Dear Creditors and Other Interested Parties,

Although we’re in the doldrums of summer, much has been accomplished during the month to pave the way toward plan confirmation – which must occur before distributions can be made.

In major procedural areas, the bankruptcy court has set hearings (i) on approval of the disclosure statement for August 13, and (ii) confirmation of the Plan for October 7.  The class action court will hold a hearing on final approval of the pending settlements, and certification of the class for purposes of approving those settlements, on October 7 as well.  This will hopefully lead to the ability to make distributions during the calendar year 2009 if these proceedings are successfully concluded.  

Any questions relating to the class action should be addressed by logging onto the website maintained by Hollister & Brace:  http://www.hbsb.com/class_action.html and then clicking on “Okun”.  The website also should be visited to keep up to date with the ongoing class action proceedings.  You may also call Vicky Munoz at the Hollister & Brace law firm at 805.963.6711 with further questions. 

 

We will also have a hearing on the first omnibus objection to claims on August 13.  This is a necessary step in moving towards solidifying the absolute creditor base for the purposes of determining distributions. Objections to claims at this time are relatively routine in cases such as this. For example, we will be objecting to duplicative claims (those claims that have been filed multiple times or against multiple parties in the same or similar amounts.)  Naturally, only one claim will be considered for the purpose of distribution.  We will also be objecting to those claims which were filed as being secured or administrative claims without basis; in those instances we will object to the classification but not the claim itself (assuming that there are no other problems with the claim) and those claims would be included in the distribution scheme as unsecured claims.

Much of the time during the month has been dedicated to working on the elimination of fees claimed by professional firms retained prior to my appointment.  In this respect, I believe that I am close to reaching agreements to this effect with those firms with the exception of the Dreier firm. As I think you're aware, that firm has filed for bankruptcy, and the trustee and creditors’ committee in that case have not agreed to the walk away. During the month the court also approved the settlements with the Alvarez parties, JPS and Newton Bayard.

Part of the effort of building a case against the pre-Trustee professionals includes an investigation of the events prior to my appointment, including review of relevant documents, correspondence and e-mails.  This effort has been hampered by the assertion of attorney-client privilege by the Committee in certain of the documents.  I and my professionals are trying to work though this issue, but it is causing unfortunate delay and expense.  

We have filed suit against Citibank, and as with other claims and litigations, and as Judge Glenn’s orders requires; we will explore seek a settlement as opposed to protracted litigation. We are prepared to do either. As I’m typing this, I just received notice that Citibank has made a series of procedural and substantive motions.  We also seek to enhance recoveries through the other pending lawsuits.

Negotiations continue with Lockton and we will be meeting in New York in the first part of July to continue exploring a settlement. We have also set a meeting for late July for settlement discussions with Boulder Capital.

At my request, a significant amount of work was done by the Deloitte firm during the month to attempt to “follow the funds,” to determine whether large sums cannot be accounted for.  This is a difficult task involving well over 1000 bank accounts and millions of documents. While we will never be able to follow all the inflows and outflows because of the lack of records and cost-benefit issues, suffice it to say that, based on the analysis and assumptions to date, it appears that most of the misappropriated funds can be traced, but we are still reviewing this area.

In summary, and with the utmost caution, I will say that, despite the dire situation that existed at the time of my appointment, we may finally be turning a corner, and heading down a path which could lead to the making of a meaningful distribution toward the end of the year.  There are, however, any number of circumstances which could slow down or derail the process.  For example, objections to conformation of the Plan, opt-outs from the class action, or appeals from orders approving the plan or the class action settlements, pose potential risks and delays.  In any event, I will endeavor to keep up the flow of information.

Best Regards
The 1031 Tax Group

 Gerard A. McHale, Jr.

Gerard A. McHale, Jr.

Chapter 11 Bankruptcy Trustee