Case 1:14-cv CRC Document Filed 01/22/19 Page 1 of 9

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1 Case 1:14-cv CRC Document Filed 01/22/19 Page 1 of 9 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA SECURITIES AND EXCHANGE COMMISSION, Plaintiff, Case No. 1:14-cv (CRC) v. LAWRENCE P. SCHMIDT; FUTUREGEN COMPANY d/b/a FUTUREGEN CAPITAL; COMMERCIAL EQUITY PARTNERS, LTD.; FGC DISTRESSED ASSETS INVESTMENT #1, LLC; FUTUREGEN CAPITAL DDA CG FUND LLC; FGC TAX LIEN FUND #2, LLC; FGC TRADING FUND #1 LLC; FGC SPE NO 1 LLC; FGC SPE NO 2 LLC; AND FGC CM NOTE FUND LLC, Defendants. MEMORANDUM IN SUPPORT OF MOTION FOR AUTHORITY TO WINDUP THE RECEIVERSHIP ESTATE Marion A. Hecht, the Court appointed Receiver ( Receiver ) for the receivership estate of FutureGen Company, et al. ( FutureGen or the Receivership Defendants ), by her undersigned Counsel, submits this Memorandum in Support of her Motion for Authority to Windup the Receivership Estate. The activities necessary to complete administration of the receivership estate of FutureGen (the Receivership Estate ) have largely been completed and are summarized below together with a summary of remaining tasks: a. The Receiver has filed 17 quarterly Receiver s Reports and does not believe it necessary to file a December 31, 2018 Quarterly Receiver s Report that would have been due by January 30, 2019 because this Memorandum contains the information that would be included in

2 Case 1:14-cv CRC Document Filed 01/22/19 Page 2 of 9 such report. b. Most of the assets in the Receivership Estate have been sold or reduced to judgment as approved by the Court. The remaining assets comprise judgments which the Receiver s counsel is seeking to enforce. 1 c. All allowed claims against the Receivership Estate have now been paid in two distributions as authorized by this Court s Orders entered April 11, 2018 (See Docket Entry No. 201) and August 30, 2018 (See Docket Entry No. 220). The payments on the second distribution were mailed on November 15, d. As reported to this Court, as a matter of judicial efficiency, the Receiver did not pursue Net Winner investor accounts for amounts of $5,000 or less. Accordingly, the Receiver has written off and abandoned further pursuit of those 49 Net Winner investor accounts totaling $77, See Exhibits 2 and 3 which reflect the Receiver write offs. 3 e. As reported to the Court, Defendant Schmidt operated his scheme under the names of FutureGen Company d/b/a FutureGen Capital; Commercial Equity Partners, Ltd. and its affiliated entities, which according to available documents included FGC Distressed Assets Investment #1, LLC; FutureGen Capital DDA CG Fund LLC; FGC Tax Lien Fund 1 The Receiver s counsel was advised by the Court that counsel must domesticate judgments entered by this Court in the jurisdiction where the judgment debtor s assets are located. Therefore, the Receiver contacted counsel this Court previously approved for a limited purpose to ascertain his interest in assisting the Receiver with domestication of the judgments. The Receiver intends to file shortly with the Court her Application to employ the same counsel for this additional limited purpose. 2 The payment of the second distribution was conditioned upon the Receiver s receipt of approximately $256,000 from the SEC representing payments made to the SEC by Ike Ikokwu and related defendants. The Receiver was notified on November 7, 2018 that $257, was received, and the Receiver team immediately started processing of payments totaling $495,543.39, which this Court approved. 3 Total write off includes both Net Winner Investor Accounts <$5,000 not pursued and write off amounts from Net Winner Investor Accounts that have settled with Receiver at 10% discount and/or were approved by the Court as well as one net winner investor account that the Receiver and her counsel determined not to pursue for reasons previously reported to the Court. 2

3 Case 1:14-cv CRC Document Filed 01/22/19 Page 3 of 9 #2, LLC; FGC Trading Fund # 1 LLC; FGC SPE NO 1 LLC; FGC SPE NO 2 LLC; and FGC CM Note Fund LLC, as well as an additional seven entities that appear to also be Receivership Defendants and include the following: FGC Tax Lien Fund #3 LLC; FGC Distressed Debt SPE No 2 LLC; F G C Indiana TLC 2014 LLC; FGC Indiana Reo LLC; FGC Indiana Lake Co 2014 LLC; FGC Servicing Limited; and FGC SFR Holdings LLC (collectively, the "Receivership Defendants"). Other than three entities the Receiver was not originally aware of (F G C Indiana TLC 2014 LLC; FGC Indiana Reo LLC; and FGC Indiana Lake Co 2014 LLC), all of the FutureGen affiliated entities have already been dissolved, revoked, voided or suspended by operation of the respective Secretaries of State in the states for which the entities filed as either domestic or foreign entities. Apparently Defendant Schmidt caused filings to be made with the Indiana Secretary of State 4 for three entities: (a) F G C Indiana TLC 2014 LLC; (b) FGC Indiana Reo LLC; and (c) FGC Indiana Lake Co 2014 LLC. The Appointment Order at paragraph 7 provides that the Receiver may take any action that officers and directors could have taken. The Receiver further notes that paragraph 42 of the Appointment Order provides that the Receiver is authorized to manage, maintain, and or windup the business operations of the Receivership defendants, including making legally required payments to creditors, employees and agents of the Receivership Estate and communicating with vendors, investors, governmental and regulatory authorities, and others as appropriate. Therefore, the Receiver has filed Articles 4 Defendant Schmidt paid Corpnet.com the sum of $ for each LLC, which was paid by a FutureGen check card out of investor proceeds. The one time that Defendant Schmidt responded to the Receiver s communications, he advised there were no assets other than those previously disclosed. On information and belief, there is no evidence of any assets held by the three Indiana entities, which were incorporated weeks before Defendant Schmidt fled the United States. Further, there is no evidence of any business operations. Corpnet.com filed annual reports without the authorization of the Receiver and without the Receiver s knowledge. For this reason the Receiver recently filed Articles of Dissolution for the three Indiana entities. The Receiver had expected the Indiana Secretary of State to dissolve, revoke, or otherwise terminate the existence of the LLCs; however, due to apparent budgetary constraints, no action has yet to be taken, and it is important to make sure the entities cease to exist. 3

4 Case 1:14-cv CRC Document Filed 01/22/19 Page 4 of 9 of Dissolution with the Indiana Secretary of State accompanied with a transmittal letter, and copy of the Appointment Order. f. All employees were discharged by Defendant Schmidt prior to the appointment of the Receiver. Final quarterly tax and wage reports for the pre-receivership activities of FutureGen Company were filed in California, the District of Columbia, Georgia, Illinois, North Carolina, Nevada, and Virginia. The federal final part year tax return for pre-receivership activities of FutureGen was timely filed by the Receiver with appropriate disclosures for the period ended April g. The Receiver s federal tax reporting in the form of Qualified Settlement Fund ( QSF ) returns with the Internal Revenue Service and the state returns with the Commonwealth of Virginia have been timely filed as reported to the Court. 5 h. The 17th Fee Application covering the period July 1, 2018 through September 30, 2018 was approved by this Court s Order entered November 20, 2018 (See Docket Entry No. 227), and payments were made to the Receiver and her counsel in accordance with the terms of that order. i. Exhibit 1 to this Motion, the Standardized Fund Accounting Report (the SFAR ) covering the period from the inception of the Receivership through November 30, 2018 reflects: (1) Receivership recoveries of $4,812, ($261, since the last SFAR filed with this Court) which include the net recoveries related to FutureGen s ownership of HOA Lien properties managed by Triumph Property Management on behalf of the Receiver as reported in Receiver s Reports filed with the Court; and (2) disbursements $4,065, The 2017 QSF and state return for the Commonwealth of Virginia were filed April 17, Upon entry of the order approving the Windup Motion, the Receiver will make arrangements for her tax accountant to prepare the final tax returns with the IRS and the Commonwealth of Virginia. 4

5 Case 1:14-cv CRC Document Filed 01/22/19 Page 5 of 9 ($530, since the filing of the last SFAR filed with this Court) from such recoveries with the resulting cash balance of $747, as of November 30, 2018, which amount will be reserved (the Reserve ) for the remaining tasks necessary to windup the Receivership Estate, including but not limited to: (1) payment of Receiver s and her professionals fees and expenses for the period October 1, 2018 through December 31, 2018 at 80%; (2) payment of Receiver s and her professionals fees and expenses for the period January 1, 2019 through the filing of the Final Report and Final Accounting at 100%, together with this Court s consideration of the 20% holdback from the beginning of the Receivership through December 31, 2018 (the Final Fee Application ); (2) shredding of paper files retrieved from the pre-receivership management for the pre-receivership activities of FutureGen; 6 (3) disposal of physical evidence transferred to the Receiver by the SEC, which includes 8 computers, 1 ipad and 2 iphones; (4) disposal of Defendant s Schmidt s mail forwarded to the Receiver and his purported wedding ring retrieved from the condominium rental which rental payments were paid for with investor funds 7 (as previously reported to the Court); and 5) preparing and filing the 2018 and the final 2019 federal tax returns and state returns with the Commonwealth of Virginia for the Receivership estate. 8 j. The Receiver anticipates filing prior to February 15, 2019, an Eighteenth Fee 6 The Receiver will provide thirty (30) days written notice to the SEC prior to shredding of pre-receivership paper documents. Similarly, the Receiver will provide thirty (30) days notice to the SEC prior to shredding of Receivership paper documents as will be provided in the Final Report and Final Accounting. 7 The Receiver has tried on many occasions to contact Defendant Schmidt. He is aware the Receiver holds a wedding ring; and given no indication that he is interested in it. Given Defendant Schmidt s improper use of investor funds, the Receiver now plans to sell it. 8 The Receiver will prepare and file the 2018 QSF federal and state returns for the Receivership Estate. The due date of the 2018 returns will be April 15, The Receiver anticipates the 2019 return will be a short year final return. 5

6 Case 1:14-cv CRC Document Filed 01/22/19 Page 6 of 9 Application for services rendered October 1, 2018 through December 31, k. The Receiver will submit a Final Report and Final Accounting, together with a draft format for the Court s consideration of the proposed termination 10 of the Receivership and discharge of the Receiver and her professionals, upon completion of the windup tasks which are estimated to take approximately ninety (90) to one hundred twenty (120) days; however, the final distribution recommendation to the investors and the final payment to the Receiver and her professionals will not occur until the Receiver has received confirmation from the IRS that it has made a prompt determination with respect to the final tax return per the Receiver s filing of Form with the respect to the final QSF tax period and that it has accepted the QSF federal final return as filed and that there are no further actions required of the Receiver and/or Receivership Estate. l. The Receiver will file her Final Fee Application for services rendered January 1, 2019 through the filing of the Final Report and Final Accounting, together with her request for this Court s consideration of the 20% held back fees from the inception of the Receivership The Receiver will file a Final Fee Application covering the period January 1, 2019 until the completion of the remaining substantive windup tasks at the time she files her Final Report and Accounting. The Final Fee Application will seek this Court s permission to pay fees held back from the beginning of this receivership. There will be a Final Expense Period after the filing of the Final Fee Application to cover services post filing of the Final Report and Final Accounting. 10 A draft Termination Notice will also be appended as an exhibit to the Final Report and Final Accounting. The purpose of this notice is to provide a thirty day period in the event there may be an objection to the ultimate discharge of Receiver and/or termination of the Receivership Estate, and it also gives the Court a preview of the format of the proposed Discharge of Receiver and Termination of Receivership Estate. 11 On June 21, 2017, the Receiver filed Forms 4810 with the IRS for the QSF covering the tax periods 2014, 2015 and On June 1, 2018, the Receiver filed Form 4810 with the IRS for the QSF covering the tax period The purpose of Form 4810 is to seek prompt determination from the IRS that it has accepted the QSF return as filed and there are no further actions required of the Receiver and/or Receivership Estate. The IRS has now accepted as filed the 2014, 2015, 2016, and 2017 QSF returns and has confirmed that no further action is required. The Receiver will require the IRS acceptance with respect to the 2018 tax return and also the 2019 final tax return before seeking entry of an Order of Discharge of Receiver and Termination of the Receivership Estate. 6

7 Case 1:14-cv CRC Document Filed 01/22/19 Page 7 of 9 m. The Final Report and Final Accounting will detail the services provided by Receiver and her professionals from January 1, 2019 until completion of the substantive windup tasks. In addition, the Final Report and Final Accounting will include a reconciliation of the Reserve. Appended to the Final Report and Final Accounting will be two Orders as explained below. 1. Proposed Order No. 1 Approving the Final Report and Final Accounting; approval to shred pre-receivership paper documents after giving SEC counsel 30 days notice; approval to maintain the receivership s website, located at on the internet through April 30, 2019, after which time the domain name may be allowed to lapse. 2. Proposed Order No approving the termination of the Receivership and discharge of the Receiver and her professionals, and a directive that the Receiver, her agents, employees, members, officers, independent contractors, attorneys and representatives are discharged, relieved of all duties and responsibilities pertaining to the Receivership previously established in this action and released from all claims and liabilities arising out of and/or pertaining to the Receivership herein, including without limitation, any operations of the FutureGen, et al. businesses or properties; and such other and further relief as may be appropriate (the Termination Order ). The Receiver informs the Court that the activities post filing of the Final Report and Final Accounting will include but may not be limited to the following: a. Upon confirmation by the IRS it has accepted the 2018 and the final 2019 tax 13 The Receiver will attach a copy of the proposed form of Order of Termination of Receivership Estate and Discharge of Receiver as an exhibit to the Final Report and Final Accounting to inform the Court in advance of the nature and content of the proposed Order of Termination of Receivership and Discharge of Receiver. The Receiver s reasoning for this advance notice is to provide guidance to the Court on procedures she has used in other federal equity receiverships in advance of the Court s final approval that she has completed the assignments and responsibilities delegated by the Appointment Order entered June 24, 2014 (See Docket Entry No. 14). 7

8 Case 1:14-cv CRC Document Filed 01/22/19 Page 8 of 9 return as filed and it has no further requirements of the Receivership Estate or the Receiver, the Receiver will determine the Final Expense Amounts and submit those invoices to the Court, after SEC counsel has the opportunity to review them. b. Any residual funds remaining after the payment of the Final Expense period and payments to vendors that may be due related to the receivership operations, the remaining Reserve will be allocated to approved claimants after consideration of the cost for the Receiver team to prepare the appropriate schedules and process the related remittances. The Receiver will seek this Court s approval for the Final Expense period and final distributions to investors at the appropriate time. The Receiver also seeks approval from this Court to perform the usual and customary closing and windup procedures for a federal equity receivership estate as well as tasks incidental to those outlined in this Memorandum. Because the administration of the Receivership Estate is nearly ready to be completed, it is appropriate to grant the relief requested in this Motion. Dated: January 22, Respectfully Submitted, /s/ David Daneman David Daneman (DC Bar No ) Whiteford Taylor and Preston L.L.P. Seven Saint Paul Street Baltimore, Maryland Main Telephone Main Facsimile Attorneys for Marion A. Hecht, Receiver 8

9 Case 1:14-cv CRC Document Filed 01/22/19 Page 9 of 9 CERTIFICATE OF SERVICE I hereby certify that on this 22 nd day of January, 2019 a true and correct copy of the Memorandum in Support of Motion for Authority to Windup the Receivership Estate was served via first class mail, postage prepaid, and/or electronic mail, to: Lawrence P. Schmidt lawrences59@icloud.com FutureGen Company d/b/a FutureGen Capital FGC Trading Fund # 1 LLC FGC Distressed Assets Investment #1, LLC FGC SPE No 1 LLC FGC Tax Lien Fund #2, LLC FGC SPE No 2 LLC FGC CM Note Fund LLC c/o Spiegel & Utrera, P.A., Registered Agent 9 East Loockerman Street, Suite 3A Dover, DE Seth Slomovitz, Esq. Law Offices of Eric Howell Sayles, PLLC 1155 Connecticut Avenue, NW, Suite 650 Washington, DC seth@sayleslegal.com John W. Stanko, Jr. Stanko McCarthy Law Group 20 N. Clark St., Suite 2200 Chicago, IL JStanko@SMLG.law FutureGen Company d/b/a FutureGen Capital Commercial Equity Partners, Ltd. FGC Distressed Assets Investment #1, LLC FutureGen Capital DDA CG Fund LLC FGC Tax Lien Fund #2, LLC FGC Trading Fund #1 LLC FGC SPE No 1 LLC FGC SPE NO 2 LLC FGC CM Note Fund LLC c/o Marion A. Hecht, Receiver CliftonLarsonAllen LLP 901 N. Glebe Road, Suite 200 Arlington, VA John V. Donnelly, III, Esq. Securities and Exchange Commission Philadelphia Regional Office One Penn Center 1617 JFK Boulevard, Suite 520 Philadelphia, PA Sean L. Anderson, Esq. Leach Kern Gruchow Anderson Song, Ltd Box Canyon Drive Las Vegas, NV SAnderson@leachjohnson.com Ari D. Kunofsky Trial Attorney, Tax Division U.S. Department of Justice P.O. Box 227 Washington, DC Ari.D.Kunofsky@usdoj.gov /s/ David Daneman David Daneman (DC Bar No ) 9