                           NOT FOR PUBLICATION

                    UNITED STATES COURT OF APPEALS                         FILED
                            FOR THE NINTH CIRCUIT                           AUG 16 2011

                                                                        MOLLY C. DWYER, CLERK
                                                                         U .S. C O U R T OF APPE ALS

SECURITIES AND EXCHANGE                          No. 09-17443
COMMISSION; ADAM A. REEVES,
                                                 D.C. No. 3:07-cv-04975-WHA
              Plaintiffs - Appellees,

EILEEN JORGENSEN;                                MEMORANDUM *
PAUL JORGENSEN,

              Claimants - Appellants,

  and

ERIN FINN,

              Claimant,

  v.

ALEXANDER JAMES TRABULSE;
FAHEY FUND, L.P.; FAHEY
FINANCIAL GROUP, INC.;
INTERNATIONAL TRADE & DATA;
ITD TRADING,

              Defendants - Appellees,




        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
MICHAEL A. GRASSMUECK, Monitor,

               Receiver - Appellee.



                    Appeal from the United States District Court
                      for the Northern District of California
                    William H. Alsup, District Judge, Presiding

                       Argued and Submitted March 17, 2011
                             San Francisco, California

Before: WALLACE, FERNANDEZ, and CLIFTON, Circuit Judges.

      Claimants Eileen Jorgensen and Paul Jorgensen appeal from the district

court’s approval of the monitor’s recommendations regarding the treatment of their

claim. We vacate the approval and remand for further proceedings consistent with

this disposition.

      As a general proposition, we agree with the monitor’s determination that the

Jorgensen claim is properly limited to the actual cost of the rugs, not to any

purported retail value and not including any markup for overhead or profit. The

out-of-pocket costs incurred by the Jorgensens were not limited to the acquisition

cost of the rugs, however. Freight and duty charges paid to third parties, to the

extent the Jorgensens present reliable evidence establishing the amount of these

charges, should be recognized as part of their costs as well. Those charges were as


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necessary to obtain the rugs as were the acquisition costs. The failure to recognize

those hard costs was an abuse of discretion. The value of the investment credited

to them, for calculating their distribution from the fund, should be increased to

include those out-of-pocket costs.

      The district court approved the monitor’s determination that only 200 rugs

were sold to the fund. The other 95 rugs were presumably sold to Trabulse

personally. Consistent with that determination, the monitor reduced the “cost”

credited to the Jorgensens as part of their investment in the fund by the fraction

200/295. But in calculating the net amount of the Jorgensens’ investment, the

monitor also subtracted the entire $601,003 that had been paid to them for both the

200 rugs sold to the fund and the 95 rugs sold to Trabulse. That was an abuse of

discretion because it treated those 95 rugs inconsistently, as if they had been

purchased for the fund in this respect, but as if they had been purchased by

Trabulse, not the fund, in the earlier calculation. If the 95 rugs in question were

bought by Trabulse, not the fund, then the payment to the Jorgensens for those 95

rugs should not be subtracted in calculating their net investment in the fund. That

Trabulse may have obtained the money he paid the Jorgensens for those 95 rugs

from the fund was not necessarily the Jorgensens’ concern at that time, any more

than it would be the concern of a grocery store from which Trabulse bought


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groceries. They have not been found complicit in Trabulse’s possible

embezzlement from the fund. If their costs for the 95 rugs are not recognized, then

the amount they are credited for their investment cannot properly be reduced by

payments they received for those 95 rugs.

      Each party to bear its own costs.

      AFFIRMED in part, VACATED in part, and REMANDED.




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