RECEIVERSHIP OF DIVERSIFIED LENDING GROUP, INC. AND APPLIED EQUITIES, INC.
Frequently Asked Questions
Table of Contents
Who is the Receiver and what are his responsibilities?
What happened to my investment in funds controlled by Mr. Friedman?
How much of my investment can I expect to receive back?
Should I file a claim now?
What is the best way for me to find out what is happening in the Receivership?
Does the Receiver represent me? Do I need my own attorney?
Who pays for the Receiver (and other professionals)?
What tax consequences will I have?
What if I have information that may be helpful to the Receiver or the SEC?
What happened to the money that I deposited with Diversified Lending Group and the related entities? I have heard that the Receiver has $100 million in assets.
I have heard that if the SEC had not closed the business down, there would be plenty for everyone.
What are you doing?What is taking so long?
When are you filing an asset list?
I hold secured notes but the insurance company has refused to pay me the accumulated cash values on my collateral.
How much in costs are you expected to incur in your asset investigation?How long?And who will eventually pay for it?
Are you going to liquidate DLG?
When will we be paid?
How often do you plan to update the website?
I have moved. Whom do I notify?
1. Who is the Receiver and what are his responsibilities?
The Court appointed David A. Gill, Esq., as Receiver to oversee the collection and disposition of the assets of the companies subject to this Receivership, and to make recommendations to the Court regarding distribution of any recoveries to qualifying claimants. Mr. Gill will also file periodic reports with the Court to advise of his progress, findings, and proposals. These reports will be posted to this website after they are filed with the Court.
2. What happened to my investment in funds controlled by Mr. Friedman?
The SEC alleges that DLG, AEI, and Friedman perpetrated a investment fraud. No factual determination was made by the court as Mr. Friedman stipulated to entry of the March 10, 2009, Preliminary Injunction and the other Defendants defaulted. The Receiver, and the other professionals that he retains, such as attorneys, accountants, and investigators, will identify and gather the assets that belong to the entities in this Receivership and determine whether any other funds exist. The availability of funds to pay investors will depend upon the results of the liquidation of the Receivership Defendants’ assets and other efforts by the Receiver and other parties in connection with the Receivership. Some preliminary answers can be found in the answer to FAQ 10.
3. How much of my investment can I expect to receive back?
It is too early to tell how much money will be available for distribution to injured investors. The Receiver will make every effort to recover and distribute as much as possible to qualifying investors.It does appear that recoveries on DLG's investments are either problematic or will take a long time, and that ultimate recoveries may depend on recovery of moneys paid or transferred under circumstances where it might be recoverable in litigation.See Answer to FAQ 10.
4. Should I file a claim now?
No. The Receiver will recommend the Court approve a process for parties to submit claims. Once the procedure is approved and in place, the Receiver will provide notice of the procedure to investors and others and will post the procedure on this website.
5. What is the best way for me to find out what is happening in the Receivership?
The Receiver’s website, www.diversifiedreceivership.com, is the best way to monitor the activities of the Receivership. Due to the large number of investors and other interested persons, the website will be the most efficient and cost-effective way of communicating these activities. Of course, you may also feel free to contact the Receiver or his counsel as noted below.
6. Does the Receiver represent me? Do I need my own attorney?
The Receiver is not your legal counsel. Nor does he represent the U.S. Government or the SEC. He has been appointed by the Court to investigate and, if possible, to recover assets, if possible, to distribute proceeds in due course, but not to represent investors. It is up to each investor or other interested party to decide whether to consult an attorney in this matter.
7. Who pays for the Receiver (and other professionals)?
As stated in the Court’s Order appointing the Receiver, the Receiver will be paid from the assets of the entities in this Receivership upon approval by the Court. The Receiver also has been granted permission to retain other professionals, such as attorneys, accountants, and investigators, to assist in the process of identifying and gathering assets that belong to the entities in this Receivership, and otherwise discharging the Receiver’s duties. These other professionals will also be paid from the assets of the entities in this Receivership, upon prior approval of the Court.
8. What tax consequences will I have?
The Receiver cannot advise you of any tax consequences of your investment or of this proceeding. You would be well advised to contact your tax professional with any questions.
9. What if I have information that may be helpful to the Receiver or the SEC?
You may contact the Receiver by e-mail. You also may contact the Receiver or his counsel directly at:
1900 Avenue of the Stars, 11th Floor Los Angeles, CA 90067
If you have information that you believe would be helpful to the SEC in this investigation, or in any other investigation, please contact the SEC at:
John M. McCoy, III (firstname.lastname@example.org) Securities and Exchange Commission 5670 Wilshire Boulevard, 11th Floor Los Angeles, CA 90036 323.965.3908 (fax)
10. What happened to the money that I deposited with Diversified Lending Group and the related entities?I have heard that the Receiver has $100 million in assets.
The Receiver does not know the actual value of all of the assets over which he has control.All indications are that the rumor referred to is not accurate.
The amount of cash collected through May 31, 2009 including auction proceeds, does not exceed approximately $800,000 as of June 1, 2009, and a portion of that has been spent for expenses of preservation of assets, locating and copying records, payments of some taxes and other bills, insurance, necessary improvements and mortgage payments on owned real estate and rent at the business premises in Sherman Oaks. California.Additional proceeds, approximating $1.6 million net, are anticipated from the sale of one of two residential real property assets in New Jersey and the Receiver is attempting to complete improvements on real estate in Malibu California, which has been listed for sale.
As best we can tell at this time, emphasizing that this is very preliminary, the total amount of cash received from investors appears to approximate $231 million.Of that sum about $26 million appears to have been paid to or for the benefit of investors, perhaps $105 million invested in loan and investment transactions, but not any significant “scratch and dent” real properties of which the Receiver is aware, and the difference expended in many ways, upon which investigation is ongoing. Many of those loans and investments are of dubious collectability, e.g., many are “underwater,” i.e., in foreclosure by senior lien holders and the like.It may be that some have significant long term value but this is far from certain.Investigation into claims and causes of action by the estate arising out of transfers of funds and property is ongoing and confidential.
11. I have heard that if the SEC had not closed the business down, there would be plenty for everyone.
This assertion is not correct.DLG did not make the vast majority of promised investor payments for March, apparently because it was out of money before the SEC filed its lawsuit.Monies paid out by DLG and AEI in the four month period prior to the appointment of the Receiver were funded approximately 50% from new investor deposits.Less than 10% of monies distributed were received from operations such as collections of receivables or sales of assets.The difference of more than 40%, which was needed to make cash payments, appears to represent monies previously transferred to Mr. Friedman or affiliates and other related entities that were returned to DLG.
The Receiver believes that whether or not the SEC had intervened, DLG, AEI, and the related entities would have failed.The entities likely would have either closed or filed for relief under the Bankruptcy Code.The SEC's moving papers allege that it had evidence of an imminent intended bankruptcy filing and the Receiver's investigation confirms this fact.Under either of these scenarios, none of the scheduled investor distributions would have been made for March and thereafter.
12. What are you doing?What is taking so long?
When the Receiver was appointed, he quickly determined that Diversified had less than about $200,000 in available cash.Diversified did not have any unified accounting records. There was not even an accurate list of assets.The Receiver and his professionals are still locating theretofore undisclosed assets.Financial statements issued by Diversified appear to have been falsified or created out of whole cloth.There were virtually no investments in income-producing real estate, contrary to what Diversified had represented to its investors.Thus, there was virtually no income stream from investments.Diversified had totally inadequate records of its investments.In many cases, there were no records at all.In other cases the records located were devoid of appropriate documentation or information; in other situations information provided by Defendants was erroneous.In yet other cases, the Receiver has found some investments with thoroughly inconsistent documentation as to what was the nature of Diversified’s interest.Finally, it appears substantial funds were diverted to pay the personal expenses of Diversified’s insiders. While it is hoped that some investments will result in satisfactory returns, most appear to be of a long term and/or contingent nature. It seems clear that, after the detailed reconstruction of records is completed, an intensive effort will be required to pursue recoveries on investments, collect indebtedness, unwind voidable transactions and recover voidable transfers, and only in this way does it presently appear that any significant dividend hopefully be generated.
The Receiver’s initial activities, necessarily “frontloaded,” have involved several areas: locating and collecting assets, disposition of assets that should be quickly liquidated because of accruing expenses or declining values, efforts to obtain, protect and preserve the very limited financial records maintained by the Receivership Defendants, and creation by reference to evidence that he is accumulating of a real set of records through forensic investigation, investigation into the rights of investors who claim to have security interests in certain assets of the receivership, and exploration of claims and causes of action that might inure to the benefit of creditors.
13. When are you filing an asset list?
We constantly learn of new possible assets and have been engaged full time in attempting to investigate into values and means of realization for creditors.An inventory of significant assets will be filed with the Receiver’s Report, due before September, but hopefully to be filed sooner than that.
14. I hold secured notes but the insurance company has refused to pay me the accumulated cash values on my collateral.
The Receiver is seeking orders to make it clear that insurance companies may release collateral in the form of annuities and assigned as collateral to certain investors but not exceeding the total amount invested less monies heretofore received by such investors. See Motion of Receiver for Modification of Preliminary Injunction herein.The Court will consider this request on August 3, 2009. (See Documents of Interest Nos. 68 and 68-2.)
15. How much in costs are you expected to incur in your asset investigation?How long?And who will eventually pay for it?
The Receiver, his lawyers and his forensic accountants have not been paid anything to date and have been working substantially full time.Until the proceeds of sale of the New Jersey real property and other assets are received there will be insufficient funds in the estate which the Receiver deems sufficient to pay such charges as may be approved by the Court.No payments will be made without notice to creditors and a hearing before the Court, supported by detailed accountings. At this point anticipated, net receipts from liquidation of real property owned by the receivership estate are anticipated to be less than $5 million and, beyond that, efforts to realize moneys for investors and other creditors will require the actions described above.
16. Are you going to liquidate DLG?
The Receiver is seeking to maximize the value of the assets and interests of DLG which, in some instances, especially where assets are deteriorating in value or require considerable additional cash infusions, will require liquidation, but is evaluating each asset on a case by case basis.Ultimately the Court will determine the disposition of assets once they have been collected, organized and evaluated.
17. When will we be paid?
Putting aside the issue of holders of the 9% secured notes, (see FAQ No. 14) this may well take a very long time, until (and if) sufficient funds are generated to justify a meaningful dividend to investors.
18. How often do you plan to update the website?
As events occur which we deem to be of significance to creditors, we will update this website.
19. I have moved. Whom do I notify?
Send the name of the claimant and the old and new address to email@example.com; or mail it to the Receiver's office, attention: Valarie Radocay, Paralegal.
1900 Avenue of the Stars, 11th Floor, Los Angeles, CA 90067 Phone: 310.277.0077 • Fax: 310.277.5735