THE GUNN LAWSUIT:

This is a lawsuit against Jerrold Gunn, an individual allegedly licensed to practice law in Canada but not in the United States, to recover at least $250,000.00 of diverted investor funds and for damages resulting from his legal malpractice. Mr. Gunn was the legal architect of the fraudulent Hammersmith Trust and Microfund programs and drafted the documents relating to the programs. In exchange for his services, he was paid at least $250,000.00 out of funds belonging to defrauded investors.

Prior to filing the lawsuit, on November 29, 1999, the Receiver obtained a Court Order freezing the Merrill Lynch account of Mr. Gunn pursuant to which in excess of $100,000.00 was frozen and remains frozen. Initially, Mr. Gunn challenged the freeze and submitted documents to the Court demanding a release of funds. However, on June 21, 2000, Mr. Gunn was indicted by the Grand Jury in Pensacola, Florida. He has not been heard from since and has tried to evade service of the Receiver's lawsuit.

However, on September 8, 2000, the Receiver was able to obtain service on Mr. Gunn in Canada. Mr. Gunn did not respond to the lawsuit and so the Receiver asked the Court to enter a Default Judgment against him. On December 14, 2000, the Court entered a Default Judgment against Mr. Gunn in the amount of $10,000,000.00. Since entry of the Default Judgment, the Receiver has undertaken action to have it recognized and enforced in Canada.

THE GARNISHMENT ACTION:

On January 25, 2001 the Receiver filed an Application for Writ of Garnishment after Judgment against Merrill Lynch seeking to recover the funds in Mr. Gunn's account which had been frozen in November, 1999. On January 25, 2001, the Court issued a writ of garnishment. On February 25, 2001, Merrill Lynch filed its Answer and Counterclaim.

Shortly thereafter, the Receiver obtained the account records from Merrill Lynch, which showed that Merrill Lynch had not frozen the account as ordered and had, instead, allowed Mr. Gunn to continue trading in the account such that the value of the account had decreased significantly. Accordingly, on May 14, 2001, the Receiver filed a Motion for Issuance of Show Cause Order. On May 16, 2001, the Court issued a Show Cause Order setting the matter for hearing on June 1, 2001. On May 24, 2001, the Court issued an Order resetting Hearing for June 29, 2001.

On July 6, 2001, Judge Kaplan issued his Findings and Recommendations in which he recommended that the Motion for Sanctions be granted and that Merrill Lynch be ordered to pay the Receiver compensatory damages of $67,191.27 and $10,086.58 of attorney's fees. Merrill Lynch has appealed the ruling to Judge Lynn. On October 12, 2001, Judge Lynn issued an Order Accepting Findings and Recommendation of the United States Magistrate Judge as well as a Judgment in favor of the Receiver. Since that time, Merrill Lynch has paid these funds to the Receiver.

On July 27, 2001, the Court entered an Agreed Judgment in the garnishment action against Merrill Lynch in favor of the Receiver. Those funds ($84,977.75) have been paid to the Receiver.