Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_15-cv-00226/USCOURTS-casd-3_15-cv-00226-9/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

SECURITIES AND EXCHANGE 

COMMISSION,

Plaintiff,

Case No. 15-cv-00226-BAS-RNB

ORDER:

(1)OVERRULING OBJECTION,

(2)ESTABLISHING ALLOWED 

CLAIMS,

AND 

(3)APPROVING OMNIBUS AND 

SPECIFIC CLAIM 

OBJECTIONS

[ECF Nos. 230, 239]

v.

TOTAL WEALTH 

MANAGEMENT, INC., et al.,

Defendants.

Before the Court is a motion filed by Receiver Thomas A. Seaman 

(“Receiver”) for a court order (1) establishing allowed claims in the Receivership and 

(2) approving the Receiver’s omnibus and specific claim objections. (ECF No. 230.) 

The SEC has filed a non-opposition to the Receiver’s motion. (ECF No. 235.) The 

California Franchise Tax Board (“FTB”) has filed an objection to the Receiver’s 

proposed disallowance of certain amounts in the FTB’s claims. (ECF No. 236.) The 

Receiver has filed a reply in which he concedes the FTB’s objection and requests that 

the FTB’s aggregate claim of $47,764.40 be allowed. (ECF No. 237 at 3, 5.) The 

Receiver has also submitted to the Court an objection he received from Investor

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Donald William Clugston, which the Receiver argues the Court should overrule. 

(ECF No. 237 at 2–5; id. Ex. A (“Investor’s Objection”).)1 Finally, the Receiver’s 

reply revises the proposed allowable claims for three investors who submitted timely 

claims. (Id. at 6.) For the reasons herein, the Court (1) overrules the Investor’s 

Objection and (2) grants the Receiver’s motion, as modified in his reply. 

RELEVANT BACKGROUND

Two Receivership Orders are directly relevant to the Receiver’s present 

motion. First, on February 12, 2015, the Court appointed a permanent receiver for 

Total Wealth Management, Inc. (“Total Wealth”) and its subsidiaries and affiliates, 

including but not limited to Altus Capital Management, LLC (collectively, with Total 

Wealth, the “Receivership Entities” or “Entities”). (ECF No. 8 (the “Appointment 

Order”).) Pursuant to the Appointment Order, the Receiver has exclusive authority 

and control over the Receivership Entities’ assets and is authorized to marshal and 

recover all available assets for the benefit and administration of the Entities. In 

connection with this authority, the Court directed the Receiver to investigate and make 

an accounting of the Entities’ assets. Second, on February 22, 2017, the Court granted 

Receiver Seaman’s motion for an order establishing a summary claims procedure for 

distribution of the Entities’ assets. (ECF No. 137.) The Court’s order approved a 

claims bar date and a claim form for prospective claimants to use. (Id.) In addition, 

the Court approved the Receiver’s proposed claim process by which “[c]laims will be 

evaluated on an aggregate money-in/money-out basis, across the Receivership 

Entities as a whole.” (ECF No. 124-1 at 3; see also ECF No. 137 at 2 (approving the 

Receiver’s “use of summary procedures for the determination of claims against the 

estate of the Receivership Entities, as detailed in the Motion[.]” (emphasis added)).) 

In the present motion, the Receiver represents that he “has largely completed 

 

1 After the Receiver filed his reply, the Court permitted Clugston to file his

objection on the docket. (ECF No. 239.) 

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his investigation and accounting, and is holding approximately $3.9 million in cash 

for the benefit and administration of the Receivership Entities.” (ECF No. 230-1 at 

3.) The Receiver has received and reviewed 282 Investor claims and 12 Non-Investor 

claims2in connection with his proposal for claim establishment and claim 

disallowance or allowance. (ECF No. 230-1 Ex. A (Investor Claims); Id. Ex. B (NonInvestor Claims).) Pursuant to the Court’s approval of his claims procedure, the 

Receiver has conducted a money-in/money-out (“MIMO”) analysis of the claims by 

using supporting information submitted by an investor as well as the books, records 

and tax documents of the Receivership Entities. (ECF No. 230-1 at 4.) The Receiver 

has determined that 86 investor claims are verifiable and should be fully allowed, 13 

claims should disallowed, and 183 should be partially allowed consistent with 

company records. (Id.) The Receiver assessed Non-Investor claims by examining 

claims based on supporting documentation and company records. (Id. at 6.) With the 

results of the review in hand, the Receiver requests that the Court approve his 

determinations regarding the various claims on the Receivership assets.

DISCUSSION

The Receiver requests that the Court resolve all claims on the Receivership 

assets by summary procedures and, over a single investor’s objection3, approve the 

use of the MIMO method to determine the allowable claims on the assets. (ECF No. 

230-1 at 8.) Pursuant to its broad authority over administration of the Receivership 

and the purposes of a receivership, the Court grants the Receiver’s requests and finds 

it is appropriate to overrule the investor objection. 

First, summary proceedings for approval of the claims identified by the 

 

2 All but 3 of the Non-Investor claims are from the FTB. (ECF No. 230-1 Ex. 

B.) 

3 Given the Receiver’s concession to the merits of the FTB’s objection, it is 

unnecessary for the Court to address the substance of the objection. Thus, there is 

only one objection to the Receiver’s motion before the Court. 

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Receiver are appropriate. As the Court has noted on multiple occasions, a district 

court’s “power to supervise an equity receivership and to determine the appropriate 

action to be taken in the administration of the receivership is extremely broad.” SEC 

v. Capital Consultants, LLC, 397 F.3d 733, 738 (9th Cir. 2005) (quoting SEC v. 

Hardy, 803 F.2d 1034, 1037 (9th Cir. 1986)). This broad authority permits a court 

to advance an equity receivership’s primary purpose: the orderly and efficient 

administration of an estate for the benefit of the creditors. Hardy, 803 F.2d at 1038; 

SEC v. Wencke, 783 F.2d 829, 837 n.9 (9th Cir. 1986). Consistent with this purpose, 

a district court may employ summary procedures to determine appropriate relief in 

equitable receiverships to “promote[] judicial efficiency and reduce[] litigation costs 

to the receivership,” so long as the procedures do not deprive creditors of fair notice 

and a reasonable opportunity to respond. Hardy, 803 F.2d at 1040; Wencke, 783 

F.2d at 837–38 & n.9. 

This Court has already authorized the Receiver to conduct the very claims 

procedure whose results are the subject of the Receiver’s present motion. (ECF No. 

137.) Potential claimants have had the opportunity to submit a claim and provide 

supporting documentation and they have had the opportunity to object to the 

Receiver’s claim determination as to them. The Court sees no reason to depart from 

the use of summary proceedings regarding the Receiver’s claims determinations. 

Doing so now risks further unnecessary delay in distribution of the assets.

Second, the Receiver’s use of the MIMO method to ascertain the size of any 

allowable claims is also appropriate. As the Receiver recognizes, courts regularly 

use the MIMO method for the purpose of distributing limited assets. Capital 

Consultants, 397 F.3d at 738 (describing a net claim calculation as “an 

administratively workable and equitable method of allocating the limited assets of 

the receivership”); CFTC v. Topworth Int’l, Ltd., 205 F.3d 1107, 1116 (9th Cir. 

1999); In re Tedlock Cattle Co. Inc., 552 F.2d 1351, 1354 (9th Cir. 1977); In re 

Taubman, 160 B.R. 964, 980–82 (Bankr. S.D. Ohio 1993). It is indisputable that the 

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volume of assets available for distribution to claimants is exceedingly limited 

relative to the overall financial harms suffered by investors because of Defendants’ 

conduct. The use of the MIMO method thus appears to be a reasonable and practical

method to ascertain the size of allowable claims against distributable assets. 

Investor Donald William Clugston, however, objects to the use of the MIMO 

method. (ECF No. 239.) He asserts that the method is inappropriate for investors

like him, who he avers had “liquid” investments with the Entities as opposed to 

“illiquid” investments. He claims that using the MIMO method is an “unfair” 

“redistribution” of funds to investors who primarily invested in illiquid assets to the 

detriment of investors who chose to invest in liquid assets. More fundamentally, 

Clugston appears to object to the Receiver’s appointment itself by asserting that the 

Receivership’s appointment prevented him from getting a cash out he would have 

already received from the Entities. (Id. at 13.) The Court rejects Clugston’s 

objection. 

In addition to the fact that the MIMO method is a permissible method in cases 

like this one and without exhaustively detailing why Clugston’s objection lacks merit, 

there are practical administrative reasons to reject Clugston’s objection. For one, the 

Court approved the MIMO method in February 2017 in its order on the Receiver’s 

motion to establish a summary claims procedures. During the three months that the 

Receiver’s motion was pending, the proposed method for calculating claims was not 

challenged, nor was it challenged in the eighteen months before the Receiver filed 

his present motion regarding his claims assessment. The Receiver has used the 

MIMO method to assess all timely made claims and he has expressly forgone more 

granular methods of calculation that would incur additional receivership costs to the 

detriment of claimants’ recovery. Similarly, Clugston’s objection effectively 

portends additional delay in all investors’ recovery solely to undertake new 

calculations for an unknown number of investors—none of whom have advanced the 

objection raised by Clugston. If followed, undertaking the method Clugston now 

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proposes risks incurring additional receivership costs to the detriment of all 

claimants. 

Moreover, as the Receiver persuasively argues, Clugston effectively seeks to 

privilege the claims of some investors over the claims of others simply to maximize 

the potential recovery for investors like Clugston, with a very real possibility that 

little to no assets would be left to distribute to the investors Clugston believes should 

be second in line for distribution. (ECF No. 230-1 at 2.) The Court will not approve 

such a method, particularly given that the Receivership seeks to distribute the limited 

funds available to all claimants in the Receivership Entities who were harmed by 

Defendants’ conduct, not to privilege recovery for a subset. Accordingly, the Court 

overrules the Investor’s Objection and approves the Receiver’s motion in its entirety, 

as modified by the Receiver’s reply.

CONCLUSION & ORDER

For the foregoing reasons, the Court OVERRULES the Investor’s Objection 

and GRANTS the Receiver’s motion. (ECF No. 230.) 

The Receiver’s recommended treatment of claims, as reflected in the Motion 

and its supporting documents, is APPROVED, as modified below:

a. The claims of the FTB are deemed ALLOWED, in the aggregate 

amount of $47,764.40;

b. The three (3) investor claims identified and addressed in the Receiver’s 

Omnibus Reply (ECF No. 237) are ALLOWED, in the amounts reflected therein; 

and

c. The Receiver’s recommended treatment of all other claims identified in 

Exhibit A (Investor Claims) and Exhibit B (Non-Investor Claims) attached to the 

Receiver’s motion (ECF No. 230) is APPROVED.

IT IS SO ORDERED.

DATED: September 11, 2018

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