Case Status Report: Equity Financial Shasta or Tech Traders: Information Related to the Claims Process

With the court’s approval, the Receiver initiated a claims process by which persons who placed funds with any of the defendants could identify for the record their interest in this matter. On August 23, 2004, the court entered an order requiring all investors to complete and return the Investor Claim Form within 30 days from Friday, August 27, 2004, the date that the attached claim form and letter were sent to investors. If you failed to receive this claim form and letter, please find these documents attached.

On January 7, 2005, the Receiver filed a Motion for Authority to Make an Interim Distribution on Account of Investor Claims. This motion set forth the Receiver’s proposed plan for making an interim distribution of funds to the investors. The Motion also contained a list of Agreed Claims to which the Receiver proposed to make an interim distribution and a list of Disputed Claims to which the Receiver did not propose to make a distribution. Fifteen objections to the Receiver’s proposed claims process were filed. A hearing on the motion was held on March 4, 2005 at 1:30 PM. At the March 4 hearing, Judge Kugler referred the handling of objections to Magistrate Ann Marie Donio.

On March 11, 2005, the Receiver filed a Statement which outlined the categories of objections to his proposed interim distribution and discussed those that have disputed issues of fact. On March 31, 2005, the Receiver filed an objection to those claims which appear on the Disputed Claims list. The Commission also filed an objection to the Sterling Group’s claims based on their failure to comply with the Commission’s discovery requests. A hearing in connection with the objections and discovery issues related to the Sterling Entities was held on May 13, 2005 in Courtroom 3B in the Mitchell Cohen Courthouse, Camden, New Jersey.

The Magistrate ruled on April 8, 2005 that any further submissions regarding legal issues related to the Receiver’s motion for interim distribution be filed no later than May 6, 2005 and any further submissions regarding factual issues related to the Receiver’s motion be filed no later than May 13, 2005.

On May 20, 2005, the Commission filed its Objection to the Claims of Certain Claimants. This Objection was served on the claimants to whose claims the Commission objected. These claimants had until June 10, 2005 to file a response to the Commission’s objections. The Receiver also filed a Reply to Investors’ Response to Equity Receiver’s Objections to Certain Investor Claims.

On September 2, 2005, Magistrate Donio entered a Report and Recommendation concerning the Receiver’s Motion for Proposed Interim Distribution on Account of Investor Claims which approved the Receiver’s proposed interim distribution with some modifications. On September 9, 2005, Magistrate Donio entered another Report and Recommendation that required that the Sterling Entities turn over to the Commission a computer backup tape that belonged to defendant Vernon Abernethy. On September 26, 2005, Judge Kugler adopted Magistrate Donio’s September 2 Report and Recommendation and granted the Receiver’s motion for disbursement of certain funds. On October 26, 2005, Judge Kugler adopted Magistrate Donio’s September 9, 2005 Report and Recommendation concerning the backup tape. On November 15, 2006, Sterling produced a tape to the CFTC. It was later determined that this tape was blank.

In the Spring of 2006, the Receiver and Sterling reached a settlement of issues relating to funds held in the Sterling Trust account at Man Financial, which included returning $710,580 to the receivership estate. On April 17, 2006, Judge Kugler entered an order approving the settlement regarding the Man Pro account and directing Man Financial to release the funds in accordance with the Order to a Sterling entity. However, these funds have not been released yet or returned to the Receivership because the Sterling entities’ principals, Howell and Vernice Woltz, were indicted, as explained below.

On April 18, 2006, an indictment issued by the U.S. Attorney for the Western District of North Carolina against Howell and Vernice Woltz and others, filed on April 4, 2006, was unsealed. The indictment alleges that the Woltzs held management and director positions with several of the Sterling entities that are claimants in this case. The indictment also alleges that Howell Woltz was involved in a tax fraud scheme concerning “dual trust” structures and that Vernice and Howell Woltz obstructed this lawsuit by, among other things, lying under oath and failing to produce documents the CFTC had subpoenaed. The filing of this indictment complicates efforts to resolve Sterling claims issues. On January 26, 2007, Howell Woltz pled guilty to the first count of the indictment, dealing with the income tax and money laundering charges and Vernice Woltz pled guilty to the tenth count of the indictment, dealing with obstruction of this lawsuit. She thus admitted that she gave false testimony at the May 7, 2004 hearing in front of Judge Kugler at which the Sterling Entities sought to obtain release of the funds they had invested with Tech Traders. She also admitted that she sought to evade service of the Commission’s subpoena seeking her deposition and, after the Commission sought an order to show cause why she should not be held in contempt for failure to appear for her deposition, that she gave false testimony at that deposition.

The Receiver also disputed the claims of certain Shasta investors who had previously invested with prior defendant Shimer related entities Kaivalya and Edgar Holding Group because Shimer had repaid these investors in Kaivalya and Edgar Holding Group with funds received from Tech Traders (which funds had come from other Tech Trader investors.) After negotiations, the Receiver and the claimants entered into settlements of their claims. These settlements were approved by Judge Kugler on March 10, April 17 and April 25, 2006.

On October 6, 2005, Judge Kugler entered an Order to Show Cause as to those claimants whose claims appeared on the Revised Disputed Claims Interim Reserve Schedules who had failed to file responses to one or more objections by the Receiver or the Commission to their claim before applicable deadlines. The Judge ordered such claimants to file responses with the Clerk of the Court no later than October 19, 2005 and to appear and show cause why their claims should not be disallowed before Magistrate Donio on November 2, 2005 in Camden, New Jersey. These claimants were Bally Lines, Dream Venture Group, Gregg Amerman, Quest for Life, Citco Global Custody N.V., Peter Mt. Shasta and ICC Finance Group. Such a show cause hearing was held on November 2, 2005. None of these claimants appeared at the hearing. On June 19, 2006, Magistrate Donio issued a Report and Recommendation that the claims of those claimants who had been issued an Order to Show Cause be denied. This Report and Recommendation was adopted by Judge Kugler on January 4, 2007.

On December 6, 2005, the Receiver filed a Motion to Make an Interim Distribution to Certain Tier 2 Sterling Bank, Ltd. Investors. That Motion was granted by Judge Kugler on January 9, 2006. On February 10, 2006, the Receiver filed a motion for authority to make an interim distribution to certain Tier 3 Universe investors. Universe was an investor in Shasta. Judge Kugler entered an Order approving the interim distribution on April 17, 2006. On May 9, 2006, the Receiver filed a motion to disallow certain Universe investors’ claims. One of those investors, Vico, Inc., filed a response in opposition to the Receiver’s motion on May 26, 2006 and the Receiver filed a reply on June 1, 2006. Judge Kugler entered an Order granting in part and denying in part the Receiver’s motion to disallow certain Universe investor claims on December 18, 2006. On January 19, 2007, the Receiver filed a renewed motion to disallow certain Universe investor claims based on repayments received from Kaivalya Holding Group.

On December 18, 2006, Judge Kugler granted the Receiver’s motion to implement a creditor claim process for non-investor creditors of Tech Traders. On December 27, 2006, the Receiver filed a motion for approval of a settlement with Putnam & Teague, LLP, Elaine Teague and John Puttman, the accountants for Shasta.

Related Documents:

• Information Related to the Claims Process
• Information Related to the CFTC’s Case Against the Defendants
• Daily Updates and Court Documents: 2006
• Daily Updates and Court Documents: 2005
• Daily Updates and Court Documents: 2004
• News Release: 4908-04, April 6, 2004
• Complaint, April 1, 2004
• Initial Questionnaire (Word)
• Initial Questionnaire (PDF)

Media Contact:
Rosemary Hollinger
Associate Director and Regional Counsel
CFTC Division of Enforcement
525 West Monroe Street
Suite 1100
Chicago, IL 60661
(No investor inquiries, please.)

Investor Inquiries:
Joy McCormack, Investigator
CFTC Division of Enforcement
525 West Monroe Street
Suite 1100
Chicago, IL 60661
shasta@cftc.gov

Receiver Contact and Claims Inquiries:
Stephen Bobo
Sachnoff & Weaver, Ltd.
30 South Wacker Drive
29th Floor
Chicago, IL 60606-7484

Last Updated: March 23, 2011