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United States Securities and Exchange Commission v. Abdallah

United States District Court, N.D. Ohio, Eastern Division

December 11, 2017

UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff
v.
THOMAS ABDALLAH (aka Thomas Abraham), et al., Defendants

          ORDER

          SOLOMON OLIVER, JR. UNITED STATES DISTRICT JUDGE.

         Currently pending before the court is Defendant Thomas Abdallah's (“Defendant” or “Mr. Abdallah”) Motion to Approve Settlement Agreement and Allocate and Release Proceeds to Defendant, His Spouse, and His Counsel (“Motion”). (ECF No. 304.) The Motion asks the court to approve a settlement agreement, in the amount of $25, 000.00, obtained by Defendant relating to a personal injury claim resulting from a motor vehicle accident. The Motion further requests that the court order the disbursement of the settlement to Defendant, his spouse, and his counsel. Plaintiff United States Securities and Exchange Commission (“Plaintiff” or “SEC”) filed a Limited Objection to Defendant Abdallah's Motion to Approve Settlement Agreement and Allocate and Release Proceeds to Defendant, His Spouse, and His Counsel (“Objection”), objecting to the release of the settlement award to Defendant. (ECF No. 308.) For the following reasons, the court grants in part, denies in part, and reserves ruling in part on Defendant's Motion.

         I. BACKGROUND

         On May 29, 2014, the SEC commenced this action against several individuals and entities, including Mr. Abdallah, alleging that they were the originators of a Ponzi scheme that defrauded investors of millions of dollars. (Compl. ¶¶ 1-17, ECF No. 1.) The court appointed the Receiver to administer and conserve the Defendants' assets pending resolution of the case on December 3, 2014. (Order Appointing Receiver, ECF No 119.) Mr. Abdallah consented to an entry of judgment against him, and a Judgment as to Defendant Thomas Abdallah was entered by this court on November 2, 2017. (ECF No. 330.) Pursuant to this Judgment, Mr. Abdallah is liable for disgorgement in the amount of $5, 209, 349.00, plus prejudgment interest in the amount of $868, 835.00, deemed satisfied by the criminal restitution order of $17, 077, 571.44 entered against Mr. Abdallah on October 19, 2016 in United States v. Thomas Abdallah, et al., No. 1:15-CR-231 (N.D. Ohio). (Id.)

         Following an agreement between the Receiver, Mr. Abdallah, and Plaintiff, this court granted Mr. Abdallah limited relief from the Order Appointing Receiver in order to prosecute a personal injury claim resulting from a motor vehicle accident occurring on November 6, 2013. (Order, Oct. 29, 2015, ECF. 225.) The Order granting limited relief held that any recovery or settlement obtained by Mr. Abdallah as a result of the prosecution of his personal injury claim shall be subject to the approval of this court, as well as to the terms of the Order Appointing Receiver. (Id. at1-2.) Pursuant to this limited relief, Mr. Abdallah and his spouse, Yasmin Abdallah (“Mrs. Abdallah”), through their counsel Paul R. Hoffer, initiated a personal injury lawsuit against Osama Fahmy and Merveat Henein in the Cuyahoga County, Ohio Court of Common Pleas on October 30, 2015. (Mot. 2.) The claim sought compensation for physical injury to Mr. Abdallah and for loss of consortium to Mr. and Mrs. Abdallah. (Id.) Mr. and Mrs. Abdallah obtained a settlement agreement with Osama Fahmy's insurer, Allstate Insurance, in the amount of $25, 000.00, and the action in the Cuyahoga County, Ohio Court of Common Pleas was dismissed. (Id. at 2-3.)

         Mr. Abdallah brought the present Motion on July 24, 2017, seeking approval of the settlement agreement. (Mot. 3.) Mr. Abdallah also requests that the court order the disbursement of funds, received and held by the Receiver from the settlement, in the amount of $6, 250.00 to Attorney Paul R. Hoffer for legal services provided in prosecuting the personal injury claim. (Mot. 4.) The Motion includes an Affidavit of Mr. Hoffer averring that counsel for Receiver authorized Mr. Hoffer to charge a contingency fee of twenty-five percent of any award recovered by judgment or settlement for his services. (Affidavit, ECF No. 304-2, 13.) Mr. Abdallah further asks this court to order the disbursement of the remaining balance of the settlement, in the amount of $18, 750.00, to Mr. and Mrs. Abdallah. (Mot. 4.)

         On August 2, 2017, Plaintiff filed a limited Objection to Mr. Abdallah's Motion. Plaintiff indicated that, while it does not object to the approval of the settlement, it objects to “Defendant Abdallah keeping the personal injury settlement when he owes so much in criminal restitution to victims from two separate criminal restitution judgments.” (Obj. 3.) Plaintiff argues that Mr. Abdallah is currently incarcerated and required by 18 U.S.C. § 3664(n) to apply the proceeds of his personal injury settlement to his restitution debt. (Id. at 3.)

         II. LEGAL STANDARD AND ANALYSIS

         A. Approval of Settlement

         Mr. Abdallah requests this court's approval of the settlement entered into between Mr. and Mrs. Abdallah and Allstate regarding Mr. Abdallah's personal injury claim. Plaintiff does not object. The court hereby approves the settlement.

         B. Disbursement of Funds to Mr. Abdallah

         “‘[A] district court's power to supervise an equity receivership and to determine the appropriate action to be taken in the administration of the receivership is extremely broad.'”See 51382 Gratiot Ave. Holdings, LLC v. Chesterfield Dev. Co., LLC, No. 2:11-CV-12047, 2011 WL 4695820, at *2 (E.D. Mich. Oct. 5, 2011) (citing SEC v. Capital Consultants, LLC, 397 F.3d 733, 738 (9th Cir.2005)); see also Quilling v. Trade Partners, Inc., 572 F.3d 293, 298 (6th Cir.2009). Furthermore, “[i]t is settled law that a receiver's right to possession dates from the time of his appointment.” See 51382 Gratiot Ave. Holdings, LLC, 2011 WL 4695820 at *2 (citing Davis v. Cox, 356 F.3d 76, 93 (1st Cir.2004) (construing Maine law); Wells v. Cermak (In re Ackermann), 82 F.2d 971, 972 (6th Cir.1936); Saginaw Cnty. Sav. Bank v. Duffield, 122 N.W. 186, 188-89 (Mich.1909)).

         The court denies Mr. Abdallah's request to release any amount of the settlement award to him. Mr. Abdallah was granted limited relief from this court's Order Appointing Receiver for the purpose of prosecuting his personal injury claim. (Order, Oct. 29, 2015.) The Order granting relief to prosecute the claim held that “any recovery that may be paid to Defendant Abdallah by judgment or settlement shall be subject to the terms of the Order Appointing Receiver”. (Id. at 1.) The Order Appointing Receiver grants the Receiver the power and duty to “[t]ake custody, control, and possession of all Receivership Property”.[1] (Order Appointing Receiver, 4.) Thus, the Receiver maintains the power to possess and control Mr. Abdallah's settlement award. Contrary to Mr. Abdallah's arguments, whether the settlement proceeds are related to the Ponzi scheme is irrelevant to the Receiver's authority to possess and control the property pursuant to the terms of the Receivership. (See Order Appointing Receiver, 4 (defining Receivership Property in a manner not limited to property related to the crime)).

         Furthermore, as noted by Plaintiff, Mr. Abdallah owes a staggering $17, 077, 571.41 on the criminal judgment entered against him by this court in 1:15-CR-231. (Obj., 2) He also owes $620, 658.75 on the criminal judgment entered against him by this court in 1:06-CR-401. (Id. at ...


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