793 F.Supp. 981 (D.Colo. 1992), Civ. A. 91-B-2245, Lyons v. Jefferson Bank & Trust

Docket Nº:Civ. A. 91-B-2245
Citation:793 F.Supp. 981
Party Name:Lyons v. Jefferson Bank & Trust
Case Date:May 08, 1992
Court:United States District Courts, 10th Circuit, District of Colorado

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793 F.Supp. 981 (D.Colo. 1992)

David J. LYONS, commissioner of insurance for the State of Iowa and receiver for the Iowa Trust, Plaintiff,


JEFFERSON BANK & TRUST, a Colorado corporation, Defendant.

Civ. A. No. 91-B-2245.

United States District Court, D. Colorado.

May 8, 1992

Edwin S. Kahn, Walter W. Garnsey, Jr., Kelly, Haglund, Garnsey & Kahn, Denver, Colo., Anuradha Vaitheswaran, Asst. Atty. Gen., Iowa Securities Bureau, Des Moines, Iowa, for plaintiff.

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Philip E. Lowery, Marcella T. Clark, Lowery, Lamb & Lowery, P.C., Denver, Colo., for defendant.


BABCOCK, District Judge.

This is an action in equity filed in December, 1991. Plaintiff seeks imposition of a constructive trust and return of funds. That claim arises out of an elaborate securities kiting scheme orchestrated by Steven D. Wymer.

Following hearing on January 21 and 22, 1992, I granted plaintiff's motion for a preliminary injunction to preserve and set aside the corpus of the claimed constructive trust. See, Lyons v. Jefferson Bank & Trust, 781 F.Supp. 1525 (D.Colo.1992). The parties have stipulated that, pursuant to Fed.R.Civ.P. 65(a)(2), the evidence admitted at the preliminary injunction hearing is to be considered a part of the record for trial on the merits. Since January 23, 1992, $42,843,614.13, together with interest earned thereon since November 25, 1991, has been held in an escrow at Norwest Bank of Denver (formerly United Bank of Denver). Trial on the merits of plaintiff's claim was held from April 27, 1992 through May 5, 1992.

Resolution of this dispute and the disposition of these funds turns on whether plaintiff has met his burden of tracing Iowa Trust monies from its custodial account with Bankers Trust Company of Des Moines, Iowa to defendant and, if so, whether equity should convert defendant into a trustee. I find these issues for plaintiff and against defendant.



The parties are diverse. Therefore, jurisdiction is proper under 28 U.S.C. § 1332. The defendant resides in the District of Colorado. Thus, venue is proper under 28 U.S.C. § 1391.

The Iowa Trust is a trust organized under the laws of Iowa with its principal place of business in Iowa. It was formed in January, 1989 to allow various political subdivisions within Iowa to pool their funds for investment purposes. The beneficiaries of the Iowa Trust include 88 cities, counties, and other political entities. Its assets include pension funds and other funds used by the governmental entities for essential services, payroll, and public works projects.

Plaintiff David J. Lyons is the Iowa Insurance Commissioner. He was appointed receiver for the Iowa Trust on December 19, 1991 by the Iowa District Court for Polk County. The court charged him with marshalling, recovering, and distributing the trust's assets.

Defendant Jefferson Bank & Trust is a Colorado corporation and bank. Its principal place of business is in Lakewood, Colorado.

A. The Iowa Trust Trades

In early 1990, the Iowa Trust entered into an investment management agreement with Denman & Co. (Denman), a corporation solely owned and controlled by Steven D. Wymer (Wymer). Subsequently, Institutional Treasury Management, Inc. (ITM), another company solely owned and controlled by Wymer, succeeded Denman. Pursuant to the management agreement, Wymer directed investments for the Iowa Trust and he had authority to order trades and transfers for its account. The Iowa Trust also entered into a custodian agreement with Bankers Trust Company of Des Moines, Iowa, under which Bankers Trust held the Iowa Trust's cash and securities for investment upon Wymer's directions.

On November 21, 1991, at Wymer's direction, the Iowa Trust bought $40 million principal (face) amount of 7.75% 2/15/95 United States Treasury Notes (the 1995 Notes). The 1995 Notes were placed in its custodian account at Bankers Trust.

On November 25, 1991, Wymer directed execution of each of the following transactions:

1. Bankers Trust wire transferred the 1995 Notes free (without payment) to ITM's trading account with First Interstate Bank of Denver (FIB);

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2. ITM sold the 1995 Notes and deposited the proceeds of $42,843,614.13 into ITM's securities clearing demand checking account with FIB;

3. Together with additional funds in the checking account, ITM used the $42,843,614.13 from the sale the 1995 Notes to purchase $41 million principal amount of 8.625% 8/15/94 United States Treasury Notes (the 1994 Notes) at a price of $44,824,531.25;

4. FIB wire transferred the 1994 Notes free to Refco Securities, Inc. ($5 mm of the notes at 2:25 p.m. and $36 mm at 3:29 p.m.);

5. Between 3:29 p.m. and 3:55 p.m., having credited the 1994 Notes to defendant's account, Refco Securities purchased as principal the 1994 Notes from defendant's account for $44,786,093.75 and placed the cash in defendant's account at Refco Securities;

6. At 3:55 p.m. Refco Securities wire transferred $44,786,093.75 from defendant's account at Refco Securities to defendant's account with Refco Capital Corporation;

7. Refco Capital then wire transferred $44,927,031.25, which sum included the $44,786,093.75 derived from the sale of the 1994 Notes, to defendant.

See, Exhibits 29 and 81. (A graphic summary of these transactions is attached to this opinion as Appendix 1). There is no evidence that plaintiff willfully approved these transactions.

It is clear from the evidence, both...

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