Free Status Report - District Court of Colorado - Colorado

Case 1:03-cv-00923-REB-CBS

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MARSHALL GANDY Attorney for Plaintiff UNITED STATES SECURITIES AND EXCHANGE COMMISSION Texas Bar No. 07616500 Burnett Plaza, Suite 1900 801 Cherry Street, Unit #18 Fort Worth, Texas 76102-6882 Telephone: (817) 978-6464 Facsimile: (817) 978-4927 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No. 03-cv-00923 REB-CBS SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. CAPITAL HOLDINGS, L.L.C.; et al. Defendants, FAST TRACK L.L.C.; et al. Defendants Solely for Purposes of Equitable Relief. Plaintiff's Further Status Report Pursuant to the Minute Order entered on August 16, 2007, Plaintiff Securities and Exchange Commission has been working diligently to secure and file interim and final settlement agreements in this matter. After dozens of conversations with retained counsel, pro se defendants and relief defendants, several of whom are in federal custody in various locations around the country, and court-appointed counsel in related criminal cases, the parties have made

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significant progress in settling the Commission's claims against some of the defendants and relief defendants. Accordingly, the Commission submits the following status report: I. Relevant Procedural History 1. On May 21, 2003, the Commission filed its Complaint in the above matter

seeking disgorgement of ill-gotten gains from the Defendants, plus prejudgment interest, and civil penalties, which alleged, among other things, that the Defendants had violated the enumerated sections of the federal securities laws and disgorgement, plus prejudgment interest, from the Relief Defendants. 2. On March 18, 2004, a federal Grand Jury sitting in the District of Colorado

returned an indictment against defendants N. Schmidt, Beros, Lewis, Smith, Weed, and Relief Defendant McLain-Schmidt on numerous counts of mail fraud, wire fraud, securities fraud and money laundering arising out of the same facts alleged in the Commission's Complaint. [USA v. Schmidt, et al. Case No. 04-cr-00103-REB] 3. On March 7, 2005, the United States Attorneys Office for the District of

Colorado ("USAO") filed a Motion to Intervene and Motion to Stay Proceedings ("Motion to Intervene") in the above-captioned case. 4. On April 22, 2005, Magistrate Judge Shaffer entered a Memorandum Order

Regarding Motion to Intervene and Motion to Stay Proceedings making recommendations to the Judge Blackburn, which the Court later adopted, limiting discovery and requiring the Commission to respond to any pending written discovery served by a defendant in this action. 5. In accord with the above referenced order, only limited written discovery has

been taken by the parties.

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6.

On June 25, 2007, a telephonic status conference was held before Magistrate

Judge Craig B. Shaffer after which a Minute Order was entered requiring within forty-five (45) days of that date; plaintiff to file an agreed judgment of permanent injunction with the court. Further, Plaintiff is required to file a status report with the court within five (5) days of the final criminal sentencing in the criminal case. 7. criminal case. 8. On August 14, 2007, the Commission filed a Plaintiff's Status Report detailing On August 3, 2007, Defendant George Beros was sentenced in the related

the progress of settlement discussions with the defendants. 9. On August 16, 2007, the Court entered a Minute Order providing: (i) that the

parties have up to and including September 17, 2007 to finalize settlement negotiations and file interim judgments of permanent injunction; (ii) that a further status report is due on or before September 17, 2007; and (iii) if parties are unable to file interim judgments by the September 17th deadline, the court will set this matter for a status, settlement and scheduling conference with mandatory physical attendance required by all parties. 10. On August 20, 2007, in the related criminal case the Court granted the

Government's Unopposed Motion for Consolidation/Joinder Of Sentencing Hearings For The Purpose Of Taking Evidence filed August 15, 2007, and ordered a hearing for October 19, 2007 at 1:30 P.M. at which time counsel and the defendants shall appear for the purpose of receiving evidence relevant to the issue of loss. The individual sentencing hearings previously set for defendants, Norman E. Schmidt, George A. Weed, Charles F. Lewis, and Michael D. Smith were vacated and for now continued without a date. The U.S Marshall's office will assist the Court in

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securing the appearance of defendants Jannice McClain Schmidt and Norman Schmidt at the consolidated evidentiary hearing. II. Further status report on progress of settlement negotiations A. DEFENDANTS George Beros On August 22, 2007, the Court entered an Agreed Judgment of Permanent Injunction as to George Beros. Michael Vallone On August 22, 2007, the Court entered an Agreed Judgment of Permanent Injunction as to Michael Vallone. Norman E. Schmidt Mr. Schmidt remains in federal custody. After conversations with the defendant and his court-appointed counsel in the related criminal case, the parties have reached a settlement in principle. The Commission has forwarded the necessary settlement documents to the defendant and to date he has signed and returned some of those documents. As late as September 13, 2007, defendant stated that he would sign the remaining documents and send them to the Commission. Terry Lorenzen After conversations with the defendant and his retained counsel, the parties have reached a settlement in principle. The Commission has forwarded the necessary settlement documents to the defendant's counsel and is awaiting the return of those documents.

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Jeffrey D. Mitchell After conversations with the pro se defendant, the parties have reached a settlement in principle. The Commission has forwarded the necessary settlement documents to the defendant and is awaiting the return of those documents. Roy R. Chavers The defendant has made an offer to settle the case and has executed the necessary documents reflecting the terms of that offer. The staff of the Commission will seek authorization to accept the defendant's offer. Gary N. Herbert On November 30, 2006, counsel for defendant Herbert gave notice to the Court that Herbert had died in May 2006. Plaintiff's counsel will so advise the Commission and seek authorization to move for a dismissal as to Herbert. George A. Weed After conversations with the defendant and his court-appointed counsel in the related criminal case, the Commission has forwarded the necessary settlement documents to the defendant. The defendant is reviewing those documents, but has not made a decision on how he will proceed. The defendant has indicated that he may be unwilling to entertain further settlement discussions until after his sentencing in the related criminal case. Charles F. Lewis The Commission has forwarded the necessary settlement documents to the defendant. The defendant has indicated that he is unwilling to entertain further settlement discussions until after his sentencing in the related criminal case.

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Michael D. Smith After conversations with the defendant and his retained counsel, the Commission cannot make any clear statement to the Court as to the status of settlement discussions. The Commission has forwarded the necessary settlement documents to the defendant and is awaiting the return of those documents. Although retained counsel has not filed a motion to withdraw, on August 13, 2007 the defendant informed the Commission that he would be representing himself for the remainder of the case. On August 27, 2007, defendant's retained counsel informed the Commission that he had resolved all differences with his client, did not intend to withdraw and had informed the U.S. Attorney's Office that his client was settling this related civil matter. John J. Schlabach The defendant has indicated that he is unwilling to settle this case. B. RELIEF DEFENDANTS Jannice McLain and Scott Schmidt These relief defendants have provided full relief on the Commission's claim for disgorgement. Accordingly on August 13, 2007, the Commission filed a motion to dismiss as to each. On August 2007, the Court entered orders dismissing the Commission's claims as to these relief defendants. III. CONCLUSION Consistent with the Court's August 16, 2007 Minute Order, the Commission respectfully requests that the Court enter an order setting the case for a status, settlement and scheduling conference before Magistrate Judge Craig B. Shaffer requiring all parties and their counsel to attend the conference in person.

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Further, the Commission respectfully suggests that the morning of October 19, 2007, prior to the consolidated evidentiary hearing in the related criminal case, would be an appropriate date and time for the conference.

Dated: September 17, 2007

Respectfully submitted,

s/ Marshall Gandy MARSHALL GANDY Texas Bar No. 07616500 Attorney for Plaintiff SECURITIES AND EXCHANGE COMMISSION Fort Worth District Office Burnett Plaza, Suite 1900 801 Cherry Street, Unit #18 Fort Worth, TX 76102-6882 Telephone: (817) 978-6464 Facsimile: (817) 978-4927 [email protected]

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CERTIFICATE OF SERVICE I affirm that on September 17, 2007, I electronically filed the foregoing Plaintiff's Further Status Report with the Clerk of the Court for the District of Colorado by using the CM/ECF system which will send a notice of electronic filing to the following CM/ECF participants:
· · · · · ·

Marshall Milby Gandy [email protected],[email protected],[email protected],[email protected] Matthew T. Kirsch [email protected],[email protected],[email protected] Robert T. McAllister [email protected],[email protected] Declan Joseph O'Donnell [email protected] Daniel Charles Stiles [email protected],[email protected] David A. Zisser [email protected],[email protected]

s/ Marshall Gandy MARSHALL GANDY

I further certify that on September 17, 2007, I served a true and correct copy of the foregoing document and the notice of electronic filing by depositing a copy thereof in an authorized Federal Express depository at Fort Worth, Texas, with overnight express charges prepaid and addressed to the following parties and persons entitled to notice that are nonCM/ECF participants: Glen Andrew Anderson Washington State Attorney General's Office 629 Woodland Square Loop SE P.O. Box 40126 Olympia, WA 98504-0126 Roy R. Chavers 2401 Belmont Place Plano, TX 75023 Heritage America c/o Michael Vallone 11901 Brookshire Drive Orland Park, IL 60467
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Jeffrey D. Mitchell 7115 North Division Street Suite B-360 Spokane, WA 99208 National Marketing Solutions, LLC North West Group, LLC 9986 N. Newport Hwy., #378 Spokane, WA 99218 John J. Schlabach 12128 North Division Street #176 Spokane, WA 99218 Michael Vallone 11901 Brookshire Drive Orland Park, IL 60467

s/ Marshall Gandy MARSHALL GANDY

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