IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 99-10980 _____________________

SECURITIES AND EXCHANGE COMMISSION

Plaintiff - Appellee

v.

FUNDING RESOURCE GROUP, also known as FRG Trust; QUENTIN HIX; GENE COULTER; STEVEN C ROBERTS; MVP NETWORK, INC, a Texas corporation; FMCI TRUST; FUNDERS MARKETING COMPANY INC, a Texas corporation; RAYMOND G PARR; WILLARD VEARL SMITH; EARL D MCKINNEY; FORTUNE INVESTMENTS LTD, a Nevada Corporation; ROBERT CORD, also known as Robert F Schoonover; WINTERHAWK WEST INDIES LTD; IGW TRUST; CAROLYN DON HICKS; CARL LADANE WEAVER; HOWE FINANCIAL TRUST, an Indiana corporation solely for purposes of equitable relief; TREDS FINANCIAL TRUST, defendant solely for purposes of equitable relief; MARY ANN BAUCE; HAMMERSMITH TRUST LLC, a Tennessee limited liability company; HAMMERSMITH TRUST LTD, an Irish corporation; BRIDGEPORT ALLIANCE LLC, a Nevada limited liability company; LANDFAIR CUSTODIAL SERVICES INC, a Tennessee corporation; MICROFUND, a Nevada limited liability company; AMERICAN PACIFIC BANK & TRUST INC, an Antiguan corporation; EUROFUND INVESTMENT INC, a Tennessee corporation; B DAVID GILLILAND; MELODY ROSE

Defendants - Appellees

v.

SALISH INVESTMENTS; FHA SERVICES; HERBERT PRESS; PRESS FAMILY LP; KUMARASUNDARAM SITTAMBALAM; REX WELLER; VISTA CAPITAL; GALAXY ENTERPRISES TRADING LTD; SITTAMBALAM RAJASUNDARAM; BILL FINCH; ROSIE FAN; PLENITUDE LTD; LAURA NISHIMURA

Movants - Appellants _________________________________________________________________

Appeal from the United States District Court for the Northern District of Texas (3:98-CV-2689) _________________________________________________________________ September 8, 2000

Before KING, Chief Judge, PARKER, Circuit Judge, and KAZEN, District Judge.*

PER CURIAM:**

Movants-Appellants appeal the district court’s denial of

their motion to intervene in a civil enforcement action brought

by Plaintiff-Appellee the Securities and Exchange Commission

against Defendants-Appellees. We affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

Movants-Appellants Salish Investments, FHA Services, Herbert

Press, Press Family LP, Kumarasundaram Sittambalam, Rex Weller,

Vista Capital, Galaxy Enterprises Trading, Ltd., Sittambalam

Rajasundaram, Bill Finch, Rosie Fan, Plenitude, Ltd., and Laura

Nishimura (“Appellants”) brought an action in the United States

District Court for the Middle District of Florida, Tampa Division

(the “Florida action”), against Sterling Management Services,

* Chief Judge of the Southern District of Texas, sitting by designation. ** Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.

2 Inc., Frederick J. Gilliland, Sterling Assets Services, Ltd.,

Marian Jones, B. David Gilliland,1 Hammersmith Trust, LLC, August

William Christian Mohr, Carlos Ferreto, Bridgeport Alliance,

Ltd., First Global International, Inc., and Eagle Asset

Management, Inc. (collectively, the “Florida defendants”).

Appellants alleged that the Florida defendants had induced them

to invest in monthly high-yield investment programs and short-

term quick-turnaround programs, and then failed to pay profits or

principal, or return funds upon Appellants’ request. Appellants’

May 1999 amended complaint asserted claims for fraud, fraudulent

conveyance, and conversion under Florida state law, as well as

violations of the Racketeering Influenced and Corrupt

Organizations Act (“RICO”), see

et seq., Section

10 of the Securities Exchange Act of 1934 (the “Exchange Act”),

see

(b), and Rule 10b-5 under the Exchange Act, see

.10b-5.2 They sought relief in the form of

damages in the amount of the funds they invested; a judgment

setting aside a mortgage taken out on property purchased with

1 B. David Gilliland’s full name is Benjamin David Gilliland. Appellants referred to “David Gilliland” in their complaint, and the SEC named “B. David Gilliland” in the enforcement action. We will likewise refer to Benjamin David Gilliland as “B. David Gilliland.” 2 Although Appellants asserted that the Tampa district court had jurisdiction over its action because their claims arose from the Securities Act of 1933 (the “Securities Act”), see 15 U.S.C. § 77a et seq., as well as RICO and the Exchange Act, the complaint did not list a claim under that statute.

3 invested funds; treble damages under RICO; a judgment declaring

that Frederick Gilliland, Sterling Management Services, Inc., and

Sterling Asset Services, Ltd. were each other’s alter ego; and

various injunctions.

Hammersmith Trust, LLC, B. David Gilliland, and Bridgeport

Alliance, LLC, defendants in the Florida action, are also

involved in a civil enforcement action filed by the Securities

and Exchange Commission (the “SEC”) in the United States District

Court for the Northern District of Texas, Dallas Division (the

“enforcement action”) in November 1998. The SEC brought this

action against Funding Resource Group, Quentin Hix, Gene Coulter,

Steven C. Roberts, MVP Network, Inc., FMCI Trust, Funders

Marketing Company, Inc., Raymond G. Parr, Willard Vearl Smith,

Earl D. McKinney, Fortune Investments, Ltd., Robert Cord,

Winterhawk West Indies, Ltd., IGW Trust, Carolyn Don Hicks and

Carl Weaver (the “enforcement action defendants”). The SEC

contended that the enforcement action defendants participated in

fraudulent Ponzi or pyramid schemes orchestrated by Funding

Resource Group, MVP Network, and FMCI Trust, in which the

defendants sold unregistered (and allegedly nonexistent) “prime

bank” securities issued by Funding Resource Group, MVP Network,

and FMCI Trust. The SEC’s second amended complaint asserted that

the enforcement action defendants had violated (1) § 10(b) of the

Exchange Act and Rule 10b-5; (2) § 17(a)(1) of the Securities Act

of 1933 (the “Securities Act”), see 15 U.S.C. § 77e; (3)

4 §§ 17(a)(2) - (3) of the Securities Act, see 15 U.S.C. § 77q(a);

and (4) §§ 5(a) and 5(c) of the Securities Act, see 15 U.S.C.

§ 77v(a).

In addition, the SEC alleged that Hammersmith Trust, LLC, B.

David Gilliland, and Bridgeport Alliance, LLC, among others,3

received some of the approximately $14 million in proceeds of the

enforcement action defendants’ allegedly illegal sales. Seeking

to disgorge these funds, the SEC brought a fifth claim for unjust

enrichment against Hammersmith Trust, LLC, B. David Gilliland,

Bridgeport Alliance, LLC, and the other equitable defendants.

The district court subsequently entered orders against the

equitable defendants, including Hammersmith Trust, LLC, B. David

Gilliland, and Bridgeport Alliance, LLC, that froze their assets,

required them to submit an accounting, enjoined them from

destroying records, and appointed Michael J. Quilling as receiver

over their assets.4

3 The SEC also alleged that Howe Financial Trust, Treds Financial Trust, Mary Ann Bauce, Hammersmith Trust, Ltd., Microfund, LLC, Landfair Custodial Services, Inc., American Pacific Bank & Trust, Inc., Eurofund Investment Inc., and Melody Rose (collectively with B. David Gilliland, Hammersmith Trust, Ltd., and Bridgeport Alliance, LLC, the “equitable defendants”) received wrongfully obtained funds from defendants. 4 The district court initially froze these parties’ assets and appointed Michael J. Quilling as receiver in orders dated January 21, 1999 and March 11, 1999. It unfroze the assets pursuant to an agreed order dated March 26, 1999. When B. David Gilliland and the Hammersmith Trust entities failed to make the payments to the receiver required by the March 26 order, the district court held B. David Gilliland in contempt of court. On July 22, 1999, the district court entered another order freezing

5 On June 11, 1999, Appellants brought a motion to intervene

in the enforcement action. Appellants asserted that they were

defrauded through the same Ponzi scheme at issue in the

enforcement action and induced to purchase types of unregistered

securities substantially similar to those sold by the enforcement

action defendants. Appellants specifically contended that the

enforcement action defendants had enlisted “the additional

parties listed in the Florida [action] to defraud [Appellants]

into investing in the same form of foreign investment.”

Appellants alleged that (1) B. David Gilliland “was one of the

masterminds behind this international scheme” and created an

“elaborate web of corporations . . . to facilitate this scheme

and to launder the money received from investors;” (2) Fred

Gilliland assisted B. David Gilliland in his unlawful enterprise;

(3) Hammersmith Trust, LLC and Hammersmith Trust, Ltd.5

(collectively, the “Hammersmith Trust entities”) constituted

alter egos of B. David Gilliland; and (4) Bridgeport Alliance,

Ltd. (a defendant in the Florida action) was possibly a sister

corporation to, alter ego of, or the same corporation as

Bridgeport Alliance, LLC (an equitable defendant in the

enforcement action). The SEC, B. David Gilliland, Hammersmith

the parties’ assets, enjoining them from destroying books and records, requiring them to make interim accountings, authorizing expedited discovery, and reinstating the receiver. 5 Hammersmith Trust, Ltd. was not named as a defendant in the Florida action.

6 Trust, Ltd., and Hammersmith Trust, LLC filed oppositions to the

motion.

The district court addressed the motion to intervene at a

hearing held on July 22, 1999. The SEC informed the court that

it did not consent to the intervention. The receiver informed

the court that he was going to “go find [the] money” in

possession of Hammersmith Trust, LLC6 and “use it to give to all

the Hammersmith investors, pro rata, including [Appellants].”

The receiver also stated that he had discussed this plan with

Appellants’ counsel and that he thought Appellants’ counsel was

“happy [with the plan] at this point.” Appellants’ counsel,

however, proceeded to argue the merits of the motion to intervene

to the court. After questioning Appellants’ counsel with regard

to whether the Appellants needed the SEC’s consent to intervene

and whether the SEC adequately represented the Appellants’

interest, the court stated:

Let me tell you about . . . your intervention, I’m going to deny it without prejudice at this time. Let’s get on down the road and let’s see – and you visit with Mr. Quilling, because unlike [the SEC], Mr. Quilling’s only mission in life is to recover monies for people like you represent.

And if you feel like he’s not doing a good job of it, you get back with me. But right now I’m going to deny [the motion to intervene].

6 The receiver was referring to the Nevis, West Indies- based Hammersmith Trust, LLC.

7 In its order filed July 27, 1999, the district court denied

Appellants’ motion to intervene without prejudice.7 Appellants

timely appeal.

II. DISCUSSION

A. Jurisdiction and Standard of Review

Under the law of this circuit, a denial of a motion to

intervene as a matter of right under Federal Rule of Civil

Procedure 24(a) is an appealable final decision. See Edwards v.

City of Houston,

(5th Cir. 1996) (en banc). We

review a denial of such a motion de novo. See

. This

court has provisional jurisdiction to review a denial of a motion

for permissive intervention under Rule 24(b) for an abuse of

discretion. See

. Unless we find an abuse of

discretion, we lack jurisdiction over the permissive intervention

claim and are constrained to dismiss the appeal thereof. See

Woolen v. Surtran Taxicabs, Inc.,

(5th Cir.

1982).

B. Intervention as of Right

Appellants contend that they are entitled to intervene as a

matter of right pursuant to Rule 24(a)(2). That section imposes

four requirements: (1) the applicant must file a timely

7 The district court also dismissed Appellants’ counsel’s application to appear pro hac vice as moot.

8 application; (2) the applicant must claim an interest in the

property or transaction that is the subject of the action; (3)

the applicant must show that disposition of the action may as a

practical matter impair or impede the applicant’s ability to

protect that interest; and (4) the applicant’s interest must not

be adequately represented by existing parties to the litigation.

See FED. R. CIV. PROC. 24(a)(2). “[A]bsence of even one of the

four factors required by rule 24(a)(2) is sufficient to defeat

intervention . . . .” United States v. Franklin Parish Sch. Bd.,

(5th Cir. 1995).

As an initial matter, we note that it appears from the

record that Appellants failed to attach a complaint to their

motion to intervene as dictated by Rule 24. See FED. R. CIV. PROC.

24(c) (“The motion shall . . . be accompanied by a pleading

setting forth the claim or defense for which intervention is

sought.”). Although the filing of a complaint in intervention is

clearly required by the language of the rule, this court has

traditionally “been lenient in hearing the appeals of parties who

have failed to fulfill the provisions of Rule 24(c).” See

International Marine Towing, Inc. v. Southern Leasing Partners,

Ltd.,

(5th Cir. 1983). Furthermore, despite

the SEC’s having raised the issue in its opposition to

Appellants’ motion, the district court did not address this

deficiency of Appellants’ motion in his order dismissing the

motion without prejudice. In addition, it appears from the

9 transcript of the July 22 hearing that the district court

considered the merits of the motion, at least to a certain

extent. As a result, we decline to decide the appeal on these

grounds. See United States v. State of Louisiana,

,

1128 n.4 (5th Cir. 1976). Our refusal to affirm the district

court’s decision on this basis, however, should not be

interpreted as a license to ignore the requirements of Rule

24(c). If and when the Appellants again seek intervention as the

district court has permitted them to do, strict compliance with

the requirements of Rule 24(c) should be exacted.

Although Appellants’ failure to attach a complaint results

in some uncertainty as to what claims they propose to bring in

the enforcement action, it is clear from the Appellants’ brief,

their original motion to intervene, and the amended complaint

from the Florida action that the gravamen of any claims in

intervention would be that they lost $5 million to the Florida

defendants, including B. David Gilliland, the Hammersmith Trust

entities, and Bridgeport Alliance, LLC, in connection with

allegedly fraudulent investment schemes. It is unnecessary to

determine the specific contours of Appellants’ possible claims in

intervention, however, as we conclude that Appellants fail to

satisfy the second requirement of Rule 24(a)(2): a claim of an

interest in the property or transaction that is the subject of

the enforcement action.

10 The plain language of Rule 24(a)(2) states that the would-be

intervenor must claim “an interest relating to the property or

transaction which is the subject of the action . . . .” FED. R.

CIV. PROC. 24(a)(2) (emphasis added). As described in the SEC’s

second amended complaint, the property that is the subject of the

enforcement action consists of $14 million in funds deriving from

the allegedly fraudulent sales of unregistered “prime bank”

securities by the enforcement action defendants. Furthermore,

these sales, coordinated in a Ponzi scheme, constitute the

transaction that is the subject of the enforcement action.

Here, however, Appellants’ interest pertains to the $5

million in funds that they themselves paid to the Florida

defendants, not to the $14 million traceable to the fraudulent

sales of the enforcement action defendants. Appellants maintain,

however, that they have an interest in the enforcement action

because the equitable defendants in that action “may have

received and may be in possession” of funds fraudulently obtained

from Appellants. Even if true, this fact is insufficient to

create the requisite interest. The SEC is not targeting any

funds in the equitable defendants’ possession for disgorgement

other than the discrete group of assets directly traceable to

fraudulent sales of unregistered securities by the enforcement

defendants. The mere fact that the funds to which Appellants

assert their entitlement in the Florida action may be located in

some of the same bank accounts as the funds sought by the SEC in

11 the enforcement action does not place the $5 million within the

scope of the enforcement action.8 Therefore, we conclude that

Appellants may not intervene as a matter of right on this basis.9

Nor does Appellants’ contention that the Ponzi scheme in

which they unwittingly participated was part, or an extension of,

the Ponzi scheme allegedly perpetrated by the defendants in the

enforcement action provide grounds for intervention under Rule

24(a)(2). Even assuming, arguendo, that the Ponzi schemes were

connected, the allegedly fraudulent sales of unregistered

8 We recognize that the appointment of a receiver over B. David Gilliland’s, the Hammersmith Trust entities’, and, assuming for the purposes of this discussion that Bridgeport Alliance, LLC is an alter ego or sister corporation of Bridgeport Alliance, Ltd., Bridgeport Alliance, LLC’s assets -- as well as the freezing of those assets -- may impair Appellants’ ability to recover funds from those entities once they have established their legal right to do so. However, Appellants may not bootstrap an impairment caused by the enforcement action of an interest not at issue in the enforcement action into a right to intervene under Rule 24(a)(2). 9 We also note that Appellants have not established that their interest in the $5 million, much less in any part of the $14 million at issue in the enforcement action, is “direct, substantial, and legally protectable,” as required under the law of this circuit. See New Orleans Pub. Serv., Inc. v. United Gas Pipe Line Co.,

, 463-64 (5th Cir. 1984) (en banc) (collecting cases). We assume that Appellants may remedy this defect by proceeding with the Florida action. Once their right to the $5 million (or to some other number) is established, they may doubtless bring a claim to the receiver. It appears from the district court’s July 22 order that the receiver is considering a bankruptcy action as a way of dealing with the claims of defrauded investors, although the SEC asserts in its brief that a distribution plan – subject to court approval and available for comment and objection by the claimants – will be established by the receiver and/or the SEC. In any event, it appears that an orderly procedure for distributing the funds recovered by the receiver will ensue after the enforcement action is resolved.

12 securities by B. David Gilliland, the Hammersmith Trust entities,

or Bridgeport Alliance, LLC are not referenced in the SEC’s

second amended complaint, and nowhere else have we discerned an

intent by the SEC to introduce evidence regarding alleged sales

of unregistered securities by anyone other than the enforcement

action defendants in the lawsuit. We are not inclined to stretch

the meaning of “transactions which [sic] are the subject of the

action” to include transactions that are not mentioned by the

parties, much less litigated by them. Because our review of the

briefs, the SEC’s complaint in the enforcement action, and the

Appellants’ complaint in the Florida action does not reveal that

Appellants have an interest in either the property or transaction

that is the subject of the enforcement action, we conclude that

the district court did not err in denying Appellants’ motion to

intervene under Rule 24(a)(2).

C. Permissive Intervention

Appellants also argue that they are entitled to permissive

intervention because they have established a common question of

law or fact as required by Rule 24(b). See FED. R. CIV. PROC.

24(b)(2) (stating that anyone may be permitted to intervene “when

an applicant’s claim or defense and the main action have a

question of law or fact in common”). However, this court has

held that “[p]ermissive intervention is wholly discretionary with

the [district] court . . . even though there is a common question

13 of law or fact, or the requirements of 24(b) are otherwise

satisfied.” New Orleans Pub. Serv., Inc., 732 F.2d at 470-71

(citing WRIGHT & MILLER, FEDERAL PRACTICE & PROCEDURE: CIVIL § 1913)

(internal quotation marks omitted).

Accordingly, when we are asked to review a denial of permissive intervention, the question on appeal is not whether “the factors which render permissive intervention appropriate under Federal Rule of Civil Procedure 24(b) were present,” but is rather “whether the trial court committed a clear abuse of discretion in denying the motion.”

Id. at 471. The clear abuse of discretion standard is a high

one; indeed, a reversal of a district court’s denial of

permissive intervention on appeal “is so unusual as to be almost

unique.” Id.

Here, our review of the record reveals no “extraordinary

circumstances” that would justify a finding of clear abuse of

discretion by the district court. See Cajun Elec. Power Coop.,

Inc. v. Gulf States Util., Inc.,

(5th Cir.

1991). Rather, the district court’s remarks at the July 22

hearing demonstrate that he considered the determination of

claims by defrauded investors and the eventual distribution of

funds to those claimants to be within the province of the

receiver, and thus that it was more appropriate for Appellants to

present their claims in the first instance to the receiver than

to the court. The district court’s decision reflected a

pragmatic approach to case management and was manifestly within

the scope of his discretion. As a result, we dismiss the appeal

14 with regard to the district court’s denial of permissive

intervention.10

III. CONCLUSION

For the foregoing reasons, the district court’s denial of

Appellants’ motion to intervene is AFFIRMED.

10 Although we recognize that the district court made no findings in its order, “in the circumstances of this particular case, we feel that we can dispose of the question before us without a full record, since it is more than clear that appellants are not entitled to intervene.” United States v. Perry County Bd. of Educ.,

(5th Cir. 1978).

15