Opinion ID: 527542
Heading Depth: 2
Heading Rank: 4

Heading: The SEC's First Proposed Plans and the Objections to Them

Text: 25 In November 1987, pursuant to the consents and the judgments, the SEC submitted to the district court its proposed plans for the distribution of the disgorged assets. Under these plans, each defendant's receivership fund was to be divided into two categories, to be distributed to different groups of claimants. 26 With respect to the assets disgorged by Levine, approximately 42% of the fund, or $4.87 million (the Tax Fund), was to be distributed between the taxing authorities, i.e., the IRS and the State, in proportion to their tax claims against Levine. Approximately 58% of the Levine fund, or $6.63 million (the Investor Fund), was to be distributed to the so-called Eligible Investor Claimants, defined principally as persons who sold stock in the 54 companies on the days that Levine made his alleged purchases or who suffered losses on call options they sold on the stock of those companies contemporaneously with Levine's purchases of such options. 27 The plan proposed for distribution of the assets disgorged by Wilkis was similar. The principal difference was that the Commission designated approximately 49% of the fund for the authorities that had asserted tax claims against Wilkis, and 51% for investor claimants. 28 Both plans were opposed in some aspect by virtually every interested person, including Levine, Wilkis, the IRS, the State, Arden Way, and class action plaintiffs in other lawsuits. Levine and Wilkis, relying principally on the SEC side letters, asserted that the SEC had promised to devise plans paying all of the federal and state tax claims before paying any fraud claims of private parties. Levine also contended that his criminal fines and penalties were to be satisfied out of the disgorged assets. 29 The IRS and the State objected to each proposed plan on the ground that they enjoyed statutory preferences requiring them to be paid before other creditors. The IRS invoked principally 26 U.S.C. Secs. 6321 and 6322 (1982), under which federal tax liens are given priority in the distribution of receivership assets. 30 The Arden Way claimants, who were limited partners in an entity affiliated with Ivan F. Boesky whom they had sued with Levine, alleging that Levine had aided and abetted Boesky in a fraudulent scheme, also objected to the SEC's proposed plan. The plan did not include Arden Way among the investors to whom distributions were to be made, and they objected on the ground that Levine would be insolvent as a result of his disgorgement and thus unable to satisfy their claims against him. 31 The representatives of a plaintiff class of allegedly defrauded investors to whom the Investor Fund would be distributed supported the plans in large part. These investors, who had brought suits against Levine, Wilkis, and Boesky, took issue with the proposed method of calculation of a given investor's loss and with the treatment of persons who had traded in options. 32 In response to the various objections, the SEC argued, inter alia, that it had made no promises to Levine or Wilkis to give priority to payment of their tax liabilities. It stated that the consents belied any such promises, that the parol evidence rule prohibited consideration of any alleged oral promises, and that the side letters had merely confirm[ed] that the Commission considered tax claims among those that could potentially be satisfied from the disgorged assets. 33 In opposition to the arguments of the IRS and the State that they enjoyed statutory priority, the SEC argued that Levine and Wilkis had acquired no title to this money, no interest in this money, and hence the disgorged assets had never been property of the defendants to which tax liens could attach. The Commission argued that the profits had remained the property of the defrauded investors, who had a valid, constructive trust claim to the monies which were identifiable proceeds of the defendants' illegal trading. As to the objections of Arden Way, the SEC argued that the Arden Way claimants lacked standing to oppose the plans. 34 The Commission urged the court to approve each plan as a fair accommodation of the various competing interests. 35