Trustee’s November and December Newsletter

December 15,2008

We are very pleased to report that on December 1 we were able to have the settlement agreement with Cordell Funding approved by the bankruptcy court. In conjunction with this we were able to eliminate all continued litigation with Cordell, the prospect for any deficiency claims on the amounts borrowed from Cordell and, more importantly, to procure a settlement which allows us to benefit from the Haynesville shale natural gas find, should that find generate future royalty revenues.

Also, the various items of litigation and negotiations with insiders, professionals, insurance companies and others are starting to yield benefits. We have announced two settlements, and I anticipate that within the next 30 days we should be in a position to announce several additional settlements. Although I would like to discuss these negotiations and discussions as they progress, confidentiality considerations surrounding these types of matters prevent that open discussion. In addition, in certain cases, premature disclosure of the terms of settlements could lead to potential adverse repercussions in other negotiations.

In the event that I am able to finalize these settlements, I anticipate being able to file a proposed plan or reorganization together with a proposed disclosure settlement, with the next 30 to 60 days, and seek approval of some or all of the settlements as part of the plan confirmation process.  Based primarily on the amounts to be paid to the bankruptcy estate under these settlements, the plan will put us in a position where some distribution will be available to the victims of this disaster upon confirmation of the plan, which I anticipate will occur within approximately 75 days of filing.  I also anticipate that, under the plan, the remaining unresolved claims and litigation will continue in a litigation/ liquidation trust for the benefit of the creditor group.

As I'm sure you're aware, the trial of Mr. Okun has now been put off until March however he does remain incarcerated, his request for bail having been denied at the November hearing.

Certain victims have advised us of their being approached to become members of class action suits. Generally, all exchangers, if they choose to be, would be included in any class action suits brought unless they elect not to be part of that suit.  We are in active negotiations with the various attorneys who have been soliciting participation in class action suits to determine if there are ways in which we can mutually benefit.  I don’t know how else to say it, but there is really no benefit to joining a class at this point, particularly in light of the ongoing negotiations between the bankruptcy estate and the proposed class action lawyers.  Feel free to contact me to discuss this further.

Others have advised that they have been approached regarding solicitation of a bankruptcy plan other than the one I will be filing.  I note in this respect that the bankruptcy code is rather specific in its prohibitions against solicitation of support for a plan without certain required information being provided in a court-approved disclosure statement. To that end, we will have our plan and disclosure statement filed with the court shortly.

I and my professionals have recently filed a second set of fee applications.  At my request, those requests have been limited to 60% of fees incurred for those professionals who have not filed a previous fee application, and to 30% of the fees incurred during the months of February, March and April for those who have filed a previous application.  These relatively modest requests will permit me to get some money to the professionals who have worked on this case, and still leave ample funds in the estate to continue our efforts.

The total fees outstanding in the case is approximately $25 million, approximately $11.2 million of which was incurred in the approximately 5 ½ months prior to my appointment as Trustee,  and $13 million for the 12 months since my appointment. Included in the $13 Million is approximately $4 million in forensic accounting fees involved in the funds tracing required to put us in a position to proceed with claims and litigation against the insurance companies, lenders and professionals. Almost none of this forensic work had been done with respect to the misappropriated fund prior to my appointment.

Remember that the only real assets of this estate are litigation and insurance claims and without the expenditure of fees, these claims would have no value. Am I happy in spending these fees – Absolutely not. I pride myself in exercising good business judgment on who will be sued and what the likelihood of success is before spending the first litigation dollar. Litigation is expensive but our adversaries need to know that we are willing and able to litigate where we feel we have valid claims, backed up by a comprehensive analysis of the misappropriation of funds.

As we go to press with this newsletter, we are aware of the debacle facing the Dreier law firm who originally represented the debtor. We have advised the receiver for that law firm of our potential claims against the Dreier Firm and our intent to pursue those claims.


I look forward to your continued support and am anxious to get the plan filed and to get to you, the victims, a more full explanation of the settlements when they can be made public.