cor clearing, llc v. calissio resources group, inc. et al doc 41 filed 30 oct 15.pdf

8/20/2019 COR Clearing, LLC v. Calissio Resources Group, Inc. et al Doc 41 filed 30 Oct 15.pdf

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEBRASKA

COR CLEARING, LLC, a Delaware limitedliability company,

Plaintiff,

v.

CALISSIO RESOURCES GROUP, INC., a Nevada corporation, ADAM CARTER, anindividual, SIGNATURE STOCK TRANSFER,INC., a Texas corporation; and DOES 1-50.

Defendants.

_______________________________________

)))))))))))))

)

Case No.: 8:15-CV-317

TD AMERITRADE CLEARING,

INC.’S BRIEF IN OPPOSITION

TO COR CLEARING, LLC’S

MOTION FOR ORDER

APPOINTING LIMITED

PURPOSE RECEIVER

(FILING NO. 20)

TD Ameritrade Clearing, Inc. submits this Brief in response to COR Clearing, LLC’s

Expedited Motion for Order Appointing Limited Purpose Receiver (Filing No. 20).

INTRODUCTION AND SUMMARY OF ARGUMENT

This action was commenced on August 26, 2015 by COR Clearing, LLC (“COR”), a

clearing and settlement firm based in Omaha, Nebraska. In this action, COR sought to recover

roughly $4 million from Calissio Resources Group, Inc. (“Calissio”), Calissio’s CEO Adam

Carter and Calissio’s stock transfer agent Signature Stock Transfer, Inc. In its Complaint, COR

alleges that it was the victim of “Defendants’ calculated scheme to defraud the marketplace and

the clearing system in order to obtain millions of dollars from unsuspecting market participants .

. . .” (Complaint ¶ 1). Defendants’ scheme, according to COR, was perpetrated in connection

with a $.011 per share cash dividend on Calissio’s stock to be distributed on August 17, 2015

(the “ payable date”) to the holders of record of its stock as of close of business on June 30, 2015

(the “record date”).

8:15-cv-00317-LES-FG3 Doc # 41 Filed: 10/30/15 Page 1 of 21 - Page ID # 237


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COR seeks to recover roughly $4 million in charges to its clearing account with the

Depositary Trust Clearing Corporation (“DTCC”) in connection with the “conversion” and

subsequent sale of roughly 400 million shares of Calissio stock from July 29, 2015 through

August 19, 2015. According to the Complaint, roughly 327 million of these shares were

acquired during that period by its customer Nobilis Consulting LLC (“Nobilis”) who, acting

through its broker J.H. Darbie & Co. (“Darbie”), obtained the shares through a “conversion of

debt to equity”. (Complaint ¶ 34). COR alleges another of its customers— Beaufort Capital

Partners (“Beaufort”)—“converted over 150 million shares” during the same time period.

(Complaint ¶ 44). Nobilis and Beaufort collectively sold over 400,000,000 of these shares on the

open market (netting gross proceeds in excess of $700,000) during the weeks leading up to the

date on which the previously declared cash dividend was to be paid. (Complaint ¶¶ 3-7). DTCC

then charged COR, as the clearing broker for these sales, roughly $4 million for “due bills” that

ostensibly had attached to the stock when it was sold by Nobilis and Beaufort. (Id.).1

On October 5, 2015, after Calissio and its CEO failed to respond to the Complaint, COR

filed an “Expedited Motion for Order Appointing Receiver” (the “Receiver Motion”) (Filing No.

20) (emphasis in original). This motion, which was supported by only a scant evidentiary record,

seeks what amounts to a final judgment reversing the $4 million charge DTCC made to its

clearing account at the expense of thousands of innocent investors who purchased the stock

which Nobilis and Beaufort dumped on the market.

This Brief is submitted on behalf of TD Ameritrade Clearing, Inc. (“TDAC”) on its own

behalf and on behalf of its affiliated company TD Ameritrade, Inc. (“TDA”) in response to a

notice provided by COR to TDAC and other clearing broker dealers which gave them seven days

1As explained in the text infra, when stock that qualifies for a dividend is sold between the record date and the ex-

dividend date, a “due bill” attaches to the stock which results in a debit (i.e. , charge) to the account of the sellingshareholder.



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from receipt of the notice to respond to the Receiver Motion.2 TDAC respectfully submits that

the Receiver Motion be denied for the following reasons, which are discussed in more detail

below.

First, it must be emphasized that the Receiver Motion is not, like most motions requesting

the appointment of a receiver, simply a request for a temporary remedy, i.e., the appointment of a

person or entity to manage the affairs of a defendant due to, among other things, evidence of

fraud, waste or other conduct that might impact the plaintiff’s ability to recover a money

judgment or other relief sought in the action. To the contrary, the relief sought by the Receiver

Motion is, in effect, a final judgment which, if granted, will result in DTCC reversing a credit to

COR’s clearing account for approximately $4 million in “due bills” that ostensibly attached to

roughly 400 million shares of Calissio stock that, according to the allegations of the Complaint

and the evidence submitted in support of the Receiver Motion, two of COR’s customers flooded

the market with in the weeks leading up to the date the dividend in question was to be paid. In

light of the fact that the Receiver Motion seeks final rather than temporary equitable relief,

TDAC submits that this Court should deny the motion or at least apply a heightened standard of

review than it normally would apply if presented with a request for appointment of a receiver.

Moreover, granting the Receiver Motion will undoubtedly not “cause more good than

harm”, a key factor to consider in deciding whether to appoint a receiver. See Aviation Supply

Corp. v. R.S.B.I., Aerospace, Inc., 999 F.2d 314, 316-17 (8th Cir. 1993). Thousands of investors

purchased Calissio stock without any knowledge of Calissio’s fraudulent scheme. Due to that

fraudulent scheme, those innocent investors were credited with dividends that, in hindsight,

should not have been credited to them. Nonetheless, it is inequitable to shift the losses to

2 Although providing interested persons and entities such as TDAC with notice and an opportunity to be heard withrespect to the Receiver Motion was certainly appropriate, TDAC submits that this hardly comports with due processrequirements of what is now, in substance, a defendant class action case. See, generally, F.R.Civ.P 23.



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innocent companies and individuals like TDA and its clients. The loss should not now be borne

by the broker-dealers and other individual account holders who were not at fault. The

evidentiary record before the Court shows that COR’s customers (Nobilis and Beaufort) were

instrumental in allowing Calissio to succeed in its fraud by helping create the roughly 400

million shares that were ineligible for the previously declared dividend and then dumping those

shares on an unsuspecting market. But for the alleged debt to equity conversion and the

subsequent sales of those shares, no “due bills” would have attached to those shares, no credit

would have been issued by DTCC to COR with respect to those shares and no debits would have

been made to the accounts of innocent purchases of those shares — like TDA’s customers— that

COR now seeks to reverse. This is not to suggest that COR, Nobilis or Beaufort were somehow

involved in Calissio’s fraudulent scheme. At this juncture, TDAC has no evidence to support

such a claim. On the other hand, it is beyond dispute that none of TDA’s customers took any

actions — other than purchasing Calissio stock that was offered in the public market, including

shares sold by Nobilis and Beufort — that caused COR the losses in question. TDAC respectfully

submits that the proper remedy here is to require COR to pursue whatever remedies it may have

against Calissio or possibly Nobilis and Beaufort, rather than shift those losses to an

unsuspecting market. In short, appointing a receiver and providing him with the directions that

COR requests will, in fact, “do more harm than good.”

Furthermore, the relief sought by the Receiver Motion is based on evidence that has not

been subjected to the rigors of cross-examination. Although such cross-examination would not

normally be required prior to the appointment of a receiver, nothing about the Receiver Motion,

or this case in general, can fairly said to be “normal”. Similarly, although TDAC and other

interested persons are being given the opportunity to submit papers in response to the Receiver



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Motion, their ability to do so is hampered — if not handcuffed — by their inability to conduct any

discovery to not only test the allegations of the Complaint and the evidence submitted in support

of the Receiver Motion, but to obtain evidence germane to the most important issue before the

Court, i.e., whether it is equitable to shift COR’s alleged losses, as well as those of its customers

Nobilis and Beaufort, to admittedly innocent companies and persons such as TDA and its

customers. For example, if allowed to pursue discovery, TDAC and others similarly situated

could explore evidence surrounding the alleged “debt to equity conversion” whereby Nobilis and

Beaufort obtained the roughly 475 million shares of Calissio stock, the majority of which it sold

into the market in the weeks and days leading up to the date the previously declared dividend

was to be paid. Likewise, discovery may show what, if any, knowledge Nobilis and Beaufort

had of Calissio’s financial condition, its efforts to perpetrate the fraud in question and what steps

Nobilis and Beaufort could have taken to detect the alleged fraud.

STATEMENT OF FACTS

TDA maintains a direct relationship with its customers with respect to trading and other

activity within its customers’ accounts held through TDA. (Johnsen Decl. ¶ 3.) In order to

effectuate trades in its customers’ accounts, TDA uses TDAC as its clearing broker. (Id.) TDA

and TDAC have a fully disclosed clearing relationship. (Id). Generally, IBDs like TDA interact

with the end client, while a clearing broker, TDAC, is responsible for the confirmation, receipt,

settlement, delivery and record-keeping tasks involved in processing securities transactions and

other back-office functions. (Id.) TDAC is specifically responsible for the clearance and

settlement of transactions effected in TDA client accounts. (Id.) TDAC is a member of the

DTCC. (Id.) DTCC provides net clearance and settlement services for clearing broker-dealers to

facilitate book-entry transfers. (Id.)



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TDAC performs custody and clearance activities for the customers of TDA. (Johnsen

Decl. ¶ 4.) Through TDAC’s normal course of business, securities that are beneficially owned by

clients are held at TDAC for ease of trade settlement, automated transfers, reorganization

services, and other benefits. (Id.) For domestic securities, TDAC uses DTCC to facilitate these

transactions. (Id.) When an issuer of a security declares a corporate action event — such as a

dividend on stock held in a customer’s account— DTCC will follow the processes set out in its

DTC Distributions Services Guide. (Id.) DTCC will receive funds from the paying agent on

behalf of the issuer, track any trading activity if applicable (referred to as “interim tracking”),

and pay participants the correct funds as determined by relevant dates. (Id.) TDAC, as a

recipient of those funds, then further credits the beneficial client, according to the client’s

respective ownership interest. (Id.)

For purposes of this matter it is important to understand when and to whom a dividend

will be paid once it is declared. (Johnsen Decl. ¶ 5.) After the dividend is declared, the company

sets a record date. (Id.) The record date establishes the deadline by which an individual must be

on the company books as a shareholder in order to receive the dividend. (Id.) If a stock is not

purchased until on or after August 19, 2015 (the “ex-dividend date”), the purchasing shareholder

is not entitled to the dividend. (Id.) If during the interim period between the record date and the

ex-dividend date, a shareholder sells shares that are eligible f or a dividend a “due bill” attaches

to the shares because the shareholder has, in effect, sold his or her right to receive the dividend to

the buyer. (Id.)

The process described above is illustrated by the following hypothetical transactions:

Scenario 1 – Client held 100 shares of ABC Corp stock electronically with a broker-dealer, andhas held them prior to any dividend event. On Record Date of a dividend event of $1/share,DTCC would notate that the broker held 100 shares of ABC Corp and indicate that the broker is



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currently expected to be due $100 for the dividend event. If the client sells the shares before ex-dividend date, DTCC would adjust the amount due to the broker by adjusting for interimactivity — specifically by debiting (i.e., charging) the selling broker’s payable date payment. Since the broker-dealer was originally set to receive $100, and was adjusteddownward by $100 in this example, the broker would receive $0 on payable date since it has no

eligible shares for dividend treatment.

Scenario 1a - Likewise, if a client bought 100 shares of ABC Corp stock electronically with a broker after record date but before ex-dividend date, DTCC would (via interim activity tracking)notate a credit of $100 for the broker’s account, to be paid on payable date.

Scenario 2 – Broker-dealer holds 0 shares of ABC Corp stock with DTCC on record date for a$1/share dividend event and, therefore, initially is set to receive a payment of $0. A clientdeposits 100 shares of ABC Corp stock on a physical certificate and sells the shares before ex-dividend date. DTCC would notate the sale and adjust the amount due to the broker byadjusting for interim activity —specifically by debiting the selling broker’s payable date

payment. Since the broker-dealer originally had 0 shares that qualified for dividend paymentand has now sold 100 shares, instead of receiving any credit, or even not getting paid anything,they would be debited $100 for the dividend event by DTCC. A broker-dealer would typicallylook to its client who deposited the shares to be made whole. In the specific example of a physical certificate deposit, the client would have typically been the record date holder on the physical certificate and would therefore have the funds to pay the broker for the debit they haveincurred.

(Johnsen Decl. ¶ 6.)

According to the allegations of the Complaint filed in this action, from July 29, 2015

through August 19, 2015, two companies — Nobilis and Beaufort — allegedly converted debt

owed by Calissio to those companies into equity ownership in those companies in the form of

roughly 475 million shares of Calissio stock. (Johnsen Decl. ¶ 10.) According to the Complaint,

during this same time period, i.e., July 29, 2015 through August 19, 2015, Nobilis sold its shares

in Calissio resulting in gross proceeds of $700,000. (Id.) During the same time period,

according to the Complaint, Beaufort sold “over $90 [sic] million shares during the due bill

period”. (Id.)

A chart of trading activity in Calissio stock from July 29, 2015 through August 19, 2015

shows a dramatic increase in trading activity during that time period. (Johnsen Decl. ¶ 9.)



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During the month prior to that period, i.e., from June 29, 2015 through July 28, 2015, the daily

average trading in Calissio stock fluctuated from approximately 90,000 shares per day (on July 6,

2015) to roughly 50,000,000 shares per day (on July 24, 2015). (Id.) During the period from July

29, 2015 through August 19, 2015, the daily average trading in Calissio stock at least tripled to

approximately 105,000,000 shares per day. (Id.) On a single day during that period, i.e., August

18, 2015, nearly 225,000,000 shares were traded. (Id.)

As of the date that the dividend in question was to be paid, 764 of TDA’s customers

collectively owned a total of 84,926,667 shares of Calissio’s stock. (Johnsen Decl. ¶ 7.)

Subsequently, DTCC credited TDAC’s account with $934,193.35 for dividends from Calissio

attributable to the shares of Calissio stock held by TDA’s customers. (Id.) TDAC, in turn,

credited TDA’s customers’ accounts for the amount of dividends attributable to stock held in

those accounts. (Id.)

Subsequent to August 21, 2015, substantial activity occurred in the accounts of TDA’s

customers that held Calissio stock as of August 21, 2015. (Johnsen Decl. ¶ 8.) If, as requested by

COR in this action, DTCC were to reverse the credit of $934,193.35, TDAC would, in turn, have

to reverse the credit to the accounts of the TDA customers who received the Calissio dividend

described above. (Id.) Aside from the obvious inequity to TDA’s customers as a result, based

upon a review of TDA’s account records a large portion of the debits would result in negative

account balances that TDA would be forced to pursue through collection efforts with no guaranty

of being paid. (Id.) Although on paper, COR would have this Court believe that this is a simple

accounting transaction, the reality is that ordering the Receiver to make this post-payable

adjustment places the financial and administrative burden on both TDA and its clients. Clients

who have received their funds will be dissatisfied. The funds may or may not be used for



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collateral for other securities. This action may lead to margin calls or the forced sale of

securities, and could cause additional losses.

As a result, based on the status of the accounts in question as of the close of business on

October 28, 2015, TDA could incur losses of approximately $200,000 if the Court grants the

relief requested by the Plaintiff in this action.3 (Id.) Depending on activity in the accounts in

question after October 28, 2015, TDA could actually lose much more than that — conceivably as

much as the amount of the dividends paid to clients, or $934,193.35, plus collection costs. (Id.)

LEGAL STANDARDS

A federal court has the power in equity to appoint a receiver in order to protect a party’s

interest in property. See Fed.R.Civ.P. 66; see also Aviation Supply Corp., 999 F.2d at 317 (“The

appointment of a receiver in a diversity case is a procedural matter governed by federal law and

federal equitable principles.”) (citations omitted). The purpose of a receivership is to protect a

party’s interest in property pending resolution of a dispute over ownership or control between it

and another party with a claim to the property. Varsames v. Palazzo, 96 F.Supp.2d 361, 366

(S.D.N.Y. 2000) (citing Citibank v. Nyland (CF8) Ltd., 839 F.2d 93, 96 (2d Cir. 1988);

Prudential Ins., 1995 WL 758781, at *1)).

Before a federal receiver may be appointed, the burden is on the moving party to show

sufficient grounds for the appointment. Midwest Savings Association v. Riversbend Associates

Partnership, 724 F.Supp. 661 (D. Minn. 1989). This is a heavy burden as the appointment of a

receiver is an extraordinary remedy that should be granted only in cases of clear necessity to

protect a plaintiff’s interest in property. Aviation Supply Corp., 999 F.2d at 317. Because a

receivership may seriously interfere with an owner’s property rights by ousting them from

3 TDA understands that another broker-dealer has either restricted its clients from accessing these funds orhas already reversed said funds. Removing funds from client accounts absent a court order directing a broker-dealerto do so is unusual and contrary to TDA policies. Accordingly, no such action has been taken at this time.



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the hands of a bona fide purchaser, subsequent purchasers, even those with notice of asserted

defenses, take clear of the defense. Abraham Lincoln Co. v. Franklin Savings & Loan Ass’n,

434 F.2d 264, 266 (1970). The rationale is to protect the bona fide purchaser so that he can sell

what he has purchased. Id. (citing Hatcher v. Hall, 292 S.W.2d 619 (Mo.App. 1956); Hellweg

v. Bush, 228 Mo.App. 876, 74 S.W.2d 89, 92 (1934); 77 C.J.S. Sales 296d (1952)). In Abraham

Lincoln Ins., the Eighth Circuit held:

Although the defendant was not aware of the apparent failure of consideration atthe time it reissued [investment] certificates Nos. 583 and 584, Missouri law issettled that as between two relatively innocent parties the responsibility for theloss must fall on the one who put the wrongdoer in a position to cause the loss. . .

. Here it was the defendant who took a postdated personal check in a large amountwithout investigating as to its sufficiency and thereby permitted the apparentfailure of consideration to arise. As between such a party and a bona fide purchaser, or one who takes from a bona fide purchaser, the former must clearly bear the loss, if any.

Id. (internal citations omitted); see also Wichell v. Moffat County State Bank, 307 F.2d 280, 282

(1962) (“Both Colorado and this circuit have recognized the rule that where two innocent parties

have both been deceived, the loss must be borne by the one who primarily made the loss

possible.”) Furthermore, the benefit received by the innocent party furthest from the fraudulent

conduct will not be considered unjust enrichment. In re Berkman, 517 B.R. 288, 304 (2014)

(“Where a party obtains a benefit through lawful means, courts will not characterize the

circumstances surrounding that party’s acquisition of the benefit as being inequitable or unjust.”)

Certain equitable doctrines, such as the doctrine of equitable mootness, may also preclude

appointment of a receiver. The doctrine of equitable mootness “‘essentially derives from the

principle that in formulating equitable relief, a court must consider the effects of the relief on

innocent third parties.’” Duff v. Central Sleep Diagnostics, LLC, 801 F.3d 833 (7th Cir. 2015)

(quoting SEC v. Wealth Mgmt., LLC, 628 F.3d 323, 331 (7th Cir. 2010) (quotation marks

omitted); accord United States v. Segal, 432 F3d 767, 773-74 (7th Cir. 2005); SEC v. Wozniak,



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33 F.3d 13, 15 (7th Cir. 1994), overruled on other grounds by SEC v. Enter. Trust Co., 559 F.3d

649 (7th Cir. 2009)). A court may properly refuse to decide the merits of a challenge to a

receivership plan where unwinding it, even if legally justifiable, would be difficult and

inequitable in light of the complexity of the transactions and the reliance interests involved. Id.

This is not “real mootness”; the court has jurisdiction to alter the outcome, but equitable

considerations make it unfair or impracticable to intervene. Id. (citing In re UNR Indus., 20 F.3d

766, 769 (7th Cir. 1994).

Finally, in cases where the extreme remedy of receivership is deemed proper, the court

may limit the powers of the receiver pursuant to the order of appointment. See Aviation Supply

Corp., 999 F.2d 314; Walker v. Walker, 854 F.Supp. 1443, 1458 (D. Neb. 1994).

ARGUMENT

I. THE EXTRAORDINARY REMEDY OF RECIEVERSHIP IS NOT

JUSTIFIED BECAUSE COR SEEKS TO USE THE RECIEVERSHIP TO

OBTAIN WHAT IS, IN EFFECT, A FINAL JUDGMENT.

COR’s stated purpose for requesting the appointment of a receiver is to reverse a charge

to COR’s account for approximately $4 million in “due bills” that attached to roughly 400

million shares of Calissio stock sold by two of COR’s customers after COR’s customers obtained

the stock as a result of an alleged “debt to equity conversion”. The purpose of this receivership

is not to protect COR’s interest in property “pending resolution of a dispute over ownership or

control between it and another party with a claim to the property.” Varsames v. Palazzo, 96

F.Supp.2d 361, 366 (S.D.N.Y. 2000) (citing Citibank v. Nyland (CF8) Ltd., 839 F.2d 93, 96 (2d

Cir. 1988); Prudential Ins., 1995 WL 758781, at *1)). Rather, the effect of the Receiver Motion

is to effectuate a final remedy, not against the Defendant Callisio, but against admittedly

innocent buyers of Calissio’s stock. Under these circumstances, TDAC submits that the remedy



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of appointment of a receivership should not be available to COR. At a minimum, the Court

should place a heavy burden on COR to show that the equities weigh in favor of the relief

sought, i.e., that the requested relief will do “more good than harm.” See Aviation Supply Corp.

v. R.S.B.I. Aerospace, Inc., 999 F.2d 314, 317 (8th Cir. 1993).

II. THE EQUITES WEIGHT HEAVILY AGAINST THE REMEDY COR SEEKS

EXTRAORDINARY REMEDY OF RECIEVERSHIP IS NOT JUSTIFIED

BECAUSE PLAINTIFFS SEEK TO USE THE RECIEVERSHIP TO OBTAIN

WHAT IS, IN EFFECT, A FINAL JUDGMENT.

Not only will the relief sought by COR not do “more good than harm”, the contrary is

true. The relief sought by COR will have the net effect of allowing COR to collect the roughly

$4 million default judgment it has obtained in this action (COR’s Brief at page 16) not from

Calissio, but from innocent customers of IBDs like TDA and, in some instances, from TDA

itself. The inequity in allowing this result is manifest. COR has submitted no evidence — nor

could it —to suggest that the individuals who purchased the Calissio stock which COR’s

customers dumped on the market in the weeks leading up to the date the previously declared

dividend was to be paid, had any reason to believe that the stock they purchased was not entitled

to receive the dividend payment. Likewise, it cannot seriously be disputed that when those

dividend payments were credited to those individuals accounts at TDA and other broker-dealers,

those individuals believed that they were entitled to the dividends. Furthermore, it is fair to

assume that the individuals who purchased the Calissio stock in question have taken actions in

reliance upon their belief that they were entitled to the dividend credits they received. In short,

the record demonstrates that the individuals that purchased the Calissio stock that gave rise to the



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$4 million in dividend credits and the $4 million in charges to COR and its customers were

totally innocent and took no part in the events that caused those charges and credits to be made.4

Conversely, the record demonstrates that COR’s customers were directly involved in t he

series of events that gave rise to COR’s claimed loss. By COR’s admission, Nobilis obtained

over 327 million shares of Calissio stock between July 29, 2015 and August 19, 2015 through an

alleged debt to equity conversion. (COR Brief p.7-8). This conversion took place well after

Calissio’s June 16, 2015, announcement of a $0.011 per share dividend. Nobilis then sold those

shares on the open market with knowledge that no dividend rights were attached to its shares.

(COR Brief p.8: “Because Nobilis determined that no dividend rights attached to its shares,

Nobilis sold its shares to the open market.”). The gross proceeds of these sales received by

Nobilis was approximately $700,000. Likewise, another of COR’s clients— Beaufort — sold

approximately 90 million shares during the same time period. Although the amount of the gross

proceeds Beaufort received from the sales is not in the record, extrapolating from the proceeds

received by Nobilis would suggest Beaufort received proceeds of approximately $200,000 (90

million/327 million x $700,00 = $192,660). Given the fact that COR’s own customers set the

wheels in motion that led to COR’s loss and, in the process, realized as much as $900,000 as a

result, it is far more equitable to require COR and its customers to bear the brunt of Calissio’s

fraudulent scheme, rather than innocent shareholders that acquired the Calissio shares that

Nobilis and Beaufort sold on the open market.

As was noted above, the appointment of a receiver by a court is a discretionary equitable

remedy. See Aviation Supply Corp., supra, 999 F.3d at 316. Principles of equity favor placing

4COR asserts “on information and belief” that Calissio itself purchased many of the “converted” shares sold by

Nobilis and Beaufort. Although Calissio appears to be far from innocent, COR does not seek to reverse the chargeonly with respect to the shares Calissio purchased.



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losses incurred as the result of unrecorded arrangements on the person who best could have

avoided the loss. Wurzl v. Holloway, 46 Cal.App.4th 1740, 1752 (1996) (citations omitted). In

forming equitable relief, “a court must consider the effects of the relief on innocent third

parties.” Duff v. Central Sleep Diagnostics, LLC, 801 F.3d 833 (7th Cir. 2015)(Citations

omitted). Assuming that COR and its customers Nobilis and Beaufort are innocent parties, it is a

long standing equitable principle that “where two innocent parties have both been deceived, the

loss must be borne by the one who primarily made the loss possible.” Winchell v. Moffat County

State Bank, 307 F.2d 280, 282 (10th Cir. 1962). COR and its clients primarily made this loss

possible. Indeed, but for the sales by Nobilis and Beaufort of roughly 400 million shares of

Calissio’s stock during the “due bill period”, DTCC would not have attached “due bills” to the

transactions and COR would not have suffered the loss it is trying to remedy.

Clients of TDA and other similarly situated broker-dealers are innocent and should not

suffer the loss. It is equitable for this Court to protect the bona fide purchasers of Calissio’s

stock. If COR’s allegations are accepted at face value, the investors who will suffer the loss, if

COR is granted the relief it seeks in this case, are the investors who purchased the stock sold by

Nobilis and Beaufort which should not have had “due bills” attached. These investors paid

market value, a value based in part on an announced dividend, for Nobilis’ and Beaufort’s shares

without notice of any issues surrounding Calissio. As such, the investors are bona fide

purchasers of the stock sold by COR’s clients. “As between such a party and a bona fide

purchaser, or one who takes from a bona fide purchaser, the former must clearly bear the loss, if

any.” Abraham Lincoln Co. v. Franklin Savings & Loan Ass’n, 434 F.2d 264, 266 (8th Cir.

1970). Similarly, as bona fide purchasers for value, the innocent investors were not unjustly

enriched as COR claims. The benefit received by the innocent party furthest from the fraudulent



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conduct will not be considered unjust enrichment. In re Berkman, 517 B.R. 288, 304 (2014)

(“Where a party obtains a benefit through lawful means, courts will not characterize the

circumstances surrounding that party’s acquisition of the benefit as being inequitable or unjust.”)

Moreover, Nobilis and Beaufort, as the alleged holders of Calissio’s debt prior to

converting it to equity, were in the best position to detect Calissio’s fraudulent scheme. The

circumstances of how or when Nobilis and Beaufort acquired Calissio’s debt are not known to

TDAC at this time. Since the stock was allegedly acquired through a debt to equity conversion,

however, it is fair to assume that Nobilis and Beaufort as significant creditors of Calissio had

greater access to information regarding Calissio’s financial condition and affairs than the

unsuspecting public to whom Nobilis and Beaufort sold the “converted” shares did have. In

addition, according to COR, Nobilis at least was aware that its “converted” shares did not qualify

for a dividend, yet there is nothing in the record that suggests that Nobilis took any action to

inform the investing public of that fact. In sum, when the equities are balanced here — and the

Court considers whether the relief requested will do “more good than harm”— TDAC

respectfully submits that the Court should conclude that the equities weigh heavily in favor of

denying the Receiver Motion.

III. THE EXTRAORDINARY RELIEF SOUGHT BY PLAINTIFF IS

PREMATURE IN LIGHT OF THE LACK OF DISCOVERY ON THE ISSUES.

The relief sought by the Receiver Motion is based on evidence that has not been

subjected to the rigors of cross-examination. Although such cross-examination would not

normally be required prior to the appointment of a receiver, nothing about the Receiver Motion,

or this case in general, can fairly said to be “normal”. This Motion does not seek to temporarily

preserve property pending resolution over a dispute. See Varsames v. Palazzo, 96 F.Supp.2d 361,



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366 (S.D.N.Y. 2000). This Motion is an attempt to collect on a default judgment from innocent

investors and entities such as TDA.

Under these circumstances, it would be inappropriate to grant the extraordinary relief

requested without affording interested parties the opportunity to conduce discovery relating to

the facts of this case. Such discovery would allow interested parties to explore, among other

things:

1. The alleged “debt to equity conversion” whereby Nobilis and Beaufort obtained and

approximately 475 million shares of Calissio stock in the days leading up to the date

on which a previously announced dividend on Calissio stock was to be paid. For

example, nothing in the record developed thus far demonstrates what debt of Calissio

was owed to Nobilis and Beaufort, whether those companies were, in effect, insiders

of Calissio and had knowledge of its allegedly fraudulent scheme and whether those

companies have benefited from a windfall of something in excess of $700,000 that

would have resulted if the debt that was “converted” was actually worthless. All of

this evidence, if developed during discovery that has thus far not been available to

parties opposing the Receiver Motion, would have a bearing on a weighing of the

equities of who should bear the brunt of the loss of COR’s fraudulent scheme.

2. What, if any, knowledge Nobilis and Beaufort had regarding the Calissio dividend

and what, if anything, they did to alert an unsuspecting market that the stock they

dumped on the market in the days leading up to previously declared dividend

payment date that the stock they were selling would not result in dividends being paid

on that stock. According to the evidence submitted in support of the Receiver Motion,

Nobilis at least was aware that the roughly 327 million shares it was selling were not



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eligible for the dividend that had earlier been declared and, therefore, sold the stock

for “only $700,000.” (Declaration of Carlos Salas ¶ 12.) Did Nobilis know that the

market which it was inundating with Calissio stock was also unaware that the stock

was not eligible for the previously declared dividend? If not, did it consider

somehow informing the market of this fact? Again, such evidence, if developed

through discovery, would have a direct bearing on the necessary weighing of the

equities in connection with the Receiver Motion.

This receivership may seriously interfere with the property rights of thousands of

investors as well as TDA and similar entities. In this case, there is a risk of substantial harm to

innocent parties and is simply premature based on the scant evidence before this Court. This

Court should seek to avoid this risk of substantial harm. See Aldeman v. CGS Scientific Corp.,

332 F.Supp. 137, 147 (E.D. Pa. 1971). COR asks this Court to grant the COR an extreme final

remedy based on a few declarations without any discovery regarding the many entities involved

in this case, including most notably Nobilis and Beaufort.

IV. THE REMEDY PROPOSED BY PLAINTIFF IS CONTEMPLATED IN THE

EVENT OF ERRORS, NOT AS A REMEDY FOR FRAUD.

The procedures for charge- backs as given in DTCC’s Distributions Service Guide do not

contemplate the DTCC charge-back procedure being used to remedy fraud. The DTCC states

that its reasons for a post-allocation adjustment “include but are not limited to, an error of the

part of DTCC, the paying agent, trustee, or issuer or a change in the principal factor or rate on a

CMO/ABS security.” (DTCC Distributions Service Guide p.32). DTCC also “accommodates

paying agents requests to process these types of post-payable adjustments where the adjustments

are within [90] calendar days from the initial payment date.” (Id.)(emphasis added). If COR is



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granted the requested relief of a receiver for Calissio, the request for an adjustment would be a

“paying agent request”. However, per DTCC policy, DTCC only accommodates requests

relating to “error on the part of DTC, the paying agent, trustee or issuer…” Remedying a fraud

perpetrated on the market is not contemplated as a reason to institute a charge-back. Intentional

fraud committed by an issuer is a far cry from “an error” committed by DTCC or others.

DTCC’s rules and procedures simply do not authorize an adjustment or charge-back for the

circumstances prevalent in this case. The appointment of a receiver to effectuate such an

adjustment sets a dangerous precedent for future cases involving allegations of fraud, especially

considering there has been no discovery in this case to determine the extent of the fraud.

V. IN THE EVENT THIS COURT APPOINTS A RECEIVER, A BOND IN THE

AMOUNT OF $4 MILLION SHOULD BE REQUIRED.

In Walker v. Walker, 854 F.Supp. 1443 (D. Neb. 1994), the court, in a diversity case,

appointed a receiver to wind up a contentious partnership upon dissolution. Citing Neb.Rev.Stat.

§ 25-1084, the court required a $500,000 bond. Neb.Rev.Stat. § 25-1084 states that:

Every order appointing a receiver shall require the applicant to give a goodsufficient bond, conditioned to pay all damages which the other parties to the suitor any of them may sustain by reason of the ap pointment of a receiver… and shallalso require the receiver to give a bond conditioned to faithfully discharge hisduties as receiver and obey all orders of the court.

Although the court in Walker did not detail how it arrived at the $500,000 bond amount, the

court estimated that partnership had roughly $700,000 in assets and $1,200,000 in liabilities.

Walker, 854 F.Supp. at 1464.

Here, COR has stated that the amount in issue is roughly $4 million. If a receiver is

appointed and the “due bills” on the Nobilis and Beaufort shares are unwound, innocent

shareholders would be debited for some portion of that amount. Those shareholders, in turn,

may have claims against Calissio (and potentially others) for some if not all of that amount.



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Furthermore, if it is determined on appeal that the Court erred in appointing a receiver, a bond in

the amount that innocent investors might be impacted should be in place so as to “right the ship”

with respect to those innocent investors. Accordingly, TDAC respectfully submits that if the

Court is inclined to appoint a receiver as requested by COR, the Receiver should be required to

post a bond in the amount of $4 million.

CONCLUSION

For the foregoing reasons, TD Ameritrade Clearing, Inc. respectfully requests that the

Court deny the Expedited Motion for Order Appointing Limited Purpose Receiver (Filing No.

20).

Dated this 30th day of October 2015.

TD AMERITRADE CLEARING, INC.

By: ____s/William F. Hargens______________William F. Hargens (#16578)McGrath North Mullin & Kratz, PC LLO

First National Tower, Suite 37001601 Dodge St.Omaha, Nebraska 68102Phone: (402) 341-3070Fax: (402) [email protected]

Attorneys for TD Ameritrade Clearing, Inc.



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CERTIFICATE OF SERVICE

The undersigned hereby certifies that on October 30, 2015, I electronically filed theforegoing document with the Clerk of the United States District Court using the CM/ECF

system, which will send a notice of electronic filing to the following:

Andrew G. [email protected]

Saul S. [email protected]

David L. [email protected]

Michael T. [email protected]

Carrie S. [email protected]

Gail E. Boliver [email protected]

__ s/William F. Hargens ________

William F. Hargens


cor clearing, llc v. calissio resources group, inc. et al doc 41 filed 30 oct 15.pdf

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