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

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

Document 50-7

Filed 08/08/2008

Page 1 of 35

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 4, 2008

HEARING RE TEMPORARY RESTRAINING ORDER 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

FOR DEFENDANTS:

FOR THE RECEIVER:

REPORTED BY:

LEE ANN PENCE, OFFICIAL COURT REPORTER UNITED STATES COURTHOUSE 940 FRONT STREET, BOX 4199 SAN DIEGO, CALIFORNIA 92101

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

Document 50-7

Filed 08/08/2008

Page 2 of 35 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 - TUESDAY, MARCH 4, 2008 - 12:00 P.M. * THE CLERK: * *

NO. A1 ON CALENDAR, CASE NO. 08CV0400,

SECURITIES AND EXCHANGE COMMISSION VERSUS TUCO TRADING, LLC AND DOUGLAS G. FREDERICK; ON FOR HEARING RE TEMPORARY RESTRAINING ORDER. THE COURT: GOOD AFTERNOON.

MAY I HAVE APPEARANCES, PLEASE? MR. TERCERO: CERTAINLY. GOOD MORNING, YOUR HONOR.

ROBERTO A. TERCERO ON BEHALF OF PLAINTIFFS, SECURITIES AND EXCHANGE COMMISSION. AND I AM ALSO APPEARING WITH DONALD SEARLES, ALSO FROM THE SECURITIES AND EXCHANGE COMMISSION. IF I MIGHT ASK FOR JUST A COUPLE OF MINUTES FOR US TO GET OUR TABLE AND PUT DOWN SOME THINGS AFTER THE PREVIOUS CASE, I WOULD GREATLY APPRECIATE IT. THE COURT: MS. FRON: THAT WOULD BE FINE. GOOD AFTERNOON, YOUR HONOR. I AM MICHELE

FRON, AND I AM HERE WITH AUDETTE MORALES. YOUNG & LOGAN.

WE ARE FROM KEESAL,

WE REPRESENT TUCO, LLC, AS WELL AS MR. DOUGLAS FREDERICK, THE DEFENDANTS. THE COURT: MS. FRON: MR. OSIAS: THANK YOU. GOOD AFTERNOON.

GOOD AFTERNOON. GOOD AFTERNOON, YOUR HONOR. DAVID

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

Document 50-7

Filed 08/08/2008

Page 3 of 35 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

OSIAS, OF ALLEN MATKINS, PROPOSED COUNSEL FOR THE PROPOSED RECEIVER, WHO IS HERE, MR. THOMAS LENNON OF TFL, INC. THE COURT: THANK YOU. GOOD AFTERNOON.

MR. TERCERO: WE ARE READY. THE COURT:

YOUR HONOR, THANK YOU FOR THE MOMENT.

YES.

FIRST, I RECEIVED -- THERE WAS AN APPLICATION FOR TRO APPOINTMENT OF RECEIVER AND RELATED MATTERS, EXPEDITED DISCOVERY. I HAVE READ SOME, BUT NOT ALL, OF THE BRIEFING.

AND, SPECIFICALLY, I PAID CAREFUL ATTENTION TO THE POINTS AND AUTHORITIES AND THE COMPLAINT THAT WAS FILED THEREON. HAVE THE OTHER PLEADINGS IN FRONT OF ME. AM I CORRECT THAT GIVEN THE SHORT NOTICE TO THE DEFENSE THAT AN OPPOSITION -- WRITTEN OPPOSITION WAS NOT FILED? MS. FRON: THAT IS CORRECT, YOUR HONOR. FOR THAT AND I

REASON WE HAVE ASKED TO HAVE AN ORAL PRESENTATION, BECAUSE WE HAVE HAD THE OPPORTUNITY TO UNDERSTAND THE POSITION OF THE S.E.C., SINCE RECEIVING THE PAPERS LATE YESTERDAY AFTERNOON. THE COURT: YES.

LET ME START, FIRST, IF I MIGHT, WITH YOU. THEN I WILL TURN BACK TO THE S.E.C. MR. TERCERO: THE COURT: CERTAINLY.

HAVING READ THE POINTS AND AUTHORITIES

AND THE ASSERTIONS STATED THEREIN, WHAT IS YOUR RESPONSE TO

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

Document 50-7

Filed 08/08/2008

Page 4 of 35 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

THE CONTENTION, GIVEN THE FACTS THAT ARE SET FORTH, THAT THE S.E.C. HAS NOT MET ITS BURDEN WITH RESPECT TO SEEKING A TRO, AND THE LOWER THRESHOLD THAT IS ATTENDANT TO THAT BURDEN, GIVEN THE S.E.C.'S STATUS? MS. FRON: THANK YOU, YOUR HONOR.

THE REASON THAT WE DON'T BELIEVE THAT A TRO SHOULD BE ISSUED TODAY IS BECAUSE, NUMBER ONE, THE STRUCTURE THAT IS IN PLACE, WITH TUCO BEING AN LLC, THEY ARE NOT ACTING AS A BROKER/DEALER. THEY HAVE MEMBERS THAT SUBMIT THEIR MONEY INTO

THEIR ACCOUNT IN ORDER TO TRANSACT BUSINESS AS TRADERS. THE S.E.C.'S POSITION IS THAT TUCO IS ACTING AS A BROKER/DEALER. IT IS NOT. ITS CONTRACTS DON'T REVEAL THAT IT THE BROKER/DEALER IS GLB, AND

IS ACTING AS A BROKER/DEALER. THEIR CLEARING FIRM IS PENSON.

SO THE STRUCTURE THAT HAS BEEN IMPLEMENTED, WITH RESPECT TO TUCO, IS A STRUCTURE THAT IS USED QUITE FREQUENTLY WITH OTHER BROKER/DEALERS, OTHER ENTITIES SUCH AS LLC, THAT IMPLEMENT THE DAY TRADING FOR CUSTOMERS. THE SECOND POSITION THAT THE S.E.C. IS CONTENDING, WE BELIEVE, IS INACCURATE IN TERMS OF THE FACTS. THAT IS

WHERE I NEEDED SOME TIME TO TAKE A LOOK AT THE FACTS. THERE IS NO SHORTFALL WITH RESPECT TO THE MONEY THAT THE TRADERS HAVE IN THEIR ACCOUNTS, AND THE MONEY -- IN THE EVENT THAT THERE MAY HAVE BEEN A, QUOTE, UNQUOTE, RUN ON THE BANK FOR THE FOLLOWING REASONS:

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

Document 50-7

Filed 08/08/2008

Page 5 of 35 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

NUMBER ONE, THE INVESTORS THAT PUT THEIR MONEY INTO TUCO, LLC AS MEMBERS OF THE LIMITED LIABILITY COMPANY SIGN AGREEMENTS WHEREIN THEY UNDERSTAND THAT IF THEY WANT THEIR FUNDS LIQUIDATED AND ISSUED OUT TO THEM THAT THERE MAY BE UP TO A 90-DAY DELAY IN ORDER TO GET THEIR MONEY. THAT IS BECAUSE TUCO HAS A HUGE ACCOUNTS RECEIVABLE THAT IS NOT BEING TAKEN INTO CONSIDERATION, WITH RESPECT TO THE SHORTFALLS. DURING THE MONTHS OF OCTOBER THROUGH FEBRUARY, TUCO'S ACCOUNTS RECEIVABLE WAS APPROXIMATELY $2 MILLION. THAT

WAS OWED TO THEM BY PENSON BECAUSE OF THE COMMISSIONS AND THE TRADING FEES AND NETTING OUT THE EXPENSES. DOLLARS, AND THOSE WOULD BE AVAILABLE. WE ARE NOW WORKING WITH PENSON TO TRY TO GET THE TURNAROUND ON THOSE FUNDS TO COME TO TUCO QUICKER THAN THEY HAVE IN THE PAST. THAT IS SOMETHING THAT TUCO IS WORKING ON SO THOSE ARE REAL

IN ORDER TO ENSURE THAT THE STRUCTURE OF THE LLC COMPORTS WITH THE S.E.C.'S RULINGS. MORE IMPORTANT, ON MANY OF THE CALCULATIONS THAT THEY HAVE IN THEIR PAPERWORK THEY DON'T COMPORT WITH THE INFORMATION THAT IS IN MR. WOO'S DECLARATION. AS AN EXAMPLE, ON THE ISSUES OF THE SHORTFALL, IN HIS DECLARATION HE HAS LISTED OUT THE AMOUNTS IN THE VARIOUS ACCOUNTS. FOR EXAMPLE, TO JUST GIVE ONE EXAMPLE, ON ACCOUNT

THAT ENDS IN 4075, HE SHOWS THAT THE AMOUNT IS $6,887,065.

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

Document 50-7

Filed 08/08/2008

Page 6 of 35 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

IF WE LOOK AT THE EXHIBIT THAT SHOWS THE BALANCE ON THAT ACCOUNT, AS OF THAT DATE, IT IS $6,957,000 -- 337,000. SO THE SHORTFALL FIGURES FROM MR. WOO'S DECLARATION TO THE DOCUMENTS THAT ARE BEING UTILIZED TO SUBSTANTIATE THAT ARE OFF BY $222,000. NOT ACCURATE. ANOTHER REASON THAT THE SHORTFALLS ARE NOT ACCURATE IS BECAUSE THE CALCULATIONS MADE BY MR. WOO DO NOT TAKE INTO CONSIDERATION TRANSACTIONS THAT OCCURRED, FOR EXAMPLE, ON JANUARY 31ST OF 2008 THAT WERE PLACED ON THAT DATE BUT DIDN'T SETTLE FOR THREE MORE TRANSACTION DAYS, AS TRADES SETTLE THREE DAYS AFTER THEY ARE EXECUTED. WE PROVIDED THE S.E.C., THIS MORNING, WITH SOME DOCUMENTATION, THAT WE HAVE, THAT SHOWED THE ACTUAL EQUITIES IN THE TUCO TRADING ACCOUNTS AS OF JANUARY 31ST, TAKING INTO CONSIDERATION TRADES EXECUTED, BUT NOT SETTLED. FIGURE COMES UP TO $7,788,564. IF THOSE FIGURES ARE UTILIZED ON THE SNAPSHOT PICTURE OF WHAT HAPPENED ON JANUARY 31ST, THERE IS NO SHORTFALL. THERE IS NO PROBLEM WITH RESPECT TO THE TUCO AND THAT SO FOR THAT REASON, THESE SHORTFALLS ARE

TRADERS HAVING THE FUNDS THAT THEY DEPOSITED INTO THE LLC AVAILABLE FOR THEM TO TRADE, AND LIKEWISE AVAILABLE FOR THEM TO WITHDRAW THEIR FUNDS. FOR THAT REASON WE DON'T BELIEVE THAT AN EX PARTE TEMPORARY RESTRAINING ORDER SHOULD BE PUT IN PLACE BECAUSE OF

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

Document 50-7

Filed 08/08/2008

Page 7 of 35 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

THE FACT THAT -- THE FACTS SUPPORTING IT ARE INACCURATE AND DON'T COMPORT WITH THE REALITY OF THE STRUCTURE OF THE BUSINESS THAT IS BEING RUN HERE. MORE IMPORTANTLY, IF A TRO IS ISSUED IT BASICALLY IS GOING TO DESTROY THE ENTIRETY OF THE TUCO, LLC STRUCTURE. IT

IS GOING TO DESTROY THE ABILITY FOR THE 1500 TRADERS THAT USE THIS AS A MEANS TO MAKE THEIR MONEY. THIS IS THEIR BUSINESS. THESE FOLKS ARE GOING TO BE

SHUT DOWN IMMEDIATELY, THEY ARE NOT GOING TO HAVE THE ABILITY TO WITHDRAW THEIR FUNDS. AND THERE IS NOTHING WRONG HERE. THERE HAS BEEN

ABSOLUTELY NO ALLEGATIONS, NO FACTS, THAT THERE HAS BEEN ANY MISAPPROPRIATION. NOTHING IS BEING DONE ILLEGALLY, NOTHING IS

BEING DONE IMPROPERLY. AND THE INVESTORS, WHO THE S.E.C. IS OUT THERE TO PROTECT, ARE NOT COMPLAINING. THE MONEY IS AVAILABLE. THE ISSUE RIGHT NOW, I THINK, BOILS DOWN TO THE FACT THAT TUCO DOESN'T GET ALL OF THE COMMISSION MONEY IMMEDIATELY FROM PENSON. NOW, IN ORDER TO RESOLVE THOSE PROBLEMS, MR. FREDERICK HAS HIRED SEPARATE COUNSEL TO REVIEW ALL OF HIS AGREEMENTS, TO REVIEW HIS OPERATING SYSTEMS, AND TO MAKE RECOMMENDATIONS. IF THINGS NEED TO BE CHANGED, HE IS WILLING THEY ARE NOT LOSING ANY MONEY.

TO MAKE THOSE ADMINISTRATIVE CHANGES.

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

Document 50-7

Filed 08/08/2008

Page 8 of 35 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 GRANTED.

BUT THAT CAN'T POSSIBLY TAKE PLACE IF WE ARE SHUT DOWN HERE TODAY. AND IF WE ARE SHUT DOWN HERE TODAY, ALL OF

THE TRADERS ARE GOING TO BE LEFT HIGH AND DRY, ESPECIALLY BECAUSE THEY CERTAINLY CAN'T GET THEIR MONEY OUT RIGHT NOW BECAUSE OUR HANDS ARE TIED. THEY ARE NOT GOING TO BE ALLOWED TO TRADE. THEY ARE

NOT GOING TO BE ALLOWED TO MOVE THEIR MONEY TO ANOTHER BROKER/DEALER TO CONTINUE WITH THEIR BUSINESSES. IN ADDITION, ANY TRO, OBVIOUSLY, IS GOING TO PUT MR. FREDERICK OUT OF BUSINESS, AND IS GOING TO AFFECT THE SEVERITY OF HIS EMPLOYEES, THE PEOPLE THAT ARE RUNNING HIS SOFTWARE COMPANY. IT IS JUST GOING TO AFFECT A NUMBER OF PEOPLE, FOR NO REASON. THERE IS NOTHING BEING STOLEN, THERE IS NOTHING THE ONLY ISSUE IS THE MONEY FLOW, AND

BEING MISAPPROPRIATED.

WE ARE WORKING VERY DILIGENTLY ON GETTING THAT ISSUE RESOLVED. WE WOULD ASK THAT THE EX PARTE MATTER NOT BE AND IN THE EVENT THAT THE COURT WISHES TO PURSUE

ANYTHING ALONG THOSE LINES, WE WOULD THEN ASK THAT WE BE HEARD ON ANY SPECIFIC ISSUES WITH RESPECT TO THE INJUNCTION, BECAUSE WE BELIEVE THE SCOPE OF IT IS SEVERE. IT IS BINDING MR. FREDERICK'S PERSONAL ACCOUNT SO THAT HE CAN'T ACCESS HIS OWN CREDIT CARDS, DEBIT CARDS, CHECKING ACCOUNT. WE THINK THAT THAT IS EXCESSIVE. WE ALSO

THINK THAT IT IS NOT NECESSARY.

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

Document 50-7

Filed 08/08/2008

Page 9 of 35 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

MR. FREDERICK ISN'T BEING BROUGHT HERE TODAY BECAUSE THERE HAS BEEN ANY ALLEGATIONS THAT THE MONEY HAS GONE TO HIM INAPPROPRIATELY, OR ANYTHING LIKE THAT. WE THINK THAT

APPLYING IT TO HIM, PERSONALLY, IS INAPPROPRIATE. WE ALSO BELIEVE THAT THE ISSUES WITH RESPECT TO DEPOSITIONS BEING EVERY DAY, WITH A TWO-DAY NOTICE, SATURDAY, SUNDAY AND HOLIDAYS INCLUDED, IS ALSO VERY SEVERE IN THIS INSTANCE. WE DON'T SEE THE EXIGENT CIRCUMSTANCES. I BELIEVE THERE IS A COUPLE OF OTHER ISSUES IN HERE THAT WE WOULD LIKE TO ADDRESS, IF NECESSARY. BUT WE WOULD ASK

THAT EVERYONE JUST STAND STILL, WHICH WE HAVE REQUESTED IN THE PAST. WE WENT TO THE S.E.C. AND SAID, IF THERE IS SOMETHING THAT WE ARE DOING WRONG, MR. FREDERICK IS PREPARED TO ENSURE THAT HE IS COMPLYING. LET'S JUST SIT DOWN AND TALK

ABOUT WHAT THE PROBLEMS ARE AND HOW HE CAN CHANGE HIS ADMINISTRATIVE SYSTEMS, IF THAT BE THE CASE, IN ORDER TO BE ABLE TO CONTINUE TO CONDUCT HIS BUSINESS AND ALLOW THESE TRADERS TO TRADE IN THE MANNER THAT THEY WISH TO PROCEED. THE COURT: WHEN YOU SAY STAND STILL, YOU MEAN

MAINTAIN THE STATUS QUO? MS. FRON: WELL, TO NOT IMPLEMENT AN EX PARTE TRO,

BUT TO ALLOW THE BUSINESS TO CONTINUE AS IT IS. AND IF THE S.E.C. SAYS THEY WANT A DIFFERENT CHECKING ACCOUNT FOR THE COMMISSIONS TO COME IN, OR IF THEY

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

Document 50-7

Filed 08/08/2008

10 Page 10 of 35

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

WANT A DIFFERENT ACCOUNT FOR THE FUNDS TO COME IN FOR THE TRADERS, WE ARE HAPPY TO WORK THINGS, OF THAT NATURE, OUT. BUT WE REALLY CANNOT HAVE THIS SYSTEM BE SHUT DOWN AND HAVE THESE TRADERS BE LEFT WITH TUCO BEING SHUT DOWN OR BEING TAKEN OVER BY A RECEIVER. THE COURT: ULTIMATELY, YOU WOULD REQUEST THAT THE

COURT NOT ISSUE THE REQUESTED RELIEF, AND PERHAPS SET IT ON A NOTICED MOTION FOR FURTHER BRIEFING AND TAKING OF EVIDENCE? MS. FRON: THE COURT: MS. FRON: THE COURT: ABSOLUTELY. ALL RIGHT. THANK YOU. COUNSEL, HOW DO YOU RESPOND? THANK YOU, YOUR HONOR.

MR. TERCERO:

AS YOU CORRECTLY POINT OUT, WE ARE ASKING FOR A STANDSTILL. AND WE DO WANT TO MAKE SURE THAT INVESTORS ARE

NOT, IN FACT, HARMED. LET ME JUST TAKE COUNSEL'S POSITIONS ONE BY ONE. THEY ARGUE, FIRST, THAT TUCO TRADING IS NOT A BROKER/DEALER BECAUSE THEY ARE AN LLC. THE SECURITIES LAWS DON'T MAKE AN EXCEPTION FOR LLC'S. THE TEST IS EASY AND CLEAR. IF A PERSON OR ENTITY EFFECTS SECURITIES TRANSACTIONS THROUGH INTERSTATE COMMERCE -THEY USE THE INTERNET, THEY USE THE EXCHANGES, SO WE HAVE GOT THAT ELEMENT.

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

Document 50-7

Filed 08/08/2008

11 Page 11 of 35

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 IS: REGISTER.

-- THEN THEY ARE A BROKER/DEALER AND THEY MUST

WE HAVE PROVIDED, IN MR. WOO'S DECLARATION, THE CERTIFIED COPY SHOWING THAT THEY ARE NOT, IN FACT, REGISTERED. WHAT DOES "EFFECT SECURITIES TRANSACTIONS" MEAN? IT

MEANS THAT THEY HAVE -- IT MEANS, FOR A BROKER, THAT THEY HAVE TO BE ENGAGED IN THE BUSINESS OF EFFECTING TRANSACTIONS IN SECURITIES. BY "ENGAGED IN THE BUSINESS" THE CASES -- THE LAW REGULAR PARTICIPATION IN SECURITIES TRANSACTIONS. AND THEY DO SO. THE FACTORS THAT THE COURTS HAVE POINTED OUT ARE SOLICITING TRANSACTIONS AND RECEIVING TRANSACTION-BASED COMPENSATION. AND THERE ARE A COUPLE OF MORE FACTORS ON THE

NEXT PART OF THE WORDS. THEY DO SOLICIT. THEY HAVE GOT AN INTERNET SITE.

THAT IS EXHIBIT 4 TO MY DECLARATION. AND, IN ADDITION TO THAT, MR. FREDERICK ADMITTED IN TESTIMONY THAT HE, IN FACT, SOLICITS DAY TRADERS, TRADING GROUPS, TRADING FIRMS. EFFECTS TRANSACTIONS FOR OTHERS. IF AN ENTITY OR A PERSON PARTICIPATES IN KEY POINTS OF A SECURITIES TRANSACTION, THEY ARE A BROKER. FACTORS. ONE ALREADY. SOLICITING INVESTORS. WE HAVE GOT THAT

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

Document 50-7

Filed 08/08/2008

12 Page 12 of 35

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

HANDLING CUSTOMER FUNDS AND SECURITIES. WELL, THEY DO HANDLE CUSTOMER FUNDS. DEPOSITS CONSTANTLY. CUSTOMERS MAKE

PERSONAL BANK ACCOUNT CONTROLLED BY MR.

FREDERICK' IN TUCO'S NAME, AND THEN THE BROKERAGE FIRM ACCOUNTS THAT TUCO HAS. PARTICIPATING AND ORDER TAKING. THIS ENTITY OFFERS CUSTOMERS, TRADERS, THE OPPORTUNITY TO TRADE IN THE SECURITIES MARKETS. UP AN ACCOUNT WITH US, YOU CAN TRADE THROUGH US. YOU THE SOFTWARE TO PLACE THESE TRADES. CHARGE COMMISSIONS. IT DOES EVERYTHING THAT A REGISTERED BROKER/DEALER DOES; EXCEPT IT IS NOT REGISTERED. CONSEQUENCES. A REGISTERED BROKER/DEALER WOULD HAVE A SEGREGATED BANK ACCOUNT THAT WOULD HAVE ONLY CUSTOMER FUNDS, AND WOULD BE FOR THE EXCLUSIVE BENEFIT OF CUSTOMERS. MR. FREDERICK ADMITS THAT ALL OF THE MONEY GETS COMMINGLED. THERE IS NOT THE TYPE OF PROTECTION THAT IS SUPPOSED TO OCCUR WITH A REGISTERED BROKER/DEALER BECAUSE THEY ARE NOT REGISTERED. ANOTHER FACTOR, ARE YOU A BROKER/DEALER AND ARE YOU AFFECTING TRANSACTIONS, IS WHETHER YOU EXTEND CREDIT OR ARRANGE FOR THE EXTENSION OF CREDIT. AND THERE ARE SERIOUS YOU CAN OPEN WE WILL GIVE

AND WE ARE GOING TO

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

Document 50-7

Filed 08/08/2008

13 Page 13 of 35

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 TRADERS.

WHY IS TUCO SO POPULAR, OR WHY IS IT ATTRACTIVE TO A DAY TRADER? A TYPICAL DAY TRADER, IF THEY OPEN UP A BROKERAGE ACCOUNT AT A REGISTERED BROKER/DEALER HAS TO HAVE $25,000 IN EQUITY. MINIMUM. CAN'T DAY TRADE WITHOUT IT. IT USES ITS BROKERAGE

TUCO DOESN'T REQUIRE THAT. ACCOUNT TO HAVE THAT $25,000. WHAT IS ANOTHER REASON?

WELL, IF YOU ARE A DAY TRADER YOU CAN GET FOUR TIMES THE MONEY THAT YOU HAVE GOT IN YOUR ACCOUNT. MORE COMPLICATED, BUT LET'S USE THAT. TUCO OFFERS UP TO 20-TO-1. IT IS A LITTLE

4-TO-1. AND MR. FREDERICK HAS

ADMITTED ALREADY IN TESTIMONY THAT 80 PERCENT OF THE PEOPLE USE 10-TO-1 OR 20-TO-1 BUYING POWER. THESE PROVISIONS ARE SUPPOSED TO PROTECT THE BUT AS WE POINT OUT IN OUR PAPERS, THEY ARE ALSO

SUPPOSED TO PROTECT THE SECURITIES MARKETS. WE, THE COMMISSION, ARE HERE NOT ONLY TO PROTECT PEOPLE WHO HAVE ACCOUNTS AT TUCO, BUT EVERYBODY ELSE WHO HAS AN ACCOUNT, AND THE REST OF THE MARKET. AND BY NOT HAVING

THOSE RULES MET YOU ARE PUTTING GREATER RISK INTO THE MARKET. FOR THESE REASONS WE ARE ARGUING THAT THEY ARE NOT REGISTERED, EVEN THOUGH THEY ARE A BROKER/DEALER. AND IN THIS CASE -- AND IN THIS CASE -- BECAUSE WE HAVE TWO BASES -- REGISTRATION AND ALSO THE FRAUD -- WE WILL

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

Document 50-7

Filed 08/08/2008

14 Page 14 of 35

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

GET TO THAT IN A SECOND -- WE NEED ONE, AND THEN THE INJUNCTIVE RELIEF PROVISIONS ARE TRIGGERED. MR. FREDERICK HAS RUN THIS COMPANY. I CHECKED HIS

WEBSITE, AND PUT IN MY DECLARATION, THAT AS OF MONDAY THE WEBSITE IS STILL UP. OPERATIONS ARE STILL GOING ON.

IT IS LIKELY THAT HE IS GOING TO CONTINUE, IT IS LIKELY THAT TUCO WILL CONTINUE; THEREFORE, INJUNCTIVE RELIEF IS APPROPRIATE. WE CAN GO INTO THE FACTORS IN GREATER DETAIL IF YOU WISH, SIR. COUNSEL FOR THE DEFENDANTS ALSO ARGUES THAT THERE IS NO SHORTFALL, AND GIVES A NUMBER OF REASONS WHY. SAYS THAT THE AGREEMENTS GIVE 90 DAYS TO PAY, BUT THERE IS A ONE- TO THREE-MONTH LAG ON GETTING THE COMMISSIONS TO PUT IN THE MONEY, THAT THEY ARE WORKING ON GETTING IT. BUT, LET'S FACE IT, THAT MEANS THAT THEY DON'T HAVE IT TODAY. THEY ALSO ARGUE THAT MR. WOO'S NUMBERS IN HIS DECLARATION ARE INCORRECT, IF YOU LOOK AT THE NUMBERS. COUNSEL IS NOT TAKING INTO ACCOUNT WHAT ARE CALLED THE "SHORT POSITIONS" RIGHT UNDERNEATH THE NUMBERS SHE IS REFERRING TO. CORRECT. THE ACTUAL EQUITY. COUNSEL KINDLY PROVIDED US WITH WHEN YOU DO THAT, MR. WOO'S NUMBERS ARE

COPIES THIS MORNING OF THESE AMOUNTS THAT APPARENTLY SHE IS ARGUING THERE IS NO SHORTFALL.

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

Document 50-7

Filed 08/08/2008

15 Page 15 of 35

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 RAN THE NUMBERS.

THERE IS STILL A SHORTFALL; AND

THAT SHORTFALL IS IN THE AMOUNT OF ABOUT $550,000. WHY IS THERE THIS DIFFERENCE? KEEP IN MIND, YOUR HONOR, THAT IN ADDITION TO THE EQUITY NUMBERS, THE AMOUNT IN THE ACCOUNTS THAT ARE IN THE DOCUMENTS THAT DEFENSE COUNSEL HAS PROVIDED, THEY NEED TO TAKE OUT $2.3 MILLION BECAUSE, AS MR. FREDERICK HAS ALREADY ADMITTED, HE GETS A LOAN. THAT MONEY ISN'T HIS, IT ISN'T

TUCO'S; HE NEEDS TO PAY IT BACK. SO WE HAVE RECEIVED -- BECAUSE WE HAVE ASKED AND GRACIOUSLY THEY HAVE PROVIDED, THROUGHOUT THE LAST MONTH -THE ENFORCEMENT GROUP GOT THIS CASE ABOUT JANUARY 30TH, FEBRUARY 1ST, TO GET NUMBERS, TO GET INFORMATION. UNFORTUNATELY, AS WE ASKED MORE QUESTIONS, WE GET DIFFERENT NUMBERS. SO WE HAVE BEEN DOING OUR BEST TO USE IT. THE NUMBERS THAT WE PROVIDED IN THE WOO DECLARATION ARE GIVING THEM EVERY SINGLE BIT OF CREDIT POSSIBLE. IT HARDEST ON OURSELVES. LIKE THAT. THE OTHER THING TO KEEP IN MIND THAT I WOULD ASK THE COURT TO DO IS, WE HAD A $3.6 MILLION SHORTFALL IN DECEMBER, AND THE COMMISSION'S BROKER/DEALER EXAMINATION STAFF WAS CONTACTING MR. FREDERICK FREQUENTLY, APPARENTLY, IN JANUARY. I THINK HE MIGHT HAVE FIGURED OUT SOMETHING, AND THAT IS WHY THE LOAN, WHICH TYPICALLY WAS ABOUT 1.8 WENT TO WE MADE

AND EVEN THEN WE HAVE GOT NUMBERS

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

Document 50-7

Filed 08/08/2008

16 Page 16 of 35

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

2.3 MILLION.

I THINK THAT IS WHY WE HAVE GOT SOME EXTRA MONEY

HERE -- BUT DON'T KNOW. THAT IS WHY WE ARE ASKING FOR A RECEIVER TO GET TO THE BOTTOM OF THIS, AND TO ALSO MAKE SURE THAT THE ASSETS ARE MARSHALED. LET ME GO DOWN TO "TRADERS WILL SUFFER," AND THAT THE "TRADERS ARE NOT COMPLAINING." OF COURSE THE TRADERS ARE NOT COMPLAINING. THE

BASIS OF OUR CASE IS THAT CRITICAL AND MATERIAL INFORMATION IS BEING OMITTED FROM THE INFORMATION THAT THEY GET. THEY CAN LOG-ON, THEY CAN LOOK AND SEE WHAT THEIR POSITIONS ARE, THEY CAN SEE WHAT THE AMOUNT OF MONEY IS. PROBLEM IS THAT TUCO IS NOT STATING THAT, OH, BY THE WAY, THERE IS A SHORTFALL. THEIR NUMBERS. WE HAVEN'T HAD OUR ACCOUNTANTS GO THROUGH WHAT WE GOT THIS MORNING, BUT JUST THE MOST BASIC -- THE MOST CREDIT TO THEM, IT IS STILL HALF A MILLION SHORT, A LITTLE BIT OVER THAT. THEY ARE NOT COMPLAINING BECAUSE THEY DON'T KNOW. THAT IS THE OMISSION, THAT IS THE FRAUD. LET ME ADDRESS SOMETHING ELSE, YOUR HONOR. WILL SUFFER. AS OUR PAPERS SHOW, WE ARE CONCERNED ABOUT THOSE TRADERS AT TUCO. AND, AS I SAID, WE ARE CONCERNED ABOUT THE TRADERS MILLIONS OF DOLLARS HERE, EVEN USING THE

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

Document 50-7

Filed 08/08/2008

17 Page 17 of 35

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

SECURITIES MARKETS GENERALLY.

BUT LET'S TALK ABOUT TUCO'S

TRADERS IN THE LAST COUPLE OF MONTHS. MR. FREDERICK WAS ABLE TO GENERATE SOMEWHERE IN THE NEIGHBORHOOD OF A COUPLE HUNDRED THOUSAND, MAYBE $300,000, PER MONTH IN COMMISSIONS. DECEMBER. WHY? BECAUSE HE HAS GOT ANOTHER ONE OF THESE DAY IT IS CALLED T3, IT HAS SKYROCKETED IN NOVEMBER AND

TRADING FIRMS AS ONE OF HIS NEW CUSTOMERS. WHICH WE PUT IN OUR PAPERS.

AND MR. FREDERICK HAS ADMITTED IN TESTIMONY THAT HE OWNS 10 PERCENT. THAT IS THE LARGEST PLAYER, AS FAR AS WE CAN IF THERE IS GOING TO BE

TELL, AND HE OWNS A PIECE OF IT.

HARM, THE LION'S SHARE OF IT IS GOING TO BE A COMPANY WHICH HE ADMITS HE HAS AN INTEREST IN. WE THINK, AS A RESULT, THAT THE AMOUNT OF HARM THAT WILL BE PLACED ON TUCO TRADERS IS FAR, FAR, FAR LESS. AND

BECAUSE WE HAVE A CONTINUING SHORTFALL, WE THINK THAT BY FREEZING THE ASSETS WE ARE AT LEAST PROTECTING FROM FUTURE LOSSES. AS A RESULT, THE HARM IS FAR GREATER NOT ISSUING THE

INJUNCTIVE RELIEF. I CAN TALK TO YOU ABOUT ALL OF THE REMEDIES THAT WE SEEK, BUT CERTAINLY BECAUSE WE HAVE PROVED OUT BOTH THE BROKER/DEALER REGISTRATION VIOLATIONS, THAT IS ENOUGH FOR INJUNCTIVE RELIEF AND THE ANCILLARY RELIEF, AND ALSO THE FRAUD, WE BELIEVE THAT ALL OF THIS RELIEF IS IMPORTANT.

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

Document 50-7

Filed 08/08/2008

18 Page 18 of 35

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 RELIEF.

STANDSTILL? WE ARE ASKING.

ABSOLUTELY.

STOP THE CONDUCT IS WHAT

LET'S MARSHAL UP THIS MONEY, AND AT LEAST HAVE

A HOLD THROUGH THIS TEMPORARY RESTRAINING ORDER PERIOD AS SET BY YOUR HONOR, WE HOPE. WE WILL ALSO HAVE A TEMPORARY RECEIVER TO MAKE SURE THAT THE NUMBERS ARE CORRECT. UNFORTUNATELY, WE HAVE NOT -WE

WE HAVE MOVED AS QUICKLY AS POSSIBLE TO STOP THE CONDUCT.

HAVE NOT HAD AN OPPORTUNITY TO LOOK THROUGH THE ACTUAL BACK OFFICE SYSTEM, THAT TUCO HAS, IN ORDER TO FIGURE OUT PRECISELY WHICH OF THE MANY NUMBERS THAT TUCO AND MR. FREDERICK HAVE PROVIDED ARE, IN FACT, THE CASE; OR IF THERE IS, IN FACT, YET ANOTHER STORY. SO, FOR THOSE REASONS, WE ARE SEEKING ALL OF THAT DEPENDING ON WHEN A TEMPORARY -- WHEN AN ORDER TO

SHOW CAUSE -- ASSUMING AUTHORIZATION AND GRANTING -- WE CAN TALK ABOUT OTHER MATTERS, AND CERTAINLY WE CAN TALK ABOUT OTHER COMPONENTS OF RELIEF. I AM GOING TO LET MY ESTEEMED CO-COUNSEL HANDLE ALL OF THOSE ISSUES AS TO THE PRECISE NATURE, IF YOUR HONOR IS INCLINED TO GRANT US THE EX PARTE MOTION THAT HAS BEEN HANDED DOWN. BUT UNLESS YOU HAVE ADDITIONAL QUESTIONS OR UNLESS DEFENSE COUNSEL PROVIDES ADDITIONAL ARGUMENTS, THAT IS OUR POSITION. THE COURT: THERE HAS BEEN DISCOVERY THAT HAS BEEN

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

Document 50-7

Filed 08/08/2008

19 Page 19 of 35

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

ONGOING.

A DEPOSITION WAS TAKEN OF MR. FREDERICK AND OTHERS? MR. TERCERO: THERE HAS BEEN A FACTUAL FINDING

INQUIRY.

WE DO NOT HAVE SUBPOENA AUTHORITY, WHICH REQUIRES

COMMISSION APPROVAL. WE DID ASK MR. FREDERICK TO COME IN VOLUNTARILY, AND HE DID. WE APPRECIATE THAT HE HELPED US DEVELOP THE FACTS BY

COMING IN. WE HAVE ASKED FOR INFORMATION; HE HAS PROVIDED IT. LIKE I SAID, UNFORTUNATELY, IT IS NOT MATCHING UP, BUT GIVING HIM FULL CREDIT, STILL GOT A PROBLEM, STILL GOT A SHORTFALL. SO, YES, THERE HAS BEEN. THE COURT: WHAT WOULD BE THE HARM IN SETTING THE

MATTER FOR AN OSC RE PRELIMINARY INJUNCTION AND APPOINTING A RECEIVER AND THE ATTENDANT RELIEF THAT IS REQUESTED, ASSUMING A RELATIVELY QUICK HEARING IS SET? MR. TERCERO: WE WANT TO MAKE SURE THAT THERE IS, IN

FACT, NO ASSET DISSIPATION. AND, LIKE I SAID, THERE IS A HARM, POSSIBLY, TO TRADERS IF THEY CONTINUE TO LOSE MONEY, OR SOME OF THEM CONTINUE TO LOSE MONEY. ARE FOOTING THE BILL. LARGER BILL. THEN THERE IS ANOTHER HARM: MARKETS. ON. IT IS A HARM TO THE THOSE WITH MONEY, AT THIS POINT, THEY

I DON'T WANT THEM TO FOOT AN EVEN

THERE IS A FAR MORE RISKY TYPE OF DAY TRADING GOING

MARKETS SHOULD NOT BE SUBJECT TO THAT.

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

Document 50-7

Filed 08/08/2008

20 Page 20 of 35

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

AND BECAUSE CAPITAL MARKET INTEGRITY -- ALL OF THE INVESTORS THERE, EVERY INVESTOR -- IS PART OF WHAT WE DO, WE ARE ASKING THAT ALL OF THE INVESTORS BE PROTECTED. WE DEFINITELY WANT TO MAKE SURE THAT THERE IS NO ASSET DISSIPATION. WE DEFINITELY WANT TO MAKE SURE THAT THE

MARKETS ARE MAINTAINED. THE COURT: ASSET DISSIPATION? MR. TERCERO: IN TERMS OF ASSET DISSIPATION, WHAT WE UP UNTIL THIS MORNING, WE HAVE SOME NEW DO YOU HAVE ANY EVIDENCE WITH RESPECT TO

HAVE IS THAT THERE IS THIS SHORTFALL.

WE HAD NO DOUBT THAT IT WAS $1.3 MILLION.

NUMBERS THAT, ASSUMING THEY ARE TRUE -- AND WE ARE NOT CONCEDING THAT, BUT JUST FOR PURPOSES OF ARGUMENT, WE HAVE AT LEAST $550,000 SHORT. ESSENTIALLY, THE ASSETS HAVE BEEN DISSIPATED SINCE THE TIME IN THE BEGINNING OF TUCO'S OPERATIONS. OF THE ASSET DISSIPATION. THE COURT: BEGINNING OF TUCO? MR. TERCERO: TUCO STARTED IN NOVEMBER OF 2006. SO HOW MUCH TIME HAS THAT BEEN, SINCE THE THAT IS PROOF

WE ARE TALKING ABOUT, AT SOME POINT IN TIME -- AGAIN, WE DON'T HAVE ALL OF THE RECORDS, BUT WHAT WE DO HAVE SHOWS A SHORTFALL THAT HAS BEEN GOING ON. THE COURT: SO THAT IS ABOUT A YEAR AND FOUR MONTHS. ABOUT A YEAR AND FOUR MONTHS. WE

MR. TERCERO:

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

Document 50-7

Filed 08/08/2008

21 Page 21 of 35

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

DON'T KNOW PRECISELY YET. THE COURT: THERE IS A CONCERN THAT 5 TO 600,000

SHORTFALL HAS OCCURRED OVER THAT PERIOD OF TIME? MR. TERCERO: TODAY 1.35. JUST FOR PURPOSES OF ARGUMENT AND GIVING THEM FULL CREDIT, THERE IS AT LEAST HALF A MILLION THAT IS THERE -- THAT IS MISSING. BUT OUR POSITION IS STILL 1.3, BARRING AN WE ARE ACTUALLY CONCERNED THAT AS OF

OPPORTUNITY TO DO, YOU KNOW, MORE WORK. SO WE AGREE WITH DEFENSE COUNSEL THAT A STANDSTILL IS APPROPRIATE AT THIS POINT, TO FREEZE ALL THAT IS THERE. AND TO MAKE SURE THAT THEY ARE NO LONGER OPERATING THIS BROKERAGE FIRM THAT ALLOWS FOR THIS RISKY TRADING THAT IS SUBJECT TO HURTING BOTH TRADERS IN TUCO AND THE MARKETS. THE COURT: YOU MENTIONED A POTENTIAL HARM TO THE

MARKET, POTENTIAL HARM TO INVESTORS, AND A POTENTIAL DISSIPATION OF 500 TO 1.3 MILLION IN ASSETS. THE REQUESTED RELIEF, THOUGH, WOULD EFFECTIVELY SHUT DOWN TUCO, WOULD IT NOT? MR. TERCERO: WELL, IT WOULD PUT IT INTO THE HANDS

OF THE RECEIVER THAT WE REQUESTED THE COURT APPOINT. THE COURT: BUT EVEN WITH A RECEIVER, HOW COULD

THE -- WOULDN'T IT EFFECTIVELY SHUT DOWN THE BUSINESS? MR. TERCERO: IT WOULD EFFECTIVELY SHUT DOWN THE

SOLICITATION OF NEW INVESTORS.

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

Document 50-7

Filed 08/08/2008

22 Page 22 of 35

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

IT WOULD SHUT DOWN THE DEPOSIT OF ADDITIONAL FUNDS, WHICH WE THINK IS A VERY GOOD IDEA GIVEN THAT THERE HAS BEEN ASSET DISSIPATION. TYPICALLY IN THESE SITUATIONS WHERE WE HAVE GOT AN ACCOUNT THAT HAS SECURITIES POSITIONS AND PEOPLE HAVE, IN FACT, BEEN TRADING WHAT WE TYPICALLY ASK FOR IS THAT THE RECEIVER BE PUT IN CHARGE OF THE ACCOUNT, BECAUSE IT IS PART OF THE RECEIVERSHIP ESTATE. ONE THING THAT MIGHT MAKE SENSE -- AND WE HAVE CERTAINLY DONE IT BEFORE -- IS TO ALLOW THE RECEIVER, IN HIS CAPACITY, TO CLOSE OUT ALL OF THE POSITIONS SO THAT ALL OF THE MONEY IS MAINTAINED. ANOTHER OPTION IS TO ALLOW FOR TRADING TO CONTINUE, BUT FOR NO ASSETS TO LEAVE. I MUST STATE, IN FAIRNESS TO THE COURT -- SO THAT THE COURT KNOWS ALL -- THERE IS NO PROTECTION RIGHT NOW WITH REGARD TO TUCO'S ACCOUNTS AT WEDBUSH, NOR THE COMMODITIES ACCOUNTS. WE ARE NOT COMMODITIES, WE ARE SECURITIES. WE DID ASK YESTERDAY THAT PENSON, THE CLEARING FIRM FOR ALL OF THE OTHER ACCOUNTS -- SO THAT IS THIS GLB TRADING WHERE MOST OF IT HAPPENS, VIEWTRADE AND EVOLUTION -- WE ASK THAT THEY PUT A HOLD ON IT VOLUNTARILY. WE CANNOT FORCE THEM TO DO THAT, WE DON'T HAVE THE STATUTORY AUTHORITY. HOLD. WE ASKED THEM TO PUT ON A VOLUNTARY

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

Document 50-7

Filed 08/08/2008

23 Page 23 of 35

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 MOMENT.

TRADING IS STILL GOING ON.

THEY WON'T STOP TRADING.

BUT IN TERMS OF THE ASSETS LEAVING THE ACCOUNT -- WHETHER MONEY OR SECURITIES -- IT IS NOT LEAVING. AND, IN FAIRNESS TO THE COURT, I WANT TO MAKE SURE THAT THE COURT KNOWS THAT. UNFORTUNATELY, IT IS NOT A PART OF

OUR PAPERS, JUST GIVEN THE TIMING OF WHEN THAT OCCURRED. HOWEVER, IT IS VOLUNTARY. WE HAVE NO POWER OVER

PENSON, AND IT SOUNDS LIKE PENSON IS WORKING WITH TUCO TO TRY TO RESOLVE STUFF. WE DON'T WANT THEM TO SAY, WELL, IT IS ALL

RESOLVED, SO LET'S LET IT CONTINUE ONWARDS. FOR THOSE REASONS, AN ASSET FREEZE AND A RECEIVERSHIP IS, IN FACT, IMPORTANT. AND WE HAVE A

SUBSTANTIAL SHOWING HERE TO MAKE SURE THAT, YOU KNOW, THE TUCO TRADERS AND THE MARKETS ARE, IN FACT, PROTECTED. THE COURT: THANK YOU. THANK YOU, VERY MUCH.

MR. TERCERO: THE COURT:

DOES ANYONE ELSE HAVE ANY -- MR. OSIAS

OR ANYONE ELSE, ANY ADDITIONAL COMMENTS? MR. SEARLES: YOUR HONOR, DO YOU WISH TO BE HEARD

REGARDING THE SCOPE OF THE ORDER? THE COURT: I WOULD LIKE TO DEFER ON THAT FOR JUST A

MR. SEARLES: MR. OSIAS: JUST GOING TO SAY.

THAT IS FINE.

THANK YOU, YOUR HONOR.

MAYBE THAT IS REDUNDANT WITH WHAT I WAS

THAT IS, CERTAINLY THE MECHANICS OF THE

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

Document 50-7

Filed 08/08/2008

24 Page 24 of 35

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

RECEIVERSHIP, THE TIME OF REPORTING, ALL OF THAT IS DEPENDENT ON WHAT YOUR HONOR RULES TODAY. THE RECEIVER -- SO, THE RECEIVER IS HERE, AND THE RECEIVER HAS CONTACTED APPROPRIATE PROFESSIONALS IN CASE YOUR HONOR WANTED SOMETHING LIKE A REPORT WITHIN 10 DAYS -- OR POSSIBLY EVEN QUICKER -- IN ORDER TO DEAL WITH THE PERIOD. SO HE HAS ARRANGED FOR BOTH A COMPUTER FORENSICS PERSON TO LOOK AT THE COMPUTER SYSTEM, MAKE SURE IT IS SECURE. AN ACCOUNTANT WHO WE HAVE ASKED, EVEN IN THE HALLWAY, YOU KNOW, CONDITIONED ON, OF COURSE, AN APPOINTMENT ORDER, IF WE COULD GET A DAILY BALANCE TODAY. THE ANSWER WAS

YES, YOU KNOW, ASSUMING WE GET OUT OF HERE AT A REASONABLE TIME. SO THE RECEIVER IS READY. THERE ARE MECHANICAL THINGS I WOULD WANT TO ADDRESS WITH THE COURT ABOUT THE RECEIVER AND THE CIRCUMSTANCE. I

THINK IT MIGHT BE PREMATURE UNTIL YOUR HONOR INDICATES WHETHER THAT WILL HAPPEN SOON. THE COURT: THE REQUESTED RELIEF, TAKING THE EX

PARTE APPLICATION, IF THE COURT WERE TO GRANT IT AND APPOINT THE RECEIVER, WOULDN'T IT, AS REQUESTED, EFFECTIVELY SHUT DOWN TUCO? MR. OSIAS: OF THAT WORD, YES. I THINK, YOUR HONOR, IN A COMMON SENSE

THE RECEIVER WOULD -- WOULD SHUT DOWN THE

COMPUTER SYSTEM TO HAVE IT ANALYZED, WHICH WOULD PREVENT

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

Document 50-7

Filed 08/08/2008

25 Page 25 of 35

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

TRADING THROUGH THAT ACCOUNT.

AND HE WOULD BE IN CONTROL OF

TUCO ACTIVITY WITH THE GLB AND WOULD NOT MAKE NEW TRADES. NOW, THERE IS TAILORING POSSIBLE. THE RECEIVER HAS

BEEN AWARE OF THIS CASE FOR 24 HOURS, ROUGHLY, AND IS NOT IN A POSITION TO KNOW NEARLY ENOUGH TO CREATE A PRECISION REMEDY THAT FITS THE FACTS. WHEN WE HAVE TALKED WITH BOTH THE S.E.C. AND THE OTHER SIDE IN THE HALLWAY FOR A FEW MINUTES ABOUT CLOSING OUT TRADES AND OTHER MECHANISMS THAT WOULD BOTH ACCOMPLISH THE PURPOSE THAT WE UNDERSTAND -- WHICH IS PROTECT ASSETS FROM BEING DISSIPATED, PROTECT FURTHER LOSSES, PROTECT MONEY FROM GOING ANYWHERE UNTIL A REAL THOROUGH ACCOUNTING. ON THE OTHER HAND, IF THERE IS SOMETHING THAT CAN BE TWEAKED TO PROTECT SOMEONE WHO IS LOCKED INTO A POSITION IN THE MARKET -- WHICH IS A VOLATILE POSITION, ESPECIALLY TODAY -- AND THE RECEIVER IS NOT GOING TO BE A TRADER AND NOT GOING TO MAKE TRADING DECISIONS, THEN WE WOULD TRY TO PROMPTLY FIGURE THAT OUT AND SUBMIT A STIPULATED ORDER TO MODIFY, AS APPROPRIATE, ANYTHING THAT IS IN THE PROPOSAL. I DON'T HAVE ANYTHING SPECIFIC YET TO SUGGEST ON THAT FRONT, OTHER THAN WE HAVE THE PROFESSIONALS ORGANIZED IF YOU WANTED THAT TO BE DONE THIS AFTERNOON OR TOMORROW. AND SO THERE ARE OTHER MECHANICS ABOUT REPORTS AND DEPOSITS. THE LOCAL RULE IS -- MAYBE LOOK AT IT -- 66.1, IF I

RECALL, IT HAS VARIOUS THINGS THAT WE WOULD LIKE TO CLARIFY TO

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

Document 50-7

Filed 08/08/2008

26 Page 26 of 35

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

MAKE SURE THERE IS NO MISCOMMUNICATION ABOUT HOW THE RECEIVER PERFORMS, IF IT COMES TO THAT. THE COURT: MS. FRON: OF MY CHAIR. I WOULD LIKE TO ADDRESS SOME OF THE SUBSTANTIVE ISSUES THAT MR. TERCERO RAISED WITH THE COURT. WITH RESPECT TO BEING A BROKER/DEALER, HE INDICATED THAT TUCO WAS SOLICITING TRANSACTIONS. ANY TRANSACTIONS. TUCO DOES NOT SOLICIT THANK YOU. THANK YOU. YOU COULD SEE ME JUMPING OUT

TUCO MAKES NO RECOMMENDATIONS TO INVESTORS.

TUCO SIMPLY ALLOWS THE INVESTORS THE PLATFORM FOR THEM TO PERFORM THEIR OWN PERSONAL INVESTMENT DECISIONS AND TO ENTER THE BUY-AND-SELL ORDERS. AS A BROKER/DEALER. WE ARE ALSO NOT ACTING AS A BROKER/DEALER WITH RESPECT TO THE ISSUES THAT HE MENTIONED ABOUT THE BUYING POWER AND THE CONCERNS ABOUT THE EXTENSIONS OF CREDIT. TUCO IS A LIMITED LIABILITY COMPANY WHO HAS AN ACCOUNT AT GLB TRADING. TUCO, AS AN ENTIRE ENTITY, COMPLIES IT IS NEVER OUT OF SYNC IN THAT RESPECT, WE ARE NOT ACTING

WITH ALL OF THE MARGIN REQUIREMENTS.

WITH RESPECT TO THE SECURITIES LAWS FOR EXTENSION OF CREDIT BY GLB TO TUCO. IT IS ALWAYS IN COMPLIANCE.

I THINK THEY HAD TWO HOUSE CALLS IN THEIR ENTIRE EXISTENCE, AND THEY MET THEM IMMEDIATELY. SO THE EXTENSION OF

CREDITS ARE ALWAYS IN COMPLIANCE WITH THE BROKER/DEALER THAT

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

Document 50-7

Filed 08/08/2008

27 Page 27 of 35

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

HAS THIS ACCOUNT. THERE WAS MENTION THAT THERE IS SOME SORT OF RISKY DAY TRADING GOING ON THAT IS AFFECTING THE MARKETS. THAT IS NOT IN THE PAPERS. IT HAS NOT BEEN

ESTABLISHED IN ANY WAY, SHAPE OR FORM THAT WHAT THE TUCO MEMBERS ARE DOING IS SOMEHOW AFFECTING THE MARKETPLACE IN A NEGATIVE WAY. THERE ARE THOUSANDS, IF NOT MILLIONS, OF DAY TRADERS IN THE MARKETPLACE TODAY. THIS IS JUST A PLATFORM TO ALLOW

THOSE INDIVIDUALS TO DO THE TRADING. SO THE ISSUES, WITH RESPECT TO BEING ADDITIONALLY RISKY DAY TRADING STRATEGIES OR THINGS OF THAT NATURE, IS SIMPLY A RED HERRING. TUCO HAS MEMBERS WHO CHOOSE TO BE MEMBERS OF TUCO, AND CHOSE TO TRADE IN THE MARKETPLACE AS THEY SEE FIT. SIMILAR TO A PARTNERSHIP. IF IT WAS A PARTNERSHIP ACCOUNT, THEY WOULDN'T BE LOOKING AT THE INDIVIDUAL PARTNERS AND HOW THEY ARE ALLOWED TO BE MEMBERS OF THE PARTNERSHIP, THEY LOOK AT THE PARTNERSHIP AS A WHOLE. THAT IS HOW ALL BROKERAGE FIRMS LOOK AT PARTNERSHIP IT IS

ACCOUNTS OR LIMITED LIABILITY ACCOUNTS, AND THIS ACCOUNT SHOULD BE NO DIFFERENT. WITH RESPECT TO THE WORDS THAT ARE USED, THAT THERE IS A SHORTFALL OF A HALF A MILLION DOLLARS. SHORTFALL. THERE IS NO

THE ISSUE IS CHECKS AND BALANCES WITH RESPECT TO

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

Document 50-7

Filed 08/08/2008

28 Page 28 of 35

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

MONEY FLOW. PENSON, THE CLEARING FIRM, OWES TUCO SOMEWHERE IN THE NEIGHBORHOOD OF $2 MILLION. THEY ARE SLOW ON THEIR PAY.

TUCO WANTS TO MAKE CERTAIN THAT THEY ARE NOT SLOW ON THEIR PAY FOR THEIR VENDORS: FOR THE SOFTWARE THAT THEY

UTILIZE FOR THEIR INVESTORS TO BE ABLE TO MAKE THEIR TRANSACTIONS, OR FOR THE KEEPING THE LIGHTS ON OR KEEPING THE RENT PAID. SO, FOR THAT REASON, KNOWING THAT PENSON IS GOING TO BE SENDING THAT MONEY TO THEM, TUCO IS PAYING THE BILLS THAT NEED TO BE PAID. NO INVESTOR'S MONEY IS AT RISK FOR SOME SORT

OF A RUN ON THE BANK OR SOME SORT OF A SHORTFALL OF THE INVESTMENTS. SO WE WANT TO MAKE CERTAIN THAT THE COURT IS COMFORTABLE WITH THE SITUATION THAT THAT WON'T HAPPEN. WITH RESPECT TO AN INJUNCTION BEING ISSUED TODAY, BASED UPON IV IN THEIR PROPOSED TRO, IT ABSOLUTELY, AS IT STATES HERE, WOULD REQUIRE ALL TRADERS TO CEASE COMPLETELY ALL OF THEIR ACTIVITIES. IF I SUGGESTED A STANDSTILL THEN I MISSPOKE, BECAUSE I THINK WE NEED TO KEEP BUSINESS AS IT IS GOING NOW, AND TO NOT HALT THESE TRADERS FROM BEING ALLOWED TO DO WHAT THEY HAVE BEEN DOING, SUCCESSFULLY OR UNSUCCESSFULLY, DEPENDING UPON HOW THEY ARE MAKING THEIR OWN INVESTMENT DECISIONS, AND NOT SHUT DOWN TUCO BY THE END OF BUSINESS TODAY OR TOMORROW.

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

Document 50-7

Filed 08/08/2008

29 Page 29 of 35

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 WAY.

IT IS JUST GOING TO BE A DEVASTATING SITUATION FOR THE PEOPLE WHO HAVE CHOSEN TO BE MEMBERS OF A LIMITED LIABILITY COMPANY. AND THERE IS ABSOLUTELY NO ILLEGAL CONDUCT

WITH RESPECT TO BEING A MEMBER OF A LIMITED LIABILITY COMPANY. FOR THAT REASON, WE WOULD ASK THAT WE BE ALLOWED TO PROCEED AND MOVE FORWARD WITH OUR BUSINESS. MR. FREDERICK HAS COOPERATED AT EVERY STEP OF THE AND, QUITE FRANKLY, HAD ABSOLUTELY NO IDEA OF THE

CHALLENGES -- OR THE ALLEGATIONS THAT WERE GOING TO BE BROUGHT AGAINST HIM UNTIL WE RECEIVED THE PAPERS LATE YESTERDAY AFTERNOON. IF WE NEED TO CHANGE THE BANK ACCOUNT SYSTEM OR SOMETHING ALONG THESE LINES, WE ARE HAPPY TO DO THAT. BUT WE

URGE THE COURT TO LOOK AT THE ENTIRETY OF WHAT IS GOING ON HERE AND TO DENY THE S.E.C.'S REQUEST. THANK YOU. THE COURT: WHAT I WOULD LIKE TO DO -- I JUST

RECEIVED THE PAPERWORK, MAYBE ABOUT 10:30 TODAY, AND I HAVE BEEN IN TRIAL. AS I INDICATED, I HAVE READ THE POINTS AND I HAVE NOT READ THE

AUTHORITIES AND THE COMPLAINT.

DECLARATIONS OR THE UNDERLYING EVIDENCE YET. AND I HAD HEARD THAT EVERYONE WAS HERE, AND SOME ARE FROM LOS ANGELES. SO I ELECTED, RATHER THAN BRING YOU HERE AND I AM

TOMORROW, TO PROCEED TODAY DURING THE LUNCH HOUR. GLAD THAT WE WERE ABLE TO DO THAT.

THIS DISCUSSION HAS BEEN

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

Document 50-7

Filed 08/08/2008

30 Page 30 of 35

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

HELPFUL TO ME. WHAT I WOULD LIKE TO DO, GIVEN THE NATURE OF THE REQUEST -- WHICH IS DRAMATIC -- IS TO REVIEW, IN MORE DETAIL, THE BRIEFING, AND IN PARTICULAR THE EVIDENCE THAT WAS SUBMITTED IN LIGHT OF THE ARGUMENT THAT HAS BEEN PRESENTED ON BEHALF OF TUCO AND MR. FREDERICK, TAKE THE MATTER UNDER SUBMISSION AND ISSUE AN ORDER IN SHORT ORDER. IT MAY BE, UPON EVALUATION OF THE EVIDENCE, THAT THE REQUESTED RELIEF WILL BE GRANTED; IT MAY BE THAT THE DEFENDANT'S REQUEST FOR AN OSC AND NOTICED HEARING WOULD BE GRANTED. BUT I WOULD LIKE TO CONTEMPLATE THE ISSUES FURTHER. IF THE COURT ELECTS TO SET AN OSC WITH FURTHER BRIEFING, THEN I WILL ISSUE AN ORDER TO THAT EFFECT SETTING A HEARING DATE AND A BRIEFING SCHEDULE. WITH THAT, ARE THERE ANY FINAL COMMENTS BEFORE WE PART? MR. TERCERO: THE COURT: JUST A COUPLE, YOUR HONOR.

YES. YOUR HONOR, WE ARE NOT SAYING THAT DAY IT IS A RISKIER STEP.

MR. TERCERO: TRADING IS BAD.

IT IS WHAT IT IS.

BUT, CONTRARY TO COUNSEL'S STATEMENTS THAT WE DON'T POINT OUT THE MARKET ISSUE AND THAT IT IS A PROBLEM FOR THE MARKETS, WE WOULD REFER YOU TO PAGES 15 AT THE BOTTOM, LINE 26, AND THEN 16 ON 3. JUST TO BRIEFLY READ: THE $25,000 MINIMUM EQUITY

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

Document 50-7

Filed 08/08/2008

31 Page 31 of 35

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

AND 4-TO1 MARGIN REQUIREMENTS ARE DESIGNED, AMONG OTHER THINGS, TO, QUOTE, ENSURE THE OVERALL FINANCIAL WELL BEING OF THE SECURITIES MARKETS FROM THE RISK RESULTING FROM INTRA-DAY CREDIT EXTENDED TO DAY TRADERS. THERE IT IS, THE MARKET ISSUE. WITH REGARD TO BUYING POWER. TUCO COMPLIES WITH THE

4-IN-1 MARGIN REQUIREMENTS, BUT ALLOWS ITS PEOPLE -- ITS TRADERS NOT TO. NO REGISTERED BROKER/DEALER CAN DO THAT, THEY HAVE TO FOLLOW THE RULES. THE NATIONAL ASSOCIATION OF SECURITIES

DEALERS, THE NASD, AND THE NEW YORK STOCK EXCHANGE HAVE TO FOLLOW THEM. IF THEY WERE REGISTERED THEY WOULD HAVE TO DO THAT. THEY WOULD HAVE TO MAKE SURE THAT THEIR FOLKS COMPLIED. THEY ARE NOT REGISTERED. SO IT IS IMPORTANT. WITH REGARD TO SOLICITATION. SOLICITATION IS NOT IT IS ALSO BUT

JUST A SPECIFIC TRANSACTION, BUY THIS STOCK.

SOLICITING TRADING OR SECURITIES TRANSACTIONS. AND THEY ARE SAYING, COME TO US. ACCOUNT. YOU CAN TRADE. OPEN UP AN

WE WILL PROVIDE YOU THE SOFTWARE, WE

WILL CHARGE COMMISSIONS. IT IS A BROKERAGE FIRM. SLOW ON PAYING. IT IS A BROKERAGE FIRM.

THAT'S NOT THE ENTIRE PROBLEM.

UNDER THE AGREEMENT -- I WOULD REFER THE COURT TO THE

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

Document 50-7

Filed 08/08/2008

32 Page 32 of 35

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

OPERATING AGREEMENT WHICH IS WITHIN MY DECLARATION, EXHIBIT 5. IT STARTS AT PAGE 123. I ENCOURAGE THE COURT TO LOOK AT ARTICLE V IN SECTIONS 501, 502, 503 AND YOU WILL SEE, TUCO IS NOT SUPPOSED TO BORROW ANY MONEY FROM THE INVESTORS IN THE SENSE OF, IF THERE IS A LOSS THAT GOES BEYOND -- IF I AM A TUCO CUSTOMER, TUCO TRADER, AND I LOSE ALL OF MY MONEY, MAYBE I DIDN'T LOSE SOME MORE BECAUSE THE MARKET REALLY GOT AWAY AND THERE WAS A LOSS THAT WENT BELOW ZERO, THAT IS TUCO'S RESPONSIBILITY. INDEED, THE AGREEMENT SAYS MR. FREDERICK, AS THE CLASS A MEMBER. UNFORTUNATELY, IN OUR DISCUSSION OF THIS SHORTFALL, WHAT WE ARE NOT SEEING IS, HOW DO YOU MAKE IT UP? HE OWES THAT MONEY TO THE TRADERS, OR HE IS -- HE IS RESPONSIBLE FOR MAKING UP THAT MONEY. $1.35 MILLION. NUMBER. HE HASN'T DONE IT. EVEN TO THIS LAST MONTH. HE HE NEEDS TO PUT IN

HE NEEDS TO PUT IN $550,000, IF YOU TAKE THAT

DIDN'T DO IT THE MONTH BEFORE.

THE MOST RECENT INFORMATION WE

HAVE GOT IS THAT THIS NEGATIVE EQUITY, YOU KNOW, THE NEGATIVE NUMBERS, THE NEGATIVE POSITIONS, HE HASN'T PUT IN THE MONEY; AND THAT IS THE CONTINUING PROBLEM. HE REPRESENTS THAT IT IS HIS DEBT. RIGHT NOW IT IS

THE TUCO TRADERS' DEBT; AND THEY DON'T KNOW THAT. IF THEY DID, IF HE DID NOT AND IF TUCO DID NOT FAIL

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

Document 50-7

Filed 08/08/2008

33 Page 33 of 35

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 DISCLOSE THIS MATERIAL INFORMATION, THERE IS AN ISSUE AS TO WHETHER IT IS MATERIAL, BECAUSE IT AFFECTS THEIR DECISIONS. GEE, SHOULD I TRADE THROUGH TUCO? SHORTFALL -- WE SAY 12 PERCENT. TRADE THAT DAY? IN REALITY, THERE IS LESS MONEY. THEN THE OTHER QUESTION IS, SHOULD I DAY TRADE THROUGH TUCO? IT IS AWFUL EXPENSIVE TO DAY TRADE THROUGH TUCO IF YOU LOSE 12 TO 35 PERCENT OF YOUR MONEY BECAUSE THEY DON'T REPLENISH THE NEGATIVE EQUITY NUMBERS. SO THIS IS VERY SIGNIFICANT IN THE SENSE THAT WE THINK THESE VIOLATIONS -- THESE VIOLATIONS ARE SIGNIFICANT. AND, FOR THOSE REASONS, WE WOULD SUBMIT OUR MOTION. YOUR HONOR, JUST SO THAT YOU KNOW, MR. SEARLES AND I ARE HERE, WE CHECKED IN LAST EVENING. IF WE NEED TO. YOUR LAW CLERK HAS BEEN VERY GRACIOUS, CERTAINLY HAS OUR CELL PHONE NUMBERS. US. THE COURT: OKAY. THANK YOU. ARE YOU COMING FROM LOS WE ARE AVAILABLE AS LONG AS YOU NEED WE CAN CERTAINLY STAY BECAUSE THERE IS THIS

SHOULD I TRADE, SHOULD I DAY

ARE YOU LOCAL, AS WELL? ANGELES? MS. FRON: WAY DOWN HERE.

I CAME FROM LOS ANGELES, BUT I KNOW MY

SO I AM HAPPY TO COME WHENEVER THE COURT WOULD

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

Document 50-7

Filed 08/08/2008

34 Page 34 of 35

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

LIKE. MS. MORALES IS LOCAL, AS IS MR. FREDERICK. THE COURT: MR. OSIAS: YES. THANK YOU.

YOUR HONOR, DAVID OSIAS AGAIN.

JUST IN THE EVENT THAT YOU ISSUE AN ORDER OF APPOINTMENT, THAT LEAVES FOR ANOTHER DAY SOME IMPORTANT BUT MORE MUNDANE OPERATION UNDER RECEIVERSHIP. AND EITHER YOUR HONOR COULD SPECIFY A DATE WHERE WE COULD ADDRESS THOSE -- I KNOW YOU ARE IN THE MIDDLE OF TRAIL -- OR WE COULD SUBMIT AND SERVE PROMPTLY WHAT WE CALL AN ORDER IN AID OF RECEIVERSHIP, SORT OF SAYING THIS IS WHERE WE INTEND TO DEPOSIT FUNDS, THIS IS WHEN WE INTEND TO REPORT. THERE IS A WHOLE VARIETY OF THINGS. THEN, IF THERE IS OBJECTIONS, THEN WE COULD HAVE A HEARING. BUT, IF WE GET APPOINTED, WE NEED TO KNOW ALL OF THE RULES AS PROMPTLY AS POSSIBLE AND, EITHER THROUGH A DIALOGUE OR SUBMITTALS, HAVE THAT RESOLVED QUICKLY. IF YOU KEEP THAT IN MIND, SINCE YOU WILL BE TAKING THIS UNDER SUBMISSION, WE WOULD APPRECIATE THAT. THE COURT: I WILL. I APPRECIATE YOU ALL BEING

THANK YOU VERY MUCH. HERE.

I WILL TAKE IT UNDER SUBMISSION.

AND IF THERE IS A

NEED FOR FURTHER HEARING OR DISCUSSION I WILL LET COUNSEL AND

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

Document 50-7

Filed 08/08/2008

35 Page 35 of 35

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

PARTIES KNOW PROMPTLY. AN ORDER QUICKLY. MS. FRON: THE COURT:

OTHERWISE, I WILL ANTICIPATE ISSUING

THANK YOU FOR YOUR TIME. THANK YOU. THANK YOU VERY MUCH.

MR. TERCERO: THE COURT:

YOU ARE WELCOME.

*

*

*

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