Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_07-cv-01724/USCOURTS-caed-2_07-cv-01724-9/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 12:22 Securities Fraud

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STIPULATED MOTION FOR ORDER AUTHORIZING RECEIVER TO POOL ASSETS; ORDER 

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BOUTIN DENTINO GIBSON 

DI GIUSTO HODELL INC. 

Chris Gibson, SBN 073353 

Maralee MacDonald, SBN 208699 

555 Capitol Mall, Suite 1500 

Sacramento, CA 95814-4603 

(916) 321-4444 

Attorneys for Receiver 

Michael J. Quilling 

UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF CALIFORNIA 

SACRAMENTO DIVISION 

 

SECURITIES AND EXCHANGE COMMISSION, 

 Plaintiff, 

v. 

SECURE INVESTMENT SERVICES, INC., 

AMERICAN FINANCIAL SERVICES, INC., 

LYNDON GROUP, INC., DONALD F. NEUHAUS, 

and KIMBERLY A. SNOWDEN, 

 Defendants. 

Case No. 2:07-cv-01724 LEW CMK 

STIPULATED MOTION FOR ORDER 

AUTHORIZING RECEIVER TO POOL 

ASSETS; ORDER 

The parties, at the request of Michael J. Quilling, the Receiver appointed in these 

proceedings, (“Receiver”), respectfully submit this Stipulated Motion for Order Authorizing 

Receiver to Pool Assets and Order. 

INTRODUCTION

1. This case involves, among other things, at least 42 separate life insurance policies 

with a combined value of death benefits exceeding $56 million. The Receiver believes that there 

are approximately 500 investors who have a potential claim to those policies, their proceeds, and 

the other receivership estate assets collected according to this Court’s order of August 24, 2007. 

Case law in the Ninth Circuit dictates that those assets ought to be pooled for the investors’ 

collective benefit. 

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STIPULATED MOTION FOR ORDER AUTHORIZING RECEIVER TO POOL ASSETS; ORDER 

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FACTUAL BACKGROUND

2. On August 24, 2007, this Court entered an order (“Receivership Order”) 

appointing Michael J. Quilling as Receiver for Secure Investment Services, Inc., American 

Financial Services, Inc., and Lyndon Group, Inc. (collectively, the “Receivership Entities”). In 

his capacity, the Receiver has complete and exclusive control, possession, and custody of all 

Receivership Assets, including “the assets, monies, securities, choses in action, and properties, 

real and personal, tangible and intangible, of whatever kind and description, wherever situated, 

of the Receivership Entities and/or any entities they own or control . . .” (Receivership Order at 

¶ 1). 

3. The Receiver is currently investigating the Receivership Entities and marshaling 

the Receivership Assets to benefit the creditors and investors in this case. Based on a 

preliminary review of the Receivership Entities’ books and records, it appears to the Receiver 

that investor funds were commingled and treated as a common fund to pay premiums and other 

expenses. 

4. As part of his investigation, the Receiver will determine whether the Receivership 

Entities are current on their policy premiums. Even if they are, they are believed to have only a 

combined total of approximately $65,000.00 of cash currently available. The monthly premium 

obligations, however, are believed to total approximately $150,000.00 a month. At this point, it 

appears that the Receiver only has funds to carry the 42 insurance policies for a short period of 

time. Without another source of income, some of those policies are likely to lapse. 

5. It is, therefore, the Receiver’s position that all assets of the Receivership Entities 

need to be pooled for the common benefit of their investors and creditors. This is consistent with 

the controlling law in this Circuit as well as the majority of jurisdictions in the United States. 

See, e.g., Commodity Futures Trading Comm’n v. Topworth Int’l, Ltd., 205 F.3d 1107, 1116 (9th 

Cir. 2000); United States v. Real Property Located at 13328 & 13324 State Highway 75 North, 

89 F.3d 551, 553 (9th Cir. 1996); SEC v. Forex Asset Mgt., 242 F.3d 325, 331 (5th Cir. 2001); 

Liberte Capital Group v. Capwill, 148 Fed. Appx. 426, 434-36 (6th Cir. 2005). All funds 

constituting receivership assets, regardless of how previously allocated, should be held to 

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constitute one fund. All the insurance policies should also be placed into a common fund, with 

investors no longer having a specific interest in a particular policy. Instead, each investors’ 

interest should be transformed into a claim against the receivership estate’s pooled funds. Death 

benefits, as they are received, should be paid into the pooled fund and used to pay administrative 

costs—including premium payments—during the course of the receivership estate or until 

further order of this court. 

6. Pooling all receivership assets will benefit the Receivership Estate as a whole 

because it prevents a situation where some investors are winners and others are losers based 

upon the sheer luck of how the Receivership Entities allocated their funds. In addition, pooling 

will allow the Receiver to seek bank financing to obtain a line of credit that can be secured by a 

first lien position against the pooled policies as a whole. The Receiver has successfully been 

involved in this type of financing arrangement in other receivership cases and has already 

reached an agreement with a bank regarding these proceedings. Details of the proposed 

financing arrangement are the subject of a separate motion filed contemporaneously. 

7. Until that financing can be arranged, pooling will provide an immediate solution 

for the shortage of cash needed to pay policy premiums as they become due. Specifically, the 

Receiver could pay premiums and other administrative costs from the pooled funds to keep 

policies from lapsing, thereby preserving the receivership estate’s most valuable assets. If, on 

the other hand, the policies are not maintained then investors will likely lose tens of millions of 

dollars that they invested with the Receivership Entities. 

LEGAL AND EQUITABLE AUTHORITY

8. Sitting in equity, this Court is a “court of conscience.” Wilson v. Wall, 73 U.S. 

83, 90 (1867). The District Court, therefore, enjoys “broad deference” in supervising orderly and 

efficient administration of the Receivership Assets for the benefit of creditors and investors. 

Topworth Int’l, Ltd., 205 F.3d at 1115-16. Although the relief sought by this motion may be 

broad-sweeping, the authority of the Court to grant such relief is likewise extremely broad. 

9. When specifically faced with a business failure or fraud scheme affecting persons 

across a widespread area, this Court has discretion to commingle the assets and consolidate legal 

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title at the Receiver’s request. See, e.g., Cunningham (as Trustee for Ponzi) v. Brown, 265 U.S.1 

(1924) (discussing principles of tracing and upholding right of trustee to commingle assets and 

make pro-rata distribution to similarly situated victims); Topworth Int’l, Ltd., 205 F.3d at 1115-

16; Real Property Located at 13328 & 13324 State Highway 75 North, 89 F.3d at 553. The 

authority to pool assets has been recognized even where funds were held by separate corporate 

entities. SEC v. Forex Asset Mgt., 242 F.3d 325 (5th Cir. 2001). 

10. Pooling assets for a pro-rata distribution has been the approach of an 

overwhelming majority of courts faced with similar situations. See Topworth Int’l, Ltd., 205 

F.3d at 1115-16; Real Property Located at 13328 & 13324 State Highway 75 North, 89 F.3d at 

553; see also Cunningham, 265 U.S. at 13; SEC v. Credit Bancorp, Ltd., 290 F.3d 80, 88-89 (2d 

Cir. 2002); Forex Asset Mgt., 242 F.3d at 331; U.S. v. Durham, 86 F.3d 70, 72-73 (5th Cir. 

1996); U.S. v. Vanguard Inv. Co., 6 F.3d 70, 73 (4th Cir. 1993). 

11. In a case very similar to this one, the Sixth Circuit directed the pooling and prorata distribution of viatical interests in a “life settlement” business. Liberte Capital Group, 148 

Fed. Appx. at 434-36. This same approach has been followed in Quilling v. Trade Partners, 

Inc., Case No. 1:03-CV-0236 (W.D. Mich.) [Docket No. 51, 52-1, 90], and SEC v. ABC 

Viaticals, Inc., Case No. 3:06-CV-2136 (N.D. Tex.) [Dkt. No. 7]. 

12. The Receiver seeks an order of this Court authorizing the Receiver to use all 

Receivership Assets to pay premiums and other costs and expenses in the administration of this 

receivership estate for the benefit of the Receivership Entities’ investors and creditors. 

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STIPULATION

WHEREFORE, THE PARTIES STIPULATE to the entry of an order of this Court that 

the Receiver is authorized to use all Receivership Assets to pay premiums and other costs and 

expenses in the administration of this receivership estate for the benefit of the Receivership 

Entities’ investors and creditors. 

 

 

 BOUTIN DENTINO GIBSON DI GIUSTO 

 HODELL INC. 

Dated: August 29, 2007 By /s/ Maralee MacDonald

 Maralee MacDonald 

 Attorneys for Receiver 

 SECURITIES EXCHANGE 

 COMMISSION 

Dated: August 29, 2007 By __/s/ John S. Yun(as authorized on August 29, 2007)

 Thomas J. Eme 

 John S. Yun 

Attorneys for Plaintiff Securities 

Exchange Commission 

 KENNY, SNOWDEN & NORINE 

Dated: August 29, 2007 By /s/ Mark Norcross (as authorized on August 29, 2007)

 Mark Norcross 

 Attorneys for Defendants 

 Donald Neuhaus and 

 Kimberly Snowden 

ORDER

IT IS SO ORDERED. 

Dated: September 6, 2007 

 /s/ Ronald S. W. Lew___________

 Honorable Ronald S. W. Lew 

 United States District Court Judge 

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