Trustee's Newsletter #4

February Newsletter

March 10, 2008 

Dear Victims and Other Interested Parties,

Time flies by quickly. This is already my fourth newsletter.  As time passes, I know many are impatient for something to happen in this case.  While this may not be apparent to many, we are making progress.  We won our fight with Okun to void the Transfer Agreement and are working on retention of professionals with expertise in specific legal areas to pursue recovery litigation.

We have been trying to resolve our real estate issues with the various lenders and TIC groups.  We have been wrapping up lose ends by rejecting leases, terminating contracts and have been in negotiations with others regarding the real estate.  As I mentioned in my previous newsletter, we have found no meaningful equity in the real estate – nowhere in the ballpark of what was represented by Mr. Okun. It is unfortunate that so many false hopes had been woven into the recovery fabric based on totally erroneous valuation assumptions, but in that those hopes had taken on a life of their own, it was really necessary to go behind the values and determine “reality”.

Many have expressed concern that we may be incurring administrative expenses chasing items that may not be worth the effort in the real estate area.  First, let me assure you that I have the same concerns over administrative fees in this case.  As you all already know, most of the fees incurred in this case pre-dated my appointment.  While we try to make sure we are spending money and effort in the correct areas, some cost had to be incurred to evaluate the value before it actually could be concluded whether we should walk away from a particular asset.  Bankruptcy is not inexpensive but I completely sympathize with you about the high expense the estate has already incurred.  At this point, we have been shifting our focus to more productive areas of recovery – forensics and litigation.

I would like to thank all who have offered information that may be helpful in our forensics and would like to assure you that we have taken considerable efforts to determine where the money went and what causes of action we may have against third parties.  Rest assured that I am keeping a watchful eye on the administrative expenses but as I warned everyone in my last newsletter, litigation costs money but the rewards may be substantial.

We have found a buyer for most of the “toys” and a motion to sell these will be filed very soon.  We are in the process of selling the last plane and have filed a motion seeking Court approval. The yacht Simone was sold the first week in March and while the sales proceeds after the payment of the debt on the boat was only approximately $200,000, more importantly, this relieved the estate of ongoing monthly obligations of $100,000.

Many have continued to ask if we have better idea of how much and when distributions may occur.  We continue in our efforts to get a better handle on the litigation but as I have previously mentioned, the answers are just too complex at this time for me to provide any estimates.  All I can offer is that we’re diligently continuing our efforts to get the maximum recovery in the shortest possible time. Our short term objective will be to build a war chest so that when the heavy litigation begins we will be adequately funded and present a formidable foe.

I do thank you for your continued support and patience.

The 1031 Tax Group, LLC

Gerard A. McHale, Jr.

Chapter 11 Bankruptcy Trustee.