UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA …(DSD-JSM) Declaration of Alex C. Lakatos In...

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

R.J. ZAYED, In His Capacity As Court-Appointed Receiver For The Oxford Global Partners, LLC, Universal Brokerage, FX, and Other Receiver Entities,

Plaintiff,

vs.

ASSOCIATED BANK, N.A.,

Defendant.

Case No. 13-cv-00232 (DSD-JSM)

Declaration of Alex C. Lakatos In Support Of Defendant Associated Bank, N.A.’s Reply Brief In Support Of

Its Motion To Compel The Receiver’s Designee To Attend The Rule 30(b)(6) Depositions Of Crown Forex, LLC And Oxford Global FX, LLC

I, Alex C. Lakatos, hereby declare as follows:

1. The following facts are of my own personal knowledge, and if

called as a witness, I could and would testify competently as to their truth.

2. I am a partner at the law firm of Mayer Brown LLP.

3. Attached as Exhibit 20 is a true and accurate copy of a redline

run between the Receiver’s Complaint and his Responses to Defendant

Associated Bank, N.A.’s First Set of Interrogatories, Nos. 5, 8 and 10.

4. Attached as Exhibit 21 is a true and accurate copy of The

Receiver’s Objections and Responses to Respondents’ Second Set of

Interrogatories (Nos. 8-21), filed as ECF No. 124-1 in R.J. Zayed et al. v.

CASE 0:13-cv-00232-DSD-JSM Document 125 Filed 04/25/16 of 2

2

David Buysse et al., No: 11-cv-01042 SRN/FLN.

I declare under penalty of perjury of the law of the United States that

the foregoing is true and correct. Executed at Minneapolis, Minnesota on

April 25, 2016.

s/ Alex C. LakatosAlex C. Lakatos

CASE 0:13-cv-00232-DSD-JSM Document 125 Filed 04/25/16 of 2

Exhibit 20

CASE 0:13-cv-00232-DSD-JSM Document 125-1 Filed 04/25/16 Page 1 of 48

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RESPONSE TO INTERROGATORY NO. 5 COMPARED TO ¶¶ 5-12 AND ¶¶ 30-68 OF

THE COMPLAINT

(Specific objections to Interrogatory No. 5 and references to case law omitted)

5. For example, when When Cook, Kiley and Shadi Swais first discussed the

Currency Program with Associated Bank, Vice President Lien Sarles (“Sarles”) was told that

the plan was to have Crown Forex, SA open an account at Associated Bank to directly receive

investor funds. Associated Bank advised that opening an account for the foreign domiciled

Crown Forex, SA would create regulatory difficulties. Instead, Associated Bank recommended

opening an account for a similarly named domestic LLC to receive investor funds, which would

be subsequently transferred out of the United States to Crown Forex, SA. The account that was

opened to accomplish this was the Crown Forex LLC account #1705. (Compl. Ex. 3, at 1763-

1764—Deposition of Trevor Cook). As with the Currency Program, Crown Forex LLC and its

Associated Bank account #1705 were a fraud.

6. The Crown Forex LLC account #1705 was at all times a sham account opened to

a fictitious entity. Crown Forex LLC was never registered with the State of Minnesota or any

other governmental authority. Associated Bank knew this and still opened the account:


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(Compl. Ex. 4—Affidavit of former Associated Bank Vice President Lien Sarles)

7. To cover up the lack of proper registration documents, Associated Bank falsified

the account application to indicate that registration documents had been provided in compliance

with the Patriot Act:

(Compl. Ex. 5)

8. EvenAssociated Bank employees ignored warnings that the account

would be closed or frozen for lack of proper documentation by the Bank’s Monitoring

Department were ignored by the Associated Bank employees working at the branch where

millions had already been deposited into the Crown Forex LLC account #1705:

(Compl. Ex. 4—Vice President Sarles Affidavit)


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9. Associated Bank also allowed checks to issue from the Crown Forex LLC

account #1705 for investor “profits” (lulling payments) that identified Associated Bank as the

issuer, and not Crown Forex LLC. The checks even identified a fictitious “Client Disbursement

Account.” This varnished the scheme with a layer of legitimacy by associating the scheme with a

recognized U.S. bank and by creating the impression that the funds were maintained in

individual client accounts at the Bank:

(Compl. (Ex. 6)

10. Associated Bank also assisted Cook in diverting millions in investor funds held in

the Crown Forex LLC account #1705 to his own personal Associated Bank accounts. This was

done in a number of ways. First, Vice President Sarles approved internal transfers that sent over

$3 million in investor funds from the Crown Forex LLC account #1705 to Cook’s personal

accounts at Associated Bank, even though Vice President Sarles knew the funds in account

#1705 were investor funds to be traded with Crown Forex, SA. (Compl. Ex. 7) Second,

Associated Bank also allowed Cook to personally transfer over a million dollars in investor funds


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from account #1705 to his own Associated Bank accounts even though Cook had no signatory

authority over the investor funds being held in account #1705. (Compl. Exs. 8-9)

11. Associated Bank also helped Cook obtain $600,000 in cash from the investor

funds in the Crown Forex LLC account #1705 by transferring the necessary funds from account

#1705 to Cook’s own account at the Bank, making special arrangements to have the cash on

hand, and then allowing Cook to stuff the cash into a box and walk out the door under the pretext

of buying a yacht. (Compl. Ex. 4, ¶¶ 23-24—Vice President Sarles Affidavit)

12. Associated Bank even allowed Cook to walk off with the cash despite internal

suspicions about Cook and the yacht purchase being raised at least a week earlier by several bank

employees including several Vice Presidents and a member of the Security and Crime Prevention

Department. Associated Bank ignored these widespread suspicions:


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(Compl. Ex. 10)

30. Crown Forex, SA was a currency-trading firm with operations in Basel,

Switzerland. (Compl. Ex. 2) Crown Forex, SA’s role in the Ponzi scheme was to pretend to be

the firm that was to receive the investor funds, hold them in segregated accounts, and facilitate

currency trades to generate the guaranteed returns. Crown Forex, SA was operated by Shadi

Swais and others representing, who represented themselves as foreign exchange experts. Crown

Forex, SA, was under investigation by Swiss authorities by December 2008. By May 2009,

Swiss authorities had frozen all of Crown Forex, SA’s assets, shut the operation down, and

placed it into the Swiss equivalency of bankruptcy. Shadi Swais and others who controlled

Crown Forex, SA have disappeared along with millions of dollars of investor funds.

31. Not a single penny in investor funds was ever directly transferred from the Crown

Forex LLC account #1705 to Crown Forex, SA for trading. Nor was a single penny in investor

trading profits ever directly transferred from Crown Forex, SA to the Crown Forex LLC account


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#1705. Instead, despite the knowledge that account #1705 was holding investor funds for use in

the Currency Program and was to be on Crown Forex, SA’s books, Associated Bank assisted in

the transfer of millions from account #1705 to Cook’s own personal bank accounts along with

other Receiver related accounts—all of which would have been caught and stopped by a bank

not acting in concert with a massive fraud. (See Ex. 12—Declaration of Scott J. Hlavacek,

No. 09-cv-3333, Doc. 4, ¶ 35, Ex. 10 (D. Minn. Nov. 23, 2009) (tracing money flow in

and out of account #1705)Complaint Exhibits 12 and 16 as well as the Excel spreadsheet

prepared by Scott J. Hlavacek provided to Associated Bank in Plaintiff R.J. Zayed’s

Supplemental Rule 26(A)(1) Initial Disclosures.)

FACTS GIVING RISE TO THIS CASE

32. The Receiver incorporates paragraphs 1 through 31 above by reference.

33. Associated Bank’s involvement in the Ponzi scheme was through several of its

employees, including Lien Sarles, a former Associate Vice President; Tamara Simon (“Simon”), a

former Vice President; and Stephen Bianchi (“Bianchi”) a former Senior Vice President; as well

as others. The Crown Forex LLC account #1705 was an integral component of the Ponzi

scheme. Investors deposited over $79 million into the account in less than two years and

Associated Bank allowed millions to be subsequently transferred around to other Associated

Bank accounts, as well as to accounts at other institutions, until it disappeared.

34. After Sarles joined Associated Bank in November 2007, his brother, Michael

Behm, who was working for Kiley at the time, introduced Sarles to Kiley. Sarles subsequently

met Cook and Pettengill through Kiley. (Compl. Ex. 4, ¶¶ 5, 8) Sometime before January 2008,


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Sarles personally met with Kiley at Kiley’s place of business to discuss doing business with

Associated Bank. (Compl. Ex. 4, ¶ 9) At that meeting Sarles learned much about Kiley.

35. First, Vice President Sarles learned, if he already did not know it from his brother,

that Kiley’s place of business was not located in a business setting at all, but rather, it was

located in a suburban home at 12644 Tiffany Court in Burnsville, Minnesota. (Compl. Ex. 1)

Kiley’s main office was nothing more than a converted bedroom with a desk and a few chairs.

Vice President Sarles would have also learned that Kiley ran his radio program, which he used to

pitch his investment services, out of the house and that his brother, Mike Behm, and others were

in the basement working the phones to promote the Currency Program.

36. Shortly after the meeting on January 2, 2008, Kiley opened his first account,

Universal Brokerage FX Management LLC account #5601, at Associated Bank. The account

documentation prepared by Associated Bank contained several falsehoods and omissions. First,

the business address identified on the account documents falsely identified the business as being

located in an office “Ste 100” or “Suite #100” (Compl. Ex. 13) In addition, despite the

knowledge the account was to hold investor funds (Compl. Ex. 4, ¶ 9), the account

documentation was prepared to falsely indicate that account #5601 was a “Checking/Money

Market” account for use as a “GENERAL OPERATING ACCOUNT.” (Id.) The account

documentation did not givengive any indication that the account was to hold investor funds and

was being opened by a financial advisor.

37. The inclusion of this false information and omission of information as to the true

purpose of the account was not accidental. It was intended to create a customer profile that

avoided scrutiny. Notifying other departments in the Bank that Kiley was a financial adviser,


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operating a business unknown to the Bank, from his home, risked subjecting the account to

scrutiny under the implementing regulations of the BSA/AML. The BSA/AML requires a bank

to Know Your Customer and implement a Customer Identification Program to enable the bank to

“form a reasonable belief that it knows the true identity of each customer.”23 This would include

whether an LLC is properly registered with the Secretary of State and whether the person

opening the account had the proper authority. Associated Bank was also required to obtain

information at account opening in order to understand the type of activity to expect for the

customer’s business operations.34 For high risk customers, such as investment advisors like Cook

and Kiley, Associated Bank was required to conduct enhanced due diligence (“EDD”) which

required a more extensive review both at account opening and more frequently throughout the

relationship with the bank.45

38. The activities surrounding the opening of the Crown Forex LLC account #1705

also evidenceshow intent to create a customer profile designed to avoid scrutiny under the

implementing regulations of the BSA/AML. As stated above in Paragraph 5,, Associated Bank

advised Cook, Kiley and Shadi Swais to avoid opening an account in the name of the foreign

domiciled Crown Forex, SA. As stated above in Paragraphs 6-7,, Bank employees opened the

account without proper documentation and then covered this up by falsely stating that proper

documentation had been provided in compliance with the Patriot Act.

23 2007 Federal Financial Institutions Examination Council (“FFIEC”) Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) Examination Manual, at 45, available at http://www.ffiec.gov/bsa_aml_infobase/documents/BSA_AML_Man_2007.pdf (last accessed December 27, 2012). See also 12 C.F.R. § 21.21. 34 2007 FFIEC BSA/AML Examination Manual, at 57. 45 2007 FFIEC BSA/AML Examination Manual, at 57, 255.


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39. As to the purpose of account #1705, the account document again states

“Checking/Money Market.” This, of course, was misleading. Associated Bank employees

familiar with Kiley knew he was a financial advisor and that the purpose of the account was to

hold investor funds for transfer to Switzerland. The true purpose of the account was never

included in the account opening documentation.

40. The account documentation even contains a false address that misleadingly

creates the impression ofthat the enterprise was working out of an office suite instead of Kiley’s

house. The documentation prepared by Associated Bank provides an address of 5413 Nicollet

Ave, Ste 14, Minneapolis, Minnesota. Yet, through Kiley’s previous dealing with the Bank, the

Associated Bank employees working with Kiley knew that his place of business was the house

on Tiffany Court in Burnsville, Minnesota.

41. The Nicollet address was actually to a rented mailbox located in a storefront

business called GreenDog Sports, pictured below:

(Compl. Ex. 14)


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42. Associated Bank’s “DECLARATION OF NO WRITTEN OPERATING

AGREEMENT” also incorrectly ratifies the legitimacy of Crown Forex LLC. It states “Crown

Forex LLC is a Limited Liability Company organized under the laws of Minnesota.” (Compl.

Ex. 5) Associated Bank executed this document with the knowledge that no Minnesota

registration had been obtained.

43. A few weeks later when Kiley requested an Onsite Deposit Manager (“ODM”),

which allowed checks to be directly deposited without the need to visit the bank, Associated

Bank again prepared documentation containing false information about Crown Forex LLC.

Again, the ODM documentation identified Crown Forex LLC’s business address as 5413

Nicollet Ave, Suite 14, Minneapolis, Minnesota (GreenDog Sports). (Compl. Ex. 15) Moreover,

Associated Banks’ ODM documentation requires that the equipment can only be used at the

address provided. (Id.) Yet, it was known by Associated Bank that this was not true since the

equipment was being used at the Tiffany Court location and not at the Nicollet address.

44. The totality of the circumstances surrounding the opening of the Crown Forex

LLC account #1705 and the Universal Brokerage FX Management LLC account #5601

demonstrates an intent by Associated Bank to disguise the accounts as typical business accounts

to avoid subjecting the accounts to scrutiny under the BSA/AML as a result of the accounts

actually being used in connection with financial services.

45. On information and belief, Vice President Sarles also knew that he was

identified as the Associated Bank representative to assist with the wiring of millions in investor

funds into the Crown Forex LLC account #1705. In addition, on information and belief, Vice

President Sarles assisted one or more investors in the wiring of funds into the account. Sarles


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also knew that the investors were told that the funds being wired to Associated Bank were to be

used for trading by Crown Forex, SA. Yet, Sarles also knew that Crown Forex, SA was neither

an owner of the Crown Forex LLC account #1705 nor even a signatory. Sarles also knew that the

beneficiary of the wire transfers, Crown Forex LLC, was an entity that did not exist. Sarles also

knew that Cook was transferring millions out of the Crown Forex LLC account #1705 into his

personal accounts and for purposes other than to hold customer funds for foreign currency

arbitrage at Crown Forex, SA in Switzerland.

46. Once the Crown Forex LLC account #1705 was opened, the Ponzi scheme

principals used the Oxford and UBS Entities to solicit investors for the Currency Program

through telemarketing, radio broadcasts, investor seminars, personal meetings, word-of-mouth,

and other means. (Christopher Pettengill Plea Agreement, ¶ 3(k).) Investors were fed false

promises claiming that the Currency Program (i) would generate an annual return of 10.5 to 12

percent; (ii) the Currency Program was a safe investment; (iii) the investor could not lose

investment principal; and (iv) the investor could withdraw his or her investment assets at any

time. (Christopher Pettengill Plea Agreement, ¶ 3(l).) The Currency Program was a continuation

of the Ponzi scheme principals’ efforts to defraud investors, which began by at least January

2007 and ultimately defrauded investors of over $190 million. (Compl. Ex. 1) As Cook and

Pettengill’s plea agreements establish, the financial services and investments being offered

through the UBS and Oxford Entities were massive frauds that took in millions of dollars.

(Compl. Exs. 1-2)

47. In a matter of months, the alleged Crown Forex LLC “Checking/Money Market”

account had millions in investor funds flowing into it and subsequently being wired transferred

to other accounts at Associated Bank and elsewhere. (Compl. Ex. 16) A summary of some of the


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early wire transfers of investor funds out of the Crown Forex LLC account #1705 to other

Associated Bank accounts and accounts held at other banks is provided in the chart below:

July 2, 2008 $500,000 transferred to Wells Fargo account #2710

July 10, 2008 $100,000 transferred to Associated Bank account #5601

July 10, 2008 $2,000,000 transferred to Wells Fargo account #2710







August 7, 2008 $1,000,000 transferred to Wells Fargo account #2710

August 11, 2008 Over $2,800,000 transferred to Wells Fargo account #2710 in a series of 11 odd amount wire transfers

August 22, 2008 Over $8,800,000 transferred to Wells Fargo account #2710 in a series of 39 odd amount wire transfers

September 2, 2008 Over $2,800,000 transferred to Wells Fargo account #2710 in a series of 23 odd amount wire transfers

September 11, 2008 $1,000,000 transferred to Wells Fargo account #2710 September 29, 2008 Over $2,700,000 transferred to Wells Fargo account #2710 in a series of

October 7, 2008 Over $2,000,000 transferred to Wells Fargo account #2710 in a series of

October 17, 2008 Over $3,800,000 transferred to Wells Fargo account #2710 in a series of 21 odd amount wire transfers

October 21, 2008 Over $312,000 transferred to Wells Fargo account #2710 in a series of 6 odd amount wire transfers

48. The BSA/AML and its implementing regulations required Associated Bank to

monitor these transfers and deposit account transactions, among other things, to file suspicious


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activity reports (“SAR”) where suspicious activity is identified.56 Monitoring systems include

manual systems, automated systems, and employee identification and referral systems.67 Under

the BSA/AML, the transfers above would have been flagged by Associated Bank’s monitoring

systems for suspicious activity. The transfers contain “red flags” of potentially suspicious

activities for money laundering, terrorist financing or other financial crimes, such as transfers of

large or round dollar amounts; transfer activity is repetitive or shows unusual patterns; and

unusual transfers of funds occurring among related accounts or among accounts involving the

same or related principals.78 A bank employee would have reviewed all of these alerted

transactions and made a determination whether or not to file a SAR as required under the

BSA/AML. Despite these red flags, upon information and belief, Associated Bank ignored the

above telltale signs and its legal duties to report suspicious activity, and thereby allowed the Ponzi

scheme to continue.

49. After the opening of the fictitious Crown Forex LLC account #1705, a string of

variously named Oxford Global accounts were opened at Associated Bank: Oxford Global

Investments Inc. account #1812 (Pettengill account), Oxford Global Partners LLC account #2356

(Cook account), and Oxford Global FX LLC account #2331 (Cook account). (Compl. Exs. 17-

18) As to the Oxford Global FX LLC account #2356, Sarles understood that the account was to

hold investor funds. (Compl. Ex. 4, ¶ 10) Yet, again, the purpose of the account was disguised by

identifying it as a “Checking/Money Market” account. Moreover, no mention is made that the

56 31 U.S.C. §5318; 12 C.F.R. §21.21; 12 C.F.R §21.11. 67 2007 FFIEC BSA/AML Examination Manual, at 61. 78 2007 FFIEC BSA/AML Examination Manual at F-1 to F-3.


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true purpose of the account was to hold client funds for use in connection with Cook’s alleged

financial advisory services.

50. In late October of 2008, Chris Pettengill, CEO/President of Oxford Global

Investments Inc., discovered that he had been removed from the corporation’s account #1812

without his permission and brought it to the attention of Associated Bank. (Compl. Exs. 18-20)

As set forth below, the atypical behavior swirling around this account defies expectations of

what any reasonable bank would (and should) do for any customer account:

a. When the account was opened, Pettengill was identified as the owner of the

Oxford Global Investment Inc. account #1812 and Cook was only identified

as having signatory authority. (Compl. Ex. 18) Associated Bank knew this

from the information contained on the account application.

b. Without Pettengill’s knowledge, signature, or any type of consent, Associated

Bank changed the ownership of the Oxford Global Investment Inc. account

#1812 from Pettengill to Cook within a few months after the account was

opened. (Compl. Ex. 19)

c. After Pettengill saw an unexplained $500,000 in the account (which came

from the Crown Forex LLC account #1705) he contacted Associated Bank to

discuss the funds. However, Associated Bank refused to discuss the account

with him on the grounds that he no longer owned the account. (Compl. Ex.

20—Declaration of Christopher Pettengill)

d. Pettengill then confronted Associated Bank Vice President Sarles and his

boss, Senior Vice President Bianchi, in person at the bank. He was again


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informed of his lack of ownership in the account and was prevented from

having any further discussion on the matter. (Id.)

e. Associated Bank removed Pettengill from account #1812 even though there

was no supporting documentation to do so and then transferred the funds into

the account to one of Cook’s own accounts.

51. The last quarter of 2008 saw millions more in investor funds flow into and out of

the Crown Forex LLC account #1705. Again,Those transactions noted below were of the

character that Associated Bank’s monitoring systems should have detected the red flags, such

as those discussed above in Paragraph 48, in the transactions belowwas designed to detect,

including the following:

November 14, 2008 $1,250,000 transferred to Wells Fargo account #2710 November 19, 2008 $1,200,000 transferred to Wells Fargo account #2710 November 24, 2008 $1,750,000 transferred to Wells Fargo account #2710 December 1, 2008 $1,100,000 transferred to Wells Fargo account #2710 December 3, 200 $1,000,000 transferred to Wells Fargo account #2710 December 4, 2008 $97,000 transferred to Cook’s Associated Bank account #2331December 8, 2008 $2,150,000 transferred to Wells Fargo account #2710 December 9, 2008 $2,000,000 transferred to Wells Fargo account #2710 December 18, 2008 $2,400,000 transferred to Wells Fargo account #2710 December 18, 2008 $20,000 transferred to Wells Fargo account #3007 December 18, 2008 $30,000 transferred to Wells Fargo account #3007

(Compl. Ex. 16)

52. Within months the Crown Forex LLC account #1705, which was non-interest

bearing, had balances in the millions. (Compl. Ex. 21) This was essentially free money for

Associated Bank. With no expenses connected with the funds, Associated Bank would have been


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able to deploy the millions sitting in the account in any number of profit generating uses such as

federal funds, commercial paper, or some other investment.

53. On December 17, 2008, Cook opened yet another account at Associated Bank

called the Market Shot LLC account #8733. (Compl. Ex. 22). Even though Sarles understood

this was Cook’s own account (Compl. Ex. 4, ¶ 10), and not for investor funds to be traded with

Crown Forex, SA, two days after opening the account, Sarles approved a transfer of $40,000 of

investor money from the Crown Forex LLC account #1705 to Cook’s newly opened Market Shot

LLC account #8733:

(Compl. Ex. 23)

54. Days later Associated Bank allowed Cook to transfer another $40,000 of investor

money from the Crown Forex LLC account #1705 to his newly opened Market Shot LLC

account #8733 even though Cook had no signatory authority on the Crown Forex LLC account

#1705:


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(Compl. Ex. 24)

55. On December 30, 2008, Vice President Sarles approved a $2 million transfer from

the Crown Forex LLC account #1705, an account he knew was opened to hold investor funds for

trading with Crown Forex, SA, to Oxford Global FX, LLC account #2331, an account Sarles had

opened for Cook’s own use:


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(Compl. (Ex. 7)

56. On December 31, 2008, Associated Bank allowed Cook to transfer another $1

million in investor funds from the Crown Forex LLC account #1705 to his own Oxford Global

FX, LLC account #2331 even though Cook had no signatory authority on the Crown Forex LLC

account #1705:


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(Compl. Exs. 8-9)

57. By the first quarter of 20092009, the Monitoring Department of Associated Bank

was threatening to freeze the Crown Forex LLC account #1705 for lack of proper

documentation. (Compl. Ex. 4, ¶¶ 18-19) These warnings were ignored and never acted upon

since proper documentation was never obtained for Crown Forex LLC.

58. Crown Forex, SA’s regulatory troubles were also becoming public around the

same time. On December 24, 2008, the Swiss Financial Market Supervisory Authority

(“FINMA”) announced that Crown Forex, SA’s accounts had been frozen. (Compl. Ex. 25, ¶

152) February 2009 saw increased publicity on Crown Forex, SA’s regulatory troubles and a

number of telephone conferences between Sarles and the Ponzi scheme principals apparently on

this very subject:

February 2, 2009: Google Alert saying Crown Forex, SA is under investigation

(Compl. Ex. 26)


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February 3, 2009: Sarles calls Trevor Cook (Compl. Ex. 27)

February 9, 2009: One of the Ponzi scheme investors receives an e-mail from

FINMA saying Crown Forex, SA is not authorized to conduct business. (Compl.

Ex. 28)

February 9, 2009: Sarles has a call concerning Crown Forex (Compl. Ex. 29)

February 23, 2009: FINMA announces the liquidation of Crown Forex, SA.

(Compl. Ex. 25, ¶ 153)

February 26, 2009: Sarles has an “important” call with Cook (Compl. Ex. 30)

59. Despite all of this, in the first half of 2009, millions more in investor funds flowed

into and out of the Crown Forex LLC account #1705. Again, Associated Bank’s monitoring

systems should have detected the red flags, such as those discussed above in Paragraph 48.. The

transactions are set forth in the chart below:

January 16, 2009 $1,000,000 transferred to Citibank account #5400. January 20, 2009 $3,000,000 transferred to Citibank account #5400. January 21, 2009 $500,000 transferred to Associated Bank account #2331 January 21, 2009 $2,995,133.95 transferred to Citibank account #5400. February 11, 2009 $2,200,000 transferred to Beckman (co-conspirator in this fraud;

convicted in 2012).February 17, 2009 $200,000 transferred to Associated Bank account #5601 February 25, 2009 $2,000,000 transferred to Wells Fargo account #2710 March 10, 2009 $2,200,000 transferred to Beckman.March 19, 2009 $750,000 transferred to Wells Fargo account #2710 March 23, 2008 $400,000 transferred to Associated Bank account #5601 March 31, 2008 $700,000 transferred to Wells Fargo account #2710 April 14, 2009 $300,000 transferred to Associated Bank account #5601 April 30, 2009 $300,000 transferred to Associated Bank account #5601 April 30, 2009 $1,700,000 transferred to Associated Bank account #2331 May 19, 2009 $500,000 transferred to Wells Fargo account #2710 May 21, 2009 $1,000,000 transferred to Wells Fargo account #2710


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60. By this time, the ostensible purpose of account #1705 was known by Bank

officers to have been frustrated by Firm A regulars but officers of the Bank allowed the traffic

through the account to occur anyway.

The April 30, 2009, transfer of $1.7 million shown above was another transfer approved

by Vice President Sarles that moved money from account #1705, which he knew was holding

investor funds to be traded with Crown Forex, SA, to an account he knew was for Cook’s own

use, account #2331. (Compl. Ex. 7)

61. On June 8, 2009, Cook asked Sarles to open a third account for Kiley to an entity

called Basel Group LLC, which was given account #5214. (Compl. Exs. 31-32) Associated Bank

complied and, as with Crown Forex LLC, it was a fraud. It too was a fictitious entity that

Associated Bank knew never had any legal existence. (Compl. Ex. 33) Nonetheless, Associated

Bank, again, falsely indicated on the account documentation that the legitimacy of the LLC was

verified from a “Report from a state registration information website.” (Compl. Ex. 32) Yet, as

with Crown Forex LLC, no such verification was ever obtained. Nor could verification have

even been obtained from any website since Associated Bank knew Kiley had not registered the

LLC in the first instance. (Compl. Ex. 33)

62. TheThis account was againalso identified as a “Checking/Money Market”

account on the documentation prepared by the Bank. (Compl. Ex. 32) Yet, as with Kiley’s other

accounts, the Associated Bank employees involved with Kiley knew he was a financial advisor

and that the account was intended to hold investor funds. (Compl. Ex. 4, ¶ 9)

63. On June 25, 2009, Cook requested $600,000 in cash purportedly for the alleged

purchase of a yacht. The requested caused a widespread investigation by numerous individuals at


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the bank, including Senior Vice President Bianchi, Jenny Cox, and Eileen Paulson of the

Security and Crime Prevention department that raised several red flags including the improper

transfer of $1.7 million of investor funds from account #1705 to Cook’s own account. These

suspicions were ignored, and Associated Bank, even “corrected” the improper $1.7 million

transfer so as to allow Cook to put $600,000 in cash into a box and walk out the front door. (Ex.

10)Compl. Ex. 10) Sarles and Simon personally interviewed Cook as part of the Bank’s release

of the large amount of currency.

64. Even after internal red flags and suspicions had been raised, Associated Bank

continued to allow the Crown Forex LLC account #1705 to be drained of millions more in

investor funds. Just days before Cook walked off with the $600,000 in cash, on June 29, 2009,

Associated Bank prepared 14 cashier’s checks totaling over $3.2 million. (Compl. Ex. 34)

Despite knowing that the remitter for each check was Crown Forex LLC, Associated Bank itself

prepared each check to identify the remitter as either the individual that was identified as the

payee or as coming from an IRA or some other account in the name of the payee. Not only did

Associated Bank include false remitter information on each check, the fact that it was even

requested to do so should have raised suspicions, which were ignoredwould have reasonably

informed the Bank that wrongdoing was afoot.

65. June and July of 2009 saw even more transfers. Again, of a character that

Associated Bank’s monitoring systems should have detected the red flags, such as those

discussed above in Paragraph 48, in the transactions belowwere designed to detect:

June 8, 2009 $50,000 transferred to Associated Bank account #2356 June 8, 2009 $1,000,000 transferred to Wells Fargo account #2710June 25, 2009 $1,112,000 transferred to Wells Fargo account #2710


23 AMECURRENT 720331175.1 21-Apr-16 10:51

June 26, 2009 Nearly $1,000,000 transferred to “G5 Currency Fund” in a series of 4 oddamount wire transfers

July 1, 2009 $200,000 transferred to Associated Bank account #2356 July 6, 2009 $706,902 transferred to Wells Fargo account #4194

66. At 11:06 AM on July 9, 2009, Vice President Sarles received a copy of a

newspaper article describing the federal lawsuit filed earlier in the week against some of the

Ponzi scheme principals. (Compl. Ex. 35.) At that time, Vice President Sarles took no action. An

hour later, Vice President Simon, did take action, by distributing a copy of the same article to

Sarles and Bianchi. (Id.) Yet, despite this knowledge, Associated Bank still assisted the Ponzi

scheme principals in transferring $101,000 of investor funds to a beneficiary identified as “Basel

Institutional” which Associated Bank deposited into the fictitious Basel Group LLC account

#5214 a week later. (Compl. Ex. 36)

67. In addition to all of the above, during the life of the scheme, Associated Bank

knew that the Ponzi scheme principals were attempting to deposit checks made payable to

entities using the term “Crown” or “Basel” but not to the specific account holders at Associated

Bank. For example, Associated Bank knew that the Ponzi scheme principals were attempting to

deposit a $75,000 check made payable to “Basel Institutional” and a $17,000 check made out to

“Crown Bank.” (Compl. Ex. 37) Again, the suspicious activity raised by these red flags was

ignored.

68. Associated Bank, on information and belief, also intentionally and willfully

ignored that it was accepting wire transfers for the Crown Forex LLC account #1705 that

specifically listed “Crown Forex, SA” with a Swiss address as the recipient of the wire without


24 AMECURRENT 720331175.1 21-Apr-16 10:51

any inquiry. Bank personnel shouldwould have identified these discrepancies during a review of

the alerts generated by the Bank’s monitoring systems for these transactions.

RESPONSE TO INTERROGATORY NO. 8 COMPARED TO ¶¶ 37, 47, 48 AND 72 OF

THE COMPLAINT

(Specific objections to Interrogatory No. 8 omitted)

The basis for the Receiver’s contention that Associated Bank violated federal statutes,

rules, and/or regulations with respect to the Cook-Kiley Accounts and/or Cook-Kiley Entities,

including (i) the date of the violation, (ii) the identity of the person responsible for the violation,

(iii) the specific statute, rule, regulation, or policy that was violated, and (iv) the factual basis for

the contention that such a violation occurred, is as follows:

37. The inclusion of this false information and omission of information as to the true

purpose of the account was not accidental. It was intended to create a customer profile that avoided

scrutiny. Notifying other departments in the Bank that Kiley was a financial adviser, operating a

business unknown to the Bank, from his home, risked subjecting the account to scrutiny under the

implementing regulations of the BSA/AML. The BSA/AML requires a bank to Know Your

Customer and implement a Customer Identification Program to enable the bank to “form a

reasonable belief that it knows the true identity of each customer.”29 This would include whether an

LLC is properly registered with the Secretary of State and whether the person opening the account

29 2007 Federal Financial Institutions Examination Council (“FFIEC”) Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) Examination Manual, at 45, available at http://www.ffiec.gov/bsa_aml_infobase/documents/BSA_AML_Man_2007.pdf (last accessed December 27, 2012). See also 12 C.F.R. § 21.21.


25 AMECURRENT 720331175.1 21-Apr-16 10:51

had the proper authority. Associated Bank was also required to obtain information at account

opening in order to understand the type of activity to expect for the customer’s business

operations.310 For high risk customers, such as investment advisors like Cook and Kiley, Associated

Bank was required to conduct enhanced due diligence (“EDD”) which required a more extensive

review both at account opening and more frequently throughout the relationship with the bank.411

47. In a matter of months after being opened, the alleged Crown Forex LLC

“Checking/Money Market” account had millions in investor funds flowing into it and

subsequently being wired transferred to other accounts at Associated Bank and elsewhere.

(Compl. Ex. 16) A summary of some of the early wire transfers of investor funds out of the

Crown Forex LLC account #1705 to other Associated Bank accounts and accounts held at other

banks is provided in the chart below:

July 2, 2008 $500,000 transferred to Wells Fargo account #2710









310 2007 FFIEC BSA/AML Examination Manual, at 57. 411 2007 FFIEC BSA/AML Examination Manual, at 57, 255.


26 AMECURRENT 720331175.1 21-Apr-16 10:51

August 7, 2008 $1,000,000 transferred to Wells Fargo account #2710

August 11, 2008 Over $2,800,000 transferred to Wells Fargo account #2710 in a series of11 odd amount wire transfers

August 22, 2008 Over $8,800,000 transferred to Wells Fargo account #2710 in a series of39 odd amount wire transfers

September 2, 2008 Over $2,800,000 transferred to Wells Fargo account #2710 in a series of 23 odd amount wire transfers

September 11, 2008 $1,000,000 transferred to Wells Fargo account #2710 September 29, 2008 Over $2,700,000 transferred to Wells Fargo account #2710 in a series of

October 7, 2008 Over $2,000,000 transferred to Wells Fargo account #2710 in a series of

October 17, 2008 Over $3,800,000 transferred to Wells Fargo account #2710 in a series of21 odd amount wire transfers

October 21, 2008 Over $312,000 transferred to Wells Fargo account #2710 in a series of 6odd amount wire transfers

48. The BSA/AML and its implementing regulations required Associated Bank to

monitor these transfers and deposit account transactions, among other things, to file suspicious

activity reports (“SAR”) where suspicious activity is identified.512 Monitoring systems include

manual systems, automated systems, and employee identification and referral systems.613 Under

the BSA/AML, the transfers above would have been flagged by Associated Bank’s monitoring

systems for suspicious activity. The transfers contain “red flags” of potentially suspicious

activities for money laundering, terrorist financing or other financial crimes, such as transfers of

large or round dollar amounts; transfer activity is repetitive or shows unusual patterns; and

unusual transfers of funds occurring among related accounts or among accounts involving the

same or related principals.714 A bank employee would have reviewed all of these alerted

512 31 U.S.C. §5318; 12 C.F.R. §21.21; 12 C.F.R §21.11. 613 2007 FFIEC BSA/AML Examination Manual, at 61. 714 2007 FFIEC BSA/AML Examination Manual at F-1 to F-3.


27 AMECURRENT 720331175.1 21-Apr-16 10:51

transactions and made a determination whether or not to file a SAR as required under the

BSA/AML. Despite these red flags, upon information and belief, Associated Bank ignored the

above telltale signs and its legal duties to report suspicious activity, and thereby allowed the

Ponzi scheme to continue.

The Receiver further responds by incorporating his response to Interrogatory No. 5.

Associated Bank Had Actual Knowledge of the Fraud

72. Associated Bank had actual knowledge of the fraud. Associated Bank’s

actual knowledge of the fraud and its role in it are exemplified by its willingness to

execute numerous atypical transactions, its willingness to prepare and circulate

misleading and false account documents to avoid detection under the implementing

regulations of the BSA/AML, and its willingness to violate both internal and statutory

rules and procedures, including the following:employees such as Sarles, Espey and others

appear to have violated internal Associated Bank policies with respect to the Cook-Kiley

Accounts and/or Cook-Kiley Entities by the following acts:

(A) Falsely stating on the account documentation for account #5601 that the business

was located in an office Suite #100 even though Associated Bank knew that the business

was operated out of a residence that had no office suites.

(B) Falsely stating on the account documentation for account #5601 that it was a

“Checking/Money Market” account for use as a “GENERAL OPERATING ACCOUNT”

even though Associated Bank knew that the account was to hold investor funds.


28 AMECURRENT 720331175.1 21-Apr-16 10:51

(C) Omitting from the account documentation for account #5601 that Kiley was a

financial advisor, working from home, and that the intended use of account #5601 was to

hold investor funds.

(D) Providing advice to Shadi Swais, Cook and Kiley on how to avoid detection by

recommending that an account in the name of the fictitious Crown Forex LLC be opened

instead of the foreign domiciled Crown Forex, SA.

(E) Opening the Crown Forex LLC account #1705 without proper documentation.

(F) Falsely stating that the status of Crown Forex LLC had been properly verified on

the account application for account #1705 for compliance with the Patriot Act.

(G) Falsely stating on the account documentation for account #1705 that the business

was located in an office located at 5413 Nicollet Ave, Ste 14, Minneapolis, Minnesota

even though Associated Bank knew that Kiley operated out of a residence, not an office,

located on Tiffany Court, Burnsville, MN.

(H) Willfully ignoringIgnoring that the address provided for the Crown Forex LLC

account #1705 was to a rented mailbox located at GreenDog Sports.

(I) Falsely stating on the account documentation for account #1705 that it was a

“Checking/Money Market” account even though Associated Bank knew that the account

was to hold investor funds to avoid subjecting the account to scrutiny.

(J) Omitting from the account documentation for account #1705 that Kiley was a

financial advisor, working from home, and that the intended use of account #1705 was to

hold investor funds.


29 AMECURRENT 720331175.1 21-Apr-16 10:51

(K) Falsely stating on the “DECLARATION OF NO WRITTEN OPERATING

AGREEMENT” that Crown Forex LLC was a Minnesota LLC and then executing the

document despite knowing that no verifying documentation had been provided.

(L) Accepting the false GreenDog Sports address on the ODM documentation for the

Crown Forex LLC account #1705.

(M) Allowing the Crown Forex LLC account #1705 to remain operational even after

the Monitoring Department knew that proper documentation had not been obtained.

(N) Authorizing the transfer of millions in investor funds held in the Crown Forex

LLC account #1705 to Cook’s own accounts despite having knowledge that the funds in

account #1705 were investor funds.

(O) Allowing Cook to transfer millions from the Crown Forex LLC account #1705 to

his own accounts despite his lack of signatory authority on account #1705.

(P) Allowing Cook to walk off with $600,000 in cash of investor funds despite

widespread suspicions about Cook, the transaction, and after discovering and then

“correcting” an improper transfer of $1.7 million of investor funds from the Crown Forex

LLC account #1705 to Cook’s own account made by Vice President Sarles.

(Q) Ignoring transfers of unusual volumes and quantities from the Crown Forex LLC

account #1705 to other Associated Bank accounts and to other accounts.

(R) Including false remitter information on over $3.2 million in cashier’s checks

drawn from the Crown Forex LLC account #1705.


30 AMECURRENT 720331175.1 21-Apr-16 10:51

(S) Assisting in the wiring of millions into the Crown Forex LLC account #1705

despite the knowledge that proper documentation for the account had not been obtained.

(T) Accepting wire transfers into the Crown Forex LLC account #1705 that were

intended for Crown Forex, SA.

(U) Accepting checks made payable to other entities such as “Crown Bank” into the


(V) Allowing checks to issue from the Crown Forex LLC account #1705 that

misleadingly indicated that the funds were from a “Client Disbursement Account.”

(W) Allowing checks to issue from the Crown Forex LLC account #1705 that

misleadingly indicated the issuer was Associated Bank.

(X) Opening account #5214 to Basel Group LLC without proper documentation.

(Y) Falsely stating that the legitimacy of the Basel Group LLC had been verified on

the account application for compliance with the Patriot Act.

(Z) Continuing to allow account #5214 to remain operational even though it was

known that proper documentation for the LLC was not obtained.

(AA) Falsely stating on the account documentation for account #5214 that it was a


was to hold investor funds.

(BB) Assisting in the transfer of at least $101,000 in investor funds into account #5214

even with the knowledge that the Ponzi scheme principals were under investigation.


31 AMECURRENT 720331175.1 21-Apr-16 10:51

(CC) Accepting checks made payable to other entities such as “Basel Institutional” into

account #5214 which was in the name of Basel Group LLC.

(DD) Accepting one or more wire transfers identifying “Basel Institutional” as the

beneficiary and then depositing the funds into account #5214 which was in the name of

the fictitious Basel Group LLC.

(EE) Improperly transferring ownership of account #1812 to Cook by improperly

removing the account’s owner, Chris Pettengill, without any authority or authorization to

take such action.

(FF) Falsely stating on the account documentation for account #2356 that it was a


was to hold investor funds.

The Receiver further responds by incorporating his response to Interrogatory No. 5.

At present, the Receiver does have sufficient information to determine whether any of

the above acts constitute a violation of any state statutes, rules, and/or regulations with respect

to the Cook-Kiley Accounts and/or Cook-Kiley Entities but specifically and again reserves the

right to supplement his response as further facts are discovered.

RESPONSE TO INTERROGATORY NO. 10 COMPARED TO ¶72 OF THE

COMPLAINT

(Specific objections to Interrogatory No. 10 and references to case law omitted)

[A. Substantial Assistance to Avoid Scrutiny under the Requirements of the BSA/AML]


32 AMECURRENT 720331175.1 21-Apr-16 10:51






rules and procedures, including the following:

As to the identity of each officer, director, employee, agent, or representative of

Associated Bank that provided substantial assistance to the Ponzi Scheme, based upon

information obtained by the Receiver to date, at least Sarles, Espey, Simon, and Bianchi.

As to the date that such person provided substantial assistance, based upon information

obtained by the Receiver to date, from December 2007 through July 2009. As to specific dates,

see the Receiver’s response to Interrogatory Nos. 5 and 8 as well as the responses provided

below.

As to the the factual basis for the claim that substantial assistance was provided, based

upon information obtained by the Receiver to date, the Receiver responds as follows:

Associated Bank provided the following substantial assistance to the Cook-Kiley Entities

to avoid scrutiny under the requirements of the BSA/AML:

(A) Falsely stating on the account documentation for account #5601 that the

business was located in an office Suite #100 even though Associated Bank knew that the

business was operated out of a residence that had no office suites.


33 AMECURRENT 720331175.1 21-Apr-16 10:51


“Checking/Money Market” account for use as a “GENERAL OPERATING

ACCOUNT” even though Associated Bank knew that the account was to hold investor

funds.


financial advisor, working from home, and that the intended use of account #5601 was

to hold investor funds.


recommending that an account in the name of the fictitious Crown Forex LLC be

opened instead of the foreign domiciled Crown Forex, SA.




(G) Falsely stating on the account documentation for account #1705 that the

business was located in an office located at 5413 Nicollet Ave, Ste 14, Minneapolis,

Minnesota even though Associated Bank knew that Kiley operated out of a residence,

not an office, located on Tiffany Court, Burnsville, MN.




34 AMECURRENT 720331175.1 21-Apr-16 10:51


“Checking/Money Market” account even though Associated Bank knew that the

account was to hold investor funds to avoid subjecting the account to scrutiny.







(L) Accepting the false GreenDog Sports address on the ODM documentation for

the Crown Forex LLC account #1705.

(M) Allowing the Crown Forex LLC account #1705 to remain operational even

after the Monitoring Department knew that proper documentation had not been

obtained.

(N) Authorizing the transfer of millions in investor funds held in the Crown

Forex LLC account #1705 to Cook’s own accounts despite having knowledge that

the funds in account #1705 were investor funds.

(O) Allowing Cook to transfer millions from the Crown Forex LLC account

#1705 to his own accounts despite his lack of signatory authority on account

#1705.


35 AMECURRENT 720331175.1 21-Apr-16 10:51



“correcting” an improper transfer of $1.7 million of investor funds from the

Crown Forex LLC account #1705 to Cook’s own account made by Vice President

Sarles.

(Q) Ignoring transfers of unusual volumes and quantities from the Crown Forex

LLC account #1705 to other Associated Bank accounts and to other accounts.

(R) Including false remitter information on over $3.2 million in cashier’s

checks drawn from the Crown Forex LLC account #1705.

(S) Assisting in the wiring of millions into the Crown Forex LLC account

#1705 despite the knowledge that proper documentation for the account had not

been obtained.

(T) Accepting wire transfers into the Crown Forex LLC account #1705 that

were intended for Crown Forex, SA.

(U) Accepting checks made payable to other entities such as “Crown Bank”

into the Crown Forex LLC account #1705.






36 AMECURRENT 720331175.1 21-Apr-16 10:51

(X) Opening account #5214 to Basel Group LLC without proper documentation.

(Y) Falsely stating that the legitimacy of the Basel Group LLC had been verified on

the account application for compliance with the Patriot Act.





account was to hold investor funds.

(BB) Assisting in the transfer of at least $101,000 in investor funds into account

#5214 even with the knowledge that the Ponzi scheme principals were under

investigation.

(CC) Accepting checks made payable to other entities such as “Basel Institutional”

into account #5214 which was in the name of Basel Group LLC.


beneficiary and then depositing the funds into account #5214 which was in the

name of the fictitious Basel Group LLC.


removing the account’s owner, Chris Pettengill, without any authority or

authorization to take such action.


37 AMECURRENT 720331175.1 21-Apr-16 10:51




[B. Substantial Assistance by Varnishing the Ponzi Scheme with the Appearance of

Legitimacy]







Associated Bank provided the following substantial assistance to the Cook-Kiley Entities

by varnishing the Ponzi scheme with the appearance of legitimacy, by providing the Cook-Kiley

Entities with a means to receive investor funds, and by providing the Cook-Kiley Entities with a

means to then use investor funds for their own illicit gains by the following:


business was located in an office Suite #100 even though Associated Bank knew

that the business was operated out of a residence that had no office suites.

(B) Falsely stating on the account documentation for account #5601 that it was

a “Checking/Money Market” account for use as a “GENERAL OPERATING


38 AMECURRENT 720331175.1 21-Apr-16 10:51

ACCOUNT” even though Associated Bank knew that the account was to hold

investor funds.

(C) Omitting from the account documentation for account #5601 that Kiley was

a financial advisor, working from home, and that the intended use of account

#5601 was to hold investor funds.

(D) Providing advice to Shadi Swais, Cook and Kiley on how to avoid

detection by recommending that an account in the name of the fictitious Crown

Forex LLC be opened instead of the foreign domiciled Crown Forex, SA.

(E) Opening the Crown Forex LLC account #1705 without proper

documentation.

(F) Falsely stating that the status of Crown Forex LLC had been properly

verified on the account application for account #1705 for compliance with the

Patriot Act.


business was located in an office located at 5413 Nicollet Ave, Ste 14,

Minneapolis, Minnesota even though Associated Bank knew that Kiley operated

out of a residence, not an office, located on Tiffany Court, Burnsville, MN.

(H) Willfully ignoring that the address provided for the Crown Forex LLC



39 AMECURRENT 720331175.1 21-Apr-16 10:51

(I) Falsely stating on the account documentation for account #1705 that it was

a “Checking/Money Market” account even though Associated Bank knew that the


(J) Omitting from the account documentation for account #1705 that Kiley was

a financial advisor, working from home, and that the intended use of account

#1705 was to hold investor funds.


AGREEMENT” that Crown Forex LLC was a Minnesota LLC and then executing

the document despite knowing that no verifying documentation had been

provided.

(L) Accepting the false GreenDog Sports address on the ODM documentation

for the Crown Forex LLC account #1705.

(M) Allowing the Crown Forex LLC account #1705 to remain operational even

after the Monitoring Department knew that proper documentation had not been

obtained.




(O) Allowing Cook to transfer millions from the Crown Forex LLC account #1705

to his own accounts despite his lack of signatory authority on account #1705.


40 AMECURRENT 720331175.1 21-Apr-16 10:51



“correcting” an improper transfer of $1.7 million of investor funds from the Crown

Forex LLC account #1705 to Cook’s own account made by Vice President Sarles.






despite the knowledge that proper documentation for the account had not been

obtained.









(X) Opening account #5214 to Basel Group LLC without proper

documentation.


41 AMECURRENT 720331175.1 21-Apr-16 10:51

(Y) Falsely stating that the legitimacy of the Basel Group LLC had been

verified on the account application for compliance with the Patriot Act.















take such action.





42 AMECURRENT 720331175.1 21-Apr-16 10:51

[C. Substantial Assistance by Providing Non-routine Professional Services]







As to the identity of each officer, director, or employee of any Cook-Kiley Entity that

was responsible for, supervised, or was aware of the substantial assistance, based upon

information obtained by the Receiver to date, at least Cook, Kiley and Pettengill.

As to the facts that differentiate the substantial assistance provided by Associated Bank

from routine professional services, as “routine professional services” is understood by the

Receiver, based upon information obtained by the Receiver to date, the following acts by

Associated Bank do not constitute routine professional services:


business was located in an office Suite #100 even though Associated Bank knew that the

business was operated out of a residence that had no office suites.


“Checking/Money Market” account for use as a “GENERAL OPERATING


43 AMECURRENT 720331175.1 21-Apr-16 10:51

ACCOUNT” even though Associated Bank knew that the account was to hold investor

funds.





recommending that an account in the name of the fictitious Crown Forex LLC be

opened instead of the foreign domiciled Crown Forex, SA.





business was located in an office located at 5413 Nicollet Ave, Ste 14, Minneapolis,

Minnesota even though Associated Bank knew that Kiley operated out of a residence,

not an office, located on Tiffany Court, Burnsville, MN.







44 AMECURRENT 720331175.1 21-Apr-16 10:51







(L) Accepting the false GreenDog Sports address on the ODM documentation for

the Crown Forex LLC account #1705.

Opening account #5214 to Basel Group LLC without proper documentation.

Falsely stating that the legitimacy of the Basel Group LLC had been verified on the

account application for compliance with the Patriot Act.

Continuing to allow account #5214 to remain operational even though it was known that

proper documentation for the LLC was not obtained.

Falsely stating on the account documentation for account #5214 that it was a



Falsely stating on the account documentation for account #2356 that it was a



(M) Allowing the Crown Forex LLC account #1705 to remain operational even after

the Monitoring Department knew that proper documentation had not been obtained.


45 AMECURRENT 720331175.1 21-Apr-16 10:51




(O) Allowing Cook to transfer millions from the Crown Forex LLC account #1705

to his own accounts despite his lack of signatory authority on account #1705.



“correcting” an improper transfer of $1.7 million of investor funds from the Crown

Forex LLC account #1705 to Cook’s own account made by Vice President Sarles.






despite the knowledge that proper documentation for the account had not been

obtained.






46 AMECURRENT 720331175.1 21-Apr-16 10:51





(X) Opening account #5214 to Basel Group LLC without proper

documentation.

(Y) Falsely stating that the legitimacy of the Basel Group LLC had been

verified on the account application for compliance with the Patriot Act.


known that proper documentation for the LLC was not obtained.(AA) Falsely

stating on the account #5214 to remain operational even though it was known that

proper documentation for account #5214 that it was a “Checking/Money Market”

account even though Associated Bank knew that the account was to hold investor

fundsthe LLC was not obtained.






47 AMECURRENT 720331175.1 21-Apr-16 10:51






take such action.




In addition, see the Receiver’s response to Interrogatory Nos. 5 and 8.


Exhibit 21


UNITED STATES DISTRICT COURT

DISTRICT OF MINNESOTA

R.J. Zayed, in his Capacity as Court-Appointed Receiver for Trevor G. Cook et al., Petitioner, Case No: 11-cv-01042 SRN/FLN v. David Buysse, Steven and Pamela Cheney, Walter Defiel, John Dzik, Terry Frahm, Steven and Jenene Fredell, William Harris, Michael and Jennifer Heise, Michael and Cynthia Hillesheim, Larry Hopfenspirger, Steven Kautzman, James McIntosh, George and Karen Morrisset, Reynold Sundstrom, and Dot Anderson, Respondents. RECEIVER’S OBJECTIONS AND RESPONSES TO RESPONDENTS’

SECOND SET OF INTERROGATORIES (NOS. 8-21)

The Receiver, R.J. Zayed, (“the Receiver”), pursuant to Fed. R. Civ. P. 33,

responds to Respondents Steven and Pamela Cheney, David Buysse, Walter

Defiel, Steven and Jenene Fredell, Michael and Jennifer Heise, Michael and

Cynthia Hillesheim, Larry Hopfenspirger, Steven Kautzman, James McIntosh,

George and Karen Morisset, Terry Frahm, and Reynold and Judith Sundstrom’s

(“the Respondents”) Second Set of Interrogatories to the Receiver, as follows:

EXHIBIT 1

CASE 0:11-cv-01042-SRN-FLN Document 124-1 Filed 09/19/11 Page 1 of 50CASE 0:13-cv-00232-DSD-JSM Document 125-2 Filed 04/25/16 Page 2 of 51

2

GENERAL OBJECTIONS

The General Objections set forth in this section shall apply to each of the

Respondents’ interrogatories regardless of whether these objections are

specifically stated in the Receiver’s responses and objections to them.

1. The Receiver objects to the Interrogatories to the extent that they

assume or imply that Trevor Cook (“Cook”) and his co-conspirators were running

a legitimate investment program. At all times relevant to these Requests, Cook

and his co-conspirators were running a Ponzi scheme, using the Receivership

Entities to defraud hundreds of victims through numerous materially false and

misleading statements, representations, promises, and omissions. Any funds given

to Cook, his co-conspirators, or any salesperson or employee of the Receivership

Entities were neither “investments” in any legitimate foreign currency program or

any other legitimate investment program nor “loans” to the Receivership Entities.

Rather the money was stolen by Cook and his co-conspirators immediately upon

receipt. The stolen money was used by Cook and his co-conspirators to further the

scheme by, among other things, paying earlier victims; paying salaries and

commissions of salespersons and employees used by Cook and his co-conspirators

to lure in more victims; paying operating expenses associated with maintaining the

appearance of legitimacy; funding promotional activities to lure more victims;

paying the personal expenses of Cook and his co-conspirators; and paying for the

extravagant lifestyles of Cook and his co-conspirators.

2. The Receiver objects to the characterization of the Respondents as

EXHIBIT 1


3

“lenders,” because no Respondent was a “lender.”

3. The Receiver objects to the Interrogatories to the extent that they

seek information subject to attorney-client privilege, work product immunity, or

any other privilege, whether based upon statute or recognized at common law.

4. The Receiver objects to the definitions and instructions set forth in

the Interrogatories to the extent they purport to impose duties on the Receiver

beyond the duties required by the Federal Rules of Civil Procedure or applicable

case law.

5. The Receiver objects to the Interrogatories to the extent they are not

reasonably calculated to lead to the discovery of admissible evidence and to the

extent they otherwise exceed the permissible scope of discovery under the Federal

Rules of Civil Procedure.

6. Some of the Interrogatories are specifically objected to as being

vague and ambiguous because they do not describe with reasonable particularity

the items or categories of information being sought. Because the scope of those

Interrogatories is in question, the Receiver reserves the right to object to those

Interrogatories as being overbroad and unduly burdensome and calling for

information that is not relevant. To the extent the Interrogatories contain vague

and ambiguous terms, the Receiver will in good faith respond based on the

ordinary usage and meaning of those terms. If the Respondents subsequently

assert any interpretation of its Interrogatories that differ from the Receiver’s

understanding, the Receiver reserves the right to alter, amend, or supplement its

EXHIBIT 1


4

objections and responses.

7. The Receiver objects to each Interrogatory to the extent it seeks

production of confidential or proprietary information of any individual or entity

that is not a party to this action.

RESPONSES AND OBJECTIONS TO INTERROGATORIES (NOS. 8-21)

Interrogatory No. 8:

Identify each and every fact relating to the extent of Clifford Berg's knowledge on June 26, 2009 of the SEC investigation of the Receivership entities.

Response: The Receiver objects to this Interrogatory as vague and ambiguous because

it seeks the identity of all facts “relating to” the extent of Clifford Berg’s

knowledge.

Subject to the foregoing general and specific objections, the Receiver states

that Cook testified as follows: At some point prior to June 29, 2009, Clifford Berg

(“Berg”) tried to call him because Berg had heard about an investigation. Cook

was not available when Berg called, so Berg talked to Eric Erickson, who lied to

Berg and said it was not an investigation—rather, the SEC was doing an audit.

(Cook Dep. July 20, 2011, at 77:14-78:4; Cook Dep. Oct. 5, 2010, at 168:17-

169:2.) Then either later that same day or the next day, Berg spoke with Cook and

asked whether it was a routine audit or an investigation. Cook then told Berg that

it was an investigation, not an audit, because “[y]ou know, I wasn’t going to lie to

him.” (Cook Dep. July 20, 2011, at 78:4-6, 78:20-21, 181:6-182:1; Cook Dep.

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Oct. 5, 2010, at 169:3-11; Cook Dep. Oct. 6, 2010, at 295:3-6.) Berg then told

Cook that he wanted all of his clients’ accounts closed. (Cook Dep. July 20, 2011,

at 78:21-23, 138:18-20, 144:22-23; Cook Dep. Oct. 5, 2010, at 169:12-13.) Cook

also testified that Berg knew that there was an investigation, and that after Berg

found out about this investigation, he requested that his clients’ money be taken

out. (Cook Dep. July 20, 2011, at 78:16-21; Cook Dep. October 6, 2010, at

294:23-295:2.) Cook also testified that he physically delivered the cashiers checks

that Berg requested to Berg’s house. (Cook Dep. July 20, 2011, at 148:24-25.)

The Receiver further states that Clifford Berg told at least Respondents

Fredells, Frahm, Heise, Buysse, Kautzman, Hillesheims, Sundstrom, and

McIntosh, as well as William Harris, that he had closed their accounts because

there was an “investigation” or “audit” going on. (Cook Dep. July 20, 2011, at

116:2-10; S. Fredell Dep. Tr. at 75:4-9; J. Fredell Dep. Tr. at 32:13-21; T. Frahm

Dep. Tr. at 114:16-115:5, 115:21-116:4; J. Frahm Dep. Tr. at 48:15-20; M. Heise

Dep. Tr. at 79:13-19; D. Buysse Dep. Tr. at 20:7-12; 19:13-14; 18:24; S.

Kautzman Dep. Tr. at 52:4; 164:14-16; C. Hillesheim Dep. Tr. at 149:14-20; M.

Hillesheim Dep. Tr. at 78:22-79:10; R. Sundstrom Dep. Tr. at 198:8-13; J.

McIntosh Dep. Tr. at 163:24-164:2; W. Harris Dep. Tr. at 135:6-8.)

The Receiver further states that Respondent Harris testified that Berg told

Harris that Cook stopped over to Berg’s house on the Sunday night immediately

following the SEC’s investigation and that Cook told Berg that “there was an

investigation of one of Trevor’s partners.” (Harris Dep. Tr. at 138:20-139:4.)

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The Receiver further states that on June 30, 2009 Berg went to American

Bank’s Apple Valley branch location and indicated that he wanted to deposit

several large checks into his savings account and in so doing made the comment

that he was “trying to help his son-in-law.” (Hearing Tr., 09-cv-3333, Docket No.

207, at 36-38 (Dec. 4, 2009) 1; see also IR016909-IR016911.)

The Receiver further states that since at least January 2011 he has made

available for inspection and copying all documents and things seized from the

Receivership Entities.


Identify each and every fact supporting your allegation in paragraph 31 of the Petition that "each Respondent received at least one preferential transfer... after Cook became aware that Crown Forex SA was in liquidation and that his Ponzi scheme had been discovered by the SEC.... " Response: Subject to the foregoing general and specific objections, the Receiver states

that beginning by at least January 2007, and continuing through at least July 2009,

Trevor Cook and his co-conspirators, aided and abetted by others, knowingly and

intentionally created, devised, executed, and attempted to execute a scheme and

artifice to defraud, and to obtain money and other things of value, by means of

materially false and misleading statements and representations.

The Receiver further states that during the course of the scheme, Cook and

his co-conspirators, aided and abetted by others, raised at least $190 million by 1 This transcript is available from Chief Judge Davis’ court reporter, Lori Simpson, who can be reached at 612-664-5104.

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selling purported “investments” in a purported “foreign currency trading

program.”

The Receiver further states that Cook and his co-conspirators caused false

statements to be made in furtherance of the scheme, including but not limited to

promises that the purported foreign currency trading program would generate

guaranteed annual returns of approximately 10% to 12% and that the purported

currency trading program involved little or no risk to “investors’” principal. Cook

and his co-conspirators told potential investors that the investment generated the

promised rate of return through an “arbitrage” strategy that took advantage of

differences in the interest rates of foreign currencies through split-second trading.

Cook and his co-conspirators further explained that the Receivership Entities’

strategy involved investing in a long position in one currency pair and a mirror

short position in a second currency pair. As described by Cook and his co-

conspirators, one position allegedly earned more interest than the other position

paid, such that the investment involved little to no risk.

The Receiver further states that, in furtherance of the scheme, Cook and his

co-conspirators caused material information to be withheld from investors,

including but not limited to: the precarious financial position of Crown Forex, SA

in Switzerland, an entity through which Cook purportedly was placing currency

trades; the fact that currency trading conducted by Cook, his co-conspirators, and

their agents from July 1, 2006 through August 31, 2009 at PFG in Chicago

generated trading losses in excess of $35 million; and the fact that tens of millions

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of investors’ dollars were used for purposes such as gambling, casino and other

land deals, purported ownership interests in other ventures, acquisition of the Van

Dusen mansion, funding personal, travel, and entertainment expenses of Cook and

his co-conspirators, paying off earlier “investors” in the “currency trading

program” and providing funds to Crown Forex, SA. in an effort to deceive Swiss

regulators.


co-conspirators caused statements to be sent to victim “investors” that

misrepresented the use and status of the funds they thought they invested in the

currency trading program. Cook and his co-conspirators caused fictitious account

statements to be generated and checks to be issued to certain “investors” on a

monthly basis that purported to be based on “returns” on “investment.”

Although these statements purported to reflect positive investment returns,

in fact, the statements were not based on any underlying reality. Instead, they

were produced through simple arithmetic by individuals working on behalf of the

Receivership Entities. Specifically, employees of the Receivership Entities

multiplied an investor’s “investment” by the promised rate of return to identify the

monthly investment return amount. The employees then used that number in

creating the monthly lulling checks that were sent to investors and which

purported to reflect the return on the investment. In reality, these returns reflected

on the statements and checks bore no relationship to actual returns on any

“investment” through the Receivership Entities. The monthly checks that were

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issued to certain “investors” were paid from money stolen from other “investors.”


co-conspirators caused an account to be opened in the name of Crown Forex LLC

at Associated Bank, account number XXXX-1705, which account was used to

collect and commingle funds from victim investors. Those commingled funds

were then diverted for the personal use of Cook and his co-conspirators, to

promote the Ponzi scheme, and to keep it going.


co-conspirators caused a bank account to be opened in the name of UBS

Diversified Growth LLC at Wells Fargo, account number XXX-XXX2710, which

account was used to collect and commingle funds from victim investors, and that

those commingled funds were then diverted for the personal use of Cook and his

co-conspirators, to promote the Ponzi scheme, and to keep it going.


co-conspirators caused a bank account to be opened in the name of Basel Group

LLC at Associated Bank, account number XXX-5214, which account was used to

collect and commingle funds from victim investors, and that those commingled

funds were then diverted for the personal use of Cook and his co-conspirators to

promote the Ponzi scheme, and to keep it going.


co-conspirators caused a purported due diligence letter to be prepared falsely

representing that Oxford Global Advisors had in excess of $4 billion in assets

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under management and that all accounts were 100% liquid. Neither of these

representations had any basis in reality.

The Receiver further states that in February 2008 Cook and/or his co-

conspirators were advised that Crown Forex S.A. was “illiquid” and that the

management of Crown Forex, SA, did not have the company under control

financially. Plea Agreement, USA v. Pettengill, 11-cr-192, at para. n (Docket No.

6) (D. Minn. June 21, 2011). To prop up Crown Forex, SA, as well as the

Receivership Entities’ existing investment therein, Cook and his co-conspirators

agreed to provide approximately $4 million to Crown Forex, SA, in a transaction

that purported to include an option for Oxford Global Advisors to assume control

over the majority of Crown Forex SA's operations. Plea Agreement, USA v.

Pettengill, 11-cr-192, at para. o. Specifically, Cook testified that he represented to

the Swiss Financial Market Supervisory Authority (“FINMA”) that he was an

owner of Crown Forex SA. Cook further testified that he participated in a plan to

“cook [the] books” of Crown Forex SA. Cook created false statements that

purported to show that Crown Forex SA had an account with Receivership Entity

UBS Diversified and had deposited gold worth over $2 million into that account.

The investigators who were in control of Crown Forex SA then demanded that the

UBS Diversified account be closed and the “gold” on deposit be sold. The

investigators further demanded that UBS Diversified wire the value of the account

to Crown Forex SA. To maintain the ruse, Cook then simply wired $2,422,000,

consisting of funds stolen from “investors” in his Ponzi scheme, to Crown Forex

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SA. (Cook Dep. Tr. at 138:16-142:22 (Oct. 5, 2010).)

The Receiver further states that on December 9, 2008 FINMA ordered that

Crown Forex S.A. customers would not be able to withdraw funds without

FINMA’s consent and that Crown Forex S.A. could no longer accept clients.

FINMA also appointed two attorneys as “investigation agents” to take control of

Crown Forex, SA and conduct an investigation into its operations for illegal

acceptance of customer deposits and illegal activity as a foreign currency trader.

Cook was notified of the decision to appoint the “investigation agents” to take

control of Crown Forex SA on December 11, 2008. Complaint, CFTC v. Cook et

al., 09-cv-3332, at para. 31 (Docket No. 1) (D. Minn. Nov. 23, 2011); see also

Exhibit 1-2, CFTC v. Cook et al., 09-cv-3332, at para. 6 (Docket No. 19) (D.

Minn. Nov. 23, 2011). Cook sent a signed letter, dated December 16, 2008, to

FINMA expressing the views of Crown Forex SA on FINMA’s December 9,

2008 decision. Exhibit 1-2, CFTC v. Cook et al., 09-cv-3332, at para. 26. Cook

also corresponded via email with the “investigation agents” regarding the status of

the Crown Forex investigation. On February 23, 2009, FINMA ordered the

liquidation of Crown Forex SA. Exhibit 1-2, CFTC v. Cook et al., 09-cv-3332, at

1-19. On May 18, 2009 FINMA determined Crown Forex S.A. to be insolvent and

formally declared the firm bankrupt. Exhibit 1-2, CFTC v. Cook et al., 09-cv-

3332, at 20-40; see also Complaint, SEC v. Cook et al., 09-cv-3333, at para. 151-

154 (Docket No. 1) (D. Minn. Nov. 23, 2009). As the majority shareholder in

Crown Forex S.A., Cook was notified by FINMA about all of these events at or

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about the time they occurred. Complaint, SEC v. Cook et al., 09-cv-3333, at para.

155.

Cook also testified that he received a fax from Laurent Winkelman, one of

the “investigators” appointed by FINMA, informing Cook that FINMA now

controlled Crown Forex SA. (Cook Dep. Tr. at 705:24-706:7 (Oct. 28, 2010).)

Cook further testified that “[w]e were continually defending, you know, the

problems with Crown Forex [to internal sales staff.]” (Cook Dep. Tr. at 1558:2-4

(Dec. 1, 2010).) Cook further testified that some clients were calling in concerned

by what they were reading about Crown Forex. (Cook Dep. Tr. at 1558:12-22

(Dec. 1, 2010).)

Clifford Berg is Trevor Cook’s father-in-law. Berg was, and is, a carpet

salesman. To the Receiver’s knowledge, he has never had any formal training nor

did he have any prior experience in investment management of any kind, let alone

Forex trading. Nonetheless, he began working for Cook as an “investment broker”

by at least June 2007. But unlike the other “brokers” working for Cook, Berg did

not sign any sort of formal agreement. Rather, Berg relied on his family

connection to Cook, and Cook made sure that Berg received “commission”

payments for funds that he brought into the scheme, despite the absence of a

formal agreement that entitled Berg to such “commissions.” (E.g. IR009740;

IR012201.)

Berg and Cook also entered into an “agreement” where Cook promised

Berg that if there ever were any problems, he would shut down the accounts of

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Berg and Berg’s clients and send the money back. (Cook Dep. Tr. Oct. 5, 2010, at

168:5-8) Cook testified that he “had always had an agreement with Cliff” and

explained that “Cliff had stated to me that when he opened his own account, that

he wanted his [and his clients’] money out if there was ever a possibility that

anything would go wrong.” (Cook Dep. Tr. July 20, 2011, at 89:9-10, 180:4-13.)

Based on this “agreement” with Cook and Berg’s unique family connection to

Cook, Berg was able to get all of his “clients” out of the scheme as soon as he

found out about the SEC investigation. Moreover, each of Berg’s clients received

payouts not only of their “principle”, but also money equal to the fictitious

“profits” that they were promised.

Berg also had similar agreements with many of his clients, the

Respondents—Berg represented that he would use his inside position to “monitor”

the Receivership Entities and have funds sent to the Respondents if he ever had

any “concerns.” Amended Responses to Petitioner’s Discovery Requests, at pg.

19, para. xiii (May 23, 2011). Specifically:

Respondent Steven Fredell and his wife are lifelong friends of Berg and his wife Ellen. (S. Fredell Dep. Tr. at 40:14-23; J. Fredell Dep. Tr. at 14:1-7.) Fredell further testified that he made a “handshake deal” over the telephone with Cook: “It was understood that for any reason, big or small, cash me out, no questions asked.” (S. Fredell Dep. Tr. at 72:20-21, 73:12-14.) Fredell further testified that he also had an in-person “handshake deal” with Berg—“I said: You know, between you and Trevor, I’m counting on you to, you know, get my butt out of there if things are not up to snuff for any reason.” (S. Fredell Dep. Tr. at 73:20-23.) Fredell further testified that Berg knew about Fredell’s handshake deal with Cook and Cook knew about Fredell’s handshake deal with Berg. (S. Fredell Dep. Tr. at 74:7-12.) Fredell further testified that he trusted Berg to “be the point man, keep - keep an eye on things” from the inside, and that is exactly what Fredell

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understood Berg to be doing when he closed Fredell’s account. (S. Fredell Dep. Tr. at 147:19-148:4.)

Respondent Michael Heise testified that Cliff Berg “was under my

instructions in the past if anything did go backwards or whatever, to liquidate my accounts.” (M. Heise Dep. Tr. at 76:10-12; 252:4-17.) As part of this “agreement,” Berg was to be on the lookout for “a whole realm of possibilities, from theft, cheating, stealing, bad markets, bad decisions.” (M. Heise Dep. Tr. at 266:18-22.)

Respondent Michael Hillesheim testified that “[w]e had an agreement with

Cliff that when we opened these accounts up, we told Cliff: If there's something ever going on and we don’t get the return we’re supposed to be getting, then get our money out of there, because I did not want to lose that money.” (M. Hillesheim Dep. Tr. at 83:2-7.) Hillesheim further testified that up until Cliff Berg suddenly and unexpectedly closed the Hillesheims’ accounts in June 2009, the Hillesheims were getting the return they were supposed to. (M. Hillesheim Dep. Tr. at 194:4-19.) Hillesheim further testified that he understood that based on this agreement, Cliff Berg would continue to monitor the Hillesheims’ accounts (M. Hillesheim Dep. Tr. at 191:1-15) and send funds to the Hillesheims if Berg had any “concerns.” (M. Hillesheim Dep. Tr. at 193:15-20.)

Respondent Cynthia Hillesheim testified that she had an “understanding” with Berg where Berg “was supposed to watch our money so that if we thought he would -- we would lose it, you know, or something was going wrong, we would -- we'd be able to get it out.” (C. Hillesheim Dep. Tr. at 31:15-25, 71:24-72:1.) Cynthia Hillesheim further testified that when Berg suddenly and unexpectedly closed the Hillesheims’ accounts, she assumed that he had some “concerns” about the Receivership Entities and was acting on the “understanding” that they had. (C. Hillesheim Dep. Tr. at 63:17-23, 138:2-6, 138:21-24.)

Respondent Steven Kautzman testified that he told Berg that “you need to

protect me here and make darn sure that -- you know, that, you know, if you -- that we got to get out of this thing if there's ever anything going on.” (Kautzman Dep. Tr. at 19:10-15.) Kautzman also told Berg “you got to take care of me;;” “watch out for my butt;;” and “I need you to get my money clear if something happened.” (Kautzman Dep. Tr. at 55:25-56:1, 160:6-8, 160:20-21.) Kautzman testified that Berg “performed” on this agreement when he sent funds back to Kautzman. (Kautzman Dep. Tr. at 160:23-24, 161:6, 53:25-54:4, 55:23-56:7.)

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Respondent James McIntosh testified that Berg told him that Berg would “watch out for me and take care of me.” (McIntosh Dep. Tr. at 214:14-15, 216:18-19.) McIntosh further testified that Berg did ultimately “watch out” for him because Berg let McIntosh know about his concerns regarding the investigation of the Receivership Entities and sent funds to McIntosh. (McIntosh Dep. Tr. at 217:7-15.)

The Receiver further states that at least Buysse, Cheneys, Defiel, Frahms,

Fredells, Harrises, Heises, Hillesheims, Kautzman, McIntosh, and Sundstrom

knew that Berg was Cook’s father-in-law. (D. Buysse Dep. Tr. at 20:7-12, 21:2-7;

S. Cheney Dep. Tr. at 28:12-6; P. Cheney Dep. Tr. at 31:2-7, 69:8-22, 70:7-12; W.

Defiel Dep. Tr. at 41:1-7, 47:19-21, 55:21-4; T. Frahm Dep. Tr. at 43:18-20; J.

Frahm, Dep. Tr. at 13:8-16, 23:5-8, 26:10-24; S. Fredell Dep. Tr. at 44:16-8; J.

Fredell Dep. Tr. at 17:9-21, 28:10-2; W. Harris Dep. Tr. at 31:2-6; S. Harris Dep.

Tr. at 24:2-4; M. Heise Dep. Tr. at 26:20-5; J. Heise Dep. Tr. at 73:12-4; M.

Hillesheim Dep. Tr. at 19:20, 20:2-8, C. Hillesheim Dep. Tr. at 15:17-16:2; S.

Kautzman Dep. Tr. at 40:16-8; J. McIntosh Dep. Tr. at 41:17-24; R. Sundstrom

Dep. Tr. at 47:4-5, 58:21-5). The Receiver further states that at least Respondents

Buysse, Cheney, Defiel, Fredells, Heises, Hillesheims, Kautzman, McIntosh, and

Sundstrom knew that Berg was a carpet salesman by trade, not an investment

advisor. (D. Buysse Dep. Tr. at 48:21-23, 50:21-23; S. Cheney Dep. 27:20-25;

Defiel Dep. 29:1-5; J. Fredell Dep. 79:3-15; S. Fredell Dep. 44:7-18; M. Heise

Dep. 27:1-14; J. Heise Dep. 21:19-25, 22:1-12; C. Hillesheim Dep. Tr. at 16:12-

16; M. Hillesheim Dep. Tr. at 18:12-22; S. Kautzman Dep. Tr. at 29:4-18; J.

McIntosh Dep. 37:2-8, 86:17-22; R. Sundstrom Dep. 31:1-11; J. Sundstrom Dep.

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13:2-6.) Many Respondents knew that Berg had little or no knowledge of

investments or investment strategy or considered Berg to have little or no

knowledge of investments or investment strategy.

Respondent Buysse testified that he knew that Berg was not an investment advisor and did not have investment experience. Buysse further testified that he knew Berg did not have experience in the investment world. (D. Buysse Dep. Tr. at 50:21-51:4.)

Respondent Steven Fredell testified that Berg “doesn't know anything about

investments any more than the guy -- average guy walking down the street.” (S. Fredell Dep. Tr. at 46:11-25.)

Respondent Heise testified that Berg was his “account executive,” but that

it did not seem like Berg understood the investment strategy. (M. Heise Dep. Tr. at 37:8-25.) Heise further testified that Berg “was my account representative. I trusted that he knew what he was doing. I trusted that he knew what his son-in-law was doing.” (M. Heise Dep. 258:18-25.) Heise further testified that Berg “kept us informed about what was going on. If we needed to know something, he could at least give us an answer, but we relied on the fact -- just like I relied that UBS knew what they were doing, Credit Suisse knew what they were doing.” (M. Heise Dep. 260:2-15.)

Respondent McIntosh testified that he “understood that [Berg] had an

association with his son-in-law, you know, when he was helping his son-in-law find investors.” (J. McIntosh Dep. Tr. at 197:8-12.)

Respondent Kautzman testified that he was not aware that Berg had ever been an investment advisor, but nonetheless “I trusted it on faith that Cliff had been in it for X, Y, Z, and I’d known him for whatever we're talking, you know, and I -- he had a lot of respect in the [carpet] industry, and I just, you know, went with that.” (S. Kautzman Dep. Tr. at 35:5, 33:20-24.)

Respondent Michael Hillesheim testified that he considered Berg to be an “investment advisor,” but he also knew at the time he “invested” that Berg was a carpet salesman by trade. (M. Hillesheim Dep. Tr. at 19:1-9, 20:22-24.)

The Receiver further states that many of the Respondents considered Berg’s

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inside position with the Receivership Entities and/or his family connection to

Cook to give Berg a unique ability to effectively “look out” for them:

Respondent Jenene Fredell testified that she thought Berg was looking out for their money because she knew that he had an inside connection to Cook and because she knew that Cook was Berg’s son-in-law—if there were any developments in Cook’s businesses, Berg would be among the first to know. (J. Fredell Dep. Tr. at 23:16-24.)

Respondent Michael Heise testified that Berg told him that Berg would continue to monitor Heise’s accounts—Heise was comfortable investing through Berg because he “knew that [Berg] had an inside track of watching what was taking place [at Cook’s headquarters].” (M. Heise Dep. Tr. at 258:11-14; 259:9-11.)

Respondent Steve Kautzman testified that he felt assured that Berg could effectively look out for his money because of the “familial relationship he had” with Cook—because Berg was “family.” (Kautzman Dep. Tr. at 35:15-25, 158:25-159:13.)

Respondent McIntosh testified that he felt “more comfortable with” investing through Berg because he was “family” with Cook (McIntosh Dep. Tr. at 61:2-23), and that Berg would “be able to [keep an eye on the money] being it was his son-in-law that was involved as the principal of the business.” (McIntosh Dep. Tr. at 215:19-216:6.)

Respondent Steve Cheney testified that “we probably wouldn't have

invested the -- if it hadn't have been for (Berg) being a family member and -- you know, that just gave us a little more comfort knowing that.” (S. Cheney Dep. Tr. at 108:6-24.) Cheney further testified that “I think other people just had some comfort knowing that Cliff was connected to the -- to the family, and I mean we didn’t think he had any power. He wasn’t an officer or anything like that. He was just a salesman, but, you know –” (S. Cheney Dep. Tr. 111:6-11.)

The Receiver further states that several Respondents specifically testified

that it was their personal connection to Berg that allowed them to get funds

equivalent to their entire “investment” plus fictitious “profits” out of the scheme

when over 700 other investors were unable to:

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Respondent Michael Heise testified that he was able to get money out of the scheme “because I had Cliff Berg as my rep, and he did the right thing, got my money out.” (M. Heise Dep. Tr. at 274:24-275:2.)

Respondent Jennifer Heise testified that she and her husband Michael were able to get money out of the scheme “because of our relationship with Cliff Berg” and “assume[s]” that Berg was able to get their money out before anyone else’s. (J. Heise Dep. Tr. at 85:14-17, 86:1-4.)

Respondent Michael Hillesheim testified that he was able to get money out of the scheme because he “had a good agent” – because Berg was watching out for the Hillesheims’ money. (M. Hillesheim Dep. Tr. at 197:1-10.)

Respondent Cynthia Hillesheim testified that she was able to get money out of the scheme “because Cliff was watching out for us.” (C. Hillesheim Dep. Tr. at 151:6-9.

Respondent McIntosh testified that he was able to get money out of the scheme “because Cliff called me -- and had said to -- you know, under the circumstances, you should go ahead and, you know, take your money out.” (McIntosh Dep. Tr. at 210:24-211:3.)

Respondent Sundstrom testified that he was able to get money out of the scheme because “Cliff was watching out for me.” (Sundstrom Dep. Tr. at 133:11; 134:16-18; 135:4.)

The Receiver further states that on June 19, 2009 the SEC sent letters to

Trevor Cook informing him of the SEC’s intention to perform a non-public

investigation. On June 22, 2009, the SEC served subpoenas on Cook and his

entities and began an on-site investigation at the Van Dusen Mansion at 1900 La

Salle Avenue of Trevor Cook and the Receivership Entities that he and his co-

conspirators controlled and operated. (Cook Dep. July 20, 2011, at 78:7-12.) The

SEC’s on-site investigation lasted through at least Thursday, June 25, 2009.

Trevor Cook knew that the investigation related to the currency trading entities

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that he and his co-conspirators were operating. (Cook Dep. July 20, 2011, at

88:18-20.) Cook also knew that the SEC investigation was not a routine audit.

(Cook Dep. July 20, 2011, at 78:21.)

At some point prior to June 29, 2009, Berg learned of the SEC

investigation. Berg then tried to call Cook, but Cook was not available. Berg

instead talked to Eric Erickson, who lied to Berg by telling him that it was not an

investigation—rather, the SEC was doing an audit. (Cook Dep. July 20, 2011, at

77:14-78:4; Cook Dep. Oct. 5, 2010, at 168:17-169:2.) Later that same day, Berg

got a hold of Cook and asked whether it was a routine audit or an investigation.

Cook then told Berg that it was an investigation, not an audit, because “[y]ou

know, I wasn’t going to lie to him.” (Cook Dep. July 20, 2011, at 78:4-6, 78:20-

21, 181:6-182:1; Cook Dep. Oct. 5, 2010, at 169:3-11; Cook Dep. Oct. 6, 2010, at

295:3-6.) Berg then told Cook that he wanted all of his clients’ accounts closed.

(Cook Dep. July 20, 2011, at 78:21-23, 138:18-20, 144:22-23; Cook Dep. Oct. 5,

2010, at 169:12-13.) Cook also testified that Berg knew that there was an

investigation, and that after he found out about this investigation, he requested that

his clients’ money be taken out, along with his own money. (Cook Dep. July 20,

2011, at 78:16-21; Cook Dep. October 6, 2010, at 294:23-295:2.)

The Receiver further states that Clifford Berg told at least Respondents

Fredells, Frahm, Heise, Buysse, Kautzman, Hillesheims, Sundstrom, and

McIntosh, as well as William Harris, that he had closed their accounts because

there was an “investigation” or “audit” going on. (Cook Dep. July 20, 2011, at

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116:2-10; S. Fredell Dep. Tr. at 75:4-9; J. Fredell Dep. Tr. at 32:13-21; T. Frahm

Dep. Tr. at 114:16-115:5, 115:21-116:4; J. Frahm Dep. Tr. at 48:15-20; M. Heise

Dep. Tr. at 79:13-19; D. Buysse Dep. Tr. at 20:7-12; 19:13-14; 18:24; S.

Kautzman Dep. Tr. at 52:4; 164:14-16; C. Hillesheim Dep. Tr. at 149:14-20; M.

Hillesheim Dep. Tr. at 78:22-79:10; R. Sundstrom Dep. Tr. at 198:8-13; J.

McIntosh Dep. Tr. at 163:24-164:2; W. Harris Dep. Tr. at 135:6-8.)

On or about June 30, 2009, pursuant to Cook’s agreement with Berg, Cook

directed Julia Smith to go to an Associated Bank branch location to withdraw

funds from the account of Receivership Entity Crown Forex LLC, account number

XXX-XXX1705 and divide the funds into fourteen cashiers’ checks payable to

certain Respondents. (Cook Dep. July 20, 2011, at 154:23-25, 155:1-9.) On or

about June 30, 2009, pursuant to Cook’s agreement with Berg, Cook also directed

Patrick Kiley to go to a Wells Fargo Bank branch location and withdraw funds

from the account of Receivership Entity UBS Diversified Growth LLC, account

number XXX-XXX2710 and divide the funds into eleven cashiers’ checks payable

to certain other Respondents and to Cliff Berg and his wife Ellen Berg. (Cook

Dep. Nov. 8, 2010, at 942:2-22.) On or about July 1, 2009, pursuant to Cook’s

agreement with Clifford Berg, Cook directed Julia Smith to go to an Associated

Bank branch location to withdraw additional funds from the account of

Receivership Entity Crown Forex LLC, account number XXX-XXX1705 and

divide the funds into two cashiers’ checks payable to certain other Respondents.

Trevor Cook then physically delivered money that Berg requested, in the

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form of these cashiers’ checks, to Berg’s house. (Cook Dep. July 20, 2011, at

148:24-25.). Berg then distributed the cashiers’ checks that Cook had given him to

each of the Respondents. The Respondents testified that Berg distributed the

checks as follows:

Berg personally delivered the checks to Respondents Fredells, Frahm, Cheneys, and Heise. (S. Fredell Dep. Tr. at 75:1-2; J. Fredell Dep. Tr. at 32:3-34:2; T. Frahm Dep. Tr. at 115:11-13; J. Frahm Dep. Tr. at 48:12-50:6; S. Cheney Dep. Tr. at 59:2-4; M. Heise Dep. Tr. at 76:20-77:5; J. Heise Dep. Tr. at 36:10-19.)

Berg sent the checks via FedEx, UPS, or U.S. Mail to Respondents Buysse,

Kautzman, Hillesheims, Sundstrom, and McIntosh. (D. Buysse Dep. Tr. at 14:1-7, 24:14-17; S. Kautzman Dep. Tr. at 53:5-8; C. Hillesheim Dep. Tr. at 61:17-25; R. Sundstrom Dep. Tr. at 111:1-8; J. McIntosh Dep. Tr. at 162:12-16.)

Berg personally delivered a check for Respondent Hopfenspirger to Steve

Cheney. Cheney then mailed the check to Hopfenspirger. (L. Hopfenspirger Dep. Tr. at 125:7-9.)

Berg apersonally delivered checks for the Morissets and Walter Defiel to

John Dzik. (G. Morisset Dep. Tr. at 70:6-19, 73:21-23; K. Morisset Dep. Tr. at 33:1-3.) Dzik gave the checks to Defiel (W. Defiel Dep. Tr. at 59:7-9) and Defiel personally delivered the Morissets’ checks. (G. Morisset Dep. Tr. at 69:1-25; K. Morisset Dep. Tr. at 22:16-21.)

Thus, pursuant to earlier agreements and Berg’s personal request to Cook pursuant

to those agreements that Cook close Berg’s clients’ accounts and provide them

with funds equivalent to their principal “investment” plus “interest,” Cook caused

funds from entities controlled by himself and his and his co-conspirators to be

transferred to the Respondents through Berg.

The Receiver further states that least the following Respondents did not at

any time request the funds they received on or after June 30, 2009 and did not at

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any time request that their accounts be closed:

Steven Fredell (S. Fredell Dep. Tr. at 72:13-16) Jenene Fredell (J. Fredell Dep. Tr. at 30:19-31:9) George Morisset (G. Morisset Dep. Tr. at 77:1-2) Karen Morisset (K. Morisset Dep. Tr. at 40:9-11) Walter Defiel (W. Defiel Dep. Tr. at 59:11-18) Michael Heise (M. Heise Dep. Tr. at 71:6-9) Jennifer Heise (J. Heise Dep. Tr. at 34:15) David Buysse (D. Buysse Dep. Tr. at 14:8-17) Steve Kautzman (S. Kautzman Dep. Tr. at 43:17-22, 59:4-60:15) Michael Hillesheim (M. Hillesheim Dep. Tr. at 83:25-84:3) Cynthia Hillesheim (C. Hillesheim Dep. Tr. at 61:22-23) Reynold Sundstrom (R. Sundstrom Dep. Tr. at 113:9-13) James McIntosh (McIntosh Dep. Tr. at 163:8-9)

The Receiver further states that any funds given to Cook, his co-

conspirators, or any salesperson or employee of the Receivership Entities by the

Respondents were not “investments” in any legitimate “foreign currency program”

or any other legitimate “investment program.” Rather the Respondents’ original

“investments” were stolen by Cook and his co-conspirators immediately upon

receipt. The Receiver further states that each Respondent received funds equating

to 100% of the funds that were stolen from them by Cook and his co-conspirators

plus large amounts of accumulated fictitious “interest” or “profits”.

The Respondents have asserted that they were merely repaid their original

“investment,” and that by doing so the Receivership Entities were able to

extinguish a liability dollar-for-dollar. But when each Respondent received the

funds that are the subject of this action, he or she possessed only a claim against a

Receivership Entity for the original “investment” amount. That claim was worth

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23

substantially less than the funds each Respondent received because the money the

Respondent “invested,” along with all other “investments” in the Ponzi scheme,

was stolen by Cook and his co-conspirators upon receipt. Because this was a Ponzi

scheme, the Receivership Entities were insolvent from the onset and unable to

satisfy all victims’ claims on a dollar-for-dollar basis. Thus the funds the

Respondents received were far more than the value of their claims against a

Receivership Entity. The value of each Respondent’s claim is his or her pro rata

share of the stolen funds that are recovered from this fraud for the benefit of the

Receivership Entities. As of today’s date, each Respondent’s pro rata share is

approximately 2.5% of the amount stolen by Cook. The Receiver notes that over

700 other defrauded investors who lacked the Respondents’ insider connection to

Cook and inside information about the SEC investigation have thus far received

funds equating to about 2.5% of the funds that were stolen from them by Cook and

his co-conspirators. The Receiver further states that the funds that Cook caused to

be preferentially transferred to the Respondents through his father-in-law, Clifford

Berg, on or after June 30, 2009, drastically decreased the Receivership Entities’

ability to compensate other defrauded investors. See Order, Zayed v. Buysse et al.,

11-cv-1042, at 10 (Docket No. 108) (D. Minn. June 1, 2011) (“The payment to

Anderson undoubtedly dissipated the assets of the Receivership Entities and, in

turn, made less money available to other defrauded investors.”). In fact,

Respondents received more than has been paid out by the Receiver to all other

victims of the Ponzi scheme to date.

EXHIBIT 1


24

The Receiver further states that prior to June 30, 2009 other investors in the

fraudulent currency investment program run by Cook and his co-conspirators were

trying to close their accounts and retrieve the money they had invested, but Cook

refused to return the money. These investors include at least the following

individuals: Howard and Sharon Phillips (asked to close their account on June 4,

2009); David Phillips (asked to close his account on June 4, 2009); Kenneth and

Judy Hale (asked to close their account on June 24, 2009); and Kim and Joel Von

Ende (began trying to close their account as far back as January 2009). The

Receiver further refers the Respondents to the following document: Third

Amended Complaint, Phillips et al. v. Cook et al., 09-cv-1732 (D. Minn. Nov. 4,

2009). The Receiver further states that many other investors unsuccessfully

attempted to close their accounts with the Receivership Entities during the summer

of 2009 and refers the Respondents to the following documents: Complaint,

Phillips et al. v. Cook et al.¸09-cv-1732 (D. Minn. Nov. 4, 2009); Exhibit 2 to

Declaration of Scott J. Hlavacek, SEC v. Cook et al., 09-cv-3333 (Docket No. 4)

(D. Minn. Nov. 23, 2009);; Receiver’s First Amended Final Claims List, SEC

Docket No. 851-1, CFTC Docket No. 817-1 & Beckman Docket No. 133-1 (Jul. 1,

2011).

The Receiver further refers the Respondents to the following documents:

Order Allowing Summary Proceedings, SEC v. Cook et al., 09-cv-3333 (Docket

No. 380) (D. Minn. July 20, 2010); Plea Agreement, USA v. Cook, 10-cr-75

(Docket No. 7) (D. Minn. April 13, 2010); Plea Agreement, USA v. Pettengill, 11-

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25

cr-192 (Docket No. 6) (D. Minn. June 21, 2011); Receiver’s Disclosures Under

Rule 26(a)(1) of the Federal Rules of Civil Procedure (December 1, 2010); and the

Receiver’s First Amended Disclosures Under Rule 26(a)(1) of the Federal Rules

of Civil Procedure (July 1, 2011). The Receiver further states that since at least

January 2011 he has made available for inspection and copying all documents and

things seized from the Receivership Entities.


Identify each and every fact supporting your allegation in paragraph 32 of the Petition that "the money used to pay the Respondents came from the Receivership Entities funded with the money of victims of the scheme .... "

Response: The Receiver objects to this Interrogatory because the Receiver has

produced relevant documents from which this information can be readily

ascertained by the Respondents and since at least January 2011 has made available

for inspection and copying all documents and things seized from the Receivership

Entities. Subject to the foregoing general and specific objections, the Receiver

states that at all times relevant to this Interrogatory, Cook and his co-conspirators

were running a Ponzi scheme and were using the Receivership Entities to defraud

hundreds of victims through numerous materially false and misleading statements,

representations, promises, and omissions. Any funds given to Cook, his co-

conspirators, or any salesperson or employee of the Receivership Entities were not

“investments” in any legitimate “foreign currency program” or any other

legitimate “investment program.” Rather the Respondents’ original “investments”

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26

were stolen by Cook and his co-conspirators immediately upon receipt and used to

support the scheme and for their personal expenses. The stolen money was

commingled among various bank accounts held in the name of Receivership

Entities and controlled by Cook and his co-conspirators, including at least the

following: account number XXX-XXX2710, held at Wells Fargo in the name of

UBS Diversified FX Growth, account number XXX-XXX5214, held at Associated

Bank in the name of Basel Group LLC, account number XXX-XXX1705, held at

Associated Bank in the name of Crown Forex LLC, account numbers XXX-

XXX5606 and XXX-XXX5598, both held at Wells Fargo in the name of Oxford

Global Advisors, and account number XXX-XXX5601, held at Associated Bank

in the name of Universal Brokerage FX Management. The commingled funds

were used by Cook and his co-conspirators to further the scheme by, among other

things, paying earlier victims; paying salaries and commissions of salespersons

and employees who Cook and his co-conspirators used to lure in more victims;

paying operating expenses associated with maintaining the appearance of

legitimacy; funding promotional activities to lure more victims; paying the

personal expenses of Cook and his co-conspirators; and using the money to

support their extravagant lifestyles. Thus the funds the Respondents received were

not the funds they transferred to the Receivership Entities; rather, the funds they

received consisted of commingled funds stolen from other investors.

The Receiver further states that Cook has admitted under oath to, among

other things, “diverting investor funds to make payments of interest and principal

EXHIBIT 1


27

to other investors and to pay personal expenses.” Order Allowing Summary

Proceedings, SEC v. Cook et al., 09-cv-3333, at para. C (Docket No. 380) (D.

Minn. July 20, 2011). The Receiver further states that this Court has found that

“All assets transferred from or by any Receivership entity named in the above-

captioned lawsuits, through November 2009, were transferred pursuant to

[Cook’s] Ponzi scheme.” Id. at para. D. The Receiver further refers the

Respondents to the Declaration of Scott J. Hlavacek, SEC v. Cook et al., 09-cv-

3333, at para. 21, 22, and 35 (Docket No. 4) (D. Minn. Nov. 23, 2009).

Subject to the foregoing general and specific objections, and without

limiting the Receiver’s right to supplement this response after a reasonable

opportunity for further discovery, the Receiver further identifies the following

documents pursuant to Federal Rule of Civil Procedure 33(d): IR012476-

IR018228.


Identify each and every fact supporting your allegation in paragraph 33 of the Petition that "each Respondent received Receivership funds," including an explanation of how any funds received by any individual Lender Respondent from the Receivership entities before the institution of the Receivership over the Receivership entities could be classified as "Receivership funds." Response: The Receiver objects to this Interrogatory because is calls for a legal

conclusion. The Receiver further objects to the characterization of the

Respondents as “lenders,” because no Respondent was a “lender.” Subject to the

foregoing general and specific objections, the Receiver refers the Respondents to

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28

his response to Interrogatory No. 10.

Interrogatory No. 12: Identify each and every fact supporting your allegation in paragraph 34 of the Petition that "Cook initiated the transfers to each Respondent on or after June 29, 2009 with actual intent to avoid, hinder, or delay payments to other creditors of Cook and the Receivership Entities.” Response:

The Receiver objects to this Interrogatory because it calls for a legal

conclusion. Subject to the foregoing specific and general objections, the Receiver

refers the Respondents to his response to Interrogatory No. 9.


Identify each and every fact supporting your allegation in paragraph 35 of the Petition that "each Respondent knew or should have known that the transfers they received on or after June 29, 2009, were fraudulent conveyances."

Response: The Receiver objects to this Interrogatory because it calls for a legal

conclusion. Subject to the foregoing general and specific objections, the Receiver

states that each Respondent received the funds that are the subject of this action in

the form of one or more cashiers’ checks. Exhibit 2 to Petition for Return of

Receivership Assets from Investor Respondents, Zayed v. Buysse, 11-cv-1042

(Docket No. 1-2) (D. Minn. July 23, 2010).

The Receiver further states that at least the following Respondents did not

at any time request the funds they received on or after June 30, 2009 and did not at

any time request that their accounts be closed:

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29

Steven Fredell (S. Fredell Dep. Tr. at 72:13-16) Jenene Fredell (J. Fredell Dep. Tr. at 30:19-31:9) George Morisset (G. Morisset Dep. Tr. at 77:1-2) Karen Morisset (K. Morisset Dep. Tr. at 40:9-11) Walter Defiel (W. Defiel Dep. Tr. at 59:11-18) Michael Heise (M. Heise Dep. Tr. at 71:6-9) Jennifer Heise (J. Heise Dep. Tr. at 34:15) David Buysse (D. Buysse Dep. Tr. at 14:8-17) Steve Kautzman (S. Kautzman Dep. Tr. at 43:17-22, 59:4-60:15) Michael Hillesheim (M. Hillesheim Dep. Tr. at 83:25-84:3) Cynthia Hillesheim (C. Hillesheim Dep. Tr. at 61:22-23) Reynold Sundstrom (R. Sundstrom Dep. Tr. at 113:9-13) James McIntosh (McIntosh Dep. Tr. at 163:8-9)

The Receiver further states that Berg represented that he would use his

inside position to “monitor” the Receivership Entities and have funds sent to the

Respondents if he ever had any “concerns.” Amended Responses to Petitioner’s

Discovery Requests, at pg. 19, para. xiii (May 23, 2011). Specifically:

Respondent Steven Fredell and his wife are lifelong friends of Berg and his wife Ellen. (S. Fredell Dep. Tr. at 40:14-23; J. Fredell Dep. Tr. at 14:1-7.) Fredell further testified that he made a “handshake deal” over the telephone with Cook: “It was understood that for any reason, big or small, cash me out, no questions asked.” (S. Fredell Dep. Tr. at 72:20-21, 73:12-14.) Fredell further testified that he also had an in-person “handshake deal” with Berg—“ I said: You know, between you and Trevor, I'm counting on you to, you know, get my butt out of there if things are not up to snuff for any reason.” (S. Fredell Dep. Tr. at 73:20-23.) Fredell further testified that Berg knew about Fredell’s handshake deal with Cook and Cook knew about Fredell’s handshake deal with Berg. (S. Fredell Dep. Tr. at 74:7-12.) Fredell further testified that he trusted Berg to “be the point man, keep - keep an eye on things” from the inside, and that is exactly what Fredell understood Berg to be doing when he closed Fredell’s account. (S. Fredell Dep. Tr. at 147:19-148:4.)

Respondent Michael Heise testified that Cliff Berg “was under my

instructions in the past if anything did go backwards or whatever, to liquidate my accounts.” (M. Heise Dep. Tr. at 76:10-12; 252:4-17.) As part of this “agreement,” Berg was to be on the lookout for “a whole realm

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30

of possibilities, from theft, cheating, stealing, bad markets, bad decisions.” (M. Heise Dep. Tr. at 266:18-22.)

Respondent Michael Hillesheim testified that “[w]e had an agreement with

Cliff that when we opened these accounts up, we told Cliff: If there's something ever going on and we don’t get the return we're supposed to be getting, then get our money out of there, because I did not want to lose that money.” (M. Hillesheim Dep. Tr. at 83:2-7.) Hillesheim further testified that up until Cliff Berg suddenly and unexpectedly closed the Hillesheims’ accounts in June 2009, the Hillesheims were getting the return they were supposed to. (M. Hillesheim Dep. Tr. at 194:4-19.) Hillesheim further testified that he understood that based on this agreement, Cliff Berg would continue to monitor the Hillesheims’ accounts (M. Hillesheim Dep. Tr. at 191:1-15) and send funds to the Hillesheims if Berg had any “concerns.” (M. Hillesheim Dep. Tr. at 193:15-20.)

Respondent Cynthia Hillesheim testified that she had an “understanding” with Berg where Berg “was supposed to watch our money so that if we thought he would -- we would lose it, you know, or something was going wrong, we would -- we'd be able to get it out.” (C. Hillesheim Dep. Tr. at 31:15-25, 71:24-72:1.) Cynthia Hillesheim further testified that when Berg suddenly and unexpectedly closed the Hillesheim’s accounts, she assumed that he had some “concerns” about the Receivership Entities and was acting on the “understanding” that they had. (C. Hillesheim Dep. Tr. at 63:17-23, 138:2-6, 138:21-24.)

Respondent Steven Kautzman testified that he told Berg that “you need to

protect me here and make darn sure that -- you know, that, you know, if you -- that we got to get out of this thing if there's ever anything going on.” (Kautzman Dep. Tr. at 19:10-15.) Kautzman also told Berg “you got to take care of me;;” “watch out for my butt;;” and “I need you to get my money clear if something happened.” (Kautzman Dep. Tr. at 55:25-56:1, 160:6-8, 160:20-21.) Kautzman testified that Berg “performed” on this agreement when he sent funds back to Kautzman. (Kautzman Dep. Tr. at 160:23-24, 161:6, 53:25-54:4, 55:23-56:7.)

Respondent James McIntosh testified that Berg told him that Berg would “watch out for me and take care of me.” (McIntosh Dep. Tr. at 214:14-15, 216:18-19.) McIntosh further testified that Berg did ultimately “watch out” for him because Berg let McIntosh know about his concerns regarding the investigation of the Receivership Entities and sent funds to McIntosh. (McIntosh Dep. Tr. at 217:7-15.)

EXHIBIT 1


31

The Receiver further states that at least Buysse, Cheneys, Defiel, Frahms,

Fredells, Harrises, Heises, Hillesheims, Kautzman, McIntosh, and Sundstrom

knew that Berg was Cook’s father-in-law. (D. Buysse Dep. Tr. at 20:7-12, 21:2-7;

S. Cheney Dep. Tr. at 28:12-6; P. Cheney Dep. Tr. at 31:2-7, 69:8-22, 70:7-12; W.

Defiel Dep. Tr. at 41:1-7, 47:19-21, 55:21-4; T. Frahm Dep. Tr. at 43:18-20; J.

Frahm, Dep. Tr. at 13:8-16, 23:5-8, 26:10-24; S. Fredell Dep. Tr. at 44:16-8; J.

Fredell Dep. Tr. at 17:9-21, 28:10-2; W. Harris Dep. Tr. at 31:2-6; S. Harris Dep.

Tr. at 24:2-4; M. Heise Dep. Tr. at 26:20-5; J. Heise Dep. Tr. at 73:12-4; M.

Hillesheim Dep. Tr. at 19:20, 20:2-8, C. Hillesheim Dep. Tr. at 15:17-16:2; S.

Kautzman Dep. Tr. at 40:16-8; J. McIntosh Dep. Tr. at 41:17-24; R. Sundstrom

Dep. Tr. at 47:4-5, 58:21-5).

The Receiver further states that at least Respondents Buysse, Cheney,

Defiel, Fredells, Heises, Hillesheims, Kautzman, McIntosh, and Sundstrom knew

that Berg was a carpet salesman by trade, not an investment advisor. (D. Buysse

Dep. Tr. at 48:21-23, 50:21-23; S. Cheney Dep. 27:20-25; Defiel Dep. 29:1-5; J.

Fredell Dep. 79:3-15; S. Fredell Dep. 44:7-18; M. Heise Dep. 27:1-14; J. Heise

Dep. 21:19-25, 22:1-12; C. Hillesheim Dep. Tr. at 16:12-16; M. Hillesheim Dep.

Tr. at 18:12-22; S. Kautzman Dep. Tr. at 29:4-18; J. McIntosh Dep. 37:2-8, 86:17-

22; R. Sundstrom Dep. 31:1-11; J. Sundstrom Dep. 13:2-6.) Many Respondents

knew that Berg had little or no knowledge of investments or investment strategy or

considered Berg to have little or no knowledge of investments or investment

strategy.

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32

Respondent Buysse testified that he knew that Berg was not an investment

advisor and did not have investment experience. Buysse further testified that he knew Berg did not have experience in the investment world. (D. Buysse Dep. Tr. at 50:21-51:4.)

Respondent Steve Cheney testified that “Cliff is a poster boy for a carpet

peddler, and I should know after 41 years. He's just kind of an old-fashioned carpet peddler. And I mean he wasn't able to answer any questions beyond the interest rate and much.” (S. Cheney Dep. Tr. at 28:1-11.)

Respondent Steven Fredell testified that Berg “doesn't know anything about

investments any more than the guy -- average guy walking down the street.” (S. Fredell Dep. Tr. at 46:11-25.)

Respondent Heise testified that Berg was his “account executive,” but that

it did not seem like Berg understood the investment strategy. (M. Heise Dep. Tr. at 37:8-25.) Heise further testified that Berg “was my account representative. I trusted that he knew what he was doing. I trusted that he knew what his son-in-law was doing.” (M. Heise Dep. 258:18-25.) Heise further testified that Berg “kept us informed about what was going on. If we needed to know something, he could at least give us an answer, but we relied on the fact -- just like I relied that UBS knew what they were doing, Credit Suisse knew what they were doing.” (M. Heise Dep. 260:2-15.)

Respondent McIntosh testified that he “understood that [Berg] had an

association with his son-in-law, you know, when he was helping his son-in-law find investors.” (J. McIntosh Dep. Tr. at 197:8-12.)

Respondent Kautzman testified that he was not aware that Berg had ever been an investment advisor, but nonetheless “I trusted it on faith that Cliff had been in it for X, Y, Z, and I'd known him for whatever we're talking, you know, and I -- he had a lot of respect in the [carpet] industry, and I just, you know, went with that.” (S. Kautzman Dep. Tr. at 35:5, 33:20-24.)

Respondent Michael Hillesheim testified that he considered Berg to be an “investment advisor,” but he also knew at the time he “invested” that Berg was a carpet salesman by trade. (M. Hillesheim Dep. Tr. at 19:1-9, 20:22-24.)

The Receiver further states that many of the Respondents considered Berg’s

EXHIBIT 1


33

inside position with the Receivership Entities and/or his family connection to

Cook to give Berg a unique ability to effectively “look out” for the funds:

Respondent Jenene Fredell testified that she thought Berg was looking out for their money because she knew that he had an inside connection to Cook and because she knew that Cook was Berg’s son-in-law—if there were any developments in Cook’s businesses, Berg would be among the first to know. (J. Fredell Dep. Tr. at 23:16-24.)

Respondent Michael Heise testified that Berg told him that Berg would continue to monitor Heise’s accounts—Heise was comfortable investing through Berg because he “knew that [Berg] had an inside track of watching what was taking place [at Cook’s headquarters].” (M. Heise Dep. Tr. at 258:11-14; 259:9-11.)

Respondent Steve Kautzman testified that he felt assured that Berg could effectively look out for his money because of the “familial relationship he had” with Cook—because Berg was “family.” (Kautzman Dep. Tr. at 35:15-25, 158:25-159:13.)

Respondent McIntosh testified that he felt “more comfortable with” investing through Berg because he was “family” with Cook (McIntosh Dep. Tr. at 61:2-23), and that Berg would “be able to [keep an eye on the money] being it was his son-in-law that was involved as the principal of the business.” (McIntosh Dep. Tr. at 215:19-216:6.)

Respondent Steve Cheney testified that “we probably wouldn't have

invested the -- if it hadn't have been for (Berg) being a family member and -- you know, that just gave us a little more comfort knowing that.” (S. Cheney Dep. Tr. at 108:6-24.) Cheney further testified that “I think other people just had some comfort knowing that Cliff was connected to the -- to the family, and I mean we didn't think he had any power. He wasn't an officer or anything like that. He was just a salesman, but, you know –“ (S. Cheney Dep. Tr. 111:6-11.)

The Receiver further states that several Respondents specifically testified

that it was their personal connection to Berg that allowed them to get funds

equivalent to their entire “investment” plus fictitious “profits” out of the scheme

when over 700 other investors were unable to:

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34

Respondent Michael Heise testified that he was able to get money out of the scheme “because I had Cliff Berg as my rep, and he did the right thing, got my money out.” (M. Heise Dep. Tr. at 274:24-275:2.)

Respondent Jennifer Heise testified that she and her husband Michael were

able to get money out of the scheme “because of our relationship with Cliff Berg” and “assume[s]” that Berg was able to get their money out before anyone else’s. (J. Heise Dep. Tr. at 85:14-17, 86:1-4.)

Respondent Michael Hillesheim testified that he was able to get money out

of the scheme because he “had a good agent” – because Berg was watching out for the Hillesheim’s money. (M. Hillesheim Dep. Tr. at 197:1-10.)

Respondent Cynthia Hillesheim testified that she was able to get money out of the scheme “because Cliff was watching out for us.” (C. Hillesheim Dep. Tr. at 151:6-9.

Respondent McIntosh testified that he was able to get money out of the scheme “because Cliff called me -- and had said to -- you know, under the circumstances, you should go ahead and, you know, take your money out.” (McIntosh Dep. Tr. at 210:24-211:3.)

Respondent Sundstrom testified that he was able to get money out of the scheme because “Cliff was watching out for me.” (Sundstrom Dep. Tr. at 133:11; 134:16-18; 135:4.)

The Receiver further states that at least Respondents Buysse, Cheneys,

Defiel, Fredels, Heises, Hillesheims, Kautzman, McIntosh, Morissets, and

Sundstrom did not make any written request to close accounts purportedly held

with the Receivership Entities and did not make any written request for the funds

they received on or after June 29, 2009. Respondent Frahm produced a letter

dated May 5, 2009, but the letter is unsigned and Frahm has no specific

recollection of ever having sent it. (T. Frahm Dep. Tr. at 173:16-175:12.)

The Receiver further states that none of the Respondents received any

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account closing documents, receipts, final statements, or paperwork of any kind

with the cashiers checks they received on or after June 29, 2009.

The Receiver further states that all Respondents signed Crown Forex,

Oxford Global Advisors, Oxford Global Partners, or UBS Diversified agreements

requiring that the party who terminates the purported “account” provide prior

written notice:

At least Respondents Buysse, Frahm, Fredells, Heise, Hillesheims, Kautzman, McIntosh, Morissets, and Sundstrom signed Crown Forex agreements requiring the party terminating the account to give written notice to the other party. (Buysse Dep. Ex. 8; T. Frahm Ex. 26; J. Fredell Dep. Ex. 26; S. Fredell Dep. Ex. 12; M. Heise Dep. Exs. 9, 10; M. Hillesheim Dep. Ex. 36; C. Hillesheim Dep. Ex. 17; Kautzman Dep. Ex. 9; McIntosh Dep. Ex. 5; G. Morisset Dep. Ex. 4; K. Morisset Dep. Ex. 28; Sundstrom Dep. Ex. 11.)

At least Respondents Buysse, S. Cheney, Defiel, Frahm, Heise, and

Sundstrom signed Oxford Global Advisors agreements requiring the party who terminates the purported “account” to provide 30 days written notice to the other party. (Buysse Dep. Ex. 4; IR002745-IR002750 (S. Cheney); Defiel Dep. Ex. 5; T. Frahm Ex. 16-18; M. Heise Dep. Ex. 8; Sundstrom Dep. Ex. 8.)

At least Respondents Fredells, Heise, Hillesheims, Kautzman, McIntosh,

and Sundstrom signed Oxford Global Advisors agreements requiring the party who terminates the purported “account” to provide written notice to the other party. (S. Fredell Dep. Ex. 16; J. Fredell Dep. Ex. 30; M. Heise Dep. Ex. 15; M. Hillesheim Dep. Exs. 40-41; C. Hillesheim Ex. 20; Kautzman Ex. 11; McIntosh Dep. Ex. 7; Sundstrom Dep. Ex. 10.)

At least Repondents Frahm, Fredells, and Hillesheims signed UBS

Diversified agreements requiring the party terminating the account to provide written notice to the other party. (Frahm Dep. Ex. 8; S. Fredell Dep. Ex. 10; J. Fredell Dep. Ex. 24; M. Hillesheim Dep. Ex. 42; C. Hillesheim Dep. Ex. 9.)

Respondent Hopfenspirger also signed an agreement with Oxford Global Advisors requiring 30 days written notice to terminate the “account” but

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made a hand-written change so that the contract required only two days written notice to terminate the account. (Hopfenspirger Dep. Ex. 12; IR0073812.) However Hopfenspirger provided no such written notice.

The Receiver further states that none of the Respondents were charged any

fees associated with the “closing” or “cashing out” of their accounts.

The Receiver further states that at least Respondents Defiel, Frahm,

Fredells, Heise, Kautzman, McIntosh, and Sundstrom signed purported

agreements that imposed a “Contingent Deferred Sales Charge” or “Redemption

fee” on account closings within four years of opening the account. (Defiel Dep.

Ex. 6; T. Frahm Dep. Ex. 17; J. Fredell Dep. Ex. 31; S. Fredell Dep. Ex. 17; M.

Heise Dep. Ex. 8; Kautzman Dep. Ex. 11; McIntosh Dep. Ex. 7; R. Sundstrom

Dep. Ex. 7.)

The Receiver further states that at least Respondents Fredells, Frahm,

Cheneys, Hopfenspirger, Heise, Buysse, Kautzman, Hillesheims, Sundstrom,

McIntosh, and Defiel knew of an “investigation” or “audit” related to Trevor

Cook, Bo Beckman, or the Receivership Entities at or about the time he or she

received the funds that are the subject of this action. Specifically:

Respondent Steve Fredell testified that Cliff and Ellen Berg stopped by his house one night, handed him cashiers’ checks, and explained that “the SEC was in doing some checking on Bo, Bo Becker, Beckman, whatever his name was. And [Cliff Berg] said: It just didn't seem right I mean per our agreement. He said: Anything big or little, get you out of there. He says: You're out of there.” (S. Fredell Dep. Tr. at 75:4-9.) Fredell further testified that Berg told him on that same evening that he was concerned because the SEC had come to Trevor Cook’s offices. (S. Fredell Dep. Tr. at 75:4-9.)

Respondent Jenene Fredell testified that Berg called and asked “are you

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guys going to be home tonight?” (J. Fredell Dep. Tr. at 32:8.) Jenene Fredell further testified that when Berg stopped by that night to drop off the cashier’s checks “Cliff just said -- he said: I've got your check for your money here because, he said, there's just a little concern because this man named Bo somebody at the company was going to maybe be investigated. And so Cliff said: So, you know, I knew that if you guys ever had any worries or anything, you'd want your money, you know, back, so, he said, I got a check for you.” (J. Fredell Dep. Tr. at 32:13-21.)

Respondent Terry Frahm testified that Berg stopped by his house to drop off cashiers’ checks and told his wife Jean that there was an “audit on the other side of the business.” (T. Frahm Dep. Tr. at 114:16-115:5, 115:21-116:4.)

Jean Frahm testified that when Berg stopped by to drop off the checks, he explained “that Bo's side of the business, that there was an audit going on, okay? . . . There was an audit. They were possibly going to look at the books.” (J. Frahm Dep. Tr. at 48:15-20.)

Respondent Steven Cheney testified that he called Cook on June 27 or 28, 2009 to ask about investing additional money, but Cook told Cheney “Let's hold off and wait a little bit because we have a problem with a different part of the company that is not involved in our company, but it's still part of the group, and that he was concerned about it.” (S. Cheney Dep. Tr. at 91:11-15, 162:15-17.) Cheney also testified that “At the time that I talked to him, Cliff had told people that there was an audit or investigation in a different part of the company.” (S. Cheney Dep. Tr. at 63:9-12.) Cheney further testified that in a second conversation with Cook the following day Cook said that Berg would bring the checks out to Cheney. (S. Cheney Dep. Tr. at 96:24-25.)

Respondent Larry Hopfenspirger testified that Cheney mentioned during a telephone call that there “was some kind of inquiry being made on the brokerage part of Oxford” and that Cheney was taking money out (L. Hopfenspirger Dep. Tr. at 124:20-125:1). Cheney had “heard that they're being investigated.” (L. Hopfenspirger Dep. Tr. at 127:8-9.) Cheney then asked “Larry would you like me to, you know, get your money and send it to you?” and Hopfenspirger said “yeah.” (L. Hopfenspirger Dep. Tr. at 132:6-8, 132:11-16).

Respondent Heise testified that when he returned home from a fishing trip in Canada, several days after Berg had “cashed out” the account and dropped the checks off with Heise’s daughter, he talked to Berg over the

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phone and Berg explained that “there had been some investigation in the Bo Beckman side of this whole scenario so they just -- that's -- one thing led to another, and they liquidated the account.” (M. Heise Dep. Tr. at 79:13-19.)

Respondent Buysse testified that at some point after July 1, 2009, Berg stopped by his store and explained that there was “an ongoing investigation into his -- his son-in-law concerning this Oxford Financial.” (D. Buysse Dep. Tr. at 20:7-12; 19:13-14; 18:24.)

Respondent Kautzman testified that Berg left a voicemail on Kautzman’s cell phone telling him that one of Cook’s partners was having some “issues” or something was “going on” with Trevor's partner. (S. Kautzman Dep. Tr. at 52:4; 164:14-16.)

Respondent Cynthia Hillesheim testified that after Berg had mailed the

checks, she called him back and he explained that he had closed the accounts because “they were going to investigating--or investigation, and then we were under the understanding that they were investigating over in Switzerland.” (C. Hillesheim Dep. Tr. at 64:13-20; 65:18-24.) Hillesheim testified that it seemed that Cliff Berg “was worried” when he closed the accounts. (C. Hillesheim Dep. Tr. at 64:25.) When Cynthia Hillesheim was interviewed by the Receiver, she recalled that Berg didn't want their money to be “locked up” in an investigation. At her deposition she testified that Berg “could have [mentioned not wanting the money to be ‘locked up’] because I think it was after that that they were thinking maybe they would lock, you know, because of the investigation.” (C. Hillesheim Dep. Tr. at 149:14-20.)

Respondent Michael Hillesheim testified that Berg explained to his wife that he had closed the accounts because there was going to be “an investigation.” (M. Hillesheim Dep. Tr. at 78:22-79:10.)

Respondent Sundstrom testified that Berg called him up to tell him that he had closed Sundstrom’s account and told Sundstrom that “somebody was being investigated.” (R. Sundstrom Dep. Tr. at 111:13, 117:16-18.) Berg “wanted to get [the money] out of that -- whatever was going on, get it out of there, and it was back in my hands.” (R. Sundstrom Dep. Tr. at 112:8-10.) Sundstrom testified that Berg was concerned about the “investigation,” and that Berg “thought it was best just to get the money out and when it cooled down, put it back into Charles Schwab.” (R. Sundstrom Dep. Tr. at 198:8-13.)

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Respondent McIntosh testified that on or about June 30, 2009 Berg called him up and “recommended that I get out of the investment, and he said that there was some investigation being done into Bo Beckman, and that he thought that I should get out, and I said, okay.” (J. McIntosh Dep. Tr. at 163:5-9.) McIntosh further testified that Berg told him in that same phone call that “Bo Beckman was being investigated: You know, why take the chance of your money being tied out. I think you should get out.” (J. McIntosh Dep. Tr. at 163:24-164:2.)

Respondent Defiel stated in response to the Receiver’s Interrogatory No. 8 that when John Dzik personally delivered the cashiers’ check to Defiel, Dzik explained that Berg “was concerned about issues surrounding the investigation of Bo Beckman, who worked for an affiliated Cook entity.”

The Receiver further states that as described above, Berg contacted or

attempted to contact at least each of the following Respondents, either in person or

via telephone, to let them know why he had closed their accounts: Steven and

Jenene Fredell, Terry Frahm, David Buysse, Steve Kautzman, Cynthia Hillesheim,

and James McIntosh.

The Receiver further states that at least Respondents Frahm, Fredell, Heise,

Hillesheim, Kautzman, McIntosh, and Morisset “invested” qualified money in the

Receivership Entities through third party custodians Entrust and/or Millennium

Trust but contrary to the agreements they signed, received the fraudulently

transferred funds directly from the Receivership Entities. The Receiver further

states that, by contrast, any Respondent who received qualified funds from the

Receivership Entities prior to the late June/early July 2009 fraudulent transfers

received funds through the third-party custodian. (Bates numbers 011970-

011981.) The Receiver further states that at least Respondent Steven Kautzman

received a letter from Todd Grill, owner of Entrust Midwest, explaining that

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would be “highly unusual” if the funds Mr. Kautzman received in late on or

around June 30, 2009 had bypassed Entrust. (IR024179.) The Receiver further

states that Respondent McIntosh testified that he called Entrust after he had

received the cashier’s check that Berg mailed to him to “see what the story was,”

as his account at Entrust apparently remained open and Entrust continued to send

him statements. McIntosh was not able to talk to anyone at Entrust. (McIntosh

Dep. Tr. at 173: 4-174:24.) The Receiver further states that Michael Hillesheim

testified that he knew qualified money had to go through a custodian such as

Millennium or Entrust. (M. Hillesheim Dep. Tr. at 51:20-23, 116:24-117:3.)

The Receiver further states that after the fraudulent transfers occurred, at

least Respondents Fredells, Frahm, Heises, Kautzman, Hillesheim, Morissets, and

McIntosh continued to receive account statements, tax forms, and bills from

Entrust Midwest showing that the qualified funds the Respondents had “invested”

remained in the custody of Entrust. (E.g. bates numbers 10926-10931 (Frahm);

10333-10353 (Morissets); 11900-11905, IR024132-IR024137 (Fredells); 11985-

11987 (Heises); 11955-11964 (McIntosh); 10182-10197 (Hillesheims).) The

Receiver further states that Respondent McIntosh continued to receive his monthly

distribution payments from Entrust in July and August 2009, after Berg had closed

McIntosh’s account with the Receivership Entities and sent McIntosh the cashiers’

check for the full “value” of his account. (McIntosh Dep. Tr. at 180:23-181:5.)

The Receiver further states that Respondent Kautzman testified that he tried to

explain to Entrust that the funds were no longer there because they had already

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been “returned” to Kautzman, and Entrust told Kautzman that “it’s impossible”

that the money was returned. (S. Kautzman Dep. Tr. at 136:5-9.)

The Receiver further states that Karen Morisset testified that she thought it

was “kind of odd” that Walter Defiel just showed up at the Morissets’ house with

checks for them. (K. Morisset Dep. Tr. at 23:6.) Morisset further testified that she

then tried to call someone at the Oxford Global in an attempt to “find out what's --

what's going on.” (K. Morisset Dep. Tr. at 24:4-5.) Morisset testified that “I

remember calling the next day to Global to try to get a hold of Ryan [Moeller]

because he's the only contact number we had for the place, and I never was able to

reach anybody, no answer, no voice mail. There was nothing. It was -- there was

no connect -- nobody would answer, so I never did get a hold of them.” (K.

Morisset Dep. Tr. at 23:7-14.)

The Receiver further states that Respondent Frahm testified that he did not

invest in any company or entity named “Crown.” (T. Frahm Dep. Tr. at 278:8-9.)

Notwithstanding, Frahm received account statements from Crown Forex.

(IR000847-IR000852.) Frahm also testified that he had requested that his account

with the Receivership Entities be rolled over directly into the Oxford PCG equities

program, “so I wouldn’t have to deal with it.” (T. Frahm Dep. Tr. at 120:11-15.)

But Frahm received cashiers’ checks hand-delivered by Berg instead. (T. Frahm

Dep. Tr. at 114:5-7.) The Receiver further states that Frahm stated during a March

2010 interview that he called Cook in the spring of 2009 with questions regarding

the tax consequences of his “investments” with the Receivership Entities. Frahm

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“got a bad feeling” from the answers Cook gave him and “felt uncomfortable with

Cook.” (IR002522.) The Receiver further states that Frahm sent an email to Eric

Erickson, an employee of Cook, on March 18, 2009 noting a “red flag” related to

the rollover of $111,000 in IRA money from Frahm’s Smith Barney account.

(IR009814-IR009816.)

The Receiver further states that Respondent Defiel testified that his

financial advisor had advised him not to invest in the Receivership Entities.

Defiel’s financial advisor told him “If it sounds too good, looks too good,

something like it just isn't going to happen. You know, [the financial advisor] says

that's -- he said he didn't think it was going to -- he didn't think it was legit.” (W.

Defiel Dep. Tr. at 35:2-11.)

The Receiver further states that Respondent Sundstrom testified that he

thought that the investment opportunity as Berg presented it seemed “awful good,”

so Sundstrom gave a brochure that Berg had left him to his attorney and told him

“look at this. Tell me - investigate it. Let me know if it is- if there's something

wrong with it,” but Sundstrom never heard back from his attorney. (R. Sundstrom

Dep. Tr. at 38:19-25, 39:19.)

The Receiver further states that Respondent Hopfenspirger testified that

Cheney did not have authority to get money out of the Receivership Entities for

him. (L. Hopfenspirger Dep. Tr. at 130:1-3, 131:22-25.) Hopfenspirger also

testified that nobody from the Receivership Entities called him to verify that he

actually wanted to close the account. (L. Hopfenspirger Dep. Tr. at 130:16-21.)

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43

Hopfenspirger further testified that “I think, you know, based on [the contract

language], that [the Cook companies] probably should have gotten authority from

me [before closing the account] which I automatically would have given. [But] I

don't believe that's what happened.” (L. Hopfenspirger Dep. Tr. at 194:1-5.)

Hopfenspirger further testified that he viewed the “currency program” offered by

Cook as completely interchangeable with a savings account at a bank: “In

actuality, it was even more stark than that because there was a bank right here, and

the Van Dusen mansion is right here, so all I had to do was go to this bank, walk

down a block, put it in here for 24 times as much money per month as I did here

because that was the Franklin Bank there.” (L. Hopfenspirger Dep. Tr. at 38:16-

22.) Hopfenspirger viewed the “currency program” as “Monopoly, free parking.”

(L. Hopfenspirger Dep. Tr. at 84:4-5.)

The Receiver further refers the Respondents to the following documents:

Petition for Return of Receivership Assets from Investor Respondents (Docket No.

1), at ¶ 31(o);; Receiver’s Disclosures Under Rule 26(a)(1) of the Federal Rules of

Civil Procedure (December 1, 2010);; and the Receiver’s First Amended

Disclosures Under Rule 26(a)(1) of the Federal Rules of Civil Procedure (July 1,

2011). The Receiver further states that since at least January 2011 he has made

available for inspection and copying all documents and things seized from the

Receivership Entities.


Identify each and every fact supporting your allegation in paragraph 36 of

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44

the Petition that Lender Respondents received payments preferentially over hundreds of investors who were unable to withdraw money they had invested in the Receivership Entities, specifically your contention that investors were unable to withdraw money from the Receivership Entities on or before June 30, 2009. Response: The Receiver objects to the characterization of the Respondents as

“lenders,” because no Respondent was a “lender.” Subject to the foregoing

specific and general objections, the Receiver refers the Respondents to his

response to Interrogatory No. 9.


Identify each and every fact supporting your allegation in paragraph 39 of the Petition that all funds transferred to Lender Respondents by the Receivership entities were transferred pursuant to a Ponzi scheme. Response: The Receiver objects to this Interrogatory because it calls for a legal



foregoing specific and general objections, the Receiver refers the Respondents to

his response to Interrogatory No. 9. The Receiver further states that Cook has

admitted under oath to, among other things, “diverting investor funds to make

payments of interest and principal to other investors and to pay personal

expenses.” Order Allowing Summary Proceedings, SEC v. Cook et al., 09-cv-

3333, at para. C (Docket No. 380) (D. Minn. July 20, 2011). The Receiver further

states that this Court has found that “All assets transferred from or by any

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45

Receivership entity named in the above-captioned lawsuits, through November

2009, were transferred pursuant to [Cook’s] Ponzi scheme.” Id. at para. D. The

Receiver further states that since at least January 2011 he has made available for

inspection and copying all documents and things seized from the Receivership

Entities.


Identify each and every fact supporting your allegation in paragraph 40 of the Petition that Cook and the Receivership Entities transferred funds to the Lender Respondents with actual intent to hinder, delay, or defraud creditors. Response: The Receiver objects to this Interrogatory because it calls for a legal













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Entities.


Identify each and every fact supporting your allegation in paragraph 42 of the Petition that each transfer made to the Lender Respondents was a fraudulent transfer.

Response: The Receiver objects to this Interrogatory because it calls for a legal














Entities.


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47

Identify each and every fact supporting your allegation in paragraph 44

that each Lender Respondent has been unjustly enriched by the return of their funds from the Receivership entities. Response:



Respondents as “lenders,” because no Respondent was a “lender.” The Receiver

further objects to this Interrogatory to the extent “return” implies that the funds

each Respondent received can somehow be traced to funds they initially

transferred to a Receivership Entity, or to the extent “return” implies that any

Respondent has any right to retain the funds that were transferred to him or her.

Subject to the foregoing specific and general objections, the Receiver refers the

Respondents to his responses to Interrogatories Nos. 9, 10, 13 and 14. The

Receiver further states that but for each Respondent’s connection to Trevor

Cook’s father-in-law, Clifford Berg, he or she would not have received funds

equivalent to 100% of “principal” plus fictitious “interest.” Rather, each

Respondent would have received only his or her pro rata share of any stolen funds

that are recovered.


Identify each and every fact supporting your allegation in paragraph 45 of the Petition that Lender Respondents' retention of their funds ''violates fundamental principles of justice, equity, and good conscience. " Response:

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Respondents as “lenders,” because no Respondent was a “lender.” The Receiver

further objects to this Interrogatory to the extent “retention” implies that the funds

each Respondent received can somehow be traced to funds they initially

transferred to a Receivership Entity, or to the extent “retention” implies that any

Respondent has any right to retain the funds that were transferred to him or her.

Subject to the foregoing specific and general objections, the Receiver refers the

Respondents to his responses to Interrogatories Nos. 9, 10, 13, 14, and 18.


Identify each and every fact supporting your allegations in paragraph 46 of the Petition. Response: The Receiver objects to this Interrogatory because it calls for a legal

conclusion. Subject to the foregoing specific and general objections, the Receiver

refers the Respondents to his responses to Interrogatories Nos. 9, 10, 13, 14, and

18. The Receiver further states that the Receivership was established for the

purpose of benefiting defrauded investors. See, e.g., Order Continuing

Appointment of the Temporary Receiver, CFTC v. Cook et al., 09-cv-3332, at Part

I (Docket No. 96) (D. Minn. Dec. 11, 2009); Second Amended Order Appointing

Receiver, 09-cv-3333, at Part I (Docket No. 68) (Dec. 11, 2009); see also Order,

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Zayed v. Buysse et al., 11-cv-1042, at 8-9, 10 (Docket No. 108) (D. Minn. June 1,

2011).


Identify each and every fact supporting your allegations that Lender Respondents did not receive the return of their funds from the Receivership Entities in “good faith.”

Response: The Receiver objects to this Interrogatory because it is Respondent’s

burden to prove the affirmative defense of good faith. The Receiver further objects

to this Interrogatory because it calls for a legal conclusion. The Receiver further

objects to the characterization of the Respondents as “lenders,” because no

Respondent was a “lender.” The Receiver further objects to this Interrogatory to

the extent “return” implies that the funds each Respondent received can somehow

be traced to funds they initially transferred to a Receivership Entity, or to the

extent “return” implies that any Respondent has any right to retain the funds that

were transferred to him or her. Subject to the foregoing specific and general

objections, the Receiver refers the Respondents to his response to Interrogatory

No. 13.

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Dated: _August 22, 2011________ Respectfully submitted, s/Peter M. Kohlhepp R.J. Zayed (MN Bar No. 309,849) Tara C. Norgard (MN Bar No. 307,683) Brian W. Hayes (MN Bar No. 294,585) Russell J. Rigby (MN Bar No. 323,652) Peter M. Kohlhepp (MN Bar No. 390,454) Carlson, Caspers, Vandenburgh & Lindquist 225 S. 6th Street, Suite 3200 Minneapolis, MN 55402 Telephone: (612) 436-9600 Facsimile: (612) 436-9605 Email: [email protected]

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UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA …(DSD-JSM) Declaration of Alex C. Lakatos In...

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