Pendergest-holt Motion To Set Aside Receiver #141

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IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION SECURITIES AND EXCHANGE COMMISSION,

§ § § Plaintiff, § § v. § CASE NO. 3-09-CV0298-L § STANFORD INTERNATIONAL BANK, § LTD., STANFORD GROUP COMPANY, § STANFORD CAPITAL MANAGEMENT, § LLC, R. ALLEN STANFORD, § JAMES M. DAVIS, and § LAURA PENDERGEST-HOLT, § § Defendants. § ______________________________________________________________________________ EMERGENCY MOTION TO SET ASIDE OR DISSOLVE ORDER APPOINTING RECEIVER AS TO DEFENDANT LAURA PENDERGEST-HOLT ______________________________________________________________________________ SUMMARY OF MOTION On March 2, 2009, counsel for Defendant Laura Pendergest-Holt appeared in this case and, with some reservations, consented to the entry of an Agreed Preliminary Injunction. Later that same afternoon, in a stunning exercise in bad faith, two lawyers acting on behalf of the Receiver showed up at Ms. Pendergest-Holt’s home in Mississippi. Without any warning or notice to Ms. Pendergest-Holt or to her counsel, the lawyers (aided by a U.S. Marshal) entered Defendant’s house and began rummaging through her and her husband’s personal effects. The lawyers took what they pleased (including a car belonging to Ms. Pendergest-Holt and Mr. Holt’s personal tax returns) and were so delighted in doing so that, at one point, they gleefully indicated to Mr. Holt that he was not going to be living in the house much longer.

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The apparent justification for the raid was the ex parte order entered by the Court on February 17, 2009, which appointed a receiver for both the Stanford corporate entities and for Ms. Pendergest-Holt personally (the “Receivership Order”). As explained below, the Receivership Order as it applies to Ms. Pendergest-Holt (and to her husband) is so broad as to be unconstitutional. Further, because the order was entered on an ex parte basis, Ms. PendergestHolt has never been given a chance to contest the terms of the order, much less whether it should apply to her. Meanwhile, the Receiver’s lawyers appear to believe that the Receivership Order suspends Ms. Pendergest-Holt’s constitutional rights and allows them free rein to invade her home at will, without any advance notice to Defendant or her counsel. There is no other way to explain the Receiver’s lawyers’ shocking behavior in rummaging through Ms. Pendergest-Holt’s undergarment drawer, rifling through her personal items and re-directing Defendant’s and her husband’s personal mail to the Receiver’s office. For those who think the accused have at least minimal rights, they might be wise to rethink that view when entering the world inhabited by the Receiver’s counsel. For obvious reasons, Defendant needs this Court’s help in ensuring that these outrageous events never happen again. By this motion, Defendant Laura Pendergest-Holt asks the Court to terminate the Receivership Order as it applies to her, seeks protection from further improper intrusions by the Receiver and its counsel, the Securities and Exchange Commission, and the Department of Justice, and seeks the immediate return of property improperly seized by the Receiver. Given the extraordinary actions taken by the Receiver’s lawyers, Defendant requests that her motion to dissolve the Receivership Order be heard on an expedited, emergency basis at 10:00 a.m. on Thursday, March 12, 2009, when the Court is already set to hear the SEC’s application for preliminary injunction against other defendants in this matter. ______________________________________________________________________________ MOTION TO SET ASIDE OR DISSOLVE ORDER APPOINTING RECEIVER 02174.901/204368

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BACKGROUND FACTS 1.

The SEC filed this lawsuit on February 17, 2009, against multiple corporate and

individual defendants affiliated with Stanford International Bank.1 On the same day it filed its lawsuit, the SEC asked the Court (O’Connor, J.) to enter a broad temporary restraining order and preliminary injunction against the defendants as well as an order appointing Ralph Janvey as a receiver for all defendants in the case, including for the individual Defendant Pendergest-Holt. On February 17, 2009, the Court entered both the temporary restraining order and Receivership Order requested by the SEC. [Docket Nos. 8, 10]. 2.

Under the Receivership Order, the Receiver was granted unlimited power to

collect all “Receivership Assets” belonging to any of the Defendants and or to any entities they own or control. [Docket No. 10 at ¶ 1]. “Receivership Assets” is defined broadly in the Receivership Order to include all “assets, monies, securities, properties, real and personal, tangible and intangible, or whatever kind and description, wherever located [.]” Id. Further, the Receivership Order authorized the Receiver to “immediately take and have complete and exclusive control, possession, and custody of the Receivership Estate,” which is defined to include “Receivership Assets and Receivership Records.” Id. at ¶¶ 2, 4. As an example, Ms. Pendergest-Holt’s personal correspondence and personal effects would be part of the “Receivership Estate” created by the Court’s order. Indeed, the Receiver has already diverted Ms. Pendergest-Holt’s mail pursuant to paragraph 14 of the Receivership Order. 3.

On February 25, 2009, the United States Government filed a criminal complaint

against Ms. Pendergest-Holt in the Northern District of Texas for obstructing a proceeding before the SEC in violation of 18 U.S.C. § 1505. At the time the criminal complaint was filed, 1

Ms. Pendergest-Holt was not served with a copy of the Complaint until weeks later, when her current lawyer agreed to accept service on her behalf.

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Ms. Pendergest-Holt and her lawyers, unaware of the Government’s intentions, were in negotiations with the SEC over the terms of an agreed preliminary injunction in this civil case. 4.

Had Ms. Pendergest-Holt’s counsel known that the Government was in the

process of seeking to charge Ms. Pendergest-Holt with a crime, they never would have continued negotiating with the SEC. 5.

On March 2, 2009, Ms. Pendergest-Holt (through her counsel) and the SEC

entered into an agreed preliminary injunction in this matter, subject to working out certain details as to payment of Defendant’s living and legal expenses. [Docket No. 79] Later on the same day, two lawyers purportedly representing the Receiver, Charles Gale (a partner at Krage & Janvey) and Richard Phillips (an appellate lawyer at Thompson Knight), based upon ostensible authority from the Receivership Order, went to Ms. Pendergest-Holt’s personal residence, improperly entered and seized documents, rummaged through drawers containing personal items of clothing and Defendant’s undergarments, rifled through shelves of personal family effects, and carried off four boxes of documents containing the Holt family’s mail2, tax documents3 and other personal papers unrelated to the civil action filed by the SEC.

In addition, during the raid of

Ms. Pendergest-Holt’s residence, the Receiver’s lawyers photographed each room and its contents. Finally, as the ultimate insult, the Receiver’s lawyers seized one of the family’s cars. 6.

It is important to remember these are two lawyers who work for the Receiver; not

FBI agents with a duly-authorized and Constitutional search or seizure warrant. Although the Receiver’s lawyers were accompanied by a United States marshal on their raid, it is unknown 2

Since the Receivership Order was entered, the Receiver has redirected and kept all of Ms. PendergestHolt’s and her family’s mail, including mail containing financial help to Defendant from members of her church. There has been no indication from the Receiver’s office when Ms. Pendergest-Holt’s and her husband’s mail will be turned over, if ever. 3

For example, the Receiver’s lawyers took several years of Mr. Holt’s individual tax returns that pre-dated his marriage to the Defendant.

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whether the Receiver’s lawyers were acting in conjunction with or at the behest of the Department of Justice or the Federal Bureau of Investigation when they raided Defendant’s home. As a practical matter, however, the Receiver’s raid on Defendant’s house will clearly be used to advance the Government’s position in both the civil and criminal cases: the Receivership Order provides specifically that the Receiver shall “[p]romptly provide the United States Securities and Exchange Commission and other governmental agencies with all information and documentation they may seek in connection with its regulatory or investigatory activities.” Receivership Order at ¶ 5(k) (emphasis added). 7.

Even more importantly, the Receiver’s raid on Defendant Pendergest-Holt’s

house occurred on the afternoon of March 2, 2009 – the same day that this Court was presented an agreed preliminary injunction by Ms. Pendergest-Holt’s counsel in this matter. No advance notice of this raid was provided by the Receiver to Ms. Pendergest-Holt or her counsel, even though the Receiver undoubtedly knew that Ms. Pendergest-Holt was represented by counsel at the time, and even though Ms. Pendergest-Holt and the SEC had just negotiated the terms of the agreed preliminary injunction. 8.

Neither Defendant nor her counsel would have agreed to the raid, particularly

given the pending criminal complaint against Ms. Pendergest-Holt. At the very least, counsel for Defendant would have insisted on being present during the raid to insure that Defendant’s rights were fully protected and to prevent spoliation of evidence by the Receiver’s actions. More significantly, Defendant would never have agreed to the terms of the preliminary injunction had she been informed of the Receiver’s intent to raid her home and take her personal property pursuant to the Receivership Order.

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9.

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To date, despite demands from Mr. Pendergest-Holt’s counsel that all personal

property be returned immediately, the Receiver’s lawyers have refused to do so. The Receiver’s lawyers have also refused to provide an inventory of the materials taken during their raid. LEGAL ARGUMENT THE COURT SHOULD DISSOLVE THE RECEIVERSHIP ORDER AS TO MS. PENDERGEST-HOLT A.

The Receivership Order Should Be Dissolved Because It Is Overbroad. In its Memorandum of Law in support of its application for ex parte appointment of a

receiver in this case, the SEC argued that a receiver was necessary as to Ms. Pendergest-Holt because “defendants in this case have made every effort to deny access to the records and data necessary to enforce the federal securities law.” [Docket No. 6 at 34]. The SEC further contended that a receiver was necessary “to marshal, liquidate and distribute assets to the victims of the defendants’ scheme [.]” Id.; see also Docket Entry No. 9. Based on the SEC’s arguments, this Court appointed Ralph Janvey as the receiver for Ms. Pendergest-Holt, giving Mr. Janvey the right to “collect, marshal, and take custody, control, and possession of” all of Ms. Pendergest-Holt’s personal assets. [Docket No. 10]. There are two reasons why the Receivership Order is overbroad as it applies to Ms. Pendergest-Holt and should be dissolved. First, the Receivership Order is overbroad as to Mr. Pendergest-Holt because it grants the Receiver far too much power to invade Ms. Pendergest-Holt’s home and to take Ms. Pendergest-Holt’s personal property, without any showing that the property subject to the Receiver’s action is even related to the subject matter of the SEC’s complaint. Indeed, the Receiver has interpreted the Receivership Order broadly to allow the Receiver’s agents, among other things, to divert Ms. Pendergest-Holt’s mail, to raid Ms. Pendergest-Holt’s home, to question Ms. Pendergest-Holt’s husband, to rummage through ______________________________________________________________________________ MOTION TO SET ASIDE OR DISSOLVE ORDER APPOINTING RECEIVER 02174.901/204368

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Ms. Pendergest-Holt’s undergarments, to take Ms. Pendergest-Holt’s personal possessions, and to drive off in her family car, all with the help of a United States Marshal – and all with no showing that any of the property is even related to, much less belongs to, the alleged victims of the scheme pleaded by the SEC.4 The Receiver should not be allowed to show up, unannounced, at Ms. Pendergest-Holt’s home, and to take whatever personal property belongs to Defendant or her family, where there has been no showing to the Court that such a raid is justified by the facts or the law.5 Second, the Receivership Order is overbroad as to Ms. Pendergest-Holt and should be dissolved because there is no legal support for the appointment of a receiver for an individual defendant in an SEC enforcement action, particularly where there has been no showing that the individual defendant owns or controls any assets of the corporate defendant. While Defendant concedes that this Court has equitable authority to impose a receivership in an SEC action, if the Court determines such to be necessary, see, e.g., In re San Vicente Medical Partners, Ltd., 962 F.2d 1402, 1406 (9th Cir. 1992), the SEC has cited no legal support for appointing a receiver as to Ms. Pendergest-Holt individually. Moreover, the SEC has provided no legal support for the notion that a receiver, with unlimited power to invade Defendant’s home and to take whatever property strikes the Receiver’s fancy, is appropriate when the Defendant is also subject to a criminal complaint brought by the DOJ and SEC. For these reasons, the Receivership Order is overbroad and should be dissolved as to Ms. Pendergest-Holt. 4

The SEC filed a two-volume appendix in support of its Application for an Ex Parte Temporary Restraining Order. [Docket Nos. 12-13]. Nothing in that Appendix suggests that there is any justification for appointing a receiver to “collect, marshal, and take custody, control, and possession of” Ms. Pendergest-Holt’s personal property on an ex parte and pre-judgment basis.

5

There is also a substantial concern that the Receiver’s actions have invaded and will continue to invade Ms. Pendergest-Holt’s attorney-client privilege.

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B.

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The Receivership Order Should Be Dissolved In Order To Prevent Further Abuse by the Receiver’s Lawyers. By raiding Ms. Pendergest-Holt’s home with no advance notice to Ms. Pendergest-Holt’s

lawyers, the Receiver’s lawyers conclusively demonstrated that they have no regard for their ethical obligations under the Texas Rules of Professional Conduct with respect to dealing with parties represented by counsel, much less any respect for Ms. Pendergest-Holt’s constitutional rights. Given the actions taken by the Receiver’s lawyers, the only way to prevent further abuse of power under the Receivership Order is to dissolve the order as it applies to Ms. PendergestHolt and to order immediate return of all property seized by the Receiver. C.

Ms. Pendergest-Holt’s Constitutional Rights Are Seriously Jeopardized By The Receiver’s Actions. As the Court is aware, there is a pending criminal complaint against Ms. Pendergest-Holt

and she is the subject of an ongoing criminal investigation by the DOJ in concert with the SEC. The Receiver’s actions against Ms. Pendergest-Holt jeopardize her rights under the Fourth and Fifth Amendments to the United States Constitution. In effect, the Receiver’s lawyers, in the context of the civil case, have conducted a free-wheeling warrantless search of Ms. PendergestHolt’s home and have taken Ms. Pendergest-Holt’s personal property without due process of law. Because the Receiver’s lawyers are duty-bound to cooperate with the SEC, DOJ and FBI under the Receivership Order, the Government will no doubt be the primary beneficiary of the Receiver’s unlawful search and seizure of Defendant’s property. This Court should dissolve the Receivership Order to protect Ms. Pendergest-Holt’s constitutional rights. D.

The Receivership Order Is No Longer Necessary Because of the Agreed Preliminary Injunction Entered by Ms. Pendergest-Holt. On March 2, 2009, the Court entered an Agreed Preliminary Injunction as to

Ms. Pendergest-Holt. [Docket No. 79]. The Preliminary Injunction requires Ms. Pendergest______________________________________________________________________________ MOTION TO SET ASIDE OR DISSOLVE ORDER APPOINTING RECEIVER 02174.901/204368

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Holt, among many other things, to preserve her assets, provide an accounting under oath, and to preserve all of her records. Id. Given the entry of the Preliminary Injunction, there is no longer any need for the Receivership Order. E.

The Receivership Order Should Be Dissolved Because The Ex Parte Entry of the Order Violated Ms. Pendergest-Holt’s Due Process Rights. The Court entered the Receivership Order on February 17, 2009, with no notice to

Ms. Pendergest-Holt and without ever affording Ms. Pendergest-Holt an opportunity to participate in the proceedings in which the order was entered. Due process requires notice and an opportunity to be heard. Cleveland Bd. of Education v. Loudermill, 470 U.S. 532, 542, 105 S.Ct. 1487, 1493 (1985). Because entry of the Receivership Order against Ms. Pendergest-Holt on an ex parte basis violated her due process rights, the order should be dissolved. In the alternative, upon the opportunity to be heard on this matter, the Receivership Order should modified to limit the powers of the Receiver. CONCLUSION For these reasons, Defendant Laura Pendergest-Holt respectfully requests that the Court (1) dissolve the Receivership Order as it applies to her; (2) order immediate return of all of the property seized by the Receiver; (3) prohibit the Receiver from intercepting her mail; and (4) grant such other relief to which she may be justly entitled. In making this motion, Defendant Pendergest-Holt does not waive any other rights she may have to seek additional relief made necessary by the Receiver’s conduct.

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DATED this 10th day of March, 2009. Respectfully submitted, /s/ Jeffrey M. Tillotson, P.C. ________________________________________ Jeffrey M. Tillotson, P.C. Texas Bar No. 20039200 John Volney Texas Bar No. 24003118 LYNN TILLOTSON PINKER & COX, L.L.P. 2100 Ross Avenue, Suite 2700 Dallas, Texas 75201 (214) 981-3800 Telephone (214) 981-3839 Facsimile ATTORNEY FOR DEFENDANT LAURA PENDERGEST-HOLT

CERTIFICATE OF CONFERENCE Counsel for movant and counsel for respondent have personally conducted a conference at which there was a substantive discussion of every item presented to the Court in this motion and despite best efforts the counsel have not been able to resolve those matters presented. Certified to this 10th day of March, 2009.

/s/ Jeffrey M. Tillotson, P.C. __________________________________________ Jeffrey M. Tillotson, P.C.

CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the above and foregoing document has been served via ECF on counsel of record on this the 10th day of March, 2009: /s/ Jeffrey M. Tillotson, P.C. __________________________________________ Jeffrey M. Tillotson, P.C.

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