               United States Court of Appeals
                          For the Eighth Circuit
                      ___________________________

                              No. 16-1072
                      ___________________________

              United States Securities and Exchange Commission

                      lllllllllllllllllllll Plaintiff - Appellee

                                         v.

 Marlon Quan; Acorn Capital Group, LLC; Stewardship Investment Advisors,
LLC; Stewardship Credit Arbitrage Fund, LLC; Putnam Green, LLC; Livingston
                 Acres, LLC; ACG II, LLC; Florence Quan

                           lllllllllllllllllllll Defendants

Nigel Chatterjee; DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt
                          am Main; Sovereign Bank

                           lllllllllllllllllllllIntervenors

   Topwater Exclusive Fund III, LLC; Freestone Low Volatility Partners, LP;
              Freestone Low Volatility Qualified Partners, LP

                    lllllllllllllllllllllIntervenors - Appellants

                                   Gary Hansen

                      lllllllllllllllllllllReceiver - Appellee
                                    ____________

                   Appeal from United States District Court
                  for the District of Minnesota - Minneapolis
                                 ____________
                               Submitted: May 9, 2017
                               Filed: August 30, 2017
                                   ____________

Before SMITH, Chief Judge, COLLOTON and KELLY, Circuit Judges.
                              ____________

KELLY, Circuit Judge.

      This is the second appeal in an enforcement action brought by the Securities
and Exchange Commission (SEC) against Marlon Quan and entities he controlled,
including the hedge fund Stewardship Credit Arbitrage Fund, LLC (SCAF).1 SCAF
was heavily invested in loans to entities controlled by Thomas Petters. Those
investments suffered catastrophic losses when the Ponzi scheme supporting Petters’
businesses collapsed.

       In the first appeal, SEC v. Quan, 817 F.3d 583 (8th Cir. 2016), we affirmed a
jury verdict against Quan and certain entities he controlled—but not SCAF—for
securities law violations based on false statements and misleading omissions made
to hedge fund investors. Meanwhile, the district court2 placed SCAF’s remaining
assets in receivership, approved the receiver’s stipulation as to SCAF’s liability, and
approved a plan to distribute SCAF’s assets to its investors and creditors. Three
investors in SCAF—Topwater Exclusive Fund III, LLC, Freestone Low Volatility
Partners, LP, and Freestone Low Volatility Qualified Partners, LP (collectively,
Appellants)—appeal orders entered by the district court pertaining to the receivership,


      1
       Unless otherwise noted, the term “SCAF” includes SCAF’s wholly-owned
subsidiaries, Livingston Acres, LLC (Livingston) and Putnam Green, LLC (Putnam
Green).
      2
       The Honorable Ann D. Montgomery, United States District Judge for the
District of Minnesota.

                                         -2-
the entry of judgment against SCAF, and the pro rata distribution of SCAF’s assets
to investors. Because Appellants have identified no reversible error, we affirm.

                                   I. Background

       In March 2011, the SEC commenced an enforcement action against Marlon
Quan and two investment management entities that he controlled: Stewardship
Investment Advisors (SIA) and Acorn Capital Group, LLC (Acorn). The complaint
alleged that Quan and the entities violated securities laws by: (1) fraudulently selling
interests in two hedge funds—the onshore SCAF and the offshore Stewardship Credit
Arbitrage Fund, Ltd.—through marketing materials that included materially false or
misleading representations about anti-fraud measures that would be used to protect
the investments; and (2) concealing defaults on the hedge funds’ core investments
beginning in December 2007, when those promissory notes issued by Thomas J.
Petters (Petters Notes) began failing as a result of a Ponzi scheme.

       After the Ponzi scheme collapsed, the Petters businesses’ assets were placed
in receivership and several Petters entities filed for bankruptcy. Certain Quan entities
and their creditors reached a settlement with the Petters businesses’ bankruptcy and
receivership estates. On motion by the SEC, the district court froze the share of the
assets from this settlement that were apportioned to SCAF. Ultimately, these frozen
assets and additional frozen SCAF assets recovered from other
bankruptcies—totaling approximately $18 million—were deposited with the court.3

       In April 2012, the district court appointed a receiver, Gary Hansen, to manage
SCAF and its frozen funds. The receivership order gave the receiver the power to
“take any action which could be taken by the officers, directors, partners, members,


      3
       Of the approximately $18 million deposited with the court, roughly $17
million was recovered from SCAF’s investments in the Petters Notes.

                                          -3-
shareholders, and trustees” of SCAF; “resist and defend all suits, actions, claims and
demands which may now be pending or which may be brought or asserted against”
SCAF; and take any “necessary and appropriate” action to “prevent the dissipation
. . . of any funds or assets or for the preservation of any such funds and assets of”
SCAF. After the entry of an order for disgorgement, the receiver was responsible for
proposing to the court a claims and distribution process for the receivership assets.

       Shortly thereafter, the district court granted the SEC’s unopposed motion for
leave to amend the complaint, adding SCAF as a defendant. SCAF was organized as
a limited liability company controlled by its managing member SIA, which in turn
was controlled by Quan. The First Amended Complaint stated claims against SCAF
for violations of Section 10(b) of the Securities Exchange Act of 1934 (Exchange
Act), 15 U.S.C. § 78j(b), and Rules 10b-5(a) and (c) thereunder, 17 C.F.R. § 240.10b-
5(a)(c), as well as Sections 17(a)(1), (2)4 & (3) of the Securities Act of 1933
(Securities Act), 15 U.S.C. § 77q(a)(1)–(3).

       Appellants, who are preferred investors in SCAF, moved to intervene in the
action and to modify the receivership order to permit an immediate claim and
distribution process in accordance with SCAF’s operating documents. The district
court granted the motion to intervene, but denied the motion to modify the
receivership. The court concluded that SCAF could be found liable for fraud, and
should that occur, the court could order disgorgement of the receivership assets and
distribute those funds equitably, rather than adhering to SCAF’s operating documents.

      On June 6, 2013, the receiver moved for court approval of a stipulation (First
Stipulation) signed by all parties except for the intervenors. The First Stipulation
agreed that SCAF would not be required to respond to the First Amended Complaint,


      4
      This claim was brought only against SCAF, and not its subsidiaries Livingston
and Putnam Green.

                                         -4-
to file summary judgment briefs, or to participate in the upcoming trial. According
to the stipulation, the receiver had adjudged that an active defense of the matter
would be costly and would deplete SCAF’s assets, and that “determination of the
SEC’s claims against Quan will as a practical matter govern the determination of the
SEC’s claims against SCAF.” The First Stipulation provided that, after resolution of
the claims against Quan, “SCAF and the SEC shall enter into a further stipulation
applying that judgment to the claims against SCAF and requesting the Court to enter
judgment as to SCAF.” Over Appellants’ objection, the district court approved the
First Stipulation, finding it was within the receiver’s authority, properly preserved
SCAF’s assets, and did not commit the receiver to a final settlement disposition.

       The district court held a jury trial on the claims against Quan and certain
entities he controlled, including SIA and Acorn, but not SCAF. As relevant here, the
jury found Quan and SIA liable for violations of Section 10(b) of the Securities Act
and Sections 17(a)(2) and (3) of the Exchange Act. The jury did not find Quan liable
for personally aiding and abetting SCAF’s violations of Section 10(b) and Rule 10b-5
thereunder. The court entered final judgment against the trial defendants in the
amount of approximately $95 million.

       The trial defendants appealed, challenging, among other things, the consistency
of the verdict. The trial defendants argued that the jury, as a matter of internal
inconsistency, could not find that Quan “personally violated Rule 10b-5, but did not
aid and abet SCAF . . . in violating the same rule” because “he indisputably controlled
SCAF and used it as ‘the vehicle through which [he] sold the securities at issue and
committed fraud.’” Quan, 817 F.3d at 591 (alteration in orignal). We found the
jury’s verdict reconcilable because SCAF did not participate in the trial and “none of
the evidence showed SCAF actively doing anything”—rather, the “trial focused on
Quan’s role at the other companies.” Id. Thus, “the jury may have concluded that
they lacked sufficient evidence to determine Quan’s role in SCAF” and “declined to



                                         -5-
pile on a finding that Quan was also liable for helping [SCAF], in some unspecified
way.” Id.

       While the appeal was pending, the receiver and the SEC moved for the district
court to approve a Second Stipulation. In that stipulation, SCAF conceded that its
conduct violated the securities laws, consented to the entry of judgment against it, and
agreed that its assets would be disgorged. Specifically, SCAF admitted it made
material misrepresentations in its Private Placement Memoranda, PowerPoint
presentations, and newsletters by falsely promising to prospective investors in the
Petters Notes that SCAF would use a lockbox account, conduct full due diligence of
the loans, and hire an accounting firm to audit intermediaries. The stipulation also
admitted that SCAF defrauded its investors by concealing the mounting defaults in
the Petters Notes. Over Appellants’ objections, the district court approved the Second
Stipulation, entered judgment against SCAF, and ordered disgorgement. It concluded
that the jury’s finding of no liability on the aiding and abetting claim against Quan
“does not compel the conclusion that the jury determined that SCAF did not commit
securities fraud.” It further found the Second Stipulation was within the receiver’s
authority and was a reasonable and prudent exercise of that authority.

       The district court also granted the receiver’s motion—supported by the SEC,
but contested by Appellants—for approval of a distribution plan for the receivership’s
assets, which at that point totaled approximately $18.9 million. Under the
distribution plan, SCAF’s two secured creditors, DZ Bank and Soveriegn Bank,
would receive 40 percent of the fund. The remaining 60 percent—approximately
$11.4 million—would be distributed pro rata to SCAF’s investors. The district court
found the plan was fair and equitable and overruled Appellants’ objection that the
plan did not account for the class of investor: Both Class P preferred investors, like
Appellants, and Class A non-preferred investors would share equally. Finally, the
district court ordered, pursuant to the receiver’s request, that if a claimant
unsuccessfully appeals the distribution plan, the receiver’s legal fees and costs in

                                          -6-
responding to the appeal “shall be deducted from the challenging claimant’s
distribution.”

      Appellants challenge the district court’s approval of the First and Second
Stipulations, approval of the pro rata distribution of assets to SCAF’s investors, and
order that Appellants pay the receiver’s legal fees and expenses if they are
unsuccessful in this appeal.

                                     II. Discussion

A. First Stipulation

       Appellants argue that the district court erred in approving the First Stipulation
because the receiver was under two conflicts of interest. We review the district
court’s oversight of the receiver and its approval of the stipulation for abuse of
discretion. See SEC v. Ark. Loan & Thrift Corp., 427 F.2d 1171, 1172 (8th Cir.
1970) (per curiam).

       First, Appellants argue that the receiver was under an “inherent conflict of
interest” because he and the SEC wanted SCAF to be found liable for securities fraud,
as then they would “gain much greater authority to recommend and implement a
Distribution Plan of SCAF’s assets” that ignored the contractual rights of preferred
investors. Appellants cite no authority for their contention that the receiver’s ability
to stipulate to liability conflicts with his ability to propose a distribution plan.
According to the receivership order, it was within the receiver’s authority to defend
or settle any lawsuits as well as to submit a recommended distribution plan, and
Appellants never challenged these provisions of the receivership order. There is no
basis to conclude that the district court abused its discretion in permitting the receiver
both to determine SCAF’s liability and to propose a distribution plan, which was
subject to the SEC’s potential counter-proposal and the review and approval of the

                                           -7-
district court. See SEC v. Loving Spirit Found. Inc., 392 F.3d 486, 490 (D.C. Cir.
2004) (“A receiver’s authority . . . is defined solely by the order of the appointing
court, which may provide for the administration of the receivership in any way it sees
appropriate.” (internal quotations omitted)).

       Second, Appellants argue that the district court should not have approved the
First Stipulation—which they contend tied SCAF’s liability to Quan and
SIA’s—because SCAF was defrauded by Quan and SIA and their interests are
“diametrically opposed.” Instead, according to Appellants, the receiver should have
had SCAF take an active role in the litigation and should not have relied on Quan and
SIA’s counsel to protect its interests. The district court approved the First Stipulation
because it “prevented the unnecessary dissipation of receivership assets” and allowed
the receiver to benefit from ultimate resolution of the claims against Quan without
“preclud[ing] the Receiver from raising future defenses.” We conclude that the
district court did not abuse its discretion in approving the First Stipulation. The
receiver acted within his broad authority in determining that a separate defense was
unwarranted because there was sufficient overlap between SCAF and Quan and SIA’s
defenses, and because it would have required substantial litigation expenditures from
SCAF’s limited assets, which would have harmed all of SCAF’s investors, including
Appellants. See SEC v. Vescor Capital Corp., 599 F.3d 1189, 1194 (10th Cir. 2010)
(affirming the district court’s administration of the receivership because it “properly
focused on safeguarding the Vescor investors’ assets as a whole”).

       Accordingly, Appellants have identified no error in the district court’s approval
of the First Stipulation, which was within the court’s broad discretionary power. See
SEC v. Hardy, 803 F.2d 1034, 1037 (9th Cir. 1986) (“[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.”).




                                          -8-
B. Second Stipulation

        Appellants also challenge the Second Stipulation. They argue that the First
Stipulation—which stated that the SEC and SCAF “shall enter into a further
stipulation applying [the final determination of the claims against Quan] to the claims
against SCAF”—interpreted in conjunction with the jury’s verdict prevented the
district court from approving the Second Stipulation, which consented to SCAF’s
liability. In particular, Appellants argue that the jury’s verdict that Quan was not
liable for aiding and abetting SCAF’s violation of Section 10(b) of the Exchange Act
necessarily means that the jury concluded that SCAF did not violate any securities
laws. We review the meaning and effect of the stipulations de novo, see Braxton v.
United States, 500 U.S. 344, 350 (1991), but we review the district court’s approval
of the Second Stipulation for abuse of discretion, see Ritchie Capital Mgmt., LLC v.
Jeffries, 653 F.3d 755, 760 (8th Cir. 2011).

        The jury’s verdict on the aiding and abetting claim does not preclude the
conclusion that SCAF was liable for securities fraud violations. According to the jury
instructions in the Quan trial, to return a guilty verdict on the aiding and abetting
claim, the jury had to find that: (1) SCAF violated Section 10(b); (2) Quan had
knowledge that SCAF was violating Section 10(b); and (3) Quan provided substantial
assistance to SCAF in its violation of Section 10(b). The jury could have found Quan
not liable on this claim without reaching any conclusions about SCAF. This is
because, as we stated in the prior appeal, SCAF “did not participate in the trial and
none of the evidence showed SCAF actively doing anything.” Quan, 817 F.3d at 591.
The jury also could have found that the aiding and abetting elements were
insufficiently proven. It could have concluded, for example, that it “lacked sufficient
evidence to determine Quan’s role” in or assistance in support of SCAF, “an entity
that, as far as the jury heard, did nothing for itself and was little more than a piece of
paper.” Id. For these same reasons, we reject Appellants’ argument that SCAF’s
liability, and thus the Second Stipulation, is barred by issue preclusion. See S.E.L.

                                           -9-
Maduro (Fla.), Inc. v. M/V Antonio de Gastaneta, 833 F.2d 1477, 1483 (11th Cir.
1987) (“If the jury could have premised its verdict on one or more of several issues,
then collateral estoppel does not act as a bar . . . .”).

       Appellants also argue that the district court erred in approving the Second
Stipulation because SCAF—a hedge fund and limited liability company owned by its
investors and wholly controlled by Quan and SIA—cannot be liable for
misrepresentations made to investors.5 Appellants cite no authority for this
proposition, which appears to be contrary to our case law. See, e.g., Doud v. Toy Box
Dev. Co., 798 F.3d 709, 714 (8th Cir. 2015) (affirming summary judgment against a
limited liability company for Section 10(b) violations based on misrepresentations in
the company’s offering documents). To the extent that this argument presents a
defense that the receiver could have raised on behalf of SCAF, the district court acted
within its broad discretion in concluding that the receiver’s decision to stipulate to
SCAF’s liability without raising any defenses was a “reasonable and prudent exercise
of the receiver’s authority.” The court found that the receiver “has analyzed the
results of the [Quan] trial,” “has made an assessment of the risks versus the costs of
subjecting [SCAF] to a trial on the merits,” and “has determined that a trial on the
claims against [SCAF] would likely be decided against [it] and that defending against
the claims would dissipate Receivership Assets that already fall far short of the claims
against the Receivership.” We find no abuse of discretion in the court’s approval of
the Second Stipulation.




      5
        Citing Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135, 142
(2011), Appellants argue that SCAF cannot be liable under Section 10(b) because it
did not “make” an untrue statement of material fact. Because this argument was not
raised before the district court, we do not address it here. See St. Paul Fire & Marine
Ins. v. Compaq Comput. Corp., 539 F.3d 809, 824 (8th Cir. 2008).

                                         -10-
C. Pro Rata Distribution

       After stipulating to an order for disgorgement of SCAF’s assets, the receiver
proposed to the district court a distribution plan for those assets, which was supported
by the SEC. The proposed plan distributed 40 percent of the $18.9 million fund to
SCAF’s secured creditors, and the remaining 60 percent to the investors pro rata.
Appellants objected to the pro rata distribution, arguing that as Class P preferred
investors, they should be favored over Class A investors because they had a
contractual liquidation preference and had opted to purchase more conservative
shares. The district court rejected Appellants’ objection, concluding that the
distinction between Class A and P investors was immaterial because “investor losses
were not caused by market risk,” but rather “by Defendants’ false promises about
anti-fraud protections that were never implemented—a risk that no investor
knowingly assumed.” Because both classes were “equally defrauded” when they
invested in SCAF, the district court concluded they are “entitled to share equally” in
the fund.6

       On appeal, Appellants raise the same arguments, explaining that Class P
investors sought minimum risk in the form of a guaranteed low rate of return, in
exchange for a liquidation preference in the event of dissolution, whereas Class A
investors chose riskier and more variable investments. Appellants ask us to vacate
the portion of the distribution plan allocated to investors and remand with the
direction that the Class P liquidation preference be honored.

      We review the district court’s selection of a distribution plan for the
receivership assets for abuse of discretion. SEC v. Wealth Mgmt. LLC, 628 F.3d 323,

      6
         Appellants argue the district court’s reasoning has been criticized in SEC v.
Spongetech Delivery Systems, Inc., 98 F. Supp. 3d 530, 549 (E.D.N.Y. 2015). That
case addressed only the district court’s discussion of disgorgement and distribution
as it related to secured creditors—a portion of the plan that Appellants do not appeal.

                                         -11-
332–33 (7th Cir. 2010); SEC v. Credit Bancorp, Ltd., 290 F.3d 80, 87 (2d Cir. 2002).
The district court has “broad equitable power” in approving a distribution plan, “so
appellate scrutiny is narrow.” Wealth Mgmt., 628 F.3d at 332. “[T]he primary job
of the district court is to ensure that the proposed plan of distribution is fair and
reasonable.” Id. The court is not required to distribute the assets in accordance with
the contractual rights of the parties. See Broadbent v. Advantage Software, Inc., 415
F. App’x 73, 78–79 (10th Cir. 2011); Credit Bancorp, 290 F.3d at 89–90.

       Courts have “routinely endorsed” the pro rata distribution of assets to investors
as the most fair and equitable approach in fraud cases. Wealth Mgmt., 628 F.3d at
333; accord SEC v. Infinity Grp. Co., 226 F. App’x 217, 218 (3d Cir. 2007); Credit
Bancorp, 290 F.3d at 88–89 (“Courts have favored pro rata distribution of assets
where, as here, the funds of the defrauded victims were commingled and where
victims were similarly situated with respect to their relationship to the defrauders.”).
We find no abuse of discretion in the district court’s adoption of pro rata distribution
as applied to SCAF’s investors.

       Class A and P investors were fraudulently induced into investing in SCAF
based on the same misrepresentations, and both unwittingly had the majority of their
investments funneled into Petters’ Ponzi scheme, making most of their investments
and thus most of their returns essentially fictitious. Both classes of investors “were
similarly situated in relationship to the fraud, in relationship to the losses, in
relationship to the fraudsters, and in relationship to the nature of their investments,
so that a . . . pro rata distribution is equitable.” Commodity Futures Trading Comm’n
v. Walsh, 712 F.3d 735, 748 (2d Cir. 2013) (quotations and emphasis omitted).
Because no investor knowingly takes the risk that she will be defrauded, the
distribution plan need not take into account the fact that Class P investors initially
purchased less risky investments. See id. at 751 (“[M]ere choices of different
investment vehicles did not mean that the two groups of defrauded investors . . . were
meaningfully dissimilar, given, inter alia, that both . . . lost money because they were

                                         -12-
defrauded by the same individual who stole their money.” (quotations and alterations
omitted)). Finally, it was not an abuse of discretion for the district court to refuse to
enforce the liquidation preference, which was created by the defrauder and provided
in the very same documents that contained fraudulent misrepresentations. See id. at
749 (“[A] receiver devising a distribution plan is not required to apportion assets in
conformity with misrepresentations and arbitrary allocations that were made by the
defrauder, ‘otherwise, the whim of the defrauder would . . . control[] the process that
is supposed to unwind the fraud.’” (second and third alterations in original) (quoting
In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229, 238 n.7 (2d Cir. 2011))).

       Appellants cite no case law requiring a district court to favor one class of
investors over another in an equity receivership compensating fraud victims.7 We
find no basis to conclude that the district court abused its discretion in applying a pro
rata distribution to all investors.

D. Legal Fees and Expenses

       Finally, Appellants argue that the district court erred in ordering them to bear
the receiver’s legal fees and expenses if they are unsuccessful in this appeal. Because
Appellants did not object to the shifting of these fees and expenses before the district
court, they have waived this argument. See Joseph v. Allen, 712 F.3d 1222, 1226




      7
        Appellants cite cases where appellate courts, reviewing for abuse of discretion,
affirmed a district court’s approval of non-pro rata distribution plans, but these courts
did not require such an approach. See, e.g., SEC v. Enter. Tr. Co., 559 F.3d 649, 652
(7th Cir. 2009) (affirming approval of plan that favored holders of custodial accounts
over managed accounts because custodial holders had not authorized defendants to
manage their money and they had “no legitimate beef”); SEC v. Wang, 944 F.2d 80,
86 (2d Cir. 1991) (approving plan that favored investors who assumed the greatest
risk of loss).

                                          -13-
(8th Cir. 2013) (failing to oppose an issue before the district court results in waiver
of the issue on appeal).

                                   III. Conclusion

      For the foregoing reasons, we affirm the judgment of the district court.
                      ______________________________




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