1

 The SEC alleges violations of Sections 5(a), (c) & 17(a) of the Securities Act of 1933, 15 U.S.C. §§ 77e(a),

(c) & 77q(a), Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities and Exchange

Commission Rule 10b-5, 17 C.F.R. § 240.10b-5. 

IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

SECURITIES AND EXCHANGE §

COMMISSION §

§

Plaintiff, §

§

VS. § NO. 3-05-CV-1328-L 

§

MEGAFUND CORPORATION, §

ET AL. §

§

Defendants. §

FINDINGS AND RECOMMENDATION OF THE

UNITED STATES MAGISTRATE JUDGE

Michael J. Quilling, as Receiver for Megafund Corporation and related entities, has filed a

motion to disallow or adjust "A" claims against the Megafund Receivership Estate. For the reasons

stated herein, the motion should be granted.

I.

This is a civil action brought by the Securities and Exchange Commission ("SEC") against

Bradley C. Stark, Stanley A. Leitner, James A. Rumpf and their respective companies, Sardaukar

Holdings, IBC ("Sardaukar"), Megafund Corporation ("Megafund"), and CIG, Ltd. ("CIG"). In its

complaint, the SEC alleges that the defendants raised approximately $13.8 million from at least 70

investors through the sale of unregistered securities by making false representations about the

expected rate of return on their investments and by promising that a portion of the profits generated

from the sale would be used to benefit charitable causes. This conduct, if proved, constitutes a

violation of the federal securities laws.1

 

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2

 By orders dated August 12, 2005 and January 20, 2006, the court authorized the Receiver to designate three

Receivership Estates for the purpose of handling claims and making distributions to defrauded investors: (1) the

Megafund Receivership Estate; (2) the Sardaukar Holdings Receivership Estate; and (3) the Lancorp Financial Group

Receivership Estate. The Receiver is still in the process of reviewing claims against the Sardaukar Holdings and Lancorp

Financial Group Receivership Estates. Those claims will be the subject of future motions. 

On July 5, 2005, the court appointed Michael J. Quilling as receiver for the various

defendants and relief defendants, including Leitner and Megafund. In that capacity, Quilling was

authorized to:

take[ ] exclusive jurisdiction and possession of the assets, monies,

securities, claims in action, and properties, real and personal, tangible

and intangible, of whatever kind and description, wherever situated,

of [Leitner and Megafund] and any entities they control

("Receivership Assets"), and the books and records of Defendants

and Relief Defendant ("Receivership Records").

See Order, 7/5/05 at 2, ¶ I(1)). To date, the Receiver has collected nearly $1.5 million in assets

traceable to Megafund and related entities.

The Receiver was previously ordered to send court-approved claim forms to all known and

possible claimants of the Megafund Receivership Estate.2

 The forms were to be completed and

returned to the Receiver within 60 days of mailing. See Order, 8/19/05 at 2. On November 13, 2006,

the Receiver filed the instant motion seeking disallowance of four claims totaling $220,000.00 and

adjusting three other claims from $27,000.00 to $19,600.00. The Receiver was ordered to post a

copy of the motion on his website with notice to all interested parties that any objections to the

proposed disallowance or adjustment of a claim must be filed with the court by December 8, 2006.

No written objections have been received. The SEC, through its regional counsel, has consented to

the motion. 

II.

After considering the evidence and the written submissions of the parties, the court

determines that the following claims should be disallowed or adjusted as requested by the Receiver:

 

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 Claimant Amount of Claim Recommended Action

Arsilia I. Croft (#A-0053) $ 18,000.00 Disallowed

Paul J. Samuels (#A-0062) $100,000.00 Disallowed

Levoy L. Dewey (#A-0095) $ 8,000.00 Adjusted to $6,000.00

Levoy L. Dewey (#A-0096) $ 9,000.00 Adjusted to $7,000.00

Levoy L. Dewey (#A-0097) $ 10,000.00 Adjusted to $6,600.00

Edward J. Wolf, Jr. (#A-133) $ 70,000.00 Disallowed

Patrick D. Griffing (#A-250) $ 32,000.00 Disallowed

The priority of payment of the adjusted claims will be the subject of future orders. 

RECOMMENDATION

The Receiver's motion to disallow or adjust "A" claims against the Megafund Receivership

Estate [Doc. #231] should be granted. The court should disallow the claims of Arsilia I. Croft, Paul

J. Samuels, Edward J. Wolf, Jr. and Patrick D. Griffing and adjust the claims of Levoy L. Dewey as

recommended herein.

A copy of this report and recommendation shall be served on all parties in the manner

provided by law. Any party may file written objections to the recommendation within 10 days after

being served with a copy. See 28 U.S.C. § 636(b)(1); FED. R. CIV. P. 72(b). The failure to file

written objections will bar the aggrieved party from appealing the factual findings and legal

conclusions of the magistrate judge that are accepted or adopted by the district court, except upon

grounds of plain error. See Douglass v. United Services Automobile Ass'n, 79 F.3d 1415, 1417 (5th

Cir. 1996).

 

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DATED: December 12, 2006.

 

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