III. ARGUMENT
At issue before the Court are competing claims in equity brought against the assets of the Relief Defendants, BTR and Blue Star Media, entities that received and benefited from almost $5.2 million in illicit proceeds of the fraudulent securities scheme giving rise to this litigation. The shareholders in the putative Shareholder Class have tens of millions of dollars in losses because of the Spongetech fraud. Under the equitable powers of this Court, the Shareholders should receive compensation before any monies are distributed to those benefiting from the fraud and their agents.
Just as the SEC should take priority over the claims of the unsecured creditors, Metter, Hinshaw & Culberton, Ashby & Geddes, and James Servino (SEC Opening Br. at 10-13), the claims of defrauded shareholders should take priority over the claims of any of those who benefited from the fraud or their agents. Under equitable principles, the Court is empowered to limit claims that it could assert under state law and ensure that monies are distributed in a manner that the Court determines to be fair and reasonable under the circumstances. See SEC v. Enterprise Trust Co., No. 08 C 1260, 2008 WL 4534154, *3 (N.D. Ill. Oct. 7, 2008) (citations omitted) ("There are no hard rules governing a district court's decisions in matters like these. The standard is whether a distribution is equitable and fair in the eyes of a reasonable judge ....[N]othing is really out of bounds for objectors and Receivers.")
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