Free Motion to Appoint Receiver - District Court of Colorado - Colorado

Case 1:01-cv-00645-JLK

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Filed 07/25/2005

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No. 01-CV-0645 JLK

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. KENNETH ROY WEARE, a/k/a ROY WEAVER, J & K GLOBAL MARKETING CORPORATION, and AAA-AUCTION.COM, INC., Defendants. UNOPPOSED MOTION FOR APPOINTMENT OF RECEIVER The Securities and Exchange Commission requests the appointment of a receiver to take possession of the assets of Kenneth Roy Weare, J&K Global Marketing Corporation and AAAAuction.com, Inc., to establish and administer a claims process for investors, and to propose a distribution plan to the court for funds collected from various bank accounts in the United States and abroad. I. The SEC Has Collected Funds That Should Be Returned To Investors

To date the SEC has collected and deposited into the registry of the court, $803,728.49 in funds from the deposit of money orders recovered from J&K Global Marketing's bank account with Allied General Bank in Grenada. The SEC continues to pursue litigation in Luxembourg to recover approximately $2,877,515.79 that is frozen in an account in the name of Kenneth Weare

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at Dexia Banque Internationale a Luxembourg.1 The Luxembourg court's decision finding the garnishment against Dexia Banque was valid and enforceable was served upon Mr. Weare on May 16, 2005. It is my understanding that once the garnishment order was served, then Mr. Weare has two months to appeal, after which time the decision becomes final and can be served upon the bank for enforcement and repatriation of the funds to the registry of the court here in the United States. In light of this development, the SEC thinks it appropriate to appoint a receiver to marshal the remaining assets and start the claims process. II. Receiver Is Necessary To Administer A Distribution Plan

In the Joint Status Report filed on April 25, 2005, defendant Weare suggested that appointment of Special Master was not necessary because of work performed by the FBI to locate investors in the related criminal case had identified 703 investors claiming losses of $1,183,980. The U.S. Attorney's Sentencing Statement in Weare's criminal case states 645 investors who claimed losses of $1,199,355 responded to the FBI's request for information.2 Regardless of the difference in the two numbers, the FBI's efforts only identified a fraction of the investors who lost money and have been identified by the SEC during its investigation. In light of the limited response, the FBI's process is an insufficient substitute for a claims process to be conducted by a receiver for the following reasons. The FBI did not contact all the investors, rather it made a limited inquiry by email based on valid email addresses contained in a four year old data base. As a starting point, the FBI used the same database obtained by the SEC during its investigation, which lists individual investors with ID numbers starting at 100,000 and ending with 158,521. However, many of the same

This figure is based on bank statements dated 1/2/2001 and do not include any interest or charges to the account since that date. 2 The U.S. Attorney's Sentencing Statement is filed in U.S. v. Weare, Docket entry 60 (D. Colo. 03-CR-121N, 7/12/04).

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investors are listed under more than one ID number, and some of the ID numbers have been deleted from the data base.3 The data base shows 48,415 record lines containing investor information. It is my understanding that the FBI was able initially to identify approximately 23,000 investors from the list, which it further reduced to 12,140 entries containing properly formatted, unique email addresses after eliminating multiple entries by the same person, duplicate email addresses, bogus entries4, and those investors listed as not having paid. To the extent more than one investor used the same email address, only one email notice was sent. Of the 12,140 entries remaining, the FBI was unable to contact directly approximately 2,334 investors who listed addresses in some foreign countries. The FBI sent email messages to the remaining 9,806 investors; of these messages approximately 1,282 were returned indicating the email addresses were no longer valid. The FBI did not contact by regular postal mail those investors whose email addresses were no longer valid or any of the investors whose email addresses were not validly formatted in the data base. A receiver, who is not an employee of the federal government, will be able to contact foreign investors not reached by the FBI and contact by mail those investors who no longer have valid email addresses. Moreover, the FBI's email message requested that investors visit a website and assist the FBI in gathering information to prepare for Mr. Weare's sentencing, not a strong incentive for investors to respond. Although the email message states the judge in the criminal case may order Mr. Weare to pay restitution, it does not indicate that by participating in the process investors will recover some portion of their investments. Appointing a receiver in this civil case to contact investors as part of a claims process that will return money to investors will likely result in a

For example, Aurino B. Abraham is listed four times under separate ID numbers and there are no entries for ID numbers 100,001 through 100,005. 4 For example, the first and last names entered for ID number 116987 are "This is so obviously" "a scam".

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higher response rate than received by the FBI. Moreover, the FBI process did not contact investors who were marked on the data base as not having paid. However, Jeremy Weaver, J&K's webmaster who produced the data base, testified at deposition that the "paid" column was not accurate. A receiver will have the benefit of comparing the data base list to bank records collected in the civil case to determine which investors paid. The receiver can also require investors to submit proof of their investment, verify whether the payments were recorded in the various bank accounts of the defendants, and determine if any of the investors received repayments of part or all of their initial investment. III. SEC's Proposal For Appointment Of A Receiver

The SEC requests that the Court authorize it to publish a legal advertisement in the Denver Post for two weeks requesting individuals submit proposals to act as the receiver for J&K Global Marketing, AAA-Acution.com and Kenneth Roy Weare. The advertisement will direct interested parties to contact the SEC to obtain the proposal criteria, a copy of which is attached as Exhibit 1. The SEC requests that the cost of approximately $1,000 to publish the legal advertisement be paid out of the funds currently held in the registry of the Court. The SEC suggests applicants be given 45 days from the last posting of the advertisement to submit proposals. The SEC will forward all proposals to the Court for selection and appointment of the receiver. IV. Certification of Conference with Opposing Counsel

I have conferred with Virginia Grady, Mr. Weare's attorney, by telephone on July 25,

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2005 about the above motion. She advised me that she does not oppose the motion, but defers to the judgment of the court on this issue. Dated this 25th day of July 2005.

s/Leslie Hendrickson Hughes____________ Leslie Hendrickson Hughes (Colo. 15043) Thomas J. Krysa (Colo. 28440) Securities and Exchange Commission 1801 California Street, Suite 1500 Denver, Colorado 80202-2656 Telephone (303) 844-1000

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CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the foregoing UNOPPOSED MOTION FOR APPOINTMENT OF RECEIVER and proposed Order was mailed postage pre-paid, addressed as follows this 25th day of July 2005. Virginia L. Grady Assistant Federal Public Defender 633 Seventeenth St., Suite 1000 Denver, CO 80202 (Attorney for Weare)

s/Leslie Hendrickson Hughes

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