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Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
Doc577 complaint action against officers directors legal audit etc
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Doc577 complaint action against officers directors legal audit etc

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  • 1. Jeffrey M. Tillotson, P.C.Texas Bar No. 20039200Eric W. Pinker, P.C.Texas Bar No. 16016550John VolneyTexas Bar No. 24003118LYNN TILLOTSON PINKER & COX, L.L.P.2100 Ross Avenue, Suite 2700Dallas, Texas 75201(214) 981-3800 Telephone(214) 981-3839 Facsimilejmt@lynnllp.comepinker@lynnllp.comjvolney@lynnllp.comATTORNEYS FOR PLAINTIFF IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISIONIn re: § Chapter 11 §FIRSTPLUS FINANCIAL GROUP, INC., § Case No. 09-33918-HDH § Debtor. §___________________________________ § ___________________________________ §MATTHEW D. ORWIG, §AS CHAPTER 11 TRUSTEE OF §FIRSTPLUS FINANCIAL GROUP, INC., § § Plaintiff, § §v. § Adversary No. ________________ § §ROBERT FREEMAN; JAMES ROUNDTREE; §DANIEL PHILLIPS; DAVID WARD; §JOHN FITZGERALD; JOHN MAXWELL; §WILLIAM HANDLEY; DR. ROBERT O’NEAL; §JACK ROUBINEK; GARY D. ALEXANDER; §ROGER S. MEEK; DAVID ROBERTS; §JOSEPH P. STEWARD; WILLIAM HICKMAN; §PAUL BALLARD; OLSHAN GRUNDMAN §FROME ROSENZWEIG & WOLOSKY LLP; §DAVID ADLER, ESQ.; §EIZEN FINEBURG & McCARTHY P.C.; §GARY J. McCARTHY, ESQ.; §WILLIAM T. MAXWELL, ESQ.; §WILLIAM MAXWELL PLLC; §WILLIAM T. MAXWELL, P.C.; § 1#4815-9175-0153
  • 2. BUCKNO LISICKY & COMPANY, P.C.; §ANTHONY BUCZEK, CPA; §SIEGAL & DROSSNER, P.C.; §HOWARD DROSSNER, CPA; §KENSINGTON COMPANY & AFFILIATES, §INC.; KEN STEIN; SALVATORE PELULLO; §SEVEN HILLS MANAGEMENT, LLC; §LEARNED ASSOCIATES OF §NORTH AMERICA, LLC; and §NICODEMO S. SCARFO, JR., § § Defendants. §______________________________________________________________________________ COMPLAINT______________________________________________________________________________ Matthew D. Orwig, the chapter 11 Trustee (the “Trustee”) for the estate of FirstPlusFinancial Group, Inc. (the “Debtor”), by and through his undersigned counsel brings this actionagainst the Debtor’s former officers, directors and its legal, accounting and auditingprofessionals and alleges as follows: NATURE OF THIS ACTION 1. On June 23, 2009, the Debtor filed for Chapter 11 Bankruptcy protection in theUnited States Bankruptcy Court for the Northern District of Texas, case No. 09-33918 (hdh).The Bankruptcy Court appointed Plaintiff Matthew D. Orwig Chapter 11 Trustee. 2. This action seeks damages from the Debtor’s former officers, directors and thelegal, accounting and auditing professionals allegedly employed and/or engaged by or for thebenefit of the Debtor. The purported “services” provided by the Defendants were woefullyinadequate and failed to satisfy the Defendants’ professional and ethical responsibilities to theDebtor. 3. In particular, the Trustee asserts claims against the Defendants for, among otherclaims, breaches of fiduciary duties, professional negligence and conspiracy relating to the role 2#4815-9175-0153
  • 3. each Defendant played in the takeover of the Debtor, the siphoning off of the Debtor’s assets andthe preparation of and/or participation in the Debtor’s misleading public filings. JURISDICTION AND VENUE 4. This Court has jurisdiction over this adversary proceeding under 28 U.S.C.§§ 157(a) and (b) and 1334. This is a core proceeding as defined in 28 U.S.C. § 157(b). If anypart of this adversary proceeding is found to be “non-core” under Bankruptcy Rule 7008, theTrustee consents to the entry of final orders and judgments by this Court. 5. Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. PARTIES 6. Plaintiff Matthew D. Orwig brings this suit in his capacity as chapter 11 Trusteefor the Debtor. 7. The Trustee brings this suit against eight sets of defendants: (1) the members ofthe Debtor’s Board of Directors under Chairman Robert Freeman (the “Freeman Board”); (2) themembers of the Debtor’s Board of Directors under Chairman John Maxwell (the “MaxwellBoard”); (3) the members of the Debtor’s Board of Directors under Chairman Robert O’Neal(the “O’Neal Board”); (4) the Debtor’s outside attorneys and law firms (the “AttorneyDefendants”); (5) the Debtor’s accountants, auditors, and their public accounting firms (the“Accountant Defendants”); (6) the Debtor’s business valuation experts (the “KensingtonDefendants”); (7) William Maxwell and his law firms (“William Maxwell”); and (8) SalvatorePelullo, Nicodemo Scarfo, Jr. and their affiliated entities (the “Pelullo Group”). The individualsand entities that belong to each of these eight categories are listed below: 3#4815-9175-0153
  • 4. The Freeman Board 8. In this Complaint, the “Freeman Board” collectively refers to Robert Freeman,Daniel Phillips, James Roundtree, David Ward, and John Fitzgerald. 9. Robert Freeman was a director and officer of the Debtor from 1998 through 2007.Mr. Freeman resides at 28 Corn Hill Drive, Morristown, New Jersey 07960. He may be servedby delivering a copy of the summons and the complaint to him personally or by mailing a copyof the summons and complaint via registered or certified mail with return receipt requested to theaddress above. Alternatively, he may be served via the Texas Secretary of State, an agent forservice over a nonresident defendant that does not have a designated agent for service of process,given his contacts arose from his business in the state of Texas. 10. Daniel Phillips was a director and chief executive officer of the Debtor from 1994through 2007. Mr. Phillips resides at 116 Eastbury, Williamsburg, Virginia 23188. He may beserved by delivering a copy of the summons and the complaint to him personally or by mailing acopy of the summons and complaint via registered or certified mail with return receipt requestedto the address above. Alternatively, he may be served via the Texas Secretary of State, an agentfor service over a nonresident defendant that does not have a designated agent for service ofprocess, given his contacts arose from his business in the state of Texas. 11. James Roundtree was a director and chief financial officer of the Debtor between2006 and 2007. Mr. Roundtree resides at 17811 Cedar Creek Canyon, Dallas, Texas 75252. Hemay be served by delivering a copy of the summons and the complaint to him personally or bymailing a copy of the summons and complaint via registered or certified mail with return receiptrequested to the address above. 4#4815-9175-0153
  • 5. 12. David Ward was a director of the Debtor between 1999 and 2007. Mr. Wardresides at 204 North Road, Chester, New Jersey 07930. He may be served by delivering a copyof the summons and the complaint to him personally or by mailing a copy of the summons andcomplaint via registered or certified mail with return receipt requested to the address above.Alternatively, he may be served via the Texas Secretary of State, an agent for service over anonresident defendant that does not have a designated agent for service of process, given hiscontacts arose from his business in the state of Texas. 13. John Fitzgerald was a director of the Debtor during 2007. Mr. Fitzgerald residesat 408 Arborcrest Drive, Richardson, Texas 75080. He may be served by delivering a copy ofthe summons and the complaint to him personally or by mailing a copy of the summons andcomplaint via registered or certified mail with return receipt requested to the address above. The Maxwell Board 14. In this Complaint, the “Maxwell Board” collectively refers to John Maxwell,William Handley, Dr. Robert O’Neal, Roger S. Meek, David Roberts, Gary Alexander andJoseph P. Steward. 15. John Maxwell was both an officer and director of the Debtor, having served inseveral executive capacities including chairman of the board, chief executive officer andpresident beginning on June 7, 2007. John Maxwell resides at 509 Robinhood Drive, Irving,Texas 75061. He may be served by delivering a copy of the summons and the complaint to himpersonally or by mailing a copy of the summons and complaint via registered or certified mailwith return receipt requested to the address above. 16. William Handley was both an officer and director of the Debtor, having served inseveral executive capacities including chief financial officer, treasurer, and chief executive 5#4815-9175-0153
  • 6. officer beginning on June 7, 2007. Mr. Handley resides at 9911 SW 48th Street, Miami, Florida33165. He may be served by delivering a copy of the summons and the complaint to himpersonally or by mailing a copy of the summons and complaint via registered or certified mailwith return receipt requested to the address above. Alternatively, he may be served via the TexasSecretary of State, an agent for service over a nonresident defendant that does not have adesignated agent for service of process, given his contacts arose from his business in the state ofTexas. 17. Dr. Robert O’Neal was both an officer and director of the Debtor under theMaxwell Board, having served in several executive capacities beginning on June 7, 2007.Dr. O’Neal resides at 5944 Falcon Crest, Lumberton, Texas 77657. He may be served bydelivering a copy of the summons and the complaint to him personally or by mailing a copy ofthe summons and complaint via registered or certified mail with return receipt requested to theaddress above. 18. David Roberts was a director and secretary of the Debtor on the Maxwell Boardbeginning on June 7, 2007. Mr. Roberts resides at 325 West End Avenue, Apt. 11D, New York,New York 10023. He may be served by delivering a copy of the summons and the complaint tohim personally or by mailing a copy of the summons and complaint via registered or certifiedmail with return receipt requested to the address above. Alternatively, he may be served via theTexas Secretary of State, an agent for service over a nonresident defendant that does not have adesignated agent for service of process, given his contacts arose from his business in the state ofTexas. 19. Roger S. Meek is a certified public accountant who lives and works in Beaumont,Texas. He was added to the Maxwell Board in August 2007 and served as chairman of the audit 6#4815-9175-0153
  • 7. and compensation committees. Mr. Meek resides at 19 Dowlen Place, Beaumont, Texas 77706.He may be served by delivering a copy of the summons and the complaint to him personally orby mailing a copy of the summons and complaint via registered or certified mail with returnreceipt requested to the address above. 20. Gary Alexander is a certified public accountant who joined the Maxwell Board inNovember 2007 as an independent director and served on the audit and compensationcommittees. Mr. Alexander resides at 263 SW Hatteras Court, Palm City, Florida 34990. Hemay be served by delivering a copy of the summons and the complaint to him personally or bymailing a copy of the summons and complaint via registered or certified mail with return receiptrequested to the address above. Alternatively, he may be served via the Texas Secretary of State,an agent for service over a nonresident defendant that does not have a designated agent forservice of process, given his contacts arose from his business in the state of Texas. 21. Joseph P. Steward is a lawyer who lives and works in Philadelphia, Pennsylvania.Mr. Steward joined the Maxwell Board in November 2007 as an independent director and servedon the compensation and audit committees. Mr. Steward resides at 13021 Trina Drive,Philadelphia, Pennsylvania 19166. He may be served by delivering a copy of the summons andthe complaint to him personally or by mailing a copy of the summons and complaint viaregistered or certified mail with return receipt requested to the address above. Alternatively, hemay be served via the Texas Secretary of State, an agent for service over a nonresident defendantthat does not have a designated agent for service of process, given his contacts arose from hisbusiness in the state of Texas. 7#4815-9175-0153
  • 8. The O’Neal Board 22. In this Complaint, the “O’Neal Board” collectively refers to DefendantsDr. Robert O’Neal, Gary Alexander, William Hickman, Paul Ballard, and Jack Roubinek. 23. Dr. Robert O’Neal was chairman of the O’Neal Board and a member of theExecutive Committee. Dr. O’Neal was a member of the Maxwell Board and he may be servedas set forth above. 24. Gary Alexander was acting chief financial officer of the O’Neal Board.Mr. Alexander was a member of the Maxwell Board and he may be served as set forth above. 25. William Hickman was a director on the O’Neal Board starting in June 2008 and amember of the Executive Committee. Mr. Hickman resides at 9020 Allisons Way, Lumberton,Texas 77657. He may be served by delivering a copy of the summons and the complaint to himpersonally or by mailing a copy of the summons and complaint via registered or certified mailwith return receipt requested to the address above. 26. Paul Ballard was a director on the O’Neal Board starting in July 2008.Mr. Ballard resides at 445 Hanging Oak, Spring Branch, Texas 78070. He may be served bydelivering a copy of the summons and the complaint to him personally or by mailing a copy ofthe summons and complaint via registered or certified mail with return receipt requested to theaddress above. 27. Jack Roubinek was a director on the O’Neal Board and a member of theExecutive Committee. Mr. Roubinek resides at 2126 Clearspring Drive N, Irving, Texas 75063.He may be served by delivering a copy of the summons and the complaint to him personally orby mailing a copy of the summons and complaint via registered or certified mail with returnreceipt requested to the address above. 8#4815-9175-0153
  • 9. The Attorney Defendants 28. In this Complaint, the “Attorney Defendants” collectively refers to DefendantsOlshan Grundman Frome Rozenzweig & Wolosky LLP (“Olshan Grundman”), David Adler,Eizen Fineburg & McCarthy P.C. (“Eizen Fineburg”), and Gary J. McCarthy. 29. Defendant Olshan Grundman is a law firm operating as a New York limitedliability partnership with its principal place of business at Park Avenue Tower, 65 East 55thStreet, New York, New York 10022. Olshan Grundman may be served by delivering a copy ofthe summons and the complaint to Mr. David Adler, the managing partner of the firm, personallyor by mailing a copy of the summons and complaint via registered or certified mail with returnreceipt requested to Mr. Adler at the address above. Alternatively, Olshan Grundman may beserved via the Texas Secretary of State, an agent for service over a nonresident defendant thatengaged in business in Texas without having a regular place of business in the state and does nothave a designated agent for service of process, given its contacts arose from its business in thestate of Texas. 30. Defendant David Adler is the managing partner of Olshan Grundman. Mr. Adlermay be found at his business address in care of Olshan Grundman, Park Avenue Tower, 65 East55th Street, New York, New York 10022. He may be served by delivering a copy of thesummons and the complaint to him personally or by mailing a copy of the summons andcomplaint via registered or certified mail with return receipt requested to the address above.Alternatively, he may be served via the Texas Secretary of State, an agent for service over anonresident defendant that does not have a designated agent for service of process, given hiscontacts arose from his business in the state of Texas. 9#4815-9175-0153
  • 10. 31. Defendant Eizen Fineburg is a Philadelphia law firm operating as a Pennsylvaniaprofessional corporation with its principal place of business at Two Commerce Square, 34thFloor, 2001 Market Street, Philadelphia, Pennsylvania 19103. Eizen Fineburg may be served bydelivering a copy of the summons and the complaint to Mr. Bernard Eizen, the president of thefirm, personally or by mailing a copy of the summons and complaint via registered or certifiedmail with return receipt requested to Mr. Eizen at the address above. Alternatively, EizenFineburg may be served via the Texas Secretary of State, an agent for service over a nonresidentdefendant that engaged in business in Texas without having a regular place of business and doesnot have a designated agent for service of process, given its contacts arose from its business inthe state of Texas. 32. Defendant Gary J. McCarthy is a partner at Eizen Fineburg. Mr. McCarthy maybe found at his business address in care of Eizen Fineburg, Two Commerce Square, 34th Floor,2001 Market Street, Philadelphia, Pennsylvania 19103. He may be served by delivering a copyof the summons and the complaint to him personally or by mailing a copy of the summons andcomplaint via registered or certified mail with return receipt requested to the address above.Alternatively, he may be served via the Texas Secretary of State, an agent for service over anonresident defendant that does not have a designated agent for service of process, given hiscontacts arose from his business in the state of Texas. The Accountant Defendants 33. In this Complaint, the “Accountant Defendants” collectively refers to BucknoLisicky & Company, P.C. (“Buckno Lisicky”), Anthony Buczek, Siegal & Drossner, P.C.(“Siegal Drossner”), and Howard Drossner. 10#4815-9175-0153
  • 11. 34. Defendant Buckno Lisicky is a registered public accounting firm operating as aPennsylvania professional corporation with its principal place of business at 1524 Linden Street,Allentown, Pennsylvania 18102. Buckno Lisicky may be served by delivering a copy of thesummons and the complaint to Mr. Randal R. Dietz, the president of the company, personally orby mailing a copy of the summons and complaint via registered or certified mail with returnreceipt requested to Mr. Dietz at the address above. Alternatively, Buckno Lisicky may beserved via the Texas Secretary of State, an agent for service over a nonresident defendant thatengaged in business in Texas without having a regular place of business in the state and does nothave a designated agent for service of process, given its contacts arose from its business in thestate of Texas. 35. Anthony Buczek is a shareholder at Buckno Lisicky and lead audit partner for theDebtor. Mr. Buczek may be found at his business address, in care of Buckno Lisicky, 1524Linden Street, Allentown, Pennsylvania 18102. He may be served by delivering a copy of thesummons and the complaint to him personally or by mailing a copy of the summons andcomplaint via registered or certified mail with return receipt requested to the address above.Alternatively, he may be served via the Texas Secretary of State, an agent for service over anonresident defendant that does not have a designated agent for service of process, given hiscontacts arose from his business in the state of Texas. 36. Defendant Siegal Drossner is a certified public accounting firm operating as aPennsylvania professional corporation with its principal place of business at 300 YorktownPlaza, Elkins Park, Pennsylvania 19027. Siegal Drossner may be served by delivering a copy ofthe summons and the complaint to Mr. Howard Siegal, the president of the company, personallyor by mailing a copy of the summons and complaint via registered or certified mail with return 11#4815-9175-0153
  • 12. receipt requested to Mr. Drossner at the address above. Alternatively, Siegal Drossner may beserved via the Texas Secretary of State, an agent for service over a nonresident defendant thatengaged in business in Texas without having a regular place of business in the state and does nothave a designated agent for service of process, given its contacts arose from its business in thestate of Texas. 37. Defendant Howard Drossner is a certified public accountant and managing partnerof Siegal Drossner. Mr. Drossner may be found at his business address, in care of SiegelDrossner, 300 Yorktown Plaza, Elkins Park, Pennsylvania 19027. He may be served bydelivering a copy of the summons and the complaint to him personally or by mailing a copy ofthe summons and complaint via registered or certified mail with return receipt requested to theaddress above. Alternatively, he may be served via the Texas Secretary of State, an agent forservice over a nonresident defendant that does not have a designated agent for service of process,given his contacts arose from his business in the state of Texas. The Kensington Defendants 38. In this Complaint, the “Kensington Defendants” collectively refers to KensingtonCompany & Affiliates, Inc. (“Kensington Company”) and Kenneth Stein. 39. Kensington Company is a corporation incorporated under the laws of the State ofNew York with its principal place of business at 185 Roslyn Road, Roslyn Heights, New York11577. Kensington Company may be served by delivering a copy of the summons and thecomplaint to Mr. Kenneth Stein, the CEO of the company, personally or by mailing a copy of thesummons and complaint via registered or certified mail with return receipt requested to Mr. Steinat the address above. Alternatively, Kensington Company may be served via the Texas Secretaryof State, an agent for service over a nonresident defendant that engaged in business in Texas 12#4815-9175-0153
  • 13. without having a regular place of business in the state and does not have a designated agent forservice of process, given its contacts arose from its business in the state of Texas. 40. Ken Stein is founder and CEO of Kensington Company. Mr. Stein may be foundat his business address, 185 Roslyn Road, Roslyn Heights, New York 11577. He may be servedby delivering a copy of the summons and the complaint to him personally or by mailing a copyof the summons and complaint via registered or certified mail with return receipt requested to theaddress above. Alternatively, he may be served via the Texas Secretary of State, an agent forservice over a nonresident defendant that does not have a designated agent for service of process,given his contacts arose from his business in the state of Texas. William Maxwell 41. In this Complaint, “William Maxwell” collectively refers to DefendantsWilliam T. Maxwell, William Maxwell PLLC, and William T. Maxwell, P.C. 42. Defendant William T. Maxwell is a lawyer who practices law in his officeslocated at 1300 McGowan Street, Houston, Texas 77004. He may be served by delivering acopy of the summons and the complaint to him personally or by mailing a copy of the summonsand complaint via registered or certified mail with return receipt requested to the address above. 43. William Maxwell PLLC is a law firm operating as a Texas professional limitedliability company with its principal place of business located at 1300 McGowan Street, Houston,Texas 77004. William Maxwell PLLC may be served by delivering a copy of the summons andthe complaint to William T. Maxwell, the sole managing member of the firm, personally or bymailing a copy of the summons and complaint via registered or certified mail with return receiptrequested to William T. Maxwell at the address above. 13#4815-9175-0153
  • 14. 44. William T. Maxwell, P.C. is a law firm operating as a Texas professionalcorporation with its principal place of business located at 1300 McGowan Street, Houston, Texas77004. William T. Maxwell P.C. may be served by delivering a copy of the summons and thecomplaint to William T. Maxwell, the registered agent for the firm, personally or by mailing acopy of the summons and complaint via registered or certified mail with return receipt requestedto William T. Maxwell at the address above. The Pelullo Group 45. In this Complaint, the “Pelullo Group” collectively refers to Defendants SalvatorePelullo, Nicodemo S. Scarfo, Jr., Seven Hills Management Company, LLC (“Seven Hills”), andLearned Associates of North America, LLC (“Learned Associates”). 46. Salvatore Pelullo is a member of and the Vice President of Operations for SevenHills. Mr. Pelullo may be found at the following address: Atlantic Business Litigation Services,LLC, 7909 Bustleton Avenue, Philadelphia, Pennsylvania 19152. He may be served bydelivering a copy of the summons and the complaint to him personally or by mailing a copy ofthe summons and complaint via registered or certified mail with return receipt requested to theaddress above. Alternatively, he may be served via the Texas Secretary of State, an agent forservice over a nonresident defendant that does not have a designated agent for service of process,given his contacts arose from his business in the state of Texas. 47. Nicodemo S. Scarfo, Jr. is, upon information and belief, a member of LearnedAssociates of North America, LLC. Mr. Scarfo may be found at the following address: 129Kensington Drive, Galloway, New Jersey 08205. He may be served by delivering a copy of thesummons and the complaint to him personally or by mailing a copy of the summons andcomplaint via registered or certified mail with return receipt requested to the address above. 14#4815-9175-0153
  • 15. Alternatively, he may be served via the Texas Secretary of State, an agent for service over anonresident defendant that does not have a designated agent for service of process, given hiscontacts arose from his business in the state of Texas. 48. Seven Hills claims to be a management consulting company that operates as aPennsylvania limited liability company with its principal place of business at 1231 BainbridgeStreet, Philadelphia, Pennsylvania 19147. Seven Hills may be served by delivering a copy of thesummons and the complaint to Ms. Anna Pelullo, the president of the company, personally or bymailing a copy of the summons and complaint via registered or certified mail with return receiptrequested to Ms. Pelullo at the address above. Alternatively, Seven Hills may be served via theTexas Secretary of State, an agent for service over a nonresident defendant that engaged inbusiness in Texas without having a regular place of business in the state and does not have adesignated agent for service of process, given its contacts arose from its business in the state ofTexas. 49. Learned Associates claims to be a consulting company that operates as a NewJersey limited liability company with its principal place of business at 2509 Centennial Avenue,Atlantic City, New Jersey 08401. Learned Associates may be served by delivering a copy of thesummons and the complaint to Mr. John A. Parisi, its registered agent, personally or by mailing acopy of the summons and complaint via registered or certified mail with return receipt requestedto Mr. Parisi at the address above. Alternatively, Learned Associates may be served via theTexas Secretary of State, an agent for service over a nonresident defendant that engaged inbusiness in Texas without having a regular place of business in the state and does not have adesignated agent for service of process, given its contacts arose from its business in the state ofTexas. 15#4815-9175-0153
  • 16. FACTSA. The Early Years 50. In the mid-1990s, the Debtor was a successful, multi-billion dollar mortgagecompany specializing in high loan-to-value second mortgages. The Debtor’s stock traded on theNew York Stock Exchange (NYSE) and NASDAQ during the 1990s and reached a trading priceof more than $60/share. 51. Since 1999, the Debtor had been essentially dormant after one of its mostprofitable subsidiaries, FirstPlus Financial, Inc. (“FPFI”), filed for bankruptcy. After FPFI’sbankruptcy, the Debtor was delisted from NYSE and NASDAQ and the Debtor’s stockplummeted to pennies on the dollar. 52. Although FPFI was bankrupt, it had valuable assets in the form of securitizedpools of mortgages, which were expected to generate revenues for at least a decade. Thebankruptcy court set up a creditor’s trust (“Creditor Trust”) to receive and distribute themortgage revenue to FPFI’s creditors. The court appointed David Obergfell to be the trustee ofthe Creditor Trust. 53. The Debtor was a creditor in FPFI’s bankruptcy case and obtained an allowedclaim (the “Intercompany Claim”) that entitled the Debtor to distributions of no less than $50million. The Intercompany Claim would become the Debtor’s primary source of funds duringthe 2000s. 54. The Debtor had its own financial difficulties in the early 2000s. As part of itsefforts to avoid bankruptcy, the Debtor assigned portions of its Intercompany Claim to its owncreditors. 16#4815-9175-0153
  • 17. 55. In 2002, the Debtor created a self-settled trust (the “Grantor Trust”) and assigned52.4% of its distributions from the Creditor Trust to the Grantor Trust. 56. In 2004, the Debtor started receiving cash distributions from the Creditor Trust onaccount of its Intercompany Claim. 57. In 2006, the Debtor settled a class action suit with its shareholders by assigningthem 50% of the distributions received by the Grantor Trust. The documents governing theGrantor’s Trust were amended consistent with this settlement. 58. By June 2007, the Debtor had received almost $29,000,000 from the CreditorTrust and had more than $12,000,000 in cash and cash equivalents.B. The Takeover of the Debtor 59. The Freeman Board served as the Debtor’s Board of Directors from the start of2007 through June 7, 2007. 60. On information and belief, in 2007, the Pelullo Group learned about the Debtor’scash position and identified the Debtor as an ideal target for the Pelullo Group to implement ascheme to siphon millions of dollars from the Debtor. The Pelullo Group and others, including,but not limited to, Defendants David Adler, William Maxwell, Nicodemo Scarfo, Sr., and non-party Harold Garber (deceased) engaged in a series of meetings to discuss the logistics for takingover the Debtor. 61. On June 7, 2007, the Freeman Board received an unsolicited takeover proposalfrom individuals acting on behalf of the Pelullo Group. On information and belief, the MaxwellBoard, William Maxwell and the Attorney Defendants assisted the Pelullo Group in carrying outthe takeover for the benefit of the Pelullo Group. 17#4815-9175-0153
  • 18. 62. The Pelullo Group’s takeover proposal was unusual. It did not involve a purchaseof the Debtor’s stock or a proxy fight for an election of directors because such actions wouldtrigger disclosure obligations to the U.S. Securities and Exchange Commission (“SEC”).Instead, the Pelullo Group merely demanded that the Freeman Board appoint five individualsassociated with the Pelullo Group to the Debtor’s board of directors and then resign in favor ofthese new directors. On information and belief, the Freeman Board members were threatenedwith the disclosure of certain improprieties if they refused to resign. In exchange for theirresignations, the Freeman Board members were promised handsome severance packages. 63. The Freeman Board agreed to hand over control to the Maxwell Board. To makethe transition from the Freeman Board to the Maxwell Board, the Freeman Board took threeactions during the June 7, 2007 meetings. 64. First, the Freeman Board voted to expand the Debtor’s board by five seats andthen unanimously appoint five individuals associated with the Pelullo Group to those seats:(1) John Maxwell; (2) Harold Garber; (3) Dr. Robert O’Neal; (4) William Handley; and(5) David Roberts. 65. Second, the members of the Freeman Board agreed to assign the voting rights totheir aggregate two million shares of Debtor stock to John Maxwell, the new CEO and Presidentof the Debtor, as well as turn over the Debtor’s cash, bank accounts and records to the MaxwellBoard. 66. Third, the Freeman Board then resigned despite: (1) never receiving a legitimatebusiness proposal from the takeover group; (2) never consulting experts to determine how todefend against the takeover effort; (3) never consulting or considering the best interests of the 18#4815-9175-0153
  • 19. Debtor or its shareholders; and (4) never considering that the Maxwell Board members did nothave any particular expertise or experience in building or operating the Debtor’s business. 67. A week following the takeover, federal law enforcement officials documented aconversation between Defendant Scarfo, Jr. and his father, Nicodemo Scarfo, Sr. (serving aprison sentence at that time) whereby the two discussed how Harold Garber was instrumental inthe takeover of the Debtor but that they were six to ten months away from “helping everyone.”C. The Maxwell Board - Groundwork for Insider Transactions 68. The Maxwell Board was comprised of directors who were to serve an integral rolein the Pelullo Group’s overarching scheme to deplete the Debtor of its cash. The Maxwell Boardincluded not only the five directors originally appointed on June 7, 2007, but also three directorswho joined the Maxwell Board at later dates: (1) Gary Alexander; (2) Roger S. Meek; and(3) Joseph Steward. 69. On the same day that the Maxwell Board assumed control of the Debtor, theMaxwell Board hired William Maxwell, the brother of the newly appointed CEO and Presidentof the Debtor, John Maxwell, as Special Counsel pursuant to a Legal Services Agreement (the“LSA”). The Maxwell Board approved a compensation package for William Maxwell withseven-figure bonuses, lucrative expense accounts and a salary of $100,000 per month. 70. By approving the LSA, the Maxwell Board abdicated its responsibility to managethe Debtor and delegated that responsibility to William Maxwell. The LSA vested WilliamMaxwell with what amounted to executive authority to run business and legal affairs of theDebtor as he saw fit, without any checks or balances, or oversight by the Board. 71. Specifically, the LSA provided William Maxwell with broad authority to act forthe Debtor and gave William Maxwell the sole authority to, among other things: (1) review and 19#4815-9175-0153
  • 20. approve acquisitions; (2) retain or dismiss all accounting firms concerning any audit orcompliance work; (3) retain or dismiss any legal counsel; (4) retain or dismiss any consultingfirms; (5) restrict disclosure of information to the Debtor’s Board; and (6) conduct anyinvestigation on any matter without board approval. 72. Ultimately, the LSA provided William Maxwell with broad powers to implementthe Pelullo Group’s scheme. William Maxwell used his broad authority to hire attorneys,accountants and consultants ostensibly on the Debtor’s behalf to provide independentprofessional advice and services to the Debtor. In reality, these professionals were allied withthe Pelullo Group and were to serve an integral role in carrying out the next phase of the PelulloGroup’s scheme, namely, to force the Debtor to pay millions of dollars for essentially worthlesscompanies that were controlled by the Pelullo Group. 73. William Maxwell hired Olshan Grundman and David Adler, attorneys thatassisted William Maxwell and the Maxwell Board in taking control of the Debtor, to representthe Debtor in connection with the acquisitions of entities controlled by the Pelullo Group. ThePellulo Group retained Gary McCarthy and Eizen Fineburg, attorneys that also assisted WilliamMaxwell and the Maxwell Board in taking control of the Debtor to assist Seven Hills andLearned Associates with the Insider Transactions described below. Gary McCarthy and EizenFineburg would go on to represent the Debtor at various points during the Maxwell Board’stenure. 74. Upon information and belief, the Pelullo Group, Attorney Defendants, WilliamMaxwell and the Maxwell Board agreed that the Attorney Defendants would work together to:(1) make the Insider Transactions appear legitimate; (2) extract as much money from the Debtoras possible for the benefit of the Pelullo Group, the Attorney Defendants, William Maxwell and 20#4815-9175-0153
  • 21. members of the Maxwell Board; and (3) avoid making necessary disclosures to reduce thelikelihood of an authority uncovering the scheme. 75. Additionally, William Maxwell terminated the Debtor’s independent Dallas-basedregistered public accounting firm, Lightfoot Guest & Moore, and hired two Philadelphia-basedaccountants allied with the Pelullo Group: (1) Anthony Buczek of Buckno Lisicky, and(2) Howard Drossner of Siegal Drossner. Anthony Buczek and his firm would audit the Debtorwhile Howard Drossner and his firm would provide accounting services for the Debtor and workwith the auditors to prepare the Debtor’s financial statements. 76. Additionally, William Maxwell entered into and/or approved a variety of lucrative“consulting agreements” with the Pelullo Group: (1) on May 1, 2007, prior to the takeover of theDebtor’s Board, William Maxwell hired Seven Hills to provide consulting services at a flat fee of$100,000 in connection with the takeover attempt; (2) on June 15, 2007, William Maxwell hiredSeven Hills as the “Debtor’s consultant” under a two-year agreement (with an option for a thirdyear) that: (a) paid Seven Hills $100,000 per month; (b) provided Seven Hills with an expenseaccount of $30,000 per month; and (c) provided Seven Hills with unfettered authority to hire itsown “consultants”; and (3) in July, 2007, Seven Hills entered into a consulting agreement withLearned Associates where Learned Associates would provide consulting services to the Debtorand William Maxwell for $33,000 per month plus expenses. 77. These consulting agreements provided Seven Hills and Learned Associates withbroad operational authority over the Debtor’s business to, among other things: (1) develop andoversee an administrative support team, an IT support team, an operations team, a financial andaccounting team, and a sales and marketing team; (2) prepare business plans; (3) handle media 21#4815-9175-0153
  • 22. relations; (4) create media materials; (5) procure top-level management to serve as officers of theDebtor; (6) procure lines of credit; and (7) procure private equity from lenders. 78. In conjunction with these engagements, the Maxwell Board, either unilaterally orin conjunction with the Attorney Defendants, avoided implementing any measures that woulddisclose the true purpose of these agreements and decisions, much less exercise any oversight orcontrol of Seven Hills, Learned Associates, or Salvatore Pelullo. For example, the MaxwellBoard did not disclose the existence of the consulting agreements in SEC filings (based on theadvice of Mr. Adler and Olshan Grundman), failed to appoint legitimately independent directorsand did not form an audit committee until months after the takeover and long after the MaxwellBoard, William Maxwell, the Attorney Defendants, the Accountant Defendants and theKensington Defendants had siphoned off millions of dollars from the Debtor’s accounts for theirown benefit and the benefit of the Pelullo Group.D. Insider Transactions 79. Immediately after the Maxwell Board, William Maxwell, the AttorneyDefendants and Accountant Defendants were settled in their defined roles, the schemeprogressed with three costly purchases by the Debtor that provided millions of dollars to thePelullo Group and handsomely compensated the Attorney Defendants, Accountant Defendantsand the Kensington Defendants for their work: (1) on July 23, 2007, the Maxwell Boardapproved the purchase of Rutgers Investment Group, LLC (“Rutgers”) for $1,825,000 in cashand 500,000 shares of the Debtor’s common stock; (2) days after the Rutgers transactions closed,on July 30, 2007, the Maxwell Board caused two of Debtor’s wholly-owned subsidiaries topurchase Globalnet Enterprises, LLC and its three wholly-owned subsidiaries (collectively“Globalnet”) for a cash payment of $4,540,000 and 1,100,000 shares of Debtor’s common stock; 22#4815-9175-0153
  • 23. and (3) on January 31, 2008, the Debtor purchased the membership interests of Premier Group,LLC “(Premier”) for a cash payment and 1,000,000 shares of the Debtor’s common stock in apurchase that resulted in the Debtor paying for worthless membership interests while assuminghundreds of thousands of dollars in liabilities. 1. Rutgers 80. The purchase of Rutgers was the first of the three insider transactions devised byWilliam Maxwell, the Maxwell Board, the Attorney Defendants, Accountant Defendants, theKensington Defendants and the Pelullo Group. 81. Gary McCarthy and Eizen Fineburg organized Rutgers for Seven Hills andLearned Associates only a few months prior to the Maxwell Board’s takeover of the Debtor.Seven Hills and Learned Associates were members of Rutgers. 82. On July 10, 2007, the Maxwell Board executed a unanimous written consent topurchase Rutgers pursuant to an Asset Purchase Agreement dated July 23, 2007, which providedfor payment of $1,825,000 and 500,000 shares of the Debtor’s common stock for the purchase ofthe entity. 83. The Maxwell Board did not conduct any legitimate due diligence regarding theRutgers transaction prior to rubber-stamping its approval for the purchase. 84. Instead, the Maxwell Board relied on a bogus Business Evaluation Report createdby the Kensington Defendants to justify the inflated purchase price of Rutgers (the “RutgersReport”). Upon information and belief, the Kensington Defendants knew that the RutgersReport would be used to justify the Rutgers purchase price. The Kensington Defendants,however, did not provide a complete appraisal. Rather, the Kensington Defendants conducted abaseless valuation analysis that did not rely on verified financial information or any generally 23#4815-9175-0153
  • 24. accepted practice of valuing an entity. Instead, the Kensington Defendants valued the companybased on “aggressive” projections that assumed Rutgers would grow at an incredibly high rate tomatch the value of established “industry peers.” As a result, the Kensington Defendantsconcluded that a four-month old lending business with virtually no assets and no licenses couldbe reasonably valued at $2,500,000 (plus an additional $1,000,000 when the company receivedits own regulatory licenses). 85. William Maxwell and the Maxwell Board engaged Mr. Adler and OlshanGrundman to represent the Debtor in the Rutgers transaction. Rutgers was represented byMr. McCarthy and Eizen Fineburg. 86. Instead of representing the Debtor’s best interests, Mr. Adler and OlshanGrundman took direction from William Maxwell and the Pelullo Group to implement theoverarching scheme. This was in breach of Adler’s and Olshan Grundman’s duties of loyaltyand care to Debtor. Mr. Adler and Olshan Grundman failed to advise the Debtor of the risksassociated with this Insider Transaction - particularly that the Debtor’s “Consultant” SalvatorePelullo was profiting from the sale. Additionally, Mr. Adler and Olshan Grundman failed toadvise the Maxwell Board that a member of the Maxwell Board was directly benefiting from theproposed transaction. 87. The Rutgers transaction closed on July 23, 2007. On that date, the MaxwellBoard created a wholly-owned subsidiary of the Debtor, Rutgers Investment Group, Inc.(“Rutgers Investment Group”), to purchase substantially all of Rutgers’s assets from Seven Hillsand Learned Associates. 88. A month after the Rutgers transaction closed, Mr. Buczek and Buckno Lisickypurportedly audited Rutgers Investment Group’s books. Defendants Buczek and Buckno Lisicky 24#4815-9175-0153
  • 25. opined that Rutgers Investment Group’s financial statements fairly and completely representedthe financial condition of the company. Specifically, Mr. Buczek and Buckno Lisicky approvedallocating almost the entire value of Rutgers to goodwill. Buckno Lisicky’s approval of suchaccounting helped conceal (for a short time) that the Rutgers transaction was a sham. 89. The SEC uncovered this sham late in 2008. In November 2008, the SECchallenged the Debtor’s reporting on the assets acquired from Rutgers and focused on the factthat almost the entire purchase price of Rutgers was allocated to goodwill. 90. In December 2008, the Debtor conceded that the Rutgers Investment Group’saccounting was incorrect and effectively conceded that the true value of the purchased assets wasa small fraction, if anything at all, of the amount paid for Rutgers. 2. Globalnet 91. The purchase of Globalnet was the second of three insider transactions devised byWilliam Maxwell, the Maxwell Board, the Attorney Defendants, Accountant Defendants, theKensington Defendants and the Pelullo Group. 92. Seven Hills and Learned Associates owned and controlled Globalnet EnterprisesLLC and its three wholly-owned subsidiaries: (1) Globalnet Facility Services Co., LLC,(2) Globalnet Development Co., LLC, and (3) Globalnet Restoration Co., LLC. Gary McCarthyand Eizen Fineburg organized Globalnet for Seven Hills and Learned Associates less than a yearprior to the Maxwell Board’s takeover of the Debtor. 93. William Maxwell again hired the Kensington Defendants to create a BusinessEvaluation Report for the benefit of the Debtor to justify the predetermined inflated purchaseprice of Globalnet (the “Globalnet Report”). Upon information and belief, the KensingtonDefendants knew that the Globalnet Report would be used to justify the Globalnet purchase 25#4815-9175-0153
  • 26. price. The Kensington Defendants, however, did not provide a complete appraisal. Rather, theKensington Defendants again conducted a baseless valuation analysis that did not rely onverified financial information or any generally accepted practice of valuing an entity. Instead,the Kensington Defendants valued the company based on “aggressive” projections that assumedGlobalnet would grow at an incredibly high rate to match the value of established industry“peers.” 94. The Kensington Defendants concluded that Globalnet, an entity lacking anyverifiable assets, could be reasonably valued at $4,993,082. The Kensington Defendants usedGlobalnet’s financial statements prepared by Siegal Drossner as the basis for the rich valuation.The truth was that Globalnet was worth a small fraction of the value stated in the GlobalnetReport. 95. Moreover, at no point in the Globalnet Report did the Kensington Defendantsdisclose that Defendant Ken Stein served as the exclusive Franchise Broker for GlobalnetRestoration and Cleaning Services, LLC, a wholly-owned subsidiary of Globalnet. 96. After approving the transaction, William Maxwell and the Maxwell Board againused Mr. Adler and Olshan Grundman to represent the Debtor in the Globalnet transaction.Globalnet was represented by Mr. McCarthy and Eizen Fineburg. 97. Instead of representing the Debtor’s best interests, Mr. Adler and OlshanGrundman took direction from William Maxwell and the Pelullo Group. Mr. Adler and OlshanGrundman failed to advise the Debtor of the risks associated with this Insider Transaction,particularly that the Debtor’s “Consultant” Salvatore Pelullo was profiting from the sale.Additionally, Mr. Adler and Olshan Grundman failed to advise the Debtor that the KensingtonDefendants, supposedly independent valuation experts, had a financial interest in Globalnet. 26#4815-9175-0153
  • 27. Moreover, Mr. Adler and Olshan Grundman failed to advise the Debtor that Globalnet hadcommercial lease agreements that financially benefited Salvatore Pelullo. 98. The Maxwell Board used the Globalnet Report to justify the exorbitant purchaseprice for Globalnet and rubber stamp the Globalnet transaction. On July 25, 2007, the MaxwellBoard executed an unanimous written consent to the purchase of Globalnet for $4,540,000 incash ($3,045,000 due at closing and $1,495,000 due on the second anniversary of the closing)along with 1,100,000 shares of (Regulation D) stock. As part of the closing payment, EizenFineburg received 100,000 shares of Debtor stock. 99. On July 30, 2007, the Globalnet transaction closed. 100. After the Globalnet purchase closed, Mr. Buczek and Buckno Lisicky purportedlyaudited Globalnet’s books which were created by Siegal Drossner. Defendants Buczek andBuckno Lisicky opined that Globalnet’s financial statements fairly and completely representedthe financial condition of the company. Specifically, Mr. Buczek and Buckno Lisicky againapproved allocating almost the entire value of the Globalnet transaction to goodwill. Byapproving such accounting, Buckno Lisicky was able to conceal (for a short time) that theGlobalnet transaction was a sham. 101. The Accountant Defendants failed to apprise the Debtor of the suspicioustransactions on Globalnet’s transaction report. For example, during the six-month period leadingup to the closing, the following suspicious payments were made: a. 6/21/07 - $50,000 payment to Seven Hills for “miscellaneous;” b. 6/21/07 - $50,000 payment to Learned Associates for “miscellaneous;” c. 7/6/07 - $982,869 payment to Seven Hills for “legal and professional expenses;” and d. 7/6/07 - $436,369 payment to Learned Associates for “legal and professional expenses.” 27#4815-9175-0153
  • 28. 102. Additionally, the Accountant Defendants failed to apprise the Debtor of asuspicious entry on Globalnet Enterprises, LLC’s balance sheet: a $667,600.00 loan payable toRutgers Investment Group - before the entity was ever created. 103. Moreover, on information and belief, the Accountant Defendants helped concealthe fact that Seven Hills and Learned Associates did not truly transfer the assets of Globalnet tothe Debtor’s subsidiaries. Rather, upon information and belief, the Pelullo Group continued tooperate Globalnet’s business after the sale to the Debtor and used the Debtor’s assets to financethe business they retained. 104. The SEC uncovered this sham late in 2008. In November 2008, the SECchallenged the Debtor’s reporting of the assets acquired from Globalnet, particularly theDebtor’s failure to assign any value to the purchased assets and its decision to allocate the entirepurchase price to goodwill. 105. Additionally, the SEC found that the Debtor did not disclose that the MaxwellBoard approved early payment of the deferred portion of the Globalnet purchase price($1,495,000) in the Fall of 2007 - roughly two years prior to its due date. The Maxwell Boardapproved this payment despite the fact that it threatened the Debtor’s solvency. 106. In December 2008, the Debtor conceded that the Globalnet accounting wasincorrect and effectively conceded that the true value of the purchased assets was a smallfraction, if anything at all, of the amount paid for Globalnet. 3. Premier Group 107. The purchase of Premier was the last of three insider transactions devised byWilliam Maxwell, the Maxwell Board, the Attorney Defendants, Accountant Defendants, theKensington Defendants and the Pelullo Group. 28#4815-9175-0153
  • 29. 108. As with Rutgers and Globalnet, Premier was principally owned by Seven Hillsand Learned Associates, the consulting firms purportedly hired by William Maxwell and theMaxwell Board to advise the Debtor. Less than a month before the Pelullo Group’s takeover ofthe Debtor, Gary McCarthy and Eizen Fineburg assisted the Pelullo Group in forming Premier. 109. In October 2007, Seven Hills recommended to William Maxwell that the Debtoracquire Premier’s membership interests. Cory Leshner from Seven Hills submitted therecommendation. Neither Mr. Leshner nor Seven Hills disclosed that Mr. Leshner was a Premieremployee who would ultimately receive a $25,000 cash payment from the Debtor once thetransaction closed. Moreover, upon information and belief, at the time of the recommendation,Premier did not own the majority of the assets that would later serve as the alleged basis for theDebtor’s purchase price. 110. In December 2007, Mr. McCarthy and Eizen Fineburg represented Seven Hillsand Learned Associates in Premier’s acquisition of assets from an insurance adjustmentcompany. Premier paid $100,000 in cash, assumed a variety of liabilities and acquired realproperty located at 14399 Southwest 143rd Court, Miami, Florida 33186 merely by assuming themortgage on the property. These assets would ultimately be flipped to the Debtor’s subsidiaryfor a grossly inflated price. 111. William Maxwell and the Maxwell Board again used Mr. Adler and OlshanGrundman to represent the Debtor in the Premier transaction. Mr. McCarthy and Eizen Fineburgagain represented Seven Hills and Learned Associates. At the time, McCarthy and his firm hadan established attorney-client relationship with Debtor. 112. Instead of representing the Debtor’s best interests, Mr. Adler and OlshanGrundman took direction from William Maxwell and the Pelullo Group. Mr. Adler and Olshan 29#4815-9175-0153
  • 30. Grundman failed to advise the Debtor of the risks associated with this Insider Transaction -particularly that the Debtor’s “consultant “ Salvatore Pelullo was profiting from the sale.Additionally, Mr. Adler and Olshan Grundman failed to advise the Debtor that Premier did notown the necessary insurance licenses to conduct its business. Rather, the insurance licenses wereowned by Premier’s employees. Furthermore, although a reasonably prudent attorney wouldhave discovered that Premier’s real estate had title issues, Mr. Adler and Olshan Grundmannever properly raised this issue with the Debtor prior to closing. Moreover, Mr. Adler andOlshan Grundman failed to ensure that the mortgage on the Premier “warehouse” was transferredfrom the original borrower at the time of the acquisition. As a result, one year after the Premierpurchase, Mr. Pelullo demanded $25,000 to sign off and transfer the mortgage (which was at thatpoint in default) to release the property. 113. William Maxwell and the Maxwell Board again enlisted the help of theKensington Defendants to obtain an inflated valuation. Upon information and belief, theKensington Defendants knew that the report would be used to justify the Premier purchase price.The Kensington Defendants, however, did not provide a complete appraisal. Rather, theKensington Defendants again conducted a baseless valuation analysis that did not rely onverified financial information or any generally accepted practice of valuing an entity.Specifically, the Kensington Defendants relied on two asset values to reach its valuation: (1) aninflated real estate valuation that did not take into account that the property was encumbered; and(2) unverified accounts receivable. Concerning the real estate valuation, this was the sameproperty that Premier had acquired only one month earlier by simply assuming the mortgage.Premier valued the property at $400,000 for enterprise valuation purposes (completely 30#4815-9175-0153
  • 31. disregarding the mortgage and liabilities associated with the property). The KensingtonDefendants used this “Asset Based Approach” to “reasonably state” Premier’s value at $916,895. 114. The truth was that Premier was worth a small fraction of the value stated in thePremier Report. 115. The Maxwell Board used the Premier Report and Seven Hill’s recommendation tojustify the Premier purchase. The Maxwell Board consented to the Premier purchase for$992,440 through an unanimous written consent, executed on January 31, 2008. 116. That same day, the Premier transaction closed. Included within the purchaseprice, the Debtor agreed to pay $425,000 (payable at 7.5% interest per annum) for the PelulloGroup’s membership interests, assumed $300,000 (payable at 7% interest per annum) inliabilities and issued 1,000,000 shares of Debtor stock to the Pelullo Group. Seven Hills andLearned Associates were to receive hundreds of thousands of dollars from the transaction andhundreds of thousands of shares of Debtor common stock. Additionally, Seven Hills andLearned Associates were each to receive $100,000 for “loans” that were never included onPremier’s Balance Sheet prior to closing.E. Attorney Defendants’ Assistance to Dissolve Trusts 117. On July 24, 2007, Seven Hills directed Gary McCarthy to contact WilliamMaxwell regarding the possible termination of the Grantor Trust. Upon information and belief,William Maxwell hired Mr. McCarthy and Eizen Fineburg to represent the Debtor for thismatter. 118. Mr. McCarthy and Eizen Fineburg were providing counsel to the Debtorconcerning these issues at the same time they were representing the Pelullo Group in the InsiderTransactions. 31#4815-9175-0153
  • 32. 119. Mr. McCarthy and Eizen Fineburg worked with Mr. Adler and Olshan Grundmanto carry out this scheme. The Attorney Defendants sought to carry out this scheme even thoughthe Grantor Trust was amended to benefit the Debtor’s shareholders. By assisting such conduct,the Attorney Defendants placed the interests of the Pelullo Group ahead of the interests of theDebtor’s shareholders. 120. Moreover, at the direction of Mr. Pelullo and Seven Hills, David Adler and GaryMcCarthy engaged teams within their firms to investigate ways to give Mr. Pelullo control overthe millions of dollars flowing through the Creditor Trust at the expense of the Debtor. Theobjective was to remove Mr. Obergfell as trustee and install a “friendly” trustee to operate theCreditor Trust with allegiance to the Pelullo Group. 121. In early August 2007, Michael Fox (Olshan Grundman), Mr. Pelullo and theMaxwell Board engaged in an email exchange concerning ways to take control of the CreditorTrust’s funds. Within this exchange, Mr. Pelullo expressed his control over the Debtor, hisintentions to take control of the Creditor Trust, and the efforts underway to accomplish his goal.Mr. Pelullo wrote: Now go get are [sic] money and are [sic] company from that fucking dog and maybe we won’t prosacute [sic] him[.] I told you he couldn’t do what he did lawfuly [sic] and I want controll [sic] back and the money back by Friday close of day. I Love you mike pleas [sic] give me your thoughts before you take off today. The barbarians are at the gate go in for the kill. S.P. 122. Throughout August and September 2007, Eizen Fineburg and Olshan Grundmanthreatened David Obergfell with litigation for alleged breaches of fiduciary duties, self dealing,and waste. David Obergfell responded with a post on the FPFI Creditors Trust website that hewould withhold trust distributions until the dispute with the Debtor was resolved. 32#4815-9175-0153
  • 33. 123. Soon thereafter, Mr. Fox sent a letter to Mr. Obergfell stating that the Debtor’sissues with the Creditor Trust had been resolved.F. The Improper O’Neal Loans 124. On May 8, 2008, federal officials executed a search warrant at the Debtor’scorporate offices in Irving, Texas and at the Debtors’ subsidiaries’ offices. 125. Between May 8, 2008 and June 25, 2008, the O’Neal Board took control of theDebtor’s board of directors from the Maxwell Board, purportedly to clean up the Debtor’smanagement and isolate the bad actors. In reality, the O’Neal Board benefited Dr. O’Neal byfunneling to him the Debtor’s stock and money. 126. On June 26, 2008, the O’Neal Board approved a scheme by which Dr. O’Nealwould ostensibly loan money to the Debtor. In return, the Debtor would agree to unfavorableterms that would enrich Dr. O’Neal while providing little or no value to the Debtor. 127. On June 27, 2008, Dr. O’Neal entered into a loan agreement with the Debtorunder which he would lend the Debtor $300,000 seemingly to help the Debtor pay its bills.Under the terms of the agreement, Dr. O’Neal had sole signing authority over the loaned fundsand sole operational control over the Debtor’s money. At the time, Debtor could not haveobtained similar financing (or any financing for that matter) from a disinterested lender. 128. The O’Neal Board approved and executed the loan agreement on June 30, 2008.As consideration for making this purported loan to the Debtor, Dr. O’Neal received two millionshares of the Debtor’s common voting stock and the option to purchase an additional ten millionshares at his sole discretion within seven and one-half years of the contract date at $.04 per share. 129. The loan agreement further provided that the Debtor was to submit a list of billsto be paid to Dr. O’Neal. Dr. O’Neal had sole discretion about which bills to pay “via a payment 33#4815-9175-0153
  • 34. system [Dr. O’Neal] controls.” The loan agreement provided that by Dr. O’Neal “paying thebill, [the Debtor] agrees that said payment is proof of the money loaned by [Dr. O’Neal]….” 130. On July 23, 2008, the O’Neal Board executed a Written Consent in Lieu of aSpecial Meeting appointing an Executive Committee comprised of Dr. O’Neal, Mr. Hickmanand Mr. Roubinek. The Executive Committee was to have complete and unfettered control overthe Debtor and all its subsidiaries. 131. On December 8, 2008, the Debtor received $2,252,836 from the Creditor’s Trust. 132. On or about December 23, 2008, the Executive Committee paid Dr. O’Neal$348,712.77, for the “retirement of debt.” 133. On information and belief, Dr. O’Neal did not loan the full amount of the so-called “loan” to the Debtor nor did he pay any bills on the Debtor’s behalf; rather, the ExecutiveCommittee paid the Debtor’s bills with the funds received from the Creditor Trust. 134. The Executive Committee caused the Debtor to enter into a second loanagreement with Robert O’Neal on January 16, 2009. The January 16, 2009 loan agreementincluded the same material terms as the June 30, 2008 loan agreement. Along with the loanagreement, the Debtor executed a security agreement in favor of Dr. O’Neal that grantedDr. O’Neal a security interest in all of the Debtor’s property (including proceeds received fromthe Creditor Trust). Jack Roubinek, then the Debtor’s chief executive officer and a member ofthe Executive Committee, signed both the January 16, 2009 promissory note and the securityagreement. 135. Upon information and belief, as with the June 30, 2008 loan, Dr. O’Neal did nottransfer the full amount of any funds to the Debtor or pay any bills. In reality, the promissorynotes and security agreements were used as instruments to disguise the transfer of hundreds of 34#4815-9175-0153
  • 35. G. Suspicious and Exorbitant Transactions 136. In addition to the Insider Transactions, the Maxwell Board approved and/orentered into a number of exorbitant transactions that served no benefit for the Debtor and servedto benefit the Maxwell Board members, members of the Maxwell family, William Maxwell andthe Pellulo Group. 137. First, multiple Defendants withdrew funds directly from the Debtor’s bankaccounts (including from the Grantor Trust account) for costly travel, dining and personalexpenses. In the six months the Maxwell Board was in control of the Debtor in 2007, theycaused the Debtor to spend: (1) $106,948.72 on “Travel and Entertainment Expenses”;(2) $139,121.61 on “Accommodation Expenses” mainly comprised of stays at luxury hotels suchas the Four Seasons and Grove Isle Resort; (3) $144,548.95 on “Airfare and Transportation”; and(4) $73,064.33 on “Meals,” including numerous lavish meals at high-end restaurants. 138. Second, the Maxwell Board authorized the following reimbursements for JohnMaxwell: (1) $1,529.98 for “Car Chargers”; (2) $2,740.85 for “Cleaners”; (3) $1,500.00 for“Communications”; (4) $3,653.81 for “Cleaning Costs”; and (5) $8,915.00 for home expenses. 139. Third, the Debtor’s bank account statements show repeated transfers of cash toBrent Maxwell and Cole Maxwell, who are believed to be John Maxwell’s sons. In 2007, theMaxwell Board caused the Debtor to pay Cole Maxwell more than $20,000 and Brent Maxwellmore than $7,000 for expenses described as “Travel and Entertainment.” 35#4815-9175-0153
  • 36. 140. Fourth, over the course of 16 days in September 2007, John Maxwell and/or otherMaxwell Board members used the Debtor’s bank account to pay for nine separate purchases atMen’s Warehouse totaling $5,912.45. 141. Fifth, under the direction of the Maxwell Board, the Debtor transferred millions ofdollars directly to William Maxwell. While the Legal Services Agreement provided for WilliamMaxwell to earn the exorbitant salary of $100,000 per month, the Debtor transferred over $5million dollars to William Maxwell from June 2007 through April 2008.H. Suspicious Cash Management Practices 142. After the takeover, there were insufficient control mechanisms in place to ensurethat the Debtor’s sizeable cash accounts and numerous cash expenditures were managed andmonitored responsibly. 143. William Maxwell took advantage of the lack of control mechanisms and the broadauthority vested by Legal Services Agreement to assume control of the Debtor’s accounts.William Maxwell accomplished this by changing the mailing addresses on certain of theDebtor’s existing investment accounts at Oppenheimer to the Baytown office address.Additionally, Mr. Maxwell opened up new accounts to solidify control over the Debtor’saccounts. 144. William Maxwell and the Maxwell Board then moved the books and records fromcorporate headquarters in Irving, Texas, to Philadelphia, Pennsylvania to be managed byKimberly Grasty. Ms. Grasty, a Seven Hills employee before the takeover, became the Debtor’s“controller.” Although she worked for the Debtor, Ms. Grasty was located in Philadelphia andhad practical control over the Debtor’s bank accounts and the QuickBooks accounts of theDebtor’s subsidiaries. Giving Ms. Grasty possession and practical control of the Debtor’s 36#4815-9175-0153
  • 37. accounts enabled the Pelullo Group and William Maxwell to control the Debtor’s funds to theiradvantage. 145. On information and belief, Ms. Grasty created a complex web of bank accountsfor the Debtor and each of its subsidiaries to enable frequent transfers of cash through thesemultiple accounts. William Maxwell and the Maxwell Board directed such transfers for thebenefit of the Maxwell Board, William Maxwell and the Pelullo Group. 146. After the federal government raided Debtor’s offices Texas offices and the officesof its subsidiaries, Debtor’s counsel in connection with the criminal investigation wrote to theAssistant United States Attorney for the District of New Jersey. In his letter, Debtor’s counseladmitted that Debtor could not provide any accurate accounting for its assets or the assets of itssubsidiaries because the Debtor’s accounting records had been moved from Debtor’s Texasheadquarters to Pennsylvania, where the accounting functions were controlled by KimberlyGrasty, a confederate of Salvatore Pelullo. In that letter, Debtor’s counsel also stated that it wasDebtor’s “position that the acquisition of the East Coast Companies [i.e., Rutgers, Globalnet, andPremier] may have been the product of fraud.” 147. Moreover, after the SEC uncovered serious improprieties within the Debtor’sfinancial records, the Debtor was forced to report that it had insufficient internal controls overfinancial reporting while William Maxwell and the Maxwell Board had direct control over theaccounts.I. Improper Accounting 148. The Accountant Defendants helped keep certain transactions from the public untilthe SEC uncovered the problems in late 2008, including the Insider Transactions, the improper 37#4815-9175-0153
  • 38. O’Neal Loans, the suspicious and exorbitant transactions and the suspicious cash managementpractices. 149. As the Debtor’s public accounting firm, Mr. Buczek and Buckno Lisicky mademyriad auditing errors in connection with their work for the Debtor: 1. they failed to properly audit the Debtor’s financial statements; 2. they failed to obtain the competent evidential matter to support their audit opinion in connection with the Debtor’s financial statements and/or caused such errors by virtue of their joint effort with Siegal Drossner to prepare the underlying financial statements/data; 3. they failed to properly notify the Debtor about the improper accounting associated with the Insider Transactions, thereby leading to material misstatements; 4. they failed to provide a “going concern” opinion in connection with the audit of the Debtor’s financial statements in the Form 10- KSB filed on March 31, 2008 (for the period ending December 31, 2007); 5. they failed to properly consider that the Debtor could not generate enough income to continue operating in the near future combined with the obvious risk factors (recurring losses, net capital deficiencies and other operating issues); 6. they failed to properly account for the Debtor’s lack of corporate governance and organizational oversight, as evidenced by the millions of dollars transferred to William Maxwell and the Pelullo Group without any supporting documentation; 7. they failed to account for the Pelullo Group’s influence on management despite clear and obvious risk factors; 8. they failed to uncover the numerous suspicious transactions and/or suspicious cash management practices; 9. they failed to notify the Debtor that their interests were allied with the Pelullo Group and against the Debtor; 10. they failed to uncover all other irregularities in their audit that would have been discovered if audited with the proper level of skill and care, forcing the Debtor to restate earnings; 11. they failed to identify and report internal control deficiencies; and 12. they failed to identify and report material weaknesses in internal controls. 38#4815-9175-0153
  • 39. 150. As the Debtor’s internal accountants, Mr. Drossner and Siegal Drossner alsomade myriad accounting errors in connection with their work for the Debtor: 1. they failed to properly account for transactions in the Debtor’s financial statements, including, but not limited to the Insider Transactions, thereby leading to material misstatements; 2. they failed to obtain the competent evidential matter to justify the Debtor’s financial statements and/or caused such errors by virtue of their joint effort with Buckno Lisicky to prepare the underlying financial statements/data; 3. they failed to properly account for the Debtor’s lack of corporate governance and organizational oversight, as evidenced by the millions of dollars transferred to William Maxwell and the Pelullo Group without any supporting documentation; 4. they failed to uncover the numerous suspicious transactions and/or suspicious cash management practices; 5. they failed to account for the Pelullo Group’s influence on management despite clear and obvious risk factors; 6. they failed to notify the Debtor that their interests were allied with the Pelullo Group and against the Debtor; 7. they failed to uncover all other irregularities that would have been discovered if the accounting was performed with the proper level of skill and care, forcing the Debtor to restate earnings; 8. they failed to indentify and report internal control deficiencies; and 9. they failed to identify and report material weaknesses in internal controls. 151. The Accountant Defendants also engaged in wrongful conduct by blurring the linebetween an outside auditor and internal accountant. The Accountant Defendants workedtogether to create financial records that served as the support for the Debtor’s financial reportingand preparation of financial statements. This compromised the accuracy and independence ofboth the audit and the financial reporting. 152. As a result, Buckno Lisicky and Mr. Buczek misrepresented that they were“independent” in the “Report of Independent Registered Accounting Firm” included within theDebtor’s Form 10-KSB filed on March 31, 2008 (for the period ending December 31, 2007). 39#4815-9175-0153
  • 40. Buckno Lisicky lacked independence because, among other things: (1) they prepared or assistedin preparing the financial statements that were the subject of the audit; (2) they provided otheraccounting services in concert with Siegal Drossner, such as preparing the underlying sourcedata for the financial statements; and (3) they represented the interests of the Pelullo Group andWilliam Maxwell. 153. Due to Mr. Buczek and Buckno Lisicky’s lack of independence, their certificationwas incorrect and they should have been prohibited from issuing audit opinions for the Debtor.As a result, the Debtor’s audits were not in compliance with generally accepted auditingstandards and/or applicable rules and regulations concerning publicly-traded companies. 154. Most importantly, the Accountant Defendants’ actions and omissions facilitatedthe overarching scheme by the other Defendants to deplete the Debtor of its cash and resources.J. Letter Inquiries by the SEC into Debtor’s Accounting 155. In November 2008, the SEC contacted the Debtor to identify a number ofproblems with the company’s financial statements in a series of comment letters sent to the then-acting chief financial officer, Gary Alexander. 156. On February 13, 2009, the Debtor, in consultation with Defendants BucknoLisicky and Mr. Buczek, agreed to restate the 2007 and 2008 (Q1 and Q2) financial statements. 157. Mr. Alexander, Mr. Buczek and Buckno Lisicky, were compelled to acknowledgethat the Debtor’s financial statements for 2007 and 2008 contained numerous material errorsand/or misstatements. 158. Among the numerous errors and/or misstatements, the Debtor was forced to:(1) reclassify professional fees and other costs for acquisition as operating expenses, areclassification that resulted in a restatement in operating expenses of over $8 million; (2) admit 40#4815-9175-0153
  • 41. that it failed to disclose the accelerated payment of the deferred portion of the Globalnetpurchase for the benefit of the Pelullo Group ($1,495,000); (3) reclassify the gains from the saleof the Ole Auto Group, resulting in an increased loss from Continuing Operations of more than$1 million; and (4) admit that it failed to properly classify William Maxwell’s $5,000,000.00contingent bonus. 159. In addition, Mr. Alexander admitted that: (1) Rutgers Investment Group only had$114,376 in total assets and $0 in equity as of the acquisition date; and (2) the consolidatedoperations of Globalnet as of the acquisition date demonstrated that the Globalnet entities wereworth a small fraction of the value paid by the Debtor. CAUSES OF ACTION COUNT I: BREACH OF FIDUCIARY DUTY (FREEMAN BOARD & MAXWELL BOARD) 160. Plaintiff adopts and realleges Paragraphs 1 through 159 as if fully set forth herein. 161. As directors and/or officers of the Debtor, each member of the Freeman Boardand the Maxwell Board was a fiduciary of the Debtor. 162. As a fiduciary, each member of Freeman Board and the Maxwell Board owed theDebtor the duty of care and the duty of loyalty. 163. Additionally, the supposedly independent directors on the Maxwell Board(Mr. Meek, Mr. Steward and Mr. Alexander) had affirmative duties to monitor and enforceproper corporate governance when the remainder of the Maxwell Board engaged in self-dealingtransactions. 164. The Freeman Board members breached their fiduciary duties to the Debtor by,among other things: 1. relinquishing control of the board to the Maxwell Board without any prior due diligence; 41#4815-9175-0153
  • 42. 2. failing to implement proper controls to ensure that the Debtor’s assets would not be left vulnerable; 3. seeking to protect their own interests (whether by protecting their reputations or receiving lucrative severance packages) at the expense of the Debtor; 4. acting with the intention that the Maxwell Board be able to perpetuate its overarching scheme to loot the Debtor; 5. breaching their duty of care to Debtor; and 6. breaching their duty of loyalty to Debtor. 165. The Maxwell Board members breached their fiduciary duties to the Debtor by,among other things: 1. ceding effective control of the Debtor to the Pelullo Group and William Maxwell; 2. rubber stamping the Rutgers, Globalnet and Premier transactions without engaging in proper, independent due diligence; 3. failing to act in the best interests of the Debtor by engaging in self- dealing and by engineering transactions primarily to benefit the Pelullo Group and William Maxwell; 4. knowingly acquiescing to consulting agreements with Seven Hills and Learned Associates that provided the Pelullo Group with operational and executive control of the Debtor; 5. failing to implement internal controls and otherwise monitor the Debtor’s expenditures; 6. using Debtor’s funds to pay for lucrative travel, entertainment, airfare and accommodation expenses, as well as transferring significant funds to Maxwell Board members and their families; 7. purchasing an aircraft and/or paying for use of an aircraft at a time when the Debtor had trouble meeting its existing financial obligations; 8. otherwise wasting corporate assets; 9. breaching their duty of care to Debtor; and 10. breaching their duty of loyalty to Debtor. 166. In committing these breaches, the Freeman Board and the Maxwell Boardmembers violated the duties they owed to the Debtor and acted egregiously, intentionally, andwillfully. 42#4815-9175-0153
  • 43. 167. Moreover, the Freeman and Maxwell Board members breached their duties withthe deliberate intent to participate in the scheme orchestrated by the Pelullo Group to deplete theDebtor’s resources for the Pelullo Group’s benefit. 168. As a direct and/or proximate result of these breaches, the Debtor sufferedfinancial harm and Defendants the Freeman Board and the Maxwell Board were unjustlyenriched. REMEDIES AGAINST FREEMAN BOARD AND MAXWELL BOARD 169. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter a judgment in Debtor’s favor, and against the Freeman Board and the Maxwell Board members jointly and severally: (a) Awarding actual damages, in an amount to be determined at trial; (b) Awarding exemplary and punitive damages sufficient to punish these Defendantsand to deter similar conduct in the future; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received based upon the alleged conduct; (d) Imposing a constructive trust and/or a constructive lien over the assets of theseDefendants, in an amount to be determined at trial and equal to the amount of monetary transfersand/or benefits that each these Defendants were paid and/or obtained from the Debtor, andordering that the United States Marshall seize and sell the property subject to the constructivetrust and/or constructive lien and apply such sales proceeds to the payment of the judgmentamount that such Defendants are adjudged to owe the estate; (e) Awarding pre- and post-judgment interest; and 43#4815-9175-0153
  • 44. (f) Including such further relief as the Court deems just and proper under thecircumstances. COUNT II: BREACH OF FIDUCIARY DUTY (O’NEAL BOARD) 170. Plaintiff adopts and realleges Paragraphs 1 through 169 as if fully set forth herein. 171. As directors and/or officers of the Debtor, each member of the O’Neal Board wasa fiduciary of the Debtor. 172. As a fiduciary, each member of O’Neal Board owed the Debtor the duty of careand duty of loyalty. 173. The O’Neal Board members breached their fiduciary duties to the Debtor by,among other things: 1. acquiescing to the June 30, 2008 sham loan from Robert O’Neal; 2. failing to put proper controls in place to ensure that Robert O’Neal contributed the funds he agreed to provide; 3. granting O’Neal a security interest on all property of the Debtor; and 4. ceding control of the Debtor’s board of directors to the Executive Committee without effective controls. 174. In committing these breaches, the O’Neal Board members violated the duties theyowed to the Debtor and acted egregiously, intentionally, and willfully. 175. As a direct and/or proximate result of these breaches, the Debtor sufferedfinancial harm and Defendants the O’Neal Board were unjustly enriched. REMEDIES AGAINST O’NEAL BOARD 176. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter a judgment in Debtor’s favor, and against the O’Neal Board members jointly and severally: (a) Awarding actual damages, in an amount to be determined at trial; 44#4815-9175-0153
  • 45. (b) Awarding exemplary and punitive damages sufficient to punish these Defendantsand to deter similar conduct in the future; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received based upon the alleged conduct; (d) Imposing a constructive trust and/or a constructive lien over the assets of theseDefendants, in an amount to be determined at trial and equal to the amount of monetary transfersand/or benefits that each these Defendants were paid and/or obtained from the Debtor, andordering that the United States Marshall seize and sell the property subject to the constructivetrust and/or constructive lien and apply such sales proceeds to the payment of the judgmentamount that such Defendants are adjudged to owe the estate; (e) Awarding pre- and post-judgment interest; and (f) Including such further relief as the Court deems just and proper under thecircumstances. COUNT III: BREACH OF FIDUCIARY DUTY (ATTORNEY DEFENDANTS) 177. Plaintiff adopts and realleges Paragraphs 1 through 176 as if fully set forth herein. 178. The Debtor sought and received legal counsel and services from the AttorneyDefendants. The Attorney Defendants provided legal counsel and services to the Debtor inconnection with the Attorney Defendants’ employment, creating an attorney-client relationshipbetween the Attorney Defendants and the Debtor. 179. As attorneys to the Debtor, the Attorney Defendants were the Debtor’sfiduciaries. 180. As fiduciaries, the Attorney Defendants owed the Debtor the duty of care andduty of loyalty to act in the Debtor’s best interests. 45#4815-9175-0153
  • 46. 181. The Attorney Defendants violated the fiduciary duties owed to the Debtor by,among other things: 1. placing the interests of William Maxwell and the Pelullo Group above those of the Debtor; 2. helping to create the appearance of legitimacy for the Rutgers, Globalnet and Premier transactions to cover up the sham transactions; 3. failing to render a full and fair disclosure of facts material to their representation of the Debtor; 4. engaging in self-dealing that pursued their own pecuniary interests above those of the Debtor; 5. using their positions of trust to facilitate a plan to deplete the Debtor’s cash and assets; 6. improperly using client confidences learned in the course of their representation of the Debtor to the detriment of the Debtor; 7. jointly participating in the attempts to aid the Pelullo Group in taking control of the funds in the Grantors Trust and Creditors Trust; 8. breaching their duty of loyalty to Debtor; and 9. breaching their duty of care to Debtor. 182. The breaches were the result of the Attorney Defendants engaging in self-dealingin order to obtain a benefit for themselves and the Pelullo Group at the expense of the Debtor. 183. In committing these breaches, the Attorney Defendants violated their duties to theDebtor and acted egregiously, intentionally, and willfully. 184. Moreover, in breaching their duties, the Attorney Defendants acted with the intentto participate in the deliberate scheme orchestrated by the Pelullo Group to deplete the Debtor’sresources for the Pelullo Group’s benefit. 185. As a direct and/or proximate result of these breaches, the Debtor sufferedfinancial harm and the Attorney Defendants were unjustly enriched. REMEDIES AGAINST ATTORNEY DEFENDANTS 46#4815-9175-0153
  • 47. 186. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter ajudgment in Debtor’s favor and against the Attorney Defendants, jointly and severally: (a) Awarding actual damages, in an amount to be determined at trial; (b) Awarding exemplary and punitive damages sufficient to punish these Defendantsand to deter similar conduct in the future; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received (including, but not limited to, the fees theyreceived in connection with their representation) based upon the alleged conduct; (d) Imposing a constructive trust and/or a constructive lien over the assets of theseDefendants, in an amount to be determined at trial and equal to the amount of monetary transfersand/or benefits that each these Defendants were paid and/or obtained from the Debtor, andordering that the United States Marshall seize and sell the property subject to the constructivetrust and/or constructive lien and apply such sales proceeds to the payment of the judgmentamount that such Defendants are adjudged to owe the estate; (e) Awarding pre- and post-judgment interest; and (f) Including such further relief as the Court deems just and proper under thecircumstances. COUNT IV: LEGAL MALPRACTICE (ATTORNEY DEFENDANTS) 187. Pleading in the alternative, Debtor brings Count IV against the AttorneyDefendants and would show as follows: 188. Plaintiff adopts and realleges Paragraphs 1 through 186 as if fully set forth herein. 189. The Debtor sought and received legal counsel and services from the AttorneyDefendants. The Attorney Defendants provided legal counsel and services to the Debtor in 47#4815-9175-0153
  • 48. connection with the Attorney Defendants’ employment, creating an attorney-client relationshipbetween the Attorney Defendants and the Debtor. 190. The Attorney Defendants had a duty to exercise the degree of care, skill,competence and/or diligence that a reasonably prudent attorney would exercise under similarcircumstances. 191. The Attorney Defendants breached that duty by providing legal advice andservices that were inadequate, detrimental to the Debtor and contrary to that which would havebeen provided by reasonably skilled legal counsel under the same or similar circumstances. 192. Mr. Adler and Olshan Grundman held, and continue to hold, themselves out asqualified to perform corporate and securities legal work including, but not limited to, counselingboards of directors and guiding clients through compliance with state and federal securities laws. 193. However, Mr. Adler and Olshan Grundman failed to exercise the proper degree ofcare and competence in their representation by, among other things: 1. failing to perform proper due diligence on the sham Rutgers, Globalnet and Premier transactions; 2. failing to uncover that the Pelullo Group was benefiting from the sham Rutgers, Globalnet and Premier transactions while advising the Debtor to enter into such transactions; 3. failing to disclose that their allegiance to the Pelullo Group was directly in conflict with the interests of the Debtor; 4. failing to disclose in SEC filings that Mr. Pelullo and Seven Hills had the power to direct the management and policies of the Debtor; 5. failing to advise the Debtor to retain separate counsel in light of the conflict of interest; and 6. failing to render a full and fair disclosure of facts material to their representation of the Debtor. 194. Mr. McCarthy and Eizen Fineburg failed to exercise the proper degree of care andcompetence in their representation by, among other things: 48#4815-9175-0153
  • 49. 1. failing to decline representation of the Debtor even though they knew that the Debtor could not provide effective consent to any conflict of interest given their knowledge that the Debtor’s board of directors was conspiring with their clients to siphon money from the Debtor; and 2. failing to render a full and fair disclosure of facts material to their representation of the Debtor. 195. Because of the Attorney Defendants’ acts and omissions mentioned above, theAttorney Defendants failed to use such skill, prudence, and diligence in the legal services theyprovided to the Debtor. 196. The Attorney Defendants failed to exercise reasonable care or competence inproviding professional legal services to the Debtor. 197. The negligent acts of the Attorney Defendants proximately caused the Plaintiff tosuffer damages. 198. As a direct and/or proximate result of these breaches, the Debtor sufferedfinancial harm and the Attorney Defendants were unjustly enriched. REMEDIES AGAINST ATTORNEY DEFENDANTS 199. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter a judgment in Debtor’s favor, and against the Attorney Defendants jointly and severally: (a) Awarding actual damages, in an amount to be determined at trial; (b) Awarding exemplary damages, in an amount to be determined at trial; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received (including, but not limited to, disgorgement ofthe fees they received in connection with their representation) based upon the alleged conduct; (d) Imposing a constructive trust and/or a constructive lien over the assets of theseDefendants, in an amount to be determined at trial and equal to the amount of monetary transfers 49#4815-9175-0153
  • 50. and/or benefits that each these Defendants were paid and/or obtained from the Debtor, andordering that the United States Marshall seize and sell the property subject to the constructivetrust and/or constructive lien and apply such sales proceeds to the payment of the judgmentamount that such Defendants are adjudged to owe the estate; (e) Awarding pre- and post-judgment interest; and (f) Including such further relief as the Court deems just and proper under thecircumstances. COUNT V: PROFESSIONAL NEGLIGENCE (ACCOUNTANT DEFENDANTS) 200. Plaintiff adopts and realleges Paragraphs 1 through 199 as if fully set forth herein. 201. The Debtor sought and received accounting services from the AccountantDefendants. The Accountant Defendants provided services to the Debtor in connection with theAccountant Defendants’ employment. 202. The Accountant Defendants had a duty to exercise the degree of care, skill,competence, and/or diligence that a reasonably prudent accountant would exercise under similarcircumstances. 203. The Accountant Defendants breached that duty by providing recommendationsand services that were inadequate, detrimental to the Debtor and contrary to that which wouldhave been provided by reasonably skilled accountant under the same or similar circumstances. 204. The Accountant Defendants were negligent by, among other things, the actsdescribed in Paragraphs 152 through 158 herein. 205. These negligent acts of the Accountant Defendants proximately caused the Debtorto suffer financial harm and the Accountant Defendants were unjustly enriched. 50#4815-9175-0153
  • 51. REMEDIES AGAINST ACCOUNTANT DEFENDANTS 206. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter ajudgment in Debtor’s favor and against the Accountant Defendants, jointly and severally: (a) Awarding actual damages, in an amount to be determined at trial; (b) Awarding exemplary damages, in an amount to be determined at trial; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received (including, but not limited to, the fees theyreceived in connection with their representation) based upon the alleged conduct; (d) Imposing a constructive trust and/or a constructive lien over the assets of theseDefendants, in an amount to be determined at trial and equal to the amount of monetary transfersand/or benefits that each these Defendants were paid and/or obtained from the Debtor, andordering that the United States Marshall seize and sell the property subject to the constructivetrust and/or constructive lien and apply such sales proceeds to the payment of the judgmentamount that such Defendants are adjudged to owe the estate; (e) Awarding pre- and post-judgment interest; and (f) Including such further relief as the Court deems just and proper under thecircumstances. COUNT VI: NEGLIGENT MISREPRESENTATION (ACCOUNTANT DEFENDANTS) 207. Pleading in the alternative, Debtor brings Count VI against the AccountantDefendants and would show as follows: 208. Plaintiff adopts and realleges Paragraphs 1 through 206 as if fully set forth herein. 209. The Accountant Defendants made misrepresentations to the Debtor in the courseof the Accountant Defendants’ business, providing false information to the Debtor. 51#4815-9175-0153
  • 52. 210. Among other things, the Debtor relied on the Accountant Defendants for thefollowing projects: 1. preparation of the Debtor’s financial statements; 2. preparation of the underlying financial data; and 3. audit of the Debtor’s financial statements. 211. In connection with the above payments, the Accountant Defendants suppliedmaterially false and misleading information. 212. The Accountant Defendants did not exercise reasonable care or competence inobtaining or communicating the information in, among other things: 1. preparing the Debtor’s financial statements; 2. preparing of the underlying financial data; and 3. auditing the Debtor’s financial statements. 213. The Accountant Defendants had no reasonable basis for believing that theinformation given to the Debtor was true and accurately represented the financial health andcondition of the Debtor. 214. The Accountant Defendants knew that the Debtor would and did reasonably relyon the information that they prepared and would rely on the Accountant Defendants to fulfilltheir professional and ethical obligations to the Debtor. 215. The Debtor justifiably relied on the Accountant Defendants’ representations inconnection with these services. 216. The negligent misrepresentations of the Accountant Defendants proximatelycaused the Debtor to suffer damages. 217. As a direct and/or proximate result of these breaches, the Debtor sufferedfinancial harm and the Accountant Defendants were unjustly enriched. 52#4815-9175-0153
  • 53. REMEDIES AGAINST ACCOUNTANT DEFENDANTS 218. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter ajudgment in Debtor’s favor and against the Accountant Defendants, jointly and severally: (a) Awarding actual damages, in an amount to be determined at trial; (b) Awarding exemplary damages, in an amount to be determined at trial; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received (including, but not limited to, the fees theyreceived in connection with their representation) based upon the alleged conduct; (d) Imposing a constructive trust and/or a constructive lien over the assets of theseDefendants, in an amount to be determined at trial and equal to the amount of monetary transfersand/or benefits that each these Defendants were paid and/or obtained from the Debtor, andordering that the United States Marshall seize and sell the property subject to the constructivetrust and/or constructive lien and apply such sales proceeds to the payment of the judgmentamount that such Defendants are adjudged to owe the estate; (e) Awarding pre- and post-judgment interest; and (f) Including such further relief as the Court deems just and proper under thecircumstances. COUNT VII: FRAUD (KENSINGTON DEFENDANTS) 219. Plaintiff adopts and realleges Paragraphs 1 through 218 as if fully set forth herein. 220. The Kensington Defendants represented in their valuation reports for Rutgers, Globalnet and Premier that the purpose of the reports was to provide “an independent valuation opinion” and that the information contained in the reports was “strictly [the Kensington Defendants’] independent opinion for the purpose described herein.” 53#4815-9175-0153
  • 54. 221. This representation of the Kensington Defendants’ purported “independence” was false. The Kensington Defendants had a prior contractual relationship with the Globalnet entities acquired by Debtor as well as a prior contractual relationship with Seven Hills and Learned Associates. Specifically, on or about October 24, 2006, in a contract drafted by Gary McCarthy at Eizen Fineburg, the Kensington Defendants were engaged by the Globalnet entities and by Learned Associates and Seven Hills (among others) to market franchise opportunities for the Globalnet entities. 222. The Kensington Defendants’ representation of their purported “independence” in providing their valuation of Rutgers, Globalnet and Premier was material to Debtor. Debtor relied on the Kensington Defendants’ representation in deciding to consummate the Rutgers, Globalnet and Premier transactions. 223. As a direct and proximate result of the Kensington Defendants’ fraudulent misrepresentation, the Debtor suffered financial harm. REMEDIES AGAINST KENSINGTON DEFENDANTS 224. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter ajudgment in Debtor’s favor and against the Kensington Defendants, jointly and severally: (a) Awarding actual damages, in an amount to be determined at trial; (b) Awarding exemplary damages, in an amount to be determined at trial; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received (including, but not limited to, the fees theyreceived in connection with their representation) based upon the alleged conduct; (d) Imposing a constructive trust and/or a constructive lien over the assets of theseDefendants, in an amount to be determined at trial and equal to the amount of monetary transfers 54#4815-9175-0153
  • 55. and/or benefits that each these Defendants were paid and/or obtained from the Debtor, andordering that the United States Marshall seize and sell the property subject to the constructivetrust and/or constructive lien and apply such sales proceeds to the payment of the judgmentamount that such Defendants are adjudged to owe the estate; (e) Awarding pre- and post-judgment interest; and (f) Including such further relief as the Court deems just and proper under thecircumstances. COUNT VIII: NEGLIGENT MISREPRESENTATION (KENSINGTON DEFENDANTS) 225. Plaintiff adopts and realleges Paragraphs 1 through 224 as if fully set forth herein. 226. The Debtor relied on the Kensington Defendants for guidance regarding theproper valuation of Rutgers, Globalnet, and Premier projects for which the KensingtonDefendants provided false information. 227. The Kensington Defendants knew or should have known that the Debtor wouldreasonably rely on the valuations that they prepared and would rely on the KensingtonDefendants to fulfill their professional obligations to the Debtor. 228. The Kensington Defendants made misrepresentations in the course of providingsuch valuations, including but not limited to providing an inaccurate valuation and purchaseprice for such entities. 229. The Kensington Defendants had no reasonable basis for believing that thevaluations given to the Debtor were true and accurately represented the financial condition ofRutgers, Globalnet and Premier. 55#4815-9175-0153
  • 56. 230. The Kensington Defendants did not exercise reasonable care or competence inpreparing the business valuation reports they provided to the Debtor in connection with theRutgers, Globalnet, and Premier transactions. 231. Moreover, the Kensington Defendants represented to the Debtor that they wereindependent when they agreed to provide business evaluation services in connection with theDebtor’s potential purchases of the assets of Rutgers, Globalnet and Premier. Specifically, theKensington Defendants negligently failed to disclose that Defendant Stein served as theexclusive franchise broker for an entity owned by the Pelullo Group. 232. The Debtor justifiably relied on the Kensington Defendants’ representations. 233. As a direct and/or proximate result of these breaches, the Debtor sufferedfinancial harm and the Kensington Defendants were unjustly enriched. REMEDIES AGAINST KENSINGTON DEFENDANTS 234. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter ajudgment in Debtor’s favor and against the Kensington Defendants, jointly and severally: (a) Awarding actual damages, in an amount to be determined at trial; (b) Awarding exemplary damages, in an amount to be determined at trial; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received (including, but not limited to, the fees theyreceived in connection with their representation) based upon the alleged conduct; (d) Imposing a constructive trust and/or a constructive lien over the assets of theseDefendants, in an amount to be determined at trial and equal to the amount of monetary transfersand/or benefits that each these Defendants were paid and/or obtained from the Debtor, andordering that the United States Marshall seize and sell the property subject to the constructive 56#4815-9175-0153
  • 57. trust and/or constructive lien and apply such sales proceeds to the payment of the judgmentamount that such Defendants are adjudged to owe the estate; (e) Awarding pre- and post-judgment interest; and (f) Including such further relief as the Court deems just and proper under thecircumstances. COUNT IX: BREACH OF FIDUCIARY DUTY (WILLIAM MAXWELL) 235. Plaintiff adopts and realleges Paragraphs 1 through 234 as if fully set forth herein. 236. The Debtor sought and received legal counsel and services from WilliamMaxwell. William Maxwell provided such legal counsel and services to the Debtor inconnection with the Legal Services Agreement. Such services resulted in an attorney-clientrelationship between William Maxwell and the Debtor. 237. Moreover, as Special Counsel, William Maxwell exerted a high degree ofinfluence on the Debtor by virtue of assuming many of the duties of the Debtor’s officers anddirectors, making the Debtor completely dependent on William Maxwell. 238. Accordingly, as the Debtor’s attorney and its Special Counsel, William Maxwellhad a fiduciary relationship with the Debtor. 239. William Maxwell owed the Debtor the duty of care and the duty of loyalty. 240. William Maxwell violated the fiduciary duties owed to the Debtor by, amongother things: 1. allowing an allegiance to the Pelullo Group to directly conflict with the interests of the Debtor; 2. failing to render a full and fair disclosure of facts material to William Maxwell’s representation of the Debtor; 3. engaging in self-dealing that pursued William Maxwell’s own pecuniary interests above those of the Debtor; 57#4815-9175-0153
  • 58. 4. using positions of trust to facilitate a plan to deplete the Debtor’s cash and assets; 5. improperly using client confidences learned in the course of the representation of the Debtor to the detriment of the Debtor; 6. failing to act within the utmost good faith towards the Debtor; 7. failing to use perfect candor, openness and honesty; 8. failing to deliver funds that rightfully belonged to the Debtor; 9. participating in the attempts to aid the Pelullo Group in taking control of the funds in the Grantors Trust and Creditors Trust; 10. operating as a clearinghouse to front expenditures that William Maxwell and others did not want reflected in the Debtor’s books and records; 11. arranging for the Kensington Defendants to prepare a series of misleading valuation reports that misrepresented the value of Rutgers, Globalnet and Premier; 12. helping create the appearance of legitimacy to the Rutgers, Globalnet and Premier acquisitions with the assistance of the Attorney Defendants and Accountant Defendants; 13. hiring an array of professionals loyal to the Pelullo Group; 14. unilaterally taking control of the Debtor’s bank accounts and transferring millions of dollars to not only William Maxwell individually, but also to members of the Maxwell Board, Maxwell family and the Pelullo Group; 15. breaching his duty of loyalty to Debtor; and 16. breaching his duty of care to Debtor. 241. The breaches were the result of William Maxwell engaging in self-dealing for thebenefit of William Maxwell and the benefit of the Pelullo Group at the expense of the Debtor. 242. In committing these breaches, William Maxwell violated the duties owed to theDebtor and acted egregiously, intentionally, and willfully. 243. Moreover, William Maxwell breached these duties with the deliberate intent toparticipate in the scheme orchestrated by the Pelullo Group to deplete the Debtor’s resources forthe Pelullo Group’s benefit. 58#4815-9175-0153
  • 59. 244. As a direct and/or proximate result of these breaches, the Debtor sufferedfinancial harm and Defendants William Maxwell were unjustly enriched. REMEDIES AGAINST WILLIAM MAXWELL 245. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter ajudgment in Debtor’s favor and against William Maxwell, jointly and severally: (a) Awarding actual damages, in an amount to be determined at trial; (b) Awarding exemplary and punitive damages sufficient to punish William Maxwelland to deter similar conduct in the future; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit William Maxwell received (including, but not limited to, disgorgement ofthe fees William Maxwell received in connection with their representation) based upon thealleged conduct; (d) Imposing a constructive trust and/or a constructive lien over the assets of theseDefendants, in an amount to be determined at trial and equal to the amount of monetary transfersand/or benefits that each these Defendants were paid and/or obtained from the Debtor, andordering that the United States Marshall seize and sell the property subject to the constructivetrust and/or constructive lien and apply such sales proceeds to the payment of the judgmentamount that such Defendants are adjudged to owe the estate; (e) Awarding pre- and post-judgment interest; and (f) Including such further relief as the Court deems just and proper under thecircumstances. 59#4815-9175-0153
  • 60. COUNT X: LEGAL MALPRACTICE (WILLIAM MAXWELL) 246. Pleading in the alternative, Debtor brings Count X against William Maxwell andwould show as follows: 247. Plaintiff adopts and realleges Paragraphs 1 through 245 as if fully set forth herein. 248. The Debtor sought and received legal counsel and services from WilliamMaxwell. William Maxwell provided such legal counsel and services to the Debtor, creating anattorney-client relationship between William Maxwell and the Debtor. 249. William Maxwell had a duty to exercise the degree of care, skill, competence,and/or diligence that a reasonably prudent attorney would exercise under similar circumstances. 250. William Maxwell breached these duties by providing legal advice and servicesthat were inadequate, detrimental to the Debtor and contrary to that which would have beenprovided by reasonably skilled legal counsel under the same or similar circumstances. 251. William Maxwell failed to exercise the proper degree of care and competence intheir representing Debtor by, among other things: 1. failing to exercise ordinary care in preparing and performing services for the Debtor; 2. failing to render a full and fair disclosure of facts material to their representation of the Debtor; 3. failing to uncover that the Pelullo Group was benefiting from the sham Rutgers, Globalnet, LLC and Premier transactions while advising the Debtor to enter into such transactions; 4. failing to disclose William Maxwell’s allegiance to the Pelullo Group was directly in conflict with the interests of the Debtor; 5. failing to advise the Debtor to retain separate counsel in light of the conflicts of interest; 6. failing to exercise ordinary care in hiring competent and independent professionals to assist the Debtor in the acquisitions from the Pelullo Group; and 60#4815-9175-0153
  • 61. 7. failing to exercise ordinary care in supervising the hired professionals to ensure that such duties were performed in the best interests of the Debtor. 252. The negligent acts of William Maxwell proximately caused the Plaintiff to sufferdamages. 253. As a direct and/or proximate result of these breaches, the Debtor sufferedfinancial harm and Defendants William Maxwell were unjustly enriched. REMEDIES AGAINST WILLIAM MAXWELL 254. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter ajudgment in Debtor’s favor and against William Maxwell, jointly and severally: (a) Awarding actual damages, in an amount to be determined at trial; (b) Awarding exemplary damages, in an amount to be determined at trial; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received (including, but not limited to, disgorgement ofthe fees they received in connection with their representation) based upon the alleged conduct; (d) Imposing a constructive trust and/or a constructive lien over the assets of theseDefendants, in an amount to be determined at trial and equal to the amount of monetary transfersand/or benefits that each these Defendants were paid and/or obtained from the Debtor, andordering that the United States Marshall seize and sell the property subject to the constructivetrust and/or constructive lien and apply such sales proceeds to the payment of the judgmentamount that such Defendants are adjudged to owe the estate; (e) Awarding pre- and post-judgment interest; and (f) Including such further relief as the Court deems just and proper under thecircumstances. 61#4815-9175-0153
  • 62. COUNT XI: AIDING AND ABETTING (THE FREEMAN BOARD, THE MAXWELL BOARD, THE ATTORNEY DEFENDANTS, THE ACCOUNTANT DEFENDANTS, THE KENSINGTON DEFENDANTS, WILLIAM MAXWELL AND THE PELULLO GROUP) 255. Pleading in the alternative, Debtor brings Count XI against the Freeman Board,the Maxwell Board, the Attorney Defendants, the Accountant Defendants, the KensingtonDefendants, William Maxwell and the Pelullo Group and would show as follows: 256. Plaintiff adopts and realleges Paragraphs 1 through 254 as if fully set forth herein. 257. As alleged in Counts I, III and IX, Defendants the Freeman Board, the MaxwellBoard, the Attorney Defendants and William Maxwell (collectively the “Fiduciaries”) owedfiduciary duties to the Debtor. 258. The Fiduciaries intentionally breached those fiduciary duties (collectively, the“Breaches of Fiduciary of Duty”) 259. Defendants the Freeman Board, the Maxwell Board, the Attorney Defendants, theAccountant Defendants, the Kensington Defendants, William Maxwell and the Pelullo Groupwere aware of those fiduciary duties. 260. Defendants the Freeman Board, the Maxwell Board, the Attorney Defendants, theAccountant Defendants, the Kensington Defendants, William Maxwell and the Pelullo Groupwere aware of their respective roles in the overarching scheme to promote the Breaches ofFiduciary Duty at the time they provided assistance. 261. Defendants the Freeman Board, the Maxwell Board, the Attorney Defendants, theAccountant Defendants, the Kensington Defendants, William Maxwell and the Pelullo Groupknowingly and substantially participated in and assisted the Fiduciaries in committing thebreaches. 62#4815-9175-0153
  • 63. 262. Defendants the Freeman Board, the Maxwell Board, the Attorney Defendants, theAccountant Defendants, the Kensington Defendants, William Maxwell and the Pelullo Group’srespective actions were substantial factors in causing the Breaches of Fiduciary Duty. 263. As a direct and/or proximate result of these breaches, the Debtor sufferedfinancial harm and Defendants the Freeman Board, the Maxwell Board, the AttorneyDefendants, the Accountant Defendants, the Kensington Defendants, William Maxwell and thePelullo Group were unjustly enriched. REMEDIES AGAINST THE FREEMAN BOARD, THE MAXWELL BOARD, THE ATTORNEY DEFENDANTS, THE ACCOUNTANT DEFENDANTS, THEKENSINGTON DEFENDANTS, WILLIAM MAXWELL AND THE PELULLO GROUP 264. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter ajudgment in Debtor’s favor and against the Freeman Board, the Maxwell Board, the AttorneyDefendants, the Accountant Defendants, the Kensington Defendants, William Maxwell and thePelullo Group, jointly and severally. (a) Awarding actual damages, in an amount to be determined at trial; (b) Awarding exemplary and punitive damages sufficient to punish these Defendantsand to deter similar conduct in the future; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received based upon the alleged conduct; (d) Imposing a constructive trust and/or a constructive lien over the assets of theseDefendants, in an amount to be determined at trial and equal to the amount of monetary transfersand/or benefits that each these Defendants were paid and/or obtained from the Debtor, andordering that the United States Marshall seize and sell the property subject to the constructive 63#4815-9175-0153
  • 64. trust and/or constructive lien and apply such sales proceeds to the payment of the judgmentamount that such Defendants are adjudged to owe the estate; (e) Awarding pre- and post-judgment interest; and (f) Including such further relief as the Court deems just and proper under thecircumstances. COUNT XII: CIVIL CONSPIRACY (THE FREEMAN BOARD, THE MAXWELL BOARD, THE ATTORNEY DEFENDANTS, THE ACCOUNTANT DEFENDANTS, THE KENSINGTON DEFENDANTS, WILLIAM MAXWELL AND THE PELULLO GROUP) 265. Pleading in the alternative, Debtor brings Count XII against the Freeman Board,the Maxwell Board, the Attorney Defendants, the Accountant Defendants, the KensingtonDefendants, William Maxwell and the Pelullo Group and would show as follows: 266. Plaintiff adopts and realleges Paragraphs 1 through 264 as if fully set forth herein. 267. As alleged herein, Defendants the Freeman Board, the Maxwell Board, theAttorney Defendants, the Accountant Defendants, the Kensington Defendants, William Maxwelland the Pelullo Group combined and agreed with each other to deplete the Debtor’s cash andresources for their own respective gains. 268. The Pelullo Group facilitated the takeover of the Debtor by enlisting the help ofWilliam Maxwell and the Attorney Defendants. 269. The Pelullo Group installed the Maxwell Board to take control of the Debtor. 270. After obtaining control, the Maxwell Board ceded effective control of the Debtorto William Maxwell (through the Legal Services Agreement) and then ultimately to the PelulloGroup. 64#4815-9175-0153
  • 65. 271. William Maxwell then hired the Attorney Defendants, Accountant Defendantsand Kensington Defendants to create the appearance of legitimacy while each of theseprofessionals directly benefited by receiving exorbitant amounts of fees and financial benefits. 272. Defendants the Freeman Board, the Maxwell Board, the Attorney Defendants, theAccountant Defendants, the Kensington Defendants, William Maxwell and the Pelullo Groupemployed unlawful and tortious means to accomplish the unlawful purpose of the conspiracy,mainly: a violation of the fiduciary duties owed to the Debtor and aiding and abetting violationsof these fiduciary duties. 273. In furtherance of the conspiracy, these Defendants knowing and voluntarilyengaged in numerous overt tortious and unlawful acts as alleged herein. 274. Each of these Defendants understood the general objective of the conspiratorialscheme and agreed upon these objectives. 275. Each of these Defendants agreed to perform their part of the scheme toaccomplish the objectives. 276. The intentional, deliberate and willful acts of these Defendants proximatelycaused the Plaintiff to suffer damages, including millions of dollars siphoned from the Debtor’saccounts that forced the Debtor into bankruptcy. 277. As a direct result of these overt and tortious acts committed by the Defendants infurtherance of the conspiracy, the Debtor suffered financial harm and Defendants the FreemanBoard, the Maxwell Board, the Attorney Defendants, the Accountant Defendants, the KensingtonDefendants, William Maxwell and the Pelullo Group were unjustly enriched. 65#4815-9175-0153
  • 66. REMEDIES AGAINST THE FREEMAN BOARD, THE MAXWELL BOARD, THE ATTORNEY DEFENDANTS, THE ACCOUNTANT DEFENDANTS, THEKENSINGTON DEFENDANTS, WILLIAM MAXWELL AND THE PELULLO GROUP 278. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter ajudgment in Debtor’s favor and against the Freeman Board, the Maxwell Board, the AttorneyDefendants, the Accountant Defendants, the Kensington Defendants, William Maxwell and thePelullo Group, jointly and severally: (a) Awarding actual damages, in an amount to be determined at trial; (b) Awarding exemplary and punitive damages sufficient to punish these Defendantsand to deter similar conduct in the future; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received based upon the alleged conduct; (d) Imposing a constructive trust and/or a constructive lien over the assets of theseDefendants, in an amount to be determined at trial and equal to the amount of monetary transfersand/or benefits that each these Defendants were paid and/or obtained from the Debtor, andordering that the United States Marshall seize and sell the property subject to the constructivetrust and/or constructive lien and apply such sales proceeds to the payment of the judgmentamount that such Defendants are adjudged to owe the estate; (e) Awarding pre- and post-judgment interest; and (f) Including such further relief as the Court deems just and proper under thecircumstances. COUNT XIII: AVOIDANCE OF FRAUDULENT TRANSFERS UNDER § 548(a)(1)(B) AND § 550 OF THE BANKRUPTCY CODE (WILLIAM MAXWELL) 279. Plaintiff adopts and realleges Paragraphs 1 through 278 as if set forth herein. 66#4815-9175-0153
  • 67. 280. Within two years before the commencement of the Debtor’s chapter 11 case,William Maxwell received transfers (the “§548 Transfers”) totaling at least $2,252,800. 281. The §548 Transfers constitute transfers of an interest of the Debtor in property. 282. William Maxwell is an insider within the definition of section 101(31) of theBankruptcy Code. 283. The §548 Transfers were made without the Debtor receiving reasonablyequivalent value in exchange for the §548 Transfers. 284. Additionally, the §548 Transfers were to, or for the benefit of, an insider under anemployment contract and not in the ordinary course of business. 285. Moreover, the §548 Transfers were made at time when the Debtor: (A) wasinsolvent on the date such transfers were made or such obligations were incurred, or becameinsolvent as a result of such transfers or obligations; or (B) intended to incur, or believed that theDebtor would incur, debts that would be beyond the Debtor’s ability to pay as such debtsmatured. REMEDIES AGAINST WILLIAM MAXWELL 286. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter ajudgment in Debtor’s favor and against Defendants William Maxwell as follows: (a) A declaration that the §548 Transfers are avoided as fraudulent transfers; (b) Awarding the value of such transfers to be recovered and preserved for the benefitof the Debtor’s estate; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received based upon the alleged conduct; (d) Awarding pre- and post-judgment interest; and 67#4815-9175-0153
  • 68. (e) Including such further relief as the Court deems just and proper under thecircumstances. COUNT XIV: AVOIDANCE OF FRAUDULENT TRANSFERS UNDER § 548(a)(1)(B) AND § 550 OF THE BANKRUPTCY CODE (SEVEN HILLS AND LEARNED ASSOCIATES) 287. Plaintiff adopts and realleges Paragraphs 1 through 286 as if set forth herein. 288. Within two years before the commencement of the Debtor’s chapter 11 case,Seven Hills and Learned Associates received funds in connection with the Rutgers, Globalnetand Premier transactions (the “§548 Seller Transfers”). 289. The § 548 Seller Transfers constitute transfers of an interest of the Debtor inproperty. 290. The §548 Seller Transfers were made without the Debtor receiving reasonablyequivalent value in exchange for the transfers. 291. Additionally, the Debtor: (A) was insolvent on the date such Seller Transfers weremade or such obligations were incurred, or became insolvent as a result of such transfers orobligations; (B) engaged or was about to engage in a business or a transaction for which anyproperty remaining with the Debtor was an unreasonably small capital; or (C) the Debtorintended to incur, or believed that the Debtor would incur debts that would be beyond theDebtor’s ability to pay as such debts matured. REMEDIES AGAINST SEVEN HILLS AND LEARNED ASSOCIATES 292. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter ajudgment in Debtor’s favor and against Defendants Seven Hills and Learned Associates asfollows: (a) A declaration that the §548 Seller Transfers are avoided as fraudulent transfers; 68#4815-9175-0153
  • 69. (b) Awarding the value of such transfers to be recovered and preserved for the benefitof the Debtor’s estate; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received based upon the alleged conduct; (d) Awarding pre- and post-judgment interest; and (e) Including such further relief as the Court deems just and proper under thecircumstances. COUNT XV: AVOIDANCE OF FRAUDULENT TRANSFERS UNDER § 544(b) AND § 550 OF THE BANKRUPTCY CODE AND § 24.005(a)(1) OF THE TEXAS UNIFORM FRAUDULENT TRANSFER ACT (WILLIAM MAXWELL) 293. Plaintiff adopts and realleges Paragraphs 1 through 292 as if set forth herein. 294. Within four years prior to the filing of the Debtor’s chapter 11 case, WilliamMaxwell received transfers (the “William Maxwell Transfers”) totaling at least $5,000,000.00. 295. The William Maxwell Transfers constitute transfers of an interest of the Debtor inproperty. 296. Defendants William Maxwell participated in, facilitated and personally benefitedfrom the transfers of the Debtor’s property. 297. Defendants William Maxwell participated in such transactions with actual intentto hinder, delay or defraud various creditors and shareholders of the Debtor. 298. Defendants William Maxwell egregiously, willfully and intentionally participatedin a scheme to siphon money from the Debtor by virtue of the premeditated plan describedherein. 299. As set forth in detail above: (A) the value of the consideration received by theDebtor was not reasonably equivalent value for the money transferred to William Maxwell; 69#4815-9175-0153
  • 70. (B) the transfer was to an insider as defined in Tex. Bus. & Com. Code §24.002(7); and (C) theDebtor was insolvent on the date such transfers were made or such obligations were incurred, orbecame insolvent as a result of such transfers and/or obligations. 300. Moreover, Defendants William Maxwell did not accept the Debtor’s property ingood faith. REMEDIES AGAINST WILLIAM MAXWELL 301. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter ajudgment in Debtor’s favor and against Defendants William Maxwell as follows: (a) A declaration that the William Maxwell Transfers are avoided as fraudulenttransfers; (b) Awarding the value of such transfers to be recovered and preserved for the benefitof the Debtor’s estate; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received based upon the alleged conduct; (d) Awarding costs and attorneys’ fees’ pursuant to Tex. Bus. and Com. Code§24.013; (e) Awarding pre- and post-judgment interest; and (f) Including such further relief as the Court deems just and proper under thecircumstances. COUNT XVI: AVOIDANCE OF FRAUDULENT TRANSFERS UNDER § 544(b) AND § 550 OF THE BANKRUPTCY CODE AND § 24.005(a)(1) OF THE TEXAS UNIFORM FRAUDULENT TRANSFER ACT (SEVEN HILLS AND LEARNED ASSOCIATES) 302. Plaintiff adopts and realleges Paragraphs 1 through 301 as if set forth herein. 70#4815-9175-0153
  • 71. 303. Within four years before the commencement of the Debtor’s chapter 11 case,Seven Hills and Learned Associates received funds in connection with the Rutgers, Globalnetand Premier transactions (the “Seven Hills/Learned Associates Transfers”). 304. The Seven Hills/Learned Associates Transfers constitute transfers of an interest ofthe Debtor in property. 305. Defendants Seven Hills and Learned Associates participated in, facilitated andpersonally benefited from the transfers of the Debtor’s property. 306. Defendants Seven Hills and Learned Associates participated in such transactionswith actual intent to hinder, delay or defraud various creditors and shareholders of the Debtor. 307. Defendants Seven Hills and Learned Associates egregiously, willfully andintentionally participated in a scheme to siphon money from the Debtor by virtue of thepremeditated plan described herein. 308. As set forth in detail above: (A) the value of the consideration received by theDebtor was not reasonably equivalent value for the money transferred to Seven Hills andLearned Associates; and (B) the Debtor was insolvent on the date such transfers were made orsuch obligations were incurred, or became insolvent as a result of such transfer obligation. 309. Moreover, Defendants Seven Hills and Learned Associates did not accept theDebtor’s property in good faith. REMEDIES AGAINST SEVEN HILLS AND LEARNED ASSOCIATES 310. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter ajudgment in Debtor’s favor and against Defendants Seven Hills and Learned Associates asfollows: 71#4815-9175-0153
  • 72. (a) A declaration that the Seven Hills/Learned Associates Transfers are avoided asfraudulent transfers; (b) Awarding the value of such transfers to be recovered and preserved for the benefitof the Debtor’s estate; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received based upon the alleged conduct; (d) Awarding costs and attorneys’ fees’ pursuant to Tex. Bus. and Com. Code§24.013; (e) Awarding pre- and post-judgment interest; and (f) Including such further relief as the Court deems just and proper under thecircumstances. COUNT XVII: AVOIDANCE OF FRAUDULENT TRANSFERS UNDER § 544(b) AND § 550 OF THE BANKRUPTCY CODE AND § 24.005(a)(2) OF THE TEXAS UNIFORM FRAUDULENT TRANSFER ACT (WILLIAM MAXWELL) 311. Plaintiff adopts and realleges Paragraphs 1 through 310 as if set forth herein. 312. Within four years prior to the filing of the Debtor’s chapter 11 case, WilliamMaxwell received transfers (the “William Maxwell Transfers”) totaling at least $5,000,000.00. 313. The William Maxwell Transfers constitute transfers of an interest of the Debtor inproperty. 314. Defendants William Maxwell participated in, facilitated and personally benefitedfrom the transfer of the Debtor’s property. 315. The William Maxwell Transfers were made without the Debtor receivingreasonably equivalent value in exchange for the transfers. 72#4815-9175-0153
  • 73. 316. Moreover, Defendants William Maxwell did not accept the Debtor’s property ingood faith. 317. Additionally, the Debtor: (A) was insolvent on the date such transfers were madeor such obligations were incurred, or became insolvent as a result of such transfers orobligations, (B) engaged or was about to engage in a business or a transaction for which anyproperty remaining with the Debtor was an unreasonably small capital, or (C) the Debtorintended to incur, or believed that the Debtor would incur debts that would be beyond theDebtor’s ability to pay as such debts matured. REMEDIES AGAINST WILLIAM MAXWELL 318. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter ajudgment in Debtor’s favor and against Defendants William Maxwell as follows: (a) A declaration that the William Maxwell Transfers are avoided as fraudulenttransfers; (b) Awarding the value of such transfers to be recovered and preserved for the benefitof the Debtor’s estate; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received based upon the alleged conduct; (d) Awarding costs and attorneys’ fees’ pursuant to Tex. Bus. and Com. Code§24.013; (e) Awarding pre- and post-judgment interest; and (f) Including such further relief as the Court deems just and proper under thecircumstances. 73#4815-9175-0153
  • 74. COUNT XVIII: AVOIDANCE OF FRAUDULENT TRANSFERS UNDER § 544(b) AND § 550 OF THE BANKRUPTCY CODE AND § 24.005(a)(2) OF THE TEXAS UNIFORM FRAUDULENT TRANSFER ACT (SEVEN HILLS AND LEARNED ASSOCIATES) 319. Plaintiff adopts and realleges Paragraphs 1 through 318 as if set forth herein. 320. Within four years before the commencement of the Debtor’s chapter 11 case,Seven Hills and Learned Associates received funds in connection with the Rutgers, Globalnetand Premier transactions (the “Seven Hills/Learned Associates Transfers”). 321. The Seven Hills/Learned Associates Transfers constitute transfers of an interest ofthe Debtor in property. 322. Defendants Seven Hills and Learned Associates participated in, facilitated andpersonally benefited from the transfer of the Debtor’s property. 323. The Seven Hills/Learned Associates Transfers were made without the Debtorreceiving reasonably equivalent value in exchange for the transfers. 324. Moreover, Defendants Seven Hills and Learned Associates did not accept theDebtor’s property in good faith. 325. Additionally, the Debtor: (A) was insolvent on the date such transfers were madeor such obligations were incurred, or became insolvent as a result of such transfers orobligations, (B) engaged or was about to engage in a business or a transaction for which anyproperty remaining with the Debtor was an unreasonably small capital, or (C) the Debtorintended to incur, or believed that the Debtor would incur, debts that would be beyond theDebtor’s ability to pay as such debts matured. 74#4815-9175-0153
  • 75. REMEDIES AGAINST SEVEN HILLS AND LEARNED ASSOCIATES 326. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter ajudgment in Debtor’s favor and against Defendants Seven Hills and Learned Associates asfollows: (a) A declaration that the Seven Hills/Learned Associates Transfers are avoided asfraudulent transfers; (b) Awarding the value of such transfers to be recovered and preserved for the benefitof the Debtor’s estate; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received based upon the alleged conduct; (d) Awarding costs and attorneys’ fees’ pursuant to Tex. Bus. and Com. Code§24.013; (e) Awarding pre- and post-judgment interest; and (f) Including such further relief as the Court deems just and proper under thecircumstances. COUNT XIX: EQUITABLE SUBORDINATION (FREEMAN, WARD, JOHN MAXWELL, HANDLEY, O’NEAL, ROUBINEK,ALEXANDER, HICKMAN, BALLARD, WILLIAM MAXWELL, SIEGAL DROSSNER, LEARNED ASSOCIATES AND SEVEN HILLS) 327. Plaintiff adopts and realleges Paragraphs 1 through 326 as if set froth herein. 328. Based upon the foregoing, Defendants Freeman, Ward, John Maxwell, Handley,O’Neal, Roubinek, Alexander, Hickman, Ballard, William Maxwell, Siegal Drossner, LearnedAssociates and Seven Hills engaged in inequitable, unconscionable and unfair conduct. 75#4815-9175-0153
  • 76. 329. The inequitable, unconscionable and unfair conduct of these Defendants resultedin harm to the Debtor and its creditors and/or gave the Defendants an unfair advantage over theDebtor’s other creditors. 330. Under principles of equitable subordination and pursuant to section 510(c) of theBankruptcy Code, the Defendants’ claims should be subordinated to any allowed unsecuredclaim held or asserted by non-insider general unsecured creditors. Otherwise, the Defendantswill have benefited from their actions as described herein. 331. Equitable subordination under these circumstances is consistent with the purposesand provisions of the Bankruptcy Code and is authorized by section 510(c) of the BankruptcyCode. 332. The interests of the Debtor and its unsecured creditors shall be injured unless theDefendants’ claims are subordinated.REMEDIES AGAINST FREEMAN, WARD, JOHN MAXWELL, HANDLEY, O’NEAL,ROUBINEK, ALEXANDER, HICKMAN, BALLARD, WILLIAM MAXWELL, SIEGAL DROSSNER, LEARNED ASSOCIATES AND SEVEN HILLS 333. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enters ajudgment in the Trustee’s favor and against the Defendants: (a) equitably subordinating all of their claims; and (b) to the extent any of the Defendants claim a security interest in the Debtor’sproperty, such security interest should be avoided, annulled, recovered and preserved for thebenefit of the Debtor’s estate. COUNT XX: AVOID AND RECOVER PREFERENTIAL TRANSFERS PURSUANT TO 11 U.S.C. §§ 547 AND 550 (O’NEAL, ROUBINEK AND ALEXANDER) 334. Plaintiff adopts and realleges Paragraphs 1 through 333 as if set forth herein. 76#4815-9175-0153
  • 77. 335. O’Neal, Roubinek and Alexander (together, the “Insiders”) are insiders of theDebtor within the meaning of sections 101(31) and 547(b)(4)(B) of the Bankruptcy Code. 336. During the one-year period prior to the commencement of the Debtor’s chapter 11case (the “Insider Preference Period”), the Debtor made payments to or for the benefit of theInsiders totaling $519,535 (the “Insider Transfers”). The Insider Transfers are set forth inExhibit A hereto which is incorporated herein by reference. 337. The Insider Transfers constitute transfers of an interest of the Debtor in property. 338. The Insider Transfers were to or for the benefit of the Insiders, who were creditorsof the Debtor at the time of the transfers. 339. The Insider Transfers were made for or on account of an antecedent debt owed bythe Debtor to the Insiders. 340. The Debtor was insolvent throughout the Insider Preference Period within themeaning of sections 101(32)(A) and 547(b)(3) of the Bankruptcy Code. 341. The Insider Transfers enabled the Insiders to receive more than they would havereceived if the Insider Transfers had not been made and the Insiders received payment of theirdebts to the extent provided under the provisions of the Bankruptcy Code. 342. Plaintiff is entitled to avoid the Insider Transfers pursuant to section 547(b) of theBankruptcy Code. 343. The Insiders were the initial transferees of the Insider Transfers or the immediateor mediate transferees of such initial transferees or the person for whose benefit the InsiderTransfers were made. 344. To the extent that the Insider Transfers are avoided under section 547 of theBankruptcy Code as a preference, the Plaintiff is entitled to recover the Insider Transfers from 77#4815-9175-0153
  • 78. the Insiders or any immediate or mediate transferee of the Insiders under section 550 of theBankruptcy Code plus interest thereon to the date of payment and the costs of this action. 345. By reason of the foregoing, the Insider Transfers should be avoided and set asideas preferential. COUNT XXI: DISALLOWANCE OF ALL CLAIMS PURSUANT TO § 502(d) (O’NEAL, ALEXANDER AND ROUBINEK) 346. Plaintiff adopts and realleges Paragraphs 1 through 345 as if set forth herein. 347. O’Neal, Alexander and Roubinek are entities from which property is recoverableunder section 550 of the Bankruptcy Code and they are transferees of avoidable transfers undersections 547 of the Bankruptcy Code. 348. O’Neal, Alexander and Roubinek have not paid the amount of the InsiderTransfers nor turned over such property for which O’Neal, Alexander and Roubinek are liableunder section 550 of the Bankruptcy Code. 349. Pursuant to section 502(d) of the Bankruptcy Code, any and all claims of O’Neal,Alexander and Roubinek against the Debtor must be disallowed until such time as O’Neal,Alexander and Roubinek pay to the Plaintiff an amount equal to the aggregate amount of all theInsider Transfers sought in Count XX hereof, plus interest thereon and costs. COUNT XXII: OBJECTION TO PROOFS OF CLAIMS PURSUANT TO § 502 (FREEMAN, WARD, JOHN MAXWELL, HANDLEY, O’NEAL, ROUBINEK, ALEXANDER, HICKMAN, BALLARD, WILLIAM MAXWELL, SIEGAL DROSSNER, SEVEN HILLS) 350. Plaintiff adopts and realleges Paragraphs 1 through 349 as if set forth herein. 351. Defendants Freeman, Ward, John Maxwell, Handley, O’Neal, Roubinek,Alexander, Hickman, Ballard, William Maxwell, Siegal Drossner and Seven Hills (the“Claimants”) each filed a proof of claim asserting claim against the Debtor. 352. Specifically, the Claimants filed the following claims: 78#4815-9175-0153
  • 79. a. Defendant Freeman filed proof of claim no. 7 asserting a claim in the amount of $92,500 for unpaid severance. b. Defendant Ward filed proofs of claim nos. 5 and 25 asserting a claim in the amount of $92,500 for unpaid severance and director fees. c. Defendant John Maxwell filed proof of claim no. 129 asserting a claim in the amount of $2,633,413.86 for unpaid salary, car allowance, cell phone, insurance, housing, utilities, company expenses and indemnification. d. Defendant Handley filed proof of claim no. 178 asserting a claim in the amount of $2,625,738.89 for unpaid salary, car allowance, cell phone, insurance, housing, utilities, company expenses and indemnification. e. Defendant O’Neal filed proof of claim no. 62 asserting a claim in the amount of $117,140 for unpaid board and committee fees, unpaid compensation, outstanding loan amounts and indemnification. f. Defendant Roubinek filed proof of claim no. 107 asserting a claim in the amount of $13,632 for unpaid board and committee fees, unpaid compensation, outstanding loan amounts and indemnification. g. Defendant Alexander filed proof of claim no. 63 asserting a claim in the amount of at least $177,700 for unpaid compensation and indemnification. h. Defendant Hickman filed proof of claim nos. 33 and 45 asserting claims in the amount of $184,070 for unpaid director and committee fees and indemnification. i. Defendant Ballard filed proof of claim 92 asserting a claim in the amount of $63,470 for unpaid director and committee fees and indemnification. j. Defendant William Maxwell filed proofs of claim nos. 193, 195 and 196 asserting claims totaling $5,550,000 based upon a legal services agreement. k. Defendant Siegal Drossner filed proof of claim no. 24 asserting a claim in the amount of $81,044.85 for unpaid accounting service invoices. l. Defendant Seven Hills filed proof of claim nos. 119, 120 and 121 asserting claims totaling $855,000 for indemnity and tortious interference. 79#4815-9175-0153
  • 80. 353. The Claimants’ claims should be disallowed and expunged in their entirety for thereasons set forth in this Complaint concerning, among other things, the Claimants’ breaches offiduciary duties and their aiding and abetting breaches of fiduciary duties with respect to theoperation of the Debtor as to harm the Debtor and its creditors. To the extent the Claimants’claims are not disallowed and expunged in their entirety, the amount thereof should be offsetagainst the damages due and owing to the Debtor in connection with the Counts asserted herein. COUNT XXIII: RECHARACTERIZATION OF LOANS (ROBERT O’NEAL) 354. Plaintiff adopts and realleges Paragraphs 1 through 353 as if fully set forth herein. 355. In addition to or in the alternative to the claims and objections listed above, Debtor requests that the Court recharacterize Defendant O’Neal’s loans to Debtor as an equity contribution because the loans had the substance and character of an equity contribution. In particular, Defendant O’Neal advanced money to the Debtor when it was undercapitalized and could not obtain similar financing (or any financing for that matter) from a disinterested lender and in exchange for shares of Debtor. Applying substance over form, bankruptcy courts have consistently characterized such transactions of equity rather than debt. Accordingly, O’Neal’s claims arising from or related to his loans to Debtor should properly be characterized as an equity contribution rather than debt. DISCOVERY RULE/FRAUDULENT CONCEALMENT 356. To the extent Defendants allege that any statute of limitations for any cause ofaction asserted in this adversary proceeding has run, Debtor pleads that any such statute oflimitations has been tolled and its accrual deferred due to: (1) the discovery rule; and(2) Defendants’ fraudulent concealment. 80#4815-9175-0153
  • 81. 357. Concerning the discovery rule, all injuries suffered by the Debtor were inherentlyundiscoverable because the nature of the objectively verifiable injuries and the parties involvedin causing those injuries made it impossible, even with the exercise of reasonable diligence, forthe Debtor to discover the injuries within the prescribed limitations period. 358. Concerning fraudulent concealment, the Defendants sought to avoid liability fortheir actions by deceitfully concealing the wrongdoing alleged in this Complaint. TheDefendants had actual knowledge of the wrongdoing in this matter and acted with a purpose toconceal the wrongdoing by virtue of their complex scheme to siphon money from the Debtor.As a result, Debtor was unable to discover the injuries within the limitations period. PRAYER FOR RELIEF WHEREFORE, Plaintiff Matthew D. Orwig, as Chapter 11 Trustee of FirstPlusFinancial Group, Inc., prays that this Court enter an Order providing judgments against each ofthe Defendants as detailed above, including: (a) Awarding actual damages, in an amount to be determined at trial; (b) Awarding exemplary and punitive damages sufficient to punish these Defendantsand to deter similar conduct in the future; (c) Awarding restitution to Debtor in an amount to be determined at trial, but equal tothe total unjust benefit these Defendants received based upon the alleged conduct; (d) Imposing a constructive trust and/or a constructive lien over the assets of theseDefendants, in an amount to be determined at trial and equal to the amount of monetary transfersand/or benefits that each these Defendants were paid and/or obtained from the Debtor, andordering that the United States Marshall seize and sell the property subject to the constructive 81#4815-9175-0153
  • 82. trust and/or constructive lien and apply such sales proceeds to the payment of the judgmentamount that such Defendants are adjudged to owe the estate; (e) Awarding pre- and post-judgment interest; (f) A declaration that the transfers to William Maxwell, Seven Hills and LearnedAssociates are avoided as fraudulent transfers; (g) Awarding the value of such transfers to be recovered and preserved for the benefitof the Debtor’s estate; (h) Awarding costs and attorneys’ fees pursuant to Tex. Bus. and Com. Code§ 24.013; (i) Equitably subordinating the bankruptcy claims of Defendants Freeman, Ward,John Maxwell, Handley, O’Neal, Roubinek, Alexander, Hickman, Ballard, William Maxwell,Siegal Drossner, Learned Associates and Seven Hills; (j) To the extent Defendants Freeman, Ward, John Maxwell, Handley, O’Neal,Roubinek, Alexander, Hickman, Ballard, William Maxwell, Siegal Drossner, Learned Associatesand Seven Hills’ claim to have a security interest in the Debtor’s property, such security interestshould be avoided, annulled, recovered and preserved for the benefit of the Debtor’s estate; (k) Avoiding the Insider Transfers described above; (l) Disallowing and expunging the claims of Defendants Freeman, Ward, JohnMaxwell, Handley, O’Neal, Roubinek, Alexander, Hickman, Ballard, William Maxwell, SiegalDrossner and Seven Hills; (m) Recharacterizing O’Neal’s loans to Debtor as equity contributions; and (n) Such further relief as the Court deems just and proper under the circumstances. 82#4815-9175-0153
  • 83. EXHIBIT A GARY ALEXANDER ROBERT O’NEAL JACK ROUBINEK Date of Amount of Date of Amount of Date of Amount ofTransfer Transfer Transfer Transfer Transfer Transfer 1/9/09 $3,000 12/26/08 $348,712 10/17/08 $10,000 1/20/09 $4,000 1/23/2009 $20,000 10/24/08 $6,250 3/5/09 $15,000 Total: $368, 712 11/6/08 $5,000 3/18/09 $5,000 11/14/08 $5,000 4/10/09 $7,500 11/21/08 $3,500 Total: $34,500 12/4/08 $5,000 12/12/08 $1,000 12/19/08 $5,000 12/26/08 $30,000 1/16/09 $1,850 1/23/09 $5,000 2/13/09 $5,000 3/10/09 $990 3/12/09 $15,000 4/6/09 $930.00 4/8/09 $15,000 5/4/09 $900 6/9/09 $900 Total: $116,320
  • 84. B104 (FORM 104) (08/07) ADVERSARY PROCEEDING COVER SHEET ADVERSARY PROCEEDING NUMBER (Court Use Only) (Instructions on Reverse)PLAINTIFFS DEFENDANTSFirstPlus Financial Group, Inc. Robert Freeman; James Roundtree; Daniel Phillips; SEE ATTACHED SHEET FOR REMAINDER OF DEFENDANTSATTORNEYS (Firm Name, Address, and Telephone No.) ATTORNEYS (If Known)Jeffrey M. Tillotson; Eric W. Pinker; John VolneyLynn Tillotson Pinker & Cox, LLP2100 Ross Avenue, Suite 2700, Dallas, Texas 75201(214) 981-3800PARTY (Check One Box Only) PARTY (Check One Box Only)□ Debtor □ U.S. Trustee/Bankruptcy Admin □ Debtor □ U.S. Trustee/Bankruptcy Admin□ Creditor □ Other □ Creditor □ Other□ Trustee □ TrusteeCAUSE OF ACTION (WRITE A BRIEF STATEMENT OF CAUSE OF ACTION, INCLUDING ALL U.S. STATUTES INVOLVED)Multiple claims related to takeover and looting of Debtor, including breach of fiduciary duty; legal malpractice; professional negligence;negligent misrepresentation; fraud; aiding and abetting; conspiracy; avoidance of fraudulent transfer under 11 U.S.C. 548(a)(1)(B) and550; avoidance of fraudulent transfers under 11 U.S.C. 544(b) and TUFTA 24.005(a)(1)-(2); equitable subordination; avoidance ofpreferential transfers under 11 U.S.C. 547 and 550, 11 U.S.C. 502(d); 11 U.S.C. 502; recharacterization; objections to claims. NATURE OF SUIT (Number up to five (5) boxes starting with lead cause of action as 1, first alternative cause as 2, second alternative cause as 3, etc.)□ □ FRBP 7001(1) – Recovery of Money/Property FRBP 7001(6) – Dischargeability (continued) 11-Recovery of money/property - §542 turnover of property 61-Dischargeability - §523(a)(5), domestic support□3 12-Recovery of money/property - §547 preference □ 68-Dischargeability - §523(a)(6), willful and malicious injury□2 13-Recovery of money/property - §548 fraudulent transfer □ 63-Dischargeability - §523(a)(8), student loan□1 14-Recovery of money/property - other □ 64-Dischargeability - §523(a)(15), divorce or separation obligation (other than domestic support)□ FRBP 7001(2) – Validity, Priority or Extent of Lien 21-Validity, priority or extent of lien or other interest in property □ 65-Dischargeability - other □ FRBP 7001(7) – Injunctive Relief□ FRBP 7001(3) – Approval of Sale of Property 71-Injunctive relief – imposition of stay 31-Approval of sale of property of estate and of a co-owner - §363(h) □ 72-Injunctive relief – other□ FRBP 7001(4) – Objection/Revocation of Discharge □ FRBP 7001(8) Subordination of Claim or Interest 41-Objection / revocation of discharge - §727(c),(d),(e) 81-Subordination of claim or interest□ FRBP 7001(5) – Revocation of Confirmation □ FRBP 7001(9) Declaratory Judgment 51-Revocation of confirmation 91-Declaratory judgment□ FRBP 7001(6) – Dischargeability □ FRBP 7001(10) Determination of Removed Action 66-Dischargeability - §523(a)(1),(14),(14A) priority tax claims□ 62-Dischargeability - §523(a)(2), false pretenses, false representation, 01-Determination of removed claim or cause actual fraud□ □ Other 67-Dischargeability - §523(a)(4), fraud as fiduciary, embezzlement, larceny SS-SIPA Case – 15 U.S.C. §§78aaa et.seq. (continued next column) □ 02-Other (e.g. other actions that would have been brought in state court if unrelated to bankruptcy case)□ Check if this case involves a substantive issue of state law □ Check if this is asserted to be a class action under FRCP 23□ Check if a jury trial is demanded in complaint Demand $Other Relief Sought
  • 85. REMAINING DEFENDANTS FOR CIVIL COVER SHEET:DAVID WARD;JOHN FITZGERALD;JOHN MAXWELL;WILLIAM HANDLEY;DR. ROBERT O’NEAL;JACK ROUBINEK;GARY D. ALEXANDER;ROGER S. MEEK;DAVID ROBERTS;JOSEPH P. STEWARD;WILLIAM HICKMAN;PAUL BALLARD;OLSHAN GRUNDMAN FROME ROSENZWEIG & WOLOSKY LLP;DAVID ADLER, ESQ.;EIZEN FINEBURG & McCARTHY P.C.;GARY J. McCARTHY, ESQ.;WILLIAM T. MAXWELL, ESQ.;WILLIAM MAXWELL PLLC;WILLIAM T. MAXWELL, P.C.;BUCKNO LISICKY & COMPANY, P.C.;ANTHONY BUCZEK, CPA;SIEGAL & DROSSNER, P.C.;HOWARD DROSSNER, CPA;KENSINGTON COMPANY & AFFILIATES INC.;KEN STEIN;SALVATORE PELULLO;SEVEN HILLS MANAGEMENT, LLC;LEARNED ASSOCIATES OF NORTH AMERICA, LLC; andNICODEMO S. SCARFO, JR.

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