Free Pretrial Order - District Court of Arizona - Arizona

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Lawrence J. Warfield, Receiver, Plaintiff, ) ) ) ) ) ) ) ) ) )

Cause No. CV 03-2390 PHX JAT JOINT FINAL PRETRIAL ORDER

Michael Alaniz, et al. Defendants. A.

COUNSEL FOR THE PARTIES Ryan W. Anderson Guttilla & Murphy 4150 West Northern Avenue Phoenix, Arizona 85051-5765 (623) 937-2795 (623) 937-6897 (fax)

Plaintiff:

10 11 12 13 14 15 16 17 18 19 20 21 22 23 B. Ren Bidwell:

Rada Defendants:

Burton M. Bentley 5343 North 16th Street Suite 480 Phoenix, Arizona 85016 (602) 861-3055 (602) 861-3230 (fax) Steve A. Bryant 3618 Mt. Vernon, #A Houston, TX 77006-4238 Co-Counsel for Rada Defendants (713) 526-7474 (713) 526-7720 (fax) Ren Bidwell 3430 Pacific Avenue SE Olympia, WA 98501 Defendant Pro Se

STATEMENT OF JURISDICTION
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1.

This Court has personal jurisdiction over the Defendants, as detailed in the

Court's Amended Order Supercedes August 1, 2006, Order, pursuant to 15 U.S.C. § 78aa. Principles of pendent jurisdiction give this Court the ability to decide the remaining claims brought by the Receiver. 2. Defendants continue to dispute jurisdiction and have filed a Notice of

Appeal citing that this Court does not have jurisdiction under 15 U.S.C. § 78 aa. C. 1. (1) STIPULATIONS AND UNCONTESTED FACTS AND LAW The following facts are admitted by the parties and require no proof: Mid-America Foundation, Inc. (hereafter "MAF") was incorporated in the State of Delaware on June 13, 1997. (2) Mid-America Financial Group, Inc. (hereafter "MAFG") was incorporated in Delaware on June 13, 1997. (3) (4) MAF and MAFG were controlled by Robert Dillie. From 1996 until approximately October 2001, MAF sold charitable gift annuities ("CGAs") through financial planners, insurance agents and others throughout the United States. (5) MAF, however, did not reserve annuitant funds but instead operated MAF as a Ponzi scheme whereby ongoing annuity payments were funded, not by MAF's investment earnings, but by the funds received from subsequent annuitants. (6) The MAF CGAs promised a stream of income to the annuitant(s) named in the CGAs for a specific lifetime and that monies remaining after that

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lifetime would be directed to a charity designated by those who purchased the MAF CGAs. (7) From October 1996 through December 2001, MAF and Dillie raised more that $55 million dollars from the sale of over 403 MAF CGAs. (8) Virtually all of the funds received into the accounts of MAF were obtained from annuitants who had purchased MAF CGAs. For this reason, all of the funds deposited into the accounts are referred to hereafter as annuitant funds. (9) Annuitant funds were almost always transferred to MAF and other accounts controlled by Dillie (including accounts in the name of MAFG) where they were used to make annuity payments to earlier annuitants; commission payments to facilitators who assisted in bringing new annuitants to MAF; payments to Dillie and others for personal expenses including Dillie's gambling expenses; and payments of various operating expenses incurred in the process of operating MAF & MAFG. (10) Dillie did not reserve funds in order to make the charitable contributions to charities that he promised the MAF annuitants and therefore, except for a few minor amounts, the promised charitable contributions were not made. (11) MAF was insolvent shortly after it began to sell MAF CGAs in 1996 and that insolvency worsened with the sale of each subsequent MAF CGA. (12) At the time of the payment of commissions to the Defendants in connection with the sale of the MAF CGAs, MAF was insolvent and remained insolvent continuously thereafter.
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(13)

In December 2001, the SEC filed SEC v. Dillie that resulted in the appointment of the Receiver in this action, Lawrence J. Warfield.

(14)

On February 6, 2003, Robert Dillie was indicted in U.S. District Court for the District of Arizona in U.S. v. Robert Roy Dillie, CR-03-115-PHX-DGC related to the operation of a Ponzi scheme where MAF and MAFG were used by Dillie to sell fraudulent CGAs.

(15)

Dillie pled guilty to several counts of wire fraud and money laundering (money laundering by concealing the proceeds of unlawful activity and by transacting in property derived from unlawful activity), and on March 13, 2006, Dillie was sentenced by the Court to 121 months in federal prison. Dillie never self surrendered to authorities and is currently a fugitive.

10 11 12 13 14 15 16 17 18 19 20 21 22 23 (18) (19) (17) (16)

MAF was required to file but never filed federal tax returns (Forms 990) with the Internal Revenue Service. In or around 1998, Mid-America Foundation, Inc. ("MAF"), a Delaware corporation, received tax exempt status from the Internal Revenue Service (IRS") pursuant to 26 U.S.C. 501(c)(3) and 501(e)(3). This IRS designation was not terminated by IRS prior to October 1, 2001. MAF qualified as a foreign corporation licensed to do business in Arizona. Sales commissions were paid by MAF and/or MAFG to those facilitating the sale of CGAs, and it is these sales commissions that the Receiver in this action seeks damages equal to commissions paid to Defendants from MAF and/or MAFG.

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(20)

Prior to October 2001, no lawsuits had been filed against MAF, MAFG or Dillie by any person that had previously purchased a CGA from MAF.

(21)

Dillie actively took measures to hide the fact that he was stealing money from MAF and that MAF did not have sufficient reserves to fully fund its obligations to the purchasers of CGAs.

(22)

Commissions paid to the Rada Defendants ranged from 6% to 10%. FACTS, NOT ADMITTED, BUT NOT CONTESTED

2.

The following facts, although not admitted, will not be contested at trial by

evidence to the contrary: (1) On or about February 12, 1990, the Wisconsin Commissioner of Insurance accepted the surrender of Robert Dillie's insurance license after the Commissioner alleged that Dillie had failed to provide a full and complete response to inquiries from the Commissioner and had failed to retain policyholder records in compliance with applicable rules. Although Dillie denied the allegations, as well as denying that in a number of instances he had collected premiums and failed to remit all or part of the premiums to insurers, he agreed to the surrender of his insurance license and to not reapply for a license for approximately five years. (2) On or about May 16, 1996, Dillie was fined $100 by the State of Colorado, Division of Insurance for failing to disclose in an insurance license application that the State of Wisconsin had taken action against him in 1990.

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(3)

On or about October 9, 1996, the State of Wisconsin, Office of the Commissioner of Insurance denied Dillie's application for an insurance license because he failed to disclose that previous administrative action had been taken against him in the state of Wisconsin.

(4)

On or about December 17, 1997, the State of Illinois, Department of Insurance denied Dillie's application for an insurance license based upon material misrepresentations in his license application wherein Dillie stated that he had not had any disciplinary action taken against him in any state thereby failing to acknowledge and disclose the surrender of his insurance license to the Office of the Commissioner of Insurance, State of Wisconsin on February 12, 1990; the denial of his insurance license on October 9, 1996 by the State of Wisconsin; and the penalty instituted against him by the State of Colorado in 1997.

10 11 12 13 14 15 16 17 18 19 20 21 22 23 (6) (5)

On or about July 14, 1999, Dillie's Arizona life insurance license was "deemed expired" as of May 31, 1999 based upon a "Consent Order" in which Dillie was found to have not disclosed his licensing history in an insurance application submitted to the State of Arizona, Department of Insurance. The "Consent Order" stated that Dillie would not be permitted to reapply for an Arizona insurance license for a period of one year and that he was to pay a civil penalty in the amount of $2,000.00. The MAF CGA brochures promised annuitants that a MAF CGA would provide them with a stream of income, tax advantages, and a vehicle by which they could make a donation to a charity of their choice upon their
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death. Additionally, the MAF brochures stated that MAF had current assets from which to pay the stream of annuity payments promised under the MAF CGAs. (7) Each MAF annuitant was led to believe that the purchase of a MAF CGA would provide a stream of income during the life of the annuitant (and in some cases the life of a second annuitant) with any remaining monies directed to a charity as designated by the MAF annuitants upon the annuitant(s)' death. (8) Commissions were paid to the Defendants by MAF or MAFG for the sale of the MAF CGAs. The commissions and were based upon the value of the amount paid/donated by the annuitant to MAF for the MAF CGA. Defendant Robert Carroll (9) In 1997 and 2000, Defendant Carroll sold two MAF CGAs in California as summarized below for which he received payments from MAF totaling $83,526.56: MAF CGAs Sold by Defendant Carroll Investor's Investor's Commission Name Age Pay Date Peterson, M. McMillan, K. 84 82 7/13/00 11/1/97

10 11 12 13 14 15 16 17 18 19 20 21 22 23 (10) CGA Number 20854 20481

Commission Amount $72,822.23 $10,704.33 $83,526.56

At no time did Defendant Carroll determine from any independent source whether MAF was solvent and had sufficient assets to fulfill its CGAs obligations.

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(11)

At no time did Defendant Carroll request or obtain a financial statement for MAF or MAFG prepared or audited by certified public accountant.

(12)

At no time did Defendant Carroll request or obtain copies of any tax returns (Forms 990) for MAF.

(13)

At no time did Defendant Carroll seek or obtain information regarding MAF or MAFG or any of their key employees or officers and directors from sources other than Robert Dillie or other representatives of MAF or MAFG.

(14)

At no time did Defendant Carroll seek or obtain information regarding the licensing history of Robert Dillie or any other representative of MAF.

10 11 12 13 14 15 16 17 18 19 20 21 22 23 (18) (17) (16) (15)

On December 14, 1999, before he sold MAF CGA No. 20854 to Mrs. Peterson, the State of California issued to Defendant Carroll Desist and Refrain Orders ordering him to stop selling securities in the State of California since he had offered or sold securities that were not registered and he was not licensed as a broker-dealer in the State of California. Defendant Robert Carroll was not licensed to sell CGA's or other securities at the time the above MAF CGA's were sold by him. MAF was never issued a certificate of authority by the Commissioner of the California Department of Insurance to sell annuities in that state. Defendant Robert Carroll was not at any time a director, officer, employee, manager, or shareholder of either MAF or MAFG and did not receive any undisclosed profits from MAF or MAFG other than commission payments.

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Defendant Renald Bidwell (19) In 1999, Defendant Bidwell sold two MAF CGAs in the State of Washington as summarized below for which he received payments from MAF totaling $22,737.19: MAF CGA's Sold by Defendant Bidwell in Washington CGA Investor's Investor's Commission Commission Number Name Age Pay Date Amount 20684 20681 Ostbye, L. Blacksten, S. 83 62 3/11/99 8/27/99 $1,713.60 $21,023.59 $22,737.19

(20)

In 1999, Defendant Bidwell sold one MAF CGAs to a MAF Investor residing in the State of Illinois as summarized below for which he received payments from MAF totaling $945.52: MAF CGAs Sold by Defendant Bidwell in Illinois Investor's Investor's Commission Commission Name Age Pay Date Amount Lofton, J & E. 71 & 73 10/28/99 $945.52

10 11 12 13 14 15 16 17 18 19 20 21 22 23 (24) (23) (22) CGA Number 20748 (21)

At no time did Defendant Bidwell determine from any independent source whether MAF was solvent and had sufficient assets to fulfill its CGAs obligations. At no time did Defendant Bidwell request or obtain a financial statement for MAF or MAFG prepared or audited by a certified public accountant. At no time did Defendant Bidwell request or obtain copies of any tax returns (Forms 990) for MAF. Neither MAF nor MAFG was ever:

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(a)

Issued a certificate of authority or certificate of exemption by the Commissioner of the Washington Department of Insurance to sell CGAs in Washington; or

(b)

Issued any license or other authority from the State of Illinois to sell CGAs in Illinois.

(25)

Defendant Bidwell was not licensed to sell CGAs or other securities in the State of Illinois or Washington at the time the above MAF CGAs were sold by him.

Defendant Richard Derk (26) Between December 12, 2000 and December 4, 2000, Defendant Derk sold two MAF CGAs in Florida as summarized below for which he received payments from MAF totaling $44,850.61: MAF CGAs Sold by Defendant Derk Investor's Investor's Commission Name Age Pay Date Cole, M. Taylor, L. 54 73 1/9/01 12/21/00

10 11 12 13 14 15 16 17 18 19 20 21 22 23

CGA Number 20892 20883

Commission Amount $8,295.00 $36,555.61 $44,850.61

(27)

At no time did Defendant Derk request or obtain a financial statement for MAF or MAFG prepared or audited by a certified public accountant.

(28)

Defendant Derk was not licensed or otherwise authorized to sell CGAs in the state of Florida.

(29)

At no time did Defendant Derk request or obtain copies of any tax returns (Forms 990) for MAF.

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(30)

Neither MAF nor MAFG were ever authorized to sell insurance or CGAs in the state of Florida.

(31)

At no time did Defendant Derk seek or obtain information regarding MAF or MAFG or any of their key employees or officers and directors from sources other than Robert Dillie or other representatives of MAF or MAFG.

(32)

At no time did Defendant Derk seek or obtain information regarding the licensing history of Robert Dillie or any other representative of MAF.

(33)

Defendant Richard Derk was not at any time a director, officer, employee, manager, or shareholder of either MAF or MAFG and did not receive any undisclosed profits from MAF or MAFG other than commission payments.

10 11 12 13 14 15 16 17 18 19 20 21 22 23

Defendant Paul Richard (34) Between August 23, 1999 and December 22, 1999, Defendant Richard sold in the State of Maine nine MAF CGAs, all to S. Theimann Jr., as summarized in below for which he received payments from MAF totaling $143,866.94:

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CGA Number 20735 20745 20746 20749 20764 20773 20778 20804 20807 (35)

MAF CGAs Sold by Defendant Richard Investor's Investor's Commission Name Age Pay Date Theimann, S. Theimann, S. Theimann, S. Theimann, S. Theimann, S. Theimann, S. Theimann, S. Theimann, S. Theimann, S. 79 79 79 79 79 79 80 80 80 9/8/99 9/17/99 10/12/99 10/12/99 11/8/99 1/5/00 1/24/00 2/15/00 1/24/00

Commission Amount

$18,107.52 $16,680.55 $25,217.56 $13,804.62 $14,617.81 $44,805.46 $7,919.54 $1,741.43 $972.45 $143,866.94 At no time did Defendant Richard request or obtain a financial statement for MAF or MAFG prepared or audited by a certified public accountant.

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(36)

Defendant Richard took no steps to verify that MAF CGAs were authorized or approved for sale in Maine.

(37)

At no time was MAF licensed to sell CGAs or other securities in the state of Maine.

(38)

At no time did Defendant Richard request or obtain copies of any tax returns (Forms 990) for MAF.

(39)

At no time did Defendant Richard seek or obtain information regarding MAF or MAFG or any of their key employees or officers and directors from sources other than Robert Dillie or other representatives of MAF or MAFG.

(40)

At no time did Defendant Richard seek or obtain information regarding the licensing history of Robert Dillie or any other representative of MAF.

(41)

The Securities Administrator for the State of Maine commenced an action against Defendant Richard for his sale of MAF CGAs to Mr. Theimann and
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on or about December 3, 2003, Defendant Richard entered into a Consent Judgment with the State of Maine and Securities Administrator in State of Maine and Securities Administrator v. Paul E. Richard, Superior Court Civil Action Docket No. CV-03-137. (42) Defendant Richard was not at any time a director, officer, employee, manager, or shareholder of either MAF or MAFG and did not receive any undisclosed profits from MAF or MAFG other than commission payments. Defendant Orville Dale Frazier (43) Between September 10, 1998 and August 28, 2001, Defendant Frazier sold three MAF CGAs in South Dakota as summarized below for which he received payments from MAF totaling $40,234.91: MAF CGAs Sold by Defendant Frazier Investor's Investor's Commission Name Age Pay Date Lucklum, E.L. Mortenson, W&S Lucklum, E.L. 86 87 89 9/17/98 9/17/98 9/13/01

10 11 12 13 14 15 16 17 18 19 20 21 22 23 (46) (45) CGA Number 20585 20590 20929

Commission Amount $2,283.06 $36,000.00 $1,951.85 $40,234.91

(44)

At no time did Defendant Frazier determine from any independent source whether MAF was solvent and had sufficient assets to fulfill its CGAs obligations. At no time did Defendant Frazier request or obtain a financial statement for MAF or MAFG prepared or audited by a certified public accountant. At no time did Defendant Frazier request or obtain copies of any tax returns (Forms 990) for MAF.

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(47)

At no time did Defendant Frazier seek or obtain information regarding MAF or MAFG or any of their key employees or officers and directors from sources other than Robert Dillie or other representatives of MAF or MAFG.

(48)

At no time did Defendant Frazier seek or obtain information regarding the licensing history of Robert Dillie or any other representative of MAF.

(49)

Defendant Frazier was not at any time a director, officer, employee, manager, or shareholder of either MAF or MAFG and did not receive any undisclosed profits from MAF or MAFG other than commission payments.

10 11 12 13 14 15 16 17 18 19 20 21 22 23

Defendant Dwight Lankford (50) Defendant Lankford sold 31 MAF CGAs in Texas as summarized below for which he received payments from MAF totaling $456,108.31: MAF CGAs Sold by Defendant Lankford Investor's Investor's Commission Name Age Pay Date Orr, E. Polk, C. Polk, C. Kuehne, M. Thiebeault, C. Wade, B. Wade, B. Wade, B. Cox, V. Tullis, J & S 71 88 88 62 80 67 67 67 79 71/73 3/3/98 3/13/98 3/13/98 3/19/98 5/28/98 4/17/98 4/17/98 6/8/98 10/6/98 10/5/98

CGA Number 20513 20519 20520 20521 20531 20534 20535 20536 20587 20601

Commission Amount $30,601.36 $8,000.00 $8,000.00 $4,500.00 $2,552.16 $6,000.00 $6,000.00 $6,000.00 $12,575.90 $2,000.00

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10 11 12

20614 20619 20621 20656 20657 20658 20682 20695 20706 20707 20708 20709 20710 20711 20712 20713 20717 20757 20760 20772 20922

Cox, V. Griffith, C & O Fuller, J. Shaw, N. Shaw, N. Shaw, N. Thrash, O. Menius, L & H Welch, C & M Green, R & P Sheridan, J. Sheridan, J. Sheridan, J. Sheridan, J. Sheridan, J. Lee, R. Welch, C & M Vice, W. DeDoes, R & S Altizer, J & H Drake, A.

79 76/75 85 88 88 88 70 80/79 66/60 73/73 84 84 84 84 84 52 66/60 72 64/62 72/78 89

10/6/98 11/11/98 11/23/98 2/3/99 2/3/99 2/3/99 7/1/99 4/15/99 6/16/99 7/6/99 6/14/99 6/14/99 6/14/99 6/14/99 6/14/99 7/22/99 6/24/99 10/12/99 11/11/99 11/21/00 7/27/00

$12,575.90 $5,200.00 $25,275.05 $8,880.00 $23,172.11 $8,000.00 $8,958.66 $22,660.00 $8,200.00 $19,931.24 $1,967.34 $1,967.34 $1,967.34 $1,967.34 $1,967.34 $23,681.10 $30,474.57 $5,120.00 $120,093.84 $3,829.39 $33,511.10 $456,108.31

(51) 13

At no time did Defendant Lankford possess a financial statement for MAF or MAFG prepared or audited by a certified public accountant.

14 (52) 15 990) for MAF. 16 (53) 17 financial statements and IRS Form 990s for MAF but was never provided 18 with any such documents and after making those unsuccessful requests he 19 sold two additional MAF CGAs. 20 (54) 21 provide notice to the Texas Department of Insurance of its non-profit and 22 23
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At no time did Defendant Lankford obtain copies of any tax returns (Forms

In or around the first half of 2000 Defendant Lankford requested audited

MAF was not authorized to sell insurance in Texas and MAF failed to

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tax exempt status or any other information relating to the sale of CGAs in Texas. (55) At no time was Defendant Dwight Lankford licensed to sell CGAs or other securities. (56) Defendant Lankford was not at any time a director, officer, employee, manager, or shareholder of either MAF or MAFG and did not receive any undisclosed profits from MAF or MAFG other than commission payments. Defendant Leonard Bestgen (57) Defendant Bestgen sold nine MAF CGAs in Arizona as summarized below for which he received payments from MAF totaling $104,248.32: MAF CGAs Sold by Defendant Bestgen Investor's Investor's Commission Name Age Pay Date Meyers, I. Bright, E. Bright, E. Bright, G & D Bright, G & D Fetzer, H. Fetzer, H. Fetzer, H. Fetzer, G & H 76 87 87 59/58 59/58 73 73 73 73/75 5/22/98 10/9/98 10/20/98 10/20/98 10/20/98 2/8/99 2/8/99 2/8/99 2/8/99

10 11 12 13 14 15 16 17 18 19 20 21 22 23 (60) (59) CGA Number 20548 20610 20611 20612 20618 20645 20646 20647 20648

Commission Amount $4,044.90 $11,871.19 $4,330.42 $14,041.09 $5,960.72 $16,000.00 $16,000.00 $16,000.00 $16,000.00 $104,248.32

(58)

At no time prior to selling the above MAF CGAs did Defendant Bestgen request or obtain a financial statement for MAF or MAFG prepared or audited by a certified public accountant. At no time did Defendant Bestgen request or obtain copies of any tax returns (Forms 990) for MAF.

Defendant Leonard Bestgen was not licensed to sell securities at any time. Case 2:03-cv-02390-JAT Document 543 16 Filed 11/06/2006 Page 16 of 85

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(61)

Defendant Leonard Bestgen was not at any time a director, officer, employee, manager, or shareholder of either MAF or MAFG and did not receive any undisclosed profits from MAF or MAFG other than commission payments.

Defendant Rudy Crosswell (62) Defendant Crosswell sold three MAF CGAs in Arizona as summarized below for which he received payments from MAF totaling $71,137.91: MAF CGAs Sold by Defendant Crosswell Investor's Investor's Commission Name Age Pay Date Campbell, M. Berg, M. White, C. 96 92 92 7/23/98 7/23/98 2/17/99

CGA Number 20558 20565 20675

Commission Amount $24,000.00 $12,000.00 $35,137.91 $71,137.91

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(63)

Defendant Crosswell took no steps to investigate the financial solvency of MAF.

(64)

At no time did Defendant Crosswell request or obtain a financial statement for MAF or MAFG prepared or audited by a certified public accountant.

(65)

At no time did Defendant Crosswell request or obtain copies of any tax returns (Forms 990) for MAF.

(66)

At no time did Defendant Crosswell seek or obtain information regarding MAF or MAFG or any of their key employees or officers and directors from sources other than Robert Dillie or other representatives of MAF or MAFG.

(67)

At no time did Defendant Crosswell seek or obtain information regarding

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(68)

In 1998, Defendant Crosswell was sued by the Securities and Exchange Commission and some time that year, he settled with the SEC agreeing that he would no longer sell any securities.

(69)

Defendant Rudy Crosswell held series 6 and 63 securities licenses from 1983 to 1993 at which time they expired.

(70)

On or about July 17, 1998 the United States District Court for the District of Arizona entered a Final Judgment of Permanent Injunction and Other Relief against Defendant Crosswell and another enjoining Crosswell from, among other things, selling unregistered securities.

10 11 12 13 14 15 16 17 18 19 20 21 22 23

(71)

Defendant Crosswell was not at any time a director, officer, employee, manager, or shareholder of either MAF or MAFG and did not receive any undisclosed profits from MAF or MAFG other than commission payments.

Defendant John Rada (72) (73) LTC Insurance Services was Defendant Rada's solely owned corporation. Defendant Rada sold two MAF CGAs in Arizona as summarized below for which he received payments from MAF totaling $39,111.01: MAF CGAs Sold by Defendant Rada Investor's Investor's Commission Name Age Pay Date Scheller, M. Scheller, M. 65 65 8/27/99 7/6/99

CGA Number 20732 20714

Commission Amount $20,216.22 $18,894.79 $39,111.01

(74)

Defendant Rada took no steps to investigate MAF's financial solvency before he sold two MAF CGAs.

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(75)

At no time did Defendant Rada request or obtain a financial statement for MAF or MAFG prepared or audited by an independent certified public accountant.

(76)

At no time did Defendant Rada request or obtain copies of any tax returns (Forms 990) for MAF.

(77)

Defendant John Rada admits he was not licensed to sell securities at the time he sold the above MAF CGAs.

(78)

At no time did Defendant Rada seek or obtain information regarding MAF or MAFG or any of their key employees or officers and directors from sources other than Robert Dillie or other representatives of MAF or MAFG.

10 11 12 13 14 15 16 17 18 19 20 21 22 23 (80) (79)

At no time did Defendant Rada seek or obtain information regarding the licensing history of Robert Dillie or any other representative of MAF. Defendant Rada was not at any time a director, officer, employee, manager, or shareholder of either MAF or MAFG and did not receive any undisclosed profits from MAF or MAFG other than commission payments.

Defendant Patrick Wehrly (81) Defendant Wehrly sold five MAF CGAs in Arizona as summarized below for which he received payments from MAF totaling $71,106.11:

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CGA Number 20544 20545 20548 20566 20594

MAF CGAs Sold by Defendant Wehrly Investor's Investor's Commission Name Age Pay Date Culloton, D. Culloton, D. Meyers, I & M Sweeny, L. Plasman, E. 74 74 76/74 86 83 5/27/98 6/17/98 5/21/98 7/15/98 10/22/98

Commission Amount $20,000.00 $20,000.00 $1,348.30 $17,298.33 $12,459.48 $71,106.11

(82)

The commission checks paid on CGA Numbers 20544, 20545, 20548 and 20566, were made payable to Southwest Estate Planners.

(83)

Defendant Wehrly and his wife were the sole shareholders of Southwest Estate Planners.

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(84)

At no time did Defendant Wehrly request or obtain a financial statement for MAF or MAFG prepared or audited by a certified public accountant.

(85)

At no time did Defendant Wehrly request or obtain copies of any tax returns (Forms 990) for MAF.

(86)

At no time did Defendant Wehrly seek or obtain information regarding MAF or MAFG or any of their key employees or officers and directors from sources other than Robert Dillie or other representatives of MAF or MAFG.

(87)

At no time did Defendant Wehrly seek or obtain information regarding the licensing history of Robert Dillie or any other representative of MAF.

(88)

Defendant Wehrly was not at any time a director, officer, employee, manager, or shareholder of either MAF or MAFG and did not receive any undisclosed profits from MAF or MAFG other than commission payments.

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Defendant Charles Davis (89) Defendant Davis received commission payments from MAF totaling $199,323.63 as follows: (90) Defendant Davis sold six MAF CGAs in Massachusetts as summarized below for which he received payments from MAF totaling $150,294.81: MAF CGAs Sold by Defendant Davis Investor's Investor's Commission Name Age Pay Date McNutt, N. Lavigne, M. White, G & B White, G & B Lavigne, M. Fiore, N & L LaFond, J. LaFond, J. 71 80 75/76 75/76 81 88/83 66 66 4/23/98 11/16/98 2/11/99 3/15/99 2/21/00 6/30/00 6/19/00 6/19/00

CGA Number 20538 20624 20664 20666 20812 20843 20867 20868

Commission Amount $837.30 $4,605.92 $13,877.33 $3,403.81 $604.80 $98,711.39 $14,127.13 $14,127.13 $150,294.81

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(91)

Defendant Davis received an override commission on nine MAF CGAs sold by Defendant Richard as summarized below for which Defendant Davis received payments from MAF totaling $49,028.82:

Override Commissions to Defendant Davis on MAF CGAs CGA Investor's Investor's Commission Commission Number Name Age Pay Date Amount 20735 Theimann, S. 79 9/8/99 $6,035.84 20745 Theimann, S. 79 9/17/99 $5,560.18 20746 Theimann, S. 79 10/12/99 $9,699.06 20749 Theimann, S. 79 10/12/99 $5,309.47 20764 Theimann, S. 79 12/6/99 $5,622.23 20773 Theimann, S. 80 1/5/00 $12,801.56 20778 Theimann, S. 80 1/24/00 $3,045.98 20804 Theimann, S. 80 2/7/00 $580.48 20807 Theimann, S. 80 1/24/00 $374.02 $49,028.82 (92) At no time did Defendant Davis investigate the financial solvency of MAF.
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(93)

At no time did Defendant Davis request or obtain a financial statement for MAF or MAFG prepared or audited by a certified public accountant.

(94)

At no time was Defendant Davis licensed in the State of Massachusetts to sell securities in that state.

(95)

At no time did Defendant Davis request or obtain copies of any tax returns (Forms 990) for MAF.

(96)

At no time did Defendant Davis seek or obtain information regarding MAF or MAFG or any of their key employees or officers and directors from sources other than Robert Dillie or other representatives of MAF or MAFG.

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(97)

At no time did Defendant Davis seek or obtain information regarding the licensing history of Robert Dillie or any other representative of MAF.

(98)

In or around 1998, Mid-America Foundation, Inc. ("MAF"), a Delaware corporation, received tax exempt status from the Internal Revenue Service (IRS") pursuant to 26 U.S.C. 501(c)(3) and 501(e)(3). This designation was not terminated by IRS prior to October 1, 2001.

(99)

Prior to October 2001, in Arizona there were no negative media stories respecting MAF, MAFG or Dillie.

(100) Neither MAF nor MAFG was required by law to publish financial statements under Arizona law at any time prior to October 2001. (101) In accepting these contributions and making these promises, MAF was obligated to reserve sufficient funds to insure its ability to make the promised annuity payments and charitable contributions.

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(102) With limited exceptions, the Annuitants' funds were not invested to provide a source of income to fund future annuity obligations. (103) Dillie, through MAF, operated a Ponzi scheme in which new Annuitants' funds were sought and obtained in order to make the periodic annuity payments promised to earlier investors, as well as the other expenditures such as commission payments to the Defendants. (104) The Rada Defendants did not know that MAF and MAFG was going to close their doors on October 12, 2001.

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UNCONTESTED ISSUES OF LAW 3. (1) (2) (3) The following issues of law are uncontested and stipulated to by the parties: MAF was insolvent shortly after the first MAF CGA was sold. In selling MAF CGAs, MAF and Dillie operated a Ponzi scheme. The transfer of commission payments to Defendants was with actual intent by MAF and Dillie to hinder, delay and defraud the creditors of MAF. (4) At the time of the payment of each commission to the Defendants, MAF was engaged in a business for which the assets of MAF remaining after the payment of the commission were unreasonably small in relation to MAF's business. (5) At the time of the payment of each commission to the Defendants, MAF and Dillie believed or reasonably should have believed that MAF would incur debts beyond its ability to pay as they became due.

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(6)

It was unlawful under federal and state law for Defendant Bidwell to sell MAF CGAs in the state of Washington because: (a) MAF CGAs were not authorized by the state of Washington to be sold in that state; (b) The MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; and (c) Defendant Bidwell was not licensed to sell CGAs or other securities in the state of Washington at the time the above MAF CGAs were sold by him. (d) It was unlawful under state and federal law for Defendant Bidwell to sell MAF CGAs in the state of Illinois because: (e) MAF CGAs were not authorized by the state of Illinois to be sold in that state; (f) The MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; and (g) Defendant Bidwell was not licensed to sell CGAs or other securities in Illinois.

10 11 12 13 14 15 16 17 18 D. 19 1. 20

CONTESTED ISSUES OF FACT The following are the issues of fact to be tried and decided: Whether the Receiver discovered prior to December 2, 2002 that

Issue #1: 21

commissions were paid to Defendants and that the transfers were voidable as fraudulent 22 transfers. 23
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Plaintiff Contends: Plaintiff was unable to discover the commission payments and the fraudulent nature of the transfers prior to the one year period before he filed the Complaint. Plaintiff's ability to discover the fraudulent nature of the transactions was due to the lack of comprehensive business records and the failure of Robert Dillie to cooperate with the Receiver. Rada Defendants Contend: All the Receiver had to do was look at the documents at the courthouse in SEC v. Dillie and the exhibits to Lankford's deposition to locate lists of annuitants and commissions paid, and the appropriate dates and to whom paid. Issue # 2: Whether violations by the Defendants of Federal and State Securities

10 11 12 13 14 15 16 17 18 19 20 21 22 23

laws caused damages to the Plaintiff. Plaintiff Contends: The Violations of Federal and State Securities law caused damages to the Plaintiff in the amounts detailed in the Complaint. Rada Defendants Contend: Sales of CGAs that brought annuitants dollars to MAF could only enhance its financial status, not inflict damages as the commissions paid out were less than 10 % of the annuitant's funds brought to MAF. Issue # 3: Robert Dillie was assisted by J. Nelson Happy, attorney, licensed in

Kansas and California, who acted as legal counselor/advisor to MAF and Dillie. Plaintiff Contends: J. Nelson Happy did not cause Mid-America to operate as a Ponzi scheme, sell unregistered securities or cause Defendants to fail to undertake any due diligence before Defendants sold worthless MAF CGAs.

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Rada Defendants Contend: J. Nelson Happy came to MAF and MAFG as an attorney and spoke to the Defendants at seminars and occupied offices close to Dillie and gave legal and business advice to MAF and Dille. Issue # 4: Robert Dillie was assisted by Michael Sias, an attorney licensed in

Wisconsin, who acted as legal counsel for MAF and MAFG. Plaintiff Contends: Michael Sias did not cause Mid-America to operate as a Ponzi scheme, sell unregistered securities or cause Defendants to fail to undertake any due diligence before Defendants sold worthless MAF CGAs. Rada Defendants Contend: Not an issue. Issue # 5: Robert Dillie was assisted by Merrill, Lynch, Pierce, Fenner &

10 11 12 13 14 15 16 17 18 19 20 21 22 23 firm;

Smith, Inc. ("Merrill Lynch"), who helped Dillie both raising annuitant funds from and permitted the wrongfully diversion of funds from MAF. Plaintiff Contends: Merrill Lynch did not cause Mid-America to operate as a Ponzi scheme, sell unregistered securities or cause Defendants to fail to undertake any due diligence before Defendants sold worthless MAF CGAs. Rada Defendants Contends: Not an issue. Issue # 6: According to brochures and other MAF marketing publications, the Board of Directors and the Advisory Board of MAF consisted of well regarded persons: a) Robert R. Dillie, who had twice received Congressional

Awards, including a certificate of lifetime membership from Speaker of the House Newt Gingrich, named in Who's Who in America; b) Dick Anthon, who founded his own merchandise brokering

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c)

Dr. Phillip M. Summers, President of Vincennes University in

Vincennes, Indiana since 1965; d) Herschel W. Gulley, who has been involved in the United

Nations, Kiwanis International, a former member of the Board of Regents for Graceland University in Indiana, project director for the International Training Center for the Physically Challenged, keynote speaker at a National Realtors Association convention, an internationally recognized author and lecturer who has lectured with speakers including Norman Vincent Peale, Og Mandino, Zig Ziler and Earl Nightengale; e) Pat Brown, MBA graduate of National University in San

10 11 12 13 14 15 16 17 18 19 20 21 22 23

Diego, California, second administrator of Western State University, first director of the American Chamber of Commerce in Cairo, Egypt, and received National University's Distinguished Alumni award for her business success; f) Maj. Gen. Robert B. Tanguy, a graduate of West Point,

commissioned in the Air Force as a pilot and fighter squadron commander, wing and division commander, receiving the Distinguished Flying Cross, served as Arizona State Administrator for Governor Bruce Babbitt and military consultant in Washington, D.C. Plaintiff Contends: Regardless of who is listed as a member of the Board of Directors or their alleged background, the Defendants had a responsibility to independently investigate MAF and conduct reasonable due diligence and to independently ascertain if MAF could honor its annuity obligations. Rada Defendant Contends: These facts given to the ordinary and reasonable commission agents indicated that MAF was an outstanding and reliable company with which to do business.
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1 Issue # 7: 2 Defendants] had any knowledge of the Ponzi Scheme or the fact that the annuitants 3 would not be paid prior to the sale of CGAs. 4 Plaintiff Contends: Plaintiff has never contended Defendants ran the Ponzi 5 scheme. However, commission payments to Defendants deepened the insolvency of 6 MAF and Defendants were responsible for presenting new annuitants into MAF. 7 Rada Defendants Contend: This is a true statement of fact, not an issue. 8 Issue # 8: 9
Guttilla & Murphy, PC

There was no indication that the independent brokers [Rada

Prior to October 2001, there is no evidence that Mid-America had

failed to honor its commitments to the purchasers of CGAs, or had failed to make the
4150 West Northern Ave Phoenix, Arizona 85051 (623) 937-2795

10 required monthly payments to the CGA purchasers. 11 Plaintiff Contends: It is unclear if there was any evidence. Plaintiff believes the 12 enormous expenses and lavish lifestyle of Dillie may have provided evidence to the 13 Defendants that MAF would fail to honor its CGA obligations. 14 Rada Defendants Contend: This is a true statement of fact, not an issue, and 15 inside workings of MAF not known to agents. 16 Issue # 9: 17 Department of Insurance or the Securities Divisions of the Arizona Corporation 18 Commission had any ongoing investigations or complaints from annuitants respecting 19 either MAF or MAFG. 20 Plaintiff Contends: Plaintiff has no basis to know if the State of Arizona through 21 its regulatory departments had an ongoing investigation into MAF. 22 23
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Prior to October 2001, there is no evidence that either the Arizona

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Rada Defendants Contend: This is a true statement of fact, not an issue, and important to prove due diligence of agents. Issue # 10: The financial collapse of MAF and MAFG were caused by the theft

of its assets by Robert Dillie. Plaintiff Contends: The financial collapse was caused by numerous factors, including the misappropriation of CGA annuitant funds. Rada Defendants Contend: This is a true statement of fact, not an issue.

Issue # 11: 9
Guttilla & Murphy, PC

The Rada Defendants attended MAF and/or MAFG seminars to

learn about CGAs, their tax advantages and other legal consequences, and relied upon
4150 West Northern Ave Phoenix, Arizona 85051 (623) 937-2795

10 each of the companies in-house legal counsel, Board of Directors and administrative staff 11 to assure themselves that the sale of CGAs was within the bounds of state and federal 12 laws. 13 Plaintiff Contends: Some Defendants have testified that they did no 14 investigation into the MAF CGAs. Some Defendants deny attendance at any MAF 15 seminars. Some Defendants have testified they never spoke with the in-house counsel of 16 MAF. 17 Rada Defendants Contend: Defendants relied upon the fact that MAF paid 18 monthly payments to CGA purchasers from 1996 to October 2001 without default and 19 were taken in by, the profiles and exalted character of the Board of Directors and 20 Advisory Board, the professional staff of MAF, and the legal monitoring by several in21 house counsel from Arizona and California. 22 23
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Issue #12: Whether Warfield, within one year after the Court appointed him as Receiver for MAF and MAFG, could have discovered through the exercise of reasonable diligence, that Mid-America had sold over $50 million of CGAs to hundreds of purchasers nationwide and that Mid-America had paid about $3 million in sales commissions to over a hundred commission agents nationwide for these CGA sales? Plaintiff Contends: Based upon the documents and evidence in the Receivership case, the Receivership could not have discovered the factual and legal basis for his fraudulent transfer claims. Rada Defendants Contend: On or about January 16, 2002, the SEC, in SEC v. Dillie, CIV'01-2493 PHX JAT, an action tried before Judge Teilborg, had in hand MidAmerica's four metal lateral file cabinets delivered to them by Josh Dillie, Robert Dillie's son. The file cabinets' contents were reduced to several cardboard banker's boxes for ease of dealing with the documents. Contained within those banker's boxes were all of the documents needed by the Receiver to file the Complaint, the filing of which was negligently delayed by the Receiver's lack of due diligence in chasing Dillie and his son around the country. Issue # 13: Whether Warfield, within one year following his Court appointment as Receiver for the Mid-America companies, could have discovered through the exercise of reasonable diligence, the names and addresses of both the purchasers of CGAs and the commission sales agents, as well as the price paid by each purchaser of a CGA, and the corresponding sales commissions paid to each of the commission agents?

10 11 12 13 14 15 16 17 18 19 20 21 22 23

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Plaintiff Contends: Based upon the documents and evidence in the Receivership case, the Receiver could not have discovered the factual and legal basis for his claims against the Defendants. Rada Defendants Contend: The Receiver spent months trying to take Robert Dillie's deposition, naively believing that Robert Dillie would be cooperative and disclose information about Mid-America, thus making the Receiver's job easier. The Receiver negligently failed to use due diligence to confer with the SEC and look at the tangible evidence respecting Mid-America's operations already in hand and assembled by the SEC. Issue # 14: Whether Warfield, as Receiver for the Mid-America companies, within the full first year after his Court appointment as Receiver, could have discovered through the exercise of due diligence, sufficient facts concerning the sale of CGAs and the commissions paid, to have filed a Complaint against the commission sales agents to get back the commissions previously paid to them? Plaintiff Contends: Based upon the documents and evidence in the Receivership case, the Receiver could not have discovered the factual and legal basis for his claims against the Defendants. Rada Defendants Contend: The Receiver traveled around the country on a wild goose chase looking for Dillie and the Mid-America records when the records were in the hands of the SEC in SEC v. Dillie, and all Warfield had to do was take a trip to the Courthouse to review the file, or confer with the SEC, as the real party-in-interest in this case to obtain all of their books and records concerning Mid-America's activities. KPMG completed a preliminary audited financial statement of MAF in May of 2001.
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Issue # 15:

Under the MAF CGA program, investors would make a contribution

to MAF of cash, real property, or marketable securities in exchange for a MAF CGA, under which MAF promised to make periodic annuity payments to the annuitants for the remainder of the annuitant's life and in some cases for the life of another, and contribute an amount to a designated charity upon the end of the annuity payments. Plaintiff Contends: The MAF CGA program was operated as detailed above. Rada Defendants Contend: The Rada Defendants' direct trial testimony plus their answers to interrogatories establish their lack of scienter. Issue # 16: Rada Defendants do not admit that they sold securities when selling

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CGAs, and will not contest the fact that they collected sales commissions from the sale of CGAs. Plaintiff Contends: The Court has found the MAF CGAs were securities. Defendants have already acknowledged they sold and profited from the sale of MAF CGAs. Therefore, the Rada Defendants sold securities. Rada Defendants Contend: Defendants have filed a Notice of Appeal as to the Court's Order that CGAs are securities. Defendants rely upon the fact that there is no profit motive in the purchase of a CGA, only a donative intent to give away their money upon death, knowing that the annuity is calculated to outlive the donor. Issue #17: The Rada Defendants relied upon financial statements (that had not

been audited) provided by MAF, but which indicated the solvency of the Company, and more than sufficient reserves to satisfy its obligations to existing CGA purchasers.

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Plaintiff Contends: The Defendants should not have relied on the unaudited financial material contained on the MAF marketing material. The information was completely false. Rada Defendants Contend: October 1998 and 1999 statements are provided as documentary evidence. D. 2. CONTESTED ISSUES OF LAW The following are the issues of law to be tried and decided: It was unlawful under federal and state law for Defendant Carroll to

Issue # 1:

sell the MAF CGAs because: (1) MAF CGAs were not authorized by the state of California to be sold in that state; (2) Defendant Carroll was not licensed to sell CGAs or other securities in the State of California.; (3) The MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; and (4) The sale of the MAF CGA to Mrs. Peterson was in violation of the Desist and Refrain Orders issued by the State of California. Plaintiff Contends: MAF CGAs were not authorized by the State of California to be sold in that state; Defendant Carroll was not licensed to sell CGAs or other securities in the State of California; the MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; the sale of MAF CGAs to Mrs. Peterson was in violation of the Desist and Refrain Order issued by the State of California.
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Rada Defendants Contend: Mr. Carroll believes he was not selling securities, and the Receiver is not authorized by law to enforce California law. Issue # 2: It was unlawful under state and federal law for Defendant Derk to

sell the MAF CGAs listed above because: (1) MAF CGAs were not authorized by the state of Florida to be sold in that state; (2) The MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; and (3) Defendant Derk was not authorized to sell CGAs in the State of Florida.

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Plaintiff Contends: MAF CGAs were not authorized by the State of Florida to be sold in that state; Defendant Derk was not licensed to sell CGAs or other securities in the State of Florida; the MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered. Rada Defendants Contend: Mr. Derk believes he was not selling securities, and the Receiver is not authorized by law to enforce Florida law. Issue # 3: It was unlawful under state and federal law for Defendant Richard to

sell the MAF CGAs listed above because: (1) MAF CGAs were not authorized by the state of Maine to be sold in that state; (2) The MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; and (3) Defendant Richard was not authorized to sell CGAs or other securities in the state of Maine.
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Plaintiff Contends: MAF CGAs were not authorized by the State of Maine to be sold in that state; Defendant Richard was not licensed to sell CGAs or other securities in the State of Maine; the MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered. Rada Defendants Contend: Mr. Richard believes he was not selling securities, and the Receiver is not authorized by law to enforce Maine law. Issue # 4: It was unlawful under federal law for Defendant Frazier to sell the

MAF CGAs listed above because: (1) The MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; and (2) He was not licensed to sell CGAs or other securities in Arizona.

10 11 12 13 14 15 16 17 18 19 20 21 22 23 (2)

Plaintiff Contends: The MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; and Defendant Frazier was not licensed to sell CGAs or other securities in Arizona. Rada Defendants Contend: Mr. Frazier believes he was not selling securities, and the Receiver is not authorized by law to enforce Arizona law. Issue # 5: It was unlawful under state and federal law for Defendant Lankford

to sell the MAF CGAs listed above because: (1) MAF CGAs were not authorized by the state of Texas to be sold in that state; The MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; and

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(3)

Defendant Lankford was not licensed to sell CGAs or other securities in Texas.

Plaintiff Contends: MAF CGAs were not authorized by the state of Texas to be sold in that state; the MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; and Defendant Lankford was not licensed to sell CGAs or other securities in Texas. Rada Defendants Contend: Mr. Lankford believes he was not selling securities, and the Receiver is not authorized by law to enforce California law. Issue # 6: It was unlawful under federal law for Defendant Bestgen to sell the

10 11 12 13 14 15 16 17 18 19 20 21 22 23

MAF CGAs listed above because: (1) The MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; and (2) Defendant Bestgen was not licensed to sell CGAs or other securities in Arizona. Plaintiff Contends: The MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; and Defendant Bestgen was not licensed to sell CGAs or other securities in Arizona. Rada Defendants Contend: Mr. Carroll believes he was not selling securities, and the Receiver is not authorized by law to enforce Arizona law. Issue # 7: It was unlawful under federal law for Defendant Crosswell to sell the

MAF CGAs listed above because: (1) He was not licensed to sell CGAs or other securities in Arizona;

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(2)

The MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; and

(3)

He had been enjoined from selling securities that had not been registered with the Securities and Exchange Commission.

Plaintiff Contends: Defendant Crosswell was not licensed to sell CGAs or other securities in Arizona; the MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; and he had been enjoined from selling securities that had not been registered with the Securities and Exchange Commission. Rada Defendants Contend: Mr. Crosswell believes he was not selling securities and the Receiver is not authorized by law to enforce Arizona law. Issue # 8: It was unlawful under federal law for Defendant Rada to sell the

10 11 12 13 14 15 16 17 18 19 20 21 22 23

MAF CGAs listed above because: (1) The MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; and (2) Defendant Rada was not licensed to sell CGAs or other securities in Arizona. Plaintiff Contends: The MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; and Defendant Rada was not licensed to sell CGAs or other securities in Arizona. Rada Defendants Contend: Mr. Rada believes he was not selling securities, and the Receiver is not authorized by law to enforce Arizona law.

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Issue # 9:

It was unlawful under federal law for Defendant Wehrly to sell the

MAF CGAs listed above because: (1) The MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; and (2) Defendant Wehrly was not licensed to sell CGAs or other securities in Arizona. Plaintiff Contends: The MAF CGAs were required to be registered as securities under the federal securities laws and had not been so registered; and Defendant Wehrly was not licensed to sell CGAs or other securities in Arizona. Rada Defendants Contend: Mr. Wehrly believes he was not selling securities, and the Receiver is not authorized by law to enforce Arizona law. Issue # 10: their sales of CGAs: (i) the sales commission received by them were directly related to the CGA The Rada Defendants have the right to prove that in connection with

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purchased, and represented a percentage of the gross amount; (ii) they were unaware that Robert Dillie had plundered the assets of MAF

and/or MAFG; (iii) they were unaware that MAF and/or MAFG were insolvent or about to

become insolvent when the CGAs were sold; (iv) reasonable; (v) the CGAs were sold by them along with any other insurance products the commission structure established by MAF and/or MAFG was

offered by them at the time;
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(vi)

MAF paid the same sales commissions for the sale of CGAs as other

companies paid for the sale of annuities offered by insurance companies at that time; (vii) until Judge Teilborg's Order in this case, no District Court in the USA had

ever expressly held that CGAs were securities under the Securities Act of 1933 or the Securities and Exchange Act of 1934. Plaintiff Contends: While Defendants may have the "right" to prove Subsections i-vii, the Plaintiff contends the commission structure for MAF was not reasonable; the payment of a commission for a CGA is not reasonable. Any comparison to commercial annuities is not logical as the CGA and commercial annuity are two distinct securities. The MAF CGA was not exempted from registration or federal securities laws. Rada Defendants Contend: All facts listed above (i) ­ (vii) are true and relevant. Issue # 11: Whether a fiduciary duty existed between the Defendants and the

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annuitants of the Mid America Foundation. Plaintiff Contends: A fiduciary duty existed between the Agents and their clients, the annuitants of the Mid America Foundation. Rada Defendants Contend: There was no fiduciary duty owed from the Rada Defendants to annuitants. Issue # 12: fiduciary duties. Plaintiff Contends: Defendants breached their fiduciary duty with respect to the annuitants of the Mid America Foundation. Rada Defendants Contend: No fiduciary duty exists between an annuitant and the sales agent who was an independent contractor.
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Whether the Defendants in selling MAF CGAs breached their

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Issue # 13:

Whether reasonable and equivalent value was provided by

Defendants for the receipt of the facilitation fees paid to Defendants by the Mid America Foundation. Plaintiff Contends: No reasonable or equivalent value was provided by Defendants for the receipt of the facilitation fees. Rada Defendants Contend: The commissions paid by MAF were the usual ordinary commissions paid in connection with the sales of annuities. Issue # 14: Is the marketing and sale of a Mid America Charitable Gift Annuity

without a securities license a violation of laws that require a person to be registered to sell securities. Plaintiff Contends: The marketing a sale of a Mid America Charitable Gift Annuity without a securities license is a violation of the law. Rada Defendants Contend: The sale of CGAs does not involve the sale of securities, and if securities, they were exempted. Issue # 15: Does the sale of a security in violation of federal and state securities

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laws constitute constructive fraud. Plaintiff Contends: The sale of a security in violation of federal and state securities laws constitutes constructive fraud. Rada Defendants Contend: Constructive fraud requires more than violation of a securities law. Issue # 16: Whether MAF received a reasonably equivalent value in exchange

for the payment of each commission to the Defendants.

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Plaintiff Contends: MAF did not receive reasonable equivalent value in exchange for the payments to the Defendants. Rada Defendants Contend: The commissions paid were in keeping with industry guidelines and standards and represented reasonably equivalent value. Issue # 17: a. b. Whether each Defendant took each commission payment: In good faith; and For a reasonably equivalent value.

Plaintiff Contends: Each Defendant did not take commission payments in good faith or for reasonable equivalent value. Rada Defendants Contend: The Rada Defendants exchanged reasonably equivalent value and took in good faith pursuant to A.R.S. § 44-1008(A). The Rada Defendants had no subjective awareness that Mid-America was insolvent when the CGAs were being sold and therefore were not reasonably put on notice that the transfers were made to delay, hinder or defraud the annuitants. They were paid and received the commissions in good faith. See Jury Instructions for authorities. Issue # 18: securities laws. Plaintiff Contends: The Defendants sale of MAF CGAs was a violation of federal securities laws. Rada Defendants Contend: They are not securities and, if securities, then subject to an exception. Issue # 19: securities laws.
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