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 the Lancorp Financial Group Receivership Estate, has 

filed: (1) his final report and proposed distribution plan; and (2) an application for approval of 

$26,934.00 in attorney's fees and $310.72 in expenses incurred on behalf of the Estate. For the 

reasons stated herein, the proposed distribution plan should be approved and the fee application 

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 investors 

through the sale of unregistered securities by making false representations about the expected rate 

ofreturn on their investments and by promising that a portion ofthe profits generated from the sale 

would be used to benefit charitable causes. 
On July 5, 2005, the court appointed Michael J. Quilling as Receiver for various defendants 

and reliefdefendants. See Doc. #9. The receivership was subsequently expanded to include Lancorp 

Financial Group, LLC and Lancorp Financial Business Trust (the "Lancorp Financial Group 

Receivership Estate"). See Docs. #84 & 98. 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 [Lancorp Financial Group] and any entities it controls 

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

Financial Group] ("Receivership Records"). 

See Doc. #84. Through April 30, 2008, the Receiver has recovered $4,372,290.71 in cash and other 

assets on behalf of the Estate, and made disbursements totaling $2,677,954.04. That leaves 

$1,694,336.67 in cash on hand. In a separate application, the Receiver seeks authority to pay 

$26,934.00 in attorney's fees and $310.72 in expenses for the period of August 1, 2007 through 

March 31, 2008. The Receiver also asks the court to reserve $19,420.00 for future administrative 

expenses. If the court approves the fees and reserves requested by the Receiver, $1,606,285.66 

would be available for final distribution to claimants on a pro rata basis. Under the proposed 

distribution plan, each claimant with an approved claim will receive approximately 39% of their 

claim.' 

The Receiver was ordered to post a copy ofhis proposed distribution plan and fee application 

on his website, www.secreceiver.com. with notice to all interested parties that any objections must 

be filed with the court by May 30, 2008. That deadline has now passed and no objections have been 

received. The SEC, through its regional counsel, has consented to the relief requested. 

I The court previously approved a $2.5 million interim distribution to claimants of the Estate on a pro rata 

basis. See Doc. #307. 
II.
 

In his final report and proposed distribution plan, the Receiver seeks authority to: (l) pay 

$26,934.00 in attorney's fees and $310.72 in expenses; (2) reserve $19,420.00 for future 

administrative expenses; and (3) distribute all remaining receivership assets to investors on a pro 

rata basis. The court will address each request in tum. 

A. 

The Receiver seeks authority to pay $26,934.00 in attorney's fees and $310.72 in expenses 

for the period ofAugust 1, 2007 through March 31, 2008. 2 Although no investors have objected to 

this request, the court nevertheless must carefully examine the fee application to determine whether 

the time spent, services performed, hourly rates charged, and expenses incurred by the Receiver are 

justified under the factors set forth in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th 

Cir. 1974). 

As a result ofhis diligent efforts, the Receiver has recovered more than $4.3 million in cash 

and other assets on behalf of the Lancorp Financial Group Receivership Estate. If the current fee 

application and reserves are approved, the attorney's fees and accounting fees incurred by the Estate 

will total $222,317.40, or 5.1 % of the total recovery. This is well within the litigation budget 

submitted by the Receiver. 3 The fee-to-recovery ratio is manifestly reasonable in light of the 

complexities of this case, the difficulties encountered by the Receiver in tracing investor proceeds 

and liquidating concealed assets, and the results obtained for defrauded investors. Moreover, the 

2 The court previously authorized the Receiver "to pay 100% of his expenses on a monthly basis, provided 

statements are sent to the SEC each month, no objections thereto have been presented, and the quarterly fee applications 

are filed as required." See Doc. #139. As permitted by this order, the Receiver has reimbursed his law firm $310.72 in 

expenses and now seeks court approval of that action. 

3 The Receiver estimated that he would incur $210,780.00 in attorney's fees and $33,150.00 in expenses for 

matters related to the Lancorp Financial Group Receivership Estate. See Doc. #106. 
court finds that the time spent, services performed, hourly rates charged, and expenses incurred by 

the Receiver are justified under the factors set forth in Johnson. Accordingly, the Receiver should 

be authorized to pay $26,934.00 in attorney's fees and $310.72 in expenses to the law firm of 

Quilling Selander Cummiskey & Lownds, P.C. for the period ofAugust 1,2007 through March 31, 

2008. 

B. 

The Receiver estimates that he will incur another $10,000.00 in legal fees, $7,500.00 in 

accounting fees, and $1,920.00 in storage costs for preparing and mailing distribution checks, 

reconciling bank statements, communicating with investors, preparing tax returns, and storing 

records. The court finds that these fees are reasonable and that the anticipated services are necessary 

to close the Estate. Accordingly, the Receiver should be authorized to reserve this sum from funds 

available for final distribution. 

C. 

The court previously approved 133 claims totaling $10,744,315.50. Ifthe court approves the 

pending fee application and authorizes the withholding of reserves requested by the Receiver, 

$1,606,285.66 remains available for final 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 "C" to the proposed distribution plan. Distribution checks should be issued to each claimant 

in the amounts set forth in the schedule. The checks shall be void ifnot cashed within 45 days from 

the date of issuance. The Receiver should be authorized to send a cover letter to each claimant in 

the form attached as Exhibit "0" to his report. 
RECOMMENDATION
 

The court should approve the Receiver's final report and proposed distribution plan [Doc. 

#405] and grant the Receiver's final application for attorney's fees [Doc. #392] 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)(l); FED. R. CTv. P. neb). 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 ofplain error. See Douglass v. United Services Automobile Ass'n, 79 F.3d 1415, 1417 (5th 

Cir. 1996). 

DATED: June 2, 2008. 

A LAN 

STATES MAGISTRATE JUDGE