Opinion ID: 777652
Heading Depth: 2
Heading Rank: 3

Heading: The Ownership Interest in the Vintage Petroleum Shares

Text: 18 SECO contends that CBL never obtained an ownership interest in the Vintage Petroleum shares and, therefore, that including the shares (or cash paid in to represent their value) in the receivership estate violates various provisions of state law. SECO asserts that the SECO CFA and TEL created an express trust, whereby legal title was transferred to the Trustee, with SECO retaining a beneficial interest. SECO contends that CBL's only interest in the transferred shares was a security interest contingent upon SECO's availing itself of the line of credit offered by CBL. Because SECO never drew upon the line of credit, the argument continues, CBL never acquired a security interest or any other ownership interest. 19 If SECO's shares had been transferred pursuant to an express trust, we would confront the issue of whether the equitable interests of the settlor of an inter vivos trust may be adjusted by a pro rata distribution ordered by a district court, exercising its equitable jurisdiction in an SEC-initiated receivership proceeding, to remedy fraud perpetrated upon the settlor and other victims. We need not resolve that issue, however, because, although CBL solicited investments with documents indicating in some respects the anticipated use of a trust arrangement, the documents knowingly executed by SECO to transfer its Vintage shares in fact and in law accomplished an outright transfer of share ownership from SECO to CBL. 20 The documentation preparatory to the transfer of assets from SECO to CBL indicated that a trust arrangement was contemplated, yet also included provisions inconsistent with a trust. For example, consistent with a trust arrangement, a trustee was designated, SECO was expected to deliver the Vintage shares to the trustee, the trustee was to hold the shares in a CBL account over which he had signing authority, 9 and the trustee was not to release the shares to any third party. On the other hand, inconsistent with a trust arrangement, CBL retained the right to transfer the assets out of the initial account(s) into which they were transferred. See Restatement (Second) of Trusts § 175 (1959) (The trustee is under a duty to the beneficiary to take reasonable steps to take and keep control of the trust property); id. cmt. f (The duty of the trustee is not only to take and keep control, but to take and keep exclusive control.). 21 The documents accomplishing the transfer of assets are entirely inconsistent with a trust arrangement. None of the transfer documents executed by SECO required the shares to be transferred into trust accounts, and in fact the shares were not transferred into trust accounts. See id. cmt. c (Where securities are held in trust the trustee is under a duty to take and keep possession of the securities, and to earmark them as trust property.). It is undisputed that on June 21, 1999, SECO authorized its broker, Merrill Lynch, to transfer the eight million Vintage Petroleum shares into three CBL brokerage accounts either for the benefit of CBL or for the further credit of CBL and a fourth CBL account identified only by account number. These accounts were under the exclusive control of Richard Blech, CBL's President and CEO, not Brandon, the putative trustee. Whether the transfer complied with the CFA, as SECO contends, or violated the CFA, as the Receiver contends, the transfer made by SECO effectively moved the shares into CBL accounts without trust restrictions. 22 Thus, SECO transferred its shares into CBL accounts and gave CBL the sole right to transfer those shares into other accounts, a right CBL exercised. Moreover, the papers CBL furnished to its investors, including SECO, explicitly informed them of the purpose of placing the transferred shares under the sole control of CBL: to reflect assets off its normal balance sheet that would increase the amount of assets available to generate riskless arbitrage transactions. 23