Free Receivers Financial Report - District Court of Colorado - Colorado

Case 1:01-cv-00645-JLK

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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 FIFTH QUARTERLY REPORT FOR THE QUARTER ENDED DECEMBER 31, 2006

Patten, MacPhee & Associates, Inc., the Court-appointed Receiver in this case, hereby submits its quarterly report for the calendar quarter ended December 31, 2006, outlining the current status and progress of its efforts to establish and administer the claims process for investors, as set forth in the Court's Order Appointing Receiver dated October 26, 2005. This quarterly report summarizes activities undertaken by the Receiver from October 1, 2006 through the end of the calendar year. In addition, the Receiver has included discussion of significant events subsequent to January 1, 2007. The Receiver reports the following: 1. By the beginning of the period covered in this quarterly report, the Receiver had

substantially completed all reasonable, good-faith efforts to contact victims of this investment fraud. As discussed at length in prior quarterly reports, since its appointment, the Receiver had sent more

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than 78,000 e-mails and mailed approximately 15,000 letters to potential claimants in more than 90 countries around the world. During the period covered by this quarterly report, the Receiver also confirmed the completion of a broadcast e-mail sent from the SEC's server in a further attempt to contact potential claimants. The SEC had offered to send that e-mail hoping that an e-mail from the SEC would reach investors with strong spam filters, as well as allay certain investors' fears that the Receiver's notice of a restitution fund so many years after their investment was not itself another scam. 2. 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 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 victims; (4) the nature and structure of the Defendants' fraudulent schemes; (5) the mechanisms by which investors' money was collected by the Defendants, e.g., money orders; and, (6) the integrity and reliability of records available for the Receiver to validate claims. 3. 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. -2-

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Because potential claimants were going to be encouraged to submit their claims electronically, the actual deadline for the Receiver to receive a claim was established as midnight Mountain Standard Time (0700 UTC GMT) on March 12, 2007. 4. 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 Marketing Corporation and AAA-Auction.com, Inc. 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 Defendant Weare. The Court granted the Motion to Reverse Pierce on or about December 6, 2006. 5. 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 would electronically capture claims data. Data submitted by each claimant was to be, and has been, encrypted by FormRouter and forwarded to an Access database residing on the Receiver's server. Both the individual claimant and the Receiver also receive an e-mail containing a .pdf file of the completed Proof of Claim Form each time a claim is submitted. 6. The Receiver also prepared a Consent to Consolidation Form so that claimants,

desiring to do so, could consolidate their claims onto one Proof of Claim Form. Given the nature -3-

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and structure of the Defendants' fraudulent schemes, the Receiver expects consolidation of claims to be used extensively. Because investors in J&K Global Marketing Corporation were rewarded for getting others to invest, many investors made multiple small investments ­ using variations of their own name, the names of family members and friends, and/or fictitious names ­ rather than a single, lump-sum investment. In addition, the Receiver is aware of several "investment partnerships," by which a number of individuals invested through a co-worker, family member or promoter. By allowing the consolidation of claims under such circumstances, the Receiver hopes to gain some efficiencies in the preparation, handling and administration of claims. In addition, the Receiver prepared for investors a document titled "Guidance on Completing Your Claim Form," which was also posted at the Receiver's website and mailed to those claimants who had expressly requested communications from the Receiver via postal mail in lieu of e-mail. 7. 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/denial and review of their claims. Among other things, the Receiver posted .pdf files containing the Proof of Claim Form, Claims Bar Date Notice, Motion to Establish Procedures and the Court's order at its website. In addition, on or about December 22, 2006, an e-mail containing electronic links to those documents was sent to all potential claimants who had registered their current contact information with the Receiver. Paper copies of those documents were mailed to all potential claimants who had expressly requested postal delivery of all documents from the Receiver. Additional e-mail notices were sent by the Receiver to those potential claimants who had not yet submitted a Proof of Claim

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Form on January 17 and, again, on January 31, 2007. The Receiver intends to send at least one more e-mail notice no later than February 9, 2007, reminding all potential claimants who have not submitted a Proof of Claim Form by that date that they have only 30 days remaining to submit their claims. 8. The first completed Proof of Claim Form was received at 6:55 p.m. 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 amount of approximately $975,000. 9. As of the date of this quarterly report, the Receiver has received more than 600 Proof

of Claim Forms from investors. The total amount claimed, to date, is approximately $2,100,000. 10. During the period covered by this quarterly report, the Receiver was contacted by the

Department of Justice, requesting that the Receiver identify the investors contained in a database provided to the Receiver by the SEC that were also on a criminal restitution list established as a part of Defendant Weare's plea agreement. To the extent possible, the Receiver has complied with that request. 11. In January 2007, John Paul Anderson notified the Receiver that he was leaving the

firm for employment elsewhere. As a result, Michael D. Burns will now be responsible for managing this receivership, including all claims administration, distribution and court-related matters. Ultimate oversight and responsibility will continue to rest with the undersigned. The undersigned wants to assure the Court that there has been a smooth transition of the management of this project to Mr. Burns, and that the receivership estate will not be charged for the extra hours and expense necessitated by Mr. Anderson's departure.

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WHEREFORE, the Receiver respectfully submits this quarterly report this 1st day of February, 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]

DATED this 1st day of February, 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 February 1, 2007, I electronically filed the foregoing RECEIVER'S FIFTH QUARTERLY REPORT FOR THE QUARTER ENDED DECEMBER 31, 2006 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 nonCM/ECF participant (individually and as agent for J&K Global Marketing Corporation and AAA-Auction.com, Inc.) via U.S. mail, postage prepaid: Kenneth Weare 84168-198 FCI Terminal Island Federal Correctional Institution 1299 Seaside Avenue Terminal Island, CA 90731

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]