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 Lancorp Financial Group, LLC and related entities, has

filed a motion to make an interim distribution to claimants of the Lancorp Financial 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

 This is contingent upon approval of the magistrate judge's recommendation on the Receiver's motion to make

an interim distribution to claimants of the Megafund Receivership Estate. If that recommendation is adopted, the

Lancorp Financial Receivership Estate will receive a $1,566,136.27 distribution from the Megafund Receivership Estate.

3

 Currently pending before the court is the Receiver's fourth interim application for payment of $45,758.00 in

attorney's fees, $1,763.55 in expenses, and $5,487.00 in accounting fees incurred from July 1, 2006 through January 31,

2007. If no objections are filed, that motion will be ripe for determination after March 2, 2007.

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

and relief defendants. The receivership was subsequently expanded to include Lancorp Financial

Group, LLC and Lancorp Financial Business Trust (the "Lancorp Financial Receivership Estate").

See Orders, 1/20/06 & 3/1/06. In his capacity as Receiver, 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 [ Defendants and Relief Defendants] and any entities [they] control

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

and Relief Defendants] ("Receivership Records").

See Order, 1/20/06 at 2, ¶ I(1). As of today, the Receiver has $2,813,532.74 in cash and other assets

on hand available for distribution to 130 claimants of the Lancorp Financial Receivership Estate.2

Of this sum, the Receiver proposes distributing $2,500,000.00 to claimants on a pro rata basis and

reserving $313,532.74 for payment of attorney's fees, accounting fees, and other expenses.3 That

means each claimant would received approximately 23.66% of their claim.

The Receiver was previously ordered to post a copy of his proposed interim distribution plan

on his website with notice to all interested parties that any objections must be filed with the court

by February 12, 2007. No written objections have been filed. 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 Receiver's proposed interim distribution plan should be approved. The Receiver

 

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currently has $2,813,532.74 in cash and other assets on hand. Of this sum, the Receiver asks to

reserve $313,532.74 to cover past and future expenses, including attorney's fees and accounting fees.

The court finds that this sum should be reserved from funds available for interim distribution.

The court previously approved 130 claims totaling $10,568,053.02. If $313,532.74 is

reserved from the $2,813,532.74 on hand, $2,500,000.00 remains available for immediate

distribution to claimants on a pro rata basis. See SEC v. Forex Asset Management LLC, 242 F.3d

325, 331 (5th Cir. 2001) (approving pro rata distribution to investors). Therefore, each claimant

should be paid in accordance with the schedule attached as Exhibit "1" to the Receiver's motion.

The Receiver should issue interim distribution checks to each claimant in the amounts set forth in

the schedule. The checks shall be void if not cashed within 45 days from the date of issuance.

RECOMMENDATION

The Receiver's motion to make an interim distribution to claimants of the Lancorp Financial

Receivership Estate [Doc. #262] should be granted. The court should approve the Receiver's interim

distribution plan in accordance with the above recommendation.

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: February 14, 2007.

 

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