1 

## FIL ED JU L 14, 2009 LEO NARD GREEN, Clerk NO T R EC OM M EN DE D F OR F UL L- TEX T P UB LIC AT ION File Na me: 09a0489n.06 No. 08-3697 UN ITED STA TES C OU RT OF AP P EA LS F OR THE SI XT H C IR CU IT SHE LDON GORD ON, e t al . , P lai nt iff-A ppe lla nt

v. DAVID D ADANTE, e t al . , Defendan t-Appellee / ON AP P EA L F RO M THE U NI TED STA TES D ISTRIC T C OU RT F OR THE NO RT HER

N D ISTRIC T OF OHI O

BEF OR E: KEITH , C LA Y, and G IBBO NS, Ci r c uitJudg e s. CLAY, Circ uit Jud ge . The “ Reg albuto Plaintiffs,” a subset of the plaintiffs in the underlying action, appea l f rom the district c ourt’s order approvinga settlement a g ree ment betwee n F e rr is, B a ke r Watts , Inc . ( “ F e rr is B ake r” ) a nd the Re c e ive r. Th e pla int if fs are fo rm e r inv e sto rs in I POF F und, a limit ed p ar t n ership which actually was a Ponz i scheme, usingfunds ra ised from subsequent investors to pay ear lier investors. Af

ter discovering the fra

udulent nature of I POF F und, in November

2005, the plaintiffs filed a complaint in district court ag ains t David A. Da dante a nd

nu m er o u s b ro k er age fi rm s , i n cl u d i n g Fe rr i s Ba k er , al l egi n g v i o l at i o n s o f t h e S e c u r i t i es E x ch an ge Act (“ SEA”) of

1934, 15 U.S.C. § 78, the Racketee r I n fl u en ce d and Corrupt Or g anizations Act (“RI CO”), 18 U.S.C. §§ 1962, 1964, and state se curities laws. The Rece iver subseque ntly enter ed into a settlement ag ree ment with F err is B aker and, in A pril 2008, the district court ente red a n orderThe ter m “I POF F und” re fer s to the collection of e ntities that Dadante use d to perpe trate the 1 P o n z i s c h e m e , i n c l u d i n g IP O F II, L. P

. , IP O F , L. P

. , an d G S G I. 2 approvin g the settlement ag ree ment, from which the Reg albuto Plaintiffs now appea l. For the

rea sons set forth below, w e AF F IRM the dis tr ic t court ’s or de r ap pr ov ing the se ttl e me nt a g re e me nt. I. BACK GR OUND Be g inning in 1999, David A. Dada nte solicited investments f rom individuals in exchang e for a limited partner ship interest in I P OF Fu nd. Dada nte told prospective inve stors that I POF F und 1 would invest in init ial public offe ring s, as well as stocks of companies included in the Dow Jones I ndustrial Aver ag e, and that their funds would be he ld in a money marke t acc ount at Goldman Sachs Gr ou p, I nc . ( “ Go ldm an Sa c hs ” ). To fu rt he r t he sc he me , D a da

nte pr ov ide d exist ing inv e sto rs wi th purp or te d a c c ount s tate me nts sh ow ingthe ir a lle g e d re tur ns . I n r e a lity , h ow e ve r, I POF F un d w a s a Pon zi sc he me , p ayinge arl ie r i nv e sto rs the ir “ re tur ns ” out of fu nd s r a ise d f

ro m su bs e qu e nt i nv e sto rs . Da da nte us e d th e fu

nd s he so lic ite d f

ro m inve sto rs to p ur c ha se larg e qu anti tie s o f s toc k in I nn otr a c Cor

po ratio n ( “ I nn otr a c ” ). To make the se purc ha se s, Da da nte op e ne d a c c ounts on

be ha lf

o f IPO F Fu n d

at nu m er o u s b ro k er age fi rm s , i n cl u d i n g Fe rr i s Ba k er . Da d an t e u s edt h e b ro k er age firm acc o u n ts to ma

n ip u late th e p r ic e o f

I n n o tr a c s to c k , c a

u s in g I PO F F u n d

to p u r c h a s e I n n o trac stock at ar

tificially inflated pric es. In ad d i t i o n , Dada nte borrow ed hea

vily ag ainst I POF F und’s Fe rris B aker

acc ount. At the time the i n v es tors filed suit, I POF F und’s ac count at F err is Bake r

c on ta ine d 2 ,9 99 ,1 52 sh are s o f I nn otr a c sto c k a

nd ha d a marg in d e bt o f a lmo st n ine mil lio n d oll ars . O n November

21, 2005, Sheldon Gordon filed a complaint in the United States District Court for the N orthern D istrict of Ohio ag ainst David Da dante; I PO F, L

. P

. ; I POF F und; Fer ris Ba ker; W ac h o v i a S ec u ri t i es , L L C ; H& R Bl o ck Fi n an ci al Ad v i s o rs , I n c. ; GS GI; I P OF I I , L

. P

. ; P e r s h i n g,The “ Reg albuto Plaintiffs” ar e “ s ev en t y -e i gh tp l ai n t i ff s t h at we re fr i en d s an d

fa m i l y o f F rank 2 Re g a lbuto, ” on e of

the pr inc ipa l inv e sto rs in I POF F un d. (P ls. ’ B r. 13 .) As ide fr om t he Re g a lbuto Plaintiffs, the plaintiff-investors included eig ht members of the Small family , the “Small Plaintiffs.” T h e re maining pla intiffs were not repre sented by counsel a

nd did not actively

participate in the district court proc eeding s. 3 L L C; and sever al “John Doe” c ompanies and individuals. The f ou r- count complaint claimed numerous violations of t he S EA, RI CO, Ohio secur ities laws, and also a lleg ed common law f raud. Gordon’s c omplaint r equeste d that the cour t free ze the assets of Da dante a nd I POF F und, appoint

a rece iver to manag e the assets of I POF F und, “disg org ement” of “all ill-g otten profits or proc eeds,” and $75,000 in damag es. (ROA 90- 91.) On November 2 3 , 2005, the district court e stablished an equity rec eiver ship over I POF Fund’ s assets. As re quested in t he complaint, the di strict court a ppointed Mark Dottore as Rece iver to “ c oll e c t, p re se rv e , a

nd pr ote c t any

a sse ts b e lon g ingto [I POF F un d]” in or de r t o “ re c ov e r . . . a sse ts transfe rre d fra

udulently or otherw ise from [I POF F und],” as well as “ to investigate the size of the loss and identify the vi ctims” of Dadante’s fraud. (ROA 526) (alter ations and omi ssion in original). Following the Rece iver’s a ppointment, in March 2006, Gor don filed an a mended c omplaint, adding I POF F und and other

investors, including the Reg albuto Plaintiffs, as plaintiffs. 2 On J anuar

y 22, 2008, the Rece iver filed a motion with t he district cour t seekingapprova l of

a s e tt le me n t a g r e e me n t r e a c h e d w it h F e r r is B a k e r . T h e s e tt le me n t a g r e e me n t a c kn o w le dg ed that F e rr is B a ke r d isp ute d th e Re c e ive r’ s a sse rt ion that F e rr is B a ke r w ou ld b e lia ble fo r i ts a c tio ns “ in

connec tion with the alleg ed mar ket m anipulation of Innotrac stock and for other a cts and c onduct the Re c e ive r a lle g e s to be un lawf ul. ” (R OA 10 26 .) Th e pa rt ie s a lso c on te ste d th e va lid ity of F e rr is Ba ker’ s claim ag ainst I POF F und for pa y ment of the mar g in debt associate d with the acc ount.4

Ac kn ow le dg ingthe se dis pute s, the se ttl e me nt a g re e me nt pr ov ide d that F e rr is B a ke r w ou ld pa y $7 .2 mil lio n to the Re c e ive rs hip e state in e xch ang e fo r I POF F un d’ s a g re e me nt t o r e le a se F e rr is Ba ker, its offic ers, dire ctors, and e mploy ees f rom “c laims that were or could have been raised

. . . related t o [t he] trading [of I nnotrac ] st ock” thr oug h I POF F und’s ac count at F err is Bake r. (ROA 10 30 ). F e rr is B ake r f

ur the r a g re e d th a t, f

oll ow ing a pp ro va l o f th e set tleme nt, the Re c e ive r “ sh a ll

own an d h av e fu l l authority in reg ard to the disposition of 2,999,152 share s of Innotrac common stock . . . fre e and c lear

of any marg in debt, claim for mar g in debt, lien, char g e, or e ncumbra nce of any kind by [Ferr is Bake r] relating to [ I POF F und’s] account.” (ROA 1026.) The settlement a g ree ment conditioned the execution of the settlement on the district court’s approva l, as well as t he court’s entry of t he parties’ agr eed- upon Ba r Order, I njunction and Dismissal of Claims (“B ar Orde r”) , which wa s attache d to the settlement ag ree ment. Additionally , the settlement ag ree ment require d that I POF Fund investors sign rele ases with r espec t to Fer ris Ba ker’ s liability prior to re ceivingdistributions from the pr ocee ds of the settlement. I n support of the motion seeking appr oval of the se ttlement, the Rece iver submitted a memorandum c ontaining a n extensive analy si s o f t he fa irness of the se ttlement ag ree ment. The Rece iver fir st provided a de tailed history of Da dante’ s tradingactivity at Fe rris B aker : Dada nte actua lly deposited $5,779,704.66 of I POF Fund cash

. . . . At Fe rris B aker [,] the I POF F und, controlled by Dada nte, ac tually

purcha sed only

about 2.4 million of the 2. 9 milli on plu s share s cur re ntl y he ld. Al so , at va

ri ou s ti me s D a da

nte ma de c a sh withdrawa ls from the F err is Bake r acc ount that totale d sever al milli on dollars, which he deposited into I POF F und acc ounts and used to make dist ributions to indi vidual I POF F un d inve sto rs . T he ne t of all de po sit s and wi thd ra wa ls b y Da da nte a t F e rr is Ba ker is that appr ox imately

$7.7 milli on I POF F und assets we re a ctually consumed in the acc ount . . . .Th e Re c e ive r c a lc ulate d th is a mou nt a s f oll ow s: 3 Duri ngthe re le va

nt p e ri od , I POF F un d b ou g ht I nn otr a c sto c k in its a c c ount at F e rr is Ba ker at various price s rang ing f rom $2.60 per s hare to as hig h as $11.38, for an aver ag e (unw eig hted) pu

r c h a s e p r ic e o f

a p p r o ximately

$5.68 per sha

re. Ma nipulative t ra d i n g ac t i v i t y

u s i n g I P OF Fu n d

as s et s dro v e p u r ch as e p ri ce s t o ar t i fi ci al l y h i gh l evels. The 2,479,152 share s that I POF F und actua lly purcha sed at F err is Bake r at the ave rag e pric e of $5.68 ex cee ded the initial $2.60 per share purchase s by $3.08 per share , or in total a $7.6 million overpay ment (assuming the l owest price reflecte d an actua l value). ( RO A 1 0 0 5

. ) The Rec eiver

thus mult iplied 2,479,152 by $5.68—the ave rag e pric e duringthe marke t manipulation period—to arr ive at the price I POF F und paid base d on the ar tificial price s. From that 5 (R OA10 04 .) Withre sp e c t to the I nn otr a c sto c k F e rr is B a ke r wou ld tr ans fe r t o th e Re c e ive rs hip

e state , th e Re c e ive r a c kn owled ged th at “be c a us e of the size of

the I POF F un d s ha

re po sit ion

in I nnotrac stock at F err is Bake r, and be cause the stock is thinly trade d, the Innotrac s h are s held at Fe rris B aker

could neve r be sold in any quantity on the open mar

ket” at a pric e nea

r the approximately

$3.28 per sha

re tra ding pr ice a s of J anuar y 18, 2008. (ROA 1002

. ) Ho we v er, the Rece iver c oncluded that $3.00 pe r shar e represe nted t he price at which the Rece iver could sell the share s in a private bloc k sale, and there fore valued the 2,999,152 share s of Innotrac at $8,997,456. Th e Re c e ive r a lso ana ly

zed the po te nti a l c la ims he c ou ld br ing a g a ins t F e rr is B a ke r o n b e ha lf of I POF F und investors, including an action under Section 10(b) of the SEA, 15 U.S.C § 78j(b), and Rule 10b-5, 17 C.F.R § 240.10b-5, ba s ed o n Fe rris B aker ’s alleg ed par ticipation in market

manip ulatio n a

nd its mis re presen tatio ns and omi ssi on s o f m a te ri a l f

a c ts t o I POF F un d. I n h is analy sis, the Receive r empha siz ed that, in such actions, a plaintiff is limited to actua l damag es and cannot r ecove r punitive damag es. The Re ceive r conc luded t hat I POF Fund’s damage s resulting from the manipulation of Innotrac stock price would constitute the “excess cost over a ctual value paid” by the investor. (ROA 1005.) Ba sed on t hat formula, the Rece iver found that I POF F und’s ac tual damag es amoun t ed t o ap p roxi mately $7.6 milli on. The Rec eiver stated that the $7.2 million 3amount, the Rece iver subtra cted what I POF F und would have pa id h a d D a dante no t eng a g e d in

marke t ma

nipulation. To find that amount, the Rece iver assumed that $2.60 wa s the true va lue, and multipl ied $2.60 by

2,479,152. 6 pay ment that Fe rris B aker

ag ree d to ma

ke as part of the settlement “fa irly compensate[d] I POF F und for the e x cess c ost it i ncurr ed in buying I nnotrac stock as par

t of Dada nte’s fr audulent scheme.” (ROA 1005.) With respec t to I POF Fund’s l osses from possi ble m isrepre sentations and omissions by Fe rris B aker , the Rece iver de termined that the total a ctual loss was $7.7 million—the amount of I POF F u n d as s ets that Dada nte consumed while tradingat Fe rris B aker . The Rec eiver conclude d that rec eiving the share s of Innotrac stock, which the Rece iver valued at appr ox imately $9 milli on, constituted a fa ir settlement for the I POF F und investors. As part of his fairne ss assessment, the Receiver stated that he be lieved that I POF F und had strong claims ag ainst Fe rris Ba ker and could preva il. However , the Rece iver a lso noted that bring ing the se c la ims a g a ins t F e rr is B ake r c ou ld r e su lt i n “ pr otr a c ted li tig a tio n in wh ic h th e outc ome is

un c e rt a in. ” (R OA10 03 .) Ac cord in g t o the R e c e ive r, “ [a]ny . . . a c tio n . . . wo uld

be vig or ou sly contested by

Fe rris B aker , an d wo u l d include a c ounterc laim for mar g in debt in the I POF F und

acc ount.” (

Id. ) T hu s, the Re c e ive r c on c lud e d th a t th e se ttl e me nt w ou ld e lim inate the un c e rt a int y and pr o v id e f

o r a r e c o v e r y o f mu c h o f th e lo s s th e inv e s to r s s u s ta in e d a s a r e s u lt o f D adante ’s

a c tiv it i e s a tF e r

r i s B ak e r . F i n a l l y , t h e R e c e i v e r d e t e r m i n e d t h a tt h e i n d i v i d

u a l p l a i n t i f

f s ’ c l a i ms

a g a ins t F e rr is B ake r l a c ke d v a lue for purp os e s o f c a lc ulatin g F e rr is B a ke r’ s p ote nti a l li a bil ity beca use the individual plaintiffs lacke d standing to assert c laims ag ainst Fe rris B aker , and could not prove the require d relianc e ele ment to make out a c laim under fe dera l securities law s. After the Rece iver submitted the motion see king approva l of the settlement ag ree ment, on J anuar y 24, 2008, the district court issued a n order g iving7

all interested pa

rties . . . the opp o rt unity to comment, whether

in support or opposition, on t he p ro posed settlement betwe en the I POF F und and F err is Bake r Watts, Inc. I n the interest of f airly and ef ficiently addre ssing a ll the issues raised by the par ties, the Court i m p o s es the following proce dures f or commentingon the proposed se ttlement ag ree ment:. . . . Part ie s wh o wi sh to be he ard

. . . s ha ll s ub mit

the ir po sit ion state me nts wi th respe c t to the pr op os e d s e ttl e me nt a g re e me nt in writ ing , o n o r b e f o r e F r i d a y, Fe bruar y 22, 2008.

. . . . On Wednesday , Marc h 12, 2008, at 3:30 p.m., the Court will hold a hearing to provide the parties with a further opportunity to pr esent their positions orally to the Court

. (ROA 1056-57.) The Reg albuto Plaintiff s s u bsequently

filed timely

objections to the proposed settlement ag ree ment, raising three arguments: (1) the for gi v en ess of the ma rg in debt associate d with I POF F und’s ac count conf err ed no bene fit on the Rece ivership; (2) t h e alm ost three million sh are s o f I

nn otr a c stock th at the R e c e ive rs hip wo uld ob ta in h a d n o r e a l va lue ; and (3 ) t he c a sh pay ment by Fe rris B aker

was insuffic ient. At the hea ring , counsel for the Rece iver and Fe rris Ba ker commented reg arding the terms of the se ttl e me nt a g re e me nt, and ans we re d th e dis tr ic t c ourt ’s qu e sti on s a bo ut the pa

rt ie s’ ob je c tio ns . Counsel for the Reg albuto Plaintiffs then reiter ated the obje ctions that he had submitted prior to the hear ing. H oweve r, upon questioning from the court, counsel for the Reg albuto Plaintiffs admitted that the objec tions were unf ounded and w ithdrew his objections. None theless, shortly afte r the hear ing, c ounsel filed a “supplementa l memorandum” to “cla rify an appa rent misunderstandingthat ha[d] arisen reg arding the pos ition of t he R eg albuto [P ]l aintiffs.” (ROA 1168.) Counsel stated that the “Reg albuto [P ]l aintiffs did not intend to convey that t h ey wi t h drewtheir objec tions to t he proposed se ttlement.” (ROA 1169.)8

On April 18, 2008, in an e x tensive orde r, the district cour t approve d the settlement ag ree ment

rea ched betwee n the Rece iver and Fe rris B aker . Consist ent with the appr oval of the se ttlement, the court e ntere d the B ar O rder “dismissing any

and all cla ims, countercla ims, crossclaims and third party complaints ag ainst [Ferr is B aker ] cur rently pending in the Rece ivership Action.” (ROA 1221- 24 .) Th e Re g a lbuto P la int if fs fi le d a tim e ly no tic e of a pp e a l. II. THE DIS TRICT COUR T DID NOT ABUSE IT S DISCRET ION IN AP P ROVING THE S ETT LEMENT AGREEMENT A. Stand ard of Review This Court reviews a d istrict court’s de cision to approve a settlement ag ree ment in the context of an equity

rec eiver ship for abuse of discretion. See Liberte Capital Group, LLC

v. Cap will , 4 62 F .3 d 543 , 551 (6 th Cir . 200 6) (e mph a sizi ng that a distr ic t c ourt a dmi nis te ri ngan e qu ity

re c e ive rs hip ha s b ro a d d isc re tio n) ; S t e r l i n g v . S t e w ar t , 1 5 8 F.3d 1199, 1201 ( 11th Cir. 1998) (“D eter mining the f

airne ss of the settlement [i n an equity rec eiver ship] is left to the sound discretion of the trial c ourt and we will not overturn the cour t’s decision abse nt a clea

r showingof abuse of that discretion.”)

. B. Ana lys is The Reg albuto Plaintiffs challeng e the district court’s a pproval of the proposed se ttlement with Fe rris Baker

on sever al g rounds. Fir st, the Reg albuto Plaintiffs argue that they “we re not aff orded the opportunity to de velop a proper rec ord” with r espec t to the settlement ag ree ment. (Pls.’ B r. 14 -1 5. ) T he Re g a lbuto P la int iffs als o co nte nd that, b e c a

us e the y we re de nie d th e op po rt

un ity fo r d isc ov e ry

and oth e r i nf or matio n, the distr ic t c ourt sh ou ld h a ve c on sid e re d th e nin e sp e c if ic fac tors set forth in Gi rsh v. Je pson , 521 F.2d 153 ( 3d Cir. 1975), in assessing the fa i rness a ndB oth the Re c e ive r a

nd F e rr is B a ke r c on te nd

that, be c a

us e the Re g a lbuto Pla int if fs fa ile d to 4 ra ise the se c on c e rn s in the dis tr ic t c ourt , the y sh ou ld b e pr e c lud e d f

ro m makin g su c h a

rgume nts to this Court. R eg ardle ss of whethe r t he R eg albuto Plaintiffs have waived or forf eited the claims they raise on a ppeal, we find that their cla ims are without merit for the re asons discussed be low. To the extent that the Reg albuto Plaintiffs argue that they should have re ceive d information 5 a bo ut t he Re c e ive r’ s se ttl e me nt n e g oti a tio ns wi th F e rr is B a ke r, the dis tr ic t c ourt fo un d th a t it

c ou ld not “g et into too much detail about the bac k and for th of the neg ot i at i o n s b ec au s e . . . there are confide ntiality issues betwee n client and counsel.” (Tr. 19.) Fur ther, “since the larg est single asset 9 adequa cy of the settlement. Finally , the Reg albuto Plaintiffs challeng e the va lue the district cour t assig ned to ce rtain provisions of the settlement a g ree ment i n ev aluating the fa irness of the

se ttl e me nt. 4 1. Deve lopme nt of Record Th e Re g a lbuto P la int if

fs ’ fi rs t argume nt e sse nti a lly is t hat th e y sh ou ld h a ve be e n a llo we d to conduct discove ry

with respec t to the settlement ag ree ment—or the district cour t itself should have de ve lop e d a

re c or d b e fo re a

pp ro vin g the se ttl e me nt— and that, i n th e a

bs e nc e of su c h d e ve lop me nt, the district court lac ked suff icient information to eva luate the fa i rn es s and ade quacy of the settlement. “[A] di strict court ha s broad powe rs i n fashioning relief in an equity rec eiver ship procee ding . . . .” Lib e rte Cap ita l G ro up , LLC , 46 2 F .3 d at 55 1( omi ssi on in o ri g ina l) ; see SEC v . Basic Energy & Affili ated Res., I

nc. , 273 F.3d 657, 668 (6th Cir. 2001) (noting that a district court ha s “broa d po we rs and wi de dis c re tio n” in pr e sid ing ov e r an e qu ity re c e ive rs hip pr oc e e din g ). I n th is c a se , to addre ss the conce rns of the va rious plaintiff groups, the district court determined that a “more ope n, pa r t i c i p a t o r y p r o c e s s ” w o u l d b e a

p p r o p r i a t e . A c c o r d i n g l y , r a t h e r t h an a l l o w i n g t h e p art ie s to

c on du c t di sc ov e ry , th e dis tr ic t c ourt pe rm itt e d inve sto rs to fi le ob je c tio ns to the pr op os e d s e ttl e me nt,

and the n c on du c te d a

he ari ngto a dd

re ss t ho se ob je c tio ns . 5of t he estate is publicly -trade d [si c] stock, both the I POF F und and the Rec eiver are require d by

law to refr ain from public disclosure s of any discussions which could a ffe ct the value of those shar es.” Go rd on , e t al. v . D ad

an te , e t al

. , No. 1:05CV2726, 2008 WL 222507, at *4 n.4 (N.D . Ohio J an. 25, 2008). With respect to other aspec ts of the settlement, the district c ourt alre ady had deter mined that the Reg albuto Plaintiffs could not depose Da dante r eg ardinghis trading acti v i t y at Fe rris B aker beca use such discovery

“is the province of the Rec eiver ” rather than the individual plaintiffs. Id. at *8. 10 Th e re c or d d e mon str ate s tha t th e dis tr ic t c ourt ha d e xten siv e kn ow le dg e of the c la ims involved in the case , the valuation of those c laims, and the n at u re o f t h e s ettlement. Fir st, the R ece iver’s me morandum submitted to the court in support of the motion seekingapprova l of the settlement set forth in deta il the Receive r’s c alculations and va luation of the settlement. At the he ari ng , th e dis tr ic t c ourt qu e sti on e d c ouns e l fo r the Re c e ive r re g ard ing the se c a lc ulatio ns , and a lso

a sk e d c ouns e l to re sp on d to the ob je c tio ns ra ise d b y

the va ri ou s p la int if

f gro up s: Mr. Rapp: Now, in the s ettlement , I POF Fund would also rec eive $7.2 mil lion

in c a sh . T he im po rt ant t hin g a bo ut t hat c a shamou

nt i s th a t it repr esents al m o st 100% of the a ctual dama g es that I POF F und suffe red at Fer

ris, Ba ker in purcha sing the I nnotrac stock. This, Your Honor, repr esents actua l c ompensation for what actua l l y happene d.

. . . A nd ke e p in min d a s we ll that th e a mou nt o f t he c a shpa

y me nt i n thi s se ttl e me nt i s mo re mon e y tha n I POF F un d a c tua lly

de po sit e d into the F e rr is, B ake r a c c ount. The Court: Well, let me ask y ou to e x plain that in a littl e more detail, Mr. Rapp,

be c a us e the - - as the Re c e ive r h a s c on tin ua lly po int e d o ut, the re ’s a loss in ex cess of $25 milli on that the Rece iver calc ulates as the losses that have been sustained by the investors and the Fund. That’s a fter deductingfor pa

y ments to investors and the Fund. So wher e does the 7.2 milli on fac tor into the 25 mill ion? (Tra nscript of Mar ch 12 He aring(“Tr .”) 8- 9.) After counsel for the Re ceive r re sponded, the district

c ourt the n q ue sti on e d w he the r t

he ne arl y thr e e mil lio n share s of I nn otr a c sto c k that th e Re c e ive rs hip estate w ould obtain as a re sult of the settlement could, in fac t, be sold:11

Th e Court : Yo u re fe re nc e d the - - the fa c t that the se ttl e me nt inc lud e s the a bil ity to retain the share s fre e and c lear of any marg in debt. . . . You want to addre ss that issue? Mr. Rapp: Yea

h, I ’m very

happy to, to a d d re s s t h at t oday , Your Honor

. And there ’s no quest i o n that there has bee n some unce rtainty . . . about what the stock component of the Fe rris, Ba ker proposed se ttlement means. Th e fi rs t thin g . . . is tha

t 3 m ill ion

sh are s o f I

nn otr a c sto c k th a t w ou ld be rec eived fre e and clea

r of marg in debt, [but ] could not si mply be s o l d i n t h e p u b l i c t ra d i n g m ark et

. T h e a t t em p tt o s el l an y l ar ge amount of the stock that wa y would drive the price to a tiny fra ction o f w h a ti tt r a d e s a ti nt h e m ar k e tt o d ay. The Court: Right. I

think tha t ’s wh at ’s driving the conc lusion that may be it’s va lue le ss t o g ive the m th e sh are s. Mr. Rapp: Right.

. . . . [B]ut the second thing that’s involved here that has to be

clea r is that the Innotrac stock owned by I POF F und, while it cannot be so ld o ff

in t he pu bli c mark e tpl a c e fo r a

ny thi nga pp ro a c hin g its fa ir value, doe s not mean that it cannot be sold

. . . . [T] he I POF F und ow ns 34 % o f t

he outst and ingsto c k o f t his c om pany

and its share holder e quity

. . . . . There ’s no question that the Rece iver plac es re a l c a sh va lue on the 3 milli on sh are s of I nn otr a c sto c k .

. . . b e c a us e I nnotrac stock can be sold a s an entire block and at a pri ce t hat repr esents fa ir value.

. . . . [T] he CEO of Innotrac , Mr. Dorf man, pledg ed the same ef fort and c omm itm e nt t o s e e k a

fa ir dis po sit ion

of the I POF F un d s ha

re s. With the Re c e ive r, he has act ed o n th a t pl e dg e , a nd he ha s e ng a g e d in meaning ful neg otiations with t he Rec ei ver a imed at a block sa le of the Innotrac stock held by I POF Fund at a price not less than $3 per share

. [ T ] h e Rece iver be lieves and ha s ever y rea son to believe that in a private block transac tion, the value of I nnotrac stock held by the Fund is not less than $3 per shar e. (Tr. 10- 14.) In explaining the basis for his conclusion that the shar es wo u l d have va lue for the Rece ivership estate, the R ece iver emphasized that the s ettlement wit h Fe rris Baker was the first stepWhil e this appea l has bee n pending , the district court a pproved a sett l ement with similar 6 terms betwe en the Rec eiver and McDonald I nvestment Corp., another broker ag e firm holding I POF Fund Innotrac stock. Se e Go rd on , e t al . v . D ad

an te , e t al

. , N o . 1 :0 5 CV 2 7 2 6 , 2 0 0 8 WL 4 6 2 5 1 57 (N .D . O hio Oc t. 1 6, 20 08 ). Th e Re g a lbuto P la int if fs a pp e a le d th e a

pp ro va l of

the Mc Do na ld settlement approva l to this Court, raising substantially the s ame issues as in this appeal. This Court rec ently dismiss ed that appe al for failure to timely file a notice of appea l. Gordon, et al. v. Dadante , e t al

. , No. 09-3322 (6th Cir. June 15, 2009). 12 in th e o v e r a ll e f

f o r t to r e c o v e r th e inv e s to r s ’ f u n d s , an d in f

o r me d th e c o u rt th a t n e g o ti a ti o n s were

un de rw ay wi th t he oth e r b ro ke ra g e fi rm s at w hic h D a da nte ha d I POF F un d a c c ounts

. 6 The district judg e also thoroug hly questioned counse l for F err is Bake r. At the he aring , the

c ourt a sk e d c ouns e l to re sp on d to c e rt a in i nv e sto rs ’ o bje c tio n th a t, b a se d o n th e poten ti al lia bil ity of both the compa

ny and its office rs and dire ctors, the settlement amount was too low. (Tr . 16-17.) Counsel pointed out that the l oss cause d throug h trading at Ferris B aker “is what it is, irrespe ctive of who may

be ca lled upon to pay

it,” and thus “ther e’s just one total pot” from which the investors

co u l d r e c o v e r. (T r. 1 7

. ) In a d d i t i o n , t h e c o u rt qu es t i o n edFe rr i s Ba k er ’s co u n s el re gar d i n g a pr op os a l by

the inv e sto rs that Fe rr is B ake r pur c ha se the I nn otr a c sto c k at $3 pe r sha re , a nd dis tr ibute the proc eeds to the Rece ivership estate. Counsel r esponded that “[t] he Rece iver wants the stock,” beca use the e state would “the reby reta in the rig ht to rea liz e any upside potential that there may be.” (T r. 18 .) F e rr is B ake r ac kn ow le dg e d that, at on e po int , it ha d pro po se d a pro vis ion that w ou ld e nti tle it to any proce eds of the s tock t hat ex cee ded the approximately $9 milli on in marg in debt. Howeve r,

acco rd i n g to Fer

ris Ba ker, the Rece iver “ absolutely ref used” to include such a pr ovision. Acc ording ly , “to the extent that the Rece iver is a ble to r ecove r more than the $9.4 milli on v alue, F e r r is []B a k e r

r e c e iv e s n o b e n e f

it f r o m t h a t; th a t f lo w s d ir e c tl y

to th e I PO F F u n d

an d it s inv e s to r s [. ]” (Tr. 19.)13

Thus, the re cord de monstrates that, despite the Re g a lb uto Pl a in ti f f s ’ a r g ument that the district court lac ked suff

icient information to evaluate the fairne ss of the settlement, the district court used the hearing as an opportunity to obtain as m uch information as poss ible reg ardingthe settlement and its terms. Moreove r, as the di strict court’s opinion appr oving the settlement ag ree ment evince s, the court e ng ag ed in an indepe ndent ana ly sis of the settlement—it did not, as the Reg albuto Plaintiffs argue, mer ely

adopt the Rec eiver ’s assessment. In its opini on, the cour t relied on fa cts uncove red during the g overnme nt’s criminal investig ation. The c ourt also compar ed the perc entag e of loss that the I POF Fund investors would rec over through the Fe rris B aker settlement to settlements in other

secur ities fraud c ases, noting that courts had a pproved se ttlements where the re co v er y rate s were approximately

35% of total damag es or less. In the abse nce of any evidenc e that the a ctual dama g es would exceed the amount estimated by the Rece iver, the district court c oncluded that the se ttlement provided I POF F und investors with “nea rly a 100%” rec overy . (ROA 1214.) F ur the r i llu str a tin g the tho ro ug hn e ss of the dis tr ic t c ourt ’s a sse ssm e nt o f t he se ttl e me nt i s it s evaluation of the impact of the Re ceive r’s fe es on the ul timate amount of re cover y . The district cour

t acknow ledg ed that the Rec eiver ’s fe es would re duce the ultimate distributi on to investors, but that the fe e s wo uld be no g re a te r tha n if the Re c e ive r h a d in iti a te d li tig a tio n a g a ins t F e rr is B a ke r, or if the Rece iver ha d a conting ency ag ree ment with I POF F und. The re cord shows that the district court wa s well informed r ega rd ing the nature of the settlement, the history

of the c ase, the parties’ objections, and the potential theor ies of re cover y . The Reg albuto Plaintiffs have fa iled to identify specific information t hat t he dis trict court should have examined, and do not prese nt any contra ry evidenc e re g ardingtheir vi ew of the s tock value or other aspec ts of the settlement. Aside f rom conc lusory statements, t he Reg albuto Plaintiffs do not identifyEven whe n presse d by the pane l at oral ar gu m en t to identify a spec ific def

iciency in the 7 district court’s procee ding, the Reg albuto Plaintiffs wer e unable to point to any thing in the r ecor d that would sug g est any

irregularity

in the settlement approva l. Throug hout their brief, the Reg albuto Plaintiffs also contend that the di strict court pe rmitted 8 them to participate , “but only to r aise their objections in summary fashion. The y

wer e not allowed to u nd e rs c or e the ir

c on c e rn s and we re a sk e d for ob je c tio n. ” Th is ar g ume nt misc on str ue s th e e ve nts that took pla ce during the hear ing. T he district cour t questioned counsel f

or the Reg albuto Plaintiffs reg ardingthe objections. F ollowing this discussion, c ounsel admitted that the objec tions were ba sed on a misrea ding of

the settlement ag ree ment. I n addition, afte r counsel explained the basis for the misunderstanding

—that the Reg albuto Plaintiffs thought the Re ceive r would distribute the shar es immediately

—the district court noted that counsel had “ sort of chang ed the whole - - I had seve ral questions, but now that I understand wher e you wer e comingfrom,” the questions no longe r we re rele vant. (Tr . 37.) F urther, c ounsel did not press the district co u rt for a dditional tim e to make ob je c tio ns , o r r e sp on d to a

ny of the Re c e ive r’ s d e ta ile d e xplanatio ns of the ba sis fo r t

he se ttl e me nt. Ac c or din g ly , a

ny a lle g a tio n th at th e dis tr ic t c ourt pr ov ide d o nly “su mma

ry” pr oc e ss i s e nti re ly without support in the recor d. 14 specific defe cts in what wa s, based on the r ecor d, an excepti o n al l y car eful settlement a

pproval pr oc e ss. We t

he re fo re c on c lud e that th e Re g a lbuto P la int if fs we re no t de nied th e op po rt un ity to 7 meaning fully

participate or object, and that the district c ourt had more than suffic ient information to assess the fa irness of the se ttlement pr o p o s ed b y the Rece iver. Cf. Sterling , 158 F.3d at 1204 (conc luding that the district court did not abuse its discre tion in approving the settlement whe re the dis tr ic t c ourt

“ c are fu lly

re vie we d [th e Re c e ive r]’ s ana ly sis of the un de rl yingfa c ts, the de fe nd ants ’ defe nses, and the a

ppellants’ pre sentations at the fa irness hea ring ”). 8 2. Gi rsh F actor s The Rega lb u to Pl a inti f

f s n e xt a r g u e th a t, in

e v a lu a ti n g th e f

a ir n e s s o f th e s e tt le me n t, the district court erred by failing to consider the nine s pecif ic fa ctors set for

th in Girsh v. Je

pson , 521 F.2d 153 ( 3d Cir. 1975). The district cour t, in a foot n o t e o f i t s opinion, noted that while it was under no oblig ation to follow any particula r proc edu re in approving the proposed se ttlement, the class ac tion context provided a useful guide. As an e x ample of “ fac tors to aid a cour t in considering15

the fa irness of a

proposed se ttlement,” the district cour t noted the nine fa ctors set for th by the Third Circuit in Gi rsh

. (R OA 12 13 n. 12 .) De sp ite the fa c t th a t Gi rsh a dd re sse d a c la ss a c tio n s e ttl e me nt, the Reg albuto Plaintiffs contend that t he dis trict court’s failure to expli citly consider e ach of the nine fac tors constitutes an abuse of discre tion. However , even Gi rsh , a c la ss a c tio n c a se , did no t ob lig a te

c ourt s to e xplic itl y e va luate a ll nin e fa c tor s, but fo un d on ly that su c h fa c tor s “ are rel evan t” to deter mining the f

airne ss of a settlement. Gi rsh , 521 F.2d a t 156. More importantly , a district cour t’s obligation in approving a settlement in the c ontext of an

e qu ity re c e ive rs hip is f

un dame nta lly

dif fe re nt f ro m it s r ole in ov e rs e e inga c la ss a c tio n s e ttl e me nt. I n a class action proc eeding , Rule 23 of the F eder al Rules of Civil P roce dure oblig ates a district court to determine tha t a s ettlement is “fa ir, rea sonable, a nd adequate,” a

n inquiry that involves consideration of numerous f actor s. E.g. , Intl’ Union, United Auto., Aerospac e, &Agric. Imple ment W orkers v. Gen. M

otors Corp. , 497 F.3d 615, 631- 32 (6th Cir. 2007) (settingforth seve n fac tors for courts to consider

in evaluatingthe fa irness of a class ac tion settlement). I n contra st, no feder al rules presc ri b e a particular

standard f

or appr oving se ttlements in the context of an e quity rec eiver ship; instead, a district c ourt has wide disc retion t o d et er mine what re lief is appropr iate. Se e Lib e rte Ca pit al G ro up , LLC , 4 6 2 F

. 3 d a t 5 5 1

. A c c o r d in g ly , th e Re g a lb u to Pl a inti f f s ’ ar g u me n t t

h a t t he d i s t ri ct co u rt erre d

i n n o tex p l i ci t l y

fo l l o wi n g Girsh is w ith out me ri t. 3. Se tt le m e ntVa lue Finally , the Reg albuto Plaintiffs challeng e the spe cific c alculations the Rec eiver and district court e mploy ed to eva luate the se ttlement. The Reg albuto Plaintiffs alleg e that the excess amount that I POF F und paid for I

nnotrac stock as a r esult of Dada nte’s mar ket manipulation is $9.3 mil lion, rathe r than the $7.6 milli on calc ulated by the R ece iver. Howeve r, without any indication from the16

rec ord that the Rec eiver

underva lued damag es due to mar ket manipulation, t h er e i s n o basis for overturningthe district court’s de termination that $7.6 milli on was a fair ap p ro x imation of I POF F un d’ s d a ma g e s. Th e Re g a lbuto Pla int if

fs a lso c on te nd that the I nn otr a c sto c k tra ns fe rr e d to th e Re c e ive rs hip

e state a s p art

of the se ttl e me nt ca

nn ot be so ld an d the re fo re la c ks va lue . A c c or din g to t he Re g a lbuto Pla int if fs , a ny va luatio n o f t

he sto c k th a t e xce e ds zer o is fl awe d. As dis c us se d a bo ve , th e Re g a lbuto P l ai n t i ff s ex p l i ci t l y

wi t h dre w t h i s b as i s fo r o b j ec t i n g t o t h e se t t l em en tagr ee m en td u ri n g t h e h ea ri n g, and ther efor e have waived the ir rig ht to reasse rt this argument on appea l. See U nited States v. Denk ins , 36 7 F .3 d 53 7, 54 3- 44 (6 th Cir

. 20 04 ) (c on c lud ing that the de fe nd ant, havi ng ex pres sly raised the issue and then a bandoned it by

withdrawinghis objection, “waive[d] any rig ht of appe al on that issue”). The Reg albuto Plaintiffs nex t argue that the district cour t failed to ac co u n t for potential

rec overy under state and common l aw re m ed i es, which they argue could “ g ive rise to punitive damag es.” ( Pls.’ Br. 27.) Despite their a ssertions, the Reg albuto Plaintiffs provide no analy sis of the cl a im s o nw h ic h th e y a ll e g e th e y

c o u ld r e c o v e r p u n it iv e d a ma g e s . T h e Re g a lb u to Pl aintiffs instead ar g ue that, beca

use Fe rris Ba

ker could be held jointly and sever ally liable for the losses that Da da nte c a us e d thr ou g h his tr a din g a t oth e r fi rm s, the re c ov e ry ob ta ine d in

the se ttl e me nt w ithF e rr is Ba ker is too low. Howeve r, the theor

y of “ j o i nt and seve ral liability ” ar ticulated by

the Reg albuto Plaintiffs does not pr ovide a basis for holdingFe rris B aker liable for the losses I POF F und incurre d at the other broker ag e firms. The Reg albuto Pla i n t iffs ar g ue that I POF F und could show that F err is Bake r “knowing ly

committed a violation of secur ities law,” a nd that 15 U.S.C. § 78(t) “cr eate s an ag encyEven if this argument wer e interpr eted a s arguing that Fe rris B aker is liable for the a ctions 9 of its employ ees, the settlement takes F err is Bake r’s vica rious liability into acc ount. For example, duri ngthe he ari ng , c ouns e l f or F e rr is B a ker a ckn owl e dg e d th a t, r e g ard le ss o f whe the r i t or its br ok e rs —o r bot

h— we re fo un d lia

ble fo r the fr a

ud , all of the re c ov e ry

wo uld c ome fr om t

he same “pot,” i.e., F err is Bake r. 17 like relationship sufficient to impute fraud to super visors and acc ording ly joint and sever al liability .” (Pls.’ Br . 28.) This argument co n fu s es joint and sever al liability with the principle of r espondeat

su pe ri or . Whil e the Re g a lbuto Pla int if fs mig ht b e c or

re c t th a t F e rr is B a ke r m ay be he ld v ic ari ou sly 9

re sp on sib le fo r t

he a c tio ns of the ir br ok e rs un de r f e de ra l se c ur iti e s la

w, that do e s n ot m e an th a t F e rr is B a ke r i s jo int ly

and se ve ra lly lia

ble fo r the los se s that I POF F un d s us ta ine d at all of the b ro k er age firms at which D adante maintained an a ccount. F ina lly , th e Re g a lbuto P la int if fs dis pute the c on c lus ion that the ir ind ivi du a l c la ims a g a ins t Fe rris B aker

are untenable. I

n an ef fort to reco v er lost funds, indivi dual investors, including the Re g a lbuto P la int if

fs , “ a tte mpt e d to a sse rt

[Sec ur iti e s] Exc ha

ng e Ac t § 10 (b ) an d Ru le 10 b- 5 c la ims direc tly ag ainst Fe rris B aker ” (ROA 1009) , claims which we re dismi ssed pursuant to the B ar O rder enter ed in conjunction with the order approving the settlement ag ree ment. The Rec eiver conclude d that s u c h c la im s d id n o t h av e s ig n if ic an t v a lu e

— an d th e r e f

o r e d id n o t a lt e r h is an a ly s is o f the f a i r n e s s o f t h e s e t t l e m e n t am o u n t

— b e c a u s e t h e i n d i v i d

u a l i n v e s t o r s w e r e u n l i k e l y t o su c c e e d in holding F err is Bake r re sponsible for their individual losses. “The basic e lements of a f eder al sec urities fra

ud action pursuant to Rule 10b-5 and Sec tion 10(b)

. . . are : ( 1) a mater ial misrepre sentation or omission; (2) scienter ; (3) a connec tion with the purc ha se or

sa le of a se c ur ity ; (4) re lia

nc e (o r tr a ns a c tio n ca

us a tio n) ; (5) e c on omi c los s; an d ( 6) los s

causation.” Brown v. Earthboard Sports USA, Inc. , 481 F.3d 901, 917 (6th Cir. 2007)

. This Court has noted that “ [t ]o st ate a cause of action under § 10(b) and Rule 10b-5 a plaintiff must plea d that18

the defendant made a false s tatement or omitted to state a materia l fac t

. . . , and that the plaintiff’ s

rea sonable re liance on the statement or omissi o n p rox imately cause d the plaintiff’s injury .” In re Sofamore Dane k Group, Inc

. , 1 23 F .3 d 3 94 , 40 0 (6t h Ci r. 19 97 ). He re , th e ind ivi du a l pl a int if fs ’ in ju r ie s w e r e c a

u s e d n o t b y an y mi s r e p r e s e n tati o n o r o mi s s io n o n th e p art o f F e r r is B aker but by Dada n t e’ s fa lse statements and r epre sentations. Thus, nothing F err is Bake r omitted or misrepre sented “ signific antly altere d the total mix of information made a vailable” to the individual investors. Id. ; se e Sto ne rid ge In v . Pa rtn e rs, LLC v . S c ie nti fic -A tla nta ,552 U.S. 148, 128 S. C t. 761, 766 (2008) ( concludingthat the implied r ight of action under § 10(b) c ould not be used by investors to hold certa in entit i es liable “be cause the investors did not rely upon [t he entities’] statements or repr esentations”). The Reg albuto Plaintiffs argue, howe ver, that they can s h o w re l i ance beca

use “r eliance

. . . may be pre sumed when f

raudule nt misreprese ntations are ma de.” To support their ar g ument, the Reg albuto Plaintiffs cite to Newton v

. Merrill Lynch, Pierce , Fenne r & Smith, Inc. , 259 F.3d 154 ( 3d Cir. 2001). Howe ver, in Newton , the mi s re p re s en t ati ons were made by a sec urities deale r to an investor. Id. a t 16 9- 70 . In c on tr a st, the ind ivi du a l in ves tors , in c lud ingthe Re g a lbuto P la int if fs , never consulted wit h Fe rris Baker reg ardingtheir investment in I POF F und. I n fac t, they believed that their investments wer e held in a G oldman Sachs ac count, as a lleg ed in the complaint. Th e Re g a lbuto P la int if

fs have fa ile d to de mon str a te that th e di st ri ct c ourt a bu se d it s discretion in appr oving the settlement betwe en the Rec eiver and Fe rris Ba ker. Adistrict court has wide discre ti o n t o ad minist er pr ocee dings in a n equity rec eiver ship—including the a pproval of settlements. Given the inclusive a nd extensive procedur es used by the di strict court to evaluate the19

fairne ss of the settlement, we conclude that the di strict court did not abuse its discretion in appr oving the settlement ag ree ment betwee n the Rece iver a nd Fe rris B aker

. III . CO NC LU SION We theref ore AF F IRM the district court’s or der e nteringthe B ar O rder and appr oving the settlement betwe en F err is Bake r and the Rece iver.