Free Reply to Response to Motion - District Court of Arizona - Arizona

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Guttilla Murphy Anderson, P.C.

Guttilla Murphy Anderson, P.C.
Ariz. Firm No. 00133300

Patrick M. Murphy (Ariz. No. 002964)
4150 West Northern Avenue Phoenix, Arizona 85051 Email: [email protected] Phone: (623) 937-2795 Fax: (623) 937-6897

Attorneys for the Receiver

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Securities and Exchange Commission, Plaintiff, vs. U.S. Reservation Bank & Trust; Higher Investments Technologies, Inc.; GlobalLink Capital Markets, Ltd.; Edward J. Driving Hawk, Sr.; Leo R. Driving Hawk, Sr.; John M. Adams; Edmund J. Smedley; Kenneth S. Harrison; William J. Herisko; and Thomas T. Emerton, III; Defendants, and Oyate Development, Inc.; Oyate Enterprises, LLP; Oyate Trust; River Walk Development, LLC; HPHC, Inc.; Ringthunder Racing Stables, Inc.; James R. Driving Hawk; and Orpha Jane Johnston; Defendants Solely for Purposes of Equitable Relief. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

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4150 West Northern Ave. Phoenix, Arizona 85051 (623) 937-2795

Cause No. CIV 02-0581 PHX EHC RESPONSE TO OBJECTIONS TO PETITION NO. 98 FILED BY INTERINVEST INVESTORS

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The Receiver hereby responds to the Objection to Petition No. 98, Re Petition for Approval of Order Adjudicating Remaining Claims, filed by the Interinvest Investors (Doc. # 688) ("Interinvest Objection").1 Overview On September 28, 2000, $1,000,000 was transferred to USRBT from an account of Interinvest, AG ("Interinvest") at Credit Suisse bank. Interinvest is a registered company in Switzerland. On September 26, 2001, USRBT wired $47,136.06 to an account held at Barclay's Bank, London, in the name of Dickerson, Ltd., fbo Interinvest, AG. On November 01, 2001, USRBT made a second wire transfer of $47,136.00 to Dickerson Ltd. Initially, the Receiver received a single claim to the investment from Interinvest. This claim was filed by an individual named Heinrich Bertschinger stating that he was the "sole director and signatory" of Interinvest. After the Receiver raised questions concerning whether Mr. Bertschinger was in fact the owner of Interinvest and its funds as required by the Claims Order, the Receiver received an additional seven claims, filed by a U.S. Attorney. Since Interinvest did not keep contemporaneous records of the funds it had received from its investors, the Receiver was required to reconstruct the investment activities of Interinvest. Through this process it became evident at that time that Mr. Bertschinger was not the owner of any of the transferred funds, and accordingly his claim was recommended for denial. Two of the other five claimants had produced evidence to support ownership to part of the transferred funds and those two claims were recommended approved for their pro-rata portion of the entire net funds retained by
By stipulation, the date for the Receiver to respond to these objections was extended by the Court's order dated August 24, 2007 (Doc. # 691) to September 21, 2007.
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USRBT. The other five claimants were lacking evidence to substantiate ownership and/or tracing requirements. By August 31, 2006, additional evidence had been produced by certain claimants in the objections to the Receiver's report, and the Receiver was able to increase the pro-rata approval for the two previously approved claimants based on this new evidence, and also approve two additional claimants within this group. The final recommendations of the Receiver resulted in all but two claims of the Interinvest Investors being approved. The Interinvest Investors then filed with the Court a broad objection to the Receiver's recommendations concerning the claims filed by the Interinvest Investors. This response addresses those objections. Category One ­ Interest The Interinvest Investors argue that the Receiver has reduced the amount of the claimants' claims by interest earned on their money within the Interinvest's bank accounts. This simply is not true. In fact, the total $1,000,000 transferred from Interinvest's bank account to USRBT was accounted for and has been traced back to the original bank account from which it came. The amount returned to Interinvest from USRBT was $94,272.06, leaving a potential total for claims for this claimant group of $905,727.94. (see the discussion below concerning the challenge to the methodology used by the Receiver). The Interinvest Investors also appear to challenge the Receiver's treatment of interest payments by USRBT as return of principal. This is the same objection that other claimants have raised and that has been previously rejected by the Court. USRBT was a Ponzi scheme and relied on monies from new investors to make the Ponzi "interest" payments to earlier investors.
Document 697

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A Ponzi scheme is an arrangement whereby an enterprise makes payments to investors from the proceeds of a later investment rather than from profits of the underlying business venture, as the investors expected. The fraud consists of transferring proceeds received from the new investors to previous investors, thereby gaining other investors the impressions that a legitimate profit making business opportunity exists, where in fact no such opportunity exits. In re Agricultural Research and Technology Group, Inc., 916 F.2d 528, 531 (9th Cir. 1990). USRBT was at all times insolvent and therefore the investor victims in this case

7 will never recover the full amount of their principal investment, much less any of the 8 interest they were promised by USRBT. Accordingly, it would not only be a waste of the
Guttilla Murphy Anderson, P.C.

9 estate's resources for the Receiver to calculate everyone's promised interest, the
4150 West Northern Ave. Phoenix, Arizona 85051 (623) 937-2795

10 calculation would merely increase or decrease each claimant's claim amount based on the 11 interest rate that person was promised and the time period that USRBT held their funds. 12 It is entirely possible that by calculating interest on each claim the Interinvest Investors 13 would have a slightly higher claim amount; however, their respective share of the limited 14 funds available for distribution could be less than under the approach used by the 15 Receiver and approved by the Court. 16 Moreover, in dealing with claims in an equity receivership arising out of securities 17 violations the appropriate approach is to calculate the net investment claim amount by 18 taking the total amount invested and "subtracting any commission payments, interest 19 payments, return of principal payments, or similar payments" made to the investor. 20 S.E.C. v. Basic Energy & Affiliated Resources, 273 F.3d 657, 660 (6th Cir. 2001). This is 21 exactly the approach taken by the Receiver in this case with all of the claimants. 22 23
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Category One ­ Methodology The Interinvest Objection also challenges the methodology used by the Receiver to allocate the ownership interests among the Interinvest Investors. The entire net amount transferred by Interinvest to USRBT has been fully accounted for. In other words, if the various Interinvest Investors had all proved their ownership of the funds, a total of $905,727.94 would have been approved. This is the net amount retained by USRBT. Just because certain Interinvest Investors can't prove their ownership of funds placed with Interinvest, doesn't mean that the other investors are entitled to more money. The Receiver has allocated to Interinvest Investors all funds received into and disbursed from IAG on a chronological basis. Where the receipt or disbursement was for a specific investor it was allocated accordingly. Where the receipt (like interest) or disbursement (like fees) are not related to a specific investor they were allocated pro-rata among the then existing IAG investors by their investment balance at the time. This is a standard method for allocating funds held in pooled accounts and you are not likely to find an expert accountant to say otherwise. These pro-rata allocations are really issues among the Interinvest Investors. If Interinvest had maintained contemporaneous records showing a different allocation, the Receiver would have considered them, but of course no such records exist or at least were provided to the Receiver. Category Two ­ Oehri One of the Interinvest Investors that filed a claim is Mr. Oehri. Oehri, however, was unable to prove that he owned the funds for which he claimed ownership. Those funds had been placed with Interinvest by a company named Inter-Immobilia Anstalt. A
Document 697

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declaration of Dr. Batliner provided to the Receiver states in two places that Horst Dopp is the owner of Inter-Immobilia Anstalt (which changed its name in 2001) and that Mr. Oehri is nothing more than a board member. The declaration also describes a change in the name of the company but is unclear whether it was simply a name change or was the result of a merger or change in ownership. Clearly Oehri is not and never was the owner of Inter-Immobilia Anstalt or the funds it placed with Interinvest. Following the receipt of the most recent objections an attempt was made to resolve the issues. On September 14, 2007, more than one year after the original response to their objections, the claimants' attorney sent the Receiver a new Proof of Claim form for Horst Dopp in an attempt to lay claim to the unresolved funds which originated from Inter-Immobilia Anstalt. No supporting documentation was included with this Claim. Although the Batliner declaration states that Dopp is the owner of a company which supposedly changed its name from Inter-Immobilia Anstalt, the Batliner declaration does not attest to Dopp's ownership at the time of the investment in Interinvest or his ownership of the funds that were invested. This claim should be denied on the basis that it is untimely; the due date for all claims was June 30, 2004. In the event that the Court wants to review the claim on its merits, the Receiver recommends denial because of the failure of the claimant to prove his ownership of the funds. The funds transferred from Inter-Immobilia Anstalt were originally claimed by Gerhard Oehri on the basis that "he maintains beneficial interests in the company." The correspondence received from the claimants' attorney continually stated that the Receiver simply didn't understand how foreign companies worked or the language they used and that if he did, he would understand that Oehri was entitled to the
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funds. This is the same argument that Bertschinger (the man who attempted to originally claim all the funds received from Interinvest, and who, it was proved after documents were produced, did not put any of his own funds into Interinvest). Then, when the Receiver continued to recommend denial of Mr. Oehri's claim, the attorney for the Interinvest Investors sent the Batliner declaration to the Receiver on September 25, 2006, that states that Horst Dopp is the "sole owner of the founder's rights to Odenberg & Partners Anstalt" (formerly Inter Immobilia Anstalt). No documents were included to show the origination of funds transferred. All other Claimants in this case who have transferred funds from their companies, have been required to give bank documents and other financial information to evidence that the transferred monies were beneficially the sole property of the person making the claims (see claims by Lamonov, Epp, Domgaard). In the case of these remaining claimants, they either are unwilling or unable to provide such evidence. There is no reason to treat these claimants any different than all other claimants in this case. If the claimant does not meet the required criteria, he is not entitled to have his claim approved. Category Two ­ Wörner In their objections the Interinvest Investors appear to concede that Mr. Wörner has failed to show ownership of $200,000 placed with Interinvest by an unknown depositor. The remaining objection relates to the denial of a claim to $100,000 also claimed to have been invested by Mr. Wörner. Mr. Wörner's original claim did not include a claim to this transfer of $100,000 and it was not until the Receiver's accounting of Interinvest showed a deposit of $100,000 from an "Alfred Woerner" that he amended his claim to include the $100,000. The Receiver has investigated the $100,000 transfer and the net amount for
Document 697

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this investment in Interinvest is $44,794.93. However, no bank records for the source bank account have been provided and Wörner claims that he has been unable to do so because the records are no longer available. All Claimants Have Been Treated the Same No other claimant in this case, including the four Interinvest Claimants who have been approved, have been excused from the requirements of the Claims Order to prove their ownership of the funds transferred to USRBT. Oehri/Dopp and Wörner seek special treatment not only in relaxing the requirement that they prove their ownership of the funds but also on such other issues as the Receiver's treatment of the return of interest as a return of principal. The Receiver believes that there are no reasons to treat these claimants any different than the other claimants have been treated. The initial recommendation for these claimants was filed on March 13, 2006. Response to Objections regarding that recommendation was filed on August 31, 2006. These claimants have been represented by legal counsel and have had ample time to provide evidence of their ownership of the funds transferred to USRBT. The claims must come to an end. Conclusion The objections raised by the Interinvest Investors are without merit and should be denied. In addition, the objections do not raise factual issues that require a hearing and the Court should resolve them on the record. Accordingly, the Receiver has filed with this response a revised form of order which finalizes the Receiver's recommendations on the claims filed by the Interinvest Investors.

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Respectfully submitted this 21st day of September, 2007. GUTTILLA & MURPHY, PC

s/Patrick M. Murphy Patrick M. Murphy Attorneys for the Receiver

PROOF OF SERVICE This is to certify that on this 21st day of September, 2007, that I electronically transmitted the foregoing document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the CM/ECF registrants on the attached Master Service List; and that the persons on the attached Master Service List who are not registered participants of the CM/ECF System have been served with a copy of the foregoing document by first class mail this date. s/Patrick M. Murphy Patrick M. Murphy
0776-001(67210)

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MASTER SERVICE LIST
SEC v. U.S. Reservation Bank & Trust, et al. United States District Court for the District of Arizona Phoenix CIV 02-0581 PHX EHC
(Rev. April 9, 2007 )

Lawrence J. Warfield 14555 N. Scottsdale Road, #340 Scottsdale, AZ 85254 Receiver Patrick M. Murphy Guttilla Murphy Anderson, PC 4150 West Northern Avenue Phoenix, Arizona 85051 Registered CM/ECF: [email protected] Counsel for Receiver Marshall Gandy Securities & Exchange Commission 801 Cherry Street, Suite 1900 Fort Worth, Texas 76102 Registered CM/ECF: [email protected] Counsel for the Plaintiff Leo Driving Hawk, Sr. 4575 East Campbell Court Higley, Arizona 85236 Defendant James R. Driving Hawk 1867 East Browning Place Chandler, Arizona 85249 Relief Defendant

Orpha Jane Johnston 4906 Overlook Drive Harrison, Ohio 45030 Relief Defendant Edmund J. Smedley 4906 Overlook Drive Harrison, Ohio 45030 Defendant Ron Brewer 127 Fred Road Lake Charles, Louisiana 70615 Attorney for Y2K Millenium, LLC. Edward Driving Hawk, Sr., and Oyate Enterprises, LLP Ringthunder Racing Stables, Inc. Oyate Trust River Walk Development, LLC U.S. Reservation Bank & Trust % Edward Driving Hawk, Sr. 2221 East Indian Wells Drive Chandler, Arizona 85249 Relief Defendants Oyate Development, Inc. % Leo R. Driving Hawk, Sr. 4575 East Campbell Court Higley, Arizona 85236 Relief Defendant

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Ronald J. Herisko P.O. Box 2830 Palm Springs, California 92263 Attorney for Defendants Global-Link, William J. Herisko and Thomas T. Emerton Rex Reese Attorney At Law 1645 International Drive, Suite 9 Mclean, Virginia 22102 Registered CM/ECF: [email protected] Attorney for Defendants Higher Investments Technologies, Inc. and John M. Adams and Relief Defendant HPHC, Inc. Joseph Lee Matalon 450 Seventh Avenue, Suite 1409 New York, New York 10123 Attorney for Ann Palmer Charles J. Crozier P.O. Box 15322 Austin, Texas 78761-5322 Attorney for Defendant Kenneth S. Harrison Douglas C. Erickson Maynard Cronin Erickson Curran & Sparks, P.L.C. 1800 Great American Tower 3200 North Central Avenue Phoenix, Arizona 85012 Registered CM/ECF: [email protected] Attorneys for the Estate of Amanda Beck Elden Sorenson P.O. Box 265 Cheney, Washington 99004 Claimant

Gina M. Hattenbach, Esq. HATTENBACH LAW GROUP 2029 Century Park East, Ste 900 Los Angeles, CA 90067
0776-001 (12351)

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