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When the Securities and Exchange Commission calls you with an offer to handle the receivership in a fraud case, you have to be ready to move fast and take no prisoners. “We need attorneys who can kick in doors, seize property and put people out of homes that have been purchased with investor money,” says Harold Degenhardt, district administrator of the SEC for Texas, Arkansas, Oklahoma and Kansas. “I have to get a lawyer who has fire in the belly and can get out there.” And the SEC uses a lot of receivers in this district, he says. “Probably more so than in any other district.” That’s because of the nature of crimes committed in the South, Degenhardt says. “In New York, you might see organized crime on Wall Street,” he says. “Down here, it’s more about disorganized crime on Main Street. It’s a function of the victim pool. There are a lot of elderly people. Plus, people in the South tend to be more trusting and less skeptical. A fraudster wants those things.” Take Cheryl Moore, for example. A partner in the Dallas office of Cleveland-based Arter & Hadden, Moore received her first appointment in June as a receiver in an investment fraud case. According to a suit filed in U.S. District Court on June 23 by state and federal securities regulators, it’s alleged that Dallas insurance agent and investment promoter Thomas J. Kearns defrauded his clients of more than $1.5 million. “If I end up with $500,000 out of the $1.5 million he [allegedly] took, they’ll consider it a success,” Moore says. Ted Steinke, a Dallas solo who represents Kearns, says Kearns “has been and continues to cooperate with the receiver in this case. There are no charges pending at this point. It is his [Kearns'] intention that the investors recoup as much of their money as possible.” Moore typically works opposite the SEC, defending companies against the agency and the Texas State Securities Board. Prior to her appointment as a receiver in the Kearns case, Moore had to assure the SEC neither she nor her firm had a conflict. From June 22 to June 30, Moore, her associate and her paralegal recorded 82.4 hours on the case. Time spent on receiverships depends on the size of the case, says Wayne M. Secore, of Dallas’ Secore & Waller. “I worked on one case for three years, and I worked on another for a year. But a year’s time is rare. … Once you’ve gathered the assets, you have to have all the investors and creditors in place. You have to notify them initially that you’ve been appointed the receiver. That allows them to get information to you. Investors are often helpful in locating assets.” The receiver typically recommends a distribution plan once all the assets and liabilities are ascertained. Then the plan is usually approved by the SEC, and the judge modifies or approves it and issues a court order, Secore says. Because Moore had opposed the SEC in many cases, she became familiar with the agency’s staff, which recommended her for the list of receivership appointees. “She spoke to our staff indicating what she could do,” Degenhardt says. “So, I thought enough of her to give her a try.” Once the SEC goes to court with a case requiring a receiver, it’s up to the court to decide whom to appoint to the post. Often, the judge makes an appointment outright, Degenhardt says. In other cases, the judge asks for suggestions and the SEC keeps a suggestion list prepared, he says. Attorneys for that list are found in several ways. Most often, those appointments are based on the type of law practiced and the lawyer’s familiarity with the SEC. “I look for people who are familiar with liquidating assets,” Degenhardt says. “I practiced law for 23 years. I’m very familiar with the lawyers here in town; I know where to go. We also have a history of working with various people. … I like to give other lawyers a chance. We don’t give all our business to one attorney. We do what’s in the best interests of the investors.” Degenhardt encourages attorneys interested in being appointed as receivers to put together a written or oral presentation outlining their qualifications to handle these types of cases. MOUNTAINS OF PAPERWORK Receivers often have to plow through mountains of paperwork to find ill-gotten assets. Many receivers hire forensic accountants to ferret out such information. “It’s very document-intensive,” says Ralph Janvey, a partner in Dallas-based Krage & Janvey, who has twice acted as an SEC receiver. Moore says she had to go through more than 15 cartons of documents in the Kearns case. She also appointed her associate, David Clouston, as her attorney in the action. Receivers are advised to get their own representation because they are often targeted in countersuits brought by defendants, Moore says. She says she sees similarities between her receivership duties and the job she had with the Dallas Office of the District Attorney for seven years. At one point, Moore headed that office’s commercial fraud division. “At the DA’s office, at the end of the day, when you put the bad guy in the penitentiary, you’ve benefited a greater portion of the community,” she says. “This doesn’t have the same authority. I’m not prosecuting, and I’m not enforcing laws. But you are trying to help people who have been victimized by criminal conduct.” Mike Quilling, a partner in Dallas-based Quilling, Selander, Cummiskey & Lownds, is working on his third receivership for the SEC. “I enjoy the work,” he says. “It’s a combination of a bunch of things I’ve done in the past. It’s legal work, but it’s different because you’re not behind a desk all day. In some ways, it’s like acting as a bankruptcy trustee.” However, Quilling says, as a bankruptcy trustee he never got to dress all in black with sunglasses and a baseball cap as he did when he entered a residence in Cape Canaveral, Fla., behind the SWAT team on a receivership case. “It’s a combination of exciting and scary at the same time,” he says. Receivers work as officers of the court, Degenhardt says. “We don’t control them,” he says. “But the understanding is there that our goals are the same.” Receivers are paid for their time out of the money recovered. Once assets are seized, the receiver applies to the court to dispose of those assets. The proceeds from those disposals are put into a bank account. Once the receiver has been paid, the remaining money is divided among the defrauded investors. That’s why it’s important for attorneys to move fast in these cases, Janvey says. “You can get stuck,” he says. “Sometimes you find that there are not many assets left. The money has been spent. … That’s a risk you take as a receiver.” At the SEC, Degenhardt says he seeks attorneys whose billing rates run between $200 to $350 an hour. He says he tries not to have receivers appointed in cases where the money has been dissipated. Most attorneys doing this type of work charge their standard fees and are paid those rates out of the money they recover. Says Secore, “You’re earning your money. Most people charge by the hour. You’re getting fair compensation for the work you’re putting in just like for any other client.” “My primary goal is to effectively and quickly seize the assets for the benefit of the investors and to do so at the least possible cost,” Degenhardt says. While Degenhardt says he has no statistics on what percentage of receivers have been paid in full, his gut feeling is that most receivers make their fees. “Sometimes they have to take a haircut,” he says. “Sometimes they don’t.”

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