Free Statement - District Court of Arizona - Arizona

1 Burton M. Bentley, Esq. (Bar No. 00980) 2 BURTON M. BENTLEY, P.C. 5343 North 16th Street, Suite 480 3 Phoenix, Arizona 85016 (602) 861-3055 4 (602) 861-3230 fax Attorney for Rada Defendants 5 6 7

IN THE UNITED STATES DISTRICT COURT IN THE DISTRICT OF ARIZONA CAUSE NO. CIV 03 2390-PHX-JAT RADA DEFENDANTS' SEPARATE STATEMENT OF CONTROVERTING FACTS IN SUPPORT OF RESPONSE TO RECEIVER'S STATEMENT OF FACTS IN SUPPORT OF MOTION FOR PARTIAL SUMMARY JUDGMENT

8 LAWRENCE J. WARFIELD, 9 RECEIVER, 10 11 12 13 MICHAEL ALANIZ, et al. 14 15 16 17 18 19 20 21 22

Plaintiff, vs.

Defendants.

The following Defendants: Leonard & Betty Bestgen Robert Carroll Rudy & Mary Crosswell Charles Davis Richard Derk Orville Dale Frazier Ronald Kerher Dwight Lankford John & Candes Rada Paul Richard Patrick & Andrea Wehrly

23 (collectively "Rada Defendants"), by and through counsel undersigned, hereby submit 24 this separate Statement of Controverting Facts pursuant to Fed.R.Civ.P. 56. 25 26 27 28 -

A. 1. 2. Rada Defendants admit in statements in paragraph A.1. The Rada Defendants have insufficient knowledge to admit nor deny the
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Receiver's statements in paragraph A. 2. 3. The Rada Defendants have insufficient knowledge to admit nor deny the Receiver's statements in paragraph A.3.a-f, except to point out that a genuine issue of material fact exists as to whether a CGA is an "investment" or a "security" under Federal and Arizona law, the Receiver incorrectly categorizes the Mid-America CGA funds as "investor funds" in paragraph A.3.b. See Rada Defendants' Memorandum of Points and

Authorities in Support of Motion for Summary Judgment, pp. 6-21. 4. The Rada Defendants have insufficient knowledge to admit or deny the Receiver's statements in paragraph A.4. 5. The Rada Defendants have insufficient knowledge to either admit nor deny the statements in paragraph A.5. 6. The Rada Defendants deny the statement in paragraph A.6., the Receiver has not conclusively proved that Mid-America was insolvent at the time of each commission payment. Genuine issue of material fact exists as the Receiver provided no evidence other than a statement of the analysis he and others authorized to work for him performed on the Mid-America financial documents. 7. 8. 9. Admit. Admit. The Rada Defendants have insufficient knowledge to admit nor deny the
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Receiver's statements in paragraph A.9. B. 1. C. The Rada Defendants admit the statement in paragraph B.1. The Rada Defendants have insufficient knowledge to admit or deny the statements in paragraphs C.1-5. Genuine issues of material fact exist. The Rada Defendants were not required to have such knowledge prior to selling Mid-America CGAs. See Rada Defendants' Memorandum of Points and Authorities in Support of Motion for Summary Judgment, pp. 6-21, CGA's are not "securities" or are exempted securities under securities law in Arizona and under federal law. D. E. F.1 Admit. Admit. Defendant Carroll admits the statements in paragraph F.1.a.i-xiii, however, Defendant Carroll objects to the classification of annuitants Peterson and the McMillian's as "purchaser-victims." Carroll has not been convicted of any crime in this case. The discussion of commissions with annuitants has nothing to do with Dillie's admission in his plea agreement that Dillie victimized annuitants by stealing money from Mid-America accounts. The Receiver has no standing to assert any supposed violation of California state law. Genuine issues of material fact exist. Defendant Carroll further

asserts that he testified before the California Department of Corporations
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Hearing Board regarding the sale of "exempt" nine-month promissory notes bearing interest at 12% and any contacts he had with any individuals marketing these notes. Defendant Carroll disclosed all factual information concerning the sale of insured exempt promissory notes. The desist order specifically involved those exempt notes. Defendant Carroll further asserts that he never offered or sold any securities without the proper series of license. Sworn handwritten Statement of Robert Carroll dated January 23, 2006, attached hereto as Exhibit A. In his deposition, Defendant Carroll stated that he believed reputable attorneys were doing the presentations for Mid-America; the only one he can name is Doc. Houk, founder of Heritage Foundation. Carroll further testified that he believed that it was the

responsibility of the Arizona Departments of Securities & Insurance and the California Department of Insurance to investigate Mid-America. He also understood United of Omaha was going to reinsure Mid-America. Deposition of Robert Louis Carroll, October 17, 2005, p. 17, lns. 20-25, p. 18, lns. 1-8, p. 57, lns. 14-25, p. 71, lns. 24-25, p. 72, lns. 1-13, attached hereto as Exhibit B. 2. The Rada Defendants have insufficient knowledge to admit or deny the Receiver's statements in paragraph 2.a. Certificate of Pauline DAndrea was not disclosed prior to this submission of the Receiver's Separate Statement of Facts.
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3-6. The Rada Defendants have insufficient knowledge to admit or deny the Receiver's statements in paragraphs 3. to 6. 7. Rada Defendant Derk admits to the statements in paragraphs 7.a.i.-x. Genuine issue of material fact exists here because the Rada Defendants dispute whether an audited financial statement is a legal requirement prior to the sale of a CGA by an independent sales representative. See Rada

Defendants' Memorandum of Points and Authorities in Support of Motion for Summary Judgment, pp. 6-21, CGAs are not "securities." Defendant Derk testified in his deposition that on his own volition he is paying the Taylors (annuitants that purchased a CGA from Mid-America through Derk) back $36,540 in monthly payments. He stated that annuitant Taylor was "quite savvy" in investing and was looking to save on taxes with the purchase of the Mid-America CGAs. Deposition of Richard M. Derk,

October 28, 2005, p. 10, lns. 16-24, p. 62, ln. 25, p. 63, lns. 1-17, attached hereto as Exhibit C. 8. The Rada Defendants have insufficient evidence to admit or deny the statement in paragraph 8. 9. Defendant Richard admits the statements in paragraph a.i.A.-F. Defendant Richard admits the statements in paragraph a.ii.A.-B. Defendant Richard admits the statements in paragraph a.iii.A.-D., but disputes whether there is a requirement to review an audited financial statement prior to the sale of
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CGAs in Maine or any other state, as purported by the Receiver, thus genuine issues of material fact exist. Defendant Richard admits the statements in paragraph a.iv.A., but contests the classification of a CGA as a "security" under federal law and reasserts that the Receiver has no standing to make claims as to violation of Maine state law. See citation to Rada Defendants' Memorandum of Points and Authorities above. 10-11 Paragraphs 10 and 11 are irrelevant. 12. Defendant Frazier admits the statements in paragraph 12.a.i.-xii but asserts that he was not obligated to read an audited financial statement of MidAmerica, was not obligated to read Mid-America tax returns, to investigate Dillie's background, to request an independent audit or to investigate where Mid-America funds were being invested prior to selling Mid-America CGAs under any federal or state law, genuine issue of material fact exists. Defendant Frazier testified in his deposition that the did not feel it was necessary to have an independent audit because he was told by Wayne Trams that Mid-America was a "large company" that "paid their bills." Deposition of Orville Frazier, October 12, 2005, p. 56, lns. 9-17, attached hereto as Exhibit D. Additionally, the Receiver has no standing to assert supposed violations of South Dakota state law. Rada Defendant Kerher admits the statements in paragraph b.i.-xvi, but asserts that he was not obligated to read an audited financial statement of Mid-America, was not
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obligated to read Mid-America tax returns, to investigate Dillie's background, to request an independent audit or to investigate where MidAmerica funds were being invested prior to selling Mid-America CGAs under any federal or state law, genuine issue of material fact exists. Defendant Kerher stated in his deposition that he had conducted or participated in 750 to 100 financial services seminars. Deposition of Ronald Kerher, October 27, 2005, p. 21, lns. 23-25, p. 22, lns. 1-7. Kerher

Deposition, pages attached hereto as Exhibit E. Defendant Kerher also testified that he did not check with the Securities & Exchange Commission "to see if Mid-America Charitable Gift Annuities was a registered investment" because he "never understood CGAs to be a securities product and [he] never understood it to be an insurance product." Deposition of Ronald Kerher, October 27, 2005, p. 64, lns. 22-25, p. 65, lns. 1-3. Kerher Deposition, pages attached hereto as Exhibit E. Defendant Kerher also believed that the Philanthropy Protection Act of 1995 applied, and the CGAs were exempted from federal (securities) law. Deposition of Ronald Kerher, October 27, 2005, p. 73, lns. 6-25, p. 74, ln. 1. Kerher Deposition, pages attached hereto as Exhibit E. Additionally, the Receiver has no standing to assert supposed violations of South Dakota state law. 13. The Rada Defendants neither admit or deny the statement in paragraph 13, Exhibit 70 was not previously disclosed to Rada Defendants in this case.
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14. The Rada Defendants neither admit nor deny the statement in paragraph 14, Exhibit 71 was not previously disclosed to Rada Defendants in this case. 15. Defendant Lankford admits to the statements in paragraph 15.a.i.-xv., and paragraph 15.a.i.-x., but asserts that an audited financial statement, while useful is not a requirement prior to the sale of a CGA, genuine issue of material fact exists. Defendant Lankford further asserts in deposition testimony that when he felt Mid-America was no longer "fulfilling their obligations," he "stopped writing the CGAs." He also testified in his deposition that he had given Mid-America an ultimatum to produce audited financial statements even though he had no reason to believe Mid-America had any financial difficulties. See Deposition of Dwight Norman Lankford, October 5, 2005, p. 139, lns. 14-25, p. 140, lns 1-4, p. 122, lns. 5-23, p. 123, lns. 114, attached hereto as Exhibit F. Defendant Lankford further asserts that the Receiver has no standing to assert supposed claims under Texas state law, genuine issues of material fact exist. 16. The Rada Defendants neither admit nor deny the statement in paragraph 16. 17. Rada Defendant Bestgen admits to the statements in paragraph 17.a.i.-vi., but asserts that an audited financial statement is not required to be reviewed under Federal or Arizona law prior to the sale of CGAs, issue of material fact exists. Rada Defendant Crosswell admits to the statements in paragraph 17.b.i.ix, but asserts that possession of an audited financial statement is not a
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requirement prior to the sale of a CGA nor is verification of Dillie's licensing history nor is the review of tax returns, and also asserts that CGAs are not "securities" under Federal or Arizona law, genuine issues of material fact exist. Defendant Crosswell testified in his deposition that he did not investigate Mid-America because the gift annuities being offered by MidAmerica were offered by a "National Community Foundation." They were introduced by Arizona attorneys Andy Anderson and Sara Vannucci, whom he believed to be "straight arrows." Defendant Crosswell stated that he had no reason to "question their integrity." Deposition of Rudolph Crosswell, October 3, 2005, p. 92, lns. 7-25, attached hereto as Exhibit G. Rada

Defendant Rada admits to the statements in paragraph 17.c.i.-xvi., but asserts that investigation of Dillie's licensing history, review of tax forms and contact of any charities is not a prerequisite to selling CGAs under Arizona law as CGAs are not securities, genuine issues of material fact exist. Defendant Rada testified in his deposition that he investigated Mid-America by contacting the Arizona Corporation Commission, and by talking to George Chant, attorney for Mid-America. He also stated that he understood Merrill Lynch was going to manage the funds on behalf of annuitants. Deposition of John Rada, September 28, 2005, pg 75, lns. 1-5, p. 92, lns. 815, attached hereto as Exhibit H. Rada Defendant Wehrly admits to the statements in paragraph 17.d.I-xiii., but asserts that verification of
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relationship between Merrill Lynch and Mid-America, review or possession of audited financial statements, tax returns and contact with any charity are prerequisites to selling CGAs under Federal or Arizona law, as CGAs are not "securities," genuine issue of material facts exist. Defendant Wehrly also testified in his deposition that written material provided by Mid-America contained information about the Board of Directors. Additionally, he

testified that he was told Merrill Lynch and Mutual of Omaha were going to manage the annuity funds. He also understood that CGAs were not

regulated by the Department of Insurance in Arizona and that he was told Mid-America was solvent by attorney Sarah Vannucci. Deposition of

Patrick Joseph Wehrly, October 6, 2005, p. 56, lns. 3-11, p. 73, lns. 3-23, p. 99, lns. 3-23, p. 120, lns. 7-14, p. 133, lns. 17-18, lns. 23-25, p. 134, lns. 114, attached hereto as Exhibit I. 18. Rada Defendant Davis admits to the statements in paragraph 18.a.i.-xvi., but asserts that the Receiver has no standing to assert supposed claims under Massachusetts state law. Rada Defendant Davis asserts that licensing history of Dillie, or any other member of Mid-America, the possession or review of an audited financial statement, review or possession of tax returns are not a prerequisite to selling CGAs under federal law. Genuine issues of material fact exist. Defendant Davis testified in his deposition that Mid-America provided an annuity disclosure statement. He also discussed his belief that it
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was not necessary to investigate Dillie's license because Mid-America should have checked out Robert Dillie. Defendant Davis' testimony also included the statement that, in his experience in the insurance business, it is not customary to "dig deep" when a company is meeting their obligations as Mid-America was, and Mid-America had released a statement saying they were reinsured by United of Omaha. Deposition of Charles James Davis, October 26, 2005, p. 63., lns. 11-20, p. 64, lns. 1-3, p. 67, lns. 2-16, p. 83, lns. 13-25, p. 85, lns. 4-10, attached hereto as Exhibit J. 19. The Rada Defendants have insufficient knowledge to either admit nor deny the statement in paragraph 19a. The Rada Defendants named in paragraph 19b-h (Carroll, Crosswell, Davis, Derk, Frazier, Kerher, Lankford, Rada and Wehrly) assert that review or possession of tax returns is not a prerequisite to selling a CGA under Federal law, and reassert that the Receiver has no standing to assert supposed state claims under Texas, California, Massachusetts, Florida and South Dakota state law, and the state of Arizona does not regulate the sale of CGAs as "securities" or under insurance law at the time the Defendants earned their commissions from Mid-America. Genuine issues of material fact exist. 20. The Rada Defendants object to the Mid-America annuitants being classified as "victims" of any Rada Defendant; the annuitants were only "victims" of Dillie's unlawful conduct for which Dillie is now incarcerated. The activCase 2:03-cv-02390-JAT Document 483 Filed 01/30/2006 11 Page 11 of 14

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ities of the Rada Defendants did not cause the insolvency of Mid-America. 21. The Rada Defendants Carroll, Crosswell, Davis, Derk, Frazier, Richard, Rada and Wehrly admit to the statements in paragraph 21.a., but assert that researching the licensing history of Dillie was not a prerequisite to selling CGAs under Federal and Arizona law, and the Receiver has no standing to assert supposed claims under California, Massachusetts, Florida, South Dakota, Maine and Texas state law. 22. All Rada Defendants admit to the statements in paragraph 22a-kk, but reassert that possession or review of an audited financial statement is not a legal prerequisite to selling a CGA under Federal or Arizona law and the Receiver has not standing to assert claims under California, Massachusetts, Florida, South Dakota, Texas and Maine State law. 23. The Rada Defendants admit the statement in paragraph 23. 24. Rada Defendants Bestgen, Carroll, Crosswell, Davis, Lankford, Rada, Wehrly and Richard admit to the statements in paragraph 24.a-i., but assert that CGAs are not regulated as "securities" under Federal and Arizona law, and the Receiver has no standing to assert supposed state claims under California, Massachusetts, Texas and Maine state law. 25. Rada Defendants Carroll, Crosswell and Richard admit to the statements in paragraph 25.a.-e., but these irrelevant facts are completely unrelated to this case and assert that CGAs are not "securities" under Federal or Arizona law
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and the Receiver has no standing to assert supposed state claims under California or Maine state law. 26. The Rada Defendants have insufficient knowledge to admit nor deny the statement in paragraph 26.a. The Rada Defendants deny expert Micciche's, Minton's and Barasch's findings in the remainder of statements in paragraph 26.b.-d. 27. The Rada Defendants have insufficient knowledge to admit nor deny the statement in paragraph 27., but assert that CGAs are not securities or are exempted under Federal Securities law and therefore do not require Registration. Genuine issue of material fact exists. See Rada Defendants' Memorandum of Points and Authorities in Support of Motion for Summary Judgment, pp. 6-21. Respectfully submitted this 30th day of January, 2006.
BURTON M. BENTLEY, P.C.

_s/ Burton M. Bentley ________ Burton M. Bentley Attorney for Defendants Rada

COPY of the foregoing mailed this th 23 30 day of January, 2006, to: 24 Robert Tretiak 4615 North Ft. Apache Road 25 Las Vegas, NV 89129 Defendant Pro Se 26 27 /// 28 ///

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David Knutson 2 First Financial Center, Ltd. 119 Third Street, N.E. #333 3 Cedar Rapids, IA 52401 Defendant Pro Se 4 5 David Tigges First Financial Center, Ltd. 6 119 Third Street, N.E. #333 Cedar Rapids, IA 52401 7 Defendant Pro Se Ren Bidwell 9 3430 Pacific Avenue SE Olympia, WA 98501 10 Defendant Pro Se 11 Steve A. Bryant. 3618 Mt. Vernon, # A 12 Houston, TX 77006-4238 13 Co-Counsel for Rada Defendants 14 Bruce F. Walters 2606-C West Roosevelt Boulevard 15 Monroe, NC 28110 Pro Per 16 17 18 19 20 21 22 23 24 25 26 27 28 8

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