Secretary Hosemann Seeks To Protect Mississippi Investors’ Interests In Ponzi Scheme Case

Jackson, Miss. (The Clarion Ledger) – The Security and Exchange Commission has filed an emergency motion asking that a temporary receiver be appointed over the assets of Arthur Lamar Adams, the man who pleaded guilty last week in a $100 million Ponzi scheme.

But Secretary of State Delbert Hosemann is opposed to the SEC choice of a Florida-based receiver to handle the case. Hosemann wants a Mississippi receiver appointed to protect the interests of local investors who lost money in the scheme.

The Securities and Exchange Commission states, “Plaintiff Securities and Exchange Commission respectfully moves the court to appoint a temporary receiver over defendants’ assets to preserve them for the benefit of investors.

SEC Attorney Shawn Murnahan said in court papers, “Due to the continued risk of dissipation of those assets, the Commission asks that the motion be heard as expeditiously as the court’s schedule permits.”

The commission filed the motion late last week in federal court in Jackson to appoint attorney Kenneth D. Murena of Miami as temporary receiver.

The SEC said Adams and his company, Madison Timber Properties LLC, and its agents still have control and possession of investor funds as well as certain assets purchased with investor funds.

Adams’ attorney John Colette, sent the government a letter saying there seems to be provisions whereby his client can petition the court for money seized to pay his pro-rated share of payments due on four real estate development deals:

  • A $135,000 payment on Oxford Springs due this month
  • A $40,000 payment for Mallard Park LLC also due this month
  • A $15,000 payment for Delta Farms LLC due in June
  • A $4,000 payment for 707 LLC due in August.

“The intent is to maximize recovery for the government and from what I understand, the Oxford Springs, LLC could be a huge return,” Colette said in the letter.

Oxford Springs is a a 2,600-acre development near Abbeville that, according to an Oxford Eagle report in March 2017, includes an 85-acre equestrian center, golf course, 44-acre town center, town homes, condos, apartments and 200 acres of lakes, as well as approximately 200 acres of undeveloped conservation easement.

The SEC said Adams acquired at least some of these interests while the scheme alleged in the complaint was ongoing. It is, thus, highly likely such interests were acquired, in whole or in part, with investor funds.

The SEC said it also fears a “race to the courthouse” by investors filing lawsuits against Adams and his company. The SEC cited the first lawsuit filed by an investor.

Sherri Hughes, who owns Highway 22 LLC in Madison County, said in her civil lawsuit that she is one of Adams’ defrauded investors. She filed suit in Madison County Circuit Court against Adams; his partner William McHenry; and Adams’ company, Madison Timber Properties.

William B. McHenry is listed as president of Ridgeland-based First South Investment Co. ,which specializes in oil and gas, land, timber and private equity investments. One of his dissolved businesses shared the same Ridgeland address as Adams’ company.

Adams pleaded guilty in federal court last week to wire fraud involving operating a Ponzi scheme that attracted more than $100 million from about 300 investors in at least 14 states.

The lawsuit said McHenry, who was not been named in the criminal complaint against Adams, solicited Sherri Hughes in 2016 to invest in Madison Timber Properties.

Hughes claims McHenry previously induced her son to invest $300,000, and it produced a return of approximately 13 percent. McHenry knew Hughes’ father and uncle and used that knowledge and familiarity with Hughes’ family members, including her son, to gain her trust, according to the lawsuit.

According to the lawsuit, Hughes initially invested $150,000 in the scheme. Then on Jan. 29, 2018, she says she increased her investment to $169,500. In return, she was provided a promissory note, an original timber deed and cutting agreement.

On May 1, Hughes tried to cash a check from a Madison Timber Properties check for $14,125 drawn on a Riverhills Bank account made payable to her company, H-22. The bank refused to cash the check and directed her to Madison Timber Properties.

Hughes said she then signed the Timber Deed and Cutting Agreement to secure her $169,500 investment and attempted to record the deed in the Monroe County land records, but the chancery clerk’s office in Monroe County said the land for the timber didn’t exist and that the grantor listed in the timber deedunder which Madison Timber Properties allegedly held title didn’t own any land in the county.

“Simply put, the subject timber deed was bogus, fraudulent and a sham used as a vehicle by McHenry and the other defendents (who knew and/or should have known the timber deed wasn’t legitimate) to perpetrate, among other things, a fraud …,” according to the lawsuit.

Efforts to reach McHenry for comment have been unsuccessful.

The SEC said its ability to seek receivership serves as a critical tool in enforcing the federal securities laws. The commission said in light of the estimated $100 million fraud and number of investors, a receiver is necessary to preserve and analyze the defendants’ and third parties’ documents and financial records to determine the full extent of investor losses.

Further, the SEC said the goal of a receiver will be to discover if there are viable claims against third parties, and to establish a claims process to facilitate a fair and orderly distribution of remaining assets to investors,

Hosemann filed a motion Friday to intervene to  oppose the SEC’s efforts to have a Florida-based temporary receiver appointed.

He said he doesn’t oppose a receiver being appointed, but said the receiver should be from Mississippi.

“In the case at hand, the secretary’s interest in maximizing the available funds to restore injured Mississippi investors may not be adequately represented by the receiver the SEC seeks to have appointed because a Miami, FL-based receiver will not be as efficient as a Mississippi-based receiver,” Hosemann said in court papers.

Original Source: The Clarion Ledger