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 FIFTH QUARTERLY STATUS REPORT FOR THE PERIOD APRIL 1, 2015 THROUGH JUNE 30, 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 Fifth Quarterly Status Report (the “Report”) covering the period of April 1, 2015 through June 30, 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. The Claims Process ..................................................................................... 4 Case: 1:14-cv-03785 Document #: 188 Filed: 07/28/15 Page 1 of 19 PageID #:1933
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UNITED STATES DISTRICT COURTNORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UNITED STATES SECURITIES ANDEXCHANGE COMMISSION,
Plaintiff,
v.
ROBERT G. PEARSON and ILLINOISSTOCK TRANSFER COMPANY (d/b/a ISTSHAREHOLDER SERVICES),
Defendants.
Case No. 14 C 3785
Hon. Rebecca R. PallmeyerMagistrate Judge Young B. Kim
RECEIVER’S FIFTH QUARTERLY STATUS REPORTFOR THE PERIOD APRIL 1, 2015 THROUGH JUNE 30, 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 Fifth Quarterly Status Report (the “Report”) covering the
period of April 1, 2015 through June 30, 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 THEREPORTING PERIOD....................................................................................................... 3
A. The Liquidation Plan............................................................................................... 3
B. Creditor Claims Proceedings .................................................................................. 4
1. The Claims Process..................................................................................... 4
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 THEREPORTING 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. During the period
covered by this Report, the Receiver has endeavored to marshal and to maximize assets for
distribution 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
distribution to claimants. The first estate (“Estate 1”) relates to assets and liabilities in
1 To the extent there may be differences between the description of the Liquidation Plan ordefinitions contained herein and the Liquidation Plan approved by the Court, the terms of the LiquidationPlan approved by the Court shall govern.
Claimants whose claims have been allowed by both the Receiver and the Court are deemed to
hold Allowed Claims and will be entitled to share in the pro rata distribution in their respective
Classes under the Liquidation Plan.
The Receiver has determined that an additional ten (10) claims are deemed allowed in
full, and seven (7) in part, and will be the subject of future Claims Determination Motions to be
filed with the District Court. These additional claims are not presently included in the totals
above, but will be added to the table once such claims have also been finally allowed by the
Court.
To date, the Receiver has issued 54 Claims Determinations2 disallowing claims in full or
in part.3 These claims were deemed disallowed for a variety of reasons, including, but not
limited to, failure to pay all outstanding amounts due and owing to the Company, failure to
provide necessary written documentation supporting a claim, duplicative claims, and/or
discrepancies between the claimant’s asserted claim and the books and records of the Company.
Of the 54 claims the Receiver initially deemed disallowed, the Receiver has received a total of
nine (9) Objections, as well as one (1) Objection to a notice allowing the claim in its entirety.
2 The Receiver has revised two of the previously disallowed claims to Allowed Claims. Thesetwo claims were disallowed due to the claimants’ failure to satisfy their Issuer AR obligations. Once theclaimants satisfied in full the Issuer AR, the claims were allowed.
3 Those claimants who received a Claims Determination notice indicating a partial disallowanceof a claim will also receive a notice indicating that the remaining portion of the claim is deemed allowedupon the expiration of the 20-day objection period (assuming no objection has been tendered to theReceiver).
and expenses.4 As of July 20, 2015 the Receiver is holding $4,911,600.31. These funds are held
in: (a) a qualified settlement fund account and (b) one receiver’s account at BMO as detailed
below. Note that the $4,916,600.31 is after the deduction of administrative expenses that have
been paid in the amount of $1,323,050.46 as itemized below. For the Court’s convenience, a
schedule of all of the Company’s assets located to date is attached hereto as Exhibit C.
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 July 20,
2015, the QSF’s Company account holds $4,874,576.55, which 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 inception of the receivership, funds generated
by the sale of the Wheaton Property, and collected Issuer AR. As of July 20, 2015, the QSF’s
Pearson sub-account holds $5,000.00. The Pearson sub-account will never hold more than
$5,000.00 as the Liquidation Plan provides that the total amount that may be paid to Pearson’s
individual creditors is capped at $5,000.00. (Liquidation Plan, §§ 1.02 and 2.04).
4 Note that the names of employees on the schedule of expenses have been redacted to avoiddissemination of employees’ salary and/or wage information. In addition, the amount of the ASTmilestone payments have been redacted. The Receiver will be glad to provide an unredacted copy ofthese schedules to chambers upon the Court’s request.
Also note that the income and expense ledgers of Exhibit A include transfers among variousReceiver accounts. By way of example, on July 25, 2014, the Receiver transferred $5 million from theReceiver’s BMO account to the receivership’s Qualified Settlement Fund Account as a result of theShutdown of the Company. Such transfers are not expenses of the estates, but are identified solely for thepurpose of demonstrating to the Court the movement of funds among the receivership accounts.
tax accounting. To date, the Receiver has not received W-9s from approximately 13 claimants
with Allowed Claims in Class I. The Receiver will continue to request these W-9s and upon
their receipt will advise KCC to release the 25% interim distribution to those claimants with
Allowed Claims in Class I.
The Receiver is also calculating the distributions to those with Allowed Claims in Classes
II and III of the Liquidation Plan. Class II Allowed Claims are subject to a maximum
distribution of $25,000 pursuant to the Vendor Carve Out of the Liquidation Plan, and Class III
Allowed Claims are subject to a maximum distribution of $5,000 under the Employee Carve Out
of the Liquidation Plan. Class II Allowed Claims will share pro rata in the $5,000. Similarly,
Class III Allowed Claims will share pro rata in the $25,000. Distributions to Classes II and III
will be made when each of the claims in those classes have been fully and finally adjudicated.
The Receiver estimates that process to conclude within the next two months with a distribution
to Class II and III expected in the fall of 2015.
B. Recommendations for the Continuation of the Receivership Estates
The Receiver notes that the continuation of the Receivership Estates is necessary and
warranted at this time in order to move forward with the administration of claims and the
recovery of assets under the Liquidation Plan. The Receiver will continue to assess and
investigate possible avenues of recovery for the benefit of the Receivership Estates. The
Receiver will also 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. NicholsonNot individually, but solely as Receiver forthe Estates of Illinois Stock TransferCompany and Robert G. PearsonFoley & Lardner LLP