Dear Victims and Other Interested Parties,
Wachovia As many of you are already aware, on October 3, 2008 we commenced litigation against Wachovia Bank, N.A. and certain of its affiliates.
See Adversary Proceeding No. 08-01604. A summary of the litigation has been posted on our website . In our complaint, we seek to avoid (recover) more than $43 million in conveyances made to Wachovia and also seek recovery of more than $140 million relating to aiding and abetting liability. The bank’s answer is due November 5, 2008 and a pre-trial conference has been set by the court for November 18, 2008 at 2:00 p.m.
Crime Policies We are in negotiations with the insurance carriers for the Crime policies. At least one insurance company, Twin City Fire Insurance,
has sought relief from the automatic stay so it may file a complaint to have the policy declared as null and void. We will be responding to that motion, and attending the hearing on the motion which is set for November 18, 2008 at 2:00 p.m.
E & O Policies and Settlements with McCabe We have settled with the insurance carriers on five Errors & Omissions policies owned by the Debtors or related entities. These are separate and apart from the Crime Policies and do not cover the same matters. The policies provide coverage for the Insureds for claims made against them for wrongful acts, which are generally defined as negligence, but exclude intentional acts. Breach of contract is not covered. The Insureds are defined as various officers, directors, and employees, and the debtor entity, which is a defined insured under the particular policy. Exchangers are not Insureds. Up to the limits, the E&O Policies will pay for (i) reasonable defense costs incurred by any Insured to defend against claims based on covered acts, which are made against the Insureds, and (ii) any judgments awarded against the Insureds based on covered acts. These are known as "wasting" policies, because payment of the defense costs applies against the limits, and if the limits are exhausted by defense costs, there is nothing left to pay any judgment.
The total policy limits are $5.5 million ,comprised of policies with the following limits: (1) for NES, an aggregate limit of $1,000,000; (2) for SOS, an aggregate limit of $1,000,000; (3) for IXG, an aggregate limit of $500,000; (4) for REES, an aggregate limit of $1,000,000; and (5) for AEC, an aggregate limit of $2,000,000. In order to preserve the maximum value of these E&O Policies for the Exchangers and avoid wasting the E&O Policies on defense costs and the expenses and risks of litigation with the Insurers over coverage and other issues, the Trustee has taken the position that the E&O Policies and the proceeds are property of the Estates, and as a result, payments cannot be made without lifting the automatic stay.
In the settlement with the E&O carriers, the bankruptcy estates in the above-referenced cases will receive $4.6 million, which represents 84% of the total limits under the E&O Policies. The Trustee has also reached a settlement agreement with the McCabe Group, with the McCabe Group paying $1.25 million to the estates and the Group will waive all claims to the $2 million it alleges is still owed to it under their sale agreement to sell IXG to Okun (for $7 million down and $2 million deferred). It will also assign to the Trustee all rights under the E&O Policies.
The settlements with the McCabe Group and the E&O insurance carriers are subject to court approval. In light of the settlements reached with the 1031 Debtors’ E&O Carriers and with five former employees of IXG and The 1031 Tax Group referred to as the "McCabe Group," on October 24, 2008, the Trustee
filed a declaratory judgment action in the Bankruptcy Court against two groups of Exchangers (collectively, the "State Court Plaintiffs") who are prosecuting lawsuits against the McCabe Group, Richard Simring, and others in the District Court, City and County of Denver, State of Colorado (the "Colorado State Court"). Certain of the State Court Plaintiffs filed a motion (the "Attachment Motion") seeking to attach the McCabe Group’s assets and/or enjoin the McCabe Group from transferring any assets pending the outcome of the Colorado State Court action. On October 24, 2008, the Bankruptcy Court issued an Order to Show Cause, temporarily restraining the State Court Plaintiffs from prosecuting the Attachment Motion pending a hearing on the Trustee’s Motion for a Preliminary Injunction enjoining the Colorado State Court litigation pending a chapter 11 plan in the 1031 Debtors’ Chapter 11 cases. A hearing on the Trustee’s Motion for a Preliminary Injunction is currently scheduled to be heard by the Bankruptcy Court on November 3, 2008 at 10:00 a.m.
Criminal Case In the criminal case pending against Ed Okun, et al, on August 1, 2008, Judge Payne ordered that we provide a Statement of Position to be filed regarding restitution in the criminal case. On October 15, 2008, we filed our position in support for continued administration of the assets for the benefit of creditors in the bankruptcy case.
Ed Okun has also renewed his motion to be released on bail, which is being opposed by the government.
Cordell We continue to negotiate and finalize a settlement with Cordell over the gas rights in Shreveport, LA.
Other Matters The IPofA West Oaks Mall, LP confirmed its plan in the Virginia bankruptcy case. As previously mentioned, we have received our settlement funds of $550,000 from the case. We have the jewelry certified and are in the process of selling the items. We have also received $100,000 for the stock of First Montauk Financial Corp. Although Mr. Okun paid over $10,000,000 in acquiring his interest in First Montauk, that Company which is in liquidation has been trading in the $.01 per share range.
We have also continued our discovery efforts, taken depositions, issued subpoenas and analyzed the incoming information. Upon our completion of our review, we have, in certain instances, commenced negotiations with those we have identified as potential litigation targets.
