The first thing a receiver must do is secure the records of the receivership estate so that he can identify assets, liabilities, potential causes of action and, perhaps most importantly, prevent the destruction or disbursement of vital records. As a result, after our appointment in the BEAR case, (S.E.C/ v Basic Energy and Affiliated Res., Inc., 273 F.3d 657 (6th CIr. 2001)) our first official act was to secure the company’s records. Since BEAR was an operating company at the time of our appointment it was necessary to allow certain employees supervised access to the records to assist in running the business until a new operating team could be put in place. In addition, we provided the defendants supervised access of the books and records to assist them in their defense in the underlying S.E.C. action.
From the beginning until the end the defendants claimed that we had control of the records and therefore they could not prove their innocence since the records were all in the receiver’s possession and, naturally, the receiver had lost or destroyed the records they needed to prove their innocence. However, because we had secured the building where the records were located and established chain of custody of the records from the beginning, these arguments did not carry the day for the defendants.
If the receivership estate consists of a business it is critical that the mail be controlled by the receiver. This may entail providing the Post Office with a forwarding address to the receiver’s place of business as well as posting signs on the business location for deliveries.
This paid big dividends in the BEAR case. For example, after the S.E.C. filed its case against the defendants the district court enjoined the defendants from continuing to raise money. Notwithstanding this injunction, the defendants raised over $500,000 and deposited the funds in a bank in Boston, Massachusetts. After the money was deposited, the Boston bank, apparently contrary to defendants’ instructions, sent a correspondence to the company address, and that mail was forwarded to the receiver. The receiver then successfully argued that the money was part of the estate for distribution to investors.
In the early stages of his appointment the receiver should take the time to fully understand the facts supporting the underlying case. All too often the receiver is so caught in putting out fires that he may not see the big picture in the case and, as a result, may miss important deadlines or overlook potential assets or causes of action.
We have found that creating a website for the case is extremely helpful to keep investors informed as to the status of the case.
Maintaining an investor database which tracks investor contacts, correspondence, investment amount, marketer details and other relevant information is extremely helpful in administering the claims process.
