SECURITIES & EXCH. COM'N v. WL MOODY & CO., BANK.(UNINC.)

• Decision Date: 15 January 1974
• Docket Number: Civ. A. No. 72-G-167.
• Citation: 374 F. Supp. 465
• Parties: SECURITIES & EXCHANGE COMMISSION, Plaintiff, v. W. L. MOODY & CO., BANKERS (UNINCORPORATED), and Shearn Moody, Jr., Defendants.
• Court: U.S. District Court — Southern District of Texas

374 F. Supp. 465

SECURITIES & EXCHANGE COMMISSION, Plaintiff, v. W. L. MOODY & CO., BANKERS (UNINCORPORATED), and Shearn Moody, Jr., Defendants.

Civ. A. No. 72-G-167.

United States District Court, S. D. Texas, Galveston Division.

Memorandum and Order filed January 15, 1974.

Supplemental Memorandum (with supporting orders) filed March 25, 1974.

COPYRIGHT MATERIAL OMITTED

James E. Sims, Houston, Tex., for Securities & Exchange Commission.

V. W. McLeod, McLeod, Alexander, Powel & Apffel, Galveston, Tex., for defendants.

Charles Sapp, Liddell, Sapp, Zivley & Brown, Houston, Tex., for receiver.

MEMORANDUM AND ORDER

NOEL, District Judge.

I. Preface

On the evening of September 6, 1972, the Securities and Exchange Commission (hereinafter called SEC) initiated this lawsuit. Named as defendants were W. L. Moody & Co., Bankers (Unincorporated) (hereinafter called Bank) and Shearn Moody, Jr. (hereinafter called Moody).¹ Simultaneously, the Court entered a Final Judgment (hereinafter called Consent Decree), which had been agreed to by all parties. It enjoined defendants from committing future violations of the federal securities laws. At the request of the SEC and without objection by Moody, the Court also entered its Order Appointing Temporary Receiver which directed the Temporary Receiver to "take charge of all of defendant W. L. Moody & Co., Bankers (Unincorporated)'s assets and property, tangible or intangible, wherever located."

On September 7, 1972, the Court appointed E. O. Buck Temporary Receiver (hereinafter called Receiver). Concurrently, it named Charles Sapp, Esq. (hereinafter called Sapp), the senior partner in the firm of Liddell, Sapp, Zivley and Brown, as attorney for Receiver.

Receiver's immediate task was to marshal and liquidate Bank's assets to the extent necessary in order to pay its depositors. On October 5, 1972, Receiver began paying government depositors. On November 3, he began paying certain other depositors.

On December 4, 1972, defendant moved for termination of the receivership. On December 13, Receiver filed his Final Report, Accounting and Application which summarized the chronology of the receivership, detailed the status of deposits and assets, sought termination of the receivership and requested fees and expenses for Receiver and his attorney. On December 19, 1972 the Court began trial of all issues then pending. After substantial testimony had been received, the hearing was continued to await the personal appearance and testimony of defendant Moody. His attorney in charge, V. W. McLeod, Esq. reported that Moody was ill and under treatment in Durham, North Carolina.

On May 15, 1973, Receiver filed a Supplement to the Final Report, reciting more recent events, updating accounting, and requesting an increase in the fees.

After several continuances resulting from defendant's failure to appear, trial resumed on May 21, 1973. Moody appeared and testified. Trial was concluded June 18, 1973. The parties submitted memorandum briefs on all issues. All pending matters are now ready for final disposition.

II. Review of the Receivership

A. Events Preceding Appointment of Receiver.

On July 13, 1972 the SEC commenced review of Bank's records in a non-public investigation. Rule 5, Relating to Investigations, 17 C.F.R. § 203.5 (April, 1973). Moody had been formally notified and consented to the review. He directed bank personnel to cooperate. United States v. Buck, 356 F.Supp. 370 (S.D.Tex.1973), aff'd 479 F.2d 1327 (5th Cir. 1973), cert. denied, 414 U.S. 1097, 94 S.Ct. 732, 38 L.Ed.2d 555 (1973). Consistent with general Commission policy as reflected in Rule 5, no notice or information about the investigation was made public.²

From its investigation, the SEC determined that unregistered dealers were selling unregistered securities and that material misrepresentations were made in connection with such sales. The SEC found that such actions violated the Securities Exchange Act of 1933, as amended, 15 U.S.C. 77a et seq., and the Securities Exchange Act of 1934, as amended, 15 U.S.C. 78aa et seq. To prevent future violations, the SEC decided to file this action. Moody's counsel was so informed on August 29, 1972.

At the request of James E. Sims, Esq., the SEC attorney in charge, the Court received Sims, Moody, Moody's attorney, Jerry G. Hill, Esq. (hereinafter called Hill), and Hill's associate, Frank Ghiselli, Jr., Esq.,³ in Houston chambers on August 30.⁴ Sims informed the Court of the serious charges contained in the proposed complaint.⁵ Sims expressed his belief that the publicity which would ensue from merely filing the complaint would lead to a bankrupting run on the Bank, with resulting losses to Moody and depositors. On behalf of Moody, Hill concurred, but also expressed his fear that class actions might be brought against Moody by aggrieved depositors.⁶

Because of these possible consequences and to protect depositors, the SEC advised the Court of its intention to request a receivership for the Bank assets. In response, Hill declared that negotiations were then in progress to liquidate sufficient of Moody's assets to satisfy possible depositor demands. He described these negotiations and urged that additional time be allowed to consummate them.

Based on Hill's representations, the Court urged the SEC to forbear from filing suit for a sufficient period to allow Moody's negotiations to bear fruit. The SEC agreed to refrain until September 5, 1972. Sims indicated that if satisfactory arrangements were made to insure payment to all depositors, the SEC would not seek a receivership.

During succeeding days, counsel apprised each other and the Court of developments. Hill's negotiations were unsuccessful. Sims and Hill conferred over the contents of the complaint which the SEC proposed to file, a proposed consent decree, and a proposed order appointing a receiver. It was contemplated that the consent decree would enjoin Moody from further violation of securities law; that the receivership would embrace Bank assets only; and, that the receiver would pay Bank depositors with funds generated from Bank Assets.

The Court, Moody, and the attorneys met again on September 6, 1972 in Houston chambers. At that point, the SEC had ordered Sims to file suit immediately. At the Court's behest, Sims sought further postponement but the Commission stood firm. The Court suggested meeting the following day in Galveston, but Sims had been instructed to file the complaint immediately. Hill stated he would advise Moody to consent to entry of a permanent injunction, and neither object nor consent to entry of the order appointing a receiver. The conference was recessed and all proceeded to Galveston.

At about 8:00 p. m. the conference resumed in Galveston chambers. The Court expressed its decision to grant the receivership. Thereafter, in open session and being fully apprised in the premises, the Court received the Complaint and ordered it filed, entered the Final Judgment, and signed a separate Order Appointing Temporary Receiver.

Moody was present at each conference, and in open court on September 6. He willingly and knowingly consented to entry of the Final Judgment and refrained from objecting to appointment of the temporary receiver. Moody's economic situation and legal posture which were clearly understood and appreciated by Moody and his attorneys, mandated their decision.

The record discloses that Moody made a written statement to the press in October, 1972. This out of court statement, as well as certain testimony given in May, 1973 suggest that Moody's consent to the Final Judgment and acquiescence to the receivership may not have been voluntary. However, the Court finds that such statements are totally contradicted and refuted by earlier statements made by Moody and his attorney in August and September, 1972. These earlier statements, made before the Court signed the consent decree and appointed the Receiver and when the shelter of the Court was needed by him, demonstrate that Moody with complete understanding approved and agreed to the Court's actions of September 6. These earlier statements were made while the receivership was being contemplated and upon advice of Hill and Moody's present counsel, McLeod. The August and September statements are more representative of Moody's true intention and state of mind at that time, than his later pronouncements, made after a disastrous run on the Bank and feared class action suits had been averted.

The SEC did not act in an unseemly manner. The SEC could have filed its complaint on August 29 or before, without first disclosing its intentions to Moody or the Court. Instead, the SEC informed Moody and apprised the Court of its impending action, following which the SEC acquiesced to the suggestion of a short postponement. After that postponement, the SEC concluded it could not countenance continued operation of the Bank in which it found to be serious violations of federal law.

At trial on December 19, 1972, defendant's counsel indicated general satisfaction with the Receiver's Final Report. He limited defendant's objections to three items, namely, the fees suggested for Receiver and for his attorney, and the fee claimed by Moody's former attorney Hill.⁷ On May 21, 1973, Moody testified he was satisfied Receiver fully and faithfully performed his duties and that except for the fees, he had no complaint. The Court has heretofore approved Hill's claim and ordered it paid.⁸

Receiver's Final Report filed December 13, 1972, suggested $200,000.00 as a reasonable fee for Receiver's attorney, and $150,000.00 as Receiver's fee. The first Supplement, filed May 15, 1973 after termination of the receivership was delayed, requested additional fees of $65,000.00 for Receiver's attorney and $25,000.00 for Receiver. Moody contends total compensation of $60,000.00 for Receiver's attorney and $25,000.00 for Receiver are fully sufficient.

Defendant's testimony...