Class Plaintiff's Response to Automatic Stay - equitatus

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Case 11-03620-bjh Doc 40 Filed 02/21/12 Entered 02/21/12 23:34:41 Desc Main Document Page 12 of 34 exchange agreement. Greenberg drafted a number of documents that misrepresented the financial condition of RE Loans, falsely described the exchange agreement, hid the past securities violations, and failed to disclose the high risks associated with the exchange notes offered to the members. Id. 11, 77, 79-90. By making these false and inadequate statements to the members, Greenberg not only aided and abetted the Managers’ breach of fiduciary duties, it knowingly committed securities and common law fraud. Id. 11, 14, 77, 79-90, 193-249. By requiring the fraudulent exchange agreement, Wells Fargo aided and abetted the Managers’ breach of fiduciary duties and committed securities fraud. Id. 14, 72, 74-75, 78, 193-213. 21. The unauthorized line of credit loan and exchange agreement provided RE Loans with some operating cash. CC 91. The Managers used some of the line of credit money to pay capital distributions to members, thus perpetuating the illusion that RE Loans was liquid. Id. The money also enabled the Managers to continue the existence of RE Loans and their financial sinecure. Id. 22. But the Managers breached fiduciary duties owed to the members by carrying out Greenberg’s and Wells Fargo’s plan. CC 92-95. By entering the loan in secret, the Managers breached their duty of disclosure to the members. Id. 93. They breached their duty of fair treatment by unilaterally – and without notice – encumbering the asset base that existed to back the members’ investments. Id. 10, 11, 66, 73. And they breached both the duty of truthful disclosure and fair treatment by tricking the members into the exchange agreement through misleading representations. Id. 11, 73-90. 23. Greenberg’s and Wells Fargo’s plan had a devastating effect on the rights and interests of the RE Loans members. CC 92-95. The pledging of previously unencumbered assets to Wells Fargo materially impaired the interests and rights of the members by stripping them of any recourse against RE Loans’ assets. Id. 93. The exchange agreement turned the members into holders of promissory notes with security interests inferior to that held by Wells Fargo. Id. 94. By surrendering their equity ownership interests, the members lost all rights of control in the operation of RE Loans. Id. 94-95. In return, they were given high-risk notes signed by a now-highly leveraged borrower. Id. The members were not informed of any of the significant perils of those notes, including the notes’ 6
Case 11-03620-bjh Doc 40 Filed 02/21/12 Entered 02/21/12 23:34:41 Desc Main Document Page 13 of 34 likely elimination by default and foreclosure under Wells Fargo’s senior lien. Id. 81. 24. In short, through deceit and non-disclosure, Greenberg and Wells Fargo disenfranchised the members and encumbered the assets upon which their investments were based, while keeping them in the dark about RE Loans’ continuing liquidity problems and the significant jeopardy of the replacement notes handed to them. 25. Greenberg’s and Wells Fargo’s scheme wronged those who invested in MF08 as well. From the beginning, Greenberg’s and Wells Fargo’s plan called for the formation of a new investment company – MF08 – to solicit investor capital and funnel it to RE Loans to repay the Wells Fargo Loan and perpetuate the illusion of the company's liquidity. CC 12, 96-97. The Managers established MF08 immediately after the exchange agreement transaction and represented it to investors as a profitable investment opportunity similar to RE Loans. Id. 98-100. But from its formation, the MF08 Managers operated MF08 in a Ponzi scheme arrangement. Id. 12, 101, 104, 106. Funds raised from the MF08 investors were “loaned” to RE Loans to pay its distributions and other expenses. Id. 104, 107-109. Wells Fargo and Greenberg knew about and assisted the MF08 Ponzi scheme operation. Id. 97, 102, 108-09. The Wells Fargo loan documents contemplated the creation of MF08. Id. 102, 108-109. Greenberg drafted misleading offering documents to induce people to invest in MF08. Id. 102. 26. The MF08 Ponzi scheme did not raise enough money to enable RE Loans to repay the Wells Fargo loan or meet its other obligations. CC 111-12. Within months of the exchange agreement transaction, RE Loans defaulted on the loan and on its obligations under the promissory notes. Id. 13, 111-12. 27. Greenberg’s and Wells Fargo’s wrongful conduct has inflicted devastating financial harm on the RE Loans and MF08 investors. CC 15, 114. Many have lost their retirement funds. Id. Others lost their entire life savings. Id. These people, many of whom are destitute, now find themselves waiting at or near or at the end of the line of creditors. Being forced to wait through bankruptcy proceedings while their California Class Litigation claims languish is undoubtedly prejudicial to the California Class Action Plaintiffs. 7
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Class Plaintiff's Response to Automatic Stay - equitatus

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