The opinion of the court was delivered by: Owen, District Judge.
On September 13, 1999, Judge Kaplan of this Court entered a
Temporary Restraining Order upon application of the SEC and CFTC
restraining defendants from further violating securities laws,
freezing defendants' assets, appointing a Temporary Receiver to
collect the assets and report, and granting other relief. As part
of this TRO, the Receiver, attorney Alan M. Cohen, was authorized
to "take and retain immediate possession, custody, and control of
all assets and property" of corporate defendants Princeton
Economics International Ltd. ("PEI") and Princeton Global
Management Ltd., and "to manage, control, operate, and maintain
their businesses." (TRO ¶¶ X.A, X.D). The Preliminary Injunction
entered on October 28, 1999 ("PI Order") continued the
receivership on terms identical to those of the TRO. (PI Order at
6-7). Both the TRO and the PI Order required Armstrong and his
agents to provide the Receiver with "all assets of the corporate
defendants which they have in their current possession, custody,
or control." (TRO, ¶ XV.C; PI Order at 6-7).
At the inception of a now extensive investigation to locate and
obtain such assets of the corporate defendants, and various
related entities, the Receiver conducted a computer database
search for real property owned by the defendants. This search
identified a beach house located at 91D Long Beach Boulevard, in
Loveladies, New Jersey, as a potential asset of the corporate
defendants, the property being recorded by county tax authorities
in the name of Princeton Economic Institute (the "Institute").
(Decl. of Tancred Schiavoni dated Jan. 5, 2000 ¶ 10).
From further investigation it appears:
1) The beach house and an adjoining lot were sold to
Princeton Global Management Holdings, Inc. ("PGM
Holdings") on October 8, 1993 for $1,565,379. (Id.
¶ 19, Exs. 4, 5).
2) The 1997 and 1998 tax returns of PGM Holdings
identifies the beach house as its principal, if not
its only, asset. (Id. ¶ 11, Ex. 6).
3) The 1997 property tax bill was issued to PGM
Holdings. (Id. Ex. 3).
4) The 1998 and 1999 property tax bills were issued
to the Institute. (Id. Exs. 1, 2).
5) From 1996 to 1999, all operational and maintenance
expenses for the beach house were paid for from PGM
Holding's account at Summit Bank. (Id. ¶¶ 24-25).
6) In May 1996, the PGM Holdings Summit Bank account
received a credit from Caldwell Banker Real Estate
Co. in the amount of $398,121.59, which represented
the entire proceeds of the sale of the lot adjoining
the house. In June 1996, $398,121.59 was transferred
to the account of PEI at Republic New York
Securities. (Id. ¶¶ 34, 35, Ex. 7).
In light of foregoing, the Receiver, contending that the beach
house is an asset of the corporate defendants subject to the
receivership, moved for an order (1) putting the beach house in
his possession and control; (2) enjoining Armstrong or anyone
else not acting under the direction of the Receiver from entering
upon the property; (3) authorizing him to rent the house; and (3)
authorizing him to explore the sale of the house. Armstrong
opposes the motion by claiming that the beach house had been sold
on September 7, 1998, and therefore it is not a corporate asset.
From the documentation presented, PGM Holdings (owner of the
house) is wholly owned by two limited liability companies
organized in the Turks and Caicos Islands, Princeton Global
Management A Ltd. ("PGMA") and Princeton Global Management B Ltd.
("PGMB"). (Id. ¶ 47, Exs. 15, 16). The Articles of Association
of both these companies authorize each to issue 2000 shares of
stock. Stock certificates obtained from PEI's office in
Princeton, New Jersey confirm that all these shares, 2000 shares
of PGMA and 2000 shares of PGMB, were issued to PEI. (Id. ¶¶
50-55, Exs. 18, 19). From this, it appears that the beach house
is owned by PEI through the said subsidiaries, and as such it is
an asset subject to the receivership.
Armstrong, however, contends that on September 7, 1998, in
effect, PEI "swapped"*fn1 its ownership in the house by
transferring ownership of PGMA and PGMB, among other assets, to a
GNPK Family Trust (the "Trust"), an Australian entity with one
Nigel Kirwan as trustee, in payment for the Trust's 50% interest
in a public Australian fund known as Princeton Metals and Capital
Market Fund ("PMCM").*fn2 (Decl. of Martin P. Unger dated Jan.
12, 2000 ¶ 2). Under a contemporaneous side letter, the bill of
sale for the house was amended to delay for a year the turnover
as to the house with PEI continuing to maintain the house and pay
all expenses — which were significant, running several thousands
a month — at which point ...