United States Securities and Exchange Commission v Manterfield
| Jurisdiction | England & Wales |
| Judge | SIR CHARLES GRAY |
| Judgment Date | 16 May 2008 |
| Neutral Citation | [2008] EWHC 1349 (QB) |
| Court | Queen's Bench Division |
| Docket Number | No. HQ08X00798 |
| Date | 16 May 2008 |
[2008] EWHC 1349 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Sir Charles Gray
(sitting As A Judge Of The High Court)
No. HQ08X00798
MR. D. Wolfson (instructed by Nabarro LLP) appeared on behalf of the Claimant.
MR. J. Fisher QC (instructed by Rahman Ravelli) appeared on behalf of the Defendant
(As Approved by the Judge)
This is an application by the United States Securities and Exchange Commission (“SEC”), which is an arm of the United States Government, to continue a freezing order granted by Openshaw J. on 29 th March 2008 against the defendant, Mr. Glenn Anthony Manterfield, who is resident in England.
The Issues
It is common ground that the first issue to be addressed is whether, applying conventional principles, the SEC has made out the case for the grant of a freezing injunction. This issue raises questions which include whether the SEC has established a good arguable case against Mr. Manterfield; whether there is a real risk that Mr. Manterfield will dissipate his assets if the order is not made and whether this is an appropriate case for dispensing with the requirement that the SEC should give the cross undertaking as to damages, which is the usual condition of obtaining a freezing order. If the SEC succeeds on this broad first issue I will next have to consider the second issue, which is whether the English court should nonetheless refuse to make the order on the ground that the SEC is seeking in these proceedings to enforce, directly or indirectly, a penal law of a foreign State, namely the United States.
The Background Facts
There being no dispute between the parties as to the background facts so far as this hearing is concerned, I can take them from the skeleton argument of Mr. David Wolfson, who appears for the SEC on this application. In February 2006 Mr. Manterfield (the defendant) together with Mr. Evan Anderson (a resident of Boston in the United States) set up Lydia Capital LLC (“Lydia”). Lydia was a Delaware limited liability company with an office in Boston. It was registered as an investment adviser with the SEC. The two principals, Mr. Manterfield and Mr. Anderson, each owned 50 per cent of the company. The SEC alleges that the two principals used Lydia as a means to defraud investors in a hedge fund, namely Lydia Capital Alternative Investment Fund LP (“the Fund”).
The investors were told that the Fund's assets would be used to acquire a portfolio of life insurance policies in the life settlement market. In order to induce investors to purchase interests in the Fund, the principals described the Fund's planned investment activities and supposed associated risks. In a confidential private placement memorandum dated June 2006 it was stated that Lydia intended to use the Fund's assets to:
“purchase life insurance policies in the life settlement after market on numerous insured individuals of 65 years of age or older … who have a life expectancy of between two and ten years.”
It also stated:
“Upon purchasing a policy in a life settlement after-market [the Fund] will be re-assigned all legal rights and responsibilities contained in the policy contract. Therefore, the [Fund] will legally assume all ownership rights to the policy and the death benefit [and] the responsibility for future premium payments …”
The June 2006 memorandum provided that the Fund's revenues would be derived from the death benefit of the underlying life insurance policy or gains from the sale of the policy in the secondary life market.
During the period from June 2006 through to April 2007 Mr. Manterfield and Mr. Anderson induced over 60 investors, all of whom I think were Taiwanese, to purchase approximately $34 million in limited liability partnerships in the Fund. The SEC's case is that the two of them materially misled investors about Lydia's operations and misappropriated millions of dollars of investors' funds. During the same short period the principals – that is to say Mr. Manterfield and Mr. Anderson – withdrew about US$8 million (about 2per cent of the amount invested). The SEC alleges that Mr. Manterfield received US$ 2.3from Lydia. In the corresponding paragraph of his Response in the US proceedings, Mr. Manterfield has either admitted the receipt of this sum, or at least does not deny it. He asserts, however, that all sums paid by Lydia were paid correctly and in accordance with disclosures made to investors.
On 12 th April 2007 the SEC filed a complaint against Lydia, Mr. Manterfield, and Mr. Anderson in the United States District Court, in the District of Massachusetts. The contents of the complaint were subsequently updated as the SEC gained more information about the allegedly fraudulent activities of Mr. Manterfield. The complaint was filed in conjunction with an emergency ex parte motion for a temporary restraining order, an order freezing assets, an order for other equitable relief, and upon further notice a preliminary injunction. On 12 th April 2007 a United States' District Judge granted an ex parte temporary restraining order, an order freezing assets and other equitable relief. The SEC then filed an amended complaint on 1 st May 2007. On the same day Mr. Manterfield filed a motion to modify the temporary restraining order to which the SEC filed its opposition. On 2 nd May 2007 a hearing took place in the District Court proceedings where Mr. Manterfield was represented by legal counsel. The District Court made an order for a preliminary, that is to say an interim, injunction which continued the temporary injunction until trial. The District Court froze Mr. Manterfield's assets, and also required him within five days to take such steps as were necessary to repatriate to the United States any funds obtained directly or indirectly from investors in Lydia. The form of the District Court Order was consented to by Mr. Manterfield's legal counsel. Mr. Manterfield filed his response to the SEC's complaint against him on 6 th September 2007.
The First Question – whether there is a good arguable case.
Having summarised the material facts I now return to the first question which arises, namely whether the SEC can establish a good arguable case against
Mr. Manterfield in the US proceedings. Mr. Jonathan Fisher QC, who appears on behalf of Mr. Manterfield, accepts on behalf of his client that the standard of proof required on such an application as the present one is lower than the balance of probabilities. Rather the test is, as Mustill J. (as he then was) put it in The “Niedersachsen” [1983] 2 Lloyd's Rep 600 at 605:
“A good arguable case is one which is more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50 per cent chance of success.”
That is the test which I will apply.
Mr. Manterfield has made a lengthy witness statement for the purposes of the present hearing. It runs to 36 pages and includes from para.28 onwards a detailed rebuttal of what he describes as the six principal allegations of fraudulent activities on the part of himself and Mr. Anderson through Lydia. The thrust of the witness statement is that Mr. Manterfield has a good arguable defence to the assertions made by the SEC. The issue is, however, not whether Mr. Manterfield has a good case on the merits, but rather whether the SEC can satisfy me that it has a good arguable case for the grant of a freezing order. These two propositions are not mutually exclusive. The fact that a defendant has a strong arguable case does not mean that the claimant does not have a good arguable case. That said, I readily accept that the apparent strength of a defendant's case is one factor amongst others to be taken into account in deciding whether the relief sought should be granted. As Mr. Fisher readily and rightly accepted, I cannot possibly, on a hearing of the present kind, make findings of fact, least of all in a case where the transactions conducted by
Mr. Manterfield, which are alleged by the SEC to have been carried out fraudulently, are relatively complex. This is not and cannot be a mini-trial.
In regard to the merits or otherwise of the present application, Mr. Fisher submitted in his skeleton argument that the SEC case against his client lacks the insignia of fraud. Mr. Fisher gives a number of illustrations of this proposition. He says first that, unlike most investor frauds where the investors' funds are not invested in the manner represented, the investments in the present case were purchased and the value of the investments has been independently assessed at US$ 160 million. Secondly, he says that no investor has complained; the SEC became involved only after a suspicious activity report was lodged in the UK. No criminal proceedings have been brought by the UK or the US or the Bermuda authorities. Thirdly, he submits that there has not been what he describes as a “snatch and grab” of the investors' funds. The payments to Mr. Manterfield were made from escrow accounts. Payments could not have been made unless the escrow attorney was satisfied that they were proper payments. The escrow attorney has not been joined as a party in the SEC proceedings. The moneys paid to Mr. Manterfield were entirely consistent with the value of the policies in the Fund at almost US$160 million – 5 per cent of $160 million is $8 million. The $8.16 million figure was, says Mr. Fisher, shown openly in Lydia's financial accounts.
In addition, Mr. Fisher places strong reliance on a comment made by District Judge Stearns, who is the US Judge...
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