In the
United States Court of Appeals
For the Seventh Circuit
No. 16‐3332
COEXIST FOUNDATION, INC.,
Plaintiff‐Appellee,
v.
MICHAEL FEHRENBACHER, et al.,
Defendants‐Appellants.
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:11‐cv‐06279 — Sharon Johnson Coleman, Judge.
ARGUED MARCH 29, 2017 — DECIDED AUGUST 2, 2017
Before WOOD, Chief Judge, and ROVNER and WILLIAMS,
Circuit Judges.
ROVNER, Circuit Judge. This case involves the unfortunate
meeting of a hapless retired baseball player seeking to invest
his earnings, a self‐described “con man” who claims to be
reformed, persons running a Ponzi scheme, and a man who
“had no business handling the investment finances of others.”
Coexist Foundation, Inc. v. Fehrenbacher, 2016 WL 4091623, *4
2 No. 16‐3332
(N.D. Ill. Aug. 2, 2016). The con man is the plaintiff, and it is
doubtful that he is truly reformed. The man who had no
business handling the investments of others is the primary
defendant. The Ponzi scheme was run by a Florida company
called Assured Capital, which is not a party to this suit. The
person who lost everything is, of course, the unlucky baseball
player, whose father was attempting to manage his son’s
finances when he fell victim to the scheme here. After a bench
trial, the district court determined that the defendants violated
a Florida law prohibiting the sale of unregistered securities.
The court ordered rescission in the hopes that some of the
money would get back to the baseball player, who had
obtained a judgment against the con man in separate litigation.
The defendants now appeal and we affirm.
I.
Coexist Foundation, Inc. was formed in 2008 by Timothy
Hubman, an admitted con man who created Coexist after he
was forced to dissolve his former “Hubman Foundation.” A
federal court in Virginia had determined that the Hubman
Foundation was not a charity but a sham designed to insulate
Hubman from his debts and obligations. That court also found
that Hubman and his former foundation had engaged in
“fraudulent conduct, intentional deceptive and misleading
actions, and outright lies” as part of an ongoing pattern of
misconduct extending over many years and across several
states. R. 217, at 59. Hubman, who claimed to be reformed after
joining a church, became the president and sole director of the
Coexist Foundation on the very day he dissolved the fraudu‐
lent Hubman Foundation. Hubman was introduced to Michael
Fehrenbacher, a defendant here, by a “mutual contact” in early
No. 16‐3332 3
2009. Fehrenbacher was the president of MWF Financial, a
wholesale banking institution that packaged and sold mort‐
gage notes to investment banks, and of United Funding, a
retail loan broker. Fehrenbacher was interested in meeting
Hubman because Hubman claimed to have contacts who could
be potential clients for Fehrenbacher.
Hubman’s first potential contact for Fehrenbacher did not
pan out but on March 31, 2009, Fehrenbacher offered Hubman
a deal via email that promised any invested funds would not
be at risk and would be held in escrow. In April 2009, Coexist
wired $300,000 to Fehrenbacher’s account at Harris Bank in
Illinois.1 Soon thereafter, Hubman requested a return of
$150,000 and Fehrenbacher complied. An email trail docu‐
mented what happened next. On June 3, Fehrenbacher sent
Hubman an email stating that “the trader” confirmed a
“placement” of the remaining $150,000 that would produce a
twenty‐five percent return every ten days. Coexist would
receive fifteen percent of that return. Fehrenbacher told
Hubman in the email that, if he wired an additional $1.85
million, Fehrenbacher would combine it with the $150,000,
securing a return of thirty percent, as well as a weekly payout.
In a June 5 email, Fehrenbacher attempted to clarify the deal
with Hubman:
1
Fehrenbacher ran several businesses, including United Funding and MWF
Financial. The accounts at Harris Bank through which the money flowed for
this deal were titled in the names of Fehrenbacher’s business ventures. The
name appearing most often on the banking exhibits received at trial is that
of United Funding. One document from Fehrenbacher instructing Hubman
on a wire transfer directs Hubman to send the funds to “MWF Financial,
aka United Funding, Inc.” R. 216, at 42.
4 No. 16‐3332
Trade starts Monday and will pay 30% every 2
weeks. It will pay 15% for the first week, as its only
half the trading time.
My current 2M is going to pay 30% bi‐weekly. The
trade starts Monday and we will be paid 15% next
Friday. I will pay you half of the 15% as we agreed
to split it.
Now, When I place your funds (2M) next week, the
following Monday your platform will be eligible for
a weekly trade. It is my current understanding it
will pay between 25–30% per week, odds are 30. So
your 2M will go into a weekly slot. I will then pay
you weekly.
…
Next, part of the compensation I want you to con‐
sider, is a couple of domestic flights for me and my
family (4 in total) from Dupage. two flights are two
florida (nov 09, spring break 2010), one is to Hawaii
(dec 2009—right after xmas), and one is to vegas
(3—4 weeks down the road), I ask that these flights
are paid out of your dividends you are paid. I would
also like to be considered to use the plane for a
couple of business flights—that i will pay for, but
you can provide me the contact to set it up.
R. 216, at 44 (all errors in original).
Coexist subsequently wired an additional $1.85 million to
Fehrenbacher who then transferred the entire $2 million
($150,000 plus $1.85 million) to a Florida company called
No. 16‐3332 5
Assured Capital, the “trader” referenced in the emails. In a
June 24 email, Fehrenbacher sent to Hubman two “Joint
Venture Agreements,” one addressing the initial $150,000
transfer and the other related to the $1.85 million transfer from
Hubman. The identical agreements provided that
Fehrenbacher wished to invest a portion of Coexist’s funds in
“a program,” and that the money would be placed in escrow
where it would remain under control of the escrow agent. The
agreements purported that the money would not be at risk and
would be used only as proof of funds. The investment would
pay thirty percent bi‐weekly until December 2009. Hubman
signed the paperwork at Fehrenbacher’s Illinois office but
never received fully executed copies signed by Fehrenbacher.
Fehrenbacher denied that he ever signed the agreements.
Fehrenbacher also asserted that he never received any compen‐
sation from Hubman, claiming that the “splitting” of the
profits was with Assured Capital, that the flights never
materialized, and that he arranged the deal for Hubman solely
in the hopes of earning money from contacts referred to him by
Hubman.
The deal sounded too good to be true, and it was. After
Fehrenbacher invested with Assured Capital the $2 million he
received from Coexist, as well as $2.8 million of his own
money, he discovered that Assured Capital was running a
Ponzi scheme. He complained to the FBI and filed a civil suit
against Assured Capital, its officers and its affiliates. He
obtained a default judgment against one defendant and settled
with the others. Assured ultimately paid him $4.3 million out
of the $4.8 million that he invested. Fehrenbacher then re‐
6 No. 16‐3332
turned $1,494,250 to Coexist, an amount that he calculated to
be the Foundation’s pro rata share of the recovery, less costs.
The $2 million that Coexist “invested” in Fehrenbacher’s
“program” was actually the money of Shannon Stewart, a
retired professional baseball player, and his father, Harold
Stewart, who managed his son’s finances. Hubman told the
Stewarts that Coexist was a charitable foundation and he
solicited from the Stewarts a “conditional donation” to Coexist
that Hubman told them would be returned within a few
months. Hubman never returned the money and the Stewarts
subsequently obtained a judgment for $2 million against
Hubman and Coexist. But as of the time of the bench trial in
the instant case, Hubman had paid not one penny back to the
Stewarts even though he had recovered more than $1.4 million
of the Stewarts’ money from Fehrenbacher.
Coexist filed an eleven count complaint against
Fehrenbacher and his companies, United Funding, Inc. and
MWF Financial & Mortgage Center, Inc. d/b/a Midwest
Funding Bancorp, Inc. The court disposed of five counts in pre‐
trial proceedings and held a bench trial on the remaining
claims for breach of contract, civil theft, fraudulent transfer of
assets, and violations of Florida securities laws. The court
found in favor of Coexist on its claim for the sale of unregis‐
tered securities in violation of Florida Statute § 517.07, and
granted Fehrenbacher’s motion for a directed verdict on all of
the remaining counts. The court concluded that it was appro‐
priate to “undo the investment transaction with Coexist via the
remedy of rescission.” Coexist, 2016 WL 4091623, at *4.
Fehrenbacher had already returned $1,494,250 to Coexist, so
the court calculated the damages by adding the outstanding
No. 16‐3332 7
investment price owed, $505,750, to the interest accrued to
date, $189,521.40, for a total of $695,271.40. Fehrenbacher
appeals.
II.
On appeal, Fehrenbacher argues that the allegations of the
unregistered securities count were not proven. In particular, he
asserts that there was no evidence regarding a “security” or a
sale of a security; that no scheme or transaction took place in
Florida as required by the statute; that Fehrenbacher received
no consideration for the deal; that judgment should not have
been granted against all defendants; and that the doctrine of
unclean hands should have been applied to deprive Coexist of
any recovery. Fehrenbacher characterizes his argument as one
of statutory interpretation and contends that the standard of
review for all issues is therefore de novo. Although we agree
that issues of law are reviewed de novo, it is clear from the
content of Fehrenbacher’s argument that he is mainly challeng‐
ing the sufficiency of the evidence presented to the district
court on this count. After a bench trial, we review the district
court’s factual findings for clear error and its conclusions of
law de novo. Fed. R. Civ. P. 52(a)(6); Kelley v. Chicago Park Dist.,
635 F.3d 290, 295–96 (7th Cir. 2011). Additionally, we must give
“due regard to the trial court’s opportunity to judge the
witnesses’ credibility.” Fed. R. Civ. P 52(a)(6).
The Florida statute at issue provides, in relevant part:
It is unlawful and a violation of this chapter for any
person to sell or offer to sell a security within this
state unless the security is exempt under § 517.051,
is sold in a transaction exempt under § 517.061, is a
8 No. 16‐3332
federal covered security, or is registered pursuant to
this chapter.
Fla. Stat. § 517.07. The statute defines a sale as “any contract of
sale or disposition of any investment, security, or interest in a
security, for value.” Florida Stat. § 517.021. “Security” is
defined broadly to include, among other things: a note; a stock;
an investment contract; a beneficial interest in title to property,
profits, or earnings; or an interest in or under a profit‐sharing
or participation agreement or scheme. Florida Stat. § 517.021.
Fehrenbacher first contends that there was “no evidence
regarding the definition of a security or why these transactions
would constitute such a sale.” But as we have just noted, the
statute, not the evidence, supplies the definition of a “security”
and a “sale.” The evidence presented at trial easily supports
the finding that the scheme here involved a “sale” of a
“security.” Fehrenbacher’s emails and the parties’ actions
evidenced an agreement for Coexist to provide two million
dollars to Fehrenbacher so that Fehrenbacher could invest it
with Assured Capital, the trader referenced in the emails. The
deal was to provide a high rate of return—a profit—that would
be shared by the parties to the transaction. The deal was thus
for “an investment contract” or in the very least for “an interest
in or under a profit‐sharing or participation agreement or
scheme,” and Fehrenbacher was to receive something of value
No. 16‐3332 9
in exchange for arranging the investment.2 The evidence thus
fits those statutory definitions precisely.
In determining that there was a sale of unregistered
securities, the district court relied in part on Fehrenbacher’s
allegations in his civil suit against Assured Capital, finding
those allegations to be evidentiary admissions. Fehrenbacher
complains that the district court improperly relied on his
complaint against Assured Capital without giving him an
opportunity to rebut his earlier allegations. Fehrenbacher had
alleged in his case against Assured Capital that the transaction
at issue here was a sale of an unregistered security, an allega‐
tion that directly contradicts his claim in this case that there
was no sale of an unregistered security. The district court
properly construed that allegation as a non‐binding eviden‐
tiary admission. Higgins v. Mississippi, 217 F.3d 951, 955 (7th
Cir. 2000). Although Fehrenbacher now complains that the
court gave him no opportunity to rebut the allegations he
made in the earlier suit, he does not question the authenticity
of the statements he made in the earlier proceeding or offer any
2
Fehrenbacher asserts that he received nothing of value in exchange for
setting up the deal between Coexist and Assured Capital. The documentary
evidence admitted at trial belies that claim. According to his own emails,
Fehrenbacher expected to receive a percentage of the profits, rides on
Hubman’s private jet, and future business from Hubman’s associates. That
Hubman had no jet and no profits or future business materialized is
irrelevant. Fehrenbacher expected to receive something of value in
exchange for his efforts. Under Florida law, that is enough. See Hilliard v.
Black, 125 F.Supp.2d 1071, 1083 (N.D. Fla. 2000) (noting that a seller includes
a person who solicits a sale of a security and is motivated at least in part by
a desire to serve his own financial interests).
10 No. 16‐3332
explanation for the apparent contradiction. As in Higgins, the
court was therefore right to credit the statement made in the
prior lawsuit and disregard the later, contrary statement.
217 F.3d at 955. Although the court should have notified
Fehrenbacher of its intent to rely on the statements he made in
the earlier lawsuit and offered him an opportunity for rebuttal,
any error in relying on those allegations is harmless in light of
Fehrenbacher’s failure to challenge on appeal the truth of his
earlier allegations.
Fehrenbacher also asserts that when the district court
dismissed certain other counts related to conspiracy and fraud,
that dismissal conclusively determined that there was no
contract or scheme. He also points out that the district court
rejected breach of contract claims for an escrow disbursement
agreement signed by the parties and the Joint Venture Agree‐
ments. But there is nothing about the rejection of the other
counts that precludes the court’s findings on this count. That
those particular documents were not enforceable contracts has
no bearing on whether the investment scheme at issue meets
the statutory definition of a sale of an unregistered security.
Fehrenbacher complains that there was no evidence that the
sale took place in Florida, as required by the statute. This is an
odd objection given that Fehrenbacher himself sued Assured
Capital, a Florida company, in federal court in the Middle
District of Florida, for this very sale of an unregistered security.
Indeed, he recovered $4.3 million as a result of that suit. In any
case, the record contains plenty of evidence tying the transac‐
tion to Florida. Hubman was a citizen of Florida at the time of
the transactions. Coexist is a Florida corporation, as is Assured
Capital. Only Fehrenbacher and his companies are in Illinois.
No. 16‐3332 11
After receiving the money from Hubman, Fehrenbacher wired
the funds to Assured Capital in Florida so that the company
could commence trading and return the profits to Hubman in
Florida and Fehrenbacher in Illinois. That is sufficient to
demonstrate that the sale of the security took place in Florida.
Fehrenbacher next asserts that he could not be the “seller”
of the unregistered security because he was himself a victim of
Assured Capital’s Ponzi scheme. But the evidence at trial
demonstrated that Fehrenbacher acted as an agent for Coexist
and Hubman in arranging Coexist’s investment in Assured
Capital’s “program,” which of course turned out to be a Ponzi
scheme. That Fehrenbacher himself was also taken in by the
scheme and lost some of his own money in the deal does not
relieve him of responsibility for acting as an agent for Coexist
in setting up the transaction. Fehrenbacher argues that
Hubman should be “presumed not to be credible” based on his
multiple felony convictions. The district court, which was well
aware of Hubman’s background, appears to have credited
Hubman’s testimony only to the extent that it was corrobo‐
rated by documentary evidence. In any case, we defer to the
district court’s findings on credibility unless clearly erroneous,
and there is no error here. Fed. R. Civ. P. 52(a)(6); Mathin v.
Kerry, 782 F.3d 804, 809–10 (7th Cir. 2015).
Fehrenbacher complains that the judgment should not have
been entered against United Funding, MWF Financial or any
of his corporate affiliates because there was no evidence of
their involvement in the sale. But the emails presented to the
trial court and Fehrenbacher’s own testimony demonstrated
conclusively that Fehrenbacher’s companies were involved in
every exchange of funds that took place here. The bank
12 No. 16‐3332
accounts used in the transaction were titled “United Funding,
Inc. DBA MWF Financial DBA Midwest Funding.” R. 216, at
32. The wiring instructions that Fehrenbacher sent to Hubman
directed Hubman to send the money to a Harris Bank account
titled “MWF Financial aka United Funding.” R. 216, at 42.
When Fehrenbacher sued Assured Capital for the transaction,
the named plaintiffs were United Funding, Inc. and
Fehrenbacher himself. When Fehrenbacher returned some of
the original $2 million investment to Coexist, the funds were
wired from United Funding to Coexist. See R. 203, at 26–27
(where Fehrenbacher testified that the wire to Coexist “wasn’t
sent from me personally,” but rather was from one of his
entities, namely United Funding, MWF or Midwest Funding).
This unimpeached evidence was more than adequate to prove
that the companies participated in the transactions at issue.
Finally, Fehrenbacher contends that the district court erred
when it declined to apply the doctrine of unclean hands to
deprive Coexist of any recovery. The district court found that,
under both Florida and Illinois law, the doctrine applies only
when the plaintiff’s fraudulent conduct is directed at the party
invoking the doctrine as a defense. See Long v. Kemper Life Ins.
Co., 553 N.E.2d 439, 441 (Ill. App. Ct. 1990); McCollem v.
Chidnese, 832 So.2d 194, 196 (Fla. Dist. Ct. App. 2002). In
general, the doctrine of unclean hands precludes a party from
taking advantage of his own wrong. Long, 553 N.E.2d at 441.
“The doctrine applies if the party seeking equitable relief is
guilty of misconduct, fraud or bad faith toward the party
against whom relief is sought if that misconduct is connected
with the transaction at issue.” Long, 553 N.E.2d at 441. See also
McCollem, 832 So.2d at 196 (“The fact that a party’s conduct is
No. 16‐3332 13
disreputable is entirely irrelevant where the party asserting
unclean hands is not the target of, and has taken no action in
reliance on that conduct, however disdainful of that conduct a
court may be.”). As the court noted, Fehrenbacher was not the
victim of Hubman’s conduct, but sought to have the court rely
on Hubman’s conduct towards the Stewarts as a reason for
denying relief to Coexist. The doctrine of unclean hands simply
does not apply to this situation. Hubman did not behave in a
fraudulent manner toward Fehrenbacher; instead he has
engaged in wrongful conduct toward the Stewarts, who have
a judgment against him for that conduct.
Moreover, in assessing the defense of unclean hands, the
district court noted:
Fehrenbacher had no business handling the invest‐
ment finances of others. His representations to
Coexist about their joint venture [were] riddled with
telltale markers of a fraudulent investment scheme:
promises that the scheme is both risk free and
high‐yield, vague references to a trading platform,
use of escrow agents to receive and disburse funds,
and false claims that the escrow account protects the
investor from loss.
Coexist, 2016 WL 4091623, *4. The court’s ultimate goal was to
return the funds to the parties who were truly harmed in this
transaction, the Stewarts. We agree with the court’s assessment
that there “is no reason to believe [that] money in
Fehrenbacher’s possession is more likely to make its way to the
Stewarts than money in Coexist’s coffers, from where the
Stewarts at least have the possibility of recovering through an
14 No. 16‐3332
action to enforce the judgment they obtained.” Id. Absent an
abuse of discretion, we will not disturb the trial court’s
decision regarding the application of the doctrine of unclean
hands. Long, 553 N.E.2d at 441. There was no abuse of discre‐
tion here.
AFFIRMED.