Free Opposition (Other) - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO CASE NO. 04-CR-153-B UNITED STATES OF AMERICA, vs. 1. 2. 3. 4. 5. 6. GERALD SMALL KELLI B. SMALL, aka Kelli S. Burkhalter, ROBERT E. BICHON, ROBERT J. SIGG, CHARLES E. WINNETT, and CHAD E. HEINRICH, Plaintiff,

Defendants.

______________________________________________________________________________ PETITION OF TWENTIETH CENTURY MORTGAGE, INC. TO AMEND ORDER OF FORECLOSURE ______________________________________________________________________________ TWENTIETH CENTURY MORTGAGE, INC., by and through its attorneys, Onsager & Staelin, LLC, hereby files its Petition to Amend the Order of Forfeiture pursuant to 21 U.S.C. 853(n), and for its Petition states as follows: Twentieth Century Mortgage, Inc. ("Twentieth Century") and its creditors are some of the victims of a $35 million fraud perpetrated by a Denver-based conspiracy to commit mortgage fraud. The conspirators included, among others, Amerifunding/Amerimax Realty Group, Inc. ("Amerifunding") and its principals, Defendants Gerald Small ("Mr. Small"), Kelli Small ("Ms. Small"), Charles Winnett ("Winnett"), and Chad Heinrich ("Heinrich"), (collectively, "Conspirators").

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For years prior to 2003, Twentieth Century operated a legitimate mortgage company in Denver, Colorado under its president and then owner, Treve Kinsey. Twentieth Century and its president have a consistent record of integrity in the operation of its mortgage business. Twentieth Century financed its business in part with successive warehouse lines of credit through First Collateral starting about the year 2000, and including the Warehouse Agreement dated October 7, 2003. Neither Twentieth Century Mortgage, Inc. nor Mr. Kinsey had any financing with Impac or Flagstar Bank. In late 2003, Mr. Kinsey was approached by Chad Heinrich about buying Twentieth Century. An agreement for Mr. Heinrich to purchase all of the stock from Mr. Kinsey was concluded and closed on December 2, 2003. (See Stock Purchase and Sale Agreement attached as Exhibit 1, without exhibits). Mr. Kinsey agreed to stay on as the President of Twentieth Century for the ensuing year to transition management to Mr. Heinrich. Neither Mr. Kinsey nor any agent or employee of Twentieth Century had any notice or knowledge of the existing fraudulent activities of the Conspirators. At the time of the stock sale, Twentieth Century had in excess of $1.0 million in an account at Union Bank of California derived from its legitimate and successful mortgage business. When notified of the proposed transfer of the ownership in Twentieth Century to Mr. Heinrich, First Collateral required a deposit of $1.0 million to continue the warehouse line of credit because the lender was unacquainted with Mr. Heinrich. Pursuant to a letter agreement between Twentieth Century and First Collateral, and to an Addendum to Twentieth Century's Mortgage Warehouse Agreement with First Collateral Twentieth Century authorized First Collateral to withdraw the $1,000,000 from Twentieth Century's operating account at the Union 2

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Bank to deposit with First Collateral. The money was deposited with First Collateral about December 30, 2003. (See Letter Agreement with Authorization, and Addendum attached as Exhibits 2 and 3, respectively). After the stock sale, Heinrich also obtained a warehouse line with Flagstar Bank in Twentieth Century's name. He and his co-conspirators began to issue fraudulent mortgages in the name of Twentieth Century and warehouse them with Flagstar. Twentieth Century continued to warehouse legitimate mortgages with First Collateral; at no time were any fraudulent mortgages warehoused with First Collateral by Twentieth Century. The fraudulent activity was well concealed from Mr. Kinsey and all other employees of Twentieth Century. Pursuant to normal business activity, First Collateral drew on the $1 million deposit such that, as of March, 2004, the amount remaining on deposit was about $727,000. In March 2004, when Mr. Kinsey and Twentieth Century learned of the fraud from Flagstar Bank, FSB ("Flagstar"), they cooperated fully with the criminal investigation of the Defendant conspirators. Shortly thereafter the United States of America (the "Government") seized certain monies of Twentieth Century under the criminal forfeiture law, in particular, cash in the amount of $727,706.11 (the "$727,000") that was generated by Twentieth Century before Heinrich purchased the stock or the Conspirators had anything to do with Twentieth Century. The Government does not, and cannot, dispute that the $727,000 was not derived from any activity of the Conspirators, much less any fraudulent activity. Nevertheless, the Government now seeks to divest Twentieth Century of the $727,000. To that end, and as discussed in detail below, Twentieth Century requests that this Court amend the Notice of Forfeiture pursuant to 21 U.S.C. § 853(n) to exempt from forfeiture the cash 3

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in the amount of $727,706.11 ("$727,000") identified in letter "z" of the forfeiture notice. FACTS 1. On or around October 12, 2005, the Government entered into a Plea Agreement with Gerald Small, which describes Small' criminal activities spanning from 1999 to 2004. (See s generally, Exhibit C attached to Petition to Amend Order of Foreclosure filed by Flagstar). Count 8 of the Plea Agreement describes the Defendants' actions with regard to Twentieth Century. Pursuant to that Agreement, the Government issued a Notice of Forfeiture on November 8, 2005, which lists property forfeited by the Government. Exhibit B to Flagstar's Petition, paragraph "z", identifies the $727,000 cash that was improperly forfeited by the Government and that should be exempt from forfeiture as a matter of law for the reasons stated herein. I. THE RELEVANT PARTIES 2. Claimant Twentieth Century is a Colorado corporation with its principal place of business in Denver, Colorado. Twentieth Century specializes in mortgage lending to individuals, and, in the past, entered into agreements to receive mortgage warehouse loans from financial institutions. 3. Flagstar is a federally chartered savings bank. Flagstar is a Michigan corporation with its principal office in Troy, Michigan. Flagstar provides mortgage warehouse loans for mortgage bankers. 4. Impac is a California Corporation with its principal place of business in Newport Beach, California. Impac is a wholly-owned subsidiary of Impac Mortgage Holdings, Inc. and provides mortgage warehouse loans for mortgage bankers. 4

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5. The Defendant Chad Heinrich is a Colorado resident and a participant in Amerifunding. Mr. Heinrich helped direct and participated in the Amerifunding Conspirators' fraud as stated in the Petition. Mr. Heinrich pled guilty for his conspiracy in the case styled United States of America v. Gerald Small et al., Criminal Case No. 04-CR-153-B ("Criminal Action"). 6. The Defendant Gerald Small is a Colorado resident and a principal of Amerifunding. Mr. Small directed and conducted the Amerifunding Conspirators' fraud as stated in the Petition. Mr. Small pled guilty for his conspiracy in the case styled United States of America v. Gerald Small et al., Criminal Case No. 04-CR-153-B ("Criminal Action"). 7. Amerifunding is a Colorado corporation with its principal place of business in Westminster, Colorado. Amerifunding purports to be in the mortgage brokerage business and through its principals and employees engaged in mortgage fraud schemes. II. AMERIFUNDING' SCHEME TO DEFRAUD Twentieth Century S 8. On April 16, 2003, Flagstar extended a $5 million warehouse line of credit to Amerifunding. In November 2003, Flagstar increased Amerifunding' warehouse line to $20 s million. 9. A "warehouse line" or a "mortgage warehouse" is a line of credit used by mortgage companies to fund loans to borrowers that are secured by a mortgage interest in the borrower' s house. Mortgage warehouse loans contain strict provisions for the advances and use of the funds. The funds are to be used solely for a broker' mortgage loans and the advances are dependent s upon the presentment and security of valid mortgage loans. 10. Under the mortgage warehouse agreement, the mortgage broker locates the individual purchaser of the home, drafts the mortgage documents, and closes the loan. The warehouse bank 5

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funds the mortgage using the warehouse line of credit, and typically requires the mortgage broker to pay back the loan within thirty days of the advance. The loan is subsequently purchased by an investor company or a correspondent lender (also known as a "permanent" lender), which administers the loan. The mortgage company uses the proceeds of the sales of its mortgage loans, in large part, to repay the loans it received from the warehouse lender. Flagstar' s Warehouse Agreement with Amerifunding operated as described above. 11. The Amerifunding Conspirators manipulated the warehousing process by manufacturing and forging bogus applications, loans, mortgages, loan approvals, and requests for funds. In particular, the Amerifunding Conspirators requested advances from Flagstar for residential mortgages, falsifying the loans, mortgages, and commitment to purchase the loans by a permanent lender. Those advances would be drawn down from the warehouse line and the money was in fact filtered into sham entities and accounts held for Amerifunding. These sham entities used the money to purchase properties for the Conspirators' own benefit. These properties were then sold for a profit, and the Conspirators paid back some of the money to Flagstar while retaining some for themselves. For almost a year, the Amerifunding Conspirators continued to borrow more money from Flagstar to fund their enterprise. The Conspirators are alleged to have stolen approximately $22 million from Flagstar in this fashion. III. AMERIFUNDING' SCHEME TO DEFRAUD IMPAC S 12. On May 8, 2003, Impac entered into a Master Repurchase Agreement with Amerifunding, pursuant to which Impac agreed to provide warehouse loans of up to approximately $10 million to Amerifunding. (See May 8, 2003 Master Repurchase Agreement ("Repo Agreement") (Ex. E).) On approximately December 16, 2003, Impac increased 6

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Amerifunding' funding limit to $15 million. s 13. Under Impac' Repo Agreements, Impac provides mortgage lines of credit to mortgage s brokers in much the same way that Flagstar extends warehouse lines of credit to mortgage brokers. As with the Mortgage Warehouse Agreement, when the loans are sold by the mortgage broker to a third party, Impac receives payment. Impac' Repo Agreement with Amerifunding s worked in this way. 14. As part of the Repo Agreement, Impac requires mortgage brokers like Amerifunding to enter into a series of repurchase agreements whereby a funded loan is immediately sold to Impac with an obligation by the mortgage broker to repurchase the loan within 30 days. This repurchase requirement is typically satisfied by a third party investor/purchaser. If the loan is not purchased, the Repo Agreement gives Impac the right to liquidate the loan. 15. The Amerifunding Conspirators manipulated Impac' process in the same way they s manipulated Flagstar' process: by creating false applications, loans and mortgages. They then s fraudulently obtained Impac' funds, resulting in an alleged $13 million loss to Impac. s

IV.

THE CONTINUATION OF THE FRAUD USING Twentieth Century 16. For years prior to December, 2003, Twentieth Century operated a legitimate mortgage

company in Colorado and other states under the direction of its president and then owner, Treve Kinsey. Twentieth Century and its president have a consistent record of integrity in the operation of its mortgage business. Twentieth Century financed its business in part with a warehouse line of credit through First Collateral under Warehouse Agreements, the latest being dated October 7, 2003. Neither Twentieth Century nor Mr. Kinsey had any financing with Impac 7

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or Flagstar Bank until, as recited below, Mr. Heinrich purchased the stock of Twentieth Century from Mr. Kinsey in December, 2003. 17. In 2002, Mr. Kinsey had retained a business broker to find a buyer for Twentieth Century. In the fall of 2003, Mr. Kinsey was approached by Mr. Small and Mr. Heinrich, who expressed an interest in buying Twentieth Century. At the time, Mr. Kinsey had been tendered an offer from another interested buyer for more money, but the offer required some carry-back seller financing. Mr. Heinrich, on the other hand, who was portrayed to Mr. Kinsey as having just inherited over $30 million, offered less, but all in cash. On December 2, 2003, Treve Kinsey and Heinrich entered into an agreement for Heinrich to purchase 100% of the stock of Twentieth Century. The stock sale closed on December 2, 2003. 18. Pursuant to the stock sale agreement, Mr. Kinsey agreed to stay on as the President of Twentieth Century for the ensuing year to transition management to Mr. Heinrich. Neither Mr. Kinsey nor any agent or employee of Twentieth Century had any notice or knowledge of the existing fraudulent activities of the Conspirators. 19. At the time of the stock sale, Twentieth Century had on deposit with Union Bank of California an amount in excess of $1.0 million, derived from the funding and sale of mortgage loans. These loans were generated, funded and sold by Twentieth Century under the ownership and control of Mr. Kinsey prior to the stock sale. The Conspirators had nothing to do with these mortgages or the business of Twentieth Century when these mortgages were generated or funded by First Collateral, when they were sold to investors, or when the money was deposited with Union Bank. Accordingly, the money owed by First Collateral was free from any taint of the Conspirators whatsoever. 8

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20. As is typical in commercial lending arrangements, the proposed change in Twentieth Century's ownership required the consent of First Collateral or First Collateral could terminate its warehouse line of credit. When notified of the proposed transfer of the ownership in Twentieth Century to Mr. Heinrich, First Collateral required a deposit of $1 million to continue the warehouse line of credit because the lender was not acquainted with Mr. Heinrich. Mr. Heinrich agreed to allow First Collateral to withdraw, as a cash collateral deposit, $1 million of the amounts on deposit in Twentieth Century's account with Union Bank. 21. Using Twentieth Century's name without the knowledge of Mr. Kinsey or any Twentieth Century employee, Heinrich applied for a $25 million warehouse line of credit from Flagstar in Twentieth Century's name. Flagstar responded by granting Twentieth Century a $15 million warehouse line of credit. Heinrich and the other Conspirators then used this credit to create sham mortgage loan transactions using Twentieth Century's name and with TDF as the permanent lender. These criminal actions were all done away from Twentieth Century's offices without the knowledge or participation of any Twentieth Century Employee. Heinrich later told Mr. Kinsey that he planned to open another line of mortgages. 22. Before the fraud was discovered, Flagstar had funded $5.9 million under the Twentieth Century Agreement pursuant to 16 falsified "TDF" transactions. THE EVENTS OF MARCH, 2004 23. On March 12, 2004, Mr. Small admitted to Flagstar that he and his co-conspirators, through Amerifunding and Twentieth Century, had faked numerous transactions. At the March 12, 2004 meeting, Flagstar demanded the collateral in satisfaction of unpaid obligations. To partially satisfy Twentieth Century' obligations, on March 12, 2004, Mr. Small wired $3.4 s 9

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million to Flagstar. As described in more detail below, this $3.4 million was repayment for specific loans that Flagstar had advanced pursuant to the Twentieth Century Warehouse Agreement. Mr. Small also attempted to wire to Flagstar an additional $3.8 million in additional loan repayments, but this money was stopped in-transit by the Government pursuant to the Criminal Seizure order. 24. The Government also seized the $727,000 that Union Bank of California held in an account in the name of Twentieth Century for the benefit of First Collateral, even though these funds were generated by the conduct of legitimate business by Twentieth Century before any of the Conspirators had anything to do with the ownership or business of Twentieth Century. 25. Flagstar also immediately sued Amerifunding, Mr. Small, and the other Conspirators, as well as Twentieth Century and Mr. Kinsey, in the lawsuit styled Flagstar Bank, FSB v. Amerifunding/Amerimax Realty Group, Inc. et al., Colorado District Court, City and County of Denver, Case Number 04-CV-2177 ("Flagstar Lawsuit"). 26. The claims made by Flagstar against Twentieth Century eventually required Twentieth Century to file a case under Chapter 11 of the U.S. Bankruptcy Code on June 9, 2005, in order to protect its creditors and to resolve the claims against it. This Bankruptcy Case No. 05-23961 is currently pending in the Bankruptcy Court for the District of Colorado. 27. In its Chapter 11 case, Twentieth Century has scheduled over $200,000 in debts owed to innocent third parties, in addition to any claims of Flagstar and Impac. (see Bankruptcy Schedules D, E, and F for Twentieth Century attached as Exhibit 4). On January 9, 2006, Twentieth Century and Mr. Kinsey, and Flagstar and Impac signed a settlement agreement resolving the claims of Flagstar and Impac. The settlement provides, inter alia, that the claims 10

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against Mr. Kinsey and Twentieth Century will be liquidated at $2,127,000, and, further, that any portion of the $727,000 received by Twentieth Century will be paid to Flagstar and Impac, up to $627,000. Any amounts above that will be paid back to or retained by Twentieth Century for payment of its innocent legitimate creditors. VI. SMALL' CRIMINAL INDICTMENT AND SUBSEQUENT CRIMINAL S

PROCEEDINGS 28. On or about October 12, 2005, Gerald Small and the United States Attorney for the District of Colorado entered into a Plea Agreement according to the terms of which Gerald Small entered guilty pleas to three counts of the Federal Criminal Indictment. (See generally Plea Agreement.) The fraud against Twentieth Century by Small and Heinrich is described under Count 8 of the plea agreement, which states that Heinrich, at Small's direction arranged to purchase Twentieth Century so as to enable the Defendants to continue their criminal conspiracy. Under the terms of that Plea Agreement, all of the assets of Gerald Small were forfeited to the United States Government. On or about October 14, 2005, the United States District Judge accepted the Plea Agreement between the United States Attorney' office and Gerald Small, and s entered a Preliminary Order of Forfeiture. The United States Attorney' Office served the Notice s of Forfeiture on November 8, 2005. The Notice of Forfeiture includes the $727,000. ARGUMENT The law of criminal forfeiture is set forth by federal statute. 18 U.S.C. §982, Criminal forfeiture, provides in relevant part as follows: (a) (2) The court, in imposing sentence on a person convicted of a violation of, or a conspiracy to violate-(A) section ... 1343, ... of this title, affecting a financial institution ... 11

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shall order that the person forfeit to the United States any property constituting, or derived from, proceeds the person obtained directly or indirectly, as the result of such violation. 21 U.S.C. §853 in relevant part provides the following with regard to criminal forfeiture: (a) Property subject to criminal forfeiture Any person convicted of a violation of this subchapter or subchapter II of this chapter punishable by imprisonment for more than one year shall forfeit to the United States, irrespective of any provision of State law-(1) any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of such violation; (2) any of the person' property used, or intended to be used, in any s manner or part, to commit, or to facilitate the commission of, such violation; (3) in the case of a person convicted of engaging in a continuing criminal enterprise in violation of section 848 of this title, the person shall forfeit, in addition to any property described in paragraph (1) or (2), any of his interest in, claims against, and property or contractual rights affording a source of control over, the continuing criminal enterprise. The court, in imposing sentence on such person, shall order, in addition to any other sentence imposed pursuant to this subchapter or subchapter II of this chapter, that the person forfeit to the United States all property described in this subsection. In lieu of a fine otherwise authorized by this part, a defendant who derives profits or other proceeds from an offense may be fined not more than twice the gross profits or other proceeds. ... (c) Third party transfers All right, title, and interest in property described in subsection (a) of this section vests in the United States upon the commission of the act giving rise to forfeiture under this section. Any such property that is subsequently transferred to a person other than the defendant may be the subject of a special verdict of forfeiture and thereafter shall be ordered forfeited to the United States, unless the transferee establishes in a hearing pursuant to subsection (n) of this section that he is a bona fide purchaser for value of such property who at the time of purchase was reasonably without cause to believe that the property was subject to forfeiture under this section. ... 12

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(n) Third party interests (6) If, after the hearing, the court determines that the petitioner has established by a preponderance of the evidence that-(A) the petitioner has a legal right, title, or interest in the property, and such right, title, or interest renders the order of forfeiture invalid in whole or in part because the right, title, or interest was vested in the petitioner rather than the defendant or was superior to any right, title, or interest of the defendant at the time of the commission of the acts which gave rise to the forfeiture of the property under this section; ... the court shall amend the order of forfeiture in accordance with its determination. TWENTIETH CENTURY'S PROPERTY IS EXEMPT FROM FORFEITURE UNDER 21 U.S.C. §853(n)(6)(A) Gerald Small pled guilty to three counts of the indictment, of which only Count 8 relates to Twentieth Century. His Plea Agreement on page 14 recites the following facts relevant to Count 8 of the indictment against Small: "In late 2003, Mr. Small directed co-defendant Chad Heinrich to make a straw purchase of an existing mortgage company called Twentieth Century Mortgage, Inc. (Twentieth Century). This purchase was funded by Mr. Small with the proceeds of the fraud against Flagstar. Mr. Heinrich then submitted a false financial statement to Flagstar ... in support of an application for a $25 million line of credit. Flagstar relied on this false financial statement and issued the line of credit to twentieth Century." The Plea Agreement further recites that Heinrich and other Conspirators submitted "false and fraudulent residential home mortgage applications to Flagstar and IMPAC on behalf of Amerifunding and Twentieth Century". It also recites that the wire transfer at issue in Count 8 occurred on February 12, 2004. (Plea Agreement, Exh. C to Flagstar's Petition, pp. 16-17). Mr. Heinrich pled guilty to Count 11 of the superseding indictment charging him with wire fraud affecting a financial institution in violation of 18 U.S.C. §1343. Mr. Heinrich's Plea 13

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Agreement at pp. 6-8 recites the facts involving Mr. Heinrich, Mr. Small and Twentieth Century. These mirror those in Small's Plea Agreement, and state that the wire transfer of $393,662 in funds from Flagstar to Chicago Title Guarantee alleged in Count 11 occurred "on or about February 20, 2004". (See Heinrich's Plea Agreement, Exhibit 4). There is no allegation or statement that Mr. Kinsey or any employee of Twentieth Century had any part in the Conspirators' criminal acts. As discussed above, the $1,000,000 ($727,000 balance) that Twentieth Century deposited with First Collateral on or about December 30, 2003 as additional collateral for its warehouse loan agreement consisted of money earned and retained by Twentieth Century before Mr. Heinrich committed the acts in February 2004 to which Heinrich pled guilty and for which he was convicted. The $727,000 deposit of December 30, 2003 could not have consisted of the proceeds of any act Mr. Heinrich committed nearly two months later. Under the above facts, Twentieth Century satisfies the requirements of 21 U.S.C. §853(n)(6)(A) by a preponderance of the evidence. Twentieth Century was the sole owner of its funds used to make the $1,000,000 deposit of additional collateral at the time it made the deposit with First Collateral on December 30, 2003, and such funds were not derived to any extent from the criminal actions of Heinrich or Small or the other Conspirators. Deposits into Twentieth Century's accounts and payments out of its accounts during the months leading up to the deposit will conclusively establish such ownership. Twentieth Century satisfies each alternative prong of §853(n)(6)(A). Under 21 U.S.C. §853(n)(6)(A), Twentieth Century had a "legal right, title, or interest in the property" that was "vested" in the petitioner [Twentieth Century] rather than the defendant," and Twentieth Century 14

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had a legal right, title, or interest that was "superior to any right, title, or interest of the defendant at the time of the commission of the acts which gave rise to the forfeiture of the property under this section". Therefore under §853(n)(6)(A), the order of forfeiture is rendered "invalid in whole" as to the $727,000. Further, it may fairly be asserted that Mr. Small and Mr. Heinrich never had any interest in the $727,000. As stated above, Twentieth Century's bank account records will establish that the $727,000 came entirely from the earnings from Twentieth Century's legitimate mortgage business. These monies belonged to Twentieth Century prior to the time Defendant Heinrich purchased Twentieth Century's stock and used Twentieth Century's name without its knowledge or consent for the Conspirators' criminal enterprise. Twentieth Century's ownership also predates the specific alleged criminal acts of Small on February 12, 2004, and Heinrich on or about February 20, 2004 for which each pled guilty, respectively. Twentieth Century's superior interest in the $727,000 existed at the time of the criminal acts giving rise to the forfeiture. See United States v. McCorkle, 143 F.Supp. 2d 1311, 1324 (M.D. Fla. 2001) (holding that the government must establish a link between the property at issue and a specific crime committed by the defendant that gave rise to the forfeiture). Under the well-established rule stated in United States v. Harris, 246 F.3d 566, 575 (6th Cir. 2001), the Government cannot acquire greater or different rights than the defendant had, and Twentieth Century is entitled to recover the $727,000. More importantly, allowing the Government to seize the $727,000 would make the legitimate creditors of Twentieth Century suffer disproportionately for the crimes of the Conspirators. Twentieth Century is currently a debtor-in-possession under Chapter 11 of the United States Bankruptcy Code, bankruptcy case 15

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number 05-23961 pending in United States Bankruptcy Court for the District of Colorado. It has legitimate creditors who are totally unrelated to any of the activity of the Conspirators. The proceeds of the $727,000 must, by law, be used first to pay Twentieth Century' administrative s claims, and then its general unsecured creditors. See 11 U.S.C. Sections 507 and 1129. Flagstar and Impac are also creditors in the case. Pursuant to a settlement agreement signed January 8, 2006 (and currently pending court approval), the claims of Flagstar and Impac are liquidated at $2,127,000. Pursuant to the settlement agreement, if Twentieth Century recovers some or all of the $727,000, it is obligated to pay Flagstar up to $627,000 of the amounts recovered against the $2,127,000 claim. The remainder of the funds must be used to pay Twentieth Century' legitimate creditors under applicable bankruptcy law. s It can also be said that Twentieth Century' assets were impressed with a trust in favor of s its creditors. The necessary result of the Conspirators' activities was to render Twentieth Century insolvent. In this circumstance, Twentieth Century' creditors are entitled to consider the assets s of the corporation to be held in trust for them. Hall v. Swan, 117 Colo. 349, 188 P.2d 437 (Colo. 1947). Included in those corporate assets and the resulting trust is the $727,000. Seizure of the $727,000 violates this trust in the rights of Twentieth Century' creditors by making them victims s of the crime as well. CONCLUSION The facts in this case will establish that Twentieth Century Mortgage, Inc. had complete ownership of the $1,000,000 deposit ($727,000 balance) before any of the Conspirators, in particular Gerald Small or Chad Heinrich, committed any of the criminal acts to which they pled guilty in this case. Further, neither Twentieth Century nor its president Treve Kinsey had any 16

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notice or knowledge of any of the illegal acts or intentions of the Conspirators Small or Heinrich in relation to Twentieth Century. Therefore, under 21 U.S.C. §853(n)(6)(A), Twentieth Century will show by a preponderance of the evidence that its ownership interest in the $727,000 was vested before the operative criminal acts of the Conspirators Small and Heinrich occurred, and Twentieth Century had a superior right, title, and interest to the $727,000 to Conspirators Small and Heinrich, who had no right to such funds. Under §853(n)(6)(A) the forfeiture of the $727,000 must therefore be declared "invalid". WHEREFORE, Petitioner Twentieth Century prays for judgment amending the Order of Forfeiture to exclude the $727,000. DATED: January 12, 2006. Respectfully submitted, /s/ Earl H. Staelin Christian C. Onsager and Earl H. Staelin Onsager & Staelin, LLC 1873 S. Bellaire Street, Suite 1401 Denver, Colorado 80222 303-512-1123 Fax: 303-512-1129 [email protected] [email protected] Attorneys for Twentieth Century Mortgage, Inc.
Original signatures on file at counsel's offices

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DECLARATION UNDER PENALTY OF PERJURY I, TREVE KINSEY, having read the foregoing Petition, on this 12th day of January, 2006, do declare, under penalty of perjury, that I am the president of TWENTIETH CENTURY MORTGAGE, INC., and that all of its statements herein are true and correct to the best of my knowledge and belief. /s/ Treve Kinsey Treve Kinsey, President Twentieth Century Mortgage, Inc.

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CERTIFICATE OF SERVICE I hereby certify that on December 12, 2006, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system which will send notification of the filing to the following email addresses: Lisa A Christian Michael F. Arvin [email protected] [email protected] [email protected];kris [email protected] [email protected] Counsel for Gerald Small Sean Connelly [email protected] [email protected];lteat [email protected] Steven M. Feder [email protected] Counsel for Kelli Small Charles W. Elliott [email protected] [email protected] Counsel for Chad Heinrich Matthew T. Kirsch [email protected] [email protected] [email protected] Counsel for United States of America Larry S. Pozner [email protected] [email protected];lteater@hrpw law.com Counsel for Robert Sigg Randy S. Reisch [email protected] [email protected] Counsel for Charles Winnett

Walter L. Gerash [email protected] James F. Scherer [email protected] Robert T. McAllister [email protected] [email protected] Counsel for Gerald Small

Matthew J. Smith James Sandy Russell [email protected], [email protected] [email protected] and I hereby certify that on December 12, 2006 I mailed the foregoing to the following nonCM/ECF participants by regular mail: Peter Korneffel, Esq. 470 17th Street, Suite 2200 Denver, Colorado 80202 Counsel for Flagstar Bank, FSB /s/ Earl H. Staelin Onsager & Staelin, LLC 19