Free Affidavit in Support of Motion - District Court of California - California

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

Page 1 of 20

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA BEFORE HONORABLE DANA M. SABRAW, JUDGE PRESIDING. ___________________________________ SECURITIES AND EXCHANGE COMMISSION,) PLAINTIFF, ) VS. ) TUCO TRADING, LLC AND ) DOUGLAS G. FREDERICK, ) DEFENDANTS. )

CASE NO. 08CV0400-DMS SAN DIEGO, CALIFORNIA MARCH 10, 2008

TELEPHONC STATUS HEARING REPORTER'S TRANSCRIPT OF PROCEEDINGS COUNSEL APPEARING: FOR PLAINTIFF: ROBERTO TERCERO, SENIOR COUNSEL DONALD W. SERLES, ESQ. UNITED STATES SECURITIES AND EXCHANGE COMMISSION 11TH FLOOR 5670 WILSHIRE BOULEVARD LOS ANGELES, CALIFORNIA 90036 MICHELE R. FRON, ESQ. AUDETTE MORALES, ESQ. KEESAL, YOUNG & LOGAN & 400 OCEANGATE LONG BEACH, CALIFORNIA 90801 DAVID L. OSIAS, ESQ. EDWARD FATES, ESQ. ALLEN MATKINS LECK GAMBLE & MALLORY 501 WEST BROADWAY, 15TH FLOOR SAN DIEGO, CALIFORNIA 92101 LEE ANN PENCE, OFFICIAL COURT REPORTER UNITED STATES COURTHOUSE 940 FRONT STREET, BOX 4199 SAN DIEGO, CALIFORNIA 92101

FOR DEFENDANTS:

FOR THE RECEIVER:

REPORTED BY:

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

Page 2 of 20 2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

SAN DIEGO, CALIFORNIA - MONDAY, MARCH 10, 2008 - 2:30 P.M. * THE COURT: * * THIS IS JUDGE SABRAW.

GOOD AFTERNOON.

CAN I HAVE APPEARANCES FOR ALL COUNSEL, PLEASE? MR. TERCERO: GOOD AFTERNOON, YOUR HONOR. ON BEHALF

OF PLAINTIFFS, SECURITIES AND EXCHANGE COMMISSION, ROBERT TERCERO. I AM HERE WITH DON SEARLES. MS. FRON: GOOD AFTERNOON, YOUR HONOR. THIS IS

MICHELE FRON, KEESAL, YOUNG AND LOGAN, ON BEHALF OF TUCO TRADING AND DOUGLAS FREDERICK. I HAVE ON THE LINE AUDETTE MORALES, AND DOUG FREDERICK IS ALSO AVAILABLE. MR. OSIAS: LENNON -THE COURT: MR. OSIAS, YOU WERE CUTTING OUT THERE. AM I CORRECT? DAVID OSIAS FOR THE RECEIVER, TOM

YOU ARE WITH MR. LENNON. MR. OSIAS: I AM.

UNFORTUNATELY -- MR. LENNON AND

MY COLLEAGUE, MR. BEAMS,[PH.] ARE ALL -- I AM AT UC DAVIS ON A CAMPUS TOUR WITH MY SON. I WILL TRY TO GO TO A QUIET SPOT,

WITHOUT THE BACKGROUND NOISE. THE COURT: MR. DAVIS: FINANCIAL SERVICES. THE COURT: YES. THANK YOU. OKAY. ARE THERE ANY OTHER APPEARANCES? TIM DAVIS APPEARING ON BEHALF OF PENSON

WHO WOULD LIKE TO TAKE THE LEAD AND PROVIDE A STATUS

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

Page 3 of 20 3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

AS TO WHERE WE ARE? MS. FRON: THANK YOU. THIS IS MICHELE FRON ON

BEHALF OF DEFENDANTS. I WILL JUST START WITH WHERE WE LEFT OFF ON FRIDAY; THAT IS, AS A RESULT OF TRADING HALTING IN THE TUCO ACCOUNTS, WE ARE NOT IN A SITUATION TO HAVE BUSINESS AS USUAL. AS SUCH,

WE HAVE REQUESTED THAT THE ORDER BE MODIFIED SUCH THAT WE CAN COME UP WITH AN EXPEDITED METHOD TO BE ABLE TO PAY OUT A PERCENTAGE TO THE TRADERS THAT HAVE THEIR FUNDS HELD AT TUCO. WE ALSO WANT TO BE ABLE TO KEEP THE OFFICE LOCATION OPEN. THERE ARE SOME OTHER ACTIVITIES THAT GO ON IN THAT

OFFICE SPACE, AS A RESULT WE WOULD ASK THAT THE OFFICE BE ABLE TO REMAIN OPEN, AS WELL AS ALLOW THE VIEWTRADE ACCOUNT, WHICH IS HANDLED THROUGH A DIFFERENT BROKER/DEALER, TO BE ALLOWED TO REMAIN OPEN, AND ALLOW THOSE TRADERS TO CONTINUE TRADING. WE HAVE WORKED DILIGENTLY THROUGHOUT THE WEEKEND TO TRY TO GET AS MUCH INFORMATION AS POSSIBLE TO THE RECEIVERS SUCH THAT THEY CAN TAKE A LOOK AT THE STATUS OF TUCO, AND SEE THAT IT IS ABLE TO MEET ITS MONTHLY EXPENSES IN COMPARISON WITH THE INCOME THAT COMES FROM INDIVIDUAL RETAIL ACCOUNTS AND OTHER SOURCES SUCH THAT WE BELIEVE WE ARE IN A POSITION THAT WE SHOULD BE ALLOWED TO MAINTAIN THE OFFICE OPEN, AND ALSO BE ABLE TO PAY OUT TO TRADERS A PERCENTAGE OF THE FUNDS THAT THEY HAVE IN THEIR ACCOUNT. THE COURT: IS THERE AGREEMENT AS TO THE PROPOSED

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

Page 4 of 20 4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

MODIFICATION? MR. TERCERO: YOUR HONOR, THIS IS ROBERTO TERCERO ON

BEHALF OF THE PLAINTIFF, S.E.C. WHEN WE LEFT OFF ON FRIDAY WE SUGGESTED A HEARING TODAY SO THAT THE RECEIVER WOULD HAVE AN OPPORTUNITY TO SEE WHAT THE STATUS OF THE BUSINESS IS. AND SO BEFORE WE WEIGH IN

ON A POSITION WE WOULD APPRECIATE A STATUS FROM THE RECEIVER, INCLUDING ADDRESSING WHETHER THE TUCO BUSINESS CAN EVEN SUPPORT ITSELF IN THE NEW CONFIGURATION THAT IT IS IN. THE COURT: MR. OSIAS. MR. OSIAS: DAVID OSIAS. AND I AM HARD TO HEAR, ALL RIGHT.

THAT IS JUST -- SO MR. FATES AND MR. LENNON WILL TAKE OVER. AS MS. FRON SAID, THEY HAVE BEEN GETTING INFORMATION TO THE RECEIVER AND THE ACCOUNTANT OVER THE WEEKEND, AND INCLUDING AND UP TO VERY RECENTLY BEFORE THIS HEARING. IT IS CURRENTLY THE RECEIVER'S BELIEF THAT HE CAN'T RECOMMEND ANY PERCENTAGE WITHDRAWAL AT THIS TIME, PRIMARILY FOR TWO REASONS. THERE ARE UNALLOCATED FEES AND COSTS THAT WOULD NEED TO BE CHARGED TO EACH ACCOUNT. HE IS NOT ABLE TO RECONCILE

YET HOW MUCH WOULD -- IF THAT WOULD REDUCE THE ACCOUNT. AND, SECOND, THIS IS AT A TIME WHEN MONEY IS NOT TYPICALLY WITHDRAWN, SO AS BETWEEN NOW AND THE 19TH IT IS -IT SEEMS TO BE SOME -- FROM WHAT LITTLE WE KNOW THERE SHOULD

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

Page 5 of 20 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

BE NO GREAT HARDSHIP IF THIS ISSUE IS DEFERRED TO THE 19TH, AND ESPECIALLY IN CONNECTION WITH A MORE GLOBAL RESOLUTION. THERE IS A CONCERN ABOUT AN EQUITABLE WITHDRAWAL PROGRAM, WHAT THAT NUMBER WOULD BE. INCURRED. HOW COSTS WOULD BE

ON THE SECOND QUESTION ARE -- OF THE COST OF

STAYING OPEN. I AGAIN WILL REPEAT THAT THE DEFENDANT HAS BEEN QUITE COOPERATIVE. INFORMATION. THEY HAVE TO TRY TO GET TOGETHER A LOT OF IT IS NOT

IT HAS VERY RECENTLY BEEN DELIVERED.

REALLY VERIFIED YET IN ANY WAY BY THE RECEIVER. THERE IS A PROPOSAL THAT, ULTIMATELY, COSTS FOR STAYING OPEN CAN BE SHIFTED TO GLB -- NOT UNTIL THE TRANSACTION CLOSES AND THE RECEIVER DOES NOT, AS HE SITS HERE NOW, SUBJECT TO -- CORRECT ME -- DOES NOT BELIEVE THAT WE ARE ABLE TO OPERATE IN THE BLACK ON A DAILY BASIS BETWEEN NOW AND THE 19TH. ALTHOUGH I AM NOT SURE WHAT THE DEGREE OF INCOME OVER EXPENSES ON A DAILY BASIS IS AS OF YET, THE REDUCED TRADING VOLUME DOES REDUCE THE INCOME LEVELS DRAMATICALLY FROM THE ONGOING OPERATIONAL EXPENSES THAT WERE REGULARLY BEING INCURRED. AND SO I THINK THAT IS WHERE WE FIND OURSELVES TODAY AT 2:30. THE RECEIVER AND HIS ACCOUNTANT ARE TRYING VERY HARD

TO GET ON TOP OF THE INFORMATION THEY PROVIDED, AND THERE HAS BEEN A TERM SHEET PROVIDED WITH RESPECT TO A TRANSITION OF

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

Page 6 of 20 6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

OPERATIONS, AT LEAST OPERATIONS, EXPENSES AND EMPLOYEES, GLB. BUT UNTIL THAT TRANSACTION -- OR TRANSITION COULD BE FULLY DOCUMENTED AND APPROVED BY THIS COURT, THERE IS NO OFFER TO COVER ANY NEGATIVE IN THE MEANTIME. WHERE WE FIND OURSELVES NOW, AT LEAST. MR. FATES AND MR. LANE AND MR. LENNON, IF I MISSPOKE, CORRECT ME. MR. FATES: OF THE RECEIVER. AND MR. OSIAS IS CORRECT IN WHAT HE SAID. I WOULD TED FATES AT THE TUCO OFFICES ON BEHALF AND SO I THINK THAT IS

JUST ADD THAT INFORMATION THAT HAS BEEN -- JUST NOW BEEN GIVEN US HAS BEEN GIVEN TO US BY TUCO AND DOUG FREDERICK, INDICATES THAT THERE IS INCOME THAT IS GENERATED OUTSIDE OF THE LIMITED ACTIVITIES OF THE VIEWTRADE ACCOUNT; THIS IS, INCOME THAT UNTIL RIGHT NOW WE ARE NOT AWARE OF. AND AS WE UNDERSTAND IT, IT IS INCOME THAT IS DERIVED OUTSIDE OF TUCO. AND IT REPRESENTS TRADING ACTIVITY

THAT DOUG FREDERICK HAS BROUGHT TO GLB AND EARNS COMMISSIONS ON. WE DON'T KNOW IF THERE IS ANY AGREEMENTS BETWEEN THESE PARTICULAR TRADERS AND TUCO, SO AS OF RIGHT NOW WE BELIEVE THIS ACTIVITY IS OUTSIDE OF TUCO. HOWEVER, THE

STATEMENT HERE WOULD INDICATE THAT THIS IS MONTHLY INCOME THAT MAY BE TUCO RELATED. SO THAT IS A QUESTION THAT WE HAVE.

IF THAT INCOME IS INCLUDED IN TUCO INCOME, THEN

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

Page 7 of 20 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THERE MAY WELL BE SUFFICIENT INCOME TO ALLOW TUCO TO OPERATE IN THE BLACK, ON A MONTHLY BASIS AND WEEKLY BASIS, IN THE IMMEDIATE FUTURE. THE COURT: ALL RIGHT.

MR. LENNON, DO YOU HAVE ANYTHING TO ADD? MR. LENNON: NO. I AM IN FULL AGREEMENT WITH

MR. OSIAS AND MR. FATES, YOUR HONOR. THE COURT: DO YOU FEEL YOU NEED ADDITIONAL TIME TO

GET TO THE BOTTOM OF THESE VARIOUS ISSUES? MR. LENNON: I THINK IT WOULD BE ADVISABLE TO

CONTINUE WORKING ON THE TERM SHEET, AND BRING THAT TO FRUITION. THE COURT: ALL RIGHT. IN LIGHT OF WHAT HAS BEEN

SHARED, MR. TERCERO, WHAT IS THE S.E.C.'S POSITION? MR. TERCERO: YOUR HONOR, THE S.E.C., JUST TO GET

THIS ONE OUT OF THE WAY, CERTAINLY BELIEVES THAT IT IS APPROPRIATE TO ISSUE THE RELIEF THAT THE S.E.C. HAS REQUESTED. WE UNDERSTAND THE COURT'S ORDERS, WE WILL CERTAINLY MAKE OUR ARGUMENTS AT THE MARCH 19TH HEARING. HOWEVER, ONE OF

THE THINGS THAT THE COMMISSION ASKED FOR WAS TO GET THIS UPDATE FROM THE RECEIVER. BASED UPON THE INFORMATION THAT HAS

BEEN PROVIDED THUS FAR, IT DOES NOT SEEM THE WITHDRAWALS ARE APPROPRIATE BECAUSE THE RECEIVER HAS NOT HAD SUFFICIENT TIME TO STUDY THE FINANCES THAT HAVE BEEN, YOU KNOW, SHARED WITH THE RECEIVER BY THE DEFENDANT.

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

Page 8 of 20 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

WE BELIEVE THAT THE RECEIVER SHOULD HAVE THE APPROPRIATE AMOUNT OF TIME TO LOOK AT THAT. THERE IS THE

POSSIBILITY OF SOME TRANSACTIONS WITH THE BROKERAGE FIRM WHERE TUCO HAD AT LEAST ITS MAJOR ACCOUNTS, GLB TRADING. WE LEARNED

ABOUT THIS VERY, VERY RECENTLY, FROM COUNSEL, FROM THE DEFENDANT, WITHIN THE HOUR BEFORE THE HEARING. WE JUST

RECEIVED, BY E-MAIL, COPIES OF A TERM SHEET, AND IT LOOKS LIKE WE HAVE GOT SOME OTHER INFORMATION, BUT WE HAVE NOT HAD AN OPPORTUNITY TO STUDY IT SINCE WE GOT IT ONCE THE HEARING BEGAN. SO IT IS OUR POSITION THAT AT THIS POINT WITHDRAWALS ARE NOT ADVISABLE. CERTAINLY THE RECEIVER IS WORKING -- BY

ALL INDICATIONS DEFENDANTS ARE WORKING AS DILIGENTLY AS THEY CAN. UNTIL THE RECEIVER HAS HAD AN OPPORTUNITY TO LOOK AT THE

MATERIAL FROM THE DEFENDANT, GET COMFORTABLE WITH IT, AND MAKE, YOU KNOW, AN INFORMED JUDGMENT, WE DON'T THINK THAT WITHDRAWALS ARE APPROPRIATE AT THIS TIME. THE COURT: DO YOU REQUEST THAT THE TRO AND THE

SUPPLEMENTAL ORDER TO THE TRO SIMPLY REMAIN IN EFFECT PENDING THE MARCH 19 HEARING, WITHOUT FURTHER MODIFICATION? MR. TERCERO: YES, YOUR HONOR. THE COURT: ALL RIGHT. AT THIS POINT THAT IS OUR POSITION,

AND, MS. FRON, DO YOU OBJECT? MS. FRON: WELL, I DO THINK THAT, BECAUSE OF THE

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

Page 9 of 20 9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

CHANGE OF CIRCUMSTANCES, THE PROBLEM WITH THE ORDER, WOULD NOT ALLOW FOR WITHDRAWALS BY THE TRADERS. AND WE ARE AGREEABLE TO

HAVING THEM BE ALLOWED TO ONLY WITHDRAW A CERTAIN PERCENTAGE OF WHAT IS IN THEIR ACCOUNTS. MR. OSIAS MENTIONED THE ISSUE OF UNALLOCATED FEES AND COSTS. WE ARE WILLING TO, INSTEAD OF TAKING 50 PERCENT THAT WOULD CERTAINLY COVER ANY OF

OUT, TAKE 40 PERCENT OUT.

THE FEES AND COSTS THEY ARE CONCERNED ABOUT. THE OTHER ISSUE OF NO HARDSHIP. I THINK UNDER THESE

CIRCUMSTANCES THERE DEFINITELY IS A HARDSHIP BECAUSE THESE INDIVIDUALS UTILIZE THESE FUNDS IN ORDER TO MAKE THEIR OWN LIVELIHOOD. WE ARE STOPPING THEM FROM EARNING THEIR OWN THIS

LIVING OR UTILIZING THEIR FUNDS HOWEVER THEY WANT TO.

WAS THE MONEY, THE CAPITAL, THAT THEY USED IN ORDER TO PAY THEIR OWN PERSONAL BILLS. SO THAT IS WHY THE ORDER CANNOT STAND AS IT DOES, BECAUSE THEY ARE ASKING FOR EITHER A REQUEST TO BE IN THE ORDINARY COURSE OF BUSINESS OF THE SPECIFIC TRADERS ACCOUNT -AND TYPICALLY PEOPLE WOULDN'T BE TAKING OUT MONEY AT THIS TIME OF THE MONTH. AND OTHER EXIGENT CIRCUMSTANCES WARRANTING A

WITHDRAWAL, IF WE PUT IN A WITHDRAWAL REQUEST, AS THEY STAND NOW, IT IS OUR UNDERSTANDING THAT THE RECEIVER WOULD NOT APPROVE THEM. THAT IS THE REASON WE COME BACK TO THE COURT TO ASK FOR A MODIFICATION, SO THAT THESE TRADERS ARE ALLOWED TO BE

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

10 Page 10 of 20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

ABLE TO TAKE OUT A PERCENTAGE OF THE FUNDS THAT ARE IN THEIR ACCOUNT RIGHT NOW. UNTIL THE MATTERS CAN BE RESOLVED, THEY

ARE BASICALLY OUT OF WORK. THE COURT: AND, MR. OSIAS, ARE YOU INDICATING THAT

YOU STILL DON'T HAVE SUFFICIENT INFORMATION TO RESPOND TO THE SPECIFIC PROPOSAL OF MS. FRON? MR. OSIAS: NOT QUITE, YOUR HONOR. I THINK THE

RECEIVER'S -- I WILL BACK UP. I AM NOT SURE WHETHER THE RECEIVER KNOWS WHETHER, FOR EXAMPLE, A CHANGE BETWEEN 50 PERCENT AND 40 PERCENT IS SUFFICIENT TO ENSURE THAT NO ONE HAD A WITHDRAWAL THAT WOULD ALL BE -- THE COSTS WERE PROPERLY DEDUCTED FROM THE ACCOUNTS WOULDN'T GIVE THEM MORE THAN THEY WERE ENTITLED TO. BUT I HAD TWO OTHER POINTS THAT I THINK GO TO THE QUESTION OF WITHDRAWAL. ONE IS THAT IF THE RECEIVER HAS TO PROCESS WITHDRAWAL REQUESTS OVER THE NEXT WEEK IT GETS IN THE WAY OF THIS OTHER CRITICAL FUNCTION WHICH NEEDS TO BE DONE; WHICH IS A COMPLETE ANALYSIS TO SEE HOW, BY THE 19TH, AT LEAST, A POTENTIAL TRANSACTION WITH GLB CAN BE CONSUMMATED AND ALL OF THE EXPENSES OF THE RECEIVERSHIP -- I MEAN, IF WE GET HUNDREDS OF WITHDRAWAL REQUESTS AND HAVE TO CALCULATE, YOU KNOW, EVEN A UNIFORM PERCENTAGE, BUT THEN MAKE SURE THEY ARE -- ALL OF THE ACCOUNTS ARE AGGREGATED, I AM WORRIED ABOUT A WORKLOAD QUESTION, GIVEN THE SHORTAGE OF TIME.

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

11 Page 11 of 20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 RECEIVER.

SECONDARY TO THAT, HAD THERE BEEN NO GLB SUSPENSION, THESE TRADERS WOULD, BY AND LARGE, BE TRADING THE MONEY AND NOT WITHDRAWING IT. HISTORICALLY THE WITHDRAWALS TOOK PLACE

BETWEEN NOW AND THE 19TH -- THE RESULT OF THE FREEZE IS IF THEY TRADED AND THEY MADE AS MUCH AS THEY LOST IN THE AGGREGATE OVER THESE NINE DAYS. THAT DOESN'T STRIKE US AS A PARTICULAR HARDSHIP-IMPOSING CIRCUMSTANCE. IT IS JUST A BREAK-EVEN, AND

WITHOUT THE RECEIVER HAVING TO INCUR A LOT OF ADDITIONAL EXPENSE TO PROCESS WITHDRAWALS THAT ULTIMATELY HAVE TO GET COVERED ANYWAY. SO OUR RECOMMENDATION IS TO NOT GO DOWN THAT PATH. OBVIOUSLY, THAT WAS WHERE WE HAD ORIGINALLY STARTED WHEN THE WORLD WAS GOING TO BE MUCH DIFFERENT AND WE WERE GOING TO HAVE TRADES GOING ON. THE COURT: ALL RIGHT.

MR. LENNON, ANYTHING IN ADDITION? MR. FATES: THIS IS TED FATES ON BEHALF OF THE

WE HAVE ONE SMALL THING TO ADD, THAT IS THAT IN LIGHT OF THE ONGOING EFFORT TO CONSUMMATE A TRANSACTION WITH GLB, SOME ATTENTION HAS BEEN DIVERTED FROM THE OTHERWISE PRODUCTION OF DOCUMENTS AND ACCOUNTING WORK THAT WOULD BE DONE BY THE RECEIVER AND THE TEAM, AND BY DOUG FREDERICK, UNDERSTANDABLY.

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

12 Page 12 of 20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 HEARING.

SO, IN LIGHT OF THAT, THE CURRENT ORDER PROVIDES THAT THE ACCOUNTING IS DUE ON MARCH 14TH. WE THINK THAT THAT

IS GOING TO PUT A LOT OF STRAIN ON THAT ACCOUNTING, AND MAY NOT ALLOW FOR A VERY ACCURATE ACCOUNTING. WE WOULD REQUEST THE WEEKEND TO BE ALLOWED TO GENERATE THAT REPORT SO THAT IT WILL BE PRODUCED AS OF MONDAY, THE 17TH, SOMETIME IN THE MORNING, SO THAT ALL OF THE PARTIES CAN HAVE SUFFICIENT TIME TO REVIEW, AND THE COURT HAS SUFFICIENT TIME TO REVIEW, PRIOR TO THE MARCH 19TH HEARING. MS. FRON: THIS IS MICHELE FRON.

THAT PUTS A WRENCH IN THE ENTIRETY OF THE MARCH 19TH AND THE REASON WE WERE GOING TO HAVE THE ACCOUNTING

ON THE 14TH WAS SO THAT I COULD WORK ALL WEEKEND TO GET MY BRIEF IN BY THE 17TH. SO IT IS THIS WHOLE -- IF THAT -- WITH

THAT REQUEST WE WOULDN'T BE ABLE TO GET OUR REPLY IN ON THE 17TH, ONLY RECEIVING THE REPORT ON THAT DATE, WHICH PUTS US IN A DIFFICULT SITUATION. IN ADDITION, I WOULD ADD THAT WITH ALL OF THE REQUESTS FOR THE ACCOUNTING AND TO GET THE DOCUMENTATION TO THE RECEIVER, DOING THE FINANCIALS THAT HAVE BEEN REQUESTED, I MISREAD THE S.E.C.'S DISCOVERY REQUEST AND THOUGHT THEY WERE DUE IN 25 DAYS. I UNDERSTAND NOW THEY WERE DUE IN TWO DAYS.

THEY HAVE GIVEN ME TO WEDNESDAY TO PRODUCE A MONUMENTAL AMOUNT OF DOCUMENTATION, WHICH, AGAIN, IS GOING TO SEND MY FOLKS IN A DIRECTION DIFFERENT THAN PRODUCING THE

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

13 Page 13 of 20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

INFORMATION FOR THE RECEIVER. SO I THINK THE STRESS OF ALL OF THE REQUESTS FOR DOCUMENTATION FROM ALL OF THE DIFFERENT ENTITIES, ALONG WITH DOING THE BRIEFING, I THINK, PERHAPS, WE NEED A LITTLE MORE TIME FOR ALL OF THESE ACTIVITIES SO WE CAN DO THEM IN A MORE EFFICIENT AND LOGICAL FASHION. I WOULD REQUEST THAT WE HAVE ADDITIONAL TIME, NOT ONLY TO PRODUCE THE DOCUMENTS THAT HAVE BEEN REQUESTED BY THE S.E.C., BUT ALSO PERHAPS MOVE THE HEARING DATE SO THAT WE CAN HAVE THE ACCOUNTANT DO HIS REPORT, THEN HAVE SUFFICIENT TIME TO PUT TOGETHER OUR RESPONSE BRIEF. THE COURT: THE HEARING DATE? MS. FRON: PERHAPS IF WE SET EVERYTHING OUT AN WHAT DO YOU PROPOSE BY WAY OF CONTINUING

ADDITIONAL WEEK IT WOULD PROVIDE EVERYBODY A LITTLE MORE BREATHING ROOM TO BE ABLE TO ACCOMPLISH THESE TASKS. THE COURT: MR. OSIAS: BACKGROUND NOISE NOW. I WILL BE OUT OF TOWN THAT WEEK, AND COULD PARTICIPATE BY PHONE. BUT I UNDERSTAND THAT IS CAUSING SOME WOULD THERE BE ANY OBJECTION? THIS IS DAVID OSIAS. PARDON ME FOR THE

ISSUES, EVEN DOING IT TODAY. IF WE ARE -- I THINK ONE OF THE QUESTIONS WE HAVE ARISE IS THE COSTS OF STAYING OPEN. I ASSUME MS. FRON IS

SAYING, LET'S CONTINUE THE HEARING AND KEEP THE DOORS OPEN FOR

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

14 Page 14 of 20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

A LONGER PERIOD OF TIME, WHICH BRINGS US BACK TO MR. FATES' OBSERVATION THAT THEY HAVE PRODUCED SOME INFORMATION TODAY WHERE THE COMMISSION IS NOT -- AT LEAST NOT TRADITIONALLY THOUGHT OF BEFORE TODAY AS TUCO'S MAY BE AVAILABLE TO COVER OPERATING EXPENSES. MR. FREDERICK AND HIS COUNSEL ARE HERE. PERHAPS WE

COULD HEAR THAT THOSE COMMISSIONS THAT ARE GOING TO BE GENERATED ARE, IN FACT, GOING TO BE DEPOSITED INTO TUCO ACCOUNTS TO COVER THE OPERATING EXPENSES. LEAST, IS MINIMIZED. WHETHER THEY WERE CONSIDERED OR NOT HISTORICALLY ON GOING FORWARD, IF THEY ARE GOING TO BE AVAILABLE. IF NOT, I THAT RISK, AT

THINK WE HAVE SERIOUS CONCERNS ABOUT POSTPONING THE HEARING, ESPECIALLY IF WE ARE OPEN IN THE MEANTIME. IF WE CLOSE, I

SUPPOSE THESE COMMENTS WOULDN'T BE AS COMPELLING. SO THERE IS A COMBINATION QUESTION OF ARE WE STAYING OPEN AND HOW LONG ARE WE STAYING OPEN, WITH RESPECT TO SETTING HEARING DATES. THE COURT: QUESTION? MS. FRON: I BELIEVE THAT THE DOCUMENTATION THAT IS WHAT WOULD BE THE RESPONSE TO THAT,

NOW IN THE HANDS OF THE RECEIVER IS THAT THE COMMISSION AND THE INCOME COMING IN FROM THESE DIFFERENT ACTIVITIES WILL COVER TUCO STAYING OPEN. AND SO I THINK THAT GIVING AN EXTRA WEEK ISN'T GOING

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

15 Page 15 of 20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

TO BE CAUSING TOO TREMENDOUS OF A PROBLEM FOR KEEPING TUCO OPEN AND ALLOWING PEOPLE TO PRODUCE DOCUMENTS IN A MORE ORDERLY FASHION, AND GIVE THE ACCOUNTANT TIME TO DO HIS WORK. MR. OSIAS: MS. FRON, WOULD YOU OBJECT TO

ADDITIONAL -- TO AN ORDER THE COMMISSIONS BE TURNED OVER TO TUCO? MS. FRON: EVENT. THE COURT: WELL, PERHAPS, THEN, WITH THAT I THINK THAT IS WHERE THEY CAN, IN ANY

UNDERSTANDING, THE COMMISSION IS GOING INTO TUCO, IT MAY BE IN THE BEST INTEREST OF ALL TO MOVE THE HEARING FROM THE 19TH TO THE 26TH. I WILL BE IN TRIAL THAT WEEK. WE COULD HOLD THE HEARING, THOUGH, AT 3:00 O'CLOCK ON THE 26TH, AND ADJUST ALL OF THE OTHER DATES IN THE TRO BY ONE WEEK. ANY OBJECTION? MR. TERCERO: THIS IS ROBERTO TERCERO FOR PLAINTIFF,

SECURITIES AND EXCHANGE COMMISSION. ONE CONCERN THAT THE COMMISSION HAS IS, DURING THE TIME, WE ARE CONCERNED THAT THERE IS VIOLATION OF LAW GOING ON. YOU KNOW, THE 19TH WOULD BE CLOSER IN TIME TO MAKE THE

DETERMINATION WHETHER A PRELIMINARY INJUNCTION WAS APPROPRIATE. I, YOU KNOW, LOOKED ON THE INTERNET AS A FOR INSTANCE, AND TUCO HAS STILL GOT THE WEBSITE UP. TUCO IS

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

16 Page 16 of 20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

STILL OPERATING. ACCOUNTS.

TUCO IS OPERATING THROUGH THE VIEWTRADE

IT IS OF CONCERN TO ME TO PUSH OFF THE HEARING FOR

AN ENTIRE WEEK. NOW, THE RECEIVER HAS MOST CERTAINLY TRIED HIS LEVEL BEST, WE DO NOT DOUBT THAT THE DEFENDANTS HAVE TRIED THEIR LEVEL BEST, TO GET THE APPROPRIATE INFORMATION INTO THE APPROPRIATE HANDS AS QUICKLY AS POSSIBLE. BUT IF MR. LENNON

IS ABLE TO GET A RECEIVER'S REPORT IN BY 17TH, THAT IS JUST A COUPLE OF DAYS. WHAT WE WOULD RECOMMEND IS THAT THE REPLY BRIEF DATE BE MOVED A COUPLE OF DAYS. AND THAT THE HEARING, IF AT ALL

POSSIBLE, TAKES PLACE ON THE 21ST OF MARCH, BECAUSE THE COMMISSION HAS AUTHORIZED US AND CHARGED US WITH GETTING INJUNCTIVE RELIEF AND THE OTHER RELIEF THAT WE SEEK AS SOON AS POSSIBLE. THE COURT: MS. FRON: ANY OBJECTION TO THAT PROPOSAL? I WOULD JUST -- I DON'T KNOW IF THE

COURTS ARE OPEN BECAUSE THE 21ST IS GOOD FRIDAY. THE COURT: WE ARE OPEN.

LET ME INQUIRE OF OUR CLERK. WHAT WOULD BE THE BEST AVAILABLE TIME ON THE 21ST? THE CLERK: THE COURT: 11:30. SO FRIDAY THE 21ST AT 11:30 WOULD WORK.

WHY DON'T WE DO THAT, ADJUST THE HEARING DATE FROM THE 19TH TO THE 21ST AT 11:30, AND THEN ADJUST ALL OTHER DATES IN THE TRO

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

17 Page 17 of 20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

BY TWO DAYS. ANY OBJECTION? MR. TERCERO: S.E.C. NO OBJECTION, YOUR HONOR. MS. FRON: MR. FATES: MICHELE FRON, NO OBJECTION. TED FATES. THIS IS ROBERTO TERCERO FROM THE

JUST FOR CLARIFICATION, THAT WOULD BE THE RECEIVER'S REPORT DUE MONDAY, THE 17TH? THE COURT: YES. LET'S HAVE IT DUE MONDAY THE 17TH.

I WOULD PROPOSE BY 9:00 A.M. MR. OSIAS: THE COURT: MR. FATES: I DIDN'T HEAR THE LAST PART. 9:00 A.M. ON THE 17TH. TED FATES AGAIN. I

I THINK WE HAVE TROUBLE WITH THE CONNECTION. CAN'T HEAR WHAT YOU SAID. THE COURT:

I WAS PROPOSING THAT THE RECEIVER'S

REPORT BE DUE MONDAY, MARCH 17, AT 9:00 A.M. MR. FATES: THE COURT: WEDNESDAY, THE 19TH. MR. TERCERO: YOUR HONOR, THIS IS ROBERTO TERCERO. THE REPLY BY THE OKAY. THANK YOU.

THEN MS. FRON'S REPLY WOULD BE DUE ON

I AM SORRY TO INTERRUPT.

COMMISSION WOULD BE DUE ON THE 17TH, THE SAME TIME -- I AM SORRY, THE 19TH.

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

18 Page 18 of 20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 S.E.C. THE 14TH. AGAIN.

THE COURT:

THE 19TH. 19TH BY THE END OF THE BUSINESS DAY.

MR. TERCERO: THE COURT:

THAT WOULD BE FINE.

AND GIVEN THE SLIGHT ADJUSTMENT TO THE TRO, I WOULD BE INCLINED TO LEAVE EVERYTHING AS IS, WITH THE EXCEPTION OF MODIFYING THE DATES BY TWO DAYS, AS WE HAVE DISCUSSED. MR. TERCERO: YOUR HONOR, THIS IS ROBERTO TERCERO

THE OPENING BRIEF ON THE ORDER TO SHOW CAUSE ARE DUE THIS WEDNESDAY. THE COMMISSION COULD COMPLY WITH THAT DATE.

BUT GIVEN ALL THAT IS GOING ON, I WOULD ASK FOR MS. FRON TO LET US KNOW WHETHER THEY WOULD LIKE THE ADDITIONAL TWO DAYS TO GET IN HER OPENING BRIEF, GIVEN THAT WE ARE MOVING ALL THE DATES TWO DAYS. MS. FRON: THE COURT: I WOULD. SO THAT WOULD MOVE IT FROM THE 12TH TO

MR. TERCERO: MS. FRON: THE COURT:

YES, THAT'S CORRECT.

THANK YOU. I THINK THAT WOULD BE FINE. ALL RIGHT.

WELL, IS THERE ANYTHING ELSE WE NEED TO ADDRESS AT THIS TIME? MR. TERCERO: THIS IS ROBERTO TERCERO FROM THE

NO, YOUR HONOR.

WE DO APPRECIATE YOUR CONTINUED

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

19 Page 19 of 20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

AVAILABILITY DURING THE COURSE OF THE MATTER. THE COURT: MS. FRON: YOU ARE WELCOME. THANK YOU, YOUR HONOR.

THIS IS MICHELE FRON. SO AS IT STANDS NOW, IF AN INDIVIDUAL WANTS TO WITHDRAW FUNDS, HE HAS A CONTRACTUAL RIGHT TO WITHDRAW IT PURSUANT TO THIS ORDER, THAT WE MAY HONOR THAT WITHDRAWAL IF IT IS IN THE ORDINARY COURSE OF BUSINESS, AND THAT THE VIEWTRADE ACCOUNT MAY REMAIN OPEN AND TRADING. THE COURT: I THINK THAT IS CORRECT, GIVEN THE

MODIFICATION THAT WAS MADE TO THE ORIGINAL TRO. AND, BY TODAY'S DISCUSSION, THE INTENT OF THE COURT WAS SIMPLY TO LEAVE EVERYTHING AS PROVIDED FOR IN THE TRO AND THE MODIFIED TRO, WITH THE EXCEPTION OF ADJUSTING THE DATES BY TWO DAYS. MS. FRON: MR. OSIAS: THANK YOU. YOUR HONOR, THIS IS DAVID OSIAS.

MR. LENNON WILL PROCESS WITHDRAWAL REQUESTS AS BEST HE IS ABLE, AND UNDER THE ORDINARY COURSE STANDARD, WHICH IS TO COMPARE THE WITHDRAWAL REQUEST TO HISTORIC BEHAVIOR AT THIS TIME. IF HE IS INUNDATED WITH REQUESTS, AT LEAST IN OUR MINDS, THAT IS A LOWER PRIORITY THAN COMPLETING THE ACCOUNTING ANALYSIS THAT IS NECESSARY, PER THE PRIOR COURT ORDER, AND IT HAS TO BE TURNED IN MONDAY MORNING.

Case 3:08-cv-00400-DMS-BLM

Document 50-8

Filed 08/08/2008

20 Page 20 of 20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BOTH.

I GUESS I WANT TO MAKE SURE, IF WE HAD TO PRIORITIZE OUR TIME, THAT ACCOUNTING REPORT COMES AHEAD OF PROCESSING THE WITHDRAWAL REQUESTS, IF WE GET INTO LARGE NUMBERS OF REQUESTS. THE COURT: I AM HOPEFUL THAT MR. LENNON CAN DO

I THINK IF ONE HAS TO PRIORITIZE, I THINK YOU HAVE SET

OUT THE CORRECT PRIORITY, MR. OSIAS. MR. OSIAS: THANK YOU. I DIDN'T MEAN TO SUGGEST WE

WOULDN'T TRY TO DO BOTH. AND THANK YOU VERY MUCH, AGAIN, AS EVERYONE HAS SAID, FOR YOUR AVAILABILITY. THE COURT: THANK YOU, VERY MUCH. AND WE WILL LOOK

FORWARD TO SEEING EVERYONE ON FRIDAY THE 21ST. MS. FRON: THANK YOU, YOUR HONOR. THANK YOU, YOUR HONOR.

MR. TERCERO: THE COURT:

THANK YOU.

*

*

*

I CERTIFY THAT THE FOREGOING IS A CORRECT TRANSCRIPT FROM THE RECORD OF PROCEEDINGS IN THE ABOVE-ENTITLED MATTER. S/LEEANN PENCE 7/24/08 DATE

LEEANN PENCE, OFFICIAL COURT REPORTER