Case 2:13-cv RFB-NJK Document Filed 10/26/15 Page 1 of 85. 2:13-cv RFB-NJK UNITED STATES DISTRICT COURT DISTRICT OF NEVADA

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1 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk UNITED STATES DISTRICT COURT DISTRICT OF NEVADA SECURITIES AND EXCHANGE COMMISSION, vs. Plaintiff, INTELIGENTRY, LIMITED, et al., Defendants. ) ) ) ) ) ) ) ) ) ) Case No. :-cv-00-rfb-njk Las Vegas, Nevada Monday, December, :00 p.m. MOTIONS HEARING REPORTER'S TRANSCRIPT OF PROCEEDINGS THE HONORABLE RICHARD F. BOULWARE, II UNITED STATES DISTRICT JUDGE APPEARANCES: For the Plaintiff: KENNETH J. GUIDO, ESQ. HEMMA RAMRATTAN LOMAX, ESQ. SECURITIES AND EXCHANGE COMMISSION 0 F Street, NE Washington, DC () - For the Corporate Defendants: MARK S. DZARNOSKI, ESQ. GORDON SILVER 0 Howard Hughes Parkway Las Vegas, Nevada (0) - Pro Se: JOHN P. ROHNER COURT REPORTER: Patricia L. Ganci, RMR, CRR United States District Court Las Vegas Boulevard South, Room Las Vegas, Nevada Proceedings reported by machine shorthand, transcript produced by computer-aided transcription. PATRICIA L. GANCI, RMR, CRR (0) -00

2 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk LAS VEGAS, NEVADA; MONDAY, DECEMBER, ; :00 P.M. --ooo-- P R O C E E D I N G S THE COURT: Please be seated. COURTROOM ADMINISTRATOR: Now calling Securities and Exchange Commission versus Inteligentry, Limited, Case No. :-cv-00-rfb-njk. Now is the time for the motions hearing. Counsel, please note your appearances for the record. MR. GUIDO: Kenneth Guido for the Securities and Exchange Commission and Hemma Ramrattan Lomax for the Securities and Exchange Commission, Your Honor. THE COURT: Thank you. MR. GUIDO: Good afternoon. THE COURT: Good afternoon. MR. DZARNOSKI: Good afternoon, Your Honor. Mark Dzarnoski from the law firm Gordon Silver on behalf of the defendant entities: Inteligentry, PlasmERG Nevada, and PTP Licensing. Next to me is Mr. John Rohner appearing pro se, and with him for support is his wife, Connie, if it please the Court to allow her to stay next to Mr. Rohner. THE COURT: Okay. Thank you both, Mr. Rohner and Ms. Rohner. You are certainly welcome to stay there. You can't obviously speak on behalf of your husband, but you're welcome to sit and provide support. We are here on -- the Court was assigned this case, and PATRICIA L. GANCI, RMR, CRR (0) -00

3 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk there's some -- several outstanding motions the Court needs to decide to move this case along. And the Court -- what I was going to do today -- just pull this up -- was to give you what essentially are my rulings on these motions and, excuse me, there will be an order to follow and then some of my explanation with respect to them. COURTROOM ADMINISTRATOR: Do you need one of those? MR. ROHNER: One of the headphones. THE COURT: I'm sorry. Is it Mr. "Rainer" or Rohner? MR. ROHNER: Rohner. THE COURT: Rohner. Mr. Rohner, so do you need the headphones to help you hear what I'm saying? MR. ROHNER: Yeah. THE COURT: Okay. MR. ROHNER: Unfortunately, these have a tendency to do something wrong to your system. Thank you. I'm sorry, Your Honor. THE COURT: Take your time. I want to make sure you understand the proceedings. MR. ROHNER: Wow. COURTROOM ADMINISTRATOR: Okay. THE COURT: Mr. Rohner, can you hear me better now? MR. ROHNER: Oh. Yes, sir. THE COURT: Okay. Perfect. So we have several issues that we need to work out PATRICIA L. GANCI, RMR, CRR (0) -00

4 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk today, but the first -- well, I'm not taking them in order, but I wanted to give you all the benefit of my preliminary rulings or my rulings and then what we intend to do. First is that it's the Court's intention to appoint a receiver in this case. The Court feels like it would be appropriate to appoint a receiver to be able to assist the Court in determining the various transactions and relationships between the different corporate entities here and to be able to make a determination as to where the assets are or have not gone. I understand there's approximately only $0,000 left in assets related to the allegations in the complaint from the SEC. And so I wanted to make sure that we had the correct information from that. And, I'm sorry, Mr. -- is it -- MR. GUIDO: Guido, Your Honor. THE COURT: I'm sorry? MR. GUIDO: Guido. THE COURT: Guido. Mr. Guido, is that correct in terms of the amount of money that -- MR. GUIDO: It's approximately,000 to $0,000. We've done a great deal of research on assets that are there, and there isn't that much more in the way of assets. We can identify for any distribution agent or receiver that you want to appoint where the assets are, but there are basically five pieces of real estate, some automobiles, and the frozen bank PATRICIA L. GANCI, RMR, CRR (0) -00

5 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk accounts that have the 0 to $0,000 in them. So the receiver's role could be rather limited based on everything that the SEC has been able to do so far. THE COURT: Okay. So, I mean, the main purpose -- initially, obviously, the SEC had requested an appointment of a receiver. That was last year I believe some time early on. Are you saying that you no longer are seeking the appointment of a receiver because you're concerned about the dissipation of assets? MR. GUIDO: Well, in terms of the appointment of a receiver at this point in time, Your Honor, is that we asked for that at a very early point in time so that we could be -- have assurances that Mr. Rohner, as the chief officer of the companies, didn't drain the money out of those accounts to pay the attorney's fees for lawyers because they were asking for additional attorney's fees. So we were asking for a receiver, one, to marshal the assets which we've been able to do through discovery and also to take control of this case going forward. If this case does go forward -- and I guess that depends on your rulings on the motions for summary judgment and the motions to dismiss. If this case does go forward, we believe that it should -- that the role of the manager of the corporations should be transferred to a receiver and not to Mr. Rohner who has a vested interest in keeping the corporations actively defending this case since he's the only beneficiary of PATRICIA L. GANCI, RMR, CRR (0) -00

6 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk a defense of the case. I mean, that's why we initially asked for the receiver so that the funds would not be wasted on frivolous defenses in this case at Mr. Rohner's behest. Some money has been spent. We're going to oppose the motions for those funds, but I think the question of a receiver or a distribution agent is I -- for the Commission's position depends on your ruling on a motion for summary judgment. If summary judgments are granted, Your Honor, then what we would do is recommend a distribution agent. If we're going to go forward, we would recommend that there be a receiver to manage the three entities and to manage their defense in this case. THE COURT: Okay. That's very helpful, Mr. Guido. So why don't I go through -- before we get to the receiver then, why don't I go through the motions that we have here. First, we have the... All right. I'm not going to go through and review all of the facts of the case. I am simply going to incorporate by reference the previous facts as outlined in the Court's orders, Temporary Restraining Orders and other orders that have been submitted in this case. I'm going to try and just go through the motions one at a time as best I can to make sure we hit them in terms of my rulings on them. The first is the SEC's filed a motion to dismiss PATRICIA L. GANCI, RMR, CRR (0) -00

7 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk Mr. Rohner's counterclaims, and that's Document No. 0. And those are counterclaims for loss of business, unlawful detention of assets, unlawful detention of funds, restraint of trade, failure to inform and correct any prejudice. The Court is going to deny that motion. I believe that those claims are statutorily barred from being presented in a similar action that is brought by the SEC and, therefore, the Court will deny the motion to dismiss, which is Document No. 0. MR. GUIDO: Excuse me, Your Honor. Clarification? It was the SEC's motion to dismiss. THE COURT: I'm sorry. You're right. I'm sorry. It was the SEC's motion to dismiss, excuse me, will be granted. I'm sorry. I'm looking at a different motion. We have so many here. The SEC's motion to dismiss, No. 0, will be granted. I'm sorry. The counterclaims are hereby dismissed because they are statutorily barred. We next have the SEC's -- well, I'm not -- we'll get to that. We'll come back to that. The corporate defendants' motion to dismiss the second and fourth cause of actions, and that's Document No., and that's for failure to plead fraud with adequate particularity. And what I am going to do is I am going to deny the motion with respect to Inteligentry and PlasmERG. However, I am going to grant this motion with respect to PTP. Mr. Guido, I think that there needs to be some more PATRICIA L. GANCI, RMR, CRR (0) -00

8 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk specific facts with respect to PTP in there. There are some, but I'm going to give you leave to amend the complaint. I will give you days to amend the complaint with respect to PTP and alleging facts with particularity with respect to fraud and on behalf of or by PTP. Next, the SEC filed a motion for partial summary judgment, which is Document No., against Mr. Rohner, Inteligentry, and PlasmERG for the first cause of action which is a Section violation. The Court is going to grant that motion for summary judgment against Mr. Rohner and against Inteligentry and deny the motion with respect to PlasmERG. My concern with respect to PlasmERG, Mr. Guido and Mr. Rohner, is the fact that it's still not clear. I think there's some factual issues about this relationship between PlasmERG Nevada and PlasmERG Iowa. And so I think that we need to be able to flesh out in more detail what that relationship is in terms of the representations or violations of the various securities laws. I am not convinced at this point that there -- that there's no disputed fact as to those particular violations in part, Mr. Guido, so that you all understand, because it is difficult for the Court to make a determination at this point which individuals and which corporations were involved at various times. There's differences in dates, some before or after the alleged transfer from Mr. Rohner to this other PATRICIA L. GANCI, RMR, CRR (0) -00

9 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk individual and another corporation that's in Iowa. So the Court is going to deny the motion for summary judgment with respect to PlasmERG. Now, Mr. Rohner, again, I know you can hear me. If you have anything that you wanted to add additionally to what you've written -- I read through all of what you submitted to the Court. I want you to understand when I say that I'm granting a motion for summary judgment on the first cause of action what that actually means. The first cause of action is the sale of unregistered securities by you and Inteligentry as it relates to this plasma engine. And it appears from what's been submitted to the Court thus far that there is no dispute, really disputed facts, with respect to the fact that securities were, in fact, not registered. They were sold in this case by you in connection with the investment with respect to this plasma engine. And so I know that you had said in your briefs that, in fact, that there was some Nevada law or other law which authorized the sale of unregistered securities in this case, but the Court finds as a matter of law that's simply not true. That the sales that occurred in this case were not authorized by law and, therefore, the Court believes -- will find, in fact, that there was the unregistered sale of securities in this case in violation of Section. MR. DZARNOSKI: Your Honor, may I ask for a PATRICIA L. GANCI, RMR, CRR (0) -00

10 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk clarification or should I wait until you're all done? THE COURT: Certainly. What clarification would that be? MR. DZARNOSKI: As to the granting with respect to Mr. Rohner and Inteligentry, is this simply liability? I know we had raised in our pleadings, for instance, that we felt there were genuine issues of fact that still existed with regard to, say, the amount of disgorgement that was requested, civil penalties, and the like. Are you limiting your granting only on liability or are you also granting a remedy at this point? THE COURT: With respect to all of these motions, they are limited to liability. I think that part of what the Court needs to have parsed out is this issue of where money went and disgorgement and what money went to which corporations or went to -- individually to Mr. Rohner. The Court can't at this point make an accurate determination as to disgorgement or the sort of allocation of sort of individual amounts of liability. So the Court is not going to rule, and the order that will come out, which will codify or basically explain what the Court's rulings are today, there will not be a specific remedial portion of the order which talks about the amounts of disgorgement. That will be something that we will have to discuss down the road. My hope is at some point given the Court's rulings is that the parties can get-together to try to reach some possible PATRICIA L. GANCI, RMR, CRR (0) -00

11 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk settlement regarding this before more money is expended with respect to some of these issues. And so I know that at least there had been some discussions some time last year about the potential for settlement if the Court were to decide some of these issues which the Court is now deciding, but to answer your question, the issue is really with respect to liability, not with respect to remedial amounts at this time. MR. DZARNOSKI: Thank you for the clarification. THE COURT: Thank you. Mr. Rohner, do you understand what I am saying when I say that? MR. ROHNER: Yes, Your Honor. THE COURT: I know you disagree. I'm not saying that you agree with that. I understand that. And you will have an opportunity, Mr. Rohner, to address the issue of how much should be paid potentially on these claims, but -- and that's what -- why I answered the last question. But that will be the ruling of the Court with respect to these particular motion. Do you understand that? MR. ROHNER: Yes, Your Honor. I guess the only -- oh, I'm sorry. THE COURT: That's all right. MR. ROHNER: I do. The only real question I have is that there -- there are a couple of forms. Now, I talked to the lawyer that originally set us up. And he said that he used a PATRICIA L. GANCI, RMR, CRR (0) -00

12 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk form that was to do with people of like mind could get-together, and it was called private placement, I think. Now, I haven't seen anything that says that we could not have used that model or, for that matter, the Jobs model. Okay. That would have been just fine for what we did. And, you know, I haven't actually seen any proof that tells me that we as a corporation ever needed to register any kind of anything. There was never any communication from the SEC that said how were you guys running your business or, in other words, one day you're okay. The next day you got a hammer dropped on you. And no one ever bothered to check and see why you were doing what you were doing or anything. And so I guess my -- my confusion is there are specific things that we could have been set up under that would not require registration, but on the simple word of the SEC those get basically thrown away. THE COURT: Well, let me explain to you, Mr. Rohner, what I mean by this. The fact that you're not aware -- Section of the securities act is actually fairly clear. It requires the registration of securities. Basically what were sold in this case were security interests. It requires that they be registered. There was no registration in this case. The fact that you're not aware of the requirement, I'm not aware of that being a legal defense to the violation. So, in other words, what you seem to be saying to me is PATRICIA L. GANCI, RMR, CRR (0) -00

13 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk I didn't know that I was supposed to do this. And I have not seen anything that would suggest to me in the law that, in fact, you had to be aware. Unfortunately or fortunately, depending upon how people look at the way laws are made in this country, ignorance of a law is actually not for the most part a defense against a violation of that law. And particularly when it comes to securities, there is a very, very strict -- usually strict interpretation of that to avoid -- generally Congress wanted to avoid people selling securities when they're not registered because the registration process itself creates some guarantees for the security of investments. And I understand that you may be confused about the fact that you may have been informed at some point by someone who said you could do this. That is also not a defense to the violation itself. That -- the fact that the securities were sold, they weren't registered, is a violation of Section of the Securities Act. And so the fact that you didn't know about it or the fact that you may have been or thought that it was something different doesn't change what the law requires in this case, which is -- I mean, there's not really been a dispute about the fact that things were sold. There's no dispute really about the fact that there was no registration with the SEC. I think what you're saying to me is I just didn't know, and I take you at your word that you didn't know, but what I am saying to PATRICIA L. GANCI, RMR, CRR (0) -00

14 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk you is that's not a defense in terms of liability in this case. If there was some other issue you wanted to bring up, obviously the Court will always consider that, but at this point that's -- the ruling of the Court -- MR. ROHNER: Yes, Your Honor. THE COURT: -- is based upon that. Again, you're here pro se. I want to explain this to you because I know that it may seem unfair to you, but you should also know the Court has to follow these laws and the Court doesn't have discretion to ignore the mandates of Section of the Securities Act. And even though you can say to me in good faith that, in fact, you didn't believe this was a violation, that doesn't necessarily change that. Now, that may -- unfortunately, we may get to some other issues here where there are going to be some issues which I'm going to talk with you about or I will explain to you that relate to misrepresentations that are slightly different, but in this case there were I think it's clearly -- it's been clearly demonstrated, in fact, there's a violation of Section of the Securities Act. MR. ROHNER: Yes, sir. THE COURT: Okay. MR. ROHNER: Thank you, Your Honor. THE COURT: You're welcome. MR. GUIDO: Your Honor, may I ask a clarifying question PATRICIA L. GANCI, RMR, CRR (0) -00

15 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk about the remedies? THE COURT: Yes. MR. GUIDO: You talked about quantifying the amounts for disgorgement, civil money penalties, but you didn't mention injunctions. Usually in cases when summary judgment is granted, the Commission gets an injunction, a permanent injunction, with that. And the Court also issues an order that disgorgement is appropriate and civil money penalties are appropriate, but the amount would be quantified in a hearing upon motion of the Commission for specific monetary relief. And I'm a little confused about your order. Is your order that typical order or is your order it's just a ruling on liability and all remedies are going to be subject to a future proceeding? THE COURT: Well, first of all, we have -- we have an existing preliminary injunction, an existing order, in place now. What I wanted to do is let me go through all of my rulings and orders, and then we will come back to the issue of what we will do about remedies. MR. GUIDO: Oh. Thank you, Your Honor. THE COURT: It is the intention of the Court to have a hearing at some point on remedies. However, you had specifically said I think in a previous hearing that there may be the possibility of settlement or some negotiated settlement with respect to how to work these things out based upon rulings PATRICIA L. GANCI, RMR, CRR (0) -00

16 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk of the Court on certain motions. I wanted to give the parties an opportunity to be able to have those discussions after having had the benefit of the Court's rulings on the respective motions. The Court could certainly simply impose certain types of disgorgement after reviewing the record, but, again, I wanted to give the parties an opportunity -- because this is a fairly convoluted record at this point, I wanted to give the parties an opportunity to be able to seek to resolve that themselves if they could before the hearing. Otherwise, we will have a hearing which will simply resolve most of these matters. MR. GUIDO: Thank you, Your Honor. THE COURT: So that was, I believe, I was just talking about the motion for summary judgment, which was Document No.. Then there is the motion by Mr. Rohner to dismiss, which is Document No. 0, PlasmERG as a party. I am going to deny that motion without prejudice. That issue, Mr. Rohner, about PlasmERG Nevada and Iowa will have to be resolved at some point down the road in connection with this case. But, again, I'm going to go through these rulings and then, perhaps, there can be some resolution of some of these issues between the parties themselves. Otherwise, the Court will decide them at a later hearing. There is a motion No. by Mr. Rohner to remove the PATRICIA L. GANCI, RMR, CRR (0) -00

17 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk Temporary Restraint Order. That motion is also going to be denied. The Court does not see any reason to disturb its previous findings with respect to the orders, and so the order will remain in place. There is an order for instruction from Mr. -- I'm sorry -- is it Dzarnoski? MR. DZARNOSKI: Perfect, Your Honor. THE COURT: Mr. Dzarnoski, what we're going to do is I'm going to order that you hold onto the materials for now. I suspect what's going to -- I know what's going to happen is that either there will be a receiver appointed in this case to help the Court with the disbursement or the parties will agree to some issue with respect to disbursement or remedies or the Court will have a hearing and make a decision itself. Just depends upon what the -- what happens in the context of the hearing -- I mean, what happens right now at this hearing, but at this point I don't expect it should be any longer than a few more months. So if you could hold onto that, that material, for that period of time, the Court would appreciate that. MR. DZARNOSKI: Your Honor, I will do that. I do need to advise you that I have had some communication with U.S. Attorney, Timothy Vasquez, along with Special Agent Burk, and I believe there will be more materials that are released. They have an inclination to want to release it to me. I'll do it, put it with the rest of it, and hold it with the Court's PATRICIA L. GANCI, RMR, CRR (0) -00

18 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk permission. THE COURT: I appreciate that. Thank you, Mr. Dzarnoski. There is also a motion by Mr. Rohner for civil contempt, which is Document No.. That motion is denied. The Court does not believe that there is a factual legal basis for holding the SEC in contempt. There is also a motion by Mr. Rohner, which is No.. That motion is also denied as untimely and because the SEC has stated sufficient facts to be able to make a prima facie case with respect to the claims in the complaint. With respect to the motion No. -- excuse me -- Document No., which is the SEC's motion for partial summary judgment on the second, third, fourth, and fifth causes of action against Mr. Rohner or I guess all of the defendants, it's the Court's intention to grant the motion for summary judgment with respect to Mr. Rohner and Inteligentry. And then the Court will reserve ruling on the motion with respect to PlasmERG and PTP at this point. There is a motion No. -- to clarify Document No.. The Court will deny that motion without prejudice to that issue being raised again with respect to the issue of PlasmERG and -- Nevada and Iowa. There is a motion -- MR. GUIDO: Excuse me, Your Honor. I didn't catch that. PATRICIA L. GANCI, RMR, CRR (0) -00

19 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk THE COURT: I'm sorry. That motion is denied without prejudice. Make sure we're on the same motion, which is Document No., and that relates to the issue of PlasmERG and PlasmERG Iowa. That is an issue that the Court will at some point have to rule on if the parties don't reach some resolution, but at this point the Court is not going to preliminarily make a determination and doesn't feel that it has sufficient facts to make a determination about the various roles of PlasmERG Nevada versus Iowa. And so the Court is going to deny that motion without prejudice, however, to that issue being raised when more facts become available. There is also a motion by Mr. Rohner to return certain items. That's Document No.. That motion will also be denied. The Court, as indicated, is going to appoint a receiver in this case, although it's going to hear some more argument about that. And, therefore, what the Court intends to do is order that all the -- all assets or other documents or physical property be placed in the possession of the receiver who will allow access to both parties to that information as necessary until this case is resolved. Now, I also know that there are pending motions for attorney's fees in this case. Before I get to those motions, what I wanted to do, Mr. Guido, is hear from you now that the Court has basically, I think -- well, let me go back. There is I think -- I don't know if I gave the ruling PATRICIA L. GANCI, RMR, CRR (0) -00

20 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk on the SEC's motion for civil contempt, which is Document No.. The Court will deny the SEC's motion to hold Mr. Rohner in civil contempt, and we are going to get to the issue of the receiver, obviously, which we talked about which is also discussed in that motion. And we will also discuss what is to be done with the various issues of alleged asset transfers or sale of assets, but I first want to hear from the parties about at this point given the Court's rulings the appointment of the receiver or not. Mr. Guido, since this was your motion, do you still wish to have a receiver appointed? I may still appoint one anyway to assist the Court, but at this point do you think that it's still appropriate to have a receiver appointed? MR. GUIDO: Yes, Your Honor. Without commenting on the previous settlement discussions, it's impossible for us to go forward with settlement discussions with Mr. Rohner still being the principal of the corporation. So we do want a receiver appointed to take control of the corporations and control of this litigation. THE COURT: Okay. MR. GUIDO: And also to marshal assets. THE COURT: Okay. So the Court will, as it intended, will order the appointment of the receiver. What I would like to do -- Mr. Guido, I understand you have some names of potential receivers that you'd like to submit to the Court and PATRICIA L. GANCI, RMR, CRR (0) -00

21 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk to the parties? MR. GUIDO: Your Honor, we don't have them with us today, but we will submit them to the Court. THE COURT: Okay. What I would like for you to do is to make sure you submit them to Mr. Dzarnoski and Mr. Rohner and so they have a copy. Can you do that -- what's today, Monday -- by Wednesday of this week? MR. GUIDO: Well, Your Honor, I won't be back into the office until Wednesday of this week. THE COURT: Okay. Well, how about -- MR. GUIDO: I would prefer it if we could do it next Monday. THE COURT: By Monday, by a week's time. MR. GUIDO: Because I have to go through a process at the SEC -- THE COURT: That's fine. MR. GUIDO: -- to do that. THE COURT: So what I would like you to do is submit three names to me of local receivers if it's helpful or -- well, most of the assets are still here? I don't know -- I am trying to avoid travel costs for a receiver. So in terms of where the receiver should be located, where would you suggest that? MR. GUIDO: Well, Your Honor, if we could have somebody who is local, it would be better than not. THE COURT: Well, I wanted just to make sure. I mean, PATRICIA L. GANCI, RMR, CRR (0) -00

22 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk as far as I knew that's what I was going to do. So what I would like for you to do is to submit three names to me by Monday of next week. You will also provide a copy to -- those names obviously will be filed under seal to the Court, and you can provide copies to Mr. Dzarnoski and Mr. Rohner in this case. If you all have an objection to one of the receivers, please file your objection to the receiver by the end of next week. Otherwise, the Court will simply choose a name from the three. MR. DZARNOSKI: Do I have any standing at all to do so, Your Honor? If you're appointing a receiver, he obviously is going to retain counsel. And I would sincerely doubt it's going to be me. I've never seen the SEC get a receiver and carry on with the prior lawyer. So do I have standing to object to the three names and do anything other than hold those assets? THE COURT: I am going to give you permission to object to the appropriateness of a receiver based upon whatever experience you may have. Obviously, the receiver assists the Court. If you have information that you believe that would allow the Court to choose between one of the different receivers based upon a lack of experience or prior issues, whether you are representing the corporation or not, that's information that as an officer of the Court I think you can always provide to the Court. And so I'm going to allow you to do that in this case. MR. DZARNOSKI: Thank you. PATRICIA L. GANCI, RMR, CRR (0) -00

23 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk THE COURT: And then I will take up -- again, we'll take up the issue, Mr. Dzarnoski, obviously with the receiver of any fees. I know you're keeping track of all of your fees in this case. And so I am not saying that the Court will not award fees. I want to be clear about that, but what I do need assistance with is just trying to nail down where all of the assets are, what we have, before we can make a decision about that. My goal is to make sure that the -- well, to preserve as much of the assets as possible and also to direct the receiver to try to use the remaining amount as judiciously as possible in terms of resolving the issues, but I wanted to be clear that I am not denying a request for attorney's fees for your firm or for Mr. Rohner, for that matter. I'm simply not going to rule on them today since I'm going to appoint a receiver in this case. MR. DZARNOSKI: My executive committee will be so happy to hear that you're not ruling on that. Thank you. THE COURT: You're welcome. So I believe the other thing that we're going to do in this case, Mr. Rohner, I understand that at this point you don't have -- there is an issue that had been brought up with respect to disclosure. I think, Mr. Guido, you all had brought up an issue with respect to disclosure of assets or other information. Is that still an issue that needs to be addressed by this Court PATRICIA L. GANCI, RMR, CRR (0) -00

24 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk with respect to disclosures by Mr. Rohner? MR. GUIDO: Your Honor, he has not made the disclosures that are required by the Temporary Restraining Order. THE COURT: Because that was over months ago. MR. GUIDO: And he is in contempt for not doing so. THE COURT: Okay. So what -- have you received anything from Mr. Rohner at this point? MR. GUIDO: We received some pieces of paper, but nothing that conforms to the forms that were sent to him. THE COURT: Okay. Well, these pieces of paper, do they state whatever assets he says that he has on them? MR. GUIDO: Yes and no, Your Honor. I mean, we were never able to ascertain based on that what it was that he was describing to the SEC. We also knew that there were assets that existed that were not on -- on that -- on those forms, Your Honor. So we concluded that the forms were basically not sufficient for our purposes. THE COURT: So your position is that the forms, while they included a listing of some assets, were incomplete and that you wanted to have them supplemented with additional sources or additional assets that you have identified. And for that reason they're incomplete and he's in contempt, not because he didn't submit anything, but because what he submitted was from your position insufficient. MR. GUIDO: Yeah. He basically said, Look, we didn't PATRICIA L. GANCI, RMR, CRR (0) -00

25 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk do anything because the FBI took our computers. We didn't do other -- other things. And he said, you know, There's some cars. There's some houses, but there was never an itemized report to the SEC in accordance with the Temporary Restraining Order and the preliminary injunction under oath to the SEC. THE COURT: Okay. Two things, Mr. Guido, while we're talking about this. My understanding is that the -- that several pieces of property, including records, were -- actually were seized. Without those records, how would he be able -- I'll get to you in just a second, Mr. Rohner. How would he be able to produce the information of a detailed list if he doesn't have the records to be able to do that? MR. GUIDO: Your Honor, I've never seen any effort on Mr. Rohner's part to approach the FBI to be -- to ask for access to those records so that he could prepare his report to the SEC. THE COURT: So, in other words, what you're saying is that even if he couldn't prepare that report, he could access the records to help him prepare that? MR. GUIDO: And then he could prepare the report. THE COURT: Right. MR. GUIDO: He could access -- THE COURT: Well, the other issue which does not seem to be addressed also is that, you know, he may have a Fifth Amendment privilege with respect to such a disclosure. And what PATRICIA L. GANCI, RMR, CRR (0) -00

26 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk is the SEC's position with respect to that? MR. GUIDO: Well, Your Honor, with regard to the Fifth Amendment, in terms of disclosure of the assets that he has? THE COURT: Uh-hmm. MR. GUIDO: Is that he's not admitting the assets came from any illegal activity. All we're asking him to do is to disclose the assets that he has or he has control over. THE COURT: So you wouldn't oppose an order of this Court saying that any statement he made in connection with that disclosure could not be used against him in a criminal prosecution? MR. GUIDO: Well, I'm not in a position to do that on behalf of the United States, but would I oppose it? No, Your Honor. THE COURT: In part because obviously oftentimes in these cases, as I'm sure you are aware, a stumbling block is the issue of the Fifth Amendment in terms of frequently, not all of the times, but sometimes there can be other investigations that can occur. And there can be hesitancy for disclosures related to that. I obviously don't want that to be an issue in this case if we're trying to ascertain what all the assets are and so I'm trying to expedite that. MR. GUIDO: Well, if there was -- if there were a Fifth Amendment claim with regard to that, Your Honor, at this point Mr. Rohner's waived that. He's basically made statements over PATRICIA L. GANCI, RMR, CRR (0) -00

27 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk and over again in this proceeding about all of his activities with regard to what we allege is the fraudulent contact. So if there is this Fifth Amendment, it's been waived. So I'm not so sure it is an issue at this point in time, Your Honor. If he does want to raise it, at that point in time the Commission will evaluate and determine whether or not it's going to challenge -- challenge that at that point in time, but at this point in time I don't see where he has a Fifth Amendment claim to make, Your Honor. THE COURT: Okay. Mr. Rohner, I know you wanted to speak. MR. ROHNER: Yes, Your Honor. The reason that there was nothing given is because the F -- the FBI came in and took everything that was in our shop, including personal documents and personal properties, and left us with a few desks, more or less. So there was no way -- and at the time we were getting ready for taxes. So there was no way for us -- for me to have any information that I could put down on paper and swear to. The document that I was presented with said that I had to swear under penalty of perjury, or whatever, that these were exactly right. Well, I'm an engineer. I'm not an accountant. And without any kind of information, including the fact that I couldn't get information from the bank, the only information I had was in their documents because I didn't do the accounting -- PATRICIA L. GANCI, RMR, CRR (0) -00

28 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk accounting and stuff. But if Your Honor would be so kind as to look in page of Docket No., you will see -- and I've used this a couple -- a couple different times, Your Honor. You will find that after a year and three quarters I indeed did search out and come up with accounting. And before that I had to go through and get all of the records for the investors so we knew how many of those there were. THE COURT: I'm sorry. Which part of your exhibit? I want to make sure I'm in the right place. MR. ROHNER: Oh. Docket. THE COURT: Right. MR. ROHNER: Page. There is an exhibit, too, and I can probably hand it to you. THE COURT: No, that's all right. Just give me a moment to pull it up from the computer. MR. ROHNER: Sometimes... But, anyway, what you'll -- what you'll find there -- THE COURT: Mr. Rohner, hold on just a second. Let me get to the document. Okay? MR. ROHNER: Yes, sir. THE COURT: You said it was the second exhibit, part -- excuse me -- part three. MR. ROHNER: It would be page, Your Honor, and starts -- it says -- PATRICIA L. GANCI, RMR, CRR (0) -00

29 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk THE COURT: Hold on. Hold on, Mr. Rohner, because I'm looking at your -- the entry here. I see five parts that were filed with your rebuttal to this motion. MR. ROHNER: Oh. THE COURT: Are you talking about those or are you talking about the actual body -- MR. ROHNER: No, the actual body of the docket itself, Your Honor. THE COURT: Okay. So on page you say -- this is your -- those charts? MR. ROHNER: Yes, Your Honor. There's an operating statement from May to March rd of. THE COURT: I see that. MR. ROHNER: Now, it's taken me nearly two years to get this all pieced together from one piece of information or another, but that's -- that's the corporation's actual operating statement, where the money came from and where the money was spent and how much came in and how much is still owed. THE COURT: Right. Well, it's not clear, Mr. Rohner, from that statement -- I mean, that's a summary statement, but it doesn't actually say -- well, it's not clear to me. It's very round numbers. It doesn't look like you went through -- maybe you didn't have the records to go through a more detailed sort of accounting of what happened. MR. ROHNER: Your Honor -- PATRICIA L. GANCI, RMR, CRR (0) -00

30 Case :-cv-00-rfb-njk Document - Filed // Page 0 of :-cv-00-rfb-njk 0 THE COURT: I mean, this is basically a summary and I'm not saying it's not a summary. What I am saying is that that -- that doesn't provide us with enough information to say, you know, who was paid what, what bills were paid, what sorts of -- what money was spent. MR. ROHNER: Your Honor -- THE COURT: I mean, what you would need to do that is -- hold on. Hold on. MR. ROHNER: Okay. THE COURT: Is an actual accounting which would track when money came in, where did it go, how was it spent. That second chart which says, "Real back wages owed to ex-employees," may be a portion of that, but that just says back wages. What we're concerned about is where was the money that was received, where did that money go. So this chart that you have here is not sufficient for the requirements of the order. Now, what you're saying to me is you don't have the information to be able to do that. MR. ROHNER: Yes, Your Honor. That's -- the FBI has that. THE COURT: So -- but what I -- MR. ROHNER: That is best case. THE COURT: So you don't have access to any of the records. You don't have access to the bank accounts -- MR. ROHNER: No, Your Honor. I couldn't -- I couldn't PATRICIA L. GANCI, RMR, CRR (0) -00

31 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk swear to you that this is correct. THE COURT: Okay. MR. GUIDO: Your Honor? THE COURT: So what you're saying to me is you need access to that information to be able to make that determination? Because the Court can order that and then you can -- you can come up with that, I mean, because that's actually not difficult for the Court to do, obviously. I can simply order that you be given access to that information and that you use that information to the best of your ability to actually create some accounting that you will then file with the SEC that explains where the money went. MR. ROHNER: The only real problem with that, Your Honor, is that I couldn't pinpoint on whose machine what information was on because we have one girl doing payroll and accounting. We have another girl doing investment, we had another person doing licensing, and then I was buying all the parts. And we had another -- we had a temporary that came in and went through and was just about done with our -- our inventory. THE COURT: All right. MR. ROHNER: So it's -- it's hard to say whether this information was on a server or whether this information was on someone's computer in order to try and -- you know, without the whole group put together to see if you can find what on what PATRICIA L. GANCI, RMR, CRR (0) -00

32 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk machine, basically. THE COURT: Well, I guess the concern is about a couple of things. The concern is, one, obviously some money is gone. The question is what existing assets do you have now. Right. Obviously, what we don't want -- and the concern here is if you don't have other assets than what were frozen, then you simply need to state that in the context of a disclosure. I mean, the Court's primary concern at this point is to make sure, and I'm sure why the SEC is also pressing this, that there are no other assets out there that can be used in connection with potential payments or disgorgement down the road. So, yes, we would like to know where the money went, but what's also important is what assets you have now. Right. And so there are two separate parts to this. One is an accounting for what happened, where the money went in terms of it being expended, but there are still going to be assets that exist that we need to have an accounting of. Right. And so we need to be able to actually -- "we" being the Court needs to be able to make that determination, and the Court -- and the SEC can then figure out what it may want to seek in terms of disgorgement or other forms of remedy, but we don't have a clear statement of that. MR. ROHNER: That's true, Your Honor, and even I don't. Quite honestly, the SEC has gotten whatever during its depositions, and they haven't bothered to tell me what they've PATRICIA L. GANCI, RMR, CRR (0) -00

33 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk taken from the people that I gave them to. And so what has been removed from that pool is where? I don't know. THE COURT: No, but, Mr. Rohner, you do know what assets you have now. You may not be aware what's taken from you. MR. ROHNER: Oh, sure. THE COURT: But you can certainly say, This is what I have in my possession at this point. MR. ROHNER: Yes, Your Honor. THE COURT: These are the assets that I have control over. MR. ROHNER: Yes, Your Honor. THE COURT: I'm not saying you can say that about things that you don't have. You can say, I don't know about these other things or I'm not aware of what was taken. You can say, Right now, as I stand here or as I sit here today, these are the assets that are in my possession or under my control. And you can list those out. Right. You can do that. There's no reason that you need anything from the FBI or the SEC to do that. MR. ROHNER: Yes, Your Honor. I can do that. THE COURT: Right. There's nothing you need to be able to do that. You simply have to go through it and figure out what you currently have in your possession or under your control. PATRICIA L. GANCI, RMR, CRR (0) -00

34 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk MR. ROHNER: Yes, Your Honor. THE COURT: Okay. So what we're going to do is move along those lines, but hold on. You can have a seat. I'm going to ask Mr. Guido. I know you looked like you wanted to say something else. MR. GUIDO: Yes, Your Honor. This whole idea of an income statement is totally irrelevant to the freeze order and the order to do an accounting. The accounting was what you just directed him to do, and that is to provide a list of all of the assets that existed at the time that he was ordered to do so back in the beginning of. THE COURT: Right. MR. GUIDO: And that we would ask at this point in time if there were assets that existed then, that he indicate what happened to them in between because we suspect that some of those assets have been dissipated, but we would like to have a record of that so that we can address the contempt if we have to focus on contempt in the future, Your Honor. THE COURT: I understand that. So, Mr. Rohner, what I am going to do is I am going to order that you in two weeks submit a list of the assets that are currently in your possession. I am also going to order that you list from what you can recall the assets that were in your possession at the time that the orders freezing or seizing your assets went into effect. And then I'm also -- the third part of PATRICIA L. GANCI, RMR, CRR (0) -00

35 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk that statement to the SEC will be a list of whatever assets were transferred to any other individuals or entities. There's some reference I think in some of your -- either in depositions or also and/or motions to the release of intellectual property to former employees as a means of compensation. What you need to do is say what intellectual property you're talking about, what did that mean. Now -- because intellectual property is not physical property. If you gave them something that was a prototype for some form of engine, that's not intellectual property. Right. That's also -- that's a physical asset. MR. ROHNER: I understand. THE COURT: So you need to distinguish. Whatever assets, physical assets, were transferred you need to distinguish. If there was anything else, if there were -- I don't think there were any actual legal patents in this case, but if there were any patents, trademarks, or anything else that was transferred to someone else, that also needs to be addressed in this submission to the SEC in two weeks. Is there any reason, Mr. Rohner, that you can't submit that? Because what I will tell you is that if you don't submit it in two weeks, then there may be an issue of contempt, but I want to give you every opportunity to be able to comply. If you need something, if you need access to something, you need to let me know now. PATRICIA L. GANCI, RMR, CRR (0) -00

36 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk MR. ROHNER: Can I have three? THE COURT: Three weeks? MR. ROHNER: Three weeks. THE COURT: That's fine. MR. GUIDO: Your Honor, when you said "intellectual property," did that include patent applications? THE COURT: Well, I don't know that a patent application necessarily -- I'd have to look at the law on that, Mr. Guido. I don't know that -- a patent application may, in fact, have been rejected. I don't know, but even if they are alleged transfers of intellectual property that we don't know whether or not there are actual intellectual properties should be included on that list. MR. GUIDO: Thank you, Your Honor. THE COURT: So anything that you believe was an asset or intellectual property should be on that list. And you'll have three weeks, and that will be I guess March nd which will be -- I'm sorry. Three weeks is -- I'm sorry -- December. I'm thinking March. December nd, excuse me, to be able to do that. MR. ROHNER: Yes, Your Honor. THE COURT: Okay. Is there any reason why you can't comply in that time period, Mr. Rohner? MR. ROHNER: I don't think so, sir. THE COURT: Okay. So you will provide that PATRICIA L. GANCI, RMR, CRR (0) -00

37 Case :-cv-00-rfb-njk Document - Filed // Page of :-cv-00-rfb-njk notification. The other thing that will happen, Mr. Rohner, is you will be required by that date, December nd -- well, we have to figure out when the -- when we're going to appoint the receiver. Probably a week's time, by the end of the week. So what I am going to do is actually I'm going to give you to January st to turn over all assets you have remaining from the operation of the business. Now, I'm not talking about your home at this point, but anything else, any other assets, any other documents, anything else to the receiver by January st. Mr. Dzarnoski, you will also be required -- I'm sure will happily turn over the -- whatever you have in your possession that has been provided to you by the federal agencies to the receiver by January st,. MR. DZARNOSKI: I'd be happy to. Thank you, Your Honor. And just as an officer of the Court, there is a search warrant return that the Federal Bureau of Investigation did make that identifies all of the hard assets that were seized. I didn't realize the SEC doesn't have it yet, but if they ask Mr. Vasquez, they would be able to get the search warrant return. And it's substantially similar to Exhibit in Docket, which was my motion for instruction from the Court. I attached to it -- THE COURT: Right. MR. DZARNOSKI: -- portions of the return which does PATRICIA L. GANCI, RMR, CRR (0) -00