Free Motion for Order - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No. 01-cv-645-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.

RECEIVER'S NINTH AND FINAL REPORT AND UNOPPOSED MOTION TO DISCHARGE RECEIVER, WITH CERTIFICATE OF COMPLIANCE

Patten, MacPhee & Associates, Inc., the Court-appointed Receiver, hereby submits its ninth and final report to the Court, summarizing in detail all activities undertaken by the Receiver during the course of this receivership; accounting for all deposits into and disbursements from the registry of the Court related to this matter; and, providing the Court with a summary of the Receiver's professional fees and out-of-pocket expenses to date, as well as an estimate of the future costs associated with this receivership. In addition, the Receiver respectfully requests that the Court enter an order discharging the Receiver from further service in this matter. The Receiver reports to the Court and, in support of its motion, states as follows:

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Background 1. On or about April 11, 2001, the SEC filed this civil action against the Defendants for

operating a fraudulent investment scheme over the Internet. According to the SEC's press release issued at that time, the Defendants had offered and sold investments through J&K Global Marketing Corporation ("J&K Global") to more than 13,000 investors since at least November 1999. In addition, investments with AAA-Auction.com, Inc. ("AAA-Auction.com"), which operated an Internet auction site in 1998 and 1999, were described as a "previous fraudulent offering" by Defendants. 2. On or about January 8, 2002, the Court entered a permanent injunction by default

against Defendants, finding that they had, among other things, sold $375 investments in a "rent/ mortgage free" program that promised returns of 600% annually from funds purportedly invested offshore. At that time, the Court also ordered the disgorgement of profits totaling $6.9 million, prejudgment interest of almost $630,000 and the payment of $330,000 in civil penalties. 3. Later that year, Defendants were found to be in civil contempt of the Court's orders.

In addition, it is the Receiver's understanding that Defendant Kenneth Roy Weare ("Weare") was indicted by a federal grand jury on March 25, 2003; pled guilty on April 1, 2004; and, was sentenced to 36 months in federal prison on August 3, 2005. 1 At the time of sentencing, Judge Nottingham also ordered Weare to pay $1,199,355 in criminal restitution to 645 specifically-identified investors in

1

It is also the Receiver's understanding that, sometime during the past year, Judge Nottingham reduced the length of Weare's prison sentence for health reasons. -2-

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J&K Global and/or AAA-Auction.com.2 The press release issued by the United States Attorney's Office at that time claimed that Defendants had defrauded over 23,000 investors with their "Offshore Rent/Mortgage Free Program" and that investors had transmitted more than $9 million to bank accounts in the United States, Luxembourg and the West Indies between November 19, 1999 and December 31, 2000. 4. The SEC subsequently recovered more than $2,900,000 of the investor funds

transmitted to Luxembourg and more than $800,000 in money orders purchased by investors and held by the Defendants at a bank in Grenada. Consequently, as of November 16, 2005, more than $3,700,000 had been deposited into the registry of the Court as a result of the SEC's efforts. 5. In early August 2005, the SEC issued a request for proposals ("RFP"), seeking a

receiver and distribution agent to establish and administer a claims process for returning the recovered funds to investors. The Receiver submitted its proposal in response to the RFP to the SEC on September 23, 2005. 6. On October 26, 2005, the Court entered its Order Appointing Receiver, directing the

Receiver to, among other things: a. create a contact list for soliciting claims from investors, using a Microsoft Access® database containing approximately 48,415 record lines of historical investor information;

2

The Receiver has been told that Judge Nottingham recently entered an order staying the collection of criminal restitution from Weare pending a determination as to the amount of funds to be paid to investors through this receivership matter. -3-

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b.

compare the Microsoft Access® database to summaries of deposit items for several bank accounts located in the United States, Luxembourg and Canada listing investors' names and identification numbers, in order to make a determination as to which investors made deposits and received monies in order to identify the full group of potential claimants;

c.

devise an efficient and comprehensive method of establishing the current location of the approximately 23,000 investors estimated by the SEC;

d.

establish a claims procedure by determining the form of notice to be sent to investors and the information to be submitted by investors to establish their claims, the length of time for investors to submit claims and the necessary proof investors must submit to support each claim;

e.

give notice to investors to begin the claims process through email and other communications, including postal mail to investors without valid e-mail addresses, as well as develop the necessary tools, such as a website, for collecting data from potential claimants;

f. g.

receive claims from investors and evaluate the validity of claims; prepare a distribution proposal assigning investors a pro rata share of funds collected after costs of the distribution plan have been deducted and submit the distribution proposal to the Court for approval;

h.

give notice to claimants of the process to contest the final distribution plan; and,

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I.

administer the distribution of funds from the registry of the Court in coordination with the Clerk's office and prepare any tax forms related to interest earned on the funds to be distributed.

In addition, the Receiver was required to submit reports to the Court on a quarterly basis outlining the status of the process, and allowed to apply for the payment of its fees and costs on a monthly basis. 7. As discussed in greater detail below, the Receiver has now completed the duties for

which it was appointed by the Court, and has taken such other actions as the Receiver determined to be appropriate to carry out those duties and the intent of the Court's Order Appointing Receiver.

Summary of Receiver's Activities During the Receivership 8. In its proposal to the SEC, in response to the RFP, the Receiver outlined four phases

to the proposed scope of its work: (I) Planning/Organization; (II) Investor Contact/Notification; (III) Claims Administration; and, (IV) Distribution to Investors. The Receiver's activities during each of these phases are summarized below. Additional details regarding the Receiver's activities during the receivership can be found in the Receiver's quarterly reports and in its quarterly fee applications, previously submitted to the Court. I. Planning/Organization 9. Throughout the receivership, the Receiver attempted to take advantage of technology

to the greatest extent possible by using e-mail as its primary means of notifying and communicating with investors, as well as by collecting and storing information from investors and validating their claims electronically. Given the large number of potential claimants here, including thousands of -5-

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foreign investors, the Receiver believed, at the outset, that such an approach would increase the accuracy of data collected, help to keep down the costs of administration, and provide a mechanism to quickly determine and validate the amount of each claim. The Receiver also knew that if it were required to input data from claimants manually and/or personally interact with investors/claimants, the costs of administration would increase substantially. 10. Shortly after its appointment by the Court on October 26, 2005, the Receiver took

possession of the database obtained by the SEC, along with summaries of many of the Defendants' bank records compiled by the SEC, including checks written to investors by Defendants and deposit items listing in many, but not all, instances investors' names and/or identification numbers. Those summaries were in the form of several Microsoft Excel® workbooks, each containing numerous worksheets reflecting detailed monthly banking activity by Defendants. The Receiver subsequently consolidated the worksheets related to each bank account and combined the resulting worksheets into a single database table. That table, which included more than 21,000 records, also included data regarding the money orders seized by the SEC and ultimately deposited into the registry of the Court. The Receiver also added to that database table data related to Canadian bank accounts not previously summarized by the SEC. 11. With respect to the database of investor information obtained by the SEC, the

Receiver assumed in its proposal a significant degree of data integrity and reliability. In addition, the Receiver assumed that the database would provide valid e-mail addresses for a substantial number of investors. The Receiver subsequently determined, however, that of the approximately 24,269 unique entries within the e-mail address field of the database obtained by the SEC, only

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10,239, or 42.2%, were valid e-mail addresses capable of notifying a potential claimant. In reviewing the transcripts of the testimony of Jeremiah Weaver, a computer programmer retained by the Defendants, the Receiver also learned that the data contained in the transactions data tables were incomplete and contained duplicate entries. The Receiver, therefore, was limited in its ability to validate/confirm independently certain investor transactions through either the database obtained by the SEC or the Defendants' banking records. 12. After its appointment by the Court, the Receiver undertook a number of tasks to

identify and locate investors. At the same time, the Receiver contracted with MARKITOUTTM of Louisville, Colorado to design, create and maintain a website to collect current information from investors and communicate with investors going forward. Also, a link was established between the SEC's website and the Receiver's website. 13. The design and implementation of the Receiver's website was complicated, by

necessity, when it was discovered that the nature of the Defendants' fraudulent scheme encouraged most investors to make multiple small investments ­ using variations of their own name and/or the names of family members and friends ­ rather than a single, lump-sum investment. Thus, it was common for more than one investment to be attributable to one individual or e-mail address. In one extreme example, the Receiver discovered early on that a potential claimant in California was included in the database more than 600 times, each time using a slight variation of his name or address, even though it did not appear that he had made anywhere near that number of investments.

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II. Investor Contact/Notification 14. The Receiver's website was completed and tested in early April 2006. On April 6,

2006, the Receiver sent an initial e-mail to a group of 567 investors previously determined to have valid e-mail addresses and who had "opted-in" to receive an e-mail from the Receiver regarding this matter. Of that limited group of interested e-mail recipients, only 344 (61.6%) ever opened the Receiver's e-mail. At the same time, approximately 329 initial e-mail recipients (58.0%) registered their current contact information at the Receiver's website. Another 75 individuals, presumably "family and friends" of the initial e-mail recipients also registered at the website as a result of that initial e-mail. 15. On April 25, 2006, the Receiver sent an e-mail notice of this matter to an additional

22,907 unique and properly formatted e-mail addresses contained in the database obtained by the SEC, asking the recipient to register his/her current contact information at the Receiver's website. Over the next several hours, 13,491, or 58.9%, of the e-mails bounced, indicating that those e-mail addresses no longer, if ever, existed. The next day, e-mails were sent to the same set of e-mail addresses and similar results were obtained. 16. Although disappointing, the results from the Receiver's initial e-mails were not all

that surprising given the length of time that had passed since the e-mail addresses were first provided to Defendants by investors. More surprising was the response ­ or more accurately, the lack of response ­ by potential claimants who received e-mail notifications from the Receiver in the spring of 2006. Preliminary reports prepared by the broadcast e-mail provider, IntelliContact, indicated that as few as 15% of the Receiver's e-mails were ever opened and that less than 7% of the time did the

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recipient actually click through to the registration page at the Receiver's website. Moreover, as many as 1,897 recipients of the Receiver's e-mails affirmatively "unsubscribed," thereby notifying the Receiver that he/she did not want to receive any more e-mail communications from the Receiver. 17. At the time, the Receiver could only speculate as to the reasons for this relatively

meager response from investors identified in the database records obtained by the SEC. However, based on subsequent analysis of the database itself, the prior experience of MARKITOUTTM and the Receiver's subsequent communications with investors, several possible reasons emerged. First, given the number of years that had passed since these e-mail addresses were being used by investors, it was possible that different persons then used the e-mail addresses contained in the database. In any such case, the e-mail recipient obviously did not invest with Defendants and, therefore, may have simply ignored the Receiver's notice. Similarly, it appeared that many of the individuals identified in the database may not have actually invested with Defendants. In fact, the Receiver was told by some e-mail recipients that they were aware of the J&K Global investment opportunity and may have provided contact information to Defendants, but did not actually invest. Others told the Receiver that they did not recall this specific investment, but lost substantial sums in Internet investments, generally. Still others may have considered the relatively small amount invested and/or their lack of proof of such investment, combined with the likely amount of recovery, to not make it worth their while to participate in the refund process. 18. The Receiver was also contacted by a number of individuals who were reluctant to

provide the Receiver with their current contact information because they were concerned that they were being "scammed" once again. Conversely, in one situation, an individual contacted the

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Receiver, acknowledging that he had tried to "scam" the Defendants by investing multiple times, under fictitious names. That individual told the Receiver that he would forfeit any refund if it meant that he were "in trouble" for having done so. Also, the Receiver recognized that it was possible that investors who had previously responded to the FBI's victim survey believed that they had already provided the information being requested and did not need to provide it again. 19. Whatever the reason(s),the Receiver's initial e-mails to the more than 24,000 unique

e-mail addresses contained in the database obtained by the SEC resulted in as few as 1,800 potential claimants registering their current contact information with the Receiver by June 30, 2006. 20. Given the poor response to its initial e-mails, the Receiver continued to send

broadcast e-mails, notifying the recipients of this receivership, to all valid, but previously nonresponding, e-mail addresses contained in the database obtained by the SEC. In addition, the SEC offered to send an e-mail from its e-mail server, asking potential claimants to register their current contact information at the Receiver's website. The SEC made this offer hoping that an e-mail from its servers would reach investors with strong spam filters, as well as allay certain investors' fears that the Receiver's notice of a refund so many years after their investment was itself another investment scam. To that end, the Receiver provided to the SEC, on or about September 11, 2006, an electronic database of approximately 4,400 potentially eligible claimants who had valid e-mail addresses, but who had not yet registered with the Receiver. It is the Receiver's understanding that the SEC, after addressing the requisite technical issues involved in sending such a large quantity of e-mails from its servers, began sending such e-mails on or about November 7, 2006.

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21.

Shortly after sending its initial e-mail, the Receiver learned from an investor of the

existence of at least two Internet forums/bulletin boards at which J&K Global investors periodically posted information regarding the efforts of the SEC and others to bring the Defendants to justice and/or recover investors' funds. At the request of the Receiver, that investor subsequently posted notice of this action and the need for investors to register their current contact information at the Receiver's website on at least two such Internet forums/bulletin boards. Thus, the Receiver began advertising notice of this receivership on the Internet as early as April 2006. Moreover, the Receiver noted that the more popular search engines, e.g., Google, MSN.com and Yahoo, readily directed any person interested in learning more about J&K Global or AAA-Auction.com to both the SEC's and the Receiver's websites. 22. In accordance with the Order Appointing Receiver, the Receiver also mailed notice

of this receivership to the more than 13,000 potential claimants identified with invalid e-mail addresses, using the database obtained by the SEC. Both a US and a foreign postal mailing list were developed by the Receiver's staff in May 2006. 23. On or about June 9, 2006, the Receiver sent 8,294 letters, via US mail, to potential

claimants in the United States. The letters were identical to the e-mail notices previously sent by the Receiver, notifying recipients of this receivership and requesting that they register their current contact information at the Receiver's website. Of that number, only 470 addresses (5.7%) were considered non-CASS verified, meaning software used in conjunction with that provided by the US Postal Service could not verify or supply a 9-digit ZIP code for the address. Nevertheless, a 5-digit ZIP code existed for each of those 470 addresses and it is the Receiver's understanding that many

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of the letters sent to those addresses were, in fact, delivered; however, the Receiver does not know how many or which ones. 24. Similarly, on or about June 30, 2006, the Receiver mailed 5,069 letters to potential

claimants who resided outside the United States. That mailing went to more than 90 countries, from Albania to Zimbabwe. Countries to which more than 100 letters were sent included Canada (2,053), Australia (967), Germany (423), the United Kingdom (294), the Netherlands (212), New Zealand (179) and Malaysia (148). 25. After those mailings, the Receiver obtained through On Target Mailing Services of

Denver a National Change of Address Report, which identified those addresses included in the Receiver's US mailing list for which a change of address card had been filed in the prior five years. As a result, the Receiver mailed an additional 1,632 letters to potential claimants in the United States. 26. By September 30, 2006, the Receiver had sent over 78,000 e-mails and mailed

approximately 15,000 letters to potential claimants in more than 90 countries around the world. At that time, the Receiver believed that it had undertaken and substantially completed all reasonable efforts to contact potential claimants. As a result of those efforts, approximately 3,500 individuals had registered their current contact information at the Receiver's website as of September 30, 2006. 27. After September 30, 2006, the Receiver continued its efforts to identify and locate

AAA-Auction.com investors, who invested earlier in time, were fewer in number, and invested substantially greater sums than J&K Global investors. As a result of those additional efforts, the

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Receiver located several "lost" AAA-Auction.com investors, including at least four not previously identified by the SEC. III. Claims Administration 28. In late October 2006, the Receiver met at length with counsel for the SEC regarding

the Receiver's proposed claims administration procedures and deadlines. In developing the proposed procedures and deadlines, the Receiver and the SEC took into consideration, among other things, (1) the length of time that would have passed since J&K Global and AAA-Auction.com investors made their investments and the filing of their claims; (2) the large number of potential claimants and the relatively small amount invested by many of them, $375; (3) the global dispersion of potential claimants; (4) the nature and structure of the Defendants' fraudulent schemes; (5) the mechanisms by which investors' money was collected by Defendants, e.g., money orders; and, (6) the integrity and reliability of records available for the Receiver to validate claims. 29. On or about November 22, 2006, the Receiver filed with the Court the Receiver's

Unopposed Motion to Establish Procedures and Deadline for Filing Claims, to Approve Manner of Notice to Potential Claimants, and to Establish Claims Review Procedures, with Certificate of Compliance ("Motion to Establish Procedures"). The Court approved the Motion to Establish Procedures on or about December 6, 2006, and established March 12, 2007 as the Claims Bar Date. 30. Contemporaneous with its Motion to Establish Procedures, the Receiver filed with

the Court the Receiver's Unopposed Motion for Order Determining Assets of J&K Global Marketing Corporation and AAA-Auction.com, Inc. Liable for Obligations of Kenneth Roy Weare ("Motion to Reverse Pierce"), seeking to reverse pierce the respective corporate veils of J&K Global and

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AAA-Auction.com in order to consolidate and distribute the remaining assets of each corporation, i.e., the funds on deposit in the registry of the Court, to satisfy claims against Weare. The Court granted the Motion to Reverse Pierce on or about December 6, 2006. 31. After filing its Motion to Establish Procedures, the Receiver retained the services of

FormRouter, Inc. of Cary, North Carolina ("FormRouter") to assist the Receiver in creating an electronic Proof of Claim Form to expedite the claims process. To that end, the Receiver provided a copy of the Proof of Claim Form to FormRouter in order to convert that document into an Adobe Acrobat® document that could electronically capture claims data. Data submitted by each claimant was to be, and subsequently was, encrypted by FormRouter and forwarded to an Access® database residing on the Receiver's server. Both the individual claimant and the Receiver also received an e-mail containing a .pdf file of the completed Proof of Claim Form each time a claim was submitted. 32. Upon receipt of the Court's order approving the Motion to Establish Procedures, and

in accordance with that motion and order, the Receiver updated its website to notify potential claimants of the procedures and deadlines related to the submission, allowance/disallowance and review of their claims. At that time, the Receiver posted at its website .pdf files of (a) the Motion to Establish Procedures; (b) the Court's Order dated December 6, 2006; (c) the Claims Bar Date Notice; (d) a Proof of Claim Form that could be printed and mailed to the Receiver or, as described above, completed online and submitted to the Receiver electronically; (e) a "Guidance on Completing Your Proof of Claim Form," prepared by the Receiver; and, (f) a Consent to Consolidation Form, which allowed claimants, desiring to do so, to consolidate their claims onto one Proof of Claim Form.

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33.

On or about December 22, 2006, the Receiver sent a broadcast e-mail containing

electronic links to the documents described above to all potential claimants who had registered their current contact information with the Receiver. At the same time, paper copies of those documents were mailed to all potential claimants who had expressly requested postal delivery of all documents from the Receiver. 34. Additional e-mail notices were sent by the Receiver on January 17, January 31,

February 6, February 8, February 15, February 20, February 27, and March 6, 2007 to those potential claimants who had not yet submitted a Proof of Claim Form. The Receiver also continued to mail a Proof of Claim Form and other claim documents to potential claimants subsequently requesting them or about whom the Receiver could not confirm receipt of the e-mail notice sent on December 22, 2006. In addition, the Receiver modified its website to include FAQ's and other information regarding the claims administration process and the deadline for submitting claims. 35. The first completed Proof of Claim Form was received at 12:26 p.m., M.S.T., on

December 22, 2006. Twenty-nine (29) additional claims were received that evening. By December 31, 2006, approximately 200 claims had been submitted, claiming a total of approximately $975,000. 36. As noted above, the Court's December 6, 2006 Order established midnight, March

12, 2007 as the deadline for the Receiver to have received timely-filed claims. As of that date and time, the Receiver had received a total of 1,863 timely-filed claims, representing approximately 4,600 investments in J&K Global and at least 22 investments in AAA-Auction.com. The total amount claimed as of that date and time was approximately $5.025 million. Included in those totals, however, were a substantial number of duplicate claims, as well as several large claims, for as much

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as $200,000 each, with no apparent basis for the dollar amount claimed. In addition, the Receiver had received a significant number of claims for amounts lost in other investment scams. 37. After March 12, 2007, the Receiver continued to receive Late-Filed Claims, as that

term was defined in the Motion to Establish Procedures. The Receiver also decided to continue receiving, reviewing and validating such claims, while recognizing their "subordinate" position given their late filing. If, as the Receiver anticipated at that time, the total dollar amount of allowed claims did not exceed the amount held in the registry of the Court, the Receiver also anticipated asking the Court to include all Late-Filed Claims in its proposed plan of distribution. 38. Over the next sixty days, the Receiver completed its review of all but a few complex

claims, for which the Receiver was awaiting additional information from the claimants. On May 11, 2007, the Receiver sent a Determination Notice to all but those few claimants, in accordance with the Motion to Establish Procedures. 39. At the time of sending Determination Notices on May 11, 2007, the Receiver had

allowed the entire amount claimed for more than 1,390 claims, or approximately 75% of the nonduplicate claims considered at that time. At the same time, the Receiver had disallowed fewer than 180 claims, or less than 10% of all considered claims, in their entirety because either there was no record of the claimant being an investor in J&K Global or AAA-Auction.com or because the claimant appeared to have made money as an investor. In addition, the Receiver had partially disallowed the remaining 300, or so, claims either because the claimant had received some money back from J&K Global or AAA-Auction.com or because the Receiver could not confirm the entire

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amount claimed to have been invested from documents supplied by the investor or the records obtained by the SEC. 40. In accordance with the Motion to Establish Procedures, claimants having all or part

of their claim disallowed by the Receiver could request reconsideration of their claim by submitting a written request and documents supporting their position to the Receiver. Given the questionable quality of data upon which the Receiver was required to rely in order to validate claims and the relatively large number of claims which the Receiver had been unable to validate through that data, the Receiver anticipated receiving a substantial number of requests for reconsideration. In fact, the Receiver received 149 requests for reconsideration from claimants, which represented approximately 8% of the non-duplicate claims considered by the Receiver. 41. As reported in the Receiver's Seventh Quarterly Report for the Quarter Ended June

30, 2007 ("Seventh Quarterly Report"), a substantial percentage of the requests for reconsideration submitted to the Receiver related to claims that the Receiver disallowed, in whole or in part, because the transaction database obtained by the SEC, and relied upon by the Receiver in validating claims, indicated a return of all, or a portion, of the claimant's investment by J&K Global. In many instances, the claimant's written request expressed outrage at the suggestion that the claimant had received monies from J&K Global. Others seemed to acknowledge the receipt of some monies from J&K Global, but disputed the amount alleged by the Receiver. Subsequent investigation and analysis by the Receiver indicated that certain payments reflected in the transaction database obtained by the SEC may, in fact, have been mere book entries by the Defendants to mislead at least some investors

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into believing that they had earned the promised return. In a few instances, the Receiver also discovered that the recorded payment was made by a check that subsequently bounced. 42. As a result of that newly discovered information, the Receiver proposed to the SEC

that all claims previously disallowed by the Receiver, in whole or in part, based on payment information contained in the transaction database be reviewed and confirmed through J&K Global bank records, even if the claimant did not request reconsideration of his or her claim. The Receiver believed that such additional effort was appropriate and necessary to preserve accuracy and fairness in the claims process. 43. On June 20, 2007, the Receiver sent a Corrected Determination Notice to 56

claimants, who had not requested reconsideration of their claims, thereby increasing the amount allowed for each claim as a result of the Receiver's verification of all payments to claimants through J&K Global bank records as well as the transaction database. Adjustments related to claims for which reconsideration had been requested by the claimant were made in the Final Determination Notices sent to those claimants. 44. On June 29, 2007, the Receiver sent a Final Determination Notice to the 149

claimants who had sought reconsideration of the Receiver's prior disallowance of all or part of their claims. As a result of these "de novo reviews" by the Receiver, the amount allowed by the Receiver was increased with respect to 101 claims, or roughly 2/3 of the claims for which reconsideration had been requested. For reasons discussed more fully in its Seventh Quarterly Report, the Receiver did not change the amount allowed with respect to the remaining 48 claims.

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45.

In accordance with the Motion to Establish Procedures, claimants who objected to

the Receiver's Final Determination Notice could seek the Court's review by filing a Motion for Review with the Court on or before July 19, 2007. To facilitate that process, the Receiver prepared and included with each Final Determination Notice a form Motion For Review By Court, a copy of which was attached as Exhibit A to the Receiver's Seventh Quarterly Report. 46. By July 19, 2007, a total of four Motions For Review By Court had been filed by

claimants James Raissis of Australia ("Raissis"); Karyn Daniels of Texas ("Daniels"); Gary Pedler of Australia ("Pedler"); and, Frank L. Miller of Florida ("Miller"). As discussed more fully in the Receiver's Eighth Quarterly Report for the Quarter Ended September 30, 2007 ("Eighth Quarterly Report"), the Receiver quickly settled with Miller and, shortly thereafter, Daniels and Pedler dropped their requests for review and accepted the amounts initially allowed by the Receiver. At a hearing on October 15, 2007, the Court allowed Raissis' claim in the amount of $375. 47. On September 24, 2007, claimant Robert Lee Pillow III ("Pillow") filed with the

Court an untimely Motion For Review By Court. At the October 15, 2007 hearing, the Court allowed Pillow's claim in the amount recommended by the Receiver, $1,500. 48. As indicated above, the Receiver continued to receive, review and consider claims

submitted after the Claims Bar Date, while still recognizing their "subordinate" position, based on the Receiver's expectation that the total amount of claims allowed, including Late-Filed Claims, would not exceed the amount of funds held in the registry of the Court. While the Receiver's consideration of such Late-Filed Claims did not significantly delay or otherwise have any negative effect on the receivership estate or other claimants, the Receiver also recognized the need to bring

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finality to the claims administration process. Therefore, in accordance with its absolute discretion to determine the date after which no new or supplemental claim would be considered, previously granted to the Receiver by the Court, the Receiver determined that it would not consider, or reconsider, any new or supplemental claim after August 10, 2007. After that date, however, the Receiver was contacted by more than 50 individuals, asking that they still be allowed to submit a claim. 49. In some instances, these "claimants" alleged that they had no prior notice of the

receivership. Others readily admitted to being aware of the receivership, but claimed that they were not told, or did not understand, that they were required to submit a Proof of Claim Form to the Receiver. Still others readily acknowledged that they understood the procedures, but did not previously submit a Proof of Claim Form, for whatever reason, but wanted to do so then. In virtually all cases, the receipt of a distribution check by a friend, co-worker or family member in late August or early September 2007 had triggered the communication to the Receiver. 50. Given (1) the number of post-August 10 "claims" received by the Receiver; (2) the

length of time that passed between the date on which individuals invested and when a receiver was appointed in this matter; (3) the quality of the data upon which the Receiver had to rely in notifying potential claimants and validating claims; (4) the nature of these investments and the manner in which investors invested on behalf of others; and, (5) the dollar amount of funds still remaining in the registry of the Court after payment of all allowed claims, discussed more fully below, the Receiver concluded that the equities weighed in favor of considering these "claims" notwithstanding

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the Receiver's previous determination of August 10, 2007 as the last date for the consideration of claims. 51. At the hearing on October 15, 2007, the Receiver presented its recommendations to

the Court regarding the 55 additional "claims" it had received after August 10, 2007. At that time, the Receiver recommended that 46 "claims," in the total amount of $58,125, be allowed in their entirety and that 5 "claims" be partially allowed, in the total amount of $6,225. The Receiver also recommended that 4 "claims" be disallowed in their entirety because bank records provided to the Receiver indicated that those individuals made money as investors in J&K Global. The Court granted the Receiver's request that 51 "claims" totaling $64,350 be paid "as a matter of grace," and ordered that no further claims be considered by the Receiver. 52. Since the October 15 hearing, the Receiver has been contacted by several individuals

wanting to submit a "claim," however, in accordance with the Court's orders, the Receiver has refused to accept or consider them. 53. Attached at Exhibit A is a schedule summarizing the number of unique (i.e., non-

duplicate), timely- and late-filed claims considered by the Receiver during the course of this receivership, as well as the total dollar amounts claimed and allowed/disallowed by the Receiver with respect to those claims. Exhibit A also divides all unique claims considered by the Receiver into three categories: (1) those allowed by the Receiver in their entirety; (2) those disallowed in their entirety; and, (3) those partially allowed and partially disallowed. 54. As reflected in Exhibit A, during the course of this receivership, the Receiver

considered and allowed in their entirety a total of 1,486 unique claims, or 78.2% of all non-duplicate

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claims considered. The total dollar amount of all such claims allowed in their entirety was $1,823,855. It should be noted that the amount allowed for this category of claims exceeded the amount claimed, $1,548,622, because the Receiver received and considered approximately 300 unique claims with no amount specified. In many cases, the claimant had expressly stated that he/she no longer had any documentation evidencing his/her investment from seven or eight years ago and, therefore, had no choice but to rely on the records obtained by the SEC. 55. During the course of this receivership, the Receiver considered and disallowed in their

entirety a total of 103 unique claims, or 5.4% of all non-duplicate claims considered. The remaining 312 unique claims were partially allowed/disallowed by the Receiver. A total of $383,100 was allowed with respect to those claims. Thus, the total dollar amount of unique claims allowed by the Receiver was $2,206,955 ($1,823,855 + $383,100).

IV. Distributions to Investors 56. On July 27, 2007, the Receiver filed with the Court Receiver's Combined Status

Report and Motion for Order Authorizing and Directing Payment of Allowed Claims and to Set Hearing Date on Claimants' Motions for Review by Court ("July 27 Status Report and Motion"). Among other things, the July 27 Status Report and Motion asked the Court to approve the payment of 1,743 allowed claims, totaling $2,124,980. On July 31, 2007, the Court entered its Order Authorizing and Directing Payment of Allowed Claims and Setting a Hearing Date on Claimants' Motions for Review ("July 31 Order"), granting the relief requested by the Receiver in its July 27 Status Report and Motion.

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57.

Upon receipt of the July 31 Order, the Receiver prepared for the Clerk of the Court's

Financial Supervisor Microsoft Excel® spreadsheets containing all of the data needed to prepare and issue the checks for approved distributions to claimants. On August 7, 2007, three spreadsheets were e-mailed to the Clerk of the Court's Financial Supervisor: (1) a list of 1,011 checks, totaling $1,098,205, to be made payable to J&K Global investors residing the United States; (2) a list of 713 checks totaling $637,575, to be made payable to J&K Global investors residing in 29 foreign countries; and, (3) a list of 22 checks, totaling $389,200, to be made payable to AAA-Auction.com investors, all of whom reside in the United States. It should be noted that the total number of checks issued (1,746) was three more than the total number of claims approved by the Court (1,743) because one claim submitted in the names of four brothers and sisters in Finland subsequently was divided into four separate checks to facilitate the payment process. 58. While assisting the Clerk of the Court's Financial Supervisor with the preparation,

issuance and mailing of distribution checks to claimants, the Receiver identified additional duplicate claims. As a result, the Receiver withheld delivery of 11 checks totaling $6,750, in accordance with the Court's July 31 Order. The Receiver also directed the Clerk of the Court's Financial Supervisor to reduce the amount of one distribution check by $750, due to the discovery of a duplicate claim. The Clerk of the Court's Financial Supervisor, therefore, issued 1,735 checks totaling $2,117,480. It is the Receiver's understanding that the checks made payable to AAA-Auction.com investors were mailed on August 9, 2007, and that the mailing of payments to J&K Global investors began on August 16, 2007.

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59.

At the time of filing the July 27 Status Report and Motion, the Receiver had not fully

completed its review and consideration of several claims. The July 31 Order, therefore, expressly permitted the Receiver to supplement its motion at any time prior to October 15, 2007, in order to seek the Court's order to direct payment of any claim considered or reconsidered by the Receiver after July 27, 2007. 60. On September 7, 2007, the Receiver filed with the Court its Unopposed Motion for

Order Authorizing and Directing Payment of Allowed Claims ("September 7 Motion"), asking the Court to approve the payment of 14 additional allowed claims, totaling $23,625. The Court entered its order that same day authorizing and directing the payment of those additional claims. Checks related to those claims were mailed by the Clerk of the Court's Financial Supervisor on or about September 13, 2007. 61. At the time of filing its September 7 Motion, the Receiver had partially allowed/

disallowed three other claims and each of those claimants still had the right to seek reconsideration and/or Court review of his/her claim in accordance with the Motion to Establish Procedures. On October 2, 2007, the Receiver filed with the Court its Unopposed Motion for Order Authorizing and Directing Payment of Additional Allowed Claims ("October 2 Motion"), asking the Court to approve payment of those three additional claims, totaling $1,125. The Court entered its order granting that motion on October 3, 2007, and the checks related to those claims were mailed by the Clerk of the Court's Financial Supervisor on or about October 11, 2007. 62. As noted in Paragraph 46 above, two claimants, Daniels and Pedler, initially filed

Motions For Review By Court, but later dropped their requests for review and accepted the amounts

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initially allowed by the Receiver. Consequently, the Court entered two orders on September 5, 2007, directing the payment of $750, each, to Daniels and Pedler. Those checks were mailed by the Clerk of the Court's Financial Supervisor on or about September 13, 2007. 63. As discussed in Paragraph 51 above, at the October 15 hearing, the Court granted the

Receiver's request that an additional 51 "claims," totaling $64,350, be paid. In addition, the Court ordered the payment of $375 to Raissis. It is the Receiver's understanding that the Clerk of the Court's Financial Supervisor mailed those 52 checks totaling $64,725 on or about October 25, 2007. It should also be noted that, at the October 15 hearing, the Court granted the Receiver's request to reduce the amounts of two previously authorized and issued, but undelivered, distribution checks by a total of $1,500, due to the claimants' failure to provide the necessary documentation to allow consolidation of certain claims. Thus, the net amount paid by the Clerk of the Court's Financial Supervisor on October 25, 2007 was $63,225 ($64,725 ­ $1,500). 64 Attached at Exhibit B is a schedule summarizing the number and dollar amount of

distribution checks issued and mailed to investors by the Clerk of the Court's Financial Supervisor. As reflected in Exhibit B, 1,806 checks in the total amount of $2,206,955 have been issued and mailed to J&K Global and AAA-Auction.com investors during this receivership. Attached at Exhibit C is a list of the 1,075 claimants residing in the United States, who were issued and mailed distribution checks by the Clerk of the Court's Financial Supervisor and the amount paid to each. Claimants listed in Exhibit C are identified by first initial, last name, city and state. As set forth in Exhibit C, a total of $1,542,280 was distributed to claimants residing in the United States.

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65.

Similarly, attached at Exhibit D is a list of the 731 claimants residing in 29 foreign

countries, who were issued and mailed distribution checks by the Clerk of the Court's Financial Supervisor and the amount paid to each. Claimants listed in Exhibit D are identified by first initial, last name, city/state/province/postal code and country. As set forth in Exhibit D, a total of $664,675 was distributed to claimants residing in foreign countries.

Accounting for Funds Deposited Into/Disbursed From the Court Registry 66. As indicated above, the SEC recovered more than $800,000 in money orders

purchased by investors and held by the Defendants at a bank in Grenada. It is the Receiver's understanding that, between October 26, 2004 and April 8, 2005, a total of $803,728.49 was deposited into the registry of the Court in connection with 2,476 money orders recovered by the SEC. In addition, the SEC recovered investor funds that had been deposited into Defendants' account(s) in Luxembourg. Consequently, on November 16, 2005, an additional $2,916,343.98 was deposited into the registry of the Court. Also, it is the Receiver's understanding that, in the summer of 2006, FirstBank of Colorado notified the SEC that it was still holding funds belonging to Defendant AAAAuction.com. Thus, another $16,072.13 was deposited into the registry of the Court on or about September 25, 2006. 67. Since being deposited into the registry of the Court, the funds recovered by the SEC

have earned interest in the amount of $298,613.62, through November 28, 2007. 68. Attached at Exhibit E is a schedule summarizing all deposits into and disbursements

from the registry of the Court related to this matter. As set forth in Exhibit E, through November 28, 2007, deposits into the registry of the Court related to this matter have totaled $4,034,758.22. -26-

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69.

As discussed at length above, disbursements in the form of distribution checks to

claimants during this receivership have totaled $2,206,955.00. In addition, at the Court's direction, funds have been paid in the following amounts to the following firms: $1,356.62 to Denver newspapers for advertising the RFP; $17,225.16 to Turk and Prum, the Luxembourg law firm used by the SEC to recover the funds in that country; $54,809.01 to Damasco & Associates, the tax administrator, for taxes owed by the receivership estate and that firm's professional fees and costs; and, $295,765.32 to the Receiver for its professional fees and out-of-pocket expenses, discussed more fully below. Consequently, through the date of this report, a total of $2,576,111.11 has been disbursed from the funds deposited into the registry of the Court. 70. As set forth in Exhibit E, as of November 28, 2007, the balance of funds remaining

in the registry of the Court was $1,458,647.11. It is the Receiver's understanding that the total balance consisted of $1,453,131.12 in principal and $5,515.99 in interest.

Receiver's Professional Fees and Out-of-Pocket Expenses 71. Contemporaneously herewith, the Receiver has submitted to the Court Receiver's

Ninth and Final Application for Fees and Expenses for the Period from October 1, 2007 through November 30, 2007 and for Estimated Fees and Expenses to be Incurred Thereafter ("Final Fee Application"). In its Final Fee Application, the Receiver seeks the payment of $25,810.29 for its professional fees and expenses during the period October 1, 2007 through November 30, 2007. In addition, the Receiver requests the payment of $5,928.45 for its estimated fees and expenses to be incurred after November 30, 2007.

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72.

In its Final Fee Application, the Receiver has itemized in detail its billings and out-of-

pocket expenses for the period October 1, 2007 through November 30, 2007, as well as set forth the basis for its estimated fees and expenses after November 30, 2007. 73. To date, the Court has approved payment to the Receiver of $215,796.50 for

professional fees and $79,968.82 for reimbursement of the Receiver's out-of-pocket expenses. The following is a summary of the Receiver's fees and expenses that have been approved by the Court, to date, during this receivership. Fee Application First Application Second Application Third Application Fourth Application Fifth Application Sixth Application Seventh Application Eighth Application Total Period 10/26/05 - 11/30/05 12/01/05 - 04/30/06 05/01/06 - 06/30/06 07/01/06 - 09/30/06 10/01/06 - 12/31/06 01/01/07 - 03/31/07 04/01/07 - 06/30/07 07/01/07 - 09/30/07 10/26/05 - 09/30/07 Fees Approved $18,050.00 $9,400.00 $35,582.50 $34,617.50 $25,205.00 $23,132.50 $35,550.00 $34,259.00 $215,796.50 Expenses Approved $49.05 $8,653.42 $24,222.35 $3,235.90 $11,426.56 $11,451.35 $9,188.67 $11,741.52 $79,968.82

74.

In its September 23, 2005 proposal in response to the SEC's RFP, the Receiver

initially estimated that its professional fees during this receivership would total $100,000 and its outof-pocket expenses would be approximately $30,000. Those initial estimates were expressly based on certain assumptions that, for reasons discussed at length in the Receiver's Fifth Application for Fees and Expenses, proved to be invalid. Therefore, as the chart in Paragraph 73 above clearly

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indicates, the Receiver's initial estimates for professional fees and expenses were exceeded before the end of 2006. 75. In an effort to stay within its initial and subsequent estimates of professional fees and

expenses, while continuing to provide high quality professional services, a substantial number of hours expended by the Receiver's employees were reported as no charge (NC) in the Receiver's fifth and subsequent fee applications. In addition, after January 1, 2007, the hours expended by Stephanie L. Katz, who was primarily responsible for communications with investors and the validation of claims, were charged at a discounted rate. Moreover, throughout this receivership, the Receiver's president, Leslie A. Patten, performed his professional responsibility to oversee and supervise this matter without charging his time to the receivership estate. In fact, the Receiver has sought payment from the receivership estate for only one hour of Mr. Patten's time, when he attended the hearing on October 15, 2007. 76. Through November 30, 2007, the Receiver's employees recorded a total of 1,771.2

billable hours related to this receivership. Had all of those hours been charged to the receivership estate at the Receiver's standard hourly rates, the Receiver's fees through November 30, 2007 would have totaled $276,667.50. Instead, the Receiver has sought only $230,676.50 as payment for its services through November 30, 2007, thereby saving the receivership estate $45,991.00 and resulting in an effective hourly rate during the entire receivership of $130.24.

Motion to Discharge Receiver 77. Taking all of the above into consideration, the Receiver has completed the duties for

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its Final Fee Application, which includes an estimate of the Receiver's professional fees and out-ofpocket expenses after November 30, 2007. 78. The Receiver, therefore, expresses its appreciation to the SEC and the Court for the

opportunity to be of service here and respectfully requests the Court to order that the Receiver has satisfied its duties to the Court and this receivership estate and to discharge the Receiver from further service in this matter.

Certificate of Compliance 79. On December 6, 2007, the Receiver forwarded a copy of this report and motion to

Leslie Hughes, counsel for the SEC. Ms. Hughes has indicated that she has no objection to the motion to discharge the Receiver.

WHEREFORE, the Receiver respectfully submits this report and motion, and requests the Court to order that the Receiver has satisfied its duties to the Court and this receivership estate, to discharge the Receiver from further service in this matter, and to grant such other and further relief as the Court deems just and proper. DATED this 7th day of December, 2007.

s/ Leslie A. Patten Leslie A. Patten, President Patten, MacPhee & Associates, Inc. 1775 Sherman Street, Suite 2900 Denver, Colorado 80203 Telephone: (303) 296-2900 Fax: (303) 296-4475 E-mail: [email protected] -30-

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DATED this 7th day of December, 2007.

s/ Michael D. Burns Michael D. Burns, #11631 1775 Sherman Street, Suite 2900 Denver, Colorado 80203 Telephone: (303) 296-2900 FAX: (303) 296-4475 E-mail: [email protected] Attorney for Receiver

CERTIFICATE OF SERVICE I hereby certify that on December 7, 2007, I electronically filed the foregoing RECEIVER'S NINTH AND FINAL REPORT AND UNOPPOSED MOTION TO DISCHARGE RECEIVER, WITH CERTIFICATE OF COMPLIANCE with the Clerk of the Court using the CM/ECF system, which will send notification of such filing to the following e-mail addresses:

Leslie J. Hughes [email protected] Christine J. Jobin [email protected] Thomas J. Krysa [email protected],[email protected]

s/ Michael D. Burns Michael D. Burns, #11631 Attorney for Receiver 1775 Sherman Street, Suite 2900 Denver, Colorado 80203 Telephone: (303) 296-2900 FAX: (303) 296-4475 E-mail: [email protected] -31-