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United States Commodity Futures Trading Commission v. Lake Shore Asset Management Limited

September 27, 2007

UNITED STATES COMMODITY FUTURES TRADING COMMISSION, PLAINTIFF,
v.
LAKE SHORE ASSET MANAGEMENT LIMITED, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Blanche M. Manning

MEMORANDUM AND ORDER

This order addresses the court's recent discovery -- due to its review of the docket in In re Sentinel Management Group, No. 07-14987 (Bankr. N.D. Ill.) as opposed to disclosure by Lake Shore Limited -- that a Canadian court appointed a receiver for property that is at issue in this lawsuit.

Background

On September 24, 2007, in the Sentinel bankruptcy case, attorneys from Vedder, Price, Kaufman & Kammholtz filed appearances on behalf of "Ernst & Young, Inc., as Receiver for Lake Shore Alternative Financial Asset Corporation Limited and Lake Shore Alternative Financial Asset Corporation 2006 Limited." The court takes judicial notice of this order, which caught its attention in a compelling way given that the CFTC's emergency motion to appoint a receiver was pending before this court.

It also takes judicial notice of an action filed in the High Court of Justice, Queen's Bench Division, Commercial Court in England. In that action, claimants Lake Shore Alternative Financial Asset Limited, Lake Shore Alternative Financial Asset Limited Account I Limited, Lake Shore Alternative Financial Asset Limited Account II Limited, Geneva Corp. Funds World Limited (formerly known as Lake Shore Alternative Financial Asset Fund IV Limited), and Hanford Investments Limited seek an order directing the three London registered futures commission merchants ("FCMs") -- Man Financial London, Lehman Brothers London, and Fimat London, who maintain the trading accounts for the Lake Shore Alternative Financial Asset Funds -- to hand over the monies in the trading accounts to the claimants. This court's preliminary injunction order froze these accounts, along with funds at Sentinel, the remaining FCM for Lake Shore who acted as the cash manager and the subcustodian for the Lake Shore Alternative Financial Asset Funds, to prevent dissipation of assets.

In the High Court of Justice case, the various Lake Shore entities also ask for: an injunction restraining each of the Defendants [the FCMs] from complying with any request or demand by the United States Commodities and Futures Trading Commission or the United States National Futures Association or any branch or agent thereof or any receiver appointed at the suit thereof, to transfer the sums and assets standing to the credit of the Claimants with the relevant Defendants as referred to above out of the jurisdiction of this Court or to deal with them in any way contrary to the instructions of the relevant Claimant, save to the extent that the appointment of such receiver and/or the validity of his request or demand in respect of such sums or assets has been recognised and enforced by this Court.

Next, the court takes judicial notice of the September 13, 2007, order from the Ontario Superior Court of Justice, No. 07-CL-7168, appointing Ernst & Young as a receiver. Specifically, this order:

* Appoints Ernst & Young as a receiver for Lake Shore Alternative Financial Asset Corporation Limited and Lake Shore Alternative Financial Asset Corporation 2006 Limited (the "Debtors"). Id. at p.1.

* Defines "the Property" as "all of the Debtors' current and future assets, undertakings and properties of every nature and kind whatsoever, and wherever situate including all proceeds thereof." Id. at ¶ 2.

* Empowers the receiver to "initiate, prosecute and continue the prosecution of any and all proceedings and to defend all proceedings now pending or hereafter instituted with respect to the Debtors, the Property or the Receiver" and further provides that this authority extends to "appeals or applications for judicial review in respect of any order or judgment pronounced in any such proceeding." Id. at ¶ 3(j).

* Specifies that these powers include "any proceeding under the United States Bankruptcy Code or any other regulatory proceedings" including but not limited to Sentinel's Chapter 11 bankruptcy case. Id. at ¶ 4.

* States that no proceedings against the Property shall be commenced or continued without leave of the Canadian Court and the receiver's written consent, and gives the receiver the authority to apply to any court wherever located for recognition of the order. Id. at ¶¶ 10, 29.

Finally, the court notes that Lake Shore Limited appealed the injunction order entered by this court. The Seventh Circuit declined to stay this order pending appeal and expedited its consideration of Lake Shore Limited's appeal from this court's preliminary injunction order (Seventh Circuit case no. 07-3070) and its appeal from an ...


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