Yesterday I reported on Receiver Report On Sanctuary Belize And Andris Pukke Should Make You Want To Puke. The Receiver submitted his report on the development Sanctuary Belize, and other parties, that the FTC had sued.
Pukke objected to a number of items in the Receiver’s report. My initial personal impression was he was objecting to them because they were not favorable. Pukke wanted the report to be sealed and removed from public consumption.
The Federal Trade Commission and the Receiver have since responded to Pukke’s request to seal and/or alter the report. basically, they are having none of that.
The FTC Objects
My favorite line from the FTC response was, “Finally, Pukke cries foul arguing that admission of the Receiver’s report will prevent him
from cross-examining the Receiver. Those crocodile tears, however, are unavailing.”
The FTC alleges, “Defendant Andris Pukke’s Emergency Motion to Strike the Temporary Receiver’s Report is without legal basis and should be denied. Not content with filing every conceivable motion to try to end this case while simultaneously “taking the Fifth” to every material question posed to him in deposition, Andris Pukke now files an “emergency” motion to strike the Temporary Receiver’s Report. Pukke essentially contends: 1) the Report’s contents go beyond the Receiver’s mandate in this case; 2) the Report should not be used as evidence to establish any fact in contention and that the Report be hidden from the public; and 3) based on the foregoing, the parties preview any future report before it become public. Not only is there no basis to strike the Receiver’s Report, there is also no basis to keep it under seal.”
The FTC burn continues, “Pukke does not like the court appointed Receiver’s Report. This distaste, however, is based on little more than the fact that the Report accurately recounts Pukke’s varied and voluminous misdeeds. Accurately reporting such information is the very mandate with which the Court tasked the Receiver.”
You can read the full FTC response here.
The Receiver Objects as Well
The court-appointed Receiver is having none of Pukke’s victim claims as well.
The Receiver’s states, “The Emergency Motion seeking to strike the Report of Receiver’s Activities for the period from November 6, 2018 through February 21, 2019 (Doc.219) (“Report”) is based on a series of mistaken assertions, frequently repeated, but lacking any factual support or legal authority.”
But the Receiver claims the Pukke unfriendly report is based on facts when they say, “In fact, each of the Receiver’s conclusions in the Report is based on the Receiver’s investigation arising from a review of documents, both those of the Receivership Entities and those obtained from third parties, as well as discussions and interviews of various defendants and third parties. The bases for the content of which Pukke complains are all set forth in the Report.”
Regardless of Pukke’s objections, the Receiver says, “There is no prejudice to Pukke by the Receiver stating the results of its initial investigation simply because Pukke does not like the results. He asserts that the Report may somehow impact the fairness of the preliminary injunction hearing, but does not have support for that assertion. He asserts that members of the public may take all views stated within the Report as fact, but does not explain why this is so. In fact, the Receiver understands that one of Pukke’s defenses will be the views of happy lot owners. Unsealed pleadings permit the public, including the lot owners, to review the various viewpoints of the litigants, including the FTC and Pukke, as well as the viewpoint of the Receiver. This enables all members of the public to have unfettered access to all of the information presented to the Court that is not otherwise personal, confidential or proprietary.”
Finally, the Receiver says, “The Report contains nothing that is redundant, immaterial, impertinent, or scandalous. On pages 4-7 of the Motion, Pukke sets forth various instances of what he believes to be objectionable material, but each of which contained fact-based commentary.”
Pukke’s Objections to Receiver Report
In court filings, Andris Pukke makes the following claims about the Receiver report.
“1. An evaluation of the veracity of Mr. Pukke and other defendants in the midst of the Receiver’s raid on a defendant business. Report, p. 3. Mr. Pukke submits that the Receiver is not the proper party to judge credibility; anyone might seem untruthful in the midst of a government raid, and any government staff in the midst of a raid is likely predisposed to find dissembling (the Report does not say which natural persons made the subjective statements in the Report, thereby insulating the Report from cross examination and hampering Mr. Pukke’s ability to investigate the truthfulness of the allegations made in the Report in aid of his defense).
2. The Report states that “Pukke Exercised Total Control Over the Belize Development Project.” Report, pp. 3-5. This is a central and hotly contested fact issue in the case. It is unclear why the Receiver is weighting in on the issue with its opinion. In relation to audit and accounting matters the Receiver’s opinion is a non sequitur. And, of course, there is much evidence in the case refuting the Receiver’s determination, including the actual ownership structure of defendant companies, Mr. Pukke’s employment relationship, the division of duties and decision making with various defendant company, and the rampant infighting by and among defendants. The Receiver’s conclusion of not mandated, unauthorized, not subject to cross examination, and highly prejudicial.
3. The Receiver states that “Pukke diverted at least $15.9 million on consumer payments.” Report, pp. 5-7. The Receiver’s conclusions cannot be cross examined for correctness or context. By way of example, certain funds were investments that made profitable returns, others were loans that have been repaid.
4. The Report states a review of what it calls “Broken Promises and Commitments to Consumers.” Receiver’s report, p. 7. This section parrots the FTC’s argument that certain amenities were “promised” to some unidentified and unknown number of lot purchasers at The Reserve. The Report mentions an international airport. It is unclear how the Receiver has made a factual conclusion that is contested in the case, save wholly accepting the FTC’s arguments. Nor is it clear what much of the section of this Report has to do with accounting. Also, in this section the Receiver argues that certain non-recourse loans, and/or certain loans not secured by The Reserve property in fact burdened the real estate with debt.
5. The Report states that “The Reserves’ Financial Model is Not Viable.” report, p. 8. Again, the Receiver adopts the FTC’s view about what amenities are to be included in a completed Reserve development. From this mistake, the Receiver argues that there was not enough money for the developer to complete an international airport, an American style hospital, a championship golf course, among other items. As the court knows from reading Mr. Pukke’s court papers, Mr. Pukke disputes the fact that lot owners were promised an international airport, and certain other large amenities the Receiver describes.
6. The Report states that there are “Misrepresentations and misleading statements to consumers contained in scripts at the Irvine Office.” Report at p. 10. Again, on this topic, the Report simply parrots the FTC’s views on a matter that seems wholly unrelated to audit or accounting. Whether or not misstatements were made is an issue central in the case. Telephonic scripts reviewed by the Receiver are hearsay unless testified to in some manner. Of course, the Report is not subject to cross examination, and any reader unfamiliar with Section 5 of the FTC Act might logically conclude that Mr. Pukke made the alleged misrepresentations, which prejudices him in this matter.
7. The Report states that “The Receivership entities resisted requests by lot buyers to cancel purchase contracts.” Report, p. 10. Any seller may try to keep her or his contract which is not necessary problematic as the FTC and now Receiver allege. But it must also be said the refunds were often given to unhappy customers. The FTC is also aware that when two of its young staff members posed as lot buyers and paid certain deposits, the monies were refunded in the ordinary course of the business. This sharply cuts against the FTC’s and the Receiver’s view of the world. But the Receiver cannot be cross examined. Further, this area seems far afield from audit duties of the Receiver.
8. The Receiver opines on alleged statements about the increase in lot values, again citing paper scripts, and arguing that sales people promised accretion in lot values. Again, it is unclear why the Report needs to parrot the FTC’s view of the world on this point, or what it has to do with its Receiver’s audit function. And importantly, this issue is contested. By way of example, during his deposition on Feb. 19, 2019, Peter Baker testified that one early lot purchaser, Nancy McKenney, successfully re-sold one of her lots for a great profit. On February 19, 2019, he clarified his position under oath, testifying that early lot owners “made out like bandits” and that Ms. McKenney in particular, sold her lot for several times her initial purchase price and that she “more than doubled her money” and that another early investor named Taylor and other “People who had lots in the beginning who sold out made a lot of money.” Ex. 1 (February 19, 2019 Deposition of Peter Baker), 342:23-344:23. Also, the only current valuation of lots now in the case is from Prof. Eric Sussman of UCLA who, in his preliminary expert report, values the lots at The Reserve at $800,000 per acre. This means that all lots have significantly increased in value. Again, this point will be contested by the parties. The Receiver has no business weighing in on this issue, as it is outside his audit mandate.
9. The Receiver also provides its review of certain litigation files. Report, p. 15-18. Working outside the audit function, the Receiver hedges, noting that their review merely “suggests” certain conclusions (p. 15) and noting that there “appears” to be a certain conclusion. This section has nothing to do with the Receiver’s audit function, save implying that the developer was unethical. Again, this is highly prejudicial and far afield from an audit function.”
The Receiver Has a Different View of the Scope of Work Asked For
The Receiver says, “First, the Emergency Motion constantly asserts that the Receiver has exceeded its “mandate” by filing a report not limited to an “audit of the businesses within the receivership.” Time and again, Andris Pukke (“Pukke”) asserts that the Report contains “unauthorized” material. But this is wrong for at least two reasons. It ignores the broad enumeration of powers vested in the Receiver under Section XVI of the Temporary Restraining Order (“TRO”). These powers include the Receiver suspending business operations if, in the Receiver’s judgment, the business cannot be operated legally and profitably. TRO, Section XVI.U. If the Receiver has the authority to consider whether the business can be operated legally and profitably, it can certainly report to the Court on all aspects of the business and its operations that bear on those issues. Indeed, the Court is entitled to the Receiver’s judgment on any and all issues that concern the legitimacy and financial condition of the Receivership Entities.”
And finally the Receiver states, “Fourth, the Emergency Motion repeatedly contends that the Report is “prejudicial.” But constantly saying that the Report is prejudicial does not make it so. There is no showing as to how Pukke will be prejudiced by the Report. There is no prejudice to Pukke by the Receiver stating the results of its initial investigation simply because Pukke does not like the results. He asserts that the Report may somehow impact the fairness of the preliminary injunction hearing, but does not have support for that assertion. He asserts that members of the public may take all views stated within the Report as fact, but does not explain why this is so. In fact, the Receiver understands that one of Pukke’s defenses will be the views of happy lot owners.”
My Personal Opinion
I’m a big fan of letting all sides be heard and allow interested parties and the public come to their own conclusions based on a review of the facts. It appears Andris Pukke, of Ameridebt fame, wants to hide observations from the public.
We will have to wait and see what the Court decides on hiding the Receiver Report from the public.