Securities and Exchange Commission v. FIRST CHOICE MANAGEMENT SERVICES, INCORPORATED and GARY VAN WAEYENBERGHE

NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with Fed. R. App. P. 32.1
United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Argued October 25, 2018
Decided November 20, 2018
Before
ILANA DIAMOND ROVNER, Circuit Judge
DAVID F. HAMILTON, Circuit Judge
AMY C. BARRETT, Circuit Judge
No. 18‐1516
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
FIRST CHOICE MANAGEMENT
SERVICES, INCORPORATED and
GARY VAN WAEYENBERGHE,
Defendants,
JOSEPH D. BRADLEY,
Appellant,
v.
ALCO OIL & GAS COMPANY LLC and
RAILROAD COMMISSION OF THE
STATE OF TEXAS,
Appellees.
Appeal from the United States
District Court for the Northern
District of Indiana, South Bend
Division.
No. 3:00‐cv‐00446‐RLM‐MGG
Robert L. Miller, Jr.,
Judge.

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No. 18‐1516 Page 2
O R D E R
This case began in 2000 when the SEC charged First Choice Management
Services, Inc. and Gary Van Waeyenberghe with fraud in violation of the federal
securities laws. The district court appointed a receiver, Joseph Bradley, to locate,
collect, and distribute the defendants’ assets among the victims of the $31 million
fraud. Eighteen years later, the receivership is close to wrapping up. As one of the
final steps, Bradley asked the Texas Railroad Commission, a state regulatory body
not otherwise involved in these proceedings, to return a $250,000 bond that may
have been paid with funds from defrauded investors. When the Commission
declined to return the bond, Bradley applied to the district court for an order
holding the Commission in contempt and requiring the bond’s return. The court
denied Bradley’s motion because the Commission had not violated a clear
command of the court. We affirm.
I.
In 2000, the SEC initiated a civil action against First Choice Management
Services, Inc. and Gary Van Waeyenberghe for defrauding investors. Joseph
Bradley, the court‐appointed receiver, set about marshaling the assets involved in
that fraud and discovered that some had been used to acquire oil and gas leases in
Texas. At Bradley’s request, the district court entered a freeze and turnover order
to preserve the assets that may have been connected to the fraud, including assets
related to those leases.
In 2006, however, the court lifted a portion of the asset freeze so that those
leases could be operated for the benefit of the defrauded investors by ALCO Oil &
Gas Co. In order to operate the leases, ALCO had to post a $250,000 cash bond
with the Texas Railroad Commission, the state agency charged with overseeing oil
and gas production activities in Texas. The Commission requires anyone operating
a lease to file financial assurance so that the Commission is guaranteed at least
some recovery if the operator violates regulations or causes environmental
damage.
In 2008, the Commission informed ALCO of two judgments rendered against
it in Commission enforcement proceedings. In one, the Commission determined
that several wells operated by ALCO had not been properly plugged, rendering
the surrounding groundwater susceptible to saltwater and oil discharges. In the
other, the Commission determined that ALCO had failed to complete certain
administrative tasks, such as the statutory requirement that it file an
organizational report. When ALCO failed to address these problems, the

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No. 18‐1516 Page 3
Commission informed ALCO that it was transferring the $250,000 bond to the
Oilfield Cleanup Fund, an account in the general revenue fund of the state treasury.
ALCO contested neither the findings against it nor the transfer of the deposit. The
Commission reports that it spent more than $542,000 to plug the wells and remedy
the damage that they caused.
Bradley believed that the bond comprised funds from defrauded investors,
and in 2016, he sought its return. When the Commission refused to return it,
Bradley asked the district court to hold the Commission in contempt for failing to
return the bond.
The district court denied Bradley’s motion. It pointed to several factors that it
considered in making its decision: ALCO’s regulatory responsibility to supply the
bond, maintain the wells, and avoid the damage that the Commission was forced
to remediate; the Commission’s willingness to refund the bond if it receives
payment for ALCO’s violations and reimbursement for the environmental repair
it conducted; and the state law obstacles that the Commission would face in trying
to extract the bond from the state treasury.
II.
We review a district court’s decision on a contempt petition for abuse of
discretion. Prima Tek II, LLC. v. Klerk’s Plastic Indus., B.V., 525 F.3d 533, 541–42 (7th
Cir. 2008). To succeed on his petition, Bradley needed to establish by clear and
convincing evidence that (1) there was an unambiguous command from the court;
(2) the Commission violated that command; (3) the violation was significant,
meaning the Commission did not substantially comply; and (4) the Commission
failed to take steps to reasonably and diligently comply with the command. Id.
And when the meaning of a district court’s command is disputed, “broad
deference [is] given to a district court in its interpretation of its own orders.”
Southworth v. Bd. of Regents of Univ. of Wisconsin Sys., 376 F.3d 757, 766 (7th Cir.
2004).
The Commission did not violate any unambiguous command from the district
court. The district court explained that the freeze and turnover order did not cover
the Commission’s transfer of the bond funds because the bond’s existence was a
regulatory matter—a cost of doing business under state law.1 The Commission’s
willingness to return the bond once ALCO made good on the judgments against it
1 28 U.S.C. § 959(b) requires that property under receivership be operated in accordance with
state law.

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No. 18‐1516 Page 4
confirmed the regulatory nature of the bond. The district court did not understand
its order to interfere with this state law procedure; nor do we.
Even if we were to set aside this regulatory distinction, it would be far from
clear that the Commission violated the freeze order. When the order was issued,
the bond was in the hands of Bank of America, and the Railroad Commission had
an independent letter of credit from the bank. The Commission argues that letters
of credit payable to third parties are not receivership property even if they are
supported by receivership property, and Bradley has not clearly shown otherwise.
In addition, the court lifted part of the freeze order to allow ALCO to operate the
oil leases, which may have extricated the bond from the order even if the bond had
initially been subject to it.
To the extent that Bradley argues that the district court abused its discretion
by failing to order turnover of the bond via its equitable powers, that argument
fails as well. The district court has broad equitable power to supervise a
receivership such as this one, so “appellate scrutiny is narrow”; we review the
decision below for abuse of discretion. SEC v. Wealth Mgmt. LLC, 628 F.3d 323, 332–
33 (7th Cir. 2010). The district court suggested a number of factors that shifted the
balance of equities in the Commission’s favor: the valid legal grounds for taking
the bond, the state law obstacles to extracting a refund from the state treasury, the
Commission’s willingness to work with Bradley to refund the bond upon
reimbursement, and the more than half a million dollars spent by the Commission
to remediate the damage caused by ALCO’s operation of the leases. While some
other factors may have favored Bradley, he has not come close to showing that the
court abused its broad power by siding with the Commission.
AFFIRMED.

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