Receiver's Unopposed Third Interim Application to Allow and Pay Fees and Expenses

222 Pages·2012·4.79 MB·English

Case 4:11-cv-02830 Document 73 Filed in TXSD on 05/23/12 Page 1 of 16

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

SECURITIES AND EXCHANGE §
COMMISSION, §
§
Plaintiff, §
§
v. §
§
BRIAN A. BJORK, ESTATE OF JOEL § CIVIL ACTION NO. 4:11-cv-2830
DAVID SALINAS, J. DAVID GROUP OF §
COMPANIES, INC., J. DAVID FINANCIAL §
GROUP, L.P., SELECT ASSET §
MANAGEMENT, LLC, SELECT CAPITAL §
MANAGEMENT, LLC, SELECT ASSET §
FUND I, LLC, AND SELECT ASSET PRIME §
INDEX FUND, LLC , §
§
Defendants. §
§

RECEIVER’S UNOPPOSED THIRD INTERIM APPLICATION TO ALLOW AND PAY (1)
RECEIVER'S FEES AND EXPENSES, (2) ATTORNEY'S FEES AND EXPENSES, AND (3)
OTHER PROFESSIONAL FEES AND EXPENSES, AND BRIEF IN SUPPORT
TO THE HONORABLE KEITH P. ELLISON, UNITED STATES DISTRICT COURT:
Steven A. Harr (“Receiver”), the Receiver appointed by the Court in these proceedings,
files his Unopposed Third Interim Application to Allow and Pay (1) Receiver's Fees and
Expenses, (2) Attorney's Fees and Expenses, and (3) Other Professional Fees and Expenses
and Brief in Support for same states as follows:
BACKGROUND
1. On August 1, 2011, the United States Securities and Exchange Commission
("SEC") filed its Complaint and requested the appointment of a Receiver. On that same date,
the Court appointed Steven A. Harr to serve as Receiver and he has functioned in that capacity
since.
2. Mr. Harr is an attorney with the law firm of Munsch Hardt Kopf & Harr, P.C.
("MHKH"). The Order permitted Mr. Harr to retain members of his firm and any other
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RECEIVER’S THIRD INTERIM APPLICATION TO ALLOW AND PAY (1) RECEIVER’S FEES AND EXPENSES, (2)
ATTORNEY’S FEES AND EXPENSES, AND (3) OTHER PROFESSIONAL FEES AND EXPENSES, AND BRIEF IN
SUPPORT - PAGE 1 of 16
Case 4:11-cv-02830 Document 73 Filed in TXSD on 05/23/12 Page 2 of 16

professionals considered to be reasonable and necessary by the Receiver to fulfill his
obligations to the Court. As part of his duties, the Receiver employed the accounting firm of
UHY Advisors FLVS, Inc. (“UHY”) to assist the Receiver with a variety of services. These
services include the financial investigation of the Receivership entities, operation of the
Receivership assets and accounting for the Receivership estate.
3. This application seeks the Court's approval of the fees and expenses incurred by
the Receiver and MHKH for the time period of January 16, 2012 through April 15, 2012 and by
UHY for the time period of January 1, 2012 through April 15, 2012. This application is being
filed to comply with the policies governing receivers as established by the Securities and
Exchange Commission.
SUMMARY OF WORK OF THE RECEIVER AND PROFESSIONALS TO DATE
1. A Preliminary Report (Dkt. 25) was filed by the Receiver on September 27, 2011.
Shortly thereafter, a Second Interim Report (Dkt. 35) was filed on November 3, 2011. A Third
Interim Report (Dkt. 47) was filed by the Receiver on February 7, 2012. A Fourth Interim Report
was filed on May 21, 2012 (Dkt.72) These reports more fully describe the work and
accomplishments of the Receiver to date.
2. Beginning on August 2, 2011, and within hours of appointment of the Receiver by
this Court, the Receiver’s agents arrived at the corporate offices of J. David Financial Group LP
in Friendswood, Texas and Select Asset Management LLC in Houston, Texas. In general,
since this time, the following has occurred:
a. Securing of all premises and the initiation of a review of the files in place
to obtain an understanding of general-record keeping methods and files available, and to secure
all records, both physical and electronic. The business premises on Washington Avenue in
Houston and Edgewood Drive in Friendswood have been closed and all documents, computers
and other business materials have been moved to a secure location at the Receiver's office;
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RECEIVER’S THIRD INTERIM APPLICATION TO ALLOW AND PAY (1) RECEIVER’S FEES AND EXPENSES, (2)
ATTORNEY’S FEES AND EXPENSES, AND (3) OTHER PROFESSIONAL FEES AND EXPENSES, AND BRIEF IN
SUPPORT - PAGE 2 of 16
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b. Interview of available key former employees, some multiple times, to gain
information regarding the assets, status of same, and current issues;
c. Continued inventory, inspection, and understanding of all assets, legal
documents regarding same, and the relationship of the Defendants to those assets;
d. Re-open and daily operation of the Parkway Pawn business operation to
facilitate loan payments, recovery of property and maintenance of the on-going business of
Parkway Pawn and to satisfy the demands of the regulatory agencies of the State of Texas over
pawn shops as well as to maintain its value for sale. As well the Receiver has worked with the
Office of Consumer Credit for the State of Texas to facilitate the change of official ownership of
the pawn shop into the name of the Receiver so as to facilitate the sale of the business. The
license has been transferred to the Receiver. The Receiver employed a consultant to value
Parkway Pawn and to assist in its sale. The pawnshop was put on the market, placed under
contract and sold after Court approval on May 8, 2012, providing equity in the amount of
$238,186.76 to the receivership fund.
e. Evaluation of the assets held by the Receivership entities, including, but
not limited to, initiating the process to determine actual market value of the assets, quantifying
the debt on certain assets and notice to all lenders of the Receivership so as to protect the
assets from any kind of claim or foreclosure;
f. Request and obtain access through the Secret Service to all financial
information available, contact financial institutions to freeze all identified bank accounts and
transfer frozen money to accounts maintained by the Receiver. The Receiver has either
requested or subpoenaed all bank statements dating back to 2004 for all bank accounts used by
the entities involved in the Receivership so as to facilitate a complete forensic accounting. This
process is slow due to the policies of the financial institutions and the length of time in issue as
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RECEIVER’S THIRD INTERIM APPLICATION TO ALLOW AND PAY (1) RECEIVER’S FEES AND EXPENSES, (2)
ATTORNEY’S FEES AND EXPENSES, AND (3) OTHER PROFESSIONAL FEES AND EXPENSES, AND BRIEF IN
SUPPORT - PAGE 3 of 16
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well as the fact that here are approximately 60 accounts involved. The forensic accounting of
the bank accounts is substantially complete.
g. Through both the investigation and the claims process, begin to
determine the actual extent of liabilities to creditors, mortgage holders and investors;
h. Devise an appropriate claims process, prepare and file a motion to obtain
Court approval for a claims process, claims manager and claim form, obtain an order approving
the process and forms and begin the process of accepting and reviewing claims. The Receiver
was substantially delayed in getting what is believed to be a complete mailing list of all investors
due to confusion as to the location of the list and passwords that protected the computer system
containing the list. A list has been obtained and claim forms have been mailed. The list on the
computers of the company was not complete. The list is being updated as new claims are sent
in that come from people not on the computer list. The Receiver expects to begin formal
adjusting of the claims in June 2012.
i. Establish within a few days of the Receiver’s appointment an information
website (www.selectassetreceiver.com) for all interested investors, creditors and others with
regard to the status of the Receivership and to provide for on-going communications, updated
pleadings filed in the proceeding, and an email address for questions an inquiries;
j. Secure the services of a broker/property consultant to evaluate and
market all real estate assets of the Receivership. All real estate other than Edgewood is
currently listed and for sale. Edgewood was abandoned by Court order in exchange for a
payment from the lender in the amount of $10,000;
k. Search for, obtain and contact all insurance companies that have issued
policies on the life of J. David Salinas (not including the Children’s Trust described below),
provide them with copies of the TRO/ Freeze Order and Order Appointing Receiver and initiate
and continue communications with these insurers with regard to their policies and claims to be
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RECEIVER’S THIRD INTERIM APPLICATION TO ALLOW AND PAY (1) RECEIVER’S FEES AND EXPENSES, (2)
ATTORNEY’S FEES AND EXPENSES, AND (3) OTHER PROFESSIONAL FEES AND EXPENSES, AND BRIEF IN
SUPPORT - PAGE 4 of 16
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made under the policies. The Receiver has filed claims on $12,900,000.00 in death benefits for
receipt by the Receivership and collected the sum of $12,747,251.01 (including interest). An
additional $2,850,000 in insurance proceeds are in dispute with third parties and are being held
by the insurance companies under agreement with the Receiver and the third parties. A
substantial portion of this money has been invested with permission of the Court in bank
certificates of deposit insured by the FDIC. The Receiver has filed claims on all death benefits
in the name of the Receivership Entities. The designation of the beneficiary on some of the
death benefits were transferred by J. David Salinas a few weeks before his death to individuals
who he apparently knew during his life time. Requests have been made on those purported
beneficiaries to disclaim their interest in these last minute transfers and most of those to whom
the transfers were made have cooperated with the Receiver and returned those interests so as
to avoid the time and expense of asserting claims for fraudulent transfers and other claw back
remedies available to the Receiver. A limited few of the purported beneficiaries, although
cooperating, have requested information from the Receiver that was provided at the end of
February and during March 2012 demonstrating the basis on which the Receiver (and thus the
victimized investors) have the right to the proceeds as opposed to a few who Mr. Salinas tried to
protect at the last minute. The Receiver expects to have the responses from these individuals
soon.
l. Employ the services of an accountant for the Receivership to be
responsible for all accounting of the funds received and disbursed as well as forensic
accounting with respect to the records of the Defendants;
m. Obtain permission of the court to employ an experienced claims manager
for all investor and creditor claims to be made in the Receivership claims process;
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RECEIVER’S THIRD INTERIM APPLICATION TO ALLOW AND PAY (1) RECEIVER’S FEES AND EXPENSES, (2)
ATTORNEY’S FEES AND EXPENSES, AND (3) OTHER PROFESSIONAL FEES AND EXPENSES, AND BRIEF IN
SUPPORT - PAGE 5 of 16
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n. Analyzed and understand the elaborate wills and trusts created by J.
David Salinas and conduct extensive negotiations with the family of J. David Salinas and their
counsel to arrive a property settlement. This process was substantially slowed by the delay
experienced in the probate court in Galveston County and its execution of the order appointing
the Executrix of the estate of J. David Salinas. The appointment of the Executrix has occurred,
negotiations with the family have been completed and a settlement with the family has been
documented and approved by the Court. The remaining issue not addressed in this settlement
relates to certain life insurance policies held in the Joel David Salinas Children’s Irrevocable
Trust. The amount of death benefits form the insurance in the trust is $2,350,000. The family
and the Court have approved the Receiver’s position as trustee of those trusts for the limited
purpose of making claims on the insurance policies so that these funds can be collected as the
investigation into the payments for these policies continue. Claims have been made on all of
the policies and all of the insurance companies have paid the funds to the Receiver and those
funds have been invested under the authority of prior orders of the Court. The Receiver has
documented his position on why these proceeds should be paid to the receivership estate
instead of the family members, meetings with each of the family members have occurred and
meaningful discussions toward a resolution have occurred. The Receive expects to resolve his
claim to these proceeds favorably within the next month.
o. Accomplish control of all mail to the various entities associated with the
Receivership, review and respond to mail daily;
p. Travel to and meet with the representative of Select Asset Capital
Management to review all loans in Fund I and the Prime Fund, map out and pursue strategies
for collection of those loans and continue the process of collecting the loans.
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RECEIVER’S THIRD INTERIM APPLICATION TO ALLOW AND PAY (1) RECEIVER’S FEES AND EXPENSES, (2)
ATTORNEY’S FEES AND EXPENSES, AND (3) OTHER PROFESSIONAL FEES AND EXPENSES, AND BRIEF IN
SUPPORT - PAGE 6 of 16
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4. The financial results of the work of the Receiver are shown in a form, known as
an "SFAR", which is provided by the Securities and Exchange Commission and is attached
herein as Exhibit "A".
5. The work of the Receiver and his counsel during this period has been to continue
to put in motion the wide variety of actions necessary to address the diverse set of assets and
liabilities posed by this situation. During the period covered by this application, the Receiver
has incurred fees and expenses with respect to his activities as Receiver and with respect to
MHKH as follows:
Period Hours Fees Expenses
1/16/2012 – 2/15/2012 246.30 $64,048.30 $1,471.58
2/16/2012 – 3/15/2012 259.10 $68,169.00 $4,138.92
3/16/2012 – 4/15/2012 307.00 $83,806.90 $1,411.37

TOTALS 812.40 $216,024.20 $7,021.87

6. Exhibit "B," which is attached and incorporated herein by reference for all
purposes, conveys the following information for the time period of January 16, 2012 through
April 15, 2012:
a. The number of hours worked by each attorney and staff member on a
particular day;
b. The work performed by each attorney and staff member;
c. The rates for each person rendering service in this matter (all of which
represent at least a 10% discount from the firm's standard rates), and the involvement of the
Receiver and MHKH attorneys and staff in this case during the period covered by this
application during which a total of more than 812 hours of attorney, staff and Receiver time has
been expended. For this period, the Receiver's fees average a blended rate of approximately
$265.90 an hour.
7. In addition to the work of the Receiver and his counsel, the Receiver has
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RECEIVER’S THIRD INTERIM APPLICATION TO ALLOW AND PAY (1) RECEIVER’S FEES AND EXPENSES, (2)
ATTORNEY’S FEES AND EXPENSES, AND (3) OTHER PROFESSIONAL FEES AND EXPENSES, AND BRIEF IN
SUPPORT - PAGE 7 of 16
Case 4:11-cv-02830 Document 73 Filed in TXSD on 05/23/12 Page 8 of 16

principally employed UHY as accountants to serve the Receivership. Their work can generally
be described as:
▪ Taking strategic control of the Defendants' offices and accounting records
located in numerous locations;
▪ Conducting interviews of key employees and evaluating necessary
ongoing support and integrity of administrative functions;
▪ Evaluating the Receivership entities' accounting data;
▪ Analyzing and monitoring ongoing operational cash requirements needed
and budgetary and accounting controls over operating entities;
▪ Identifying and marshalling property of the estate and assets purchased
for insiders and third parties with investor funds;
▪ Preparing interim reports of operations and asset recoveries and reports
for the Receiver; and
▪ Reconstructing cash activity for all entities and development of an
investor database for evaluating investor claims.
The fees and expenses incurred during the Period with respect to UHY are as follows:
Period Hours Fees Expenses Totals
01/01/2012 – 02/15/2012 824.10 $137,440.50 $119.18 $137,559.68
01/16/2012 – 03/15/2012 320.33 $56,462.55 $107.56 $56,570.11
03/16/2012 – 04/15/2012 279.09 $54,612.15 $35.52 $54,647.67

TOTALS 1,423.52 $248,515.20 $262.26 $248,777.46

8. Exhibit "C," which is attached and incorporated herein by reference for all
purposes, conveys the following information for the time period of January 1, 2012 through
April 15, 2012:
a. The number of hours worked by each UHY accountant and staff member
on a particular day;
b. The work performed by each accountant and staff member;
c. The rates for each person rendering service in this matter, and
involvement of UHY and staff in this case during the period covered by this application during
____________________________________________________________________________
RECEIVER’S THIRD INTERIM APPLICATION TO ALLOW AND PAY (1) RECEIVER’S FEES AND EXPENSES, (2)
ATTORNEY’S FEES AND EXPENSES, AND (3) OTHER PROFESSIONAL FEES AND EXPENSES, AND BRIEF IN
SUPPORT - PAGE 8 of 16
Case 4:11-cv-02830 Document 73 Filed in TXSD on 05/23/12 Page 9 of 16

which a total of more than 1,423.52 hours of UHY and staff time have been expended. UHY
has provided services to the Receivership at a blended rate of approximately $174.57 an hour.
JOHNSON FACTORS
9. In support of this request for allowance of compensation and reimbursement of
expenses, the Receiver and MHKH respectfully direct this Court's attention to those factors
generally considered by Courts in awarding compensation to professionals for services
performed in connection with the administration of a receivership estate. As stated by the Sixth
Circuit Court of Appeals in Reed v. Rhodes, 179 F.3rd 453, 471 (6th Cir. 1999), "The primary
concern in an attorney's fee case is that the fee awarded be reasonable." See Blum v. Stenson,
465 U.S. 886, 893 (1984). A reasonable fee is "one that is adequate to attract competent
counsel…" Id. (internal citation omitted). Under the twelve factor test enunciated by the Fifth
Circuit in Johnson v. Georgia Hwy. Express, Inc., 488 F.2d 714, 717 (5th Cir. 1974), and
adopted by the Supreme Court in Hensley v. Eckerhart, 461 U.S. 424, 432 (1983), a court must
first determine the loadstar amount by multiplying the reasonable number of hours billed by a
reasonable billing rate. Johnson, 488 F.2d at 717. That amount can then be adjusted by the
"Johnson Factors". Those factors as applied to the services rendered in this case by the
Receiver, MHKH and UHY are addressed below:
a. The time and labor required. The Receiver, MHKH and UHY respectfully
refer the Court's attention to their itemized billings which details the involvement of the Receiver,
MHKH attorneys and the accountants in this case during the period covered by this application
during which a total of more than 812 hours of attorney, staff and Receiver time have been
expended and more than 1,423.52 hours of accountant and accounting staff time have been
expended.
b. The novelty and difficulty of the questions. Many of the tasks involve
factual and legal questions which are of substantial complexity. The issues associated with
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RECEIVER’S THIRD INTERIM APPLICATION TO ALLOW AND PAY (1) RECEIVER’S FEES AND EXPENSES, (2)
ATTORNEY’S FEES AND EXPENSES, AND (3) OTHER PROFESSIONAL FEES AND EXPENSES, AND BRIEF IN
SUPPORT - PAGE 9 of 16
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originally six separate pieces of real estate, the poor condition of the real estate market, the
deceased principal’s estate, possible fraudulent transfers, collection of insurance proceeds, the
analysis and preparation for negotiations and possible litigation over the eleventh hour
beneficial interests transfers, the great concern of the investors for their potential losses and the
daily operation and management of three businesses has presented many novel and difficult
operating issues as well as legal and factual questions. The issues are ever changing. The
Receiver and MHKH have had to become knowledgeable and keep current of daily ongoing
events. The issues require constant attention.
c. The requisite skill to perform the service. The Receiver believes that the
services performed in this case have required individuals possessing considerable experience
in business transactions, investment fraud, insurance, workouts, litigation, tax, equity
receiverships, real estate, lending, negotiation and liquidations. The Receiver, MHKH and UHY
have considerable experience in these areas.
d. The preclusion of other employment due to the acceptance of the case.
The Receiver, MHKH and UHY have not declined any representation solely because of their
services as Receiver, counsel or accountant for the Receiver.
e. The customary fee. The hourly rates sought herein are at least
commensurate with the rates charged by other practitioners of similar experience levels in the
Southern District of Texas. In the case of the Receiver and his counsel, the rates are below
their standard hourly rates discounted by at least ten percent (10%). During the time period
covered by this application, the following lawyers at MHKH have performed legal services on
behalf of the Receiver with respect to these proceedings.
____________________________________________________________________________
RECEIVER’S THIRD INTERIM APPLICATION TO ALLOW AND PAY (1) RECEIVER’S FEES AND EXPENSES, (2)
ATTORNEY’S FEES AND EXPENSES, AND (3) OTHER PROFESSIONAL FEES AND EXPENSES, AND BRIEF IN
SUPPORT - PAGE 10 of 16