UNITED STATES DISTRICT COURT WESTERN DISTRICT OF … · Case 3:16-cv-00285-GCM Document 165 Filed...

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NORTH CAROLINA

CHARLOTTE DIVISION

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff, v. RICHARD W. DAVIS, JR.,

Defendant, and

DCG REAL ASSETS, LLC, et al.,

Relief Defendants.

CASE NO. 3:16-CV-285

RECEIVER’S SEVENTH REPORT

A. Cotten Wright as Receiver (the “Receiver”) for the assets of DCG Real Assets, LLC;

DCG Commercial Fund I, LLC; H20, LLC; DCG PMG, LLC; DCG PMF, LLC; Finely Limited,

LLC; DCG Funds Underwriting, LLC; DCG ABF Management, LLC; DCG Funds Management,

LLC; Davis Capital Group, Inc.; Davis Financial, Inc.; DCG Partners, LLC; DCG Real Estate

Development, LLC; Huntersville Plaza Phase One, LLC; Huntersville Plaza Phase Two, LLC;

North Lake Business Park, LLC; and Richard Davis Enterprises, LLC (collectively, the

“Receivership Defendants”), files this Receiver’s Seventh Report pursuant to this Court’s

Temporary Receivership Order entered on June 8, 2016, which was made permanent by Orders

entered on August 5, 2016 and September 22, 2016 (collectively, the “Receivership Order”).

This report focuses on the Receiver’s activities for the quarter ending December 31, 2017 (the

“Reporting Period”) in conformance with paragraphs 23 and 24 of the Receivership Order.

Case 3:16-cv-00285-GCM Document 165 Filed 01/09/18 of 22

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I. SUMMARY OF RECEIVER’S ACTIVITIES

A. Summary of Operations.

Each of the Receivership Defendants had ceased operations before the receivership (the

“Receivership”) was filed. Therefore, the Receiver did not operate any business of the

Receivership Defendants during the Reporting Period and, likewise, will not be operating any

business of the Receivership Defendants during the pendency of this case.

With respect to Receivership operations, the Court entered its Order Establishing

Procedures for Miscellaneous Motions; Procedures for the Sale of Assets; and Case Closing

Procedures (the “Procedures Order”) on August 5, 2016, which sets out certain procedures to be

followed in this case. In particular, the Procedures Order outlines the process to be followed in

connection with sales of real property.

B. Cash on Hand / Receipts and Disbursements.

On June 23, 2016, the Receiver established an account for the Receivership at Rabobank,

N.A. Funds on deposit with Rabobank are insured by the F.D.I.C. A report as to activity in that

account through December 31, 2017 is attached as Exhibit A.

C. Description of Known Receivership Property.

The Receiver has continued her efforts to marshal and liquidate receivership property (the

“Receivership Assets”). On July 5, 2016, the Receiver and her counsel had a phone conference

with Defendant Richard Davis during which they requested information about a number of

Receivership matters. In particular, the Receiver asked Davis to identify any assets that he may

not have previously disclosed.


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Identification of Assets. Attached as Exhibit B is an updated chart listing all assets

identified by the Receiver as assets of the Receivership Defendants along with either the amounts

that the asset sold for or their estimated gross values, which either reflect the tax values or

appraised value of the parcels of real property listed on Ex. B. With respect to property that has

not been sold yet, recorded liens or litigation claims are noted in the descriptions of those

properties on Ex. B but have not been deducted from the values indicated. The Receiver’s

investigation of the validity of alleged liens and litigation claims will continue as various assets

are liquidated, and asset values will be adjusted accordingly. Information regarding specific

estate assets is summarized below.

(1) Real Property in Mecklenburg County, NC. The Receiver has previously

obtained limited title searches on each of the four (4) parcels of undeveloped real

property in Huntersville, Mecklenburg County, North Carolina.

(a) Property contiguous to the Town of Huntersville property. Two

parcels of Receivership property, 102 S. Old Statesville Road and 109 Gilead

Road, were surrounded by or adjacent to property owned by the Town of

Huntersville. Additionally, the Receiver foreclosed on deeds of trust held by

Aegis/DCG Asset Backed Fund, LLC, now known as DCG Commercial Fund I,

LLC, on a portion of two additional parcels that are contiguous to property owned

by the Town, identified as Mecklenburg County Tax Parcel Nos. 017-116-18 and

017-116-43. During the prior reporting period and with the approval of the Court,

the Receiver sold all the Receivership property adjacent to parcels owned by the

Town of Huntersville to the Town for a total sale price of $165,000.00.


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(b) Property titled to Finely Limited, LLC. The Receivership property

located at 11711 Alexandriana Road, Huntersville, North Carolina, is being

marketed for sale by the Receiver’s realtor, Trinity Partners.

(c) Property titled to Huntersville Plaza Phase One, LLC. During the

Reporting Period, the Receiver negotiated a contract for the sale of receivership

property located at 16614 Old Statesville Rd, Huntersville, NC for a gross sale

price of $700,000.00. That sale closed, with Court approval, on December 21,

2017, and the net proceeds were deposited to the Receivership account.

(d) Property titled to Davis Financial, Inc. The residential real

property located at 9137 Mount Holly-Huntersville Road, Huntersville, North

Carolina (the “Residential Property”), was sold during the Reporting Period. This

property was titled jointly to Davis Financial, Inc. and M.B. and Bina M. Shah.

Because the property required extensive repairs, two potential buyers backed out

of their sale contracts after the sales had been advertised in accordance with the

Case Procedures Order. Eventually, the Receiver and the Shahs agreed to accept

an offer of $140,000.00, a sale price that had previously been advertised, and that

sale closed on November 28, 2017.

Following the sale of the Residential Property, the Receiver negotiated

with counsel for the Shahs as to the appropriate allocation of the net sale proceeds

based on the respective interests held by the Shahs and the Receivership estate.

The Receiver disputed the validity of one of the three deeds pursuant to which

Davis Financial purported to transfer fractional ownership interests to the Shahs.

Additionally, the Receivership had borne the costs of maintaining the property


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while was marketed. On December 15, 2017, the Court entered a Consent Order

whereby the Shahs agreed to accept 55% of the sale proceeds, less the 55% of the

expenses associated with maintaining the Residential Property, and the

Receivership retained 45% of the proceeds, net of the Receivership’s share of the

expenses.

(2) Real Property in McDowell County, N.C. As previously reported, the

Receivership obtained turnover of surplus tax foreclosure sale proceeds with respect to

property formerly owned by H20, LLC in McDowell County. Other McDowell County

property titled to H20, LLC was abandoned pursuant to an Order entered by the Court.

(3) Real Property in Grayson County, VA. During the Reporting Period, the

real property titled to H2O, LLC in Grayson County, Virginia, remained on the market

for a list price of $1,100,000.00. On April 24, 2017, the Court entered an Order

approving a proposed settlement with Ken Hageman, who had brought a pre-

Receivership complaint alleging a constructive trust as to the Grayson County Property.

Although previously the Receiver had negotiated as to the sale of the Grayson

County Property with an entity identified as Venture Corb, Inc., a Wyoming corporation,

that entity appeared to have lost interest during the Reporting Period. Meanwhile, the

Court has instructed the Receiver that she should negotiate a finder’s fee with Davis in

the event that he procures a buyer for Receivership property. Venture Corb’s principal,

Mr. Corbitt, was referred to the Receiver’s realtor by Davis.

(4) Real Property in Caldwell County, NC. The residential lot titled to

Richard Davis Enterprises, LLC located at 5330 Beacon Ridge, Granite Falls, Caldwell

County, North Carolina, remained on the market during the Reporting Period with an


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asking price of $18,000.00.

(5) Bank Funds. During prior reporting periods, the Receiver obtained

turnover of funds held in various bank accounts owned by the Receivership Defendants

as set out in Ex. A. Despite having issued subpoenas to various banks, the Receiver did

not identify any additional funds.

(6) Disgorgement as to DCG Commercial Holdings, LLC and DCG

Commercial, LLC. During a prior reporting period, DCG Commercial Holdings, LLC

and DCG Commercial, LLC were dismissed from this case upon their compliance with

an Order requiring disgorgement of $13,677.57 to the Receivership account.

(7) Mining Claims. Early in the Receivership case, the Receiver confirmed

that no mining claims or interests were held by any of the Receivership Defendants as of

the date of the Receivership.

(8) Arbitration Award Regarding Willow Creek Mine. On April 10, 2015, an

Arbitration Award was made in favor of Ray E. Bluff against Davis, Davis Capital

Group, Inc., and Integrity Mining, LLC (the “Respondents”) relative to an agreement by

Davis Capital Group to purchase a fifty percent (50%) interest in Willow Creek Placer

Group, LLC, the owner of certain real property that is the site of the Willow Creek mine

in Pershing County, Nevada. The arbitration panel concluded that the full consideration

for the agreed-to purchase had not been provided and terminated whatever interest

Respondents held in Willow Creek Placer Group, LLC, if any. In addition, however, the

arbitration decision provided that Ray Bluff was to return $175,000.00 to the

Respondents provided that all equipment and living units belonging to them or under


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their control were removed from the Willow Creek mine area within sixty (60) days (the

“Arbitration Award”).

Davis appealed the Arbitration Award with the Pershing County, Nevada, District

Court, which appeal was pending on the date of the Receivership. During the prior

reporting period, the Receiver’s attorneys entered into discussions of a possible resolution

of the Nevada civil action with attorneys for Ray E. Bluff. On August 25, 2017, the

Receiver filed a motion to approve a settlement of the Nevada litigation that provided for

dismissing the appeal and motion to vacate the arbitration award; allowing Guy Bluff to

file a claim in the Receivership Case, subject to the Receiver’s objection; and

acknowledging this Court’s exclusive jurisdiction to determine whether or not Bluff

should be required to pay the $175,000.00 Arbitration Award to the Receivership. On

September 15, 2017, Davis filed an opposition to that motion, and the Receiver filed a

reply. The Court entered an order approving the settlement motion on November 7,

2017.

(9) Mining Equipment. During prior reporting periods, the Receiver

identified certain mining equipment, vehicles, and the like that constitute Receivership

property existing in Nevada (the “Mining Equipment”). The Receiver opted to engage the

services of a private investigator to locate and retrieve the Mining Equipment. The

Receiver’s investigator, working together with local law enforcement and a heavy

equipment hauling company, attempted to take possession of the Mining Equipment;

however, certain individuals controlling the Mining Equipment refused to surrender

possession thereof to the Receiver. Thereafter, on June 2, 2017, the Receiver filed a

lawsuit to recover possession of the Mining Equipment and obtained a permanent


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injunction freezing any disposition of the Mining Equipment and directing the defendants

(the “Mining Equipment Defendants”) to turn it over to the Receiver. During the

Reporting Period, the Receiver reached a settlement of the remaining claims in the

lawsuit with counsel for the Mining Equipment Defendants, and a motion to approve the

settlement was filed on October 26, 2017. The Court entered an order approving the

settlement motion on November 13, 2017.

Meanwhile, Ritchie Bros. Auctioneers was approved by the Court to auction the

Mining Equipment and held auctions for certain of the Mining Equipment during the

Reporting Period. As of the close of the Reporting Period, the Receiver had not received

a settlement statement from Ritchie Bros. Auctioneers for the auction of the Mining

Equipment.

(10) Miscellaneous Personal Property.

(a) 2014 Dodge RAM 2500. During a prior reporting period, the

Receiver obtained an Order allowing a Dodge Ram that was titled to Richard

Davis Enterprises, LLC to be abandoned because it was encumbered by a lien that

exceeded its value.

(b) Personal Property Stored at 9137 Mount Holly-Huntersville Road.

During a prior reporting period, Mr. Davis removed his personal property from

the house at 9137 Mount Holly-Huntersville Road in accordance with an Order

entered by the Court.

D. Description of Claims Held by the Receivership Estate. Claims relative to the

Receivership’s real property interests are reported above. The Receiver has not yet identified

any other claims that may be held by the Receivership Estate.


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E. Communications with Investors. In accordance with her duties as Special

Master in the criminal case against Richard Davis (United States v. Richard Wyatt Davis, Jr.,

3:16CR312 (W.D.N.C.)), the Receiver has provided updates to victim-investors through the

Receivership webpage and email notices. On December 3, 2017, Davis filed a motion to dismiss

the government’s indictment as to allegations of wire fraud and securities fraud, which drew a

response from the government on December 12, 2017. Davis filed a reply to the government’s

response on December 13, 2017. The trial in the criminal case is set for February, 2018.

Meanwhile, however, on December 12, 2017, the Receiver was informed that the

government is considering a plea agreement with Davis. If a plea agreement is reached, the

Receiver will give investor-victims as much notice as possible of the same.

Early in this case, the SEC provided the Receiver with lists of investors in the

Receivership Defendants. Additional parties have also contacted the Receiver indicating that

they were investors in one or more of the Receivership Defendants. The Receiver has contact

information for most of investors. However, there remain purported investors for whom the

Receiver does not have contact information. As additional investors are identified, their names

and contact information will be added to the investor list. Upon the Court’s direction, the

Receiver is prepared to file (under seal or otherwise) a list of purported investors known to the

Receiver.

The Receiver has received informal information as to certain creditors of the

Receivership Defendants, including the attorney who represented Davis Capital Group in the

Nevada arbitration and a Charlotte lawyer who represented Huntersville Plaza Phase Two, LLC

in filing for bankruptcy protection.


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On November 13, 2017, the Court entered Orders approving the Receiver’s fifth

application for compensation and the third application for compensation by Middleswarth

Bowers & Company (“Bowers”), the accountant for the Receiver. On December 28, 2017, the

Receiver made a partial distribution on approved fees for Grier Furr & Crisp. The Receiver

expects to pay approved professional fees in full in the next quarter in conformance with the SEC

Guidelines, which limit compensation and expense reimbursement available to the Receiver and

her professionals to thirty percent (30%) of any net recoveries.

F. Other Issues.

During the prior reporting period, the Receiver had received requests for information as

to any pre-receivership funds paid to certain relatives of Davis and from the Internal Revenue

Service. After searches of Receivership records proved inefficient and unproductive, the

Receiver requested that her accountants search the QuickBooks files for this information.

Ultimately, the Receiver’s accountants prepared an accounting satisfactory to the I.R.S. during

the Reporting Period.

G. Status of Claims Proceedings.

Claims Process. During the prior reporting period, the Receiver’s 93 claims were filed

by investors in accordance with procedures approved by the Court. The Receiver is in the

process of reviewing those claims. Ultimately, the Receiver intends to recommend to the Court

the allowance of the principal amount invested by each investor, not to include any profit that

may have been reported by the Receivership Defendants and, for purposes of distributions by the

Receiver, taking into account any withdrawals by investors.

Distribution Procedures. The Receiver intends to file a motion with the Court seeking

approval of a distribution procedure after reviewing the claims that were filed and upon


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sufficient liquidation of Receivership assets. The Receiver will give investors notice and an

opportunity to object to the proposed distribution process when that motion is filed.

Net Winner Investors. As of the date of this Report, the Receiver has not identified any

investors as “net-winners” by virtue of their having withdrawn more than they invested in the

Receivership Defendants. To the extent that any such “net-winners” are identified, the Receiver

will determine the appropriate steps to take.

Distribution. Once the Receiver is satisfied from her investigation as to the amounts

invested by investors and any withdrawals taken by investors, and after the Court has approved

the Receiver’s proposed distribution method, the Receiver plans to recommend approval of an

interim distribution. Ultimately, all funds collected by the Receiver as property of the

Receivership Estate, less the costs of administration of the Receivership and any other

disbursements approved by the Court, will be available for distribution to investors.

G. Receiver’s Recommendations.

The Receiver recommends that the Receivership be continued in order to allow for

sufficient time to liquidate Receivership Assets for the benefit of the investors. At this point, the

Receiver cannot predict how long it will take to liquidate the various parcels of real property

owned by the Receivership Defendants, which reflect the bulk of the Receivership Estate.

Further, to the extent that litigating issues related to assets is necessary, that process would likely

take months. Accordingly, the Receiver is unable to forecast how long it will take to convert all

Receivership assets to cash, but will, by filing periodic reports, keep the Court and investors

apprised of her best estimate of the progress of the Receivership and the estimated time it will

take to conclude it.


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Respectfully submitted, this 9th day of January, 2018.

/s/ A. Cotten Wright A. Cotten Wright (State Bar No. 28162) Grier Furr & Crisp, PA 101 North Tryon Street, Suite 1240 Charlotte, North Carolina 28246 Phone: 704.375.3720; Fax: 704.332.0215 [email protected] Exhibits:

A. Receipts and Disbursements B. List of Assets


EXHIBIT A


EXHIBIT B


Opened / Filed:

Case Asset Report

01/09/18Period Ending:

Trustee: A. Cotten Wright

Asset Description

Estimated Net Value

(Original Value

Less Liens, Exemptions,

and Other Costs)

Sale/Funds

Received by

the Estate

Asset Fully

Administered (FA)/

Gross Value of

Remaining Assets

Case Number:

Page: 1

3:16-CV-285 GCM

Ref. #

Case Name: DCG RECEIVERSHIP 06/08/16

(530380)

11711 Alexandriana Rd, Huntersville, NC - 13 acr

Parcel No. 017-051-06, Mecklenburg County, NC. Property titled to Finely Limited, LLC. Value

shown is appraised value as of 1/26/17. Tax value is $1,020,900. Currently listed for sale by Trinity

Partners. (See Asset #20 for compensation for sale of easement across this property.) (See Footnote)

846,000.00846,000.00 0.001

16614 Old Statesville Rd, Huntersville - 1.25 ac

Parcel ID No. 011-021-45, Mecklenburg County, NC. Property titled to Huntersville Plaza Phase

One, LLC. Property was sold on December 21, 2017. The lien in favor of receivership defendant DCG

Commercial Fund I, LLC, f/k/a Aegis / DCG Asset Backed Fund was released in connection with the

sale. The original value reflects appraisal dated 9/22/16.

FA550,000.00 700,000.002

102 S Old Statesville Rd, Huntersville - .04 ac

Parcel ID No. 017-116-11, Mecklenburg County, NC. Property is titled to DCG Commercial Fund I,

LLC. Value shown is tax value. Lien in the amount of $100,000 is held by receivership defendant

DCG Real Assets, LLC. Property at 109 Gilead Rd, Huntersville is collateral for the same lien. This

property is subject to a pending Court approved sale to the Town of Huntersville.

FA11,700.00 11,700.003

109 Gilead Rd, Huntersville, NC - .25 acres

Parcel No. 017-116-99, Mecklenburg County, NC. Property is titled to DCG Commercial Fund I, LLC.

Value shown is tax value. Property is subject to lien in the amount of $100,000 held by receivership

defendant DCG Real Assets, LLC. Property at 102 S Old Statesville Rd is subject to the same lien.

This property is subject to a pending Court approved sale to the Town of Huntersville.

FA114,600.00 114,600.004

Hwy 221, Marion, NC - 2 acres

Parcel No. 171700245000, McDowell County, NC. Property is titled to H2O, LLC. Property is subject

to a lien in the amount of $110,000 held by John Hyatt. This asset was abandoned pursuant to Order

entered on 9-16-16, DE 62.

FA0.00 0.005

Land & warehouse, Grayson County, VA - 305 acres

Lots 52-A-43, 52-A-43A & 52-A-43B, Grayson County, VA. Property is titled to H2O, LLC. The Court

has approved a settlement of litigation brought by Kenneth Hageman in Grayson County, VA in which

he claimed a constructive trust. Value shown is appraised value as of 1/5/2017. This property is

1,250,000.001,250,000.00 0.006


Opened / Filed:

Case Asset Report



Asset Description

Estimated Net Value

(Original Value


and Other Costs)

Sale/Funds

Received by

the Estate

Asset Fully

Administered (FA)/

Gross Value of

Remaining Assets

Case Number:

Page: 2

3:16-CV-285 GCM

Ref. #


(530380)

currently listed for sale at $1,100,000.00 based on realtor's advice. (See Footnote)

Surplus Foreclosure Proceeds - McDowell County,

Surplus proceeds from tax foreclosure sale of property titled to H2O, LLC located in McDowell

County, NC.

FA196,225.56 196,225.567

Cash - Bank of North Carolina

Remaining balance in Bank of North Carolina account -0344 held by DCG PMF, LLC.

FA1.53 1.538

Cash - Bank of the Ozarks

Remaining cash held in account at Bank of the Ozarks for Huntersville Plaza Phase Two, LLC

FA22.00 22.009

Cash - Aquesta Bank - DCG Real Assets FA1,975.00 1,975.0010

Cash - Aquesta Bank - Finely Limited FA956.00 956.0011

Mining Equipment in Nevada

Certain mining equipment was left in three different locations in Nevada near the Willow Creek mine.

The Receiver learned the whereabouts of the equipment and filed suit to obtain an injunction as to

certain defendants who have been using the equipment.

UnknownUnknown 0.0012

Potential Arbitration Award

Potential recovery on Arbitration Award relative to the Willow Creek mine that was pending appeal as

of the date of the Receivership.

175,000.00175,000.00 0.0013

Turnover per Court Order

Asset reflects funds disgorged by DCG Commercial Holdings, LLC and DCG Commercial, LLC

pursuant to Order entered on 8/5/16, DE 50.

FA13,677.57 13,677.5714

Lot - 5330 Beacon Ridge, Granite Falls, NC

Caldwell County Parcel #08145549; value reflects appraised value; tax value is $52,000. Tilted to

Richard Davis Enterprises, LLC. Property is currently listed for sale at $18,000.00. (See Footnote)

20,000.0020,000.00 0.0015

Lien Rights - Vacant land, Huntersville, NC

Aegis/ DCG Asset Backed Fund (now DCG Commercial Fund I) held lien on a portion of

FAUnknown 28,992.4216


Opened / Filed:

Case Asset Report



Asset Description

Estimated Net Value

(Original Value


and Other Costs)

Sale/Funds

Received by

the Estate

Asset Fully

Administered (FA)/

Gross Value of

Remaining Assets

Case Number:

Page: 3

3:16-CV-285 GCM

Ref. #


(530380)

Mecklenburg County Parcels #017-116-18 and #017-116-43. The Receiver foreclosed on that lien and

took title to the property. This property, along with property located at 102 Old Statesville Rd and 109

Gilead Rd, is subject to a Court approved pending sale to the Town of Huntersville.

Interest-9137 Mt. Holly-Huntersville Rd, Hunters

The origianl value shown reflected half of the appraised value of $195,000.00. The property was sold

on 11/28/17 for a gross sale price of $140,000.00. In addition, a defaulting buyer forfeited $1000 in

earnest money prior to the sale. The Receiver and the co-owners reached an agreement whereby the

receivership estate retained 45% of the sale proceeds, net of closing costs, taxes, realtor

commissions, and funds paid by the estate to maintain and repair the property, for a total of

$54,069.10.

FA97,500.00 141,000.0017

2014 Dodge Ram 2500 Truck

Taking into consideration the amount of the lien against this asset and the cost to liquidate it, the

Receiver determined that it had no value for the Receivership estate and moved to abandon it. An

Order allowing abandonment was entered on 1/5/2017.

FA2,334.27 0.0018

Personal property at 9137 Mt. Holly-Huntersville

The Receiver was authorized to abandon personal property located at 9137 Mount Holly-Huntersville

Rd by an Order entered on April 4, 2017.

FA0.00 0.0019

Easement across 11711 Alexandriana Rd

On April 18, 2017, the Court authorized the Receiver to grant an easement to Blue Green Capital

Partners I, LLC in exchange for $5,350.00 in compensation. The value of the easement was

determined by the appraisal of the real property. (See Footnote)

FA5,350.00 5,350.0020

Refund from Duke Energy - 9137 Mount Holly-Hunte

Partial refund of deposit for service at 9137 Mount Holly-Huntersville Rd.

FA20.92 20.9221

(Excluding unknown values) $3,285,362.85 $1,214,521.00 $2,291,000.0021 Assets Totals

RE PROP# 1 SCHEDULED / APPRAISED


Opened / Filed:

Case Asset Report



Asset Description

Estimated Net Value

(Original Value


and Other Costs)

Sale/Funds

Received by

the Estate

Asset Fully

Administered (FA)/

Gross Value of

Remaining Assets

Case Number:

Page: 4

3:16-CV-285 GCM

Ref. #


(530380)





UNITED STATES DISTRICT COURT WESTERN DISTRICT OF … · Case 3:16-cv-00285-GCM Document 165 Filed...

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Transcript of UNITED STATES DISTRICT COURT WESTERN DISTRICT OF … · Case 3:16-cv-00285-GCM Document 165 Filed...