Free Statement - District Court of Arizona - Arizona

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Guttilla & Murphy, PC

Guttilla & Murphy, PC
Firm No. 00133300 Ryan W. Anderson (No. 020974) Alisan M. B. Patten (No. 009795) 4150 West Northern Ave. Phoenix, Arizona 85051 (623) 937-2795 [email protected] [email protected]

Attorneys for the Receiver IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Lawrence J. Warfield, Receiver, Plaintiff, v. ) Cause No. CV 03-2390 PHX JAT ) ) ) Response to Rada Defendants' Statement ) ) of Facts/Receiver's Statement of Facts in Support of his Response to Rada ) Defendants' Motion for Summary ) ) Judgment ) )

4150 West Northern Ave Phoenix, Arizona 85051 (623) 937-2795

10 11 12 13 14 15 16 17 18 19 20 21 22 23 Michael Alaniz, et al. Defendants.

The Receiver hereby responds to the Rada Defendants' Statement of Facts in support of their motion for summary judgment. Additionally, the Receiver submits his own statement of facts in support of his Response to the Rada Defendants' motion for summary judgment. Response to Defendants Rada's Statement of Facts. The Receiver disputes or presents qualified responses to the Defendants' statement of fact nos. 1, 3, 4, 5, 6, 7, 8, 11, and 13. 1. In Defendants' statement of fact no.1, the Defendants' state that Mid-

America Foundation hired independent contractors throughout the county. Whether the Defendants qualify as "independent contractors" is a legal conclusion, not a factual assertion.
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Guttilla & Murphy, PC
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2.

The Receiver does not dispute Defendants' statement of fact number 3

insofar as it relates to the filing of a complaint, amended to include a total of eleven counts, against the Rada Defendants. However, it is not known what the Defendants' intend to convey by the use of the word "hired" in their statement of fact. The Receiver does not dispute that the Defendants entered into contracts with Mid-America Foundation so that they could sell MAF CGAs in exchange for the payment of commissions. 3. The Receiver disputes that the Defendants have provided supporting

evidence for their conclusion that Robert Carroll was a resident of California at the time of the filing of the Receiver's Complaint in this matter. The Declaration of Carroll in support of fact no. 4 says nothing about Carroll's residency in California The Receiver disputes that the Defendants have provided supporting evidence for their conclusion that Charles Davis was a resident of Maine at the time of the filing of the Receiver's Complaint in this matter. The Declaration of Davis in support of fact no. 4 says nothing about his residency in Maine. The Receiver disputes that the Defendants have provided supporting evidence for their conclusion that Richard Derk was a resident of Florida at the time of the filing of the Receiver's Complaint in this matter. The Declaration of Derk in support of fact no. 4 says nothing about his residency in Florida. The Receiver disputes that the Defendants have provided supporting evidence for their conclusion that Orville Dale Frazier was a resident of South Dakota at the time of the filing of the Receiver's Complaint in this matter. The Declaration of Frazier in support of fact no. 4 says nothing about his residency in South Dakota.

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The Receiver disputes that the Defendants have provided supporting evidence for their conclusion that Ronald A. Kerher was a resident of South Dakota at the time of the filing of the Receiver's Complaint in this matter. The Declaration of Kerher in support of fact no. 4 says nothing about his residency in South Dakota. The Receiver disputes that the Defendants have provided supporting evidence for their conclusion that Dwight Lankford was a resident of Texas at the time of the filing of the Receiver's Complaint in this matter. The Declaration of Lankford in support of fact no. 4 says nothing about his residency in Texas. The Receiver disputes that the Defendants have provided supporting evidence for their conclusion that Paul E. Richard was a resident of Maine at the time of the filing of the Receiver's Complaint in this matter. The Declaration of Richard in support of fact no. 4 says nothing about his residency in Maine The Receiver disputes that the Defendants have provided supporting evidence for their conclusion that Patrick and Andrea Wehrly were residents of Texas at the time of the filing of the Receiver's Complaint in this matter. The Declaration of Patrick Wehrly in support of fact no. 4 says nothing about his or Andrea's residency in Texas. 4. The Receiver does not dispute that Defendants received commissions from

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MAF for their sale of MAF CGAs as set forth in the Receiver's Complaint; however, it is not known what Defendants intend to convey by use of the phrase "Mid-America clients" as used in their statement of fact no. 5. To the extent they mean that Defendants received commissions from MAF for the sale of MAF CGAs to the Ponzi scheme Victims, the Receiver does not dispute Defendants' statement of fact no. 5.

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5.

The Receiver does not dispute that he claims that the commissions paid to

Defendants were fraudulent transfers; however, it is not understood what is meant by use of the word "now" in statement of fact no. 6. The Receiver's position is and has been consistent from the time of the filing of the Complaint. 6. The Receiver does not dispute statement of fact no. 7; however, it is noted

that all claims in the Receiver's complaint are ancillary or supplemental to the SEC Complaint in SEC v. Robert R. Dillie et al., CIV-01-2493- PHX (JAT). 7. The Receiver disputes statement of fact no. 8 in that it is a legal conclusion

as well as being incorrect. The Receiver has asserted that the District Court has personal jurisdiction over the Defendants not only under "nationwide service of process" but also under those bases identified in paragraphs 28-32 of the Receiver's Third Amended Complaint. 8. The Receiver does not dispute that MAF was recognized as a 501(c)(3)

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organization by the IRS commencing on June 13, 1997. 9. The Receiver disputes Defendants' statement of fact no. 13 insofar as it

does not specify which Gift Annuity Disclosure Statements were given to which Defendants. Additionally, the Defendants fail to identify which specific defendants received the "financial summary and balance sheet" and on what dates they were provided. Accordingly, the Receiver disputes the vaguely asserted fact that all defendants were provided with this document. . . . . . . . . .
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Receiver's Statement of Facts 1. The Receiver incorporates all facts, and supporting exhibits, set forth in his Statement of Facts in Support of his Motion for Partial Summary Judgment on Count Nine filed on December 30, 2005. 2. MAF, as well as other Mid-America companies operated by Robert Dillie ("Dillie"), had its principal place of business in Scottsdale, Arizona. (See, Declaration of Lawrence J. Warfield attached as exhibit 10, ¶ 1; see generally, exhibits 6, 17, 18, 19, 27 to Receiver's Statement of Facts in support of his Motion for Partial Summary Judgment showing MAF's place of business was in Scottsdale, Arizona). 3. The funds from which the Defendants were paid their commissions were drawn on Arizona bank accounts. (See, for example, commission checks found in exhibits 74, 75, 76, 77, 78, 79, 80, 81, 82 attached to Receiver's statement of facts in support of his motion for partial summary judgment). 4. Defendant Carroll executed a contract entitled "Associate Agreement" with Mid-America Financial Group "MAFG" on June 11, 1996. (See, attached "Associate Agreement" marked as exhibit 1). 5. Defendant Derk signed a "Planned Giving Advisor Consultant Agreement" with MAFG in September 2001 in which he consented to the jurisdiction and venue of an appropriate court in Maricopa Count, Arizona as the proper forum to determine any disputes arising form the contract. (See, attached "Planned Giving Advisor Consultant Agreement" marked as exhibit 2). 6. Defendant Davis testified that, while in Arizona, he negotiated with MidAmerica to secure exclusive territorial rights to promote Mid America products in the
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Northeastern Unites States. (See, attached Davis Deposition Transcript at pages 34-40 marked as exhibit 3). 7. Defendant Frazier completed a Mid-America "Precontracting Form" with MidAmerica on which Mid-America's address is clearly identified in Arizona. (See, exhibit 58 attached to the Receiver's Statement of Facts in Support of his Motion for Partial Summary Judgment filed on December 30, 2005.) 8. Defendant Kerher, a business partner of Defendant Frazier testified that Defendant Frazier visited MAF in Arizona, twice, to obtain information about MAF. (See, attached Kerher Deposition Transcript at pages 51-52 marked as exhibit 4). 9. Defendant Kerher testified in detail about his interactions with MAF, including talking to Mid-America employees on the telephone and receiving correspondence from Mid-America by mail. (See, attached Kerher Deposition Transcript at pages 51-52, 54, 81-82, 84-86 marked as exhibit 4). 10. Defendant Lankford testified he had conversations with Mid-America employees including conversations regarding Mid-America's internal matters as well as meetings with Mid-America employees during which he demanded certain financial documents from Mid-America. (See, attached Lankford Deposition Transcript pages 119127, 162-164 marked as exhibit 5). 11. Defendant Lankford testified that that he met with Robert Dillie and other Mid-America employees. (See, attached Lankford Deposition Transcript pages 133-138 marked as exhibit 5).

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12. Defendant Lankford testified he had conversations with Nelson Happy of Mid-America. (See, attached Lankford Deposition Transcript pages 145-146 marked as exhibit 5). 13. Defendant Richard signed a "Planned Giving Advisor Consultant Agreement" with MAFG in July 2000, wherein, among other things, he consented to the jurisdiction and venue of an appropriate court in Maricopa County, Arizona to resolve any disputes arising form the contract. (See, attached "Planned Giving Advisor Consultant Agreement" marked as exhibit 6). 14. Defendant Wehrly is the president of Southwest Estate Planner Inc, an Arizona corporation. (See, attached document from the Arizona Corporation Commission website marked as exhibit 7). 15. The MAF marketing materials promote the MAF CGA's tax benefits which are said to include savings on income taxes, capital gains and estate taxes. (See, MAF marketing materials attached as exhibit 1 to the Receiver's Statement of Facts filed in support of his Motion for Partial Summary Judgment filed on December 30, 2005.) 16. MAF acknowledged in its CGA contracts that it managed common investment funds subject to the Philanthropy Protection Act of 1995. (See, for example, enumerated page five of MAF CGA Contract number 20854 attached as exhibit 18 to the Receiver's Statement of Facts filed in support of his Motion for Partial Summary Judgment filed on December 30, 2005; enumerated page five of MAF CGA Contract number 20684 attached as exhibit 27 to the Receiver's Statement of Facts filed in support of his Motion for Partial Summary Judgment filed on December 30, 2005; enumerated page five of MAF CGA Contract number 2020681 attached as exhibit 28 to the Receiver's Statement
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of Facts filed in support of his Motion for Partial Summary Judgment filed on December 30, 2005.) 17. MAF CGA contracts describe the CGAs as "general obligations" of MAF, as follows: "These payments are a general obligation of our organization, and they are backed by all of our assets. At present, our total invested funds are in stocks, bond, money market funds, and federal obligations." (See, for example, enumerated page five of MAF CGA Contract number 20854 attached as exhibit 18 to the Receiver's Statement of Facts filed in support of his Motion for Partial Summary Judgment filed on December 30, 2005; enumerated page five of MAF CGA Contract number 20684 attached as exhibit 27 to the Receiver's Statement of Facts filed in support of his Motion for Partial Summary Judgment filed on December 30, 2005; enumerated page five of MAF CGA Contract number 2020681 attached as exhibit 28 to the Receiver's Statement of Facts filed in support of his Motion for Partial Summary Judgment filed on December 30, 2005.) 18. MAF CGA contracts state that " . . . invested funds are in stocks, bonds, money market funds, and federal obligations." (See, for example, enumerated page five of MAF CGA Contract number 20854 attached as exhibit 18 to the Receiver's Statement of Facts filed in support of his Motion for Partial Summary Judgment filed on December 30, 2005; enumerated page five of MAF CGA Contract number 20684 attached as exhibit 27 to the Receiver's Statement of Facts filed in support of his Motion for Partial Summary Judgment filed on December 30, 2005; enumerated page five of MAF CGA Contract number 2020681 attached as exhibit 28 to the Receiver's Statement of Facts filed in support of his Motion for Partial Summary Judgment filed on December 30, 2005.)
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19. MAF CGA contacts state that "[c]ommon investment funds managed by our organization are exempt from registration requirements of the Federal Securities Laws, pursuant to the exemption for collective investment funds and similar funds maintained by charitable organizations under the Philanthropy Protection Act of 1995 (P.L. 104-62). Information in this document is provided to you in accordance with the requirements of that Act." (See, for example., enumerated page five of MAF CGA Contract number 20854 attached as exhibit 18 to the Receiver's Statement of Facts filed in support of his Motion for Partial Summary Judgment filed on December 30, 2005; enumerated page five of MAF CGA Contract number 20684 attached as exhibit 27 to the Receiver's Statement of Facts filed in support of his Motion for Partial Summary Judgment filed on December 30, 2005; enumerated page five of MAF CGA Contract number 2020681 attached as exhibit 28 to the Receiver's Statement of Facts filed in support of his Motion for Partial Summary Judgment filed on December 30, 2005.) 20. Robert Dillie was ordered to pay a civil penalty of $120,000.00 in Final Judgment of Permanent Injunction and Other Equitable Relief as to Defendants Robert R. Dillie and Mid-America Foundation, Inc." (See, attached Final Judgment of Permanent Injunction and Other Equitable Relief as to Defendants Robert R. Dillie and Mid-America Foundation, Inc, p.3, ¶8, marked as exhibit 8). 21. The federal government has enacted a legislative scheme that is intended to protect the citizens of our nation from those who prey upon others using fraud and deception. (See, generally, statutes set forth in the SEC's Complaint in SEC v. Robert R. Dillie et al., CIV-01-2493- PHX (JAT) attached as exhibit 9).

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22. The Receiver was appointed to the receivership action on December 20, 2001. (See, Order Appointing Receiver in SEC v. Robert R Dillie et al., Case No. CIV `01 2493-PHX (JAT). 23. Upon his appointment as Receiver in this action, the Receiver sought to locate the business records of Mid-America Foundation ("MAF") (a Delaware corporation with its principle place of business in Scottsdale, Arizona) only to discover they had been moved by Dillie from MAF in Scottsdale, Arizona to Dillie's ranch in Aberdeen, South Dakota. (See, Declaration of Lawrence J. Warfield attached as exhibit 10, ¶2). 24. After learning that the MAF business records had been moved, the Receiver traveled to South Dakota to recover the records only to find that Robert Dillie's son, Joshua Dillie, had taken some of the records to Las Vegas, Nevada. The Receiver was able, however, to take possession of the MAF business records left in Aberdeen. As to the MAF business records that had been taken to Las Vegas, the Receiver later learned that they had been subsequently transported to Dillie's attorney in Phoenix. (See,Declaration of Lawrence J. Warfield attached as exhibit 10, ¶3). 25. On January 3, 2002, the Receiver recovered additional MAF business records from a storage locker in Tempe, Arizona (See, Declaration of Lawrence J. Warfield attached as exhibit 10, ¶4). 26. After repeated demands, Dillie's attorney provided those MAF business records in his possession to the possession of the Receiver on January 16, 2002. (See, Declaration of Lawrence J. Warfield attached as exhibit 10, ¶5). 27. After the initial review of the MAF business records in the Receiver's possession as of January, 2002, the Receiver discovered that not only were the MAF
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business records completely disorganized, but certain records appeared to be missing including pertinent accounting records. After a forensic investigation into computers seized from Aberdeen, South Dakota, the Receiver was able to locate a QuickBooks file which initially formed the basis for his investigation into the accounting records of MAF. (See,Declaration of Lawrence J. Warfield attached as exhibit 10, ¶6). 28. During the initial months of the Receivership, the Receiver learned that the accounting firm of KPMG performed an audit of MAF in May, 2001. The audit included a review of the sources and uses of cash, asset disposition, and whether the books and records and other financial documents could be relied upon to produce adequate financial statements1. However, Dillie refused to allow KPMG to cooperate in the release of the audit to the Receiver. (See, Declaration of Lawrence J. Warfield attached as exhibit 10, ¶7). 29. On February 1, 2002, Dillie contacted the Receiver's office from Las Vegas, Nevada, and spoke to the Receiver's employee Scott Radcliff. Dillie offered to provide the Receiver with a second and accurate set of MAF financial books and records, if the Receiver would return to him certain vehicles the Receiver had seized during the early days of the Receivership. Dillie advised Scott Radcliff that the second set of financial books would accurately reflect the location of assets in the Receivership including offshore bank accounts and out of state brokerage accounts. The Receiver refused to negotiate with Dillie and demanded that he turn over all Receivership assets and records. (See, Declaration of Lawrence J. Warfield attached as exhibit 10,¶8).

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See, KPMG Audit Report attached to the Receiver's Declaration. Case 2:03-cv-02390-JAT Document 486 11 Filed 02/01/2006 Page 11 of 17

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30. Due to Dillie's failure to cooperate in the Receiver's obtaining the KPMG audit report and other financial records of MAF, including the alleged second set of MAF financial records Dillie had previously stated were in his possession2, on February 11, 2002, the Receiver's counsel filed Petition No. 8 in the Receivership Court for an Order to Show Cause to hold Robert Dillie and Joshua Dillie in contempt for the intentional violations of the Receivership Order. (See, Declaration of Lawrence J. Warfield attached as exhibit 10, ¶9). 31. The Order to Show Cause hearing was set for March 4, 2002. Dillie appeared at the hearing and requested additional time from the Court in order to hire an attorney to represent him. The Court re-set the contempt hearing until March 19, 2002 and ordered Dillie to appear for his deposition at the Receiver's attorney's office on March 18, 2002. (See, Declaration of Lawrence J. Warfield attached as exhibit 10,¶10.) 32. Dillie failed to attend his deposition on March 18, 2002. At the contempt hearing the next day, Dillie remained unrepresented by counsel and testified at the contempt hearing which prompted the SEC to request an order compelling Dillie's attendance at a deposition the next day. (See, Declaration of Lawrence J. Warfield attached as exhibit 10,¶11). 33. On March 19, 2002, Dillie appeared and testified at the scheduled deposition. After a day of questioning, Dillie agreed to continue his deposition to April 5, 2002. The purpose of the continuation of the deposition was that Dillie agreed to assist the Receiver in obtaining the KPMG audit which the Receiver needed to review. Soon

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Subsequently, the Receiver learned this second set of MAF financial records never existed. Case 2:03-cv-02390-JAT Document 486 12 Filed 02/01/2006 Page 12 of 17

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thereafter, it became apparent that Dillie had no intention of assisting the Receiver in the receipt of the KPMG audit. (See, Declaration of Lawrence J. Warfield attached as exhibit 10, ¶12). 34. On March 29, 2002, the Court entered an order compelling KPMG to produce its audit of MAF no later than May 24, 2002. Since KPMG would not be required release the audit until late May, 2002, the SEC and Dillie agreed to delay the continuation of Dillie's deposition to June 7, 2002. (See, Declaration of Lawrence J. Warfield attached as exhibit 10,¶12). 35. On June 7, 2002, Robert Dillie arrived at the Receiver's attorneys' office for the continuation of his deposition. From a review of the transcript of that deposition, the Receiver learned that the Maricopa County Sheriff was in attendance at the deposition because Dillie had an outstanding warrant for unpaid child support. Dillie refused to answer any questions invoking protections under the Fifth Amendment of the United States Constitution and after a short deposition Dillie was immediately arrested and transported to the Maricopa County Jail. (See, Declaration of Lawrence J. Warfield attached as exhibit 10,¶13). 36. Dillie was incarcerated in the Maricopa County Jail until July 3, 2002 when a state court judge conditionally released him to seek work to begin making delinquent child support payments. The Receiver later learned Dillie was essentially placed in a work release program where he was allowed to be released from jail during the day and required to return at night. Sometime in August, 2002, the state court issued an arrest warrant for Dillie for his escape from custody. (See, Declaration of Lawrence J. Warfield attached as exhibit 10, ¶14).
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37. On August 16, 2002, in conjunction with the SEC, the Receiver filed a second motion for order to show cause and an order holding Dillie in contempt for, among other things, continuing to hide assets and records of MAF. (See, Declaration of Lawrence J. Warfield attached as exhibit 10, ¶15). 38. Soon thereafter, the Receiver was advised that Dillie had returned to Aberdeen, South Dakota. After notifying officials of the State of Arizona as to Dillie's alleged location, the Receiver sent an investigator to locate Dillie and serve him with the Order to Show Cause. The Receiver's investigator located and discovered Dillie in an Aberdeen motel registered under an assumed name. The investigator then served Dillie with the required Order to Show Cause pleadings. (See, Declaration of Lawrence J. Warfield attached as exhibit 10, ¶16). 39. The United States District Court set a second order to show cause hearing on August 30, 2002. Dillie arrived at the contempt hearing in Phoenix, Arizona. After the hearing was concluded, Dillie was taken into the custody of the Federal Marshal and delivered to Maricopa County Jail. (See, Declaration of Lawrence J. Warfield attached as exhibit 10, ¶17). 40. On October 8, 2002, the Federal Court issued its Order holding Dillie in civil contempt and remanded him to the custody of the Federal Marshal until Dillie, among other things, completed his deposition with the Receiver's counsel and the SEC. (See, Declaration of Lawrence J. Warfield attached as exhibit 10, ¶18). 41. After attempts by the SEC and the Receiver's counsel to conduct Dillie's deposition in the Maricopa County Jail, the SEC filed a Writ of Habeas Corpus Ad Testificandum which caused Dillie to be remanded to the custody of the Federal Marshal
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so Dillie could be transferred to a federal prison for his deposition to be conducted on December 11 ­ 13, 2002. (See,Declaration of Lawrence J. Warfield attached as exhibit 10, ¶19). 42. During Dillie's December 2002 deposition, the Receiver's counsel discovered that Dillie utilized a network of agents to sell MAF CGAs. Dillie also testified that MAF provided no accurate financial statement of MAF to the agents. Dillie testified about the promotional materials provided by MAF to the agents and the training and educational seminars MAF conducted for the agents. Armed with Dillie's testimony, the Receiver was able to begin a focused search for the evidence to establish the fraudulent nature of the MAF CGA commission payments that support the allegation of the Complaint. (See, Declaration of Lawrence J. Warfield attached as exhibit 10, ¶20). 43. The final amount of MAF business records recovered by the Receiver totals at least 800,000 pages. . (See, Declaration of Lawrence J. Warfield attached as exhibit 10, ¶21.) Respectfully submitted this 1st day of February, 2006. GUTTILLA & MURPHY, PC

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s/Ryan W. Anderson Ryan W. Anderson Alisan M.B. Patten Attorneys for the Receiver

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PROOF OF SERVICE This is to certify that a true copy of the foregoing Statement of Facts has been filed electronically with the Court and that the persons on the attached service list designated as "CM/ECF Registered" will be served with same by the Court's CM/ECF system; and that the other persons on the attached service list have been served with a copy of the Statement of Facts by first class mail this 1st day of February, 2006.

s/Ryan W. Anderson Ryan W. Anderson Burton M. Bentley ECF Registered [email protected] Attorney for Defendants Leonard and Elizabeth Bestgen, Robert Carroll, Rudy and Mary Crosswell, David Cutshall, Charles Davis, Richard Derk, Orville Frazier, Ronald Kerher, Dwight Lankford, John and Candes Rada, Paul Richards, Fera Shivaee, Patrick and Andrea Wehrly and Donald Muchmore Martin D. Koczanowicz Larry Alvin Donaldson ECF Registered Koczanowicz & Donaldson [email protected] Attorneys for Ron Tucker David L. Kagel John Torbett ECF Registered [email protected] [email protected] Attorneys for Paul Pichie Steve A. Bryant Steve Bryant & Associates 3618 Mt. Vernon Street, Suite A Houston, TX 77006 Attorneys for Dwight Lankford

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Brad A. Denton Robert Payne ECF Registered Gunderson, Denton & Proffitt, P.C. [email protected] [email protected] Attorneys for Michael and Ann McLaughlin Albert P. Massey ECF Registered Lentz, Cantor & Massey [email protected] Attorneys for Richard Wilson Gregory Shebest ECF Registered [email protected] Attorney for Heritage Marketing

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Robert Tretiak 4615 N. Ft. Apache Road Las Vegas, NV 89129 Defendant Pro Se Ren Bidwell 3430 Pacific Ave SE Olympia, WA 98501 Defendant Pro Se David Knutson First Financial Center, Ltd. 119 Third Street, N.E. #333 Cedar Rapids, IA 52401 David Tigges First Financial Center, Ltd. 119 Third Street, N.E. #333 Cedar Rapids, IA 52401 Bruce F. Walters 2606 - C.W. Roosevelt Blvd. Monrow, NC 28110 Defendant Pro Per

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0758-011(48590)

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