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Case 3:18-cv-00679-CWR-FKB Document 59-3 Filed 07/09/19 Page 1 of 7

UNITED STATES DISTR ICT COURT


SOUTHERN DISTR ICT OF M ISS ISS IPPI
NORTHERN DIVISION

ALYSSON MILLS, IN HER CAPACITY Case No. 3:18-cv-679


AS RECEIVER FOR ARTHUR LAMAR
ADAMS AND MADISON TIMBER Arising out of Case No. 3:18-cv-252,
PROPERTIES, LLC, Securities and Exchange Commission v.
Arthur Lamar Adams and Madison
Plaintiff, Timber Properties, LLC

v. Hon. Carlton W. Reeves, District Judge


Hon. F. Keith Ball, Magistrate Judge
MICHAEL D. BILLINGS and
MDB GROUP, LLC;
TERRY WAYNE KELLY, JR. and
KELLY MANAGEMENT, LLC;
and WILLIAM B. MCHENRY, JR. and
FIRST SOUTH INVESTMENTS, LLC,

Defendants.

PROPOSED ORDER APPROVING SETTLEMENT


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Before the Court is the Motion for Entry of Consent Judgment and Approval of Proposed

Settlement filed by Plaintiff Alysson Mills, in her capacity as the court-appointed receiver (the

“Receiver”) for Arthur Lamar Adams (“Adams”) and Madison Timber Properties, LLC

(“Madison Timber”). The motion was filed in the case styled Alysson Mills vs. Michael D.

Billings, et al., No. 3:18-cv-679 (S.D. Miss) (“Recruiter lawsuit”), itself arising out of Securities

and Exchange Commission v. Arthur Lamar Adams and Madison Timber Properties, LLC, No.

3:18-cv-252 (S.D. Miss) (“S.E.C. lawsuit”).

The motion asks the Court to approve the Receiver’s proposed settlement with Michael

D. Billings and MDB Group, LLC (“Billings”), a defendant in the Recruiter lawsuit.

After having considered the filings and arguments of counsel therein, the Court GRANTS

the motion.

BACKGROUND

The Receiver’s complaint

On October 17, 2018, the Receiver filed an amended complaint against Michael D.

Billings and MDB Group, LLC; Terry Wayne Kelly, Jr. and Kelly Management, LLC; and

William B. McHenry, Jr. and First South Investments, LLC. The complaint alleges the

defendants received more than $16,000,000 in Madison Timber “commissions.” The complaint

seeks to return that money to the Receivership Estate, to maximize funds available for

distribution to victims.

The Receiver wishes to resolve the Receivership Estate’s claims against each of the

defendants efficiently, to minimize time and expense to the Receivership Estate. The Receiver

offered to suspend further litigation against a defendant if the defendant agreed to 1) make a full

2
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and complete financial disclosure, 2) commit to attempt to negotiate a settlement in good faith,

and 3) preserve assets pending negotiations.

Michael D. Billings and MDB Group, LLC (“Billings”) did not initially agree to the

Receiver’s proposal, but on November 13, 2018, this Court entered an agreed order preserving

Billings’s assets [Doc. 36]. On November 15, 2018, Billings made what the Receiver deemed a

full and complete financial disclosure. Thereafter, the parties negotiated in good faith toward a

settlement.

The Receiver and Billings have now agreed to a proposed settlement of the Receiver’s

claims for commissions payments, summarized herein, that the Receiver recommends that the

Court approve.

Billings’s finances

The Receiver’s complaint alleges Billings received net “commissions,” before taxes, of

$3,513,780 between 2013 and April 2018. When she filed her complaint, the Receiver did not

know whether Billings would be capable of returning any of that money to the Receivership

Estate. The Receiver insisted on a full and complete financial disclosure by Billings so that she

could assess whether settlement with Billings is viable and prudent.

The Receiver obtained from Billings sworn financial disclosures and supporting

documentation, including records from Billings’s bank and retirement accounts. The Receiver’s

counsel also separately examined Billings under oath regarding his finances.

The Receiver’s proposed settlement with Billings

The Receiver and Billings have undertaken extensive and thoughtful negotiations and the

Receiver is satisfied that settlement with Billings is in the Receivership Estate’s best interest.

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As a precondition to settlement, Billings consents to the entry of a Consent Judgment

[Exhibit A] against him in the full amount of $3,513,780, reflecting the net “commissions,”

before taxes, that he received between 2013 and April 2018. The Receiver agrees, however, that

she will release Billings from liability for the judgment, which reflects solely her claim against

Billings for commission payments, if he complies with the proposed Settlement Agreement

[Exhibit B].

The proposed Settlement Agreement provides that Billings shall transfer the following

assets currently in his possession to the Receivership Estate:

 $325,000 in cash currently sitting bank accounts and

 Billings’s interest in Oxford Springs, LLC.

In addition, Billings shall, among other things:

 execute a promissory note in the original principal amount of $500,000 due and
payable in four years that may be prepaid in the amount of $187,500 if paid in
365 days, $250,000 if paid in 547 days, or $312,500 if paid in 730 days;

 restate his federal and state income tax returns for the years in question, as
permitted by law, and transfer 90% of any refunds received to the Receivership
Estate; and
 cooperate with the Receiver’s ongoing efforts to recover money for the
Receivership Estate.

The Receiver believes the foregoing1 represents a value of approximately $800,000 to the

Receivership Estate. Based on her examination of his finances, the Receiver believes this amount

exceeds any amount the Receiver could obtain if she litigated her claim against Billings to final

judgment.

1
The foregoing is intended solely as a summary of the terms of the proposed Settlement Agreement. In
all events, the specific terms of the proposed Settlement Agreement and Consent Judgment shall control.

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The Court and the Receiver are mindful that if Billings required the Receiver to litigate

her claim against him to final judgment, Billings would be unable to pay the final judgment and

likely would file for bankruptcy. If Billings filed for bankruptcy, the Receivership Estate would

compete with other creditors for a share of Billings’s assets. The final judgment would be

virtually uncollectable.

The Receiver would spend considerable time and money litigating her claim against

Billings to final judgment. Billings also would spend considerable time and money defending

against the Receiver’s claim. The time and money spent on litigation, which currently is being

funded on an hourly basis, is time and money the Receivership Estate would never recover.

For all these reasons, the Receiver recommends settlement with Billings on the proposed

terms now, and the Court accepts her recommendation.

Unlike the Receiver’s settlement with Defendants Terry Wayne Kelly and Kelly

Management, LLC,2 the Receiver does not believe a hearing is required prior to the Court’s

approval of the proposed settlement with Billings, and the Court agrees. Unlike the settlement

with Defendants Terry Wayne Kelly and Kelly Management, LLC, the proposed settlement with

Billings does not include what is known as a “bar order”. Because the proposed settlement with

Billings does not include a “bar order” it does not affect the rights of other interested parties

therefore notice and hearing is not necessary.

2
See Doc. 56.

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ORDER

After having considered the filings and arguments of counsel therein, the Court finds that

the terms of the Settlement Agreement are adequate, fair, reasonable, and equitable. The

Settlement Agreement should be and is hereby APPROVED.

Accordingly, the Court hereby ORDERS as follows:

1. The terms used in this Order Approving Settlement that are defined in the

Settlement Agreement between the Receiver and Billings, unless expressly otherwise defined

herein, shall have the same meaning as in the Settlement Agreement.

2. This Court has jurisdiction over the subject matter of this action, and the Receiver is

a proper party to seek entry of this Order Approving Settlement.

3. The Settlement Agreement was reached after a full investigation of the facts by the

Receiver. The Settlement Agreement was negotiated, proposed, and entered into between the

Receiver and Billings in good faith and at arm’s length. The parties were well-represented and

competent to evaluate the strengths and weaknesses of all claims and defenses.

4. The Settlement Agreement will generate a significantly greater recovery to the

Receivership Estate than would be the case were the Receiver to obtain and attempt to collect on

a final judgment against Billings in the amount prayed for in the captioned action, which would

almost certainly force Billings into bankruptcy.

5. The parties and their counsel have at all times complied with the requirements of

Rule 11 of the Federal Rules of Civil Procedure.

6. The Court finds that the Settlement Agreement is, in all respects, fair, reasonable,

and adequate, and in the best interests of all parties claiming an interest in or asserting any claim

against Billings or the Receivership Estate.

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7. The Settlement Agreement, the terms of which are fully set forth in the document

itself, is hereby fully and finally approved. The parties are directed to implement and

consummate the Settlement Agreement in accordance with its terms and with this Order

Approving Settlement.

8. Nothing in this Order Approving Settlement or the Settlement Agreement and no

aspect of the Settlement Agreement or negotiation thereof is or shall be construed to be an

admission or concession of any violation of any statute or law, of any fault, liability, or

wrongdoing, or of any infirmity in the claims or defenses of any party in any other proceeding.

9. Billings shall deliver or cause to be delivered the Settlement Assets in accordance

with the terms of the Settlement Agreement. The Court specifically directs Billings to abide by

the cooperation covenants set forth in Paragraph 3(b) of the Settlement Agreement.

10. Upon Billings’s satisfaction of Billings’s obligations under the Settlement

Agreement, the Receiver shall file a motion to dismiss her claims for commissions payments

against Billings.

11. Without in any way affecting the finality of this Order Approving Settlement, the

Court retains continuing and exclusive jurisdiction over the parties for the purposes of, among

other things, the administration, interpretation, consummation, and enforcement of the

Settlement Agreement and Consent Judgement, including, without limitation, the releases and

bar order described therein.

DATED: _____________ ________________________________


Honorable Carlton W. Reeves
United States District Judge

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Case 3:18-cv-00679-CWR-FKB Document 59-1 Filed 07/09/19 Page 1 of 2

UNITED STATES DISTR ICT COURT


SOUTHERN DISTR ICT OF M ISS ISS IPPI
NORTHERN DIVISION

ALYSSON MILLS, IN HER CAPACITY Case No. 3:18-cv-679


AS RECEIVER FOR ARTHUR LAMAR
ADAMS AND MADISON TIMBER Arising out of Case No. 3:18-cv-252,
PROPERTIES, LLC, Securities and Exchange Commission v.
Arthur Lamar Adams and Madison
Plaintiff, Timber Properties, LLC

v. Hon. Carlton W. Reeves, District Judge


Hon. F. Keith Ball, Magistrate Judge
MICHAEL D. BILLINGS and
MDB GROUP, LLC;
TERRY WAYNE KELLY, JR. and
KELLY MANAGEMENT, LLC;
and WILLIAM B. MCHENRY, JR. and
FIRST SOUTH INVESTMENTS, LLC,

Defendants.

PROPOSED CONSENT JUDGMENT

Before the Court is the Motion for Entry of Consent Judgment and Approval of Proposed

Settlement filed by Plaintiff Alysson Mills, in her capacity as the court-appointed receiver (the

“Receiver”) for Arthur Lamar Adams (“Adams”) and Madison Timber Properties, LLC

(“Madison Timber”). The motion was filed in the case styled Alysson Mills vs. Michael D.

Billings, et al., No. 3:18-cv-679 (S.D. Miss) (“Recruiter lawsuit”), itself arising out of Securities

and Exchange Commission v. Arthur Lamar Adams and Madison Timber Properties, LLC, No.

3:18-cv-252 (S.D. Miss) (“S.E.C. lawsuit”).

The motion asks the Court to approve the Receiver’s proposed settlement with Michael

D. Billings and MDB Group, LLC (“Billings”), a defendant in the Recruiter lawsuit. Having
Case 3:18-cv-00679-CWR-FKB Document 59-1 Filed 07/09/19 Page 2 of 2

considered the filings and arguments of counsel, the Court grants the motion. The Court finds

that the terms of the Settlement Agreement are adequate, fair, reasonable, and equitable, and that

it should be approved.

As requested by the motion, and consistent with the approved Settlement Agreement, the

Court ORDERS:

Consent judgment is entered in favor of the Receiver and against Billings in the full

amount of $3,513,780, reflecting the net “commissions,” before taxes, that Billings received

between 2013 and April 2018.

DATED: _____________ ________________________________


Honorable Carlton W. Reeves
United States District Judge
Case 3:18-cv-00679-CWR-FKB Document 59 Filed 07/09/19 Page 1 of 6

UNITED STATES DISTR ICT COURT


SOUTHERN DISTR ICT OF M ISS ISS IPPI
NORTHERN DIVISION

ALYSSON MILLS, IN HER CAPACITY Case No. 3:18-cv-679


AS RECEIVER FOR ARTHUR LAMAR
ADAMS AND MADISON TIMBER Arising out of Case No. 3:18-cv-252,
PROPERTIES, LLC, Securities and Exchange Commission v.
Arthur Lamar Adams and Madison
Plaintiff, Timber Properties, LLC

v. Hon. Carlton W. Reeves, District Judge


Hon. F. Keith Ball, Magistrate Judge
MICHAEL D. BILLINGS and
MDB GROUP, LLC;
TERRY WAYNE KELLY, JR. and
KELLY MANAGEMENT, LLC;
and WILLIAM B. MCHENRY, JR. and
FIRST SOUTH INVESTMENTS, LLC,

Defendants.

MOTION FOR ENTRY OF CONSENT JUDGMENT


AND APPROVAL OF PROPOSED SETTLEMENT WITH BILLINGS

Plaintiff Alysson Mills, in her capacity as the court-appointed receiver (the “Receiver”) for

Arthur Lamar Adams (“Adams”) and Madison Timber Properties, LLC (“Madison Timber”),

through undersigned counsel, respectfully files this Motion for Entry of Consent Judgment and

Approval of Proposed Settlement and states as follows:

The Receiver’s complaint

1.

On October 17, 2018, the Receiver filed an amended complaint against Michael D. Billings

and MDB Group, LLC; Terry Wayne Kelly, Jr. and Kelly Management, LLC; and William B.

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McHenry, Jr. and First South Investments, LLC. The complaint alleges the defendants received

more than $16,000,000 in Madison Timber “commissions.” The complaint seeks to return that

money to the Receivership Estate, to maximize funds available for distribution to victims.

2.

The Receiver wishes to resolve the Receivership Estate’s claims against each of the

defendants efficiently, to minimize time and expense to the Receivership Estate. The Receiver

offered to suspend further litigation against a defendant if the defendant agreed to 1) make a full

and complete financial disclosure, 2) commit to attempt to negotiate a settlement in good faith,

and 3) preserve assets pending negotiations.

3.

Michael D. Billings and MDB Group, LLC (“Billings”) did not initially agree to the

Receiver’s proposal, but on November 13, 2018, this Court entered an agreed order preserving

Billings’s assets [Doc. 36]. On November 15, 2018, Billings made what the Receiver deemed a

full and complete financial disclosure. Thereafter, the parties negotiated in good faith toward a

settlement.

4.

The Receiver and Billings have now finally agreed to a proposed settlement of the

Receiver’s claims for commissions payments, summarized herein, that the Receiver recommends

that the Court approve.

Billings’s finances

5.

The Receiver’s complaint alleges Billings received net “commissions,” before taxes, of

$3,513,780 between 2013 and April 2018. When she filed her complaint, the Receiver did not

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know whether Billings would be capable of returning any of that money to the Receivership Estate.

The Receiver insisted on a full and complete financial disclosure by Billings so that she could

assess whether settlement with Billings is viable and prudent.

6.

The Receiver obtained from Billings sworn financial disclosures and supporting

documentation, including records from Billings’s bank and retirement accounts. The Receiver’s

counsel also separately examined Billings under oath regarding his finances.

The Receiver’s proposed settlement with Billings

7.

The Receiver and Billings have undertaken extensive and thoughtful negotiations and the

Receiver is satisfied that settlement with Billings is in the Receivership Estate’s best interest.

8.

As a precondition to settlement, Billings consents to the entry of a Consent Judgment

[Exhibit A] against him in the full amount of $3,513,780, reflecting the net “commissions,” before

taxes, that he received between 2013 and April 2018. The Receiver agrees, however, that she will

release Billings from liability for the judgment, which reflects solely her claim against Billings for

commission payments, if he complies with the proposed Settlement Agreement [Exhibit B].

9.

The proposed Settlement Agreement provides that Billings shall promptly transfer the

following assets currently in his possession to the Receivership Estate:

 $325,000 in cash currently sitting bank accounts and

 Billings’s interest in Oxford Springs, LLC.

In addition, Billings shall, among other things:

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 execute a promissory note in the original principal amount of $500,000 due and
payable in four years that may be prepaid in the amount of $187,500 if paid in
365 days, $250,000 if paid in 547 days, or $312,500 if paid in 730 days;

 restate his federal and state income tax returns for the years in question, as
permitted by law, and transfer 90% of any refunds received to the Receivership
Estate; and
 cooperate with the Receiver’s ongoing efforts to recover money for the
Receivership Estate.

10.

The Receiver believes the foregoing1 represents a value of approximately $800,000 to the

Receivership Estate. Based on her examination of his finances, Receiver believes this amount

exceeds any amount the Receiver could obtain if she litigated her claim against Billings to final

judgment.

11.

If Billings required the Receiver to litigate her claim against him to final judgment, Billings

would be unable to pay the final judgment and likely would file for bankruptcy. If Billings filed

for bankruptcy, the Receivership Estate would compete with other creditors for a share of

Billings’s assets. The final judgment would be virtually uncollectable.

12.

The Receiver would spend considerable time and money litigating her claim against

Billings to final judgment. Billings also would spend considerable time and money defending

against the Receiver’s claim. The time and money spent on litigation, which currently is being

funded on an hourly basis, is time and money the Receivership Estate would never recover.

1
The foregoing is intended solely as a summary of the terms of the proposed Settlement
Agreement. In all events, the specific terms of the proposed Settlement Agreement and Consent
Judgment shall control.

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13.

For all these reasons, the Receiver recommends settlement with Billings on the proposed

terms now.

14.

Unlike the settlement with Defendants Terry Wayne Kelly and Kelly Management, LLC,

the Receiver does not believe a hearing is required prior to the Court’s approval of the proposed

settlement with Billings. Unlike the settlement with Defendants Terry Wayne Kelly and Kelly

Management, LLC, the proposed settlement with Billings does not include what is known as a “bar

order”. Because the proposed settlement with Billings does not include a “bar order” it does not

affect the rights of other interested parties therefore the Receiver submits notice and hearing is not

necessary.

______________________

WHEREFORE, the Receiver respectfully submits the foregoing for the Court’s

consideration and requests that the Court enter the proposed Consent Judgment and Order

Approving Settlement.

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July 9, 2019
Respectfully submitted,

/s/ Lilli Evans Bass /s/ Jason W. Burge


BROWN BASS & JETER, PLLC FISHMAN HAYGOOD, LLP
Lilli Evans Bass, Miss. Bar No. 102896 Admitted pro hac vice
LaToya T. Jeter, Miss. Bar No. 102213 Brent B. Barriere, Primary Counsel
1755 Lelia Drive, Suite 400 Jason W. Burge
Jackson, Mississippi 39216 Kristen D. Amond
Tel: 601-487-8448 Rebekka C. Veith
Fax: 601-510-9934 201 St. Charles Avenue, Suite 4600
bass@bbjlawyers.com New Orleans, Louisiana 70170
Receiver’s counsel Tel: 504-586-5253
Fax: 504-586-5250
bbarriere@fishmanhaygood.com
jburge@fishmanhaygood.com
kamond@fishmanhaygood.com
rveith@fishmanhaygood.com
Receiver’s counsel

CERTIFICATE OF SERVICE

I certify that I electronically filed the foregoing with the Clerk of Court using the ECF

system which sent notification of filing to all counsel of record.

Date: July 9, 2019 /s/ Jason W. Burge


Admitted pro hac vice

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Case 3:18-cv-00679-CWR-FKB Document 23 Filed 10/24/18 Page 1 of 2

UNITED STATES DISTRICT COURT


SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION

ALYSSON MILLS, IN HER CAPACITY Case No. 3:18-cv-679-CWR-FKB


AS RECEIVER FOR ARTHUR LAMAR
ADAMS AND MADISON TIMBER Arising out of Case No. 3:18-cv-252,
PROPERTIES, LLC, Securities and Exchange Commission
v. Arthur Lamar Adams and Madison
Plaintiff, Timber Properties, LLC
v.
Hon. Carlton Reeves, District Judge
Hon. F. Keith Ball, Magistrate Judge
MICHAEL D. BILLINGS and
MDB GROUP, LLC; TERRY WAYNE
KELLY, JR. and KELLY
MANAGEMENT, LLC; and WILLIAM
B. MCHENRY, JR. and FIRST SOUTH
INVESTMENTS, LLC,

Defendants

MOTION OF DEFENDANTS MICHAEL D. BILLINGS


AND MDB GROUP, LLC TO DISMISS COUNT IV
OF THE RECEIVER’S AMENDED COMPLAINT

Michael D. Billings and MDB Group, LLC (“Mr. Billings”) submit this Motion to

Dismiss (the “Motion”) Count IV of the Amended Complaint [Dkt. 15] filed by Alysson

Mills (the “Receiver”), in her capacity as Receiver for Arthur Lamar Adams (“Adams”) and

Madison Timber Properties, LLC (“MTP”).

Count IV of the Receiver’s Amended Complaint asserts federal and state securities

claims against Mr. Billings. But the Receiver may not maintain these actions because no

such claims belong to MTP in this case. Consequently, Mr. Billings moves the Court,

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pursuant to Fed. R. Civ. P. 12(b)(6), to dismiss Count IV of the Receiver’s Amended

Complaint with prejudice, for failure to state a claim upon which relief can be granted.

Respectfully submitted, this the 24th day of October, 2018.

MICHAEL D. BILLINGS and MDB GROUP, LLC


Defendants

By: /s/ R. Andrew Taggart, Jr.


R. ANDREW TAGGART, JR. (MSB# 7422)
One of their Attorneys

OF COUNSEL:

R. Andrew Taggart, Jr. (MSB# 7422)


David G. Porter (MSB# 104828)
TAGGART, RIMES & GRAHAM, PLLC
1022 Highland Colony Parkway, Suite 101
Ridgeland, Mississippi 39157
Telephone: (601) 898-8400
Facsimile: (601) 898-8420
andy@trglawyers.com
dave@trglawyers.com

CERTIFICATE OF SERVICE

I hereby certify that on October 24, 2018 I electronically filed the foregoing with the

Clerk of the Court using the ECF system which sent notification of such filing to all counsel

of record in this matter. I further certify that I have mailed by United States Postal Service

the document to the following non-ECF participants: NONE.

SO CERTIFIED, this the 24th day of October, 2018.

/s/ R. Andrew Taggart, Jr.


R. ANDREW TAGGART, JR.

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Case 3:18-cv-00679-CWR-FKB Document 24 Filed 10/24/18 Page 1 of 6

UNITED STATES DISTRICT COURT


SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION

ALYSSON MILLS, IN HER CAPACITY Case No. 3:18-cv-679-CWR-FKB


AS RECEIVER FOR ARTHUR LAMAR
ADAMS AND MADISON TIMBER Arising out of Case No. 3:18-cv-252,
PROPERTIES, LLC, Securities and Exchange Commission
v. Arthur Lamar Adams and Madison
Plaintiff, Timber Properties, LLC

v. Hon. Carlton Reeves, District Judge


Hon. F. Keith Ball, Magistrate Judge
MICHAEL D. BILLINGS and
MDB GROUP, LLC; TERRY WAYNE
KELLY, JR. and KELLY
MANAGEMENT, LLC; and WILLIAM
B. MCHENRY, JR. and FIRST SOUTH
INVESTMENTS, LLC,

Defendants

MEMORANDUM BRIEF OF DEFENDANTS


MICHAEL D. BILLINGS AND MDB GROUP, LLC
IN SUPPORT OF THEIR MOTION TO DISMISS

Michael D. Billings and MDB Group, LLC (collectively, “Billings”) submit this

Memorandum Brief in support of their Motion to Dismiss [Dkt. 23] (the “Motion”) as to

Count IV of the Amended Complaint [Dkt. 15] filed by Alysson Mills (the “Receiver”), in

her capacity as Receiver for Arthur Lamar Adams (“Adams”) and Madison Timber

Properties, LLC (“MTP”).

FACTS

The Receiver filed her initial Complaint [Dkt. 1] against Billings on October 2, 2018.

Before Billings had an opportunity to file an answer, the Receiver amended her Complaint

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[Dkt. 15] on October 17, 2018. Billings now has until October 31 to serve responsive

pleadings to the Receiver’s Amended Complaint.

Besides asserting new facts against other defendants in this case, the Amended

Complaint also raised a new claim against Billings at Count IV, “for Disgorgement of

Commissions Earned in Violation of 15 U.S.C. § 77e and Miss. Code Ann. § 75-51-301”

(“Count IV”). Count IV claims that the Receiver is entitled to disgorgement of the money

paid to Billings by MTP, alleging that it was derived from the sale of unregistered securities

in violation of federal and state securities laws. Count IV goes on to allege that “Adams and

his associates used methods of interstate commerce . . . to facilitate the sales of promissory

notes.” Dkt. 15 at pg. 20.

But Count IV misses the mark against Billings. Neither statute cited by the Receiver

grants her the disgorgement cause of action that she asserts. Count IV should be dismissed

with prejudice under Fed. R. Civ. P. 12(b)(6).

STANDARD

“[A] federal equity receiver has standing to assert only the claims of the entities in

receivership, and not the claims of the entities’ investor-creditors[.]” Janvey v. Democratic

Senatorial Campaign Committee, Inc., 712 F.3d 185, 190 (5th Cir. 2013). "If a plaintiff does

not have statutory standing, [s]he lacks a cause of action, and the action should be dismissed

under Federal Rule of Procedure 12(b)(6)." Royal v. Boykin, 2017 U.S. Dist. LEXIS 144976

*6 (N.D. Miss. Sept. 5, 2017).

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ANALYSIS

The new claims asserted against Billings under Count IV of the Receiver’s Amended

Complaint fail as a matter of law.

1. Claims under 15 U.S.C. § 77e

According to the Receiver, 15 U.S.C. § 77e grants her a cause of action for

“disgorgement” against Billings for alleged violation of the registration requirements under

federal securities laws. But 15 U.S.C. § 77l provides that such a claim may be maintained

only by the “person purchasing [a] security” sold in violation of § 77e. Count IV fails out of

the blocks because the Receiver is not a “purchaser” under the statute. See 7547 Corp. v.

Parker & Parsley Dev. Partners, L.P., 38 F.3d 211, 225 (5th Cir. 1994) (recognizing that

standing to maintain private right of action created under 15 U.S.C. § 77l is based upon the

requirement that the plaintiff be the actual purchaser of securities.).

Further, although "[r]eceivers appointed at the SEC's request are equipped with a

variety of tools to help preserve the status quo," their power "is not without limits." Eberhard

v. Marcu, 530 F.3d 122, 131-32 (2d Cir. 2008). The Fifth Circuit has recently described the

limits on a receiver’s power to bring claims belonging to third parties: “[A] federal equity

receiver has standing to assert only the claims of the entities in receivership, and not the

claims of the entities’ investor-creditors[.]” Janvey v. Democratic Senatorial Campaign

Committee, Inc., 712 F.3d 185, 190 (5th Cir. 2013).

The Fifth Circuit’s holding in Janvey is also reflected1 in the district court case of

Cobalt Multifamily Investors I, LLC v. Arden, 46 F. Supp. 3d 357, 361 (S.D.N.Y. 2014):

1
“The authority of a receiver is defined by the entity or entities in the receivership; a receiver may
commence lawsuits, but it generally stands in the shoes of the corporation and can assert only those
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“Even though the Receiver brings its [securities violations] claim with the admirable goal of

obtaining money to compensate defrauded investors, the Receiver cannot assert claims

belonging to those outside the receivership entities (i.e., investors) simply because [s]he was

appointed ‘for [their] benefit.’” Id. “Other courts2 have similarly rejected [securities

violations] claims filed by receivers (or those in similar roles), even those appointed

following SEC enforcement actions.” Id. “The Receiver's complaint [] does not allege

that the receivership entities purchased any of the unregistered securities at issue. . . .

The Court finds this argument unavailing and thus dismisses the Receiver's first cause of

action.” Id. at 360-61 (emphasis added).

Cobalt Multifamily applies the principles found in Janvey to dismiss the exact federal

law claims asserted here by the Receiver in Count IV of her Amended Complaint. The

analysis and outcome found in Cobalt Multifamily apply here, as well.

2. Claims under Miss. Code Ann. § 75-71-301

The state law claim asserted by the Receiver under Miss. Code Ann. § 75-71-301 is

similar to the Receiver’s federal claim asserted under 15 U.S.C. § 77e—both allege a

disgorgement cause of action as a result of securities laws violations. It is also not suprising

that Miss. Code Ann. § 75-71-509, like 15 U.S.C. § 77l, is a remedy that is expressly

available only to a “purchaser” of a security. In regards to these types of state law securities

claims, the Mississippi Supreme Court has held: “Mississippi's regulations are similar to the

claims which the corporation could have asserted.” Cobalt Multifamily Investors I, LLC v. Arden, 46 F.
Supp. 3d 357, 361 (S.D.N.Y. 2014) (internal citations and quotations omitted).
2
See string citation (parentheticals omitted) provided at end of quote in the Cobalt Multifamily case: See
Glusband v. Fittin Cunningham Lauzon, Inc., 582 F. Supp. 145, 149-50 (S.D.N.Y. 1984) 12(1)."); Canut
v. Lyons, 450 F. Supp. 26, 27-29 (C.D. Cal. 1977); Thomas v. Roblin Indus., Inc., 520 F.2d 1393, 1394,
1396 (3d Cir. 1975).
Page 4 of 6
Case 3:18-cv-00679-CWR-FKB Document 24 Filed 10/24/18 Page 5 of 6

federal securities regulations, and we are able to look to federal caselaw for guidance. In fact,

‘[Section] 75-71-501 is virtually identical to [15 U.S.C. § 77] of the Securities Act of

1933[.]’” Harrington v. Office of Miss. Sec'y of State, 129 So.3d 153, 159 (Miss. 2013).

This district court has actually echoed Harrington’s holding in the case of CEH

Energy, LLC v. Intrepid Drilling, LLC. There, the plaintiff alleged violations of the same

federal and state securities laws asserted here by the Receiver. 2016 U.S. Dist. LEXIS 80531

*3-4 (S.D. Miss. June 21, 2016). The defendant filed a motion to dismiss, Id. at *1-2, and

the Court ultimately dismissed the plaintiff’s federal securities claims. Id. at *9. In

analyzing the state securities claims, Judge Starrett expressly recognized the similarities

between the federal and state claims, calling them “counterparts” to one another. Id. at *11.

“Because the Court has concluded that the [federal] claims, the federal counterparts to the

state securities claims, are due to be dismissed, it also finds that the claims under the

Mississippi Securities Act should also be dismissed with prejudice.” Id.

As it previously did in CEH Energy, LLC, this Court should dismiss the Receiver’s

state securities claims for the same reasons that federal law requires dismissal of her federal

securities claims. Janvey and Cobalt Multifamily teach us that the Receiver may not bring

federal securities claims before this Court. Then, CEH Energy, LLC follows with the

requirement that her state law claims be dismissed, as well.

CONCLUSION

The Receiver does not have unlimited power, and she is bound by the law. She may

only maintain actions that belong to MTP. She is not entitled to bootstrap her position by

asserting claims that the receivership estate never could have asserted.

Count IV of the Amended Complaint should be dismissed, with prejudice.

Page 5 of 6
Case 3:18-cv-00679-CWR-FKB Document 24 Filed 10/24/18 Page 6 of 6

Respectfully submitted, this the 24th day of October, 2018.

MICHAEL D. BILLINGS and MDB GROUP, LLC


Defendants

By: /s/ R. Andrew Taggart, Jr.


R. ANDREW TAGGART, JR. (MSB# 7422),
One of their Attorneys

OF COUNSEL:

R. Andrew Taggart, Jr. (MSB# 7422)


David G. Porter (MSB# 104828)
TAGGART, RIMES & GRAHAM, PLLC
1022 Highland Colony Parkway, Suite 101
Ridgeland, Mississippi 39157
Telephone: (601) 898-8400
Facsimile: (601) 898-8420
andy@trglawyers.com
dave@trglawyers.com

CERTIFICATE OF SERVICE

I hereby certify that on October 24, 2018 I electronically filed the foregoing with the

Clerk of the Court using the ECF system which sent notification of such filing to all counsel

of record in this matter. I further certify that I have mailed by United States Postal Service

the document to the following non-ECF participants: NONE.

SO CERTIFIED, this the 24th day of October, 2018.

/s/ R. Andrew Taggart, Jr.


R. ANDREW TAGGART, JR.

Page 6 of 6
Case 3:18-cv-00679-CWR-FKB Document 19 Filed 10/23/18 Page 1 of 11

UNITED STATES DISTRICT COURT


SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION

ALYSSON MILLS, IN HER CAPACITY Case No. 3:18-cv-679-CWR-FKB


AS RECEIVER FOR ARTHUR LAMAR
ADAMS AND MADISON TIMBER Arising out of Case No. 3:18-cv-252,
PROPERTIES, LLC, Securities and Exchange Commission
v. Arthur Lamar Adams and Madison
Plaintiff, Timber Properties, LLC

v. Hon. Carlton Reeves, District Judge


Hon. F. Keith Ball, Magistrate Judge
MICHAEL D. BILLINGS and
MDB GROUP, LLC; TERRY WAYNE
KELLY, JR. and KELLY
MANAGEMENT, LLC; and WILLIAM
B. MCHENRY, JR. and FIRST SOUTH
INVESTMENTS, LLC,

Defendants

MEMORANDUM BRIEF OF DEFENDANTS MICHAEL


BILLINGS AND MDB GROUP, LLC IN OPPOSITION TO
RECEIVER’S MOTION FOR SUMMARY PROCEEDINGS

Michael D. Billings and MDB Group, LLC submit this Memorandum Brief in support

of their Response [Dkt. 18] in opposition to the Motion for Entry of Scheduling Order for

Summary Proceedings (the “Motion”) [Dkt. 5] filed by Alysson Mills (the “Receiver”), in

her capacity as Receiver for Arthur Lamar Adams and Madison Timber Properties, LLC.

BACKGROUND

Mike Billings (“Mr. Billings”) first met Lamar Adams (“Adams”) in 2012. Around

the time of their first meeting, Adams told Mr. Billings that Adams’s company, Madison

Timber Properties, LLC (“MTP”), was looking to meet individuals who might be interested

Page 1 of 11
Case 3:18-cv-00679-CWR-FKB Document 19 Filed 10/23/18 Page 2 of 11

in participating with him in providing loans to MTP so that MTP could enter into profitable

timber arrangements between landowners and undisclosed timber mills. Over the next six

years, Mr. Billings introduced Adams and MTP to several of Mr. Billings’s personal friends,

all of whom were financially sophisticated, and many of whom decided to join Adams and

others and lend money to MTP to enter into these timber transactions. At all times during

Mr. Billings’s association with Adams, both Adams and MTP were surrounded by and doing

business with well-regarded and successful businesses, banks, and law firms. At no point did

Mr. Billings notice any wrongdoing or any warning signs of wrongdoing on the part of

Adams or MTP. To the contrary, each representation made by Adams appeared to be backed

by objective factors of legitimacy, and the terms of each loan transaction of which Mr.

Billings ever had any knowledge were honored each time and as to each lender introduced by

Mr. Billings to Adams and MTP.

On May 1, 2018, the U.S. Attorney for the Southern District of Mississippi charged

Adams with one count of bank fraud and one count of wire fraud. About that same time, the

Securities and Exchange Commission also brought a civil suit against Adams alleging a

variety of securities violations for Adams running MTP as a Ponzi scheme. Shortly after he

was charged, Adams entered into a plea agreement for the one count of wire fraud arising out

of an episode of illegal conduct from November 28-29, 2017. As a condition of his plea

deal, Adams was required to make a full admission that he ran MTP as a Ponzi scheme.

Adams made that admission at his plea hearing on May 9, 2018.

Several related proceedings have commenced as a result of the U.S. Attorney’s and

SEC’s investigations into Adams and MTP. This case is one of them.

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Case 3:18-cv-00679-CWR-FKB Document 19 Filed 10/23/18 Page 3 of 11

On June 1, 2018, this Court entered an order [Dkt. 26] establishing an application

process for the appointment of a receiver over Adams’s and MTP’s assets. On June 22,

2018, the Court selected Alysson Mills as Receiver and gave her immediate authority to

perform whatever actions were necessary to protect and maximize the value of the

receivership estate [Dkt. 33].

The Receiver’s first contact with counsel for Mr. Billings came on July 6th, just two

weeks after her appointment. Mr. Billings and his counsel made immediate offers to travel

to New Orleans, where the Receiver’s office is located, to discuss the case and the possibility

of resolution without the need for litigation. The Receiver and her attorneys finally agreed to

meet on July 26, at which time counsel for Mr. Billings suggested the broad terms of a

proposed path to resolution of the Receiver’s purported claims as to Mr. Billings.

Counsel for the Receiver agreed to take Mr. Billings’s proposal under advisement.

However, counsel also stated that the Receiver could not possibly respond to the proposal

until after the Receiver had submitted her first report to the Court on August 22, 2018.

Counsel for Mr. Billings waited until after the filing of the Receiver’s report, then again

attempted to meet and resume settlement talks with the Receiver. Counsel for the Receiver

finally agreed to meet in Jackson on September 20.

At that second meeting, it became clear to counsel for Mr. Billings that the Receiver

had little interest in a good faith effort to negotiate a resolution. The Receiver instead

handed counsel for Mr. Billings for the first time a draft of a scathing complaint, rife with

factual inaccuracies, along with the threat to file it if, within five days, Mr. Billings did not

accede to the following demands of the Receiver:

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Case 3:18-cv-00679-CWR-FKB Document 19 Filed 10/23/18 Page 4 of 11

1. That he summarily waive his procedural rights with respect to discovery,

motion practice and trial of the issues in the case;

2. That he agree to an injunction preventing the spending of any money above an

aggregate total of $7,500 for his ongoing living expenses; and

3. That he agree to an arbitrary limitation of 15 days for the conclusion of

settlement negotiations.

Despite several requests by counsel for Mr. Billings, the Receiver and her team of

lawyers refused simply to agree to a reasonable timeframe of at least thirty days for good

faith negotiations to determine whether the parties could resolve their differences. The

Receiver also took the position that she had to sue Mr. Billings at the same time she sued

defendants Kelly and McHenry, despite the fact that Mr. Billings is a Dallas resident who

only came to know Adams in recent years, as opposed to Kelly and McHenry, who were

physically present in Madison, Mississippi and intimately involved in the day-to-day

operations of MTP with Lamar Adams.

On October 1, over one hundred days after being appointed and without ever agreeing

to attempt substantive settlement discussions, the Receiver moved Mr. Billings to the top of

her hitlist and filed her inaccurate complaint. Remarkably, among her allegations are

assertions that Mr. Billings refused to agree to her demands that he waive his rights before

this Court.

At the same time, the Receiver filed the current Motion, asking the Court to disregard

the Rules and truncate this litigation in a manner clearly designed to try to coerce Mr.

Billings into a position in which he could not fairly protect is own rights and present his own

case.

Page 4 of 11
Case 3:18-cv-00679-CWR-FKB Document 19 Filed 10/23/18 Page 5 of 11

For example, the proposed scheduling order included with the Receiver’s Motion

does not even provide Mr. Billings with the right to take discovery, unless he can first

convince the Court to grant leave to seek discovery. And this arrangement was demanded by

the Receiver as a condition of entering into settlement negotiations, despite the fact that Mr.

Billings (1) has not had the chance to depose Adams, Kelly or McHenry, (2) has not had the

chance to obtain documentation of the various loans extended by those whom he introduced

to Adams, (3) has not had the opportunity to examine MTP’s business records, and (4) has

not had the opportunity to examine the bases for the Receiver’s calculations or depose her

accountants.

The Receiver is requesting that this Court strip Mr. Billings of his rights under the

Rules so she can purportedly “resolve her claims with minimal time and expenses.”1 But that

camouflage is shown for what it is when seen in light of the fact that counsel for Mr. Billings

made repeated attempts to engage in settlement discussions with the Receiver over the

hundred days since her appointment. Moreover, if the Receiver genuinely believed that there

was an imminent risk that Mr. Billings would dissipate assets of the Estate to an extent

requiring injunctive relief and a short-circuited scheduling order, she would have asked the

Court for relief long before now.

Mike Billings deeply regrets ever meeting Adams and ever being associated with

MTP, and he is mortified that he has put his friends in harm’s way. But Mr. Billings is now

a defendant in a civil case; he has not been accused of any criminal behavior. He could not

in good conscience submit wanly to the coercive demands of the Receiver and waive his

1
Dkt. 6 at p. 2.
Page 5 of 11
Case 3:18-cv-00679-CWR-FKB Document 19 Filed 10/23/18 Page 6 of 11

procedural protections in order to keep the Receiver from trying to shame him in the public

spotlight. Mr. Billings is entitled to fair treatment, and has full confidence that is what he

will receive from this Court, notwithstanding the unwillingness of the Receiver to act

accordingly.

STANDARD

“Due process essentially requires that the procedures be fair.” In re Murchison, 349

U.S. 133, 136 (1955). And while “the district court has broad powers and wide discretion to

determine the appropriate relief in an equity receivership,” SEC v. Great White Marine &

Recreation, Inc., 428 F.3d 553, 556 (5th Cir. 2005) (internal citation omitted), “[s]ummary

proceedings are inappropriate when parties would be deprived of a full and fair opportunity

to present their claims and defenses.” SEC v. Elliott, 953 F.2d 1560, 1567 (11th Cir. 1992).

ANALYSIS

The Receiver’s Motion and proposed scheduling order ask this Court to strip Mr.

Billings of his ability fairly to make his case and to defend his interests against claims that

could result in him losing everything he has. The stakes might not be that high for every

defendant the Receiver sues, but they are that high for Mr. Billings.

In reviewing the Receiver’s proposed procedural shortcuts, the Court might well

observe this cautionary guidance from the Eleventh Circuit: “While the term ‘summary’

connotes that the procedure [is] abbreviated, it does not mean that the parties [should]

receive[] no procedure at all.” SEC v. Elliott, 953 F.2d 1560, 1567 (11th Cir. 1992).

Keeping this legal principle — and the stakes of this case — in mind, the Receiver has asked

this Court to enter a scheduling order that pays only the slightest heed to the procedural

rights of Mr. Billings. If she has her way, the Receiver will file a motion for summary

Page 6 of 11
Case 3:18-cv-00679-CWR-FKB Document 19 Filed 10/23/18 Page 7 of 11

judgment. Then the parties will exchange initial disclosures within seven days of the filing

unless initial disclosures are waived. Mr. Billings will then have three weeks to respond to

her summary judgment motion—including asking permission of the Court to conduct the

discovery Mr. Billings needs in order to make out his defenses. The Receiver then gets two

weeks to file a reply opposing the requested discovery, which issue would have to be argued

before the Court. A final hearing on the merits would then be conducted, all within 60 days

of the filing of the Receiver’s motion for summary judgment.

Sixty days to judgment, with no discovery for Mr. Billings, unless he is successful in

persuading the Court to grant him leave to conduct limited discovery — this statement fairly

summarizes the procedure being pushed by the Receiver. Small claims in county court

provide for a fairer process than this, but according to the Receiver, this plan provides Mr.

Billings enough protection to allow her lawfully to take everything Mr. Billings has to his

name.

There is little doubt that Mr. Billings is already starting out this case well behind the

curve. The Receiver likely has access to the incredibly comprehensive document and ESI

production that Mr. Billings has already made under subpoena to the SEC—which contains

far more data and information than the Receiver would otherwise be entitled to under the

scope of discovery in Fed. R. Civ. P. 26. On top of possessing Mr. Billings’s information,

the Receiver likely has reviewed every document, record, and communication ever sent to or

from Adams and MTP by any bank, any timber owner, every lumber mill and every lender.

This Court need look no farther than to its sister court in the Northern District of

Texas, also in the Fifth Circuit, as to the Rules and procedures that court has employed in

Janvey v. Alguire, et al., a pending case with claims very similar to those presented in this

Page 7 of 11
Case 3:18-cv-00679-CWR-FKB Document 19 Filed 10/23/18 Page 8 of 11

case by the Receiver. Janvey v. Alguire, et al., Case 3:09-cv-00724-N-BQ (N.D. Tex.). The

Janvey receivership cases are a result Stanford Bank Ponzi scheme, which involved the sales

of fraudulent investor CDs.

In Janvey, the receiver filed fraudulent transfer suits against brokers and employees

who received commissions for selling CDs to outside investors. Id. at Dkt 24. The receiver

there also filed a motion for an order establishing summary proceedings. Id. at Dkt 16.

Instead of granting perfunctory procedures, though, the sister court in Janvey has relied upon

the Rules of Civil Procedure to allow defendants situated similarly to Mr. Billings a fair

opportunity to defend themselves from the Receiver’s claims. Following is a summary of the

Janvey court’s most recent scheduling order, entered on June 4, 2018:

1. Unrestricted fact discovery was extended an additional four months, through

October 12th. Id. at 2649 at ¶ 3(a).

2. Each party looks to Fed. R. Civ. P. 26(a)(2) as to disclosures regarding their

respective opposing and rebuttal experts. Id. at 2649 at ¶ 3(c).

3. The motion deadline, including motions for summary judgment, was extended

by nearly five months. Id. at 2649 at ¶ 3(g).

4. A two-week trial was set on the court’s docket for April 8, 2019.

Id. at 2649 at ¶ 4.

And further, just last week on October 17th, the court had to enter an order compelling

the receiver to produce documents and communications which were being withheld from the

defendants. Id. at Dkt. 2963.

Janvey was filed well over nine years ago, and the case against Mr. Billings before

this Court is only three weeks old—Mr. Billings’s Answer to the Receiver’s claims in her

Page 8 of 11
Case 3:18-cv-00679-CWR-FKB Document 19 Filed 10/23/18 Page 9 of 11

newly Amended Complaint is not even yet due. The Receiver here asks this Court for a

process that will hand her a judgment by the end of 2018, four months before the court in

Janvey hosts a two-week trial on similar claims asserted against similarly situated

defendants.

The contrast between the fair process employed in Janvey versus the shortcuts sought

by the Receiver in this case is compelling, particularly since that case is on the docket of a

sister court in the Fifth Circuit. The Receiver has provided the Court with no authority such

as Janvey, nor did the Receiver offer any case with claims such as the ones before the Court.

The Receiver’s citation to general propositions of receivership law does not afford her a

sweeping exception to the general applicability of the Rules of Civil Procedure.

CONCLUSION

To his great regret, Mr. Billings became associated with a man who operated what

appeared to all the world to be a well-regarded company, but was secretly designed to

defraud even highly sophisticated business people out of their money. The Receiver in this

case is now after everything Mr. Billings owns, and he should not be required to defend

himself against the sophisticated, fraudulent actions of another man and a court-empowered

Receiver by the limited means of a 60-day summary proceeding. The Rules exist for a

reason, including circumstances exactly such as this. Mr. Billings should be granted the time

and procedural resources necessary to investigate and conduct discovery in order to make

meaningful showings on the legal defenses to which he is entitled.

The Receiver has determined that she would rather litigate than negotiate. But she

should not be allowed to dictate the terms of the litigation as she tried to dictate the terms of

any settlement discussions.

Page 9 of 11
Case 3:18-cv-00679-CWR-FKB Document 19 Filed 10/23/18 Page 10 of 11

The Court should deny the Receiver’s Motion and enter a scheduling order in the

ordinary course of the proceedings of this case, providing Mr. Billings with a full and fair

opportunity to defend himself under the Rules and the law against the allegations asserted

against him.

Respectfully submitted, this the 23rd day of October, 2018.

MICHAEL D. BILLINGS and MDB GROUP, LLC


Defendants

By: /s/ R. Andrew Taggart, Jr.


R. ANDREW TAGGART, JR. (MSB# 7422),
Their Attorney

OF COUNSEL:

R. Andrew Taggart, Jr. (MSB# 7422)


TAGGART, RIMES & GRAHAM, PLLC
1022 Highland Colony Parkway, Suite 101
Ridgeland, Mississippi 39157
Telephone: (601) 898-8400
Facsimile: (601) 898-8420
andy@trglawyers.com

Page 10 of 11
Case 3:18-cv-00679-CWR-FKB Document 19 Filed 10/23/18 Page 11 of 11

CERTIFICATE OF SERVICE

I hereby certify that on October 23, 2018 I electronically filed the foregoing with the

Clerk of the Court using the ECF system which sent notification of such filing to:

Brent B. Barriere
bbarriere@fishmanhaygood.com
FISHMAN HAYGOOD LLP
Primary Counsel for the Receiver Alysson Mills

Lilli Evans Bass


bass@bbjlawyers.com
BROWN BASS & JETER, PLLC
Local Counsel for Receiver Alysson Mills

and I hereby certify that I have mailed by United States Postal Service the document to the

following non-ECF participants: NONE.

SO CERTIFIED, this the 23rd day of October, 2018.

/s/ R. Andrew Taggart, Jr.


R. ANDREW TAGGART, JR.

Page 11 of 11
Case 3:18-cv-00679-CWR-FKB Document 18 Filed 10/23/18 Page 1 of 3

UNITED STATES DISTRICT COURT


SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION

ALYSSON MILLS, IN HER CAPACITY Case No. 3:18-cv-679-CWR-FKB


AS RECEIVER FOR ARTHUR LAMAR
ADAMS AND MADISON TIMBER Arising out of Case No. 3:18-cv-252,
PROPERTIES, LLC, Securities and Exchange Commission
v. Arthur Lamar Adams and Madison
Plaintiff, Timber Properties, LLC
v.
Hon. Carlton Reeves, District Judge
Hon. F. Keith Ball, Magistrate Judge
MICHAEL D. BILLINGS and
MDB GROUP, LLC; TERRY WAYNE
KELLY, JR. and KELLY
MANAGEMENT, LLC; and WILLIAM
B. MCHENRY, JR. and FIRST SOUTH
INVESTMENTS, LLC,

Defendants

RESPONSE OF DEFENDANTS MICHAEL


BILLINGS AND MDB GROUP, LLC IN OPPOSITION TO
RECEIVER’S MOTION FOR SUMMARY PROCEEDINGS

Michael D. Billings and MDB Group, LLC (collectively, “Mr. Billings”) submit this

Response to oppose the Motion for Entry of Scheduling Order for Summary Proceedings

[Dkt. 5] (the “Motion”) filed by Alysson Mills (the “Receiver”), in her capacity as Receiver

for Arthur Lamar Adams (“Adams”) and Madison Timber Properties, LLC (“MTP”).

As discussed in greater detail in the accompanying memorandum brief, the Receiver’s

Motion seeks to deprive Mr. Billings of a full and fair process to defend himself against the

Receiver’s sweeping claims. Neither the applicable law nor the facts of this case warrant the

procedural exceptions pushed here by the Receiver.

Page 1 of 3
Case 3:18-cv-00679-CWR-FKB Document 18 Filed 10/23/18 Page 2 of 3

For these reasons and those detailed in Mr. Billings’s memorandum brief, the Court

should overrule the Receiver’s Motion and enter a scheduling order for this matter in the

ordinary course of the proceedings of this case.

Respectfully submitted, this the 23rd day of October, 2018.

MICHAEL D. BILLINGS and MDB GROUP, LLC


Defendants

By: /s/ R. Andrew Taggart, Jr.


R. ANDREW TAGGART, JR. (MSB# 7422),
Their Attorney

OF COUNSEL:

R. Andrew Taggart, Jr. (MSB# 7422)


TAGGART, RIMES & GRAHAM, PLLC
1022 Highland Colony Parkway, Suite 101
Ridgeland, Mississippi 39157
Telephone: (601) 898-8400
Facsimile: (601) 898-8420
andy@trglawyers.com

Page 2 of 3
Case 3:18-cv-00679-CWR-FKB Document 18 Filed 10/23/18 Page 3 of 3

CERTIFICATE OF SERVICE

I hereby certify that on October 23, 2018 I electronically filed the foregoing with the

Clerk of the Court using the ECF system which sent notification of such filing to:

Brent B. Barriere
bbarriere@fishmanhaygood.com
FISHMAN HAYGOOD LLP
Primary Counsel for the Receiver Alysson Mills

Lilli Evans Bass


bass@bbjlawyers.com
BROWN BASS & JETER, PLLC
Local Counsel for Receiver Alysson Mills

and I hereby certify that I have mailed by United States Postal Service the document to the

following non-ECF participants: NONE.

SO CERTIFIED, this the 23rd day of October, 2018.

/s/ R. Andrew Taggart, Jr.


R. ANDREW TAGGART, JR.

Page 3 of 3
Case 3:18-cv-00679-CWR-FKB Document 16-2 Filed 10/17/18 Page 1 of 9

UNITED STATES DISTR ICT COURT


SOUTHERN DISTR ICT OF M ISS ISS IPPI
NORTHERN DIVISION

ALYSSON MILLS, IN HER CAPACITY Case No. 3:18-cv-00679


AS RECEIVER FOR ARTHUR LAMAR
ADAMS AND MADISON TIMBER Arising out of Case No. 3:18-cv-252,
PROPERTIES, LLC, Securities and Exchange Commission v.
Arthur Lamar Adams and Madison
Plaintiff, Timber Properties, LLC

v. Hon. Carlton W. Reeves, District Judge

MICHAEL D. BILLINGS and


MDB GROUP, LLC;
TERRY WAYNE KELLY, JR. and
KELLY MANAGEMENT, LLC;
and WILLIAM B. MCHENRY, JR. and
FIRST SOUTH INVESTMENTS, LLC,

Defendants.

DECLARATION OF J. LESTER ALEXANDER, III IN SUPPORT OF PLAINTIFF’S


MOTION FOR TEMPORARY RESTRAINING ORDER AND
PRELIMINARY INJUNCTION AGAINST MICHAEL D. BILLINGS, MDB
GROUP, LLC, WILLIAM B. MCHENRY JR., and FIRST SOUTH
INVESTMENTS, LLC

I, J. Lester Alexander, III, do hereby declare under penalty of perjury and in accordance

with 28 U.S.C. § 1746 that this declaration is made of my own personal knowledge, that I am

competent to testify as to the matters stated herein, and that the following statements are all true

and correct.

1. I am the Chief Executive Officer and founder of AEA Group, LLC, formerly known

as Accounting, Economics & Appraisal Group, LLC (“AEA Group”), a forensic accounting and

valuation firm located in Houston and Birmingham. I am a Certified Public Accountant and

1371973v.2
Exhibit 2
Case 3:18-cv-00679-CWR-FKB Document 16-2 Filed 10/17/18 Page 2 of 9

Certified Fraud Examiner. In addition, I am Certified in Financial Forensics and Accredited in

Business Valuation by the American Institute of Certified Public Accountants (“AICPA”). I also

am a Chartered Global Management Accountant. I have more than three decades of professional

experience performing audit, tax and consulting services. I have been admitted as an expert

forensic accountant on the subject of the existence, payment history, original amount, disposition

of collateral and the outstanding balance of a company’s debts in Federal and various state courts.

I have been admitted as an expert forensic accountant on a variety of financial topics including

making solvency determinations, tracing the source and use of cash and other assets, evaluating

the timing and value of consideration received in exchange for payments made to creditors and the

course of conduct between a debtor and its creditors and other matters in various Federal courts,

including the U.S. District Court for the Middle District of Alabama. I am a former partner of

PricewaterhouseCoopers LLP and its legacy firm, Coopers & Lybrand, LLP, where I served as the

leader of its Southeastern regional forensic accounting practice with offices in Dallas, Houston,

Atlanta, Louisville, Birmingham, Tampa and Miami.

2. I was engaged by the Receiver, Alysson L. Mills, in Securities and Exchange

Commission v. Arthur Lamar Adams and Madison Timber Properties, LLC, Cause No. 3:18-CV-

252 (the “Receivership Proceeding”), pending in the United States District Court for the Southern

District of Mississippi, to serve as a forensic accountant. I submit this Declaration in support of

the Plaintiff’s Motion for Temporary Restraining Order and Preliminary Injunction in the above-

captioned proceeding.

INFORMATION UTILIZED

3. I have received and analyzed Madison Timber Properties, LLC’s business records,

including without limitation, the Madison Timber Account Statements and the Madison Timber

1371973v.2
Case 3:18-cv-00679-CWR-FKB Document 16-2 Filed 10/17/18 Page 3 of 9

Electronic Accounting Files, as described in the Declaration of Alysson L. Mills. I have also

reviewed the MDB Group Account Statements and First South Electronic Accounting Files, as

described in the Declaration of Alysson L. Mills.

FINDINGS

4. Based on my review of Madison Timber Properties, LLC’s business records, the

MDB Group Account Statements, and the First South Electronic Accounting Files, I have

concluded that Defendant MDB Group, LLC received $3,513,780 in transfers from Madison

Timber and Defendant First South Investments, LLC received $3,473,320 in transfers from

Madison Timber. Attached as Exhibit A to this affidavit is a spreadsheet summarizing all of those

transfers.

I declare under penalty of perjury and in accordance with 28 U.S.C. § 1746 that the

foregoing is true and correct.

EXECUTED this 17th day of October, 2018.

__________________________________________
J. Lester Alexander, III

1371973v.2
Case 3:18-cv-00679-CWR-FKB Document 16-2 Filed 10/17/18 Page 4 of 9
Exhibit A

First South Commissions MDB Group, LLC Commissions

Date Amount Date Amount


02/09/2010 $ 15,000.00 12/16/2013 $ 30,000.00
02/16/2010 7,500.00 12/27/2013 3,000.00
03/26/2010 3,125.00 01/02/2014 10,000.00
05/21/2010 1,620.00 01/27/2014 6,750.00
06/29/2010 6,500.00 02/03/2014 10,000.00
06/29/2010 250.00 02/14/2014 9,000.00
07/09/2010 7,000.00 03/03/2014 10,000.00
08/03/2010 3,500.00 03/13/2014 22,500.00
09/08/2010 9,000.00 03/21/2014 4,500.00
09/13/2010 8,000.00 03/26/2014 3,000.00
10/18/2010 8,500.00 04/01/2014 10,000.00
10/26/2010 4,000.00 04/24/2014 22,500.00
11/05/2010 10,000.00 05/01/2014 10,000.00
11/29/2010 4,225.00 05/12/2014 3,000.00
12/03/2010 10,000.00 05/23/2014 22,500.00
12/07/2010 10,250.00 06/02/2014 10,000.00
04/01/2011 15,000.00 06/30/2014 6,750.00
05/27/2011 10,000.00 07/01/2014 10,000.00
06/06/2011 15,000.00 07/01/2014 10,000.00
06/20/2011 10,000.00 07/17/2014 6,375.00
07/05/2011 5,000.00 07/30/2014 3,000.00
07/12/2011 10,000.00 08/01/2014 10,000.00
07/14/2011 10,000.00 08/04/2014 6,000.00
09/16/2011 10,000.00 08/29/2014 11,250.00
09/30/2011 15,100.00 09/02/2014 10,000.00
10/25/2011 10,000.00 09/16/2014 6,000.00
11/22/2011 10,000.00 10/01/2014 10,000.00
12/08/2011 15,000.00 10/22/2014 3,000.00
12/15/2011 5,000.00 10/30/2014 3,750.00
01/10/2012 10,000.00 11/03/2014 10,000.00
01/25/2012 15,000.00 11/14/2014 7,500.00
02/14/2012 10,000.00 11/26/2014 5,250.00
02/23/2012 10,000.00 12/01/2014 10,000.00
03/14/2012 10,000.00 12/12/2014 6,000.00
03/16/2012 10,000.00 01/02/2015 22,500.00
03/22/2012 10,000.00 01/02/2015 10,000.00
06/08/2012 5,000.00 02/02/2015 10,000.00
07/05/2012 15,000.00 02/02/2015 4,500.00
07/11/2012 10,000.00 02/05/2015 3,000.00
07/13/2012 10,000.00 02/12/2015 7,500.00
07/24/2012 10,000.00 02/27/2015 6,000.00
08/08/2012 10,000.00 03/02/2015 10,000.00
08/17/2012 10,000.00 03/06/2015 3,000.00
08/27/2012 10,000.00 03/17/2015 3,750.00
09/04/2012 10,000.00 04/01/2015 33,750.00
09/19/2012 10,000.00 04/01/2015 10,000.00
10/03/2012 10,000.00 04/06/2015 3,750.00
10/09/2012 10,000.00 05/01/2015 10,000.00

1 of 6
Case 3:18-cv-00679-CWR-FKB Document 16-2 Filed 10/17/18 Page 5 of 9
Exhibit A

First South Commissions MDB Group, LLC Commissions

Date Amount Date Amount


10/18/2012 10,000.00 05/04/2015 6,000.00
10/28/2012 5,000.00 05/08/2015 2,500.00
11/20/2012 10,000.00 05/15/2015 7,500.00
11/23/2012 10,000.00 05/29/2015 11,250.00
12/11/2012 20,000.00 06/01/2015 12,500.00
12/13/2012 15,000.00 06/26/2015 22,500.00
01/09/2013 15,000.00 07/01/2015 12,500.00
01/31/2013 10,000.00 07/01/2015 8,250.00
02/15/2013 20,000.00 07/17/2015 11,250.00
03/05/2013 10,000.00 07/31/2015 14,250.00
03/28/2013 10,000.00 08/03/2015 12,500.00
04/09/2013 10,000.00 08/07/2015 9,000.00
04/30/2013 10,000.00 08/12/2015 13,500.00
05/08/2013 5,000.00 08/13/2015 3,000.00
05/15/2013 10,000.00 09/01/2015 12,500.00
05/17/2013 10,000.00 09/16/2015 6,000.00
05/31/2013 20,000.00 10/01/2015 30,750.00
06/03/2013 5,000.00 10/01/2015 12,500.00
06/21/2013 10,000.00 10/29/2015 9,750.00
06/26/2013 15,000.00 11/02/2015 12,500.00
07/02/2013 10,000.00 11/05/2015 6,000.00
07/17/2013 10,000.00 11/13/2015 9,750.00
08/01/2013 10,000.00 11/18/2015 4,500.00
08/05/2013 10,000.00 12/01/2015 12,500.00
08/14/2013 10,000.00 12/03/2015 24,375.00
08/28/2013 10,000.00 01/04/2016 12,500.00
09/04/2013 10,000.00 01/04/2016 30,750.00
09/10/2013 15,000.00 01/13/2016 9,000.00
09/26/2013 10,000.00 01/29/2016 18,750.00
10/16/2013 15,000.00 02/01/2016 12,500.00
10/22/2013 5,000.00 02/16/2016 9,750.00
10/31/2013 10,000.00 03/01/2016 12,500.00
11/04/2013 10,000.00 03/03/2016 16,350.00
11/25/2013 10,000.00 03/04/2016 7,500.00
12/05/2013 10,000.00 03/30/2016 34,500.00
12/18/2013 10,000.00 04/01/2016 12,500.00
12/30/2013 10,000.00 05/02/2016 12,500.00
01/08/2014 10,000.00 05/03/2016 12,750.00
01/21/2014 30,000.00 05/16/2016 14,250.00
01/23/2014 10,000.00 05/25/2016 75,000.00
02/03/2014 1,400.00 06/01/2016 12,500.00
02/05/2014 3,150.00 06/02/2016 26,250.00
02/12/2014 15,000.00 06/09/2016 8,000.00
02/13/2014 30,000.00 06/10/2016 6,000.00
02/13/2014 15,000.00 06/30/2016 58,000.00
02/27/2014 10,000.00 07/01/2016 12,500.00
03/12/2014 10,000.00 07/15/2016 3,000.00

2 of 6
Case 3:18-cv-00679-CWR-FKB Document 16-2 Filed 10/17/18 Page 6 of 9
Exhibit A

First South Commissions MDB Group, LLC Commissions

Date Amount Date Amount


03/28/2014 10,000.00 07/25/2016 12,000.00
04/10/2014 15,000.00 08/01/2016 12,500.00
04/18/2014 10,000.00 08/02/2016 4,000.00
04/18/2014 7,500.00 08/15/2016 13,000.00
05/06/2014 10,000.00 09/01/2016 12,500.00
05/22/2014 10,000.00 09/02/2016 36,000.00
06/03/2014 20,000.00 09/14/2016 4,000.00
06/05/2014 25,000.00 09/16/2016 4,000.00
07/01/2014 10,000.00 09/30/2016 44,000.00
07/04/2014 10,000.00 10/03/2016 12,500.00
07/16/2014 10,000.00 11/01/2016 12,500.00
07/25/2014 15,000.00 12/19/2016 5,000.00
07/29/2014 10,000.00 01/03/2017 12,500.00
08/07/2014 20,000.00 01/04/2017 38,000.00
08/29/2014 10,000.00 02/01/2017 12,500.00
09/03/2014 10,000.00 02/02/2017 73,500.00
09/04/2014 10,000.00 02/16/2017 84,530.00
09/22/2014 5,000.00 03/01/2017 12,500.00
09/29/2014 10,000.00 03/09/2017 35,000.00
10/10/2014 20,000.00 04/01/2017 12,500.00
10/14/2014 10,000.00 04/03/2017 5,000.00
10/15/2014 10,000.00 04/04/2017 117,000.00
10/30/2014 15,000.00 05/01/2017 12,500.00
11/04/2014 6,000.00 05/02/2017 18,000.00
11/26/2014 10,000.00 05/18/2017 53,000.00
12/01/2014 15,000.00 06/01/2017 12,500.00
12/05/2014 10,000.00 06/02/2017 110,000.00
12/08/2014 10,000.00 06/07/2017 60,000.00
12/10/2014 30,000.00 06/16/2017 19,800.00
01/05/2015 10,000.00 06/26/2017 50,000.00
01/09/2015 15,000.00 06/30/2017 56,900.00
01/21/2015 15,000.00 07/01/2017 12,500.00
01/30/2015 30,000.00 08/01/2017 12,500.00
01/30/2015 12,500.00 08/03/2017 32,000.00
02/11/2015 10,000.00 08/10/2017 90,000.00
02/18/2015 7,500.00 08/18/2017 20,000.00
02/25/2015 20,000.00 08/29/2017 21,000.00
03/04/2015 10,000.00 09/01/2017 10,000.00
03/25/2015 20,000.00 09/01/2017 12,500.00
03/26/2015 15,000.00 09/12/2017 120,000.00
04/15/2015 7,500.00 10/01/2017 12,500.00
04/17/2015 10,000.00 10/04/2017 24,800.00
04/24/2015 10,000.00 10/13/2017 24,000.00
05/05/2015 10,000.00 10/18/2017 100,000.00
05/07/2015 10,000.00 10/27/2017 20,000.00
05/13/2015 10,000.00 11/01/2017 12,500.00
05/27/2015 10,000.00 11/03/2017 10,000.00

3 of 6
Case 3:18-cv-00679-CWR-FKB Document 16-2 Filed 10/17/18 Page 7 of 9
Exhibit A

First South Commissions MDB Group, LLC Commissions

Date Amount Date Amount


06/03/2015 20,000.00 11/10/2017 96,000.00
06/08/2015 5,000.00 11/27/2017 120,000.00
06/10/2015 5,000.00 12/01/2017 12,500.00
06/17/2015 15,000.00 12/04/2017 79,200.00
06/18/2015 15,000.00 12/27/2017 30,000.00
07/10/2015 10,000.00 01/15/2018 12,500.00
07/28/2015 10,000.00 01/17/2018 20,000.00
08/04/2015 15,000.00 01/26/2018 62,000.00
08/11/2015 10,000.00 02/01/2018 12,500.00
08/21/2015 10,000.00 02/02/2018 16,000.00
08/21/2015 15,000.00 02/14/2018 13,000.00
08/27/2015 10,000.00 03/01/2018 12,500.00
09/08/2015 10,000.00 03/02/2018 121,000.00
09/10/2015 10,000.00 03/09/2018 34,000.00
09/15/2015 15,000.00 03/19/2018 34,000.00
09/25/2015 11,000.00 04/02/2018 12,500.00
09/25/2015 10,000.00 04/02/2018 71,000.00
10/08/2015 20,000.00 04/17/2018 88,700.00
10/28/2015 15,000.00
10/30/2015 10,000.00 Total $ 3,513,780.00
11/12/2015 17,500.00
11/13/2015 10,000.00
11/27/2015 10,000.00
11/27/2015 15,000.00
11/30/2015 10,000.00
12/07/2015 20,000.00
01/06/2016 20,000.00
01/13/2016 10,000.00
01/21/2016 8,000.00
02/03/2016 15,000.00
02/08/2016 25,000.00
02/24/2016 10,000.00
02/29/2016 10,000.00
02/29/2016 5,000.00
03/02/2016 7,500.00
03/09/2016 6,000.00
03/10/2016 15,000.00
03/11/2016 15,000.00
04/01/2016 10,000.00
04/05/2016 30,000.00
04/12/2016 25,000.00
04/28/2016 20,000.00
05/10/2016 10,000.00
05/12/2016 20,000.00
05/17/2016 10,000.00
05/31/2016 10,000.00
06/14/2016 10,000.00

4 of 6
Case 3:18-cv-00679-CWR-FKB Document 16-2 Filed 10/17/18 Page 8 of 9
Exhibit A

First South Commissions MDB Group, LLC Commissions

Date Amount Date Amount


06/21/2016 5,000.00
06/29/2016 10,000.00
07/07/2016 8,000.00
07/14/2016 15,000.00
07/14/2016 20,000.00
07/21/2016 20,000.00
08/02/2016 10,000.00
08/02/2016 6,500.00
08/10/2016 10,000.00
08/15/2016 5,000.00
08/22/2016 15,000.00
08/30/2016 10,000.00
09/13/2016 10,000.00
09/28/2016 10,000.00
10/04/2016 20,000.00
10/07/2016 15,000.00
10/19/2016 10,000.00
10/25/2016 15,000.00
10/31/2016 10,000.00
11/02/2016 20,000.00
11/10/2016 10,000.00
11/22/2016 15,000.00
12/01/2016 10,000.00
12/06/2016 10,000.00
12/13/2016 7,500.00
01/04/2017 10,000.00
01/10/2017 10,000.00
01/13/2017 15,000.00
01/19/2017 15,000.00
01/25/2017 25,000.00
01/26/2017 20,000.00
02/07/2017 20,000.00
02/14/2017 10,000.00
02/28/2017 20,000.00
03/09/2017 10,000.00
03/16/2017 31,500.00
03/25/2017 10,000.00
03/29/2017 15,000.00
04/13/2017 15,000.00
04/27/2017 30,000.00
05/01/2017 15,000.00
05/09/2017 20,000.00
05/18/2017 10,000.00
05/25/2017 10,000.00
06/07/2017 10,000.00
06/19/2017 15,000.00
06/29/2017 20,000.00

5 of 6
Case 3:18-cv-00679-CWR-FKB Document 16-2 Filed 10/17/18 Page 9 of 9
Exhibit A

First South Commissions MDB Group, LLC Commissions

Date Amount Date Amount


07/10/2017 30,000.00
07/14/2017 20,000.00
07/14/2017 15,000.00
07/19/2017 10,000.00
07/19/2017 25,000.00
08/02/2017 17,500.00
08/03/2017 15,000.00
08/07/2017 10,000.00
08/17/2017 10,000.00
08/30/2017 25,000.00
09/01/2017 10,000.00
09/01/2017 10,000.00
09/08/2017 10,000.00
09/21/2017 10,000.00
10/03/2017 20,000.00
10/10/2017 1,200.00
10/12/2017 20,000.00
10/18/2017 10,000.00
11/01/2017 45,000.00
11/28/2017 10,000.00
11/29/2017 10,000.00
11/29/2017 10,000.00
12/05/2017 20,000.00
12/28/2017 10,000.00
01/08/2018 15,000.00
01/10/2018 10,000.00
01/18/2018 20,000.00
01/29/2018 15,000.00
01/30/2018 15,000.00
01/31/2018 35,000.00
02/01/2018 10,000.00
02/05/2018 7,000.00
2/9/2018 10,000.00
2/21/2018 10,000.00
2/27/2018 20,000.00
3/2/2018 10,000.00
3/7/2018 5,000.00
3/16/2018 5,000.00
3/30/2018 5,000.00
3/30/2018 20,000.00
4/4/2018 10,000.00
4/5/2018 10,000.00
4/13/2018 10,000.00
4/18/2018 10,000.00

Total $ 3,473,320.00

6 of 6
Case 3:18-cv-00679-CWR-FKB Document 14 Filed 10/17/18 Page 1 of 2
Case 3:18-cv-00679-CWR-FKB Document 14 Filed 10/17/18 Page 2 of 2
Case 3:18-cv-00679-CWR-FKB Document 16-3 Filed 10/17/18 Page 1 of 2

Begin forwarded message:

From: Michael Billings <michaeldbillings@gmail.com>


Date: May 19, 2015 at 2:33:57 PM CDT
To:
Cc: Lamar Adams <ladams81@bellsouth.net>
Subject: Re: Madison Timber Properties, LLC on behalf of

Hey ...yes, absolutely, I'm happy to connect you to references. As to the ones in
particular to which you refer, I'm precluded by NDA from disclosing one, and the
principal of the other is currently in France, due back in Dallas on May 24. I will be more
than happy to connect you (and he will be more than happy to visit with you) once he's
back home. He and I are slated to get together a day or so after his return, and I will tee
you up for a visit with him at that time.

Thanks so much!

Mike

Sent from my iPhone

On May 19, 2015, at 1:31 PM, wrote:

Hello Lamar,
Thanks for your thoughts below, and for your time.

Mike,
You mentioned that a number of your TX Family Offices have performed
due diligence on Lamar. Are there any references you can connect us to
as a final step in our due diligence process, who have invested in this
structure for a meaningful amount of time?

Thanks again gentlemen!

Best,

1
Exhibit 3
Case 3:18-cv-00679-CWR-FKB Document 16-3 Filed 10/17/18 Page 2 of 2
<image001.png>

From: Lamar Adams [mailto:ladams81@bellsouth.net]


Sent: Tuesday, May 19, 2015 9:32 AM
To: michaeldbillings@gmail.com;
Subject: Madison Timber Properties, LLC on behalf of

Since going to this current format


Madison Timber Properties, LLC has
purchased approximately 572 tracts of
timber. We have not had any
transaction not pay out as structured to
our Joint Venture Partners.
We have had 2 instances where we had
Insurance claims on those tracts
because of an ice storm. However,
those did not affect our Joint Venture
Partner’s return.

If there is a cause of death with me, our


Attorneys will handle my Estate. As far
as remaining payments to Madison
Timber Properties, LLC and the Joint
Venture Partners, nothing will change.
We have Contracts in place with the
Mills and those wires will continue until
the end of the term of the Contracts.
The same will apply to our Joint
Venture Partners, the wires will
continue until end of term.

Thanks,
Lamar Adams

2
Case 3:18-cv-00679-CWR-FKB Document 16-4 Filed 10/17/18 Page 1 of 2

From: Michael Billings <michaeldbillings@gmail.com>


Sent: Friday, February 19, 2016 9:10 AM
To: Madison Timber
Cc: Lamar Adams
Subject: Re: Upcoming Funding

I thank you and Lamar - you two make it all possible for me to do what I do - Team!!!

FYI I'm planning to travel to Jackson on Monday (I may push a day or two if the weather is bad on either
end - I don't like sitting for hours at DFW), and will be there thru most of March. Lets get a lunch on the
calendar for late next week if you're both around!!

Sent from my iPhone

> On Feb 19, 2016, at 9:04 AM, Madison Timber <wkelly@madisontimber.com> wrote:
>
> Thanks Mike! That all sounds great.. Wish you the best and thanks for all your hard work! Team!!!
Have a great weekend!!
>
> Sent from my iPhone
>
>> On Feb 19, 2016, at 8:59 AM, Michael Billings <michaeldbillings@gmail.com> wrote:
>>
>> Yes, thus far that is absolutely correct. may decide to push to May 1 because of the skipped
month, but I've told him this week that unless he tells us differently we have him in the que for
$250,000 on April 1.
>>
>> has been in Napa all week, en route to NY this morning for lunch, back this afternoon and
has promised me his info ASAP. You will have it as soon as I do.
>>
>> I had three very important meetings this week and I believe we are about to get add some new Dallas
folks...as you know, I don't like to talk about them until they are "done", but I think a couple may be in
the initial $500,000 range, so pls just have that in the back of your mind over the next 30-60 days.
>>
>> I will be with at a party this evening in Dallas and may have more info after that, but he has
indicated verbally that both he and are loving their investment(s) with us and are planning more in
the April timeframe. I'd guess in similar amounts as what they've been doing - but one never knows,
they could up the ante!
>>
>> I will of course keep you both posted as these things continue to evolve...have a great weekend!!
>>
>> Thanks,
>>
>> Mike
>>
>> Sent from my iPhone
1
Exhibit 4
Case 3:18-cv-00679-CWR-FKB Document 16-4 Filed 10/17/18 Page 2 of 2
>>
>>> On Feb 19, 2016, at 8:41 AM, Wayne Kelly <wkelly@madisontimber.com> wrote:
>>>
>>> Mike,
>>> Lamar and I were talking yesterday about upcoming funding, and I want to make sure the following
commitments are correct. If their is anyone we need to add or delete just let me know.
>>>
>>> Thanks,
>>> Wayne
>>>
>>> March 1st:
>>>
>>> 1. 600k
>>> 2. 200k
>>> 3. 200k
>>>
>>> April 1st:
>>>
>>> 1. 1.5
>>> 2. 300k
>>> 3. 200k
>>> 4. 200k

2
Case 3:18-cv-00679-CWR-FKB Document 16-5 Filed 10/17/18 Page 1 of 2

Begin forwarded message:

From: Michael Billings <michaeldbillings@gmail.com>


Date: April 29, 2015 at 6:22:30 PM CDT
To: Lamar Adams <ladams81@bellsouth.net>
Subject: Re: Fwd: RE:

And more, and more and more!!

Sent from my iPhone

On Apr 29, 2015, at 6:21 PM, Lamar Adams <ladams81@bellsouth.net> wrote:

Sent from my iPhone

Begin forwarded message:

From:
Date: April 29, 2015 at 5:58:26 PM CDT
To: Lamar Adams <ladams81@bellsouth.net>
Subject: RE:

Glad to be doing more business with you.

From: Lamar Adams [mailto:ladams81@bellsouth.net]


Sent: Tuesday, April 28, 2015 1:34 PM
To:
Subject:

Hope all is well with you and your family and the crew at .
Here are the executed Docs for your review.
I will have the Originals Fedexed to you this afternoon.

Please contact me if you have any questions.


Thanks for your partnership,

Lamar
1 Exhibit 5
Case 3:18-cv-00679-CWR-FKB Document 16-5 Filed 10/17/18 Page 2 of 2
601-942-0369

2
Case 3:18-cv-00679-CWR-FKB Document 16-6 Filed 10/17/18 Page 1 of 2

From: Lamar Adams <ladams81@bellsouth.net>


Sent: Tuesday, July 14, 2015 10:38 AM
To: 'Michael Billings'
Cc: 'Madison Timber'
Subject: Re: New Tracts

Awesome! Great job Mike

Sent from my iPhone

On Jul 14, 2015, at 11:34 AM, Michael Billings <michaeldbillings@gmail.com> wrote:

Hey guys, please add to the list below as confirmed for $200,000 on September 30...thank
you!!

If you add $500,000 yesterday to it, that's a total of $4,150,000 between now and the end of
September...we are on a roll - and looking for more!

Thx,

Sent from my iPhone

Begin forwarded message:

From: Michael Billings <michaeldbillings@gmail.com>


Date: July 14, 2015 at 9:03:42 AM CDT
To: Lamar Adams <ladams81@bellsouth.net>, Madison Timber
<wkelly@madisontimber.com>
Subject: Fwd: New Tracts

Hey guys, just responded and would like to do $400,000 on August 1, and
an additional $200,000 on October 1. So that makes my revised group schedule look like
this:

$250,000 - 7/17
$250,000 - 7/31
$400,000 - 8/1
$250,000 - 8/14
$500,000 - 8/14
$200,000 - 9/14
$200,000 - 10/1
$1,500,000 - 10/1

I will update as I hear back or more from anyone else...but please book the preceding.

Thank you!!

1 Exhibit 6
Case 3:18-cv-00679-CWR-FKB Document 16-6 Filed 10/17/18 Page 2 of 2
M

Sent from my iPhone

Begin forwarded message:

From: Michael Billings <michaeldbillings@gmail.com>


Date: July 14, 2015 at 7:55:46 AM CDT
To: Lamar Adams <ladams81@bellsouth.net>, Madison Timber
<wkelly@madisontimber.com>
Subject: New Tracts

Hey Guys,

FYI I've confirmed for another $250,000 investment on or


just prior to August 14, and for another $200,000 on or
just prior to September 15.

So just to recap, here is who I have confirmed thus far in the next couple
of months:

$250,000 - 7/17
$250,000 - 7/31
$250,000 - 8/14
$500,000 - 8/14
$200,000 - 9/14
$1,500,000 - 10/1

In addition, I'm anticipating for an additional $250,000,


and potentially for another $500,000, both in September -
has a tract maturing 9/1 and on 9/15. I've emailed both and
am awaiting replies. I will let you know when confirmed. I'm also
thinking that will be ready for another tract in the
September time frame, as he'd indicated he wants to invest on a regular
quarterly basis, but I'm waiting to hear back regarding the UCC/mill
contract issue prior to calling him to arrange a visit. I will confirm him at
that time.

Thank you both so much!

Mike

Sent from my iPhone

2
Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 1 of 26

UNITED STATES DISTR ICT COURT


SOUTHERN DISTR ICT OF MISS ISS IP PI
NORTHERN DIVISION

ALYSSON MILLS, IN HER CAPACITY Case No. 3:18-cv-679


AS RECEIVER FOR ARTHUR LAMAR
ADAMS AND MADISON TIMBER Arising out of Case No. 3:18-cv-252,
PROPERTIES, LLC, Securities and Exchange Commission v.
Arthur Lamar Adams and Madison Timber
Plaintiff, Properties, LLC

v. Hon. Carlton W. Reeves, District Judge


Hon. F. Keith Ball, Magistrate Judge
MICHAEL D. BILLINGS and
MDB GROUP, LLC;
TERRY WAYNE KELLY, JR. and
KELLY MANAGEMENT, LLC;
and WILLIAM B. MCHENRY, JR. and
FIRST SOUTH INVESTMENTS, LLC,

Defendants.

AMENDED COMPLAINT

Alysson Mills, in her capacity as the court-appointed receiver for Arthur Lamar Adams and

Madison Timber Properties, LLC (the “Receiver”), through undersigned counsel, files this

Amended Complaint against Defendants Michael D. Billings and MDB Group, LLC; Terry

Wayne Kelly, Jr. and Kelly Management, LLC; and William B. McHenry, Jr. and First South

Investments, LLC (collectively “Defendants”), stating as follows:


Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 2 of 26

INTRODUCTION

Arthur Lamar Adams (“Adams”), through his company Madison Timber Properties, LLC

(“Madison Timber”), operated a $100 million Ponzi scheme that defrauded hundreds of investors.

Investors believed that Madison Timber used investors’ money to purchase timber from

Mississippi landowners; that Madison Timber sold the timber to Mississippi lumber mills at a

higher price; and that Madison Timber repaid investors their principal and promised interest with

the proceeds of those sales. Investors received timber deeds and cutting agreements that purported

to secure their investments—but the documents were fake. There was no timber and no proceeds

from sales of timber. The money used to repay existing investors came solely from new investors.

Like any Ponzi scheme, Madison Timber required more and more new investors to continue.

Defendants identified new investors and sold to them Madison Timber investments. For

each investment made by an investor he personally recruited, each Defendant received a cut of the

investor’s payment to Madison Timber. Over time, Defendants received more than $16,000,000 in

Madison Timber “commissions.” By this complaint the Receiver seeks to return that money to the

receivership estate, to maximize funds available for distribution to victims.

The Receiver desires to resolve the Receiver’s claims against Defendants efficiently, to

minimize time and expense to the receivership estate. Prior to the filing of the original complaint,

the Receiver invited each Defendant to join her in the filing of a motion that proposes terms by

which the parties might attempt to negotiate a settlement: The Receiver agreed to suspend further

litigation against a Defendant if the Defendant waived certain procedural objections and agreed to

1) make a full and complete financial disclosure, 2) commit to negotiate in good faith, and

3) preserve assets pending negotiations. The parties acknowledged that if they did not reach a

settlement, the Receiver could amend the original complaint within 21 days as a matter of course,

2
Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 3 of 26

and thereafter with this Court’s permission, to state further factual allegations against the

Defendant.

Defendants Michael D. Billings and MDB Group, LLC did not join the Receiver’s motion.

Defendants Terry Wayne Kelly, Jr. and Kelly Management, LLC and William B.

McHenry, Jr. and First South Investments, LLC joined the Receiver’s motion, but the Receiver

and Defendants William B. McHenry, Jr. and First South Investments, LLC have concluded that

they are unable to reach a settlement at this point in time.

The Receiver thus now amends the original complaint to state further factual allegations

against Defendants William B. McHenry, Jr. and First South Investments, LLC.

JURISDICTION AND VENUE

1.

The Court has jurisdiction over this action and its parties, and venue is proper in this Court,

pursuant to the Securities Act of 1933, 15 U.S.C. § 77v(a); the Securities & Exchange Act of 1934,

15 U.S.C. § 78aa; 28 U.S.C. § 1692; and 28 U.S.C. § 754.

2.

This action arises in connection with and is ancillary to the civil action already pending in

this Court styled Securities & Exchange Commission v. Arthur Lamar Adams and Madison Timber

Properties, LLC, No. 3:18-cv-252-CWR-FKB. In that civil action, the Securities & Exchange

Commission (“S.E.C.”) alleges that “[b]eginning in approximately 2004,” Adams, through

Madison Timber, “committed securities fraud by operating a Ponzi scheme” in violation of the

Securities Act of 1933 and Securities & Exchange Act of 1934.1

1
Doc. 3, Securities & Exchange Commission vs. Adams, et al., No. 3:18-cv-00252 (S.D. Miss).

3
Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 4 of 26

3.

The S.E.C. requested that the Court appoint a receiver for the estates of Adams and

Madison Timber.2 As the Court that appointed the Receiver, this Court has jurisdiction over any

claim brought by the Receiver in the execution of her duties. “[I]t is well-settled that when an

initial suit results in the appointment of the receiver, any suit that the receiver thereafter brings in

the appointment court in order to execute h[er] duties is ancillary to the main suit.” U.S. Small Bus.

Admin. v. Integrated Envtl. Sols., Inc., No. 05-cv-3041, 2006 WL 2336446, at *2 (S.D. Tex. Aug.

10, 2006) (citing Haile v. Henderson Nat’l Bank, 657 F.2d 816, 822 (6th Cir. 1981)). See also 28

U.S.C. § 1692 (“In proceedings in a district court where a receiver is appointed for property, real,

personal, or mixed, situated in different districts, process may issue and be executed in any such

district as if the property lay wholly within one district . . . ”).

4.

Consistent with that precedent, Chief U.S. District Judge Daniel P. Jordan III has ordered

that all “cases filed by the duly appointed Receiver . . . which . . . arise out of or relate to [Securities

& Exchange Commission v. Arthur Lamar Adams and Madison Timber Properties, LLC, No.

3:18-cv-252-CWR-FKB] shall be directly assigned by the Clerk of Court to U.S. District Judge

Carlton W. Reeves and U.S. Magistrate Judge F. Keith Ball.”3 In compliance with Chief Judge

Jordan’s order, the Receiver shall separately file, contemporaneously with this complaint, a notice

of relatedness.

5.

Within ten days of her appointment, the Receiver filed notices of receivership in every

federal district court in the United States, thus ensuring complete jurisdiction and control of any

2
Docs. 11, 21, Securities & Exchange Commission vs. Adams, et al., No. 3:18-cv-00252 (S.D. Miss).
3
Doc. 45, Securities & Exchange Commission vs. Adams, et al., No. 3:18-cv-00252 (S.D. Miss).

4
Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 5 of 26

real or personal property owned by Adams or Madison Timber in the United States pursuant to 28

U.S.C. § 754.

PARTIES

6.

Plaintiff Alysson Mills is the Court-appointed Receiver for the estates of Adams and

Madison Timber. The Court’s order of appointment vests in her the power to, among other things:

investigate and . . . bring such legal actions based on law or equity in


any state, federal, or foreign court as the Receiver deems necessary
or appropriate in discharging her duties as Receiver.4

The Receiver brings this civil action in her capacity as Receiver and pursuant to the powers vested

in her by the Court’s orders and applicable law.

7.

Defendant Michael D. Billings (“Billings”) is an adult resident of Dallas, Texas.

8.

Defendant MDB Group, LLC (“MDB Group”) is a Texas limited liability company. On

information and belief, Billings is the sole member and manager of MDB Group. On information

and belief, Madison Timber “commissions” were MDB Group’s sole source of income.

9.

Defendant Terry Wayne Kelly, Jr. (“Kelly”) is an adult resident of Madison, Mississippi.

4
Doc. 33, Securities & Exchange Commission vs. Adams, et al., No. 3:18-cv-00252 (S.D. Miss). By order dated
August 22, 2018, the Court eliminated the requirement that the Receiver obtain “prior approval of this Court upon ex
parte request” before bringing any legal action. Doc. 38, Securities & Exchange Commission vs. Adams, et al., No.
3:18-cv-00252 (S.D. Miss).

5
Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 6 of 26

10.

Defendant Kelly Management, LLC (“Kelly Management”) is a Mississippi limited

liability company. On information and belief, Kelly is the sole member and manager of Kelly

Management.

11.

Defendant William B. McHenry, Jr. (“McHenry”) is an adult resident of Madison,

Mississippi.

12.

Defendant First South Investments, LLC (“First South”) is a Mississippi limited liability

company. On information and belief, McHenry is the sole member and manager of First South.

FACTUAL ALLEGATIONS RELEVANT TO ALL COUNTS

13.

Beginning in approximately 2004, Adams, through Madison Timber, operated a Ponzi

scheme that purported to purchase timber from Mississippi landowners and resell it to Mississippi

lumber mills at higher prices.

14.

Investors in Madison Timber delivered to Madison Timber large sums of money, typically

in excess of $100,000 dollars, in reliance on the promise that Madison Timber would repay them

their principal plus interest of not less than 12% per annum, and sometimes as much as 20% per

annum. The promised interest invariably far exceeded the interest any investor might receive on

any other collateralized investment.

6
Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 7 of 26

15.

Investors believed that Madison Timber would use their money to acquire timber deeds

and cutting agreements from Mississippi landowners; that Madison Timber would then sell the

timber to Mississippi lumber mills at a higher price; and that with the proceeds of those sales

Madison Timber would repay investors their principal and promised interest.

16.

In exchange for their investments, investors in the Madison Timber Ponzi scheme received

a promissory note in the amount of their investment, payable in twelve monthly installments

together with the promised interest; twelve pre-dated checks, each in the amount of the installment

due under the promissory note; a timber deed and cutting agreement by which a named landowner

purported to grant to Madison Timber the rights to harvest timber on the land described in the

deed; and a timber deed and cutting agreement by which Madison Timber purported to grant its

own rights to the investor.

17.

Investors did not know that, in fact, the timber deeds and cutting agreements that they

received were fake.

18.

Investors did not know that because Madison Timber had no, or virtually no, revenues

whatsoever, investors were being repaid with new investors’ money.

19.

Each month, Madison Timber required more and more new investors to repay existing

investors. Defendants identified new investors and sold to them Madison Timber investments.

7
Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 8 of 26

20.

For each investment made by an investor he personally recruited, each Defendant received

a cut of the investor’s payment to Madison Timber. Over time, Defendants received more than

$16,000,000 in Madison Timber “commissions.”

21.

In April 2018, on the heels of investigations of him by the F.B.I. and the U.S. Attorney’s

Office for the Southern District of Mississippi, Adams turned himself in.

22.

The U.S. Attorney’s Office for the Southern District of Mississippi charged Adams with

two counts of wire fraud and one count of bank fraud in connection with a broader scheme to

defraud. Among other things, the bill of information states that as “part of the scheme and artifice

to defraud” Adams “paid commissions to recruiters who referred investors to [him]”:

The commissions were paid from investors’ money. For example, ADAMS paid
one recruiter approximately two million four hundred forty-five thousand four
hundred and forty-nine dollars ($2,445,449) in commissions in 2017 alone.
ADAMS paid another recruiter approximately one million six hundred
twenty-eight thousand one hundred dollars ($1,628,100) in commissions in 2017 . .
. .5

23.

Separately, the S.E.C. charged Adams with violations of the Securities Act of 1933 and

Securities & Exchange Act of 1934, alleging in its complaint that “[b]eginning in approximately

2004,” Adams, through Madison Timber, “committed securities fraud by operating a Ponzi

scheme.”6

5
Doc. 1, United States v. Adams, No. 3:18-cr-00088 (S.D. Miss).
6
Doc. 3, Securities & Exchange Commission vs. Adams, et al., No. 3:18-cv-00252 (S.D. Miss).

8
Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 9 of 26

24.

On May 9, 2018, Adams pleaded guilty to the federal crime of wire fraud and admitted “all

of the conduct of the entire scheme and artifice to defraud as set forth” in the bill of information.7

The fact that Madison Timber was a Ponzi scheme is not in dispute.

FACTUAL ALLEGATIONS RELEVANT TO BILLINGS AND MDB GROUP

25.

Billings became a recruiter for Madison Timber by no later than 2012, while he was

employed by Butler Snow Business Advisory Services, LLC (“Butler Snow”). Madison Timber

paid Butler Snow a monthly retainer for “strategic business development, strategic

financing/capital strategies and overall management advisory” services. Butler Snow and Billings

introduced Madison Timber to potential investors and Madison Timber paid Butler Snow and

Billings a “success fee” when an investor invested.

26.

In December 2013, Billings left Butler Snow for the prospect of recruiting new investors

to Madison Timber fulltime. Adams agreed to pay Billings 2%, and later 2.5%, of each dollar of

each investment made by an investor that Billings personally recruited. In addition, Madison

Timber paid Billings a fee of $10,000, and later $12,500, a month. These agreements were honored

until the collapse of the Ponzi scheme in April 2018.

27.

Among Adams’s “bird dogs,” Billings was a standout. On information and belief, when

Adams met Billings in 2012, Madison Timber had annual investments of approximately

$15,000,000. With Billings’s help, the Ponzi scheme ballooned. Billings targeted large investors

7
Doc. 11, United States v. Adams, No. 3:18-cr-00088 (S.D. Miss).

9
Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 10 of 26

in Texas and California, often dropping certain investors’ names to attract new investors. On

information and belief, Billings personally “booked” more than $80,000,000 in investments in

2017 alone. Billings was always hunting for “more, and more and more!!”

28.

Billings promoted Madison Timber as a safe and secured investment that paid interest at

rates that substantially exceeded market interest rates. In a typical presentation, Billings told the

investor that the investment was safe because Madison Timber had longstanding relationships

with Mississippi lumber mills that would pay a premium to lock-down timber rights. Billings

explained that proceeds from the sale of timber would pay the investor monthly installments of

one-twelfth of their principal investment, plus interest.

29.

Billings told the investor that a default was highly unlikely, but in the event of a default, the

investor would be fully protected because his or her promissory note was secured by his or her own

timber deed and cutting agreement that the investor could liquidate for whatever remaining

amount Madison Timber owed. In fact, the timber deeds and cutting agreements were worthless.

30.

A cursory inspection of Madison Timber’s operations would have revealed Madison

Timber to be a classic Ponzi scheme. Among other things, Billings knew or should have been

aware of each of the following—any one of which is suspicious standing alone, but taken together

clearly evidence a fraud:

a) The timber deeds and cutting agreements between landowners and Madison
Timber were fake. Indeed the landowners’ signatures, forged by Adams, often
looked the same. A call to any one of the hundreds of purported landowners, or a
simple check of the title for any one of the hundreds of purported tracts of land,
would have confirmed the truth.

10
Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 11 of 26

b) Madison Timber had no contracts with lumber mills. A call to any one of the
lumber mills for which Madison Timber purported to have supply agreements
would have confirmed the truth.

c) Madison Timber required that an investor agree that he or she would not record the
deed by which Madison Timber purported to grant its own rights to the investor
unless and until Madison Timber failed to make a payment due under the
promissory note.

d) The interest rate that Madison Timber paid was typically 300% to 400% of that
payable by any other fully collateralized investment.

e) Madison Timber purported to have identified lumber mills with insatiable demand
for timber and at uniform prices. The market price for timber is readily available
from multiple sources, and any one of those sources would have confirmed that the
market price for timber rises and falls, sometimes dramatically, over short periods
of time.

f) In October 2016, Madison Timber abruptly changed banks, and each recruiter was
responsible for collecting within a short period of time all outstanding pre-dated
checks from his individual investors and then reissuing new pre-dated checks
drawn from Madison Timber’s new account at a different bank. Billings’s investors
transacted their business via wires. Billings told his investors that “[o]ur banker
of some twenty plus years left Trustmark Bank, and we of course went with him.”

31.

Moreover, Billings was paid to understand Madison Timber’s business. At Butler Snow,

Billings provided “strategic business development, strategic financing/capital strategies and

overall management advisory” services to Madison Timber. Billings knew or should have known

that Madison Timber was a Ponzi scheme. At a bare minimum, in inducing persons to invest,

Billings was reckless and indifferent as to the existence of the Ponzi scheme.

32.

In August 2017, Billings celebrated his “fifth anniversary” with Madison Timber. He

thanked Adams for the “exceptional association and collaboration” and said “it is truly amazing

what we have accomplished together.” He reflected: “I can’t decide whether ‘The Odd Couple’,

11
Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 12 of 26

Grumpy Old Men’ . . . or at this point perhaps just ‘Big’ would be the best title to describe us. . . .

I can only conclude that it is ‘A God Thing’!!”

33.

Between 2013 and April 2018, Billings induced dozens of persons to invest in Madison

Timber. In exchange, he and MDB Group received Madison Timber “commissions” of not less

than $3,513,780.

34.

On information and belief, between 2013 and April 2018, Billings’s Madison Timber

“commissions” made up all or virtually all of MDB Group’s income. MDB Group had no other

business; it was funded solely with proceeds of the Madison Timber Ponzi scheme. It had no

operations and no employees. Billings was MDB Group’s sole manager and member, and directed

the disbursement of MDB Group’s income to himself.

FACTUAL ALLEGATIONS RELEVANT TO KELLY AND KELLY MANAGEMENT

35.

Kelly sold Madison Timber investments as early as 2010. Madison Timber paid Kelly 3%

to 3.5% of each dollar of each investment made by an investor that Kelly personally recruited, and

1% to 1.5% of each dollar of each investment made by an investor that Billings personally

recruited. On information and belief, the agreement was not committed to writing but was honored

until the collapse of the Ponzi scheme in April 2018.

36.

Between 2010 and April 2018, Kelly sold investments in Madison Timber to dozens of

investors. In exchange, he and Kelly Management received Madison Timber “commissions” of

not less than $9,674,615. On information and belief, out of the “commissions” Kelly Management

12
Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 13 of 26

received, Kelly Management paid a total of $1,456,811 in “commissions” to sub-recruiters during

the same time period. Accounting for “commissions” paid to sub-recruiters, Kelly and Kelly

Management received net “commissions” of $8,217,804.

FACTUAL ALLEGATIONS RELEVANT TO MCHENRY AND FIRST SOUTH

37.

McHenry became a recruiter for Madison Timber by no later than 2010. McHenry

demanded, and Adams agreed to pay to McHenry, 10% of each dollar of each investment made by

an investor that McHenry personally recruited. Upon information and belief, the agreement was

not committed to writing but was honored until the collapse of the Ponzi scheme in April 2018.

38.

Many of McHenry’s investors were elderly retirees. On information and belief, he met

some of them in older adult Sunday school classes. McHenry cultivated relationships with these

individuals by visiting them, praying with them, bestowing gifts on them—even taking them

hunting when they could no longer go by themselves. These individuals could not afford to risk

their life savings on purported timber investments, but McHenry gained their trust and then took

their money. It is alleged that in one instance, McHenry, after learning at church that one couple

was suffering financial difficulties, presented himself as an answer to their prayers. Allegedly, he

told the couple that God had led him to contact them. These individuals have been devastated by

this Ponzi scheme. The stress has negatively impacted their health, and some struggle now to pay

for basic necessities.

39.

McHenry promoted Madison Timber as a safe and secured investment that paid interest at

rates that substantially exceeded market interest rates. In a typical presentation, McHenry told the

13
Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 14 of 26

investor that the investment was safe because Madison Timber had longstanding relationships

with Mississippi lumber mills that would pay a premium to lock-down timber rights. McHenry

explained that proceeds from the sale of timber would pay the investor monthly installments of

one-twelfth of their principal investment, plus interest.

40.

McHenry told the investor that a default was highly unlikely, but in the event of a default,

the investor would be fully protected because his or her promissory note was secured by his or her

own timber deed and cutting agreement that the investor could liquidate for whatever remaining

amount Madison Timber owed. In fact, the timber deeds and cutting agreements were worthless.

41.

A cursory inspection of Madison Timber’s operations would have revealed Madison

Timber to be a classic Ponzi scheme. Among other things, McHenry knew or should have been

aware of each of the following—any one of which is suspicious standing alone, but taken together

clearly evidence a fraud:

a) The timber deeds and cutting agreements between landowners and Madison
Timber were fake. Indeed the landowners’ signatures, forged by Adams, often
looked the same. A call to any one of the hundreds of purported landowners, or a
simple check of the title for any one of the hundreds of purported tracts of land,
would have confirmed the truth.

b) Madison Timber had no contracts with lumber mills. A call to any one of the
lumber mills for which Madison Timber purported to have supply agreements
would have confirmed the truth.

c) Madison Timber required that an investor agree that he or she would not record the
deed by which Madison Timber purported to grant its own rights to the investor
unless and until Madison Timber failed to make a payment due under the
promissory note.

d) The interest rate that Madison Timber paid was typically 300% to 400% of that
payable by any other fully collateralized investment.

14
Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 15 of 26

e) Madison Timber purported to have identified lumber mills with insatiable demand
for timber and at uniform prices. The market price for timber is readily available
from multiple sources, and any one of those sources would have confirmed that the
market price for timber rises and falls, sometimes dramatically, over short periods
of time.

f) In October 2016, Madison Timber abruptly changed banks, and each recruiter was
responsible for collecting within a short period of time all outstanding pre-dated
checks from his individual investors and then reissuing new pre-dated checks
drawn from Madison Timber’s new account at a different bank.

42.

McHenry, in fact, shared a small office with Adams and so would have observed Adams

fabricating timber deeds and cutting agreements. Certainly he would have observed the stacks of

fake documents that littered the office.

43.

Between 2010 and April 2018, McHenry induced approximately twenty people to invest in

Madison Timber. In exchange, he and First South received Madison Timber “commissions” of not

less than $3,473,320.

44.

Upon information and belief, between 2010 and April 2018, McHenry’s Madison Timber

“commissions” made up all or virtually all of First South’s income. First South had no other

business; it was funded solely with the proceeds of the Madison Timber Ponzi scheme. It had no

operations and no employees. McHenry was First South’s sole manager and member, and directed

the disbursement of First South’s income to himself.

15
Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 16 of 26

CAUSES OF ACTION

COUNT I
AGAINST ALL DEFENDANTS
FOR THE RETURN OF COMMISSIONS AND FEES
PURSUANT TO THE MISSISSIPPI FRAUDULENT TRANSFER ACT

45.

The Receiver re-alleges paragraphs 1 through 44 as though stated fully herein.

46.

The Receiver may avoid any transfer made in violation of the Mississippi Uniform

Fraudulent Transfer Act (the “Act”), Mississippi Code Ann. §15-3-101, et seq.

47.

Pursuant to § 107 of the Act, the Receiver may recover from any party any funds that

Madison Timber transferred with the actual intent to hinder, delay, or defraud any of its creditors.

Because Madison Timber was a Ponzi scheme, by definition all transfers by Madison Timber were

made with the actual intent to hinder, delay, or defraud its creditors.

48.

The Receiver is entitled to avoid all “commissions,” fees, and other such payments paid by

Madison Timber to Billings and MDB Group and to the entry of a judgment against Billings and

MDB Group, jointly and severally, for the amount of all such monies received by them, estimated

by the Receiver to be not less than $3,513,780.

49.

The Receiver is entitled to avoid all “commissions,” fees, and other such payments paid by

Madison Timber to Kelly and Kelly Management and to the entry of a judgment against Kelly and

16
Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 17 of 26

Kelly Management, jointly and severally, for the amount of all such monies received by them,

estimated by the Receiver to be not less than $8,217,804.

50.

The Receiver is entitled to avoid all “commissions,” fees, and other such payments paid by

Madison Timber to McHenry and First South and to the entry of a judgment against McHenry and

First South, jointly and severally, for the amount of all such monies received by them, estimated by

the Receiver to be not less than $3,473,320.

COUNT II
AGAINST DEFENDANTS BILLINGS AND MDB GROUP
FOR THE RETURN OF COMMISSIONS AND FEES
PURSUANT TO THE TEXAS FRAUDULENT TRANSFER ACT

51.

The Receiver re-alleges paragraphs 1 through 50 as though stated fully herein.

52.

The Receiver understands, and therefore represents, that all transfers to Billings and MDB

Group were made or deemed to have been made in the State of Mississippi, such that they are

subject to the Mississippi Uniform Fraudulent Transfer Act (the “Act”), Mississippi Code Ann.

§15-3-101, et seq.

53.

If, however, the Court determines that the transfers to Billings and MDB were made or

deemed to have been made in the State of Texas, they instead are subject to the Texas Uniform

Fraudulent Transfer Act, Texas Business and Commerce Code §24.001, et seq. (the “Texas Act”).

Under the Texas Act, the Receiver is entitled to avoid “commissions,” fees, or other such

payments to Billings and MDB Group.

17
Case 3:18-cv-00679-CWR-FKB Document 15 Filed 10/17/18 Page 18 of 26

54.

The Receiver is entitled to avoid all “commissions,” fees, and other such payments paid by

Madison Timber to Billings and MDB Group and to the entry of a judgment against Billings and

MDB Group, jointly and severally, for the amount of all such monies received by them, estimated

by the Receiver to be not less than $3,513,780.

55.

In addition, pursuant to § 24.01 of the Texas Act, the Receiver is entitled to an award of her

attorney’s fees and all costs.

COUNT III
AGAINST ALL DEFENDANTS
FOR UNJUST ENRICHMENT

56.

The Receiver re-alleges paragraphs 1 through 55 as though stated fully herein.

57.

In the alternative, each of the Defendants has been unjustly enriched at the expense of

Madison Timber and its innocent investors. At all relevant times, Madison Timber was a Ponzi

scheme, and Defendants provided no legally cognizable consideration for the “commissions,”

fees, and other such payments paid to them. Accordingly, the Receiver is entitled to the entry of a

judgment against each of the Defendants in the amount of the “commissions,” fees, and other such

payments they received.

58.

The Receiver is entitled the entry of a judgment against Billings and MDB Group stating

that they have been unjustly enriched and are liable, jointly and severally, for an amount equal to

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the “commissions,” fees, and other such payments they received, estimated by the Receiver to be

not less than $3,513,780.

59.

The Receiver is entitled the entry of a judgment against Kelly and Kelly Management

stating that they have been unjustly enriched and are liable, jointly and severally, for an amount

equal to the “commissions,” fees, and other such payments they received, estimated by the

Receiver to be not less than $8,217,804.

60.

The Receiver is entitled to the entry of a judgment against McHenry and First South stating

that they have been unjustly enriched and are liable, jointly and severally, for an amount equal to

the “commissions,” fees, and other such payments they received, estimated by the Receiver to be

not less than $3,473,320.

ALTERNATIVE COUNT IV
AGAINST BILLINGS, MDB GROUP, MCHENRY, AND FIRST SOUTH
FOR DISGORGEMENT OF COMMISSIONS EARNED
IN VIOLATION OF 15 U.S.C. § 77e AND MISS. CODE. ANN. § 75-71-301

61.

The Receiver re-alleges paragraphs 1 through 60 as though stated fully herein.

62.

In the alternative, Receiver is entitled to disgorgement of “commissions” Billings, MDB

Group, McHenry, and First South received in exchange for the sale of unregistered securities in

violation of 15 U.S.C. §77e and Mississippi Code Ann. § 75-71-301.

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63.

The promissory notes sold by Madison Timber to investors were “securities,” as that term

is defined under 15 U.S.C.A. §78(c)(A)(10) and Miss. Code Ann. § 75-71-102(28).

64.

As alleged throughout this complaint, in the complaint in the underlying action SEC v.

Arthur Lamar Adams et al., No. 3:18-cv-252 (S.D. Miss.), and in the bill of information filed

against Adams in U.S. v. Arthur Lamar Adams, No. 3:18-c-188 (S.D. Miss.), Adams and his

associates facilitated sales of these promissory notes to investors through material misstatements

and omissions; employed a device, scheme, or artifice to defraud; and engaged in acts, practices, or

courses of business that operated or would operate as a fraud or deceit, all in violation of Section

17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(A); Section 10(b) of the Securities Exchange

Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, thereunder; as well as the

Mississippi Securities Act, Miss. Code Ann. § 75-71-501.

65.

The sales violated Section 12(a)(1) of the Securities Act of 1933, 15 U.S.C. § 77l, because

there were no registration statements for the promissory notes, as required by Section 5 of the

Securities Act of 1933, 15 U.S.C § 77e, and the promissory notes were not exempt from

registration under Section 5. Further, Adams and his associates used methods of interstate

commerce, including intrastate telephone calls, to facilitate the sales of the promissory notes.

66.

The sales violated the Mississippi Securities Act because there were no registration

statements for the promissory notes, as required by Miss. Code Ann. § 75-71-301, and the

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promissory notes were not exempt from registration under Miss. Code Ann. §§ 75-71-201 through

75-71-203.

COUNT V
AGAINST BILLINGS, MDB GROUP, MCHENRY, AND FIRST SOUTH
FOR ENTRY OF PRELIMINARY AND PERMANENT INJUNCTION

67.

The Receiver re-alleges paragraphs 1 through 66 as though stated fully herein.

68.

On information and belief, Madison Timber “commissions” were MDB Group’s sole

source of income—that is, MDB Group was funded solely through the proceeds of the Madison

Timber Ponzi scheme. On information and belief, MDB Group’s disbursements of money

received from Madison Timber were Billings’s sole source of income for several years.

69.

On information and belief, Billings and MDB Group will be unable to pay any

judgment against them in the Receiver’s favor, for the benefit of the receivership estate and

victims, if Billings transfers, sells, encumbers, or otherwise devalues any asset in his possession, or

if MDB Group disburses whatever money remains in its accounts.

70.

On information and belief, Madison Timber “commissions” were First South’s sole source

of income—that is, First South was funded solely through the proceeds of the Madison Timber

Ponzi scheme. On information and belief, First South’s disbursements of money received from

Madison Timber were McHenry’s sole source of income for several years.

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71.

On information and belief, McHenry and First South will be unable to pay any judgment

against them in the Receiver’s favor, for the benefit of the receivership estate and victims, if

McHenry transfers, sells, encumbers, or otherwise devalues any asset in his possession, or if First

South disburses whatever money remains in its accounts.

72.

The Receiver is entitled to preliminary injunctive relief in the form of an order restraining

Billings, MDB Group, McHenry, and First South, and any persons or entities acting in concert

with them, from transferring, selling, encumbering, or otherwise devaluing assets, and assets

traceable to assets, that they received from Adams and Madison Timber.

73.

There is a substantial likelihood that the Receiver will prevail on the merits of her claims

against Billings, MDB Group, McHenry, and First South.

74.

There is a substantial likelihood that the Receiver, whose primary objective is to maximize

funds available to distribute to victims, will be irreparably harmed in the absence of preliminary

injunctive relief. The Receiver’s primary objective is to maximize funds available for distribution

to victims. If Billings, MDB Group, McHenry, and First South are not restrained, there is a

substantial risk that they will transfer, sell, encumber, or otherwise devalue assets in their

possession that belong to the receivership estate, and diminish funds available for collection by the

Receiver, for the benefit of victims.

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75.

Billings, MDB Group, McHenry, and First South will not be unjustly affected by the

preliminary injunctive relief The Receiver only asks the Court to restrain their ability to transfer,

sell, encumber, or otherwise devalue assets, and assets traceable to assets, that they received from

Adams and Madison Timber. These assets do not belong to them, but instead to the receivership

estate.

76.

The preliminary injunctive relief requested will serve the public interest by maximizing

funds available to distribute to victims.

77.

The preliminary injunctive relief requested does not require a bond, but should the Court

determine that it does, the Receiver respectfully suggests that the bond should be in a nominal

amount.

78.

The Receiver further requests that, after due proceedings, the preliminary injunctive relief

requested should be made permanent.

___________________

WHEREFORE, the Receiver respectfully requests that, after due proceedings, the Court

enter judgments:

1. awarding damages in her favor and against Michael D.


Billings and MDB Group, LLC, jointly and severally, for an
amount equal to the “commissions,” fees, and other such
payments they received from Madison Timber, estimated by
the Receiver to be not less than $3,513,780;

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2. awarding damages in her favor and against Terry Wayne


Kelly, Jr. and Kelly Management, LLC, jointly and severally,
for an amount equal to the “commissions,” fees, and other
such payments they received from Madison Timber,
estimated by the Receiver to be not less than $8,217,804;

3. awarding damages in her favor and against William B.


McHenry, Jr. and First South Investments, LLC, jointly and
severally, for an amount equal to the “commissions,” fees, and
other such payments they received from Madison Timber,
estimated by the Receiver to be not less than $3,473,320;

4. granting the preliminary injunctive relief requested against


Michael D. Billings and MDB Group, LLC, and William B.
McHenry, Jr. and First South Investments, LLC, and, after
due proceedings, making the relief permanent;

5. awarding any and all attorney’s fees, costs, and interest


allowed by contract or law; and

6. awarding any and all other relief as may be just and equitable.

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October 17, 2018


Respectfully submitted,

/s/ LaToya T. Jeter /s/ Brent B. Barriere


BROWN BASS & JETER, PLLC FISHMAN HAYGOOD, LLP
Lilli Evans Bass, Miss. Bar No. 102896 Admitted pro hac vice
LaToya T. Jeter, Miss. Bar No. 102213 Brent B. Barriere, Primary Counsel
1755 Lelia Drive, Suite 400 Jason W. Burge
Jackson, Mississippi 39216 Kristen D. Amond
Tel: 601-487-8448 Rebekka C. Veith
Fax: 601-510-9934 201 St. Charles Avenue, Suite 4600
bass@bbjlawyers.com New Orleans, Louisiana 70170
Receiver’s counsel Tel: 504-586-5253
Fax: 504-586-5250
bbarriere@fishmanhaygood.com
jburge@fishmanhaygood.com
kamond@fishmanhaygood.com
rveith@fishmanhaygood.com
Receiver’s counsel

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CERTIFICATE OF SERVICE

I certify that I electronically filed the foregoing with the Clerk of Court using the ECF

system which sent notification of filing to all counsel of record.

In addition, I have separately emailed a copy of the foregoing to:

Andy Taggart
Taggart, Rimes & Graham, PLLC
andy@trglawyers.com
Counsel for Michael D. Billings and MDB Group, LLC

Joseph “Whit” Cooper


Farese, Farese & Farese PA
wcooper@fareselaw.com
Counsel for Terry Wayne Kelly, Jr. and Kelly Management, LLC

Frank W. Trapp
Phelps Dunbar LLP
frank.trapp@phelps.com
Counsel for William B. McHenry, Jr. and First South Investments, LLC

Date: October 17, 2018 /s/ LaToya T. Jeter


LaToya T. Jeter, Miss. Bar No. 102213

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