from the various Schubert accounts.
¶6 In support of the motion, Department offered evidence the Wilcoxes were in 
partnership with Schubert. They attached Schedule E forms (Supplemental Income 
and Loss from Partnerships) from the Wilcoxes' IRS 1040 returns for tax years 
2002 and 2003, in which they reported to the IRS that they were partners with 
Schubert & Associates. Department asserted, based on deposition testimony of 
Marvin Wilcox, that it was undisputed that Wilcox never saw any records relating 
to a day trading account and never received any statements from such an account. 
Marvin Wilcox was in the banking industry his entire adult life, last serving as 
Vice President of NBC Bank in Kingfisher. Wilcox gave Schubert physical control 
of multiple checks from his bank accounts that were blank except for his 
signature. The Wilcoxes received monthly bank account statements for their 
personal checking accounts, but claimed that they did not review or reconcile 
them. 
¶7 In response, the Wilcoxes disputed that they were partners with Schubert. 
They stated that they did not prepare their tax returns and did not know why 
they were shown as partners with Schubert on their 2002 and 2003 tax returns. 
They claimed that they were never partners with Schubert and they never received 
any K-1 partnership forms from the partnership. The Wilcoxes admitted that they 
did not receive statements or anything that specifically referred to a specific 
day trading account, but stated that they did receive written notes from 
Schubert that allegedly contained account balances from day trades. They argued 
that it was a fact question whether or not they were innocent investors. The 
Wilcoxes submitted their own identical affidavits as evidence in support of 
their objections. They stated that they were not aware of the existence of a 
Ponzi scheme in their dealings with Schubert. 
¶8 The Wilcoxes also disputed Department's calculations of the amount of 
their net profits from the commingled funds. The Wilcoxes admitted that they 
received $77,583,050.00 from Schubert, and claimed that their net profit from 
the commingled funds was $133,945.00, not $509,505.00. They argued that whether 
their $133,945.00 in net profits was "unreasonable" under the Blair 
standard presented a question of fact. The Wilcoxes did not dispute the 
remainder of plaintiffs' undisputed facts regarding the Ponzi and check-kiting 
scheme.3
¶9 Department refuted the Wilcoxes' denial of their partnership with Schubert 
by attaching the two K-1 "Partner's Share of Income" forms for 2002 and 2003 
produced by the Wilcoxes during discovery and attached to their signed IRS tax 
returns for those years. Department also submitted a photocopy of a letter from 
Marvin Wilcox to AXA (where Wilcox had an account and for whom Schubert had 
worked) dated July 7, 2004, in which Wilcox stated that he was partners with 
Schubert and had entered the partnership at his own risk, knowing that the money 
he invested with Schubert in an options account was not guaranteed in any form. 
As to the receipt by Wilcox of any records pertaining to a day trading account, 
Department asserted, based on Wilcox's deposition testimony, that the "written 
notes" that Wilcox claimed to have received were nothing more than "sticky 
notes" on which Schubert would write down an account balance when requested. 
Department attached the accounting, prepared by a CPA firm, on which their 
calculation of $509,505.00 in net profits was based, along with photocopies of 
the Wilcoxes' bank statements reflecting check exchanges with Schubert on an 
almost daily basis. 
¶10 At the hearing on the plaintiffs' motion for summary judgment, the 
Wilcoxes' attorney advised the trial judge that they disputed the amount of net 
profit and whether the return on investment was reasonable, arguing that these 
were fact questions not proper for summary judgment.4 The Wilcoxes made no 
further argument regarding their status as "innocent investors" nor did they 
seek to offer additional evidence on that issue.
¶11 The trial judge granted partial summary judgment in favor of the 
plaintiffs on the issue of liability, finding that there was no genuine issue of 
material fact pertaining to the liability of the Wilcoxes on Department's unjust 
enrichment claim. The trial judge found that by virtue of their participation in 
the Schubert check-kiting scheme, the Wilcoxes were not innocent investors and 
the standard for recovery from investors in Ponzi schemes set forth in 
Blair did not apply. The trial court found that the Wilcoxes were 
unjustly enriched by all monies netted from their association with Schubert's 
Ponzi and check-kiting schemes. Because there was a genuine issue of material 
fact pertaining to the amount of money that the Wilcoxes netted from the 
Ponzi scheme, the trial judge left the amount to be determined by jury or 
non-jury trial. 
¶12 A pretrial conference order setting the matter for non-jury trial was 
filed October 22, 2010. Department set out that it was seeking, on the basis of 
unjust enrichment, to recover fictitious profits in the amount of $509,505.00, 
plus interest, that Schubert paid to Wilcoxes for which they did not provide 
reasonably equivalent value. The Wilcoxes asserted no claim for relief and did 
not assert any affirmative defenses. They maintained only that their net profit 
was $133,945.00, not $509,505.00. 
¶13 On November 18, 2010, Department filed a second motion for summary 
judgment, asserting that further documentation received from the Wilcoxes 
demonstrated that no issue of material fact remained as to the amount the 
Wilcoxes netted from Schubert's Ponzi scheme. Department's evidence reflected 
that the net profit to the Wilcoxes was at least $625,518.00, instead of the 
$509,505.00 originally calculated, and that five checks, totaling $285,000.00, 
that the Wilcoxes had used as a setoff in their calculation of net profits were 
never part of the commingled funds used by Schubert. The Wilcoxes did not 
respond to the motion.
¶14 On December 17, 2010, the trial court entered judgment in favor of 
Department and against the Wilcoxes in the amount of $509,505.00, plus 
prejudgment and post-judgment interest and costs. The Wilcoxes were ordered to 
disgorge and/or repay the sums of money to the Receiver.
¶15 The Wilcoxes appealed, raising four issues: 
1) that the trial court exceeded the mandate of this Court in Oklahoma 
Department of Securities v. Blair, 2010 OK 16; 
(2) that the trial court should have taken into account that the Department 
of Securities was judicially estopped from seeking judgment against the Wilcoxes 
concerning whether or not they were innocent investors, as that issue had been 
litigated. The Department of Securities has conceded all 158 investors were 
innocent investors and had not violated securities laws of the State of 
Oklahoma; 
(3) that the decision of the trial court exceeds the plaintiffs' theory of 
the case set forth in the pretrial order, which shows the grounds of recovery to 
be unjust enrichment which was the same grounds on which they previously sought 
judgment against the Wilcoxes. 
(4) that whether the Wilcoxes were not innocent investors should have been 
subject to a full trial, as there are material issues of fact as to whether the 
Wilcoxes were anything other than innocent investors in Marsha Schubert's Ponzi 
scheme.
We granted the appellants' motion to retain the appeal.
¶16 The standard of review for summary judgment is de novo. Our review 
is based on the actual record presented to the trial court and the issues 
actually presented to the trial court. Culpepper v. Loyd, 
1978 OK 
90 ¶6, 583 P.2d 500, 501. An appellate court reviewing a summary judgment cannot take 
notice of any material that was not properly before the trial court at the time 
of its rendition. Frey v. Independence Fire & Casualty Co., 
1985 OK 
25 ¶6, 698 P.2d 17, 20. 
¶17 The first three issues in the appellants' petition in error were not 
raised in the trial court, and will not be heard for the first time by this 
Court on appeal.5 The Wilcoxes never argued before the trial court that 
the Department was judicially estopped from adjudicating whether or not they 
were innocent investors entitled to equitable relief, and they never argued that 
to do so would exceeded the mandate of Blair. In the trial court, the 
Wilcoxes argued that whether they were innocent investors presented a 
question of fact that should not be determined on summary judgment. 
Likewise, they argued before the trial court that a question of fact existed as 
to whether their net profit calculation was unreasonable under Blair's 
standard of recovery. The Wilcoxes never raised an issue in the trial court 
regarding the plaintiffs' theory of recovery based on unjust enrichment. Where 
not properly presented in the trial proceedings or in motion for new trial, 
issues not properly presented to the trial court cannot be considered by this 
Court on appeal. Steiger v. City National Bank of Tulsa, 1967 OK 41, 424 P.2d 69, 72.
¶18 We turn to appellants' remaining issue, that their status an innocent or 
non-innocent investors should have been subject to a full trial because there 
are material issues of fact. Our de novo review of the record presented to the 
trial court does not support appellants' assertion that there are material facts 
remaining in dispute regarding their investor status. All material facts set 
forth in the statement of the moving party which are supported by admissible 
evidence are deemed admitted for the purpose of summary judgment unless 
specifically controverted by the statement of the adverse party which is 
supported by admissible evidence. Spirgis v. Circle K Stores, Inc., 
1987 OK CIV APP 
45, 743 P.2d 682 (approved for publication by Supreme Court). When evidence is presented 
showing the existence of uncontroverted material facts, the burden shifts to the 
opposing party to identify those material facts he or she alleges remain in 
dispute and provide supportive evidentiary materials justifying trial on the 
issue. Reeds v. Walker, 2006 OK 43 ¶32, 157 P.3d 100, 116.
¶19 In attempting to show the existence of a question that must be tried, the 
party may not rely on bald contentions that facts exist to defeat the motion. 
Roberson v. Waltner, 2005 OK CIV APP 15¶8, 108 P.3d 567, 569. We said, in Runyon v. Reid, 
1973 OK 
25 ¶14, 510 P.2d 943, 951:
"When on the basis of established facts the plaintiff is entitled to summary 
judgment as a matter of law, the defendant contending and arguing that there is 
a genuine issue of material fact cannot and will not make it so," citing 
Aktiengesellschaft Der Harlander, etc. v. Lawrence Walker Cotton, 
288 P.2d 691 (N.M. 1955).
¶20 Department offered admissible evidence that the Wilcoxes were not 
"innocent investors" or "innocent victims" of the Ponzi scheme, but were in fact 
partners with Schubert whose bank accounts were actively used in Schubert's 
check-kiting scheme. The Wilcoxes did not deny the existence of or their active 
participation in Schubert's check-kiting scheme. The only evidence submitted by 
the Wilcoxes in denial of the partnership was their virtually identical 
self-serving affidavits.6 Department refuted Wilcoxes' denial of partnership by 
submitting the Schedule K-1 partnership returns they received from Schubert and 
a letter in which Marvin Wilcox admitted the partnership with Schubert. The 
Wilcoxes never sought to offer additional evidence in the trial court on the 
issue of their status as innocent investors.
¶21 It stands uncontroverted that the Wilcoxes' bank accounts were used in 
furtherance of Schubert's check-kiting scheme to create the "float" used by 
Schubert to pay purported investment returns. The Wilcoxes did not dispute 
Department's evidence of the numerous transactions between their accounts, nor 
the more than seventy-seven million dollars in deposits to Schubert from the 
Wilcoxes. They admitted receiving $77,583.050.00 over the course of their 
dealings with Schubert. The Wilcoxes produced no evidence of the existence of a 
legitimate day trading account. The evidence presented by Department placed the 
burden on the Wilcoxes to come forward with evidence to demonstrate the 
existence of a question as to whether they were innocent investors entitled to 
the equitable relief provided by Blair. Their bald assertion that they 
were not aware of the existence of a Ponzi scheme is insufficient. The 
evidentiary material provided by the Wilcoxes failed to raise a dispute on this 
issue and did not meet their burden to overcome the motion for summary 
judgment.
¶22 Rule 13(e), Rules for the District Courts, provides that if the court 
finds that there is no substantial controversy as to the material facts and that 
one of the parties is entitled to judgment as a matter of law, the court shall 
render judgment for that party. In this case, the trial court determined that 
there was no dispute as to the material fact that the Wilcoxes were not 
"innocent" investors entitled to the equitable treatment provided to innocent 
investors in Blair. In Blair, we held that the district court had 
jurisdiction to determine equitable claims to ownership of funds that were part 
of the Ponzi scheme. The trial court in this case determined that it would be 
inequitable to allow the Wilcoxes to keep any of their profits from the Ponzi 
scheme. Having reviewed the evidentiary materials presented to the trial court, 
we find that there is no dispute of material fact justifying trial on this 
issue. 
¶23 As a final matter, the parties have filed motions in the appeal that have 
not been ruled on. Appellants filed a motion for additional briefing on the 
issues of judicial estoppel and exceeding the mandate of Blair. 
Department filed a motion to dismiss the appeal on the grounds of waiver 
because the Wilcoxes failed to raise or present their issues to the trial court. 
The Wilcoxes' response did not address waiver, but instead argued the merits of 
the issues. Department then filed a motion to amend the record on appeal to 
incorporate three documents that they deemed necessary to rebut new issues 
raised in the response. Based on our holding in this case, we deny the motion 
for additional briefing, the motion to supplement the record and the motion to 
dismiss.
¶24 ALL JUSTICES CONCUR
FOOTNOTES
1 The Wilcoxes were 
appellants in Supreme Court No. 104,004. 
2 Department raised other grounds for summary judgment 
which we need not consider here due to the trial court's ruling on the issue of 
Wilcoxes conduct vis a vis Schubert. 
3 The Wilcoxes disputed paragraphs 5, 13, 14 and 16, and 
part of paragraph 12 of plaintiffs' eighteen undisputed facts. Rule 13(b), Rules 
for the District Courts, 12 O.S. 2001, Ch. 2, App., provides that any party 
opposing summary judgment must file a concise written statement of the material 
facts as to which a genuine issue exists and the reasons for denying the motion. 
In the statement, the adverse party shall set forth and number each specific 
material fact which is claimed to be in controversy and reference shall be made 
to the pages and paragraphs or lines of the evidentiary materials. 
4 Counsel for Wilcoxes on appeal is different from their 
counsel in the trial court. 
5 Errors that could have been raised in the trial court 
may not be raised for the first time in the appellate court. Arkansas 
Louisiana Gas Co. v. Cable, 1978 OK 133, 585 P.2d 1113, 1116, citing 12 O.S. § 992. 
6 Marvin Wilcox's affidavit provides, in pertinent 
part:
1. I, Marvin Wilcox, have personal knowledge of the facts and matters set 
forth below.
2. Pam Wilcox is my spouse, and we filed joint tax returns for the years 2002 
and 2003.
3. I am unaware as to why Schubert and Associates was listed in our 2002 and 
2003 tax returns as a partnership, and I have never received any K-1's from 
Schubert and Associates.
4. My spouse and I received $77,583.050.00 over the course of our dealings 
with Schubert and Associates, for a net profit of $133,945.00.
5. Throughout my dealings with Schubert and Associates, I was never aware of 
the existence of a Ponzi scheme.
6. I do not recall whether I contracted with Schubert for a particular 
interest rate.