In re Sunpoint Securities, Inc.
| Decision Date | 23 April 2007 |
| Docket Number | Bankruptcy No. 99-6073.,Adversary No. 00-6068. |
| Citation | 377 B.R. 513 |
| Parties | In re SUNPOINT SECURITIES, INC., Debtor. Securities Investor Protection Corporation and Robert G. Richardson, Trustee of the Estate of Sunpoint Securities, Inc., Plaintiffs, v. Cheshier & Fuller, L.L.P., King Bourland, Jeff Cheshier, Jack Sprawls, James Conner, Jack Savage and Bret Robertson, Defendants. Cheshier & Fuller, L.L.P., Third-Party Plaintiff, v. Van R. Lewis, III, Mary Ellen Wilder, and Doug Dieter, Third-Party Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of Texas |
Michael L. Knapek, Emily S. Donahue, and Jeffrey G. Hamilton, Jackson Walker, LLP, Dallas, TX, for Plaintiff, Robert G. Richardson, Trustee.
Deron Dacus, Ramey & Flock, P.C., Tyler, TX, for Plaintiff, Securities Investor Protection Corporation.
Eric W. Pinker, Cody L. Towns, Lynn, Tillotson & Pinker, L.L.P. Dallas, TX, for Defendants, Cheshier & Fuller, L.L.P., King Bourland, Jeff Cheshier, Jack Sprawls, James Connor, Jack Savage, and Bret Robertson.
AMENDED FINDINGS OF FACT AND CONCLUSIONS OF LAW
Findings of Fact
1. At all times relevant to the above captioned Adversary Proceeding No. 00-6068, Sunpoint Securities, Inc. ("Sunpoint") was a member of the Securities Investor Protection Corporation ("SIPC").1
2. On November 19, 1999 ("Decree Date"), the Honorable John Hannah, Judge of the United States District Court for the Eastern District of Texas, signed an Order granting the relief requested in an application for protective decree filed by SIPC in the case styled Securities and Exchange Comm'n v. Sunpoint Securities, Inc., et al., Civil Action No. 99-CV0667.2
3. The District Court found that the customers of Sunpoint were in need of the protection afforded by the Securities Investor Protection Act ("SIPA").3
4. The Order appointed Robert G. Richardson, Trustee ("Trustee") to liquidate Sunpoint pursuant to SIPA and transferred the liquidation of Sunpoint to the United States Bankruptcy Court for the Eastern District of Texas, Tyler Division, for all further proceedings.4
5. According to applicable administration regulations, the liquidation proceeding was assigned an Adversary Proceeding No.: 99-6073.5
6. Defendant Cheshier & Fuller L.L.P. ("C & F") is an accounting and auditing firm.
7. C & F was a properly registered Texas Limited Liability Partnership from March, 1996 until March, 1998.6
8. C & F existed as a general partnership from March, 1998 until June, 1999.7
9. From October 1, 1997 through the Decree Date, the partners of C & F were King Bourland ("Bourland"), Jeff Cheshier ("Cheshier"), Jack Sprawls ("Sprawls") Harold Fuller ("Fuller"),8 James Connor ("Connor"), Jack Savage ("Savage") and Brett Robertson ("Robertson").9
10. Third-party Defendant Van Lewis, III, a.k.a. Van Lewis, Jr. ("Lewis") is an individual who resided within the State of Texas from at least January 1, 1996 through the Decree Date.10
11. From November 1, 1996 through at least February, 1999, Lewis was the sole member of the Board of Directors and the largest shareholder of Sunpoint, as well as either its CEO or President.11
12. Lewis owned and/or controlled several companies and corporations, including (i) Sunpoint Aviation, Inc., (ii) Sunpoint Insurance, Inc., a/k/a Sunpoint Insurance Agency, Inc. ("Sunpoint Insurance"), (iii) Sunpoint Air Transport, Inc., (iv) Sunpoint Institute of Aeronautics, Inc., (v). Judith Ann Guess, Inc., d/b/a New Territory, (vi) Van Lewis, Inc. a/k/a Van Lewis III, Inc., (vii) Financial Firms Exchange, Inc. and (viii) Moonshadow, L.L.P. (collectively, the "Lewis Affiliates").12
13. Third-party Defendant Mary Ellen Wilder ("Wilder") was an individual who resided within the State of Texas from November 1, 1996 through the Decree Date.13
14. From Nov. 1, 1996 through the Decree Date, Wilder, was the CFO of Sunpoint. She was also the Financial and Operations Principal ("FINOP").14
15. Third-party Defendant Doug Dieter ("Dieter") is an individual who resided within the State of Texas from 1997 through the Decree Date?15
16. From late 1997 through the Decree Date, Dieter worked as an employee of Sunpoint reporting to Wilder, and was responsible for the daily wiring of funds into and out of Sunpoint's money market accounts at Alliance?16
17. Sunpoint wag a publicly traded corporation. From at least January 1, 1997, Sunpoint had public shareholders who were not involved in its management or operations.17
18. At all relevant times Lewis owned a sufficient number of Sunpoint shares to control the composition of the board of directors.18
19. Sunpoint began acting as the clearing broker for its customers in June of 1997, after receiving authorization to assume such status from the National Association of Securities Dealers ("NASD").19
20. The NASD conducts a rigorous evaluation before, and examination upon, allowing a non-clearing broker-dealer to become a clearing broker-dealer.20
21. As a result of achieving the status of clearing broker-dealer for its customers, Sunpoint was authorized to exercise control over its customers' cash and securities.21
22. As part of its operations as a clearing broker-dealer, Sunpoint began using the Phase 3 system, a securities processing database and computer system that allows a broker-dealer to record customer transactions and communicate with securities clearing houses, depositories, and other industry participants.22
23. The Phase 3 system and database are offered and maintained by Sungard Brokerage Systems, which is referred to in the securities industry as a service bureau.23
24. The Phase 3 system is widely used in the securities industry by clearing brokerdealers.24
25. While operating as a self-clearing broker-dealer, Sunpoint offered each of its customers the ability to have their cash automatically invested in a money market mutual fund when the cash was not committed to make a securities purchase.25
26. A variety of money market mutual funds offered by Alliance Fund Services ("Alliance") were made available to Sunpoint customers for the automatic sweep arrangement.26
27. One of those funds, the Alliance Capital Reserve Fund, held the majority of the money market shares purchased by Sunpoint customers through the automatic sweep arrangement.27
28. Through an automatic sweep arrangement, idle cash held by Sunpoint for the benefit of a customer could be automatically swept from the customer's account at Sunpoint on a daily basis to purchase shares in a money market mutual fund at Alliance.28
29. The automatic sweep arrangement could also function in the opposite direction, creating an automatic sale or redemption of money market mutual fund shares on behalf of the Sunpoint customer to generate cash that would be transferred into the customer's account to pay for securities purchased by the customer.29
30. The automatic sweep arrangement would also liquidate a customer's holdings in Alliance if the cash were required to satisfy a margin call or there were another need for cash in the customer's brokerage account at Sunpoint.30
31. As part of the automatic sweep arrangement, Sunpoint accounting personnel daily calculated, based on customer transactions, a single net amount due to be wired into or out of each of the various money market mutual funds offered by Alliance (collectively the "Alliance Fund").31
32. On the same day as the net wire, Sunpoint transmitted information to Alliance segregating the net wire into the amount attributable to purchases and sales of shares in each Alliance Fund. This information was sent in the form of a handwritten worksheet completed by a Sunpoint employee and faxed daily to Alliance.32
33. The Alliance Fund shares purchased by Sunpoint customers through the sweep arrangement were held at Alliance in an account ("Alliance Account") titled in the name of Sunpoint rather than in the individual names of the Sunpoint customers who owned the shares. The number of Alliance Fund shares owned by each Sunpoint customer was reflected on Sunpoint's records, but not on Alliance's records.33
34. Sunpoint customers had the ability to write checks upon, and make Visa card withdrawals from, their Alliance money market holdings. Those transactions by customers resulted in a liquidation of money market shares by Alliance based upon information received by Alliance from a third party bank responsible for paying on those checks and Visa card withdrawals. Alliance then transmitted that same information reflecting customer check and Visa card transactions to Sunpoint through Sunpoint's Phase 3 database of customer activity maintained by Sunguard.34
35. Although Alliance "cleared" the customer check or Visa card transaction against the Alliance Account in the name of Sunpoint, Alliance did not know if the customers had sufficient Alliance money market assets to cover those transactions.35
36. The Phase 3 database would produce a report for Sunpoint personnel identifying all customer check and Visa card transactions cleared by Alliance against the Sunpoint account at Alliance.36
37. Sunpoint personnel were required to notify Alliance if a customer did not have sufficient Alliance money market shares in the customer's brokerage account to cover the transaction.37
38. If the customer did not have sufficient Alliance Fund shares, Sunpoint personnel would notify Alliance and Alliance would give instructions to the third party bank to return the check and Alliance would reverse the earlier liquidation of shares in the Alliance Fund maintained in the name of Sunpoint.38
39. The fact that Alliance could give instructions to the...
To continue reading
Request your trial
-
In re Advanced Modular Power Systems, Inc.
...only where there is a contract or statute that provides for such remedy. See Sec. Investor Prot. Corp. et al. v. Cheshier & Fuller, L.L.P. (In re Sunpoint Sec, Inc.), 377 B.R. 513, 572 (Bankr. E.D.Tex.2007); see also Promedco of Sw. Fla., Inc. v. Humphrey (In re Promedco of Las Cruces, Inc.......
-
In Re: Soporex Inc. Et Al.
...that damage may continue to occur for an extended period does not prevent limitations from starting to run. In re Sunpoint Securites, Inc., 377 B.R. 513 (Bankr. E.D. Tex. 2007). The Trustee argues that under Texas common law, the accrual date of a cause of action is determined by the "legal......
-
Elbar Invs., Inc. v. Okedokun (In re Okedokun)
...Generally, "a principal is deemed to know facts that are known to its agent." Secs. Inv'r Prot. Corp. v. Cheshier & Fuller, L.L.P. (In re Sunpoint Secs., Inc.) , 377 B.R. 513, 562 (Bankr. E.D. Tex. 2007) (citation omitted). However, "[i]f the agent is acting adversely to the corporation, th......
-
In re Soporex Inc. Et Al.
...that damage may continue to occur for an extended period does not prevent limitations from starting to run. In re Sunpoint Securities, Inc., 377 B.R. 513 (Bankr.E.D.Tex.2007). The Trustee argues that under Texas common law, the accrual date of a cause of action is determined by the “legal i......