Free Motion for Disbursement of Funds - 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 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 WITH CERTIFICATE OF COMPLIANCE

Patten, MacPhee & Associates, Inc., the Court-appointed Receiver, by and through its attorney, hereby submits this status report pursuant to Paragraph 54 of 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 ("Motion to Establish Procedures"), which was granted by the Court's order dated December 6, 2006. The Receiver also respectfully moves the Court for an order authorizing and directing the payment of $2,124,980 in allowed claims, in the manner set forth below, from funds held in the registry of the Court under this case name and number. In addition, the Receiver respectfully asks the Court to set a hearing date on or after October 15, 2007, for the Court to hear and consider evidence on all disputed claims set forth in

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certain claimants' Motions for Review By Court now or hereafter filed with the Court. In support thereof, the Receiver states as follows: I. 1. BACKGROUND

On December 6, 2006, the Court entered its order granting the Motion to Establish

Procedures, which outlined in detail the process to be followed by the Receiver in administering claims by investors in J&K Global Marketing Corporation ("J&K Global") and AAA-Auction.com, Inc. ("AAA-Auction.com"). 2. The Court's December 6, 2006 order established midnight, March 12, 2007 as the

deadline for the Receiver to have received timely-filed claims from investors in J&K Global and AAA-Auction.com. By that date, 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 AAAAuction.com. The total amount claimed 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 as $200,000 each, with no apparent basis for the dollar amount claimed. In addition, as discussed below, the Receiver had received a significant number of claims for substantial dollar amounts lost in other investment scams. 3. Since March 12, 2007, the Receiver has received and considered 83 Late-Filed

Claims, as that term is defined in the Motion to Establish Procedures. These additional claims total approximately $183,315. Through the date of this status report, the Receiver has continued to receive, review and validate Late-Filed Claims, while still recognizing their "subordinate" position given their late filing. The primary source of these additional claims appears to be "friends and -2-

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family" of existing claimants. In addition, a couple of late-filing claimants have represented to the Receiver's employees that they only recently learned of this receivership matter. A few attribute their lateness to, finally, retrieving their documents from the garage or basement. 4. By May 11, 2007, the Receiver had finished its review and consideration of all claims

submitted through that date, except for 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. 5. 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. Pursuant to Paragraph 23 of the Motion to Establish Procedures, the amount of each claim is to be limited to the "Unpaid Principal Balance." "Unpaid Principal Balance" is defined in Paragraph 22 as "the principal amount of an investment, net of any return on, or of, the investment received by an Eligible Claimant." 6. As of May 11, 2007, 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 AAAAuction.com or because the Receiver could not confirm the entire amount claimed to have been invested from documents supplied by the investor or the records obtained by the SEC during the course of its investigation. -3-

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7.

In accordance with the Motion to Establish Procedures, claimants having all or part

of their claims disallowed by the Receiver could request reconsideration of their claims by submitting a written request and documents supporting their position to the Receiver. Given the questionable quality of the 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 had anticipated receiving a substantial number of requests for reconsideration. 8. As of the date of this status report and motion, the Receiver has received 154 requests

for reconsideration from claimants. That number represents approximately 8.4% of the total number of non-duplicate claims considered by the Receiver. 9. For reasons discussed in detail in the Receiver's Seventh Quarterly Report for the

Quarter Ended June 30, 2007 ("Seventh Quarterly Report"), the Receiver proposed to the SEC in late May or early June 2007 that all claims previously disallowed by the Receiver, in whole or in part, based on payment information contained in the transaction database obtained by the SEC during the course of its investigation be verified 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. 10. Given the substantial number of requests for reconsideration and the Receiver's

decision to confirm payments to investors through J&K Global's bank records, discussed above, the Receiver filed a Motion for Extension of Time to Issue Final Determination Notices and to File Status Report ("Motion for Extension of Time") with the Court on June 8, 2007. The Court granted

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the Motion for Extension of Time, granting the Receiver an extension of time until June 29, 2007 for the Receiver to issue a Final Determination Notice to all claimants seeking reconsideration of the disallowance of all or part of their claims, and until July 30, 2007 for the Receiver to file this status report with the Court. 11. 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 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. 12. On June 29, 2007, the Receiver sent a Final Determination Notice to the 149

claimants who had sought reconsideration of the Receiver's disallowance of all or part of their claims prior to that date. 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. The Receiver did not change the amount allowed with respect to the remaining 48 claims. Since June 29, 2007, the Receiver has received five additional requests for reconsideration and has sent Final Determination Notices to those claimants as well. 13. In accordance with the Motion to Establish Procedures, claimants who object to the

Receiver's Final Determination Notice may seek the Court's review by filing a Motion for Review with the Court. To facilitate that process, the Receiver prepared and included with each Final Determination Notice a form Motion for Review By Court. A copy of that form motion was attached to the Receiver's Seventh Quarterly Report at Exhibit A. In accordance with the Motion to Establish

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Procedures, the deadline for filing a Motion for Review By Court was July 19, 2007, for those claimants who were sent a Final Determination Notice on June 29, 2007. As of the date of this status report and motion, only four Motions For Review By Court have been filed with the Court.

II. 14.

STATUS OF CLAIMS ADMINISTRATION PROCESS

As of the date of this status report and motion, the Receiver has reviewed and

considered a total of 1,842 claims, after eliminating a substantial number of duplicate claims and/or consolidating certain claims for administrative convenience. Attached at Exhibit A is a schedule summarizing the number of timely- and late-filed claims considered by the Receiver, as well as the total dollar amounts claimed and allowed/disallowed by the Receiver with respect to those claims. The Receiver has received at least three additional Late-Filed Claims that have not been considered by the Receiver as of the date of this status report and motion and, therefore, are not included in Exhibit A. Exhibit A further divides all claims considered by the Receiver into 3 categories: (1) those allowed by the Receiver in their entirety; (2) those disallowed in their entirety; and, (3) those partially allowed and partially disallowed. 15. It should be noted that although Exhibit A is similar in form to Exhibit B to the

Receiver's Seventh Quarterly Report, the number and dollar amounts have changed slightly due to claims considered by the Receiver after June 30, 2007, the identification of additional duplicate claims, and the Receiver's recent determination that one particular claim that, previously, had been reported as late, should have been deemed timely. 16. As reflected in Exhibit A, as of the date of this status report and motion, the Receiver

has considered and allowed in their entirety a total of 1,441 claims, or 78.3% of all claims -6-

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considered. Of those claims, 1,385 were timely-filed and 56 were submitted after the Claims Bar Date. The total dollar amount of all claims allowed in their entirety is $1,757,855. It should be noted that the amount allowed for this category of claims in Exhibit A exceeds the amount claimed because the Receiver received and considered as many as 255 claims with no specified claim amount. In many cases, the claimant expressly stated that he/she no longer had any documentation evidencing his/her investment from seven or eight years ago and, therefore, must rely on the records obtained by the SEC and provided to the Receiver. 17. Exhibit A also reflects that, as of the date of this status report and motion, the

Receiver has considered and disallowed in their entirety a total of 99 claims, or 5.4% of all claims considered. The total amount disallowed for claims falling into this category is $359,161. As noted above, claims disallowed in their entirety consisted primarily of investors who actually made money on their investment in J&K Global and claimants seeking amounts lost in other investment scams. 18. The balance of Exhibit A relates to the 302 claims that the Receiver partially

allowed/disallowed. As reflected in Exhibit A, a total of $2,930,409 was claimed by those 302 claims. Yet, the Receiver allowed only $367,125 with respect to those claims, thereby partially disallowing a total of $2,563,284. While that amount may seem substantial at first blush, it should be noted that 9 claims, alone, account for $1,919,125, or approximately 75% of that difference. Those 9 claims totaled $1,922,500, yet records provided to the Receiver showed an investment by those 9 claimants of $375 each, or a total of $3,375. The remaining 25% of the total amount partially disallowed by the Receiver consisted of (1) claimed investments that the Receiver could not verify from documents supplied by the claimant or from records obtained by the SEC, and (2) adjustments

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made by the Receiver for amounts actually received by the claimants from J&K Global or AAAAuction.com. 19. As set forth in Exhibit A, the total dollar amount of claims allowed by the Receiver

as of the date of this status report and motion is $2,124,980.

III. 20.

APPROVED TIMELY-FILED CLAIMS

In accordance with Paragraph 54 of the Motion to Establish Procedures, attached at

Exhibit B is a list of all Eligible Claimants who invested in J&K Global and the amount of the Approved Claim for each Eligible Claimant, as those terms are defined in the Motion to Establish Procedures. Similarly, attached at Exhibit C is a list of all Eligible Claimants who invested in AAA-Auction.com and the amount of the Approved Claim for each. Exhibits B and C identify each Eligible Claimant by claim number, first initial, last name, city, state/province and country. 21. As reflected in Exhibits B and C, there are 1,646 Approved Claims related to

investments in J&K Global, totaling $1,625,130, and 22 Approved Claims related to investments in AAA-Auction.com, totaling $389,200. Thus, as of the date of this status report and motion, the total dollar amount of timely-filed Approved Claims is $2,014,330. 22. Attached at Exhibit D is a list of the 91 claimants whose timely-filed claim was

disallowed in its entirety by the Receiver. Exhibit D identifies each such claimant by claim number, first initial, last name, city, state/province and country.

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IV. 23.

LATE-FILED CLAIMS

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 from investors in J&K Global and AAA-Auction.com. Nevertheless, the Receiver has received 83 Late-Filed Claims, as that term is defined in the Motion to Establish Procedures. In addition, the Receiver, in its discretion, has continued to receive, review and consider such Late-Filed Claims, while recognizing their "subordinate" position given their late filing. If, as the Receiver has anticipated for several months, the total dollar amount of Approved Claims did not exceed the amount held in the registry of the Court, the Receiver also anticipated asking the Court to include such Late-Filed Claims in the distribution of funds to investors. 24. Attached at Exhibit E is a list of the 75 Late-Filed Claims received from J&K Global

AAA-Auction.com investors that have been allowed by the Receiver. Exhibit F is a list of the 8 Late-Filed Claims that have been disallowed in their entirety by the Receiver, either because 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. Exhibits E and F identify each LateFiled Claim by claim number and the claimant's first initial, last name, city, state/province and country. As set forth in Exhibit E, the total amount claimed by the Late-Filed Claims allowed by the Receiver is $172,440, and the total amount allowed by the Receiver with respect to those claims is $110,650. 25. As of the date of this status report and motion, the total amount of claims allowed by

the Receiver, including both Approved Claims and Late-Filed Claims, is $2,124,980.

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V.

MOTION FOR ORDER AUTHORIZING AND DIRECTING PAYMENT OF ALLOWED CLAIMS It is the Receiver's understanding that, as of July 25, 2007, there was $3,681,410.35

26.

of principal and $50,643.77 of interest, or a total of $3,732,054.12, being held in the registry of the Court under this case name and number. 27. After taking into consideration (1) a reasonable reserve for all Motions For Review

By Court pending before the Court, discussed below; (2) a reasonable estimate of the amount that is expected to be allowed by the Receiver on Late-Filed Claims not fully considered or resolved as of the date of this status report and motion; (3) the Receiver's professional fees and out-of-pocket expenses requested in its Seventh Application For Fees and Expenses filed with the Court on July 25, 2007; (4) the Receiver's and the Tax Administrator's estimated fees and expenses to perform their remaining duties; and (5) the amount of all anticipated income taxes and other expenses payable by the receivership estate, there are more than adequate funds available to pay all Approved Claims and all Late-Filed Claims allowed by the Receiver to date, identified in Exhibits B, C and E. 28. The vast majority of the claimants identified in Exhibits B, C and E have been more

than patient these past several months waiting for payment on their allowed claims. Given the amount of funds available for distribution here, these claimants should not be required to wait any longer for payment, while a handful of disputed claims are resolved. 29. The Receiver, therefore, respectfully requests that the Court enter an order directing

the Clerk of the Court to pay a total of $2,124,980 to the claimants identified and in the amounts allowed in Exhibits B, C and E.

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30.

Prior to filing this status report and motion, the Receiver spoke at length with the

Clerk of the Court's Financial Supervisor, who assured the Receiver that her office has the resources and capabilities needed to prepare, issue and mail the 1,842 checks requested by this motion. The Clerk of the Court's Financial Supervisor has also informed the Receiver that completion of those tasks could take as many as 30 days after entry of the Court's order, given the large number of checks being requested here and the need to continue meeting the ongoing day-to-day responsibilities of her office. In any event, payment under the direction of the Clerk of the Court's Financial Supervisor appears to be the most cost-efficient method of payment for the receivership estate. Moreover, receipt of a check issued by the U.S. government could prove especially beneficial to the more than 700 foreign claimants listed in Exhibits B, C and E. 31. The Receiver is prepared to deliver to the Clerk of the Court's Financial Supervisor

a Microsoft Excel spreadsheet containing all of the data needed to prepare and issue the requested checks, upon receipt of the Court's order. 32. In accordance with the procedures set forth in the Motion to Establish Procedures,

unrelated investors were permitted to consolidate one or more claims if the investor(s) whose claim was (were) being consolidated submitted to the Receiver a signed Consent to Consolidation Form. It should be noted that seven of the claimants listed in Exhibits B, C and E have an asterisk (*) next to their last name. During the claims process, those seven claimants consolidated their claim with that of one or more additional investors; however, as of the date of this status report and motion, those claimants have not submitted the requisite Consent to Consolidation Form(s) to the Receiver. The Receiver, therefore, requests that the Court's order on this motion expressly grant to the

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Receiver the authority to withhold delivery of any claimant's check until receipt of the requisite Consent to Consolidation Form(s). 33. The Receiver has received more than 300 duplicate claims from investors during the

Claims Administration Process. In some instances, a claimant may have submitted his or her claim electronically and then faxed and/or mailed the same claim to the Receiver. In other instances, claimants appear to have submitted more than one claim for the same investment. In still others, one claim was submitted in the name of the personal representative for an estate and another claim was submitted in the name of the decedent. Throughout the Claims Administration Process, the Receiver has made every effort to identify and eliminate from consideration all duplicate claims. Although the Receiver has asked the Court to allow and authorize payment of all claims listed in Exhibits B, C and E, the Receiver further requests that the Court's order expressly state that the allowance and payment of any claim remains subject to the Receiver's continuing review for duplicate claims. 34. As discussed at length 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, to date, has not significantly delayed or otherwise had any negative effect on the receivership estate or claimants, the Receiver also recognizes the need to bring finality to the Claims Administration Process. Therefore, the Receiver requests that the Court's order on this motion expressly grant to the Receiver the absolute discretion to determine the date after which no new or supplemental claim will be considered.

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35.

The Receiver further requests that the Court's order expressly permit the Receiver

to supplement this motion at any time prior to the proposed hearing date discussed more fully below, in order to obtain the Court's order to authorize and/or direct payment of any claim considered, or reconsidered, by the Receiver after the date of this status report and motion.

VI. 36.

STATUS OF DISPUTED CLAIMS

As of the date of this status report and motion, four claimants have filed a Motion For

Review By Court with the Court: James Raissis ("Raissis"), Gary Pedler ("Pedler"), Karyn Daniels ("Daniels") and Frank L. Miller ("Miller"). On July 26, 2007, the Receiver filed with the Court its response to each of those motions. In accordance with Paragraph 54 of the Motion to Establish Procedures, a brief summary of the nature and status of each claim is set forth below: a. Raissis Claim ­ Raissis, who resides in Australia, claims $100,000.00. According to Raissis, that amount was invested through an intermediary in Canada, James Vint with J. Ventures, Ltd. Documents provided to the Receiver also make reference to a specific bank account at The Hong Kong Shanghai Banking Corp., Ltd. in Hong Kong. Yet, none of these documents makes any reference to J&K Global or AAAAuction.com. At the same time, records obtained by the SEC indicate that the investment made by Raissis was at most $375.00. Therefore, the Receiver strongly opposes Raissis' Motion For Review By Court. b. Pedler Claim ­ Pedler is also a resident of Australia. Pedler's Proof of Claim Form seeks a total of $1,000.00 and expressly states that Pedler has kept no records of his investment. Records obtained by the SEC indicate that Pedler invested no more than -13-

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$750.00. The Receiver, therefore, allowed Pedler's claim in the amount of $750.00 and Pedler then filed his Motion For Review By Court As of the date of this status report and motion, the Receiver has not yet spoken with Pedler to determine if a mutually satisfactory resolution of his claim may be reached. c. Daniels Claim ­ Daniels resides in Austin, Texas. Daniels' Proof of Claim Form did not claim a specified amount, but rather identified for the Receiver names under which Daniels may have invested. Records obtained by the SEC indicate that Daniels invested $1,500.00 in J&K Global. At the same time, J&K Global bank records indicate that Daniels received and negotiated two $375.00 checks from J&K Global. Thus, the Unpaid Principal Balance of Daniels investment appears to be $750.00 ($1,500.00 ­ $750.00). The Receiver, therefore, allowed Daniels' claim in the amount of $750.00 and Daniels filed her Motion For Review By Court. The Receiver has made several attempts to contact Daniels by telephone and in one instance was able to leave a message; however, as of the date of this status report and motion, Daniels has not returned the Receiver's message. d. Miller Claim ­ Miller is a resident of Winter Springs, Florida. On or about March 12, 2007, Miller submitted a claim for $1,200.00. Records obtained by the SEC indicated that Miller had invested only $750.00. Therefore, on June 29, 2007, the Receiver sent a Final Determination Notice to Miller, partially allowing his claim in the amount of $750.00. Miller then filed a Motion For Review By Court on or about July 18, 2007. On July 23, 2007, the Receiver contacted Miller by telephone. As a

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result of information provided to the Receiver during that telephone conversation, the Receiver and Miller agreed that his Claim should be allowed in the amount of $1,125.00. Exhibit B, therefore, seeks payment of Miller's Claim in the amount of $1,125.00. Miller has agreed to execute and deliver to the Receiver for filing with the Court a stipulated dismissal of his Motion For Review By Court, upon its receipt from the Receiver. 37. As of the date of this status report and motion, only three Motions For Review By

Court may require the Court's attention. Moreover, the Receiver is hopeful that a satisfactory resolution of Pedler's and Daniels' claims may be obtained in the not too distant future. With respect to Raissis' motion, the Receiver intends to contact him and request any additional documents or other information he may have that would show that the funds sent to Mr. Vint were, in fact, invested in J&K Global or AAA-Auction.com. If none are provided, there would appear to be no possibility of resolving Raissis' motion without Court involvement.

VII. MOTION TO SET HEARING DATE 38. In light of the Motions For Review By Court currently pending and the possibility of

one or more disputed claims arising, going forward, the Receiver requests that the Court set a hearing date on or after October 15, 2007, for the Court to hear and consider evidence on any disputed claim that may exist on that date. The Receiver has carefully chosen that date in order to allow the period for any request for reconsideration to be made and/or a Motion For Review By Court to be filed with respect to any new or supplemental claim subsequently considered, or reconsidered, by the Receiver. A hearing date on or after October 15, 2007, should also allow the SEC, the U.S. Attorney's Office, -15-

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Defendant Weare's criminal counsel, and any other interested party ample opportunity to consider and, perhaps, propose to the Court the manner of disposition of any excess funds remaining in the registry of the Court after the payment of all allowed claims and any remaining administrative expenses.

VIII. 39.

CERTIFICATE OF COMPLIANCE

On July 20, 2007, the undersigned conferred with Leslie Hughes, counsel for the

SEC, and outlined the general nature of the Receiver's motions contained herein. At that time, Ms. Hughes indicated that she had no objection, generally, with what the Receiver proposed; however, she wanted to discuss the matter further with others at the SEC. As of the date of this status report and motion, Ms. Hughes has not contacted the Receiver to express any objection. WHEREFORE, the Receiver respectfully requests that the Court enter an order authorizing and directing the payment of allowed claims in the manner and amounts proposed herein, setting a hearing date on or after October 15, 2007 for the Court to consider all disputed claims and any other issues that may come before the Court at that time, and granting such other and further relief as the Court deems just and proper. DATED this 27th day of July, 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

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CERTIFICATE OF SERVICE I hereby certify that on July 27, 2007, I electronically filed the foregoing 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 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] and I certify that I have caused to be mailed a copy of the foregoing to the following non-CM/ECF participants via U.S. mail, postage prepaid: James Raissis Raissis Solicitors Suite 502, 3 Waverly Street Bondi Junction, NSW 2022 AUSTRALIA Karyn Daniels 10711 Burnt Oak Drive Austin, TX 78737 Gary Pedler 9 Griffin Street, Everton Park Brisbane, Qld. 4053 AUSTRALIA

Frank L. Miller 1248 Stone Harbour Road Winter Springs, FL 32708

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]