Securities Industry Commentator by Bill Singer Esq

FINRA Arbitration Panel Finds TD Ameritrade Grossly Negligent With Form U5  (BrokeAndBroker.com Blog)

Platinum Partners Portfolio Manager Daniel Small Convicted of Defrauding Bondholders in a Multi-Million Dollar Scheme / Defendant Orchestrated a Rigged Vote Relating to $150 Million in Bonds (DOJ Release)

Federal Court Grants UBS Petition to Dismiss Chapter 7 Bankruptcy

In Re: Robert Earl Turner, Jr., Debtor (Opinion WDTX)

U.S. Bancorp Investments Loses FINRA Customer Arbitration

In the Matter of the Arbitration Between David Budzianowski and Helga Daftarian, jointly, on behalf of David Budzianowski Helga Daftarian, JTWROS, and David Budzianowski, individually, Claimants, v. U.S. Bancorp Investments, Inc, Respondent (FINRA Arbitration Award)

Platinum was a New York City-based hedge fund founded in 2003.  The evidence at trial established that between approximately November 2011 and December 2016, Small, along with co-conspirators including Mark Nordlicht, the founder and Chief Investment Officer of Platinum, and David Levy, the co-Chief Investment Officer of Platinum, orchestrated a fraudulent scheme to defraud third-party holders of Black Elk's publicly traded bonds (the bondholders) by diverting to Platinum the proceeds from the sale of the vast majority of Black Elk's most lucrative oil fields even though the bondholders had priority over Platinum's equity interests.

To execute this scheme, in early 2014, Small, Nordlicht, Levy and others caused Platinum to secretly purchase Black Elk bonds on the open market and gain control of $98 million of the $150 million of outstanding bonds.  The bonds were then transferred through a number of related entities to conceal their ownership and control by Platinum.  Small, Nordlicht, Levy and their co-conspirators then rigged a consent solicitation vote to amend the Black Elk indenture so that the proceeds from the sale of Black Elk's best assets would be paid to the preferred equity - which was held by Platinum and Platinum insiders - ahead of the other bondholders.  Notably, non-Platinum related bondholders overwhelmingly voted against changing the indenture; one testified that bondholders would never knowingly give up being "as senior as possible in the capital structure" for "nothing" in return, which he characterized as an "irrational choice."

After the rigged vote was complete, Small, Nordlicht, Levy and their co-conspirators took millions of dollars from the asset sale for themselves, family members and friends, including approximately $7 million to Nordlicht's father, approximately $250,000 to Levy, approximately $100,000 to Small and approximately $2 million to the brother of another co-conspirator.

In July 2019, Nordlicht and Levy were convicted on the same charges by a federal jury following a two-month trial.  Both defendants are awaiting sentencing.   

The Debtor was an employee of UBS from March 1996 until October 21, 2021. While working for UBS, the Debtor provided financial- and investment-advisory services as a member of a team headed by his wife, Stephanie L. Turner. UBS alleges that, while the Debtor was employed with UBS, the Debtor misappropriated over $17 million from at least twenty-eight UBS customers by soliciting sham investments in fake annuities purportedly issued by Fairfax Financial Corporation ("Fairfax"). ² After discovering the Debtor's misappropriations, UBS took steps to reimburse the customers harmed by the Debtor's allegedly fraudulent scheme and, according to UBS's proof of claim, settled with twenty such customers for a total of $12,640,970.09. 

UBS seeks to initiate an arbitration proceeding with the Financial Industry Regulatory Authority against the Debtor ("FINRA Arbitration").³ To that end, and to ensure that the Debtor did not abscond with, hide, or transfer any assets before the FINRA Arbitration, UBS filed a petition for a writ of attachment ("Writ of Attachment") against the Debtor and Stephanie Turner in the 414th Judicial District Court of McLennan County, Texas, on May 6, 2022. Six days later, the Debtor filed a voluntary petition under chapter 13 of the Bankruptcy Code. A hearing on the Writ of Attachment was scheduled for the next day, though the automatic stay prevented it from going forward. The Debtor testified at the meeting of creditors that he learned of the Writ of Attachment about two days before the scheduled hearing. He then met with his attorney the day before the hearing and, under the advice of his attorney, decided to file for bankruptcy.

The Debtor filed his chapter 13 petition without schedules, statements, or other required documents, though the Debtor subsequently filed these documents. According to the schedules, the Debtor is now retired and subsists on monthly income of $6,380 from a combination of Social Security, rent received for a rental property, and note payments on a Little Rock, Arkansas mortgage. After expenses, the Debtor claims his monthly net income is only $422. Despite this modest income, the Debtor lists real and personal assets totaling $5,885,467.43.

On the other side of the ledger, the Debtor's schedules list total secured debt of $16,600,all of which is held by the McLennan County Tax Office, and $0 of unsecured debt. McLennan County filed a proof of claim for $3,063.33 for estimated 2022 property taxes. The City of Waco, Midway ISD ("City of Waco") filed a proof of claim for $12,296.82 for estimated 2022 property taxes. These proofs of claim represent estimated, future property taxes that have not yet been assessed or come due.

The Debtor's Schedule E/F lists UBS as holder of an unsecured claim in an unknown amount based on UBS's pending lawsuit. The Debtor shows that this claim is contingent, unliquidated, and disputed. UBS filed an amended proof of claim in the amount of$17,324,217.13, which represents $8 million in total principal investments in Fairfax annuities plus the interest that the various UBS customers believed that they were accruing from these annuities. Still, an addendum to the amended proof of claim states that UBS has settled with only twenty of the twenty-eight customers for a total of $12,640,970.09. 

The Debtor filed a proposed chapter 13 plan concurrently with the schedules. The plan proposes to pay $500 a month for thirty-six months for a base amount of $18,000. The plan lists only one creditor, the McLennan County Tax Office, with a secured claim of $16,600 to be paid at an interest rate of 12%. The plan also contains the following "nonstandard provision": "An adversary will be filed to determine the amount of [l]iability if any owed to UBS Financial, creditor in this case. Once the amount of debt is determined by the Court, the Debtor will provide for payment of the debt, if any, to be paid to this creditor."4 The chapter 13 trustee and UBS have objected to the Debtor's plan, and the plan has not been confirmed. 

UBS filed the Motion to Dismiss one day before the Debtor filed his schedules and plan. The Court held a hearing on the Motion to Dismiss on June 22, 2022. The Debtor filed a response on the morning of the hearing. At the end of the hearing on June 22, the Court continued the hearing until August 2, 2022, at which point the parties presented more evidence and testimony. The Court then took this matter under advisement.

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Footnote 2: UBS alleges that Fairfax is itself a fraudulent scheme perpetrated by the Debtor and his friend Mark Woodward, who held himself out as the Managing Trustee of Fairfax. 

Footnote 3: UBS asserts that the Debtor signed a written agreement with UBS to arbitrate all disputes between them. As of the petition date, UBS has not yet begun the FINRA Arbitration. This opinion takes no position on the proposed arbitration proceedings.

This bankruptcy case is a paradigmatic two-party dispute between the Debtor and UBS. The Debtor filed this case on the eve of a hearing on a Writ of Attachment filed by UBS in state court in McLennan County. Despite the Debtor's efforts to bring the dispute within the jurisdiction of this Court, the bankruptcy court is not where this sort of litigation belongs. Further, because the Debtor's other creditors are either greatly oversecured, postpetition ad valorem tax claims that would be paid in the ordinary course or are owed insignificant amounts in comparison to UBS's alleged claim, the Court does not believe that this bankruptcy case serves a legitimate reorganizational purpose. For these reasons, the Court will grant UBS's Motion to Dismiss and will dismiss this case under § 1307(c). The Court will enter a separate order consistent with this opinion.

• Securities Industry Commentator
• Bill Singer