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. Michael Alaniz, et al. Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

Cause No. CV 03-2390 PHX JAT RECEIVER'S STATEMENT OF FACTS IN SUPPORT OF HIS MOTION FOR PARTIAL SUMMARY JUDGMENT AGAINST DEFENDANTS: LEONARD AND ELIZABETH BESTGEN, RENALD BIDWELL, ROBERT CARROLL, RUDY AND MARY CROSSWELL, CHARLES DAVIS, RICHARD DERK, ORVILLE DALE FRAZIER, RONALD KERHER, DWIGHT LANKFORD, JOHN AND CANDES RADA, PAUL RICHARD AND PATRICK WEHRLY

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Plaintiff, Lawrence J. Warfield as Receiver for Mid-America Foundation, Inc. (hereafter referenced as "MAF") and Mid-America Financial Group, Inc. (hereafter referenced as"MAFG") pursuant to Rule 56(a), Fed. R. Civ. P. and Rule 56.1, Local Rules of Civil Procedure, submits the following Statement of Facts in support of his Motion for Partial Summary Judgment against Defendants Bestgens, Bidwell, Carroll, Crosswells, Davis, Derk, Frazier, Kerher, Lankford, Rada, Richard and Wehrly.

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STATEMENT OF FACTS A. The Ponzi scheme 1. The MAF charitable gift annuities (hereafter referenced as "CGAs")

promised a stream of income to the annuitants named in the CGAs for a specific lifetime and that monies remaining after that lifetime would be directed to a charity designated by those who purchased the MAF CGAs. (See, attached Mid-America Foundation, Inc., Brochures marked as Exhibit 1.) 2. In 1996, Robert Dillie, caused MAF to begin selling MAF CGAs. Dillie

utilized financial advisors, insurance agents and others throughout the United States to market and sell the MAF CGAs. Under the MAF program, the investor would make a large 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 investor for the remainder of the investor'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. 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. MAF, however, did not reserve funds but instead operated a Ponzi scheme whereby annuity payments were funded, not by the investment earnings, but by the funds received from subsequent investors. (See, attached Declaration of Receiver Lawrence J. Warfield, ¶8 marked as Exhibit 2.) 3. From October 1996 through December 2001: a. Dillie raised more that $55 million dollars from the sale of over 403 MAF CGAs.
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b. Virtually all of the funds received into the accounts were obtained from investors who had purchased MAF CGAs. For the reason all of the funds deposited into the accounts are referred to hereafter as Investor Funds. c. With limited exceptions which are described below, none of the Investor Funds were invested to provide a source of investment income to fund future annuity obligations. d. Except as noted otherwise in the Receiver's Declaration, Investor Funds were almost always transferred to other accounts controlled by Dillie (including accounts in the name of MAFG) where they were used to make annuity payments to earlier investors, commission payments to facilitators who assisted in bringing new investors 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. e. Dillie, through MAF, operated a Ponzi scheme in which new Investor Funds were sought and obtained in order to make the periodic annuity payments promised to earlier investors, as well as the other expenditures noted above. f. Dillie did not reserve funds in order to make the charitable contributions to charities that he promised the MAF Investors and therefore, except for a few minor amounts, the promised contributions were not made. (See, attached Declaration of Receiver Lawrence J. Warfield, ¶11 marked as Exhibit 2.)
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4.

MAF was insolvent shortly after it began to sell MAF CGAs in 1996 and

that insolvency worsened as the sales of CGAs continued in subsequent years. (See, attached Declaration of Lawrence J. Warfield, ¶12, marked as Exhibit 2.) 5. MAF was insolvent at the time each MAF CGA was sold and it remained

insolvent continuously thereafter. (See, attached Declaration of Receiver Lawrence J. Warfield, ¶15 marked as Exhibit 2.) 6. At the time of the payment of commissions to the defendants in connection

with the sale of the MAF CGAs identified herein, infra, MAF was insolvent and remained insolvent continuously thereafter. (See attached Declaration of Receiver Lawrence J. Warfield, ¶16 marked as Exhibit 2.) 7. A letter dated October 12, 2001 was addressed to purchasers of Mid-

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America Foundation, Inc., CGAs by Robert Dillie admitting to the insolvency of MidAmerica Foundation, Inc. (See, attached letter dated October 12, 2001, marked as Exhibit 6.) 8. 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 on 193 counts related to the operation of a Ponzi scheme where MAF and MAFG were used by Dillie to sell fraudulent CGAs. (See, attached Indictment marked as Exhibit 7.) 9. On October 31, 2005, Robert Dillie entered a guilty plea to the following:

count one of the Indictment in U.S. v. Robert Roy Dillie, CR-03-115-PHX-DGC (fraud by wire); count twenty-one of the Indictment (money laundering-concealing the proceeds of unlawful activity); and, count one hundred thirty-five (money laundering-transacting in property derived from unlawful activity. (See, attached Minute Entry and Transcript
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in U.S. v. Robert Roy Dillie, CR-03-115-PHX-DGC marked as Exhibit 7.) Sentencing is scheduled for January 30, 2006. (See, attached Minute Entry and Transcript in U.S. v. Robert Roy Dillie, CR-03-115-PHX-DGC marked as Exhibit 7.) B. MAF was incorporated in the State of Delaware on June 13, 1997. 1. MAF was incorporated in the State of Delaware on June 13, 1997. MAFG

was incorporated in Delaware on June 13, 1997. (See, attached Articles of Incorporation marked as Exhibits 4 and 5.) C. Robert Dillie has a long, established public history of violating state

regulations involving his insurance license resulting in regulatory disciplinary action in several states. 1. On or about February 12, 1990, the Wisconsin Commissioner of Insurance

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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. (See, attached "Stipulation and Order, Case No. 88-C20358" marked as Exhibit 8.) 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. (See, attached letter dated May 16, 1996 marked as Exhibit 9.)
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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. (See, attached letter dated October 9, 1996 marked as Exhibit 8.) 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, Office of the Commissioner of Insurance and the penalty instituted against him by the State of Colorado in 1997. (See, attached letter dated December 17, 1997 marked as Exhibit 10.) 5. On or about July 14, 1999, Dillie's Arizona life insurance license was

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"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. (See, attached "Consent Order" in In the Matter of Robert Roy Dillie, No. 99A0116-Ins marked as Exhibit 11.)

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D.

The MAF CGA marketing materials 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 death. Additionally, the brochures stated that MAF had current assets from which to pay the stream of annuity payments promised under the MAF CGAs. (See, attached MAF Sales Brochures marked as Exhibit 1). E. Selling the MAF CGAs 1. Defendant Lankford testified under oath that in order to purchase a MAF

CGA, typically payment to MAF was made by check or through the transfer of stock owned by the victims of the Ponzi scheme. The stock would be liquidated and then MidAmerica Foundation would convert the [ownership] of the stock. (See, attached Lankford Deposition Transcript at 89:14-25; 90:1-25; 91:1-25; 92:1-20 marked as Exhibit 12.) F. The sale of MAF CGAs 1. Charitable Gift Annuities sold in California a. Defendant Robert Carroll i. Defendant Carroll identified himself as a graduate of law

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school. He stated that he held an insurance license from the State of California as of 1991. (See, attached letter dated November 12, 2001 from Defendant Carroll to Tammy Collett marked as Exhibit 13; insurance license certificate for Robert Carroll from the California Department of Insurance marked as Exhibit 14.) Defendant Carroll claims to have held a Series 7 Securities License though it was expired at the time of Defendant Carroll's MAF CGA sales. (See, attached Carroll Response to Receiver's Interrogatory No. 22 marked as Exhibit 15.) He also claims to have been certified as a "certified senior
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advisor" since 1999. (See, attached Carroll Deposition Transcript at 14:9-21, 23-24 marked as Exhibit 16). ii. Defendant Carroll signed a "Mid-America Foundation Gift

Annuity Agent Compensation Agreement" with MAF on September 23, 1997. (See, attached copy of "Mid-America Foundation Gift Annuity Agent Compensation Agreement" between Carroll and Mid-America marked as Exhibit 17; Carroll Deposition Transcript at 23:18-25; 24:1-18 marked as Exhibit 16). iii. In 1999 and 2000, Defendant Carroll sold two MAF CGAs in

California as summarized in the table below: CGA No. CGA Application Date Issuance Date Names Commission of Purchasers Paid

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1. 20854 2. 20481 Total CGA No. 1. 20854 2. 20481

6-8-00 unknown

6-29-00

M. Peterson $72,822.23

10-29-97 K. and E. McMillan $10,704.33 $83,526.56

Approximate age(s) of purchaser(s) at time of CGA application 84 82, 82

(See, attached copies of CGA applications, CGAs, and evidence of payment of commissions related thereto marked as Exhibits 19 & 20). iv. Defendant Carroll admits that he received a total of

$83,526.56 in commissions for the sale of CGAs sold by MAF or MAFG. (See, attached Carroll Response to Receiver's Interrogatory No. 10 marked as Exhibit 15;

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attached Rada Defendants' Amended Response to Request for Admissions No. 2 marked as Exhibit 20.) v. Defendant Carroll admits that prior to his sale of MAF CGAs,

he did not confirm, from any source independent of MAF or MAFG or any persons associated with these two entities, that MAF was solvent and had sufficient assets to fulfill its CGAs obligations. (See, attached Carroll Response to Receiver's Request for Admission No. 22 marked as Exhibit 21.) vi. Defendant Carroll admits that prior to his sale of MAF CGAs,

he did not request or possess an audited financial statement for MAF or MAFG prepared by a certified public accountant who acted independently of MAF or persons/entities related to those entities. (See, attached Carroll Response to Receiver's Request for Admission No. 28 and Carroll Response to Receiver's Interrogatory No. 29 marked as Exhibits 21 and 15.) vii. Defendant Carroll admits that he did not seek or obtain

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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. (See, attached Carroll Response to Receiver's Interrogatories Nos. 8, 27 marked as Exhibit 15). viii. Defendant Carroll stated that to investigate the solvency of

MAF in 2000 he found the National Community Foundation to be similar and "[k]nowing that Dillie affiliated with V.P. Dan Quayle." (See, attached Carroll Response to Receiver's Interrogatory No. 21 marked as Exhibit 15.)

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ix.

Defendant Carroll testified that he didn't recall telling

everyone that his purchaser-victims, Mrs. Peterson or the McMillans, that he would be paid a commission for his sale of MAF CGAs to them even though commonly he would tell clients this information, as follows: Q: Did Ms. Petersen know before she died that you received nearly 73,000 in commission for the sale of her CGA? A: I don't know. I don't know that. Q: Do you commonly tell your clients that you will receive a commission for products you sell? A: Certainly. Q: But you don't recall telling Ms. Petersen that you get a ­ A: No. Q: Are the McMillans still alive? A: I don't know. Q: Did you at any time tell the McMillans that you would receive a 10,000, be approximately a $10,000 commission? A: I don't know that either. (See, attached Carroll Deposition Transcript at 86:5-20 marked as Exhibit 16.) x. Defendant Carroll testified that it was not his responsibility to

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investigate MAF before selling its CGAs; that was the responsibility of "government agencies." Yet, Defendant Carroll failed to inquire with the very governmental agency regulating the sales of CGAs in California to see if MAF was even authorized to sell its CGAs. (See, attached Carroll Deposition Transcript at 91:3-25; 92:1-5; 45:1-25; 46:1-10 marked as Exhibit 16.) xi. Defendant Carroll testified that the only information he relied

upon in selling the MAF CGAs was information that he received directly from MidAmerica. (See, attached Carroll Deposition Transcript at 93:13-25 marked as Exhibit 16.)

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xii.

Defendant Carroll admitted that prior to selling the MAF

CGAs, he did not request any tax returns for MAF or MAFG. (See, attached Carroll Deposition Transcript at 63:3-22, marked as Exhibit 16.) xiii. On December 14, 1999, in a matter not known to involve the

MAF CGAs and after selling one MAF CGA but before selling the other, "Desist and Refrain Orders" were directed to Defendant Carroll ordering him to stop selling any security in the State of California since he had offered or sold securities without having been licensed as a broker-dealer in the State of California. (See, attached "Desist and Refrain Orders" marked as Exhibit 22). 2. MAF was not authorized to sell CGAs by the Commissioner of the California Department of Insurance. a. MAF was never issued a certificate of authority by the

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Commissioner of the California Department of Insurance to sell annuities in that state. 13 (See, attached Certified Statement of Pauline D'Andrea marked as Exhibit 23). 14 3. 15 a. 16 i. 17 since 1978 although he does not acknowledge from what state the license was issued. 18 (See, attached Bidwell Response to Receiver's Interrogatory No. 22 marked as Exhibit 19 24). Managed Financial Care, Inc., and Defendant Bidwell as a person authorized to 20 represent Managed Financial Care, Inc., were licensed to sell life and disability insurance 21 in the State of Washington from June 11, 1997 to June 11, 2001. (See, attached 22 certificates marked as Exhibit 25). 23
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Charitable gift annuities sold in Washington Defendant Renald Bidwell Defendant Bidwell stated that he held an insurance license

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ii.

Defendant Bidwell stated that he held securities licenses

(series 63 and 7) from 1992 to 1996 (approximately). (See, attached Bidwell Response to Receiver's Interrogatory No. 22 marked as Exhibit 24.) Accordingly, his securities licenses were no longer in effect at the time of his MAF CGA sales. iii. Defendant Bidwell signed an "Elite Associate Agreement," as

president of Managed Financial Care, Inc., with MAFG and Mid-America Estate Planning, Inc., on March 23, 1999 in order to sell Mid-America "approved or authorized products". (See, attached "Elite Associate Agreement" marked as Exhibit 26.) iv. In 1999, Defendant Bidwell sold two MAF CGAs in the State

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of Washington as summarized in the table below: CGA No. CGA Application Date unknown 2-10-99 Issuance Date Names Commission of Purchaser(s) Paid L. Ostbye S. Blacksten $ 1,713.60 $21,023.59 $22,737.191 Approximate age(s) of purchaser(s) at time of CGA application 83 62

1. 20684 13 2. 20681 14 TOTAL: 15 CGA No. 16 1. 20684 17 2. 20681 18

2-26-99 8-13-99

(See, attached copies of CGA applications, CGAs, and evidence of payment of 19 commissions related thereto marked as Exhibits 27 and 28.) 20 4. 21 Commissioner of the Washington Department of Insurance. 22 23
1

Neither MAF nor MAFG were authorized to sell CGAs by the

Defendant Bidwell also sold a MAF CGA in Illinois as discussed, infra.
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a.

Neither MAF nor MAFG were ever issued a certificate of authority

or certificate of exemption by the Commissioner of the Washington Department of Insurance to sell charitable gift annuities in Washington. (See, attached Declaration of James Tompkins, Assistant Deputy Commissioner, Office of the Washington Insurance Commissioner; letter dated August 3, 1999 from the State of Washington Office of Insurance Commissioner to Robert Dillie marked as Exhibit 29; Memorandum to George Chant from Andrew J. Anderson dated August 25, 1999 marked as Exhibit 30.) 5. Charitable Gift Annuity sold in Illinois. a. Defendant Bidwell i. Defendant Bidwell was not licensed to sell annuities in

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Illinois. (See, attached Certified Statement from the Department of Financial and Professional Regulation Division of Insurance for the State of Illinois marked as Exhibit 31.) ii. In 1999, Defendant Bidwell sold a MAF CGA in the State of

Illinois as summarized in the table below: CGA No. CGA Application Date 8-27-99 Issuance Date Names Commission of Purchaser(s) Paid J. and E. Lofton $ 945.52

9-23-99

Approximate age(s) of purchaser(s) at time of CGA application

Total commissions paid to Defendant Bidwell for MAF CGAs in Washington and 21 Illinois: 22 23
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$23,682.71

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(See, attached copies of CGA applications, CGAs, and evidence of payment of commissions related thereto marked as Exhibit 32.) iii. Defendant Bidwell responded to the Receiver's Interrogatory

requests and stated that he had received $1,958.40 in commission on the L. Ostby[e] CGA, $21,022.59 in commission on the S. Blacksten CGA; and, $945.52 in commission on the J.C. Lofton CGA. (See, attached Bidwell Response to Receiver's Interrogatory No. 10 marked as Exhibit 24.) iv. Defendant Bidwell admitted that the only steps he undertook

to investigate the financial solvency of MAF were to make two trips to meet with ". . . Robert Dillie and other officers and directors". (See, attached Bidwell Response to Receiver's Interrogatory No. 21 marked as Exhibit 24.) v. Defendant Bidwell admitted that prior to his sale of MAF

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CGAs, he did not possess an audited financial statement for MAF or MAFG prepared by a certified public accountant who acted independently of MAF or MAFG or persons/entities related to those entities. Defendant Bidwell also admitted that he never even requested an audited financial statement for MAF or MAFG. (See, attached Bidwell Response to Receiver's Request to Admit No. 24 and Bidwell Response to Receiver's Interrogatory No. 29 marked as Exhibit 24.) vi. Defendant Bidwell admitted that prior to his sale of MAF

CGAs, he did not confirm from any source independent of MAF or MAFG or persons associated with these two entities, that MAF was solvent and had sufficient assets to fulfill its CGA obligations. (See, attached Bidwell Response to Receiver's Request to Admit No. 22 marked as Exhibit 24.)
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6.

MAF had no authority to sell CGAs from the State of Illinois,

Department of Financial and Professional Regulation Division of Insurance. MAF never held any type of license or other authority from the State of Illinois, Department of Financial and Professional Regulation Division of Insurance to sell any insurance or annuity product in Illinois. (See, attached Certified Statements from the Department of Financial and Professional Regulation Division of Insurance for the State of Illinois marked as Exhibit 31.) 7. Charitable gift annuities sold in Florida a. Defendant Richard Derk i. At the time of his sale of MAF CGAs, Richard Derk claimed

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he held a securities license and a Florida insurance license. (See, attached Derk Deposition Transcript at 19:3-25; 20:1-9 [regarding Florida insurance license and "securities license" in general] marked as Exhibit 33; in the attached Supplemental Contracting Data form marked as Exhibit 34, Derk claimed to hold series 6, 7, 63 and 24 securities licenses.) ii. In the background information Derk provided to MAF, Derk

stated that his "financial background/experience" was "Tax & Accounts Practice since 1983 [and] Securities & Insurance 7+ years." (See, attached Supplemental Contracting Data form marked as Exhibit 34.) At his deposition, Defendant Derk admitted that he is a CPA (certified public accountant). (See, attached Derk Deposition Transcript at 17:1718 marked as Exhibit 33.) iii. On or about December 1, 2000, Derk entered into a

"Charitable Gift Annuity `General Agent' Representation Agreement" with MAFG to sell
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MAF CGAs. (See attached Derk Deposition Transcript at 24:2-25; 25:1-4; Exhibit 2 to Derk Deposition Transcript marked as Exhibit 33.) iv. Between December 12, 2000 and December 4, 2000,

4 Defendant Derk sold two Mid-America CGAs in Florida as summarized in the table 5 6 7 1. 20892 8 2. 20883 9
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below: CGA No. CGA Application Date 12-12-00 12-4-00 Issuance Date Names Commission of Purchasers Paid M. Cole L. Taylor $ 8,295.00 $36,555.61 $44,850.61 Approximate age(s) of purchaser(s) at time of CGA application 54 73

1-04-01 12-5-00

Total:
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10 CGA no. 11 1. 20892 12 2. 20883 13 (See, attached copies of CGA applications, CGAs, and evidence of payment of 14 commissions related thereto marked as Exhibits 35 and 36.) 15 v. 16 commissions for the sale of his MAF CGAs. (See, attached Rada Defendants' 17 Amended Response to Request for Admissions No.2 marked as Exhibit 20; Derk Response 18 to Receiver's Interrogatory No. 10 marked as Exhibit 37.) 19 vi. 20 investigate the financial solvency of MAF and to identify the dates upon which the steps 21 were taken. Defendant Derk responded that he received unaudited financial statements; 22 23
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Defendant Derk admits receiving $44,850.61 in

Defendant Derk was asked to identify all steps he took to

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however, he could not recall the dates he received the unaudited financial statements. (See, attached Derk Response to Receiver's Interrogatory No. 21 marked as Exhibit 37.) vii. When asked to identify all steps that Defendant Derk took to

verify that MAF CGAs were authorized or approved for sale by the state in which Derk sold them, Defendant Derk responded: "CGAs are not regulated in Florida. Relied on advice provided by Representatives of MAF." (See, attached Derk Response to Receiver's Interrogatory No. 24 marked as Exhibit 37.) viii. When asked whether he had ever requested a financial

statement for MAF or MAFG that had been prepared by an independent certified public accountant, Derk responded: "No. Tom Bishop indicated there was an outside firm, but no report." (See, attached Derk Response to Receiver's Interrogatory No. 29 marked as Exhibit 37.) xi. Defendant Derk admitted that prior to his sale of MAF CGAs

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that he did not possess an audited financial statement for MAF or MAFG prepared by a certified public accountant who acted independently of MAF or MAFG or persons related to those entities. (See, attached Derk Response to Receiver's Request to Admit No. 24 marked as Exhibit 38.) x. At his deposition, Defendant Derk stated that he never asked

MAF for an audited financial statement; (see, attached Derk Deposition Transcript at 48:5-7 marked as Exhibit 33); he never asked to review MAF's IRS 990 forms (see, attached Derk Deposition Transcript at 52:14-16 marked as Exhibit 33); he did not ask MAF how it calculated its annuity payments nor did he ask questions about the annual expenses of MAF (see, attached Derk Deposition Transcript at 53:13-14, 23-25 marked
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as Exhibit 33); he did not ask MAF for independent confirmation that it maintained its assets under the management of Merrill Lynch (see, attached Derk Deposition Transcript at 54:1-12 marked as Exhibit 33); he did not take any steps to independently confirm that MAF's assets were managed by Merrill Lynch (see, attached Derk Deposition at 58:2325; 59:1-4 marked as Exhibit 33); he did not ask MAF to put him in contact with any charities that had received residuum from a MAF CGA (see, attached Derk Deposition Transcript at 58:15-18 marked as Exhibit 33); nor did he take any steps to independently confirm MAF's assertion that it had $5,000,000 in invested funds (see, attached Derk Deposition Transcript at 64:13-19 marked as Exhibit 33.) 8. a. MAF was never authorized to sell insurance in Florida. Neither MAF nor MAFG were ever authorized to sell insurance or

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annuities in the state of Florida. (See, attached Certified Statement from the State of Florida Office of Insurance Regulation marked as Exhibit 39 and Certified statement from the Office of Financial Regulation for the State of Florida marked as Exhibit 40.) 9. Charitable gift annuities sold in Maine a. Paul Richard i. Licensing history, relationship with MAF and the sale of

MAF CGAs. A. When asked to identify all professional licenses held by him,

Defendant Richard stated that he held an insurance license from the State of Maine from February 1, 1989 until the present. He asserts that he is a college graduate. (See, attached Richard Response to Receiver's Interrogatory No. 22 marked as Exhibit 41.) B. In his August 1999, MAF "Precontracting Form"
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Defendant Richard stated that his market/business specialty was "Insurance and trusts." (See, attached PreContracting Form marked as Exhibit 42.) In response to a question asking him his financial background/experience in his August 1, 2000, "Supplemental Contracting Data" form, Defendant Richard stated: "30 years-Banking, Insurance & Estate Planning." (See, attached Supplemental Contracting Data form marked as Exhibit 42.) C. Defendant Richard executed a "Mid-America Foundation Gift

Annuity Agent Compensation Agreement" on or about November 24, 1997. In the agreement, Richard warranted that he was an agent of MAF. (See, attached Richard Deposition Transcript at 6:8-16; Exhibit 2 to Richard Deposition transcript marked as Exhibit 43.) D. Defendant Richard updated his compensation agreement with

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MAFG in 1999 and 2000. (See, attached Richard Deposition Transcript at 22:3; 24:1025; 26:1-19; 36:5; 39:1-12; 40: 1-25; 41:1-5 marked as Exhibit 43.) F. Between August 23, 1999 and December 22, 1999, Defendant

Richard sold nine Mid-America CGAs all to the same person in Maine as summarized in the table below: CGA No. CGA Application Date 8-4-99 8-11-99 8-25-99 9-1-99 Issuance Date Names Commission of Purchasers Paid $ 18,107.52 $ 16,680.55 $ 25,217.56 $ 13,804.62
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20735 20 20745 21 20746 22 20749 23

8-23-99 8-30-99 9-27-99 9-27-99
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1 2 3 4 5 6 7

20764 20773 20778 20804 20807 Total:

10-6-99 10-27-99 12-9-99 12-27-99 10-6-99

11-1-99 12-9-99 12-30-99 1-27-00 12-22-99

S. Theimann, Jr. S. Theimann, Jr. S. Theimann, Jr. S. Theimann, Jr. S. Theimann, Jr

$ 14,617.81 $ 44,805.46 $ 7,919.54 $ 1,741.43 $ 972.45

$143,866.94

CGA No. 8 20735 9
Guttilla & Murphy, PC

Approximate age(s) of purchaser(s) at time of CGA application 79 79 79 79 79 79 80 80 79

20745
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10 20746 11 20749 12 20764 13 20773 14 20778 15 20804 16 20807 17 ((See, attached copies of CGA applications, CGAs, and evidence of payment of 18 commissions related thereto marked as Exhibits 43-52; see, attached Richard Response to 19 Receiver's Interrogatory No. 10 marked as Exhibit 41 where Defendant agrees with all of 20 the Receiver's assertions as to amounts collected in commissions. At his deposition, 21 Defendant Richard admitted it was an error for his Response to Interrogatory 10 to 22 include the receipt of a commission on alleged CGA No. 20844. See, attached Richard 23
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Response to Receiver's Request for Production of Documents No. 15 marked as Exhibit 53.) (ii) Background of Defendant Richard's relationship with Mr.

Theimann. A. Mr. Theimann did not know Defendant Richard before he

first called Mr. Theimann on the telephone. Mr. Theimann's name appeared on a list of potential clients that Defendant Richard had received from a marketing source. (See, attached Richard Deposition Transcript at 43:3-12; 45:22-24 marked as Exhibit 43.) Mr. Theimann met with Defendant Richard who wanted to sell Mr. Theimann a product. (See, attached Richard Deposition Transcript at 46:4-25; 47:1-25; 48:1-2 marked as Exhibit 43.) The meeting took place at Mr. Theimann's home within a few days of Defendant Richard's phone call. (See, attached Richard Deposition Transcript at 48:1719; 49:6-7 marked as Exhibit 43.) At the time Mr. Theimann was 79 years old. (See, attached Richard Deposition Transcript at 50:5-6 marked as Exhibit 43.) No one else was at the meeting other than Mr. Theimann and Defendant Richard. (See, attached Richard Deposition Transcript at 50:9-11 marked as Exhibit 43.) B. Eventually, Defendant Richard sold nine MAF CGAs to Mr.

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Theimann over the course of approximately six months. Every few weeks for six months, Defendant Richard would return to Mr. Theimann's home so that Mr. Theimann could give the Defendant more stock certificates Mr. Theimann had located so they could be transferred to MAF and put into MAF CGAs. (See, attached Richard Deposition Transcript at 59: 8-25; 60:1-21 marked as Exhibit 43.) Ultimately, Mr. Theimann paid a total of approximately $2,211,000 in cash and securities, 80 percent of his life savings,
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for MAF CGAs sold to him by Defendant Richard. (See, Exhibits 7 & 8 attached to Richard Deposition Transcript and 89:8-25; 90:1-6 marked as Exhibit 43.) (iii). The steps Defendant Richard took, or failed to take, in

investigating MAF. A. When asked to identify all information about MAF or MAFG

that Defendant Richard sought or obtained from sources other than Robert Dillie or others related to MAF or MAFG, his response was: None. (See, attached Richard Response to Receiver's Interrogatory Nos. 8 and 27 marked as Exhibit 41.) B. Defendant Richard stated the he took no steps directly or

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indirectly to verify that MAF CGAs were authorized or approved for sale in Maine. (See, attached Richard Response to Receiver's Interrogatory No. 24 marked as Exhibit 41.) C. Defendant Richard stated the he never requested a financial

statement for MAF or MAFG prepared by an independent certified public accountant. (See, attached Richard Response to Receiver's Interrogatory No. 29 marked as Exhibit 41.) D. Defendant Richard admitted that prior to his sale of MAF

CGAs he did not possess an audited financial statement for MAF or MAFG prepared by a certified public accountant who acted independently of MAF or MAFG or persons related to those two entities. (See, attached Richard Response to Receiver's Request to Admit No. 24 marked as Exhibit 54.) (iv.) The State of Maine takes action against Defendant Richard. A. On or about December 3, 2003, Defendant Paul Richard

entered into a Consent Judgment with the State of Maine and Securities Administrator in
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State of Maine and Securities Administrator v. Paul E. Richard, Superior Court Civil Action Docket No. CV-03-137. In the Consent Judgment, Defendant Richard consented to his permanent enjoinment from: 1) offering or selling securities in Maine or transacting business as a securities broker-dealer or sales representative in Maine; 2) from offering or selling any type of annuity or other product that contains an investment component unless certain specific conditions were met; 3) from receiving referral fees or other compensation for referring people to persons who provide living trust, wills or similar products; 4) and, from holding himself out as providing any type of planning services to the elderly. Defendant Richard also agreed to being audited quarterly and to pay a $23,000.00 fine to the Securities Administrator. (See attached Consent Judgment marked as Exhibit 8 to Richard Deposition Transcript marked as Exhibit 43. C. All of these conditions arose from Defendant Richard's sale

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of MAF CGAs to Smith P. Theimann. (One of the victims in this lawsuit as set forth supra.) D. the following facts: 4. Defendant Richard is an adult individual residing in Augusta, Maine. At all times relevant hereto, Richard was not licensed as a securities broker-dealer or sales representative in the State of Maine. Richard was and is an insurance agent doing business as `Elder Planning Associates.' 5. From mid-1997 until late 2001, Richard had a contractual relationship with Mid-America Foundation, Inc. (`Mid-America'), under which Richard sold Mid-America's charitable gift annuities (`CGAs') in exchange for a 6-8% commission on sales and other compensation. Defendant Richard, as part of his Consent Judgment, admitted

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7. The CGAs, as sold by Richard on behalf of Mid-America, provided for the investor to make an irrevocable gift of cash or securities to Mid-America. Mid-America in turn promised to pay a rate of return to the investor (in the form of periodic payments for the rest of the investor's life) and then transfer the principal to a designated charity upon the investor's death. 8. In fact, the Mid-America CGAs were nothing more than a Ponzi scheme. Mid-America used assets received from investors to make periodic payments to previous investors and to fund Mid-America's Executive Director Robert Dillie's lavish lifestyle, including huge Las Vegas gambling losses. 9. Between August 23, 1999 and January 27, 2000, Richard sold nine MidAmerica CGAs to Smith P. Theimann, than an 80-year old retired social worker from Gardiner. To purchase these CGAS, Mr. Theimann paid a total of approximately $2,211,000 in cash and securities ­ 80% of his life savings. 10. At no time did Richard disclose to Mr. Theimann that Mid-America was a Ponzi scheme or that Mr. Theimann's CGA investment would be used to pay other investors and to support Mid-America's Executive Director's lifestyle. Moreover, at no time did Richard disclose to Mr. Theimann that the CGAs were not registered as securities with the State of Maine or that Richard was not licensed to sell securities in the State of Maine. 11. Mid-America paid Richard approximately $144,000 in commissions and other compensation for making the sale to Mr. Theimann. 12. Although Mr. Theimann received some periodic payments, the payments ceased in mid-2001. Soon thereafter, the Ponzi scheme collapsed, and Mr. Theimann's entire investment was lost. (See, attached Richard Deposition Transcript 85:9-25; 86:1-25; 89:1-25; 90:1-6 and Exhibit 7 [¶¶ 4-12] and Exhibit 8 attached to the Transcript marked as Exhibit 43.) 10. MAF was never authorized to sell insurance in Maine. There is no record of MAF having been licensed to sell insurance in Maine

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a. 19

in 1999. (See, attached letter from the State of Maine Department of Professional and 20 Financial Regulation, Bureau of Insurance marked as Exhibit 55.) 21 11. 22 conduct business in Maine. 23
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Neither MAF nor MAFG were registered as foreign corporations to

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a.

Neither MAF nor MAFG were incorporated in Maine nor were they

registered as a foreign corporation. (See, attached MAF and MAFG Articles of Incorporation marked as Exhibits 4 and 5 and Certified Statements from the Department of the Secretary of State for the State of Maine marked as Exhibit 56.) 12. Charitable gift annuities sold in South Dakota a. Orville Dale Frazier i. Defendant Frazier stated that he has held a Life and

Health insurance license from the State of South Dakota from 1995 to the present and Series 6, 63 and 65 NASD securities licenses from 1998 to the present. He also claims to be a college graduate. (See, attached Frazier Response to Receiver's Interrogatory No. 22 marked as Exhibit 57.) ii. Defendant Frazier stated in a Precontracting Form with Mid-

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America Companies that his market/business specialty was "Estate & Retirement Planning." (See, attached Frazier Precontracting form marked as Exhibit 58.) iii. Defendant Frazier sold CGAs for MAF in exchange for a

commission payment on all MAF CGAs sold by him, as demonstrated in the following table. Orville Dale Frazier admitted he agreed to act in a "limited agency" relationship with Mid-America Foundation prior to or at the time he sold Mid-America Foundation CGAs. (See, attached Frazier Response to Receiver's Request to Admit No. 38 marked as Exhibit 59.) iv. Between September 10, 1998 and August 28, 2001,

Defendant Frazier sold three Mid-America CGAs in South Dakota as summarized in the table below:
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1 2

CGA No.

CGA Application Date 8-20-98 8-26-98 7-06-01

Issuance Date

Names Commission of Purchasers Paid E. L. Lucklum $ 2,283.06

1. 20585 3 2. 20590 4 3. 20929 5 Total: 6 CGA No. 7 1. 205852 8 2. 20848 9
Guttilla & Murphy, PC

9-10-98 9-14-98 8-28-01

W & S Mortenson $36,000.00 E. L. Lucklum $ 1,951.85 $40,234.91

Approximate age(s) of purchaser(s) at time of CGA Application 86 87 89

3. 20849
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10 (See, attached copies of CGA applications, CGAs, and evidence of payment of 11 commissions related thereto marked as Exhibits 60 to 62.) 12 v. 13 commission payments on the sale of MAF CGAs. (See, attached Frazier Response to 14 Receiver's Interrogatory No. 10 marked as Exhibit 57; Rada Defendants' Amended 15 Response to Request for Admissions No. 2 marked as Exhibit 20.) 16 vi. 17 other information from sources other than Robert Dillie or other representatives of MAF 18 or MAFG regarding MAF or MAFG or any of their key employees or officers and 19 directors. (See, attached Frazier Response to Receiver's Interrogatory No. 8 marked as 20 Exhibit 57.) 21 vii. 22 he did not possess an audited financial statement for MAF or MAFG prepared by a 23
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Defendant Frazier admits to receiving $40,234.91 in

Defendant Frazier admitted that he sought or obtained no

Defendant Frazier admits that prior to his sale of MAF CGAs,

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certified public accountant who acted independently of MAF or MAFG or persons related to those entities. (See, attached Frazier Response to Receiver's Interrogatory No. 29 marked as Exhibit 57; Frazier Deposition Transcript at 48:25; 49: 1-2 marked as Exhibit 63.) viii. Defendant Frazier admitted that he had information that

Robert Dillie was the president or CEO of MAF but he did not investigate the background of Dillie in the State of Arizona or any other state. He did not confirm that Dillie had a license to sell insurance or annuities. (See, attached Frazier Deposition Transcript at 33:14-18; 34:3-16 marked as Exhibit 63.) Further, he did not take steps independent of MAF to verify the licensing history of any other MAF Board Members. (See, attached Frazier Response to Receiver's Interrogatory No. 27 marked as Exhibit 57.) ix. Frazier admitted that he did not have a copy of MAF's tax

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returns [Form 990s]. (See, attached Frazier Deposition Transcript at 49:3-5 marked as Exhibit 63.) x. Before Defendant Frazier sold any MAF CGAs, he thought

that MAF's money was invested through Reinhardt Warble and Bowen ("RWB"). Nevertheless, although he attended a two to three day seminar at RWB before he sold the MAF CGAs, he never verified with anyone at RWB whether MAF money was invested through RWB. (See, attached Frazier Deposition Transcript at 51:1-25; 52:1-25; 53:125; 54:1-14 marked as Exhibit 63.) xi. Defendant Frazier did not ask MAF what formed the basis of

MAF CGA's gift annuity rates (see, attached Frazier Deposition Transcript at 56:2-5
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marked as Exhibit 63); he did not request an independent audit of MAF (see, attached Frazier Deposition Transcript at 56:9-11 marked as Exhibit 63); he did not ask any representatives of MAF how much of their assets were devoted to their its expenses (see, attached Frazier Deposition Transcript at 56:18-24 marked as Exhibit 63); he did not ask for proof that MAF maintained sufficient reserves to meet its annuity obligations (see, attached Frazier Deposition Transcript at 56:25; 57:1-2 marked as Exhibit 63); he did not request proof that the CGA donations were even invested (see, attached Frazier Deposition Transcript at 58:1-3 marked as Exhibit 63); he did not ask if MAF tracked the ongoing value of each Victim's donation so MAF could withdraw the correct residuum of each MAF CGA gift (see, attached Frazier Deposition Transcript at 58:1-3 marked as Exhibit 63); and, Frazier never asked for a copy of MAF's IRS Form 990 tax returns (see, attached Frazier Deposition Transcript at 58:1-3 marked as Exhibit 63.) xii. Defendant did not take any steps to verify the financial

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solvency of MAF other than through communications with MAF. (See, attached Frazier Response to Receiver's Interrogatories 8, 21 & 24 marked as Exhibit 57.) b. Defendant Ronald Kerher i. Defendant Kerher stated that he held a South Dakota life and

health insurance license from 1982 to the present. (See, attached Kerher Response to Receiver's Interrogatory No. 22 marked as Exhibit 66.) ii. Defendant Kerher stated that he held NASD (National

Association of Securities License) license series no. 6 from 1982 to the present; series 7 from 1986 to the present; series 24 from 1994 to the present; series 63 from 1983 to the

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present; and series 65 from 1998 to present. (See, attached Kerher Response Receiver's Interrogatory No. 22 marked as Exhibit 66.) iii. Defendant Kerher stated that he was a college graduate. (See,

attached Kerher Response Receiver's Interrogatory No. 22 marked as Exhibit 66.) iv. Defendant Kerher stated in a Precontracting Form with Mid-

America Companies that his market/business specialty was "Retirement Planning and Estate Planning." (See, attached Kerher Deposition Transcript at 8:7-10; 14:21-24 and exhibit 2 to Deposition Transcript marked as Exhibit 68.) v. On or about June, 1999, Defendant Kerher executed a

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"Charitable Gift Annuity `General Agent' Representation Agreement" ("contract one") and an "Independent Associate Agreement" with MAF ("contract two") wherein he agreed to act as an agent for Mid-America Foundation, Inc., (contract one) and MidAmerica Estate Planning, Inc., and MAFG (contract two) for purposes of selling MAF CGAs in exchange for the payment of a commission. (See, attached Kerher Deposition Transcript at 44:18-25; 45:1-15; 52:16-25; 53:1-23 and exhibits 3 & 4 to Deposition Transcript marked as Exhibit 68.) vi. In 1999, Defendant Kerher sold two Mid-America CGAs in

South Dakota as summarized in the table below: CGA No. CGA Application Date 3-29-99 4-23-99 Issuance Date Names Commission of Purchasers Paid I. Mehlhaff V. Park $ 1,280.00 $31,758.55 $33,038.55
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1. 20697 21 2. 20704 22 Total: 23

4-16-99 5-28-99

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CGA No. 1. 20697 2. 20704

Approximate age(s) of purchaser(s) at time of CGA Application 62 81

(See, attached copies of CGA applications, CGAs, and evidence of payment of commissions related thereto marked as Exhibits 64 and 65.) vii. Defendant Kerher admits to receiving $33,038.55 in

commissions on the sale of MAF CGAs. (See, attached Kerher Response to Receiver's Interrogatory No. 10 marked as Exhibit 66; Rada Defendants' Amended Response to Request for Admissions No. 2 marked as Exhibit 20.) viii. When asked whether Defendant Kerher had ever requested a

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financial statement for MAF or MAFG prepared by an independent certified public accountant, Defendant Kerher answered: Defendant made requests for an audited financial statement in 1998. He received information from marketing people in the MAF office (Tom Bishop) and legal representatives (Sara Vanucci and Felicia Majewski). Those unaudited `summary Profit and Loss' statements were received in approximately 1999 and have previously been disclosed. Defendant requested Audited Financial Statements numerous times in 1999. When he did not receive an Audited Financial Statement, despite the fact that Defendant was told a Big Ten accounting firm was working on it, Defendant no longer solicited CGA sales. All sales by Defendant were completed in 1999. (Emphasis added.) (See, attached Kerher Response to Receiver's Interrogatory No. 29 marked as Exhibit 66;

19 Kerher Responses to Receiver's Request to Admit Nos. 24 and 43 marked as Exhibit 67.) 20 ix. 21 financial statement but received a "financial statement, but nothing audited." (See, 22 attached Kerher Deposition Transcript at 76:20-24 marked as Exhibit 68.) 23
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Defendant Kerher testified that he had requested an audited

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x.

When asked why Defendant Kerher requested audited

financial statements from MAF or MAFG as referenced in his response to Receiver's Interrogatory No. 29, Defendant Kerher responded: "Defendant believed it to be prudent and reasonable to request audited financial statements." (See, attached Kerher Response to Receiver's Interrogatory No. 35 marked as Exhibit 69.) xi. When asked to explain why Defendant Kerher's failure to

receive an audited financial statement from MAF was so significant that it caused him to stop soliciting MAF CGA sales, Defendant Kerher responded: "Any company Defendant requests something from that does not provide the information or documentation would make Defendant consider looking elsewhere." (See, attached Kerher Response Receiver's Interrogatory No. 36 marked as Exhibit 69.) xii. While being deposed on the what was to be gained by

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requesting an audited financial statement, Defendant Kerher answered "yes" when asked: "Would it be fair to say that you--that the Foundation would be required to make payments to your clients, and you wanted to ensure that it was financially sound--that Mid-America was financially sound?" (See, attached Kerher Deposition Transcript at 76:7-19 marked as Exhibit 68.) xiii. When asked what financial information he had before selling

a CGA to Verla Parks, Defendant Kerher admitted he had none explaining: "I probably didn't have any, and probably didn't need any at the time because Verla--I know Verla well enough that she would have looked at it and glanced at it and pushed it off to the side anyway, because she would have been believing what I was telling her." (See attached Kerher Deposition Transcript at 97:3-25; 98:1-6 marked as Exhibit 68.)
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xiv.

Defendant Kerher testified that it was his understanding that

MAF may have had accounts with Merrill Lynch and RWB, Rinehart Werba Bowen. (See, attached Kerher Deposition at 86:2-8 marked as Exhibit 68.) When asked if Defendant Kerher confirmed with RWB or Merrill Lynch that MAF had accounts with them, Kerher testified: "What I said was I talked to RWB about other issues, which would have been investing money or doing managed accounts for my ­for clients of mine. And that during that conversation, I believe I asked them or stated to them, `Oh, I hear you're doing investments or funning an account for Mid-America.' And they said, `Well, we can't verify anything.'" (See, attached Kerher Deposition Transcript at 87:25; 88:1-8 marked as Exhibit 68.) He did not independently contact any representatives of Merrill Lynch to confirm they managed Mid-America's money. (See, attached Kerher Deposition Transcript at 88:16-20 marked as Exhibit 68.) xv. Defendant Kerher admitted that he never requested any

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copies of MAF's tax returns (Form 990s)." (See, attached Kerher Deposition Transcript at 69:6-13; 19-22 marked as Exhibit 68.) xvi. Defendant Kerher never asked MAF to put him in contact

with any charities that had received money from MAF. (See, attached Kerher Deposition Transcript at 100:4-9 marked as Exhibit 68) 13. MAF was never authorized to sell insurance in South Dakota. MAF was never licensed to sell insurance in the State of South Dakota. (See attached letter from South Dakota Department of Revenue & Regulation, Division of Insurance marked as Exhibit 70.)

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14. Mid-America Foundation failed to file those documents necessary with the State of South Dakota in order to legally sell charitable gift annuities in that state. Mid-America Foundation, Inc., was never domiciled as a South Dakota charity (see, attached MAF articles of incorporation marked as Exhibit 4); MAF was never registered as a foreign corporation doing business in the State of South Dakota. (See, attached Certified statement from the Office of the Secretary of State for the State of South Dakota marked as Exhibit 71.) 15. Charitable gift annuities sold in Texas a. Dwight Lankford i. Defendant Lankford stated that he held an insurance license

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from the State of Texas from 1997 to the present. (See, attached Lankford Response to Receiver's Interrogatory No. 22 marked as Exhibit 72.) ii. On or about August 26, 1997, Defendant Lankford executed a

"Sales and Marketing Agreement" between Mid-America Living Trust Associates, Inc., and Lankford as president of Mid-America Estate Services, Inc., wherein Lankford was authorized to sell MAF CGAs. (See, attached Lankford Deposition Transcript at 32:2-24, exhibit 2 to Deposition Transcript marked as Exhibit 73.) iii. Defendant Lankford later explained at his deposition that

Mid-America Estate Services was formed as a limited liability company not as a corporation and that the reference to it as a corporation in the August 26, 1997 "Sales and Marketing Agreement" was an error. (See, attached Lankford Deposition Transcript at 32:1-24; 33:15-25 marked as Exhibit 73.)
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iv.

In the "Sales and Marketing Agreement" described in

paragraph 15. a. ii. supra, Lankford's limited liability company was authorized to market and sell MAF CGAs and market and sell estate planning documents produced by MidAmerica Living Trust Associates, Inc. and insurance and related estate planning products marketed and sold by MAFG. (See, attached exhibit 2 to Lankford Deposition Transcript marked as Exhibit 73, paragraph 1.1.) v. Defendant Lankford, as president of his limited liability

company, agreed to use his best efforts to market and sell one million dollars, $1,000,000.00, in insurance premiums and annuities per week. (See attached exhibit 2 to Lankford Deposition Transcript marked as Exhibit 73, paragraph 3.1.) vi. Under the August 26, 1997 "Sales and Marketing

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Agreement," Lankford's limited liability company was to receive a commission for its CGA sales on a case by case basis and would be paid $4900 per week for sales and marketing expenses of Mid-America products. (See, attached exhibit 2 to Lankford Deposition Transcript marked as Exhibit 73, paragraphs 5.3, 9.2.) vii. On or about March 11, 1998, Lankford executed a "Mid-

America Foundation Gift Annuity Agent Compensation Agreement" wherein he agreed to act as an agent of MAF. (See, attached exhibit 3 to Lankford Deposition Transcript at 66:13-22 marked as Exhibit 73.) viii. In exchange for selling MAF CGAs, Lankford was to be paid

a 6 to 8 percent commission based upon the face amount of MAF CGAs sold by him. (See, attached exhibit 3 to Lankford Deposition Transcript marked as Exhibit 73.)

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ix.

Defendant Lankford testified that he was paid an 8%

commission on the sale of MAF CGAs. (See, attached Lankford Deposition Transcript at 172:3-12 marked as Exhibit 73.) x. On or about March 13, 1998, Lankford executed a

"Marketing and Sales Agreement" between himself, Mid-America Estate Planning, Inc., and MAFG. (See, attached exhibit 4 to Lankford Deposition Transcript marked as Exhibit 73.) xi. Defendant Lankford acknowledged in the "Marketing and

Sales Agreement" that he was the sole shareholder of Mid-America Estate Services, LLC and was responsible for the debts and liabilities of Mid-America Estate Services. (See, exhibit 4 to Lankford Deposition Transcript, page 4, marked as Exhibit 73.) xii. The agreement provided for Defendant Lankford as General

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

Agent of MAFG to market and sell all MAFG products. The agreement further provided for the following: Within ninety (90) days of the execution of this Agreement, Dwight Lankford shall produce fifteen (15) Revocable Living Trusts per week. Within ninety (90) days of the execution of this Agreement, Dwight Lankford shall produce Five Hundred Thousand Dollars ($500,000.00) annuity premium, life insurance premium, and/or gift annuity premium per week. Within one hundred eighty days (180) days of the execution of this Agreement, Dwight Lankford shall produce One Million Dollars ($1,000,000.00) of annuity premium, life insurance premium and/or gift annuity premium per week. (See, attached exhibit 4 to Lankford Deposition Transcript, section 6, marked as Exhibit 73.) xiii. In exchange for Lankford's sales, Lankford was to receive a

commission based upon the sales of MAF CGAs plus "performance bonuses" once his
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1 2 3 4 5 6 7 8

total amount of business written by him or his agents exceeded $1,750,000.00 plus he would be paid expenses of $1,500.00 per week contingent upon his performance of production requirements. (See, attached exhibit 4 to Lankford Deposition Transcript, sections 6, 7, 9, marked as Exhibit 73.) xiv. in Texas: CGA No. CGA Application Date 2-19-98 3-1-98 3-1-98 2-26-98 4-03-98 4-10-98 4-10-98 4-10-98 8-22-98 9-21-98 10-02-98 10-1-98 10-20-98 12-15-98 12-15-98 Issuance Date Names Commission of Purchasers Paid E. Orr C. Polk C. Polk M. Kuehne $ 30,601.36 $ 8,000.00 $ 8,000.00 $ 4,500.00 The following MAF CGAs were sold by Defendant Lankford

1. 20513 9
Guttilla & Murphy, PC

2-27-98 3-05-98 3-5-98 3-12-98 5-3-98 4-15-98 4-15-98 6-03-98 9-24-98 10-9-98 9-24-98 10-30-98 11-13-98 1-22-99 1-15-99
Document 465

2. 20519
4150 West Northern Ave Phoenix, Arizona 85051 (623) 937-2795

10 3. 20520 11 4. 20521 12 5. 20531 13 6. 20534 14 7. 20535 15 8. 20536 16 9. 20587 17 10. 20601 18 11. 20614 19 12. 20619 20 13. 20621 21 14. 20656 22 15. 20657 23
Case 2:03-cv-02390-JAT

C. Thiebeault III $ 2,552.16 B. Wade B. Wade B. Wade V. Cox $ 6,000.00 $ 6,000.00 $ 6,000.00 $ 12,575.90

J & S. Tullis $ 2,000.00 V. Cox. $ 12,575.90

C. & O. Griffith $ 5,200.00 J. Fuller N. Shaw N. Shaw $ 25,275.05 $ 8,880.00 $ 23,651.34
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Guttilla & Murphy, PC
4150 West Northern Ave Phoenix, Arizona 85051 (623) 937-2795

16. 20658 17. 20682 18. 20695 19. 20706 20. 20707 21. 20708 22. 20709 23. 20710 24. 20711 25. 20712 26. 20713 27. 20717 28. 20757 29. 20760 30. 20772 31. 20922 Total: CGA No. 1. 20513 2. 20519 3. 20520 4. 20521 5. 20531

12-15-98 2-16-99 3-29-99 5-07-99 5-12-99 5-11-99 5-11-99 5-11-99 5-11-99 5-11-99 5-13-99 5-07-99 9-01-99 9-23-99 10-11-99 5-30-01

1-22-99 6-15-99 3-31-99 5-13-99 6-16-99 5-25-99 5-25-99 5-25-99 5-25-99 5-25-99 6-18-99 6-1-99 9-23-99 11-2-99 10-31-00 6-25-01

N. Shaw O. Thrash

$ 8,000.00 $ 8,958.66

L. & H. Menius $ 22,660.00 C. & M. Welch $ 8,200.00 R. & P. Green $ 19,931.24 J. Sheridan $ 1,967.34 J. Sheridan $ 1,967.34 J. Sheridan $ 1,967.34 J. Sheridan $ 1,967.34 J. Sheridan $ 1,967.34 R. Lee C. & M. Welch W. Vice R. & S. DeDoes J & H. Altizer A. Drake $ 23,681.10 $ 30,474.57 $ 5,120.00 $120,093.84 $ 3,829.39 $ 33,511.10 $456,108.31

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Approximate age(s) of purchaser(s) at time of CGA Application 71 88 88 62 80
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1 2 3 4 5 6 7 8 9
Guttilla & Murphy, PC
4150 West Northern Ave Phoenix, Arizona 85051 (623) 937-2795

6. 20534 7. 20535 8. 20536 9. 20587 10. 20601 11.20614 12. 20619 13. 20621 14. 20656 15. 20657 16. 20658 17. 20682 18. 20695 19. 20706 20. 20707 21. 20708 22. 20709 23. 20710 24.20711 25. 20712 26. 20713 27. 20717 28. 20757

67 67 67 79 71; 73 79 76; 75 85 88 88 88 70 80; 79 66; 60 73; 73 84 84 84 84 84 52 66; 60 72
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Guttilla & Murphy, PC
4150 West Northern Ave Phoenix, Arizona 85051 (623) 937-2795

29. 20760 30. 20772 31. 20922

64; 62 72; 78 89

(See, attached copies of CGA Applications, CGAs, and evidence of payment of commissions related thereto marked as Exhibits 74 through 104.) xv. Defendant Lankford admits receiving $421,609.63 in commissions

on sales of MAF CGAs. (See attached Lankford Response to Receiver's Interrogatory No. 10 marked as Exhibit 72; Rada Defendants Amended Response to Receiver's Request to Admit No. 2 marked as Exhibit 20.) Lankford agreed that he received all commissions identified supra, with the exception of CGAs 20656, 20657 and 20712 which Lankford failed to address in his Res