On June 14, 2000, this Court approved an agreement between
Centigram and the Receiver pursuant to which the Receiver is to
deliver 900,000 shares of Centigram stock to Centigram in
exchange for a payment of $12,095,325 from Centigram to the
receivership estate, as well as other consideration. The
agreement requires the Receiver to "use all commercially
reasonable efforts to deliver" the 900,000 shares to Centigram.
The Centigram shares are treasury shares which are to be
returned to Centigram to facilitate the purchase of Centigram by
a corporate suitor. The closing of that transaction is scheduled
for July 27, 2000. Therefore, the Receiver must deliver the
Centigram shares by that date.
The 900,000 Centigram shares had been maintained by Credit
Bancorp in four separate brokerage accounts, including 225,000
shares in the Ameritrade Account. The three brokerage firms other
than Ameritrade have delivered the Centigram shares held with
them to the Receiver. Ameritrade, however, has refused to turn
over the Centigram Shares held in the Ameritrade Account.
The Ameritrade Account carries a margin balance of $3.434,167.
The total value of the securities in the Ameritrade Account after
removing the Centigram shares is $11,804,655, of which
$10,531,500 consists of 500,000 shares in Vintage Petroleum, Inc.
("Vintage Petroleum") common stock and $1,273,155 consists of
shares in other companies. Thus, the equity in the account, i.e.,
its total market value minus margin debt, is approximately 70% of
the total market value of the account.
Consistent with the prevailing practices in the brokerage
industry, Ameritrade ordinarily requires that the equity in a
margin account not fall below 30% of the total market value of
that account. However, pursuant to the terms and conditions of
the margin agreement with Credit Bancorp, Ameritrade has the
right to unilaterally increase the required level of equity.
After receiving submissions from the Receiver and Ameritrade,
these matters were deemed fully submitted on July 21, 2000.
I. The Motion By Ameritrade
A. Permissive Intervention Will Be Granted
Ameritrade seeks to intervene in this action in order to
protect its alleged security interest in stock held in the
Ameritrade Account. The Receiver does not oppose intervention by
Ameritrade. The Receiver also represents to the Court that the
Securities and Exchange Commission ("SEC") is not opposed to such
intervention. Ameritrade seeks intervention as of right under
Federal Rule of Civil Procedure 24(a). Intervention as of right
is not appropriate. However, pursuant to this Court's broad
discretion to allow permissive intervention in a case involving
multiple parties and claims, Ameritrade will be permitted to
intervene under Federal Rule of Civil Procedure 24(b).
B. Ameritrade Must Comply With The Asset Freeze Order
Ameritrade seeks relief from the Asset Freeze Order, pursuant
to which the stocks held in the Ameritrade Account are frozen.
Ameritrade requests this relief so that it may immediately sell
as much collateral as necessary to retire what it contends is a
margin debt on the part of Credit Bancorp of approximately $3.4
million. Such relief would be directly contrary
to the interests of the receivership estate as it would interfere
with the Receiver's efforts to marshall and take control over all
Credit Bancorp's assets for the benefit of all the parties in
interest. Moreover, the Court presently has pending before it
three proposed plans for partial distribution of the Receivership
estate pursuant to which valid margin debts are to be satisfied.
Satisfaction of any such debt owing to Ameritrade should be
accomplished as part of such a plan rather than through a
piecemeal approach. Therefore, Ameritrade's request for relief
from the Asset Freeze Order is denied.
II. The Motion By The Receiver For Delivery Of The Centigram
A. An Order Compelling Delivery Of The Stock Is An
Appropriate Ancillary Remedy
This Court has "broad powers and wide discretion" to fashion
appropriate equitable relief in a securities enforcement action.
Securities and Exch. Comm'n. v. Elliott, 953 F.2d 1560, 1569
(11th Cir. 1992) (discussing equitable powers of district court
in securities enforcement action); see Securities and Exch.
Comm'n. v. Manor Nursing Ctrs., Inc., 458 F.2d 1082, 1103 (2d
Cir. 1972) (citations omitted) (observing district court's
"necessary power to fashion an appropriate remedy" where
equitable jurisdiction has been invoked by showing of securities
law violation); see also generally 13 James Wm. Moore et al.,
Moore's Federal Practice § 66.06[a] at 66-24 to 66-27 (3d
ed. 1997) (discussing district court's broad latitude in
supervising equity receiverships).
The Centigram Agreement was approved, pursuant to this Court's
equitable powers, for the benefit of the receivership estate. The
proceeds of that agreement are a necessary component of each of
the proposed plans of partial distribution currently pending
before the Court. Those proceeds are also needed to cover
administrative and other costs of the Receivership estate. The
transfer of the Centigram Shares from the Ameritrade Account is
an important part of the Centigram Agreement. Thus, an order
directing Ameritrade to deliver the Centigram Shares promotes the
goals of this equity receivership in direct and important ways.
Ameritrade contends that it is entitled to retain all of the
shares in the Ameritrade Account as collateral for the Credit
Bancorp margin debt. In its own words, Ameritrade's "sole
objective here is to be in a position to sell securities
sufficient to retire the margin debt." Ameritrade avers that if
it is not permitted to retain the Centigram Shares then the value
of the collateral held in the account will be so eroded that
Ameritrade will not be able to protect its security interest.
However, Ameritrade's objective is not compromised by an order
compelling it to turn over the Centigram Shares. After removal of
the Centigram Shares the collateral remaining in the Ameritrade
Account represents an equity level of 70%. Assuming for purposes
of this motion that Ameritrade has a valid security interest in
the contents of the Ameritrade Account, a 70% equity level is
substantially greater than what is ordinarily required in the
industry, and is more than adequate for the purpose of retiring
the margin debt.
Ameritrade contends that it has the right pursuant to the
margin agreement to raise the equity requirement beyond ordinary
levels based on the circumstances. Specifically, Ameritrade
contends that it is justified in requiring such an increase here
because the stocks remaining in the account after removal of the
Centigram Shares would be too heavily concentrated in one
company, i.e., Vintage Petroleum. However, in order for the
equity level to be such that Ameritrade could not sell securities
sufficient to retire this debt, the price of Vintage Petroleum
common stock would have to drop from its closing price of $19.875
on July 20, 2000, to $4.32 per share. This would represent a
over 70% in the stock price. There is no basis in the record for
concluding that there is a real risk of such a drop in the price.
Moreover, Ameritrade is not without recourse in the event that
the Vintage Petroleum stock begins to decline significantly in
value. In that event it could move before this Court for the
right to sell shares out of the Ameritrade Account.
In addition, all three of the plans for partial distribution of
the Receivership estate pending before the Court provide for
satisfaction of secured margin debt from the assets of the
estate. If Ameritrade ultimately succeeds in its claim that it
has a valid security interest then the debt may be satisfied from
any of the estate assets and not only from stock held in the
Ameritrade account. Thus, Ameritrade's interest would be
protected even if the Vintage Petroleum price were to fall
Therefore, the order sought by the Receiver is an appropriate
form of ancillary relief directed at furthering the goals of the
receivership estate and protecting the parties in interest.
B. Oral Argument Is Not Warranted
By letter of July 19, 2000, Ameritrade requested oral argument
on the Receiver's motion. Under the circumstances, however,
resolution of the matter on the written submissions is
appropriate and is consistent with due process.
Included within the court's powers in administering the
receivership estate and fashioning appropriate equitable relief
is the discretion to use summary proceedings, so long as those
affected are afforded adequate notice and an opportunity to be
heard. See, e.g., Elliott, 953 F.2d at 1567 (district court has
discretion to use summary proceedings so long as parties provided
with notice and opportunity to be heard); Commodity Futures
Trading Commission v. Topworth Int'l, Ltd., 205 F.3d 1107, 1113
(9th Cir. 2000) (district court within its discretion to use
summary proceedings initiated by order to show cause to resolve
"the claims of nonparties to property claimed by proceedings . .
. so long as there is adequate notice and opportunity to be
heard"). Indeed, summary proceedings have the salutary effect in
actions such as this one of preventing further dissipation of the
receivership assets through unnecessary litigation costs and
promoting judicial efficiency. See Elliott, 953 F.2d at 1566
(citing Securities and Exch. Comm'n. v. Wencke, 783 F.2d 829,
837 (9th Cir. 1986)).
As explained above, time is of the essence with respect to the
Receiver's motion. Moreover, the relevant facts are either
undisputed or are presumed to be as set forth by Ameritrade.
Ameritrade was provided with notice and an opportunity to be
heard and, indeed, both parties provided the Court with
substantial written submissions. Under these circumstances,
additional proceedings are not required.
Therefore, for the reasons set forth above the motion by the
Receiver is granted, and the motion by Ameritrade is granted in
part and denied in part. Ameritrade is hereby directed to deliver
the Centigram Shares to the Receiver by July 27, 2000.
It is so ordered.