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Coexist Foundation, Inc. v. Fehrenbacher

United States Court of Appeals, Seventh Circuit

August 2, 2017

Coexist Foundation, Inc., Plaintiff-Appellee,
v.
Michael Fehrenbacher, et al., Defendants-Appellants.

          Argued March 29, 2017

         Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. l:ll-cv-06279 - Sharon Johnson Coleman, Judge.

          Before Wood, Chief Judge, and Rovner and Williams, Circuit Judges.

          ROVNER, CIRCUIT JUDGE.

         This case involves the unfortunate meeting of a hapless retired baseball player seeking to invest his earnings, a self-described "con man" who claims to be reformed, persons running a Ponzi scheme, and a man who "had no business handling the investment finances of others." Coexist Foundation, Inc. v. Fehrenbacher, 2016 WL 4091623, *4 (N.D. Ill. Aug. 2, 2016). The con man is the plaintiff, and it is doubtful that he is truly reformed. The man who had no business handling the investments of others is the primary defendant. The Ponzi scheme was run by a Florida company called Assured Capital, which is not a party to this suit. The person who lost everything is, of course, the unlucky baseball player, whose father was attempting to manage his son's finances when he fell victim to the scheme here. After a bench trial, the district court determined that the defendants violated a Florida law prohibiting the sale of unregistered securities. The court ordered rescission in the hopes that some of the money would get back to the baseball player, who had obtained a judgment against the con man in separate litigation. The defendants now appeal and we affirm.

         I.

         Coexist Foundation, Inc. was formed in 2008 by Timothy Hubman, an admitted con man who created Coexist after he was forced to dissolve his former "Hubman Foundation." A federal court in Virginia had determined that the Hubman Foundation was not a charity but a sham designed to insulate Hubman from his debts and obligations. That court also found that Hubman and his former foundation had engaged in "fraudulent conduct, intentional deceptive and misleading actions, and outright lies" as part of an ongoing pattern of misconduct extending over many years and across several states. R. 217, at 59. Hubman, who claimed to be reformed after joining a church, became the president and sole director of the Coexist Foundation on the very day he dissolved the fraudulent Hubman Foundation. Hubman was introduced to Michael Fehrenbacher, a defendant here, by a "mutual contact" in early 2009. Fehrenbacher was the president of MWF Financial, a wholesale banking institution that packaged and sold mortgage notes to investment banks, and of United Funding, a retail loan broker. Fehrenbacher was interested in meeting Hubman because Hubman claimed to have contacts who could be potential clients for Fehrenbacher.

         Hubman's first potential contact for Fehrenbacher did not pan out but on March 31, 2009, Fehrenbacher offered Hubman a deal via email that promised any invested funds would not be at risk and would be held in escrow. In April 2009, Coexist wired $300, 000 to Fehrenbacher's account at Harris Bank in Illinois.[1] Soon thereafter, Hubman requested a return of $150, 000 and Fehrenbacher complied. An email trail documented what happened next. On June 3, Fehrenbacher sent Hubman an email stating that "the trader" confirmed a "placement" of the remaining $150, 000 that would produce a twenty-five percent return every ten days. Coexist would receive fifteen percent of that return. Fehrenbacher told Hubman in the email that, if he wired an additional $1.85 million, Fehrenbacher would combine it with the $150, 000, securing a return of thirty percent, as well as a weekly payout. In a June 5 email, Fehrenbacher attempted to clarify the deal with Hubman:

Trade starts Monday and will pay 30% every 2 weeks. It will pay 15% for the first week, as its only half the trading time.
My current 2M is going to pay 30% bi-weekly. The trade starts Monday and we will be paid 15% next Friday. I will pay you half of the 15% as we agreed to split it.
Now, When I place your funds (2M) next week, the following Monday your platform will be eligible for a weekly trade. It is my current understanding it will pay between 25-30% per week, odds are 30. So your 2M will go into a weekly slot. I will then pay you weekly.
Next, part of the compensation I want you to consider, is a couple of domestic flights for me and my family (4 in total) from Dupage, two flights are two florida (nov 09, spring break 2010), one is to Hawaii (dec 2009-right after xmas), and one is to vegas (3-4 weeks down the road), I ask that these flights are paid out of your dividends you are paid. I would also like to be considered to use the plane for a couple of business flights-that i will pay for, but you can provide me the contact to set it up.

R. 216, at 44 (all errors in original).

         Coexist subsequently wired an additional $1.85 million to Fehrenbacher who then transferred the entire $2 million ($150, 000 plus $1.85 million) to a Florida company called Assured Capital, the "trader" referenced in the emails. In a June 24 email, Fehrenbacher sent to Hubman two "Joint Venture Agreements, " one addressing the initial $150, 000 transfer and the other related to the $1.85 million transfer from Hubman. The identical agreements provided that Fehrenbacher wished to invest a portion of Coexist's funds in "a program, " and that the money would be placed in escrow where it would remain under control of the escrow agent. The agreements purported that the money would not be at risk and would be used only as proof of funds. The investment would pay thirty percent bi-weekly until December 2009. Hubman signed the paperwork at Fehrenbacher's Illinois office but never received fully executed copies signed by Fehrenbacher. Fehrenbacher denied that he ever signed the agreements. Fehrenbacher also asserted that he never received any ...


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