[00:00:01] Speaker 02:
Whenever you're ready.

[00:00:04] Speaker 04:
Thank you.

[00:00:04] Speaker 04:
May it please the court, George Cochran here for Appellants Christie Young and Omid Jahabi.

[00:00:10] Speaker 04:
I'll reserve five minutes for rebuttal, please.

[00:00:14] Speaker 04:
Allow me to recap the context of our appeal, the main issue involved, and why it should be remanded.

[00:00:21] Speaker 04:
I think this will resolve some of your questions.

[00:00:25] Speaker 04:
You've seen a lot of Ponzi schemes over the years here, and everyone claims

[00:00:29] Speaker 04:
They're unique in some way, but trust me, ours is the most unique of all.

[00:00:35] Speaker 04:
Beasley's con was loaded with integrity.

[00:00:38] Speaker 04:
Consider this, everyone knows somebody who's been injured by somebody else's negligence.

[00:00:44] Speaker 04:
They also know the most serious claims require a lawyer.

[00:00:48] Speaker 04:
Most of these settle with the insurance company.

[00:00:51] Speaker 04:
The problem is, some clients can't wait to close the deal.

[00:00:55] Speaker 04:
Some are even desperate enough to take less if they can get the money now.

[00:01:00] Speaker 04:
In our case, investors were told they can earn 12.5% every three months if they act fast.

[00:01:06] Speaker 04:
That's a tempting snare for anyone with extra cash looking to make a quick buck.

[00:01:11] Speaker 04:
In fact, you'd almost be a fool not to jump at that kind of opportunity.

[00:01:17] Speaker 04:
The trap is now set.

[00:01:20] Speaker 04:
Word gets out that Beasley knows someone who purchases discounted claims from distressed clients.

[00:01:25] Speaker 04:
And guess what?

[00:01:26] Speaker 04:
They're looking for investors.

[00:01:28] Speaker 04:
Better yet?

[00:01:29] Speaker 04:
The documents are loaded with details that include all the usual legalese.

[00:01:34] Speaker 04:
Best of all, there's an airtight trust that guarantees you'll keep a property interest in your investment until all the funds are paid, including interest if the payment's late.

[00:01:45] Speaker 04:
Before long, one astute investor after another jumps on the bandwagon until the bubble bursts.

[00:01:54] Speaker 04:
At that point, 1,200 victims had invested $500 million in this scam, including $725,000 by Christian Omid.

[00:02:06] Speaker 04:
You have to wonder how so many sophisticated adults could fall for something too good to be true.

[00:02:13] Speaker 04:
Most would say this is just another case of trying to have your cake and eat it too, but that would miss its most enticing feature.

[00:02:20] Speaker 04:
What's the icing on the cake that drew the first bite?

[00:02:26] Speaker 04:
Every person who signed Beasley's contract was told they were keeping a beneficial interest in their investment, not making a vanilla-flavored loan.

[00:02:36] Speaker 04:
Enter Rule 24 and the central issue before you.

[00:02:41] Speaker 04:
Our right to intervene rises or falls on whether we may have a legally protected interest that could be impaired.

[00:02:48] Speaker 04:
The question is,

[00:02:49] Speaker 04:
Do the circumstances surrounding our investments qualify for protection under Nevada's resulting trust doctrine?

[00:02:58] Speaker 04:
If so, the receiver's authority to seize assets and the SEC's right to control the recovery have to bend a little.

[00:03:06] Speaker 04:
In Sierra Club and Donnelly, this court interpreted Rule 24's initial requirement broadly to cover any interest recognized at law that bears some relationship to the action.

[00:03:18] Speaker 04:
The district court's mistake here was simply looking in the wrong direction to gauge that interest.

[00:03:25] Speaker 04:
Had it relied on Nevada's version of this doctrine, it would have discovered the following.

[00:03:32] Speaker 04:
Nevada imposes a resulting trust in the investor's favor whenever the one receiving the money gives it to someone other than who the investor intended.

[00:03:41] Speaker 04:
This is most appropriate when, quote, the acts or expressions

[00:03:45] Speaker 04:
of the parties indicate an intent that a trust relation results from their transaction," end quote.

[00:03:52] Speaker 04:
The victim's intent at the time of transfer is the most important of all.

[00:03:57] Speaker 04:
Now, while the strongest evidence of intent is an express trust agreement, it can also be inferred from the circumstances.

[00:04:05] Speaker 04:
At that point, a trust will be imposed unless the transferor clearly didn't want it.

[00:04:10] Speaker 04:
Now, our allegations cover all of these bases.

[00:04:14] Speaker 02:
We've read these briefs carefully, and I appreciate your theory.

[00:04:19] Speaker 02:
What I struggle with is the equivocation in your briefing about whether this theory is unique to your client.

[00:04:26] Speaker 02:
It seems to me to be entirely applicable to every victim.

[00:04:29] Speaker 02:
Did I miss something?

[00:04:31] Speaker 04:
No, that's one of our main points, Your Honor, is that what makes this so unique is that this whole appeal rises or falls on this central question of Nevada's Resolving Trust Doctrine, because these are standardized documents.

[00:04:44] Speaker 04:
Everybody's got this claim.

[00:04:45] Speaker 04:
Every single investor would have equal status.

[00:04:50] Speaker 04:
And that's why it's so important.

[00:04:51] Speaker 03:
But if you have finite funds that don't equal the total amount, how does your theory work if everybody has a resulting trust?

[00:05:03] Speaker 03:
You still have to find some way to allocate it.

[00:05:04] Speaker 04:
That's what makes it important, Your Honor.

[00:05:06] Speaker 04:
If I'm following your question, there's not enough money to go around.

[00:05:08] Speaker 04:
Correct.

[00:05:09] Speaker 04:
Therefore, it's a matter of how to maximize the recovery of the money, first of all.

[00:05:15] Speaker 02:
Well, actually, it's your client's recovery.

[00:05:17] Speaker 02:
So that's the problem.

[00:05:19] Speaker 02:
The equivocation seems to me to be a statement that your clients weren't trying to go to the head of the line in front of the other investors.

[00:05:27] Speaker 02:
But it seems to me they inevitably were.

[00:05:30] Speaker 02:
So what am I missing there?

[00:05:32] Speaker 04:
They are not, Your Honor.

[00:05:33] Speaker 02:
Well, I don't understand.

[00:05:34] Speaker 02:
They all have the same claim, right?

[00:05:36] Speaker 02:
And as Judge Thomas said, there's a finite pool of money.

[00:05:39] Speaker 04:
So what are they trying to do?

[00:05:42] Speaker 04:
the due process rights that come from the status that Nevada grants us.

[00:05:47] Speaker 04:
We are not, and none of the victims are simply unsecured creditors, which is the way we've been treated.

[00:05:56] Speaker 04:
We have property interests.

[00:05:58] Speaker 04:
This is very, I don't think it's ever happened in another Ponzi case that I'm aware of, and I've read as many as I can.

[00:06:04] Speaker 04:
This is a very important issue that deserve much more treatment.

[00:06:07] Speaker 04:
We're not even asking this court to order them down below to grant our motion to intervene.

[00:06:13] Speaker 04:
We're asking to give us the evidence you're hearing that we requested in order to prove this.

[00:06:19] Speaker 04:
Why do I say this?

[00:06:20] Speaker 03:
Well, let me get back to my other question first.

[00:06:23] Speaker 03:
If everybody has the same resulting trust and you have a finite amount of money, how do you allocate?

[00:06:34] Speaker 04:
That's, you're making my argument.

[00:06:36] Speaker 03:
No, no, no.

[00:06:37] Speaker 03:
Seriously.

[00:06:37] Speaker 03:
Because what the SEC is doing is allocating basically based on the amount of money available in the claims.

[00:06:46] Speaker 03:
I don't see a difference between what you're asserting and what the SEC is asserting.

[00:06:52] Speaker 04:
On that, there are many issues in this case.

[00:06:54] Speaker 04:
You've raised one of the most important is the allocation model.

[00:06:57] Speaker 04:
We want to have a greater voice in how to select that and put together an allocation model, not the limited due process, right, of waiting until the very end of the case when the receiver proposes his allocation model, which we disagree with, to the court.

[00:07:15] Speaker 02:
Why wouldn't you have an opportunity to weigh in at that point?

[00:07:18] Speaker 04:
You do.

[00:07:19] Speaker 04:
It's a limited opportunity.

[00:07:20] Speaker 04:
That's the whole point.

[00:07:21] Speaker 04:
All you can do is object.

[00:07:23] Speaker 04:
And the court considers that if you look at the historic pattern, very, very rarely do any of these objections make any difference.

[00:07:34] Speaker 04:
And you never really win on an appeal because you're not really a party anyway.

[00:07:39] Speaker 04:
They just said, look, you had the summary procedure.

[00:07:41] Speaker 04:
You had the right to object.

[00:07:43] Speaker 04:
We're saying, wait a minute.

[00:07:44] Speaker 04:
You passed over the main issue, which is that

[00:07:46] Speaker 04:
We actually have a property interest in this.

[00:07:49] Speaker 04:
It was all the way back to the very first Ponzi scheme.

[00:07:51] Speaker 01:
Mr. Cochran, may I ask a question of you?

[00:07:54] Speaker 01:
When did your clients first receive any notice that the SEC was taking action in this case?

[00:08:03] Speaker 04:
When the newspapers reported it.

[00:08:05] Speaker 04:
And when was that?

[00:08:08] Speaker 04:
I think it was at the time they filed the case, which would be

[00:08:15] Speaker 04:
Basically, it was six, they filed the case six months before we filed our motion to intervene.

[00:08:22] Speaker 04:
But the important fact to consider is you have to, it's the timing, if you bring up the timing of this question, it's upon, you had reasonable basis to suspect your interest was going to be impaired.

[00:08:35] Speaker 04:
That was only nine days before we filed.

[00:08:38] Speaker 01:
And that's- Why didn't you know that your interest was gonna be impaired until nine days before you filed?

[00:08:44] Speaker 04:
because Mr. Winkler, the receiver, in a meeting with the victims, announced that he is going to use the so-called net investment model for allocation.

[00:08:57] Speaker 04:
And when we researched that, we strongly disagreed with it and felt it would be an inequitable approach.

[00:09:03] Speaker 04:
In fact, we believe, because of the uniqueness of the case, it should be a customized cooperative project to come together with the appropriate allocation model.

[00:09:14] Speaker 04:
And once we saw that, nine days is Lickety fasted, you know, filing a motion.

[00:09:20] Speaker 01:
When did you first realize or when did you first have notice that there was a receivership involved?

[00:09:25] Speaker 04:
Now, that would probably be three months before that, but we had no cause to object to him as a receiver.

[00:09:35] Speaker 04:
We knew there was going to be a receivership.

[00:09:36] Speaker 04:
We were waiting to see what allocation model, and also we were, frankly, researching Nevada's Resolving Trust Doctrine, because it's a very unique version of the doctrine, very different from California's.

[00:09:49] Speaker 04:
But let me just talk a minute about, well, I'm going to run out of time here,

[00:09:54] Speaker 04:
Uh, about the allocation model, uh, I'm not going to be able to discuss the variations.

[00:10:00] Speaker 04:
It's essentially for at least 20 years now, there's been increasing concern that the net investment approach, which is the shortcut, easy way to do it is not inequitable and it results in every time in a civil war among investors, uh, you know, so-called net winners, net losers.

[00:10:19] Speaker 04:
It doesn't, uh, account for the time value money.

[00:10:22] Speaker 04:
It doesn't account for

[00:10:23] Speaker 04:
facts like the early investors uh... kept investing more because they were actually getting paid thinking it was uh... a good deal and so they actually got deeper into it the later investors uh...

[00:10:37] Speaker 04:
you know, relied upon the fact that there's so many earlier investors.

[00:10:41] Speaker 04:
And so what we want to do is because of the property interests we have, we want to actually represent the victims, which in the court's equitable jurisdiction, they absolutely can do that in an informal way under the court's direction in order to have a strong voice on behalf of the victims.

[00:11:01] Speaker 04:
Think about that.

[00:11:02] Speaker 04:
For the first time, I believe,

[00:11:04] Speaker 04:
first Ponzi case where a victim would actually represent the other victims.

[00:11:11] Speaker 04:
The only ones who aren't represented here, Your Honor, are the only ones who actually lost money.

[00:11:16] Speaker 04:
It's always been that way.

[00:11:17] Speaker 04:
Now, I understand the mechanics of it.

[00:11:19] Speaker 03:
We are not trying to get in the way of... No, but what your argument is is that your client's funds should not be part of the receivership estate, correct?

[00:11:29] Speaker 03:
Not correct.

[00:11:30] Speaker 03:
Well, I'm reading you.

[00:11:33] Speaker 04:
Please hear me out.

[00:11:35] Speaker 04:
This can be confusing.

[00:11:36] Speaker 04:
In the complaint, we allege we have this property right under Nevada's trust.

[00:11:41] Speaker 04:
However, all we ask for in the relief is whatever the court decides using its equitable jurisdiction.

[00:11:49] Speaker 04:
In the actual motion, which is what really matters,

[00:11:51] Speaker 04:
We're saying we are not going to try to override the receivership.

[00:11:57] Speaker 02:
We want to cooperate with both the SEC and- So Judge Thomas asked a very specific question, and your answer surprised me.

[00:12:04] Speaker 02:
Did we hear you correctly?

[00:12:05] Speaker 02:
Your clients are not arguing that they should not be part of the receivership?

[00:12:11] Speaker 04:
Not.

[00:12:11] Speaker 04:
We're not trying to be excluded from the receivership.

[00:12:14] Speaker 04:
That's correct.

[00:12:15] Speaker 04:
We're very clear about our intentions.

[00:12:16] Speaker 04:
We have proposed to be a party to

[00:12:21] Speaker 04:
of this action and so that we can cooperate on behalf of all investors to, first of all, protect our ownership rights, but also a lot of different advantages that we've gone into in the brief.

[00:12:34] Speaker 04:
I don't have time to now, but there's so many.

[00:12:37] Speaker 04:
Actually, there's no reason not to allow us and absolutely is no, and I can get into that more.

[00:12:43] Speaker 02:
You're running really short on time.

[00:12:44] Speaker 02:
Do you want to save the rest for rebuttal?

[00:12:45] Speaker 02:
Yes, please.

[00:12:46] Speaker 02:
Okay.

[00:12:47] Speaker 02:
Not at all.

[00:12:47] Speaker 02:
Thank you.

[00:12:55] Speaker 00:
Good morning, Your Honor.

[00:12:56] Speaker 00:
May it please the court, Rachel McKenzie for the SEC.

[00:12:59] Speaker 00:
I want to start actually on that last point when Your Honor asked about whether they're asking to exclude their investments through receivership of state.

[00:13:05] Speaker 00:
They absolutely are.

[00:13:06] Speaker 02:
Could you slow down?

[00:13:07] Speaker 02:
Because this is a real echo-y courtroom, and I'm having a hard time understanding.

[00:13:10] Speaker 00:
Sure.

[00:13:10] Speaker 00:
No problem, Your Honor.

[00:13:11] Speaker 00:
I just wanted to direct you to page 17 of their reply brief, where they specifically say, if appellants prevail, Winkler, the receiver,

[00:13:20] Speaker 00:
has no receivership estate to Marshall, and the SEC can't usurp the recovery.

[00:13:24] Speaker 00:
So it's quite clear, and the magistrate judge correctly understood them to be saying that if their resulting trust argument is right, they are saying that their investments and every victim's investment should come out of the receivership estate.

[00:13:38] Speaker 00:
And unravel the receivership.

[00:13:39] Speaker 00:
Correct, Your Honor.

[00:13:40] Speaker 00:
And to Judge Baez's questions about timeliness, that was part of the reason why the magistrate judge said, you have waited too late to raise this argument.

[00:13:48] Speaker 00:
You should have brought that.

[00:13:50] Speaker 00:
idea to me three months previously when the commission moved for the appointment of the receiver and made clear the scope of the receiver's authority.

[00:13:58] Speaker 00:
The other point I wanted to make, Your Honor, was that any investor, as Your Honor noted, can object to the receiver's proposed distribution plan when he proposes that distribution plan.

[00:14:14] Speaker 00:
In the Seventh Circuit case of CFTC versus Heritage Capital, which we discuss at page 20 of our brief, a party made a claim similar to what the proposed interveners here are saying, which is, look, I have a trust claim over this money, which is a superior claim, therefore I must be allowed to intervene and the receivership process is not sufficient.

[00:14:37] Speaker 00:
And what the Seventh Circuit said in that case was,

[00:14:39] Speaker 00:
No, that's not right.

[00:14:41] Speaker 00:
The receivership, that's where you make your objections and that's completely fine.

[00:14:45] Speaker 00:
This court, in a case called United States versus Alisole Water, that's 370 F3rd at 915, pointed to the Seventh Circuit's decision in heritage capital, said that that decision was persuasive, and said that in a case where you're trying to intervene in a government enforcement action, if you can raise your claim to the funds through the receivership process,

[00:15:08] Speaker 00:
that is sufficient and you do not need to intervene.

[00:15:12] Speaker 00:
We raised a number of independently sufficient bases in our brief on which your honors could affirm the denial of intervention.

[00:15:18] Speaker 00:
We're happy to get a decision on any of those grounds.

[00:15:21] Speaker 00:
Unless your honors have questions, I'm happy to give you.

[00:15:25] Speaker 02:
I have one question.

[00:15:26] Speaker 02:
Sure.

[00:15:26] Speaker 02:
This is a preliminary fact, and I think it's it may be disputed in the briefing.

[00:15:32] Speaker 02:
Has the has the receiver announced a plan for how these the allocation will be will be done?

[00:15:37] Speaker 00:
He has not, Your Honor.

[00:15:38] Speaker 00:
I believe in footnote seven of his brief.

[00:15:39] Speaker 00:
He specifically says I've made no determination as to what distribution method I'm going to propose.

[00:15:45] Speaker 00:
We're in the middle of discovery.

[00:15:47] Speaker 00:
Discovery closes September of this year.

[00:15:49] Speaker 00:
So there's no judgment in this case.

[00:15:51] Speaker 00:
The receiver is still going to the council.

[00:15:53] Speaker 02:
Thank you.

[00:15:54] Speaker 02:
You've answered my question.

[00:15:55] Speaker 02:
But just to follow up on us, if I could, it seems though that opposing councils heard something else or thought he heard something else or his clients did so that because that's what prompted them to file.

[00:16:09] Speaker 02:
So what you're saying now is that decision hasn't been made.

[00:16:12] Speaker 00:
That's correct, your honor.

[00:16:13] Speaker 00:
That's what the receiver says in his brief at footnote seven that he's made no decision.

[00:16:18] Speaker 00:
He also notes that

[00:16:19] Speaker 00:
he's not actually even sure what my friend is talking about in terms of the assertion he made that triggered them filing.

[00:16:25] Speaker 00:
But in any event, he has made very clear he has not made a decision on what distribution method he's going to be proposing.

[00:16:31] Speaker 00:
Okay.

[00:16:31] Speaker 02:
Thank you for that clarification, Judge Bea.

[00:16:33] Speaker 02:
Any other questions?

[00:16:34] Speaker 01:
Well, I'm trying to understand the difference between the receiver's possible position if he does adopt a net investment plan as opposed to what Mr. Cochran is claiming as a

[00:16:46] Speaker 01:
If a person put in $1,000, the receiver could say, you're going to get 30% back, and what Mr. Cochran wants is to get 100% back.

[00:17:01] Speaker 01:
Is that right?

[00:17:03] Speaker 00:
I will confess, Your Honor, I'm not actually sure what exactly they're asking for in terms of how they think what they think the receiver is going to propose negatively affects them.

[00:17:16] Speaker 00:
But I will say that they will have the opportunity to raise any objections to that at the time the receiver actually proposes his allocation method.

[00:17:25] Speaker 01:
But won't they be hampered by not participating in the action until that point?

[00:17:32] Speaker 00:
No, Your Honor, because as Judge Thomas was noting, their interest is exactly the same as every other investor's interest.

[00:17:41] Speaker 00:
The commission and the receiver are both working diligently to maximize all investors' recovery.

[00:17:47] Speaker 00:
Their claim is to the money and what allocation to the money they get, and that is something that comes up later, and they will have every opportunity to participate in that process.

[00:17:58] Speaker 02:
Okay.

[00:17:58] Speaker 02:
Anything further?

[00:17:59] Speaker 02:
I don't think there's anything further.

[00:18:01] Speaker 02:
Thank you, counsel.

[00:18:01] Speaker 02:
We appreciate your argument.

[00:18:06] Speaker 01:
Mr. Coughlin, why don't you address that last portion of the response by government counsel?

[00:18:13] Speaker 01:
Why don't you wait until the plan is announced and make your claims then?

[00:18:20] Speaker 04:
Well, for the reason that the very first Ponzi case stated in Cunningham, it was made very clear that if you do qualify as a resulting trust, you are exempt from the receivership.

[00:18:33] Speaker 04:
We are not trying to muddy the waters by taking marbles and going home.

[00:18:39] Speaker 04:
We are doing quite the opposite, and they've known that from the beginning.

[00:18:44] Speaker 04:
We cannot skip over the central issue.

[00:18:46] Speaker 04:
The lower court did.

[00:18:48] Speaker 04:
It skipped over that issue and made an interpretation of one sentence in the contract without looking at Nevada law whatsoever.

[00:18:56] Speaker 03:
No, but I think you sort of contradicted yourself and maybe you can clear it up.

[00:19:02] Speaker 03:
You say we don't want, we're okay with the receivership, we just want to look at the allocation.

[00:19:09] Speaker 03:
But your complaint seeks equitable discouragement.

[00:19:13] Speaker 03:
You want to be out of the receivership.

[00:19:15] Speaker 03:
You want to get your money.

[00:19:16] Speaker 04:
No, as a party, we can absolutely do that.

[00:19:18] Speaker 04:
That's one of the reasons we want to be involved in it is the SEC, as you know, cannot.

[00:19:24] Speaker 04:
They are limited in discouragement.

[00:19:25] Speaker 04:
We have a right to restitution damages.

[00:19:28] Speaker 03:
You want restitution of all your money, even though there are limited funds.

[00:19:32] Speaker 04:
Well, it can be collected.

[00:19:33] Speaker 04:
There's not enough money.

[00:19:34] Speaker 04:
So we're trying to get as much as we can.

[00:19:36] Speaker 04:
And we're trying to help the SEC

[00:19:39] Speaker 04:
There's also the vulnerability of the receiver to the impaired electo defense, which the same receiver just last year in this court ran into a problem because this court found that contrary to what Mr. Winkler's position was, the receiver was liable or subject to an arbitration clause defense.

[00:20:03] Speaker 04:
He thought that he wouldn't be, he would be immune to it.

[00:20:06] Speaker 04:
And we're trying to say with a party, why wouldn't you want us at your side?

[00:20:10] Speaker 04:
We're not running the show.

[00:20:11] Speaker 04:
It's a limited purpose actually defined by the court.

[00:20:15] Speaker 04:
The court will decide what, when, how.

[00:20:19] Speaker 04:
role we would play.

[00:20:22] Speaker 04:
And if they say, we don't need you, thanks anyway, then they say that and we're willing to take that chance.

[00:20:26] Speaker 04:
But the thing is, we are claiming an ownership interest and everybody's ignoring it.

[00:20:32] Speaker 04:
And this is the only time where an opportunity for the people who actually lost money can be represented along with, in partnership with, we're not fighting them at all.

[00:20:44] Speaker 04:
And my point as I finish here is,

[00:20:48] Speaker 04:
Because the whole issue rises or falls on the resulting trust theory, if we win that, all the other requirements of Rule 24 are met, and this game changer should have gotten more attention.

[00:21:00] Speaker 04:
We should have gotten an evidentiary hearing.

[00:21:02] Speaker 04:
That's all we're asking.

[00:21:04] Speaker 04:
It might decide that we don't have that.

[00:21:07] Speaker 04:
Why do I ask for it?

[00:21:08] Speaker 04:
Because a fact-specific intervention in a fact-specific Ponzi scheme demands a fact-specific ruling.

[00:21:18] Speaker 02:
Council, you're out of time, over time, but we appreciate your arguments.

[00:21:23] Speaker 02:
Both of you, thank you very much for your advocacy.

[00:21:25] Speaker 02:
We'll take that matter under advisement.

[00:21:27] Speaker 02:
We'll go on to the final case on the calendar, please.