|
Below are questions
and answers answered by the Receiver, Michael J. Quilling, in response
to investors' questions. You may either click on one of the questions
below to go directly to that question and answer, or you may simply scroll
down to read all of the information provided on this page.
1.
Q: What is a receiver?
2. Q: Who is Michael J. Quilling? Is he an employee of
the Securities and Exchange Commission?
3. Q: How is the Receiver and the legal and accounting
professionals hired by him going to be paid?
4. Q: How much is being paid to Gary and Sandra
Reeder and their lawyers?
5.
Q: What is a Ponzi scheme?
6.
Q: Can the Receiver give me legal advice or should I hire an attorney?
7. Q: Does the SEC get a portion of the monies held by
the Receiver?
8. Q: What has the Receiver been doing since his appointment?
[Last update: August 31, 2000]
9.
Q: Why did the Receiver terminate the business operations of Cornerstone?
10. Q: Is the Receiver going to replace my profit sharing
checks/referral fee checks which were bounced (returned to maker)? [Last
update: August 30, 2000]
11. Q: During 1999, I received wages, profit sharing
checks and other fees from Cornerstone. Will I be issued a 1099 and how
should I treat those monies received on my income tax return?
12. Q: I've heard that a settlement has been reached between
the SEC, the Receiver and the Reeders. Is that true?
13. Q: Will I get my money back? When? How much? [Last
update: July 26, 2000]
14.
Q: Is there anything I can do about the money I lost? [Last
update: August 30, 2000]
|
Questions
which are no longer applicable given the current status of the
case:
|
Q:
I heard that the Receiver has sent money back to some of the investors.
Is that true?
Q:
I heard that the Court has already authorized the Receiver to send all
the money which he holds back to investors. Is that true?
Q: If I invested in Cornerstone by charging on my
credit card, can I cancel or contest the charge and get my money back?
Q: How will my claim as to monies held by the
Receiver be calculated and what do I need to do or provide to the Receiver?
Q: Will I get my money back? When? How much?
Q: My financial circumstances are particularly desperate.
Is there any way I can get my money paid back to me before everyone else?
Q:
What assets are going to be sold?
Q:
Gary Reeder has suggested that investors send Motions to Expedite Recovery
and statements requesting funds to the Receiver and the Court. Should
we do this?
Q: Then what should I do?
Q: What is the deadline for credit card companies to
submit their claims?
Q: What can I do to get a refund from credit card
companies?
Q: Why does the Receiver oppose credit card refunds?
1.
Q: What is a receiver?
A: According to
Black's Law Dictionary, a receiver is defined as:
"A
person appointed by a court for the purpose of preserving property
of a debtor pending an action against him, or applying the property
in satisfaction of a creditor's claim, whenever there is danger
that, in the absence of such an appointment, the property will be
lost, removed or injured. An indifferent person between the parties
to a cause, appointed by the court to receive and preserve the property
or fund in litigation, and receive its rents, issues, and profits,
and apply or dispose of them at the direction of the court when
it does not seem reasonable that either party should hold them.
A fiduciary of the court, appointed as an incident to other proceedings
wherein certain ultimate relief is prayed. He is a trustee or ministerial
officer representing court and all parties in interest to litigation,
and property or fund entrusted to him. "
Black's defines
a Receiver pendente lite as:
"A person
appointed to take charge of the fund or property to which the receivership
extends while the case remains undecided. The title to the property
is not changed by the appointment. The receiver acquires no title,
but only the right of possession as the officer of the court. The
title remains in those in whom it was vested when the appointment
is made. The object of the appointment is to secure the property
pending the litigation, so that it may be appropriated in accordance
with the rights of the parties, as they may be determined by the
judgment in the action."
2.
Q: Who is Michael J. Quilling? Is he an employee of the Securities and
Exchange Commission?
A: Michael J. Quilling
is a lawyer engaged in the private practice of law through his law firm:Quilling,
Selander, Cummiskey & Lownds, P.C.,2001 Bryan Street, Suite 1800,
Dallas, Texas 75201. Mr. Quilling is an AV-rated lawyer and is board
certified by the Texas Board of Legal Specialization in the areas of
civil trial law and business bankruptcy law. Mr. Quilling is an experienced
receiver and has been appointed at the request of the Securities and
Exchange Commission in other cases, which require a receiver. However,
Mr. Quilling does not work for the SEC, does not answer to the SEC and
does not take instruction from the SEC. Instead, Mr. Quilling is appointed
by the United States District Court and answers directly to the Court.
However, Mr. Quilling does work closely with the SEC, and since he serves
at their request, he does try to respect the positions of the SEC in
connection with matters regarding his duties as Receiver.
3.
Q: How is the Receiver and the legal and accounting professionals hired
by him going to be paid?
A: The Court order
appointing the Receiver provides in paragraph J as follows:
"The Receiver
Pendente Lite is hereby authorized to employ such employees, accountants,
and attorneys as is necessary and proper for the collection, preservation,
maintenance and operation of the Receivership Assets."
In his capacity
as Receiver, the Receiver has employed his law firm, Quilling, Selander,
Cummiskey & Lownds, P.C., to act as his lawyers, and has employed
the accounting firm of Litzler, Segner, Shaw, McKenney & Dohmeyer,
L.L.C. to act as his accountants. As of this time, no other professionals
have been hired by the Receiver nor is it anticipated that the receiver
will need to hire any additional professionals.
The Court order
appointing the Receiver provides at paragraph P as follows:
"The Receiver
Pendente Lite shall seek and obtain the approval of this Court prior
to disbursement of professional fees and expenses to himself or
counsel, by presentation of a written application therefor and after
consultation with the Commission. All costs incurred by the Receiver
Pendente Lite shall be paid from the Receivership Assets."
Accordingly, all
fees and expenses of the Receiver and his professionals are to be paid
out of the receivership assets after they are liquidated to cash. The
Receiver does not receive a percentage of the assets and is, instead,
paid an hourly rate for his services. In every instance, the Receiver
can only pay himself after the Court approves his application for payment
and issues a written order authorizing payment. It is anticipated that
the Receiver will present applications for payment of the professionals
approximately every 60-90 days.
4.
Q: How much is being paid to Gary and Sandra Reeder and their lawyers?
A: Pursuant to an
agreement negotiated and reached between the SEC, the Receiver, the
Reeders and their lawyers, and as approved by the Court by order dated
December 10, 1999, it was agreed that the lawyers for the Reeders would
be paid a lump sum of $25,000.00, in order to defend the Reeders against
the allegations made by the SEC. The $25,000.00, was paid out of money
held by the Receiver. As part of this same agreement, the Receiver agreed
to pay the Reeders three $5,000.00, monthly installments for living
expenses beginning on December 13, 1999. The last installment was paid
to the Reeders February 13, 2000. In addition, as part of an overall
settlement between the SEC, the Receiver and the Reeders, the Reeders
were paid $10,000 and allowed to keep their home furnishings. No other
monies have or will be paid to the Reeders.
5.
Q: What is a Ponzi scheme?
A: According to
the United States 5th Circuit Court of Appeals, a Ponzi scheme can be
described as follows:
". . .
The scheme is named after its most famous practitioner, Charles Ponzi.
Ponzi was an Italian immigrant who successfully bilked an unwitting
American public out of millions of dollars in a scheme involving international
postal reply coupons . . ." U.S. v. Cook, 573 F.2d
281, 284 fn3 (5th Cir. 1978)
In further explanation,
the Court of Appeals additionally states:
". . .
In a Ponzi scheme, a swindler promises a large return for investments
made with him. The swindler actually pays the promised return on the
initial investments in order to attract additional investors. The
payments are not financed through the success of the underlying venture
but are taken from the corpus of the newly attracted investments.
The swindler then takes an appropriate time to abscond with the outstanding
investments. As one author described it, 'he borrowed from Peter to
pay Paul. And it worked . . . until Peter got wise . . . " Id.
6.
Q: Can the Receiver give me legal advice or should I hire an attorney?
A: The Receiver
cannot and will not give anyone legal advice with respect to this case.
Therefore, should you believe that you need an attorney, you should
hire your own and should certainly feel free to do so. However, you
need to be aware that the Receiver is acting in the interests of all
investors by trying to identify, locate and liquidate assets as quickly
as possible, determine and pay only legitimate outstanding expenses,
and be in a position to make distributions to investors as soon as possible.
There is nothing that an attorney which you might hire can do to either
expedite that process or increase the amount that will ultimately be
paid to you. The most likely thing an attorney will be able to do for
you is obtain information, either from the Court or from the Receiver.
As to the Receiver, however, through periodic letters to investors and
this website, the Receiver will provide information to investors and,
therefore, an attorney should not be needed in order to obtain that
same information for you.
7.
Q: Does the SEC get a portion of the monies held by the Receiver?
A: No, all monies
received by the Receiver, net of receivership expenses, will be paid
to investors on a pro-rata basis.
8.
Q: What has the Receiver been doing since his appointment?
A: Subsequent to
his appointment on the afternoon of November 24, 1999, the Receiver
secured possession of the Cornerstone offices, the Reeders' house and
all vehicles which he was able to locate on that day. The Receiver also
closed the Cornerstone offices, released all employees and issued paychecks
to each of them through November 24, 1999. During the next couple of
days following the closure of the Cornerstone offices, the Receiver
also decided to terminate production of the movie being produced by
Tri-Vector Pictures and all cast and crew were dismissed. Since that
time, the Receiver has paid all known expenses which were due and owing
by Tri-Vector Pictures to cast, crew and vendors.
The Receiver has
obtained possession of all known assets of Cornerstone and the Reeders
and has liquidated them to cash after receiving Court permission to
do so. He has also paid all outstanding legitimate bills of Cornerstone
and the Reeders. All funds are being held in interest bearing accounts.
For details on the
amounts collected by the Receiver to date, please go to our "Current
Status" page and/or read the Receiver's Final Report and Proposed
distribution.
9.
Q: Why did the Receiver terminate the business operations of Cornerstone?
A: Because the only
money coming into the company was new investor money, which was being
used to pay profit sharing checks to old investors. When the Court froze
the assets of Cornerstone and said it could no longer operate in a fashion
which violated the law, there was absolutely no alternative other than
to cease all operations.
10.
Q: Is the Receiver going to replace my profit sharing checks/referral
fee checks which were bounced (returned to maker)?
A: No, the Receiver
is not going to replace any such checks for anyone. The bounced checks
which the Receiver has replaced are those which were paid to third party
vendors for goods and services.
11.
Q: During 1999, I received wages, profit sharing checks and other fees
from Cornerstone. Will I be issued a 1099 and how should I treat those
monies received on my income tax return?
A: If you were an
employee of Cornerstone or one of its related entities, you were sent
a W-2 wage statement on a timely basis pursuant to what the law requires,
i.e. January 31, 2000. If you provided contract services to Cornerstone
or its related entities, and you are not exempt from IRS reporting requirements,
you were issued a 1099 by the same date. Investors, however, will not
be issued 1099s because there will never be an instance in which investors
will be repaid all of the money that they invested. Accordingly, any
payments which investors received during calendar year 1999 should be,
in the estimation of the Receiver, treated as a partial return of the
money which you invested as opposed to interest income. In other words,
you should not have to pay income tax on the money you received from
Cornerstone during 1999. HOWEVER, THE RECEIVER IS NOT AN ACCOUNTANT
AND CANNOT AND WILL NOT GIVE YOU ACCOUNTING OR TAX ADVICE. YOU MUST
CONSULT YOUR OWN TAX ADVISORS REGARDING YOUR PARTICULAR CIRCUMSTANCES
AND HOW YOU SHOULD ADDRESS MONIES WHICH YOU RECEIVED FROM CORNERSTONE
IN 1999.
12.
Q: I've heard that a settlement has been reached between the SEC, the
Receiver and the Reeders. Is that true?
A: Yes. An agreement
was reached on February 29, 2000. The terms of the settlement are set
forth in a document entitled Stipulation and Consent signed by both
Gary and Sandra Reeder. They can be read on
our Current Status page. On April 14, 2000, the Court approved the
settlement and entered: a Final Judgment of Permanent Injunction and
Other Equitable Relief Against Gary D. Reeder; a Final Judgment of Permanent
Injunction and Other Equitable Relief Against Sandra Reeder and a Final
Judgment of Permanent Injunction and Other Equitable Relief Against
Cornerstone Prodigy Group, Inc. The judgment can be viewed on
our Current Status page.
13.
Q: Will I get my money back? When? How much? [Last
update: August 31, 2000]
A: On August 25,
2000, the Court issued its Order approving the Receiver's Final Report
and Proposed Distribution. On August 28, 2000, the Court issued its
Order amending the August 29, 2000 Order pursuant to which the Court
authorized the Receiver to begin mailing FINAL distribution checks to
each investor in the amount set forth in Exhibit A to the Order, a copy
of which can be read by going to our General
Information page. Each investor will receive 48.65% of the amount
of their allowed claim. These checks will all be mailed by August 31,
2000, and you should receive your check during the early part of September
15, 2000. If your name is on Exhibit A and you do not receive
your check by September 2000, please email Alena McHale at amchale@qsclpc.com.
This check is the only check you will receive.
14.
Q: Is there anything I can do about the money I lost? [Last
update: August 30, 2000]
A: Under certain
circumstances, you may be able to claim a capital loss on your tax return
for calendar year 2000. However, you must consult your own tax advisor
in that regard to determine if you are eligible.
|
Questions
which are no longer applicable given the current status of the
case:
|
Q:
I heard that the Receiver has sent money back to some of the investors.
Is that true?
A: The
only money the Receiver has returned to investors were checks which
had not yet been deposited when he took control of the company. As
he opened the mail and found checks from investors, he sent them back
and told them that all operations were terminated.
Q:
I heard that the Court has already authorized the Receiver to send all
the money which he holds back to investors. Is that true?
A: Absolutely not. The Court has not yet authorized a distribution
of funds to investors.
Q:
If I invested in Cornerstone by charging on my credit card, can I cancel
or contest the charge and get my money back?
A: You must consult your own lawyer about your legal rights. However,
the Receiver will oppose any attempts to receive a credit card refund.
In the opinion of the Receiver, it would be unfair to allow some investors
to get all their money back just because they invested by credit card.
Instead, all investors should be treated the same. The Receiver is
going to file an objection to the claims of all credit card companies
to the extent they seek priority treatment of their claims.
Q:
How will my claim as to monies held by the Receiver be calculated and
what do I need to do or provide to the Receiver?
A: By
virtue of a letter dated March 21, 2000 (the Receiver's second letter
(which can be viewed on our
Current Status page), the Receiver sent claim forms to every known
investor. The deadline to submit the form was April 21, 2000. Your
claim will be the difference between the actual cash you invested
(reinvestments or rollovers will not be allowed) less all payments
and product you received. Calling the Receiver will not expedite your
payment; writing the Receiver will not expedite your payment; and,
to the extent the Receiver has to address those telephone calls and
letters, it will deplete the funds available to be paid on a pro-rata
basis to each investor.
Q:
Will I get my money back? When? How much?
A: The good
news in connection with this case is that there will be a substantial
amount of money available to distribute to investors. At this time,
the Receiver is not able to state the exact percentage each investor
will be paid as to their claim. However, the Receiver ESTIMATES
that each investor will be paid approximately 60% of their claim.
It could be more or it could be less. The Receiver anticipates that
distribution checks will be mailed during the last week of July,
2000. However, please check this website for further updates as
that date approaches.
Q:
My financial circumstances are particularly desperate. Is there any way
I can get my money paid back to me before everyone else?
A: No, unfortunately, all investors must be treated the same and
paid at the same time.
Q:
What assets are going to be sold?
A: As to Cornerstone,
all assets of the company have been liquidated to cash after receiving
Court approval to do so. Those assets primarily consist of: office furniture
and equipment; gold, silver and platinum coins; automobiles; and, miscellaneous
items of artwork. As to the Reeders, their house has been sold. In addition,
the Receiver will analyze whether any lawsuits exist against third persons
and entities which could lead to recovery for the receivership estate.
Q: Gary Reeder has suggested that investors send Motions to Expedite
Recovery and statements requesting funds to the Receiver and the Court.
Should we do this?
A: Absolutely not!
It is a complete waste of your time, will not expedite your payment,
and will only increase the costs to the Receivership which will, in
turn, decrease the amount of money returned to you.
Q:
Then what should I do?
A: On March 21,
2000 the Receiver sent a letter and a COURT-APPROVED CLAIM FORM to each
investor. Your deadline to return the form to the Receiver was April
21, 2000. DO NOT SUBMIT THE FORM TO THE COURT. There is nothing else
you can or should do regarding presentation of your claim to the Receiver.
You will be contacted by the Receiver if he has any problems with the
claim form which you submitted.
Q:
What is the deadline for credit card companies to submit their claims?
A: June 30, 2000.
A copy of the Order establishing the deadline is available for viewing
on our General Information page.
Q:
What can I do to get a refund from credit card companies?
A: The Receiver
will not give any advice about credit card refunds. The Receiver opposes
any attempts by investors to obtain a credit card refund.
Q:
Why does the Receiver oppose credit card refunds?
A: In the opinion
of the Receiver, it is unfair for one investor to get a full refund
while another investor, who invested by check as opposed to credit card,
does not get a full refund.
|