Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 1 of 18 PageID #:2201

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1 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 1 of 18 PageID #:2201 UNITED STATES SECURITIES AND EXCHANGE COMMISSION, UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION Plaintiff, Case No. 14 C 3785 v. ROBERT G. PEARSON and ILLINOIS STOCK TRANSFER COMPANY (d/b/a IST SHAREHOLDER SERVICES), Hon. Rebecca R. Pallmeyer Magistrate Judge Young B. Kim Defendants. RECEIVER S SIXTH QUARTERLY STATUS REPORT FOR THE PERIOD JULY 1, 2015 THROUGH SEPTEMBER 30, 2015 Jill L. Nicholson, not individually but solely in her capacity as the court-appointed receiver (the Receiver ) for the estates of Illinois Stock Transfer Company d/b/a ist Shareholder Services (the Company ) and Robert G. Pearson (collectively, the Receivership Estates ), respectfully submits this Receiver s Sixth Quarterly Status Report (the Report ) covering the period of July 1, 2015 through September 30, 2015 (the Reporting Period ) pursuant to paragraph 54 of the Order Appointing Receiver entered on May 22, 2014 (the Receiver Order ). For the Court s convenience, a Table of Contents is provided below. TABLE OF CONTENTS I. PROCEDURAL HISTORY... 2 II. SUMMARY OF ACTIONS TAKEN BY THE RECEIVER DURING THE REPORTING PERIOD... 3 A. The Liquidation Plan... 3 B. Creditor Claims Proceedings Status of Claims Determinations

2 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 2 of 18 PageID #: Status of Interim Distributions... 8 III. ASSET RECOVERY A. Accounts Receivable B. Insurance Policies C. Turnover from Pearson D. Liquidated and Unliquidated Claims IV. FINANCIAL AFFAIRS A. Overview B. The Qualified Settlement Fund C. Receiver s BMO Bank Account D. Administrative Expenses E. Estimated Liabilities V. ADMINISTRATION OF THE RECEIVERSHIP ESTATES A. Estimated Distribution B. Recommendations for the Continuation of the Receivership Estates I. PROCEDURAL HISTORY On May 22, 2014, the United States Securities and Exchange Commission (the SEC ) commenced the above-captioned action (the SEC Action ) against Pearson and the Company (collectively, the Receivership Defendants ) by filing a complaint (the Complaint ) in the United States District Court for the Northern District of Illinois (the Court ). The SEC s Complaint alleges, inter alia, that Pearson and the Company commingled customer funds with the Company s funds and that Pearson and the Company misappropriated customer funds. The SEC filed several ex parte motions with its Complaint on May 22, 2014, all of which were granted by the Court. [Dkt Nos ]. In particular, subsequent to the filing of the

3 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 3 of 18 PageID #:2203 Complaint, the Court entered a Temporary Restraining Order (the TRO ), an Asset Freeze Order (the Asset Freeze Order ), and the Receiver Order on May 22, On July 9, 2014, the Court entered a judgment (the Judgment ) against Pearson with Pearson s consent. The Judgment (a) enjoins Pearson from violating federal securities laws; (b) requires Pearson to disgorge ill-gotten gains and to pay pre-judgment interest in an amount to be determined by the Court upon motion of the SEC; and (c) extends the Asset Freeze Order against Pearson until further order of the Court. [Dkt. No. 56]. On July 9, 2014, the Court also entered an order extending the TRO and the Asset Freeze against the Company until further order of the Court. [Dkt. No. 56]. On December 19, 2014, the Court entered an order approving the Liquidation Plan (defined herein) which, as more fully described below, governs the distributions of estate assets to the various creditor constituencies. [Dkt. 130]. For a detailed description of the functions provided by the Company in its capacity as a transfer agent, see the Receiver s First Quarterly Report. [Dkt. No. 65]. II. SUMMARY OF ACTIONS TAKEN BY THE RECEIVER DURING THE REPORTING PERIOD A. The Liquidation Plan The Receiver has been operating under the Amended Liquidation Plan (the Liquidation Plan ) which was approved by the District Court on December 19, During the period covered by this Report, the Receiver has endeavored to marshal and to maximize assets for distribution to those creditors with allowed claims (the Allowed Claims ) 1 against the Receivership Estates. The Liquidation Plan has created two receivership estates for purposes of distribution to claimants. The first estate ( Estate 1 ) relates to assets and liabilities in 1 To the extent there may be differences between the description of the Liquidation Plan or definitions contained herein and the Liquidation Plan approved by the Court, the terms of the Liquidation Plan approved by the Court shall govern

4 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 4 of 18 PageID #:2204 connection with the Company while the second estate ( Estate 2, and together with Estate 1, the Receivership Estates ) addresses assets and liabilities of Pearson personally. No funds related to or generated by the Company (that is, Estate 1 funds) will be used to make distributions to Pearson s individual creditors (Estate 2 creditors). Under each of the estates are specific classes of creditors (the Classes ). The Liquidation Plan identifies the treatment for each Class of claims. Note that claims in different Classes are treated differently. A detailed discussion regarding the Classes of claims found for each estate can be found in both the Liquidation Plan and the Receiver s Third Quarterly Report filed on January 30, 2015 [Dkt No. 132]. B. Creditor Claims Proceedings 1. Status of Claims Determinations The Receiver s claims agent mailed a total of 1,599 claims packets to interested parties, including issuers, shareholders, vendors, governmental authorities, employees, independent contractors, and any other party that may have had a claim as revealed by the Company s books and records. The Receiver received 132 Proofs of Claim by the Claims Bar Date. The Court also permitted one late-filed claim to be deemed timely filed, bringing the total number of claims deemed timely filed to 132. Claims that were filed by the Claims Bar Date and were authorized by the Court to be deemed timely filed aggregate $7,398, The following chart identifies the total amount of timely filed claims by constituency

5 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 5 of 18 PageID #:2205 Claim Type Employee or Independent Contractor No. of Claims Received 3 Total Asserted Amount of Claims $95, Governmental Authority 1 Unliquidated Issuer 45 $3,734, Shareholder 70 $2,727, Vendor/Trade 12 $472, Other 1 $368, TOTALS OF TIMELY CLAIMS 132 $7,398, Because certain claimants incorrectly categorized their claims, the chart above reflects the Receiver s reclassification of claims to their appropriate categories, based upon the information provided in the Proof of Claim forms. To date 2, the Receiver has issued Claim Determinations on all 132 timely claims, as well as 14 untimely claims. Of these Claim Determinations, 88 claims have been allowed in their entirety and 14 claims have been partially allowed by both the Receiver and the District Court (collectively, the Final Allowed Claims ). During the Reporting Period, the Receiver filed the Fourth, Fifth, and Sixth Claims Determination Motions on August 4, 2015, September 4, 2015, and September 17, 2015 (the Reporting Period Claims Determination Motions ). The total dollar amount of Final Allowed Claims pursuant to the Reporting Period Claims Determination Motions is $2,716, The total dollar amount of Final Allowed Claims, to date, pursuant to 2 Unless otherwise specified, the information provided in this section will be related to all claims information as of the date of this Report and not just from the Reporting Period

6 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 6 of 18 PageID #:2206 all filed Allowance Motions 3 is $6,230, (the Total Allowed Claims Amount ). The following chart sets forth the amount of Final Allowed Claims under each of the Classes provided under the Liquidation Plan. ESTATE 1 - IST CLASS AMOUNT OF FINAL ALLOWED CLAIMS Class I Allowed Claims of Customers $6,010, Class II Allowed Claims of Vendors $105, Class III Allowed Claims of Employees $96, Class IV Allowed Claims of General Company Claimants $8, ESTATE 2 - PEARSON CLASS AMOUNT OF FINAL ALLOWED CLAIMS Class I Pearson General Claims $9, Claimants whose claims have been allowed by both the Receiver and the Court are deemed to hold Final Allowed Claims and will be entitled to share in the pro rata distribution in their respective Classes under the Liquidation Plan. At this time, the Receiver anticipates no further motions seeking to finally allow claims. Accordingly, the above Total Allowed Claims Amount reflects what the Receiver has deemed to be the final amount of Final Allowed Claims in both Receivership Estates, pursuant to the Liquidation Plan. To date, the Receiver has issued 58 Claims Determinations disallowing claims (including untimely claims) in full or in part. 4 These claims were deemed disallowed for a variety of 3 A Seventh Claims Determination Motion was filed on October 2, 2015 and granted on October 13,

7 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 7 of 18 PageID #:2207 reasons, including, but not limited to, failure to submit the claim prior to the Claims Bar Date, failure to provide necessary written documentation supporting a claim, duplicative claims, and/or discrepancies between the claimant s asserted claim and the books and records of the Company. Of the 58 claims the Receiver initially deemed disallowed, 57 of those claims have been finally disallowed by the District Court. The Receiver anticipates filing a final claims determination motion with regard to the one remaining claim once that claim has been resolved. As required by the Receiver Order, the Receiver has previously submitted to chambers a list of all known creditors with addresses and amounts of their claims as reflected by the Company s books and records in connection with each of the Quarterly Reports. In connection with the current Report, the Receiver submits as Exhibit B a list of creditors who have submitted claims with the amounts of their claims as reflected by KCC, the court-appointed claims agent, as well as the status of the determination of such claims, i.e., whether such claims have been: (a) allowed in full by the Court and the Receiver and are final allowed claims ( Allowed In Full Claims ); (b) disallowed in full by the Court and the Receiver ( Disallowed In Full Claims ); (c) disallowed in full by the Receiver and awaiting the filing of a Claims Determination Motion ( Pending Disallowed In Full Claims ); and (d) allowed in part and disallowed in part by the Court and the Receiver ( Final Partially Disallowed/Allowed Claims ). This list includes those claimants who have submitted claims after the Claims Bar Date. Those who have failed to submit Timely Claims have been identified in Exhibit B. The Receiver has not publicly filed Exhibit B as it includes personal details such as names, addresses, and claim amounts of shareholders. Unlike a typical receivership case, where 4 Those claimants who received a Claims Determination notice indicating a partial disallowance of a claim also received a notice indicating that the remaining portion of the claim would be deemed allowed upon the expiration of the 20-day objection period (assuming no objection has been tendered to the Receiver)

8 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 8 of 18 PageID #:2208 shareholders may have dealt directly with and/or contracted with a receivership defendant, a transfer agent situation presents a unique and novel scenario. Certain of the shareholders who are identified on the list may not have dealt directly with the Company, particularly since many of the services relating to the shareholders were contracted by the Issuers rather than the shareholders. Divulging such information publicly could cause the dissemination of personal information. As such, the Receiver, in an abundance of caution, is tendering a copy of Exhibit B to chambers. In the event the Court would like the list filed, the Receiver requests that the Court permit that such filing be done under seal. The Receiver will, of course, promptly comply with the Court s direction in connection with the list. For the Court s convenience, the table below summarizes the above-described status of the Claims Determinations: STATUS OF CLAIMS DETERMINATIONS CATEGORY NUMBER OF CLAIMS Allowed In Full Claims 88 Disallowed In Full Claims 43 Pending Disallowed In Full Claims (subject to Court approval) 1 Partially Disallowed/Allowed Claims 14 Total Claims Received (Including Late-Filed Claims) Status of Interim Distributions In addition to filing the Claims Determination Motions, on August 31, 2015, the Receiver directed KCC to issue interim distribution checks to Class I claimants who had Final Allowed Claims that had been approved by the Court as of that date. The first interim distribution (the

9 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 9 of 18 PageID #:2209 First Interim Distribution ) provided for an initial 25% recovery to Final Allowed Claims in Class I. The total First Interim Distribution from the Qualified Settlement Fund was $824, paid to 67 claimants. Attached as Exhibit C is the list of claimants who have received a First Interim Distribution. Exhibit C includes the following information: (1) Final Allowed Claim amount; (2) applicable Class under the Liquidation Plan; (3) claim number; (4) check number; (5) check issue date; (6) check issue amount; (7) whether the check has cleared; (8) percentage of recovery on account of the Final Allowed Claim to date; and (9) name of the claimant holding the Final Allowed Claim. As with Exhibit B, Exhibit C has not been publicly filed. However, a copy of Exhibit C has been tendered to chambers. As of October 20, 2015, $477, of the $824, in First Interim Distribution checks has cleared. A total of 7 claimants holding Class I Final Allowed Claims have yet to cash their First Interim Distribution. Such checks will be void 90 days after their issuance. Section 3.04 of the Liquidation Plan provides that [a]ny Claimant who fails to claim any Distribution within one-hundred and eighty (180) days from any payment date shall forfeit all rights thereto. The Receiver will be filing a Motion with the Court to address the uncashed checks as well as a protocol for reissuing the checks, if appropriate, and the related timing under the terms of the Plan. The Receiver intends to authorize a second interim distribution (the Second Interim Distribution ) to those holding Final Allowed Claims in Class I before the end of For those claimants whose claims were allowed by the Court after August 31, 2015 (when the First Interim Distribution was made), such claimants will receive payment reflecting the 25% First Interim Distribution plus any recovery on account of the Second Interim Distribution. By way example only, assuming the Receiver were to make a Second Interim Distribution in the amount of 20% before year end to Class I claimants, the total recovery to Class I Final Allowed Claims

10 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 10 of 18 PageID #:2210 would be 45%. Those who had already received a First Interim Distribution would receive a second distribution check in the amount of 20% of their Final Allowed Claim. Those who did not receive a First Interim Distribution would receive a check equal to 45% of their Final Allowed Claim. III. ASSET RECOVERY Since her appointment, the Receiver has endeavored to identify and recover assets for the benefit of the Receivership Estates. The following details the status of the recoveries to date. For the Court s convenience, an inventory of all assets recovered by the Receiver to date and their related disposition is included in Exhibit D. A. Accounts Receivable Prior to the closure of the Company on July 8, 2014, the Receiver directed the Company to generate invoices to all customers for all outstanding amounts due and owing to the Company (the Issuer AR ). A total of $194, in Issuer AR invoices were sent by the Receiver. To date and as a result of the Receiver s ongoing and continued efforts, the Receiver has collected $163, of this amount, leaving $30, (or 15.58% of the total Issuer AR). Of the remaining balance, $1, is uncollectible as a result of the FDIC receivership of one of the Company s customers. As such, the total Issuer AR that remains outstanding is $29, The Receiver has sent several demand letters to those issuers with remaining Issuer AR and sent final demand letters on July 1, 2015 setting forth a final payment deadline of July 15, The Receiver has received responses to those demand letters and is evaluating the grounds on which such Issuer AR has been disputed. The vast majority of issuers have satisfied their obligations. In fact, three issuers account for the majority of the outstanding Issuer AR. Collectively, these three issuers owe $22, of the remaining Issuer AR. These three issuers and the other remaining issuers with outstanding

11 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 11 of 18 PageID #:2211 Issuer AR did not file claims against the receivership estates. As a result, the Receiver was unable to utilize the provisions of the Liquidation Plan which disallowed any claims against the estates by issuers with outstanding Issuer AR. (Liquidation Plan, 1.02, 2.09, 2.10). Given the recalcitrance of these certain issuers, the Receiver is exploring mechanisms to enforce recovery, including the commencement of litigation. B. Insurance Policies As of the commencement of the receivership, the Company had in place certain insurance policies, including an errors and omissions ( E&O ) policy with coverage of $1 million. The E&O carrier denied coverage on July 16, After a careful review of the policy terms and the E&O denial letter and in consultation with her special counsel, the Receiver will not be pursuing coverage under the E&O policy. In addition to the E&O policy, the Company also maintained coverage under two fidelity bond policies, each with a coverage limit of $5 million. Coverage under the second policy is triggered only when the $5 million policy limit is exhausted under the first policy. On August 28, 2014, the Receiver filed Proofs of Loss with both fidelity bond carriers. One of the fidelity bond carriers has notified the Receiver that it has rescinded its fidelity bond policy. The Receiver is currently exploring her options in connection with the policy and the fidelity carrier s alleged assertion of rescission. In order to minimize the expense to the estate, the Receiver has retained the law firm of Tressler LLP ( Tressler ) in connection with possible claims under the fidelity bond policies pursuant to a hybrid fixed fee and contingency fee arrangement as more fully detailed in the Receiver s Motion to Retain and Employ Tressler LLP as Special Litigation Counsel filed on September 15, 2015 (the Tressler Retention Motion ). [Dkt No. 207]. C. Turnover from Pearson

12 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 12 of 18 PageID #:2212 On May 28, 2015, the Receiver filed the Receiver's Motion Regarding Turnover of Assets of Robert G. Pearson (the Turnover Motion ), which was granted in part and denied in part on June 15, As of October 20, 2015, the Receiver has collected the following from Robert Pearson. ASSET AMOUNT COLLECTED 50% Interest In Sale of Wheaton Building $95, % Morgan Stanley IRA $206, Mass Mutual Life Insurance Policies Liquidation Value (3 policies) 50% Morgan Stanley Joint Account Sale of Personal Stocks & Related Dividends $32, $24, $2, Bank Accounts Fifth Third $2, From Fifth Third Bank Accounts $8, TOTAL $372, Note that Fifth Third Bank tendered to the Receiver $2, that should have been paid to third parties pursuant to the terms of the Receiver s Turnover Motion. As such, the total recovered from Pearson that is available to claimants under the Plan is $370, Note that the Receiver has reserved all rights to pursue additional funds from Pearson by seeking further turnover orders from the Court. D. Liquidated and Unliquidated Claims The Receiver must first consult with the SEC regarding any litigation that may be commenced pursuant to the terms of the Receiver Order. The Receiver has not currently initiated any litigation against third parties. The Receiver has been in settlement negotiations with the Company s auditor, but an acceptable settlement has not been reached to date. Tressler

13 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 13 of 18 PageID #:2213 has been retained to assist the Receiver in moving forward with possible claims against the auditor pursuant to the Tressler Retention Motion. Once the Receiver commences litigation against any third parties, the Receiver will supplement any subsequent status reports with information relating to those actions, including the need for forensic and/or investigatory resources, the approximate valuation of claims, and the anticipated or proposed methods of enforcing such claims. IV. FINANCIAL AFFAIRS A. Overview Attached hereto as Exhibit A, as noted by the Receiver Order, are schedules of income and expenses. 5 As of October 20, 2015 the Receiver held $4,528, These funds are held in: (a) a qualified settlement fund account and (b) one receiver s account at BMO as detailed below. Note that the $4,528, is after the deduction of administrative expenses that have been paid in the amount of $1,492, as itemized below. Note that of the $4,528, currently held in the accounts, $346, represents uncashed checks that have been distributed to claimants pursuant to the First Interim Distribution. This means that while there is $4,528, currently held by the Receiver, only $4,181, remains left for the payment of administrative expenses and additional interim distributions. However, as noted above, Section 3.04 of the Liquidation Plan provides that [a]ny Claimant who fails to claim any 5 Note that the names of employees on the schedule of expenses have been redacted to avoid dissemination of employees salary and/or wage information. In addition, the amount of the AST milestone payments have been redacted. The Receiver will be glad to provide an unredacted copy of these schedules to chambers upon the Court s request. Also note that the income and expense ledgers of Exhibit A include transfers among various Receiver accounts. By way of example, on July 25, 2014, the Receiver transferred $5 million from the Receiver s BMO account to the receivership s Qualified Settlement Fund Account as a result of the Shutdown of the Company. Such transfers are not expenses of the estates, but are identified solely for the purpose of demonstrating to the Court the movement of funds among the receivership accounts

14 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 14 of 18 PageID #:2214 Distribution within one-hundred and eighty (180) days from any payment date shall forfeit all rights thereto. For the Court s convenience, a schedule of all of the Company s assets located to date is attached hereto as Exhibit C. B. The Qualified Settlement Fund The Receiver has worked with the Receiver s claims agent KCC to establish a Qualified Settlement Fund ( QSF ), which maintains a separate and independent tax identification number from the Company. There are two sub-accounts held in connection with the QSF: (1) an account related to the Company s assets and (2) an account related to Pearson s assets. As of October 20, 2015, the QSF s Company account holds $4,488, which is comprised of funds removed from the Company s accounts, funds generated by the sale of assets to AST, funds transferred from bank accounts opened by the Receiver at the inception of the receivership, funds generated by the sale of the Wheaton Property, and collected Issuer AR. As of October 20, 2015, the QSF s Pearson sub-account holds $5, The Pearson sub-account will never hold more than $5, as the Liquidation Plan provides that the total amount that may be paid to Pearson s individual creditors is capped at $5, (Liquidation Plan, 1.02 and 2.04). C. Receiver s BMO Bank Account The Receiver has closed all bank and brokerage accounts with the exception of the BMO bank account below. As of October 20, 2015, the following bank accounts had the following amounts: BANK ACCOUNT NO. AMOUNT IN ACCOUNT STATUS BMO Harris (Receiver s Account) ***538 $34, Account Open

15 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 15 of 18 PageID #:2215 The Receiver is currently utilizing the BMO bank account for the payment of certain small invoices, including fees incurred related to monthly storage of records at Iron Mountain during the pendency of the receivership. D. Administrative Expenses The amount of administrative expenses paid through October 20, 2015 is $1,492, For the Court s convenience, the following chart summarizes the nature of the administrative expenses: Type of Expenditure Administration Fees (Wall Street Journal Publications Fees, Bank Fees, Stop Payment by Issuers, Asset Searches, Filing Fees, etc.) Building Expenses (Sanitation, Water, Gas, Electric, Taxes, Mortgage, etc.) Business Expenses (Postage, Phone, Internet, Document Destruction, Independent Contracting Services, etc.) Court-Appointed Professionals (Rossi; Teamwerks; DiMaria; R.E. Walsh & Associates; Foley & Lardner; Receiver; Shaw Fishman; Financial Advisors, LLC, etc.) Employee Related Expenses (Payroll, Withholding, Paychex Processing etc.) Amount $21, $21, $13, $1,130, $121, Insurance (Medical, E&O, Property, etc.) $33, Transtar Deconversion Fees $86, Taxes (Tax Related Notices, etc.) $42, QSF (Claims Agent & QSF Administrative Fees) $20, TOTAL $1,492, The aforementioned amounts include all of the administrative expenses necessary to administer the estates, including, inter alia, overhead related to the operation of the Company; securing the Company s offices, records, and electronic data; reconciliation of accounts and assets held by the Company; evaluation and processing of transactions during the interim period

16 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 16 of 18 PageID #:2216 after the commencement of the receivership and prior to the Company s Shutdown; employee payroll taxes; health insurance; property insurance; casualty insurance; utilities; bank charges; out of pocket expenses in connection with postage, copying, and travel for Issuer transactions and shareholder meetings; deconversion fees associated with the transfer of records to successor transfer agents through the Transtar system; professional fees related to the inventorying of the Company s extensive hard-copy records; the use of former FBI agents to inventory the contents of the Company s vault; the marketing, negotiation and successful sale of the Company s customer accounts; recovery of assets such as bank accounts, accounts receivable, and vehicles for the benefit of the receivership; attendance at hearings before the Court; preparation of quarterly reports as directed by the Receiver Order; the transition of Issuers to new platforms; creation and implementation of the claims solicitation process and procedure; fielding hundreds of Issuer, shareholder, and creditor inquiries; and establishment of the QSF, to name a few. Note that the fees and costs incurred by the Receiver and her counsel during the sixth quarterly fee application period have not been included in the aforementioned amount as such amounts are subject to fee applications to be reviewed and approved by the Court. E. Estimated Liabilities As noted above, the total dollar amount of Final Allowed Claims, to date, pursuant to all filed Allowance Motions is $6,230, This number does not include the ongoing costs of administration of the estates, which includes ongoing storage fees related to the Company s documents, fees and costs that will be incurred by the Receiver and professionals and consultants retained by the Receiver, and other expenditures that may be necessary in connection with the administration of the estates. V. ADMINISTRATION OF THE RECEIVERSHIP ESTATES A. Estimated Distribution

17 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 17 of 18 PageID #:2217 As of the date of the filing of this Report, the assets the Company held are less than the total amount of Final Allowed Claims. The same is true with respect to Final Allowed Claims against Pearson. Absent additional recoveries from various third parties, claimants can currently expect less than a 100% distribution. On July 21, 2015, the Receiver directed KCC to make an initial interim distribution of 25% from the QSF to claimants in Class I of the Liquidation Plan with Allowed Claims (that is, customers of IST including issuers and their respective shareholders). In order to process such distributions, KCC requires receipt of W-9s from each of the claimants for purposes of accurate tax accounting. During that window, the Receiver worked to obtain W-9s from the claimants. As previously mentioned, the First Interim Distribution was made on August 31, The Receiver is also calculating the distributions to those with Allowed Claims in Classes II and III of the Liquidation Plan. Class II Allowed Claims are subject to a maximum distribution of $25,000 pursuant to the Vendor Carve Out of the Liquidation Plan, and Class III Allowed Claims are subject to a maximum distribution of $5,000 under the Employee Carve Out of the Liquidation Plan. Class II Allowed Claims will share pro rata in the $25,000. Similarly, Class III Allowed Claims will share pro rata in the $5,000. Assuming the Receiver is able to procure a material number of W-9 forms from claimants who have recently been granted Final Allowed Claims, the Receiver intends to make a second interim distribution before year end. B. Recommendations for the Continuation of the Receivership Estates The Receiver notes that material progress has been made concerning the administration of the Receivership Estates. The continuation of the Receivership Estates is necessary and warranted at this time to allow for two primary tasks: (1) additional distributions to claimants holding Final Allowed Claims and (2) the commencement of possible third party actions for which the Receiver has sought authority from the S.E.C. to move forward with pursuant to the

18 Case: 1:14-cv Document #: 226 Filed: 10/30/15 Page 18 of 18 PageID #:2218 Receiver Order. The Receiver will also continue to apprize the Court of any developments through ongoing quarterly status reports and is glad to furnish interim updates at status hearings that may be set by the Court. /s/ Jill L. Nicholson Not individually, but solely as Receiver for the Estates of Illinois Stock Transfer Company and Robert G. Pearson Foley & Lardner LLP 321 North Clark Street, Suite 2800 Chicago, IL Ph: (312) Fax: (312)

19 Case: 1:14-cv Document #: Filed: 10/30/15 Page 1 of 18 PageID #:2219 EXHIBIT A

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30 Case: 1:14-cv Document #: Filed: 10/30/15 Page 12 of 18 PageID #:2230

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37 Case: 1:14-cv Document #: Filed: 10/30/15 Page 1 of 1 PageID #:2237 EXHIBIT B SUBMITTED DIRECTLY TO CHAMBERS

38 Case: 1:14-cv Document #: Filed: 10/30/15 Page 1 of 1 PageID #:2238 EXHIBIT C SUBMITTED DIRECTLY TO CHAMBERS

39 Case: 1:14-cv Document #: Filed: 10/30/15 Page 1 of 7 PageID #:2239 EXHIBIT D

40 Case: 1:14-cv Document #: Filed: 10/30/15 Page 2 of 7 PageID #:2240

41 Case: 1:14-cv Document #: Filed: 10/30/15 Page 3 of 7 PageID #:2241

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