Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 1 of 17 PageID #:2427

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1 Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 1 of 17 PageID #:2427 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 SEVENTH QUARTERLY STATUS REPORT FOR THE PERIOD OCTOBER 1, 2015 THROUGH DECEMBER 31, 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 October 1, 2015 through December 31, 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 Claims Submitted... 4

2 Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 2 of 17 PageID #: Final Allowed Claims Status of Interim Distributions... 7 III. ASSET RECOVERY A. Accounts Receivable B. Recoveries from Pearson C. E&O Policy D. Liquidated and Unliquidated Claims Fidelity Bond Litigation Auditor Litigation IV. FINANCIAL AFFAIRS A. Overview B. The Qualified Settlement Fund C. Receiver s BMO Bank Account D. Administrative Expenses E. 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 2

3 Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 3 of 17 PageID #:2429 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 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, 2014 and governs, inter alia, 3

4 Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 4 of 17 PageID #:2430 distributions 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 distributions to claimants. The first estate ( Estate 1 ) relates to assets and liabilities in 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) have or 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. Claims Submitted The Receiver has fully and finally resolved all claims submitted against the Receivership Estates. 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 a total of 146 Proofs of Claim. Of this number, 132 Proofs of Claim were timely filed 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 and potentially entitled to distributions to 133. These 133 claims asserted an aggregate of 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

5 Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 5 of 17 PageID #:2431 $7,398, in liabilities against the Receivership Estates. The Receiver also received an additional 13 late-filed claims. These 13 late-filed claims, however, are precluded from any distributions under the Liquidation Plan. The final results of the Receiver s claims adjudication process is as follows: FINAL CLAIMS BREAKDOWN CATEGORY NUMBER OF CLAIMS Allowed In Full Claims 88 Disallowed In Full Claims 43 Partially Disallowed/Allowed Claims 15 Total Claims Received (Including Late-Filed Claims) 146 The Receiver allowed or partially allowed 70.55% of the 146 claims filed against the Receivership Estates. The Receiver was able to successfully resolve all of the timely filed claims including claims to which the Receiver tendered objections without the need for litigation or intervention by the District Court. The Receiver s streamlined process resulted in significant savings to the Receivership Estates, obviated the need for protracted summary proceedings before the Court, and enabled the Receiver to gather a clear picture of liabilities against the estates for purposes of commencing distributions under the Liquidation Plan. 2. Final Allowed Claims The total dollar amount of Final Allowed Claims against the Receivership Estates is $6,380, (the Total Allowed Claims Amount ). The following chart sets forth the amount of the Final Allowed Claims under each of the Classes provided under the Liquidation Plan. 5

6 Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 6 of 17 PageID #:2432 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 TOTAL ESTATE 1 FINAL ALLOWED CLAIMS $158, $6,371, ESTATE 2 - PEARSON CLASS AMOUNT OF FINAL ALLOWED CLAIMS Class I Pearson General Claims $9, TOTAL ESTATE 2 FINAL ALLOWED CLAIMS $9, In summary, the Receiver allowed $6,380, (or 86.25%) of the $7,398, in liabilities asserted by claimants who timely filed Proofs of Claim. The remaining 13.75% of claims were disallowed for a variety of reasons, including, but not limited to: the claim had been asserted by more than one creditor (e.g., the same claim was filed by both an issuer and a shareholder); the claim did not reconcile with the books and records of the Company; the claimant failed to provide sufficient evidence or information supporting the claim; and/or the claim was not supported by the law. 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 the final status of such claims in prior Quarterly Reports. 6

7 Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 7 of 17 PageID #: Status of Interim Distributions a) The First Interim Distribution On August 31, 2015 a first interim distribution (the First Interim Distribution ) from Estate 1 was made. The First Interim Distribution provided for an initial recovery of 25% to certain creditors holding Final Allowed Claims in Class I as of the date the Receiver authorized the First Interim Distribution. The total First Interim Distribution from the Qualified Settlement Fund was $824, paid to 67 creditors who held Class 1 Final Allowed Claims. 2 Note that claimants whose claims became Final Allowed Claims after the Receiver authorized the First Interim Distribution received their life-to-date pro rata share under the subsequent distribution detailed below. b) The Second Interim Distribution On January 20, 2016 the Receiver made a second interim distribution (the Second Interim Distribution ) of $1,614, from Estate 1 and Estate 2. The Second Interim Distribution provided for distributions to Classes I, II, III, and IV under the Liquidation Plan. Class I. The Second Interim Distribution provided for a 40% aggregate distribution to holders of Final Allowed Claims in Class I. For purposes of clarity, creditors in Class I with Final Allowed Claims who received a First Interim of Distribution of 25% also received a Second Interim Distribution of 15%. For those creditors in Class I with Final Allowed Claims who did not receive a First Interim Distribution, such creditors received a 40% Second Interim Distribution. The total Second Interim Distribution to Class I Final Allowed Claims from the Qualified Settlement Fund was $1,579, paid to 85 Class I creditors. 2 Note that Claimant No. 113 has informed the Receiver that she has forfeited her first interim distribution check in the amount of $4.92 because of transaction costs incurred by her associated with foreign transaction bank fees. As such, this amount will remain in the Receivership Estate for distribution to other creditors. For the Court s convenience, this claimant s forfeiture is noted on Exhibit B. 7

8 Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 8 of 17 PageID #:2434 Classes II. Class II is comprised of all Final Allowed Claims of the Company s vendors. Pursuant to Section 2.04(B) of the Liquidation Plan, vendors holding such Final Allowed Claims are entitled to their pro rata share of a $25, Vendor Carve Out. The Second Interim Distribution included disbursement of the $25, Vendor Carve Out to 10 creditors who held Class II Final Allowed Claims. The pro rata distribution on account of such claims was 23.71% ($24, / $105,419.85). Because the distribution to vendors is capped at $25,000.00, no further distributions to vendors will be made unless and until all creditors in Class I with Final Allowed Claims have been paid in full. Class III. Class III is comprised of all Final Allowed Claims of the Company s employees. Pursuant to Section 2.04(C) of the Liquidation Plan, employees holding such Final Allowed Claims are entitled to their pro rata share of the $5, Employee Carve Out. The Second Interim Distribution included disbursement of the Employee Carve Out to 3 creditors who held Class III Final Allowed Claims. The pro rata distribution on account of such claims was 5.18% ($5, / $96,595.29). Because the distribution to employees is capped at $5,000.00, no further distributions to employees will be made unless and until all creditors in Class I and Class II with Final Allowed Claims have been paid in full. Class V. Class V is comprised of all Final Allowed Claims asserted against Pearson. Pursuant to Section 2.06(A) of the Liquidation Plan, Pearson s creditors holding such Final Allowed Claims are entitled to their pro rata share of the $5, Pearson Carve Out. The Second Interim Distribution included disbursement of the Pearson Carve Out to 1 creditor who held a Class V Final Allowed Claim. The pro rata distribution on account of such claim was 52.27% ($5, / $9,566.25). Under the terms of the Liquidation Plan, no further distributions may be made to Class V. 8

9 Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 9 of 17 PageID #:2435 c) Summary Of Interim Distributions To Date As of January 20, 2016, the Receiver has authorized an aggregate distribution of $2,439, to 99 holders of Final Allowed Claims as detailed as follows: LIFE-TO-DATE INTERIM DISTRIBUTIONS CLASS AMOUNT % DISTRIBUTION Class I Allowed Claims of Customers (First Interim = $824,324.65) (Second Interim = $1,579,804.73) Class II Allowed Claims of Vendors (Capped at $25,000.00; May Receive Additional Distributions if Class I is paid in full)) Class III Allowed Claims of Employees (Capped at $5,000.00; May Receive Additional Distributions if Classes I and II are paid in full) Class IV Allowed Claims of General Company Claimants (No Distribution until Classes I, II, and III are Paid In Full) Class V Allowed Claims of Pearson (Capped at $5,000.00; No further distributions permitted) TOTAL DISTRIBUTIONS PAID (LIFE TO DATE) $2,404, % $24, % $5, % 0 N/A $5, % $2,439, Of the $2,439,129.36, $824, was paid pursuant to the First Interim Distribution, and $1,614, was paid pursuant to the Second Interim Distribution. For purposes of comparison, the Receiver held $5,363, in the Company s BMO, UMB, and Fifth Third bank accounts as of the filing of her Local Rule 66 Initial Status Report 9

10 Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 10 of 17 PageID #:2436 filed with the Court on June 12, As such, less than 20 months after the Receiver s appointment, the Receiver has fully wound down the Company, adjudicated all of the claims in the case, and distributed 45.47% of the funds held in bank accounts at the commencement of the case. The Receiver has attached as Exhibit B the list of creditors who have received distributions to date under the Liquidation Plan. Exhibit B includes the following information: (1) Final Allowed Claim amount; (2) applicable Class under the Liquidation Plan; (3) claim number; (4) check number(s); (5) check issue date(s); (6) check issue amount(s); (7) whether the check(s) have 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. Exhibit B has not been publicly filed; however, a copy of Exhibit B has been tendered to chambers. 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 C. 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, the Receiver has collected $163, of this amount. Of the remaining balance, the Receiver has determined that certain Issuer AR was previously paid by the issuers based on information subsequently tendered by such issuers; certain Issuer AR is uncollectible due to the dissolution or receivership of the issuer; and/or the cost and expense to commence collection 10

11 Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 11 of 17 PageID #:2437 litigation would significantly outweigh any recovery to the Receivership Estates. As such, no further action will be taken with respect to the outstanding Issuer AR. B. Recoveries from Pearson The total recovered from Pearson to date is $370, Note that the Receiver has reserved all rights to pursue additional funds from Pearson by seeking further turnover orders from the Court. C. E&O Policy 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. D. Liquidated and Unliquidated Claims 1. Fidelity Bond Litigation The Company 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. On November 30, 2015, the Receiver filed an action captioned Nicholson v. United States Fire Insurance Company in the Circuit Court of Cook County, Illinois, Case No L (the Fidelity Bond Complaint ) alleging breach of contract against the defendant and seeking damages for losses sustained. The defendant accepted service on January 19, 2016, and the defendant s deadline to answer or otherwise respond to the complaint is February 18, The 11

12 Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 12 of 17 PageID #:2438 Receiver is represented by the law firm of Tressler LLP ( Tressler ), the Receiver s contingency fee counsel. Because the litigation is in its nascent stages and the defendant has not yet responded to the Fidelity Bond Complaint, the Receiver will supplement her subsequent status reports with information relating to the potential need for forensic and/or investigatory resources and the anticipated or proposed methods of enforcing such claims. 2. Auditor Litigation On December 23, 2015, the Receiver filed an action against the Company s auditors captioned Nicholson v. Freireich Shapiro LLP and Shapiro Associates, LLP, in the Circuit Court of Cook County, Illinois, Case No L (the Auditor Complaint ) alleging claims for accounting malpractice, breach of contract, and aiding and abetting against the defendants and seeking damages for losses sustained. The defendants were served on January 15, 2016, and the defendants deadline to answer or otherwise respond to the complaint is February 21, Like the Fidelity Bond Complaint, the Receiver is represented by Tressler, and the Receiver will supplement subsequent status reports with information relating to the potential need for forensic and/or investigatory resources and the anticipated or proposed methods of enforcing such claims. The Receiver has been in settlement discussions with the defendants but to date no resolution has been reached. IV. FINANCIAL AFFAIRS A. Overview Attached hereto as Exhibit A, as noted by the Receiver Order, are schedules of income and expenses. 3 As of January 15, 2016 the Receiver held $4,057, These funds are held 3 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. 12

13 Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 13 of 17 PageID #:2439 in: (a) a qualified settlement fund account ($4,023,103.96) and (b) one receiver s account at BMO ($34,495.39) as detailed below. Note that the $4,057, is after the deduction of administrative expenses that have been paid in the amount of $1,614, as itemized below. Of the $4,057, currently held in the accounts, $18.04 represents uncashed checks relating to the First Interim Distribution. 4 Additionally, the $4,057, will be further reduced by the $1,614, Second Interim Distribution, leaving $2,442, for the payment of additional interim distributions, administrative expenses, and related holdbacks. 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 January 15, 2016, the QSF s Company account holds: BANK ACCOUNT NO. AMOUNT IN ACCOUNT STATUS BMO Harris (QSF Account) ***693 $4,023, Account Open This amount 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 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. 4 More specifically, of this $18.02: (a) $4.92 represents a check forfeited by Claimant No. 113 who has determined that the foreign transaction fees outweigh the recovery of the check, and (b) $13.12 represents a pending uncashed check by Claimant No. 32. Claimant No. 32 may become subject to the forfeiture provisions identified in the Receiver s Motion for an Order Establishing a Protocol for Unclaimed Distribution Checks (Dkt. No. 233) which was previously approved by the Court. (Dkt. No. 239). 13

14 Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 14 of 17 PageID #:2440 inception of the receivership, funds generated by the sale of the Wheaton Property, and collected Issuer AR. C. Receiver s BMO Bank Account The Receiver has closed all other Company bank and brokerage accounts with the exception of the BMO bank account below. As of January 15, 2016, the Receiver s bank account held the following amounts: BANK ACCOUNT NO. AMOUNT IN ACCOUNT STATUS BMO Harris (Receiver s Account) ***538 $34, Account Open 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 & Related Items The amount of administrative expenses and related items paid through January 15, 2016 is $1,614, 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.) Amount $22, $21, $13, $1,243,

15 Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 15 of 17 PageID #:2441 Type of Expenditure Employee Related Expenses (Payroll, Withholding, Paychex Processing etc.) Amount $121, Insurance (Medical, E&O, Property, etc.) $33, Transtar Deconversion Fees $86, Taxes (Tax Related Notices, etc.) $42, Funds Distributed Per Turnover Agreement with R. Pearson QSF (Claims Agent & QSF Administrative Fees) $2, $27, TOTAL $1,614, 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 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 15

16 Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 16 of 17 PageID #:2442 of Issuer, shareholder, and creditor inquiries; turnover of funds pursuant to the turnover agreement with Pearson; and establishment of the QSF, to name a few. Note that the fees and costs incurred by the Receiver and her counsel during the seventh 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. Liabilities As noted above, the total dollar amount of Final Allowed Claims by creditors is fixed at $6,380, 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 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. As noted above, distributions to creditors in Class II (Company vendor claims) and Class III (Company employee claims) are now final and will not receive any further distributions until payment of Class I in full. At this time, it does not appear that any further distributions will be made to Class II and Class III absent any material recoveries by the Receiver in connection with the Fidelity Bond Complaint and the Auditor Complaint. Class V (claims against Pearson) have received a final distribution and no other distributions will be made to Class V. 16

17 Case: 1:14-cv Document #: 252 Filed: 01/28/16 Page 17 of 17 PageID #:2443 With respect to Class I (Company Customer Claims), an interim distribution of 40.00% has been made. The Receiver anticipates that a third interim distribution will be made in the middle of 2016 without the need for any further third party recoveries. It is too early to predict the amount of the additional distribution at this time. Finally, Class IV (Company general claims) will not receive any distribution unless and until Classes I, II, and III are paid in full pursuant to the Liquidation Plan. Absent any material recoveries by the Receiver in connection with the Fidelity Bond Complaint and the Auditor Bond Complaint, Class IV will receive 0% on account of its claims. 5 B. Recommendations for the Continuation of the Receivership Estates The Receiver notes that the lion s share of this case has been concluded. The continuation of the Receivership Estates, however, is necessary to permit the Receiver to continue the discreet tasks of: (a) pursuing the Fidelity Bond and Auditor Litigation and (b) making further and final distributions depending on any litigation recoveries. As noted in her prior reports, the Receiver will 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) Class IV general claims total $158,

18 Case: 1:14-cv Document #: Filed: 01/28/16 Page 1 of 19 PageID #:2444 EXHIBIT A

19 Case: 1:14-cv Document #: Filed: 01/28/16 Page 2 of 19 PageID #:2445

20 Case: 1:14-cv Document #: Filed: 01/28/16 Page 3 of 19 PageID #:2446

21 Case: 1:14-cv Document #: Filed: 01/28/16 Page 4 of 19 PageID #:2447

22 Case: 1:14-cv Document #: Filed: 01/28/16 Page 5 of 19 PageID #:2448

23 Case: 1:14-cv Document #: Filed: 01/28/16 Page 6 of 19 PageID #:2449

24 Case: 1:14-cv Document #: Filed: 01/28/16 Page 7 of 19 PageID #:2450

25 Case: 1:14-cv Document #: Filed: 01/28/16 Page 8 of 19 PageID #:2451

26 Case: 1:14-cv Document #: Filed: 01/28/16 Page 9 of 19 PageID #:2452

27 Case: 1:14-cv Document #: Filed: 01/28/16 Page 10 of 19 PageID #:2453

28 Case: 1:14-cv Document #: Filed: 01/28/16 Page 11 of 19 PageID #:2454

29 Case: 1:14-cv Document #: Filed: 01/28/16 Page 12 of 19 PageID #:2455

30 Case: 1:14-cv Document #: Filed: 01/28/16 Page 13 of 19 PageID #:2456

31 Case: 1:14-cv Document #: Filed: 01/28/16 Page 14 of 19 PageID #:2457

32 Case: 1:14-cv Document #: Filed: 01/28/16 Page 15 of 19 PageID #:2458

33 Case: 1:14-cv Document #: Filed: 01/28/16 Page 16 of 19 PageID #:2459

34 Case: 1:14-cv Document #: Filed: 01/28/16 Page 17 of 19 PageID #:2460

35 Case: 1:14-cv Document #: Filed: 01/28/16 Page 18 of 19 PageID #:2461

36 Case: 1:14-cv Document #: Filed: 01/28/16 Page 19 of 19 PageID #:2462

37 Case: 1:14-cv Document #: Filed: 01/28/16 Page 1 of 4 PageID #:2463 EXHIBIT B

38 REDACTED - PROVIDED TO CHAMBERS ONLY Case: 1:14-cv Document #: Filed: 01/28/16 Page 2 of 4 PageID #:2464

39 REDACTED - PROVIDED TO CHAMBERS ONLY Case: 1:14-cv Document #: Filed: 01/28/16 Page 3 of 4 PageID #:2465

40 REDACTED - PROVIDED TO CHAMBERS ONLY Case: 1:14-cv Document #: Filed: 01/28/16 Page 4 of 4 PageID #:2466

41 Case: 1:14-cv Document #: Filed: 01/28/16 Page 1 of 7 PageID #:2467 EXHIBIT C

42 Case: 1:14-cv Document #: Filed: 01/28/16 Page 2 of 7 PageID #:2468 Illinois Stock Transfer Company As of January 15, 2016 COMPANY ASSETS BANK ACCOUNTS Qualified Settlement Fund - IST Sub-Account $4,023, Qualified Settlement Fund - Pearson Sub-Account $0.00 BMO Harris ***538 $34, BMO Harris ***546 Closed BROKERAGE ACCOUNTS Boenning & Scattergood ***133 Boenning & Scattergood ***444 Raymond James ***5001 Raymond James ***9157 Sweney & Cartwright ***031 VEHICLES 2008 Toyota Highlander, 2006 Dodge Magnum (All Vehicles Have Been Liquidated) Closed Closed Closed Closed Closed Sold at Auction for $40, EQUIPMENT AT WHEATON OFFICE Item Description * Indicates Sold Per Wheaton Sale on 3/4/15 for $10, Wood Frame Arm Chair With Cloth Seat and Back. * 2 Wood Frame Arm Chair With Cloth Seat and Back. * 3 42" Wood Half Round Sofa Table. * 4 LCD Table Clock. * 5 Multi Colored Vase. * 6 Painting. * 7 Painting. * 8 Painting. * 9 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. * 10 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. * 11 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. * 12 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. * 13 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. * 14 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. * 15 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. * 16 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. * 17 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. * 18 Amco 72" X 48" X 18" Chrome Wire Shelf, Portable. * 19 Amco 72" X 48" X 18" Chrome Wire Shelf, Portable. Sold for $ on 2/8/15 by broker 20 Hedman Model HF-500 Desktop Document Folder. * 21 Modular Work Cubical/Corner Workstation: Fabric Covered Panels, 2 Side Tables, Center Table/Counter, Shelf, Pedestal File, Lockable Hanging File, Keyboard Tray, Metal Hardware. * 22 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. In Receiver's Possession 23 Sharp Model EL-2630GII Desk Top Calculator. * 24 Swivel Type Arm Chair With Cloth Seat and Back. * 25 Two Drawer Legal Size Lateral File. * 26 Fellowes Model 2250Ci Cross-Cut Shredder: TAA (Trade Agreements Act) * Compliant To Government Standards " Circular Wood table. * 28 42" Formica Top Circular Table. * 29 42" Formica Top Circular Table. *

43 Case: 1:14-cv Document #: Filed: 01/28/16 Page 3 of 7 PageID #:2469 Illinois Stock Transfer Company As of January 15, Wood 28" X 48" Double Pedestal Desk. * 31 Swivel Type Arm Chair With Cloth Seat and Back. * 32 Swivel Type Arm Chair With Cloth Seat and Back. * 33 Painting. * 34 Painting. * 35 Wood 24" X 48" Computer Desk. * 36 Manager Two Wheel Furniture Dolly/Cart. * 37 Modular Work Cubical/Corner Workstation: Fabric Covered Panels, 2 Side * Tables, Center Table/Counter, Shelf, Pedestal File, Lockable Hanging File, Keyboard Tray, Metal Hardware. 38 Modular Work Cubical/Corner Workstation: Fabric Covered Panels, 2 Side * Tables, Center Table/Counter, Shelf, Pedestal File, Lockable Hanging File, Keyboard Tray, Metal Hardware. 39 Modular Work Cubical/Corner Workstation: Fabric Covered Panels, 2 Side * Tables, Center Table/Counter, Shelf, Pedestal File, Lockable Hanging File, Keyboard Tray, Metal Hardware. 40 Modular Work Cubical/Corner Workstation: Fabric Covered Panels, 2 Side * Tables, Center Table/Counter, Shelf, Pedestal File, Lockable Hanging File, Keyboard Tray, Metal Hardware. 41 Modular Work Cubical/Corner Workstation: Fabric Covered Panels, 2 Side * Tables, Center Table/Counter, Shelf, Pedestal File, Lockable Hanging File, Keyboard Tray, Metal Hardware. 42 Swivel Type Arm Chair With Cloth Seat and Back. * 43 Swivel Type Arm Chair With Cloth Seat and Back. * 44 Swivel Type Arm Chair With Cloth Seat and Back. * 45 Swivel Type Arm Chair With Cloth Seat and Back. * 46 Swivel Type Arm Chair With Cloth Seat and Back. * 47 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. In Receiver's Possession 48 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. 49 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. 50 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. In Receiver's Possession (Computer Only) In Receiver's Possession (Computer Only) In Receiver's Possession (Computer Only) 51 Sharp Model EL-2630GII Desk Top Calculator. * 52 Sharp Model EL-2630GII Desk Top Calculator. * 53 Sharp Model EL-2630GII Desk Top Calculator. * 54 Sharp Model EL-2630GII Desk Top Calculator. * 55 Two Drawer Legal Size Lateral File. * 56 Two Drawer Legal Size Lateral File. * 57 Two Drawer Legal Size Lateral File. * 58 Two Drawer Legal Size Lateral File. * 59 Four Drawer Legal Size Lateral File. * 60 15" Desk Top, Hand Operated Paper Cuter. Purchased for $25.00 on 2/8/15 by broker 61 Painting. * 62 Painting. * 63 Painting. * 64 Painting. * 65 Metal Sculpture. * 66 Bloomfield Coffee maker. * 67 Bloomfield Coffee maker. *

44 Case: 1:14-cv Document #: Filed: 01/28/16 Page 4 of 7 PageID #:2470 Illinois Stock Transfer Company As of January 15, Emerson Microwave. * 69 Emerson Microwave. * 70 36" X 36" Formica Top Table. * 71 36" X 36" Formica Top Table. * 72 36" X 36" Formica Top Table. * 73 Painting. * 74 LG 30" Flat Screen TV * 75 Amana Upright Refrigerator/Freezer. * 76 Oster Toaster Oven. * 77 Wood 30" X 60" Single Pedestal Desk. * 78 Two Drawer Legal Size Lateral File. * 79 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. In Receiver's Possession (Computer Only) 80 36" X 72" Formica Top Desk With Right Hand Return. * 81 Swivel Type Arm Chair With Cloth Seat and Back. * 82 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. In Receiver's Possession (Computer Only) 83 Wood Frame Arm Chair With Cloth Seat and Back. * 84 Wood Frame Arm Chair With Cloth Seat and Back. * 85 36" X 72" Formica Top Desk With Right Hand Return. * 86 Swivel Type Arm Chair With Cloth Seat and Back. * 87 Two Drawer Legal Size Lateral File. * 88 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. In Receiver's Possession (Computer Only) 89 Sharp Model EL-2630GII Desk Top Calculator. * 90 36" X 72" Formica Top Desk With Right Hand Return. * 91 Swivel Type Arm Chair With Cloth Seat and Back. * 92 36" X 72" Formica Top Desk With Right Hand Return. * 93 Swivel Type Arm Chair With Cloth Seat and Back. * 94 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. In Receiver's Possession (Computer Only) 95 Wood Frame Arm Chair With Cloth Seat and Back. * 96 Overstuffed Arm Chair. * 97 Overstuffed Arm Chair. * 98 Overstuffed Arm Chair. * 99 Overstuffed Arm Chair. * 100 Overstuffed Arm Chair. * 101 Overstuffed Arm Chair. * 102 Wood Coat Tree. * 103 LG 30" Flat Screen TV * 104 Painting. * 105 Painting. * 106 Painting. * 107 Painting. * 108 Painting. * 109 Painting. * 110 Painting. * 111 Painting. * 112 Painting. * 113 Painting. * 114 Painting. * 115 Painting. * 116 Painting. * 117 Wood 60" Table. *

45 Case: 1:14-cv Document #: Filed: 01/28/16 Page 5 of 7 PageID #:2471 Illinois Stock Transfer Company As of January 15, Wood 'Telephone' Table. * 119 Wood 'Telephone' Table. * 120 Table Lamp. * 121 Table Lamp. * 122 Vase. * 123 Metal Sculpture. * 124 Wood 36" X 72" Top Desk With Right Hand Return. * 125 Swivel Type Arm Chair With Cloth Seat and Back. * 126 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. In Receiver's Possession (Computer Only) 127 Wood Frame Arm Chair With Cloth Seat and Back. * 128 Wood Frame Arm Chair With Cloth Seat and Back. * 129 Sharp Model EL-2630GII Desk Top Calculator. * 130 Two Drawer Legal Size Lateral File. * 131 Two Drawer Legal Size Lateral File. * 132 Accuprint Time Clock System. * 133 Painting. * 134 Painting. * 135 Modular Work Cubical/Corner Workstation: Fabric Covered Panels, 2 Side * Tables, Center Table/Counter, Shelf, Pedestal File, Lockable Hanging File, Keyboard Tray, Metal Hardware. 136 Modular Work Cubical/Corner Workstation: Fabric Covered Panels, 2 Side * Tables, Center Table/Counter, Shelf, Pedestal File, Lockable Hanging File, Keyboard Tray, Metal Hardware. 137 Modular Work Cubical/Corner Workstation: Fabric Covered Panels, 2 Side * Tables, Center Table/Counter, Shelf, Pedestal File, Lockable Hanging File, Keyboard Tray, Metal Hardware. 138 Modular Work Cubical/Corner Workstation: Fabric Covered Panels, 2 Side * Tables, Center Table/Counter, Shelf, Pedestal File, Lockable Hanging File, Keyboard Tray, Metal Hardware. 139 Modular Work Cubical/Corner Workstation: Fabric Covered Panels, 2 Side * Tables, Center Table/Counter, Shelf, Pedestal File, Lockable Hanging File, Keyboard Tray, Metal Hardware. 140 Modular Work Cubical/Corner Workstation: Fabric Covered Panels, 2 Side * Tables, Center Table/Counter, Shelf, Pedestal File, Lockable Hanging File, Keyboard Tray, Metal Hardware. 141 Sharp Model EL-2630GII Desk Top Calculator. * 142 Sharp Model EL-2630GII Desk Top Calculator. * 143 Sharp Model EL-2630GII Desk Top Calculator. * 144 Sharp Model EL-2630GII Desk Top Calculator. * 145 Two Drawer Legal Size Lateral File. * 146 Two Drawer Legal Size Lateral File. * 147 Two Drawer Legal Size Lateral File. * 148 Two Drawer Legal Size Lateral File. * 149 Two Drawer Legal Size Lateral File. * 150 Two Drawer Legal Size Lateral File. * 151 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. 152 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. 153 LOT: Hewlett Packard Model Pavilion(Windows 8) Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. In Receiver's Possession (Computer Only) In Receiver's Possession (Computer Only) In Receiver's Possession (Computer Only)

46 Case: 1:14-cv Document #: Filed: 01/28/16 Page 6 of 7 PageID #:2472 Illinois Stock Transfer Company As of January 15, LOT: Hewlett Packard Model Pavilion(Windows 8) Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. In Receiver's Possession (Computer Only) 155 IBM Wheelwriter 35 Electric Typewriter. * 156 Hewlett Packard Model 1022 Laser Jet Printer. NOTE Not In Service. * 157 IBM Wheelwriter 'Personal' Electric Typewriter. * 158 Fellowes Model C220C Cross-Cut Shredder. * 159 Painting. * 160 Painting. * 161 Painting. * 162 Painting. * 163 Painting. * 164 Formica Top 48" X 120" (2-Sections) Conference Room Table. * 165 Swivel Type Arm Chair With Cloth Seat and Back. * 166 Swivel Type Arm Chair With Cloth Seat and Back. * 167 Swivel Type Arm Chair With Cloth Seat and Back. * 168 Swivel Type Arm Chair With Cloth Seat and Back. * 169 Swivel Type Arm Chair With Cloth Seat and Back. * 170 Swivel Type Arm Chair With Cloth Seat and Back. * 171 Swivel Type Arm Chair With Cloth Seat and Back. * 172 Swivel Type Arm Chair With Cloth Seat and Back. * 173 Swivel Type Arm Chair With Cloth Seat and Back. * 174 Swivel Type Arm Chair With Cloth Seat and Back. * 175 Swivel Type Arm Chair With Cloth Seat and Back. * 176 Swivel Type Arm Chair With Cloth Seat and Back. * 177 Swivel Type Arm Chair With Cloth Seat and Back. * 178 Swivel Type Arm Chair With Cloth Seat and Back. * 179 Swivel Type Arm Chair With Cloth Seat and Back. * 180 Swivel Type Arm Chair With Cloth Seat and Back. * 181 Dell Personal Computer. NOTE Not In Service. In Receiver's Possession 182 LG 52" Flat Screen TV. * 183 Wood 30" Table. * 184 Pelco Model DX4700 Hybred Recorder With (4) Camera's. * 185 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. 186 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. 187 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. 188 LOT (4) APC Model XS1300 Battery Back-Up, (2) APC Model XS1000 Battery Back-Up, (2) Dell Personal Computers, (2) Dell Flat Screen Monitors, Viewsonic Monitor, Dell Power Edge T110-11, Hewlett Packard Pro-PC. Telephone System, (3) TP-Link Model TL-SG-1024D Gigabit Switches, NEC Univerge SV8100 Communications Server, Bogen 35 Watt Model TPU35B Amplifier. In Receiver's Possession (Computer Only) In Receiver's Possession (Computer Only) In Receiver's Possession (Computer Only) In Receiver's Possession 189 Wood 36" X 72" Top Desk With Right Hand Return. * 190 Swivel Type Arm Chair With Cloth Seat and Back. * 191 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer. In Receiver's Possession (Computer Only) 192 Wood Frame Arm Chair With Cloth Seat and Back. * 193 Wood Frame Arm Chair With Cloth Seat and Back. * 194 Sharp Model EL-2630GII Desk Top Calculator. * 195 Two Drawer Legal Size Lateral File. *

47 Case: 1:14-cv Document #: Filed: 01/28/16 Page 7 of 7 PageID #:2473 Illinois Stock Transfer Company As of January 15, Book Shelf * 197 Book Shelf * 198 Swivel Type Arm Chair With Cloth Seat and Back. * 199 Swivel Type Arm Chair With Cloth Seat and Back. * INSURANCE Fidelity Bond (Depending on Recovery) (Subject to Litigation) $5,000, Fidelity Bond (Depending on Recovery) $5,000, OTHER SOURCES OR RECOVERY Auditor Litigation(Subject to Litigation) TBD PEARSON ASSETS 50% Interest In Sale of Wheaton Building $95, % Morgan Stanley IRA $206, Mass Mutual Life Insurance Policies Liquidation Value (3 policies) $32, % Morgan Stanley Joint Account $24, Sale of Personal Stocks & Related Dividends $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,

48 Case: 1:14-cv Document #: Filed: 01/28/16 Page 1 of 1 PageID #:2474 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION UNITED STATES SECURITIES AND EXCHANGE COMMISSION, 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. CERTIFICATE OF SERVICE I, Jill L. Nicholson, hereby certify that on January 28, 2016, I caused to be electronically filed the RECEIVER S SEVENTH QUARTERLY STATUS REPORT FOR THE PERIOD OCTOBER 1, 2015 THROUGH DECEMBER 31, 2015, which was served electronically via the Court s ECF system on all registered parties of record. I also hereby certify that on January 28, 2016, I caused a true and correct copy of the foregoing document to be served via , upon the following: Randall W. Graff N. Meridian St., Ste. 350 Carmel, IN rwgraff@kopkalaw.com /s/ Jill L. Nicholson