UNITED STATES DISTRICT COURT EASTERN DIVISION...

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

UNITED STATES SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

v. ROBERT G. PEARSON and ILLINOIS STOCK TRANSFER COMPANY (d/b/a IST SHAREHOLDER SERVICES),

Defendants.

Case No. 14 C 3785 Hon. Rebecca R. Pallmeyer Magistrate Judge Young B. Kim

RECEIVER’S SEVENTH QUARTERLY STATUS REPORT

FOR THE PERIOD OCTOBER 1, 2015 THROUGH DECEMBER 31, 2015

Jill L. Nicholson, not individually but solely in her capacity as the court-appointed

receiver (the “Receiver”) for the estates of Illinois Stock Transfer Company d/b/a ist Shareholder

Services (the “Company”) and Robert G. Pearson (collectively, the “Receivership Estates”),

respectfully submits this Receiver’s Sixth Quarterly Status Report (the “Report”) covering the

period of October 1, 2015 through December 31, 2015 (the “Reporting Period”) pursuant to

paragraph 54 of the Order Appointing Receiver entered on May 22, 2014 (the “Receiver Order”).

For the Court’s convenience, a Table of Contents is provided below.

TABLE OF CONTENTS

I. PROCEDURAL HISTORY ................................................................................................ 2

II. SUMMARY OF ACTIONS TAKEN BY THE RECEIVER DURING THE REPORTING PERIOD ....................................................................................................... 3

A. The Liquidation Plan............................................................................................... 3

B. Creditor Claims Proceedings .................................................................................. 4

1. Claims Submitted ........................................................................................ 4

Case: 1:14-cv-03785 Document #: 252 Filed: 01/28/16 of 17 PageID #:2427

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2. Final Allowed Claims ................................................................................. 5

3. Status of Interim Distributions .................................................................... 7

III. ASSET RECOVERY ........................................................................................................ 10

A. Accounts Receivable ............................................................................................. 10

B. Recoveries from Pearson ...................................................................................... 11

C. E&O Policy ........................................................................................................... 11

D. Liquidated and Unliquidated Claims .................................................................... 11

1. Fidelity Bond Litigation ............................................................................ 11

2. Auditor Litigation ..................................................................................... 12

IV. FINANCIAL AFFAIRS ................................................................................................... 12

A. Overview ............................................................................................................... 12

B. The Qualified Settlement Fund ............................................................................. 13

C. Receiver’s BMO Bank Account ........................................................................... 14

D. Administrative Expenses ...................................................................................... 14

E. Liabilities .............................................................................................................. 16

V. ADMINISTRATION OF THE RECEIVERSHIP ESTATES .......................................... 16

A. Estimated Distribution .......................................................................................... 16

B. Recommendations for the Continuation of the Receivership Estates ................... 17

I. PROCEDURAL HISTORY

On May 22, 2014, the United States Securities and Exchange Commission (the “SEC”)

commenced the above-captioned action (the “SEC Action”) against Pearson and the Company

(collectively, the “Receivership Defendants”) by filing a complaint (the “Complaint”) in the

United States District Court for the Northern District of Illinois (the “Court”). The SEC’s


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Complaint alleges, inter alia, that Pearson and the Company commingled customer funds with

the Company’s funds and that Pearson and the Company misappropriated customer funds.

The SEC filed several ex parte motions with its Complaint on May 22, 2014, all of which

were granted by the Court. [Dkt Nos. 11-15]. In particular, subsequent to the filing of the

Complaint, the Court entered a Temporary Restraining Order (the “TRO”), an Asset Freeze

Order (the “Asset Freeze Order”), and the Receiver Order on May 22, 2014. On July 9, 2014,

the Court entered a judgment (the “Judgment”) against Pearson with Pearson’s consent. The

Judgment (a) enjoins Pearson from violating federal securities laws; (b) requires Pearson to

disgorge ill-gotten gains and to pay pre-judgment interest in an amount to be determined by the

Court upon motion of the SEC; and (c) extends the Asset Freeze Order against Pearson until

further order of the Court. [Dkt. No. 56]. On July 9, 2014, the Court also entered an order

extending the TRO and the Asset Freeze against the Company until further order of the Court.

[Dkt. No. 56]. On December 19, 2014, the Court entered an order approving the Liquidation

Plan (defined herein) which, as more fully described below, governs the distributions of estate

assets to the various creditor constituencies. [Dkt. 130]. For a detailed description of the

functions provided by the Company in its capacity as a transfer agent, see the Receiver’s First

Quarterly Report. [Dkt. No. 65].

II. SUMMARY OF ACTIONS TAKEN BY THE RECEIVER DURING THE REPORTING PERIOD

A. The Liquidation Plan

The Receiver has been operating under the Amended Liquidation Plan (the “Liquidation

Plan”) which was approved by the District Court on December 19, 2014 and governs, inter alia,


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distributions to those creditors with allowed claims (the “Allowed Claims”)1 against the

Receivership Estates. The Liquidation Plan has created two receivership estates for purposes of

distributions to claimants. The first estate (“Estate 1”) relates to assets and liabilities in

connection with the Company while the second estate (“Estate 2,” and together with Estate 1, the

“Receivership Estates”) addresses assets and liabilities of Pearson personally. No funds related

to or generated by the Company (that is, Estate 1 funds) have or will be used to make

distributions to Pearson’s individual creditors (Estate 2 creditors). Under each of the estates are

specific classes of creditors (the “Classes”). The Liquidation Plan identifies the treatment for

each Class of claims. Note that claims in different Classes are treated differently. A detailed

discussion regarding the Classes of claims found for each estate can be found in both the

Liquidation Plan and the Receiver’s Third Quarterly Report filed on January 30, 2015 [Dkt No.

132].

B. Creditor Claims Proceedings

1. Claims Submitted

The Receiver has fully and finally resolved all claims submitted against the Receivership

Estates. The Receiver’s claims agent mailed a total of 1,599 claims packets to interested parties,

including issuers, shareholders, vendors, governmental authorities, employees, independent

contractors, and any other party that may have had a claim as revealed by the Company’s books

and records. The Receiver received a total of 146 Proofs of Claim. Of this number, 132 Proofs

of Claim were timely filed by the Claims Bar Date. The Court also permitted one late-filed

claim to be deemed timely filed, bringing the total number of claims deemed timely filed and

potentially entitled to distributions to 133. These 133 claims asserted an aggregate of

1 To the extent there may be differences between the description of the Liquidation Plan or

definitions contained herein and the Liquidation Plan approved by the Court, the terms of the Liquidation Plan approved by the Court shall govern.


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$7,398,136.14 in liabilities against the Receivership Estates. The Receiver also received an

additional 13 late-filed claims. These 13 late-filed claims, however, are precluded from any

distributions under the Liquidation Plan.

The final results of the Receiver’s claims adjudication process is as follows:

FINAL CLAIMS BREAKDOWN

CATEGORY NUMBER OF CLAIMS

Allowed In Full Claims 88

Disallowed In Full Claims 43

Partially Disallowed/Allowed Claims 15

Total Claims Received (Including Late-Filed Claims)

146

The Receiver allowed or partially allowed 70.55% of the 146 claims filed against the

Receivership Estates.

The Receiver was able to successfully resolve all of the timely filed claims – including

claims to which the Receiver tendered objections – without the need for litigation or intervention

by the District Court. The Receiver’s streamlined process resulted in significant savings to the

Receivership Estates, obviated the need for protracted summary proceedings before the Court,

and enabled the Receiver to gather a clear picture of liabilities against the estates for purposes of

commencing distributions under the Liquidation Plan.

2. Final Allowed Claims

The total dollar amount of Final Allowed Claims against the Receivership Estates is

$6,380,606.29 (the “Total Allowed Claims Amount”). The following chart sets forth the amount

of the Final Allowed Claims under each of the Classes provided under the Liquidation Plan.


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ESTATE 1 - IST

CLASS AMOUNT OF FINAL ALLOWED CLAIMS

Class I – Allowed Claims of Customers $6,010,339.42

Class II – Allowed Claims of Vendors $105,419.85

Class III – Allowed Claims of Employees $96,595.29

Class IV – Allowed Claims of General Company Claimants

$158,685.48

TOTAL ESTATE 1 FINAL ALLOWED CLAIMS

$6,371,040.04

ESTATE 2 - PEARSON

CLASS AMOUNT OF FINAL ALLOWED CLAIMS

Class I – Pearson General Claims $9,566.25

TOTAL ESTATE 2 FINAL ALLOWED CLAIMS

$9,566.25

In summary, the Receiver allowed $6,380,606.29 (or 86.25%) of the $7,398,136.14 in liabilities

asserted by claimants who timely filed Proofs of Claim. The remaining 13.75% of claims were

disallowed for a variety of reasons, including, but not limited to: the claim had been asserted by

more than one creditor (e.g., the same claim was filed by both an issuer and a shareholder); the

claim did not reconcile with the books and records of the Company; the claimant failed to

provide sufficient evidence or information supporting the claim; and/or the claim was not

supported by the law. The Receiver has previously submitted to chambers a list of all known

creditors with addresses and amounts of their claims as reflected by the Company’s books and

the final status of such claims in prior Quarterly Reports.


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3. Status of Interim Distributions

a) The First Interim Distribution

On August 31, 2015 a first interim distribution (the “First Interim Distribution”) from

Estate 1 was made. The First Interim Distribution provided for an initial recovery of 25% to

certain creditors holding Final Allowed Claims in Class I as of the date the Receiver authorized

the First Interim Distribution. The total First Interim Distribution from the Qualified Settlement

Fund was $824,324.65 paid to 67 creditors who held Class 1 Final Allowed Claims.2 Note that

claimants whose claims became Final Allowed Claims after the Receiver authorized the First

Interim Distribution received their life-to-date pro rata share under the subsequent distribution

detailed below.

b) The Second Interim Distribution

On January 20, 2016 the Receiver made a second interim distribution (the “Second

Interim Distribution”) of $1,614,804.71 from Estate 1 and Estate 2. The Second Interim

Distribution provided for distributions to Classes I, II, III, and IV under the Liquidation Plan.

Class I. The Second Interim Distribution provided for a 40% aggregate distribution to

holders of Final Allowed Claims in Class I. For purposes of clarity, creditors in Class I with

Final Allowed Claims who received a First Interim of Distribution of 25% also received a

Second Interim Distribution of 15%. For those creditors in Class I with Final Allowed Claims

who did not receive a First Interim Distribution, such creditors received a 40% Second Interim

Distribution. The total Second Interim Distribution to Class I Final Allowed Claims from the

Qualified Settlement Fund was $1,579,804.73 paid to 85 Class I creditors.

2 Note that Claimant No. 113 has informed the Receiver that she has forfeited her first interim

distribution check in the amount of $4.92 because of transaction costs incurred by her associated with foreign transaction bank fees. As such, this amount will remain in the Receivership Estate for distribution to other creditors. For the Court’s convenience, this claimant’s forfeiture is noted on Exhibit B.


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Classes II. Class II is comprised of all Final Allowed Claims of the Company’s vendors.

Pursuant to Section 2.04(B) of the Liquidation Plan, vendors holding such Final Allowed Claims

are entitled to their pro rata share of a $25,000.00 Vendor Carve Out. The Second Interim

Distribution included disbursement of the $25,000.00 Vendor Carve Out to 10 creditors who

held Class II Final Allowed Claims. The pro rata distribution on account of such claims was

23.71% ($24,999.98 / $105,419.85). Because the distribution to vendors is capped at

$25,000.00, no further distributions to vendors will be made unless and until all creditors in

Class I with Final Allowed Claims have been paid in full.

Class III. Class III is comprised of all Final Allowed Claims of the Company’s

employees. Pursuant to Section 2.04(C) of the Liquidation Plan, employees holding such Final

Allowed Claims are entitled to their pro rata share of the $5,000.00 Employee Carve Out. The

Second Interim Distribution included disbursement of the Employee Carve Out to 3 creditors

who held Class III Final Allowed Claims. The pro rata distribution on account of such claims

was 5.18% ($5,000.00 / $96,595.29). Because the distribution to employees is capped at

$5,000.00, no further distributions to employees will be made unless and until all creditors in

Class I and Class II with Final Allowed Claims have been paid in full.

Class V. Class V is comprised of all Final Allowed Claims asserted against Pearson.

Pursuant to Section 2.06(A) of the Liquidation Plan, Pearson’s creditors holding such Final

Allowed Claims are entitled to their pro rata share of the $5,000.00 Pearson Carve Out. The

Second Interim Distribution included disbursement of the Pearson Carve Out to 1 creditor who

held a Class V Final Allowed Claim. The pro rata distribution on account of such claim was

52.27% ($5,000.00 / $9,566.25). Under the terms of the Liquidation Plan, no further

distributions may be made to Class V.


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c) Summary Of Interim Distributions To Date

As of January 20, 2016, the Receiver has authorized an aggregate distribution of

$2,439,129.36 to 99 holders of Final Allowed Claims as detailed as follows:

LIFE-TO-DATE INTERIM DISTRIBUTIONS

CLASS AMOUNT % DISTRIBUTION

Class I – Allowed Claims of Customers

(First Interim = $824,324.65)

(Second Interim = $1,579,804.73)

$2,404,129.38 40.00%

Class II – Allowed Claims of Vendors

(Capped at $25,000.00; May Receive Additional Distributions if Class I is paid in full))

$24,999.98 23.71%

Class III – Allowed Claims of Employees

(Capped at $5,000.00; May Receive Additional Distributions if Classes I and II are paid in full)

$5,000.00 5.18%

Class IV – Allowed Claims of General Company Claimants

(No Distribution until Classes I, II, and III are Paid In Full)

0 N/A

Class V – Allowed Claims of Pearson (Capped at $5,000.00; No further distributions permitted)

$5,000.00 52.27%

TOTAL DISTRIBUTIONS PAID (LIFE TO DATE)

$2,439,129.36

Of the $2,439,129.36, $824,324.65 was paid pursuant to the First Interim Distribution, and

$1,614,804.71 was paid pursuant to the Second Interim Distribution.

For purposes of comparison, the Receiver held $5,363,911.13 in the Company’s BMO,

UMB, and Fifth Third bank accounts as of the filing of her Local Rule 66 Initial Status Report


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filed with the Court on June 12, 2014. As such, less than 20 months after the Receiver’s

appointment, the Receiver has fully wound down the Company, adjudicated all of the claims in

the case, and distributed 45.47% of the funds held in bank accounts at the commencement of the

case.

The Receiver has attached as Exhibit B the list of creditors who have received

distributions to date under the Liquidation Plan. Exhibit B includes the following information:

(1) Final Allowed Claim amount; (2) applicable Class under the Liquidation Plan; (3) claim

number; (4) check number(s); (5) check issue date(s); (6) check issue amount(s); (7) whether the

check(s) have cleared; (8) percentage of recovery on account of the Final Allowed Claim to date;

and (9) name of the claimant holding the Final Allowed Claim. Exhibit B has not been publicly

filed; however, a copy of Exhibit B has been tendered to chambers.

III. ASSET RECOVERY

Since her appointment, the Receiver has endeavored to identify and recover assets for the

benefit of the Receivership Estates. The following details the status of the recoveries to date.

For the Court’s convenience, an inventory of all assets recovered by the Receiver to date and

their related disposition is included in Exhibit C.

A. Accounts Receivable

Prior to the closure of the Company on July 8, 2014, the Receiver directed the Company

to generate invoices to all customers for all outstanding amounts due and owing to the Company

(the “Issuer AR”). A total of $194,009.21 in Issuer AR invoices were sent by the Receiver. To

date, the Receiver has collected $163,784.94 of this amount. Of the remaining balance, the

Receiver has determined that certain Issuer AR was previously paid by the issuers based on

information subsequently tendered by such issuers; certain Issuer AR is uncollectible due to the

dissolution or receivership of the issuer; and/or the cost and expense to commence collection


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litigation would significantly outweigh any recovery to the Receivership Estates. As such, no

further action will be taken with respect to the outstanding Issuer AR.

B. Recoveries from Pearson

The total recovered from Pearson to date is $370,510.71. Note that the Receiver has

reserved all rights to pursue additional funds from Pearson by seeking further turnover orders

from the Court.

C. E&O Policy

As of the commencement of the receivership, the Company had in place certain insurance

policies, including an errors and omissions (“E&O”) policy with coverage of $1 million. The

E&O carrier denied coverage on July 16, 2014. After a careful review of the policy terms and

the E&O denial letter and in consultation with her special counsel, the Receiver will not be

pursuing coverage under the E&O policy.

D. Liquidated and Unliquidated Claims

1. Fidelity Bond Litigation

The Company maintained coverage under two fidelity bond policies, each with a

coverage limit of $5 million. Coverage under the second policy is triggered only when the $5

million policy limit is exhausted under the first policy. On August 28, 2014, the Receiver filed

Proofs of Loss with both fidelity bond carriers. One of the fidelity bond carriers has notified the

Receiver that it has rescinded its fidelity bond policy.

On November 30, 2015, the Receiver filed an action captioned Nicholson v. United States

Fire Insurance Company in the Circuit Court of Cook County, Illinois, Case No. 2015-L-012100

(the “Fidelity Bond Complaint”) alleging breach of contract against the defendant and seeking

damages for losses sustained. The defendant accepted service on January 19, 2016, and the

defendant’s deadline to answer or otherwise respond to the complaint is February 18, 2016. The


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Receiver is represented by the law firm of Tressler LLP (“Tressler”), the Receiver’s contingency

fee counsel. Because the litigation is in its nascent stages and the defendant has not yet

responded to the Fidelity Bond Complaint, the Receiver will supplement her subsequent status

reports with information relating to the potential need for forensic and/or investigatory resources

and the anticipated or proposed methods of enforcing such claims.

2. Auditor Litigation

On December 23, 2015, the Receiver filed an action against the Company’s auditors

captioned Nicholson v. Freireich Shapiro LLP and Shapiro Associates, LLP, in the Circuit Court

of Cook County, Illinois, Case No. 2015-L-012911 (the “Auditor Complaint”) alleging claims

for accounting malpractice, breach of contract, and aiding and abetting against the defendants

and seeking damages for losses sustained. The defendants were served on January 15, 2016, and

the defendants’ deadline to answer or otherwise respond to the complaint is February 21, 2016.

Like the Fidelity Bond Complaint, the Receiver is represented by Tressler, and the Receiver will

supplement subsequent status reports with information relating to the potential need for forensic

and/or investigatory resources and the anticipated or proposed methods of enforcing such claims.

The Receiver has been in settlement discussions with the defendants but to date no resolution has

been reached.

IV. FINANCIAL AFFAIRS

A. Overview

Attached hereto as Exhibit A, as noted by the Receiver Order, are schedules of income

and expenses.3 As of January 15, 2016 the Receiver held $4,057,599.35. These funds are held

3 Note that the names of employees on the schedule of expenses have been redacted to avoid

dissemination of employees’ salary and/or wage information. In addition, the amount of the AST milestone payments have been redacted. The Receiver will be glad to provide an unredacted copy of these schedules to chambers upon the Court’s request.


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in: (a) a qualified settlement fund account ($4,023,103.96) and (b) one receiver’s account at

BMO ($34,495.39) as detailed below. Note that the $4,057,599.35 is after the deduction of

administrative expenses that have been paid in the amount of $1,614,965.32 as itemized below.

Of the $4,057,599.35 currently held in the accounts, $18.04 represents uncashed checks relating

to the First Interim Distribution.4 Additionally, the $4,057,599.35 will be further reduced by the

$1,614,804.71 Second Interim Distribution, leaving $2,442,794.64 for the payment of additional

interim distributions, administrative expenses, and related holdbacks.

B. The Qualified Settlement Fund

The Receiver has worked with the Receiver’s claims agent KCC to establish a Qualified

Settlement Fund (“QSF”), which maintains a separate and independent tax identification number

from the Company. There are two sub-accounts held in connection with the QSF: (1) an account

related to the Company’s assets and (2) an account related to Pearson’s assets. As of January 15,

2016, the QSF’s Company account holds:

BANK ACCOUNT NO. AMOUNT IN ACCOUNT STATUS

BMO Harris (QSF Account)

***693 $4,023,103.96 Account Open

This amount is comprised of funds removed from the Company’s accounts, funds generated by

the sale of assets to AST, funds transferred from bank accounts opened by the Receiver at the

Also note that the income and expense ledgers of Exhibit A include transfers among various

Receiver accounts. By way of example, on July 25, 2014, the Receiver transferred $5 million from the Receiver’s BMO account to the receivership’s Qualified Settlement Fund Account as a result of the Shutdown of the Company. Such transfers are not expenses of the estates, but are identified solely for the purpose of demonstrating to the Court the movement of funds among the receivership accounts.

4 More specifically, of this $18.02: (a) $4.92 represents a check forfeited by Claimant No. 113 who has determined that the foreign transaction fees outweigh the recovery of the check, and (b) $13.12 represents a pending uncashed check by Claimant No. 32. Claimant No. 32 may become subject to the forfeiture provisions identified in the Receiver’s Motion for an Order Establishing a Protocol for Unclaimed Distribution Checks (Dkt. No. 233) which was previously approved by the Court. (Dkt. No. 239).


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inception of the receivership, funds generated by the sale of the Wheaton Property, and collected

Issuer AR.

C. Receiver’s BMO Bank Account

The Receiver has closed all other Company bank and brokerage accounts with the

exception of the BMO bank account below. As of January 15, 2016, the Receiver’s bank

account held the following amounts:

BANK ACCOUNT NO. AMOUNT IN ACCOUNT STATUS

BMO Harris (Receiver’s Account)

***538 $34,495.39 Account Open

The Receiver is currently utilizing the BMO bank account for the payment of certain small

invoices, including fees incurred related to monthly storage of records at Iron Mountain during

the pendency of the receivership.

D. Administrative Expenses & Related Items

The amount of administrative expenses and related items paid through January 15, 2016

is $1,614,965.32. For the Court’s convenience, the following chart summarizes the nature of the

administrative expenses:

Type of Expenditure Amount

Administration Fees (Wall Street Journal Publications Fees, Bank Fees, Stop Payment by Issuers, Asset Searches, Filing Fees, etc.)

$22,028.09

Building Expenses (Sanitation, Water, Gas, Electric, Taxes, Mortgage, etc.)

$21,920.41

Business Expenses (Postage, Phone, Internet, Document Destruction, Independent Contracting Services, etc.)

$13,898.77

Court-Appointed Professionals (Rossi; Teamwerks; DiMaria; R.E. Walsh & Associates; Foley & Lardner; Receiver; Shaw Fishman; Financial Advisors, LLC, etc.)

$1,243,018.29


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Type of Expenditure Amount

Employee Related Expenses (Payroll, Withholding, Paychex Processing etc.)

$121,759.39

Insurance (Medical, E&O, Property, etc.) $33,791.50

Transtar Deconversion Fees $86,006.67

Taxes (Tax Related Notices, etc.) $42,636.00

Funds Distributed Per Turnover Agreement with R. Pearson

$2,191.21

QSF (Claims Agent & QSF Administrative Fees)

$27,714.99

TOTAL $1,614,965.32

The aforementioned amounts include all of the administrative expenses necessary to

administer the estates, including, inter alia, overhead related to the operation of the Company;

securing the Company’s offices, records, and electronic data; reconciliation of accounts and

assets held by the Company; evaluation and processing of transactions during the interim period

after the commencement of the receivership and prior to the Company’s Shutdown; employee

payroll taxes; health insurance; property insurance; casualty insurance; utilities; bank charges;

out of pocket expenses in connection with postage, copying, and travel for Issuer transactions

and shareholder meetings; deconversion fees associated with the transfer of records to successor

transfer agents through the Transtar system; professional fees related to the inventorying of the

Company’s extensive hard-copy records; the use of former FBI agents to inventory the contents

of the Company’s vault; the marketing, negotiation and successful sale of the Company’s

customer accounts; recovery of assets such as bank accounts, accounts receivable, and vehicles

for the benefit of the receivership; attendance at hearings before the Court; preparation of

quarterly reports as directed by the Receiver Order; the transition of Issuers to new platforms;

creation and implementation of the claims solicitation process and procedure; fielding hundreds


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of Issuer, shareholder, and creditor inquiries; turnover of funds pursuant to the turnover

agreement with Pearson; and establishment of the QSF, to name a few.

Note that the fees and costs incurred by the Receiver and her counsel during the seventh

quarterly fee application period have not been included in the aforementioned amount as such

amounts are subject to fee applications to be reviewed and approved by the Court.

E. Liabilities

As noted above, the total dollar amount of Final Allowed Claims by creditors is fixed at

$6,380,606.29. This number does not include the ongoing costs of administration of the estates,

which includes ongoing storage fees related to the Company’s documents, fees and costs that

will be incurred by the Receiver and professionals and consultants retained by the Receiver, and

other expenditures that may be necessary in connection with the administration of the estates.

V. ADMINISTRATION OF THE RECEIVERSHIP ESTATES

A. Estimated Distribution

As of the date of the filing of this Report, the assets the Company held are less than the

total amount of Final Allowed Claims. The same is true with respect to Final Allowed Claims

against Pearson. Absent additional recoveries from various third parties, claimants can currently

expect less than a 100% distribution. As noted above, distributions to creditors in Class II

(Company vendor claims) and Class III (Company employee claims) are now final and will not

receive any further distributions until payment of Class I in full. At this time, it does not appear

that any further distributions will be made to Class II and Class III absent any material recoveries

by the Receiver in connection with the Fidelity Bond Complaint and the Auditor Complaint.

Class V (claims against Pearson) have received a final distribution and no other

distributions will be made to Class V.


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With respect to Class I (Company Customer Claims), an interim distribution of 40.00%

has been made. The Receiver anticipates that a third interim distribution will be made in the

middle of 2016 without the need for any further third party recoveries. It is too early to predict

the amount of the additional distribution at this time.

Finally, Class IV (Company general claims) will not receive any distribution unless and

until Classes I, II, and III are paid in full pursuant to the Liquidation Plan. Absent any material

recoveries by the Receiver in connection with the Fidelity Bond Complaint and the Auditor Bond

Complaint, Class IV will receive 0% on account of its claims.5

B. Recommendations for the Continuation of the Receivership Estates

The Receiver notes that the lion’s share of this case has been concluded. The

continuation of the Receivership Estates, however, is necessary to permit the Receiver to

continue the discreet tasks of: (a) pursuing the Fidelity Bond and Auditor Litigation and (b)

making further and final distributions depending on any litigation recoveries. As noted in her

prior reports, the Receiver will continue to apprize the Court of any developments through

ongoing quarterly status reports and is glad to furnish interim updates at status hearings that may

be set by the Court.

/s/ Jill L. Nicholson Not individually, but solely as Receiver for the Estates of Illinois Stock Transfer Company and Robert G. Pearson Foley & Lardner LLP 321 North Clark Street, Suite 2800 Chicago, IL 60654 Ph: (312) 832-4500 Fax: (312) 832-4700

5 Class IV general claims total $158,685.48.


EXHIBIT A

Case: 1:14-cv-03785 Document #: 252-1 Filed: 01/28/16 Page 1 of 19 PageID #:2444

EXHIBIT B


REDACTED - PROVIDED TO CHAMBERS ONLY


EXHIBIT C


Illinois Stock Transfer Company As of January 15, 2016

COMPANY ASSETSBANK ACCOUNTS

Qualified Settlement Fund - IST Sub-Account $4,023,103.96Qualified Settlement Fund - Pearson Sub-Account $0.00 BMO Harris ***538 $34,495.39BMO Harris ***546 Closed

BROKERAGE ACCOUNTSBoenning & Scattergood ***133 ClosedBoenning & Scattergood ***444 ClosedRaymond James ***5001 ClosedRaymond James ***9157 ClosedSweney & Cartwright ***031 Closed

VEHICLES

2008 Toyota Highlander, 2006 Dodge Magnum (All Vehicles Have Been

Liquidated)

Sold at Auction for $40,285.32

EQUIPMENT AT WHEATON OFFICEItem Description * Indicates Sold Per

Wheaton Sale on 3/4/15 for $10,000.00

1 Wood Frame Arm Chair With Cloth Seat and Back. *2 Wood Frame Arm Chair With Cloth Seat and Back. *3 42" Wood Half Round Sofa Table. *4 LCD Table Clock. *5 Multi Colored Vase. *6 Painting. *7 Painting. *8 Painting. *9 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. *10 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. *11 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. *12 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. *13 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. *14 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. *15 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. *16 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. *17 Amco 72" X 72" X 18" Chrome Wire Shelf, Portable. *18 Amco 72" X 48" X 18" Chrome Wire Shelf, Portable. *19 Amco 72" X 48" X 18" Chrome Wire Shelf, Portable. Sold for $125.00 on

2/8/15 by broker20 Hedman Model HF-500 Desktop Document Folder. *21 Modular Work Cubical/Corner Workstation: Fabric Covered Panels, 2 Side

Tables, Center Table/Counter, Shelf, Pedestal File, Lockable Hanging File, Keyboard Tray, Metal Hardware .

*

22 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer.

In Receiver's Possession

23 Sharp Model EL-2630GII Desk Top Calculator. *24 Swivel Type Arm Chair With Cloth Seat and Back. *25 Two Drawer Legal Size Lateral File. *26 Fellowes Model 2250Ci Cross-Cut Shredder: TAA (Trade Agreements Act)

Compliant To Government Standards.*

27 42" Circular Wood table. *28 42" Formica Top Circular Table. *29 42" Formica Top Circular Table. *

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30 Wood 28" X 48" Double Pedestal Desk. *31 Swivel Type Arm Chair With Cloth Seat and Back. *32 Swivel Type Arm Chair With Cloth Seat and Back. *33 Painting. *34 Painting. *35 Wood 24" X 48" Computer Desk. *36 Manager Two Wheel Furniture Dolly/Cart. *37 Modular Work Cubical/Corner Workstation: Fabric Covered Panels, 2 Side


*

38 Modular Work Cubical/Corner Workstation: Fabric Covered Panels, 2 Side Tables, Center Table/Counter, Shelf, Pedestal File, Lockable Hanging File, Keyboard Tray, Metal Hardware .

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42 Swivel Type Arm Chair With Cloth Seat and Back. *43 Swivel Type Arm Chair With Cloth Seat and Back. *44 Swivel Type Arm Chair With Cloth Seat and Back. *45 Swivel Type Arm Chair With Cloth Seat and Back. *46 Swivel Type Arm Chair With Cloth Seat and Back. *47 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse,

Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer.


48 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer.


(Computer Only)49 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse,






(Computer Only)51 Sharp Model EL-2630GII Desk Top Calculator. *52 Sharp Model EL-2630GII Desk Top Calculator. *53 Sharp Model EL-2630GII Desk Top Calculator. *54 Sharp Model EL-2630GII Desk Top Calculator. *55 Two Drawer Legal Size Lateral File. *56 Two Drawer Legal Size Lateral File. *57 Two Drawer Legal Size Lateral File. *58 Two Drawer Legal Size Lateral File. *59 Four Drawer Legal Size Lateral File. *60 15" Desk Top, Hand Operated Paper Cuter. Purchased for $25.00

on 2/8/15 by broker

61 Painting. *62 Painting. *63 Painting. *64 Painting. *65 Metal Sculpture. *66 Bloomfield Coffee maker. *67 Bloomfield Coffee maker. *

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68 Emerson Microwave. *69 Emerson Microwave. *70 36" X 36" Formica Top Table. *71 36" X 36" Formica Top Table. *72 36" X 36" Formica Top Table. *73 Painting. *74 LG 30" Flat Screen TV *75 Amana Upright Refrigerator/Freezer. *76 Oster Toaster Oven. *77 Wood 30" X 60" Single Pedestal Desk. *78 Two Drawer Legal Size Lateral File. *79 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse,



(Computer Only)80 36" X 72" Formica Top Desk With Right Hand Return. *81 Swivel Type Arm Chair With Cloth Seat and Back. *82 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse,



(Computer Only)83 Wood Frame Arm Chair With Cloth Seat and Back. *84 Wood Frame Arm Chair With Cloth Seat and Back. *85 36" X 72" Formica Top Desk With Right Hand Return. *86 Swivel Type Arm Chair With Cloth Seat and Back. *87 Two Drawer Legal Size Lateral File. *88 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse,



(Computer Only)89 Sharp Model EL-2630GII Desk Top Calculator. *90 36" X 72" Formica Top Desk With Right Hand Return. *91 Swivel Type Arm Chair With Cloth Seat and Back. *92 36" X 72" Formica Top Desk With Right Hand Return. *93 Swivel Type Arm Chair With Cloth Seat and Back. *94 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse,



(Computer Only)95 Wood Frame Arm Chair With Cloth Seat and Back. *96 Overstuffed Arm Chair. *97 Overstuffed Arm Chair. *98 Overstuffed Arm Chair. *99 Overstuffed Arm Chair. *100 Overstuffed Arm Chair. *101 Overstuffed Arm Chair. *102 Wood Coat Tree. *103 LG 30" Flat Screen TV *104 Painting. *105 Painting. *106 Painting. *107 Painting. *108 Painting. *109 Painting. *110 Painting. *111 Painting. *112 Painting. *113 Painting. *114 Painting. *115 Painting. *116 Painting. *117 Wood 60" Table. *

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118 Wood 'Telephone' Table. *119 Wood 'Telephone' Table. *120 Table Lamp. *121 Table Lamp. *122 Vase. *123 Metal Sculpture. *124 Wood 36" X 72" Top Desk With Right Hand Return. *125 Swivel Type Arm Chair With Cloth Seat and Back. *126 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse,



(Computer Only)127 Wood Frame Arm Chair With Cloth Seat and Back. *128 Wood Frame Arm Chair With Cloth Seat and Back. *129 Sharp Model EL-2630GII Desk Top Calculator. *130 Two Drawer Legal Size Lateral File. *131 Two Drawer Legal Size Lateral File. *132 Accuprint Time Clock System. *133 Painting. *134 Painting. *135 Modular Work Cubical/Corner Workstation: Fabric Covered Panels, 2 Side


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141 Sharp Model EL-2630GII Desk Top Calculator. *142 Sharp Model EL-2630GII Desk Top Calculator. *143 Sharp Model EL-2630GII Desk Top Calculator. *144 Sharp Model EL-2630GII Desk Top Calculator. *145 Two Drawer Legal Size Lateral File. *146 Two Drawer Legal Size Lateral File. *147 Two Drawer Legal Size Lateral File. *148 Two Drawer Legal Size Lateral File. *149 Two Drawer Legal Size Lateral File. *150 Two Drawer Legal Size Lateral File. *151 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse,






(Computer Only)153 LOT: Hewlett Packard Model Pavilion(Windows 8) Personal Computer,

Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer.


(Computer Only)

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154 LOT: Hewlett Packard Model Pavilion(Windows 8) Personal Computer, Keyboard, Mouse, Hew let Packard Model 2311x Flat Screen Monitor, Hewlett Packard Model 1022 Laser Jet Printer.


(Computer Only)155 IBM Wheelwriter 35 Electric Typewriter. *156 Hewlett Packard Model 1022 Laser Jet Printer. NOTE Not In Service. *157 IBM Wheelwriter 'Personal' Electric Typewriter. *158 Fellowes Model C220C Cross-Cut Shredder. *159 Painting. *160 Painting. *161 Painting. *162 Painting. *163 Painting. *164 Formica Top 48" X 120" (2-Sections) Conference Room Table. *165 Swivel Type Arm Chair With Cloth Seat and Back. *166 Swivel Type Arm Chair With Cloth Seat and Back. *167 Swivel Type Arm Chair With Cloth Seat and Back. *168 Swivel Type Arm Chair With Cloth Seat and Back. *169 Swivel Type Arm Chair With Cloth Seat and Back. *170 Swivel Type Arm Chair With Cloth Seat and Back. *171 Swivel Type Arm Chair With Cloth Seat and Back. *172 Swivel Type Arm Chair With Cloth Seat and Back. *173 Swivel Type Arm Chair With Cloth Seat and Back. *174 Swivel Type Arm Chair With Cloth Seat and Back. *175 Swivel Type Arm Chair With Cloth Seat and Back. *176 Swivel Type Arm Chair With Cloth Seat and Back. *177 Swivel Type Arm Chair With Cloth Seat and Back. *178 Swivel Type Arm Chair With Cloth Seat and Back. *179 Swivel Type Arm Chair With Cloth Seat and Back. *180 Swivel Type Arm Chair With Cloth Seat and Back. *181 Dell Personal Computer. NOTE Not In Service. In Receiver's

Possession182 LG 52" Flat Screen TV. *183 Wood 30" Table. *184 Pelco Model DX4700 Hybred Recorder With (4) Camera's. *185 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse,









(Computer Only)188 LOT (4) APC Model XS1300 Battery Back-Up, (2) APC Model XS1000 Battery

Back-Up, (2) Dell Personal Computers, (2) Dell Flat Screen Monitors, Viewsonic Monitor, Dell Power Edge T110-11, Hewlett Packard Pro-PC. Telephone System, (3) TP-Link Model TL-SG-1024D Gigabit Switches, NEC Univerge SV8100 Communications Server, Bogen 35 Watt Model TPU35B Amplifier.


189 Wood 36" X 72" Top Desk With Right Hand Return. *190 Swivel Type Arm Chair With Cloth Seat and Back. *191 LOT: Hewlett Packard Model Pavilion Personal Computer, Keyboard, Mouse,



(Computer Only)192 Wood Frame Arm Chair With Cloth Seat and Back. *193 Wood Frame Arm Chair With Cloth Seat and Back. *194 Sharp Model EL-2630GII Desk Top Calculator. *195 Two Drawer Legal Size Lateral File. *

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196 Book Shelf *197 Book Shelf *198 Swivel Type Arm Chair With Cloth Seat and Back. *199 Swivel Type Arm Chair With Cloth Seat and Back. *

INSURANCEFidelity Bond (Depending on Recovery) (Subject to Litigation) $5,000,000.00 Fidelity Bond (Depending on Recovery) $5,000,000.00

OTHER SOURCES OR RECOVERYAuditor Litigation(Subject to Litigation) TBD

PEARSON ASSETS50% Interest In Sale of Wheaton Building $95,702.74 100% Morgan Stanley IRA $206,803.00 Mass Mutual Life Insurance Policies Liquidation Value (3 policies) $32,387.64 50% Morgan Stanley Joint Account $24,151.22 Sale of Personal Stocks & Related Dividends $2,793.75 Bank Accounts – Fifth Third $2,935.57 From Fifth Third Bank Accounts $8,000.00

*TOTAL $372,773.92 *Note that Fifth Third Bank tendered to the Receiver $2,263.21 that should have been paid to third parties pursuant to the terms of the Receiver’s Turnover Motion. As such, the total recovered from Pearson that is available to claimants under the Plan is $370,510.71.

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4826-0866-3579.1

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

UNITED STATES SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

v. ROBERT G. PEARSON and ILLINOIS STOCK TRANSFER COMPANY (d/b/a IST SHAREHOLDER SERVICES),

Defendants.

Case No. 14 C 3785 Hon. Rebecca R. Pallmeyer Magistrate Judge Young B. Kim

CERTIFICATE OF SERVICE

I, Jill L. Nicholson, hereby certify that on January 28, 2016, I caused to be

electronically filed the RECEIVER’S SEVENTH QUARTERLY STATUS REPORT FOR THE PERIOD OCTOBER 1, 2015 THROUGH DECEMBER 31, 2015, which was served electronically via the Court’s ECF system on all registered parties of record.

I also hereby certify that on January 28, 2016, I caused a true and correct copy of the foregoing document to be served via e-mail, upon the following:

Randall W. Graff 11611 N. Meridian St., Ste. 350 Carmel, IN 46032 [email protected]

/s/ Jill L. Nicholson


UNITED STATES DISTRICT COURT EASTERN DIVISION...

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