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Feds and Mississippi fight over who should clean up fraud

The U.S. Securities and Exchange Commission and Mississippi’s secretary of state are fighting over who should collect assets and repay victims of a $100 million-plus fraud.

Arthur Lamar Adams pleaded guilty last week to one count of wire fraud.

Authorities say the 58-year-old Jackson resident persuaded investors to loan him money, promising interest rates of 12 percent to 15 percent a year and repayment over 12 to 15 months. Adams told investors he was buying rights to cut timber cheaply and then selling them for higher prices to sawmills. In reality, though, there was very little timber and Adams was using new money to pay off old investors in a classic Ponzi scheme.

A judge froze Adams’ assets in a civil suit brought by the SEC in parallel with the criminal prosecution. The agency wants a judge to appoint the receiver temporarily, awaiting a report within 60 days of how assets should be gathered and disbursed.

The SEC warns that without a centralized process, there’s likely to be a disorderly rush of lawsuits. At least one civil suit already has been filed.

“Absent a receiver and the associated stay of third party litigation that would accompany his or her appointment, there will be a ‘race to the courthouse’ and the attendant possibility for certain investors to obtain preferential treatment with respect to defendants’ assets,” Shawn Murnahan, a lawyer for the SEC, wrote in court papers.

Secretary of State Delbert Hosemann accepts the appointment of a receiver. But he objected to the securities regulator’s plan to hire Kenneth Murena, a Florida-based lawyer, as receiver. Hosemann instead wants a Mississippi lawyer to handle the role, saying it will be cheaper and better safeguard his interests in seeing Mississippians get repaid.

Hosemann has proposed Derek Henderson as receiver. The Jackson lawyer has filled the role in a number of Mississippi cases. The highest-profile of those was after the collapse of biofuel company KiOR, which cost the state $77 million.

However, the SEC says Murena has agreed to hire Mississippi-based professionals and waive travel fees, in an effort to alleviate Hosemann’s concerns.

“The secretary has not offered any persuasive reason for selecting his recommended candidate,” Murnahan wrote.

Murnahan said Murena has significant experience working as a receiver in cases involving the SEC and other agencies. Murnahan said Henderson, by contrast, has only done work in state court in cases involving fewer investors.

As of now, the SEC knows of investors in 19 states, with the largest investors living in California and Texas.

“The commission has some concern that, if appointed under these circumstances, the secretary’s candidate might tend to favor Mississippi investors over investors from other states,” Murnahan wrote.

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