Case 09-33918-hdh11      Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35   Desc                           Main Document  ...
Case 09-33918-hdh11                               Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35                        ...
Case 09-33918-hdh11                              Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35                         ...
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Doc603 amended bk plan liquidation_disclosure_2011-09-08

  1. 1. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 1 of 65THIS IS NOT A SOLICITATION OF ACCEPTANCES OF THE CHAPTER 11 PLANOF FIRSTPLUS FINANCIAL GROUP, INC. ACCEPTANCES MAY NOT BESOLICITED UNTIL A DISCLOSURE STATEMENT HAS BEEN APPROVED BY THEBANKRUPTCY COURT AS CONTAINING “ADEQUATE INFORMATION” WITHINTHE MEANING OF SECTION 1125(a) OF THE BANKRUPTCY CODE. THISDISCLOSURE STATEMENT IS BEING SUBMITTED FOR APPROVAL BUT HASNOT YET BEEN APPROVED BY THE BANKRUPTCY COURT AND IS SUBJECT TOAMENDMENT PRIOR TO SUCH APPROVAL BEING GRANTED. IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISIONIN RE: § §FIRSTPLUS FINANCIAL GROUP, INC., § CASE NO. 09-33918-HDH § DEBTOR. § DISCLOSURE STATEMENT FOR THE CHAPTER 11 TRUSTEE’S FIRST AMENDED PLAN OF LIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC.MATTHEW D. ORWIGChapter 11 TrusteePeter FranklinState Bar No. 07378000Doug SkierskiState Bar No. 24008046Erin K. LovallState Bar No. 24032553FRANKLIN SKIERSKI LOVALL HAYWARD, LLP10501 N. Central Expressway, Suite 106Dallas, Texas 75231Telephone: (972) 755-7100Facsimile: (972) 755-7110Counsel for Matthew D. Orwig, Chapter 11 TrusteeDATED: September 8, 2011Dallas, Texas
  2. 2. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 2 of 65 Table of ContentsI. INTRODUCTION .................................................................................................................................................... 5II. GENERAL INFORMATION AND BACKGROUND ........................................................................................... 6 A. History and Overview of the Debtor ............................................................................................................. 6 1. The Demise of FPFI and Other Subsidiaries ............................................................................................ 7 2. Payment from the FPFI Liquidating Trust ................................................................................................ 8 3. Shareholder Litigation .............................................................................................................................. 9 4. Formation of Olé Auto Group, Inc. .......................................................................................................... 9 5. June 2007 Takeover ................................................................................................................................ 10 6. Acquisition of Rutgers Investment Group, LLC ..................................................................................... 15 7. Acquisition of the Globalnet Entities ...................................................................................................... 15 8. Acquisition of Premier Group LLC ........................................................................................................ 15 9. Sale of Olé .............................................................................................................................................. 16 10. Execution of FBI Search Warrant ........................................................................................................... 16 11. Operations Following the Federal Raid .................................................................................................. 23 12. Litigation in Pennsylvania and New Jersey Courts................................................................................. 25 13. Shareholder Dispute................................................................................................................................ 25 B. Commencement of the Chapter 11 Case...................................................................................................... 28 1. The Debtor’s “First Day” Motions ......................................................................................................... 28 2. No Committee Appointed ....................................................................................................................... 29 3. The United States Trustee’s Motion to Appoint a Trustee...................................................................... 29 4. Retention of Trustee’s Professionals ...................................................................................................... 29 5. Significant Events Since Trustee’s Appointment ................................................................................... 29 6. Claims Objections ................................................................................................................................... 31 7. Lepercq Corporate Income Fund, LP Claim and Settlement .................................................................. 33 C. Litigation ..................................................................................................................................................... 34 D. The Debtor’s Assets .................................................................................................................................... 37III. SUMMARY OF THE CHAPTER 11 TRUSTEE’S PLAN................................................................................. 38 A. Description of Chapter 11............................................................................................................................ 38 B. Classification of Claims............................................................................................................................... 38 1. Unclassified Claims ................................................................................................................................ 39 2. Classified Claims .................................................................................................................................... 39 C. Treatment Of Claims ................................................................................................................................... 40 1. Unclassified Claims ................................................................................................................................ 40 D. Means of Plan Implementation .................................................................................................................... 47DISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 2 of 65
  3. 3. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 3 of 65 1. Payments and Transfers by the Chapter 11 Trustee and the Liquidating Trustee on and after the Effective Date......................................................................................................................................................... 47 2. The Liquidating Trust. ............................................................................................................................ 48 3. Setoffs. .................................................................................................................................................... 57 4. Establishment and Maintenance of Disputed Claims Reserves. ............................................................. 57 5. Minimum Distributions........................................................................................................................... 58 6. Cancellation of Existing Claims. ............................................................................................................ 58 E. Treatment of Disputed Claims ..................................................................................................................... 59 1. Objections to Claims. .............................................................................................................................. 59 2. Payments and Distributions on Disputed Claims. ................................................................................... 59 3. Disallowance of Claims without Further Order of the Court. ................................................................. 59 F. Releases and Injunction ............................................................................................................................... 59 1. Releases. ................................................................................................................................................. 59 2. Injunction. ............................................................................................................................................... 59 3. Exculpation. ............................................................................................................................................ 60IV. RETENTION OF LITIGATION, RIGHTS AND CAUSES OF ACTION ......................................................... 60V. ACCEPTANCE AND CONFIRMATION OF THE PLAN ................................................................................. 62 A. Confirmation Hearing .................................................................................................................................. 62 B. Requirements to Confirmation .................................................................................................................... 62 C. Acceptance of the Plan ................................................................................................................................ 63 D. Alternatives to Confirmation ....................................................................................................................... 64VI. VOTING INSTRUCTIONS ................................................................................................................................ 64 A. Ballots and Voting Procedures .................................................................................................................... 64 B. Parties Entitled to Vote ................................................................................................................................ 65 C. Vote Required for Class Acceptance of the Plan ......................................................................................... 65DISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 3 of 65
  4. 4. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 4 of 65 THIS DISCLOSURE STATEMENT IS FOR THE CHAPTER 11 TRUSTEE’S PLANOF LIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. (THE “DISCLOSURESTATEMENT”). THIS DISCLOSURE STATEMENT HAS BEEN PREPARED PURSUANTTO 11 U.S.C. § 1125 ON BEHALF OF FIRSTPLUS FINANCIAL GROUP, INC. (THE“DEBTOR”) AND DESCRIBES THE TERMS AND PROVISIONS OF THE PROPOSEDPLAN OF LIQUIDATION FOR THE DEBTOR (THE “PLAN”), IN THE CASE PENDINGBEFORE THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERNDISTRICT OF TEXAS, DALLAS DIVISION (THE “BANKRUPTCY COURT”), UNDERCHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE. A COPY OF THE PLANIS ATTACHED HERETO AS EXHIBIT A. ALL CAPITALIZED TERMS USED AND NOT OTHERWISE DEFINED HEREINHAVE THE MEANINGS ASSIGNED TO THEM IN ARTICLE I OF THE PLAN. THE INFORMATION CONTAINED HEREIN HAS BEEN PREPARED BY THECHAPTER 11 TRUSTEE IN GOOD FAITH, BASED UPON INFORMATION AVAILABLETO THE CHAPTER 11 TRUSTEE AND HIS PROFESSIONALS. MUCH OF THEINFORMATION HAS BEEN DERIVED FROM PUBLICLY AVAILABLE DOCUMENTS,INCLUDING CERTAIN FILINGS WITH THE SECURITIES AND EXCHANGECOMMISSION (THE “SEC”) BY PRIOR MANAGEMENT, AND DOCUMENTSPROVIDED TO THE TRUSTEE FROM THE DEBTOR, THE DEBTOR’S FORMERPROFESSIONALS AND VARIOUS PERSONS AND ENTITIES FAMILIAR WITH THEDEBTOR. THE INFORMATION HEREIN CONCERNING THE DEBTOR HAS NOT BEENFULLY VERIFIED AND HAS NOT BEEN THE SUBJECT OF A VERIFIED AUDIT. THECHAPTER 11 TRUSTEE BELIEVES THAT THIS DISCLOSURE STATEMENT COMPLIESWITH THE REQUIREMENTS OF THE BANKRUPTCY CODE. THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT AREMADE AS OF THE DATE HEREOF, UNLESS ANOTHER TIME IS SPECIFIED HEREIN,AND DELIVERY OF THIS DISCLOSURE STATEMENT SHALL NOT CREATE ANIMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTHHEREIN SINCE THE DATE OF THIS DISCLOSURE STATEMENT AND THE DATE THEFACTS RELIED UPON IN PREPARATION OF THIS DISCLOSURE STATEMENT WERECOMPILED. THIS DISCLOSURE STATEMENT MAY NOT BE RELIED UPON FOR ANYPURPOSE OTHER THAN TO DETERMINE HOW TO VOTE ON THE PLAN. NOTHINGCONTAINED HEREIN SHALL CONSTITUTE AN ADMISSION OF ANY FACT ORLIABILITY BY A PARTY, BE ADMISSIBLE IN ANY PROCEEDING INVOLVING THEDEBTOR OR ANY OTHER PARTY, OR BE DEEMED CONCLUSIVE ADVICE ON THETAX OR OTHER LEGAL EFFECTS OF THE PLAN ON HOLDERS OF CLAIMS ORINTERESTS. THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCEWITH 11 U.S.C. § 1125 AND BANKRUPTCY RULE 3016(b) AND NOT NECESSARILY INACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS OR ANY OTHERNON-BANKRUPTCY LAW. THE SEC HAS NEITHER APPROVED OR DISAPPROVEDDISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 4 of 65
  5. 5. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 5 of 65THIS DISCLOSURE STATEMENT NOR HAS THE SEC OR ANY STATE SECURITIESAGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTSCONTAINED HEREIN. PERSONS OR ENTITIES TRADING IN OR OTHERWISEPURCHASING, SELLING OR TRANSFERRING SECURITIES OF OR CLAIMS AGAINSTTHE DEBTOR SHOULD EVALUATE THIS DISCLOSURE STATEMENT AND THEPLAN IN LIGHT OF THE PURPOSE FOR WHICH THEY WERE PREPARED. THE DESCRIPTION OF THE PLAN CONTAINED IN THIS DISCLOSURESTATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLANITSELF, WHICH IS INCLUDED AS AN EXHIBIT HERETO. EACH PARTY ISENCOURAGED TO READ, CONSIDER, AND CAREFULLY ANALYZE THE TERMSAND PROVISIONS OF THE PLAN. IN CASE OF ANY CONFICT BETWEEN THISDISCLOSURE STATEMENT AND THE PLAN, THE PROVISIONS OF THE PLAN WILLCONTROL. AS TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND OTHERACTIONS OR THREATENED ACTIONS, THIS DISCLOSURE STATEMENT SHALL NOTCONSTITUTE OR BE CONSTRUED AS AN ADMISSION OF ANY FACT OR LIABILITY,STIPULATION OR WAIVER. THIS DISCLOSURE STATEMENT SHALL NOT BEADMISSIBLE IN ANY NON-BANKRUPTCY PROCEEDING NOR SHALL IT BECONSTRUED TO BE CONCLUSIVE ADVICE ON THE TAX, SECURITIES OR OTHERLEGAL EFFECTS OF THE PLAN AS TO HOLDERS OF CLAIMS AGAINST OR EQUITYINTERESTS IN THE DEBTOR. I. INTRODUCTIONPurpose of this Disclosure Statement The Debtor filed a voluntary petition under chapter 11 of the Bankruptcy Code on June23, 2009. On or about September 8, 2011, the Chapter 11 Trustee filed the Plan. The Planprovides for the establishment of a Liquidating Trust which will pursue certain litigation andseek to collect and liquidate certain assets. This Disclosure Statement has been prepared by theChapter 11 Trustee for the purpose of disclosing information which the Bankruptcy Court hasdetermined is material, important, and necessary for parties entitled to vote on the Plan to arriveat an informed decision with respect to the Plan. Confirmation of the Plan will be facilitated by the receipt of a sufficient number of votesin favor of the Plan. Accordingly, if you hold Claims or Interests in an impaired Class, yourvote is important.DISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 5 of 65
  6. 6. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 6 of 65 II. GENERAL INFORMATION AND BACKGROUNDA. History and Overview of the Debtor The Debtor was a diversified consumer finance company that originated, serviced, andsold consumer finance receivables. At one time, its shares were listed on the New York StockExchange. The Debtor operated through various subsidiaries until 1998 when macroeconomicfactors adversely affected financial markets and largely destroyed the industry’s access to thecapital markets. Without access to working capital, the Debtor’s ability to provide consumer-based products evaporated and, like virtually all of its competitors, it saw its business liquidatedto satisfy obligations. The Debtor’s beginnings date back to the early 1990s when, under different names, itbegan operating as a specialty consumer finance company. After a few combinations, by 1995it had become a formidable consumer finance company and was reorganized into a holdingcompany format. The Debtor’s business technically became the ownership of varioussubsidiary entities that operated in the consumer finance market. Its primary operating entitywas FirstPlus Financial Inc. (“FPFI”). Through FPFI, the Debtor offered to consumers variouslending products, but its most familiar and defining one was its High Loan to Value product(“HLTV”). With a secured HLTV loan from FPFI, a consumer could consolidate debt or obtainliquidity in amounts up to 125% of the home’s value. Because FPFI enjoyed superiorunderwriting and servicing, default rates and timely performance by borrowers were aboveindustry average. In addition, because the HLTV loans often had 20 year maturities andexceeded the value of the borrower’s home, prepayments were rare, thus providing the Debtorwith a steady yield. The Debtor’s HLTV product allowed it to obtain and hold a dominantmarket position despite attempts by others to duplicate its success. Critical to FPFI’s success was constant access to an active and competitive securitizationmarket. From 1995-1998, approximately every quarter, FPFI would assemble the consumerloans it extended or bought and sell them to various trusts which would then securitize the loansto the investing public. As a result of each securitization, the Debtor generally received $40 to$60 million in working capital and retained an “interest only strip” in the securitization thatprovided the prospect of a cash flow to FPFI in the future. Wall Street financial institutionscompeted for the opportunity to sponsor each quarterly securitization due to the attractivefinancial attributes and historic performance of FPFI’s transactions. Indeed, in order tomaintain relations on Wall Street, the Debtor and FPFI tended to sequence quarterlysecuritizations in a way that allowed each large financial institution the right to sponsor asecuritization periodically without any one of them procuring an exclusive position for allsecuritizations. In early 1996, the Debtor raised approximately $55 million by selling its stock in aninitial public offering. Additional capital was raised, including through a secondary offering(approximately $121 million), a DRIP (approximately $50 million) and the sale of $100 millionof convertible subordinated notes (of which approximately $55 million in debt was converted toequity). The capital generated in the public market and yearly profits were reinvested into theDISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 6 of 65
  7. 7. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 7 of 65business. No dividends were paid. At one time the Debtor’s stock traded at over $60 per shareand it was highly regarded among analysts for its unique product and sound management team. 1. The Demise of FPFI and Other Subsidiaries By 1998, the Debtor’s empire consisted of numerous subsidiaries,1 which togetheremployed between 6,000 and 7,000 employees and had loan originations taking placethroughout the entire United States. However, beginning in 1997, events in the industry beganto place a drag on the Debtor’s rise. In the fall 1997, a number of specialty finance companiesthat did not make HLTV loans began to experience a higher rate of prepayments on their loans,thus undermining their anticipated yield. While the Debtor was not likewise experiencingunanticipated prepayments, all specialty finance companies suffered in the stock market. Inaddition, in 1997 a general debate over the accounting treatment for securitizations of financialproducts began which created great caution among the investing public. In an attempt to “getahead” of the debate in late 1997, the Debtor announced that it would prospectively adjust itsdiscount rate to more conservatively account for securitizations. Despite the late 1997turbulence, the first three quarters of 1998 were largely non controversial for the Debtor. It heldan Annual Meeting in March 1998 which was noteworthy for the addition of former VicePresident Dan Quayle to the Board of Directors. In October 1998, the Debtor and FPFI were hit with two jolts from which neitherrecovered. First, a burgeoning financial collapse hit the world financial markets. Commonlyreferred to as the “Asian Flu” and “Russian Ruble Crisis”, it had a profound effect on financialmarkets causing investors to engage in a “flight to quality.” Second, the Financial Accountingand Standards Board (“FASB”) issued a pronouncement that required companies thatsecuritized assets to account for securitizations in a way previously not required. In light ofFASB mandate, the Debtor’s auditors, Ernst & Young, required the Debtor to take a one-timeadjustment from the financial results of operations which were previously reported. The Debtoragreed with Ernst & Young and was prepared to make the necessary adjustment until the SECadvised that, because the Debtor was a public company, a one-time adjustment would notsuffice. Rather, the SEC required that all earlier financial reports filed by the Debtor with theSEC would have to be restated. The Debtor found itself fighting for its survival. The worldwide financial crisis virtuallyeliminated the industry’s ability to securitize loans. In contrast to historically being able togenerate $40-$60 million of working capital from each securitization, the only securitizationopportunities available in late 1998 would have required FPFI to pay $40 million in order tosecuritize its loans. As the Debtor searched in vain for securitization sponsors or adequatesubstitutes for securitization, it continued to originate loans which required access to itswarehouse lines to fund. As the crisis continued unabated, warehouse lines became fullydrawn, events of default began to occur and warehouse lenders began to exercise remedies. The1 Because the Debtor’s business was solely that of owning its subsidiaries, it generally employed only about 6 to 7persons at any one time. Virtually all of the Debtor’s employees were executive officers. Importantly, the Debtorhad no accounting staff. Rather, FPFI’s accounting staff of over 75 professionals served the Debtor’s needs to theextent they were distinct from those of FPFI.DISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 7 of 65
  8. 8. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 8 of 65Debtor hired Bear Stearns and Company to find a “strategic opportunity” or buyer, but wasunsuccessful in finding an acquirer. Thousands of employees were terminated. From October1998 to March 1999, the focus was on trying to avert financial collapse of the FPFI business.As a result, during this time it was unable to undertake the labor intensive task of restating itsfinancial statements for previous years as required by the SEC. Given the pronouncement fromthe SEC and other securities laws requirements, the Debtor was incapable of preparing for a1999 annual shareholders meeting. On March 5, 1999, FPFI and an affiliate, FirstPlus Specialty Finance Company, Inc.(“Specialty”), filed Chapter 11 bankruptcy petitions in Dallas, Texas. The Debtor did not file abankruptcy petition at that time. The Debtor faced claims from its own creditors totalingmillions of dollars, but negotiated, inside and outside the bankruptcy process, for debtreduction, various other rights, and the allowance of an unsecured claim in the FPFI bankruptcycase of not less than $50 million dollars (the “Intercompany Claim”). The Intercompany Claimwas classified as a Class 4 Claim and, under the terms of FPFI’s chapter 11 plan, would receivepayments over time. On April 7, 2000 FPFI’s liquidating chapter 11 plan was confirmed by the BankruptcyCourt (the “FPFI Plan”). Pursuant to the FPFI Plan, substantially all of FPFI’s assets weretransferred to a creditors’ trust (the “FPFI Creditors’ Trust”) and a trustee (the “FPFI Trustee”)was appointed to administer the FPFI Creditors’ Trust. Payment of the claims against FPFI,including the Intercompany Claim in favor of the Debtor, depended upon positive long termperformance by the securitization trusts in which FPFI held interest-only securities. Assumingthe securitization trusts performed well, the Debtor was entitled to receive payment aftercreditors in the preceding classes were paid in full. At the time that the FPFI Plan of Reorganization became effective, the Debtor still hadoutstanding obligations but had virtually no cash. By using the Intercompany Claim ascurrency, however, the Debtor subsequently reduced its obligations. In addition, because it hadno cash, and no accounting staff to restate previous financials, it could not and did not take thesteps required of a public company to hold an annual meeting. Primarily due to lack of funds,the Debtor was, for the most part, dormant from the time that the FPFI Plan was confirmed until2007. 2. Payment from the FPFI Liquidating Trust In November 2004, the FPFI Liquidating Trust started making distributions to Class 4creditors. As a result, the Debtor began receiving millions of dollars in payments on account ofthe Intercompany Claim. According to records maintained by the FPFI Trustee, betweenNovember 2004 and October 2008, the FPFI Creditors’ Trust distributed approximately $45.7million to Class 4 creditors, of which approximately $34.2 million went to the Debtor. In 2002,the Debtor created a self-settled trust, titled the FirstPlus Financial Group Inc. Grantor Trust(the “Grantor Trust”) that was supposed to receive and hold 52.4048% of the distributions fromthe FPFI Liquidating Trust. The Debtor was slated to receive 22% of the FPFI LiquidatingTrust distributions with the remainder going to the Debtor’s creditors that received assignmentsof part of the Intercompany Claim to settle and resolve claims that they held against the Debtor.DISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 8 of 65
  9. 9. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 9 of 65Further information regarding the FPFI Liquidating Trust is available at its web site:http://www.fpficreditorstrust.com. 3. Shareholder Litigation In March 2005, a group of the Debtor’s shareholders commenced a court action, styledDanford L. Martin, et al. v. FirstPlus Financial Group, Inc., et al., in the Second JudicialDistrict Court for the State of Nevada (the “Nevada Action”) to compel a shareholders’ meetingand election of directors. At the time the Nevada Action was commenced, the Debtor had nothad an annual meeting of shareholders since March 4, 1998. In February 2006, the Debtor filedan answer and counterclaim. The answer and counterclaim asserted claims against the plaintiffsfor numerous legal violations against the Debtor, including but not limited to intentional torts,negligent torts, breaches of contract, breaches of fiduciary duties, abuse of process,infringements on trade names, perjury, and civil conspiracy. On or about April 6, 2006, the Debtor and the Nevada Action petitioners entered into asettlement agreement (the “Settlement Agreement”) pursuant to which:  the Debtor paid $300,000 of the plaintiffs’ expenses arising from the Nevada Action;  the parties dismissed all claims and counterclaims with prejudice and exchanged mutual releases;  the petitioners agreed not to nominate an opposing slate of directors for election or interfere with or contest the Debtor’s 2006 special meeting of shareholders;  the Debtor was required to instruct the Grantor Trust to make a distribution to holders of the Debtor’s common stock on a pro rata basis as of August 3, 2006, equal to 50% of the funds received from the FPFI Creditors’ Trust (the “Initial Distribution”); and  following the Initial Distribution, the Debtor is required to instruct the Grantor Trust to make an annual distribution to holders of the Debtor’s common stock on a pro rata basis equal to 50% of the funds received by the Grantor Trust from the FPFI Creditors’ Trust. In light of the Settlement Agreement, the Nevada Action was dismissed on April 7,2006. Beginning in spring 2006, the Debtor disclosed the existence of the SettlementAgreement in its SEC filings. In August 2006, consistent with the terms of the SettlementAgreement, the Debtor caused the Grantor Trust to make the Initial Distribution totaling$3,618,864. The Debtor made no distributions pursuant to the terms of the Settlement Agreementafter the Initial Distribution. 4. Formation of Olé Auto Group, Inc.DISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 9 of 65
  10. 10. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 10 of 65 Since the confirmation of the FPFI Plan in 2000, the Debtor had been dormant. InNovember 2006, the Debtor formed a new subsidiary named FIRSTPLUS Auto Group, Inc.(“FP Auto”). On or about November 3, 2006, FP Auto acquired a pool of motor vehicle retailinstallment sale contracts and security agreements (the “Notes”) from Eddie Perkins,individually and doing business as Pierce Auto Group, for $520,000. Mr. Perkins was co-President and a director of FP Auto. FP Auto was subsequently re-named Olé Auto Group, Inc.(“Olé”). By March 31, 2007, Olé had opened three auto sales and finance locations. Revenueswere generated from the auto sales and finance operations and consisted of gross revenues fromauto sales of approximately $1.38 million, interest income of approximately $13,000 and otherincome of approximately $40,000. Olé sold 117 vehicles during its first quarter of operationsfor a gross profit margin of approximately 33.7% on financed sales. For these sales, Olécollected approximately $160,000 in cash down payments and recorded approximately $1.1million in finance receivables. 5. June 2007 Takeover Beginning in or around late 2006 or early 2007, Jack Roubinek (“Roubinek”) engagedWilliam Maxwell (“W. Maxwell”) to advise and assist him in his efforts to obtain control of theDebtor. In March 2007, W. Maxwell advised Roubinek that because the Debtor had nocreditors, all contingent litigation had been resolved and the FPFI Liquidating Trust wouldlikely distribute even more funds, it would be prudent to take all necessary measures to acquirecontrol of the Debtor. Roubinek and/or W. Maxwell devised a plan pursuant to which they would solicitinvestors to make a $2,000,000 to $2,500,000 cash investment through several limited liabilitycompanies, with the proceeds to be used to acquire a controlling interest in the Debtor.Throughout early 2007, Roubinek solicited investments from various persons and entities, but itwas not until late April or early May 2007 that an investor was identified. According to testimony given by Reginald Anderson (“Anderson”), Roubinekapproached him and his business partner, Kevin Smith, about making an investment to acquirethe Debtor. Although Anderson and Kevin Smith were not in a position to make an investment,Anderson introduced Roubinek to John Ponte, who Anderson believed would be able to invest.Anderson further testified that John Ponte was not able to make the investment, but suggested toRoubinek that Salvatore Pelullo of Philadelphia, Pennsylvania (“Pellulo”) would be interested.Sometime in late April or early May 2007, Pelullo came to Dallas to meet with Roubinek, W.Maxwell and others. However, Pelullo would not proceed until he obtained advice from asecurities attorney. It appears that W. Maxwell, on behalf of Pelullo, retained the law firm of OlshanGrundman Frome Rosenzweig & Wolosky LLP (“Olshan”) to advise on Pelullo’s efforts toacquire control of FirstPlus. As early as May, 10, 2007, Olshan began having lengthy telephonecalls with Pelullo and others regarding the proposed takeover. In preparation for theengagement, Olshan conducted background checks on Pelullo and other prospective membersDISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 10 of 65
  11. 11. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 11 of 65of the Debtor’s post-takeover board of directors, including William Handley, Harold Garber,David Roberts and Robert O’Neal. In further preparation for the takeover, W. Maxwell caused his professional corporation,William Maxwell, P.C., to enter into a Consulting Agreement with Seven Hills Management,LLC (“Seven Hills”), effective May 1, 2007 (“Seven Hills Agreement 1”). Pursuant to SevenHills Agreement 1, Seven Hills was to “perform consulting duties…with respect to therestructuring of the management and board of directors of FirstPlus Financial Group, Inc.”Seven Hills Agreement 1 had a term of two months and provided for a flat fee payment of$100,000 to Seven Hills on or before June 30, 2007. On June 7, 2007, the Debtor’s board of directors held a special meeting.2 The minutesfrom that special meeting disclose that the members of the Phillips Board discussed an“unsolicited takeover proposal” from an unidentified group of “take over parties.” The minutesfurther disclose that Daniel Phillips met with the “take over parties,” who had targeted thecompany several months earlier and indicated that the terms of the takeover could be either“hostile” or “friendly.” The Phillips Board agreed that “complying with the take over planwould be positive for the Company’s shareholders.” Prior to alerting shareholders to thewholesale reconstitution of the board, the Phillips Board increased the size of the board fromfive members to ten members, appointed new directors to fill the vacancies and, once thevacancies were filled, the members of the Phillips Board tendered their resignations. Inexchange for their compliance, the members of the Phillips Board, excluding Daniel Phillips,each received severance and bonus packages totaling more than $400,000. Pursuant to the actions of the Phillips Board, new Board of Directors was appointedconsisting of: Harold Garber (Chairman), John Maxwell (President and Chief ExecutiveOfficer) (“J. Maxwell”), William Handley (Chief Financial Officer and Treasurer), RobertO’Neal (Vice-Chairman) (“O’Neal”) and David Roberts (Secretary) (collectively, the “MaxwellGroup”).3 Immediately after the Maxwell Group took over the Debtor’s board of directors, theyterminated the services of the Debtor’s independent public accounting firm, Lightfoot GuestMoore & Company, replacing it with Buckno Lisicky & Company. The Maxwell Group alsohired W.Maxwell, the brother of President, Chief Executive Officer and Director John Maxwell,as the Debtor’s “special counsel” to advise the board on a range of operational and legal issues.William Handley, purportedly acting on behalf of the Debtor, executed a Legal ServicesAgreement effective as of June 7, 2008 (the “Legal Services Agreement”). W. Maxwell wasgranted “[a]ll legal authority for any matter involving the Corporation.” W. Maxwell’s dutiesincluded “vetting and review of potential acquisitions; regarding due diligence to be performedprior to the acquisition of companies … and all other actions required to assist the Board in theoperation of the company.” The Legal Services Agreement also states that the Debtor is2 The members of the board of directors as of 9:00 a.m. Central on June 7, 2007 were Daniel Phillips, John Fitzgerald, James Roundtree, Robert Freeman and David Ward (the “Phillips Board”).3 In August of 2007, Harold Garber died and was replaced on the Debtor’s board of directors by Roger Meek.DISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 11 of 65
  12. 12. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 12 of 65retained W. Maxwell in order to “hire and manage outside consultants to perform work for thecompany as deemed reasonably necessary to effectuate the duties under the contract.” W. Maxwell had authority to spend the Debtor’s funds without prior board approval. Hewas “specifically authorized to disburse from the Corporation all such reasonable funds for thepurpose of insuring [sic] the Corporation’s compliance with all Federal, state, or local lawordinance, statute, rules, and directives … to protect the Corporation from any and all civil andcriminal liability.” He was also “specifically authorize[d] … to spend funds, incur legalexpenses, and to expend fees in excess of Counsel’s retainer and to seek reimbursement for suchexcess fees on a quarterly basis.” In consideration for his services, W. Maxwell was paid $100,000 per month, or $1.2million per year. This was more than three times the combined salaries of J. Maxwell (as CEO)at $225,000 per year, and William Handley (as CFO) at $145,000 per year. William Maxwellwas also promised a $3 million bonus (payable in cash or stock) if the Debtor was listed on thebulletin board exchange and another $2 million bonus (payable in cash or stock) if the Debtorreached a national stock exchange. There is no indication in the Legal Services Agreement or in the Debtor’s records thatthe Debtor was represented in negotiating and drafting the Legal Services Agreement. On June 15, 2007, W. Maxwell engaged Seven Hills to provide various consultingservices with respect to the Debtor (“Seven Hills Agreement 2”). It appears that this consultingarrangement with Seven Hills and Pelullo’s significant involvement in the operations of theDebtor and its subsidiaries was not disclosed to the Debtor’s shareholders. On July 1, 2007,Seven Hills executed an additional consulting agreement with Learned Associates of NorthAmerica, LLC (“Learned Associates”) to “perform services for [Seven Hills] with respect to theCompany’s engagement with Maxwell” (the “LANC Agreement”). The LANC Agreement hada term of one year and provided Learned Associates with compensation of $33,000 per month. Finally, on July 19, 2007, the Maxwell Board reconstituted the board of directors of itswholly-owned subsidiary Olé. The new Olé board consisted of J. Maxwell, Martin Ward andKimberley Grasty. Shortly after assuming control of the Debtor, the Maxwell Board formed first-tiersubsidiaries Rutgers Investment Group, Inc., FirstPlus Development and FirstPlus Enterprises(the “Direct Subsidiaries”). Beginning in July 2007, the Maxwell Group approved the use ofthe Debtor’s cash for the purchase of various entities by the Debtor’s newly formed DirectSubsidiaries. In each transaction, Seven Hills and Learned Associates were among the sellersand thereby received a portion of the sale price. In response to the prior disclosure statement filed by the Chapter 11 Trustee, JohnMaxwell and William Handley, who the Chapter 11 Trustee believes to have been heavilyinvolved in the looting of the Debtor, filed an objection in which they purport to “correct eachand every misstatement” in the prior disclosure statement (the “DS Objection”) [Dckt. No. 508].The Chapter 11 Trustee, in the interest of giving full disclosure, includes herein the commentaryfrom Messrs. Maxwell and Handley in the DS Objection. While the Chapter 11 Trustee doesDISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 12 of 65
  13. 13. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 13 of 65not endorse, support or adopt the facts alleged in the DS Objection, he provides them in order toavoid future objections based upon an alleged failure to provide information. In response to thefacts set forth above and hereinafter, Messrs. Handley and Maxwell offer the following in theDS Objection: Jack Roubinek had been attempting to take over FPFG since approximately 2005. He approached William Maxwell and Robert O’Neal to attempt to obtain financial backing for that plan. Apparently, neither was willing to provide the necessary financial backing at that time. John Maxwell had previously been employed by FPFI in the late 1990’s as a Vice President in the wholesale division and knew Mr. Roubinek as a result of that employment. Other than introducing William Maxwell and Robert O’Neal to Mr. Roubinek, John Maxwell was not employed by and did not have any influence in the direction or operation of FPFG from the time of the FPFI bankruptcy in 1999 until approximately April of2007, when John Maxwell was approached by Jack Roubinek to attempt to acquire FPFG, an essentially dormant corporation. Mr. Roubinek had been negotiating with Reginald Anderson and Kevin Smith to acquire a mortgage brokerage business or businesses in Dallas owned by those gentlemen. The plan was to acquire the company, then utilize its cash flow to acquire other companies, increase the cash flow and bottom line, and ultimately get the company stock back on NASDAQ. This accomplishment would result in the creation of jobs and profits for the shareholders of the company. Mr. Anderson and Mr. Smith recommended that a gentleman from the east coast named John Ponti might be interested in making an investment in the company. Kevin Smith paid for a plane ticket for Jack Roubinek to visit Mr. Ponti. Apparently, Mr. Ponti declined to make the investment but suggested that another gentleman named Sal Pelullo might be interested. Mr. Roubinek contacted Mr. Pelullo and made the initial visit to meet with Mr. Pelullo in Philadelphia. Mr. Maxwell was kept somewhat aware by Mr. Roubinek of these negotiations, but did not become privy to all the details until approximately April of2007. Shortly after that, probably in May of 2007, John Maxwell met with Sal Pelullo, William Maxwell, and Mr. Roubinek (and others) at Roubinek’s suggestion at the conference room of Mr. Anderson and Mr. Smith. Mr. Pelullo promptly informed the other parties to the negotiation that he had a criminal conviction on his record, in the interest of full disclosure. The parties were all aware that Mr. Roubinek also had a criminal record. One of the first things that Mr. Pelullo insisted on before committing to being involved in the venture was that every move would be 100% legal- and done in the open with appropriate documentation and disclosures by qualified attorneys. A plan for the acquisition had been prepared by Mr. Roubinek and was proposed to Mr. Pelullo. Mr. Pelullo asked if thc plan had been cleared as legal in all aspects by an SEC attorney. The answer was no. Mr. Pclullo insisted that he would not proceed until the acquisition procedure was approved by a qualified attorney. For that reason, the law firm of Olshan, Grundman, Frome,DISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 13 of 65
  14. 14. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 14 of 65 Rosenzweig & Wolosky, LLP (Olshan) was retained. The Olshan firm suggested a different legal plan for the acquisition and structuring of Mr. Pelullo’s investments and the integration of those investments into the structure of FPFG. The Olshan firm also suggested that conducting a new board of directors election by the shareholders would be an appropriate method to reconstitute a new board of directors. The disclosure filed by Trustee Orwig makes the statement, as a fact, that “in exchange for their compliance, members of the Phillips Board, excluding Phillips each received severance and bonus packages totaling more than $400,000.” This statement seems to imply that the new board was complicit with approving an improper payment to those board members. In truth and in fact, the new board (called the Maxwell board) aggressively confronted this action by the Phillips board, and Daniel Phillips, James Roundtree, and John Fitzgerald, agreed to and signed a standstill agreement on behalf of all former directors agreeing that the severance packages would not be paid. Presumably, Trustee Orwig has this document since he has access to all of the company records and should know that none of these directors ever received a penny of these alleged severance packages. Mr. Orwig should explain in reply to this response why he is filing a document indicating that members of the Phillips board “received” severance and bonus packages totaling more than $400,000 when in fact those board members did not receive any payments for severance. William Handley was appointed as a board member and Chief Financial Officer and Treasurer because of his extensive experience in the finances of large publicly held companies. John Maxwell was appointed to the new board as Chief Executive Officer because of his prior experience and expertise at FPFI. William Maxwell was hired as FPFG’s special counsel. correspondingly, Trustee Orwig has hired his own law firm as his counsel in this bankruptcy. That counsel has billed more than half a million dollars in fees (not counting expenses) for this bankruptcy alone. That counsel has also been free to and has billed very substantial amounts to other clients during the pendency of this bankruptcy. Trustee Orwig’s disclosure paints the payments to William Maxwell as excessive to the potential voters on the plan without detailing the scope, breadth, and exclusive arrangement of the special counsel agreement with William Maxwell. The new board, headed by John Maxwell, quickly became aware of various improprieties committed by the previous board. The previous board had not held shareholders’ meetings, as required by the corporation’s bylaws, and its SEC filings, tax returns and other filings were not current. Furthermore, the Maxwell board was investigating the diversion of funds, by Mr. Phillips, that had not been disclosed in the FPFI bankruptcy. Many of these deficiencies were cured, including, conducting an appropriate shareholders’ meeting and election and the filing of tax returns and various SEC filings.DISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 14 of 65
  15. 15. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 15 of 65 6. Acquisition of Rutgers Investment Group, LLC On or about June 20, 2007, the Debtor created a Texas subsidiary named RutgersInvestment Group, Inc. (“Rutgers, Inc.”). The following month, or about July 23, 2007, theDebtor entered into an agreement whereby Rutgers, Inc. purchased an entity based in NewJersey named Rutgers Investment Group, LLC (“Rutgers LLC”) (the “Rutgers PurchaseAgreement”). Rutgers LLC was owned 25% by Seven Hills and 25% by Learned Associates. TheRutgers Purchase Agreement was entered into by Rutgers, Inc. and Rutgers LLC, Seven Hills,and Learned Associates. Under the Rutgers Purchase Agreement, Rutgers, Inc. purchased theassets of Rutgers LLC for a cash payment of $1,825,000 and 500,000 shares of the Debtor’scommon stock. 7. Acquisition of the Globalnet Entities Approximately one week after the execution of the Rutgers Purchase Agreement, on orabout July 30, 2007, the Debtor’s wholly owned direct subsidiaries, FirstPlus Enterprises, Inc.(“FirstPlus Enter.”) and FirstPlus Development Company (“FirstPlus Dev.”), entered into apurchase agreement whereby the subsidiaries acquired all of the limited liability companyinterest of Globalnet Development Co., LLC, Globalnet Facility Services Co., LLC andGlobalnet Restoration Co., LLC (collectively, “Globalnet”) which, like Rutgers LLC werepartly owned by Seven Hills and Learned Associates (the “Globalnet Purchase Agreement”). Under the Globalnet Purchase Agreement, FirstPlus Enter. and FirstPlus Dev. acquiredGlobalnet for the purchase price of $4,540,000, consisting of $3,045,000 paid in cash at closing,and a note for the remaining amount of $1,495,000 to be paid on the second anniversary of theclosing, plus 1,100,000 shares of the Debtor’s common stock. Following the acquisition, theGlobalnet entities were renamed FirstPlus Restoration Co., LLC, FirstPlus Facility Services Co.,LLC and FirstPlus Restoration & Facility Services Company (collectively, the “RestorationEntities”). 8. Acquisition of Premier Group LLC On or about January 31, 2009, the Debtor’s subsidiary FirstPlus Enter. acquired acompany called The Premier Group LLC (“Premier”, together with the Direct Subsidiaries andthe Restoration Entities, the “East Coast Companies”), a public adjusting firm based in Miami,Florida, for the purchase price of $425,000, payable in the form of cash at closing andpromissory notes to the sellers, plus 1,000,000 shares of the Debtor’s common stock (the“Premier Purchase Agreement”). Like Rutgers LLC and Globalnet, Premier was partly ownedby Seven Hills and Learned Associates. In the DS Objection, with respect to the transactions described above, Messrs. Handleyand Maxwell stated as follows: FPFG’s previous profitable subsidiaries had been involved in the lending industry. The company was faced with the decision of whether to simply collectDISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 15 of 65
  16. 16. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 16 of 65 and parcel out distributions from the FPFI bankruptcy to shareholders as dividends or reinvest those distributions into companies that could increase the value of the shareholders stock. The decision was made to try and grow the company. The Rutgers, Globalnet entities, and Premier Group were viewed as good fits and appropriate acquisitions after advise from attorneys and financial advisors. 9. Sale of Olé Prior to June 7, 2007, the Debtor’s public filings indicate that Olé was a profitablesubsidiary with an extensive inventory of used cars, operating three car lots in the Dallasmetropolitan area. Moreover, Olé owned the real estate at which it operated its NorthwestHighway lot. Notwithstanding Olé’s profitability, shortly after the Maxwell Board assumedcontrol of the Debtor, J. Maxwell fired Olé’s management and installed Martin Ward as the newpresident of Olé. It also appears that shortly after their takeover, the Maxwell Board formulatedplans to dismantle and liquidate Olé’s assets. First, FirstPlus Enter. created a new subsidiary,FirstPlus Acquisitions-1, into which Olé’s real estate was transferred and subsequently sold.Second, J. Maxwell negotiated the sale of Olé to Stalwart Enterprises, Inc., an entity controlledby Martin Ward, Olé’s president, in exchange for a $3.2 million note. It does not appear thatany cash was received in exchange for Olé or that the note was ever paid. In the DS Objection, with respect to the Ole transaction, Messrs. Handley and Maxwellstated as follows: Shortly after coming into office as CEO, John Maxwell discovered financial improprieties at Ole. First, Mr. Maxwell discovered that the president was purchasing cars with Ole funds for his personal use. Second, Mr. Maxwell discovered that Phillips had approved the purchase of a package of car loans, many of which were delinquent. The goal of management under the Maxwell group was to eventually get the company stock onto NASDAQ. Ole was a company that owned car lots in the Dallas area. These car lots were of the type known as “note lots.” Although profitable, the Maxwell team felt that it would be virtually impossible to comply with SEC regulations when describing the financial status of the car lots and their note portfolios. Therefore, the company did not fit into the new direction planned for FPFG. The exclusion of Maxwell and Handley from the management team after the FBI raid in May of 2008 prevented Mr. Maxwell and Mr. Handley from seeing that the consideration owed by Mr. Ward for the sale of Ole was ever payed to FPFG. The failure to collect those payments can be laid squarely at the feet of Robert O’Neal and the law firm (Patton Boggs) he hired after the exclusion of Handley and Maxwell from management decisions and on Trustee Orwig, for the last 18 months. 10. Execution of FBI Search WarrantDISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 16 of 65
  17. 17. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 17 of 65 On or about May 8, 2008, as part of an ongoing organized crime investigation, theFederal Bureau of Investigation (the “FBI”) executed a search warrant at the Debtor’s office inIrving, Texas and seized extensive records from the Debtor and its subsidiaries (the “FederalSeizure”). The search warrant specifically authorized the FBI to seize the Debtor’s books andrecords beginning from June 2007―the time when the Maxwell Group took over the Debtor’sboard of directors. The search warrant also indicates that the grand jury’s investigation extends to most, ifnot all, of the transactions and acquisitions discussed above and potential criminal violations ofnumerous federal statutes, including the Racketeer Influenced and Corrupt Organizations Act(“RICO”). Upon learning of the federal criminal investigation, the Debtor pledged its cooperationtherewith and restructured its management to isolate from meaningful corporate authority theindividuals that the Debtor understood were the targets of the federal probe. In this regard, theDebtor proposed to the Department of Justice (the “DOJ”) a written plan for the Debtor’scontinued operations, and met with the DOJ to review the proposal. From the summer 2008 tothe Petition Date, it appears that the Debtor operated pursuant to the plan and has continued itscooperation with the investigation. Shortly thereafter, the Debtor ceased its day-to-dayoperations and terminated its few remaining employees as described in the plan. Subsequent thereto, it appears that the Debtor had utilized a small staff on an ad hoccontractual basis, which included a chief executive officer, an acting chief financial officer, andadditional administrative, clerical and support staff. Roubinek presided over the Debtor as itsChief Executive Officer, and Gary Alexander served as the acting Chief Financial Officer.Leslie Bedford also worked with the Debtor in several administrative support roles before itceased substantial operations. Key insight into the federal investigation can be gained by reading a sentencing letterfiled by Assistant U.S. Attorney Steve D’Aguanno on September 11, 2008 in a related criminalprosecution styled U.S. v. Daniel Daidone (the “Diadone Letter”). The Diadone Letter revealshow the Government’s investigation, using wiretaps and seized documents, seeks to unravel thetransactions that were allegedly orchestrated by organized crime members who, the letterasserts, assumed control of the Debtor in 2007. In very graphic terms, the Diadone Letter describes Mr. Daidone’s alleged affiliationwith prominent members of the Philadelphia La Cosa Nostra, including its boss NicodemoScarfo, Sr. The Diadone Letter states that: “In early June 2007, a group of individuals headedby Pellulo and Nicodemo Scarfo, Jr. assumed control of a company named FIRSTPLUSFINANCIAL GROUP, INC (“FPFG”), a financial services corporation located in Dallas,Texas.” The Diadone Letter then outlines how the Debtor created Rutgers, Inc., which thenentered into a transaction to purchase Rutgers LLC, an entity controlled by Pellulo and Scarfo,Jr. through two other corporate entities. Mr. D’Aguanno further states: “A review of bankrecords related to this transaction, as well as other transactions, has revealed that FPFGtransferred several millions of dollars between June 2007 and May 2008 to corporate entitiescontrolled by Pellulo and Scarfo, Jr., including Rutgers LLC.”DISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 17 of 65
  18. 18. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 18 of 65 Upon information and belief, the federal criminal investigation is ongoing. Uponinformation and belief, J. Maxwell, William Handley and Pellulo are all targets of the federalgrand jury investigation. In the DS Objection, with respect to the FBI Search Warrant, Messrs. Handley andMaxwell stated as follows: On or about May 8, 2008, the FBI (in an investigation spearheaded by Assistant US Attorney Steve D’ Aguanno) seized all of FPFG’ s books, records, bank accounts, and assets, essentially putting the company out of business and putting many of its day to day employees out of work. Mr. Maxwell and Mr. Handley continued feverishly to work to save the company. Early on, they retained an attorney to negotiate with Assistant US Attorney Steve D’Aguanno for the return of FPFG’s property, so that the company could continue operations. FPFG’s attorney, Gavin Lentz, obtained a concession from Mr. D’ Aguanno that a company aircraft, a Mitsubishi MU2 (with an estimated value at that time in excess of $600,000), could not be properly held and would be released to the company upon the execution of an agreed order by the appropriate federal judge. Mr. Maxwell was taking steps to obtain that order when he was excluded from the decision making processes of the company. Trustee Orwig describes a written plan of cooperation with the DOJ by FPFG beginning on the last paragraph of page 10 of his disclosure. That plan, as evidenced by a July 31, 2008 letter authored by Jack Walsh, was concocted without the knowledge and consent of John Maxwell and William Handley and was the result of Robert O’Neal bowing to pressure from D’ Aguanno, an attempt by Mr. O’Neal to loot the carcass of the wounded company, or both. Mr. O’Neal. For whatever reason, was willing to throw Mr. Maxwell and Mr. Handley under the bus for his own purposes. Trustee Orwig’s statement, contained in the first paragraph on page 11 of his disclosure. that. “Shortly thereafter, the debtor ... terminated its few remaining employees ... “ is incorrect. John Maxwell and William Handley had written employment contracts that require written notice of termination. Neither John Maxwell nor William Handley have ever received any written notification during the terms of their contracts that the contracts were being terminated. Furthermore, payments labeled as salary were payed to Roubinek ($100,000) and Alexander ($40,000), on information and belief, in the second quarter of 2009. In the DS Objection, with respect to the Diadone Letter, Messrs. Handley and Maxwellstated as follows: In this section, on page 11, Trustee Orwig refers to the Daidone Sentencing Letter and thereby purposefully introduces evidence that he knows is inadmissible and prejudicial into the voting process. Creditors object to any reference to this document because it is inadmissable on multiple grounds. The document is irrelevant and inadmissable (FRE 401 & 402). The document is not admissible because character evidence is not admissible to prove conduct (FRE 404). The document is inadmissible because it is hearsay (FRE 802).DISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 18 of 65
  19. 19. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 19 of 65 Trustee Orwig knows (or should know if he talks to his counselor reviews her work) that each time this document has been offered at a hearing, either the Court has sustained an objection to the document, or after objection, the document has not been offered into evidence. It is very instructive that Trustee Orwig, through his counsel, places information from the Daidone Sentencing Letter into a document meant to influence voters on the Plan, when he knows said evidence is not only inadmissable, but extremely inflammatory and prejudicial (FRE 403). If this proceeding were a jury trial and this conduct had occurred in front of the jury, counsel for Creditors would ask for and would expect to be granted a mistrial and monetary sanctions. The Trustee’s conduct in submitting this affidavit is deliberate and can be read by anyone reviewing the disclosure. Even if stricken by the Court, any voters have been tainted. The only remedy would be to require the submission of a different plan naming a different Creditors Trustee who does not have Trustee Orwig’s demonstrated bias against Creditors. In the DS Objection, with respect to the allegation (stated specifically on informationand belief) that the Chapter 11 Trustee believes that Messrs. Handley and Maxwell are targetsof an ongoing federal grand jury investigation (which they admit in the DS Objection) stated asfollows: In this section, on page 11, Trustee Orwig informs the voters that John Maxwell and William Handley are targets of a federal grand jury investigation. This information is inadmissable pursuant to FRE 401, 402, 403, and 404. Even more importantly if Trustee Orwig wants to talk about why John Maxwell and William Handley are targets ofthe investigation, he should be willing to provide detail accounts of all conversations between himself, Steve D’Aguanno, attorneys from Patton Boggs (counsel for the Debtor chosen by Robert O’Neal), and other members of his firm. It is readily apparent (on information and belief- which creditors believe can be substantiated if Mr. D’Aguanno, Patton Boggs, and Mr. Orwig’s firm are required to release records of all conversations between those parties) that Steve D’Aguanno is the driving force behind the retention and direction of Patton Boggs and Mr. Orwig (and his firm) as Counsel and Trustee for the Debtor. Mr. Orwig should also explain the political nature of the raid and investigation. For instance, nowhere in the disclosure is it mentioned that in spite of virtually unlimited access to information, via the raid and wiretaps, Mr. Orwig’s counsel has been unable to produce a single witness or piece of evidence to confirm the baseless charges of fraud, collusion, or other wrongdoing so freely alleged against John Maxwell and William Handley. Mr. Orwig had been unable to produce a single witness or any evidence to support these allegations despite the fact that it has been now over two and one-half years after the raid and over one and one-half years (and over a half million dollars in attorney’s fees to his firm) after he was appointed trustee. Here are just a few of the facts concerning how John Maxwell and Mr. Handley became targets of the investigation. Steve D’Aguanno’s boss at the time of the raid, Chris Christie, was the US Attorney for New Jersey. Mr. Christie is now the governor of New Jersey. To deny that now governor Christie had political aspirations eighteen months before he was elected Governor defiesDISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 19 of 65
  20. 20. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 20 of 65 credibility. What better way to jump start a political career then to mastermind a big raid garnering big headlines involving hundreds of law enforcement personnel in five states? Never mind that now, two and one-half years later, there are no indictments. Mr. Christie is Governor and it is now someone else’s problem to clean up the bust of a bust. Fifteen hundred employees and contractors are now out of work, the United States and state governments are missing the taxes paid on over five million dollars a year in wages, but never mind, Mr. Christie is still Governor. John Maxwell received a target letter by Fed-Ex from the FBI dated March 17, 2009. The events leading up to that target letter are instructive of the collusion between the US Attorney’s Office investigation spearheaded by D’Aguanno, the FBI, and Patton Boggs (debtor’s counsel chosen by O’Neal). Ten months had passed since the massive raid where government agents had access to every document, bank record, computer file, and email of FPFG and its officers. The government also had conducted extensive wiretaps and other surveillance. No target letter or any other indication that John Maxwell or William Handley were targets of any investigation had been issued, despite the fact that William Handley had been freely discussing all of the facts and circumstances of FPFG’s business and acquisitions without the benefit of legal counsel with FBI agent Joe Gilson, Mr. D’Aguanno, and attorneys for Patton Boggs(who were obviously in contact with the federal agents). The question arises, what happened shortly before March 17, 2009 to cause the issuance of the target letter? Well, a crime was finally conceived and perpetrated. FBI agent Gilson (presumably at the direction of the head of the investigation) decided to try to influence the testimony of John Maxwell and William Handley in a civil proceeding. Immediately prior to the issuance of the target letters, John Maxwell and William Handley had signed affidavits which stated truthfully the factual background related to a cash loan provided by Lana Pelullo (from trust proceeds) for a bridge loan to try to keep FPFG afloat. This loan was the subject of state court litigation and the affidavits outlined the testimony that would be available from Mr. Maxwell and Mr. Handley. The testimony was simply the truth. Patton Boggs was one of the firms defending the case. Efforts were made by Patton Boggs, specifically to Mr. Handley, to attempt to change that testimony. Very shortly after the affidavits were filed, John Maxwell received a call that he would be named a target in the investigation. William Handley had been the very picture of cooperation with Patton Boggs, the US Attorney’s office, and the FBI following the raid in May of 2008. At the very beginning of January, 2009, Patton Boggs sent Bobby Hawkins (assistant to Cass Weiland) to interview Mr. Handley. Mr. Handley spent six hours (8am-2pm) with Mr. Hawkins at which Mr. Hawkins took twenty-seven (27) pages of notes on a yellow legal pad. Mr. Handley explained everything to Mr. Hawkins regarding FPFG including (1) he signed the Lana notes, (2) FPFG got the money for the school ($200,000) and payroll ($60,000), and (3) FPFG never paid the money back. Mr. Handley never heard from Mr. Hawkins again.DISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 20 of 65
  21. 21. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 21 of 65 During January, February, and March Mr. Handley tried to communicate with Cass Weiland of Patton Boggs, Mr. Weiland never answered any of these communications. During January of2009 Mr. Handley also spent one full day and one half day with Steve D’Aguano and Joe Gilson. Just as with Mr. Hawkins, Mr. Handley offered full cooperation and answered every question. On or about March 16, 2009, Mr. Handley was asked these same questions by Constance Ariagno on behalf of Cass Weiland of Patton Boggs concerning the Lana Pelullo note, even though Mr. Hawkins (another lawyer in the same firm) had taken copious notes of the interview concerning that subject. The Patton Boggs firm was one of the firms representing FPFG in the litigation concerning the Lana Pelullo notes. Mr. Handley got the distinct impression that the lawyers at Patton Boggs were not satisfied with this testimony and were searching for a way to avoid payment of what was a valid debt owed by FPFG. Mr. Handley repeatedly told the attorneys at Patton Boggs that he did not know of any legal reason to avoid paying the notes. The note was executed as an arms length transaction at a time FPFG needed the funds. The money was transferred to FPFG’s accounts. The money was utilized by FPFG for valid business purposes. FPFG absolutely owed the money. Mr. Handley told the attorneys at Patton Boggs that if they knew of any other valid legal reason not to pay the notes, utilize those reasons and quit trying to get him to say that he did not sign the notes, that FPFG did not get the money, or that the transaction was a sham (because it was not). The very next day, on or about March 17,2009, Mr. Handley received a telephone call from Joe Gilson of the FBI. The timing and subject of this telephone call is impossible to explain unless the attorneys at Patton Boggs, Mr. D’Aguanno, and Mr. Gilson were acting in concert at the time. For several months following the raid and prior to that time, Mr. Handley met on several occasions with Mr. Gilson to discuss anything Mr. Gilson cared to discuss concerning FPFG and its acquisitions. Mr. Handley cooperated fully and truthfully. Presumably, Trustee Orwig has access to the substance of these meetings. Mr. Handley participated in these meetings without an attorney present. He did not believe one was necessary since he had absolutely nothing to hide. Important to note is the fact that Mr. Handley has never been convicted of, or even arrested or charged with, before or since, any sort of a crime. In fact, Mr. Handley was an Eagle Scout as a young man, had a Top Secret Security Clearance in the US Air Force, joined General Electric Company in their prestigious financial management program, and has spent the last 42 years managing over 200 companies in 23 countries on 6 continents with billions of dollars at his control. He has never had so much as a parking ticket. This is the man whose integrity Trustee Orwig chooses to impugn and also fails to acknowledge or even submit his breach of contract claim to the Court for a ruling. On or about March 17, 2009, Mr. Gilson from the FBI called Mr. Handley, with agitation in his voice, without preamble or explanation, and askedDISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 21 of 65
  22. 22. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 22 of 65 if Mr. Handley had prepared an affidavit. Mr. Handley responded “Yes.” Mr. Gilson got very upset and asked Mr. Handley if what he wanted was for “them” to get more money, if he was jumping through hoops to provide money to Philadelphia. After some initial shock, Mr. Handley’s response was that the only issue for him was to tell the truth, which he had done in the affidavit. Mr. Handley repeated the same testimony he had outlined on many occasions to the Patton Boggs firm concerning the notes. Mr. Gilson told Mr. Handley that as a result of the affidavit Mr. Handley was now a “target of the investigation” and that Mr. Handley would be receiving a letter so stating. Mr. Handley subsequently received a target letter dated March 17, 2009 by Fed-Ex. Mr. Handley is still unaware of what he allegedly is a target of since the target letter is vague and conclusory and does not allege any specific facts of wrongdoing (understandable since Mr. Handley has not done anything wrong). Mr. Gilson threatened that Mr. Handley would be going to jail, the Mr. Handley would die in jail, and Mr. Handley’s life was going to get more difficult from now on. Mr. Handley informed Mr. Gilson that Mr. Handley’s wife was sick, with stage 4 metastatic cancer, and that even though he needed money for her treatment he would not lie. All Mr. Handley wanted was to get Mr. O’Neal (who was running the company single handedly) and Patton Boggs (Mr. O’Neal’s chosen law firm) to honor their contractual obligations, including Mr. Handley’s employment contract. Mr. Gilson concluded the conversation by repeating that “they” were going to make sure that he was going to jail for helping with the Lana Pelullo note therefore taking money out of the “company” for “Philadelphia.” The politically motivated raid of FPFG, which has shut down a productive company, put 1500 workers out of a job, and removed millions of dollars from the economy (and the taxes owed from those dollars), has not yet produced any indictments or charges against these Creditors, to the best of their knowledge. Not coincidentally, the FBI called Mr. Handley less than 24 hours after Mr. Handley wrote and sent the affidavits. Apparently Patton Boggs and the D’Aguanno team were acting in concert. When the fact that John Maxwell and William Handley were scheduled to testify in the state court litigation where their affidavits were filed is taken into account, the timing of these intimidation tactics do reveal that a crime which needs to be investigated may have been committed. Any of these actions which occurred in Texas would be a violation of VTCA, Penal Code § 36.05 Tampering With A Witness and §36.06 Obstruction or Retaliation. The threats by Mr. Gilson (and the target letter to Mr. Maxwell) were clearly intended to try and intimidate them from testifying in the litigation concerning the Lana Pelullo notes or to retaliate against them for doing so. These same actions on their face seem to constitute a violation of 18 U.S.C.A. § 1512. Tampering With a Witness, Victim, or an Informant and possibly even U.S.C.A. § 1622. Subornation of Perjury. The clear intent of theDISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 22 of 65
  23. 23. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 23 of 65 threats by Mr. Gilson and the target letters was an attempt to keep Mr. Maxwell and Mr. Handley from providing truthful testimony and/or to attempt to force them to change their testimony into something other than the truth in a legal proceeding. Perhaps the US Attorney should investigate these charges. 11. Operations Following the Federal Raid Following the Federal Seizure, the Debtor’s board of directors went through severalchanges. James Steward, who had been appointed to the board on or about November 30, 2007,resigned from the board on or about May 19, 2008. As of July 23, 2008, the board of directorsconsisted of J. Maxwell, William Handley, Gary Alexander, Roubinek, Todd Hickman, RobertO’Neal and Paul Ballard (the “O’Neal Board”). By written consent dated July 23, 2008, theboard of directors appointed an executive committee, comprised of O’Neal, Todd Hickman andRoubinek (the “Executive Committee”). The Executive Committee was appointed to expeditethe Debtor’s decisions and was given authority to “exercise the powers of the Board of Directorin the management of the business and affairs of the [Debtor], specifically, to deal with legalmatters of the [Debtor] and shall power to authorize the seal of the [Debtor] to be affixed to allpapers which may require authorization of the [Debtor].” On July 30, 2008, the Executive Committee passed resolutions to cooperate with thefederal criminal investigation and authorized the Debtor’s counsel at the time, Hulse Stucki, tosend a letter to the federal government to: (i) respond to specific requests made by thegovernment in a letter dated July 14, 2008; (ii) outline the Debtor’s business plan, and (iii)delineate the Debtor’s plan to cooperate with the federal government. On or about July 31,2008, the Debtor sent such a letter to the Assistant United States Attorney handling the federalcriminal investigation against the Debtor (the “McNulty Memorandum”). After sending the McNulty Memorandum, the Executive Committee attempted to gatherthe Debtor’s books and records and information regarding the operation of the East CoastCompanies. The Executive Committee also attempted to pursue a business plan for the Debtorinvolving the use of the distributions that the Debtor receives from the FPFI Creditors’ Trust torestart a business similar to FPFI’s former home equity mortgage business. To this end, theDebtor formed a new entity called FirstPlus Financial Inc. It does not appear that the Debtorwas able to re-enter the mortgage business or that FirstPlus Financial Inc. ever operated. During the tenure of the O’Neal Board, O’Neal provided loans to the Debtor inexchange for a security interest and stock. The Chapter 11 Trustee is analyzing these loantransactions. In the DS Objection, with respect to operations after the federal raid, Messrs. Handleyand Maxwell stated as follows: Robert O’Neal is a business man who was a member of the board of directors of FPFG at the time all of the acquisitions of the Rutgers, Premier, and GlobalNet entities. He was privy to and had access to all meetings, documents, and advice of counsel. He, along with the rest of a unanimous board, approved these transactions. Furthermore, Mr. O’Neal sat on the compensation committeeDISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 23 of 65
  24. 24. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 24 of 65 of the company that met with FPFG counsel, Olshan Grundmun. The compensation committee recommended the employment contracts of Mr. Handley and John Maxwell. The board of directors (including Mr. O’Neal) unanimously approved those contracts. The contracts and the indemnity agreements of Mr. Handley and John Maxwell form the basis of their creditor status in this bankruptcy. Interestingly, while seeking to deny John Maxwell and William Handley their claims while running the executive committee of FPFG, O’Neal has filed a claim in this bankruptcy seeking compensation under virtually identical contracts. Mr. O’Neal suggested that FPFG needed to obtain officers and directors E&O insurance. He explained that a change in the management was necessary to obtain such coverage after the raid, and that an Executive Committee would be appointed to streamline the procedure of dealing with the federal criminal investigation. John Maxwell and William Handley understood that the function of the Executive Committee would be to forward proposals to the full board for approval. The approval of the formation of the Executive Committee was done by telephone meeting without opportunity by Mr. Maxwell or Mr. Handley to review the minutes at that time and they voted to form the Executive Committee on that basis. Immediately after the formation of the Executive Committee pertinent and relevant information was purposefully hidden from Mr. Maxwell and Mr. Handley and they were systematically excluded from the exercise of any control over the company. After the formation of the Executive Committee, at the same time that crucial information was being hidden from them (without their knowledge that such information was being hidden) they were asked to vote as board members on various matters. Only during the course of this bankruptcy did John Maxwell and William Handley learn of the July 31, 2008 letter sent to the AUSA. To this day, they have not seen the letter sent by the AUSA dated July 14,2008 that the July 31, 2008 John Walsh letter responded to. Apparently O’Neal perpetrated a fraud on Mr. Maxwell and Mr. Handley by proposing an Executive Committee whose purpose was to cut them out of the loop (when the purported purpose was to streamline communication with the government, and then report to the full board for approval) and throw them under the bus as a scapegoat for the federal investigation. O’Neal (and a unanimous board) approved the acquisitions. O’Neal (and a unanimous board) approved Maxwell’s and Handley’s (and O’Neal’s) employment and indemnity contracts. With blood in the water, O’Neal, like a shark, was able by these actions, to obtain two results very beneficial to him. He ingratiated himself to the AU SA, either in an explicit or implicit agreement for immunity from prosecution or in bowing to a threat of prosecution, while at the same time positioning himself to obtain over 40% of the company’s common stock (and rights to over 40% of the future distributions from the FPFI waterfall payments). O’Neal has obtained the rights to a major portion of the company’s common stock by providing no risk loans for an extremely short period of timeDISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 24 of 65
  25. 25. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 25 of 65 during a time when he alone controlled company funds and made sure that his debt would be the first to be repaid to the exclusion of all others. Trustee Orwig describes these self dealing transactions in the following language: “during the tenure of the O’Neal board, O’Neal provided loans to group in exchange for a security interest in stock. The Trustee is analyzing these loan transactions.” After one and one-half years and the expenditure of vast sums of money for attorney’s fees, the Trustee has taken no steps to recover these funds or these stocks which were the result of insider dealings and clearly within the preference period. 12. Litigation in Pennsylvania and New Jersey Courts Subsequent to the Federal Seizure, Seven Hills and others, all represented by eitherArkadiy Grinshpun or Gary Freedman, Philadelphia attorneys who operate from the sameoffice, began filing actions in Pennsylvania and New Jersey state courts against the Debtor, allof its direct and indirect subsidiaries, and members of the board of directors. As of the PetitionDate, the following matters had been filed:  Seven Hills Management, LLC v. FirstPlus Financial The Debtor, Inc. and Rutgers Investment The Debtor, Inc., Case No. 002779, Court of Common Pleas, Philadelphia County;  Learned Associates of North America LLC v. FirstPlus Financial The Debtor, Inc. et al., Case No. 09-cv-2087, Court of Common Pleas, Philadelphia County  Michael Cordova v. FirstPlus Financial The Debtor, Inc., Case No. 003924, Court of Common Pleas of Philadelphia County;  L&L Holdings, LLC v. FirstPlus Financial The Debtor, Inc. et al., Case No. 2009-10421, Court of Common Pleas of Montgomery County;  L&L Holdings, LLC v. FirstPlus Development Inc. et. al., Case No. 2009-09852, Court of Common Please of Montgomery County;  L&L Holdings, LLC v. FirstPlus Financial Building Maintenance, Inc., et al., Case No. 2009-17371, Montgomery County; and  Svetlana Pellulo v. FirstPlus Financial The Debtor, Inc., Case No. 2009-04639, 151st District Court, Harris County, Texas. 13. Shareholder Dispute Notwithstanding the Settlement Agreement requiring annual distributions toshareholders of 50% of amounts held by the Grantor Trust, the Debtor’s records show, and theShareholders allege, that the Debtor did not make any distributions after the Initial Distribution.DISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 25 of 65
  26. 26. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 26 of 65In response, the Debtor’s shareholders have consistently taken steps to protect their interest. Inresponse, the Debtor has taken steps to preclude the shareholders’ recovery. On July 28, 2007, one of the Debtor’s shareholder, Terence Allan (“Allan”), drafted aletter to J. Maxwell (the “Allan Letter”), in his capacity as the Debtor’s President, nominatingcertain shareholders for election to the Debtor’s board of directors at the next shareholdersmeeting.4 On August 30, 2007, J. Maxwell, responded to the Allan Letter, rejecting Allan’snominees and stating that it did not comply with the Debtor’s Amended and Restated Articles ofIncorporation. After the Debtor announced that a shareholder meeting would be held onOctober 17, 2007, Allan again sent J. Maxwell a letter requesting that the October 17th meetingbe a “special meeting” to allow Allan an opportunity to have his slate of board nomineesconsidered at the scheduled meeting. On October 15, 2007, the Debtor commenced an action in the District Court of CameronCounty, Texas seeking declaratory relief against the Allan Nominees and John Does 1-100,Case 2007-10-005135-E (the “Cameron Action”). Specifically, the Debtor sought a declarationof the parties with respect to the Grantor’s Trust and the Debtor’s right to terminate the GrantorTrust. In connection with the Cameron Action, the Debtor also sought and obtained atemporary restraining order enjoining each of the Allan Nominees from “filing any suit,prosecuting any suit or taking any litigation action separate and apart from seeking relief hereinfor any matters pertaining to this litigation.” The temporary restraining order was signed onOctober 17, 2007. Additionally, on October 12, 2007, the Debtor filed an action in the United StatesDistrict Court for the Southern District of Texas for injunctive and declaratory relief, Case No.B-07-163 (the “Federal Action”). The Federal Action named as defendants Robert D. Davis,John Hughey, George T. Davis, Allan, Danford Martin, Khan Martin, Rupen Gulenyan, JamesHanson, Robert Malnar and John Does 1-20 (collectively the “Federal Defendants”). TheFederal Action alleged that the Federal Defendants violated various securities laws in that theywere acting as the Debtor without making the necessary public disclosures. On May 9, 2008 the court in the Cameron Action mailed notices that the CameronAction was dropped from the docket. By an order dated June 4, 2008, the case was reinstated.However, on March 2, 2009, the court entered an order granting certain defendants’ plea inabatement. On January 9, 2009 the District Court dismissed the Federal Action. In an effort to collect the amounts owed under the Settlement Agreement, on September17, 2008, Tom Mitchell, Ronald Miller and Welton E. Robinson, the Debtor’s stockholders (the“Petitioning Creditors”), filed an involuntary bankruptcy petition against the Debtor in theUnited States Bankruptcy Court for the District of Nevada. On October 9, 2008, the Nevadabankruptcy court entered an order freezing and restraining disposition of funds received by theDebtor and the Grantor Trust from the FPFI Liquidating Trust. Subsequently on December 15,4 Allan’s nominees were: John Hughey, Rolland Keller, Robert D. Davis, George T. Davis, and himself (collectively, the “Allan Nominees”).DISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 26 of 65
  27. 27. Case 09-33918-hdh11 Doc 603 Filed 09/08/11 Entered 09/08/11 10:20:35 Desc Main Document Page 27 of 652008, the Debtor and the Petitioning Creditors stipulated to the dismissal of the involuntarypetition. On February 13, 2009, James Hanson (“Hanson”), a shareholder in the Debtor,commenced an action in the Second Judicial District Court of the State of Nevada, County ofWashoe, against the Debtor, Does 1-100 and Black and White Companies 101-200 for, amongothers things, breach of the Settlement Agreement, specific performance and the appointment ofa receiver (the “Hanson Action”). On March 26, 2009, Hanson filed a Motion for TemporaryRestraining Order and Preliminary Injunction seeking to enjoin the dissipation of any fundsreceived by the Debtor or the Grantor Trust from the FPFI Liquidating Trust and to deposit anysuch funds in the registry of the Nevada state court. On April 10, 2009, the Nevada courtentered a Preliminary Injunction enjoining the dissipation of any funds held by the Debtorand/or the Grantor Trust and ordered that any funds in their possession be immediatelydeposited into the Court registry. Consistent with the Nevada state court’s preliminaryinjunction, the Debtor remitted $1,196,402.83 to the Nevada state court’s registry. As a consequence of the preliminary injunction in Nevada, the Debtor effectively had nosource of cash. In the DS Objection, with respect to the Shareholder Dispute, Messrs. Handley andMaxwell stated as follows: The trustee’s statements in this section of the disclosure are a mischaracterization of the shareholder dispute. There is not a settlement agreement in existence absolutely requiring FPFG to make annual distributions to shareholders of 50% of amounts held by the Grantor’s Trust. The agreement in question provides that in lieu of the distribution to shareholders, the board of FPFG could reinvest the proceeds into the company if in the opinion of the board such reinvestment would be beneficial to shareholders. The board made that decision. The board squarely presented that issue to the shareholders at the October 2007 company shareholder’s meeting. The shareholders approved the action of the board in reinvesting rather than distributing this 50% by a large majority. John Maxwell was also reelected (after his appointment) to the board by a majority. Trustee Orwig should have the minutes (and the video tapes) of that board meeting. Why he and his counsel would choose to misrepresent the requirements of Settlement Agreement in this disclosure should cast doubt on Mr. Orwig’s qualifications to serve as trustee of the Creditors Trust. Terrance Allan did draft a letter to John Maxwell seeking to nominate certain shareholders for election the FPFG board. Mr. Allan’s purported nominations did not meet SEC requirements or the requirements of the FPFG Articles of Incorporation and bylaws. Therefore, Mr. Allan’s slate was properly rejected. Incidentally, Robert D. Davis and George T. Davis, two of Mr. Allan’s nominees, were subsequently placed on a slate of Board Nominees and presented to Robert O’Neal and Cass Weiland for submission to a vote of the shareholders by John Maxwell. Inexplicably, O’Neal canceled the upcoming shareholders meeting.DISCLOSURE STATEMENT FOR THE TRUSTEE’S FIRST AMENDED PLAN OFLIQUIDATION FOR FIRSTPLUS FINANCIAL GROUP, INC. Page 27 of 65

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