Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 1 of 56 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA FILED UNDER SEAL

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1 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 1 of 56 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff, TREVOR G. COOK, PATRICKJ. KILEY, UBS DIVERSIFIED GROWTH, LLC, UNIVERSAL BROKERAGE FX MANAGEMENT, LLC, OXFORD GLOBAL ADVISORS, LLC, and OXFORD GLOBAL PARTNERS, LLC, Defendants, and BASEL GROUP, LLC, CROWN FOREX, LLC, MARKET SHOT, LLC, PFG COIN AND BULLION, OXFORD DEVELOPERS, S.A. OXFORD FX GROWTH, L.P., OXFORD GLOBAL FX, LLC, OXFORD GLOBAL MANAGED FUTURES FUND, L.P., UBS DIVERSIFIED FX ADVISORS, LLC, UBS DIVERSIFIED FX GROWTH, L.P., UBS DIVERSIFIED FX MANAGEMENT, LLC, CLIFFORD BERG, and ELLEN BERG, Relief Defendants. CIVIL ACTION FILENO FILED UNDER SEAL ANSWER TO COMPLAINT Defendant pro se, Pat Kiley, ("Kiley") answers the allegations of Plantiff s complaint as follows: Opening Statement: Kiley states that he was mislead and conned by Trevor Cook, Kiley states that he was not aware of any illegal misconduct until July, The duties of Cook and Kiley were separate and did not overlap. Cook made sure of this so that he could operate without the knowledge and consent of Kiley. Kiley's duties were as follows: 'SCANNED" OCT 14 IB las. DISTRICT coy; MPLS

2 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 2 of To operate the radio program "Follow the Money" 2. To perform customer service duties such as sending withdrawles when customers requested, closing accounts when customers requested, removing customers from the program when Kiley felt they did not fit, and Kiley returned a customer's money in July of 2009 as soon as he realized there was something suspicious. He sent the check back the day it came in. 3. Kiley trained account representatives and held them to a high standard to simply tell and not sell the foreign currency trading program. (Most of the many account representatives whom Kiley terminated were hired by Cook and Durand. There were approximately 17 who were released because of the high standards that Kiley held.) Cooks duties were as follows: 1. Cook was the money manager. Cook controlled all money transactions, moving various funds to and from various accounts without ever discussing or getting approval from Kiley. 2. Cook decided who got paid, when they got paid, or if they got paid. He did this without consultation with Kiley. 3. Cook formed all of the corporations including the UB entities and the Oxford corporations, and others. Cook did this without the knowledge, consent, participation, or approval from Kiley. Many times Kiley was not even informed after the fact by Cook. Kiley got the information from third parties. 4. Cook traveled overseas and negotiated various transactions with foreign entities. Kiley never went with him on any overseas trip. In fact, from February 2000 until the present Kiley never left the country and his passport shows it. Cook went on these various overseas trips and sometimes took Durand and Pettengill. 5. Cook made the purchases or rentals of various office locations without ever discussing in advance with Pat Kiley. Kiley never knew about the purchase of the Van Dusen location until after it was done. Kiley never knew of the purchase of the Burnsville location until after it was done. Kiley never knew about a certain deal that Cook negotiated with two men from Chicago, who were formally from the Chicago Board of Trade. They were referred to as "Big Mike and Little Tim" (Michael Schutze and Tim Anderson). Cook rented a large office space at the Chelard Plaza without ever consulting with Kiley first. Kiley found out about it from a third party. 2

3 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 3 of Cook would hire office administrative and other personnel. He did this without the prior approval, knowledge, or consent of Kiley. (On one occasion, Ryan Moeller, Cook's inhouse accountant, showed Kiley a list of Beckman's wife, mother-in-law, and father-inlaw drawing a monthly salary of several thousand dollars each.) Kiley could never see what they had to done to earn those salaries. NATURE OF THE ACTION 1. The Commission brings this emergency law enforcement action to charge two leading figures behind a fraudulent scheme that has taken in at least $190 million from at least 1,000 victims, and to freeze and recover millions of dollars derived from the scheme before those assets disappear. Answer: Kiley admits in part and denies in part the allegations of paragraph 1. Kiley denies that he is a leading figure in a scheme to defraud investors and denies any knowledge or participation in a fraudulent scheme to defraud investors. 2. The Defendants are two Minnesota residents, Trevor G. Cook ("Cook") and Patrick J. Kiley ("Kiley"), together with several shell companies owned or controlled by either Cook or Kiley-UBS Diversified Growth, LLC, Universal Brokerage FX Management, LLC, Oxford Global Advisors, LLC, and Oxford Global Partners, LLC (collectively "the Defendant Shell Companies"). (None of the entities using the UBS name referred to in this Complaint is affiliated with UBS, AG, the Switzerland-based global financial services firm.) Answer: Kiley admits he is a Minnesota resident and that there were corporations formed, without his knowledge, and denies that he controlled any of the "Defendant Shell Companies", even when he was listed as an owner. Kiley states that Cook controlled those corporations, incorporated them, moved money to and from them without the control of Kiley. Further, whenever, Kiley wanted any business expenses paid, Cook would pay the bills at his own discretion and without the control of Kiley. Kiley never wrote one check or sent any wire transfers related to the defendant companies, ever. He had to ask Cook to do so and Cook did it at his own discretion. 3. From at least July 2006 through July 2009, Cook and Kiley, directly and indirectly through the Defendant Shell Companies, raised at least 3

4 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 4 of 56 $190 million from at least 1,000 investors by selling investments in a purported foreign currency trading venture. Answer: Kiley admits that he taped a weekly radio show where he analyzed the political, social and economic issues. Kiley predicted accurately (9 months in advance), the failure of banks, investment houses, and the coming real estate foreclosure market. Kiley stated that the foreign currency trading venture (in which he was fully invested) was an alternative to the losses the investors were suffering in stocks, bonds, and real estate, which were typically 40% to 50% portfolio losses. 4. Cook and Kiley represented that they would deposit each investor's funds into a segregated account in the investor's name; that they would use each investor's funds to trade foreign currencies; and that the foreign currency trading would generate annual returns of 10% to 12%. Answer: Kiley admits that at the time that he stated to investors that funds would be placed in a segregated account in the investor's name, that traders would use each investor's funds to trade foreign currencies, and that the foreign currency trading would generate annual returns of 10% to 12%, that Kiley believed that all those statements were true. Further, Kiley states that his belief was based on the customer service that he performed in closing accounts and getting withdrawals of cash for customers who wanted to withdraw funds or close accounts. He never had a problem withdrawing funds or closing accounts when customers asked to do so. All of this made him believe that the foreign currency program was legitimate and that is why he was fully invested in it and did not have a savings or checking account outside what he had invested in the business. 5. Cook and Kiley also represented that their foreign currency trading venture involved little or no risk and that the investors' principal would be safe and could be withdrawn at any time. Answer: Kiley admits this allegation and states that his involvement in customer service withdrawing funds and closing accounts proved to him that it was true. He never had a problem withdrawing funds for clients or closing accounts for clients. 6. Cook and Kiley's representations were false.

5 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 5 of 56 Answer: Kiley did not learn that these representations were false until the matter of Phillips et. al. v Cook et. al. was filed and he was promptly taken off the air in early July Kiley never made statements about the foreign currency program knowing that they were false statements. 7. Cook and Kiley did not place each investor's money in a segregated account in the name of the investor. Answer: Kiley did not know that investor's money was not placed in segregated accounts in the name of the investor. Kiley did not learn of this until the private law suit was filed. At the time the SEC launch an investigation, prior to the private law suit, Kiley understood from Cook that investigation was related to Bo Beckman filing false financial statements with the National Hockey League and had nothing to do with the foreign currency trading program. 8. Instead, Cook and Kiley pooled the investors' funds in bank and trading accounts in the names of entities that they controlled, including the Defendant Shell Companies and Relief Defendants Basel Group, LLC, Crown Forex, LLC, Market Shot, LLC, PFG Coin and Bullion, Oxford FX Growth, L.P., Oxford Global FX, LLC, Oxford Global Managed Futures Fund, L.P, UBS Diversified FX Advisors, LLC, UBS Diversified FX Growth, L.P., and UBS Diversified FX Management, LLC (collectively "the Relief Defendant Shell Companies"). Answer: Kiley emphatically denies that he pooled investors' funds in bank and trading accounts in the names of entities that Cook controlled in including the Defendant Shell Companies and the Relief Defendants. Kiley denies ever forwarding any funds by check or wire transfer to or from any of the companies named. Kiley was not involved with this at any level. 9. Cook also gave investor funds to his wife's parents, Relief Defendants Clifford and Ellen Berg, in order to conceal the location of those assets. Answer: Kiley knows nothing of this allegation and was not involved with any of Cook's involvement with the Relief Defendants identified above. 10. Cook and Kiley, in effect operating a Ponzi scheme, diverted approximately $51 million of the investors 1 funds to pay ostensible returns and principal to other investors. Answer: Kiley denies operating a ponzi scheme, diverting investors' funds to pay ostensible returns to principal to other investors. Kiley further states again that he did not write one check or send one wire transfer to or from any of the Defendant Shell Companies. 11. Cook and Kiley misappropriated $42.8 million of the investors' 5

6 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 6 of 56 funds, including $ 18 million that Cook diverted to buy ownership interests in two trading firms; $12.8 million that Cook and Kiley transferred to bank accounts in Panama, purportedly to finance the construction of a casino; and at least $ 12 million that Cook and Kiley used to pay their personal expenses, including $4.8 million that Cook lost through gambling, $2.8 million that Cook used to acquire the Minneapolis building popularly known as the Van Dusen Mansion; $2.7 million withdrawn in cash and cashier's checks, $ 1.3 million used to pay legal fees, $1 million transferred to a private investment fund, and $1 million used to pay personal credit cards and bank payments. Answer: Kiley denies misappropriating $42.8 million of the investors' funds including all the other disbursements referred to in the allegations. Kiley denies transferring bank accounts in Panama to finance casino construction and in fact states that Kiley never know when Cook made various transfers. Kiley further states that he did not use investors funds to pay his personal expenses and that a "credit card" that allegedly was attributed to him but was used by Cook and/or others and was never used by him. 12. Cook and Kiley converted another $108 million of the investors' money to fund banking and trading accounts that they held in names of their various shell companies, including certain of the Defendant Shell Companies and the Relief Defendant Shell Companies. Answer: Kiley flatly denies this allegation and states that he did not convert investors' funds to banking and trading accounts held in his name or to various companies, including certain Defendant Shell Companies and the Relief Defendant Shell Companies. 13. Cook and Kiley used some of the money in their shell companies' accounts to trade foreign currencies. However, their trading involved significant risks and lost at least $48 million. Answer: Kiley denies using some of the money in Cook's shell companies' accounts to trade foreign currencies and states again that he never moved any money by check or wire transfer. Kiley again states that his customer service experience made him believe that the trading did not involve significant risk and that he did not know of a loss of $48 million and still doubts Cook's explanation of such a loss. 14. Throughout their fraud, Cook and Kiley provided their victims with phony account statements that falsely reported substantial, continuing gains from foreign currency trading in segregated investor accounts. Answer: Kiley denies that he knowingly provided phony account statements that falsely reported substantial, continuing gains from foreign currency trading in segregated investor 6

7 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 7 of 56 accounts. Kiley states that he did not send account statements to clients as part of his duties and if such statements were sent by others, he did not know that they were false. 15. At the present, Cook and Kiley's victims face losses of at least $139 million. Answer: Kiley denies knowledge of the extent of the losses and denies that the investors are his victims 16. As a result of the foregoing, Cook, Kiley, UBS Diversified Growth, LLC, Universal Brokerage FX Management, LLC, Oxford Global Advisors, LLC, and Oxford Global Partners, LLC, directly and indirectly, have engaged in and, unless enjoined, will continue to engage in acts, practices, transactions, and courses of business that violate Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (the "Securities Act") [15 U.S.C. 77e(a), 77e(c), and 77q(a)] and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 V.S.C. 78j(b)] and Rule IOb-5 [17 C.F.R Ob-5] thereunder. Answer: Kiley denies engaging in acts violating the securities laws listed above. 17. The Commission brings this lawsuit to hold the Defendants accountable for their flagrant and repeated violations of the federal securities laws; to freeze and preserve the assets of Cook, Kiley, the Defendant Shell Companies, the Relief Defendant Shell Companies, and the Relief Defendants Clifford and Ellen Berg; and to prevent further harm to investors. Answer: Kiley denies violating any securities laws and states that he stated in his radio program that information that he saw was true based on his customer services activities and that he had a number of clients for whom he had funds sent to them when they wanted to withdraw various amounts, closed accounts when clients asked to have their account closed, rejected about 20% of the investors who wanted to invest in the program, removed some clients from the program if he felt they did not fit the program, and finally he returned uncashed checks at the first knowledge that he had that something was amiss regarding the program. JURISDICTION AND VENUE 18. The Commission brings this action pursuant to Section 20(b) of the Securities Act [15 U.S.C. 77t(b)] and Sections 21(d) and 21(e) of the Exchange Act[15 D.S.C. 78u(d) and 78u(e)]. 7

8 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 8 of This Court has jurisdiction over this action pursuant to Section 22 of the Securities Act [15 U.S.C. 77v] and Section 27 of the Exchange Act [15 U.S.C. 78aa]. 20. Venue is proper in this Court pursuant to Section 27 of the Exchange Act [15 D.S.C. 78aa]. 21. Acts, practices and courses of business constituting violations alleged herein have occurred within the jurisdiction of the United States District Court for the District of Minnesota and elsewhere. 22. Cook, Kiley, the Defendant Shell Companies, and the Relief Defendant Shell Companies, directly and indirectly, made use of the means and instrumentalities of interstate commerce and of the mails in connection with the acts, practices, and courses of business alleged herein. Answers: 18 through 22 - Kiley admits jurisdiction and venue and the use of interstate commerce. 23. Cook, Kiley, and the Defendant Shell Companies will, unless enjoined, continue to engage in the acts, practices and courses of business set forth in this complaint, and acts, practices and courses of business of similar purport and object. Answer: Kiley denies engaging in the acts of which Trevor Cook has been found guilty. He had no knowledge of his activities. Kiley is not now on the radio and may not be able to ever return to the radio due to the defamatory statements made about him in the newspapers falsely accusing him of the criminal actions and felonious activities of Trevor Cook. This is one of the reasons why Kiley is having difficulty in securing the services of local counsel. He has been illegally smeared with Trevor Cook's criminal misconduct in which he was not involved. DEFENDANTS 24. Trevor G. Cook is a 38-year-old resident of Burnsville, Minnesota, Cook is not registered with the Commission in any capacity and has never been associated with an entity registered with the Commission. Cook was previously an associated person with various commodities and futures trading firms. 25. Patrick J. Kiley is a 72-year-old resident of Minneapolis, Minnesota. Cook hired Kiley in late December of 2002 as a broker and later promoted him to an equal partner and president of UBS Diversified, and later, other entities. For the past several years, ending in or about July 2009, Kiley hosted a financial themed radio show on which he marketed the foreign currency investments that he and Cook offered and sold. Kiley is not registered with the Commission in any capacity and has never been associated with a registered entity. 9

9 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 9 of UBS Diversified Growth, LLC is a Minnesota limited liability corporation with its principal place of business in Burnsville, Minnesota. Kiley is the registered agent of UBS Diversified Growth, LLC. UBS Diversified Growth, LLC is not registered with the Commission in any capacity. No registration statement has been filed with the Commission with respect to securities issued by UBS Diversified Growth, LLC. 27. Universal Brokerage FX Management, LLC is a Minnesota limited liability corporation with its principal place of business in Burnsville, Minnesota. Kiley is the registered agent of Universal Brokerage FX Management, LLC. The registered address of Universal Brokerage FX Management, LLC is the same as that of UBS Diversified Growth, LLC. Universal Brokerage FX Management, LLC is not registered with the Commission in any capacity. No registration statement has been filed with the Commission with respect to securities issued by Universal Brokerage FX Management, LLC. 28. Oxford Global Advisors, LLC is a Minnesota limited liability company with its principal place of business in Minneapolis, Minnesota. Oxford Global Advisors, LLC is not registered with the Commission in any capacity. No registration statement has been filed with the Commission with respect to securities issued by Oxford Global Advisors, LLC. In or around July 2008, Oxford Global Advisors, LLC ceased doing business under this name and was later reformed as Oxford Global Partners, LLC. 29. Oxford Global Partners, LLC, formed in November 2008, is a Minnesota limited liability company with its principal place of business in Minneapolis, Minnesota. Cook is part-owner of Oxford Global Partners, LLC. Oxford Global Partners, LLC is not registered with the Commission in any capacity. No registration statement has been filed with the Commission with respect to securities issued by Oxford Global Partners, LLC. RELIEF DEFENDANTS 30. Market Shot, LLC, Oxford FX Growth, L.P., Oxford Global Managed Futures Fund, L.P., Oxford Global FX, LLC, PFG Coin and Bullion, UBS Diversified FX Advisors, LLC, UBS Diversified FX Growth, L.P., and UBS Diversified FX Management, LLC are all Minnesota limited liability companies or limited partnerships. UBS Diversified FX Advisors, LLC, UBS Diversified FX, Growth L.P., and UBS Diversified FX Management, LLC are no longer active companies. 31. Basel Group, LLC and Crown Forex, LLC are shell companies created by Cook and Kiley that have not been formally organized under the laws of any state. 32. Clifford and Ellen Berg are Cook's wife's parents and reside in Apple Valley, Minnesota. The Bergs invested a total of$293,769 into the foreign currency program since They received $948,848 back, including $829,469 which Cook gave them in June and July 2009 to deposit in their bank accounts in order to conceal investor assets.?

10 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 10 of 56 Answers: 24. thru 32. Kiley admits to the description of himself as a defendant, but lacks sufficient knowledge as to admit or deny the details of the descriptions of the other defendants and relief defendants. Kiley further denies incorporating the corporations. Trevor Cook incorporated those corporations to the best of Kiley's knowledge and belief and inserted his name on various corporations as well as inserting the names of others. OVERVIEW OF THE FRAUD 33. From in or about My 2006 through July 2009, Cook and Kiley raised at least $190 million through the fraudulent offer and sale of investments in a foreign currency trading venture. Answer: Kiley denies that he knowingly made fraudulent offers and sales of investments in a foreign currency trading venture and believed that the program was legitimate. That is why everything he had on earth was invested in the program. Kiley had no assets outside of the program and therefore lost everything he had when the program failed. 34. Cook and Kiley's victims number at least 1,000 and reside in numerous states throughout the United States. Many of the victims are senior citizens who are unsophisticated and inexperienced in financial matters. Some victims liquidated their retirement accounts to invest in Cook and Kiley's venture. Answer: Kiley admits that the number of investors may be about 1,000 but denies that he preyed on unsophisticated and inexperienced investors. In fact 20% of the investors that Kiley dealt with were rejected. Kiley did not accept everyone into the program, because they did not fit. He had criteria that would not allow him to accept everyone. In fact when some were initially accepted into the program if later Kiley felt they did not fit anymore, he liquidated their accounts and sent their funds back to them against their will. 35. From at least July 2006 until approximately late 2007, Cook and Kiley both sold investments in a foreign currency trading venture offered through Defendant UBS Diversified Growth, LLC ("UBS Diversified"). From early 2008 until July 2009, Kiley sold the investments primarily through his entity Universal Brokerage FX Management, LLC, which he often referred to as Universal Brokerage FX ("Universal Brokerage"), and Cook sold the investments primarily through Oxford Global Advisors, LLC ("Oxford Global Advisors") and Oxford Global Partners, LC ("Oxford Global Partners"). io

11 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 11 of 56 Answer: Kiley admits that he sold investments through the defendants named and that eventually he sold investments through Universal Brokerage and Cook sold investments primarily through Oxford. 36. These offerings were part of a single scheme to defraud perpetrated by Cook and Kiley. Answer: Kiley emphatically denies this allegation. Kiley was convinced that he was doing good for his investors and received letters of gratitude, phone calls of gratitude and s of gratitude from investors who had switched to the investment program and who had made money instead of losing it in the stock market and real estate. 37. On several occasions, Cook and Kiley met with prospective investors together, and they often handed out business cards representing that they worked out of the same office. Answer: Kiley admits when the offices were in Burnsville this was so, but when Kiley refused to work in the same offices with Durand, Beckman and Pettengill, and they along with Trevor Cook worked elsewhere, he did not represent that he and Cook were in the same office because at that time they were not. 38. Certain of their offering documents were identical, except for the name of the company offering the investments. Answer: Kiley lacks sufficient knowledge to admit or deny this allegation because he had nothing to do with Oxford, Durand, Beckman, and Pettingell. 39. Cook and Kiley made the same representations about the features of the investments to investors. Answer: Kiley denies this allegation, because he sometimes he did not offer certain programs that Cook and the others offered because he felt they were not the best for the client. //

12 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 12 of Cook and Kiley consistently represented that they would use the investors' funds to engage in foreign currency trading which would generate annual returns of 10% or more for the investors. Answer: Kiley admits this allegation. 41. Cook and Kiley represented to investors that their, i.e., Cook and Kiley's, compensation would consist of fees based on the investors' principal and profits. Answer: Kiley admits this allegation, but denies receiving those commissions. Kiley states that he never received any amount near what his supposed commissions were to be and that in fact he told Cook to always put his commissions back into the company because he lived frugally and wanted his funds to continue to build the company. On inconsistent occasions when Kiley's social security was not sufficient to pay his bills, he received varying amounts from Cook between $1100 and Si 800 every four to six weeks. 42. Cook and Kiley represented to investors that Cook was in charge of the trading. Answer: Kiley denies this allegation and states that he represented that Cook was in charge of forwarding funds to foreign currency trading companies that did the trading. Further, Kiley stated to potential investors that it was indicated in the application that foreign trading companies would do the trading, just as the application additionally indicated that if there were losses of 20% the program had the option to liquidate the investment and return the remaining 80% to the investor. These were additional items that made Kiley believe in the program and cause him to invest everything he had in the program. 43. The investors were called on to do nothing except invest their money. Answer: Kiley denies this allegation and states that he required investors to review the application and indicate that they understood that the means of obtaining the higher returns was 11

13 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 13 of 56 based on the funds being used in foreign currency trading and not just sitting in a Universal Brokerage bank account. 44. The investors' fortunes were dependent on the Defendants' efforts in the foreign currency trading venture. Answer: Kiley denies this allegation. As he understood the program in which he had invested everything that he owned, the investors' fortunes were dependent on the efforts of the companies trading in foreign trading currency to which the funds were sent. 45. Both the Defendants' and the investors' profits were linked, because both the investors' returns and the Defendants' income hinged upon the success of the Defendants' foreign currency trading venture. Answer: Kiley denies this allegation. He states he understood that the investors' returns and Defendants' income hinged upon the success of the trading strategies of the companies that did the foreign currency trading to which the investors' funds were forwarded. 46. Cook and Kiley represented that the investors' principal would be exposed to little or no risk. Answer: Kiley admits this allegation and states emphatically that at the time he made the statements he believed they were true and that is why he was fully invested in the program. 47. Cook and Kiley represented, that the investors could withdraw their money at any time. Answer: Kiley admits this allegation and states emphatically that his customer service experience proved to him that this was true, because he did withdraw funds for investors and he did close accounts if the investor wanted the account closed. 48. Cook and Kiley represented to investors that their money would be placed in a segregated account in each investor's name. /3

14 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 14 of 56 Answer: Kiley admits making this representation and at all times that he made them he thought they were true. 49. Cook and Kiley's representations were false. Answer: Kiley admits that he found later that the statements were false. Kiley states that at the time he made the representations he thought they were true and had reason to believe they were true based on his customer service experience. When he learned that they were false, he no longer made them. 50. Cook and Kiley skimmed millions of dollars from their victims' investments and used those funds to pay their personal expenses, to invest in offshore trading firms, to finance the construction of a casino in Panama, and for other illegal purposes. Answer: Kiley denies this allegations. He never skimmed any money from victims, he never used those funds to pay his personal expenses, to invest in offshore trading firms, to finance the construction of a casino in Panama and for other illegal purposes. Kiley states that he did not do any of this. 51. Cook and Kiley did not open separate, segregated accounts for the investors, but instead pooled the investors' money in common accounts at several banks and trading firms. Answer: Kiley denies having the responsibility to segregate accounts and states that he was responsible for taping the radio program and doing customer service. Kiley did not learn that the accounts were not segregated until July To the extent that Cook and Kiley used investor money to trade foreign currencies at all, they employed high risk trading strategies that resulted in millions of dollars of losses.

15 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 15 of 56 Answer: Kiley denies that he used investor money to trade foreign currencies or employ high risk strategies. Kiley had no responsibility or background in trading, and did not know that high risk trading strategies were employed that resulted in millions of dollars of losses, as that was left to Cook. 53. Cook and Kiley used investor money, in effect operating a Ponzi scheme, to pay purported returns and profits and principal to other investors who sought to withdraw money from the venture. Answer: Kiley denies these allegations. He did not operate a Ponzi scheme. He never wrote one check or sent one wire transfer. He did not participate and had no knowledge of the criminal actions and felonious activities of Trevor Cook. THE UNIVERSAL OFFERINGS 54. From at least July 2006 through in or about July 2009, Kiley offered and sold investments in the foreign currency trading venture primarily through two companies that Cook established, UBS Diversified and Universal Brokerage (the "Universal Offerings"). Answer: Kiley admits the allegations of this paragraph. 55. Kiley solicited investors through a radio program called "Follow the Money," which was broadcast in several cities until July Answer: Kiley admits the allegations in this paragraph. 56. Kiley also solicited investors through his website and Universal Brokerage's website and through word of mouth. Answer: Kiley admits this paragraph 57. Kiley also met and solicited prospective investors in person. Answer: Kiley admits this paragraph. 58. From at least July 2006 through in or about July 2009, Cook worked with Kiley to solicit investors for the Universal offerings. \5

16 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 16 of 56 Answer: Kiley admits this paragraph. 59. Kiley and Cook met with prospective investors together. Answer: Kiley admits this paragraph. 60. Cook passed out business cards stating that he was the Managing Partner ofubs entities. Answer: Kiley admits this paragraph. 61. Kiley told some investors that the trading was conducted through a complex computer program purchased and overseen by Cook. Kiley's representation was false. Answer: Kiley admits this allegation, but states that he believed it to be true at the time he made it and did not find that it was untrue until July On the Universal Brokerage website Kiley claimed that the firm was a "leader in international foreign exchange markets." Kiley's representation was false. Answer: Kiley admits the representation was false, but he did not believe it was false at the time that he had made it, based on his customer service experience. 63. In letters accompanying the Universal Offering materials, Kiley represented that UBS Diversified and Universal Brokerage each was a "registered financial advisory firm." Kiley's representation was false. Answer: Kiley believed the statement was true at the time he made it and only found later in July 2009 that it was not true. 64. Kiley represented to investors that that he would invest their money in a foreign currency trading venture. Kiley's representation was false. Answer: Kiley believed in the foreign currency venture 100%. He denies the allegation that he would invest their money in foreign currency trading. He always stated funds would be transferred to foreign currency traders who were experts in the field. Kiley states that he never 1(9

17 k Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 17 of 56 stated on the radio program or to potential investors on the phone, or in person that he was a foreign currency trader because he had no trading background. All statements Kiley made he believed they were true at the time he made them. 65. Kiley represented to investors that the venture employed a trading strategy that he had been conducting for many years for institutions but that was now available for the first time for individual investors. Kiley's representation was false. Answer: Kiley denies this allegation. He never stated that he had conducted trading strategy for institutions for many years. Kiley stated that multinational companies did foreign currency trading for decades and were able to amass considerable profits based on such trading. Kiley believed that the program he offered gave that benefit to individuals. 66. Kiley represented to investors that the program employed an arbitrage strategy and took advantage of differences in the interest rates of different foreign currencies. Kiley represented that the strategy involved trading the currencies of the G-5 countries. Kiley's representations were false. Answer: Kiley denies stating that currencies of G-5 countries were being traded. He never named which foreign currencies would be traded. Kiley admits stating to callers on the phone that "an arbitrage strategy would be used to take positions in foreign currency trading that would be profitable to the investor". Kiley states emphatically that he believed his statements were true at the time he said them. Kiley purposely did not use the term "arbitrage" on the radio because he felt the listeners would not understand what the term meant. 67. Kiley represented to investors that the trading strategy involved investing in a long position in one currency and an offsetting short position in a second currency. Kiley represented that because the currency positions offset, there was no market exposure and therefore no risk to the investor's principal. 17

18 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 18 of 56 Kiley's representations were false. Answer: Kiley denies this allegation. Kiley states that on the radio he did not engage in such complicated explanations. When callers reached him on the phone he gave them a simplified version of how the algorithm worked. Succinctly described the process involves extremely high speed mathematical technology that eliminates any high form of risk, in other words, the transactions will either be profitable or a zero gain. That's how sophisticated the process was. Kiley believed every statement he made was true at the time he made it. Kiley saw the computer screens in the Eagan bank location and the Van Dusen location. At both locations he initially believed that the screens reported legitimate transactions. Later, he learned that the Eagan location ran transactions on a loop. However, he was lead to believe that the screens he saw at the Van Dusen location were being fed from Switzerland and carried legitimate transactions. The feed came from JDFX in Switzerland. 68. In certain offering documents, Kiley called this strategy a "fully hedged carry trade." He represented that the strategy realized a profit because the account containing the long position collected more interest than the interest paid by the account containing the short position. Kiley's representations were false. Answer: Kiley denies this allegation. Kiley states flatly that he has never used these terms. Any language like this that appeared in offering documents were prepared by Cook and Trimble. 69. Kiley also represented to certain investors that the strategy utilized a bank that complied with Shariah law, which forbids the payment of interest, and that because no interest was paid to establish the short position, a greater profit could be earned. Kiley's representations were false. I?,

19 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 19 of 56 Answer: Kiley denies this allegation. At no time on the radio program or on the phone did Kiley talk about Shariah law, and how the prohibition on paying interest due to such law would affect foreign currency trading. Kiley states that if these terms were used, he did not make the representation, but it was drafted in offering brochures that Cook and Trimble prepared. Kiley states that his radio presentations and phone presentations were always capable of being understood in layman's terms, because he never tried to impress them with a lot of high tech verbiage. This would do nothing more than confuse them more than help them. Kiley states that Cook was an over-the-top technologist when it came to explaining the machinations of how the process worked. This caused the listeners' eyes to just glaze over with confusion and they were often too embarrassed to admit that they didn't understand what Cook was talking about. 70. Kiley represented that his strategy would realize a profit regardless of what happened to the currency market and that his program had earned significant returns. Kiley's representations were false. Answer: Kiley admits that this allegation is a passable summary of his standard radio presentation. Kiley believed every word of his radio presentation at the time he made the statements. Kiley was led to believe by the computer presentations that he witnessed at the Van Dusen location that actively showed thousands of transactions in action from the various banks around the world. Kiley had no idea that any of this might be a sham. Kiley states that some of the reasons he was conned into believing this program was legitimate was because JDFX sent six high-end computer technologists from Zurich, Switzerland to install custom-made high speed computers, first at the Burnsville location and then at the Van Dusen location. It was one of the most impressive that Kiley had ever seen in his life. It took two weeks for that highly proprietary installation. In addition, many hours of testing and calibration took place between the JDFX /?

20 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 20 of 56 Zurich offices and the U.S. Burnsville office. Later the same testing and calibration was done for the Van Dusen location. Kiley witnessed all of this and was sold, hook, line, and sinker! 71. In one offering document, Kiley claimed to have earned past returns as high as 46% annually. In another document, he represented that the program was currently earning 12% per year. Kiley told many investors that they would earn double-digit annual returns. Kiley's representations were false. Answer: Kiley denies this allegation. Kiley never prepared offering documents. Kiley admits referring to returns of 10.5% to 12% on the radio and on the phone. At the time Kiley made the statements, he believed they were true. Kiley had customer-service experience that proved to him that the statements were true. Kiley had everything he owned in life invested in the foreign currency trading program because he believed it was legitimate and it was the answer to the horrible beating that investors were getting in the stock market and in real estate. The typical potential client calling in for the information told Kiley their losses ranged between 45% to 60%. These potential clients were calling in because they were trying to stop the bleeding. Kiley believed 100% that the foreign currency trading program was the legitimate answer. Kiley thought he was doing a service to these customers. Now in hindsight Kiley believes that the initial foreign currency program was legitimate in the very beginning and could have done what he dreamed. Kiley believes that where it went awry was that the Refco debacle in New York State caught Trevor's interest. With Refco, it was the largest legitimate foreign currency program in the United States and the newly appointed CEO, Gordon Phillips, stole the profits of the company and hid them in banks overseas. This sounds familiar. Kiley did extensive research on Refco beginning in April of Trevor knew about Refco because the program did business with Refco. Refco did the majority of the foreign trading for the program initially. Kiley thought this whole situation sounded too familiar, especially when he realized that Gordon Phillips had hidden $430 million primarily in the bank of Bagwah in Pakistan and lesser amounts in other 20

21 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 21 of 56 banks. Kiley remembers first discussing this with his civil attorney, H. Nasif Mahmoud initially around Thanksgiving of 2009 after the SEC and the Receivership had taken everything he owned including all of his clothing. He was destitute clambering to get back on his feet because his social security checks were being intercepted and he had no place to live. By that time, he had already been diagnosed with Terminal Prostate Cancer. It wasn't until April of 2010 after he had prevented his criminal attorneys and the Receivership from impeding his development that he was able to get back on the research of Refco. Kiley believes the foreign currency program was initially legitimate and Cook has followed in the footsteps of Gordon Phillips. Kiley believes that Trevor Cook worked that plan to the letter. 72. Kiley also represented that investors would not lose their principal investment. One of the offering documents represented that investors' principal was "fully protected" and another represented that the investor's capital investment would be "protected." Kiley's representations were false. Answer: Kiley denies stating that funds were protected when callers discussed with him foreign currency trading. What he would say is that in the history of his company's use of the arbitrage program, they had yet to have a losing month. Also, to this day, Kiley cannot understand how Trevor Cook could say that approximately $40+ million dollars was lost in trading. He cannot begin to fathom it, let alone believe it. Kiley believes the money went elsewhere. As to the offering documents Kiley states that Cook and Trimble prepared those documents and Kiley had nothing to do with them. Kiley states that he worked hour days basically doing many things related to his two major tasks: A. Preparation of and research for the radio program and B. Customer Service, which included but was not limited to taking phone calls from listeners, getting withdrawals accomplished when account holders requested withdrawals, closing accounts when account holders wanted them closed, kicking account holders out of the program when Kiley felt they did not fit. Also, Kiley trained and managed his account representatives whom he 2-1

22 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 22 of 56 routinely fired when they did not measure up. He told them to tell about the program, and not to try to sell the program because he felt it would be a violation of the client's free will. The client makes the decision. The motto was "tell, not sell". Those who were fired were routinely re-hired at the Van Dusen location by Trevor Cook. 73. In multiple offering documents, Kiley represented that the trading strategy eliminated all currency fluctuation risk and market exposure. Kiley's representation was false. Answer: Kiley denies this allegation. Kiley did not prepare offering documents. Kiley told on the radio program and on phone calls that the foreign currency trading program had a running history of profits of anywhere from.08% to 1% per month. Kiley believed every representation he made to be true at the time he made it. Everybody was happy because Kiley received constant letters, cards, and phone calls expressing their gratitude and satisfaction in Kiley and the foreign currency trading program. Kiley believes to this day that the clients and he were all of one family. He felt Cook and his crew betrayed him and his family. Kiley lost everything just like they did. Kiley has no assets which the Receivership is trying to locate overseas. Kiley is not trying to purge himself of contempt. Kiley has no knowledge of hidden assets in foreign bank accounts a la Refco! If Kiley really had hidden assets, why did he have to suffer for nineteen days with no food, no medicine, and is dying of Terminal Prostate Cancer. His attorneys, Wold and Morrison, were aware that he was broke, destitute, and starving! They did nothing to alleviate his suffering. 74. One of Kiley's offering documents represented that "100% of the time the long USD/JPY position is fully insured" and that "qualified funds are insured by" a bond held at Deutsche Bank. Kiley's representations were false. Answer: Kiley denies this allegation. Kiley states that he was told by one of his reps that Trevor Cook told the rep himself that there was such a bond. Kiley said there is no such thing and do not 122.

23 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 23 of 56 represent that to others or you will be terminated immediately. If this representation was made, it was made without Kiley's consent or approval and it had to be made by Cook. Here is where Cook's ego started his actions of interfering with Kiley's successful operations. Cook stated to Kiley that he had been in this business longer than Kiley and he had never received a gift, a card, or a phone call thanking him for his services in providing a performing investment. Kiley had a room full of these tokens of clients' gratitude. Kiley believed in the program and was able to share his sincere belief with others and he saw, based on his customer service, that his clients were happy with their investments. He saw that they were getting the returns that were promised and they got cash withdrawals upon asking. They also had accounts closed whenever they asked. This is what helped to lead Kiley to believe that the program was completely legitimate. This was the happiest time of Pat Kiley's life, ever. This happiness had nothing to do with high compensation for his work, because he never received it. This happiness had nothing to do with going overseas and squandering investor's money, because he never did that. This happiness had to do with his belief that he was delivering a product that was needed by thousands of investors and that he was saving them from the horrors of the stock and real estate markets! Kiley felt that he was protecting his extended family from the unscrupulous whores of Wall Street. 75. Kiley also told investors that their funds were completely liquid and could be withdrawn at any time. Kiley's representation was false. Answer: Kiley admits that he told investors that funds were completely liquid. Kiley believed this at the time he said it. Every customer that Kiley had who wanted to withdraw funds got those withdrawals immediately by wire transfer or by checks delivered via Fedex overnight. His ^3

24 Case 0:09-cv MJD -FLN Document 535 Filed 10/14/10 Page 24 of 56 customer service experience proved to him that the accounts were liquid. No customer ever was refused a withdrawal until July 2009 when Trevor failed to return the $4.7 million to those clients in Ohio. 'Those clients were Oxford clients, not UBS clients. 76. Kiley told investors that their funds would be kept in segregated accounts and not commingled with other investors' or corporate funds. One offering document represented that investor "funds are deposited with a commercial bank in the client's name." Kiley's representation was false. Answer: Kiley admits stating that accounts were segregated on the radio and on the phone. Kiley believed these statements at the time he made them and his customer service experience confirmed it. Kiley did not draft offering documents and any reference to funds deposited with a commercial bank in the client's name were representations made in writing by Cook and Trimble. 77. Some of Kiley's offering documents represented that investors would be assessed a "setup fee", a "management fee" equal to 2% of the assets invested, and a "performance fee" equal to 20% to 50% of the profits generated on the investment. Other Kiley offering documents represented that investors would not be charged a setup fee, but would be charged a deferred sales charge for withdrawals made within the first four years of the investments. Answer: Kiley denies this allegation. The application document indicated that a charge of would be charged each time the client added additional funds. This means the initial account opening would experience that charge and additional investments in the account would experience that charge. Cook and Trimble may have drafted offering documents that were at variance with this application but Kiley had nothing to do with the drafting and did not consent or approve of any offering materials where the UB entities participated in future profits. Kiley felt that total profits belong to the investor client. Kiley states that he felt the UB entities had no right to participate in those future profits. This is the way Kiley operated his shop. Cook and others could not interfere with that even when they tried. 2H