Free MEMORANDUM in Support - District Court of Delaware - Delaware

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Case 1:05-cv-00072-JJF

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In re;


Chapter 7
Case No. 02·11620-JBR



Adversary Proceeding
Plaintiff : No.





Charles Stanziale, ChapterTrustee A. Jr., 7 i'Trustee") Student of Finance Corporation
("SFC" "Debtor"), andthrough undersigned or by his counsel, bringsthisComplaint underIl U.S.C.~ 544on behalfofallcreditors theEstateandhereby to represents support this in of
Complaint as follows: Introduction


Thisis anactionforaiding abetting and fi·aud, fraud,~audulent concealment,

aiding betting and breach fiduciary andnegligent of duty misrepresentation, bythe brought
Trusteeon behalfof all creditorsto SFCagainstDefendantsMcGladrey Pullen,I_ILP, & and

McGladrey &'ullenaccountant Michael Aquino ("Aquino") (collectively "McGladrey'% for
McCladrey's knowing issuance a materially andmisleading of false Independent Auditor's


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Report Consolidated on Financial Statements of andfortheyearendedDecember 2000; as 31,
("AuditReport'?and an Independent Accountant~s Reportson Agreed-Upon Procedures dated February21, 2001 ("Accountant's Reports")(co!lectively "Reports").The Reportslegitimized
SI;C's f~nancesand financial practices through material misrepresentations and omissions that hid ~from creditors the one fmancial statistic creditors cared about -- and McGladrey ~new they
cared about -- above all others: the catastrophic level of actual student loan defaults and the

secret loan payments SFC made, with McCiladrey'sknowledge, to disguise the true level ofloan defaults in the loan pools SFC serviced and sold.
2. SFC was a Ponzi-Iike scheme masquerading as a student loan business. SFC was

represented to its creditors as a business that:allegedly consisted of originating or purchasing sub-prime tuition loans made to students enrolled at t~ck-driving schools. SFC pooled the loans, securitized them and sold them to investment trusts. SFC also "serviced" the loan pools, accumulating student payments and submitting those payments to the investors who purchased
the loan pools. Because these were securitized, sub-prime loans, the level of the defaults in the

loan pools was a key factor in evaluating SFC's financial health for any creditor or investor. SFC promoted the alleged fact that its default rates did not exceed 20% and used this statistic to lure


In fact, however,

SPC's business was a Ponzi-like


SFC abused its role as

"toan servicer" by making payments on behalf of defaulting students which disguised the true default rate in the loan pools and allowed SFC to continue as an ongoing enterprise. The money

SFC usedto maskthe studentdefaultswas acquiredin classicPonzifashion: SFCused proceeds
from its borrowings and sales to later investors to make'"payments" on what would otherwise be

defaultingstudentloanspurchasedby priorinvestors. Thesepaymentson behalfof default~lg



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students ("Ponzi payments") - what SFC and McGladrey misleadingly dubbed "forbearance" payments -- were the vehicle by which SFC moved funds acquired ~from sales to later investors to

pay earlierinvestors. The Ponzi paymentsallowedSFCto showlower,creditor-friendly, default rates in the loan poofs. Lowerdefaultrates also allowedSFCto bringin morelendersand investors. More investorsmeantmore moneyto pay earlierlendersand investors. Moremoney also meantmore funds fromwhichthe officersand directorscouldpay themselves. 4. Essentialto ST~C's officersand directors'Ponzi-plan that SFChave was

legitimate-seeming financialreportsand that thosereportshidethe core ofSFC's fraud. These
reports were the bait SFC used to lure unsuspecting creditors and investors to the scheme. For those reports, SFC turned to McGladrey, a firm that promises "reliable, actionable financial

informationn "auditexcellence including and ... systems ensure to consistency, objectivity and accountability, resulting strictcompliance professional in with standards". McGladrey accountant Aquino aware thePonzipayments earlyas 1998 knewthatmalu'ng was of as and the

Potlzi payments "distorts delinquency de~i~i~i of~i~e pool]." wholly the and ratios jloan That
accurate assessment thePonzipayments of nevermadeit intoMcGladreyt AuditReport on

SFC's fmancial statements-a report falsely that stated ~7nancial "the statements present ...
fairly,in all material respects, consolidated the financial position CofSFC] in accordance ... withgenerally accepted accounting principles". A at 3.) Lnstead, financial (Ex. the statements'

"credit reserve" amount a proxy theanticipated -for amount loan of defaults anyone to reading
the financial statements didnotreflectSFC'sPonzipayments. distorting -The effectof the

Ponzi payments thecredit on reserve number notmentioned is anywhere NlcGladrey's in Audit
Report in the financial or statements, despite McGladrey's knowledge thecredit that reserve was


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materialitemin the audit and that the numberreportedin the financialstatementswas false and


WhileMcGladrey not challengethe creditreservefigure for failingto reflect did

thePonzi payments, McGladrey's ~eport Audit legitimized useoftheterms the "forbearancs" and"forbearance payments"various at points the~tinancial in statements. placement The and wording the"forbearance" of statements thefinancial in statements theproduct: heavy were of negotiation bet~reen RlcGladrey SFC, and reflecting entities' both awareness itsimportance. of

Yet, McGladreyendorsed use the both SFC's of misleading and meaningless nome~clature
("forbearance") thePonzi for payments allowed to avoidexplaining theterm and SFC what
"foTbearancen "forbearance or payment"meant. McGladrey's endorsement SFC's cryptic of
mention of "forbearance" and "forbearance payments" - a $9.5 million dollar figure in ~000 --

confirmsMcGladrey understood fraudulent the natureof this statement, Irnewthe importanceof

the Ponzipayments anycreditor, hada calculated to and desire claimat somefUture that to date
the Po~zipajr;r,e=ts were "cisc!osed".Mc~adre~s iipproval the use of "forbearance" the of in financiafstatements reflectsMcGtadrey's awareness the materiality the Ponzipaymentsand of of is evidenceofh/lcGladrey's necessaryassistancein SFC'seffortsto obfuscatedetectionofthe Ponzi paymentsby anyonereviewingthe financialstatements.
6. Investors and creditors doing business with SFC were deceived by the apparent

health of the companyas represented McGladrey's by falseReportsand continuedto invest in
SFC student loans and transact business with SFC as if it were a legitimate business. In the

periodof timebetween whenMcGladrey issued falseandmisleading its Reports SFC's and
collapse,SFC'screditorsextendedhundredsof millionsofdoliars in creditto SFC. In certifling variousSFC~ financialreportsthat failedto reflectthe true impactof the Ponzipaymentswhile



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makinglegitimate-seeming, misleading, hut referencesto "forbearance",

McGladrey playeda Icnowing, calculated directrolein pe~petuating SIFC and the Ponzischeme andin assisting SFC'sofficer~s directors defraud and to SPC'screditors to deepen and SFC's
insolvencywhile delayingthe inevitablebankruptcyfiling.
Jurtsdiction and Venue


This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C.

~~ 157, 1331, and 1334,

g~ This anadversary is proceeding pursuant brought toseotion ortitle of 544(a) ii
the United States Code (the "Bankruptcy Code"), Federal Rule of Bankruptcy Procedure 7001 and other applicable state and local laws, on behalfoE, and for the benefit of, SFC's creditors. 9. Venue is proper in this District pursuant to 28 U.S.C. ~~ 1408 and 1409.

The Parties 10. Plaintiff, Charles A. Stanziale, Jr., is the duly-appointed Chapter 7 Trustee of

SFC, a Pennsylvania corporation with its principal place of business located at 170 Lukens
Drive, New Castle, Delaware 19720.


Defendant Pc~cGladrey an Iowa accounting firm headquartered in is

Bloomington, Rlinnesota


Defendant Aquino is, on information and belief, a Mana~ing Director and Partner

at RSM McGladrey, Inc., and on information and belief, is a resident ofthe State of Pennsylvania. 13. Qn June 5, 2002 C'Filin~ Date") an involuntary·bankruptcy petition was filed

against the Debtor. With the consent ofSFC, on November 4, 2002, the Banknrptcy Court
entered an order far relief under chapter i 1 ofBte Bankruptcy Code.



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On September 29, 2003, the Bankruptcy·Court appointed Mr. Stanziale as Chapter 11 Trustee for the Debtor. 15. On November 14, 2003 ("Conversion Date))),upon the expedited motion ofMr.

Stanziale, the Bankruptcy Court converted the matter to chapter 7. On November 20, 2003, Mr. Stanziale was appointed as the Chapter 7 Trustee ofSFC.
Factual Baclt~eround
A. SFC and Its Fraudulent Business


SFC held jtselfout to investors and creditors as being in the business of

originating and acquiring non-guaranteed student loans and tuition installtnent agreements ("Student Loans"), primarily from truck driving schools. 17. At the outset of its operations, SFC limited its activities to traditional lending

arrangements. It purchased bundles ofpTe-arranged Student Loans at a discount using funds
borrowed from either commercial banks or private investors.


As SFC expanded, its method of financing changed. With expansion. SFC

financed its operation through sacuritizar;ion. Securitization allowed SFC to clear its credit lines,
and thereby allowed the acquisition of additional Student Loans.


The securitization process began with SFC's acquisition of Student Loans at a

discount, using funds fiwn a warehouse line of credit provided to certain of SFC's affiliates.
SFC, through an affiliated entity, would pool the Student Loans. The warehouse lender would

obtain a security interest in the acquired Student Loans. 20. To complete the secwitization transaction, SFC would sell the pooled Student

Loansto an affiliatedspecialpurposeentity. The specialpurposeentitywouldtransferthe StudentLoansto a trust createdby the specialpurposeentity. To fUndthe specialpurpose



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purchase theStudent of LoansfromSFC,thetrustwouldselleitherfixed-income trust certi~icates ("Ceettffcates")floating-rate ("Notes~ investors. or notes to
21. Boththe Certificates Notes werebackedby the principaland interestreceived and

firom StudentLoansand representedan undividedinterestin the StudentLoanstransferredto the
the Trasts. The Certificates and Notes were sold to investors in private placement transactions

forwhichprivate placement memoranda issued.Theprivateplacement were memoranda purported provide to historical default rateson SFCstudent loansbut, generally, such
information was inaccurate.


Because the Student Loans had been sold to the special purpose entities and

subsequently transferredto the Trusts,paymentsby the borrowersunderlyingthe StudentLoans (the incomestream)were remittedby SFCto the Trusts. SFC also purchasedcreditrisk
insurance policies to insure the income stream from the borrowers in case of loan default.


Using proceeds the securitizations, Debtor the of the wouldpaytheoutstanding

amounts owed to the warehouse lenders for SFC's acquisition of the Student Loans. Thus,

through securitization, SFC replenished its warehouse line ofcredit.
24. SFC and an af~liated entity retained the loan senricing function even though it

had sold the loans. As servicer, SFC was to collect payments from borrowers and then submit

those paymentsto the purchasersof the loanpools. If a borrowerfailedto pay, i.e., defaulted,on
the loan, the purchaser would then collect on the insurance policies on the loans. All the

participants- exceptthe schoolsthemselves-- in the SFCprogramparticipatedon the
assumption that there would be a default rate of approximately 20% or less on the student loans. 25. In fact, students failed to repay their loans in numbers much higher than the

advertised 20% default rate. To ensure that the reported default rates remained below the



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anticipated level, 20% however, used SFC income itsborrowings sales investors ~om and to to
maka·chayments" would onwhat otherwise defaulting be student loans.SFCwaspaying on
loans that it had no interestin, or obligationto pay an, in order to maskthe level of defaults.

Internally, called payments defaulted "forbearance SFC these on loans payments". reality, In
theywerePonzipayments payments -madewithmoney by Ule investors SFC's paid later in scheme provide to false"retums" the earlier to investors SFC'sscheme.SFCmadethese in
paymentsto obscurethe true defaultrate in the loanpools.
26. SIFCalso had a secret arrangement with the trucking schools where the borrowers

were enjrolled tl~at the schools would make the initial payments on the SFC loans. Through this

mechanism,SFC"seasoned"the loans so they appearedto SFC's'creditors be performing. to
SF;C obscured the actual default rates in this way as well.

27. 28.

SFC intentionally did not disclose the Ponzi and seasoning payments. SFC did not disclose in the private placement memoranda issued in connection

with the eight secwitizations in other reportsdetailingthe paymentsprovidedto investorsand or
creditors that it and/or its affiliates were making payments to holders of student loans to disguise
the fact that certain Student Loans were in default.


Over time, the number of students failing to make timely payments on the Student

Loans began to rise. With the rise in default rates, the rate and amount ofPonzi payments
increased, and SFC used more and more fUnds From new bank loans and securitizations to make

Ponzi payments. Proceeds from new bank loans and securitizations were being used to make Ponzi payments rather than to fund SFC's obligations to creditors. 30. Using funds from new investors to pay earlier investors to make earlier student

loans appear to be performing is a classic Ponzi-type scheme. Like all Ponzi schemes, SFC



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not have survivedsince it was not capableof payingits ever-increasing debts exceptwith
new monies that would e~entually run out.


Eventually, was inevitable,SFC couldnot to pay its obligationsas they came as

due. As of May, 200i, SFCwas technicallyinsolvent-- it liabilitiesexceedits assets. By

September 2001,SFCwasunable fundits payments student agreements to for loan from trucking schools.Themonies would usedto fundthispurchase beenallocated that be had to making Ponzipayments. untilSFCwasableto securitize Not newerloanswasSFCableto fund
its past.purchases of Student Loans.


Despiteits inabilityto fund StudentLoans,SFC soughtto continueits practiceof

makingPorrzipayments. To this end,before it was finallyforcedinto bankruptcy.SFC obtained
a number ofmulti-million dollar loans to continue its fraudulent business.


The Ponzipaymentswere madewith the intentto hinder,delay, or tlefiaudSFC's


McGladtey, by providing the necessary assistance in maintaining the appearance

of SFC as a healthy, going concern notwithstanding knowledge of the hidden Ponzi and

seasoningpayments,aidedand abettedSFC'sofficers' and directors'inducementof investors
and other creditors to continue to do business with SFC and thus increased its indebtedness and

damage to SFC's creditors. ~3. McC;ladrey's ]DutiesGnd Obligations As SFC's Independent Accountant and


Beforethe passageof the Sarbanes-Oxley of2002 ("Act"),the preparation Act

and issuanceof auditreportswasrequiredto be in accordance with the AmericanInstituteof



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Public Accountants ("AICPA") Code of Professional Conduct and standards

promulgated A~CPA bythe Auditing Standards I"ASB").' Board
36. The ASB is the committee of the ATCPAdesignated to issue auditing, attestation

andqualitycontrolstandardsand guidance. Rule 202 of the AICPACode ofProFessional

Conduct requires AICPA members perform who professional services, McGladrey, audit like to
comply with standards promulgated by the ASB.
37. The ASB develops and -issues standards in the form of Statements on Auditing

Standards ("SAS~, Statements on Standards for Attestation Engagements and Statements on Quality Control Standards. "AU" refers to the sections in the AICPA Prclfessional Standavds which codify Generally Accepted Auditing Standards ~GAAS~. GAAS provides ground rules for audits, including McGladrey's audit ofSFC. Indeed, McGladrey's Audit Report claims to have been prepared pursuant to GAAS. Likewise, McGladrey's Accountant's Reports claim to
have been prepared in accordance with AICPA standards.

38. ~

There are ten GAAS auditing standards. The ten standards are categorized in

three categories: general standards, standards of field work and standards ofreporting. Under the general standards, McGladrey was to maintain an "independent" state of mind "in all matters relating to the assignment" and to exercise "[dlue professional care ... in the performance oftbe audit and the preparation of th~ report." Under the ~eld work standards, McGladrey had to
determine "the nature, timing, and extent of tests to be performed" based on a "sufficient

understanding ofintemal control,

Background information AICPA ~om Professional Standards - Applicability Int~grati~n ann of
/erCPA ProfessioutalS~andardr nnd PCAOB StQPuSardr.


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UnderGAAS'four standardsofreporting,NcGladrey'sReportshad to, among

other things:(]) state whether financial the statements presented accordance were in with

generally accepted accounting principles (GAAP); ensure financial (2) the stat~ments contained
informativedisclosures were "reasonably that adequate" negativeaffirmation; (3) express by and

McGladrey's opinion tnre regarding financial the statements. asa whole. taken
40. The AICPAProfessional Standardsprenot limitedto the basic auditing· standards.

GAASincludesmanyotherrequirements affectingall aspectsof the professionalservices
rendered by auditors.


AU ~ 333.02expressly warnsthat clientrepresentations cannot"substitutefor the

auditing procedures necessary afford reasonable for"theauditor's to a basis "opinion the on
financial statements."


Regardingfraud,GAASrequiresauditorsto be awareof intentionalwrongdoing

by management. Specifically, auditor "aresponsibility planandperform auditto an has to the
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fi·aud,"see AU ~ 110, and to assess the risk of ~audulent financial reporting and accounting irregularities and to respond appropriately. See

AU ~ 316. McGladreyinsteaddid neither. McGladrey endorsedfinancialstatements McGladrey knew were fraudulentandmisleading. 43. Additionally, CAAS alsorequiresauditorsto exercise'"professional skepticism"

in conductingan audit,to plan for the possibility fiaud,to reportpotentialwrongdoing of to

appropriate levels authority, to avoid of and reliance uponclientrepresentations respect with to
important audit issues.



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One of the key responsibilities an auditoris to identifymaterialareas for the of auditbasedon the natureof the businessof the auditedentity. AU ~ 3 12,AuditRiskand

It~lerialiry Conducla'ng in anAudit, provides guidance theconsideration should given on that be
to materialmattersin audit p]annin&executionof auditproceduresand reportingon firiancial
statement matters by the independent accountant. 45. AU g 312.10 provides:

'The auditor's consideration of materiality is a matter of professional judgment

andis influenced his or her perceptionof the needs of a reasonablepersonwho by will rely on the financialstatements.The perceivedneeds ofa reasonableperson

arerecognized the discussion materiality Financial in of in Accounting Standards
Board Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Znformation,which defines rnateriality as 'the

magnitude anomission misstatement:accounting of or of information in the that,
lightof surrounding circrunstances, makesit probablethat the jud~mcntof a reasonable personrelyingon the information would have been changedor
influenced by the omission or misstatement."'

In addition, AU ~ 312.34 provides:

"In evaluating whetherthe financialstatementsare presentedfairly,in all material

respects, conformity generally in with accepted accounting principles, auditor the
should consider the effects, both individually and in the aggregate, of misstatements that are not corrected by the entity. In evaluating the effects of misstatements, the auditor should include both q?lalitativeand quantitative
considerations... ."


The creditprocessincluding underwriting, debt reservingand paymentswas bad

the most material activity at SI;C and should have been deemed a "Critical Audit Area",

warranting greatestlevel of focusand attention,the largestportionof the audit budget,the the most experienced levelofpersonneI,and the highestlevel of reviewofthe auditwork. McGladrey, la~owing in violationof its professional ethicalobligations,endorsedSFC's and
materially misleading financial statements.


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Paragraph41 of Statementon AuditingStandards 75, Engagements Apply No. to

Agreed-Upon Procedures Spec~Zed to ESlem~n~s, Accounls, I~ems Financial or ofa S~ale7neni,

which applicable theperiod was during covered McGladrey's by Accountant's provides Reports,
guidance "Knowledge on ofh~latters Outside Agreed-Upon Procedures": if, in connection "..,
with the applicationof agreed-upon procedures,matterscometo the accountant'sattentionby
other means that contradict the basis of accounting for the specified elements, accounts, or items ofa financial statement t·efefi·edto in the accountant's repott, the accountant ordinarily should
include this matter in his or her report...".


While McGladrey's accountant, Aqnino, knew of the distorting effects of the

Ponzi-payments the loanpools since st least 1998,E~cGladrey on madeno mentionofSl;C's
practice ofmaking "forbearance" payments in 1CIIcGladrey's Accountant's Reports. The nature of tl~eforbearance payments and its impact should have been disclosed in the Accountant's Reports
in accordance with professional standards. 50. The AlCPA Professional Standards also require an auditor to evaluate and test an

entities' status as a going concern. AU ~ 341, T~2e Auditor's Consideration of an Entity's Ability

to Contintceas a Going Concent, "... provides guidance to the auditor in conducting an audit of
financial statements in accordance witfi generally accepted auditing standards with ·respect to

evaluating whether there is substantial doubt about the entity's ability to continue as a going concern." (AU ~ 341.01). Likewise, AU g 341.02 provides: "The auditor has a responsibility to evaluate whether there is substantia!doubt about the entity's ability to continue as a going
concern for a reasonable period of time, not to exceed one year beyond the date of the financial

statements being audited ." And, AU g 341.12 states: "lf, after considering identified conditions and events and management's plans, the auditor concludes that substantial,doubt about the



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abilitycontinue going to asa concernareasonable oftime for period remains,audit the report includeexplanatory (foIlowing should an paragraph the opinion paragraph) that toreflect
conclusion." McGladrey to comply itsprofessional failed with obligationsdisclose SFC to that wasonthebrink insolvencythetime of at McGladrey itsAudit issued Report April, in 2001. C. McQadrey Retained SE"C 1998:McC;ladrey By Ia Knows Payments SPC"On By
Behalf' Of Borrowers "DfstortsThe Delinquency DefaultRatiosOf The Pool" And 51. Atleastas earlyas 1998, retained SFC defendant Nlichael Aquino perform to

accounting audit and services SFC.While Aquino for Mr. changed employers times, several he consistently provided services SFC these to through least at 2001, Thus. knowledge his ofSFC's practicesimputedMcGladrey, employed ~om is to who him approximately through 2000 the


In 1998, partof his work, as Aquino, his associate and JeffWestad, r~viewed

student ~lesandloanservicer loan reports SFCprovided investors creditors that to and in
connection with·thesecuritizations transactions and relatingto the maintenance ofSFC's

business.Forexample, sewicer the reports wereprovided theinsurance to company insured that
the loss that would result from defaulting student loans.


Inparticular, 1998, in Aquino Westad and reviewed SFC's servicer reportsfor

SFCGrantor TrustSeries1996-1, SFC's securitization. May22, 1998, first On Westad, the~

working Aquino, toSFC draft a report shows Aquino with fared a of that that a~ready that la~ew (a)SFC making payments behalf students (b]such was loan on of and payments materially
altered the appearance of SFC's ~inances:

TheServicer [SFC] madea payment behalfof twoofthe: h8s on students testedin
1996. The effect of this is that the certificate holders receive a better yield than

theywould have,hadthe loandefaulted theclaimbeenfi~ed. and Alsothe insurance company not haveto payon a claimat thattime. Another does effect ofrhepractice thatit distorts delinquency default is the and ratiosof thepool.


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Tellingly,payments ismaking behalf students notdescribed the SFC on of are as "forbearance payments". are They described asexactly they servicer what are: payments on
behalf students. 1998 of This communication thattheAquino was shows team aware (1) of: SFC's central fraudulent --paying act defaulted onbeh·alfofborrowers; SFC's loans j2)that

payments ofdefaulted on behalf borrowers "distorted" financial and that SFC's report; (3)
entities extending creditto SFCwouldbe concerned aboutthe practice.


TheMay22,1998 triggered internal memo draft an SFC dated 2, 1998, lune

expressing concern aboutthe auditor's discovery: Fromall indications, foundation the auditor's the of opinion thatSFC(Servicer) is

ismaking payments behalf theborrowers theServicer's funds on of using own andisrelieving borrower the afhaving make to [thesef payments. tends This to

imply theServicerimplementing process thefact that is a new after gpecifioally
forthepurpose curing EOf3 delinquencies avoiding and insurance claims. This ... being compliance therequirements notbe construed distort, said, with should to
as if something beingdonethatshouldn't, ratheras an integral is but function in
derivingthe nctualperformance ratios.

TheMay 1998memo evidence SFC's 22, is of attempts improperly, successfully, to and influence McGladrey's inviolation reports ofMccladrey's professional responsibilities that
would last through 2001.


On June 17, 1998,Westadfared anotherdraft of the reportcontaining

substantialIy same the statement thatlisted paragraph OnJuly L998, as in 45. 24, following

requests revisions SI;C, Aquino sent third ofthereport SFC. for from the team a draR to The
revised attempted justifythepayments students, stillretained plainlanguage draft to for but the regarding distorting the effectsuchpayments on default had rates: Another effectof thispractice thatit distorts delinquency default is the and ratios of thepool. However, distortion comparable thepayments the is to beingmade
by any other co-makerof the loans~



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July24, 1998draftalsodiscloses theMcGladrey that accountants aware (1)loans were that

were being bySFC paid using "liquidity reserves", wrongly reported delinquent, but not as 12)
loanswerepastdueandnot fUnded anyresenre, werenotbeingclassified delinquent, ~i·om but as and(3)claims werenotbeingfiledon defaulted loans. Alltheabove practices formed core the of SFC'sfraud-- payon behalfof borrowers truedefault so ratesarenot exposed andthe Mccladrey accountants bothawareofthepractices of theirdistorting were and effect SFC's on
financial reporting in 1998.

D. McGladrey~s 2001 "Independent Auditor's Report": McGladrey's Materially False
And P/Iisleadfng "OpinTon" Blessing SFC's ~audulent Financial Statement


On April[i, 2001, McC~ladrey issuedthe AuditReportthat providedMcOladrey's

opinion SI;C's of 2000financial statements. McGladrey, pronounced theAuditReport who in
that it had complied with GAAS, stated: In our opinion, the financial statements referred to above present fairly, in all

materialrespects,the consolidated iinancialpositionof StudentFinance
Corporation and subsidiaries as ofl)eeember 31, 2000, and the cdnsolidated results of their operations and their cash nows for the year ended in conformity with generally accepted accounting principles. This statement is false and McGladrey knew it was false when NcGiadrey issued the Audit

Reportin 2001. The SFC financialstatements, the Aquinoteam recognized as three years earlier
in 1998, distorted the delinquency and default ratios of the SFC program by not clearly accounting for or disclosing the Ponzi-like nature ofthe payments SFC was making to cover
Borrower defaults and of which McGladrey was fi~lly aware.
Allowance For Credit Losses


SFC was, at least in name, a loan business. The default: rate of the loans SI;C was

securitizing and selling was highly material to any creditor or investor of SFC. Tns default rate, more than any other piece of financial information, reflected the quality and health of the loan



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SFC tosell. Financial SFC's sought Inthe Statements, representation rate of default its w, reflectedwAllowance ~sses". McGladrey, have a inits For Credit For this should been
"Critical Audit Area"

59. Section the 2of Notes the to Financial Statements to"Receivables relates and AllowanceCredit for Losses" were that had which loans SFC availablesate. the for Par year

20()0,Notes that are the disclosethere $60.471 "loans Min receivable for and available sale'' that
there a 10% 166.047 "allowance losses". is -Mforcredit McGladrey the audited figure the in

Notes the to Financial Statements, the describing allowance upon [the] as"based ... historical credit experience" Properly the loss ofSFC. reported,allowance losses tell for credit would a

potential or creditor investor the amount that issetting tocover loan offunds SFC aside future
defaults onthe performance loan based past ofits pools. McGladrey that 10% knew the figure
SFC intheAudit listed Report allowance credit far2000 %6,047,000 as for losses --~i~as

material, understated, grossly and `Indeed, that had manipulating false. given SFC been the reported rate bymaking default Ponzi-payments;- least there notrue since at 1998, was "historical" orpredictive loss credit experience "allowance losses" he onwhich Excredit could

60. AsMcGladrey SFC been knew, had paying loans onamassive to on itself scale mask defaults atleast sothe10% since 1998, "allowancecredit for losses" inthefinancial figure statements notreflect allowance true did an for defaults, only defaults covered-up but the not by

SFC's payments. Ponzi McGladrey disclose, permitted tocover-up, the did not end SFC that 10% forloan figure defaults --"credit --in2000 based SFC's payments. losses" was on Ponzi
Neither the"Receivables" ofti~e in section Financial Statement inthedefinition nor of"Credit I*osses" any isthere referenceSFC's to having "farbearance made payments"any type or other of



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onbehalf borrowers would, theMccladrey of that as accountants stated years had three
before, "distortrl delinquency default the and ratios theEloan of pool].
61. The 10%"allowancefor creditlosses"figure is also flawedbecauseit represents

anapproximatereduction"allowancecredit 9% in for losses" SFC a time loan by at when
defaults loansSFChadsold,andSFC's on Ponzi-payrnents thosedefaults, skyrocketing, on were

asRlc(;ladrey aware. despite was Yet, knowing defaults that impactingCritical Area a Audit were exploding, despite: and knowing SFC covering those that was up defaults, McGladrey
blessed SFC's reduction in "allowance far credit losses".


McGladreyno onlyblessedthe 10%allowancefor creditlossesin the

"Receivables" sectionof the FinancialStatements withoutany mentionor referenceof the impact

of SFC'sPonzipayments theallowance creditlosses, on for Mc~adreyendorsed misleading the andoblique references ''forbearance" to contained the "Securitization Retained in and Beneficial
Interest" section of the Financial Statements. The "Sec~ritization" section of the Financiat

Statementsaddressedolder loanpoolsthat SFChad alreadysoldbut in whichSFC still
maintained a limited financial interest. Because SFC was the loan servicer on these pools, SFC was aware when a borrower defaulted. Rather than permit all borrower's defaults to be

recognized thepurchasers by afthe loanpools,SFCmadePonzipayments thesepools-- that on is, SFCmadeloanpayments whenborrowers defaulted, though hadzeroobligation even SFC to
do so -- in order to mask the true default rate in the pools. SFC wanted to masl~the defaults in

thesepoolsto be able to advertisea creditor-fiiendly defaultrate that enticedcreditorsto

participate theSFCprogram,NcGladrey's in AuditReportallowed to continue draw SFC to



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intotheSFC program because McGtadrey allowed to mask true of SFC the rate


McGladrey knewthatSFCwasmaking Poazipayments thatthepayments the and

"distorted" defaultrates in the pools by makingit appearthat th~pool defaultrateswere the

muchlowerthantheyactually were. lfthe impact thePonzipayments understood of were by
investorsand creditorsand the true level of defaultswere revealed,SFCcouldnot sell more loan

pools thescheme and would collapse. thesame since F~lcGladrey At time, the accountants knew
aboutthePonzipayments, somelevelof disclosure enough theMcGladrey -for accountants to

saydisclosure made was while enough inform investor creditor thetrue not to any or of nature of

SFC's businesswas -- needed. resulted theuseoftheword This in "~br~earance" Financial inthe


SFC had dubbed its Ponzi payments "forbearance payments", a term that only had

meaningto SFC'sinsidersand its accountants."Forbearance payments"does not describewhat

thepayments were. No forbearance agreement in placewiththeborrower. was Evenif one

were, forbearancethestudent context in loan typically means temporary a cessation of'payments
byt14e borrower, an extension timeprovided t~eborrower making or of to for payments, not
makingfull, voluntary,and undocumented paymentson behalfofa defaultedborrower. SFC's

Ponzi-payments not "forbearance" anykind TheHforbearance" were of payments simply were
11I loanpaymentsmade by SFCinsteadof the borrowerto hidethe actualdefaultrate in the sold loanpools. SFC had no obligationwhatsoever make thesepaymentsand theyweremade to
solely to deceive SFC's creditors. 65. Nevertheless, McGladrey "blessed" SFC's misleading and meaningless term --

"forbearance" and, in one instance, "forbearance payments" -- in the financial statements and



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failed or todefine explain itanyvshere Report i~sistan inthe Audit orto on explanation in the footnotes~financial Given "forbearance"aCritical tothe statements.that treads on Audit AreaindeedCritical Area -Le Audit ofMcGladrey's --"forbearance" SFC audit should have been toMcGladrbs levelscruting, as highest of subject highest of as 1Nell the leveldisclosure and explanation Report. "forbcaranceH SFC an inthe Audit Instead, receives devoted none.

entire in Notes Financial to paragraph tothe its Statements "allowance describing for credit
losses", Mfigurethe a$6 in financial andterm inthe statements familiar accounting a

profession, not asingle of but does offer wordexplanation "forbearance for term the payments",
.$9~5figure Audit andmeaningle~s termthe of M inthe Reporta and misleading context in the
financial statements.

66. "Farbearance" and "fbrbearance are three inthe payments" used places Financial Statements to"Securitized" SFC inrelation sold loans. mentioned "forbeasance"table after a

presenting information "quantitative about delinquencies,losses components net credit and of
securitized assets", "The information reserve financial stating: above reflects forbearance." In the contextasection of discussing 60 more past and discussing loans or days due also net credit
losses, SFC's payments uploan calling Ponzi tocover defaults "forbearascd' even - not

"forbearance --isintentionally given McGladreyabout payments" misleading,what knew the
distortingeffectof SFC'sPonzipayments.

67. The "the information school forbearance" phrase above reflects reserve isa

purposely selective disclosure not any or misleading, and cryptic that does tell investor creditor
reviewing the financial what really toknow what statements they needed ~and McGladrey knew they toknow): the needed That principal ofloans and credit for balance pastdue ihe lossesthe



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were false all because true the ~amounts past and ofloans due percentage losses ofcredit
were ail ''distorted" by the Ponzi payments.


TheFinancial Statements notprovide clarification do any of"schoolreserve

forbearance" the "Summary Significant in of Accounting Policies" section "School on Reserves."
In the nbtes on "School Reserves" SFC states:

The schoolreservemay includeadditionalamountsdesignated absorb to
foibearance made in accordance with school and borrower agreements and

potential losses soldloans credit for based thedeemed quality the upon credit of

The use ofthe term "forbearance" in the above sentence is meaningless and does not comport

withthecommonly understood definition ~f"forbearance". with SFC, McGladrey's blessing, did
not includethe one word -- payments- that wouldhave lent the sentencesomemeaning("to

absorbforbearance payments madein accordance ") andwould ... haveat leastremotely
connected "forbearance" wi~hthe use of the phrase "forbearance payments'' in the "School Reserves" summary of activity later in the financial statements.


Finally, Financial the Statements in the"School state, Reserves" summary of

activity, approximately M in "forbearanC6 that $9.5 payments" madein 2000. (Financial were
Statementsat 22.) While "forbearance payments"are $4 M greaterthan the "allocations to
allowance for credit losses" listed in the school reserves activity summary, andjust as material as

"alfowance creditlosses","allowance creditlosses"were addressedin the Financial for for Statement's"Summary Significant Of Accounting Policies"but "forbearance payments"were
not. The omission was material and purposeful.


"~Forbearance payments"are a separatelineitem fr~om "allowance credit for

losses". This createdthe impression they represented differentthingswhen in fact they that two were the samething: moneyset aside(creditlosses)or paid (forbearance) addressstudent to


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defaults. the amount SFC toward Thus, true of funds allotted addressing loan student

defaults pools was $15 in sold in2000 nearlyM,notthe$9 M "forbearance" in in or %M the5
"allowance losses". for credit Separating "forbearancelL 16sses" only from "credit would have been meaningful had on explanation inthe ifMcGladrey insisted an of term Financial the
Statements. Theydid not.

E. McC;ladrey's Negotiation WithSFCOn "Forbearance"Terminology The P;udft For Report

71. The ofthe "forbearance" use term inthe Financial that Statements McGladrey audited, evaluated, and tested reported no on, was accident.use "forbearance" The of was

carefully and calculated thoroughly by and negotiated McOladrey. SFC Both McGladrey and
SFC that the "forbParance" knew using term inthe Financial was Statements materially
important: ultimately and meaningless.

72. On 28, SFCs April 2000, president, sol~sharehold~ force the and the behind

Ponzi Andrew sent agenda scheme, Y~o, an toAquino.the On Agenda May 2000 for their 2,
meeting "School was Agreement - forbearance".

73. The following onMarch 2001,~n eve year, 27, the ofMcGladrey the issuing

Audit Diane Report, Messick, controller SFC's and assistant conveyed Aquino'8 treasurer Mike
concern there something that be inwriting indicatingRoyal that Indemnity, largest SPC's

creditor, "under[stood]forbearance At time Royal any [SFC's~ policy."the neither nor other
creditor understoodSFC making payments, put inwriting. that was Ponzi letalone it 74. The day, March 2001, Messick conveyed next on 28, Diane again Aquino's
interest in "forbearance":

Mike has Aquino requested with todiscuss ameeting you forbearance infUrther
detail. would a management explaining theprocessbeing He like letter how is

managed, ofthe inlight increase inforbearance from to2000. applied 1')99


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reference to 22 the isapparently of financial reflecting $7 pae~e statements, an M over
increase in"fbrbearancepaj·ments" 2000. 1999 2004 fr~m to 1999 From to "forbearance

payments" quadrupled M over - and Aquino insist more than --from to $9M yet did $2 not on
an expanding inthe disclosure financial explaining statements that "forbearance payments" actually that payments reflects SFC's on defaulted quadrupled year. a bans inasingle with
consequ~nt~distortio!1 actual ofSIFCs default rates~

75.· McGladTey knew understoodthe "forbearance" clearly and that term was both material misleading. inviolation and Yet, ofGAAS' standards, McGladrey allowed "forbearance"used the tobe in financial statements,then and provided opinionthe afalse in

Audit that financial "fairly" SFC's Report the statements presented financial in"all picture
material respects" McGladrey and when knew believedcontrary: the of"forbearance the that use payments" the "distortsdelinquency ratiosthe pool]". and default of [foan
F. McGladrey's Knowingly ~ccountant's False Report
76. . SFC issuedMonthly Servicer ReportS ("MSRs") were that supposed reflect to the

current financial including default offhe SFC servicing. state, the rate, loans was McGladrey issued Accountant's allegedly its Reports, pursuantAICPA to standards, verifying MSRs. the

While NcGladrcyfollowing was apyeed-upon initsAccountant's under procedures Re~orts,
AICPA standards, McGladrey disclosure had obligations regarding "knowwedge ofmatters
outsideagreed-upon procedures".


Since least1998, at McCladrey accountant Aquino thatSFC making ~cnew was

Iforbearance" that payments allowed tomanipulate SFC the defa~llt inthe pools. rate loan The MSRs, McGladrey did disclose true as knew, not the default ofthe pools, instead rate loan hut
reflected default thatwere rates "distorted". RegardlessMcGladrey's ofagreed-upon of use


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McGladrey of had knowledge information the for material that contradicted the basis
accounting inthe UnderAICPA that MSRs. the standards McGladrey was purporting its toissue Accountant McGladrey todisclose Reports, hadduty a its knowledge of distortingof the effect
the "forbearance" McGladrey do Instead, did other ithad pa~ments. did so. not asit every time

the opportunity, decided disclose Ponzi McGJadrey not to SFC's payments SPC's and blessed
misleading reporting, allowed tocontinuegoing tothe financial which SFC asa concenz further
harm ofSFC's crtditors.

G. NcGladrey's ToAddress Inability Continue AGoing Failure SM='s To As Concern 78. McGladrey itsAudit inApril, By 2001 one issued Report 2001. May, -- month

later SFC's -liabilities itsassets, itwas exceeded i.s., insolvent. McGladrey'sReport Audit does not disclose, should under Pro~ersiona~ that was thebrink asit have AICPA Standardr,SFC on
ofinsolvency. NlcGladrey's misleading Report SFC's Audit offered officers directors and the

ability tosustain asagoing for SFC concern approximatelyyear SFC another while deepened its

insolvency SFescreditors, and while lacking McG~drey's of true knowledge filianoial SFC's
state, poured hundreds millions dollars SF.C. of of into



TheTrustee incorporates paragraphs asthough setforth 1-78 Illy herein.

80. The directors officers S~FC servicer and of issued reports audited and financial statements toSFC's creditors faifcd disclose Ponzi that to the payments. part In through of use

McGladrey's the Reports, directors ofiicers and defrauded creditors believing SFC's into that

they doing withlegitimate whenactuality,were were business a business in they entering into
transactions with a fraudulentPonzischeme.



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The directors and knew McGladrey'swere because officers that Reports false they

failed to disclose defaultof student that the the true rate the loans formed foundation of SFC's business failed and also to disclose practice itselfdefaulted mask SFC's of paying on loans to
true default rates.

gZ. The directors and intended creditorsbusinessSFC officers toinduce todo with by

misrepresenting SFCalegitimate and its naturePonzi as business hiding true as a scheme.
83. SFCs creditors on inaccurate reports by directors reliedthe financial issuedSFC's

and that to officers failed disclose of Ponzi on justifiable the impact SFC's payments the belief that waslegitimate and damaged when consequently SFC a business were thereby they did
business with SFC.

84. Because work SFCs ofits on financial statements, knew SFC McCrladrey (I) was aPonzi that inevitably SFC's schemewould end in insolvency, the (2) that financial reports

provided creditors to SFC's misrepresentedimpact Ponzi and ihe financialof SFC's payments, (3) creditors told information. financial McGladrey SFC's were this not By ceirifying Reports
knew misleading were and deceptive McGladrey be by with and that knew would used SFC creditors, not and requiimg disclose by that SFC its misrepresentationsMcGladrey tocreditors,
aided abetted directors'afficers' onSFC's and SFC's and fraud creditors.

85. The Trustee incorporates 1-84 though set herein. paragraphsas fully forth
86. In2001,McCladrey itsAudit w~ich issued Report contained SE%'s both

consolidated statemelrts thereon. Audit and financial and notes The Report financial statements containfollowingstatementsby the false madeMcGtadrey: (1)McGladrey's that false opinion

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financial ~I~ements presented financial inallmaterial in fahlv SFC's position respects

conformityOAAP (2) with and McG!adrey's that audit conducted statementthe was in
accordance GAAS. with Likewise, McGladrey's Accountant's state they Reports that were

performed according toAICPA standards that and statement false. was
87.. h4cGladrey that opinion knew its expresseditsAudit in Report notitstrue was

opinion McGladrey that ~tinaTlcial disguisedfact loan because la~ew the statements the that
defaults miscategorized balance tocreate impression SFC lower were onthe sheet the that had
defaults than'was actually the case.


Likewise, McGladtey thatSFC making knew was payments loans which on on

SFC noobligation solely disguise true had topay to the default intheloan rate pools.

MoGladrey this knew "distorted" the financial statements yet expressed"opinian" the the that
financial statements were materially accurate.


McGladrey la~ew it hadnotconducted audit accordance also that its in with

GAAS. other McGladreyth$materially Among things, l~new falseinf~rmation in was included
SFC'sfinancial statements,violation a ofGAASani~ GAAP, McGladrey and knewthatit

allowed tomanipulate language content thefinancial SFC the and of statementsobscure to the

impact SPC's payments, aviolation of Ponzi also ofGAAS. ofMcGladrey's toabide All failures
byGAAS GAAP and centered a Critical Area. in Audit 90. McGladrey I~new Account's also its Reports notperformed accordance were in

withAZCPA standards because faired disclose they to McGladrey's knowledge thePonziof

payments thepaymenrs ontheAccount's and impact Reports. McGladrey only not not did
conformto AICPAstandards, they violatedthosestandards.



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Asacertified accounting Mcatadrey public finn, intended the that public,

including of rely McGladrey's misleading and the creditors on SFC, materially Audit Report, ~hat
SFC's creditors continue dobusiness SFC.. to with

92. SFC's creditors justifiably onMcGladrey's relied misleading Report Audit

because McGfadreyacertified accounting which inthe was public firm was business of

93.' ZnjurySFC's to creditors resulted McGladrey's from misleading Report Audit

because continued business and they todo with extend to~a credit company, whose SFC,
business a sham whose was and financial statements not, McGladrey did has knew,'present

fairly, allmaterial in respects, consolidated positionESFC]". the financial of



The Trustee incorporates paragraphs astho~f fully forth 1-93 set herein.

95. McGIadTey that Accouptant's were claimedthe Rep"" performed to pursuant
AICPA standards procedures. standards and Those required where that McGladrey material had information contradictedinformation bytheagree-upon that the shown procedures in applied
McGladrey's Accountanrs thatMcGladrey Report disclose it.
96. While McGladrey theimpact theSFC'sPoIlzi-payments hadan knew of and

obligation todisclose its knowledge, McGladrey deliberately that concealedinformation inits
Accountant's Reports. McGladrey that notdisclosingknowledge Ponziknew by its ofthe

payments,Accountant's onthe the Reports misleading would MSRs themselves bemisleading,
when claiming they performed also that were according tr,AICPA standards procedures. and



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: ' Aswith McCladrey's Report, apublic APQit as accounting McCladrty firm.

knew, unde~stood and expectedSFC's that investors and creditors rely the would on Accormtant's

98. SFC's investors creditors and justifiably ontheAcco~mting in relied Reports

extending credit SPC were bytheir further to and injured reliance.


99. . TheTrustee incorporates paragraphs asthough setforth 2-98 fUlly herein.

100. AsofMay, SFC technically 2001, was insolveo~t, itsassets that is. exceeded its liabilities. a companyinsolvent,offrcers directors a fiduoiary tothe Once is its and have duty company's creditors among things, deepen insolvency company. to, other not the ofthe
101. McGladTey itsAudit issued Report April, in 2001, month one before became SFC insolvent. Under GAAS, the McGladrey a duty evaluate abili~y continue a had to SFC's to as

going concern the for coming and express year to McGladreyj~ "substantial astoSPC's doubt"
ability continue. that was to Given SFC insolvent approximately after amonth McGladrey issued Audit its Report, McGladrey ofSFC's-impending butfailed disclose knew insolvency to
this fact in its Audit Report.

102. Aspublic accountants, McGladrey, information belief, that upon and knew SFC's
officers directors a fiduciary to SFC's and had duty creditors to fUrther insolvency. not SFC's By

continuing onhundredsmillions dollars credit totake of of in obligations, o·t~ioers SFC9 and
directors deepen did SPC's insolvency breached fiduciary to SFC's and their duty creditors.

McGladrey aware their asSFC's was in role independent accountants auditors SFC's and that



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and ~irectors breachingdutiesSFCs were t~eir to creditors by fUrthering SFC's

103.. . McGladrcy substantial toSFC's and offered assistance officersdirectors intheir

brea~h.fiibucinryRsporta. I.gi6ndzed dutiesbyis~uingibe IhsRea~n~ fuwcY SFCs
practices usedSFC's and to creditors scheme. an;l were by officers directors lure into the But for
McGladrey's SFCs impfimatu, directors not been tolure would have able creditors and deepen
SFC's insolvencyfor approximately year. a

104.: issuing then toamend their By and failing or revise Reports, McGladsey aided and S~FC's and abetted officersdirectors ofthsir breach fiduciary toSFC's during duties creditors


105. The Trustee incorporates para~-dphs asthou~h setfoI~ i-104' fully herein.

106. SPC 1 necessarilyMcGladrey itsfi;lancial paid toc~tify statementsthe with Audit Report. McljladreycertifiedS3FC's McGladrey, accountant, also the NISRs. asapublic
provided reportsthe such in normal ofbusiness. course
107. In2001, McGladrey itsreport itsaudit SFC's issued of of consolidated balance

sheet ofDecember2000, containedmisrepresentation McGladrey's as 31, which the that was it

opinionthe that financial fairly statements presentedfinancial inall SFC's position matbriaf respects McGladrey"s was pursuant infact, and that auditSFC done toGPLAS; McGladrey of had
nosuch opinion itsaudit inconsistent GAAS and was with standards.



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: LikeKiss~McFladrcy bauedits Reporton in ths~ AcFountan~ MSRs the 2001
contained t~ernisr~presentation wasconducted thatit pursuant AZCPA to standards. report The alsofailed to:disclose material infbrm~tion McGladrey a duty disclose. that had to
109.~ McGladrey necessarily knewthatSFCwouldprovide Reports major the to

creditors thatsuch and major creditors rely theReportsconnection doing would on in with
business with SFC.

110. SFC'screditorswere damagedwhen~hey reliedon McC~adre~s Reportsbecause

they continued business and todo with extend toacompany, whose credit SFC, business a was
shaam. COZ~NT VI




(lr U,S.C, Si5481a)~IXA~


The Trusteeincorporates paragraphs1-110as thoughfullyset forthherein.

112.. During McGladrey's asSFF~ tenure independc~nr and auditor accountant, SFC

made tra~sfers toMcGlad~y amount itlthe of%2i88,000 ~om i,2001 inthe period lune
through June 5, 2002.


SFC made the transfers to McGladrey with the actual intent to hinder, delay and

SFC's creditors.


When SFC made the transfers to McGladrey, SFC was insolvent, and the transfers

deepenedSFC'sinsolvency.SFCwas unableto pay its currentobligationsas they came due
without resorting to additional financing.


The transfers to McGladrey occurred within one year of SFC's bankruptcy filing


The transfers to RlcGladrey were made voluntarily by SFC.



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VLI :: 3


(1I U,S.C.~ 644,6 DelawareCode~ I304(a)(I)) TheTrustee incorporat~s paragraphs 1-116 though as fullyset forthherein.
118~ SFC made transfersto McGladreyin the amountof $2,388,000 the periodfrom : in
June 6, 1998'through June 5, 2002.

1191 SPCmade the transfersto McGladreywith the actualintentto hinder,delay and
de~aud SFC's creditbrs.

120. · The transfers to IMcGladreyoccurred shortly before and shoicly after substantial
debts were incurred.


The transfers to McGladrey occurred within four years of SFCs bankruptcy filing


The transfers to McGladrey were made voluntarily by SFC.



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theTi-ustee requests theCourtgrantthe following that relief:

i. 2.

Judgment tRe against defendantscompetlsatdry for and punitive damages Anaward ofreasonabie and costs attorneys' and fees;
Anawardof suchotherandfurther reliefas the Court deem andproper. may just
Respectfully submitted,

sustainedanamount bedetermined plus in to attrial, prejudgment interest;

Dated: Decem~er 2004 22,

/5/ Christo~her A. Ward Christopher A. Ward CNo.3877)
222 Delaware Suite 900 Avenue

F.O. Box 25130

Wilmington, DB 19899
(302) 655-5000
-- and --

Donald J. Crecca


Je~e~rT. Testa

Kip's Castle - 22 Cresmont Road

Montclair, Oj042 NJ
(973) 746-6000

Attorneys for Charles A. Stanziale, Jr.,

Chapter7 Trusteeof StudentFinanceCorp