Harrington BK Complaint

7/27/2019 Harrington BK Complaint

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IN THE UNITED STATES BANKRUPTCY COURT

FOR THE SOUTHERN DISTRICT OF MISSISSIPPI

IN RE: BANKRUPTCY PROCEEDING

STEADIVEST, LLC CASE NO. 09-01013 EE

STEADIVEST DEVELOPMENT, LLC

f/k/a JACKSON PROPERTY LIQUIDATORS, LLC CASE NO. 09-01823 EE

STEADIVEST CAPITAL, LLC

f/k/a TACTICAL FINANCIAL SOLUTIONS, LLC CASE NO. 09-01824 EE

MTW INVESTMENT FINANCING, LLC CASE NO. 09-01825 EE

DEREK A. HENDERSON, TRUSTEE

FOR THE BANKRUPTCY ESTATES OF

STEADIVEST, LLC, STEADIVEST DEVELOPMENT, LLC,

STEADIVEST CAPITAL, LLC

AND MTW INVESTMENT FINANCING, LLC PLAINTIFF

V. ADVERSARY PROCEEDING NO. _____________

JACK HARRINGTON,

EQUITY TRUST COMPANY,

AND HIGH STREET INVESTMENTS, LLC DEFENDANTS

COMPLAINT

COMES NOW Derek A. Henderson, Trustee for the bankruptcy estates of Steadivest, LLC,

SteadiVest Development, LLC, SteadiVest Capital, LLC and MTW Investment Financing, LLC,

and files this his Complaint against Jack Harrington, Equity Trust Company and High Street

Investments, LLC, and in support thereof would show unto the Court the following:

Case 09-01013-ee Doc 333 Filed 02/11/11 Entered 02/11/11 15:01:34 Desc MainDocument Page 1 of 21


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JURISDICTION AND PARTIES

1.

The Court has jurisdiction over this matter pursuant to 28 U.S.C. 1334, 28 U.S.C. 157, 11

U.S.C. 547, 11 U.S.C. 548, 11 U.S.C. 550, 11 U.S.C. 105 and Rule 7001 of the Federal Rules

of Bankruptcy Procedure.

2.

Venue is proper pursuant to 28 U.S.C. 1409.

3.

This matter is a core proceeding.

PARTIES

4.

The Plaintiff is Derek A. Henderson, the duly appointed Chapter 7 Trustee (Trustee) for

the bankruptcy estates of Steadivest, LLC, SteadiVest Development, LLC, SteadiVest Capital, LLC

and MTW Investment Financing, LLC pending in the United States Bankruptcy Court for the

Southern District of Mississippi. The Plaintiffs address is 111 East Capitol Street, Suite 455,

Jackson, Mississippi 39201.

5.

One Defendant is Jack Harrington, an individual residing in the Southern District of

Mississippi and may receive service of process at 111 Langdon Bend, Madison, Mississippi 39110.

6.

One Defendant is Equity Trust Company, a South Dakota corporation and may receive

service of process by and through its registered agent, Pierce H. McDowell, III, at 201 South Phillips,



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Suite 200, Sioux Falls, South Dakota 57104-6317.

7.

One Defendant is High Street Investments, LLC, a Mississippi limited liability company and

may receive service of process by and through its registered agent, Marvin B. Speed at 2120 Front

Street, Meridian, Mississippi 39301.

STATEMENT OF FACTS

8.

On March 23, 2009, Steadivest, LLC (SV) filed its petition under Chapter 11 of the United

States Bankruptcy Code before the United States Bankruptcy Court for the Southern District of

Mississippi. On May 15, 2009, the case was converted to Chapter 7. Derek A. Henderson was

appointed the Chapter 7 Trustee.

9.

On May 27, 2009, SteadiVest Development, LLC f/k/a Jackson Property Liquidators, LLC

(SVD) filed its petition under Chapter 7 of the United States Bankruptcy Code before the United

States Bankruptcy Court for the Southern District of Mississippi. Derek A. Henderson was appointed

the Chapter 7 Trustee.

10.

On May 27, 2009, SteadiVest Capital, LLC f/k/a Tactical Financial Solutions, LLC (SVC)

filed its petition under Chapter 7 of the United States Bankruptcy Code before the United States

Bankruptcy Court for the Southern District of Mississippi. Derek A. Henderson was appointed the

Chapter 7 Trustee.



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11.

On May 27, 2009, MTW Investment Financing, LLC (MTW) filed its petition under

Chapter 7 of the United States Bankruptcy Code before the United States Bankruptcy Court for the

Southern District of Mississippi. Derek A. Henderson was appointed the Chapter 7 Trustee.

12.

Prior to the bankruptcy filings, on or about July 2, 2007, Jack Harrington (Harrington) was

employed by MTW as Chief Operating Officer and President.

13.

On November 30, 2007, Steadivest, LLC was formed at the Mississippi Secretary of State

(Business ID #923167). Harrington executed the Certificate of Formation as CFO.

14.

On December 12, 2007, Steadivest Lending, LLC was formed at the Mississippi Secretary

of State (Business ID #923786). Harrington executed the Certificate of Formation as CFO.

15.

On December 12, 2007, Steadivest Resources, LLC was formed at the Mississippi Secretary

of State (Business ID #923787). Harrington executed the Certificate of Formation as CFO.

16.

On December 27, 2007, Tactical Financial Solutions, LLC changes its name to SteadiVest

Capital, LLC by filing a Certificate of Amendment with the Mississippi Secretary of State (Business

ID #902236). Harrington executed the Certificate of Amendment as Member.

17.

On December 27, 2007, Jackson Property Liquidators, LLC changes its name to SteadiVest



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Development, LLC by filing a Certificate of Amendment with the Mississippi Secretary of State

(Business ID #880466). Harrington executed the Certificate of Amendment as Member and as CFO.

18.

As a result of the creation and/or changes to the above referenced companies including, but

not limited to, SV, SVD, SVC and MTW, Harrington served the Steadivest family of companies as

an officer, President, CFO, COO and/or member.

19.

Pursuant to 11 U.S.C. 101(31), Harrington is defined as an insider to SV, SVD, SVC and

MTW.

20.

As an officer, CFO, COO and/or member, Harrington owed a fiduciary duty to the Steadivest

family of companies including, but not limited to, the investors and creditors of the companies.

SALARY INCREASE

21.

At the end of April 2008, Harrington raised his annual salary from $100,000 to $150,000

effective April 15, 2008.

TRANSACTION REGARDING SV MEMBERSHIP INVESTORS

AND EQUITY TRUST COMPANY ON BEHALF OF HARRINGTON

22.

On or about March 21, 2008, SV received $284,000 and $200,000 from investors purchasing

membership interests in SV. On or about March 24, 2008, SV received $10,000 from investors

purchasing a membership interest in SV.



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23.

After the funds were received by SV as set forth in Paragraph 22 and were deposited to the

SV bank account, SV had a total balance of $583,362.97.

24.

On March 24, 2008, just days after the money was received by SV, $475,000 was transferred

from SV to MTW. This deposit to the MTW bank account brought the balance of the account to

$607,441.86.

25.

On March 24, 2008, the same day of the deposit to MTW, Check No. 3388 was issued from

the MTW account to Equity Trust Company for the benefit of Harrington in the amount of

$306,302.99. These funds were used to pay Harrington on a investment he had made in MTW.

26.

After MTW paid Equity Trust Company for the benefit of Harrington, the balance of the

MTW account was $148,413.16.

27.

With the amount of debt MTW and the Steadivest family of companies had, Harrington knew

or should have known that the Steadivest family of companies were insolvent when funds were

transferred to Equity Trust Company for his benefit.

28.

The funds invested by third parties with SV were immediately transferred to MTW and used

by Harrington to pay his personal investment back with total disregard for the other investors and

creditors of the Steadivest family of companies.



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29.

Harringtons actions and inactions were a breach of his fiduciary duties to the Steadivest

family of companies and their investors and creditors.

30.

Harrington defrauded SV and the investors of SV. Harrington accepted funds from investors

to purchase membership interest in SV when at the same time intended to take these funds for this

personal use.

TRANSACTION REGARDING SVC, INVESTLINC, EQUITY TRUST COMPANY,

HARRINGTON AND HIGH STREET INVESTMENTS, LLC

31.

On August 25, 2008, SVC (f/k/a Tactical Financial Solutions, LLC) received and deposited

$968,937.51 from The Investlinc/TFS Income Fund, LLC (Investlinc).

32.

Investlinc is a Delaware limited liability company incorporated October 19, 2007. According

to the Limited Liability Company Agreement of The Investlinc/TFS Income Fund, LLC, the sole

manager of the LLC was Tactical Financial Solutions, LLC (now SVC) and the sole member of the

LLC was Tactical Financial Solutions, LLC (now SVC). Further, Tactical Financial Solutions, LLC

is listed as the Attorney-in-Fact. W. Marshall Wolfe executed the Limited Liability Company

Agreement on behalf of Tactical Financial Solutions, LLC both as the Manager and Member.

33.

Therefore, based upon The Investlinc, LLC Agreement, SVC was the sole member and

manager of Investlinc.



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34.

Investlinc was under the control of SVC which in turn, SVC was under the control of

Harrington and others.

35.

Pursuant to 11 U.S.C. 101(2), Investlinc is an affiliate of SVC.

36.

Pursuant to 11 U.S.C. 101(31), Investlinc is an insider of SVC and the Steadivest family

of companies.

37.

The funds transferred ($968,937.51) from Investlinc to SVC were purportedly for the purpose

of paying SVC for a project known as Highland Heights.

38.

It appears that the value of Highland Heights is substantially less than $968,937.51.

39.

As a result of the withdrawal from Investlinc, the remaining account balance at Investlinc was

$352,357.88.

40.

The balance of the SVC account prior to the deposit of the Investlinc funds was $90,777.03.

After the deposit of the Investlinc funds, SVC held $1,059,714.54.

41.

On August 25, 2008, the same day the Investlinc funds were received and deposited, SVC

issued four (4) checks to or on the behalf of Harrington. The four checks are as follows:



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Check No. Payee Amount

2096 Equity Trust Company $311,945.56

(Jack Harrington/IRA)

2097 Jack Harrington $458,983.97(Investment Refund)

2098 Jack Harrington $50,000.00

(Capital Withdrawal)

2099 High Street Investments $115,551.48

(Capital Withdrawal)

Total: $936,481.01

42.

Two (2) other withdrawals were made from the SVC account on August 25, 2008 being

$864.90 to SVD and $21,000.00 to Steadivest Resources, LLC to fund payroll. At the end of the day,

on August 25, 2008, the remaining total balance in the SVC account was $101,368.63.

43.

It is noted that in July 2008, Harrington resigned from the Steadivest family of companies.

There were disputes over Harringtons leaving the company including a lawsuit filed on October 9,

2008 in state court styled Steadviest, LLC and Steadivest Development, LLC v. Justin Adcock, Jack

Harrington and Selectbuilt, LLC, in the Chancery Court of Rankin County, Mississippi (Cause No.

64701). This lawsuit has been dismissed without prejudice.

44.

With the knowledge Harrington had regarding SVC and the Steadivest family of companies,

including, but not limited to, the amount of debt the companies had, Harrington knew or should have

known that the Steadivest family of companies were insolvent when the funds were transferred to



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Equity Trust Company, Harrington and High Street Investments.

45.

Harringtons resignation in July 2008, does not affect his status as an insider when the funds

were transferred to him or persons on his behalf.

46.

Harringtons actions and inactions were a breach of his fiduciary duties to the Steadivest

family of companies and their investors and creditors.

COUNT ONE - MISREPRESENTATION AND FRAUD - HARRINGTON

47.

The Trustee incorporates and re-alleges paragraphs 1-46 herein.

48.

Harringtons representations to investors to purchase membership and/or equity in SV was

based on misrepresentation and fraud. Harrington took control over the funds in the amount of

$475,000 and caused to be transferred to MTW and then paid $306,302.99 to Equity Trust Company

for the benefit of Harrington.

49.

Harrington obtain the funds from investors based on misrepresentations. Harrington had a

duty to the investors and creditors to protect their interest.

50.

The Trustee is entitled to a judgment against Harrington in favor of SV and the Steadivest

family of companies for at least $306,302.99 plus interest and costs.



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COUNT TWO - BREACH OF FIDUCIARY DUTY - HARRINGTON

51.


52.

Harrington had a fiduciary duty to protect SV, the Steadivest family of companies, and the

investors and creditors. Harringtons actions and inactions breached that fiduciary duty. Harrington

failed to protect the interests of the Steadivest family of companies and its investors and creditors.

Harrington put his own personal interest before and above the interests of the Steadivest family of

companies and the investors and creditors.

53.



COUNT THREE - RECOVERY OF PROPERTY - EQUITY TRUST COMPANY

54.


55.

The funds paid to Equity Trust Company on March 24, 2008 from MTW in the amount of

$306,302.99 (Check No. 3388) were paid on behalf of Harrington.

56.

The funds were paid to Harrington through fraud, misrepresentation and/or breach of

fiduciary duty.



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57.

To the extent Equity Trust Company accepted the funds on behalf of Harrington and still is

in possession of any funds of Harrington, Equity Trust Company should freeze the accounts and

upon proper order of this Court, return the funds to MTW and the Steadivest family of companies.

58.

The Trustee is entitled to a judgment against Equity Trust Company ordering the turnover

of all funds of Harrington in which Equity Trust Company may hold or control.

COUNT FOUR - BREACH OF FIDUCIARY DUTY - HARRINGTON

59.


60.

Harrington had a fiduciary duty to protect SV, the Steadivest family of companies, and the

investors and creditors. Harringtons actions and inactions breached that fiduciary duty. Harrington

failed to protect the interests of the Steadivest family of companies and its investors and creditors.

Harrington put his own personal interest before and above the interests of the Steadivest family of

companies and the investors and creditors.

61.



COUNT FIVE - RECOVERY OF PROPERTY - EQUITY TRUST COMPANY

62.




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63.

The funds paid to Equity Trust Company on August 25, 2008 from MTW in the amount of

$311,945.56 (Check No. 2096) were paid on behalf of Harrington.

64.


fiduciary duty.

65.

To the extent Equity Trust Company accepted the funds on behalf of Harrington and still is

in possession of any funds of Harrington, Equity Trust Company should freeze the accounts and

upon proper order of this Court, return the funds to MTW and the Steadivest family of companies.

66.

The Trustee is entitled to a judgment against Equity Trust Company ordering the turnover

of all funds of Harrington in which Equity Trust Company may hold or control.

COUNT SIX - RECOVERY OF PROPERTY - HIGH STREET INVESTMENTS, LLC

67.


68.

The funds paid to High Street Investments, LLC on August 25, 2008 from SVC in the amount

of $115,551.48 (Check No. 2099) were paid on behalf of Harrington.

69.




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fiduciary duty.

70.

To the extent High Street Investments, LLC accepted the funds on behalf of Harrington and

still is in possession of any funds of Harrington, High Street Investments, LLC should freeze the

accounts and upon proper order of this Court, return the funds to SVC and the Steadivest family of

companies.

71.

The Trustee is entitled to a judgment against High Street Investments, LLC ordering the

turnover of all funds of Harrington in which High Street Investments, LLC may hold or control.

COUNT SEVEN - 11 U.S.C. 547 PREFERENCES - HARRINGTON, EQUITY

TRUST COMPANY AND HIGH STREET INVESTMENTS, LLC

72.


73.

The transfers made on August 25, 2008 from SVC were as follows:






74.

These transfers were made to or for the benefit of Harrington.



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75.

These transfers were made for or on account of an antecedent debt owed to Harrington before

the transfers were made.

76.

SVC and the Steadivest family of companies were insolvent at the time of the transfers.

77.

Harrington was an insider as defined by 11 U.S.C. 101(31) at the time of the transfers.

78.

The transfers were made within one year of the time of the filing of the bankruptcy petitions

of SVC and the Steadivest family of companies.

79.

The transfers enabled Harrington to receive more than he would be entitled to receive if the

case were a Chapter 7 and the transfers had not been made.

80.

The transfers (payments) made to Equity Trust Company in the amount of $311,945.56, to

Harrington in the amount of $458,983.97, to Harrington in the amount of $50,000.00, to High Street

Investments, LLC in the amount of $115,551.48 are each preference payments pursuant to 11 U.S.C.

547.

81.

The Trustee is entitled to avoid the transfers and receive a judgment against Equity Trust

Company in the amount of $311,945.56, against Harrington in the amount of $458,983.97, against

Harrington in the amount of $50,000.00, and against High Street Investments, LLC in the amount



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of $115,551.48 as preferences pursuant to 11 U.S.C. 547 plus interest and costs.

COUNT EIGHT - 11 U.S.C. 548 - FRAUDULENT TRANSFERS - HARRINGTON,

EQUITY TRUST COMPANY AND HIGH STREET INVESTMENTS, LLC

82.


83.

The transfer made on March 24, 2008 from MTW was as follows:



84.

The transfers made on August 25, 2008 from SVC were as follows:






85.

These transfers were made to or for the benefit of Harrington.

86.

Harrington was an insider as defined by 11 U.S.C. 101(31) at the time of the transfers.

87.

The transfers were made within two (2) years before the date of the filing of the bankruptcy



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petitions of MTW, SVC and the Steadivest family of companies.

88.

The transfers were made with actual intent to hinder, delay, or defraud any entity to which

the debtor was or became, on or after the date that such transfer was made, indebted.

89.

The Debtors received less than a reasonably equivalent value in exchange for such transfers.

90.

The Debtors were insolvent on the date that such transfers were made or became insolvent

as a result of such transfers.

91.

The Debtors were engaged in business or a transaction, or was about to engage in business

or a transaction, for which any property remaining with the debtor was an unreasonably small capital.

92.

The Debtors intended to incur, or believed that the debtors would incur, debts that would be

beyond the debtors ability to pay as such debts matured.

93.

The Debtors made such transfers to or for the benefit of an insider and not in the ordinary

course of business.

94.

The transfers (payments) made to Equity Trust Company in the amount of $306,302.99, to

Equity Trust Company in the amount of $311,945.56, to Harrington in the amount of $458,983.97,

to Harrington in the amount of $50,000.00, to High Street Investments, LLC in the amount of



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$115,551.48 are each fraudulent transfers pursuant to 11 U.S.C. 548.

95.

The Trustee is entitled to avoid the transfers and receive a judgment against Equity Trust

Company in the amount of $306,302.99, against Equity Trust Company in the amount of

$311,945.56, against Harrington in the amount of $458,983.97, against Harrington in the amount of

$50,000.00, and against High Street Investments, LLC in the amount of $115,551.48 as fraudulent

transfers pursuant to 11 U.S.C. 548 plus interest and costs.

COUNT NINE - 11 U.S.C. 550 - LIABILITY OF TRANSFEREE - EQUITY TRUST

COMPANY AND HIGH STREET INVESTMENTS, LLC

96.


97.

To the extent any transfers are avoided under Counts Seven and/or Eight herein above, the

Trustee is entitled to recover the funds transferred or the value of the funds transferred pursuant to

11 U.S.C. 550.

98.

The Trustee is entitled to recover the funds transferred to Equity Trust Company and/or the

funds transferred to High Street Investments, LLC.

99.

The Trustee is entitled to a judgment against Equity Trust Company for the recovery of

$306,302.99 and $311,945.56 and entitled to a judgment against High Street Investments, LLC for

the recovery of $115,551.48 pursuant to 11 U.S.C. 550.



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COUNT TEN - 11 U.S.C. 510 - SUBORDINATION - HARRINGTON

100.


101.

To the extent Harrington has a claim against any of the Debtors or has a claim as the result

of this Complaint, said claims should be subordinated to all other claims pursuant to 11 U.S.C. 510.

102.

The actions and inactions of Harrington as set forth in this Complaint entitles the Trustee to

have all claims of Harrington subordinated to all other claims against the bankruptcy estates.

103.

The Trustee is entitled to a judgment against Harrington determining that any and all claims

of Harrington are subordinated to all other creditors and claims against the bankruptcy estates

pursuant to 11 U.S.C. 510.

WHEREFORE, PREMISES CONSIDERED, Derek A. Henderson, Trustee requests the

Court to find that his Complaint is well taken and should be granted in all respects and grant

judgment in favor of the Trustee as follows:

A) As to Count One, to enter a judgment against Harrington for misrepresentation and

fraud and in favor of SV and the Steadivest family of companies in the amount of at least

$306,302.99;

B) As to Count Two, to enter a judgment against Harrington for breach of fiduciary duty

and in favor of SV and the Steadivest family of companies in the amount of at least $306,302.99;

C) As to Count Three, to enter a judgment against Equity Trust Company for the



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turnover of all funds of Harrington in which Equity Trust Company may hold or control;

D) As to Count Four, to enter a judgment against Harrington for breach of fiduciary duty

and in favor of SV and the Steadivest family of companies in the amount of at least $936,481.01;

E) As to Count Five, to enter a judgment against Equity Trust Company for the turnover

of all funds of Harrington in which Equity Trust Company may hold or control;

F) As to Count Six, to enter a judgment against High Street Investments, LLC for the

turnover of all funds of Harrington in which High Street Investments, LLC may hold or control;

G) As to Count Seven, to enter a judgment against Equity Trust Company in the amount

of at least $311,945.56, against Harrington in the amount of at least $458,983.97, against Harrington

in the amount of at least $50,000.00, and against High Street Investments, LLC in the amount of at

least $115,551.48 as preferences pursuant to 11 U.S.C. 547;

H) As to Count Eight, to enter a judgment against Equity Trust Company in the amount

of at least $306,302.99, against Equity Trust Company in the amount of at least $311,945.56, against

Harrington in the amount of at least $458,983.97, against Harrington in the amount of at least

$50,000.00, and against High Street Investments, LLC in the amount of at least $115,551.48 as

fraudulent transfers pursuant to 11 U.S.C. 548;

I) As to Count Nine, to enter a judgment against Equity Trust Company in the amount

of at least $306,302.99, against Equity Trust Company in the amount of at least $311,945.56, and

against High Street Investments, LLC in the amount of at least $115,551.48 pursuant to 11 U.S.C.

550;

J) As to Count Ten, to enter a judgment against Harrington determining that any and all

claims of Harrington are subordinated to all other creditors and claims against the bankruptcy estates



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pursuant to 11 U.S.C. 510;

K) All costs including interests, fees and expenses as the Court may deem appropriate;

and

L) All other general and equitable relief as may be deemed appropriate by the Court.

Respectfully submitted,

BY: s / Derek A. Henderson

DEREK A. HENDERSON, TRUSTEE

AND ATTORNEY FOR THE TRUSTEE

Derek A. Henderson, MSB #2260

111 East Capitol Street, Suite 455

Jackson, MS 39201

(601) 948-3167

[email protected]


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Harrington BK Complaint

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