Page 1 - NOTICE OF FILING RECEIVER’S REPORT 

REGARDING THE INVESTIGATION OF THE 

RECEIVERSHIP ENTITY’S BUSINESS CONDUCT 

SCHWABE, WILLIAMSON & WYATT, P.C. 

Attorneys at Law 

Pacwest Center 

1211 SW 5th Ave., Suite 1900 

Portland, OR 97204 

Telephone: 503.222.9981 

Fax: 503.796.2900 

Troy D. Greenfield, OSB #892534 

Email: tgreenfield@schwabe.com 

Alex I. Poust, OSB #925155 

Email: apoust@schwabe.com 

Lawrence R. Ream (Admitted Pro Hac Vice) 

Email: lream@schwabe.com 

Schwabe, Williamson & Wyatt, P.C. 

Pacwest Center 

1211 SW 5th Ave., Suite 1900 

Portland, OR 97204 

Telephone: 503.222.9981 

Facsimile: 503.796.2900 

Ivan B. Knauer (Admitted Pro Hac Vice) 

Email: iknauer@swlaw.com 

Snell & Wilmer LLP 

1101 Pennsylvania Ave., N.W., Suite 300 

Washington, DC 20004 

Telephone: 202.802.9770 

Facsimile: 202.688.2201 

Attorneys for the Receiver for Defendants 

AEQUITAS MANAGEMENT, LLC; AEQUITAS HOLDINGS, 

LLC; AEQUITAS COMMERCIAL FINANCE, LLC; AEQUITAS 

CAPITAL MANAGEMENT, INC.; AEQUITAS INVESTMENT 

MANAGEMENT, LLC 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF OREGON 

PORTLAND DIVISION 

SECURITIES AND EXCHANGE 

COMMISSION, 

Plaintiff, 

v. 

AEQUITAS MANAGEMENT, LLC; 

AEQUITAS HOLDINGS, LLC; 

 No. 3:16-cv-00438-JR

NOTICE OF FILING RECEIVER’S 

REPORT REGARDING THE 

INVESTIGATION OF THE RECEIVERSHIP 

ENTITY’S BUSINESS CONDUCT 

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 1 of 174
Page 2 - NOTICE OF FILING RECEIVER’S REPORT 

REGARDING THE INVESTIGATION OF THE 

RECEIVERSHIP ENTITY’S BUSINESS CONDUCT 

SCHWABE, WILLIAMSON & WYATT, P.C. 

Attorneys at Law 

Pacwest Center 

1211 SW 5th Ave., Suite 1900 

Portland, OR 97204 

Telephone: 503.222.9981 

Fax: 503.796.2900 

AEQUITAS COMMERCIAL FINANCE, 

LLC; AEQUITAS CAPITAL 

MANAGEMENT, INC.; AEQUITAS 

INVESTMENT MANAGEMENT, LLC; 

ROBERT J. JESENIK, BRIAN A. OLIVER; 

and N. SCOTT GILLIS, 

Defendants.

Ronald F. Greenspan, the duly appointed Receiver of the entity defendants and 43 related 

entities, hereby files the attached Report Regarding the Investigation of the Receivership Entity’s 

Business Conduct, dated November 1, 2018. 

Dated this 21st day of November, 2018. 

Respectfully submitted, 

SCHWABE, WILLIAMSON & WYATT, P.C. 

By: s/ Alex I. Poust, OSB #925155 

 Troy D. Greenfield, OSB #892534 

 tgreenfield@schwabe.com 

Alex I. Poust, OSB #925155 

apoust@schwabe.com 

 Lawrence R. Ream (Admitted Pro Hac Vice) 

 lream@schwabe.com 

Telephone: 503.222.9981 

Facsimile: 503.796.2900 

Ivan B. Knauer (Admitted Pro Hac Vice) 

iknauer@swlaw.com 

SNELL & WILMER LLP 

Telephone: 202.802.9770 

Facsimile: 202.688.2201

 

Attorneys for the Receiver for Defendants 

Aequitas Management, LLC, Aequitas 

Holdings, LLC, Aequitas Commercial 

Finance, LLC, Aequitas Capital 

Management, Inc., and Aequitas Investment 

Management, LLC

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 2 of 174
RONALD F. GREENSPAN

COURT-APPOINTED RECEIVER FOR 

AEQUITAS MANAGEMENT, LLC, AEQUITAS HOLDINGS, LLC, AEQUITAS 

COMMERCIAL FINANCE, LLC, AEQUITAS CAPITAL MANAGEMENT, INC., AEQUITAS 

INVESTMENT MANAGEMENT, LLC AND CERTAIN RELATED ENTITIES 

(the “Receivership Entity”)

In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

United States District Court

District of Oregon

Portland Division

Report Regarding the Investigation of the Receivership Entity’s Business Conduct

by

Ronald F. Greenspan, Receiver

November 1, 2018

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 3 of 174
Table of Contents

A. BACKGROUND ................................................................................................................................................5

B. THE ENGAGEMENT .........................................................................................................................................6

B.1. SCOPE OF SERVICES........................................................................................................................................6

B.2. LIMITATIONS OF REPORT................................................................................................................................6

B.3. FORENSIC INVESTIGATION..............................................................................................................................6

C. EXECUTIVE SUMMARY ...................................................................................................................................7

C.1. DURING THE RELEVANT TIME PERIOD, AEQUITAS RAISED APPROXIMATELY $403.2 MILLION FROM OVER 

1,077 UNIQUE INVESTOR ACCOUNTS. IN ADDITION, THE BOOKS AND RECORDS INDICATE THAT AT THE BEGINNING 

OF THE RELEVANT TIME PERIOD AGGREGATE INVESTOR ACCOUNTS TOTALED $369.0 MILLION................................8

C.2. DURING THE RELEVANT TIME PERIOD, AEQUITAS PAID APPROXIMATELY $165.1 MILLION OF PRINCIPAL TO 

INVESTORS AND $84.5 MILLION IN RETURNS TO INVESTORS, FOR A TOTAL OF $249.6 MILLION..................................8

C.2.1. INCLUDES $17.8 MILLION OF PRINCIPAL AND INTEREST TO INSIDERS..............................................................8

C.3. AS OF MARCH 10, 2016, THE AMOUNT REMAINING DUE TO INVESTORS IS APPROXIMATELY $617.6 MILLION 

(INCLUDES INVESTMENTS PRIOR TO AND DURING THE RELEVANT TIME PERIOD). ......................................................8

C.4. AS OF MARCH 10, 2016, THERE WERE AT LEAST 623 UNIQUE INVESTOR ACCOUNTS THAT INVESTED 

APPROXIMATELY $91.3 MILLION THROUGH INDIVIDUAL RETIREMENT ACCOUNT CUSTODIANS.................................8

C.5. DURING THE RELEVANT TIME PERIOD, INVESTOR FUNDS WERE FREQUENTLY TRANSFERRED BETWEEN 

AEQUITAS’ BANK ACCOUNTS AT THE DIRECTION AND DISCRETION OF AEQUITAS MANAGEMENT RATHER THAN 

INVESTORS’ INSTRUCTIONS. AT LEAST $1.3 BILLION IN INTERCOMPANY CASH TRANSFERS WERE COMPLETED 

DURING THIS PERIOD...................................................................................................................................................8

C.5.1. ADDITIONALLY, FUNDS FROM THE VAST MAJORITY OF INVESTORS IN IOFII WERE AGGREGATED AT LEAST 

TWICE – AT THE IBAT LEVEL (WHICH ACTED AS A CONSOLIDATOR FOR AEQUITAS INVESTMENTS) AND AGAIN AT 

THE AEQUITAS LEVEL.................................................................................................................................................8

C.6. THE AEQUITAS ENTITY DURING THE RELEVANT TIME PERIOD: .....................................................................8

C.6.1. WAS DEPENDENT ON CONTINUED INFUSION OF NEW INVESTOR MONEY TO PAY OPERATING EXPENSES AND 

RETURNS TO INVESTORS;............................................................................................................................................8

C.6.2. DID NOT USE INVESTOR MONEY FOR THE STATED PURPOSES; .........................................................................8

C.6.3. USED A SIGNIFICANT PORTION OF NEW INVESTOR MONEY TO PAY RETURNS AND PRINCIPAL TO EARLIER 

INVESTORS; ................................................................................................................................................................8

C.6.4. DID NOT GENERATE SUFFICIENT (ANY) PROFITS TO PAY THE PROMISED RETURNS TO INVESTORS;..................8

C.6.5. CREATED NUMEROUS, SELF-DESCRIBED “MANUFACTURED NOTES” WHICH CREATED LIABILITIES AMONG 

THE ENTITIES AND WHICH FREQUENTLY DID NOT REFLECT THE ACTUAL RECEIPT OF FUNDS BY THE ENTITIES ISSUING 

SUCH NOTES; ..............................................................................................................................................................8

C.6.6. CONVERTED LIABILITIES BETWEEN ENTITIES TO FAVOR SPECIFIC INVESTORS EVEN WHEN THE NEW 

OBLIGORS DID NOT RECEIVE ANY MATERIAL BENEFIT FROM ASSUMING SUCH LIABILITY; ..........................................8

C.6.7. IN THE WANING DESPERATE MONTHS OF THE SCHEME, AFTER SEPTEMBER 1, 2015, WHEN THE RECENTLY 

HIRED GENERAL COUNSEL BEGAN INQUIRING ABOUT ISSUES REGARDING RAISING FURTHER INVESTOR FUNDS AND 

LATER ADVISED AEQUITAS COULD NO LONGER RAISE FUNDS IN “ORDINARY COURSE,” AEQUITAS REDEEMED $35.8

MILLION OF EXISTING INVESTMENTS, INCLUDING $3.5 MILLION OWING TO MANAGEMENT AND MEMBERS OF THE 

AEQUITAS ADVISORY BOARD (“AB”)........................................................................................................................8

C.6.8. WAS INSOLVENT FROM AT LEAST JULY 3, 2014 ONWARD...............................................................................8

C.7. THE AEQUITAS ACCOUNTING RECORDS (I) DO NOT REFLECT APPROPRIATE RESERVES FOR UNCOLLECTABLE 

ASSETS AND (II) INCLUDE INFLATED “MARK-UPS” TO ASSET VALUATIONS, BOTH OF WHICH RESULT IN A 

MISREPRESENTATION OF AEQUITAS’ INCOME GENERATED AND ASSETS AVAILABLE (AND NET WORTH).....................8

C.8. THE AEQUITAS ENTITY, DURING THE RELEVANT TIME PERIOD, MADE PAYMENTS OF $5.7 MILLION TO OR 

FOR THE BENEFIT OF JESENIK (AND HIS RELATIVES), OLIVER, GILLIS, AND RELATED ENTITIES. .................................8

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 4 of 174
C.9. SINCE 2014, AEQUITAS PAID $14.5 MILLION OUT OF INVESTOR FUNDS IN COMMISSIONS AND CONSULTING 

FEES IN FURTHERANCE OF THE SCHEME, OFTEN TO UNLICENSED SALESPEOPLE. .........................................................9

C.10. AEQUITAS PAID $11.7 MILLION OUT OF INVESTOR FUNDS TO ESTABLISH A NETWORK OF REGISTERED 

INVESTMENT ADVISORS AND SERVICE PROVIDERS IN FURTHERANCE OF THE SCHEME. ...............................................9

C.11. BETWEEN 2014 AND MARCH 2016 AEQUITAS SPENT AT LEAST $51.3 MILLION OF INVESTOR FUNDS ON 

OVERHEAD AND COMPENSATION IN EXCESS OF THE 2% OF ASSET MANAGEMENT FEE AND ADMINISTRATIVE 

SERVICES AGREEMENT (“ASA”) FEES PERMITTED BY THE OFFERING DOCUMENTS....................................................9

D. INTRODUCTION.............................................................................................................................................10

D.1. PONZI SCHEME DEFINED ...............................................................................................................................10

D.2. GENERAL FACTORS TO ESTABLISH A PONZI SCHEME ....................................................................................11

E. DEEPER DIVE AND ADDITIONAL FACTORS.....................................................................................................11

E.1. INVESTOR MONIES WERE COMMINGLED........................................................................................................11

E.1.1. FUNDS TRANSFERRED BASED ON CASH NEEDS RATHER THAN INVESTMENT CRITERIA ..................................12

E.1.2. WEIDER/FORMAN CONVERSION....................................................................................................................12

E.1.3. AEQUITAS CORPORATE LENDING, LLC........................................................................................................18

E.1.4. WILLIAM (BILL) RUH NOTE WITH ACL........................................................................................................20

E.1.5. TERRELL GROUP MANAGEMENT NOTE WITH ACL.......................................................................................25

E.1.6. DIRECTION OF INVESTMENTS AND MANUFACTURED NOTES ........................................................................30

E.2. NO LEGITIMATE BUSINESS OPERATIONS TO WHICH ALLEGED INVESTMENT PROGRAM IS CONNECTED ..........38

E.2.1. FLAWED BUSINESS MODELS WHICH COULD NOT REASONABLY FUND OPERATIONS .......................................39

E.2.1.1............BALANCE SHEET SOLVENCY DRIVEN BY INTERCOMPANY LOANS AND CAPITALIZATION OF OPERATING 

EXPENSES .................................................................................................................................................................39

E.2.1.2. POORLY PERFORMING OPERATING COMPANIES WITH NO CORRESPONDING INVESTMENT WRITE-DOWN40

E.2.1.3. POORLY PERFORMING PORTFOLIOS DUE TO FINANCIAL STRUCTURE .....................................................54

E.2.1.4. INVESTMENTS WITH NO ECONOMIC SUPPORT........................................................................................60

E.2.1.5. ACF COMPLIANCE ISSUES JULY 2015...................................................................................................64

E.3. LOANS TO INSIDERS......................................................................................................................................64

E.3.1. NEWMAN LOAN ............................................................................................................................................64

E.3.2. NORTHBRANCH............................................................................................................................................66

E.4. UNREALISTIC PROMISES OF RETURNS ...........................................................................................................71

E.4.1. NOTE RETURNS VS. OTHER INVESTMENT VEHICLES ......................................................................................71

E.4.1.1. WEIDER/FORMAN HIGHER RETURN THAN JUNIOR LENDERS..................................................................71

E.4.2. LACK OF AVAILABLE CASH FROM ANY OTHER SOURCE.................................................................................72

E.4.3. AGENTS RECRUITED TO SELL AEQUITAS PRODUCTS AND COMMISSIONS PAID TO PERPETUATE THE SCHEME 76

E.4.3.1. USE OF “CONSULTANTS” AND AB MEMBERS AS FINDERS .....................................................................76

E.4.3.2. AEQUITAS WEALTH MANAGEMENT .....................................................................................................79

E.5. FAILED TO INVEST ALL OF THE INVESTOR FUNDS IN PROMISED INVESTMENTS..............................................81

E.5.1. WHISTLEBLOWER COMPLAINTS....................................................................................................................81

E.5.2. USED INVESTOR FUNDS FOR NON-INVESTMENT PURPOSES............................................................................81

E.5.2.1. CONVERSION OF ASSETS TO APF..........................................................................................................81

E.5.2.2. CONVERSION OF ASSETS TO PCF ..........................................................................................................85

E.5.2.3. CORPORATE SPENDING IN EXCESS OF MANAGEMENT FEES....................................................................88

E.6. MISCHARACTERIZATION OF THE NATURE OF INVESTMENT AND ASSOCIATED RISK .......................................90

E.7. OVERSTATED INVESTMENT RETURNS AND UNDERSTATED RISKS AND LOSSES ..............................................92

E.8. FALSE STATEMENTS PROVIDED TO CUSTOMERS............................................................................................92

F. HISTORY OF AEQUITAS FUNDS .....................................................................................................................93

F.1. DIRECT NOTE SUMMARY ..............................................................................................................................93

F.2. DIRECT NOTE DETAILS IN ORDER OF ORIGINATION.......................................................................................96

F.3. INCOME OPPORTUNITY FUND .....................................................................................................................107

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 5 of 174
F.4. INCOME OPPORTUNITY FUND II..................................................................................................................113

G. FOCUSED INVESTMENT FUNDS ...................................................................................................................122

G.1. LUXEMBOURG BONDS.................................................................................................................................122

G.2. WINDOW ROCK FEEDER FUND (A/K/A WRFF)...........................................................................................123

G.3. ETC FOUNDERS FUND (ETCFF) ................................................................................................................124

G.4. CCM OPPORTUNITY FUND (FKA CAPITAL OPPORTUNITY FUND)...............................................................124

H. SOLVENCY..................................................................................................................................................127

H.1. AEQUITAS WAS INSOLVENT ON OR BEFORE JULY 3, 2014 AND CONTINUED TO BE SO DURING THE REMAINDER 

OF THE RELEVANT TIME PERIOD, AS ITS ASSETS AT FAIR VALUE DID NOT EXCEED ITS LIABILITIES [THE “BALANCE 

SHEET TEST”].........................................................................................................................................................127

H.2. AEQUITAS INTENDED TO INCUR, OR HAD REASON TO BELIEVE THAT IT WOULD INCUR, DEBTS BEYOND ITS 

ABILITY TO PAY AS THEY BECAME DUE [THE “TIMELY PAYMENT TEST”]...............................................................128

H.3. AEQUITAS POSSESSED INSUFFICIENT ASSETS TO CONDUCT ITS INTENDED BUSINESS [“UNREASONABLY 

SMALL ASSETS TEST”]...........................................................................................................................................128

I. PAYMENTS TO INSIDERS .............................................................................................................................130

I.1. PAYMENTS TO INDIVIDUAL DEFENDANTS ..................................................................................................130

I.2. OLAF JANKE SEPARATION PAYMENT ..........................................................................................................130

J. INFORMATION GATHERING .........................................................................................................................133

J.1. COLLECTION AND PRESERVATION OF HARD COPY DATA AND ELECTRONICALLY STORED INFORMATION ....133

J.1.1. HOSTED DATA SERVICES.............................................................................................................................134

J.1.1.1.MICROSOFT EXCHANGE EMAIL COMMUNICATIONS ....................................................................................134

J.1.1.2.EMAIL DATA ARCHIVING SERVICE ..............................................................................................................134

J.1.1.3.SECURE ONLINE FILE SHARING SERVICE .....................................................................................................134

J.1.1.4.ONLINE VIRTUAL DATA ROOM SERVICE ......................................................................................................134

J.1.1.5.SALESFORCE CRM DATA (DEPRECATED 2017)...........................................................................................134

J.1.1.6.CONCUR EMPLOYEE EXPENSE DATA (DEPRECATED 2017) ..........................................................................134

J.1.2. ON-PREMISE DATA SERVICES......................................................................................................................134

J.1.2.1.MICROSOFT ACTIVE DIRECTORY SERVICES .................................................................................................134

J.1.2.2.MICROSOFT WINDOWS NETWORK FILE SHARING SERVICES.........................................................................134

J.1.2.3.AEQUITAS DATA WAREHOUSE SERVICES ....................................................................................................134

J.1.2.4.VIRTUAL SERVER INFRASTRUCTURE SERVICES ...........................................................................................134

J.1.2.5.ENTERPRISE DATA BACKUP SERVICES.........................................................................................................135

J.2. ACCOUNTING DATA....................................................................................................................................135

J.3. BANK DATA................................................................................................................................................135

J.4. PAYROLL DATA ..........................................................................................................................................135

J.5. TAX RETURNS.............................................................................................................................................136

J.5.1. TAX RETURN PREPARERS ............................................................................................................................136

J.5.2. ELECTRONIC TAX RECORDS ........................................................................................................................136

J.5.3. OTHER TAX RECORDS .................................................................................................................................136

J.6. MANAGEMENT OF DATA/RECORDS .............................................................................................................136

J.7. INFORMATION FROM AEQUITAS ENTITY PERSONNEL..................................................................................137

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 6 of 174
A. Background

During the course of an investigation into the business practices of Aequitas Management, LLC (“AM”); 

Aequitas Holdings, LLC (“AH”); Aequitas Commercial Finance, LLC (“ACF”); Aequitas Capital 

Management, Inc. (“ACM”); and Aequitas Investment Management, LLC (“AIM”) (collectively “Entity 

Defendants”), as well as 43 subsidiaries and/or majority-owned affiliates (collectively “Aequitas,” 

“Aequitas Entity,” “Receivership” or “Receivership Entity”) 1

, the Securities and Exchange Commission 

(“Commission” or “SEC”) concluded that the appointment of a receiver was necessary and appropriate 

for the purposes of marshaling and preserving all assets of the Receivership Entity (the “Receivership 

Property”). 

The Commission filed its complaint (“Complaint”)2 on March 10, 2016 (“Complaint Date”) against the 

Entity Defendants, as well as Robert (Bob) J. Jesenik3

, Brian A. Oliver4 and N. Scott Gillis5 (collectively 

the “Individual Defendants”), for alleged violation of federal securities laws in what the Commission 

describes as a “Ponzi-like” scheme [Dkt. 1. ¶ 3].6

 The Commission alleges that the Individual 

Defendants, all principals of one or more of the Entity Defendants, defrauded Investors7

, who were led to 

believe that they were purchasing indirect interests in trade receivables, and instead misused Investor 

funds to pay operating expenses and to repay earlier Investors [Dkt.1 ¶¶ 1-7]. The Commission further 

alleges that “[b]y the end of 2015, [Aequitas] owed Investors $312.0 million and had virtually no 

operating income to repay them.” [Dkt. 1 ¶ 5]. 

Also, on March 10, 2016, the Commission and the Entity Defendants filed a Proposed Stipulated Order 

Appointing Receiver (the “Proposed Receivership Order”) [Dkt. 2-2]. On March 16, 2016, pursuant to 

the Stipulated Interim Order Appointing Receiver (the “Interim Receivership Order”), Ronald Greenspan 

was appointed as Receiver for the Entity Defendants and 43 related entities on an interim basis [Dkt.30]. 

On April 14, 2016, pursuant to the Order Appointing Receiver, Mr. Greenspan was appointed as Receiver 

for the Receivership Entity on a final basis (the “Final Receivership Order”) [Dkt. 156].

The Receiver, under the Final Receivership Order, is authorized and empowered to investigate the manner 

in which the financial and business affairs of the Receivership Entity were conducted (the 

“Investigation”). Based on the information provided in the Complaint and the books and records of the 

Receivership, the Receiver determined January 1, 2014 through March 10, 2016 to be the most relevant 

time period (the “Relevant Time Period”) for his Investigation. In furtherance of his responsibilities in 

the Investigation, the Receiver files the following Report Regarding the Investigation of the Receivership 

Entity’s’ Business Conduct (the “Report”). 

1 Capitalize terms/acronyms are defined herein or otherwise have the meaning ascribed to them in the attached glossary. 

2 Securities and Exchange Commission, Plaintiff, Vs. Aequitas Management, LLC; Aequitas Holdings, LLC; Aequitas Commercial Finance, LLC; Aequitas Capital 

Management, Inc.; Aequitas Investment Management, LLC; Robert J. Jesenik; Brian A. Oliver; and N. Scott Gillis, Defendants; Case 3:16-cv-00438-PK; District of 

Oregon, Portland Division. An organizational chart of relevant entities is attached as exhibit A.2, and all entities comprising the Receivership Entity and Extended 

Entities are located in Exhibits A and B of the Final Receivership Order [Dkt. 156]. “Extended Entities” are Aequitas affiliated entities that are not a part of the 

Receivership Entity, but must cooperate fully with the Receiver.

3 Chief Executive Officer. 4 Executive Vice President Product & Business Development. 5 Executive Vice President, Chief Operating Officer & Chief Financial Officer. 6 All docket references are available at the Receivership’s website, http://www.kccllc.net/aequitasreceivership. 7 The defrauded Investors generally fall into three buckets, collectively referred to as “Investors” for purposes of this Report: (1) Investors in debt instruments of ACF 

referred to as “Private Note” Investors; (2) Investors in Aequitas equity or debt funds (e.g., Aequitas Enhanced Income Fund, LLC (“EIF”); Aequitas Income 

Opportunity Fund, LLC (“IOF”); Aequitas Income Opportunity Fund II, LLC (“IOFII”); Aequitas Capital Opportunities Fund, LP (“COF”); Aequitas ETC Founders 

Fund, LLC (“ETCFF”); Aequitas Hybrid Fund, LLC (“AHF”); Aequitas Income Protection Fund, LLC (“IPF”); Aequitas Partner Fund, LLC (“APF”); Aequitas 

Private Client Fund, LLC (“PCF”); Aequitas WRFF I, LLC (“WRFF”) and Aequitas International Opportunities LP (“AIO”)); and (3) Investors in debt instruments of 

ACF/AH affiliates (e.g. ACC C Plus Holdings, LLC (“ACCCPH”); ACC F Plus Holdings, LLC (“ACCFPH”); Aequitas Corporate Lending, LLC (“ACL”); Aequitas 

Peer-To-Peer Funding, LLC (“AP2PF”); CarePayment Holdings, LLC (“CPH”); MotoLease Financial, LLC (“MLF”) and ML Financial Holdings, LLC (“MLFH”)) 

referred to as “Direct Note” Investors. 

Page 5 of 137

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 7 of 174
B. The Engagement

B.1. Scope of Services

As litigation service engagements performed by Certified Public Accountants (“CPA”) are deemed to be 

consulting services as defined by the American Institute of Certified Public Accountants (“AICPA”), 

work performed by CPAs on the Investigation was carried out in accordance with the applicable standards 

as set forth in the Standards for Consulting Services established by the AICPA. Further, as a result of 

having staff possessing other relevant professional certifications engaged on the Assignment, staff 

adhered to the applicable standards of those governing organizations in the performance of the work in 

this matter. 

Fact discovery in this case has not concluded as of the filing of this Report, and we believe related 

investigations are concurrently being conducted by various law enforcement agencies to determine the 

existence of possible criminal and/or civil violation acts of some of the individuals/entities described 

herein and others. Accordingly, this Report is based upon the information available to me and reviewed 

to date, and I hereby reserve the right to supplement or amend this Report in the event additional 

information becomes available for review.

B.2. Limitations of Report

The information contained herein has been prepared based upon financial and other data obtained from 

the Receivership Entity’s books and records and provided to the Receiver and FTI Consulting, Inc. (“FTI 

Consulting”) from the staff employed by the Receivership Entity as well as its contract staff and advisers, 

or from public sources.

The Receiver has not subjected the information contained herein to an audit in accordance with generally 

accepted auditing or attestation standards or the Statement on Standards for Prospective Financial 

Information issued by the AICPA. Further, the work involved so far did not include a detailed review of 

all transactions, and cannot be expected to identify all errors, irregularities or illegal acts, including fraud 

or defalcations that may exist. Accordingly, the Receiver cannot express an opinion or any other form of 

assurance on, and assumes no responsibility for, the accuracy or correctness of the historical information 

or the completeness and achievability of the projected financial data, valuations, information and 

assessments upon which the following Report is rendered.

B.3. Forensic Investigation

A forensic investigation requires professional judgment regarding, among other matters, the nature, 

timing and extent of procedures to be performed; the weight, quality and reliability of evidential matter; 

and the cost versus benefit of acquiring and testing evidence.

The information supporting our analysis was obtained during the performance of our procedures and 

through discussions with Investors, management, employees and other parties. Unless otherwise noted 

herein, we have not performed any procedures to corroborate the completeness or accuracy of the 

information or the explanations provided to us.

Certain information requested for our procedures was not produced to us for a variety of reasons, 

including certain documents in the possession of governmental or regulatory bodies. Additionally, in our 

experience, certain types of older records are unavailable. Generally, more recently prepared information 

was readily available and stored in electronic form as compared to older materials that were mostly hard 

Page 6 of 137

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 8 of 174
copy. The form, availability and completeness of information were taken into consideration during the 

course of performing the procedures, and significant limitations are reported herein.

C. Executive Summary

The Commission alleges in the Complaint that “...redemptions and interest payments to prior investors 

were being paid primarily from new investor money in a Ponzi-like [emphasis added] fashion....”8

 

While the Investigation uncovered frequent instances where redemptions and interest payments were 

financed by fundraising efforts or the movement of funds among entities to satisfy such obligations, that, 

in and of itself, does not qualify as a Ponzi scheme. This Report examines the Ponzi scheme construct 

and applies multiple factors by which a finder of fact could determine if the Aequitas scheme qualifies as 

such. 

Even though Aequitas does not present as a classically defined Ponzi scheme where there was no material 

business being conducted, there is still sufficient evidence of actual fraud and badges of fraud9 apparent 

that establish the Ponzi-like nature and fraudulent activity. The Investigation uncovered instances of selfdealing and misstatement of financial statements and activities intended to perpetuate an investor fraud. 

Based on the findings of the Investigation, it is the Receiver’s intention to seek the designation of a Ponzi 

scheme as it relates to the Receivership Entity. 

My preliminary findings are as follows:

8 Complaint, para. 4. Also see para. 56 [Dkt.1]. 9 The Uniform Fraudulent Transfer Act (“UFTA”) §4(b) provides that “in determining actual intent under subsection (a)(1), consideration may be given, among other 

factors, to whether:” 1. the transfer or obligation was to an insider; 2. the debtor retained possession or control of the property transferred after the transfer; 3. the 

transfer or obligation was disclosed or concealed; 4. before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; 5. the 

transfer was of substantially all the debtor’s assets; 6. the debtor absconded; 7. the debtor removed or concealed assets; 8. the value of the consideration received by 

the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; 9. the debtor was insolvent or became insolvent 

shortly after the transfer was made or the obligation was incurred; 10. the transfer occurred shortly before or shortly after a substantial debt was incurred; and 11. the 

debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

Page 7 of 137

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 9 of 174
C.1. During the Relevant Time Period, Aequitas raised approximately $403.2 million from over 

1,077 unique Investor accounts. In addition, the books and records indicate that at the 

beginning of the Relevant Time Period aggregate Investor accounts totaled $369.0 million. 

C.2. During the Relevant Time Period, Aequitas paid approximately $165.1 million of principal 

to Investors and $84.5 million in returns to Investors, for a total of $249.6 million.10

C.2.1. Includes $17.8 million of principal and interest to insiders. 

C.3. As of March 10, 2016, the amount remaining due to Investors is approximately $617.6

million (includes investments prior to and during the Relevant Time Period). 

C.4. As of March 10, 2016, there were at least 623 unique Investor accounts that invested11

approximately $91.3 million through Individual Retirement Account custodians.

C.5. During the Relevant Time Period, Investor funds were frequently transferred12 between

Aequitas’ bank accounts at the direction and discretion of Aequitas management rather 

than Investors’ instructions. At least $1.3 billion in intercompany cash transfers were 

completed during this period.

13

C.5.1. Additionally, funds from the vast majority of Investors in IOFII were aggregated at 

least twice – at the IBAT14 level (which acted as a consolidator for Aequitas 

investments) and again at the Aequitas level.

C.6. The Aequitas Entity during the Relevant Time Period: 

C.6.1. Was dependent on continued infusion of new Investor money to pay operating 

expenses and returns to Investors; 

C.6.2. Did not use Investor money for the stated purposes; 

C.6.3. Used a significant portion of new Investor money to pay returns and principal to

earlier Investors;

C.6.4. Did not generate sufficient (any) profits to pay the promised returns to Investors; 

C.6.5. Created numerous, self-described “Manufactured Notes”15 which created liabilities 

among the entities and which frequently did not reflect the actual receipt of funds by 

the entities issuing such notes;

C.6.6. Converted16 liabilities between entities to favor specific Investors even when the new 

obligors did not receive any material benefit from assuming such liability;

C.6.7. In the waning desperate months of the scheme, after September 1, 2015, when the 

recently hired General Counsel17 began inquiring about issues regarding raising 

further Investor funds and later advised Aequitas could no longer raise funds in 

“ordinary course,” Aequitas redeemed $35.8 million of existing investments, including 

$3.5 million owing to management and members of the Aequitas Advisory Board 

(“AB”). 

C.6.8. Was insolvent from at least July 3, 2014 onward. 

C.7. The Aequitas accounting records (i) do not reflect appropriate reserves for uncollectable 

assets and (ii) include inflated “mark-ups” to asset valuations, both of which result in a 

misrepresentation of Aequitas’ income generated and assets available (and net worth). 

C.8. The Aequitas Entity, during the Relevant Time Period, made payments of $5.7 million to 

or for the benefit of Jesenik (and his relatives), Oliver, Gillis, and related entities.18

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C.9. Since 2014, Aequitas paid $14.5 million out of Investor funds in commissions and 

consulting fees in furtherance of the scheme, often to unlicensed salespeople. 

C.10. Aequitas paid $11.7 million out of Investor funds to establish a network of 

registered investment advisors and service providers in furtherance of the scheme.19 

C.11. Between 2014 and March 2016 Aequitas spent at least $51.3 million of Investor 

funds on overhead and compensation in excess of the 2% of asset management fee and 

Administrative Services Agreement (“ASA”) fees permitted by the offering documents. 

As detailed further in this Report, Aequitas suffered periodic liquidity crunches (dating back as far as 

2011) and uncertain asset valuations of poorly performing subsidiaries, investments and portfolios (many 

of which were non-viable). Moreover, with no material invested equity, Aequitas was only solvent to the 

extent profits exceeded losses (or assets were legitimately “marked up”), and it had a constant need for 

additional investor funds. 

Compounding its other vulnerabilities, Aequitas’ largest external investment was Corinthian Colleges’ 

student receivables, which investment grew substantially over time. One could argue about the 

reasonableness of the carrying value and likelihood of repayment of these receivables prior to July 2014; 

however, as of July 3, 2014, when (i) the United States Department of Education and Corinthian 

Colleges, Inc. (“CoCo”) announced an operating plan requiring CoCo to either close or sell all campuses 

over the next six months, (ii) CoCo ceased to honor its obligation to repurchase the many defaulted 

student loans, and (iii) there was a well-publicized ongoing Consumer Financial Protection Bureau 

(“CFPB”) investigation of abusive lending practices in connection with CoCo student loans, one could no 

longer reasonably make that argument.20 From that point forward, with Aequitas’ business model 

dependent upon the performance of $241.0 million of increasingly delinquent CoCo student debt, there 

appears little argument that Aequitas was not hopelessly insolvent. 

While Aequitas was likely insolvent substantially prior to July 3, 2014, the Receiver has not considered it 

a beneficial use of Receivership resources to undertake the extensive analysis necessary to support or 

refute a hypothesis of insolvency prior to July 2014 (however, if such need becomes apparent, this 

analysis can be performed). With respect to the exact date of insolvency at or near the time of the CoCo 

10 The Report uses the word “principal”, “interest” and “returns” but the Receiver does not concede those characterizations from the Aequitas records. Any such 

determination will be governed by the Court approved distribution plan. 11 The term invested, invest and investment is used interchangeably throughout the Report to mean money loaned as debt or investment in equity vehicles. 12 Throughout the Report, use of the term “transfer”, “transferred” or like indicates a cash intercompany payment from one Aequitas entity bank account to another, 

for the transfer of an asset or liability. 13 Calculated based on net cash transfers out for the period of January 1, 2014 through December 31, 2015 coded to intercompany payment ($608 million), distribution 

paid – intercompany ($463.5 million), investor redemption – intercompany ($1.3 million), investor redemption - direct transfers ($29.8 million), notes receivable – 

intercompany ($81.2 million) and borrowed funds – intercompany ($89.8 million). 14 Affiliate of Integrity Bank and Trust. 15 “Manufactured Notes” was a self-described program, for which Aequitas management would assign assets to Aequitas Funds in the form of a note payable from a 

Special Purpose Entity (“SPE”). The SPE would incur the liability to repay the note, often times without receiving any direct cash consideration. This is further 

described in section E.1.6.

16 Throughout the Report, use of the term “convert”, “conversion” or like indicates a non-cash journal entry, intended to transfer an asset or liability from one Aequitas 

entity to another without cash consideration. This is consistent with terminology often employed by Aequitas management to describe these transactions.

17 Robert (Bob) Holmen, hired on June 1, 2015. 18 Includes payroll, bonus, expense reimbursement and distributions during the Relevant Time Period, plus the remaining principal balances of the Newman Loan 

(further described in section E.3.1) and the Northbranch Member Loans (described in section E.3.2). 19 Includes $11.7 million for Aequitas Wealth Management, LLC (“AWM”) entities and $4.4 million for Marketing Services Platform, Inc. (“MSP”) / Ivey 

Performance Marketing, LLC. 20 See Corinthian College timeline attached as an exhibit to this Report. Based on what was known (or should have been known) by Aequitas management, one could 

reasonably conclude that the financial stability of CoCo, and its ability and/or willingness to honor its guaranty, should have been questioned significantly before July 

3, 2014.

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default, there are comprehensive financial statements as of June 30, 2014, and therefore the Receiver has 

used those balances in connection with his analysis and finding of insolvency as of July 3, 2014. 

D. Introduction

D.1. Ponzi scheme defined

Courts around the country have recognized that no single definition of a Ponzi scheme exists.21 In 

general, courts have stated that Ponzi schemes exist when “returns to investors are not obtained by any 

business venture but are taken from monies received from new investors.”22 Other courts have concluded 

that the existence of some legitimate business operations does not preclude a determination of the 

existence of a Ponzi scheme when it deviated thereafter.

23 Some courts have stated that Ponzi schemes, 

by their very nature, are insolvent from inception of the scheme and become increasingly more insolvent 

as the scheme progresses.

24 

The Commission defines a Ponzi scheme as follows: 

A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing 

investors from funds contributed by new investors. Ponzi scheme organizers often solicit new 

investors by promising to invest funds in opportunities claimed to generate high returns with little 

or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make 

promised payments to earlier-stage investors to create the false appearance that investors are 

profiting from a legitimate business.25 

The Forensic & Valuation Services Practice Forensic Accounting – Fraud Investigations, published by the 

AICPA, defines a Ponzi scheme as follows:

A Ponzi or pyramid scheme is usually a venture wherein earlier investors are repaid principal 

plus interest with funds provided by later investors. There may or may not be a legitimate 

business purpose for the venture, but the need for capital creates and continues the scheme. 

Often, unusually high investment returns or other inducements are offered by the promoters to 

attract investors.26 

The Ninth Circuit Court of Appeals has described a Ponzi scheme as:

...an arrangement whereby an enterprise makes payments to investors from the proceeds of a later 

investment rather than from profits of the underlying business venture, as the investors expected. The 

fraud consists of transferring proceeds received from the new investors to previous investors, thereby 

21 Gold v. First Tenn. Bank (In re Taneja), 2012 WL 3073175 *4-6 (Bankr. E.D. VaA. July 30, 2012) (quoting various Ponzi scheme definitions and case citations). 

See also, Smith v. Suarez (In re IFS Fin. Corp.), 417 B. R. 419 n. 15 (Bankr. S.D. Tex. 2009), subsequently aff’d, 669 F.3d 255 (5th Cir. 2012)(“The Fifth Circuit’s 

reasoning applies whether the organization neatly fits within a judicially constructed definition of Ponzi scheme or was a fraudulent scheme that has some, but perhaps 

not all, attributes of the traditional Ponzi scheme. When an organization perpetuating a fraud makes a transfer necessary for continuation of the fraud, the transfer is 

made with actual intent to defraud.”).

22 In re Taubman, 160 B.R. 964, 978 (Bankr. S.D. Ohio 1993) (citing Danning v. Bozek (In re Bullion Reserve of N. Am.), 836 F.2d 1214, 1219 n.8 (9th Cir. 1988), 

cert. denied, 486 U.S. 1056 (1988)); See also, Auza v. United Dev., Inc. (In re United Dev., Inc.), 2007 Bankr. LEXIS 4857, at *14 (9th Cir. BAP 2007). 23 See, e.g., Auza v. United Dev., Inc. (In re United Dev., Inc.), 2007 Bankr. LEXIS 4857, at *16 (9th Cir. BAP 2007); In re Bonham, 251 B.R. 113, 136–137 (Bankr. 

D. Alaska 2000); In re Taubman, 160 B.R. 964, 973 (Bankr. S.D. Ohio 1993); Gillman v. Geis (In re Twin Peaks Fin. Servs.) 516 B.R. 651, 655 (Bankr. D. Utah 

2014) (“The fact that an investment scheme may have some legitimate business operations is not determinative. If the debtor’s legitimate business operations cannot 

fund the promised returns to investors, and the payments to investors are funded by newly attracted investors, then the debtor is operating a Ponzi scheme.”); and 

Wing v. Dockstader, 2010 WL 5020959 at *4 (D. Utah 2010).

24 Picard v. Madoff (In re Bernard L. Madoff Inv. Sec. LLC), 458 B.R. 87, 110 n.15 (Bankr. S.D.N.Y. 2011) (additional citations omitted); and Warfield v. Byron, 436 

F.3d 551, 558 (5th Cir. 2006).

25 What is a Ponzi scheme?, U.S. Sec. & Exch. Comm’n, https://www.sec.gov/fast-answers/answersponzihtm.html (last visited Apr. 11, 2018). 26 Forensic & Valuation Services Practice Aid Forensic Accounting – Fraud Investigations, published by the American Institute of Certified Public Accountants 2014, 

page 58 – Ponzi.

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giving other investors the impression that a legitimate profit-making business opportunity exists, 

where in fact no such opportunity exists.27

D.2. General factors to establish a Ponzi scheme 

Courts have found that to establish a Ponzi scheme, a plaintiff must establish that: 

(1) deposits were made by investors; (2) the Debtor conducted little or no legitimate business 

operations as represented to investors; (3) the purported business operations of the Debtor

produced little or no profits or earnings; and (4) the source of payments to investors was from 

cash infused by new investors.

28 

It is incontrovertible that with respect to Aequitas, (i) deposits were made by Investors, (ii) Aequitas 

acquired significant portfolios of consumer accounts receivable, (iii) Aequitas acquired significant and 

sometimes controlling interests in numerous businesses both related to and independent of the consumer 

accounts receivable, and (iv) that due to the exceptionally high leverage, high cost of capital, high 

operating, overhead and marketing costs, and generally poor performance of these various investments, a 

substantial portion of the principal and interest repaid to Investors during the past five years was possible 

only because of new funds from Investors. Moreover, as discussed in this Report, I believe that, at least 

since July 2014, Aequitas was insolvent, and the actual financial condition of Aequitas and activities 

undertaken were not accurately disclosed to Investors.

Ponzi schemes are doomed because their funding requirements increase geometrically over time (a $100

thousand investor earning 15% will be paid in a year by a $115 thousand investor earning 15% will be 

paid in a year by a $132 thousand investor, etc.). Consequently, there are not many exit strategies for the 

person running a Ponzi scheme. Ultimately the perpetrator will have to find an extraordinary investment 

that pays off handsomely in order to make sufficient money to cover the fraud — or fail. In the case of 

Aequitas, the collapse of funding contributed substantially to its inevitable failure — as there no longer 

were funds to pay Investor redemptions and returns nor to subsidize the many operating businesses that 

had negative cash flow — and to the resulting cross-defaults on significant financial institution debt. 

What adds complexity to the Ponzi evaluation in the instant case is that the Aequitas scheme included 

numerous actual business operations — albeit those operations generally produced no profits or, more 

often, produced significant losses, especially on an after debt-service basis (outside of COF, ETCFF, and 

WRFF) where equity investments were specifically solicited, all entities were capitalized almost entirely 

with debt. However, the existence of some legitimate business activities does not preclude the 

determination of a Ponzi scheme; there are other factors and concepts that would tilt the scale to one side 

or the other. We explore each of these concepts further in this Report as well as other additional factors 

that have been found to be determinative in establishing a Ponzi case.

E. Deeper dive and additional factors 

E.1. Investor monies were commingled

Commingling of funds frequently occurs in fraud cases and is notably common in Ponzi scheme cases. It 

occurs when funds belonging to one party are deposited into the same bank account as funds that belong 

to a different party and, even if there is a legitimate business, the investor’s funds cannot be traced to a 

27 Auza v. United Dev., Inc. (In re United Dev. Inc.), 2007 Bankr. LEXIS 4857 at *14; Hayes v. Palm Seedlings Partners (In re Agric Research) 916 F.2d 528, 531 

(9th Cir. 1990)(Citing, Cunningham v. Brown, 265 U.S. 1, 7-8, 44 S.Ct. 424, 425, 68 L. Ed. 873 (1924); see also Wyle v. C. H. Rider & Family (In re United Energy 

Corp.), 944 F.2d 589, 590 n. 1 (9th Cir. 1991).

28 Rieser v. Hayslip (In re Canyon Sys. Corp.), 343 B.R. 615, 630 (Bankr. S.D. Ohio 2006); see also Wiand v. Waxenberg, 611 F. Supp. 2d 1299, 1312 (M.D. Fla. 

2009); Forman v. Salzano (In re Norvergence, Inc.), 405 B.R. 709, 730 (Bankr. D. N.J. 2009). 

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specific investment. Because money is fungible, it is not possible to trace which dollars belong to which 

party if they reside in the same bank account. In the instant matter, each entity had its own bank 

accounts and the books and records contain sufficient detail to trace cash movements among the entities. 

However, the courts have also found that the transfer of money between accounts of different entities to 

meet these corporations’ liabilities also qualifies under the definition of commingling.29

The Aequitas organizational structure and movements of cash were extremely complex. However, as 

previously discussed, the books and records — after significant research and investigation — provide 

sufficient detail to effectively trace and identify cash movements of all transactions involving the Investors 

and amongst the Aequitas Entity. With very few exceptions (which usually related to the timing of the 

opening of an entity’s bank account), each entity had its own bank accounts and financials.

Simple (single step) transactions were generally accurately reflected on the books and records of the 

various entities. Oftentimes more complex, multi-entity transactions were recorded, and cash moved, 

based on the “ultimate outcome,” and intermediate steps (involving offsetting debits and credits) were 

not always recorded and cash did not move through the intermediaries’ bank accounts. 

E.1.1. Funds transferred based on cash needs rather than investment criteria 

As continued in E.1.6, the Manufactured Note process was established in order to retroactively justify the 

transfer of Investor cash from Aequitas Funds30 throughout Aequitas for the specific needs of Aequitas at 

the time. By allowing fluid and instantaneous transfers of cash throughout Aequitas, and then completing 

corresponding journal entries to increase or decrease relative “due-to/due-from” accounts or equity in 

subsidiaries, the cash would frequently not flow to the SPE that incurred the liability. 

Management’s ability to strip out equity and value in certain entities in favor of other entities’ needs can 

also be seen in Direct Note31 “conversions”. In times of low cash liquidity, management would negotiate 

with outside Investors to retain their investment in Aequitas (rather than receive redemptions) in 

exchange for better note terms (such as increased interest rates) or an apparently more desirable SPE as 

replacement obligor. If the SPE which received the original cash investment was illiquid at the time of 

the conversion (either due to illiquid investments, adverse investment results, or the SPE had already 

distributed its liquidations to ACF or affiliates), and therefore could not convey funds to the “transferee” 

SPE, then the transfer would be completed through non-cash journal entries, “converting” the liability to 

an obligation of the SPE and thereby stripping out its ostensible equity value (or ability to pay other 

creditors). 

E.1.2. Weider/Forman conversion

For example, on October 3, 2014, Weider Health and Fitness (“Weider” and together with Weider’s 

CFO Bruce Forman “Weider/Forman”) purported to have converted $6.0 million of debt owed by CSF 

Leverage I, LLC (“CSFLI”) into $6.0 million of alleged debt owed by CPH. A careful reading of the 

documents purporting to effect such “conversion” and a detailed review of the accounts of CPH reveal 

that CPH did not receive any consideration for the alleged $6.0 million obligation it purportedly 

incurred. 

29 Wing v. Dockstader, 2010 WL 5020959 at *5 (D. Utah 2010). 30 “Aequitas Funds” is a general term to describe any outside Investor fund (EIF, IOF, IOFII, IPF, PCF and Private Note) with exception of equity funds (such as 

COF, WRFF, ETCFF, AHF APF, etc.), AIO and Direct Notes. 

31 Direct Notes differ from Manufactured Notes, as they were marketed to outside Investors, who would generally send investments directly to an SPE, rather than 

investing in an Aequitas Fund (which fund would receive the Manufactured Note). Direct Notes are issued directly by pre-determined SPE silos, unlike Manufactured 

Notes which are issued based on asset availability in the Product Menu. Exceptions to this rule are Investor conversions from another Aequitas Fund (Ruh and 

Terrell), and Weider’s Direct Note conversion, as described in applicable sections. Further information on Direct Notes can be found in section F.1. 

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According to the business loan agreement which purports to establish the transaction, the loan would be 

created when “Lender shall disburse to Borrower [CPH] one Advance in the aggregate principal amount 

of $6.0 million ....” Advance is defined in the business loan agreement to mean “the disbursement of Loan 

funds made (or deemed made) to borrower pursuant to the terms of this agreement.” A review of the 

books and records shows that Weider never advanced the $6.0 million to CPH, nor were such funds 

transferred to CPH by any Aequitas entity on Weider’s behalf32. In other words, CPH was purportedly 

burdened to repay, to the detriment of its other Investors and creditors, $6.0 million it never received 

from Weider simply because Weider/Forman, together with the alleged perpetrators of the Ponzi-like 

scheme, “deemed” it so.

Summary of Weider/Forman investments: 

On May 3, 2011, Weider invested $2.0 million into Private Note at a 12% interest rate.

33 Funds were 

deposited into the Private Note bank account (“ACF-PN”),

34 then were transferred to IOF and used to 

send interest and redemptions to roughly 21 IOF Investors.35 Upon renewal in April 2013, a special terms 

approval request was submitted, as Weider was still receiving 12% interest and monthly payments, versus 

the 9% and quarterly interest for other Private Note holders.

36 This special treatment was approved by

Oliver and Andrew (Andy) MacRitchie.

37

On July 19, 2011, Forman invested $125 thousand into Private Note at a 12% interest rate.

38 Funds went 

into ACF-PN,

39 then were used by ACF-PN to help pay a redemption to Terrell Group Management

32 Over the course of time, funds were sent to CPH by other entities, but none of those funds were directly related to the conversion of the $6.0 million of Weider debt. 33 June 17, 2011 “Note (PN) Weider Health $2MM 12% 2yrs 5-3-11.pdf”; May 6, 2011 “Subscription Agrmt (PN) Weider Health $2MM May 2011”. 34 January 20, 2017, “Dkt 356_Forman’s Supplemental Declaration in Support of Limited Objection to COF Sale.pdf” page 4; Great Plains Journal Entry 54889 35 Great Plains Journal Entries: 54542, 54835-54836, 54842, 54848-54865, 54889, 55099. 36 May 16, 2013, “Special Terms Approval Request - Forman May 2013.pdf”. 37 Executive Vice President Corporate Development & Governmental Affairs. 38 August 15, 2011, “Note (PN) Forman $125K 12% 2 years 7-19-11 pay monthly.pdf”; July 29, 2011, “Subscription Agrmt (PN) Bruce Forman $125K July 

2011.pdf”. 39 Great Plains Journal Entry 62559.

ID Date Transaction

Note 

Holder

Cash/ 

Journal 

Entry 

(JE) CPF

AFSGLI 

/ CSFLI CPH

Private 

Note

Total 

Investment

Entity who ultimately 

received benefit of incoming 

funds

Entity who 

funded payout

1 05/03/11 Debt at ACF Weider Cash 2.0M 2.0M IOF -

2 07/19/11 Debt at ACF Forman Cash* 125K 2.1M ACF/CSF -

3 05/25/12 Debt at CPF Weider Cash 2.0M 4.1M CPLLC -

4 06/27/12 Debt at CPF Forman Cash 100K 4.2M CPF -

5 01/29/13 Debt at AFSGLI Weider Cash 5.0M 9.2M ACF/IOF/IPF/CPF & Skagit -

6 05/17/13 Additional debt at AFSGLI Weider Cash 3.0M 12.2M CSF -

6b 05/17/13 Additional debt at AFSGLI Forman Cash 500K 12.7M CSF -

6c 05/17/13 ACF Transfer to AFSGLI Forman Cash - Interco 125K - 125K 12.7M ACF ACF

7 09/10/13 CPF Pays Forman Forman Cash - 100K 12.6M - ACF

8a 11/15/13 CPF Debt transferred to AFSGLI Weider Cash - Interco -2.0M 2.0M 12.6M ACF/CPF/CSF CSF 

8b 11/15/13 ACF Debt transferred to AFSGLI Weider Cash - Interco 2.0M -2M 12.6M ACF/CPF/CSF CSF 

9 10/03/14 CSFLI debt transferred to CPH Weider JE - Interco -6.0M 6.0M 12.6M - -

9b 10/03/14 CSFLI Pays Weider Weider Cash -2.0M 10.6M - CPLLC/ACF

9c 10/03/14 CSFLI Pays Forman Forman Cash - 625K 10.0M - CPLLC/ACF

10 11/06/14 CSFLI Pays Weider Weider Cash -1.5M 8.5M - ACF

11 11/13/14 CSFLI Pays Weider Weider Cash -1.0M 7.5M - ACF

12 12/01/14 CSFLI Pays Weider Weider Cash -1.5M 6.0M - CPLLC/ACF

13a 06/29/15 Subsequent debt at CPH Weider Cash 4.0M 10.0M - Corporate Wide

13b 06/30/15 Subsequent debt at CPH Forman Cash 500K 10.5M - Corporate Wide

- - 10.5M -

Non Cash Adustments 6.0M -6.0M

 6.0M 4.5M

*Note- bank statement and wire activity missing for 7/19/11 investment

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(“TGM”)40, various legal bills, and the remaining funds were transferred to the operating bank account of 

affiliate ASFG, LLC (the entity “ASFG”,41 and the bank account “ASFG-Op”).

42 Along with the Weider 

Private Note above, Forman also received special terms approval in April 2013 for higher-than-average 

interest terms. 

On May 25, 2012, Weider invested $2.0 million into the Aequitas CarePayment Fund, LLC (“CPF”) at an 

11% interest rate. The offering was proffered by Aequitas for $3.0 million at 11%; however, Forman 

struck the second installment requirement from the subscription agreement. Once deposited into CPF,

43

the funds were contributed down to CarePayment, LLC (“CPLLC”, which was owned by CPF) along 

with an additional $100 thousand from other sources.

44 

On June 27, 2012, Forman invested $100 thousand into CPF at an 11% interest rate.

45 Funds were 

deposited into CPF, then appear to be combined with other funds to be transferred to CP Funding I, LLC 

the following day, reportedly to be used for additional asset acquisition.

46

On January 29, 2013, Weider invested $5.0 million into ASFG Leverage I, LLC (“ASFGLI”, later known 

as CSFLI) at a 12% interest rate.

47 After the deposit into ASFGLI, ASFGLI transferred the funds to 

ASFG-Op, and $1.2 million was used to pay down the CapitalSource Bank (“CapitalSource”) facility.

48 

Another $1.3 million was transferred to ACF, which subsequently transferred the funds to IOF, CPF, and 

IPF to make interest payments to prior Investors. On February 1, 2013, another $3.5 million was 

transferred from ASFG-Op to ACF, which subsequently made a $2.9 million advance to Skagit Gardens,

Inc. (“Skagit”), paid $400 thousand in consultant fees, and used the rest for various other accounts 

payable.

49 

On May 17, 2013, Weider invested $3.0 million50 and Forman invested an additional $500 thousand into 

ASFGLI at a 15% interest rate — substantially higher than other Investors were earning. The funds were 

transferred from ASFGLI to ASFG-Op,

51 then to the ASFG Blocked account.52 From there, the funds

were used to pay down the CapitalSource facility.

53 Forman’s total note equaled $625 thousand, which 

included a $125 thousand investment transfer from Private Note, summarized below. 

On May 17, 2013, Forman transferred his July 19, 2011 $125 thousand Private Note to ASFGLI. Forman 

was issued a note for $625 thousand, combining the value of the new cash noted above and the Private 

Note transfer.

54 The ACF Operating bank account (“ACF-Op”) sent the cash to ACF-PN, then ACF-PN 

transferred the cash to ASFGLI as an investment transfer.

55 From there, ASFGLI transferred the funds to 

ASFG-Op, and ASFG-Op transferred the funds back to ACF-Op via a distribution.

56 Thus, ASFGLI 

40 A company controlled by Patrick (Pat) Terrell, Aequitas Advisory Board Member. 41 ASFG was later known as Campus Student Funding, LLC (“CSF”), the holder of the CoCo student loan receivables. 42 July 22, 2011, Account Number 02001-00-000-10007 credit transactions. 43 January 20, 2017, “Dkt 356_Forman’s Supplemental Declaration in Support of Limited Objection to COF Sale.pdf” page 5; Great Plains Journal Entry 92864. 44 July 24, 2012, “2012.05 CPF PCB x398”. 45 July 10, 2012, “Subscription Agrmnt (CPF) Forman 401K $100K June 2012.pdf”. 46 July 24, 2012, “2012.06 CPF PCB x398.pdf”. 47 March 21, 2013, “Promissory Note (ASFG-Weider) 01-28-13 v1_0.pdf” as amended on November 1, 2013. 48 January 20, 2017, “Dkt 356_Forman’s Supplemental Declaration in Support of Limited Objection to COF Sale.pdf” page 5; Great Plains Journal Entry 92864; April 

15, 2013, “01 Jan 2013 Key Statement 8463.pdf”. In 2012, ASFG and CapitalSource Bank entered into a $40 million secured term loan facility, as amended and 

restated in 2013, for the purchase of student loan receivables. CapitalSource received full repayment, as confirmed on August 8, 2014. 49 April 15, 2013, “02 Feb 2013 Key Statement”. 50 May 4, 2016, “Promissory Note $3MM (ASFG Leverage I-Weider Health) 05-17-13 v1_0.pdf” as amended on November 1, 2013. 51 January 8, 2014, “2013.05 ASFG Lev KeyB x8463.pdf”. 52 January 8, 2014, “2013.05 ASFG KeyB x9470.pdf”. 53 January 8, 2014, “2013.05 ASFG PCB x1140.pdf”. 54 “Promissory Note $625K (ASFG Leverage I-Bruce Forman) 05-17-13 v1_0.pdf” as amended on November 1, 2013. 55 July 19, 2013, “2013.05 ACF PN x0007.pdf”. 56 January 8, 2014, “2013.05 ASFG KeyB x9470.pdf”.

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undertook the liability to Forman, yet the cash made a roundtrip, starting in ACF-Op and ending back in 

ACF-Op.

On August 28, 2013 William (“Bill”) Malloy57 coordinated with Forman and informed the Aequitas Fund 

Operations team that Forman would like to redeem his $100 thousand June 2012 investment in CPF.

58 

Originally, Forman has indicated this was to be a part of a new investment transfer into ASFGLI along 

with Weider’s May 2011 and May 2012 CPF and Private Note investments. However, Forman removed 

his personal investment from the transfer.

59 As CPF did not have adequate funds for the redemption, 

ACF-Op wired CPF the remaining amount needed, and funds were wired to Forman on September 10, 

2013.

60 

On November 15, 2013, Weider transferred the obligation to pay from ACF to ASFGLI its May 3, 2011 

$2.0 million Private Note61 and its May 25, 2012 $2.0 million CPF note62. To do this, there were a series 

of intercompany cash transfers and loans, as described below. Ultimately, ASFG (and IPF) provided 

funds to Private Note/CPF to complete the investment transfers:

1. First, ASFG-Op account transferred $3.0 million to ACF-PN. ACF-PN also received $1.0 

million from IPF as a loan advance.

63

2. Two transactions were completed from the $4.0 million received at ACF-PN. In both 

transactions, ASFGLI received $2.0 million, albeit sourced from money contributed by other 

Aequitas Investors and not Weider.

a. ACF-PN transferred $2.0 million to ASFGLI to complete the transfer of Weider’s May 3, 

2011 note liability to ASFGLI.64 

b. ACF-PN then transferred the remaining $2.0 million it had received from ASFG-Op/IPF 

to CPF as a loan paydown for other non-Weider related funds ACF had previously 

borrowed. CPF in turn sent the money to ASFGLI to complete the Weider transfer of the 

obligation to pay its $2.0 million May 25, 2012 note from CPF to ASFGLI.

65

3. Upon receipt of the funds, ASFGLI distributed $4.0 million to ASFG-Op. ASFG-Op then sent 

$1.0 million to ACF-Op, which was transferred to CPF for another (non-Weider) CPF 

redemption. ASFG-Op also sent $700 thousand to ACF-PN to make Private Note Investor 

payments.66

On October 3, 2014, after CoCo had defaulted on its obligation to backstop the defaulted student debt, 

Forman began negotiations with senior management for Aequitas to redeem the $12.0 million that

Weider/Forman had then invested in ASFGLI (which had been renamed CSFLI). Management informed 

Weider/Forman of Aequitas’ cash flow issues; understanding the stress being experienced based on 

Aequitas’ “stated lack of funding viability in 4Q14,” 67 Forman agreed to repayment of only one-half of 

57 Senior Vice President, Business Development and Investor Sales. 58 Email from Malloy to Hauck and Crow, “RE: Weider & Forman from CPF & PN to SMA acct”. 59 Email from Malloy to Wilcox, August 12, 2013, “RE: Weider PN and CP Fund Transfer”. 60 January 8, 2014, “2013.09 CPF KeyB x2400.pdf”. 61 Great Plains Journal Entry 149478. 62 Great Plains Journal Entry 149942. 63 June 20, 2014, “2013.11 ACF PN x0007.pdf”. 64 June 16, 2015, “2013.11 ASFG Lev KeyB x8463.pdf” 65 June 20, 2014, “2013.11 CPF KeyB x2400.pdf”. 66 June 16, 2015, “2013.11 ASFG KeyB x9470.pdf”. 67 Email from Forman to Janke, September 26, 2014, “Re: CSF Leverage I”. 

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Weider’s investment paid out of CSFLI and to convert the remaining amount into a $6.0 million 

promissory note from CPH at 7% interest.

68 No cash was moved for the “investment transfer” by which 

CPH became liable for a $6.0 million note. To complete the double-entry bookkeeping, the offsetting 

entry was booked as a reduction in ACF’s equity investment in CPH, which provided CPH no benefit 

whatsoever.

69 

With respect to the $6.0 million Weider note and $625 thousand Forman note which were to be redeemed, 

rather than converted, Forman agreed to a schedule of staged redemptions between October 3, 2014 and 

December 1, 2014:

1. On October 3, 2014, $2.0 million of Weider’s and $625 thousand of Forman’s staged CSFLI 

redemptions were paid,

70 with $4.0 million still listed as outstanding. CSFLI did not have 

adequate cash to make the redemption. Therefore, on September 30, 2014, CPLLC distributed 

$1.7 million to ACF-Op as an equity distribution; ACF-Op then combined it with additional, 

mostly Investor-provided funds from a variety of sources (including CP Leverage I, LLC, ACM, 

ACF-PN, IOF, and AP2PF) to send the needed $2.6 million to CSFLI.

71 Wires were then sent to 

Weider and Forman on October 3, 2014.

72 

2. On November 6, 2014, another $1.5 million of Weider’s staged CSFLI redemptions was to be 

paid.

73 To fund these payments, ACF-Op and ACF-PN sent the funds to the operating bank 

account of CSF (“CSF-Op”),

74 which sent them to CSFLI to make the redemption.75 ACF-Op 

and ACF-PN primarily received the funds from Investors making new investments into Private 

Notes. 

3. On November 13, 2014, $1.0 million of Weider’s staged CSFLI redemptions was to be paid.

76 

To fund, ACF-PN sent CSF-Op the funds,

77 which sent them to CSFLI to make the redemption.78 

ACF-PN received the funds from several large Private Note Investors who invested their funds 

that day. 

4. On December 1, 2014, the final $1.5 million of Weider’s staged CSFLI redemptions were to be 

paid.

79 To fund, CPLLC transferred $1.2 million directly to ACF-PN (bypassing the intermediary 

ownership entities), which then combined the funds with others on hand and sent $1.5 million to 

CSF-Op.

80 CSF-Op then sent the funds to CSFLI to make the redemption.81 

Seven months later, on June 5, 2015, Oliver began discussions with Forman, in order to extend Weider’s 

outstanding $6.0 million investment.

82 Forman originally came to Oliver, requesting a segregated pool of 

CarePayment receivables (with special restrictions on institutional debt) at a 12% interest rate. On June 9, 

Oliver responded noting that a segregated pool might not be possible and stated that he believed a 12% 

68 October 3, 2014, “Note $6MM (CarePayment Holdings-Weider Health) 10-03-14 v1_0.pdf”. 69 Great Plains Journal Entry 192414. 70 Great Plains Journal Entry 190068. 71 Aequitas Commercial Finance LLC September 2014 Full Analysis Checking. 72 CSF Leverage I LLC October 2014 Full Analysis Checking. 73 Great Plains Journal Entry 194180. 74 Campus Student Funding LLC November 2014 Full Analysis Checking. 75 CSF Leverage I LLC November 2014 Full Analysis Checking. 76 Email from Janke to Forman, November 12, 2014, “Re: Aequitas repayment”; Great Plains Journal Entry 194182. 77 Campus Student Funding LLC November 2014 Full Analysis Checking. 78 CSF Leverage I LLC November 2014 Full Analysis Checking. 79 Email from Ades to Abushaaban and Pyne, December 1, 2014, “12.1.14 Weider Payout”; Great Plains Journal Entry 197030. 80 Campus Student Funding LLC December 2014 Full Analysis Checking. 81 CSF Leverage I LLC December 2014 Full Analysis Checking. 82 Email from Oliver to Forman and Malloy, June 5, 2015, “Re: Weider Health & Fitness”. 

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cost of capital would make the overall financing prohibitive. On June 23, Forman stated that without the 

bank debt leverage, he had new terms, which included an interest rate increase to 17%.

83 On June 23, 

Oliver responded:

In regards to the proposed 17% interest rate, not sure I can sell that internally. We would be 

much more motivated to consider it if the new funds could in fact be advanced by Monday June 

29th, which would allow us to take advantage of some other attractive quarter end asset 

purchases available to us that we would otherwise have to forego.

84 Before I advance the 

consideration of this proposal internally, would you let me know if funding the additional 

$4,000,000 by Monday would be a possibility?

Forman then agreed to increase the note by $4.0 million. Oliver responded that it would be in a senior 

position, with a guarantee from ACF, and that the highest cost of capital enterprise-wide was less than 

15%. Forman continued to assert that he would accept no less, and through later discussions Forman 

agreed, on June 24, to convert Weider’s existing $6.0 million into a CPH note at 14% (plus 1pt extension 

fee), or to provide $10.0 million at 17% (later extended to include Forman’s $500 thousand personal 

investment).

85

On June 29, 2015, Weider wired the additional $4.0 million into CPH.

86 On that date, the parties 

amended and restated the original October 3, 2014 promissory note to increase the amount to $10.0

million and to increase the interest rate of the entire CPH liability from 7% to 17% (10 percentage point

increase).

87 The $4.0 million went into CPH,88 then in a series of intercompany transfers, the funds were 

transferred out to other entities as described below (combined with Forman’s $500 thousand):

89 

1. $2.5 million was transferred up to ACF, and ultimately over to ACC Funding Trust 2014-2 

(“ACCFT-2”) to fund its acquisition of consumer loans from Freedom Financial Network and 

their affiliates (“FFN”). 

2. $1.9 million was transferred up to ACF, which combined with other funds was sent in a series of 

transfers to pay RP Capital commission payments and many other transfers which in turn 

ultimately funded the following entities for various cash needs: AH, MLF, ACCFT-2, AP2PF, 

ACL, IOF, ACC Funding Trust 2014-1 (“ACCFT-1”), CSF, ACF-PN, WRFF and others. 

On June 29, 2015, Forman invested $500 thousand into CPH at 17% interest.

90 Cash went into CPH, then 

combined with Weider’s $4.0 million to complete the series of intercompany transfers listed above. 

Thus, every penny of the $4.5 million of Weider/Forman money CPH received in cash was transferred out 

of CPH for other Aequitas purposes within a day of deposit. 

The following chart summarizes the transactions that converted and partially redeemed Weider and 

Forman’s $12.6 million investment in ASFGLI/CSFLI, as well as the follow-on cash investments in CPH:

83 Email from Forman to Oliver, June 23, 2015, “follow-up proposal”. 84 As noted below, $2.5 million of the investment went towards FFN asset purchases, whereas the remaining amount was transferred to ACF to be used corporate-wide 

for commission payments, interest payments, redemptions, etc. 

85 Email from Forman to Oliver, June 23, 2015, “follow-up proposal”. 86 Great Plains Journal Entry 229204. 87 June 29, 2015, “A&R Promissory Note - $10M (CarePayment Holdings-Weider Health) 06-29-15”; “A&R Business Loan Agreement - $10M (CarePayment 

Holdings-Weider Health) 06-29-15.pdf”. 88 August 20, 2015, “2015.06 CPH BA x6607.pdf”. 89 August 18, 2015, “06 - Jun2015 ACF Op x7815.pdf”. 90 June 30, 2015, “Promissory Note $500K (CarePayment Holdings-Forman) 06-29-15.pdf”; “Business Loan Agmt (CarePayment Holdings-Forman) 06-29-15.pdf”. 

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E.1.3. Aequitas Corporate Lending, LLC

On April 1, 2015, CSF Leverage II, LLC was reorganized and renamed ACL, a limited liability company. 

ACF was the sole member of ACL. ACL originated and funded loans to business entities for working 

capital and other purposes. 

On April 1, 2015, following the name change to ACL, ACL and ACF entered into a contribution 

agreement wherein ACF contributed its interest in various loan agreements and promissory notes 

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Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 20 of 174
receivable with outstanding principal balances totaling $25.3 million. The consideration for this 

contribution was an increase in ACF’s capital account balance with ACL. The contributed notes were as 

follows (all values as of the April 1, 2015, transaction date and include accrued and unpaid interest): 

1. ACF’s interest in the business loan agreement dated December 31, 2013, and associated 

promissory note with EDPlus Holdings, LLC (“EdPlus”), totaling $16.1 million. EdPlus was an 

Extended Entity of the Receivership and was a majority-owned subsidiary of COF at the time of 

the sale of the Receivership’s interest in the fund.

2. ACF’s interest in the business loan agreement dated May 13, 2009 and associated promissory 

note with Syncronex, LLC (“Syncronex”), totaling $2.7 million. Syncronex is an Extended 

Entity of the Receivership and is a wholly-owned subsidiary of APF.

3. ACF’s interest in the business loan agreement dated January 14, 2014 and associated promissory 

note with Syncronex totaling $1.0 million.

4. ACF’s interest in the business loan agreement dated January 31, 2014 and associated promissory 

note with Aspen Grove Equity Solutions, LLC (“AGES”), totaling $1.7 million. 

5. ACF’s interest in the business loan agreement dated July 1, 2014 and other related documents 

with SCA Holdings, LLC (“SCAH”), totaling $1.6 million. SCAH was a partially-owned 

subsidiary of COF at the time of the sale of the Receivership’s interest in the fund.

6. ACF’s interest in the business loan agreement dated April 15, 2014 and related documents with 

Fieldstone Financial Management Group, LLC (“Fieldstone”) totaling $1.6 million. Fieldstone is 

not a related party to the Receivership Entity or Extended Entities.

7. ACF’s interest in the convertible promissory note dated August 15, 2014 with Gladstone 

Technology Partners, LLC (“Gladstone Technology”), totaling $563 thousand. Gladstone 

Technology is not a related party to the Receivership Entity or the Extended Entities.

In conjunction with these contributions of assets, ACL assumed the ACF liabilities related to a 

subordinated note payable to IOFII totaling $1.8 million. The notes receivable were carried at par value, 

with no allowance or reserve for doubtful repayments. Thus, the ACF capital account balance following 

the April 1, 2015 reorganization of ACL was $23.5 million.

On May 1, 2015, ACF and ACL entered into a second contribution agreement wherein ACF contributed 

its interest in various loan receivables from CarePayment Technologies, Inc., (the entity, “CPYT”, and the 

loan receivables, the “ACF-CPYT Note”) with an aggregate outstanding indebtedness of $18.1 million 

(now “ACL-CPYT Note”). CPYT was an Extended Entity of the Receivership and was a majority-owned 

subsidiary of COF at the time of the sale of the Receivership’s interest in the fund. The consideration for 

this contribution was an increase in ACF’s capital account balance with ACL. Following this 

contribution, the ACF capital account balance was $41.6 million.

On May 1, 2015, following the contribution of the ACF-CPYT Note, ACF sold its interest in ACL to AH. 

The consideration for the transaction was an increase in the intercompany receivable from AH to ACF

(“ACF-AH Note”) of $41.8 million (capital account balance plus net income).

Between May 21, 2015 and May 29, 2015, CPYT made four payments on the ACL-CPYT Note totaling 

$17.9 million: a payment on May 21 totaling $6.2 million, a second payment on May 21 totaling $6.0 

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Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 21 of 174
million, a payment on May 22 totaling $1.5 million, and a payment on May 29 totaling $4.2 million. As 

of May 31, 2015, the balance on the ACL-CPYT Note was $228 thousand.

For each of the four payments, CPYT paid cash directly to the AH bank account; ACL did not have its 

own bank account at the time. AH decreased its investment in ACL, and ACL decreased the outstanding 

balance of the ACL-CPYT Note. AH then immediately sent the cash received from CPYT to ACF-Op.

E.1.4. William (Bill) Ruh note with ACL91

Short-term Private Note bridge loan summary: 

In November 2014, management informed several insiders that there was a delay in incoming funds from 

IOFII, COF and Private Note that caused a liquidity need at Aequitas. To finance several commitments, 

management needed to raise at least $15.0 million in 12 days. 

To accomplish this, Oliver reached out to several insiders, including Ruh92, offering “a ‘friends and 

family’ Aequitas Special Terms Private Note Bridge Loan Offering.”93 At that time, standard terms for 

Private Note required at least a 6-month investment, at a rate of 5%. However, Oliver offered these 

insiders a 90-day term, at 15% interest.

94 There were six insiders who invested $1.7 million, plus $2.5 

million from Robert Zamarripa and $2.0 million from Michael Zuffinetti. Per internal records, Oliver 

pre-approved these terms; however, the special terms were not sent for formal Credit Risk Committee 

approval until February 18, 2015.

95 

On November 14, 2014, Ruh wired ACF-PN $500 thousand and received a Private Note bearing 15% 

interest, although the funds were received two days after Oliver’s offering was set to close.

96 The note 

was scheduled to be redeemed in 90 days, on February 16, 2015.97 

However, in February 2015 there was over $26.2 million of Private Notes due to be redeemed to 

Investors. Oliver, Jesenik, Brian Rice98 and Olaf Janke99 worked the list of maturities to attempt to 

extend or have reinvested as many of these funds as possible.

100 Ruh agreed to several extensions, with 

the note always carrying the 15% interest rate.

101

nD Bancgroup investment: 

In February 2015, Ruh presented to the Aequitas Investment Committee (“IC”) a proposal to invest $2.6 

million equity into nD Bancgroup (“nD”) for the COF portfolio. nD is a bank holding company, which 

sold real-time transaction and payment services through its payment processing system. The IC approved 

the investment, subject to some additional due diligence and negotiation items.

102

Cash shortage: 

91 Includes Summary of all investments that became a part of the Ruh ACL investment, but excludes other non-ACL related investments such as his June 2013 and 

July 2014 Private Notes.

92 Managing Principal, Capital Opportunities Fund, Executive Vice President. 93 Email and attachments from Oliver to Jesenik, MacRitchie, Janke, Szabo, Froude, et. al, November 4, 2014, [No Subject]. 94 November 4, 2014, “Secured Subordinated Promissory Note” sample. 95 January 22, 2015, “Special Terms Approval Request”. 96 November 14, 2014, “Ruh Aequitas Private Note Secured Subordinated Debt Offering Subscription Booklet”; “Secured Subordinated Promissory Note”; 

"Accounting Details”; email and letter from Aequitas Investor Services to Ruh.

97 Ruh’s bridge loan note is individually highlighted as a lead in to the nD Bancgroup investment that is discussed in the following section. 98 Executive Vice President of Wealth Management. 99 Executive Vice President, Finance and Chief Financial Officer. Separated April 30, 2015. 100 Email from Oliver to Rice, February 7, 2015, “Private Note Redemptions”. 101 March 27, 2015, “1st Note Amendment Ruh Trust 2-16-15.doc”; letters from Aequitas Investor Services to Ruh. 102 February 2, 2015, nD Bancgroup documentation including: “Investment Committee Minutes,” “nD Bancgroup Underwriting Report”. 

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Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 22 of 174
At the beginning of the day on May 8, 2015, there was a combined total of $3.2 million of funds in 

Aequitas’ 32 accounts. However, there was also $4.2 million in outstanding checks cut from 14 of the 32 

entities. Given the lack of funds, Aequitas held ~$3.7 million of these checks (including redemptions to 

Private Note Investors, payments to lawyers, etc.). Aequitas then chose to segregate $1.8 million in COF, 

to be used for the nD investment. Aequitas entities then received an additional $1.9 million from new 

IOFII and Private Note Investors (both swept to ACF-Op), but after other payments, Aequitas ended the 

day with only $1.5 million available cash.

103 In addition to the ~$3.7 million of held checks, management 

projected a two-week net deficit of $2.3-40.6 million, which range primarily depended upon a potential 

$35.0 million investment into EIF from Trust Capital Holdings. 

Investment negotiations: 

When Ruh was notified the Aequitas nD investment may not occur due to this cash shortage, Ruh reached 

out to Oliver and Craig Froude.

104 As summarized in an email between Oliver, Jesenik, MacRitchie, Rice 

and Gillis:

105 

Bill [Ruh] feels a personal obligation/commitment to get the nD Bancgroup investment funded by 

mid-week next week, as not completing the investment will cause nD Bancgroup challenges and 

hardship and Bill of course feels strongly that it would be bad form and create reputational risk 

for Aequitas if we in fact do not fund as committed.

Oliver informed Ruh that there was only $1.6-1.7 million available in the COF account at that time. Ruh 

then agreed to loan Aequitas the additional $750 thousand needed for the investment, if Aequitas would 

exclusively use the funds to complete the investment mid next-week. 

Ruh then entered negotiations with Oliver, stating that he would like to roll his November 14, 2014

Private Note bridge loan into his new investment, therefore creating a single note. Ruh initially requested 

a senior secured position in COF or MLF assets; however, Jesenik stated he would approve the 

transaction if Ruh invested in the corporate debt entity instead (to be named ACL). Ruh reluctantly 

agreed to this arrangement, under the following terms: 

1. First lien position in all assets of ACL

2. Redemption on August 1, 2015

3. 15% interest through August 1, 2015

a. Increase to 20% should it be redeemed after August 1, 2015

4. To repaid at the earlier of:

a. Maturity date

b. Such time as third-party financing > $5.0 million is obtained by borrower entity

c. Such time as any other ACF or affiliate financing is obtained of $10.0 million or greater

Objections to investment: 

103 Email from Abushaaban to Jesenik, Gillis, Rice & Oliver, May 8, 2015, “Cash Report | 5/8”, “Cash Dash 5|8” and responses. 104 Executive Vice President, Managing Principal Capital Opportunities Fund. 105 Email from Oliver to Jesenik, Froude, Rice, Gillis and MacRitchie, May 9, 2015, “nD Bancgroup / Bill Ruh”. 

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Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 23 of 174
MacRitchie objection: 

When Oliver notified the parties of the investment, MacRitchie responded they should not continue with 

any discretionary investments, given the status of ACF’s debt backlog.

106 MacRitchie’s email stated:

Brian. Based on what you were briefing me on I just can't see any situation where we should be 

making discretionary investments at this time. If COF is sitting with $1.7m then we should be 

having it pay down some of ACFs debt or at a minimum fund the credit lines to the COF portfolio 

companies. Why does COF only have $1.7m if it has a $2.6m commitment - why should ACF be 

expected to fund the difference - that's not how other PE funds work. Lastly, I appreciate Bill's 

desire to support but we cannot provide partners with better terms than PN holders. This is a 

huge conflict and if we decide to proceed will require CRC sign off. I'd rather we upset ND than 

fail to cover payroll. (By the way I really like the ND deal but that isn't the issue).

No apparent written response was made to MacRitchie in related emails. However, MacRitchie later sent 

his approval via email, approving the transaction on ACM’s behalf.

107 

In-house legal counsel: 

A member of the in-house legal team responded to Oliver and stated that Ruh must be informed of the 

SEC investigation prior to making his investment.

108 Oliver responded that it should not be a problem to 

disclose. 

Covenant breach and collateral transfer: 

One week after receiving Ruh’s funds, ACL was to accept additional funds from TGM into ACL. 

However, there was not enough collateral in the ACL entity to comply with Ruh’s limit of 30% senior 

indebtedness (requirement of $30.0 million in loans receivable, whereas ACL only had $24.7 million 

available at the time).

109 

To comply and keep Ruh and TGM’s investment, Oliver proposed that ACF contribute its 2011 CPYT 

note receivable to ACL (IOF held a participation interest in this note, which needed to be eliminated 

through a re-purchase by ACF). Through a series of non-cash entries, Aequitas back-dated ACF’s 

repurchase of IOF’s participation in the ACF-CPYT Note to May 1 and contributed the loan to ACL110

(for further details, please see F.3). 

nD investment approval by Aequitas management: 

On the day of the transfer, Aequitas’ Treasury department was given 30 minutes to compile all approvals 

and release the $2.6 million wire to nD.

111 Per the exchanges, there was an outstanding need for IC to 

approve the completion of due diligence on the investment, as well as officers of ACM to approve the 

transaction.

112 Oliver113 and MacRitchie114 approved the investment on behalf of ACM. Additionally, it 

106 Email from MacRitchie to Oliver, May 9, 2015, “nD Bancgroup / Bill Ruh”. 107 Email from MacRitchie to Abushaaban, May 13, 2015, “RE: APPROVAL REQUIRED: nD Bancorp Wire”. 108 Email from Myers to Oliver, May 12, 2015, “nD Bancgroup / Bill Ruh”. 109 Email from Oliver to Terrell, May 19, 2015, “Terrell Group Loan to Aequitas Corporate Lending, LLC”. 110 May 20, 2015, “Transfer of CPYT Note”; Investment Committee Memo. 111 May 13, 2015, “Outgoing Payments Report”. 112 Email from Abushaaban to Oliver, Ruh, Jesenik, Gillis, et. al, May 13, 2015, “APPROVAL REQUIRED: nD Bancorp Wire”. 113 Email from Oliver to Ruh, Jesenik, Gillis, Abushaaban, et. al, May 13, 2015, “RE: APPROVAL REQUIRED: nD Bancorp Wire”. 114 Email from MacRitchie to Abushaaban, May 13, 2015, “RE: APPROVAL REQUIRED: nD Bancorp Wire”. 

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was noted that AIM needed to approve the investment as its Investment Advisor. Jesenik115 and Ruh116

waived/approved on behalf of AIM.

117 

Cash investment and use of funds: 

While Ruh’s note was an obligation of ACL, the intention of Ruh’s investment was to have the funds be 

available for COF. Through a series of non-cash entries, Ruh’s investment was completed as follows:

1. Cash deposits

a. November 14, 2014 - initial cash deposit of $500 thousand in ACF-PN

b. May 13, 2015 – cash deposit of $750 thousand in COF118

2. Non-cash journal entries119

a. Private Note to ACL conversion:

120

i. Compounding of accrued Private Note interest ($37 thousand) into investment

ii. Non-cash decrease in ACF-AH Note of $537 thousand

iii. Non-cash reduction of AH equity in ACL of $537 thousand

iv. ACL to assume $537 thousand liability to Ruh by issuing note ACLLLC00002

b. COF to ACL conversion:

121 

i. Non-cash decrease in ACF line of credit to COF by $750 thousand

ii. Non-cash decrease in ACF-AH Note of $750 thousand

iii. Non-cash reduction of AH equity in ACL of $750 thousand

iv. ACL incurred an additional $750 thousand liability to Ruh under note 

ACLLLC00002

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

115 Email from Jesenik to Abushaaban, May 13, 2015, “RE: APPROVAL REQUIRED: nD Bancorp Wire”. 116 Email from Ruh to Abushaaban, May 13, 2015, “RE: APPROVAL REQUIRED: nD Bancorp Wire”. 117 nD Bancgroup subscription booklet and subscription agreement. 118 Email from CashPro Notifications to CF Incoming Funds, May 13, 2015, “CashPro Notification Incoming Wire Confirmation”. 119 Email from Abushaaban to Walker, Steigerwald, House and Kuzcer, May 13, 2015, “FW: APPROVAL REQUIRED: nD Bancorp Wire”. 120 Email from Abushaaban to Pyne, Gillis, House, et. al, May 13, 2015, “Bill Ruh | Investment in ACL & PN transfer.”; June 09, 2015, “Adjusting Journal Form – 

JE# 225044.pdf”. 121 June 09, 2015, “Adjusting Journal Form – JE# IAJ000017582”. 

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As such, ACL never received any of the $1.2 million. The initial $500 thousand was received by ACFPN and the later $750 thousand was received by COF. Instead of receiving and booking a cash receipt, 

ACL booked the liability to Ruh through booking a decrease in the ACF-AH Note and a reduction in 

AH’s equity in ACL. 

Ruh redemption: 

Ruh was redeemed on August 4, 2015, three days after his scheduled redemption date. As Ruh had been 

receiving monthly interest payments, his payoff included July interest at 15% ($17 thousand) plus 20% 

for August ($2 thousand), for a total payout of $1.3 million.

As ACL had no cash to redeem Ruh at the time, ACL received the needed $1.3 million from other 

internal sources. Cash was transferred to ACL from ACF, which received the funds from EIF and 

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CPLLC. EIF had just received new Investor funds from ACA Master Select Fund ($619 thousand), and 

CPLLC had receivable collections of $1.2 million. These entities transferred their combined $1.8 million 

to ACF, which then sent $1.3 million to ACL (with the offsetting accounting being an increase in the 

ACF-AH Note) and $500 thousand to ACCFT-1 for a FFN loan funding. An illustration of the ACL 

funding and Ruh redemption is below:

E.1.5. Terrell Group Management note with ACL

As of the SEC Complaint Date, TGM held a senior secured promissory note from ACL with principal of 

$7.7 million. This liability originated from earlier secured demand notes executed in favor of TGM by 

DC Equipment Finance, LLC (“DCEF”) – a former Aequitas entity that is not included in the 

Receivership Entity.

Initial investment in DCEF: 

TGM sent cash to Aequitas in three different ways. For each investment tranche in 2009, and one 

additional tranche on December 7, 2012, totaling $9.0 million, TGM sent cash directly to DCEF and 

received as consideration a secured demand note. 

After January 1, 2010, additional cash investments from TGM relating to the DCEF secured demand 

notes were recorded differently; the two exceptions to this are the $1.4 million transaction on December 

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7, 2012 (as described above) and the $2.1 million transaction on August 31, 2011 (as described in more 

detail in the paragraph below). Through this second method, TGM sent cash directly to ACF. ACF 

recorded a debit to its cash account and a credit to its intercompany payable account with DCEF. DCEF 

recorded a debit to the intercompany receivable account from ACF, and a credit to the TGM account. 

Between April 2010 and November 2014, TGM invested an additional $14.9 million.

On August 31, 2011, TGM contributed an additional $2.1 million towards its DCEF secured demand 

notes via a payment to ACF. ACF recorded a debit to its cash account and a credit to its investment 

account with DCEF. DCEF recorded a debit to the intercompany payable account with ACF, and a credit 

to the TGM account. The cash did not go to DCEF.

During the period from April 2009 to March 2015, TGM received payments from ACF on the DCEF

notes, totaling $24.7 million, which were recorded in the books and records as $20.2 million in principal 

redemptions and $4.5 million in interest payments. As of May 20, 2015, the book balance of the TGM 

DCEF notes was $5.9 million.122 

Conversion from DCEF to ACL: 

On May 20, 2015, TGM and DCEF, along with other Aequitas entities, entered into an assignment and 

assumption agreement with ACL wherein ACL assumed liability for the $5.9 million of secured demand 

notes payable by DCEF.123 At the time of the transaction, DCEF did not contribute any cash to other 

Aequitas entities, as the DCEF bank account had less than a $1 balance. Additionally, per the 2015 

monthly balance sheet, the only other asset held by DCEF at the time of the transaction was a $1.7 million

intercompany payable due from ACF. Rather, for compensation, ACF (as parent of DCEF) accepted a 

$5.9 million increase in an intercompany “due to” account from DCEF to ACF (a clearly worthless 

receivable as there was no assets at DCEF other than a smaller note receivable from ACF). In turn, ACF 

decreased its ACF-AH Note by the same amount, purportedly converting the TGM liability from DCEF 

as obligor to AH as obligor. AH then, as ACL’s parent entity, converted the $5.9 million liability of AH 

as obligor to ACL in exchange for reducing AH’s equity investment in ACL by the same amount. This is 

described on the right side of the below chart. 

TGM also contributed $1.9 million cash, bringing the initial principal amount of the senior secured 

promissory note (“TGM-ACL Note”) to $7.8 million.124 This cash was contributed to an ACF bank 

account in two tranches: on May 20, 2015, TGM wired $1.9 million to ACF-PN, which was then 

transferred to ACF-Op the following day, and on May 22, 2015, a TGM check for $5 thousand was 

deposited into ACF-Op. While ACL did not receive the cash benefit of either of these tranches, ACL 

assumed the liability for the additional investment under the same increases and reductions of 

intercompany payable and intercompany equity accounts described on the left side of the following chart. 

The $1.9 million in new cash was comingled in ACF-Op with cash from six other internal entities. From 

there, ACF sent the cash to seven other internal entities for various corporate uses. In the days covering 

the bottom portion of the following chart, a total of $21.6 million of SPE/Aequitas Funds’ cash was 

transferred to ACF, with $20.8 million being sent out by ACF to various other SPE/Aequitas Funds via 25 

intercompany bank transfers, as described below. 

 

122 During this time period, TGM held only notes payable by DCEF yet received payments from ACF accounts. ACF was a guarantor on the DCEF to TGM notes. 123 September 9, 2015, “Assignment and Assumption Agreement - Terrell Group Note (DCEF-ACF-AH-ACL) 05-20-15.pdf”. 124 June 17, 2015, “ACL - Senior Secured Note $7,773,000 (Terrell Group) 05-20-15.pdf”.

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Additional TGM to ACL investments: 

The TGM-ACL Note was amended a total of three times in May and June 2015, corresponding with the 

contribution of additional capital to Aequitas or conversion of investments in other Aequitas products.

The first amendment to the TGM-ACL Note occurred on May 27, 2015.125 TGM contributed an 

additional $100 thousand. TGM sent cash to the AH bank account; an ACL bank account was not 

established until June 24, 2015. The liability for the cash was converted to ACL in exchange for a 

reduction in AH’s equity investment in ACL. AH sent the cash to ACC Holdings 2, LLC (“ACCH2”) to 

fund a FFN loan purchase. 

The second amendment to the TGM-ACL Note occurred on June 11, 2015.126 TGM sent an additional 

$422 thousand in cash to the AH bank account. The transaction was booked to the general ledger in the 

same fashion as the first amendment to the TGM-ACL Note. On June 12, 2015, $423 thousand (inclusive 

of the TGM investment, as corroborated by the AH bank statements) was sent from AH to ACF-Op, 

reducing the ACF-AH Note.

The third amendment to the TGM-ACL Note occurred in two parts, on June 23 and 24, 2015.127 On June 

23, TGM sent $550 thousand cash to the AH bank account on behalf of a family member/friend Doug 

Antone. Terrell had encouraged Antone to invest this amount under the TGM-ACL Note, as Terrell 

claimed additional senior secured position and guarantees.128 The transaction was also booked to the 

general ledger in the same fashion as the first amendment to the TGM-ACL Note. That same day, AH 

sent $2.3 million (inclusive of the TGM investment, as corroborated by the AH bank statements) to ACFOp. The Receiver believes ACL was insolvent during this period. 

On June 24, Terrell instructed Antone’s $500 thousand senior secured promissory note from IOF (which 

was due for redemption) to be transferred into the TGM-ACL Note.

129 As IOF only had $12 thousand 

available in its cash account, ACF-Op transferred $500 thousand to IOF, and this was booked as a 

decrease in the intercompany payable due to IOF. IOF then transferred the $500 thousand cash to ACL as 

cash consideration for the note increase.

130 ACL immediately transferred $250 thousand of this amount to 

CPYT as an advance on ACL’s business loan agreement with CPYT. The remaining $250 thousand was 

transferred to the AH bank account and booked as an equity reduction, and then transferred back to ACFOp and booked as a reduction in the ACF-AH Note. 

As of June 2015, the TGM-ACL Note balance totaled $9.3 million.

ACL interest payments and partial redemptions: 

Per the terms of the TGM-ACL Note, TGM received monthly “interest” payments at 13% per annum. 

From June 2015 through February 2016, TGM received $879 thousand in interest. The June 2015 interest 

payment was paid from the AH bank account, as an ACL account had not yet been established; all other 

interest payments were paid from the ACL bank account. 

On June 19, 2015, AH received an $86 thousand cash transfer from ACF-Op. AH used this cash to pay 

the June 2015 TGM interest payment.

125 June 17, 2015, “ACL - Senior Secured Note - 1st Amendment (Terrell Group) 05-27-15.pdf”. 126 June 17, 2015, “ACL - Senior Secured Note - 2nd Amendment (Terrell Group) 06-11-15.pdf”. 127 July 7, 2015, “ACL - Senior Secured Note - 3rd Amendment (Terrell Group) 06-23-15.pdf”. 128 Email from Terrell to Oliver, June 19, 2015, “Doug Antone” and Email from Antone to Donnelly, June 18, 2015, “Re: Aequitas Documents”. 129 Email from Terrell to Oliver, June 19, 2015, “Doug Antone”. 130 Aequitas Income Opprtunty (sic) Fund, LLC June 2015 Full Analysis Checking. 

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On July 17, 2015, ACF-Op advanced $95 thousand to AH and increased its ACF-AH Note. AH then 

advanced that $95 thousand to ACL as an equity contribution to ACL. ACL then used that $95 thousand 

to cover the majority of TGM’s $100 thousand interest payment.

On August 19, 2015, ACF-Op advanced $380 thousand to AH and increased its ACF-AH Note. AH then 

advanced $223 thousand of that amount to ACL as an equity contribution (remaining cash was sent to 

another Aequitas entity). ACL then used $105 thousand of that amount to pay the TGM monthly interest 

payment ($110 thousand of the remaining cash was used to fund the ACL-CPYT Note).

On September 18, 2015, ACF-Op advanced $105 thousand to AH and increased its ACF-AH Note. AH 

then advanced that $105 thousand to ACL as an equity contribution. ACL then used $105 thousand of 

that amount to pay the TGM monthly interest payment.

On October 19, 2015, ACF-Op advanced $98 thousand to AH and increased its ACF-AH Note. AH then 

used that amount plus additional money in its own bank account to advance $102 thousand to ACL as an 

equity contribution to ACL. ACL then used $101 thousand of that amount to pay the TGM monthly 

interest payment. 

On November 19, 2015, CSF transferred $255 thousand to ACF-Op, as an equity distribution. ACF-Op

then advanced the $255 thousand to AH and increased its ACF-AH Note. AH then advanced that $255 

thousand cash to ACL as an equity contribution to ACL. ACL then used $255 thousand of that amount to 

pay the TGM monthly interest payment of $105 thousand and a $150 thousand partial principal 

repayment of the TGM-ACL Note. This is described on the left-hand side of the “TGM Partial 

Redemptions & Source of Funds” chart below. 

On December 17, 2015 ACF-Op advanced $97 thousand to AH and increased its ACF-AH Note. AH 

then used that amount plus additional money in its own bank account to advance $100 thousand to ACL 

as an equity contribution. ACL then used that $100 thousand to cover the majority of the $100 thousand 

TGM monthly interest payment.

On December 30, 2015, ACM sent $650 thousand to AH as an equity distribution. AH then transferred 

the funds to ACL, as an equity contribution. In turn, ACL sent the funds to EdPlus, as an advance on the 

ACL to EdPlus business loan agreement. EdPlus then used part of that advance from ACL in order to 

make its mandatory November and December interest payment back to ACL on the loan, returning $207 

thousand and $221 thousand to ACL. To get the additional funds needed, on December 31, 2015, ACL 

issued a subordinated promissory note to IOFII in exchange for $1.4 million in cash consideration.

131 

ACL then used $1.5 million for a partial principal repayment of the TGM-ACL Note. This is described 

on the right-hand side of the “TGM Partial Redemptions & Source of Funds” chart below. 

On January 19, 2016, ACL issued a subordinated promissory note to IOFII in exchange for $1.3 million 

in cash consideration. ACL then used $92 thousand of this cash to pay the TGM monthly interest 

payment. $1.2 million of this cash was used as an equity distribution to AH.

On February 5, 2016, ACL received a payment of $125 thousand on account of a note receivable from 

AGES. On February 23, $86 thousand of these funds was used to pay the TGM monthly interest 

payment.

131 Email from Rodriguez to Gillis, Jesenik, et. al, December 31, 2015, “Approval Request – Manufactured Notes”. 

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TGM Investment Activity by Year

 DC Equipment Finance, LLC Aequitas Corporate Lending, LLC

Year Cash

Investments 

Cash 

Redemptions

Non-Cash 

Conversions 

Out

Non-Cash 

Conversions 

In

Cash

Investments 

Cash

Redemptions

Year End 

Balance 

Interest

Paid 

2009 $ 7.6 M -$ 3.4 M $ – $ – $ – $ – $ 4.2 M -$ 1.0 M

2010 2.2 M -1.3 M – – – – 5.1 M -0.8 M

2011 2.1 M -2.9 M – – – – 4.3 M -0.6 M

2012 6.1 M -4.0 M – – – – 6.3 M -0.6 M

2013 0.4 M -4.4 M – – – – 2.3 M -0.6 M

2014 7.6 M -2.0 M – – – – 8.0 M -0.5 M

2015 – -2.1 M -5.9 M 5.9 M 3.4 M -1.7 M 7.7 M -1.1 M

2016 – – – – – – 7.7 M -0.2 M

Total $26.1 M -$20.2 M -$5.9 M $5.9 M $3.4 M -$1.7 M -$5.4 M

E.1.6. Direction of investments and Manufactured Notes 

Beginning in 2014, Aequitas internally engaged in what it termed the Manufactured Note program. This 

program involved the creation of debt instruments by, or the conversion of debt obligations to liabilities 

of, Aequitas entities that commonly would receive no cash consideration. As new Investor funds were 

deposited or transferred into the individual Aequitas Funds (for example, IOFII) the money would 

generally be swept regularly (daily or weekly) out of the Aequitas Fund into ACF-Op for various ACF or 

subsidiary (each such subsidiary, an Aequitas SPE) needs. These needs would include redemptions, 

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interest payments, equity infusions into the SPEs, etc. In exchange for the cash transfer from the Aequitas 

Fund to ACF, the Aequitas Fund would receive a “due from ACF” intercompany receivable.

Weeks after the cash was swept from the Aequitas Funds to ACF, a monthly Capital Pending Deployment

(“CPD”) spreadsheet would be prepared, which reflected the total capital raised that month (less

redemptions), and roughly 3-8 weeks after month-end, management would examine a “Product Menu,” 

which would indicate SPEs (ACCCPH, CPH, MLFH, etc.) which had “available collateral” (ostensible 

asset values, generally consumer notes receivable, in excess of outstanding borrowings by such entity). 

Based on the Product Menu, notes payable would be created (either senior or subordinate) and 

backdated to the first of the month following deposit, and book entries would be created to reflect the 

instruments so created: the Aequitas Fund which was the source of the cash, such as IOFII, would reduce 

its “due from ACF” receivable, and ACF would reduce its equity or reduce its loan to AH. In many 

cases, the subsidiaries which incurred the note payable would never receive the cash consideration — as 

the cash primarily went to ACF for use as needed, and the liability was booked at whichever entity had 

“available collateral.”

Unlike when an entity gives an “in-the-money” note in exchange for the receipt of cash, which has no 

effect on the borrower’s net worth or, in theory, the position of pari passu creditors, incurring an 

obligation without receipt of comparable consideration decreases net worth (and thus the investment 

value of those investors whose funds had been invested as equity) and the cushion for existing investor 

creditors. And if the new indebtedness is contractually senior to prior or future creditors, the creditors 

are even more disadvantaged by the entity incurring this gratuitous senior liability. Effectively, 

management was stripping out equity and value from certain entities in an effort to fund needs at other 

entities. Moreover, often the ostensible net asset value which was supposed to back the Manufactured 

Notes did not in fact exist, thereby creating a deficit capital situation and harming all existing and 

subsequent Investors and creditors (and certainly the reported collateral value would not be expected to 

exist in the event of an orderly liquidation as has been conducted by the Receiver and was inevitable 

given the insolvency of the overall entity).

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

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132

The interest rates to be paid by, and the capital structure of, the underlying entities appear to be wholly 

determined by the “needs” of the Aequitas Funds or Direct Note Investors which would receive the notes 

payable — that is, what was perceived by the Aequitas marketers as needed to sell the notes to investors. 

In the case of IOFII (the Aequitas Fund most impacted by this strategy), most Investors received a note 

which bore an interest rate of 10%. Based on the need to “cover” that debt burden plus fund the 2% 

annual management fee, the 0.5% allocated for operating costs and the 1% cushion for deployment 

timing, management determined that each credit strategy would bear the same blended 14% cost of 

capital when issuing notes to IOFII — irrespective of the underlying rate of return (often lower) and/or 

risk of that strategy. That note yields were driven by investor marketing rather than the creditworthiness 

or market justification of the underlying businesses/assets indicates a Ponzi scheme.

Further, the interest rates and high percentage of subordinated debt133 made it unlikely/impossible for the 

underlying portfolio entities to turn a profit at 100% leverage. For example, the ACCFPH notes’ 

weighted average cost of capital is 18.1% and the receivables didn’t bear an average interest rate 

anywhere close to this. 

Note Manufacturing process with IOFII: 

In the immediate month after receipt of Investor funds, Accounting, Fund Operations, Treasury and other 

Aequitas groups would calculate the total amount of funds that were either deposited into IOFII 

(primarily through IBAT, which held 93% of the IOFII notes as of December 31, 2015) or transferred to 

IOFII from other Aequitas Funds (these transfers could be effected either through journal entry 

conversions or via cash moved from the redeeming entity to IOFII). Accounting would then subtract the 

amount of IOFII Investor funds or SPE notes that were redeemed or transferred/converted out to establish 

132 May 1, 2015, “Aequitas_Note Manufacturing Process_2015_05_01.pdf”. 133 November 5, 2014, “Aequitas Managed Fund Portfolio Asset Allocation Policy_FINAL_2014_11_05”, Table III. 

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the net amount of new liabilities taken on in the prior month. This final amount became the CPD for the 

month. 

Simultaneously, the Director of Funds Management would prepare a Product Menu, a chart that was 

created to list all available assets and/or investment instruments, and their respective terms and 

conditions. Specifically, it would state the “collateral available for deployment” by each SPE— which 

was actually a list of the purported value of assets owned less existing liabilities for each SPE. The report 

would be used to determine which SPEs would issue a note in the required CPD amount. It would also 

identify SPEs which were “undercollateralized” (meaning they had outstanding liabilities in excess of 

their then-current asset valuations), which should trigger redemptions (reductions) of outstanding 

liabilities, as otherwise the SPE’s assets would be exceeded by its debt. 

The files were then compiled and emailed to management and related employees, to be presented monthly 

in the Aequitas Office of the Chief Investment Officer (“OCIO”) meetings. Once management reviewed 

the relevant files, it would determine which SPE(s) would assume the liability of the Manufactured Note. 

In addition to choosing which SPE(s) would become liable for the note, management would determine the 

terms for such note (i.e., interest rate and redemption date). This was called the Asset Allocation 

Methodology or “Asset Allocation Policy”, initially established in November 2014, and updated in June 

2015.

134 Per the methodology, the manager of the Aequitas Fund (in IOFII’s case, AIM) must issue notes 

based on:

A. each Aequitas Managed Fund Total Portfolio Return Requirement (referred to as the 

“Benchmark”),

B. each Aequitas Managed Fund Portfolio Concentration Limitation set forth for each Credit 

Strategy Receivables program (referred to as the “Base Policy Mix”), and

C. the expected rate of return for each Credit Strategy Receivables program (referred to as the 

“Required Return”).

Once the maker of the note and its terms were determined, the note would be backdated to the 1st day of 

the preceding month, and interest would be accrued as of that date. In the majority of cases, the liability 

would be established through non-cash journal entries, as described below. 

Example:

1. In April 2015, IOFII received $5.7 million in new cash investments. In addition to the new funds, 

an Investor transferred $788 thousand from IPF to IOFII. Cash was moved from the IPF bank 

account to IOFII, to satisfy the transfer. With this, the fund manager noted that there was $6.5 

million of CPD to be issued for April:135 

134 November 5, 2014, “Aequitas Managed Fund Portfolio Asset Allocation Policy_FINAL_2014_11_05... (1)”; July 9, 2015, “Aequitas Managed Fund Portfolio 

Asset Allocation Policy - approved - 20150625 - clean.pdf”. 135 Email from Abushaaban to Accounting, Gillis and Mazer, May 27, 2015 “Action Required: IOF II | Promissory Note Issuances & Maturities | 2015-04-30” Section 

I. 

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FUND MANAGEMENT 30-Apr-15

IOFII

Aggregate Capital Raised $49,228,554

Less: Redemptions –

Net Capital Raised $49,228,554 

Less: Deployments

Notes Issued - Sr. (20,527,342)

Notes Issued - 2nd Lien (32,592,725)

Total Deployments $(53,120,067)

Add: Maturities

Notes Matured - Sr. 5,076,887 

Notes Matured - 2nd Lien 5,317,090 

Total Maturities $10,393,977 

Net Capital Pending Deployment: $6,502,464 

2. On May 20, the fund manager released the Product Menu, which stated the SPEs with available 

collateral to issue notes, and the amount of “Net Available Assets” per SPE:

136 

136 May 20, 2015, “Aequitas_Product_Menu_External_2015_05_20.pdf”. 

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3. On May 27, the fund manager requested the following notes to be issued and back-dated to May 

1, 2015 (the 1st day of the month).

137 The $6.5 million was split in half: IOFII received a $3.3 

million subordinate note from ACCFPH and a $3.3 million ACCCPH subordinate note.138 

4. A year-to-date IOFII inventory was then presented, showing the collateral issued to IOFII at that 

time.

139 Note that the cash balance listed in the bottom row ($7.4 million) is not cash held by 

IOFII: it is simply the cash that had been invested into IOFII in May and was to be a part of the 

next month’s CPD. By the end of May, that new cash investment balance would increase to $9.6 

million, but all the cash, plus the account beginning balance, would have already been swept to 

ACF-Op or ACF-PN ($6.6 million and $3.2 million, respectfully) in a series of weekly transfers. 

137 Email from Abushaaban to Accounting, Gillis and Mazer, May 27, 2015 “Action Required: IOF II | Promissory Note Issuances & Maturities | 2015-04-30” Section 

III. 

138 Of special note, the pro forma allocation of underlying assets showed the notes would create an under-collateralization of $2.5 million in ACCCPH at that time, but 

there was excess collateral in other SPEs. However, the note was still approved. Email from Abushaaban to Accounting, Gillis and Mazer, May 27, 2015 “Action 

Required: IOF II | Promissory Note Issuances & Maturities | 2015-04-30” Section IV. 139 Email from Abushaaban to Accounting, Gillis and Mazer, May 27, 2015 “Action Required: IOF II | Promissory Note Issuances & Maturities | 2015-04-30” Section 

V.

AEQUITAS INCOME OPPORTUNITY FUND II, LLC

Notes Issued

Capital Raised: $6,502,463.67 

Note Maturities: $0.00 

Total Notes Issued: $6,502,463.67 

Hurdle Rate*: 14.000%

Issue Date: 1-May-15

Issuing SPV Base Policy Mix Note Structure Registry No.

Notes 

Issued

Term 

(yr.)

Interest 

Rate** Return**

ACC F Plus 

Holdings, LLC 50.0% Sr. Secured 0% 0.00 1 7.500% $0.000MM

Subordinated 100% ACCFPHLLC00001 3,251,231.84 1 22.500% $0.732MM

ACC C Plus 

Holdings, LLC 50.0% Sr. Secured 0% 0.00 1 7.500% $0.000MM

Subordinated 100% ACCCPHLLC00001 3,251,231.84 1 22.500% $0.732MM

Aequitas Peer-toPeer Funding, LLC

Sr. Secured 100% 0.00 1 2.750% $0.000MM

Subordinated 0% 0.00 1 22.500% $0.000MM

Grand Total: 100.0% 6,502,463.67 $1.463MM

*Inclusive of: 2.00% Management Fee, 0.50% Operating Ex penses, & 1.00% for capital deployment lead time.

**Per annum

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5. On June 4, 2015, Gillis and Oliver returned the signed promissory notes, backdated to May 1, 

2015. 140 

6. Accounting would then complete a series of journal entries, to convert the liability from ACF to 

ACCCPH141 and ACCFPH,

142 as described in the following chart. Neither ACCCPH nor 

ACCFPH received any cash as part of this transaction. Also, it should be noted, that often the 

transfer between Aequitas Funds, such as the IPF to IOFII transfer which was part of this 

transaction, was also not a cash transfer (as it was here).

140 Email from Butler to How and Bowman, June 4, 2015, “RE: Action Required: IOF II | Promissory Note Issuances & Maturities | 2015-04-30”; June 4, 2015, 

“ACCCPHLLC00001.pdf” and “ACCFPHLLC00001.pdf”. 141 June 25, 2015, “JE 225042 - 05.pdf”. 142 June 25, 2015, “JE 225041 - 05.pdf”.

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E.2. No legitimate business operations to which alleged investment program is connected

Courts have found that regardless of the seemingly legitimate nature of the operations, businesses 

associated with alleged Ponzi schemes are illegitimate due to the use of defrauded investors’ funds.143 

Many, if not all, of the Aequitas operating companies and portfolios lost money (after accounting for bad 

debt and the cost of Investor capital). As predominantly consumer financing portfolios and companies, 

their profitability is substantially determined by the “spread” between their cost of funds and the rate 

they earn on their receivables (net of bad debt losses, overhead and assessed management fees). The 

high cost of Aequitas’ Investor funds and management fee charges, coupled with no equity other than on 

account of the same high-cost Investor liabilities, meant that the enterprise was structurally unable to 

turn a profit.

Also, with respect to one of the largest investments in CarePayment health care receivables, there was an 

intercompany contract designed to transfer the net interest margin to CPYT; however, an erroneous 

formula in the contract caused the financing entities to transfer more than the net interest margin to 

CPYT, thereby guaranteeing the Aequitas entities ongoing losses. (Aequitas and CPYT named the net 

interest margin transfer “Business Service Revenue” or “BSR”). 

143 Scholes v. Lehmann, 56 F.3d 750, 757 (7th Cir. 1995) (“It is no answer that some or for that matter all of [the investor’s] profit may have come from ‘legitimate’ 

trades made by the corporations [owned by the debtor]. They are not legitimate. The money used for the trades came from investors gulled by fraudulent 

representations.”); Wyle v. C.H. Rider & Family (In re United Energy Corp.), 944 F.2d 589, 590 n.1 (9th Cir. 1991) (describing the Ponzi scheme’s purported “profitmaking business opportunity” as “an illusion”); Santa Barbara Capital Mgmt. v. Neilson (In re Slatkin), 525 F.3d 805, 816 (9th Cir. 2008) (“Further, that Slatkin may 

have invested a small percentage of the funds he received from investors, and may have received a profit from such investments, does not create a genuine issue of 

material fact as to the actual existence of the Ponzi scheme.”). 

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ACF was shown as solvent (positive book value) and capable of producing a profit only because of 

partial consolidation (which did not eliminate the related party ACF-AH Note) and the frequent “writeup” of the value of its equity ownership interests. In addition, the $180.3 million ACF-AH Note (as of 

December 31, 2015) was carried without meaningful reserve for doubtful payment, although there was 

significant evidence (including internal spreadsheets) showing repayment in full was very unlikely. We 

investigated the various business operations and valuations thereof within Aequitas and report our 

findings below. 

E.2.1. Flawed business models which could not reasonably fund operations 

E.2.1.1. Balance sheet solvency driven by intercompany loans and capitalization of 

operating expenses

The largest asset of ACF was the ACF-AH Note receivable; the largest asset of AH was its equity interest 

in ACF. Financial statements were prepared on a consolidated basis at ACF, which, because AH was its 

parent, did not consolidate (and thus eliminate) the AH note receivable nor notes receivable from entities 

owned by AH (as was ACF).

SEC Complaint — ACF (the issuer of a majority of the Investor notes) made itself look financially viable 

by keeping an intercompany loan to its parent company, AH, on its books even though Jesenik, Oliver 

and Gillis knew that AH did not have the assets to pay back ACF. 

Jesenik described ACF as the “corporate balance sheet” and, indeed, it was the vehicle through which the 

majority of the Aequitas scheme was funded. Aequitas raised money from Investors primarily through 

senior and subordinated promissory notes issued by ACF, other Aequitas Funds, and SPEs. Aequitas’ 

investments in consumer receivables and portfolio companies were held by other entities which

predominately were funded by intercompany loans and / or equity infusion from ACF and the other 

Aequitas Funds. Further, ACF, the Aequitas Funds and each SPE paid an asset management fee 

(generally 2% of managed assets) to either AIM, ACM, ACF, or Aequitas Enterprise Services, LLC 

(“AES”). Since all equity in the SPEs was owned by Aequitas, all profits (to the extent they existed) from

ACF, the Aequitas Funds, and the operating companies would flow up to AH and be available to retire 

the ACF-AH Note (again, to the extent such profits existed). 

ACF portrayed a positive annual profit because (1) ACF elected to account for a portion of its student 

loans acquired with recourse, its consumer receivables, a portion of its healthcare receivables with 

recourse and its investment in COF using the fair value option in which unrealized gains flow through to 

the profit and loss statement (despite a less than rigorous evaluation of the likelihood of ultimately 

realizing such gains) and (2) the overhead expense recognized for purposes of the profit and loss 

statement reflects only the 2% management fee, with all costs in excess thereof “borrowed” from ACF 

and capitalized, thereby increasing ACF’s assets and net worth (regardless of the borrower’s inability to 

repay such additional obligation).

144 

The table below was compiled from audited (where available) financial statements for the years 2011-

2015. It demonstrates how the annual profitability was driven by “net unrealized gain on fair value option 

election assets” (which exceeded the reported net income each year — and by an increasing amount each 

144 Aequitas accomplished this feat by consolidating expenses in ACM, AIM and AES, and then ACF loaning to AH the funds necessary to pay all the corporate 

expenses. AH and the affiliates (ACM, AIM and AES) had no way of repaying the loan other than through future 2% management fees or profits generated by ACF, 

the funds or the operating companies. However, ACF, the Aequitas Funds and the operating companies had no history of earning profits — they stayed profitable on 

paper only through fair value adjustments and mischaracterization of costs. 

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year). And, as a result, the net cash used in operating activities was a negative $59 million in 2013-15 

despite reporting over $42 million of net income. 

Aequitas’ records indicate the ACF-AH Note receivable was backed by minimal tangible assets owned by 

AH. Instead, the repayment of the obligation was wholly dependent on the performance of the AH 

subsidiaries — ACF, the consumer debt portfolios and the operating companies. However, the more AH 

borrowed and consumed from ACF, the fewer assets ACF had available to invest and generate returns 

required for AH to be able to repay the AH debt (let alone generate enough cash to pay interest and repay 

principal to Private Note Investors).145 

A review of the AH balance sheet reveals that the bulk of its assets was its investments in affiliates.146 As 

detailed in this Report, the book value of the investments was overstated due to erroneous valuations. 

Aequitas would periodically review the assets purported to back the ACF-AH Note. The assets listed by 

Aequitas— even at questionable, inflated book values, failed to cover the liability. Moreover, these assets

included intercompany receivables from entities that funded operating expenses (AES and ACM) and 

receivables from entities with no prospect of repayment (MSP and ACL). The collectability of the ACFAH Note should have been reviewed with extreme scrutiny, as it was the fulcrum asset upon which the 

solvency of ACF rested. 

E.2.1.2. Poorly performing operating companies with no corresponding investment 

write-down 

Aequitas reported substantially all of its assets and liabilities at fair value, with changes in fair value 

reported in current earnings, pursuant to investment company accounting principles.147 Fair value is an 

145 Hayes v. Palm Seedlings Partners-A (In re Agric. Research & Tech. Grp., Inc.), 916 F.2d 528, 532 (9th Cir. 1990) (Ponzi-scheme business which guaranteed 

substantial return greatly in excess of costs and with no apparent connection with the marketability or market value of the purported assets); see also In re United 

Dev., Inc., 2007 Bankr. LEXIS 4857, at *2-3 (9th Cir. BAP 2007) (debtor’s legitimate real estate business became a Ponzi scheme when it borrowed funds to continue 

its operations and also used those funds to pay earlier investors). 146 The largest investments were ACM - $24.8 million; AM - $20.7 million; MSP - $15.0 million; ACCCPH - $10.5 million and Private Advisory Group - $10.0 

million (measured by book value as of December 31, 2015). Aequitas listed as additional collateral for the loan a $69 million “enterprise value” for AH itself. 147 In June 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-08, Financial Services-Investment Companies (Topic 946): 

Amendments to the Scope, Measurement and Disclosure Requirements (the “ASU”). The amendments in this ASU seek to clarify former inconsistencies as to what is 

considered to be an investment company and to provide extensive guidance in determining whether an entity is an investment company under United States generally 

Cash Flows From Operating Activities for Aequitas Commercial Finance, LLC (2011 - 2015)

($ in 000's)

Unaudited Audited Audited Audited As Restated

2015 2014 2013 2012 2011

Net income $ 8,929 $ 12,026 $ 21,219 $ 8,316 $ 5,288

Adjustments to reconcile net income to net cash used in operating activities:

Amortization of unearned income (16,812) (13,426) (10,062) - -

Amortization of deferred charges 527 373 1,107 7,390 4,705

Net realized gain (loss) on investments (274) 871 (594) - (3,659)

Net unrealized gain on fair value option election assets (42,116) (39,481) (37,828) (15,559) (7,022)

Provision for credit losses 7,105 6,230 8,441 6,324 734

Changes in assets and liabilities:

Deposits in escrow 1,013 1,730 2,879 - -

Accounts receivable (2,288) 3,603 (2,188) (5,599) (7,535)

Receivable from affiliates (1,098) (670) (844) - -

Other assets 2,471 (1,364) (3,695) 3,489 1,072

Accounts payable and accrued expenses (63) (6,914) 7,276 4,387 5,986

Payable to affiliates 7,072 2,645 4,895 - -

Accrued interest payable 9,557 7,112 3,398 1,439 1,251

Subtotal of adjustments to net income (34,906) (39,288) (27,216) 1,871 (4,468)

Net cash used in operating activities $ (25,977) $ (27,262) $ (5,996) $ 10,187 $ 821

Aequitas Commercial Finance, LLC

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estimate of the exit price, representing the amount that would be received upon the sale of an asset or 

paid to transfer a liability in an orderly transaction between market participants (i.e., the exit price at the 

measurement date). Fair value is one of the more complicated and controversial areas of accounting. 

Many of the rules involving fair value require the application of a great deal of judgment and interject a 

high risk of fraud.148 Fair value measurement contains a hierarchy to measure fair value, with Level 1 

being the most objective, Level 2 being less objective and Level 3 being the most subjective.149 Level 3

utilizes a set of principles for determining the “market” value of assets in which there is no trading and 

hence no market. The methodology relies instead on the company’s internal assumptions to estimate 

what prices would have been if there had been a market. Level 3 was also the methodology used by 

Aequitas exclusively to determine the fair value of its investments in non-marketable common stock and 

membership units. 

During the Relevant Time Period, unrealized valuation gains were the sole source of “profitability” and 

masked negative cash flow from operations. Given the prominence in the reported financial performance 

(and viability) of Aequitas and the almost exclusive use of Level 3 measurement, this is an area that is 

very susceptible to manipulation and fraud.150 

As previously discussed, Aequitas elected to account for its activities as an investment company, which 

allowed for the recognition of unrealized gains on its financial statements. During the Relevant Time 

Period, unrealized valuation gains were the sole source of “profitability” and masked repeated annual 

negative cash flows from operations. The fair value write-up of CPYT was the largest of such unrealized 

valuation gains. Initially, the unrealized valuation gains resulted in the ability for Aequitas to "transfer" 

or "sell" its portfolios to other Aequitas entities for an inflated value, which transfers or sales were 

financed by the Investors. Additionally, the increases in asset values made the entity appear more 

attractive for outside investors and lenders, and drove higher management fees to Aequitas. During the 

Relevant Time Period, the increases in carrying value of CPYT directly impacted the value of COF. As 

the unrealized valuation gain was pushed out to the members of COF, it impacted the financial statements 

of four other Aequitas entities (ACF, AH, PCF and Aequitas Capital Opportunities GP, LLC (“COFGP”)) 

through direct value write-ups and of two others (AH again and AES) with additional value write-ups 

accepted account principles (“U.S. GAAP”). Investment companies follow specialized accounting and reporting requirements that are unique and different than 

operating companies. In particular, they measure investments at fair value. The new guidance also requires an investment company to measure non-controlling 

ownership interests in other investment companies at fair value rather than the equity method. Finally, the amendments in this ASU require additional disclosures in 

regards to an entity’s status as an investment company, changes to that status and information about financial support provided or contractually required to be 

provided by an investment company to an investee.

148 See, In re Bear Stearns Cos., Inc. Sec., Derivative, & ERISA Litig., 763 F. Supp. 2d 423, 475 (S.D.N.Y. 2011). The Southern District of New York determined 

that the plaintiff stated claims against Bearn Stearns where, for example, the company “allegedly knew that the models it used to value its Level 3 mortgage-backed 

assets were badly out of date and did not reflect crucial data about housing prices and default rates and that its risk managers had little power to provide any 

independent review of these figures” The court reasoned that, “[t]o the extent Bear Stearns knowingly used flawed models that would produce unreliable and skewed 

results, or recklessly disregarded such flaws, the results produced by those models and reported to investors are actionable misstatements.” Id. at 491-92. Similarly, 

the Southern District of New York found that plaintiffs stated claims against Citigroup in relation to misstatements and omissions stemming from reliance on Level 3 

valuations of consolidated debt obligation (CDO) holdings. See, In re Citigroup Inc. Sec. Litig., 753 F. Supp. 2d 206, 223 and 236 (S.D.N.Y. 2010) (“Plaintiffs claim 

that Citigroup's [sic] falsely calculated the fair value of Citigroup's CDO holdings because Citigroup valued those holdings by means of Level 3 inputs .... rather than 

readily available Level 2 inputs.”). In re Miller Energy Resources Sec. Litig., Case No. 3:11-CV-386-TAC-CCS, 2014 WL 415730 (E.D. Tenn. Feb. 4, 2014). This 

case also involves fraud charges based on violations of the U.S. Securities Act of 1933.

149 Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs other than quoted market prices that are observable, either 

directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are 

developed based on market data obtained from sources independent of the company. Level 3 - Unobservable inputs reflect the assumptions that the company develops 

based on available information about what market participants would use in valuing the asset or liability. Fair value measurements, Statement of Fin. Accounting 

Standards No. 157 (Fin. Accounting Standards Bd. 2006).

150 In re Bear Stearns Co., Inc. Securities, Derivative, & ERISA Litig., 763 F. Supp. 2d 423, 511¬-22 (S.D.N.Y. 2011) (holding shareholders’ complaint adequately 

stated a claim against Deloitte for securities fraud, when sufficient audit risks or “red flags” imposed a duty upon Deloitte to investigate Bear Stearns’ processes for 

establishing fair market value of level 3 assets); Official Comm. of Unsecured Creditors of TOUSA, Inc. v. Citicorp N. Am., Inc. (In re TOUSA, Inc.), Case No. 08-

10928-JKO, Adv. Pro. No. 08-1435-JKO, at *97¬-103 (Bankr. S.D. Fla. Oct. 13, 2009) (finding valuation firm’s opinions regarding debtor’s solvency lacked 

credibility in fraudulent transfer analysis because the valuation firm blindly relied upon the debtor’s own assumptions and financial projections without verifying or 

testing those assumptions).

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related to the increases at COFGP.

A critical review of the valuations and the underlying procedures that fueled the ever-increasing valuation 

gains reveal the impact on the reported overall enterprise profitability and paper equity. Additionally, FTI

Consulting has prepared an independent estimate of the fair value of certain of the Aequitas equity 

holdings as of various valuation dates. FTI Consulting reviewed the valuation of the investments that 

were the major source of unrealized valuation gains, and the findings follow.

E.2.1.2.1. CPYT – highly cash dependent; unable to secure financing; 

unreasonable valuations

In November 2006, ACM invested $1.5 million in microHelix, Inc. (NasdaqSM: MHLXU), the 

manufacturer of custom assemblies for medical and commercial original equipment manufacturers and 

predecessor to CPYT. MHLXU failed a year later. Aequitas renamed MHLXU and, in December 2009, 

the newly minted CPYT acquired certain assets and rights which had previously been held by Aequitas 

and its affiliate, CPLLC, enabling it to begin creating its business as a healthcare receivables servicer (and 

to a limited extent, an investor in such receivables). The acquired assets and rights included the exclusive 

right to administer, service, and collect patient accounts receivable generated by healthcare providers and 

purchased by CPLLC or its affiliates, and a proprietary software product that was used to manage the 

servicing. 

Typically, CPLLC or an affiliate would purchase accounts receivable from health care providers, and 

CPYT would service and collect the outstanding accounts receivable for a fee. More specifically, CPYT

received for Funded accounts151 (1) a 6% origination fee on the funding amount and (2) a 5% servicing 

fee (annual rate) payable based on the outstanding monthly balance of accounts receivable. For Billing 

accounts152 CPYT received a 2% billing fee (annual rate) on the outstanding unpaid balance of the 

receivable. CPYT would also receive a 1% servicing fee on Service Only153 accounts. Excluding the 

151 “Funded accounts” are those that are originated under the program and that CPLLC or its affiliate acquires and provides the funding for (i.e., purchases of patient 

accounts receivable from the healthcare provider).

152 “Billing accounts” are those that are originated under the program and CPYT services, but that were not acquired by CPLLC or its affiliates at the point of 

origination. These accounts were typically converted to Funded after certain number of payments were received from the patients. 153 “Service Only accounts” are those that the health care providers retain ownership of, but which they request CPYT to service. In addition to the servicing fee, 

CPYT retains a certain percentage of collections, ranging from 8-16%, depending on the client hospital contract.

COF Equity Interests

($ in thousands)

G/L

2013 PreTransfer COF2013 PostTransfer Audited Change in Audited (Sales) Change in

G/L PreAudit

Balance at Change in Initial Change in Balance at unrealized Balance at Purchases unrealized Balance at

COF Equity Interests 12/31/2012 Purchases unrealized gain Investment unrealized gain 12/31/2013 Purchases gain 12/31/2014 /Collections gain 12/31/2015

[1] ETC Global Holdings, Inc. $ 8,000 $ 1,855 $ (1,641) $ 8,214 $ 359 $ 8,573 $ - $ 527 $ 9,100 $ - - $ $ 9,100

[1][2] Motolease, LLC 800 - - 800 - 800 1,040 6,470 8,310 - 190 8,500

QuarterSpot, Inc. - - - - - - - - - - - 0

Common Shares - - - - - - 3,695 1,404 5,100 - 4,340 9,440

Warrants - - - - - 0 - (0) - - 1,210 1,210

nD Bank - - - - - - - - - 2,450 - 2,450

MOGL Loyalty Services - - - - - - - - - 2,000 - 2,000

Subtotal $ 8,800 $ 1,855 $ (1,641) $ 9,014 $ 359 $ 9,373 $ 4,736 $ 8,401 $ 22,510 $ 4,450 $ 5,740 $ 32,700

[3] Carepayment Technologies, Inc 21,398 5,972 11,477 38,846 5,154 44,000 - 48,000 92,000 - 48,000 140,000

[4] EdPlus Holdings, Inc. - 1,733 5,357 7,090 17,910 25,000 - (13,300) 11,700 - (4,700) 7,000

[4] Strategic Capital Alternatives, LLC - 800 - 800 - 800 533 2,667 4,000 (32) 675 4,644

Total $ 30,198 10,359$ $ 15,193 $ 55,750 $ 23,422 $ 79,173 $ 5,269 45,768$ 130,210$ $ 4,419 49,715$ 184,344

[1] Transferred to COF from ACF

[2] Includes membership units and warrants

[3] Transferred to COF from AH and ACF

[4] Transferred to COF from AH; Includes Class A and B Common Stock

Aequitas Activity

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Billing and Service Only account fees, the fees were paid by, and reduced the return of, another Aequitas 

entity. 

CPYT entered into a Program Management Agreement (“PMA”) with ACF on July 1, 2013 in which 

CPYT would provide administrative services and strategic advice regarding operations, planning, and 

financing, among other services. As compensation for CPYT’s services, ACF agreed to pay to CPYT a 

fee intended to be the net interest margin (“NIM” aka “BSR” or “Program Management Fee”) on the 

health care receivables. FTI Consulting notes that the PMA allows for a reduction in the BSR for certain 

expenses incurred in connection with the operation of the CarePayment program. Per FTI Consulting’s 

understanding, the payment, and thus CPYT’s revenues, from July 2013 to December 2015 was inflated 

due to a flaw in the interpretation of the program fee expense structure of the BSR, wherein the payment 

of the servicing fee to CPYT was not deducted as an expense from the BSR. This led to an estimated 

overstatement of the BSR amounts by $1.0 million, $2.2 million, and $2.8 million in 2013, 2014 and 

2015, respectively. This issue was corrected on a prospective basis via the second amendment to the 

PMA, effective January 1, 2016. FTI Consulting notes that these unsupported inflated revenues existed 

during the time that Duff & Phelps performed its valuation analyses and appears not to have been 

detected during the audits performed on CPYT’s fiscal year 2013 and 2014 financial statements, 

presented on a consolidated basis.

As of March 30, 2013, Aequitas and its affiliates owned 95.9% of CPYT’s Class A Common stock and 

99.4% of CPYT’s Class B Common stock.154 The ownership structure changed during mid-2013 when 

Aequitas created COF and contributed Aequitas’ interests in CPYT to COF, in exchange for a partnership 

interest. The transaction was effected as a result of the following series of events:155

1. Aequitas Merchant Bank, LLC was formed on June 14, 2013. On December 13, 2013, the 

company was converted from a Delaware limited liability company to a Delaware limited 

partnership and changed its name to Aequitas Capital Opportunities Fund, LP (or COF). 

2. ACF and AH, both affiliates of COF, contributed their respective interests in the following 

entities: 

a. Pursuant to the contribution agreement between ACF and COF effective June 28, 2013, 

ACF contributed 14.4 million shares of Class A Common stock of CPYT at the fair 

market value of $23.5 million. 

b. Pursuant to the contribution agreement between AH and COF effective June 30, 2013, 

AH contributed 1.2 million shares of Class A Common stock of CPYT at an Aequitasdetermined “fair market value” of $2.0 million and 7.9 million shares of Class B 

Common stock of CPYT similarly determined by Aequitas to have a fair market value of 

$12.9 million. 

154 CPYT 2012 10-K. 155 Aequitas Capital Opportunities Fund, LP Financial Statements as of December 31, 2013 (audited by Deloitte). 

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As a result, as of December 31, 2013, COF owned 94% of Class A and 99% of Class B stock in CPYT.156

157 As of December 31, 2014, due to management stock grant dilution and following conversion of other 

stock classes to Class A, COF owned 90% of Class A and 99% of Class B stock in CPYT.158 159 

As demonstrated in the chart160 that follows, the valuation methodology employed by both Duff & Phelps 

(as well as Aequitas) propelled CPYT’s valuations to higher and higher levels based only on overly 

optimistic and unachievable projections of revenue and earnings before interest, taxes, depreciation and 

amortization. 

Projections prepared by Aequitas (or CPYT) would suffer from potential financial projection bias,

161

especially when they are not based on historical financial performance or any other objective standard. A 

thorough review of the historical financial statements and understanding of the underlying business model 

would provide a better understanding of the future prospects or at least a yardstick against which they can 

be compared. There is nothing in the historical financial statements that would support such a dramatic 

increase in performance and hence value over such a short period of time.

Further to the point on the unreliability of the CPYT financial projections, in July 2015 Aequitas 

management admitted that the valuations (and the financial projections upon which they were based) were 

susceptible to overstatement. Per the July 28, 2015 memo signed and approved by Gillis and Jesenik:

162

156 CarePayment Technologies, Inc. Financial Statements as of December 31, 2013 (audited by Deloitte). 157 Based on Aequitas Capital Opportunities Fund, LP Financial Statements as of December 31, 2013 (audited by Deloitte), COF’s Class A shares had a cost of $26.0 

million and a fair value of $29.4 million, while its Class B shares had a cost of $12.9 million and a fair value calculated by Aequitas of $14.6 million. 158 CarePayment Technologies, Inc. Financial Statements as of December 31, 2014 (audited by Deloitte). 159 Based on Aequitas Capital Opportunities Fund, LP Financial Statements as of December 31, 2014 (audited by Deloitte), COF’s Class A shares had a cost of $26.0 

million and a fair value calculated by Aequitas of $61.4 million, while its Class B shares had a cost of $12.9 million and a fair value calculated by Aequitas of $30.6 

million. 160 Chart is based on one included in the Q3 2015 valuation memo for CPYT compiled by Aequitas, and represents Aequitas’ calculation of equity value. October 15, 

2015, “CPYT Q3 2015 Valuation 10 15 15.pdf”. 161 Management forecasts can typically suffer from five types of bias: (1) Overconfidence bias in the estimate of what can be achieved; (2) Confirmation bias when 

management seeks out information that confirms their initial hypothesis; (3) Planning bias causing an underestimate of the time, money, and other resources needed to 

achieve the projections; (4) Commitment bias in which management justifies a previously made decision despite new evidence; and (5) Incentive bias occurring when 

management has a financial incentive to boost the expected performance.

162 July 28, 2015, “July 28 2015 memo reducing CPYT value on ACF books.pdf”. Author not evident. 

 $-

 $20,000,000

 $40,000,000

 $60,000,000

 $80,000,000

 $100,000,000

 $120,000,000

 $140,000,000

 $160,000,000

CarePayment Equity Valuation Summary

100% Ownership COF Ownership

COF Tax Basis = $18.8 

mm

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ACOF has provided guidance that, based on growth projections for the remainder of 2015 and 

the first half of 2016, ACOF's estimated value at the end of Q2 2015 is $ 155.4mm, which is up 

19.4% over the Q4 2014 estimated value of $130.2mm. The biggest driver in this increase in 

valuation is ACOF's investment in CarePayment Technologies, Inc. (CPYT). ACOF has provided 

guidance on CPYT's valuation, recommending increases from $92mm at the end of Q4 2014, to $ 

110mm at the end of Q l 2015, and then to $ 116mm at the end of Q2 2015 (cumulatively, a 26. l 

% increase in six months). The increase is driven primarily on estimates of forward revenue 

growth. While ACF is encouraged by the increased revenue projections provided by ACOF, we 

recommend that ACF should hold the CPYT valuation at the Q1 2015 ACOF estimated value 

pending achievement of the projected CPYT revenue growth or completion of financings led by 

new third-party investors to establish a negotiated value for CPYT equty [sic]. 

As a result, Aequitas reduced the Q2 2015 valuation for CPYT on the books and records of ACF by $6.0

million — while leaving the valuation at the COF subsidiary for the same asset at the full proposed 

valuation. Curiously (and without an explanation), management determined as part of its Q3 2015 

valuation review to reverse the $6.0 million reserve and restate the carrying value at $140 million. 

FTI Consulting undertook a detailed review of the Duff and Phelps’ valuations of CPYT and found 

significant errors and deficiencies in the methodology, comparable companies used and reliance on overly 

optimistic management financial projections. This led to an overstatement of the COF and ACF financial 

statements related to the fair value of investments. Such erroneous values were communicated to 

Investors and the SEC and used by management as a justification to take on additional investor debt. A 

summary of the various projections follows: 

Of note, as part of the Receiver’s mandate to monetize assets, the Receivership’s interest in COF (which 

would include the Receivership’s interest in CPYT) was sold in December 2016 for $52.0 million.163 

Based on a previously obtained binding bid for all of the other COF assets (with the exception of CPYT) 

of $14.7 million, this would indicate a value for the Receivership's 69.0% interest in COF's CPYT equity

of $18.7 million or $32.8 million for the entirety of CPYT’s equity value.

164

E.2.1.2.2. EdPlus – Flawed business model, valuations based on prospective 

income stream from CoCo student loan origination and servicing which 

never occurred

EdPlus owned and operated an online platform that offered information to students about colleges. The 

business plan was for EdPlus to originate private student loans along with information regarding 

scholarships, internships, majors, and careers. EdPlus generated revenue through fees collected on 

interest and servicing of loans that it owned, as well as from services offered through its website. EdPlus 

163 Purchase price of $52.0 million included the Receivership’s interest in COF and a loan made by ACL to CPYT for $3.9 million. 164 The Receivership owned 69.04% of COF which in turn owned 82.85% of CPYT.

Valuation Ranges for CarePayment Technologies

($ in millions)

Valuation Date November 30, 2013 December 31, 2013 June 30, 2014 December 31, 2014 June 30, 2015 September 30, 2015

Range Low High Fair Value1 Low High Fair Value1 Low High Fair Value1 Low High Fair Value1 Low High Fair Value1 Low High Fair Value1

Duff & Phelps $ 25.0 $ 35.0 $ 58.0 $ 75.0 $ 90.0 $ 110.0

Aequitas $ 44.0 $ 62.0 $ 92.0 $ 116.0 $ 140.0

FTI Consulting $ 9.2 $ 12.0 $ 15.1 $ 19.7 $ 28.0 $ 35.5

[1] Fair values represented by Aequitas to investors in investment update reports.

The Duff & Phelps November 30, 2013 valuation range represents the more conservative "Existing Product Only" case, which excludes revenue associated with new products slated to launch in 2015 and thereafter.

The Duff & Phelps valuation also included a Management Case with a range of $35.0M to $45.0M.

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also offered enrollment and market research services to colleges and universities. EdPlus was 

incorporated in 2013 and was headquartered in Lake Oswego, Oregon.165 The following is a list of key 

milestones for EdPlus from 2013 to 2015.166

Aequitas deployed significant Investor funds in creating EdPlus. During 2013-2015, Aequitas advanced 

in excess of $30.0 million in the form of debt and equity to fund the many acquisitions and operational 

losses. 

As demonstrated in the chart167 that follows, the valuation methodology employed by Duff & Phelps (as 

well as Aequitas) decreased EdPlus’ cost-based value over time as a result of the financial 

underperformance and degradation of the business projections tied to origination and servicing of student 

loan portfolios. Yet, even these valuations overstated EdPlus’ value due to overly optimistic and 

unachievable projections of revenue and earnings before depreciation, taxes and amortization.

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

165 Capital IQ. 166 Per Aequitas presentation dated February 21, 2016. December 3, 2015, “timelineSlide-White.pdf”. 167 Chart is based on one included in the Q3 2015 valuation memo for EdPlus compiled by Aequitas, and represents Aequitas’ calculation of equity value. October 2, 

2014, “Unigo Q3 2015 Valuation 10.2.15.pdf”.

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Similar to CPYT and further to the point on the unreliability of the EdPlus financial projections, in July 

2015 Aequitas management admitted that the valuations (and the financial projections upon which they 

were based) were susceptible to overstatement. Per the July 28, 2015 memo signed and approved by

Gillis and Jesenik:

168

In addition, ACOF has provided valuation guidance with respect to EdPlus Holdings, Inc. 

(Unigo), recommending a reduction in value from the year-end 2014 value of $11.7mm to 

$7.6mm as of the end of Q2 2015. Note that this value is net of $18mm in debt owed by Unigo, 

providing a gross enterprise value of over $25mm. This valuation is based on estimated forward 

revenue growth; however, given (a) failure to meet projections for the Unigo technology and 

Saas platforms and (b) the substantial disruption to Unigo's student loan business caused by the 

bankruptcy filing by Corinthian Colleges and the significant regulatory scrutiny around private 

school loans, ACF should consider that Unigo may have no equity value above the debt owed by 

Unigo. Accordingly, we recommend that ACF reduce Unigo's valuation on the balance sheet to 

$0 for the end of Q2 2015 pending achievement of the projected Unigo revenue growth or 

completion of financings led by new third-party investors to establish a negotiated value for 

Unigo's equity.

As a result, Aequitas reduced the Q2 2015 valuation for EdPlus to zero on the books and records of ACF 

by recording a $7.6 million reserve. Curiously (and without an explanation), management determined as 

part of its Q3 2015 valuation review to reverse the $7.6 million reserve and restate the carrying value at 

$7.6 million.

Additionally, EdPlus owed ACL approximately $24.6 million. If Aequitas management believed the 

equity value of EdPlus was $0, then it was highly likely that the EdPlus debt was also impaired (since 

every dollar of operating loss was borne by the debt) and a reserve should have been established on such 

debt. 

168 July 28, 2015, “July 28 2015 memo reducing CPYT value on ACF books.pdf”. 

 $-

 $5,000,000

 $10,000,000

 $15,000,000

 $20,000,000

 $25,000,000

 $30,000,000

EdPlus Equity Valuation Summary

100% Ownership COF Ownership Aequitas / Bridge Loan Debt

COF Basis = $25.0 mm

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FTI Consulting undertook a detailed review of the Duff and Phelps’ valuations of EdPlus and found 

significant errors and deficiencies in the methodology, comparable companies used and reliance on overly 

optimistic management financial projections. This led to an overstatement of the COF and ACF financial 

statements related to the fair value of investments and an overstatement of the ACL financial statements 

for the lack of impairment of the debt. Such erroneous values were communicated to Investors and the 

SEC and used by management as a justification to take on additional investor debt. A summary of the 

various valuations follows: 

Of note, as part of the Receiver’s mandate to monetize assets, the Receivership’s interest in EdPlus was 

sold in June 2016 for $500 thousand plus contingent consideration dependent upon performance of 

EdPlus in the year following sale. Not unexpectedly, there was nothing received on account of the 

contingent consideration. The $500 thousand of sale proceeds were used to partially repay debt incurred

by EdPlus following the Receivership in order to support its continuing business and allow consummation 

of a going-concern sale (EdPlus operated at a loss). There was no payment made on $24.6 million in debt 

owed to ACL and no value in the equity owned by COF. 

E.2.1.2.3. MSP/Ivey – Underperforming business, cashflow negative, 

valuations based on overly optimistic projections 

MSP was originally a holding company formed to acquire companies in the marketing, printing, and 

graphic arts industries. Over time the holding company acquired the assets of three traditional printing 

companies (Printing Today), a packaging company, and Ivey Performance Marketing (a branding, 

marketing, and digital technology company herein referred to as “Ivey”). Ivey’s services included brand 

and marketing strategy, market analysis, project management, event activation, graphic design, and other 

marketing-driven services. Ivey was founded in 1975 and was based in Portland, Oregon.169 At the time 

of the Receivership, only the Ivey business was active, with the other operations either being shut down, 

sold off, or rolled into Ivey.

MSP: 

On April 24, 2008, AHF entered into a business loan agreement with MSP and advanced funds under the 

agreement for operating expenses. On June 30, 2009, MSP underwent an initial recapitalization wherein 

Aequitas Catalyst Fund, LLC (“Catalyst Fund”) converted a loan of $3.2 million into 10.9 million shares 

of Series D Preferred stock of MSP. On May 6, 2013, ACF purchased certain outstanding secured and 

unsecured loans and equity securities from James McDaniel, under which loans MSP was the borrower 

and in default. For consideration, McDaniel received $500 thousand cash and a $2.0 million Private 

169 Capital IQ. 

Valuation Ranges for EdPlus

($ in millions)

Valuation Date November 30, 2013 December 31, 2013 June 30, 2014 December 31, 2014 June 30, 2015 September 30, 2015

Range Low High Fair Value1 Low High Fair Value1 Low High Fair Value1 Low High Fair Value1 Low High Fair Value1 Low High Fair Value1

Duff & Phelps $ 13.0 $ 31.0 $ 29.5 $ 35.0 $ 30.0 $ 35.0

Aequitas $ 25.0 $ 20.7 $ 11.7 $ 7.6 $ 7.0

FTI Consulting $ - $ 0.9 $ - - $ $ - - $ 

[1] Fair values represented by Aequitas to investors in investment update reports.

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Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 50 of 174
Note.170 By the end of 2014, the outstanding balance on the Aequitas loans had grown to $22.0

million.171

Ivey Performance Marketing: 

On July 22, 2008, ACF purchased outstanding Bank of America senior notes under which Ivey Imaging, 

LLC was the borrower and in default. The notes had a face value of $3.9 million. On September 5, 2008 

Ivey Imaging, LLC surrendered its assets to ACF in lieu of a foreclosure and on the same day ACF sold 

the assets to a newly formed company, Ivey, as a subsidiary of MSP. Following that transaction, ACF 

periodically funded additional subordinated debt to cover operating losses.

On February 23, 2015, the IC discussed issues related to closing out of the Ivey audits for 2013 and 2014 

due to an overstatement of income as company expenses were being accrued on the balance sheet as an 

asset, instead of being expensed in an equity account. The total amount in the account at the end of 2013 

was $784 thousand. The practice continued through the end of 2014, and the account built up to $1.5

million.

172

Printing Today: 

Initially, Catalyst Fund invested $500 thousand in Printing Today, Inc. (“PTI”) on May 24, 2009 in the 

form of subordinated debt to provide working capital to the entity. In addition, Aequitas facilitated the 

transfer of the bankrupt Paramount Graphics’ sales force and customers to PTI in exchange for 100% 

common equity ownership in PTI. Following that transaction, ACF periodically funded additional 

subordinated debt to cover operating losses. In early 2013, PTI was placed under the control of Ivey. In 

February 2014, Aequitas undertook a valuation of its interests in PTI and determined that more than 50% 

of the ACF loan was impaired and recognized a $2.5 million reserve against the $5.4 million debt owed 

by PTI.

173 Note that this valuation was predicated on an unsolicited proposal to purchase the equipment

assets of PTI from Wright Business Graphics – which proposal was never negotiated, binding nor 

consummated. 

In June 2014, Aequitas performed an update on the MSP valuation (which held the PTI and Ivey interests) 

wherein the enterprise value for PTI was indicated at a negative $2.7 million (or effectively no value) 

with outstanding Aequitas debt of $5.7 million – which would imply an additional debt reserve of $3.2 

million (over and above the $2.5 million already recognized) which reserve was requested, but not 

booked.174 The proposed PTI valuation improved slightly in the Q3 2014 valuation to an enterprise value 

of positive $1.0 million – which would still imply an additional debt reserve of on the Aequitas debt of 

$2.2 million (over and above the $2.5 million already recognized) which reserve was not requested nor

booked.175 Lastly, Aequitas suspended its past practice of evaluating equity valuations for MSP / Ivey

and determined to only calculate debt impairment tests going forward. Still, with no determination of 

equity value, the analysis indicated a range of proposed PTI enterprise values of $1.0 to $3.1 million 

which would still imply an additional debt reserve on 100% of the Aequitas debt of up to $2.2 million 

170 McDaniel’s Private Note is still outstanding. 171 AHF loan and interest payable - $9.1 million; ACF loan and interest payable - $6.8 million; DCEF loan and interest payable - $4.3 million and IOF loan and 

interest payable $2.1 million. MSP was paying current interest on only DCEF loan and was deferring interest on all others (accrued, but unpaid interest was added to 

the outstanding note balance). 

172 Minutes for Investment Committee Meeting held February 23, 2015. 173 February 14, 2014, “PTI Q4 2013 Valuation Memo.pdf”. 174 July 3, 2014, “MSP Q2 2014 Valuation.pdf” 175 October 3, 2014, “MSP Q3 2014 Valuation – IC Approved.pdf”. Note that the summary contains a calculation error indicating a negative equity value of (5.1) 

million instead of the correct number of $(4.7) million in negative equity.

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Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 51 of 174
(including a reserve on $1.2 million of interest accrued, but unpaid) which reserve was not requested nor

booked.

MSP recapitalization: 

In early 2015, Aequitas management concluded that the debt levels on the balance sheet of MSP were 

unsustainable and exceeded those of its peers. A debt-to-equity conversion was proposed for a significant

portion of MSP’s debt held by various Aequitas entities.176 At the February 23, 2015 meeting, the IC 

approved a plan to recapitalize MSP by converting $14.6 million of subordinated debt to new Series E 

Preferred equity and agreeing to provide an additional $11.0 million in funding under a revolving loan. 

The newly created Series E Preferred equity had a senior equity position over current shareholders with a 

liquidation preference. This had the effect of ensuring the debt being converted maintained the same 

senior position it currently had to existing shareholders. As part of the recapitalization, Aequitas reversed 

the bad debt reserve – recognizing a gain in the current period and increasing the book basis of the equity 

converted. 

FTI Consulting undertook a detailed review of the 2015 Q1 internal valuation and found significant errors 

and deficiencies in the methodology, comparable companies used and reliance on overly optimistic 

management financial projections. This led to an overstatement of the equity held by APF and the debt 

held by IOF and AHF due to the lack of impairment of the debt. Further, MSP and Ivey were not capable 

of servicing the debt – even after multiple debt to equity conversions. Finally, Aequitas’ suspension of its 

past practice of evaluating equity valuations for MSP / Ivey perpetuated the over-valuation of the equity 

by continuing to carry the equity at the inflated book values created by the debt to equity conversions. 

Such erroneous values were communicated to Investors and the SEC and used by management as a 

justification to take on additional investor debt. A summary of the various balances follows:

176 December 12, 2015, “MSP Recap 12-15-14.pdf”.

APF - 

Investment 

MSP

Catalyst - 

Investment 

MSP

ACF - 

Investment 

MSP (from 

Catalyst)

AH - 

Investment 

 MSP

Valuation 

Adjustment

AH - Series 

E Preferred 

Stock

Total Equity 

Investment

Balance 12/31/2008 $ - $ 2,880,237 $ - $ - $ - $ - $ 2,880,237

June 30, 2009- Debt to Equity Conversion 3,593,855 3,593,855 

Market Value Adjustment (1,604,092) (1,604,092)

Balance 12/31/2009 $ - $ 4,870,000 $ - $ - $ - $ - $ 4,870,000

Balance 12/31/2010 $ - $ 4,870,000 $ - $ - $ - $ - $ 4,870,000

Adjustment Market Value (600,000) (600,000)

Balance 12/31/2011 $ - $ 4,270,000 $ - $ - $ - $ - $ 4,270,000

Sale from Catalyst to ACF thru AH 12/31/2012 (2,000,000) 2,000,000 - 

Adjustment Market Value (737,007) (737,007)

Balance 12/31/2012 $ - $ 1,532,993 $ 2,000,000 $ - $ - $ - $ 3,533,493

Purchase of MSP Stock & Loans from Jim 

McDaniel 5/3/2013

 1,581,381 

 1,581,381 

Adjust MSP Stock Valuation 12/31/2013 (771,999) (771,999)

Transfer from Catalyst to APF 12/31/2013 1,532,933 (1,532,993) (60)

Balances 12/31/2013 $ 1,532,933 $ - $ 2,809,382 $ - $ - $ 4,342,815

2014 Valuation Adjustment 100,618 100,618

2014 ACF to AH - (2,910,000) 2,910,000 -

2014 AH Contribution to APF 2,910,000 (2,910,000) -

9/30/2014 Valuation Adjustment 727,067 727,067

Balance 12/31/2014 $ 4,442,933 $ - $ - $ - 727,067$ $ - $ 5,170,500

March 1 Debt Conversion to Preferred Stock 14,998,764 14,998,764

Balance 12/31/2015 $ 4,442,933 $ - $ - $ - 727,067$ $ 14,998,764 $ 20,169,264

Balance 12/31/2016 $ 4,442,933 $ - $ - $ - 727,067$ $ 14,998,764 $ 20,169,264

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Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 52 of 174
Of note, as part of the Receiver’s mandate to monetize assets, the Receivership attempted to sell its 

interest in MSP. The Receiver, MSP and Ivey retained the services of a prominent Portland-based

investment banker. The marketing efforts were not successful in sourcing any offers that returned value 

to the Receivership, and alternative plans were evaluated and offers sought for the separate business lines. 

This approach also failed to produce satisfactory offers. 

Ivey was not able to sustain operations without additional loans or equity investment. Given the 

inadequate offers generated by the marketing efforts of the investment banker and the likely inability to 

recover any new funds advanced, the Receiver declined to provide additional funds. On September 15, 

2017, Ivey sold two of its four lines of business (branded environment and content) in a “distressed sale” 

for $850 thousand, with the bulk of the proceeds (together with existing cash balances) used to pay 

DCEF Note 

& Interest 

Receivable

Catalyst MSP 

Note & 

Interest 

Receivable

Catalyst Printing 

Today Note & 

Interest 

Receivable

AIOF Note 

& Interest 

Receivable

Hybrid Note 

& Interest 

Receivable

ACF Notes 

& Interest 

Receivable 1

ACF - Loan 

Loss 

Reserve

Total Notes & 

Int Receivable 1

Balance 9/30/2008 $ - $ - $ - $ - $ 4,592,681 $ 913,009 $ - $ 5,505,690 

2008 Debt Assignment from ACF to Hybrid2 913,009 (913,009) - 

2008 Hybrid Increases2 5,440,432 5,440,432 

2008 Hybrid Decreases2 (5,274,879) (5,274,879)

Balance 12/31/2008 $ - $ - $ - $ - $ 5,671,243 $ - $ - $ 5,671,243

Note Funding 3,414,214 900,000 250,000 4,564,214 

2009 Interest Accrued 179,641 72,353 81,460 1,290,393 16,027 1,639,874 

Possible Interest Payments (44,288) (395,279) (439,567)

Move from Hybrid to AIOF 1,100,000 (1,100,000) - 

June 30, 2009- Debt to Equity Conversion (3,593,855) (3,593,855)

Balance 12/31/2009 $ - $ - $ 928,065 $ 1,181,460 $ 5,466,357 $ 266,027 $ - $ 7,841,909

Loan Funding 1,000,000 1,250,000 2,250,000 

Interest Accrued 214,289 276,884 594,508 129,289 1,214,970 

Possible Interest Paid thru Accts Rec (157,139) (223,875) 182,639 (198,375)

Transfer from ACF to DCEF 6/30/2010 1,645,316 (1,645,316) - 

Balance 12/31/2010 $ 1,702,466 $ - $ 1,981,074 $ 1,364,099 $ 6,060,865 $ - $ - $ 11,108,504

Loan Funding 1,417,500 350,000 305,500 2,073,000 

Payments (139,863) (139,863)

Interest Accrued 147,758 261,766 164,945 310,437 884,906 

Possible Interest Paid thru Accts Rec (39,025) (132,547) (53,817) (225,389)

Balance 12/31/2011 $ 3,228,699 $ - $ 2,460,293 $ 1,475,227 $ 6,371,302 $ 165,637 $ - $ 13,701,158

ACF In and Loan MSG 1/20/2012 300,000 300,000 

Loan Funding 637,917 1,134,196 1,772,113 

Interest Accrued 121,126 52,177 182,389 810,542 1,166,234 

Payments (80,077) (92,538) (65,432) (238,047)

Transfer Note from ACF to DCEF 296,086 (296,086) - 

Transfer Note from Catalyst to ACF thru AH (3,384,197) 3,384,197 - 

Record Loan Loss Reserve - (344,000) - 

Balance 12/31/2012 $ 4,203,751 $ - $ 169,931 $ 1,657,616 $ 7,181,844 $ 3,488,316 $ (344,000) $ 16,701,458

Loan Funding 1,137,555 1,137,555 

Interest Accrued 574,846 189,963 910,621 873,246 2,548,676 

Payments (477,651) (88,578) (566,229)

Purchase of MSP Stock & Loans from Jim 

McDaniel 5/3/2013 2,697,807 2,697,807 

Move Deferred Interest to From Catalyst to ACF (169,931) 169,931 - 

Adjust Loan Loss Reserve (26,228) (2,116,000) (26,228)

Balances 12/31/2013 $ 4,300,946 $ - $ - $ 1,821,351 $ 8,092,465 $ 8,278,277 $ (2,460,000) $ 20,033,039

2014 Interest Accrued 525,968 230,992 1,026,326 977,370 2,760,656

2014 Interest Paid (530,645) - - (530,645)

Principal Payments - (15,541) (15,541)

Balance 12/31/2014 $ 4,296,268 $ - $ - $ 2,052,343 $ 9,118,791 $ 9,240,106 $ (2,460,000) -$ $ 22,247,509

2015 Interest Accrued 85,032 13,773 1,156,520 161,406 1,416,731

2015 Interest Paid (172,946) - (172,946)

Principal Payments - (28,786) (28,786)

Reverse Bad Debt Reserve - 2,460,000 2,460,000

March 1 Debt Conversion to Preferred Stock (4,208,354) (2,092,344) (8,698,066) (14,998,764)

Transfer from ACF to AIOF 674,660 (674,660) -

Balance 12/31/2015 $ - $ - $ - $ 648,432 $ 10,275,311 $ - $ - $ 10,923,744

2015 Interest Accrued 12,128 1,306,933 - 1,319,061

2015 Interest Paid (2,975) - (2,975)

Principal Payments (543,892) (543,892)

Balance 12/31/2016 $ - $ - $ - $ 113,693 $ 11,582,244 $ - $ - $ 11,695,938

1. Includes a $2.46M Bad Debt Reserve.

2. No documentation of transaction found.

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Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 53 of 174
secured debt in exchange for lien releases ($486 thousand), personnel-related costs ($307 thousand) and 

investment banker costs ($105 thousand). On October 27, 2017, Ivey sold the remaining assets associated 

with bag insert and partnership marketing services in partial satisfaction of related trade vendor liabilities. 

This last transaction effectively completed the liquidation of Ivey’s assets. There was no recovery on the 

~$12.5 million of debt held by AHF and, consequently, no positive equity value in MSP.

E.2.1.2.4. ETC – Persistent losses and plagued by various administrative, 

regulatory, and legal difficulties 

ETC Global Group, LLC (together with its affiliates, “ETC”) is the parent company for ETC USA, a 

registered U.S. brokerage and clearing firm, and ETC Canada, a Canadian brokerage holding company. 

ETC was touted to Aequitas Investors as “an SEC-registered broker-dealer that was formed for the 

purpose of specializing in and offering efficient and cost-effective clearing solutions to high-frequency 

proprietary securities trading firms in US equity securities. These solutions include sponsored access to 

various securities markets and exchanges as well as clearing, settlement, custodial and back-office 

services. ETC is a prime facilitator in the high frequency trading sector.”177 

Aequitas’ initial investment in ETC was via the 2008 acquisition by Catalyst Fund of 1.2 million shares 

of common stock for $1.0 million in conjunction with ETC’s initial capitalization. By June 2009, 

Aequitas had marked up the value of these shares by $6.5 million — from $1.0 million to a total fair value 

of $7.5 million. The shares were subsequently assigned to ACF and, together with an additional 278

thousand shares acquired in Q3 2013, were ultimately contributed to COF at a value determined by 

Aequitas of $8.2 million (a majority of which flowed through to ACF’s balance sheet). As of the end of 

2015, COF owned 1.5 million Series B Common shares valued by Aequitas at $9.1 million178 — which 

had an original cost basis of $1.7 million.

179 

Aequitas also converted a $3.8 million revolving note into 760 thousand shares of Series A Preferred 

stock in September 2011. The conversion agreement for the note granted Aequitas the option to purchase 

an additional 2.7 million shares of Series A Preferred stock at a strike price of $5/share. In September 

2011, Aequitas contributed its shares into the newly formed ETCFF and, together with funds raised from 

individual Investors, purchased another 1.0 million shares — representing 100% of the preferred shares 

issued by ETC. In the December 2012 audited financials, ETCFF booked an unrealized gain of $11.7 

million on its $8.8 million investment, with a subsequent write-down in 2013 of $1.1 million and an 

additional write-up in 2014 of $352 thousand. As of the end of 2015, Aequitas had valued the Series A 

Preferred stock held by ETCFF at $21.0 million which had an original cost basis of $8.8 million.

180 

ETC operates in a highly competitive, regulated environment. Due to its limited operating history, 

Aequitas needed to apply significant scrutiny when analyzing the company’s ability to meet its financial 

projections. Furthermore, the clearing and custodial industry is a capital-intensive business. Given its 

limited operating history and lack of strong performance, ETC found it difficult to obtain the necessary 

capital. ETC’s inability to meet its projections prevented the company from obtaining financing to fund 

its operations, which represents a significant risk to sustainability of operations and survival of the 

177 February 27, 2014, “Private Placement Memorandum_Aequitas Capital Opportunities Fund LP (Feb 2014).pdf”. 178 October 23, 2015, “IC Minutes 10 05 15 (FINAL DRAFT).pdf”. 179 Aequitas reduced the fair value of the common stock interest by $550 thousand in Q2 2013. 180 October 23, 2015, “ETC Q3 2015 Valuation_v2.pdf”.

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Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 54 of 174
business itself. During 2012-2016, ETC incurred persistent, deepening losses and demonstrated no ability 

to achieve consistent growth and profitability in the future.

Moreover, between March 31, 2011and September 15, 2017, ETC received 19 regulatory sanctions from 

FINRA (and related exchanges) due to unethical and illegal practices and incurred fines of approximately 

$1.7 million.181 The accusations which led to the19 sanctions varied from failing to implement proper 

internal controls to prevent money laundering to failing to report suspicious transactions to the proper 

authorities. ETC was also sanctioned for failing to adequately document all relevant procedures in its 

internal control processes, failing to transmit order documentation in a timely manner, and for improper 

supervision of transactions over numerous years. The sanctions and fines levied across this 

approximately six-year period demonstrate that in addition to the risk factors inherent to companies 

operating in the industry, there are also significant risk factors due to the lack of reliable management. 

Despite ETC’s failure to achieve profitability and its ongoing regulatory issues, Aequitas continued to 

book and maintain positive valuation adjustments.

182

In June 2017, ETC’s financial struggles came to a head. ETC’s continuing significant operating losses

caused the liabilities reflected on its balance sheet to exceed its assets. ETC’s management team 

consistently represented to the Receiver that ETC’s business would fail without a significant and 

immediate capital contribution. They also communicated that ETC’s regulators had expressed concerns 

about the viability of its business and were demanding that ETC raise additional capital to support its 

operations. Based on the information provided by ETC, the Receiver and his staff believed ETC’s 

181 FINRA case numbers 2011027293801, 2011029711701, 2011026157603, 2014039947501, 2010025475601, 2012035298101, 2013036531901 and 

2013037709301. Chicago Board Options Exchange case numbers 15-0040 / 20150448985, 11-0009 and 16-0013/ 20150460041. NASDAQ Stock Market case 

numbers 2011026157602 and 2010025475602. EDGA Exchange, Inc. case numbers 2011026157601 and 2011028033001. New York Stock Exchange case number 

2016-11-00072. NYSE ARCA, Inc. case number 2010025475603. Bats Z-exchange, Inc. case number 2010025475604. National Stock Exchange September 8, 2014 

settlement.

182 Chart is based on one included in the Q3 2015 valuation memo for ETC compiled by Aequitas, and represents Aequitas’ calculation of equity value. October 2, 

2014, “ETC Q3 2015 Valuation 10.2.15.pdf”.

 $-

 $10,000,000

 $20,000,000

 $30,000,000

 $40,000,000

 $50,000,000

ETC Equity Valuation and Debt Summary

100% Ownership ETC Founders Fund Ownership COF Ownership ETC Debt

COF Basis = $1.7 M

ETCFF Basis = $8.8 M

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Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 55 of 174
portrayal of its dire financial condition was accurate and that there was a significant risk that Aequitas’ 

investments in ETC would be lost completely without an immediate and significant capital infusion. 

ETC advised the Receiver that it had been seeking additional financing over the preceding months and 

years. Recent losses had been financed with a series of loans from Quantlab Investments, LLC 

(“Quantlab”). ETC informed the Receiver about a proposed financing transaction involving Quantlab and 

Cerberus Capital Management L.P. (“Cerberus”). ETC contended that it had no alternative financing 

opportunities, and the Receiver was not aware of any other viable options to address ETC’s immediate 

need for additional capital. As such, ETC consummated the financing transaction as follows: (1) 

Cerberus committed to loan up to $60 million to ETC at a rate of 10% per annum. ETC granted warrants 

entitling Cerberus to acquire Class A-1 Units representing more than 53% of the total equity of ETC 

(fully diluted); (2) Quantlab, which had previously loaned ETC approximately $23.5 million, committed 

to make an additional $4.0 million loan as well as provide a $4.0 million guarantee. ETC granted 

warrants entitling Quantlab to acquire Class A-1 Units representing more than 38% of the total equity of 

ETC (fully diluted). If Cerberus and Quantlab exercise their warrants, Aequitas’ equity position in ETC 

would be diluted to less than 6%. Further, ETC may issue additional equity interests after this transaction 

that could further dilute the Fund’s equity position in ETC. 

FTI Consulting undertook a detailed review of Aequitas’ valuations and found significant errors and 

deficiencies in the methodology and comparable companies used, and reliance on overly optimistic 

management financial projections. This led to an overstatement of the ACF, COF and ETCFF financial 

statements related to the fair value of investments. Such erroneous values were communicated to 

Investors and the SEC and used by management as a justification to take on additional investor debt. A 

summary of the various projections follows: 

E.2.1.3. Poorly performing portfolios due to financial structure 

E.2.1.3.1. ACF and CPH – BSR calculation changes; servicing fee not 

previously deducted; interest rate deduction capped

Medical accounts receivable due from patients were purchased at a discount from participating healthcare 

facilities subject to a recourse arrangement whereby the healthcare facilities agreed to repurchase 

delinquent accounts. In partnership with an unrelated bank, an open-ended revolving line of credit with 

an initial outstanding balance equal to the account receivable purchased from the healthcare facility was

offered to eligible patients. Patients could use the line of credit to purchase additional healthcare products 

and services from the healthcare facility. Balances due on the lines of credit were generally payable over 

a term between 6 to 60 months (predominantly 25 months) with no interest to the patient. Collection, 

administration and servicing obligations were subcontracted to CPYT, an affiliated company. 

Valuation Ranges for ETC

($ in millions)

Valuation Date November 30, 2013 December 31, 2013 June 30, 2014 December 31, 2014 June 30, 2015 September 30, 2015

Range Low High Fair Value1 Low High Fair Value1 Low High Fair Value1 Low High Fair Value1 Low High Fair Value1 Low High Fair Value1

Duff & Phelps $ 34.5 $ 47.5 $ 37.9 $ 48.4 $ 32.0 $ 44.1 $ 44.3 $ 59.5

Aequitas $ 45.5 $ 44.0 $ 47.8 $ 47.8 $ 47.8

FTI Consulting $ 5.7 $ 7.3 $ 11.6 $ 14.9 $ 14.4 $ 18.6

[1] Fair values represented by Aequitas to investors in investment update reports.

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Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 56 of 174
Aequitas elected to record the medical accounts receivable with recourse (held by CPFIT and CPLLC)183

as measured at fair value using a discounted cash flow methodology that considers the timing and 

amounts of expected future cash flows discounted to arrive at a present value — this methodology and 

assumptions employed resulted in a booked value which exceeded the acquisition cost. The write-up in 

value (as recourse was deemed to guarantee payment at the face amount of the receivable) failed to 

recognize the economic structure wherein the net interest margin (fair value less the cost) was transferred 

to CPYT under the PMA as a BSR payment. Although the medical account receivables were held by

CPLLC and CPFIT, the BSR payment was an obligation of ACF, parent to CPH into which CPLLC and 

CPFIT rolled up.184 As discussed earlier in this Report, the PMA allowed for a reduction in the BSR for 

certain expenses (certain interest and program related costs). Per our understanding, costs during 2013 to 

2015 were understated by a flaw in the structure of the PMA wherein the 5% servicing fee paid by 

CPLLC and CPFIT to CPYT was not included as an expense, thereby inflating the BSR paid by ACF to 

CPYT. This issue was later corrected prospectively only via the second amendment to the PMA in 

January 2016. However, CPH was still guaranteed to operate at a loss — as the second amendment to the 

PMA capped the amount of interest allowed to be deducted from the BSR at less than the actual interest 

expense incurred by CPH. In February 2016, in response to the technical default of ACF, the third 

amendment was executed to transfer the payment obligation from ACF to CPH. 

E.2.1.3.2. CSF – Risk profile changes with CoCo bankruptcy, regulatory 

investigations, climbing defaults and the impact on portfolio value

Initially, in June of 2011, a pool of $30.9 million of private education loans was acquired at a discount 

from CoCo on a non-recourse basis, wherein Aequitas assumed the risk of student default.185 Subsequent 

purchases of student loan pools in 2011 through 2014 were backed by a recourse agreement from CoCo, 

requiring CoCo to repurchase delinquent loans 90 days after default.

186 The borrowers were typically 

paying interest only while in school and afterwards pay interest and principal. On average, the loans had 

a maturity of approximately six to seven years. Collection, administration and servicing were mainly 

outsourced by Aequitas to third-party providers. With respect to the recourse loans, contracts between 

Aequitas and CoCo allowed Aequitas to return past-due student loans after they have been delinquent for 

90 days and recoup the entire cost of the investment. In addition, CoCo was contractually obligated to 

pay Aequitas certain fees and reimburse Aequitas for any third-party servicing expenses. Further, 

Aequitas was required to pay a commission and share any profits over a specified return threshold with 

the architect of the student loan business – American Student Financial Group, Inc.

187 This back-end split 

share percentage varies based on the type of loan (recourse or nonrecourse) and the total gross receipts 

compared to the purchase cost. 

Recourse loans and fair value: 

183 And such predecessors of CPLLC and CP Funding I Trust (“CPFIT”), such as CP Leverage 1 and CP Funding 1. 184 ACF accounted for the BSR payment (which, to the extent it exceeded any net equity distribution from CPH to ACF, could have only been made using 

supplemental funds from PN Investors) as a direct expense on its books and records. Such treatment benefited the Direct Note Investors in the underlying SPEs, 

which received the net interest margin but did not pay the contractual BSR to CPYT. During the Relevant Time Period, ACF made $18.5 million in BSR payments to 

CPYT, which would be reduced by the net equity distribution of CPH and affiliates of $6.0 million according to the books and records as of March 31, 2016. 185 This initial purchase of non-recourse loans was booked to the financial statements as $30.9 million of student loans and the $5.9 million discount as a reserve for 

doubtful accounts.

186 Subsequent purchases of recourse student loans were recorded at face value with a contra account for the discounted amount (the sum of which would net to the 

purchase price). The contract allowed for the discounted amount of the student loans to be remitted back to CoCo after Aequitas had recovered its purchase price 

(along with reimbursements for fees and costs and any student loan interest payments). 

187 American Student Financial Group, Inc. (“ASFG, Inc.”), a Delaware corporation, is a separate and distinct entity from ASFG, LLC (a former Aequitas entity). 

ASFG, Inc. is not part of the Receivership Entity or otherwise affiliated with the Receivership.

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Recourse loans were valued at fair value based upon a discounted cash flow using management’s 

assumptions purportedly based on known information and developed assumptions. Factors utilized for 

the calculations were:

1. Weighted average interest rate of the individual loans in the specific loan pool.

2. Weighted average loan term of the individual loans in the specific loan pool.

3. Student loan payment schedules as per the underlying loan agreements. Typical cash flow 

assumption would be interest-only payments for the first 12 months and amortizing payments of 

interest and principal thereafter.

4. SSR Rate or adjustments to principal – Risk of a student dropping out of a program early with the 

loan not being fully funded or the loan amount otherwise reduced. 

5. Forbearance rate – Student loan terms include a possible loan payment suspension for a period in 

the case of financial hardship.

6. Recourse rate – The risk of student default and the repurchase of the remaining loan by CoCo. 

7. Credit risk – The risk of CoCo not repurchasing the defaulted loans.

8. Liquidity risk – Risk of illiquidity/non-transferability and the risk Aequitas will be unable to 

fulfill its obligations.

9. Model risk – Risk the model does not reflect ultimate actual cash flow and assumptions.

Assumptions for the fair value calculations were revised by Aequitas management each year. Loans were 

grouped for purposes of analysis, and each group was evaluated separately. Observable inputs for the fair 

value calculations are summarized as follows:

Observable Inputs 2011 (A) 2012 (B) 2013 (C) 2014 (D) 2015 (E)

Weighted Average Interest Rate 13.5% - 14.9% 6.8% - 14.1% 5.9% - 14.9% 5.9% - 14.9%

Weighted Average Term 57 - 85 months 34 - 160 months 40 - 60 months 48 - 164 months

SSR Rate 1.1% - 14% 0 - 15.9% 1.1% - 17.0% 0.0% - 18.6%

Recourse Rate 45% - 55% 49% - 61% 35% - 63% 39% - 69%

Forbearance Rate 20% - 25% 20% - 25% 0% - 44.9% 0% - 40.9%

Credit Risk 3.70% 2.90% 0% - 0.8% 0%

Liquidity risk 2.00% 2.00% 1.8% 1.8%

Model Risk 1.30% 1.3% - 2.0% 0.9% - 1.3% 0.7% - 1.3%

(A) Compiled from Discounted Cash flow models generated in 2012 by Aequitas staff.

(B) Source - Aequitas Commercial Finance, LLC audited financial statements. Auditor EisnerAmper LLP of San Francisco, California. 

Audit Opinion dated April 30, 2013.

(C) Source - Aequitas Commercial Finance, LLC audited financial statements. Auditor Deloitte & Touche LLP of Portland, Oregon. Audit 

Opinion dated May 23, 2014.

(D) Source - Aequitas Commercial Finance, LLC audited financial statements. Auditor Deloitte & Touche LLP of Portland, Oregon. Audit 

Opinion dated May 29, 2015. 

(E) Data not compiled for 2015 due to lack of financial audit and commencement of Receivership.

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Based on the observable inputs above, Aequitas calculated a fair value of the recourse portfolio and 

recognized $28.6 million in unrealized gains on the recourse student loan portfolio as the portfolio was 

building through 2013. The unrealized gains (or, as actually occurred, losses) are then realized during 

2014 and 2015 as the loan payments are received and the portfolio shrinks. Summarized activity for the 

recourse student loan portfolio is as follows:

Fiscal Year

Recourse Student Loans 2011 (A) 2012 (A) (D) 2013 (B) (D) 2014 (C) 2015 (F) 

Balance Beginning of Year $ 40,225,693 $ 120,504,083 $ 153,508,936 $ 109,701,134 

Fair Value Prior Period Adjustment made 

in 2013 (D) $ 4,111,555 

Student Loan Pool Purchases $ 34,197,901 $ 140,428,272 $ 108,245,582 $ 8,246,751 

Sales/Paydowns $ (2,335,342) $ (71,696,579) $ (88,359,074) $ (41,890,816) $ (16,861,446)

Transfer to Amortized Cost (E) $ (34,870,575)

Transfer from Fair Value (E) $ 34,870,575 

Amortization of Unearned Income $ 348,023 $ 492,466 

Unrealized Gain (Loss) $ 8,363,134 $ 11,546,697 $ 8,658,767 $ (10,656,203) $ (7,306,366)

Balance End of Year $ 40,225,693 $ 120,504,083 $ 153,508,936 $ 109,701,134 $ 85,533,322 

(A) Source - Aequitas Commercial Finance, LLC audited financial statements. Auditor EisnerAmper LLP of San Francisco, 

California. Audit Opinion dated April 30, 2013.

(B) Source - Aequitas Commercial Finance, LLC audited financial statements. Auditor Deloitte & Touche LLP of Portland, Oregon. Audit 

Opinion dated May 23, 2014.

(C) Source - Aequitas Commercial Finance, LLC audited financial statements. Auditor Deloitte & Touche LLP of Portland, Oregon. Audit 

Opinion dated May 29, 2015. 

(D) Subsequent to the issuance of the 2013 financial statements, Aequitas determined that it had incorrectly calculated the fair value of its 

student loan receivables as of December 31, 2013. Fair value was increased by $4,111,555 retroactively as of January 1, 2013. 

(E) Recourse loans for which CoCo had not submitted payment were transferred to an amortized cost basis accounting. No impairment was 

recorded, as future cash flows were considered adequate to recover cost.

(F) 2015 Balances calculated from Great Plains general ledger balance sheet changes from 2014 to 2015.

In November 2013, the CFPB reported that it was investigating CoCo for abusive lending practices in 

connection to CoCo student loans. On or about June 10, 2014, CoCo defaulted on its contract with 

Aequitas to reimburse for past due accounts, fees, and servicing expenses. Less than a month later, on 

July 3, 2014 the United States Department of Education and CoCo announced their plan to require CoCo 

to close or sell all campuses over the next six months. On April 26, 2015, CoCo announced that it would 

cease operations at all remaining U.S. locations effective April 27, 2015. Finally, on May 4, 2015, CoCo 

filed for bankruptcy pursuant to Chapter 11 of the U.S. Bankruptcy Code, seeking to liquidate all its 

assets. Per the contract between CoCo and Aequitas, if payment of past due accounts and fees is not 

remitted by CoCo, Aequitas had the right to retain all cash collections owed CoCo until its receivables are 

fully paid off. 

As of December 31, 2014, the outstanding amounts of past due accounts and fees for which CoCo had not 

remitted payment were $31.8 million and $2.8 million, respectively. Rather than recognizing a loss 

reserve as of December 31, 2014, Aequitas reclassified the defaulted recourse loans from assets measured 

at fair value to assets valued at net amortized cost. This caused a negative fair value adjustment as the

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previously recognized but unrealized gain due to the write-up of the defaulted recourse loans was 

reversed. However, the cost basis of these defaulted recourse loans remained on the financial statements 

as an asset. By December 31, 2015, the outstanding amounts of past due accounts and fees for which 

CoCo had not remitted payment had grown to $51.8 million and $9.5 million, respectively. No 

adjustment was made to the financial statements or fair value calculation for the additional $20 million in

defaulted loans. With respect to the reimbursement of servicing fees, Aequitas in conjunction with the 

2014 ACF audit had determined there were insufficient estimated future cash collections to cover all the 

outstanding and future servicing fee reimbursements. As of December 31, 2014, the outstanding amount 

of servicing fees reimbursement for which CoCo had not remitted payment was $2.4 million, of which 

Aequitas deemed $1.2 million to be uncollectible. Aequitas fully reserved against all future servicing fee 

reimbursements but failed to make any reserve for past due accounts on the unsupported assumption that

any monies owed to CoCo would be offset against the past-due accounts owed to Aequitas by CoCo, thus 

making Aequitas whole.188

Aequitas elected to record student loans with recourse as measured at fair value using a discounted cash 

flow methodology that considers the timing and amounts of expected future cash flows discounted to 

arrive at an estimate of present value. The fair value methodology was flawed in that it did not consider 

all costs related to the CoCo program and thus overstated the receivables’ fair value. Further, due to 

CoCo’s default in mid-2014, the fair value inputs as determined by management, which assumed 

continued payments by CoCo, differed significantly from any reasonable assumptions in the absence of 

effective recourse — which again overstated the fair value. Finally, failure to recognize a significant loss 

on the student loan portfolio as well as the materially different risk profile of the investment misstated the 

financial condition of ACF. Subsequently, Aequitas’ failure to take an additional reserve for proposed 

settlement with CFPB, whose investigation was known prior to the finalization of 2014 financial 

statements, misstated the financial condition of ACF. 

E.2.1.3.3. FFN – High cost of capital and no loan balancing based on consumer 

defaults/borrowing base

Beginning in 2014, Aequitas purchased unsecured subprime consumer loans that had been originated by 

the FFN program.

189 As of March 31, 2016, the receivable’s principal balance totaled $70.8 million, net 

of charge-offs. FFN assets included two portfolios of unsecured consumer loans (the “Consumer Loan 

Portfolios”) held by the Receivership Entity, as follows:190 

• ACCFT-1 held a portfolio of unsecured consumer loans denominated as FreedomPlus or “F+” 

loans (the “F+ Loans”). As of March 31, 2016, there were approximately 1,847 loans in the F+ 

Loans portfolio, with a cumulative principal balance receivable of approximately $22.5 million.

• ACCFT-2 held a portfolio of unsecured consumer loans denominated as ConsolidationPlus or 

“C+” loans (the “C+ Loans”). As of March 31, 2016, there were approximately 2,929 loans in 

the C+ Loans portfolio, with a cumulative principal balance receivable of approximately $48.2 

million.

188 Aequitas purchased the majority of the receivables at 60% of face value and was contractually obligated to remit any monies collected from the receivables in 

excess of 60% to CoCo. After CoCo’s default, Aequitas assumed that it had the right to offset any monies owed by CoCo against the excess monies collected. 

Deloitte signed off on the audit under these assumptions. 189 Technically, Aequitas acquired the loans from Cross River Bank, for whom FFN had performed certain origination services and, subsequently, serviced and 

administered the loans.

190 Another portfolio of F+ and C+ consumer loans were held by ACC Funding Series Trust 2015-5 (“ACCFST-5”), which is described further in section G.1. 

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The Consumer Loan Portfolios were collateral for two secured notes (the “Comvest Notes”) from third 

parties: Comvest Capital, III, L.P. (“Comvest”) and Atalaya Asset Income Fund II LP and certain of its 

affiliates (“Atalaya” and, collectively with Comvest, “Comvest Lenders”). The Comvest Notes provided 

acquisition financing to ACCFT-1 and ACCFT-2 with respect to the Consumer Loan Portfolios. As of 

March 31, 2016, the approximate principal balance owing to the Comvest Lenders was $59.0 million, 

plus accrued and unpaid interest of $1.5 million.

The acquisition of the Consumer Loan Portfolios was financed at a specified advance rate via draws on a 

senior secured note bearing interest at 12.5% and, if in default, 15.5%. The Comvest Note also contained 

a prepayment penalty starting at 6% and sliding to 0% over a three-year period.

On February 2, 2016, Comvest provided notice of multiple alleged events of default under the credit 

agreement. In addition to reserving its default rights, remedies, and powers under the credit agreement, 

Comvest’s notice purported to impose the “Default Rate Interest for all outstanding Obligations 

retroactive to April 14, 2015” — effectively increasing the interest rate from an already high 12.5% to 

15.5% retroactively and effective just two weeks after the closing of the initial loan. In addition, the 

difference between the purchase price of the receivables and the advance rate on the Comvest Note was 

provided by junior debt from Aequitas Funds bearing a blended interest rate of 16.6% — pushing the 

current net yield of the portfolios further negative.

A summary of the economics on the portfolios follows:191 

In addition, not only was the financial structure of the portfolios flawed, the portfolio economics 

continued to deteriorate over time. As the receivables defaulted and the face value of the portfolios 

191 Values as of June 2016 and excludes the portfolio of F+ and C+ consumer loans were held by ACCFST-5. 

F+ C+

Portfolio Yield 17.6% 22.1%

Portfolio Face Value $19.8 M $44.1 M

Comvest Debt $14.8 M $39.3 M

Subordinated Debt $9.3 M $7.8 M

Nominal Weighted Nominal Weighted

Premium Paid 0.00% 0.00% 3.50% 3.50%

ComVest Senior Debt 12.50% 9.35% 12.50% 11.14%

ComVest Default Rate 3.00% 2.24% 3.00% 2.67%

Aequitas Subordinated Debt 16.20% 7.66% 17.00% 3.02%

Freedom - Servicing Fee / year 0.75% 0.75% 0.83% 0.83%

Freedom - Asset Management Fee / year 1.00% 1.00% 0.00% 0.00%

Aequitas - Asset Management Fee / year 2.00% 2.00% 2.00% 2.00%

Freedom - Participation Fee 10.00% 1.70% 0.00% 0.00%

Cumulative Charge-offs 7.00% 1.80% 7.00% 1.75%

Total 26.51% 24.92%

Spread to Portfolio Yield -8.96% -2.81%

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decreased, they reached a point at which they were insufficient to retire the underlying debt and repay 

Investors. A summary comparison of the face value of the portfolios’ outstanding debt follows: 

E.2.1.4. Investments with no economic support

E.2.1.4.1. The Hill Land, LLC

The Hill Land transaction had no legitimate business purpose. The purchase by Aequitas and lease (with

option to purchase) of property used by a church school previously attended by Jesenik’s children 

appears to use Investor money for the sole benefit of Jesenik and/or Jesenik’s family. A donation (the 

source of which was Investor funds) in the amount of monthly rent was made to the school such that it 

essentially enjoyed occupancy of the property rent free. A below-market sale option period was extended 

without apparent consideration. The property was sold immediately before the Receivership at a loss. 

The Hill Land, LLC (“Hill Land”) is an entity 100% owned by ACF. Hill Land was formed for the sole 

purpose of owning approximately 7.44 acres of land at 8200 SW Pfaffle, Tigard, OR and leasing it to 

Westside Christian High School, Inc. (“WCHS”). The land was purchased by Hill Land on February 12, 

2013 for $1.5 million, and WCHS simultaneously executed an interim 30-year net lease. At underwriting, 

one of the potential future exits for Hill Land was envisioned as a “cash-neutral” donation of the land, 

which could be realized as a tax write-off of ~40% of the land’s fair value. At the same time as Hill Land 

purchased the land, WCHS acquired the existing improvements located on this land parcel. 

Hill Land used the following sources of funds for the land acquisition: 

• $1.4 million short-term loan from WCHS to Hill Land;

• $140 thousand term loan from ACF; and

• $10 thousand equity contribution from ACF.

Throughout 2013, ACF made multiple advances to Hill Land, and Hill Land used those proceeds to pay 

off its loan from WCHS. Based on the amended and restated promissory note between Hill Land and 

ACF dated April 24, 2013, ACF has agreed to loan Hill Land up to $1.5 million. 

Effective April 26, 2013, the interim lease agreement was replaced with a new lease agreement (“Ground 

Lease with an Option to Purchase”) that, among other provisions, included revised rent amounts and 

granted WCHS an option to purchase Hill Land for $1.5 million if the closing occurred on or before 

December 31, 2015; otherwise, the option would have to be exercised at the greater of $1.5 million or fair 

market value. Under the Ground Lease with an Option to Purchase, Hill Land also had a “put” option to 

Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015

2016 (as of 

6/17/16 sale)

Consumer Debt Portfolios at Face Value

C+ Face Value - Investments 14,785,866 25,659,852 34,577,351 42,043,094 49,363,020 43,479,721

F+ Face Value - Investments 7,388,958 20,586,872 27,220,278 26,925,819 23,665,963 19,492,195

Total Consumer Debt Portfolios at Face Value 22,174,825 46,246,723 61,797,628 68,968,913 73,028,983 62,971,916

Outstanding Debt

C+ Total Debt 8,461,997 24,806,642 35,487,121 41,752,392 50,991,803 45,938,618

F+ Total Debt 585,413 13,021,816 26,282,190 28,938,388 25,412,903 23,694,315

Total Outstanding Debt 9,047,411 37,828,458 61,769,311 70,690,780 76,404,706 69,632,933

Net Consumer Debt Porfolios Less Debt 13,127,414 8,418,265 28,317 (1,721,868) (3,375,723) (6,661,017)

AH and ACF Cash Investment 24,210,825 12,088,820 17,555,232 19,253,040 17,936,440 19,657,340

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require WCHS to purchase membership interests in Hill Land at fair market value upon the terms and 

conditions set forth in the lease. Monthly rent amounts were set at:

• April 17, 2013 to June 30, 2014: $8 thousand; 

• July 1, 2014 to June 30, 2015: $13 thousand; 

• July 1, 2015 to June 30, 2016: $17 thousand; 

• July 1, 2016 forward – CPI-based adjustments. 

Around the same time, WCHS also obtained a construction loan from Capital Pacific Bank to finance the 

remodeling of existing improvements and construction of additional improvements on the subject site. 

Hill Land agreed to defer the ground rent in the event that WCHS is out of compliance with certain 

financial covenants under its loan agreement with Capital Pacific Bank. Hill Land also agreed to execute 

and deliver a Trust Deed for the land as additional security for the Capital Pacific Bank construction loan. 

In connection with the contemplated construction loan, Capital Pacific Bank commissioned an appraisal 

of the property and improvements in process.192 The appraisal noted the rent paid by WCHS (and 

subsidized by Aequitas Investors) to be below market (and that the "owners", presumably Jesenik, is an 

alum of the school and that is the incentive to extend a favorable, below market lease agreement to 

WCHS). The appraiser’s analysis of the leasehold interest concluded a positive leasehold to the tenant

(i.e. the under-market leasehold payments represent an additional net benefit to WCHS).

Throughout the term of the lease from 2013 until January 2016, Aequitas subsidized WCHS rent 

payments through monthly donations to WCHS. We have been advised that Jesenik’s children had 

previously attended this school; by the time of the land acquisition and subsequent donations, it is 

believed that they had graduated. The total amount of the donations made to WCHS is estimated to be at 

least $251 thousand. 

Effective December 1, 2015, Hill Land and WCHS amended the Ground Lease with an Option to 

Purchase, to extend the time period allowing WCHS to purchase the land for $1.5 million until March 31, 

2016. We are not aware of any consideration received by Hill Land for the extension of the option. 

The property owned by Hill Land was sold to WCHS on February 23, 2016 for $1.4 million when 

Aequitas experienced a severe liquidity crisis. Based on the information provided by Washington County 

staff in June of 2016, WCHS was the owner of record.

By funding the contractual lease payments, extending the duration of the under-market value option (with 

no consideration given for such an extension) and including the additional $100 thousand discount to the 

option price provided to WCHS, Aequitas lost at least $351 thousand, with WCHS obtaining the financial 

benefit.193 

E.2.1.4.2. Prairie Financial Inc.

The Prairie Financial Inc. (“Prairie”) transaction is an example of management putting Investor funds at 

risk without commensurate investment returns. It appears from the outset to have been structured as a 

loss (based on return versus cost of funds) whose only purpose was to engender a relationship with 

192 Appraisal dated May 12, 2014 performed by Jackson Group NW Inc. 193 As part of this Investigation, the Receiver did not attempt to independently determine the fair market value of the parcel sold. In addition to the 2014 appraisal, the

Receiver does note that the “7/1/15 to 6/30/16 Real Property Tax Statement” received from Washington County, Oregon listed the market value for the land at $4.4

million with no value stated for improvements.

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Scottrade Bank (“Scottrade”) which it was hoped would open the door to additional fundraising in 

furtherance of the scheme. Ultimately, Prairie repaid the loan with interest per the agreement. 

Background:

In Q3 2014, Jesenik, Oliver and Janke were approached by Scottrade regarding the purchase of a 

company, Prairie, also known as OA Finance, LLC. Prairie’s primary operation was to originate and 

service loans for the Outdoor Amusement (“OA”) industry. The OA industry includes carnivals, fairs, 

waterparks, etc. Scottrade had received Prairie and its portfolio when Scottrade acquired Boulevard Bank 

(which had purchased Prairie in 2011). Post-acquisition, Scottrade’s regulators determined that Prairie 

did not fall under their core business strategy, and Scottrade looked to sell the origination company and its

portfolio of outstanding loans. 

In September of 2014 Scottrade extended an offer to potentially establish a $75.0 million senior lending 

facility for ACF, as an incentive for it to buy the OA loans. These funds would be used to provide senior 

leverage for the purchase of the existing Scottrade Prairie portfolio, totaling $28.7 million of principal 

outstanding as of July 2014. The remainder of the $46.3 million could be used to fund additional ACF 

assets as deemed fit. However, on October 12, 2014, Scottrade reported that it was unlikely ACF would 

get the $75.0 million from Scottrade, and instead it could potentially get a facility up to the value of the 

OA loans and refinance the CSF loan portfolio, with perhaps 10-20% additional for other ACF assets.

194 

In the meantime, however, Prairie had a pipeline of loan offers extended to its clients, which Scottrade 

was no longer willing to fund. Scottrade requested ACF facilitate the funding of this pipeline during 

discussions of the lending relationship.

195 The IC was approached on October 16, 2014, to provide bridge 

funding for the Prairie portfolio.

196 Aequitas was asked to advance up to $2.4 million for bridge funding 

throughout the remainder of 2014. Per the report presented to IC, the cost of funds for Private Notes was

higher than the returns on the portfolio, and therefore the deal’s only purpose was to facilitate establishing 

a senior credit facility for Aequitas.

197 In the corresponding discussion, the deal was approved to gain 

favor with Scottrade and help strengthen Scottrade’s resolve to provide the facility to Aequitas. 

Ultimately, Aequitas’ objective was frustrated. On November 8 Joseph Pope, President and CEO of 

Scottrade, wrote Jesenik and officially stated that the bank had no further appetite for funding a new, or 

increasing any current, credit facility with Aequitas.

198 

Relationship with Garea:

At the time of the transaction, Scottrade’s representative, Joseph Garea, was the Managing Director of 

Manchester Partners “Manchester” (later to be known as Hancock Investment Advisors). Manchester was 

the primary shareholder of Boulevard Bank before the Scottrade buyout, and Garea had a personal 

relationship with the owners of Prairie, Paul and Wade Muller. Garea and Manchester were also invested 

in the Prairie portfolio and were arranging for the ultimate purchase of the company. 

Additionally, Garea consulted with Jesenik, Oliver and Janke on several occasions, to connect them with 

various potential banking partners. Garea and his business partners also invested their Hancock RIA199

194 Email from Garea to Olaf, Jesenik, Oliver, Ruh, October 12, 2014, “Re: Scottrade/Aequitas credit facility thoughts”. 195 Email from Garea to Oliver and Jesenik, October 1, 2014, “Outdoor Amusement business”. 196 August 18, 2015, “IC Minutes 10 16 14 (APPROVED).pdf”. 197 Exhibit B from “IC Minutes 10 16 14 (APPROVED).pdf”. 198 Email from Pope to Jesenik, November 8, 2014, “RE: LOI - Acquisition of Prairie Financial 10-31-14.docx”. 199 Registered Investment Advisers (“RIA”s)

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clients in Aequitas Private Notes on several occasions. Garea (and his partners) were also active 

members in Aequitas Financial Services Network (“AFSN”),

200 Garea personally holds roughly $200

thousand in Private Notes, and participated in several other Aequitas strategies and deals. 

Investment in Prairie:

Despite the removal of the senior credit facility incentive, Aequitas continued its arrangement with 

Manchester to fund the pipeline of Prairie. 201 Aequitas was to fund 90% of the loan and Manchester 

would fund the remaining 10%.202 The original term for the pipeline funding program was December 17, 

2014; however, when Manchester was unable to arrange new funding by December, the IC voted to 

extend the term until March 15, 2015. 203 A total of $800 thousand was loaned by ACF at a 10% interest 

rate, which was less than the Private Note average cost of capital of roughly 11-12% (plus ACF’s 2% 

annual asset management fee). There were several times Aequitas failed to fulfill its funding commitment 

due to lack of funds. Often Manchester funded the entirety of the loans, and Aequitas was to reimburse 

Manchester as funds came available. 

In March of 2015, Jesenik and Oliver considered having Aequitas fund a sub-debt and membership 

interest purchase with Garea as a “friend and family” investment of $500 thousand. Per an email between 

Oliver and Jesenik, Oliver reiterated that the deal was a relationship investment, as a favor to Garea and 

Hancock Investment.

204 Below are some experts from that March 15, 2015 email:

At the end of the day, we would never do this deal on the stand-alone merits of the investment as 

a little 5% owner in small, niche specialty finance portfolio that is projected to be nominally 

profitable.

Not very compelling, but again this is really a “relationship” investment with the rationale not 

being an anticipated great return but being based on:

A relationship going back with Hancock Investment Advisors for 3+ years. During that time period 

the relationship has been strategic and beneficial in that:

• Mutual investment in Spouting Rock Financial.205

• They introduced us to Scottrade Bank, who provided us $25MM in financing for our 

Campus Student Funding private loan portfolio.

• They have invested $1.5MM through their RIA clients into the Aequitas Private Note

• They have consulted with us on our overall pursuit of a bank investment strategy

• They have referred us and consulted with us on numerous private credit investment 

strategies

200 AFSN is discussed in further detail in E.4.3.2. 201 November 5, 2014, “(1) Loan Purchase Agreement (ACF-Prairie Financial) - 10-27-14 - EXECUTION VERSION-signed.pdf” and “(2) Loan Servicing Agreement 

(ACF-Prairie Financial) - 10-27-14 - EXECUTION VERSION-signed.pdf”. 202 November 5, 2014, “(3) Participation Agreement (ACF-Manchester) - 10-27-14 - EXECUTION VERSION-signed.pdf”. 203 January 8, 2015, “Loan Purchase Agreement - First Amendment 01-08-2015.pdf”. 204 Email from Oliver to Jesenik, March 15, 2015, “OA Finance (Prairie Financial)”. 205 ACM invested $400k for 30,582 shares of Class A units of Sprouting Rock Financial Partners, LLC on August 15, 2013. All units were sold to Hopedene 

Ventures, LLC on February 12, 2016 for $100k.

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• They have been an active Member in the Aequitas Financial Services Network since 

inception and are in discussions with CliftonLarsonAllen, Integrity Bank & Trust, and 

others as a result. 

This is a Hancock “friends and family” investment. We are really just trying to help them out as 

part of their “friends and family”.

They anticipate leveraging this platform to be a broader origination/funding/servicing platform 

for other small, niche credit strategies. This could be strategic for Aequitas in regards to 

potentially utilizing them as a 3rd party servicer, but also as a platform to refer smaller 

opportunities to [sic] that aren’t a fit for Aequitas to work with directly.

Ultimately, Oliver and Jesenik decided to pass on the sub-debt and membership interest investment and 

communicated such to Garea in March of 2015. On April 1, 2015, Prairie obtained new outside financing 

and returned the principal borrowed plus $27 thousand in interest to ACF. 206 

E.2.1.5. ACF compliance issues July 2015

In early 2015 and in conjunction with the due diligence related to the Wells Fargo financing for CPFIT, 

ACF was required to obtain an opinion letter that it was compliant with the 1940 Investment Companies 

Act (aka “40 Act”) or exempt (Aequitas asserted it could be exempt under Section 3(c)(5)). To avoid 

registration requirements (which would have had detrimental impacts on Aequitas’ investment strategies 

— including loans/transfers to affiliates), ACF had to prove via calculation that it contained an 

appropriate level of “Good Assets” versus “Bad Assets.”207 As part of the analysis, ACF determined it

held several Bad Assets that needed to be conveyed outside of ACF (potentially to AH, IOF and/or other 

investment vehicles). Moreover, ACF needed to acquire interests in additional Good Assets and 

identified suitable candidates owned by other AH subsidiaries and the Aequitas Funds.

Good Assets include interests in consumer receivables such as student loans, motorcycle loans and other 

consumer debt. Management identified $31.8 million of student and motorcycle loans owned by IOF

which could be contributed back to ACF in exchange for notes receivable, which constituted Bad Assets. 

In mid-July 2015, management approved a plan to remove IOF from under ACF, and to replace all the 

$31.8 million of IOF note receivable from ACF (backed by equity in MLF) and the IOF note receivable 

from ACF (backed by equity in CSF) with Bad Assets, when management then back-dated the agreements 

to have them effective on June 30, 2015. The subsequent investment shuffle to bring ACF into compliance 

is further detailed in sections E.5.2.1 and F.3.

E.3. Loans to insiders

E.3.1. Newman loan

As discussed further in this Report, Aequitas made loans to RIAs in connection to the AWM Network to 

promote fundraising and in furtherance of the scheme. The loan to Jesenik’s brother-in-law is the only 

cash loan made with Investor funds to a non-RIA. This appears to be an instance of self-dealing with 

Jesenik (and Jesenik’s family), the only beneficiary of the loan. 

206 April 6, 2015, “Letter re Loan Repurchase and Termination (ACF-Prairie-Manchester) 04-1-2015.pdf”. 207 Although Aequitas presentations regarding the shuffling of investments to achieve compliance with the 40 Act discuss Good Assets and Bad Assets, that is 

unfortunate nomenclature which refers to the suitability of the assets. Good Assets are simply assets that allow Aequitas to maintain compliance though an 

exemption, provided the company held only consumer and corporate debt. Bad Assets, in the Aequitas case, consisted of equities and securities that would have 

triggered registration under the 40 Act. However, it should be pointed out that the Bad Assets are the major source of investment losses for the Receivership. 

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Background:

Michael J. Newman, brother-in-law to Jesenik, and his wife, Susan L. Newman, requested a loan from 

ACF on December 17, 2010 for $325 thousand, which was subsequently approved by the IC (“Newman 

Loan”). At the point of origination, the Newman Loan carried an interest rate of 20%, and would mature 

on December 17, 2013.

208 Per the agreement, Newman was to make a mandatory pay-down of $100

thousand within the first 18 months. In 2011 Newman made the payment, decreasing the face value to 

$225 thousand. 

Michael and Susan Newman are the borrowers and liable parties under the Newman Loan; however, the 

loan was taken out to complete the final purchase of their business, Dayspring Hardware and Molding, 

Inc.209 Newman and his partner (Bill Smith) purchased the business in 2006 for $2.1 million. Newman 

was to purchase 30% of the equity, with Smith purchasing 20%. Final payment for the business ($1.2 

million combined) was owed on December 31, 2010, for which Newman was $325 thousand short. 

Per the email from an internal analyst to IC, at the time of origination Newman’s personal net worth was 

approximately $385 thousand, which included his 401(k), residential home, and life insurance policy. 

Newman’s equity portion in Daysprings Hardware was also estimated to be $550 thousand. The loan was 

collateralized by “all cash, accounts receivable, notes receivable, contract rights, deposits, securities, 

investments, chattel paper, documents, instruments, general intangibles, inventory, raw materials, work in 

progress, finished goods, furnishings, fixtures, trade fixtures, equipment, machinery, motor vehicles and 

all other personal property, assets or rights of whatever nature now owned or hereafter acquired by 

Borrower.” 

Amendments to the agreement:

On December 1, 2012, the first amendment was executed, reducing the interest rate on the loan from 20% 

to 11%.

210 At the time of the amendment, the remaining balance on the loan was $225 thousand plus $5

thousand of accrued interest.

On December 31, 2013, a memo requesting an extension of the Newman Loan due date was presented to 

IC.211 The remaining balance on the loan at that time was $224 thousand plus $862 of accrued interest. 

Newman requested a three-year extension, setting the new due date of December 31, 2016. Newman was 

to make mandatory payments each year, reducing the balance to $200 thousand by the end of 2014 and 

under $175 thousand by the end of 2015.

212 This was approved by IC, with no additional changes to the 

loan terms, and was executed as the second amendment.

213 

Post-amendment activity:

On September 28, 2014, Jesenik emailed Newman, responding to a July 2014 email from Newman, 

alluding to trading Dayspring’s stock for relief from the promissory note.

214 Jesenik stated:

208 April 18, 2011, “Ltr (Newman) re ACF Loan Txn Docs 04-18-11 v1_0.pdf”. 209 Email from Ezra to Investment Committee, November 17, 2010, “Dayspring Newman Investment Opportunity”. 210 December 4, 2014, “Prom Note-Loan Agmt-Amendment No 1 (Newman-ACF) 12-01-12 v1_0.pdf”. 211 January 2, 2014, “IC Txn Approval Minutes - Newman Note Extension 12-31-13 v1_0.pdf”. 212 Email from Steffner to Newman, December 31, 2013, “RE: Aequitas Commercial Finance loan extension”. 213 February 3, 2014, “Prom Note-Loan Agmt-Amendment No2 (Newman-ACF) 12-17-13.pdf”. 214 Email from Jesenik to Newman, September 28, 2014, “RE: Thank You”. 

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Working on distribution of note to me personally. Will then be able to gift you $40k-50k/ year end

and then Jan 1 as well. At that point you can stop making payments, and in a couple years we will 

be done. Hang in there.BJ

On November 12, 2014, an internal analyst followed up with Newman, to request status on the mandatory 

$23 thousand payment. This payment was necessary to comply with the second amendment, bringing the 

loan under $200 thousand by year end. Newman responded, stating “Bob Jesenik and I are working on 

this.”215 When the analyst approached Jesenik on January 26, 2015, inquiring if there should be changes 

to the loan documentation, Jesenik responded “No thanks- it will come out of ACF in the partner fund 

distribution and I will handle from there. Thanks for asking.BJ.”216

In April of 2015, management concluded long term discussions regarding the conversion of assets from 

ACF to APF. Backdated to October 1, 2014, the Newman Loan was assigned from ACF to its parent 

entity, AH, as a part of a wider $4.3 million non-cash investment conversion to APF.

217 For consideration 

of the assignment, the outstanding balance of the ACF-AH Note was increased by the amount due on the 

Newman Loan, $223 thousand. 218 

The last payment made by Newman on the loan occurred in March 2015, for roughly $186. On July 22, 

2015 Jesenik confirmed to inside counsel that his intention was to buy out the Newman Loan from AH as 

of August 1, 2015.

219 Outstanding principal as of that date was $222 thousand, with accrued and unpaid 

interest of $16 thousand.

220 Counsel drafted an assignment of loan form for Jesenik, which was never 

executed.

221 

On July 24, 2015, Jesenik asked counsel for clarification on the assignment form, asking if the Newman 

Loan was still with AH and had not been assigned down to APF.

222 A corresponding comment suggested 

that Jesenik intended to replace the Newman Loan with a note to APF from himself. Per researchable 

records, the Newman Loan had not been resolved after that date; however, it was regularly on the agenda 

for the OCIO Integrated Tax Meetings through January 2016, for which Jesenik was an attendee. The 

note remains unpaid, and Receiver is pursuing collection. 

E.3.2. NorthBranch

Aequitas used Investor funds to make a series of loans to insiders and enterprises owned by insiders in 

order to prop up those investments. The loans to the insiders were nonrecourse (except to their interest in 

the failing enterprise) and made on non-commercial terms. This self-dealing passed all the risk to the 

Aequitas Investors, with all upside, other than interest payments on the debt, going to the insiders. In the 

case of Northbranch, LLC (“NorthBranch”), between 2007 and 2013 Aequitas invested at least $7 

million into a failing restaurant enterprise, which was foreclosed on and refinanced using additional 

Aequitas funds at least three times during that span. Aequitas did not receive any principal payments 

from the various restaurant entities, and received only a few of the interest payments that Aequitas was 

due.223

215 Email from Steffner to Newman, November 11, 2014, “RE: Aequitas Commercial Finance loan extension”. 216 Email from Jesenik to Steffner, January 27, 2015, “RE: Loan to Mike Newman”. 217 February 2, 2015, “Partner Fund Restructure - Document and Issue Summary.docx”. 218 April 23, 2015, “(3a) Assignment Agreement (ACF to AH) 10-01-14.pdf”. 219 Email from Jesenik to Holmen, July 22, 2015, “RE: Buyout of Newman Note”. 220 Email from Rivera to Bowman, August 4, 2015, “RE: Newman Loan”. 221 July 23, 2015, “Assignment of Loan (AH to BJesenik) 08-01-15.docx”. 222 Email from Jesenik to Holmen, July 24, 2015, “RE: Assignment of Newman Loan”. 223 Aequitas did accept small principal reductions for transfer of assets, such as a July 2010 equipment purchase, which reduced AEF’ note receivable by $35 

thousand. 

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Background:

Aequitas’ history with NorthBranch can be traced back to 2007, when the company was operating under 

another name (The Fargo Rose, LLC or “Fargo Rose”). Over the years, Aequitas entered into numerous 

loan and investment agreements under several DBA names, including Fargo Rose, RDA, LLC (“RDA” 

dba Rose’s Bakery), Rose’s, NorthBranch and Riffle NW, LLC (“Riffle”). Moreover, numerous Aequitas 

entities were involved in the various transactions, including AH, ACF, ACM, Aequitas Equipment 

Finance (“AEF”), AHF and APF. 

Early records of the agreements and investments are not always available. During 2007-2008, various 

records show at least $4.3 million was lent from AHF to Fargo Rose.

224 An additional note from AEF 

was also outstanding, for $350 thousand (plus accrued interest of $18 thousand).

225 On October 30, 2009, 

MacRitchie, Gerald Frank226 and other then-members of management met with the CEO of Fargo Rose 

and announced that Fargo Rose could no longer pay its obligations, and, as such, AHF would take 

possession of its assets.

227 

On November 1, 2009, Aequitas entered into a Foreclosure Bill of Sale with RDA for the deemed fair 

market value of the assets, $555 thousand.

228 RDA was a single-member LLC, of which ACM held all 

membership interests. Aequitas financed its own buyout and ACF issued RDA a note for the amount

(effectively “paying off” AHF),

229 along with a business loan agreement230 and line of credit agreement 

up to $250 thousand,

231 later amended to $355 thousand.232 The remainder of the AHF notes was then 

written off; however, the AEF note remained outstanding. As such, by December 15, 2009, Aequitas had 

$1.1 million of loans still outstanding. On December 31, 2009, Accounting wrote off $255 thousand, 

listing the remaining outstanding amount as $819 thousand.

233 

In 2010, there were additional amendments to and advances on account of the two ACF/AEF notes, 

totaling roughly $826 thousand. The original note for the sale of the company was increased to $655 

thousand while the initial $250 thousand ACF note was increased to $878 thousand. 234 Combined with 

the remaining AEF debt, total Aequitas investment debt was $1.9 million. 

RDA failed to make any of the scheduled payments in 2010 and was deemed non-performing. The IC 

proposed that the RDA obligations be moved to ACM, as owner.235 As such, effective December 31, 

2010, ACF dividend up the notes to AH, which then contributed the RDA notes to ACM. AEF also 

agreed to allow ACM to sell the assets of RDA in exchange for an ACM guarantee for AEF’s remaining 

loan value (as AEF held the first lien on the assets).

236 On March 12, 2011, Accounting recognized a loss 

of $1.1 million, back dated to December 1, 2010, effectively reducing the value of the RDA investment at 

$600 thousand.237 

224 November 13, 2013, “Rose NorthBranch.xlsx”. 225 December 17, 2008, “3. Promissory Note (Roses-AEF) 12.05.08.pdf”. 226 Aequitas Advisory Board Member. 227 November 8, 2009, “mgmt com notes10_30.doc”. 228 November 9, 2009, “Foreclosure BOS (RDA-ACF) 11.01.09.pdf”; October 26, 2009, “11.09.09 Notice Pursuant to LL Waiver.pdf”; November 11, 2009, 

“11.09.09 Notice Pursuant to LL Waiver.pdf”; October 28, 2009, “Notice Pursuant to Intrcrdt (Hybrid) 10.28.09.pdf”. 229 November 9, 2009, “Prom Note (RDA-ACF) 11.01.09.pdf”. 230 November 9, 2009, “BLA (RDA-ACF) 11.04.09.pdf”. 231 November 9, 2009, “Prom Note (RDA-ACF) 11.04.09.pdf”. 232 March 2, 2010, “1st Amdmt to BLA Note (ACF-RDA) 2.24.10.pdf”. 233 January 8, 2011, “Journal Entries Holdings2009.xls”. 234 May 27, 2011, “2010 Notes Rec & Loan Loss Reserve-CSH.xls”. 235 Email from Brown to Jesenik, MacRitchie, Craig, February 26, 2011, “FW: Partner memo RDA”. 236 February 26, 2011, “RDA 12-31-10_ ACF debt distribute to AH then to ACM.doc”. 237 March 15, 2011, “JE 49269.pdf”; August 27, 2012, “RDA schedule 2011.xls”. 

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In March 2011, ACM made two additional advances on the original $878 thousand ACF note, increasing 

the balance to $957 thousand in preparation for the sale.238 At the same time, AH began issuing

“employee advances” totaling $70 thousand, which were labeled as advances for the benefit of 

RDA/Northbranch. These were the initial advances into what would become the managing member 

loans. Four advances were made in the two-month period between March 7 and May 5, 2011.239 

Member participated loans: 

On May 15, 2011, Aequitas again financed its own buyout of the company,240 when AH entered into an

official agreement with the managing members of the newly formed NorthBranch (the “NorthBranch 

Members”), a group that closely mirrored the Aequitas management. Per the agreements, AH was to loan 

the determined sum to the NorthBranch Members (“NorthBranch Member Loans”), who then would 

contribute the loan proceeds to NorthBranch in the form of either equity or a working capital loan.

241 The 

NorthBranch Member Loans were issued on a limited recourse basis, with the only remedy upon default 

to the NorthBranch Member’s equity in NorthBranch — thus endowing the NorthBranch Members with 

all the upside of the investment with no downside risk (which was borne by the Aequitas Investors whose 

funds were lent to the NorthBranch Members). Initially, these loans were recorded under the same 

Employee Advance GL account as the initial $70 thousand loaned between March 7 and May 5, 2011. 

The fair value of the remaining assets of RDA was deemed to be $600 thousand. As such, the 

NorthBranch Members (using AH funds) agreed to “purchase” RDA from ACM for $600 thousand, plus 

provide $300 thousand for working capital. An additional Aequitas employee (Jim Quist) put in $50 

thousand outside of the AH agreement, increasing total funding to Northbranch to $950 thousand.242 The 

Partners brought on additional management and consultants, hired and paid for by Aequitas, in order to 

manage this restaurant venture. While bank records for this period are missing, other records indicate that 

on May 16, 2011, ACF wired $900 thousand to a trust account for NorthBranch, controlled by the 

NorthBranch Members.243 The following day, the trust account returned between $600-660 thousand 

back to ACF, depending on the record source.244 The remaining $300 thousand was to remain in the trust 

account, which allegedly was available to NorthBranch to make periodic funding requests and 

withdrawals. However, after a reasonable search, the bank records could not be found in Aequitas’ 

records. 

Per Accounting records and an IC email, ACF then used $600 thousand of the returned “sale” proceeds to 

repay the original AEF loan and accrued interest ($406 thousand), and used the remaining $193 thousand 

to repay a small portion of the other notes then residing in ACM, increasing the 2011 write off of RDA 

loans to more than $1.4 million.245 Moreover, on June 30, 2011, the $70 thousand of employee advances 

made between March and May 5 were written off from Accounting’s books as “NB advance not 

recovered” and “provision for bad debt.”246 The rest of the advances were transferred off of the employee 

advances account, to a newly established “partner notes NB capitalization” account.247 NorthBranch’s

238 April 23, 2012, “2011.03 ACF PCB OP x482.pdf”; Great Plains Journal Entries: 48865 and 49756. 239 Great Plains Journal Entries: 49801, 49802, 53306 and 55334. 240 June 1, 2011, “20110524133001108.pdf” and “20110524133019622.pdf”. 241 February 26, 2011, “Memo - Capitalize NewCo_List Partners.pdf”. 242 March 29, 2011, “Projected NorthBranch Capitalization.pdf”. 243 Email from Jesenik to Ezra, May 16, 2011, “Re: NorthBranch Notes -- Funding Approval” and “NorthBranch Funds Flow -$900k.xls”. 244 Email from Olsen to Brown, “Day end snapshot 5/17/11”. 245 Email from Ezra to Investment Committee, May 11, 2011, “Investment Committee Request -- Sale of RDA Assets to NorthBranch”. 246 November 15, 2011, “JE 62541.pdf”; June 27, 2012, “12 2011 Aequitas Holdings Account Reconciliation Package”. 247 July 27, 2011, “JE 62532.pdf”. 

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additional $50 thousand from Quist, which was unrelated to the AH loan, allotted him 7% of the 

NorthBranch equity. NorthBranch Member allocation of the $900 thousand as of funding is as follows:

248 

Member

Ownership 

Percentage

Equity

Breakdown

Debt

Breakdown

Combined 

Partner Equity 

and Debt

Bob Jesenik 23.1% $ 150,028 $ 75,014 $ 225,042

Brian Oliver 14.0% 91,099 45,549 136,648 

Andy MacRitchie 7.6% 49,060 24,530 73,590 

Brown 1.4% 8,778 4,389 13,166 

Tom Sidley 9.9% 64,386 32,193 96,578 

Bob Noack 2.5% 15,895 7,947 23,842 

Tom Szabo 7.6% 49,345 24,673 74,017 

Stan Smith 1.5% 9,964 4,982 14,945 

Steve Wright 4.0% 25,811 12,906 38,716 

Megan Terrell 2.4% 15,536 7,768 23,304 

Kimberly Terrell 2.4% 15,536 7,768 23,304 

Patrick Terrell 5.0% 32,367 16,184 48,550 

Rick Terrell 11.1% 72,194 36,097 108,291 

Jim Quist249 7.7% 50,000 - -

Total $ 650,000.00 $ 300,000.00 $ 900,000.00 

Additional cash need: 

On December 14, 2011, MacRitchie emailed Jesenik and Oliver, stating that they should “pull the plug on 

NorthBranch now, save $250K per year (and $30K/month cash burn).”250 However, in 2012 

NorthBranch was once again in need of additional capital, and Aequitas continued to provide it. ACF 

began issuing loans on the old 2010 lines (of which the previous balance had been written off) in the 

intermediate term and began contemplating the restructure of the note in AH. All in, an estimated $175 

thousand of new funds went out to NorthBranch in February of 2012. Additionally, on February 16, 

2012, Accounting reversed the 2011 write off of the $70 thousand in AH employee advances, backdated 

to December 31, 2011.251 

In March 2012, AH and NorthBranch Members issued the 1st amendment to their promissory notes, and 

increased the allowed loan amount by $540 thousand, consequently also increasing AH’s commitment to 

the NorthBranch Members. They also included and converted the $175 thousand February loan as a 

secondary advance on the loan and added in accrued and unpaid interest equal to $21 thousand to the 

principal balance. 

Over the next two months, AH would distribute $255 thousand to NorthBranch through the NorthBranch 

Member Loans. In November of 2012, Aequitas appears to have rebooked the 2011 $70 thousand AH 

248 April 4, 3013, “NorthBranch Purchase and Member Loans since 2011.pdf”. 249 Quist purchased his equity ownership directly by wiring funds to NorthBranch, rather than through the NorthBranch Member Loans. As such, he is added to the 

charts for supplemental purposes, but is not included in the total partner equity and debt. 250 Email from MacRitchie to Oliver and Jesenik on December 14, 2011, “RE: Update”. 251 June 29, 2012, “JE 94315.pdf”.

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employee advance loan write-off reversal as an additional advance on the amendment, rather than an 

employee advance.

252 The remaining $19 thousand left on the loan was used to pay associated legal bills 

for the NorthBranch transactions. 

Member Lender

Original Amt

5/16/11

Increased Amt

3/1/12

Bob Jesenik Aequitas Holdings, LLC $ 225,042.21 $ 348,862.41 

Brian Oliver Aequitas Holdings, LLC 136,648.02 212,351.03 

Andy MacRitchie Aequitas Holdings, LLC 73,590.65 115,276.27 

Pat Brown Aequitas Holdings, LLC 13,166.61 21,235.10 

Tom Sidley Aequitas Holdings, LLC 96,578.83 150,162.51 

Bob Noack Aequitas Holdings, LLC 23,842.23 37,919.83 

Tom Szabo Aequitas Holdings, LLC 74,017.68 115,276.27 

Stan Smith Aequitas Holdings, LLC 14,945.88 22,751.90 

Steve Wright Aequitas Holdings, LLC 38,716.94 60,671.72 

Megan Terrell Aequitas Holdings, LLC 23,304.38 36,403.03 

Kimberly Terrell Aequitas Holdings, LLC 23,304.38 36,403.03 

Patrick Terrell Aequitas Holdings, LLC 48,550.80 75,839.65 

Rick Terrell Aequitas Holdings, LLC 108,291.39 166,847.24 

Total $ 900,000.00 $ 1,400,000.00 

Discrepancies can be found between the recorded amounts above (which match the accounting 

records),253 and with the legal amendments and other files.254 However, due to missing documents and 

files, the cause of the discrepancy is uncertain. Per certain amendments with the NorthBranch Members, 

the loan amounts are larger than the $1.4 million shown above.255 

Riffle transaction: 

In November 2012, AH entered into a direct lending agreement with NorthBranch, this time with Riffle, a 

seafood restaurant opened by NorthBranch in Portland.256 Over a year-long period, AH made five 

advances to Riffle, totaling $170 thousand.257 Unlike the NorthBranch Member Loans, Riffle owed these 

funds directly to AH. The loan was eventually assumed by NorthBranch, Riffle’s parent, in March of 

2013.

258 

Effective October 1, 2014, the combined NorthBranch Member Loans and Riffle loan (or “NorthBranch 

Notes”) were then assigned from AH to APF as a part of the larger APF conversion.

259 At the end of the 

day, APF was owed $1.6 million from the NorthBranch Notes, plus accrued interest, with the 

252 February 13, 2013, “JE 109975.pdf”. 253 Great Plains Account Number 00101-80-802-14402. 254 As an example, the note between NorthBranch and Steve Wright is $13 thousand for his allocation of the $300 thousand working capital loan. However, his loan 

withholdings, which should include his portion of the $600 thousand equity, is incorrectly still listed as $13 thousand. A signed version of his first amendment has not 

been located after reasonable search attempts.

255 As an example, the first amendment to the Jesenik-Holdings note states the increased balance is $359 thousand, a delta of $11 thousand. 256 January 15, 2013, “1a. Promissory Note $30K (Riffle NW-AH) 11 07 12 v1_0.pdf”. 257 January 15, 2013, “1b. Note - 1st Amendment $20K (AH-Riffle) 01-15-13 v1_0.pdf”; May 16, 2013, “1c. Note - 2nd Amendment (AH-Riffle) 03-15-13 v1_0.pdf”; 

May 16, 2013, “1d. Note - 3rd Amendment (AH-Riffle) 04-10-13 v1_0.pdf”; December 23, 2013, “1e. Note - 4th Amendment (AH-NorthBranch) 10-29-13 

v1_0.pdf”. 258 December 23, 2013, “1f. Assignment and Assumption of Note (Riffle-NorthBranch) 05-23-13 v1_0.pdf”. 259 Further described in E.5.2.1; March 20, 2015, “JE 203746 – 10.pdf”. 

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NorthBranch Members retaining all the upside in the investment in NorthBranch, but none of the 

downside. 

As of the date of the Receivership, only one restaurant remained — the Rose’s Bakery in Sherwood, 

Oregon, which had been operating for twelve years. Other Rose’s locations have been either closed or 

sold. Riffle was sold after nine months to Jennifer Quist, a member of the original management team that

opened the restaurant. It was sold after attempts to make it a viable concern failed. The sale was made 

mainly as a way to get out of the lease commitment and other closing responsibilities. Riffle 

subsequently closed in August of 2013. Rose’s Bakery closed in December 2017 after struggling 

financially and without the financial support of the ownership group or rescue financing from the 

Receivership. 

In turn, Aequitas continued to finance, as well as incur additional Aequitas resource costs, on a failing 

company at the risk and cost to the Investors. Despite continued failed ventures, management would 

refinance a prior bad loan using additional Investor funds, in order to create and maintain “new”, yet

money-losing, investments. In total, there were six entities and at over 60 loans, loan transfers, write-offs, 

write-off reversals and other booked transactions.

E.4. Unrealistic promises of returns 

As detailed in this Report, the operating companies in which Aequitas invested had a demonstrated 

history of unprofitability, which losses continued under Aequitas ownership. Aequitas repeatedly poured

additional Investor funds into these failing entities in the hopes of either rescuing its investment or 

deferring the day of reckoning. Additionally, the consumer debt portfolios were afflicted with material 

structural defects to the extent that there were little to no net proceeds available to pay Investor returns at 

the operating/holding company level or at ACF. Given the lack of profitability at the subsidiary and 

portfolio levels, the only remaining source for most repayments was from new Investors. It is an 

unrealistic proposition that investor returns (at a rate determined by Aequitas, not based on the 

risk/creditworthiness of the investment) would be funded in such a non-sustainable way. This untenable 

arrangement is a hallmark of a Ponzi scheme, and an ever-increasing flow of money from new investors 

is its lifeblood.

E.4.1. Note returns vs. other investment vehicles

E.4.1.1. Weider/Forman higher return than junior lenders

Weider/Forman purports to hold a promissory note260 from CPH that is (1) senior to other creditors in 

CPH and (2) secured by (at least) the collateral described in the commercial security agreement (primarily 

the equity interests in certain CPH affiliates) and disputably the assets owned by the subsidiaries of CPH. 

Debt securities that take precedence over unsecured notes are generally referred to as senior notes. Senior 

notes must be paid first if assets are available in the event of a company’s liquidation. A senior note, 

especially if secured, generally pays a lower rate of interest compared to junior or unsecured notes, since 

the senior debt has a lesser risk of default and lower expected loss in the event of default. 

However, on or about June 29, 2015, Aequitas agreed to pay 17% interest (an increase from the initial 

proposal of 12% rate and 7% on the original note executed nine months earlier) on all outstanding Weider 

260 The amended and restated promissory note dated June 29, 2015 is the debt instrument related to an amended and restated business loan agreement dated the same 

date. The original promissory note, business loan agreement and commercial security agreement are all dated as of October 4, 2014.

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debt, for an additional advance of $4.5 million.

261 This raised the effective interest rate on the additional 

$4.5 million advance to more than 30% per annum.262 Comparably, Aequitas paid 9.7% blended yield on 

the more than $15 million in debt that Weider asserts is junior to its position. Such a deviation from the 

general custom and practice by providing a higher reward to the lower-risk investor is anathema to the 

basic principles of structured finance and suggests a non-market, potentially fraudulent situation.

263

 

E.4.2. Lack of available cash from any other source

Stoll Complaint - Oliver and Jesenik “discussed the fact that Aequitas was unable to fund its 

commitments or otherwise use investor funds for their stated purpose because of a liquidity crunch that 

was not disclosed to investors.”264

Cash liquidity:

While the severity of the cash problems increased after June 30, 2014, Aequitas had a history of cash flow 

issues which would regularly occur, typically aligned with large redemptions or quarterly interest 

payments. When this would occur, management would assert that the issue was a direct correlation with 

261 See E.1.2 for further information on the Weider/Forman notes. 262 $6.0 million at 7% interest compared to $10.5 million at 17% interest yields $1.4 million additional annual interest related to the $4.5 million additional advance. 263 CPH also received a series of four advances in February and March 2016, totaling $1.5 million, through a business loan agreement with CPYT (an Extended Entity 

of the Receivership). This loan is excluded from above, but carried a 10% interest rate. 264 Second Amended Class Action Complaint, filed with the United States District Court on August 8, 2017 by Stoll Stoll Berne Lokting & Shlachter P.C. Case 3:16-

cv-00580-AC, document 257.

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lulls or inadequate levels of fundraising, as demonstrated in many emails and meetings between 

management and relevant teams.

While the frequency and severity of the cash flow problems increased significantly in 2014, examples of 

such cases can be found as far back as 2011. In one such email sent from Oliver to Jesenik in 2011, 

MacRitchie and 10 other upper-level employees, Oliver sent out the following warning:

265 

Next week we have over $4MM of quarterly interest payments to make, and in case you’re not 

reading it in detail Val’s weekly update all of a sudden we have had $4MM - $5MM of 

redemption requests jump up. On top of normal flow with Corinthian, Capio is finally 

experiencing some success and expects $4MM of fundings over the next 2 – 3 weeks.

So, as you can see we now have $22MM of projected cash going out the door in October with no 

significant investor inflow forecasted in imminent cash other than the normal weekly SCG flow of 

$1.0MM - $1.5MM. We will blow through our excess liquidity by the end of the month if nothing 

changes.

Throughout the end of the year, emails continued to circulate, urging additional fundraising needs of over 

$10 million by year end. 

Additional examples can be found in August of 2013, when there was a large amount of upcoming CPF 

(predecessor entity to CPH) redemptions and Cash Liquidity Sensitivity reports for the following two

weeks showed a deficit between $1.9 to 8.2 million.

266 At that time, Jesenik responded:

Its [sic] unfortunate we are all taking time to do emails around these redemptions, stress about 

cash, etc. when we basically created this problem ourselves. They weren’t looking for 

redemptions, but since we didn’t get enough dough in the door thru our past approaches and the 

various means we committed to, we are taking time to scramble, call folks, create ill will and so 

forth. Of course all this time then takes away from productive things like getting the dough to 

begin with. Being fresh from vacation, I really don’t want to perpetuate this process anymore, I 

truly don’t.

The CPF redemptions ended up being pushed to a later date, allowing more incoming funds to offset the 

needed redemption payments. 

Again, on Friday, October 25, 2013, $11.5 million of CPF redemptions and interest were scheduled to be 

paid out. As such, the Cash Liquidity Sensitivity reports for the following two weeks showed a deficit of 

$10.0-12.6 million.

267 Aequitas management circled up to extend the expected redemption, which 

reduced the cash deficit to $2.0-4.0 million over the next two weeks. Jesenik reached out to Oliver to see 

what other form of incoming funds “upside” could be expected, of which there was nominal. Jesenik 

responded to discuss other forms of “Hail Mary’s” they can find the following day.

268 

By the following Monday, October 28, the deficit increased to $14.5-17.7 million.269 Janke, Jesenik and 

Oliver reviewed the updated reports, and by Tuesday pushed out all payments but $2.0 million of the CPF 

redemptions, still leaving an estimated negative cash flow of $2.7-8.2 million for the two weeks. The 

265 Email from Oliver to Jesenik, MacRitchie, et. al, October 1, 2011, “Fund Raising Urgency”. 266 Email from Abushaaban to Jesenik, Oliver and Janke, August 26, 2013, “RE: Cash Report | 8/26”. 267 Email from Abushaaban to Jesenik, Oliver and Janke, October 25, 2013, “Cash Report | WE Update | 10/25”. 268 Email from Jesenik to Oliver and Janke, October 28, 2013, “RE: Cash Report | WE Update | 10/25”. 269 Email from Abushaaban to Jesenik, Janke, Oliver, October 28, 2013, “RE: Cash Report | 10/28”. 

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Director of Treasury emailed the model and forecasts to the three managers above and stated that there 

was a cash shortage of $2.9 million the following day — cash required to make payroll, IPF and IOF 

returns, and standard asset funding.270 Ultimately, Aequitas transferred $3.0 million out of CPLLC 

(supposedly, an SPE to acquire health care receivables) in order to make the needed ACM, IOF and IPF 

payments. 

The cash liquidity crisis continued and accelerated throughout 2014 and 2015. In July 2014, Janke

emailed Jesenik to discuss the possibility of partially or fully withholding the planned principal payment 

to TGM. Per Janke’s email, he recommended not processing the payment, as there was already a negative 

liquidity balance of $1.0 million for the following week. Furthermore, he stated that they would need 

additional liquidity for IPF and IOF return payments. Therefore, he suggested not paying out 

redemptions, unless they had received word they could expect $5.5 million of new investor funds to be 

available for further interest/redemption payments:

271

Hence, in case you received any feedback from Keith Gregg which realistically let us expect to 

receive at least $5.5MM of additional funds by month end, we could go ahead with the $1MM Pat 

redemption, otherwise, we need to consider him telling no funds

On July 14, Janke reached out to Terrell to inform him that they would be unable to make a requested 

$2.0 million redemption on July 14, due to liquidity shortages and “slippage on the fund raising side.” 

Terrell agreed to assist Aequitas by pushing out the TGM redemption until July 21 and reducing the 

amount to $1.4 million.272 On July 30, Jesenik reached out again due to cash shortage, to request TGM’s

redemption be pushed further, 273 after Treasury reported a forecast cash shortage of $2.6-6.5 million over 

the following 13 business days, and a 12-week projection of negative $55.8-59.6 million.

274 

Numerous other examples can be found throughout 2014 and 2015, with management consistently 

blaming fundraising slippages as the cause for the cash shortage. Typically, scheduled cash payments 

would be pushed out until adequate new investor funds or facility advances could take place. 

In October of 2015, management and the Chief Compliance Officer brought up the issues surrounding the 

cash management within ACF and its compliance with regulations. Due to the transfers/conversions that 

had occurred, ACF had a negative equity balance as of October. Per the Office of the Chief Compliance 

Officer meeting (“OCCO meeting”) minutes, Gillis was to investigate potential assets to contribute from 

AH in order to restore a positive equity balance.275 Around the same time, on October 12, cash 

projections supplied by Treasury noted an immediate cash need of $4.5 million in order make required 

payroll and asset funding through the following four business days.276 

By November 18, 2015, Aequitas management began investigating different “ACF wind down” 

scenarios, under the assumption that ACF would no longer remain operable. Jesenik, Gillis, Oliver, Rice, 

Froude and MacRitchie were presented with a proposal which listed several scenarios in which ACF 

would cease to function, and their relative impacts on assets and Private Note holders. 277 In the scenarios, 

management could toggle with the data to either cease new fundraising or “kick the can down the road,” 

270 Email from Abushaaban to Jesenik, Janke, Oliver, October 28, 2013, “RE: Cash Report | 10/29”. 271 Email from Janke to Jesenik, July 11, 2014, “RE: Principal Reduction”. 272 Email from Janke to Terrell, Jesenik and Miller, July 14, 2014, “RE: Principal Reduction”. 273 Email from Jesenik to Terrell and Olaf, July 30, 2014, “RE: tomorrow’s wire transfer $1.4 mm”. 274 Email from Abushaaban to Jesenik, Janke, Oliver, July 30, 2014, “Cash Report | 7/30”. 275 October 13, 2015, “OCCO Minutes 10-06-15 (FINAL DRAFT).pdf”. 276 Email from Abushaaban to Jesenik, Gillis, Oliver, Rice & Mazer, October 12, 2015, “Cash Dash | 10/12”. 277 Email from Holmen to Jesenik, Gillis, Oliver, Rice, Froude & MacRitchie, November 18, 2015, “ACF Runoff Scenarios”; November 18, 2015, “ACF 

Runoff.xlsx”.

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and continue to raise funds within ACF/Private Note while AH sells off assets to repay ACF (such as 

COF and CPYT). It is noted that:

kicking that can down the road requires that we raise new private note (or roll over) $138M in 

investors over the next three years.

Ultimately, the model was discussed in a closed-door meeting, without easily identifiable written 

responses. 

On December 9, 2015, the General Counsel responded to the above group, following up on the ACF 

restructuring.

278 He suggested an immediate cessation of further borrowing from ACF to support payroll 

and expenses; however, he noted that they were likely not operationally on track to cease borrowing until 

the new year. The General Counsel spelled out the following:

I’d like to understand the gap between revenue and expense, and how far along we are in solving 

that.

Based on cash out the door, here’s what I understand:

Monthly ACM payroll = $400k

Monthly AES payroll = $1.4M

Monthly AP (net of CPYT & Unigo AP) = $3.0M

So total is = $4.8M.

That does include extraordinary expenses such as Duoos, CFPB and SEC legal fees. Netting that 

out leaves us around $4M/mo in payroll and expenses.

From the work on management fees, it looks like we can count on about $1.2M/month from the 

2%s.

Jesenik responded stating “I’m sure this will be an agenda item next Tuesday in AMLLC.”279 As of the 

same date, Treasury reported to management that, should Aequitas pay all due redemptions, Aequitas 

would be $4.3-5.6 million short in cash by the following day, with a projected deficit of $9.1-10.6 million 

in the following three weeks.280 Oliver and Jesenik responded with twelve fundraising or investment 

conversion opportunities they were actively seeking.281

Related ACF reduction discussions continue in AM meeting agenda items throughout 2015 and 2016.

278 Email from Holmen to Jesenik, MacRitchie, Oliver, Rice, Gillis & Froude, December 9, 2015, “Cessation of Borrowing from ACF”. 279 Email from Jesenik to Holmen, MacRitchie, Oliver, Rice, Gillis & Froude, December 9, 2015, “RE: Cessation of Borrowing from ACF”. 280 Email from Hulquist to Jesenik, Gillis, Oliver, Rice, December 8, 2015, “Cash Dash | 12/8”. 281 Email from Jesenik to Hulquist, Gillis, Rice and Oliver, December 9, 2015, “RE: Running list............”. 

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E.4.3. Agents recruited to sell Aequitas products and commissions paid to perpetuate the

scheme282

In light of the SEC’s allegations of a Ponzi-like scheme, at the very least, these sales agents are potential 

claw-back defendants.283 

Moreover, in a Ponzi scheme, commissions paid to brokers or sales agents are not in exchange for 

reasonably equivalent value as a matter of law regardless of whether the sales agent is a net winner.

E.4.3.1. Use of “consultants” and AB members as finders

Aequitas acquired companies, made loans, and paid consulting fees (all with Investor funds) in an effort 

to further the scheme and broaden the fundraising efforts. Such amounts are set forth on the following:

In addition to the above, Aequitas also used unregistered broker-dealer staff who were primarily involved 

in fundraising/sales. Reportedly, all had other ongoing functions in addition to the sale of new 

282 Some courts have determined that commissions paid to brokers or sales agents in a Ponzi scheme are not in exchange for reasonably equivalent value as a matter of 

law. Warfield v. Byron, 436 F.3d 551, (5th Cir. 2006) (holding that payments for broker services in a Ponzi scheme are not in exchange for reasonably equivalent 

value observing that “[i]t takes cheek to contend that in exchange for payments [the broker] received, the . . . Ponzi scheme benefitted from his efforts to extend the 

fraud by securing new investments.” Id. at 560; see also, In re Ramirez Rodriquez, 209 B.R. 424, 434 (Bankr. S.D. Tex 1997) (holding that participant in Ponzi 

scheme provided no reasonably equivalent value to support commissions based on getting others to invest in the Ponzi scheme). But see, Cuthill v. Greenmark, LLC 

(In re World Vision Entm’t, Inc.). 275 B.R. 641, 657-58 (Bankr. M.D. Fla. 2002) (held that commissions were reasonably equivalent value as the brokers performed a 

valuable service to the Ponzi entity by providing exactly what it wanted, which was more sales to keep the Ponzi scheme from collapsing earlier). 283 See, e.g., Donnell v. Kowell, 533 F.3d 762, 770 (9th Cir. 2008) (“Where causes of action are brought under UFTA against Ponzi scheme investors, the general rule 

is that to the extent innocent investors have received payments in excess of the amounts of principal that they originally invested, those payments are avoidable as 

fraudulent transfers.”). 

Names Commissions Loans Consulting 

Fees Other Total

RP Capital, LLC $ 8,087,824 $ 5,750 $ 8,093,574

Fieldstone Financial 1,408,994 1,408,994

Kristofor Behn 25,000 25,000

Circle Squared Alternative Investments, LLC 500,000 500,000 1,000,000

Sica Wealth Management, LLC 1,020,000 1,020,000

Atherton Capital Holdings, LLC 672,000 19,429 691,429

Tom Szabo 13,424 13,424

Fortress Investment Management, LLC 326,833 69,455 396,288

Accelerate-IT, LLC 41,860 41,860

MBO Partners (James Alexander) 155,000 160,000 66,887 381,887

Jerome Anglade 210,000 210,000

PPG Partners 225,000 225,000

Nicholas Mavroleon 205,000 18,258 223,258

Keith Gregg 115,323 30,617 145,939

James Reinmuth 125,000 1,257 126,257

Rachel Minard (Minard Capital) 90,000 8,341 98,341

Matrix Capital 71,086 71,086

William (Bill) Corbett 69,000 69,000

George King 65,000 65,000

Capital Alliance Partners 50,786 257 51,043

Allen & Associates (Marcia Allen) 35,000 35,000

Integrity Bank & Trust 22,224 22,224

Hancock Securities 19,509 19,509

Ocean Avenue Wealth Mgmt 19,500 19,500

Elite Wealth Management Inc 4,512 4,512

Total $ 8,352,919 $ 1,908,994 $ 3,658,942 $ 537,271 $ 14,458,125

Payments during the Relevant Time Period

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investments, such as investor relations with existing Investors. It appears that Aequitas was careful not to 

pay these staff members transaction-based compensation, only salary plus discretionary bonus. In late 

2013, Aequitas terminated all “finder’s fee” agreements with what it determined were unregistered 

broker-dealers and entered into consulting agreements with compensation in the form of monthly 

retainers. Essential to these consulting agreements was the schedule setting forth the services the 

consultant was to perform, which read in part:

• Consultant will provide Aequitas and its affiliates with general input and advisory services as it 

relates to marketing for investment and fund raising strategies in the identified channels and 

regions.

• Consultant will endeavor to make introductions-only to (a) prospective investment opportunities 

for Aequitas, (b) prospective investors for Aequitas, and (c) prospective qualified customers or 

acquisition candidates for Aequitas service companies; provided, however, both parties agree 

and acknowledge that with respect to each of (a), (b) and (c), Consultant will not be involved in 

any of the negotiations involved with any investment transactions.

There was no bonus criteria or formula published, as that could be argued as being transaction based 

and, at this time, while the situation looks suspicious, we do not have sufficient detail of funds raised to 

determine whether the substantial bonuses were in fact disguised commissions calculated on account of 

sales activity.

Aequitas had an AB made up of experienced business men and women284 and, for purposes of this 

Report, they are considered insiders of Aequitas. The AB served as advisors to AM and Aequitas’ 

executives and appears not to have exerted direct authority over the management of the company. In his 

resignation email from the AB, Barnes refers to participation on the AB as a “non-binding and nonfiduciary activity.”285 However, the Private Note PPM286 touted the AB as providing the Aequitas 

executive team “...with insight and guidance on market opportunities and product developments.”287 

Further, in an August 2015 email chain wherein Barnes is seeking access to one of the Aequitas jets, 

284 As of January 28, 2016, the Aequitas Advisory Board consisted of William McCormick, Edmund Jensen, Patrick Terrell, Martin Brantley, William Glasgow J.D., 

Keith Barnes, Donna Miles, Robert (Bob) Zukis and Gerald Frank. Aequitas records show many of the advisors resigned around January 29, 2016. 285 Email from Barnes to Holmen, January 29, 2016, “Resignation”. 286 Private Placement Memorandum or “PPM” is a document provided to prospective investors in specific Aequitas Funds or SPEs, otherwise also known as an 

offering document. 287 Aequitas Private Note Confidential Private Placement Memorandum; IV. Management of The Company - Advisors section.

Names Advisory Fees Commissions Transactio

n Fees Other Total Cash Payments Expense 

Offsets2

Accrued and 

Unpaid3

Terrell Mgt. Group (Pat Terrell) $ 93,000 $ 171,591 $ 262,188 $ 109,781 $ 636,560 $ (309,781) $ (393,114) $ 113,953

William (Bill) McCormick 360,000 - - - 360,000 (270,000) (26,000) 182,875

William (Will) Glasgow 135,000 - - 7,027 142,027 (132,027) - 10,000

Gerry Frank 135,000 - - - 135,000 (125,000) - 10,000

Martin Brantley 135,000 - - - 135,000 (125,000) - 10,000

Donna Miles 105,354 - - 4,785 110,139 (103,099) - 12,000

Robert (Bob) Zukis 31,000 - - 4,771 35,771 (25,271) - 10,500

Gillis Mgt. Solutions, Inc. (Scott Gillis) 30,000 - - 4,675 34,675 (34,675) - -

Edmund Jensen - - - - - - - -

Keith Barnes - - - - - - - -

Total $ 1,024,354 $ 171,591 $ 262,188 $ 131,038 $ 1,589,172 $ (1,124,853) $ (419,114) $ 349,328

1. Q1 2016 amount is estimated based off available actual data, and estimates for standard expenses

2. Offsets include Aequitas payment of Advisory Board members office rent, healthcare, direct employees salary and healthcare, etc.

3. Includes carry over accrued and unpaid balances from 2013

Accrued 2014 -Q1 20161

 Fees

Advisory Board Members

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Oliver and MacRitchie take a different view of the importance of the AB and information the AB knew 

(or should have known) as to Aequitas’ dire outlook.288 

Oliver – Don’t kid me – you [MacRitchie] know exactly what he [Jesenik] is doing: Putting a 

positive spin/exaggeration on Keith’s email to show us the AB has a positive view on our 

direction and most importantly Scott Gillis.

Bob was masterful about focusing the AB on Scott working magic on 40 Act and how the future

CarePayment valuation gains are going to pull us out and be a “game changer”.

Amazing to me how we could waltz through an AB update on a six month period that basically 

reflects:

• A $29MM interim loss ($40MM before Investment Gains, so $6MM/month of cash 

losses).

• The Note Receivable from Aequitas Holdings to Aequitas Commercial Finance having 

grown by the same $29MM to $147MM to fund the cash losses.

• We are now at negative $93.5MM controlling equity at the Holdings level. This is the 

balance sheet that backs the $147MM loan from Aequitas Commercial Finance, which 

now represents 24% of the total Aequitas Commercial Finance balance sheet and the 

single biggest asset that Private Note holders are reliant upon once you deduct all of the 

senior debt.

• We pulled a rabbit out of the hat to meet 40 Act compliance at 6/30/15 by doing the 

Private Client Fund $45MM purchase of Capital Opportunities Fund interests; but, we 

have no idea what that will do to the ACF financial performance the 2nd half of the year 

with the future gains moving to Private Client Fund.

• Negative cash as of the end of the period. We talked about “making process”(sic) toward 

our $20MM liquidity buffer because we are projected to have $10MM as of the end of 

August; but, we have $25MM of cash payments in October ($18MM redemptions, $7MM 

quarterly interest) that we don’t have projected availability to meet, and November 

doesn’t get any better.

• We have ongoing matters with the CFPB and SEC that are not insignificant.

• We have significant morale and overall employee concerns, with several key employees 

“on the edge”.

The only one that even questioned things was Will Glasgow.

Yet what you see back from Keith Barnes is a request to use the airplane and two new investor 

referrals?

Maybe I am the only one that sees a different scenario than what was presented, and feel like we 

are believe (sic) our own BS at a very critical time.

288 Email chain dated August 17, 2015 between Oliver and MacRitchie in response to an August 16, 2015 email from Barnes forwarded by Jesenik to Oliver and 

MacRitchie with the subject line “Jet Access”.

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MacRitchie – ...I really thought Will [Glasgow] was going to drill in but he backed off – really 

disappointing since I think only the AB can challenge the strategy now. I am worried about 

ACF’s ability to continue to be viable for selling PN – the results are ugly. We desperately need 

to stop the bleeding.

E.4.3.2. Aequitas Wealth Management

Aequitas expended significant Investor funds on the creation of AWM in furtherance of the scheme. AWM 

was intended as a complete wealth-management platform that would provide intellectual, financial and 

human capital to fuel growth-oriented RIAs with a focus on alternative investments (with an incentive to 

sell Aequitas product). The formulation of AWM consisted of not only the acquisition of or investment in 

RIAs such as Private Advisory Group, LLC (“PAG”), Strategic Capital Group, LLC (“SCG”),289 Redrock 

Investment Advisors, Mariner Investment Advisors, Hickory Grove Partners and Spouting Rock Financial 

Advisors290 but also in companies that provide services to RIAs such as Alternative Capital Advisors, 

Strategic Capital Alternatives, LLC (“SCA”)291 and MSP/Ivey.

Aequitas further leveraged this investment in RIAs and firms that provided services to RIAs via what was 

labeled as Aequitas Capital Partners (“ACP”). ACP purported to provide to RIAs “a balance of products 

and services, operational support, and resources to grow your business and better serve your clients.”292 

Membership in ACP was free to those that sold Aequitas product, an additional premium tier (the 

“Quarter Club”) for those that sold greater than $25.0 million in product293 and a separate paid 

membership marketed as AFSN. A comparison of the two ACP tiers follows:

For a $10 thousand annual membership fee, AFSN purported to provide additional benefits to RIAs who 

promoted Aequitas product in the form of access to Investor-funded support services and referral fees and 

289 Two months after Aequitas/PAG acquired SCG client accounts, the SEC fined SCG and Gary Price for purchasing bonds through his personal broker-dealer before 

selling them to SCG Clients at a mark-up. http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542983435. 290Spouting Rock Financial Partners, LLC20 is both an investment banking firm and an alternative investment consulting firm, and was developing a new mutual fund 

when Aequitas made its investment of $400 thousand in August 2013. 

291 SCA, a Washington limited liability company, and SCAH, a Washington limited liability company, are each entities providing back-office infrastructure to RIAs. 

Although SCA and SCAH are neither part of the Receivership Entity nor Extended Entities, they had financial relationships with the Receivership Entity. 292 September 30, 2014, “FallMeeting_AFSNKGregg.pptx”. 293 The ACP October 2014 meeting acknowledged the following Quarter Club members: Private Advisory Group (Doug Maurer, Chris Bean, Doug Bean), Integrity 

Bank & Trust (Randy Rush, Eric Davis) and Sica Wealth Management (Jeff Sica).

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revenue sharing. AFSN also offered participating RIAs access to “growth and acquisition capital through

Aequitas Capital to expand and accelerate their business.” 

As of December 31, 2015, the following firms were paying members of AFSN: Manchester Holdings, 

Concert Advisor Services, Clifton Larson Allen, SCA, Integrity Bank & Trust, Atlas Banc, Gavion, Ivey 

Performance Marketing and Gladstone Associates. Additionally, loans were made to the following RIAs: 

Fieldstone ($1.6 million), Gladstone Technology ($530 thousand), Circle Squared ($500 thousand), and 

Trust Capital/Euro Investment Partners ($500 thousand). The Receiver has commenced collection 

activities against the subject borrowers. In the collection action against Fieldstone, Fieldstone alleges that 

the sole purpose of the AFSN financing was “to make loans to RIAs so that Aequitas could access more 

investors to sell more notes and close more business.” 

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E.5. Failed to invest all of the Investor funds in promised investments294

E.5.1. Whistleblower complaints 

The Receiver is aware of at least two instances in which Aequitas employees exposed activity that they 

deemed illegal, unethical, or not correct. In February 2010, Aequitas’ corporate controller triggered a 

code of conduct investigation (discussed further in F.3) alleging that Aequitas (1) was not in compliance 

with procedures involving the use of cash received from investors and (2) failed to make timely 

redemptions.295 The claims were investigated by MacRitchie and dismissed, as ACF was not specifically 

prohibited from loaning “idle cash” from Aequitas Funds to itself, and redemption issues in January and 

February of 2010 were related to a liquidity issue that was temporary in nature. In actuality, this process 

can be seen carried into, and formalized in, 2014 through the Manufactured Notes process, as described in 

E.1.6, whereby incoming Investor funds would first go to ACF or affiliates and only afterwards would the 

Aequitas Fund receive a note and sometimes purported collateral. Updated PPMs included such uses of 

cash as “permissible investments”; however, they appeared to be reflected as a minority use of funds. 

Thus, almost all new Investor funds in 2014 and 2015 flowed through ACF or similar affiliate, before 

ultimately being recorded as a note and collateral through non-cash journal entries. 

More recently, in October 2015, a Senior Managing Director in the Capital Markets & Treasury group 

voiced concerns over (1) misuse of Investor funds, (2) misrepresentation in the sale of securities to 

Investors, (3) failure to provide adequate disclosure information to Investors and (4) violations of 

securities laws, and SEC rules and regulations. 

E.5.2. Used Investor funds for non-investment purposes296 

E.5.2.1. Conversion of assets to APF

As part of a financial restructuring in an effort to cure violations of the 40 Act, AM “purchased” a 

number of investments owned by ACF, with the consideration being an increase in the ACF-AH Note, and 

then the obligation was converted to an asset of AM, with the consideration being an increase in a similar 

note due from AM to AH (“AH-AM Note”). AM then contributed the investments into a subsidiary of AM 

known as APF. Those investments represented various non-core and “pet” project investments made by 

Aequitas with Investor money. It appears that AM had no way to repay the AH-AM Note other than 

through potential future gains that would flow to AM from APF, and all interest on the AH-AM Note was 

accrued but not paid (as there was no source of cash to pay the interest). Investor money was still at risk 

since the promissory notes from the “partners” were recourse only to their interest in APF. Had the 

assets remained in ACF, the Private Note Investors would have been able to share in any upside in these

investments, rather than continuing to bear all the risk of decline without upside opportunity. 

APF’s major assets: 

As of the Complaint Date, APF was a majority-held subsidiary of AM and held the following assets:

1. A 100% equity stake in Syncronex, LLC.

2. A 95.4% equity stake in Skagit Gardens, Inc.

3. An 80.3% equity stake in MSP; an additional 8.1% of MSP equity is held by AH. MSP is the 

100% equity owner of both Ivey and Gridbox Media, LLC.

294 Emerson v. Maples (In re Mark Benskin & Co.), 161 B.R. 644, 650 (Bankr. W.D. Tenn. 1993). 295 April 21, 2010, “Code of Conduct Investigation Report (IOF-ACF) 04-21-10 v1_0.pdf”. 296 Emerson v. Maples (In re Mark Benskin & Co.), 161 B.R. 644, 650 (Bankr. W.D. Tenn. 1993); World Vision, 275 B.R. at 657.

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4. A 5.9% equity stake in Cana’s Feast Winery, LLC (“Cana’s Feast”). 

5. A roughly 3% equity stake in Cloudward, Inc. (f/k/a Etelos, Inc.) 

6. A roughly 3% equity stake in Certified Security Solutions, Inc. (“CSS”) 

7. A note receivable with Rock and Roll Restaurants LLC, an unrelated third party, with a book 

balance of $500 thousand as of the Complaint Date (the “Rock and Roll Restaurants Note”).

8. A series of notes receivable relating to NorthBranch (collectively, the NorthBranch Notes)

a. A promissory note with NorthBranch as the assignee from Riffle, with an amended 

principal balance of $170 thousand. 

b. NorthBranch Member Loans with amended principal balances totaling $1.4 million. 

9. A guarantee from ACM relating to a $631 thousand judgment in a litigated dispute against 

CashReady, LLC and Brandon Becker (“CashReady Judgment”).297 

Equity ownership history of APF: 

Between October and December 2007, Aequitas insiders (Jesenik, MacRitchie, William (Bill) 

McCormick,298 Robert Noack,299 Oliver, Stanley Smith,300 Richard Terrell, and PatRick Investments, 

LLC (“Patrick Investments”)

301 assigned $3.4 million of their interests in various Aequitas Funds and 

notes to AH for a consideration of Class A Special Units of AH (“Special Units”). The majority of the 

assignment ($2.0 million) came from AHF equity interests; $1.1 million came from Catalyst Fund equity 

interests; $220 thousand came from Private Notes. During 2008, McCormick, Noack, and MacRitchie 

contributed an additional $250 thousand of their interests in AHF ($240 thousand) and Private Note ($15

thousand) to their Special Units. 

Per a December 6, 2007 letter from Jesenik to Elgie McGrath, then an investor in ACM, the Special Units 

were used to track specific investments in vehicles such as APF.302 The Schedule K-1 tax form issued by 

APF to AH for 2007 further corroborates this, stating that AH contributed $3.4 million during the year 

and matching the amounts that the Aequitas insiders contributed to AH for the Special Units;303 the 

Schedule K-1 for the 2008 tax year shows an additional capital contribution of $255 thousand from AH, 

matching the additional contributions to Special Units from the Aequitas insiders.304

On December 31, 2009 AH assigned 10 thousand shares of common stock in Skagit to APF, constituting 

100% of the outstanding Skagit capital stock, for an increase of AH’s capital account in APF by $4.5 

million.

305 AH immediately converted $3.3 million of its APF interests to an asset of ACF for a reduction 

in the ACF-AH Note.

306 On March 31, 2010, ACF assigned its interests in APF — then totaling $3.3 

297 On November 10, 2011, a judge for the Circuit Court of Oregon ruled that Brandon Becker and CashReady, LLC were in default and materially breached a 

September 15, 2009 promissory note and commercial guaranty, and were liable for damages thereunder. ACM was awarded judgments in its favor totaling $471 

thousand plus accrued interest; IOF was awarded a judgment in its favor totaling $548 thousand plus accrued interest; and CR Funding I, LLC (a former subsidiary of 

ACF, dissolved in 2014) was awarded a judgment in its favor totaling $75 thousand plus accrued interest. On December 31, 2013, ACM guaranteed the outstanding 

amount of the IOF judgment, then totaling $630 thousand.

298 Aequitas Advisory Board Member. 299 Managing Director, resigned March 14, 2014. 300 Senior Vice President, Financial Products, resigned April 30, 2013. 301 A company managed by Patrick (Pat) Terrell, Aequitas Advisory Board Member. 302 Letter from Jesenik to McGrath, December 6, 2007, “Re: Aequitas Holdings, LLC Formation”. 303 June 10, 2014, “2007 Aequitas Partner Fund LLC SY Intital Return.pdf”, Page55. 304 February 25, 2014, “2008 Aequitas Partner Fund, LLC - Fed & State.pdf”, Page 19. 305 July 6, 2015, 2018, “Assignment of Stock-Skagit 10K Shares (AH-Partner Fund) 12-31-09.pdf”. 306 December 31, 2009, “Assignment of Membership Interest in Aequitas Partner Fund, LLC”. 

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million — to DCEF.307 The assignment of membership interest in APF agreement between ACF and 

DCEF does not state specific consideration for this conversion; however, the General Ledger shows a 

credit increase of $3.3 million to the intercompany DCEF due to ACF account corresponding to the 

conversion. 

On March 31, 2011, McCormick assigned all of his AH Special Units to ACF, for a reduction in the 

principal balance of a promissory note owed by McCormick to ACF.308 309 McCormick assigned the 

Special Units at 61% of the value of his initial capital contribution.

On May 31, 2013, Stanley Smith redeemed all of his Special Units.310 AH purchased the Special Units at 

59% value of his initial capital contribution. The cash consideration for this transaction was paid out of 

ACF-Op on June 3, 2013; based on a review of the banking activity, it appears cash for this transaction 

came from the ASFG bank account. 

On March 31, 2014, Noack redeemed all of his AH Special Units.311 AH purchased the Special Units at 

54% value of his initial capital contribution. The cash consideration for this transaction was paid out of 

ACF-Op on April 4, 2014; the majority of the cash for this transaction came from the CSF bank account.

On May 30, 2014, the positions of the remaining AH Special Unit holders (Jesenik, Oliver, MacRitchie, 

R. Terrell, and PatRick Investments) were redeemed. AH purchased the Special Units at 54% of the 

value of their initial capital contribution. The cash consideration for this transaction was paid out of the 

ACM Operating bank account.

APF asset acquisitions prior to October 2014: 

Cloudward, Inc. (f/k/a Etelos, Inc.): 

On September 30, 2009, Etelos, Inc. (“Etelos”) executed a $250 thousand convertible debenture with 

APF.312 On November 9, 2009, payment was released from the ACF-Op account, on behalf of APF. 

ACF booked the transaction as a "due from” APF receivable. Additionally, APF received stock warrants 

for up to 375 thousand shares of Etelos stock.313 On December 17, 2009, Etelos executed an additional 

$125 thousand convertible denture with APF.314 On the same day, the cash corresponding to this 

debenture was released from ACF-Op, and booked the same as the September 2009 transaction, as an 

APF “due to” ACF. 

Syncronex, LLC: 

On September 30, 2013, IOF assigned to ACF its interests in a certain business loan agreement executed 

May 13, 2009 with Syncronex as borrower.

315 The original principal amount of the loan was $1.6 

million; as of September 30, 2013, the total amount owed on the loan was $2.3 million. The 

consideration for the transaction was a corresponding increase in the intercompany amounts owed to IOF 

from ACF. At the time of the transaction, per a September 30, 2013 internal memo to the Aequitas 

307 March 31, 2010, “Assignment of Membership Interest in Aequitas Partner Fund, LLC”. 308 November 5, 2014, “AH-3 Assgt of Membership Interest - McCormick (McCormick-ACF) 05 31 11.pdf”. 309 November 13, 2013, “CANCELLED - Note - 1st Amdmt & Satisfaction (McCormick-ACF) 05 31 11.pdf”. 310 November 5, 2013, “AH-1 Consent-Action of Manager (AH) 04-01-13 re Repurchase of Smith Class A Special Units v1_0.pdf”. 311 March 20, 2015, “72 Assignment Class A Special Units-AH (Bob Noack-AH) 03-31-14 partial-needs to by signed by Millennium v1_0.pdf”. 312 November 15, 2010, “2b. Debenture (APF) 09.30.09.pdf”. 313 December 21, 2009, “3a. Warrant (APF) 09.30.09.pdf”. 314 September 19, 2013, “2b. Debenture (APF) 12-17-09.pdf”. 315 July 30, 2014, “Assignment of Loan (Syncronex) (IOF-ACF) 09-30-13.pdf”. 

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Conflicts Review Committee (“CRC”), Syncronex “has no ability to pay the obligation and is in payment 

default.”316 This Syncronex loan was ultimately assigned to ACL in April 2015.

Additionally, on October 4, 2013, ACF purchased 100% of Syncronex equity held by AHF for cash 

consideration of $207 thousand.

317 The AHF cost basis for the equity interest, per the September 30, 

2013 internal memo to the CRC, was $145 thousand. The cash for this transaction came from the ACFPN account on October 11, 2013 and was at least partially funded from the new Private Note investments 

that were sent to Aequitas on October 10 and 11, 2013. 

On December 31, 2013, ACF assigned the Syncronex equity interests to APF.318 The consideration for 

this transaction was a reduction of $207 thousand of the balances due on a secured subordinated 

promissory note from ACF (similar form to a Private Note) held by APF. 

Cana’s Feast Winery, LLC: 

On December 20, 2013, APF was admitted as a member of Cana’s Feast.319 APF contributed $100

thousand for 57 thousand membership units (then, 5.27% ownership of Cana’s Feast). The cash for this 

contribution came from ACF-Op. As consideration for this cash outlay from ACF, APF again reduced 

the balance due from ACF on its above promissory note by $100 thousand. 

October 2014 sale to AM: 

On October 1, 2014, Aequitas restructured APF to contribute assets held by other Aequitas entities and to 

move ownership of APF from AH to ACM. This transaction occurred in five parts (all values per the 

transaction date):

First, DCEF sold its membership interest of APF to ACF.320 At the time of the transaction, the DCEF 

capital account balance was $1.7 million, corresponding to roughly a 31% interest in APF. The 

consideration for the transaction was an increase in the intercompany payable from ACF to DCEF in the 

same amount as the capital account balance.

Second, IOF assigned the CashReady Judgment to ACF.321 The consideration for this assignment was an 

increase in the outstanding principal balances of an intercompany secured subordinated promissory note 

by $631 thousand, the amount of the guarantee.

Third, ACF sold a portfolio of assets to AH: APF equity, the ACM guarantee of the CashReady 

Judgment, MSP equity, CSS equity, the Rock and Roll Restaurants Note, and the Newman Loan with a 

principal amount of $325 thousand.

322 323 The consideration for the transaction was an increase of $6.1 

million in the outstanding principal balances of an intercompany promissory note. 

Fourth, AH contributed a portfolio of assets to APF, increasing the AH capital account balance with APF 

by $5.8 million: the ACM guarantee of the CashReady Judgment, MSP equity, CSS equity, the Rock and 

Roll Restaurants Note, and the NorthBranch Notes;324 the Newman Loan was not contributed to APF. 

316 September 30, 2013, Memo to CRC, “Re: Update to the Sale of Syncronex, LLC Membership Units from Hybrid to ACF”. 317 July 30, 2014, “Assignment of Membership Interest-Syncronex (Hybrid-ACF) 10-04-13.pdf”. 318 July 30, 2014, “Assignment of Membership Interest-Syncronex (ACF-Partner Fund) 12-31-13.pdf”. 319 December 27, 2013, “Admission Agmt (Partner Fund-Cana's Feast Winery) 12-20-13.pdf”. 320 April 23, 2015, “(1) Sale of APF Membership Interest (DECF to ACF) 10-01-14.pdf”. 321 April 23, 2015, “(2) Assignment of Guaranty (IOF to ACF) 10-01-14.pdf”. 322 April 23, 2015, “(3a) Assignment Agreement (ACF to AH) 10-01-14.pdf”. 323 April 23, 2015, “(3b) Sale of APF Membership Interest (ACF to AH) 10-01-14.pdf”. 324 April 23, 2015, “(4a) Contribution Agreement (AH to APF) 10-01-14.pdf”. 

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APF then distributed the following assets to AH, decreasing the AH capital account balance: a limited 

partner interest in Portland Seed Fund II, LLC with a capital account balance of $88 thousand, and its 

AHF equity interest with a capital account balance of $1.2 million, corresponding to roughly a 14% 

interest in AHF.325

Finally, AH sold 100% of the APF equity to AM and three Investors: an 83.6% equity interest to AM 

with a capital account balance of $8.5 million;

326 a 0.6% equity interest to McCormick with a capital 

account balance of $62 thousand;

327 a 7.9% equity interest to R. Terrell with a capital account balance of 

$798 thousand;

328 a 7.9% equity interest to PatRick Investments (together with McCormick and R. 

Terrell, the “External APF Investors”), with a capital account balance of $798 thousand.

329

As consideration for this sale, AM issued a promissory note to AH in the amount of its capital account 

balance, secured by the AM interests in APF.330 The External APF Investors each individually issued 

non-recourse promissory notes to AH in the amount of their capital account balances, secured by, and 

limited in recourse only to, the External APF Investors’ interests in APF.331

E.5.2.2. Conversion of assets to PCF

In 2015, Aequitas management formed a private fund for select individuals, predominantly made up of 

upper Aequitas management and close insiders or Investors. Aequitas then began parsing out ACF and 

AH assets, previously purchased with Investor funds, into this vehicle, which limited the investment 

upside to only select individuals. As such, the select Investors within the fund limited their risk to the 

value of the contributed assets, however they gained all of the upside potential of the assets previously 

bought using other Investor funds. 

PCF was formed on July 21, 2015. It is 100% owned by AH and is managed by AIM. Per the PCF LLC 

agreement, PCF owed management fees monthly to AIM, calculated as two percent per annum of the 

unpaid principal amount of the series notes outstanding to the PCF Investors. 

PCF had three core assets as of the Complaint Date:

1. A 19.49% limited partner interest in COF; the limited partner interest had an estimated value of 

$20.6 million on the date of acquisition.

2. A promissory note with Skagit; on the date of acquisition of the promissory note, it had an 

outstanding principal balance of $10.3 million, but a book carrying value of $8.1 million. 

3. Approximately 4.2 million shares of preferred stock in Pipeline Health Holdings, LLC (“Pipeline 

Health”), an entity not included in the Receivership Entity or Extended Entities; on the date of 

acquisition of the shares, they had an estimated value of $7.5 million on the Aequitas books and 

records. 

Investors converted from Private Note to PCF in three groupings. The first grouping was effective on 

July 31, 2015. Eight Investors (Brantley,332 Froude, MacRitchie, McCormick, Tracy Oliver, Thomas and 

325 April 23, 2015, “(5) Action of Manager and Member - Dist of Portland Seed Fund and Hybrid (APF) 10-01-14.pdf”. 326 May 27, 2015, “(6a1) Sale of APF Membership Interest (AH to AMLLC) 10-01-14.pdf”. 327 June 2, 2015, “(6b1) Sale of APF Membership Interest (AH to BMcCormick) 10-01-14.pdf”. 328 July 20, 2015, “(6d1) Sale of APF Membership Interest (AH to RTerrell) 10-01-14.pdf”. 329 May 27, 2015, “(6c1) Sale of APF Membership Interest (AH to PatRick Investments) 10-01-14.pdf”. 330 May 27, 2015, “(6a2) Promissory Note (AMLLC-AH) 10-01-14.pdf”. 331 June 2, 2015, “(6b2) Non-Recourse Secured Note (BMcCormick-AH) 10-01-14.pdf”; May 27, 2015, “(6c2) Non-Recourse Secured Note (PatRick Investment-AH) 

10-01-14.pdf”; July 20, 2015, “(6d2) Non-Recourse Secured Note (RTerrell-AH) 10-01-14.pdf”. 332 Aequitas Advisory Board Member.

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Julia Szabo, Walter Wurster, and Zamarripa) converted twenty-six Private Notes and accrued interest

balances totaling $29.7 million to PCF via a non-cash intercompany adjustment; however, effective the 

same day, ACF also assigned to PCF both a limited partner interest in COF333 and a promissory note with 

Skagit,334 reducing its intercompany payable to PCF by $28.7 million. Additionally, Froude converted 

two of his personal IOF notes to PCF for $203 thousand on July 31, 2015 via a non-cash intercompany 

adjustment; however, cash was ultimately transferred from IOF to PCF on December 28, 2015.

The second grouping occurred on September 29, 2015. Jesenik invested $300 thousand cash in PCF and 

received a secured promissory note. 

The final group of investments came into PCF during December 2015. Four Investors (Keith Barnes, 

Sharon Barnes, Barbara Etheridge, and Sharp) converted twelve Private Notes and accrued interest

balances, totaling $7.2 million, all completed on a non-cash basis through due-to or due-from related 

entities. On December 31, 2015, ACF assigned its Pipeline Health stock to PCF, reducing the 

intercompany payable by $7.5 million. 

PCF made two rounds of quarterly interest payments to its Investors. First, PCF paid the Q3 interest 

payment on October 29 and 30, 2015, totaling $487 thousand; $300 thousand of this cash came from the 

Jesenik investment in September 2015, and the remaining cash was transferred from ACF-Op. 

Second, PCF paid the Q4 interest payment on January 28, 2016, but only for two Investors (Wurster and 

Zamarripa). The interest payment totaled $534 thousand. Cash for this payment came from a $700

thousand cash transfer from ACF-Op on November 20, 2015; the remaining $150 thousand was 

predominately used to pay the AIM monthly management fee. 

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

333 October 28, 2015, “Assignment and Assumption of LP Interest - COF (ACF to PCF) 07-31-15.pdf”. 334 October 28, 2015, “Assignment of Loan - Skagit Gardens (ACF to PCF) 07-31-15.pdf”.

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Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 88 of 174
PCF

Master Name

Effective 

Date

Transfer 

Amount Transfer Entity

Investment 

Date Orig. Maturity

Rate @ 

Transfer Special PN Terms? 1

Increase 

(Decrease)

Andrew MacRitchie 7/31/2015 $75.0 K ACF-PN 7/21/2014 7/21/2019 8%2 Below investment minimum. Standard rate 7% 4%

Andrew MacRitchie 7/31/2015 $124.5 K ACF-PN 4/24/2008 4/24/2015 12% Below investment minimum, initial rate 13%, 

reduced in 2011 to 12%. Standard rate 9%

0%

Andrew MacRitchie 7/31/2015 $10.0 K ACF-PN 7/13/2010 4/24/2015 12% Below investment minimum, initial rate 13%, 

reduced in 2011 to 12%. Standard rate 9%

0%

Andrew MacRitchie 7/31/2015 $205.2 K - -

Brian and Tracy Oliver 7/31/2015

 $250.0 K ACF-PN 12/16/2013 12/31/2017 10% Initial rate 13%, standard is 10%. Allowed early 

redemption of $100k in 2013, for reduction to 10% 2%

Craig Froude 7/31/2015 $1.0 M ACF-PN 5/1/2015 5/1/2019 11% Standard rate ~10% 1%

Craig Froude 7/31/2015 $102.5 K IOF 5/31/2010 6/30/2015 10% Initial PN Investment, transferred to IOF 2%

Craig Froude 7/31/2015 $100.0 K IOF 8/2/2010 6/30/2015 10% 2%

L. Martin Brantley 7/31/2015 $500.0 K ACF-PN 9/20/2010 9/20/2017 11% Standard rate 10% 1%

Robert Zamarripa 7/31/2015 $3.0 M ACF-PN 4/2/2013 4/1/2015 12% Standard rate 11% 0%

Robert Zamarripa 7/31/2015 $3.0 M ACF-PN 4/2/2013 4/1/2016 12% 0%

Robert Zamarripa 7/31/2015 $1.8 M ACF-PN 4/2/2013 4/1/2017 11% Initial 1 year $3M investment @ 12%, partial 

extension @ 11%. Standard rate 10%

1%

Thomas and Julia Szabo 7/31/2015 $500.0 K ACF-PN 8/7/2013 8/7/2015 11% Standard rate 9% 1%

Walter Wurster 7/31/2015 $100.0 K ACF-PN 2/18/2011 2/18/2016 13% Below investment minimum. Standard rate 9-10% -1%

Walter Wurster 7/31/2015 $100.0 K ACF-PN 12/21/2012 12/21/2015 13% Below investment minimum. Standard rate 9-10% -1%

Walter Wurster 7/31/2015 $150.0 K ACF-PN 2/15/2013 2/15/2016 13% Below investment minimum. Standard rate 9-10% -1%

Walter Wurster 7/31/2015 $330.8 K ACF-PN 12/16/2014 12/16/2019 12% Below investment minimum. Standard rate 9-10% 0%

Walter Wurster 7/31/2015 $500.0 K ACF-PN 5/16/2014 5/16/2019 12% Below investment minimum. Standard rate 9-10%. 

Special interest payment schedule

0%

Walter Wurster 7/31/2015 $1.3 M ACF-PN 6/1/2013 6/1/2016 12% Standard rate 11% 0%

Walter Wurster 7/31/2015

 $1.5 M ACF-PN 9/1/2012 6/1/2016 12%

Original note 11%, increased to 12%. Standard rate 

11%. Special liquidity provision & interest payment 

schedule

0%

Walter Wurster 7/31/2015 $899.0 K ACF-PN 3/9/2009 6/1/2016 12% Original note 13.5%, decreased to 12%. Standard 

rate 10-12%

0%

Walter Wurster 7/31/2015 $12.4 M ACF-PN 6/1/2013 6/1/2018 12% Below investment minimum. Standard rate 9-10% 0%

Walter Wurster 7/31/2015 $201.3 K Accrued PN Interest - -

William McCormick 7/31/2015 $255.2 K ACF-PN 4/2/2009 4/2/2019 12% Standard rate 9% 0%

William McCormick 7/31/2015 $300.0 K ACF-PN 5/14/2009 5/14/2019 12% Standard rate 9% 0%

William McCormick 7/31/2015 $302.2 K ACF-PN 8/1/2014 8/1/2018 10% Standard rate 9% 2%

William McCormick 7/31/2015

 $200.0 K ACF-PN 11/13/2014 2/16/2019 12% Initial Special Terms Bridge Loan @ 15%, standard 

rate 5%. Extended 4 years @ 12%, standard rate 9% 0%

William McCormick 7/31/2015 $200.0 K ACF-PN 1/29/2015 1/29/2019 12% Standard rate 9% 0%

William McCormick 7/31/2015 $126.8 K ACF-PN 8/1/2014 8/1/2018 10% Special terms allowing transfer of IPF investment to 

PN. Standard rate 9%

2%

William McCormick 7/31/2015 $100.0 K ACF-PN 11/5/2009 11/5/2018 10% Initial rate 18%, reduced to 15% then 13% then 

10% with maturity extensions. Standard rate 9%

2%

William McCormick 7/31/2015 $402.0 K Accrued PN Interest - -

Robert Jesenik 9/28/2015 $300.0 K New Funds - -

Steve and Patricia Sharp 12/14/2015 $500.0 K ACF-PN 8/21/2015 8/21/2019 12% Standard rate 10% 0%

Steve and Patricia Sharp 12/14/2015 $250.0 K ACF-PN 4/1/2015 4/1/2016 9% Standard rate 7% 3%

Steve and Patricia Sharp 12/14/2015 $250.0 K ACF-PN 4/1/2015 4/1/2017 10% Standard rate 8-10% 2%

Steve and Patricia Sharp 12/14/2015 $250.0 K ACF-PN 11/19/2014 11/19/2015 9% Standard rate 7% 3%

Steve and Patricia Sharp 12/14/2015 $250.0 K ACF-PN 11/19/2014 11/19/2016 10% Standard rate 8-10% 2%

Steve and Patricia Sharp 12/14/2015 $250.0 K ACF-PN 11/19/2014 11/19/2017 11% Standard rate 9% 1%

Steve and Patricia Sharp 12/14/2015 $250.0 K ACF-PN 11/19/2014 11/19/2018 12% Standard rate 9% 0%

Steve and Patricia Sharp 12/14/2015 $34.2 K Accrued PN Interest - -

Keith and Sharon Barnes 12/31/2015

 $500.0 K ACF-PN 1/24/2013 8/1/2018 13%

Initial rate 15% for 7 months, standard rate 5%. 

Reduced to 13% and extended one year, standard 

rate 9%. Later extended to 2018. Preferential 

liquidity & redemption priority.

-1%

Keith and Sharon Barnes 12/31/2015 $1.2 M ACF-PN 4/25/2014 10/24/2019 13% Standard rate 10-12%. Preferential liquidity & 

redemption priority

-1%

Keith and Sharon Barnes 12/31/2015 $500.0 K ACF-PN 4/10/2015 4/10/2016 13% Standard rate 8%. Preferential liquidity & 

redemption priority

-1%

Ted and Barbara Etheridge 12/31/20153 $2.0 M ACF-PN 2/27/2015 2/27/2018 11% Standard rate 9%, monthly interest payments 1%

Ted and Barbara Etheridge 12/31/2015 $1.0 M ACF-PN 7/1/2014 7/1/2017 10% 2%

Total: $37.5 M

Prior Investment

Accrued PN Interest

1. Standard terms are what were offered to public, based on closest standard investment value and length. As many above investments are non-standard terms or amounts, exact matches are not 

always available.

2. Interest rate increased to 11% for last 7 days of PN investment

3. Signed docs and transfer occurred on January 11, 2016, however was backdated to December 31, 2015

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E.5.2.3. Corporate spending in excess of management fees

The only “recurring” (and disclosed) source of funds for Aequitas’ corporate expenses and payroll was

the 2% annual asset management fee which it was entitled to collect on invested funds. Because the 

corporate spend exceeded the amount of this fee, it became incumbent upon Aequitas to raise as much 

money as possible (and also keep asset valuations high), to generate the largest fees possible to cover its

spending. 

During the Relevant Time Period, the main sources of revenue for AES, ACF, ACM and AIM (together, 

the “Operating Entities”) were internal management fees from related entities (such as ACL, AWM, CPH 

& subsidiaries, MLFH & subsidiaries, COF, etc.), as well as ASA fees. Management fees, frequently 

referred to as the “2%’s”, were paid (subject to cash availability) on a monthly basis, predominantly as a 

calculation of 0.167% of the gross value of the assets, or unpaid principal value of the entities’ 

receivables. The majority of ASA fees were paid by CPYT and EdPlus for support services provided by 

the Operating Entities. Reimbursement payments (or rebills) for payroll and certain expenses paid by 

Aequitas on behalf of CPYT and EdPlus were paid as well. In 2015 AES also received ASA payments 

from AH. 

During the Relevant Time Period, Aequitas accrued a total of approximately $22.7 million in 

management fees from related entities (excluding management fees paid from one Operating Entity to 

another). Total ASA accrual for the same period was approximately $15.8 million. As such, total 

revenue available to cover expenses is estimated at $38.5 million. Rebill payments received from CPYT 

and EdPlus totaled $27.6 million, as a reimbursement of direct expenses paid by Aequitas on CPYT and 

EdPlus’ behalf. 

During the same period, the Operating Entities spent at least $117.4 million on employee compensation, 

professional expenses, office expenses, travel & entertainment and more. While ASA and management 

fee income remained relatively close to the 2014 income totals ($17.3 million and $17.6 million 

respectively), 2015 net expenses increased by at least 124%. Overall, the Operating Entities spent over 

double the combined management fees and ASA. Such difference was made up by new Investor funds, 

particularly through ACF and its subsidiaries. These funds were then lent to AH, with a corresponding 

increase in the ACF-AH Note, and were then contributed to the respective Operating Entity subsidiaries 

of AH. This can be seen from the 2014 to 2015 ACF-AH Note balance increase from $120.9 million to 

$180.3 million. In other words, the excess expenses were being capitalized and represented as assets on 

the ACF balance sheet rather than being expensed through the income statement (which would have led to 

losses).

Aequitas management justified this treatment (and the collectability of the AH note payable) by asserting 

that additional income would come from the net interest margin earned by SPEs owned by AH. In a 

response to the General Counsel asserting that the 2% management fee should be the only guaranteed 

revenue, Oliver stated:335

I do not disagree philosophically, but this view assumes that the debate over Aequitas 

Commercial Finance being a “Fund” vs. a “Finance Company” is over. ... I have always 

explained us as a specialty finance company paying a fixed return to our investors and then 

working off of the spread, with a much higher than 2% overhead/fixed cost infrastructure to 

335 Email from Jesenik to MacRitchie, Oliver, Holmen, Gillis, Rice, Froude, January 3, 2016, “RE: January 1, 2016: Starting a New Fee and Expense Paradigm at 

Aequitas”. 

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manage complex credit portfolios and therefore the need to keep more of the margin/NIM. ... 

Again, I don’t disagree with the philosophy and target of working towards the 2% covering the 

expenses, but just some additional food for thought on how we have historically viewed and 

positioned the company vs. where we are trying to get to and why we have not historically viewed 

NIM the same as the 20% carry (meaning we have previously been structured and presented 

ourselves to investors for NIM to be used to cover overhead).

However, as management continued to dissipate all equity in the SPEs, either through Direct Notes to 

Investors or Manufactured Notes to Aequitas Funds (all carrying high interest rates), repayment of the AH 

note was impossible. In an email from the General Counsel to Jesenik, Oliver, Gillis, MacRitchie, Rice 

and Froude, he warned against this practice due to the status of the portfolios:336

It is fair to supplement that with NIM based on reasonable projections. I don’t think we can count 

on any NIM from Motolease or CSF since those strategies are in run-off, are fully leveraged and 

(in the case of CSF) are subject to further erosion at the hands of the CFPB. Since CarePayment 

NIM is fully allocated to the BSR, that leaves Freedom NIM plus any NIM coming from ACL and 

other note assets (to the extent that NIM is not needed to pay interest on ACF subordinated 

notes).337

Aequitas management also continually referenced the “20% carry” Aequitas would receive on 

investments such as COF. Again, in the above email from the General Counsel, he specifically suggested 

they remove these amounts from the budget, for the following reasons:

We can also use the 20% carry, but I see three issues in developing a budget based on spending 

the carry coming off the funds: (a) there is uncertainty as to the amount of carry any given 

quarter/year, (b) the carry is illiquid and (c) the carry already is “owed” back to the noteholders 

as security for the intercompany loans to ACM and AES, thus the priority on amounts realized 

from carry likely should be pay down of the AH line.

Ultimately, as discussed in E.4.2, the General Counsel was warning the management team to cease 

borrowing from ACF to pay payroll and Operating Entities’ expenses. In October 2015, management was 

presented with a “3 Year Plan Update,” which listed the projected losses and upsides that were forecasted. 

The plan was prepared by Fund Operations, with several reviews and edits completed by Gillis. This was 

then presented to the AM committee later that month and again in December.338 

These projections, including fair value adjustments, forecast an $18.0 million consolidated loss in 2015. 

However, in an email from Oliver to Jesenik on October 22, 2015, Oliver noted that those forecasts do not 

even take into consideration a $15-25 million reserve for CoCo portfolios, a $5.5-6.5 million overestimate 

of CPYT revenue, and projections of $34 million in “new strategies” which will not happen “given we are 

at end of October already and don’t have projected excess liquidity.” With this, Oliver estimated the 

consolidated loss would likely be closer to $50.0 million. Oliver goes on to say:339

Unfortunately we have a history of building what we think are “conservative” plans, making 

business/spending/investing decisions based on those plans, not achieving those plans, and as a 

result creating a wider and wider gap between cash revenue and cash expenses. Of course this 

336 Email from Holmen to Jesenik, MacRitchie, Oliver, Rice, Gillis & Froude, December 9, 2015, “Cessation of Borrowing from ACF”. 337 Note the prior discussion in this Report demonstrating that both FFN portfolios necessarily had negative NIM. 338 October 9, 2015, “3 Year Plan - Final 2015.10.09.pdf”. 339 Email from Oliver to Jesenik, October 22, 2015, “RE: 3 Year Plan Update – Final”.

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ultimately shows up in the growth of the AH note year over year. Since converting to an asset 

management firm, we’ve virtually never been profitable, and have now accumulated nearly 

$100MM of aggregate losses over our history.

E.6. Mischaracterization of the nature of investment and associated risk

SEC Complaint - [The defendants] never disclosed to investors that: (1) ACF and AH were effectively 

insolvent; (2) the vast majority of investor funds was not used to purchase trade receivables but instead to 

pay redemptions and interest to prior investors and to pay for operating expenses; and (3) only a fraction 

of the notes issued by ACF and the Aequitas Funds were backed by trade receivables.

It is the opinion of the Receiver that Aequitas was effectively insolvent from at least July 3, 2014. A 

review of Aequitas’ communications with Investors and the audited year-end 2014 financial statements 

(issued May 29, 2015) expressly represent to the contrary. It is the Receiver’s understanding that the 

Individual Defendants assert that Aequitas was not insolvent, as it was able to pay its liabilities when they 

came due. As the only source of capital was new investor funds — which were raised under misleading 

circumstances and the use of which was to pay the redemptions and return of earlier Investors is a classic

signal of a Ponzi scheme — the purported ability to pay its current obligations does not belie the 

insolvency determination. 

An additional signal of the deepening insolvency was Aequitas’ increasing reliance on short term debt to 

bridge the looming maturity gap. In 2011, just 35% of senior and subordinated debt (for entities residing 

under ACF) matured within one year. By 2015, that rate had ballooned to 58%. This shift to shorter term 

money was in response to Aequitas’ inability to raise sufficient long-term funds and was required to use 

the shorter maturities as an impetus to “fill the pipe.” The combination of having too much debt, not 

having the right kind of debt at the right time, and lacking collateral or business income to repay that debt 

all foreshadowed the impending collapse of Aequitas when the fundraising ceased.340

340 The ACF consolidated notes balance chart includes notes that were held/originated in entities that consolidated under ACF (Private Note, CPH, DCEF, IOF, IOFII, 

CSF, MLFH, MLF, AP2PF & ACCFPH). Related to the 40 Act restructuring in 2015, $26.9 million of liabilities that were held under ACF were assigned (or 

converted) to other entities under AH (DCEF, IOF & AP2PF). To provide an appropriate comparison, these notes were added back into the 2015 balances shown 

above.

ACF Consolidated Notes Balance (A)

As of December 31,

2011 (B) 2012 (B) 2013 (B) 2014 (B) 2015 (A&C)

Senior Secured Notes $ 29,527,893 $ 36,269,756 $ 49,186,185 $ 75,165,294 $ 146,157,012

Subordinated Secured Notes 164,756,585 182,616,185 249,825,093 354,270,566 323,663,780

Total ACF Consolidated Notes $ 194,284,478 $ 218,885,941 $ 299,011,278 $ 429,435,860 $ 469,820,792

1 year $ 67,874,339 $ 90,451,377 $ 103,664,311 $ 220,614,727 $ 272,812,177

2 years 57,576,040 40,661,566 69,688,052 88,873,805 95,456,507

3 years 14,578,031 51,099,560 61,234,483 73,639,210 40,832,696

4 years 39,657,632 34,273,438 52,053,090 36,543,317 54,809,482

5 years 10,281,035 2,400,000 12,371,342 9,764,801 5,909,930

Thereafter 4,317,400 - - - -

Total $ 194,284,477 $ 218,885,941 $ 299,011,278 $ 429,435,860 $ 469,820,792

Note B: Source for 2011 through 2014 data - Aequitas Commercial Finance, LLC audited consolidated financial statements.

Note C: Source for 2015 data - Great Plains General Ledger Balance Sheets. Maturity data calculated from accounting records.

Future maturities of senior and subordinated debt:

Note A: In 2015 Aequitas restructured entity ownership and moved certain assets and liabilities to other entities under AH. 2015 balances include 2014 

debt which still existed at 12/31/2015 but was no longer under the ACF consolidation.

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It is clear that the vast majority of Investor funds were not used to purchase consumer receivables. The 

following table summarizes the amount of debt related to consumer loan portfolio entities (both 

institutional debt and Investor debt) as compared to the consumer loan portfolio fair value. After 

satisfaction of the institutional debt, the remaining book value of the consumer loan portfolio only covers 

a fraction of the outstanding Investor debt341 — starting at coverage of 37% of the Investor debt in the 4th

quarter of 2013 and declining steadily to 24% in the 1st quarter of 2016. 

The table also indicates that as of the end of the 4th quarter of 2013 there existed $126.5 million in book 

value of consumer receivables in excess of the institutional debt. Also note that as of the end of the 1st

quarter of 2016 that excess had diminished to $118.8 million. Over that same period (Q1 2014 through 

Q1 2016), Aequitas raised a net $171 million in new Investor funds.

342 Given the decrease in equity in 

the consumer receivables portfolio, the funds raised were not used to purchase new receivables.

Finally, almost half of the new money raised during the Relevant Time Period was related to Private 

Notes ($81 million of the $171 million in new investments). Private Notes are direct debt obligations of 

ACF and purported to be collateralized by “all the assets of ACF”343 (including the equity in ACF 

subsidiaries that own consumer receivables) rather than “backed” by the receivables themselves. A 

review of the Aequitas tear sheets344 provided to Investors indicates a disclosure to Investors that:

345

ACF uses proceeds from Private Note primarily to fund or finance the purchase of student loan 

receivables from educational providers, patient-pay receivables from healthcare providers, other 

private credit strategy receivables and loan portfolios, or direct collateralized loan and lease 

obligations, equities, and secured liquidity lines to affiliates for general corporate purposes. 

That disclosure language was unchanged during the Relevant Time Period until the Q3 2015 tear sheet, 

which changed the order of cash uses such that: 

Proceeds from the sale of Notes to prior investors were used to fund or finance the purchase of 

private equity, loans to affiliates for operating capital, student loan receivables from educational 

providers, patient-pay receivables from healthcare providers, and other private credit strategy 

receivables and loan portfolios. 

341 Investor debt in chart includes debt at Private Note, IOF, IOFII, IPF, EIF, A2PF, MLF, CSF, ACCFPH, ACCCPH and CPH. 342 During the Relevant Time Period, Aequitas raised $322.9 million in new investments and redeemed $151.9 million in investments equaling a $171 million net 

increase in Investor funds. Additionally, Aequitas also paid out $80.9 million in interest and equity returns.

343 During the Relevant Time Period, the tear sheets provided to Private Note Investors describe the collateral as a “Lien on all assets of ACF” until the Q3 2015 tear 

sheet, when the language is changed to a “Subordinated lien on all assets of ACF”. 344 Used throughout the Report, a “tear sheet” refers to a fact sheet and marketing material compiled by Aequitas for Aequitas Funds or SPEs, intended to summarize 

the holdings and financial performance of the Aequitas Fund or SPE, and provided to current and prospective investors. 345 See Exhibit E.8 for a summary of the Private Note and IOF II tear sheet disclosures. 

Summary of Aequitas Portfolio Assets to Debt (in millions)

Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016

Consumer Portfolios at Fair Value $191.9 $177.3 $166.2 $171.9 $186.5 $206.3 $227.0 $240.1 $243.3 $230.6

Institutional Debt -65.4 -58.5 -51.1 -39.6 -38.4 -75.2 -90.0 -103.6 -107.0 -111.8

Value After Retiring Institutional Debt 126.5 118.7 115.0 132.2 148.1 131.1 137.0 136.5 136.3 118.8

Investor Debt $345.5 $363.3 $381.4 $410.9 $445.7 $464.6 $474.2 $469.4 $488.3 $494.6

Portfolio Coverage for Institutional Debt 293% 303% 325% 434% 486% 274% 252% 232% 227% 206%

Portfolio Coverage for Investor Debt 37% 33% 30% 32% 33% 28% 29% 29% 28% 24%

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E.7. Overstated investment returns and understated risks and losses346

The SEC identifies several Ponzi scheme "red flags" which include (1) high investment returns with little 

or no risk and (2) overly consistent returns.347 In the instant case, Aequitas promoted the various debt 

instruments as 

High-yielding, secured, subordinated debt instrument issued by Aequitas Commercial Finance, 

LLC (“ACF”). The Private Notes are issued as direct obligations of ACF and are supported by 

the balance sheet of ACF. The Notes are structured to provide a fixed quarterly return and 

principal return upon maturity.

348

Further, Aequitas offered this summary of weighted average interest rates compared to key market 

returns:349

Aequitas clearly marketed these investments as yielding higher returns than otherwise comparable 

available investments and was only able to pay these “overly consistent returns” not based on the earnings 

of the underlying investments made by Aequitas, but rather the continued funding from new Investors. 

As demonstrated earlier in this Report, each of the operating companies were hemorrhaging cash and the 

structure of the debt portfolios were flawed to the extent that they could not support the debt service of 

the combined enterprise. Further, Aequitas understated its losses through inflated asset valuations, debt 

conversion into equity, and failure to recognize losses as they were incurred.

E.8. False statements provided to customers 

SEC Complaint - ACF and the Aequitas Funds also sent out quarterly updates to Investors, approved by 

Jesenik and Oliver and with financial information approved by Gillis, falsely stating in 2015 that ACF 

was using Investor money primarily to purchase receivables.

The Receiver reviewed quarterly updates provided to Investors in Private Note (Q1 2014 through Q3 

2015) and IOFII (Q4 2014 through Q3 2015). A summary of the pertinent language from each of the 

quarterly updates is attached to this Report and changes from period to period are highlighted. It is our 

understanding that significant revisions to the disclosures were in process for the Q4 2015 updates – 

which changes were never finalized, and updates never provided. The disclosures on the periodic updates 

346 Rieser v. Hayslip (In re Canyon Sys. Corp.), 343 B.R. 615, 630 (Bankr. S.D. Ohio 2006); In re Taubman 160 B.R. 964, 978 (Bankr. S.D. Ohio 1993); Kapila v. 

Phillips Buick-Pontiac-GMC Truck, Inc. (In re ATM Fin. Servs., LLC), 2011 Bankr. LEXIS 2394, at *15 (Bankr. M.D. Fla. 2011) and Wing v. Dockstader, 2010 WL 

5020959 at *4 (D. Utah 2010).

347 https://www.sec.gov/fast-answers/answersponzihtm.html. 348 May 21, 2014, “Aequitas Private Note Tear Sheet Investment Advisor Q1 2014.pdf “. Aequitas Commercial Finance, Quarterly Update, Performance Summary 

Q1 2014.

349 December 18.2015, “AequitasCapital_PN_TearSheet-Q32015_RIA.pdf”. Aequitas Commercial Finance, Quarterly Update, Performance Summary Q3 2015.

Offering Summary: Weighted Average Interest Rate (2008-2015)

Barclays US Aggregate Barclays US Corporate

Year Q1 Q2 Q3 Q4 Annual Return Bond Index High Yield Index

2008 3.6% 3.6% 3.4% 3.4% 14.0% 5.2% -26.2%

2009 3.2% 3.1% 3.3% 3.3% 13.0% 5.9% 58.2%

2010 3.2% 3.0% 3.1% 3.0% 12.4% 6.5% 15.1%

2011 3.0% 2.9% 2.9% 2.9% 11.7% 7.8% 5.0%

2012 2.9% 2.9% 2.9% 2.9% 11.6% 4.2% 15.8%

2013 2.8% 2.8% 2.7% 2.6% 10.9% -2.0% 7.4%

2014 2.6% 2.6% 2.5% 2.5% 10.2% 6.0% 2.5%

2015 2.5% 2.6% 2.5% - 10.1% 1.1% -2.5%

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clearly indicate a focus on the acquisition of consumer debt receivables with the stated purpose of 

providing “secured liquidity lines to affiliates for general corporate purposes” listed last – if at all. 

F. History of Aequitas Funds

F.1. Direct Note summary

Since establishment of the Direct Note program, 33 notes, totaling $44.9 million in principal, were issued 

to Investors. As of the beginning of the Receivership, $40.1 million in principal remains outstanding. 

These notes were issued by the following seven SPE entities: 

• ACC C Plus Holdings, LLC

- Previously ACC Holdings 2, LLC

• ACC F Plus Holdings, LLC

• Aequitas Corporate Lending, LLC

• Aequitas Peer-to-Peer Funding, LLC

• CarePayment Holdings, LLC350

• MotoLease Financial Holdings, LLC

• MotoLease Financial, LLC

Of the $44.8 million direct investment notes issued, only 61% ($27.2 million) were a result of direct cash 

consideration being sent to the SPE entity, either through newly invested funds or through cash 

intercompany transfers. The remaining 39% ($17.6 million) were issued by entities which “assumed” the 

liability through a series of accounting journal entries, without receiving cash consideration. For these

non-cash notes, the money could either be deposited into a non-SPE related Aequitas entity (such as AH) 

or a note could be “redeemed” from another Aequitas Fund (such as IOF, DCEF or CSF), and its liability

would be converted into an SPE entity above. 

The principal amount of the Direct Notes can be broken down into the sub-categories as follows:

1. Receipt of cash consideration by an SPE: 61%

a. Cash received & was ultimately utilized by the issuing SPE: 23%

b. Cash received & was ultimately disbursed to ACF and affiliates for corporate use: 38%

2. No cash consideration to an SPE: 39%

a. New incoming funds (to a different entity): 9%

b. Converted Aequitas Fund investments: 30%

While most of the Direct Notes would have the entire amount of their principal included in either 

category 1 or 2, there are some notes which are a combination of cash and non-cash transfers/conversions, 

namely note ACLLLC00003 and CPHLLC00001 to TGM and Weider, respectively. Additional 

summary can be found in the corresponding chart, by date of origination. 

350 CPH also received a series of four advances in February and March 2016, totaling $1.5 million, through a business loan agreement with CPYT (an Extended Entity 

of the Receivership). This is excluded from the analysis in this section, as is outside the definition of a Direct Note.

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# Issued to Registry No.

Note 

Struct Remaining Amt Retired?

Redem.

Date

Cash 

Consid. Cash Use / Transfer Details

1 Integrity Capital Income Fund, Inc. AP2PFLLC00003 Sub 51,500.001 a Integrity Capital Income Fund, Inc. AP2PFLLC00003 Sub 500,000.00 Yes Funds trsf to ACF-PN

1 b Integrity Capital Income Fund, Inc. AP2PFLLC00003 Sub (448,500.00) Partial 2-Feb-16 N/A Funds received from AH equity infusion2 Integrity Capital Income Fund, Inc. MLFHLLC00007 Sub 500,000.00 No Used in ACF to redeem 2 Hybrid investors

3 IBAT, LLP AP2PFLLC00004 Sub 0.00

3 a IBAT, LLP AP2PFLLC00004 Sub 200,000.00 Yes Funds sent to OnDeck for asset purchase

3 b IBAT, LLP AP2PFLLC00004 Sub (200,000.00) Retired 2-Feb-16 N/A Funds received from AH equity infusion4 IBAT, LLP MLFHLLC00008 Sub 200,000.00 Yes Funds trsf to ACF-Ops5 Finance 500 401K Plan FBO Robert L. Hicks ACCH2LLC00009 Sub 500,000.00 Yes Funds trsf to ACF-Ops6 Perennial Specialty Income Fund, LP ACCH2LLC00010 Sub 1,000,000.00 Yes Funds trsf to ACF-Ops7 Perennial Specialty Income Fund, LP ACCH2LLC00011 Sub 1,000,000.00 Yes Funds trsf to ACF-PN8 Integrity Capital Income Fund, Inc. AP2PFLLC00009 Sub 75,000.00 Yes Funds trsf to ACF-Ops9 IBAT, LLP AP2PFLLC00010 Sub 98,500.009 a IBAT, LLP AP2PFLLC00010 Sub 250,000.00 Yes Funds trsf to ACF-Ops

9 b IBAT, LLP AP2PFLLC00010 Sub (151,500.00) Partial 2-Feb-16 N/A Funds received from AH equity infusion

10 William Ruh ACLLLC00002 Sr. Sec. 0.00 Retired 4-Aug-15

10 a William Ruh ACLLLC00002 Sr. Sec. 536,986.28 No Prior Investment in ACF-PN

10 b William Ruh ACLLLC00002 Sr. Sec. 750,000.00 No Used for COF's nD BancGroup investment

10 c William Ruh ACLLLC00002 Sr. Sec. (1,286,986.28) Retired 4-Aug-15 N/A Funds received from new EIF Investor and CPLLC distribution

11 Terrell Group Management ACLLLC00003 Sr. Sec. 7,668,000.00

11 a Terrell Group Management ACLLLC00003 Sr. Sec. 5,918,000.00 No Prior Investment in DCEF

11 b Terrell Group Management ACLLLC00003 Sr. Sec. 1,850,000.00 No Comingled corprate-wide transfer from ACF

11 c Terrell Group Management ACLLLC00003 Sr. Sec. 5,000.00 No Comingled corprate-wide transfer from ACF

11 d Terrell Group Management ACLLLC00003 Sr. Sec. 100,000.00 No Funds trsf to ACCH2

11 e Terrell Group Management ACLLLC00003 Sr. Sec. 422,100.00 No Funds trsf to ACF-Ops

11 f Terrell Group Management ACLLLC00003 Sr. Sec. 550,000.00 No Funds trsf to ACF-Ops

11 g Terrell Group Management ACLLLC00003 Sr. Sec. 500,000.00 Yes Prior Investment in IOF

11 h Terrell Group Management ACLLLC00003 Sr. Sec. (150,000.00) Partial 19-Nov-15 N/A Funded from distribution from CSF

11 i Terrell Group Management ACLLLC00003 Sr. Sec. (1,527,100.00) Partial 31-Dec-15 N/A Funded from new IOFII investors & ACM disbursement/Ed+ interest pmt12 Weider Health & Fitness CPHLLC00001 Sr. Sec. 10,000,000.00

12 a Weider Health & Fitness CPHLLC00001 Sr. Sec. 6,000,000.00 No Prior Investment in CSFLI

12 b Weider Health & Fitness CPHLLC00001 Sr. Sec. 4,000,000.00 Yes Funds trsf to ACF-Ops13 Bruce Forman CPHLLC00002 Sr. Sec. 500,000.00 Yes Funds trsf to ACF-Ops

14 Perennial Specialty Income Fund, LP CPHLLC00003 Sub 1,000,000.00 Yes Injected into CPLLC

15 Thomas Vredevelt Jr CPHLLC00004 Sub 500,000.00 Yes Injected into CPLLC

16 Etheridge Group, LLC CPHLLC00005 Sub 500,000.00 Yes Injected into CPLLC

17 Integrity Capital Income Fund, Inc CPHLLC00006 Sub 1,000,000.00 Yes Injected into CPLLC

18 Ciuffitelli Revocable Trust MLFLLC00002 Sr. Sec. 1,000,000.00 Yes Funds trsf to ACF-Ops

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19 The Zanderic Trust MLFLLC00001 Sr. Sec. 2,000,000.00 Yes Funds trsf to MLFH and used to redeem IOFII Note and tsfr to ACF

20 BriLight Investments, LLC MLFLLC00003 Sr. Sec. 0.00

20 a BriLight Investments, LLC MLFLLC00003 Sr. Sec. 1,000,000.00 No Prior Investment in ACF-PN

20 b BriLight Investments, LLC MLFLLC00003 Sr. Sec. (1,000,000.00) Retired 2-Dec-15 N/A Funded from later MLFH investment21 RF MacDonald Co. MLFLLC00004 Sr. Sec. 1,000,000.00 Yes Funds trsf to ACF-Ops

22 MacDonald Family Trust DTD 12/5/2000 MLFLLC00005 Sr. Sec. 500,000.00 Yes Funds trsf to ACF-Ops

23 MacDonald Family Trust DTD 2/20/2009 MLFLLC00006 Sr. Sec. 500,000.00 Yes Funds trsf to MLFH and used to redeem IOFII Note and tsfr to ACF

24 Stephenson Ventures ACCFPHLLC00005 Sub 1,000,000.00 Yes Funds used to redeem IOFII Note, ultimately ending at ACF

25 Royal Fund, LP ACCFPHLLC00006 Sub 1,000,000.00 Yes Funds used to redeem IOFII Note, ultimately ending at ACF

26 Stephenson Ventures CPHLLC00007 Sub 1,000,000.00 Yes Injected into CPLLC

27 Royal Fund, LP CPHLLC00008 Sub 1,000,000.00 Yes Injected into CPLLC

28 Stephenson Ventures MLFHLLC00016 Sub 1,000,000.00 Yes Funds trsf to MLFH and used to redeem BriLight

29 Royal Fund, LP MLFHLLC00017 Sub 1,000,000.00 Yes Funds used to redeem IOFII Note, ultimately funding new ACCCPH note

30 Stephenson Ventures MLFLLC00007 Sr. Sec. 1,000,000.00 Yes Funds trsf to MLFH and used to redeem IOFII Note and tsfr to ACF

31 Royal Fund, LP MLFLLC00008 Sr. Sec. 1,000,000.00 Yes Funds used to redeem IOFII Note, ultimately ending at ACF

32 Stephenson Ventures CPHLLC00009 Sub 1,500,000.00 Yes Injected into CPLLC

33 Perennial Specialty Income Fund, LP MLFLLC00009 Sr. Sec. 1,000,000.00 Yes Funds used to redeem IOFII Note, ultimately funding new ACL or CPH note

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F.2. Direct Note details in order of origination

AP2PFLLC00003 - Integrity Capital Income Fund, Inc.:351

Funds were deposited on November 17, 2014 into AP2PF, but were swept out of the account, ultimately 

transferred to the ACF-PN account.

352 Integrity Capital received a partial early redemption (3 months 

prior to scheduled redemption) of $449 thousand on February 2, 2016.

353 Per former Aequitas staff 

recollections, this was due to AP2PF being under-collateralized, and therefore AH injected enough cash 

in order complete an $800 thousand redemption to outside entities and a $1.5 million redemption to IOF. 

The Aequitas Fund Operations department coordinated with Integrity Capital and IBAT to allocate the 

$800 thousand among three of its four notes. 

Additional details: 

• $500 thousand initial amount on November 17, 2014

• Subordinated, 18 months @ 14.5%

• Received partial redemption of $449 thousand at 15 months on February 2, 2016

- $51 thousand remaining

MLFHLLC00007 - Integrity Capital Income Fund, Inc.:354

As a bank account for MLFH was not operational until December 2014, funds were deposited into the

ACF-Op account on November 19, 2014.

355 The cash was immediately used to redeem two former AHF 

Investors (Langer Family Trust and R4Sons). Accounting then labeled the investment as an ACF due-to 

MLF, and it remained as such on the books for some time.

356 

Additional details: 

• $500 thousand initial amount on November 19, 2014

• Subordinated, 18 months @ 14.5%

AP2PFLLC00004 – IBAT, LLP:

357

Funds were deposited into AP2PF on December 5, 2014 and were sent to OnDeck to complete an asset 

purchase.

358 IBAT received a full early redemption (3 months prior to scheduled redemption) on 

February 2, 2016.

359 Per former Aequitas staff recollections, this was due to AP2PF being undercollateralized, and therefore AH injected enough cash in order complete an $800 thousand redemption to 

outside entities and a $1.5 million redemption to IOF. Aequitas Fund Operations department coordinated 

with Integrity Capital and IBAT to allocate the $800 thousand between three of their four notes.

Additional details: 

351 November 17, 2014, “AP2P - Subordinated Promissory Note $500K (Integrity Capital Income Fund) 11-17-14.pdf”. 352 Aequitas Peer-to-Peer Funding LLC November 2014 Full Analysis Checking. 353 Email from Schuler to Hulquist, February 1, 2016, “FW: ICIF bank details”. 354 November 19, 2014, “MLFH Subordinated Note - $500K (Integrity Capital) 11-19-14.pdf”. 355 Aequitas Commercial Finance LLC December 2014 Full Analysis Checking. 356 November 30, 2014, “Standard Journal Form – JE# 195749”. 357 December 5, 2014, “AP2P - Subordinated Promissory Note $200K (IBAT) 12-05-14.pdf”. 358 Aequitas Peer-to-Peer Funding LLC December 2014 Full Analysis Checking. 359 Email from Schuler to Hulquist, February 1, 2016, “FW: ICIF bank details”. 

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Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 98 of 174
• $200 thousand initial amount on December 5, 2014

• Subordinated, 18 months @ 14.5%

• Received full redemption at 15 months on February 2, 2016

MLFHLLC00008 – IBAT, LLP:

360

Funds were deposited into MLFH’s bank account on December 5, 2014.

361 From there, the cash was

transferred to ACF-Op for corporate use three days later. 

Additional details: 

• $200 thousand initial amount on December 5, 2014

• Subordinated, 18 months @ 14.5%

ACCH2LLC00009 - Finance 500 401K Plan FBO Robert L. Hicks:

362

Funds were deposited into ACCFT-2’s bank account on March 2, 2015, with the note being issued the 

following day (March 3, 2015).

363 From there, the funds were transferred into ACCH2, the obligor on the 

note. After reaching ACCH2, funds were transferred to ACF-Op, as an equity disbursement, for 

corporate use. The note was amended on May 1, 2015 to assign it to newly formed Aequitas entity 

ACCCPH through a non-cash equity investment in ACCH2 by ACCCPH of $505 thousand.

364 

Additional details: 

• $500 thousand initial amount on March 3, 2015

• Subordinated, 36 months @ 12.5%

ACCH2LLC00010 - Perennial Specialty Income Fund, LP:

365

Funds were deposited into ACCH2 on March 9, 2015; however, the note was issued as of March 6 (funds 

received 3 days after issuance).

366 The following day, the funds were distributed up to ACF-Op for 

corporate use. The note was amended on May 1, 2015 to assign it to newly formed Aequitas entity 

ACCCPH through a non-cash equity investment in ACCH2 by ACCCPH of $1.0 million.

367 

Additional details: 

• $1.0 million initial amount on March 6, 2015

• Subordinated, 36 months @ 12.5%

ACCH2LLC00011 - Perennial Specialty Income Fund, LP:

368

Funds were deposited into ACCH2 on March 17, 2015; however, the note was issued as of March 13 

(funds received 4 days after issuance).

369 Funds were transferred to ACF-PN, part of which went to a 

360 December 5, 2014, “MLFH Subordinated Note - $200K (IBAT) 12-05-14.pdf”. 361 ML Financial Holdings, LLC December 2014 Full Analysis Checking. 362 March 10, 2015, “ACCH2 - Subordinated Note $5000,000.00 (Finance 500) 03-03-15.pdf”. 363 ACC Funding Trust 2014-2 March 2015 Full Analysis Checking. 364 May 15, 2015, “Assignment and Assumption Agreement - F500 $500K Note-Robert Hicks (ACCH2 to ACCC+) 05-01-15.pdf”. 365 March 10, 2015, “ACCH2 - Subordinated Note $1,000,000.00 (Perennial Specialty Income Fund) 03-06-15.pdf”. 366 ACC Holdings 2, LLC March 2015 Full Analysis Checking. 367 May 20, 2015, “Assignment and Assumption Agreement - Perennial 3-6-15 $1M Note (ACCH2 to ACC C+) 05-01-15.pdf”. 368 March 17, 2015, “ACCH2 - Subordinated Note $1,000,000.00 (Perennial Specialty Income Fund) 03-13-15.pdf”. 369 ACC Holdings 2, LLC March 2015 Full Analysis Checking. 

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Private Note Millennium Trust redemption. The note was amended on May 1, 2015 to assign it to newly 

formed ACCCPH through a non-cash equity investment in ACCH2 by ACCCPH of $1.0 million.

370 

Additional details: 

• $1.0 million initial amount on March 13, 2015

• Subordinated, 36 months @ 12.5%

AP2PFLLC00009 - Integrity Capital Income Fund, Inc.:

371

Funds were deposited into AP2PF on April 16, 2015.

372 Cash was later combined with incoming funds 

from IBAT (AP2PFLLC00010) and transferred to ACF-Op on April 20 for corporate use. This note was 

the only outside AP2PF note that did not receive at least a partial redemption, per the February 2, 2016 

allocation by IBAT and Integrity Capital.

Additional details: 

• $75 thousand initial amount on April 16, 2015

• Subordinated, 18 months @ 14.5%

AP2PFLLC00010 – IBAT, LLP:

373

Funds were deposited into AP2PF on April 16, 2015.

374 Cash was later combined with incoming funds 

from Integrity Capital (AP2PFLLC00009) and transferred to ACF-Op on April 20 for corporate use. 

IBAT received a partial early redemption (3 months prior to scheduled redemption) of $152 thousand on 

February 2, 2016.

375 Per recollections, this was due to AP2PF being under-collateralized; therefore, AH 

injected enough cash in order to complete a $800 thousand redemption to outside entities and a $1.5

million redemption to IOF. Fund Operations department coordinated with Integrity Capital and IBAT to 

allocate the $800 thousand between three of their four notes.

Additional details: 

• $250 thousand initial amount on April 16, 2014

• Subordinated, 18 months @ 14.5%

• Received partial redemption of $152 thousand at 15 months on February 2, 2016

- $98 thousand remaining

ACLLLC00002 - William (Bill) Ruh:

376

For full details, see E.1.4. Initial $500 thousand investment was made into an insider-only Private Note 

“friends and family” short-term investment with a 15% interest rate (10% higher than offered to outside 

Investors). On May 13, 2015, Ruh’s investment and accrued interest of $37 thousand was converted to 

ACL through a series of non-cash journal entries. Another $750 thousand investment was made via wire 

370 March 20, 2015, “Assignment and Assumption Agreement - Perennial 3-13-15 $1M Note (ACCH2 to ACC C+) 05-01-15.pdf”. 371 July 22, 2016, “AP2P - Subordinated Promissory Note $75K (Integrity Capital Income Fund) 04-16-15.pdf”. 372 Aequitas Peer-to-Peer Funding LLC April 2015 Full Analysis Checking. 373 July 22, 2016, “AP2P - Subordinated Promissory Note $250K (IBAT) 04-16-15.pdf”. 374 Aequitas Peer-to-Peer Funding LLC April 2015 Full Analysis Checking. 375 Email from Schuler to Hulquist, February 1, 2016, “FW: ICIF bank details”. 376 May 19, 2015, “ACL - Senior Secured Note $1,286,986.28 (Ruh) 05-13-15.pdf”. 

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to COF on May 13, 2015 and was combined with other COF funds to complete a $2.6 million investment 

in nD Bancgroup (see “Ruh ACL Note Issuance” chart in E.1.4). Liability to repay this debt was then 

converted to ACL through a series of non-cash journal entries. 

Ruh received a full repayment on August 4, 2015, three days after his scheduled redemption date.

377 The 

payment included his final monthly interest payment plus 4 days of additional 5% interest.

378 As ACL

did not have the funds for the redemption, ACL received funds through a series of intercompany transfers 

originating from EIF and CPLLC (see “Ruh Redemption and Source of Funds” chart in E.1.4). 

Additional details: 

• $1.3 million note total

- $537 thousand initial investment in Private Note

- $750 thousand additional amount to COF

• Senior secured, 3 months @ 15% + a 5% rate increase for late payment

• Received full redemption at 3 months on August 4, 2015

ACLLLC00003 - Terrell Group Management:

379 380

For full details, see summary in E.1.5. Through a series of two Aequitas Fund and SPE investment 

conversions ($5.9 million and $500 thousand from DCEF and IOF, respectively) and five new 

investments ($2.9 million), the TGM note totaled $9.3 million by June 24, 2015. Out of the $9.3 million, 

only $500 thousand would be deposited into ACL’s bank account, with the remainder sent to other 

Aequitas entities, and the liability for the note converted to ACL as reductions in its parent’s (AH) equity.

TGM received two partial redemptions on November 19, 2015 and December 31, 2015, totaling $1.7 

million, plus monthly interest. 

Additional details: 

• $9.3 million note total

- $5.9 million initial investment in DCEF381

- $500 thousand initial investment in IOF382

- $1.1 million additional amount to AH383

- $1.9 million additional amount to ACF384

• Senior secured, 13 months @ 13%

377 Aequitas Corporate Lending, LLC August 2015 Full Analysis Checking. 378 Email from Ruh to Abushaaban and Oliver, August 4, 2015, “Wiring Info”. 379 June 17, 2015, “ACL - Senior Secured Note $7,773,000 (Terrell Group) 05-20-15.pdf” as amended on May 27, 2015, June 11, 2015 and June 23, 2015. 380 December 2, 2015, “(1) Business Loan Agreement (Terrell Group-ACL) 11-20-15.pdf”; December 8, 2015, “Terrell Group $9M Loan Facility - Contract 

Summary.docx”. 381 September 9, 2015, “Assignment and Assumption Agreement - Terrell Group Note (DCEF-ACF-AH-ACL) 05-20-15 v1_0.pdf”; June 25, 2015, “JE 224918 - 

05.pdf”. 382 Email from Terrell to Oliver, June 19, 2015, “Doug Antone” and Aequitas Income Opprtunty (sic) Fund, LLC June 2015 Full Analysis Checking. 383 Great Plains Journal Entries: 225456, 229391 and 226948. 384 June 10, 2015, “Bank Transaction Posting Journal IAJ000017625” and “Bank Transaction Posting Journal IAJ000017626”. 

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• Received two partial redemptions on November 16, 2015385 ($150 thousand)386 and December 31, 

2015387 ($1.5 million)

- $7.7 million remaining

CPHLLC00001 - Weider Health & Fitness:

388

For full details, see summary in E.1.2. Through a series of four Aequitas Fund and SPE investment 

conversion ($6.0 million involving ACF, CPF and ASFGLI) and a new investment into CPH ($4.0 

million), the Weider note totaled $10.0 million as of June 29, 2015. 

Additional details: 

• $10.0 million note total

- $2.0 million initial investment in ACF

- $2.0 million initial investment in CPF

- $2.0 million initial investment in ASFGLI (also known as CSFLI)

- $4.0 million additional amount to CPH

• Senior secured, 18 months @ 17%

CPHLLC00002 - Bruce Forman:

389

For full details, see summary in E.1.2. Funds were deposited into CPH on June 29, 2015 under the 

Weider note. 

Additional details: 

• $500 thousand initial amount on June 29, 2015

• Senior secured, 18 months @ 17%

CPHLLC00003 - Perennial Specialty Income Fund, LP:

390

Funds were deposited into CPH on September 25, 2015; however, the note was issued as of September 18 

(funds received 7 days after issuance).

391 The standard note was revised to include a special ACF 

guarantee.

392 The funds were then transferred to CPLLC for further originations. 

Additional details: 

• $1.0 million initial amount on September 25, 2015

• Subordinated, 30 months @ 12%

385 Aequitas Corporate Lending, LLC November 2015 Full Analysis Checking. 386 Email from How to Miller, November 18, 2015, “November Payment”. 387 Aequitas Corporate Lending, LLC December 2015 Full Analysis Checking. 388 November 7, 2014, “Business Loan Agmt (CarePayment Holdings-Weider Health) 10-03-14.pdf” as amended on May 15, 2015; June 29, 2015, “A&R Business 

Loan Agreement - $10M (CarePayment Holdings-Weider Health) 06-29-15.pdf”; March 4, 2015, “Note $6MM (CarePayment Holdings-Weider Health) 10-03-

14.pdf”; June 29, 2015, “A&R Promissory Note - $10M (CarePayment Holdings-Weider Health) 06-29-15.pdf”. 389 June 30, 2015, “A&R Promissory Note - $10M (CarePayment Holdings-Weider Health) 06-29-15.pdf”; June 30, 2015, “Promissory Note $500K (CarePayment 

Holdings-Forman) 06-29-15.pdf”. 390 September 28, 2015, “CPH Subordinated Note - ACF Guaranty $1,000,000 (Perennial Specialty Income Fund) 09-18-15.pdf”. 391 CarePayment, LLC September 2015 Full Analysis Checking. 392 ACF guarantees were not included in prior notes issued to other individuals, but were added during the note negotiations that commenced in September 2015.

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CPHLLC00004 - Thomas Vredevelt Jr.:393

Funds were deposited into CPH on September 18, 2015.

394 Lender also received a special guarantee by 

ACF. The funds were then combined with incoming funds from CPHLLC00005 & CPHLLC00006 and 

transferred to CPLLC for further originations. 

Additional details: 

• $500 thousand initial amount on September 18, 2015

• Subordinated, 30 months @ 12%

CPHLLC00005 - Etheridge Group, LLC:

395

Funds were deposited into CPH on September 18, 2015.

396 Lender also received a special guarantee by 

ACF. The funds were then combined with incoming funds from CPHLLC00004 & CPHLLC00006 and 

injected into CPLLC for further originations. 

Additional details: 

• $500 thousand initial amount on September 18, 2015

• Subordinated, 30 months @ 12%

CPHLLC00006 - Integrity Capital Income Fund, Inc.:397

Funds were deposited into CPH on September 18, 2015.

398 Lender also received a special guarantee by 

ACF. The funds were then combined with incoming funds from CPHLLC00004 & CPHLLC00005 and 

injected into CPLLC for further originations. 

Additional details: 

• $1.0 million initial amount on September 18, 2015

• Subordinated, 30 months @ 12%

MLFLLC00002 - Ciuffitelli Revocable Trust:

399

Funds were deposited into MLF on September 24, 2015.

400 The following day, the funds were transferred 

to ACF-Op through a series of intercompany transfers. 

On September 22, Oliver reached out to Aaron Douglas (“Doug”) Maurer,401 informing him that there 

were “timing challenges and opportunities at the upcoming 9/30/15 quarter end” and that Aequitas was 

seeking short-term bridge financing. He offered 13% interest on a 40-70-day note, with 1st lien 

position.

402 

393 October 6, 2015, “CPH Subordinated Note - ACF Guaranty $500,000 (Thomas Vredevelt Trust) 09-18-15.pdf”. 394 CarePayment, LLC September 2015 Full Analysis Checking. 395 September 28, 2015, “CPH Subordinated Note - ACF Guaranty $500,000 (Etheridge Group) 09-18-15.pdf”. 396 CarePayment, LLC September 2015 Full Analysis Checking. 397 September 28, 2015, “CPH Subordinated Note - ACF Guaranty $1,000,000 (Integrity Capital Income Fund) 09-18-15.pdf”. 398 CarePayment, LLC September 2015 Full Analysis Checking. 399 October 7, 2015, “MLF Senior Secured Note - ACF Guaranty $1,000,000 (Ciuffitelli Trust) 09-24-15.pdf” as amended on December 2, 2015. 400 MotoLease Financial, LLC September 2015 Full Analysis Checking. 401 Maurer owned membership interest in PAG, an RIA under the AWM platform. Maurer also held a consulting agreement with PAG. 402 Email from Oliver to Maurer, September 23, 2015, “Opportunity Summary”.

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This was a new entity issuance, as all prior notes under the MotoLease structure had been originated out 

of MLFH, parent of MLF. Structurally, all newly issued MLF notes became senior to previously issued 

MLFH notes. Additionally, the lender received a special guarantee by ACF. 

The note was marketed to be short term, with a maturity date of December 2, 2015 (69-day term). On 

November 9, Maurer emailed Oliver that, following their discussion, Lawrence Ciuffitelli had agreed to 

extend his note to June 30, 2016.

403

Additional details: 

• $1.0 million initial amount on September 24, 2015

• Senior secured, 69-day note, amended to 9 months @ 13%

MLFLLC00001 – The Zanderic Trust:

404

Under the same Maurer special offer issuance as MLFLLC00002, Zanderic deposited $2.0 million to

MLF on September 30, 2015.

405 On October 2, the funds were combined with MLFLLC00006 and 

distributed to MLFH and then sent to IOFII to redeem a Manufactured Note, MLFHLLC00014.

406 Funds 

were then transferred from IOFII to ACF-Op for corporate use. The redemption by IOFII of the internal 

note was highly contested by the fund manager at the time. 

The note was marketed to be short term, with a maturity date of December 2, 2015 (63-day term). On 

November 9, Maurer emailed Oliver that, following their discussion, they had agreed to extend their note 

until March 31, 2016.

407 

Additional details: 

• $2.0 million initial amount on September 30, 2015

• Senior secured, 63-day note, amended to 6 months @ 13%

MLFLLC00003 - BriLight Investments, LLC:

408

Under the same Maurer special offer issuance, BriLight agreed to convert its Private Note into MLF

rather than redeem, as a part of Oliver’s request to Maurer, to keep additional funds available in the 

September 30, 2015 quarter end. On October 1, 2015, Accounting completed a series of non-cash journal 

entries to convert the liability to MLF.

409 

On December 2, 2015 the BriLight note came due. Oliver worked unsuccessfully with Maurer to attempt 

to get another investor to replace BriLight (Sims); however, ultimately the note became due for

redemption. Funds from later note MLFHLLC00016, contributed by Stephenson Ventures, were 

contributed down to MLF to redeem BriLight.

410

Additional details: 

403 Email from Maurer to Oliver, November 9, 2015, “RE: Checking in”. 404 September 30, 2015, “MLF Senior Secured Note - ACF Guaranty $2,000,000 (Zanderic Trust) 09-30-15.pdf” as amended on December 30, 2015. 405 MotoLease Financial, LLC September 2015 Full Analysis Checking. 406 Email from Abushaaban to Gillis, October 2, 2015, “Please Approve Intercompany Money Transfer”. 407 Email from Maurer to Oliver, November 9, 2015, “RE: Checking in”. 408 November 24, 2015, “MLF Senior Secured Note - ACF Guaranty $1,000,000 (BriLight Investments) 09-30-15.pdf”. 409 Great Plains Journal Entries: 256864 and 255778. 410 MotoLease Financial, LLC December 2015 Full Analysis Checking. 

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Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 104 of 174
• $1.0 million initial investment in Private Note

• Senior secured, 62-day note @ 13%

• Received full redemption on December 2, 2015

MLFLLC00004 - RF MacDonald Co.:

411

Under the same Maurer special offer issuance as MLFLLC00002, RF MacDonald deposited $1.0 million

into MLF on September 29, 2015, although the note was issued as of September 30, 2015.

412 Through a 

series of transfers the funds were combined with MLFLLC00005 and ultimately distributed up to ACFOp for corporate use. 

The note was marketed to be short term, with a maturity date of December 2, 2015 (64-day term). On 

November 13, Maurer emailed Oliver that, following their discussion, the MacDonald Family had agreed 

to extend their note until June 30, 2016.

413 

Additional details: 

• $1.0 million initial amount on September 29, 2015

• Senior secured, 64-day note, amended to 9 months @ 13%

MLFLLC00005 - MacDonald Family Trust DTD 12/5/2000:

414

Under the same Maurer special offer issuance as MLFLLC00002, MacDonald Family deposited an 

additional $500 thousand into MLF on September 29, 2015, although the note was issued as of September 

30, 2015.

415 Through a series of transfers, the funds were combined with MLFLLC00004 and ultimately 

distributed up to ACF-Op, for corporate use. 

The note was marketed to be short term, with an expiration date of December 2, 2015 (64-day term). On 

November 13, Maurer emailed Oliver that, following their discussion, the MacDonald Family had agreed 

to extend their note until June 30, 2016.

416 

Additional details: 

• $500 thousand initial amount on September 29, 2015

• Senior secured, 64-day note, amended to 9 months @ 13%

MLFLLC00006 — MacDonald Family Trust DTD 2/20/2009:

417

Under the same Maurer special offer issuance as MLFLLC00002, MacDonald Family deposited an 

additional $500 thousand into MLF on October 2, 2015.

418 That same day, the funds were combined with 

MLFLLC00001 and distributed to MLFH, to be sent to IOFII to redeem internal note 

411 September 28, 2015, “MLF Senior Secured Note - ACF Guaranty $1,000,000 (R.F. MacDonald Co.) 09-30-15.pdf” as amended on December 2, 2015. 412 MotoLease Financial, LLC September 2015 Full Analysis Checking. 413 Email from Maurer to Oliver, November 13, 2015, “RE: Checking in”. 414 September 28, 2015, “MLF Senior Secured Note - ACF Guaranty $500,000 (James MacDonald Trust) 09-30-15.pdf” as amended on December 2, 2015. 415 MotoLease Financial, LLC September 2015 Full Analysis Checking. 416 Email from Maurer to Oliver, November 13, 2015, “RE: Checking in”. 417 October 5, 2015, “MLF Senior Secured Note - ACF Guaranty $500,000 (Mike MacDonald Trust) 10-02-15.pdf” as amended on December 2, 2015. 418 MotoLease Financial, LLC October 2015 Full Analysis Checking. 

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MLFHLLC00014.

419 Funds were then transferred from IOFII to ACF-Op for corporate use. The IOFII 

redemption was highly contested by the fund manager at the time.

The note was marketed to be short term, with an expiration date of December 2, 2015 (61-day term). On 

November 13, Maurer emailed to notify Oliver that, following their discussion, the MacDonald Family 

had agreed to extend their note until June 30, 2016.

420 

Additional details: 

• $500 thousand initial amount on September 29, 2015

• Senior secured, 61-day note, amended to 9 months @ 13%

ACCFPHLLC00005 - Stephenson Ventures:

421

A single check was deposited into ACCFPH on October 16, 2015 for both ACCFPHLLC00005 and 

ACCFPHLLC00006, although the note was issued as of October 15.

422 Due to growing concerns over 

appropriate use of funds, the funds remained in the account until November 9, when Gillis approved a 

series of pay downs to IOFII. Stephenson funds were combined with funds from ACCFPHLLC00006 

and sent to IOFII. From there, IOFII combined it with funds from MLFLLC00007 & MLFLLC00008 

and transferred $4.0 million to CSF in exchange for a new CSF note (CSFLLC00014). CSF then 

distributed the funds to ACF-Op for corporate use.

423 

Additional details: 

• $1.0 million initial amount on October 15, 2015

• Subordinated, 12 months @ 12%

ACCFPHLLC00006 – Royal Fund, LP:

424

A single check was deposited into ACCFPH on October 16, 2015 for both ACCFPHLLC00005 and 

ACCFPHLLC00006, although the note was issued as of October 15.

425 Due to growing concerns over 

appropriate use of funds, the funds remained in the account until November 9, when Gillis approved a 

series of pay-downs to IOFII. Royal funds were combined with funds from ACCFPHLLC00005 and sent 

to IOFII. From there, IOFII then combined it with funds from MLFLLC00007 & MLFLLC00008 and 

transferred $4.0 million to CSF in exchange for a new CSF note (CSFLLC00014). CSF then distributed 

the funds to ACF-Op for corporate use.

426 

Additional details: 

• $1.0 million initial amount on October 15, 2015

• Subordinated, 12 months @ 12%

419 Email from Abushaaban to Gillis, October 2, 2015, “Please Approve Intercompany Money Transfer”. 420 Email from Maurer to Oliver, November 13, 2015, “RE: Checking in”. 421 November 10, 2015, “ACCFPH Subordinated Promissory Note - $1,000,000 (Stephenson Ventures) 10-15-15.pdf”. 422 ACC F Plus Holding, LLC October 2015 Full Analysis Checking. 423 Email from Bowman to Gillis, Jesenik, et. al, November 9, 2015, “Note Transactions and Cash Movements Today”; ACC F Plus Holding, LLC November 2015 

Full Analysis Checking. 424 November 10, 2015, “ACCFPH Subordinated Promissory Note - $1,000,000 (Royal Fund LP) 10-15-15.pdf”. 425 ACC F Plus Holding, LLC October 2015 Full Analysis Checking. 426 Email from Bowman to Gillis, Jesenik, et. al, November 9, 2015, “Note Transactions and Cash Movements Today”; ACC F Plus Holding, LLC November 2015 

Full Analysis Checking. 

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CPHLLC00007 - Stephenson Ventures:

427

Funds were deposited into CPH on October 16, 2015, although the note was issued as of October 15. The 

funds were then injected into CPLLC for further originations. 

Additional details: 

• $1.0 million initial amount on October 15, 2015

• Subordinated, 36 months @ 8.5%

CPHLLC00008 - Royal Fund, LP:

428

Funds were deposited into CPH on October 16, 2015, although the note was issued as of October 15. The 

funds were then injected into CPLLC for further originations. 

Additional details: 

• $1.0 million initial amount on October 15, 2015

• Subordinated, 36 months @ 8.5%

MLFHLLC00016 - Stephenson Ventures: 

Funds were deposited into MLFH on October 16, 2015, although the note was issued as of October 15. 

Due to growing concerns over appropriate use of funds, the funds remained in the account until note 

MLFLLC00003 was redeemed to BriLight on December 2, 2015. At that time, funds were transferred 

from MLFH to MLF and then paid to BriLight. 

Additional details: 

• $1.0 million initial amount on October 15, 2015

• Subordinated, 12 months @ 14%

MLFHLLC00017 — Royal Fund, LP: 

Funds were deposited into MLFH on October 16, 2015, although the note was issued as of October 15. 

Due to growing concerns over appropriate use of funds, the funds remained in the account until December 

14, 2015, when the funds were sent to IOFII to partially retire insider note MLFHLLC00003. Funds were 

then sent from IOFII to ACCCPH, to issue note ACCCPHLLC00006 for further FFN asset purchases. 

Additional details: 

• $1.0 million initial amount on October 15, 2015

• Subordinated, 12 months @ 14%

MLFLLC00007 - Stephenson Ventures:

429

A single check was deposited into MLF on October 16, 2015 for both MLFLLC00007 and 

MLFLLC00008, although the note was issued as of October 15.

430 Due to growing concerns over 

appropriate use of funds, the funds remained in the account until November 9 when Gillis approved a 

427 January 14, 2016, “CPH Subordinated Note - $1,000,000 (Stephenson Ventures) 10-15-15.pdf”. 428 January 14, 2016, “CPH Subordinated Note - $1,000,000 (Royal Fund LP) 10-15-15.pdf”. 429 November 10, 2015, “MLF Senior Secured Promissory Note - ACF Guaranty - $1,000,000 (Stephenson Ventures) 10-15-15.pdf”. 430 MotoLease Financial, LLC October 2015 Full Analysis Checking. 

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series of pay-downs to IOFII. Stephenson funds were combined with funds from MLFLLC00008 and 

distributed up to MLFH. After receipt, MLFH sent the funds to IOFII. From there, IOFII then combined 

it with funds from ACCFPHLLC00005 & ACCFPHLLC00006 and transferred $4.0 million to CSF in 

exchange for a new CSF note (CSFLLC00014). CSF then distributed the funds to ACF-Op for corporate 

use.

431 

Additional details: 

• $1.0 million initial amount on October 15, 2015

• Senior secured, 12 months @ 9.25%

MLFLLC00008 - Royal Fund, LP:

432

A single check was deposited into MLF on October 16, 2015 for both MLFLLC00007 and 

MLFLLC00008, although the note was issued as of October 15.

433 Due to growing concerns over 

appropriate use of funds, the funds remained in the account until November 9, when Gillis approved a 

series of pay-downs to IOFII. Royal funds were combined with funds from MLFLLC00007 and 

distributed up to MLFH. After receipt, MLFH sent the funds to IOFII. From there, IOFII then combined 

it with funds from ACCFPHLLC00005 & ACCFPHLLC00006 and transferred $4.0 million to CSF in 

exchange for a new CSF note (CSFLLC00014). CSF then distributed the funds to ACF-Op for corporate 

use.

434 

Additional details: 

• $1.0 million initial amount on October 15, 2015

• Senior secured, 12 months @ 9.25%

CPHLLC00009 - Stephenson Ventures:

435

Funds were deposited into CPH on December 1, 2015, although the note was issued as of November 30. 

The funds were then injected into CPLLC for further originations. 

Additional details: 

• $1.5 million initial amount on November 30, 2015

• Subordinated, 12 months @ 7.5%

MLFLLC00009 - Perennial Specialty Income Fund, LP:

436

Funds were deposited into MLF on December 30, 2015. The following day, the funds were distributed to 

MLFH and transferred to IOFII and used to retire internal note MLFHLLC00012. The funds were then 

comingled with a variety of funds from other internal sources and used to issue either a $1.3 million

ACLLLC00009 note or a $300 thousand CPHLLC00014 note.

431 Email from Bowman to Gillis, Jesenik et. al, November 9, 2015, “Note Transactions and Cash Movements Today”; ML Financial Holdings, LLC November 2015 

Full Analysis Checking. 432 November 10, 2015, “MLF Senior Secured Promissory Note - ACF Guaranty - $1,000,000 (Royal Fund LP) 10-15-15.pdf”. 433 MotoLease Financial, LLC October 2015 Full Analysis Checking. 434 Email from Bowman to Gillis, Jesenik, et. al, November 9, 2015, “Note Transactions and Cash Movements Today”; ML Financial Holdings, LLC November 2015 

Full Analysis Checking. 435 December 1, 2015, “CPH Subordinated Note - ACF Guaranty $1,500,000 (Stephenson Ventures) 11-30-15.pdf”. 436 January 5, 2016, “MLF Senior Secured Note - ACF Guaranty $1,000,000 (Perennial Specialty Income Fund) 12-30-15.pdf”. 

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Additional details: 

• $1.0 million initial amount on December 30, 2015

• Senior secured, 6 months @ 13%

F.3. Income Opportunity Fund

Fund summary: 

Established in 2009, IOF was marketed to investors as a fixed interest Aequitas Fund (primarily 9% plus 

Enhanced Yield) to be paid quarterly in arrears. 

In 2012, the PPM was updated on page 3 to describe the following investments to be the core investment 

strategy of IOF:

437 

The Fund intends to follow a value investing approach by acquiring or investing in receivables or 

loans with an intrinsic worth that is undervalued by the market. The Fund intends to achieve its 

investment objective by: 

1. Purchasing or participating in financing the purchase of portfolios of non-recourse 

educational receivables. 

2. Purchasing or participating in financing the purchase of portfolios of recourse and nonrecourse motorcycle and other power sports equipment lease receivables (such as the 

MotoLease program). 

3. Purchasing or participating in financing the purchase of portfolios of non-recourse 

healthcare receivables. 

4. Originating, purchasing or participating in financing other commercial and consumer credit 

strategies. 

Proceeds from the Senior Notes may also be used to pay redemptions of previously issued Senior 

Notes and to provide for the Fund's working capital needs. In addition, cash assets of the Fund 

which are not immediately invested may be loaned on a short-term basis to an affiliate of the 

Fund at prevailing intercompany rates.

As seen above, the main objective of IOF was to invest in portfolios related to CSF, MLF & CPH (and 

CPH subsidiaries). However, the PPM also allowed investments in “Other Investments” as described on 

page 10: 

Other Investments: As part of its portfolio investments, the Fund may also hold secured debt 

positions, but the Fund does not anticipate that these investments will constitute a significant part 

of it overall assets.

Furthermore, the PPM allowed for a “short-term” loans to affiliates of the fund, primarily ACF, through a 

subordinated promissory note.

438 The original PPM of the IOF fund did not include allowance for these 

short-term loans, but the PPM was edited after a 2010 Code of Conduct internal investigation439 into 

437 December 31, 2012, “Confidential Private Place Memorandum, Aequitas Income Opportunity Fund, LLC”. 438 November 1, 2010, “(1) Note-Secured Subordinated $12MM (ACF-IOF) 11-01-10 v1_0” as amended on January 1, 2012, November 1, 2012, January 1, 2013, and 

January 1, 2015. 439 In 2010, a former Corporate Controller brought allegations against ACM, concerning improper cash management procedures surrounding the use of cash received 

from Investors in IOF. The main concern was the loan to ACF and how it was presented to the Investors. 

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allegations against Aequitas by a former Corporate Controller.

440 Per the findings of the 2010

investigation, the PPM did not include proper disclosures informing the Investors that these short-term 

loans were allowable. While the short-term loan balance fluctuated up and down each month, there were 

at least three occasions between 2014 and 2015 when the short-term loan to ACF equaled between 8% 

and 9% of IOF’s overall asset base. 

2014 investment summary:

In the beginning of 2014, IOF had $33.6 million of outstanding senior notes to 179 Investors. IOF had 

five primary investments that made up the bulk of its assets. These were composed of secured note 

receivables from ACF (backed by ACF’s equity in various portfolio entities, direct notes to CPYT and

MSP, and short-term loans to ACF). In January 2014, IOF held the following:

1. $11.8 million note receivable from ACF, backed by equity in MLF441 (“IOF–ACF(MLF) Note”)

2. $8.8 million note receivable from ACF, backed by equity in non-recourse student loans (“IOF–

ACF(SL) Note”)

3. $11.4 million participation interest in the ACF-CPYT Note

4. $1.8 million note receivable from MSP

5. $3.5 million short-term loan to ACF 

Throughout 2014, the investment strategy remained consistent; however, there were changes to the asset 

mix as Investors were redeemed, transferred or converted, or note balances increased or decreased. In 

2014, there were $628 thousand of new additions or investment combinations, $1.3 million of 

transfers/conversions out of IOF to Private Note, and $3.5 million worth of cash redemptions out of IOF 

(resulting in a $4.1 million liability reduction). Through various cash and equity transfers, the short-term

loan to ACF was paid off and the asset base at the end of 2014 became:

1. $8.3 million IOF–ACF(MLF) Note

2. $6.8 million IOF–ACF(SL) Note

3. $16.0 million participation interest in the ACF-CPYT Note

4. $2.1 million note receivable from MSP

5. ~$0 short-term loan to ACF 

January - May 2015 investment summary:

At the beginning of 2015, there were no large changes to the investment strategy for IOF. However, in 

March, Aequitas decided to convert the MSP note receivable into equity in MSP. To compensate IOF, 

ACF replaced the $2.1 million MSP note with an increase in IOF’s investment in the IOF–ACF(MLF) 

Note.

440 April 21, 2010, “Code of Conduct Investigation Report (IOF-ACF) 04-21-10 v1_0.pdf”. As this falls outside of the Investigation period, research has not been 

completed at this time. 

441 May 12, 2015, “Business Loan Agmt - MotoLease Receivables (ACF-IOF) 12-31-2012 v1_0.pdf”; May 12, 2015, “Commercial Security Agmt - MotoLease 

Receivables (ACF-IOF) 12-31-2012 v1_0.pdf”. 

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In May, a large change to the investment makeup occurred, corresponding to the ACL restructure and 

TGM/Ruh participation.

442 Effective May 1, ACF announced its intent to repurchase all IOF participation 

interest in the ACF-CPYT Note, totaling $18.1 million ($17.9 million of principal, and $160 thousand of 

accrued and unpaid interest). Rather than giving IOF cash in exchange for the note, ACF increased the

outstanding principal balance of its short-term promissory note.

443 Later, to reduce the short-term 

promissory note balance, ACF increased its IOF–ACF(MLF) Note by $17.4 million through a non-cash 

advance. 

40 Act impact and June 2015 IOF asset conversion: 

As discussed earlier in this Report, ACF was required to obtain an opinion letter regarding its compliance

with the 40 Act.

444 In an attempt to avoid registration requirements (which would have had detrimental 

impacts on Aequitas’ investment strategies, including loans/transfers to affiliates), ACF had to prove via 

calculation that it contained an appropriate level of deemed Good Assets versus Bad Assets. ACF was 

determined to hold several Bad Assets that needed to be moved outside of ACF (through AH, IOF and 

other investment vehicles). Moreover, ACF needed to acquire interest in additional Good Assets, some of 

which were identified as being owned by other AH subsidiaries and Aequitas Funds. 

These Good Assets included interests in consumer receivables such as student loans, motorcycle loans 

and other consumer debt. As $31.8 million of student and motorcycle loans were held in IOF, it was 

determined by management (in conjunction with many other transfers/conversions) that these assets 

would be contributed back to ACF in exchange for notes which were Bad Assets.

445 In mid-July 2015, 

management approved a plan to remove IOF from under ACF, and to replace all the $31.8 million of 

IOF–ACF(MLF) and IOF–ACF(SL) Notes with the following, then back-dated the agreements to have 

them effective on June 30, 2015:

446 

1. ACF sale of membership interest in IOF to AH447

a. $2.3 million

b. Consideration through a non-cash increase on the ACF-AH Note

2. Assignment of ACL due to ACF receivable from ACF to IOF 

a. $15.7 million 

b. Consideration through a non-cash decrease in the amount owed by ACF to IOF under the 

IOF–ACF(MLF) Note and/or IOF–ACF(SL) Note 

3. Issuance of ACM promissory note to IOF

a. $7.1 million

b. Consideration through: 

442 October 25, 2015, “ACF JE Checklist - May.xlsx” tab JE M – 5; August 25, 2015, “Contribution Agreement - CPYT Loan (ACF to ACL) 05-01-15 v1_0.pdf”. 443 August 31, 2015, “JE 224521 - 05.pdf “; August 25, 2015, “Notice and Agreement Regarding Repurchase of Participation Interest (IOF-ACF) 05-01-15 v1_0.pdf”. 444 Aequitas asserted they were exempt under Section 3(c)5. 445 November 4, 2015, “Paydowns - IOF NR JE (from Significant Transaction Memo).pdf”. 446 October 9, 2015 “Asset Reallocation Agreement - IOF (IOF-ACF-AH-ACM-P2P-CPH-ACL) 06-30-15 v1_0.pdf”; November 4, 2015, “Paydowns - IOF NR JE 

(from Significant Transaction Memo).pdf”. 447 October 9, 2015, “Sale of IOF Membership Agreement - IOF (ACF to AH) 06-30-15 v1_0”; November 5, 2015, “ACF Sale of IOF to AH Transactions.pdf”, JE# 

230407, JE# 230409 and JE# 230413.

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i. Non-cash decrease in the amount owed by ACF to IOF under the IOF–

ACF(MLF) Note and/or IOF–ACF(SL) Note

ii. Non-cash decrease in the ACF-AH Note

iii. Non-cash decrease in the ACM due to AH line of credit

4. Issuance of a ACCCPH subordinated promissory note to IOF

a. $3.6 million 

b. Consideration through: 

i. Non-cash decrease in the amount owed by ACF to IOF under the IOF–

ACF(MLF) Note and/or IOF–ACF(SL) Note

ii. Non-cash decrease in the ACF-AH Note

iii. AH reduction in value of ACCCPH equity

5. Issuance of two AP2PF promissory notes to IOF

a. $750 thousand senior secured promissory note

b. $750 thousand subordinated promissory note

c. Consideration through: 

i. Non-cash decrease in the amount owed by ACF to IOF under the IOF–

ACF(MLF) Note and/or IOF–ACF(SL) Note

ii. ACF reduction in value of AP2PF equity

6. Assignment of MSP loan from ACF to IOF

a. $675 thousand

b. Consideration through: 

i. Non-cash decrease in the amount owed by ACF to IOF under the IOF–

ACF(MLF) Note and/or IOF–ACF(SL) Note

7. Assignment of QuarterSpot investment from ACF to IOF

a. $2.3 million, less reserve of ($171 thousand) plus cash of $339 thousand

b. Consideration through: 

i. Non-cash decrease in the amount owed by ACF to IOF under the IOF–

ACF(MLF) Note and/or IOF–ACF(SL) Note

In addition to the above, IOF distributed its net income for 2014 and the stub period of 2015 to ACF, and 

used that to offset a small intercompany balance for payments paid out of ACF on IOF’s behalf. To 

facilitate the new notes above, $28.7 million of notes in IOFII, EIF, ACF and AH had to be retired, as the 

SPEs’ debts would exceed their assets if each held its prior notes as well as the new issuances to IOF. 

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Aequitas management and an analyst created a series of memos which were used to rationalize and seek 

approval for these changes. These were originally presented to the IC on June 29, 2015,

448 were slightly 

revised to lower the expected interest rate of the newly-proposed assets (payable to IOF), and were

approved on July 14, 2015.

449 Essentially identical reports were then presented to the CRC on June 30, 

2015.

450 In the updated memo, the expected interest rate was calculated to be 11.7%, which was 

significantly less than the existing interest rate of 16% on the IOF–ACF(MLF) / IOF–ACF(SL) Notes. 

However, it was presented as beneficial to IOF Investors because of the increased diversification the new 

notes would allow. Neither memo mentioned that the underlying cause for the conversions is to help 

ACF comply with the 40 Act requirements. It was not until the meeting minutes with the CRC that Gillis 

disclosed that the underlying reason for the conversion is for 40 Act compliance.

451 Furthermore, in an 

email response from the lead analyst, it was suggested that they strike the conversation about 40 Act from 

the official record, per below:

452 

Bob, my only major concern is in the last line of the minutes. Is that portion of the conversation 

something that we want to officially record? We intentionally did not reference that motivation 

for the transaction in the memos presented to IC and CRC

Ultimately, the sentence was not removed from the CRC minutes; however, an approved version of the 

minutes was not located after reasonable amount of research was conducted. 

Objections to conversion: 

As the IC and CRC memos were circulated, several objections were raised against the conversion, most 

notably by the Director of Compliance.

453 In her objections, she raised the following points:454 

Just read this CRC memo closer, and in conjunction with the IOF PPM dated 12/31/12, and I’m 

not sure how I understand how the new asset mix is contemplated by the PPM. The PPM, on page 

9 and 10 in “investment thesis” lists the following strategies: education strategies, vehicular 

loans and leasing strategies, and non-recourse healthcare strategies. The last part “Other 

investments” states the following: “As part of its portfolio investments, the Fund may also hold 

secured debt positions, but the Fund does not anticipate that these investments will constitute a 

significant part of it[s] overall assets.” The new asset mix has a bunch of the “other investments” 

and access to Ed plus through ACL. Does the “new asset mix” have a significant part in “other 

investments”?

Without receiving a response, the proposed plan was approved by both IC and CRC, and the conversion

took place. The Director of Compliance went on record after the fact to state, while the conversion is 

technically allowed within the PPM, it would cause the “Other Investments” portion of IOF’s asset mix to 

constitute a significant percentage of IOF’s overall investments (which is against IOF’s PPM Investment 

Strategy).455

July – December 2015 investment summary:

448 June 29, 2015, “IC Minutes 06 29 15 (FINAL DRAFT).pdf”. 449 July 14, 2015, “IC Minutes 07 14 15 (APPROVED).pdf”; July 15, 2015, “MEMO Re: Income Opportunity Fund, LLC Asset Reallocation. 450 June 30, 2015, “iof crc memo 20150630.pdf”. 451 August 18, 2015, “CRC MINUTES June 30 2015 draft.pdf”. 452 Email from Schock to Cataudella and Holmen, August 11, 2015, “RE: Transaction Outline - Conflicts Review Committee”. 453 Voluntarily resigned September 25, 2015. 454 Email from Cataudella to MacRitchie and Mazer, July 7, 2015, “FW: Updated CRC Memo”. 455 Email from Cataudella to Chong, July 22, 2015, “FW: IC Minutes 7/14/15”.

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Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 113 of 174
Jan-15 May-15 Jun-15 Dec-15

Notes Receivable - Intercompany

IOF–ACF(MLF) Note $8.3M $25.5M

IOF–ACF(SL) Note $6.8M $6.3M

ACL Note $15.7M $15.7M

AP2PF Senior Note $750.0K

AP2PF Sub Note $750.0K

ACC C+ Note $3.6M

ACM Note $7.1M $2.4M

Total NR - Intercompany $15.1M $31.8M $27.9M $18.1M

NR - Related Party

 CPYT Note $16.0M

MSP Note $2.1M

MSP - Business Loan $674.7K $130.8K

Quarterspot Note $2.3M $724.7K

Quarterspot Reserve - $171.4K - $54.4K

Total NR – Related Party $18.0M $0.0K $2.8M $801.2K

Short Term Loan to ACF / Due From ACF $636.1K $438.8K $110.5K $1.9M

After IOF was assigned its new investment mix, its structure substantially remained the same for the 

remainder of 2015. There were several changes to the balances on the assets, as described below. 

In September of 2015, through a series of non-cash entries, IOF repaid a $5.8 million liability to AH that 

was created in August 2015. As a part of the entry, AH used $4.7 million to increase its equity in ACM. 

ACM in turn used the additional equity in order to pay down the note with IOF, all completed without 

cash being moved.

456 

In December of 2015, management reviewed AP2PF and, as a liquidating entity, it was determined to be

severely under-collateralized. To compensate, AH contributed $2.0 million to AP2PF, of which $1.5 

million was utilized to retire the entire IOF note outstanding. The remainder stayed in the AP2PF account 

and was used to redeem two outside Investors (Integrity Capital and IBAT) in February 2016. 

Effective as of December 1, 2015, Jesenik and Gillis approved a series of non-cash journal entries, to 

assign IOF’s ACCCPH Manufactured Note (ACCCPHLLC00002) to ACF, plus accrued interest of $137

thousand.

457 For consideration, IOF reduced a note payable that was outstanding to ACF (for IOF to 

Private Note Investor conversions) by $1.9 million. The remaining $1.7 million was added under the

short-term loan to ACF, totaling the $1.9 million shown for December 2015 above. ACF then assigned 

the note to IOFII, taking a reduction in the ACF due to IOFII account.

458

456 November 9, 2015, “Adjusting Journal Form – JE# 254874”. 457 December 28, 2015, “Assignment of Note - $3.6M C+ Note (IOF to ACF) 12-01-15 v1_0.pdf”. 458 January 15, 2016, “Adjusting Journal Form – JE# 265026”; December 28, 2015, “Assignment of Note - $3.6M C+ Note (IOF to ACF) 12-01-15 v1_0.pdf”; 

December 28, 2015, “Assignment of Note - $3.6M C+ Note (ACF to IOF II) 12-01-15 v1_0.pdf”. 

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On October 29, 2015, IOF received a principal payment from MSP, totaling $544 thousand.

459 

Additionally, IOF received weekly cash deposits from Quarterspot, reducing the Quarterspot note by $1.6 

million. 

Conclusion:

At the end of 2015, IOF records show assets including $18.9 million in notes receivable, none of which 

was on account of any cash consideration. Likewise, IOF did not receive cash consideration for the vast 

majority of the receivables reassigned to other Aequitas entities in June 2015, with exception of payments 

on notes such as Quarterspot and MSP. In order to maintain compliance with the 40 Act, management 

and the AB approved these conversions, drastically changing IOF’s investments as a whole. 

F.4. Income Opportunity Fund II

Summary of Assets:

During the active life of the Fund, IOFII received a total of 69 notes, for a gross principal amount of 

$131.1 million, from numerous Aequitas SPEs. 

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

459 Email from Baldwin to How, October 29, 2015, “RE: MSP – IOF Business Loan Monthly Interest”; Aequitas Income Opprtunty (sic) Fund LLC October 2015 Full 

Analysis Checking. 

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Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 115 of 174
All IOFII Originations

(Net)

Credit 

Strategy 

Receivables

Base 

Policy 

Mix Note Structure

Initial 

Principal

Min 

Interest 

Rate

Max 

Interest 

Rate

Wtd. 

Avg. 

Interest 

Rate

Education 41.7%

Sr. Secured $29.129MM 5.00% 8.00% 6.88%

Subordinated $25.533MM 14.00% 21.00% 17.00%

Transportation 18.3%

Sr. Secured $10.910MM 8.25% 8.25% 8.25%

Subordinated $13.049MM 14.00% 22.50% 21.29%

Consumer (C+) 11.8%

Sr. Secured $1.655MM 3.75% 3.75% 3.75%

Subordinated $13.883MM 12.50% 22.50% 19.17%

Consumer (F+) 11.8%

Sr. Secured $3.422MM 5.75% 5.75% 5.75%

Subordinated $12.086MM 12.00% 22.50% 19.79%

Corporate 7.4%

Sr. Secured

Subordinated $9.748MM 11.00% 15.00% 12.86%

Healthcare 6.0%

Sr. Secured

Subordinated $7.825MM 8.50% 11.00% 9.57%

Real Estate 2.2%

Sr. Secured

Subordinated $2.919MM 14.00% 14.00% 14.00%

Peer Lending 0.7%

Sr. Secured $0.408MM 2.75% 2.75% 2.75%

Subordinated $0.540MM 22.50% 22.50% 22.50%

Grand Total: 100.0% $131.108MM 2.75% 22.50% 13.40%

Of the $131.1 million of notes receivable, 83% ($109.0 million) were the result of non-cash journal 

entries (see IOFII note issuance, cash movement and redemption chart below). It was not until November 

2015 that IOFII began sending funds directly to an SPE, per direction from new legal counsel. After that 

date, all but two note issuances would result from cash transfers, totaling $22.0 million of cashconsideration issuances (18 notes in total).

Between March 2015 and January 2016, IOFII was repaid $31.4 million of its intercompany notes 

receivable as a result of various management decisions (such as 40 Act compliance) or due to other SPE 

requirements (such as under-collateralization). With respect to 50.3% ($15.8 million) of the repayments, 

the SPE sent cash directly to IOFII. The remaining 49.7% was redeemed through non-cash journal 

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entries, similar to how the IOFII receivable was created. In 11 cases, a note was received without cash 

consideration being sent, yet IOFII received cash from the SPE at redemption. 

As of March 2016

(Net)

Credit 

Strategy 

Receivables

Base 

Policy 

Mix Note Structure

Initial 

Principal

Min 

Interest 

Rate

Max 

Interest 

Rate

Wtd. Avg. 

Interest 

Rate

Education 54.8%

Sr. Secured $29.129MM 5.00% 8.00% 7.05%

Subordinated $25.533MM 14.00% 21.00% 16.16%

Transportation 14.3%

Sr. Secured $7.560MM 8.25% 8.25% 8.25%

Subordinated $6.655MM 14.00% 22.50% 15.26%

Corporate 8.0%

Sr. Secured

Subordinated $7.940MM 11.00% 15.00% 13.20%

Healthcare 7.9%

Sr. Secured

Subordinated $7.825MM 8.50% 11.00% 9.34%

Consumer (F+) 6.8%

Sr. Secured

Subordinated $6.765MM 12.00% 22.50% 20.43%

Consumer (C+) 5.4%

Sr. Secured

Subordinated $5.335MM 12.50% 22.50% 22.06%

Real Estate 2.9%

Sr. Secured

Subordinated $2.919MM 14.00% 14.00% 14.00%

Total: 100.0% $99.662MM 5.00% 22.50% 12.60%

Due-From ACF $3.899MM 0.00% 0.00% 0.00%

Grand Total: $103.561MM

As of March 2016, IOFII had $99.7 million in SPE notes receivable, despite having $104.6 million of 

outstanding senior secured debt. In addition to this principal shortfall, the required return or hurdle rate of 

IOFII was 14.0% yet the weighted average interest rate of the IOFII notes receivable was only 12.6%. 

Out of IOFII’s March 2016 notes receivable, 81.1% ($80.9 million) were issued without direct cash 

consideration going to the SPE, and only 18.9% ($18.8 million) were issued following a cash transfer. 

IOFII also carries a $3.9 million due-from ACF asset on its balance sheet, from transfers IOFII made to 

ACF, for which formal notes were never received. 

IOFII note issuance, cash movement and redemption chart: 

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# l

Issued 

To: Registry No.

Note 

Structure

Principal 

Amts

Issue 

Date

Maturity 

Date

Retirement 

Date

Cash 

Moved

1 IOFII ACCH2LLC00001 Sr. Secured 0 1-Dec-14 1-Dec-15 N/A

1 a IOFII ACCH2LLC00001 Sr. Secured 254,000 1-Dec-14 1-Dec-15 No

1 b IOFII ACCH2LLC00001 Sr. Secured (254,000) 1-Mar-15 Yes

2 IOFII ACCH2LLC00002 Subordinated 0 1-Dec-14 1-Dec-15 N/A

2 a IOFII ACCH2LLC00002 Subordinated 307,000 1-Dec-14 1-Dec-15 No

2 b IOFII ACCH2LLC00002 Subordinated (307,000) 1-Mar-15 Yes

3 IOFII ACCH1LLC00001 Sr. Secured 0 1-Dec-14 1-Dec-15 N/A

3 a IOFII ACCH1LLC00001 Sr. Secured 285,000 1-Dec-14 1-Dec-15 No

3 b IOFII ACCH1LLC00001 Sr. Secured (285,000) 1-Mar-15 No

4 IOFII ACCH1LLC00002 Subordinated 0 1-Dec-14 1-Dec-15 N/A

4 a IOFII ACCH1LLC00002 Subordinated 276,000 1-Dec-14 1-Dec-15 No

4 b IOFII ACCH1LLC00002 Subordinated (276,000) 1-Mar-15 No

5 IOFII AP2PFLLC00001 Sr. Secured 0 1-Dec-14 1-Dec-15 N/A

5 a IOFII AP2PFLLC00001 Sr. Secured 161,000 1-Dec-14 1-Dec-15 No

5 b IOFII AP2PFLLC00001 Sr. Secured (161,000) 1-Jun-15 No

6 IOFII AP2PFLLC00002 Subordinated 0 1-Dec-14 1-Dec-15 N/A

6 a IOFII AP2PFLLC00002 Subordinated 213,000 1-Dec-14 1-Dec-15 No

6 b IOFII AP2PFLLC00002 Subordinated (213,000) 1-Jun-15 No

7 IOFII MLFHLLC00001 Sr. Secured 0 1-Dec-14 1-Dec-15 N/A

7 a IOFII MLFHLLC00001 Sr. Secured 558,000 1-Dec-14 1-Dec-15 No

7 b IOFII MLFHLLC00001 Sr. Secured (558,000) 9-Nov-15 Yes

8 IOFII MLFHLLC00002 Subordinated 0 1-Dec-14 1-Dec-15 N/A

8 a IOFII MLFHLLC00002 Subordinated 377,000 1-Dec-14 1-Dec-15 No

8 b IOFII MLFHLLC00002 Subordinated (377,000) 1-Dec-15 No

9 IOFII CSFLLC00001 Sr. Secured 131,000 1-Dec-14 31-Mar-16 No

10 IOFII CSFLLC00002 Subordinated 1,178,000 1-Dec-14 31-Mar-16 No

11 IOFII ACCH2LLC00003 Sr. Secured 0 1-Jan-15 1-Jan-16 N/A

11 a IOFII ACCH2LLC00003 Sr. Secured 1,229,131 1-Jan-15 1-Jan-16 No

11 b IOFII ACCH2LLC00003 Sr. Secured (1,229,131) 1-Mar-15 Yes

12 IOFII ACCH2LLC00004 Subordinated 0 1-Jan-15 1-Jan-16 N/A

12 a IOFII ACCH2LLC00004 Subordinated 1,482,188 1-Jan-15 1-Jan-16 No

12 b IOFII ACCH2LLC00004 Subordinated (1,482,188) 1-Mar-15 Yes

13 IOFII ACCH1LLC00003 Sr. Secured 0 1-Jan-15 1-Jan-16 N/A

13 a IOFII ACCH1LLC00003 Sr. Secured 2,751,786 1-Jan-15 1-Jan-16 No

13 b IOFII ACCH1LLC00003 Sr. Secured (2,751,786) 1-Mar-15 No

14 IOFII ACCH1LLC00004 Subordinated 0 1-Jan-15 1-Jan-16 N/A

14 a IOFII ACCH1LLC00004 Subordinated 2,670,852 1-Jan-15 1-Jan-16 No

14 b IOFII ACCH1LLC00004 Subordinated (2,670,852) 1-Mar-15 No

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Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 118 of 174
15 IOFII MLFHLLC00003 Sr. Secured 442,556 1-Jan-15 31-Mar-16 N/A

15 a IOFII MLFHLLC00003 Sr. Secured 3,234,556 1-Jan-15 31-Mar-16 No

15 b IOFII MLFHLLC00003 Sr. Secured (1,442,000) 9-Nov-15 Yes

15 c IOFII MLFHLLC00003 Sr. Secured (1,350,000) 14-Dec-15 Yes

16 IOFII MLFHLLC00004 Subordinated 0 1-Jan-15 1-Jan-16 N/A

16 a IOFII MLFHLLC00004 Subordinated 2,188,082 1-Jan-15 1-Jan-16 No

16 b IOFII MLFHLLC00004 Subordinated (2,188,082) 1-Dec-15 No

17 IOFII CSFLLC00003 Sr. Secured 6,778,298 1-Jan-15 1-Jan-18 No

18 IOFII CSFLLC00004 Subordinated 6,778,298 1-Jan-15 1-Jan-18 No

19 IOFII ACCH2LLC00005 Sr. Secured 0 1-Feb-15 1-Feb-16 N/A

19 a IOFII ACCH2LLC00005 Sr. Secured 171,967 1-Feb-15 1-Feb-16 No

19 b IOFII ACCH2LLC00005 Sr. Secured (171,967) 1-Mar-15 Yes

20 IOFII ACCH2LLC00006 Subordinated 0 1-Feb-15 1-Feb-16 N/A

20 a IOFII ACCH2LLC00006 Subordinated 207,373 1-Feb-15 1-Feb-16 No

20 b IOFII ACCH2LLC00006 Subordinated (207,373) 1-Mar-15 Yes

21 IOFII ACCH1LLC00005 Sr. Secured 0 1-Feb-15 1-Feb-16 N/A

21 a IOFII ACCH1LLC00005 Sr. Secured 385,002 1-Feb-15 1-Feb-16 No

21 b IOFII ACCH1LLC00005 Sr. Secured (385,002) 1-Mar-15 No

22 IOFII ACCH1LLC00006 Subordinated 0 1-Feb-15 1-Feb-16 N/A

22 a IOFII ACCH1LLC00006 Subordinated 373,678 1-Feb-15 1-Feb-16 No

22 b IOFII ACCH1LLC00006 Subordinated (373,678) 1-Mar-15 No

23 IOFII MLFHLLC00005 Sr. Secured 452,546 1-Feb-15 30-Jun-16 No

24 IOFII MLFHLLC00006 Subordinated 0 1-Feb-15 1-Feb-16 N/A

24 a IOFII MLFHLLC00006 Subordinated 306,134 1-Feb-15 1-Feb-16 No

24 b IOFII MLFHLLC00006 Subordinated (306,134) 1-Dec-15 No

25 IOFII CSFLLC00005 Sr. Secured 948,350 1-Feb-15 1-Feb-18 No

26 IOFII CSFLLC00006 Subordinated 948,350 1-Feb-15 1-Feb-18 No

27 IOFII AP2PFLLC00005 Sr. Secured 0 1-Mar-15 1-Mar-18 N/A

27 a IOFII AP2PFLLC00005 Sr. Secured 150,138 1-Mar-15 1-Mar-18 No

27 b IOFII AP2PFLLC00005 Sr. Secured (150,138) 1-Jun-15 No

28 IOFII AP2PFLLC00006 Subordinated 0 1-Mar-15 1-Mar-18 N/A

28 a IOFII AP2PFLLC00006 Subordinated 198,712 1-Mar-15 1-Mar-18 No

28 b IOFII AP2PFLLC00006 Subordinated (198,712) 1-Jun-15 No

29 IOFII MLFHLLC00009 Sr. Secured 1,456,599 1-Mar-15 30-Jun-16 No

30 IOFII MLFHLLC00010 Subordinated 985,347 1-Mar-15 30-Jun-16 No

31 IOFII CSFLLC00007 Subordinated 11,163,182 1-Mar-15 1-Mar-18 No

32 IOFII AP2PFLLC00011 Sr. Secured 0 1-Apr-15 1-Apr-16 N/A

32 a IOFII AP2PFLLC00011 Sr. Secured 97,255 1-Apr-15 1-Apr-16 No

32 b IOFII AP2PFLLC00011 Sr. Secured (97,255) 1-Jun-15 No

33 IOFII AP2PFLLC00012 Subordinated 0 1-Apr-15 1-Apr-16 N/A

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33 a IOFII AP2PFLLC00012 Subordinated 128,720 1-Apr-15 1-Apr-16 No

33 b IOFII AP2PFLLC00012 Subordinated (128,720) 1-Jun-15 No

34 IOFII MLFHLLC00011 Sr. Secured 1,482,713 1-Apr-15 1-Apr-16 No

35 IOFII MLFHLLC00012 Subordinated 0 1-Apr-15 1-Apr-16 N/A

35 a IOFII MLFHLLC00012 Subordinated 1,003,012 1-Apr-15 1-Apr-16 No

35 b IOFII MLFHLLC00012 Subordinated (1,003,012) 30-Dec-15 Yes

36 IOFII ACLLLC00001 Subordinated 0 1-Apr-15 1-Apr-16 N/A

36 a IOFII ACLLLC00001 Subordinated 1,807,800 1-Apr-15 1-Apr-16 No

36 b IOFII ACLLLC00001 Subordinated (1,807,800) 1-Jun-15 No

37 IOFII ACCCPHLLC00001 Subordinated 0 1-May-15 1-May-16 N/A

37 a IOFII ACCCPHLLC00001 Subordinated 3,251,232 1-May-15 1-May-16 No

37 b IOFII ACCCPHLLC00001 Subordinated (3,251,232) 1-Jun-15 No

38 IOFII ACCFPHLLC00001 Subordinated 1,251,232 1-May-15 1-May-16 N/A

38 a IOFII ACCFPHLLC00001 Subordinated 3,251,232 1-May-15 1-May-16 No

38 b IOFII ACCFPHLLC00001 Subordinated (2,000,000) 9-Nov-15 Yes

39 IOFII ACCFPHLLC00002 Subordinated 3,903,982 1-Jun-15 1-Jun-16 No

40 IOFII MLFHLLC00013 Sr. Secured 3,725,906 1-Jun-15 1-Jun-16 No

41 IOFII MLFHLLC00014 Subordinated 0 1-Jun-15 1-Jun-16 N/A

41 a IOFII MLFHLLC00014 Subordinated 2,520,466 1-Jun-15 1-Jun-16 No

41 b IOFII MLFHLLC00014 Subordinated (2,520,466) 2-Oct-15 Yes

42 IOFII CSFLLC00009 Subordinated 5,465,575 1-Jun-15 1-Jun-18 No

43 IOFII ACCCPHLLC00002 Subordinated 3,600,000 30-Jun-15 30-Jun-16 No

44 IOFII ACCFPHLLC00003 Subordinated 1,460,249 1-Jul-15 1-Jul-16 No

45 IOFII MLFHLLC00015 Subordinated 5,669,202 1-Jul-15 1-Jul-16 No

46 IOFII ACLLLC00005 Subordinated 1,460,249 1-Jul-15 1-Jul-18 No

47 IOFII ACLLLC00007 Subordinated 3,000,034 1-Aug-15 1-Aug-18 No

48 IOFII ASHLLC00001 Subordinated 2,918,952 1-Aug-15 1-Aug-18 No

49 IOFII CSFLLC00011 Sr. Secured 10,800,000 1-Sep-15 31-Mar-16 No

50 IOFII CSFLLC00014 Sr. Secured 4,000,000 9-Nov-15 30-Jun-16 Yes

51 IOFII ACCCPHLLC00004 Subordinated 1,500,000 16-Nov-15 30-Jun-16 Yes

52 IOFII CPHLLC00010 Subordinated 2,000,000 25-Nov-15 30-Jun-16 Yes

53 IOFII CSFLLC00016 Sr. Secured 2,871,216 1-Dec-15 1-Dec-16 No

54 IOFII ACCCPHLLC00005 Subordinated 235,000 8-Dec-15 8-Dec-16 N/A

54 a IOFII ACCCPHLLC00005 Subordinated 1,300,000 8-Dec-15 8-Dec-16 Yes

54 b IOFII ACCCPHLLC00005 Subordinated (1,065,000) 29-Jan-16 Yes

55 IOFII ACCCPHLLC00006 Subordinated 0 14-Dec-15 14-Dec-16 N/A

55 a IOFII ACCCPHLLC00006 Subordinated 1,435,000 14-Dec-15 14-Dec-16 Yes

55 b IOFII ACCCPHLLC00006 Subordinated (1,435,000) 29-Jan-16 Yes

56 IOFII CPHLLC00011 Subordinated 2,000,000 14-Dec-15 14-Dec-16 Yes

57 IOFII CPHLLC00012 Subordinated 825,000 17-Dec-15 17-Dec-16 Yes

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58 IOFII CSFLLC00017 Sr. Secured 2,000,000 23-Dec-15 23-Dec-16 No

59 IOFII ACCFPHLLC00007 Subordinated 150,000 28-Dec-15 28-Dec-16 Yes

60 IOFII CPHLLC00013 Subordinated 1,500,000 30-Dec-15 30-Dec-16 Yes

61 IOFII CPHLLC00014 Subordinated 300,000 31-Dec-15 31-Dec-16 Yes

62 IOFII ACLLLC00009 Subordinated 1,350,000 31-Dec-15 31-Dec-16 Yes

63 IOFII CSFLLC00018 Sr. Secured 1,600,000 7-Jan-16 7-Jan-17 Yes

64 IOFII ACCCPHLLC00003 Subordinated 0 15-Jan-16 15-Jan-17 N/A

64 a IOFII ACCCPHLLC00003 Subordinated 800,000 15-Jan-16 15-Jan-17 Yes

64 b IOFII ACCCPHLLC00003 Subordinated (800,000) 16-Jan-16 Yes

65 IOFII ACLLLC00011 Subordinated 730,000 15-Jan-16 15-Jan-17 Yes

66 IOFII ACLLLC00012 Subordinated 1,300,000 19-Jan-16 19-Jan-17 Yes

67 IOFII ACLLLC00013 Subordinated 100,000 22-Jan-16 22-Jan-17 Yes

68 IOFII CPHLLC00016 Subordinated 800,000 1-Feb-16 1-Feb-17 Yes

69 IOFII CPHLLC00017 Subordinated 400,000 8-Feb-16 8-Feb-17 Yes

IOFII Issues Summary:

Due-from ACF:

IOFII was heavily involved in the Manufactured Note process, as a vehicle to bring new investor funds 

into the enterprise to be used as needed at the time. It was the common practice for newly invested funds 

to be swept frequently to ACF or an affiliate, to be used for whatever purpose funds were needed at that 

time. The transaction would be recorded as a due-from ACF or affiliate. The language in the PPM 

allowed for these “short-term” affiliate loans; however, it was not marketed as a main investment under 

IOFII, nor would IOFII receive any interest, security or other compensation from ACF for such loans. 

When an employee from the fundraising department ACP questioned the backlog of ACF due to IOFII, 

and the requirement for ACF to make up for losses incurred in IOFII, Corporate Counsel responded as 

follows: 

...the security to IOF II is the underlying collateral; if the loan is directly to the SPE, then ACF is

not obligated to make up losses; if the loan is to ACF who then uses the proceeds to finance an 

SPV, then it would depend on the terms of the note to ACF who had priority (ACF note holders or 

IOF II).

460

However, as noted by the Director of Treasury in a response, the funds do not move to ACF as a note, but 

rather “cash moves to ACF and sits in the fund’s [AR] until the notes are issued directly from the SPV.”

461 

On almost a weekly occurrence, new Investor funds would be transferred out of IOFII to ACF under this 

“due-from” arrangement, to be used for various corporate purposes. The amount would stay as such on 

the balance sheet of IOFII until such time as it would be considered by the Asset Allocation Policy

meeting. During that process, IOFII would be retroactively assigned notes from SPE credit strategies that 

were consistent with the PPM. 

460 Email from Lordi to Holmen, September 3, 2015, “IOF II Backing by ACF Balance sheet”. 461 Email from Abushaaban to Cataudella and Hulquist, September 3, 2015, “RE: IOF II Backing by ACF Balance sheet”. 

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These intercompany balances could be adjusted up or down for non-cash investment conversions between 

funds (such as Private Note, IOF, etc.). If the account was converted into IOFII, IOFII could receive a 

due-from the redeeming Aequitas Fund in lieu of cash. If an account would convert out of IOFII to 

another Aequitas Fund, then IOFII could see either a decrease in the amount owed to such Aequitas Fund, 

or a due-to liability in the amount of the conversion (and any outstanding interest as necessary). 

The first Investors came into IOFII in November 2014, with $4.2 million invested in that first month. 

Weekly new Investor note issuances, or note transfers/conversions from another Aequitas Fund to IOFII, 

ramped up in December of that year, totaling $27.5 million, for a year-end senior debt amount of $31.8

million. As of the end of 2014, despite incurring $31.8 million in new senior debt liabilities, IOFII only 

had $267 thousand in cash in its operating account, plus $3.7 million in notes receivable from various 

Aequitas SPEs. The remaining $27.7 million was held as a “due-from” ACF or IPF. 

To correct an improper asset mix (as determined by the PPM), on January 16, 2015, management met and 

assigned eight notes to IOFII, totaling $27.1 million. These notes included:

Credit 

Strategy Registry No. Note Structure

Principal 

Amt

Interest 

Rate

Cash 

Moved

Later 

Assignments

Consumer 

(C+)

ACCH2LLC00003 Sr. Secured $1.2 million 3.75% No

Assigned to 

ACCCPH

ACCH2LLC00004 Subordinated $1.5 million 22.50% No

Assigned to 

ACCCPH

Consumer 

(F+)

ACCH1LLC00003 Sr. Secured $2.8 million 5.75% No

Assigned to 

ACCFPH 

ACCH1LLC00004 Subordinated $2.7 million 22.50% No

Assigned to 

ACCFPH 

Transportation

MLFHLLC00003 Sr. Secured $3.2 million 8.25% No

MLFHLLC00004 Subordinated $2.2 million 22.50% No

Education

CSFLLC00003 Sr. Secured $6.8 million 7.00% No

CSFLLC00004 Subordinated $6.8 million 21.00% No

For all the notes above, no direct cash consideration was received by the corresponding SPE; rather, the 

SPE’s liability for the notes was created through a series of journal entries. To offset incurring this 

liability, the SPE reduced ACF’s equity in an amount equal to the additional liability to IOFII. On 

occasions where an SPE was owned by AH, the transaction would include a decrease in the ACF-AH 

Note, as ACF would “borrow” the equity reduction from AH. Once IOFII received the note from the 

SPE, IOFII would reduce its due-from ACF balance to match. 

This process was generally repeated monthly, yet the due-from balance would never equal $0. There 

could be a difference in the monthly note issuances and the monthly CPD, and IOFII would always have 

new Investors who would come into the Fund during the preceding month and whose funds would be 

transferred to ACF or affiliates on a weekly basis. On April 10, the intercompany receivable reached its 

lowest point when $14.0 million of notes were issued to IOFII, including a $11.2 million CSF note, all of 

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which were backdated to March 1, 2015. Therefore, in April, the balance sheet for March was amended 

using non-cash journal entries, to bring the monthly balance of the due-from ACF down to $584

thousand. The highest amount reflected on a 2015/2016 balance sheet was in May 2015, when it reached 

$9.8 million.

462

Note terms determination: 

Interest rates were determined during the Asset Allocation process and could be between 2.75% and 

8.25% for senior secured notes and between 8.5% and 22.5% for subordinated notes. Notes with the 

same term length, but different origination dates, could receive different interest rates. For example, both 

ACCFPHLLC00002 and ACCFPHLLC00003 have the same term length and their effective dates are 

within one month of each other, yet one note carries a 22.5% interest rate while the other has a 14% rate 

(8.5% difference).

Registry No. Note Structure Principal Amt Term (Yr.) Interest Rate Issue Date

ACCFPHLLC00002 Subordinated $3.9 million 1 22.5% 1-Jun-15

ACCFPHLLC00003 Subordinated $1.5 million 1 14.0% 1-Jul-15

CSF concentration: 

IOFII was weighted quite heavily in notes issued by CSF, regardless of the 20% concentration limit that 

was recommended for “education loans” per the Asset Allocation Policy. Management was questioned 

on several occasions regarding the decisions that allowed IOFII to be weighed so heavily in CSF. In one 

such email on November 5, the General Counsel emailed Jesenik, Gillis and other parties involved in the 

discussion and warned them against issuing any more CSF notes to IOFII. He listed several reasons, 

predominantly IOFII’s current overexposure, as well as the impact any CFPB settlement would have on 

IOFII’s collateral.

463 

...the proposed transactions will result in IOFII’s exposure to CSF rising from $33.4M (~38% of 

assets) to $51.8M (~59% of assets), while reducing IOFII’s exposure to MotoLease and Freedom.

I think we need a strong justification as to why that makes sense for the IOFII note holders. In 

addition, we are exposing IOFII to a potential $10M loss if we ended up settling with the CFBP 

at a 20% discount. Overall, I think it would be prudent to run this by the CRC given the net result 

is that we are directing IOFII to acquire from ACF a substantial interest in CSF assets.

Note further that if we proceed with this, I think we need to immediately update IOFII tear sheets 

given the material change in asset mix.

Management did not respond directly to the email, and on November 12, 2015, management executed a 

new note from CSF to IOFII for $10.8 million, backdated to September 1, 2015. Another $10.4 million

of CSF notes subsequently were issued to IOFII, for a total of $21.3 million in CSF notes post the General 

Counsel’s warning. 

462 Note, this is not the highest it ever reached, as notes would be backdated, but this is the highest that was reported in financials. 463 Email from Holmen to Gillis, Jesenik, et. al, November 5, 2015, “FW: Sept Note Issuance/Collateral Assessment”. 

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G. Focused Investment Funds

In some instances, Aequitas solicited investors to invest (together with other investors) into specific asset 

vehicles with little to no comingling of funds in ACF or another fund vehicle. 

G.1. Luxembourg bonds 

The Receivership Entity is involved in a complex trust structure related to several series of bonds offered 

on the Luxembourg Stock Exchange to non-U.S. investors. The issuer of such bonds is Aequitas Income 

Opportunities (Luxembourg) SA (“AIO-SA”), which is not part of the Receivership Entity. AIO-SA 

purchased limited partnership interests in AIO, a Cayman Islands limited partnership which is one of the 

Extended Entities under the Final Receivership Order. AIO is the holder of certificates of beneficial

interest in ACC Holdings 5, LLC (“ACCH5”, part of the Receivership Entity), which is wholly-owned by 

AH (also part of the Receivership Entity). ACCH5 established a grantor trust, ACCFST-5 that purchased 

and currently holds certain C+ and F+ FFN loan portfolios. 

In late July 2015, AIO-SA issued $5 million of Compartment A and $5 million of Compartment B assetbacked bonds. After AIO-SA used the Investor funds to purchase limited partnership interests in AIO, 

Aequitas used a portion of the proceeds to purchase loans from FFN by way of the AIO intermediary

ACCFST-5. At that time, the flow of F+ consumer loans available for purchase was insufficient. Given 

the lack of available F+ loan assets, AIO advanced excess funds to ACF in the form of a $4 million loan. 

In late September 2015, an additional $5 million of Compartment A bonds were issued. Similarly, to the 

July 2015 issuance, there were insufficient F+ loan assets available to be purchased and AIO loaned the 

excess funds to ACF in three loan tranches in Q4 2015 – on October 1 for $1 million; October 2 for $2 

million and October 14 for $3 million. As of December 31, 2015, the remaining cumulative principal 

balance remaining on all AIO to ACF loans was $3.8 million. 

Availability of F+ assets for AIO-SA was contingent upon other Aequitas entities (ACCFT-1 and 

ACCFT-2) funding an additional ~$4.5 million a month in F+ and C+ loans. In January 2016, Aequitas 

could no longer meet that funding commitment, which has cut off the availability of F+ assets.

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

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AIO Sources and Uses of Cash 2014 2015464 Q1 2016 Total

Beginning Cash Account $ - $ - $17,799 $ - 

AIO-SA Bonds - 15,110,701 70,942 15,181,643 

AIO-SA Bond Issuance - 15,611,112 400,000 16,011,112 

AIO-SA Bond Redemption - (350,000) - (350,000)

AIO-SA Preferred Return Payment - (150,411) (329,058) (479,469)

Portfolio Investments - (11,327,398) (66,843) (11,394,241)

ACCFST-5 Investments - (11,697,918) (500,000) (12,197,918)

ACCFST-5 Returns to AIO - 370,520 433,157 803,677 

ACF Loan - (3,758,315) 33,000 (3,725,315)

ACF Loan from AIO - (9,000,000) - (9,000,000)

ACF Loan Repayments to AIO - 5,180,329 33,000 5,213,329 

ACF Interest to AIO - 61,356 - 61,356 

Intercompany Transfers - 14,310 - 14,310 

AIH Investment in AIO - 17,460 - 17,460 

AIH Disbursement to AIO - (3,150) - (3,150)

Expenses - (21,499) - (21,499)

Licenses & Fees Expense - (17,460) - (17,460)

RAI Fees - (4,039) - (4,039)

Ending Cash Account $ - $ 17,799 $54,898 $ 54,898 

G.2. Window Rock Feeder Fund (a/k/a WRFF)

In November 2013, Aequitas formed WRFF for the purposes of raising and aggregating investor funds for 

subsequent investment into Window Rock/Aequitas Residential Recovery Fund, L.P. (“WR”). WR was 

focused on identifying and acquiring deeply discounted residential whole loans with an unpaid principal 

balance of less than $150 thousand and transforming those loans into consistent, valuable, cash-flowing 

assets through proprietary valuation and servicing techniques. Investment pools were expected to range 

from $5 to $50 million. Properties were located across the United States. Aequitas entities had no 

investment in WR or WRFF. At December 31, 2015, outside investor equity in WRFF totaled $21.7 

million.

WRFF, through its affiliates, held a management contract entitling the Receivership Entity to a 

management fee of 75 basis points annually on invested capital (approximately $21.8 million) by the 

investors in WR. 

On March 14, 2017, the transaction restructuring the fund closed and the Receiver received $328 

thousand as compensation for the Receivership interest in accrued but unpaid, as well as future, 

management fees. Investors in WRFF were granted limited partner interests in the underlying master 

fund - WR. 

464 Bank account for AIO at Bank of America opened in July 2015. Three subsequent accounts were opened in January 2016 for the same entity.

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WRFF Sources and Uses of Cash 2014 2015 Q1 2016 Total

Beginning Cash Account $ - $450,000 $57,286 $ - 

WRFF Investments 19,180,553 4,436,702 - 23,617,255 

Outside Party New Investment Funds - - - - 

Investor Cash Transfers from ACF 19,461,536 10,193,869 - 29,655,405 

Investor Distribution Paid (280,983) (5,757,167) - (6,038,150)

Investment Purchases (18,000,000) (7,000,000) - (25,000,000)

Investment in Window Rock Recovery Fund (18,000,000) (7,000,000) - (25,000,000)

Interest Income 804,020 1,773,360 - 2,577,380 

Interest from Window Rock Recovery Fund 804,020 1,773,360 - 2,577,380 

Intercompany Transfers (1,505,997) 506,169 - (999,828)

Intercompany Receipt from ACF - 1,927,498 - 1,927,498 

Intercompany Payment to ACF (1,452,592) (1,405,875) - (2,858,467)

Intercompany Payment to ACM (53,405) (15,454) - (68,859)

Expenses (28,576) (108,945) (57,186) (194,707)

Operating Expenses - 7 (5,256) (5,249)

Management Fee to AIM (28,576) (108,952) (51,930) (189,458)

Ending Cash Account $ 450,000 $ 57,286 $ 100 $ 100 

G.3. ETC Founders Fund (ETCFF) 

Aequitas formed ETCFF as a means of investing in ETC. ETCFF's only assets were intended to be equity 

securities issued by ETC, cash and cash equivalents. Such securities initially would include up to 2.7 

million shares of Series A Preferred pursuant to the terms of a stock purchase agreement between the 

ETCFF and ETC dated September 26, 2011 (the "Stock Purchase Agreement"). Any proceeds of ETCFF

not used to purchase Series A Preferred would be used by the ETCFF to pay organizational expenses, 

operating costs and management fees.

Pursuant to the stock purchase agreement, on September 26, 2011 ETCFF made an initial purchase of 760

thousand shares of Series A Preferred. This purchase was made utilizing the proceeds of a loan from 

ACF in the principal amount of $3.8 million (the "ACF-ETCFF Loan"). The terms of the ACF-ETCFF

Loan required ETCFF to repay the loan on or before December 31, 2011. The ACF-ETCFF Loan is 

secured by a first priority lien on all of the assets of ETCFF, including the Series A Preferred purchased 

and held by the ETCFF. 

ETCFF concluded its fundraising by September 2012 which included capital commitments of $9.2 

million. ETCFF used those funds to acquire 1.8 million Series A Preferred shares at a cost of $8.8 

million with the remaining funds being used to pay administrative costs and management fees. There was 

no significant cash activity during the Relevant Time Period.

G.4. CCM Opportunity Fund (fka Capital Opportunity Fund) 

Aequitas formed COF on June 14, 2013 for the express purpose of making privately-negotiated 

investments in equity, equity-related and other securities of investee companies. COF concluded its

fundraising by February 2015 which included total capital commitments of $102.0 million. Of the $102.0 

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million, $78.8 million was attributable to Aequitas contributing assets into the fund at inflated values – 

resulting in a deferred gain on those assets of $50.3 million.465 

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

465 See Aequitas Holdings, LLC_FED_Form 1065_IT_WP_!4_FINAL.xlsx; Tab: “(TX-750A) COF Disguised Sale. 

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COF Sources and Uses of Cash 2014 2015 Q1 2016 Total

Beginning Cash Account $ - $ 558,072 $ 388,479 $ - 

COF Capital 17,317,083 15,222,409 - 32,539,492 

Outside Party New Investor Funds466 12,580,882 13,231,518 - 25,812,400 

Investor Cash Transfers from ACF467 5,555,416 2,119,266 - 7,674,682 

Investor Cash Transfers from IOF468 15,229 - - 15,229 

Investor Distribution Paid469 (834,444) (128,375) - (962,818)

Intercompany Transfers (11,667,942) 9,288,789 (1,888) (2,381,040)

Intercompany Receipt from ACF 5,521,833 17,872,338 - 23,394,171 

Intercompany Payment to ACF (16,343,618) (8,920,650) - (25,264,268)

Intercompany Receipt from ACM 375,385 240,423 (1,888) 613,920 

Intercompany Payment to ACM (613,095) (462,644) - (1,075,739)

Intercompany Receipt from AH 281,347 925,100 - 1,206,447 

Intercompany Payment to AH (889,794) (368,380) - (1,258,174)

Intercompany Receipt from AIM - 2,603 - 2,603 

Investment Purchases (4,212,255) (24,972,896) (70,000) (29,255,151)

Quarterspot Purchase (from ACF) (3,678,921) - - (3,678,921)

SCA (533,334) - - (533,334)

Alternative Capital Advisors - (12,250) - (12,250)

MotoLease, LLC470 - (1,040,000) - (1,040,000)

nD Bancgroup - (2,600,000) - (2,600,000)

MOGL Loyalty Services - (2,000,000) - (2,000,000)

CPYT Note Receivable - (19,000,000) - (19,000,000)

EdPlus Note Receivable - (320,646) (70,000) (390,646)

Interest Income - 1,307,224 - 1,307,224 

CPYT - 1,287,630 - 1,287,630 

EdPlus - 19,594 - 19,594 

Expenses (878,814) (1,765,120) (216,000) (2,859,934)

Operating Expenses - (93,103) (16,000) (109,103)

Management Fee to AIM (878,814) (1,672,017) (200,000) (2,750,831)

Misc. - 750,000 - 750,000 

Ruh Investment in ACL471 - 750,000 - 750,000 

ACF and Ruh Partial Investment472 - 949,588 - 949,588 

ACF and Ruh Partial Redemption - (949,588) - (949,588)

Ending Cash Account $ 558,072 $ 388,479 $ 100,591 $ 100,591 

466 Capital call amounts could contain offsets for payments due to the Investor, and frequently were paid on a net basis, rather than a full contribution and distribution. 467 Includes investment transfer from Private Note by Zam Capital Group, M. Zuffinetti, A. Zuffinetti, Barnes, Flichtbiel, Mulvaney, Ciuffitelli and McCormick. 468 Includes investment transfer from IOF to COF by Glasgow and Ruh. 469 Distributions were paid to Bar J Investments, Zam Capital Group, M. Zuffinetti, A. Zuffinetti, Barnes, Flichtbiel, M. O’Reilly, Ruh, McCormick, and McCormick

under the equalization terms for original Investors of COF. Typically, these would be paid on a net basis, for any additional funds due to or from the Investor. A 

portion of the Investors chose to accept distributions from COF and reinvest those funds in Private Note.

470 MotoLease, LLC is a separate and distinct entity, not included in the Receivership. MotoLease, LLC originated and to an extent serviced the receivables purchased 

by MLF. As of the Complaint Date COF held 230 membership units at a total purchase price of $1.8 million, representing 23% equity ownership in MotoLease, LLC. 471 For additional information, see section E.1.4. 472 In 2015, as Aequitas was aiming to close the COF fund, it was missing fund commitments from several investors. As such, Ruh invested an additional $67 

thousand towards a $150 thousand commitment. Two months later, this limited partnership interest was purchased by a new Investor Drew Freides for $124 thousand, 

for which COF wired Ruh $124 thousand. Similarly, ACF advanced $826 thousand for a $1.0 million commitment, which was purchased by an Investor at 

CliftonLarsonAllen for $826 thousand in April of 2015. 

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H. Solvency

SEC Complaint — By the end of June 2014 (after CoCo’s default), projected cash inflows from CoCo 

were removed and Treasury projected a cash shortfall of $3.1 million for the following week. According 

to internal projections prepared on July 18, 2014, ACF estimated that it was more than $200 thousand 

short of cash to meet its current obligations and had a cash shortfall of $19.1 million for the coming two 

weeks.

Ponzi schemes are inherently fraudulent. Because these schemes require the unending raise of additional 

funds to maintain the fraud, courts have held them to be insolvent from their inception.

473 

Notwithstanding the likely determination of a “Ponzi presumption,” the Receiver undertook a review of 

certain tests to determine if Aequitas was solvent during the Relevant Time Period. A detailed discussion

of each of the three commonly used tests and the Receiver’s opinion of solvency follows. 

H.1. Aequitas was insolvent on or before July 3, 2014 and continued to be so during the 

remainder of the Relevant Time Period, as its assets at fair value did not exceed its 

liabilities [the “Balance Sheet Test”]

Under the Balance Sheet Test, “[a] debtor is insolvent if the sum of the debtor’s debts is greater than all of 

the debtor’s assets at a fair valuation.” NUFTA § 112.160(1). My conclusion of value for the assets and 

liabilities of Aequitas is based upon the fair value standard as defined by the International Glossary of 

Business Valuation Terms. This definition is consistent with the definition of fair value by other 

authoritative sources, including Oregon’s Uniform Fraudulent Transfer Act.474

As a common practice, Aequitas restated certain of its major assets to fair value. Fair value is an estimate 

of an exit price, or the amount that would be received to sell an asset or transfer a liability between market 

participants. There exists a fair value hierarchy which provides for prioritizing inputs to valuation 

techniques used to measure fair value. As discussed earlier in this Report, Aequitas relied almost 

exclusively on Level 3 inputs for its fair value calculations — the most subjective methodology and the

hierarchy most likely to be manipulated and impacted by the bias of management. A review of the 

valuations for several of the investments in operating companies CPYT, ETC, MSP/Ivey and EdPlus 

indicate significant overstatement of value attributed to these assets. Additionally, in the case of

MSP/Ivey and EdPlus, the valuation review indicated impairment of large amounts of debt owed by those 

entities to Aequitas affiliates.

To determine the fair value of the portfolio of student loans held by CSF and other Aequitas entities, 

Aequitas used a fairly complex net present value model of numerous inputs which generated a sizable 

increase in asset values due to calculated but unrealized gains. The model inputs were driven primarily 

by the creditworthiness of CoCo and the performance of the loan portfolio relative to students’ payments. 

Accordingly, these inputs, which were dubious before the CoCo default, should have been modified 

dramatically (and were not) when (1) CoCo defaulted on its obligation to repurchase defaulted student 

loans under the recourse program and (2) student loan defaults increased dramatically upon the 

announcement of the closure of the CoCo schools. Also, Aequitas failed to recognize a loss reserve for 

defaulted loans and continued to carry those defaulted loans at full value.

473 Scholes v. Lehman, 56 F. 3d 750, 755 (7th Cir. 1995) (Ponzi scheme was insolvent from the outset as a result of the tort claims of the investor); In re Randy, 189 

B.R. 425, 441 (N.D. Ill. 1995) (“Having been convicted of a Ponzi scheme, Randy was insolvent from its inception as a matter of law.”); In re Independent Clearing 

House, 77 B.R. 843, 871 (D. Utah 1987) (“By definition, an enterprise engaged in a Ponzi scheme is insolvent from day one.”). 474 See ORS 95.210(1). 

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ACF’s largest single asset was debt owed to it by its parent (AH) under the ACF-AH Note ($80.6 million 

as of December 2012 and growing to $184.2 million as of March 2016). Internal documents prepared by 

Aequitas, intended to calculate the underlying asset value support for repayment of the ACF-AH Note, 

show that such assets failed to cover the amount owed — even at inflated, erroneous fair value

calculations for those investments. Further, the amounts advanced under the ACF-AH Note were largely 

to fund overhead and expenses at affiliated entities, with no meaningful assets or ways to repay the 

advance. Accordingly, the ACF-AH Note, if properly adjusted to reflect fair value, would have had 

significantly less value than the amounts borrowed and its balance sheet carrying value.

Indeed, the highly leveraged business model of Aequitas left no margin for error. As phantom equity was 

contrived via Aequitas’ accounting procedures, that equity was almost immediately erased by an 

increased debt load such that the first dollar of loss rendered the affiliate entity insolvent — thereby 

eradicating any equity investment value in that affiliate. Intercompany due-to/due-from accounts riddled 

the corporate balance sheet. This jenga-like structure, where one affiliate’s solvency was dependent on a 

sister company’s ability to pay its debts to that affiliate, collapses quickly and drives the entire enterprise 

into insolvency. 

Based on adjustments described above, it is clear that the cumulative effect would more than erase the 

book equity of Aequitas — rendering it insolvent during the Relevant Time Period. 

H.2. Aequitas intended to incur, or had reason to believe that it would incur, debts beyond its 

ability to pay as they became due [the “Timely Payment Test”]

The Timely Payment Test is an alternative insolvency test which assesses whether, at the time of the 

transfer, the debtor intended to incur, or believed that it would incur, debts beyond its ability to pay such 

debts as they matured.

475

I considered numerous factors in determining whether the Timely Payment Test of insolvency had been 

met. After considering (1) that Aequitas’ reported profitability was solely driven through flawed fair 

value unrealized gains; (2) that the financial structure of its investments in consumer debt portfolios were 

significantly flawed to the point of rendering them unsustainable and uneconomic; (3) the inability of 

Aequitas to fund interest payments or debt maturities without the significant, ongoing flow of new 

Investor funds; (4) Aequitas’ ongoing practice of commingling funds and “manufacturing” notes in a 

financial shell game to fund its obligations; and (5) the significant amount of evidence that Aequitas knew 

of its financial distress yet continued to fundraise in the face of deepening insolvency, I have concluded 

that Aequitas, with reasonably known information, knew or should have known it had incurred or would 

incur debts beyond its ability to pay.

476

H.3. Aequitas possessed insufficient assets to conduct its intended business [“Unreasonably 

Small Assets Test”]

The Unreasonably Small Assets Test is another alternative for determining insolvency.477 The phrase 

“unreasonably small assets” is not defined in the UFTA or in the Bankruptcy Code. In addressing the 

475 See ORS 95.210(2). See also In re EBC I, Inc., 380 B.R. 348, 359 (Bankr. D. Del. 2008); see also WRT Creditors Liquidation Trust v. WRT Bankr.Litig. Master 

File Defendants (In re WRT Energy Corp.), 282 B.R. 343, 414–15 (Bankr.W.D.La.2001) (“The ‘inability to pay debts’ prong of section 548 is met if it can be shown 

that the debtor made the transfer or incurred an obligation contemporaneous with an intent or belief that subsequent creditors likely would not be paid as their claims 

matured.”).

476 Liebersohn v. Campus Crusade for Christ (In re C.F. Food, L.P.), 280 B.R. 103, 116 (Bankr. E.D. Pa. 2002) (operation of the Debtor’s Ponzi scheme demonstrates 

the subjective intent to incur debts beyond the company’s ability to pay as they become due). 477 “[T]he test for unreasonably small capital is reasonable foreseeability" that lack of capital will lead to an "inability to generate enough cash flow to sustain 

operations." Moody v. Security Pacific Business Credit, Inc., 971 F.2d 1056, 1070, 1073 (3rd Cir. 1992). See also Sol. Tr. v. 2100 Grand LLC (In re AWTR 

Liquidation Inc.), 548 B.R. 300, 313 (Bankr. C.D. Cal. 2016) (quoting same). 

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test, courts focus on the financial stability of the company, based on the company’s ability to generate 

sufficient profits to sustain operations, pay its debts and remain financially stable.478 The fact-based test 

focuses on whether a company’s cash flow forecasts combined with its assets or capital are reasonable 

and leave enough margin for error to account for reasonably foreseeable difficulties.479 The term 

“unreasonably small assets” denotes a financial condition short of balance sheet insolvency, and the 

Unreasonably Small Assets Test of financial condition is aimed at transferees that leave the transferor 

technically balance sheet solvent but likely doomed to fail.480

In applying the Unreasonably Small Assets Test, I considered several factors and reached the following 

conclusions:

1) I was unable to identify any other source of funding for Aequitas outside of ongoing fundraising 

by an entity embroiled in a deepening insolvency.

2) I further considered the financial condition of Aequitas in view of the impact of restated fair 

values and appropriate recognition of operating expenses that had been capitalized on the balance 

sheet via the ACF-AH Note. I concluded that internal projections for Aequitas failed to 

adequately consider the business risks or incorporate a reasonable margin for error.

3) I also evaluated whether the fair value increases were reasonable in light of historical results. 

Beginning in 2014, Aequitas experienced a significant — if not fatal — blow to the student debt 

portfolio which should have resulted in a reversal of any fair value increases recognized on the 

portfolio. Additionally, Aequitas should have booked significant loss reserves for the student 

loans that were no longer backed by functional recourse to CoCo. Finally, the fair value increase 

in the operating companies were fabrications and not supported by historical financial 

performance, reasonable financial projections or appropriate comparable companies.

4) I also analyzed the extent to which the other investments in consumer debt portfolios or 

investments in operating companies could sustain Aequitas’ operations. As previously discussed, 

each of the portfolios suffered from catastrophic structural defects and none of the operating 

companies was cash positive after debt service.

5) As noted above, I took into account email evidence indicating that Aequitas knew it could not 

fund its operating expenses and was reliant on contrived internal debt transactions in order to 

mask a deepening insolvency.

Based on the testing I conducted, and factors considered, I have concluded that Aequitas did not possess 

sufficient assets or the ability to generate profits to conduct and sustain its business, had an insufficient 

cushion against reasonable uncertainty, and was doomed to fail.

478 Moody v. Sec. Pac. Bus. Credit, Inc. 971 F.2d 1056, 1070 (3rd Cir. 1992) (discussing “unreasonably small capital” in the context of the Uniform Fraudulent 

Conveyance Act); Liebersohn v. Campus Crusade for Christ (In re C.F. Food, L.P.), 280 B.R. 103, 116 (Bankr. E.D. Pa. 2002) (because the ability of a Ponzi scheme 

to generate cash flow can only come from the continuation of the fraudulent scheme, the operation could never be ‘financially stable,’ since its collapse is inevitable). 479 See Moody v. Security Pacific Business Credit, Inc., 971 F.2d 1056, 1071-1076 (3d Cir. 1992)(discussing ‘unreasonably small capital’ under the circumstances of 

the failure of a company following a leveraged buyout); and Credit Managers Ass’n v. Federal Co., 629 F. Supp. 175, 184-188 (C.D. Cal. 1985)(discussing 

‘unreasonably small capital’ under the Uniform Fraudulent Conveyance Act). 480 Kipperman v. Onex Corp., 411 B.R. 805, 836 (N.D. Ga. 2009).

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I. Payments to insiders

In addition to the loans to insiders, consultant commission payments, AB member payments and other 

such incentives discussed earlier in the report, there were several payments during the Relevant Period to 

members of Aequitas upper management. 

I.1. Payments to Individual Defendants

In addition to the insider transactions (NorthBranch Member Loans, Hill Land lease, APF), the Individual 

Defendants also withdrew Investor funds in the form of salaries, bonus, 401k match payments, fringe 

benefits and distributions481 totaling another $4.9 million during the Relevant Time Period. Annual 

salaries for Jesenik, Oliver and Gillis were set at $685 thousand,

482 $350 thousand and $400 thousand, 

respectively, during the Relevant Time Period.483

I.2. Olaf Janke separation payment

In late 2014, Janke announced his intended separation from Aequitas amid continued disagreements with 

management regarding certain practices. On November 20, 2014, Jesenik emailed Janke and Gillis, 

discussing Janke’s request for a proposal from Aequitas, in order to extend out his resignation date.

484 

Per the email, Janke had announced to management a separation date of December 31, 2014, however 

Jesenik was negotiating for a resignation date of April 30, 2015. Chief among the discussions concerned

the ownership stake Janke had purchased in AM, which was executed just six months prior to announcing 

his intention to resign. 

Because all direct financial departments reported to Janke, and Janke was considered crucial in the 

Deloitte audit, Janke and management entered into an extended separation agreement on January 15, 

2015, in exchange for significant and non-standard compensation.

Janke AM Unit background:

According to records, Jesenik first requested documentation from in-house counsel to allow Janke to 

purchase Aequitas Management Units (“AM Units”) around November 2013. On January 9, 2014, 

Jesenik emailed Janke document drafts for his purchase of AM Units.

485 Several versions were turned, 

until the final versions were executed between May 15 and May 28, 2014, completing Janke’s purchase of 

481 Member Distributions include distributions and advances on Special Units and AM Units, but does not include payments for any of the Individual Defendants 

investment into Aequitas Funds. Jesenik’s Member Distribution & Advance payment includes a $250 thousand payment received in October 2013, as an advance for 

AM Unit distribution paid out in February 2014. Additionally, in January 2015 Jesenik received an additional $75 thousand “advance” on a future AM Unit 

distribution, which never came to fruition. 

482 Jesenik began 2014 with a salary of $450 thousand, but in September of 2014 increased his salary to $685 thousand retroactively to January 1, 2014. 483 These figures do not include employer paid portions of the Individual Defendants health insurance, dental insurance, life insurance, short term disability, long term 

disability, or health savings account contributions. 484 Email from Jesenik to Janke, November 20, 2014, “transition options-confidential”. 485 Email from Jesenik to Janke, January 9, 2014, “FW: Janke Purchase of Mgt Units”. 

Payroll & 

Allowances Expenses Consulting

Member 

Distributions & 

Advances Subtotal

Newman 

Loan

Northbranch 

Loans Subtotal Grand Total

Gillis $ 526,799 $ 42,643 $ 34,675 $ - $ 604,117 $ - $ - $ - $ 604,117

Jesenik 1,728,669 147,434 - 1,009,502 2,885,605 222,450 359,603 582,053 3,467,658

Oliver 1,183,376 81,090 - 190,502 1,454,968 - 218,555 218,555 1,673,523

Total $ 3,438,844 $ 271,166 $ 34,675 $ 1,200,004 $ 4,944,690 $ 222,450 $ 578,158 800,608$ $ 5,745,298

 Direct Payments 

to Individual Defendants 

 Outstanding Loans 

(principal balance) 

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196 thousand AM Units (6.2% of AM), backdated to be effective January 1, 2014.

486 As consideration 

for the AM Units, Janke entered into a promissory note (the “AM Purchase Note”) with AM, for $1.2 

million, at a 1% interest rate with a maturity date of January 1, 2019.

487 

Separation discussion:

Only six months after signing the executed AM Unit documents, Janke entered into the confidential 

separation discussions between Jesenik and Gillis, who had been brought in by Jesenik “as an 

intermediary here to assist both of us in having the best outcome.” These talks occurred between 

November 20 and December 13, 2014. Jesenik initially offered to buy out the AM Units for the value of 

the note, plus $500 thousand in cash. Jesenik later amended this to state that they would calculate the 

value off of the AM valuation, after the 2014 valuation audit has been completed. However, on 

December 7, 2014 Janke rejected Jesenik’s offer, stating:

As to the value of the equity, I am quite frankly surprised about the link to our financials as when 

the $70MM valuation was set this spring, it was mainly driven off the value of COF. As of 9/30, 

COF is valued at $120MM of which roughly 90% is owned by Aequitas and therefore the $70MM 

valuation already represents a significant discount to the asset value and does not account for the 

expected year-end valuation gains of $13MM+. In the end, the buyer of my equity is receiving 

ACF and the wealth management business for free in addition to a $50MM discount on COF. 

Therefore the financials of Holdings are superseded by the asset value.

Jesenik, Gillis and Janke entered into a discussion on December 12 to determine the details of his 

separation. Per the summary sent by Janke to Jesenik after the meeting, they agreed to the following:

488

• On 1/15/15, I will sell my equity to Aequitas for $500k in cash and the retirement of my 

note with any accrued and unpaid interest. In addition, Aequitas issues a note of $835k to 

me which will be repaid in 1/3 increments on 3/15/15, 4/15/15 and 5/15/15.

• On 2/15/15, Aequitas will pay me 75% of my 2014 target bonus.

• On 4/30/15, Aequitas will pay me the remaining 25% of my 2014 target bonus in whole 

or in part subject to the successful conclusion of all audits due by 4/30/15, excluding the 

audit for Holdings, Unigo and CPYT. Any proportional payout would be calculated on 

the basis of how many audits should have been completed vis-à-vis how many actually 

got done.

• I am not eligible for any garden leave payment following my separation date of 4/30/15.

On January 15, 2015, Jesenik emailed Accounting requesting a check to be cut for Janke for $500 

thousand.

489 On March 9, a fully executed version of Janke’s “Membership Interest Sale Agreement”490

and “Employee Separation Agreement”491 was circulated, effective as of January 15.

486 May 15, 2014, “Admission Agreement (AM-Janke) 01-01-14 v1_0.pdf”; May 28, 2014, “Assignment of Membership Interest (195,835 Common Units) (AMJanke) 01-01-14 v1_0.pdf”; May 28, 2014, “Spousal Consent-Michelle Janke (Admission Agmt-AM-Janke) 1-01-14 v1_0.pdf”; May 28, 2014, “Pledge AgmtMembership Units (Janke-AM) 01-01-14 v1_0.pdf” (note- Spousal Consent and Pledge Agmt are misnamed as each other). 487 May 28, 2014, “Promissory Note (Janke-AM) 01-01-14 v1_0.pdf”. 488 Email from Janke to Jesenik, December 14, 2014, “RE: transition options-confidential”. 489 Email from Jesenik to Kang, January 15, 2015, “advance”. 490 March 6, 2015, “Membership Interest Sale Agmt (195,835 Common Units) (AM-OlafJanke) 01-15-15 v1_0.pdf”. 491 March 5, 2015, “20150305134649964.pdf” (“Janke Olaf Executed Separation Agreement.pdf”) as amended on April 10, 2015.

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Per the terms of the Membership Interest Sale Agreement, the complete balance of the AM Purchase Note 

($1.2 million plus accrued interest) owed by Janke was to be canceled. In addition, Janke was to receive 

the $500 thousand in cash (previously paid on January 15) and a new note payable (“New Note”) to Janke 

for $1.3 million, payable by April 15, 2022. Combined, this valued Janke’s AM Unit Sale Price at $3.1 

million.

492

Per the Employment Separation Agreement, Janke would receive the following compensation and 

benefits, as detailed in his agreement: 

• Full base salary, monthly auto allowance, employee health and dental benefits, club membership, 

and 401k matching through his separation date of April 30

• $278 thousand in unpaid 2014 incentive compensation

o Representing 75% of the maximum bonus he could be entitled to receive, should he 

remain employed through March 15, 2015

• $93 thousand in unpaid 2014 incentive compensation 

o Representing the remaining 25% of his bonus, to be awarded should Janke lead scheduled 

ACF audits to completion by April 30, 2015

 No other employee would receive 100% of their scheduled incentive bonus, as 

Aequitas failed to meet its revenue threshold targets for 2014. The majority of 

employees on the established annual bonus plan (like Janke) received only 54% 

of the bonus paid for reaching 2014 financial company goals

o On April 10, 2015, the Separation Agreement was amended to remove the requirement to 

complete ACF audits, guaranteeing Janke the remaining 25%

 Janke was also required to exclude himself from any audit or financial statement 

preparation discussions with the accounting and finance teams he oversaw as of 

March 16, and only respond to questions directly to the new Chief Accounting 

Officer hired as his replacement

• Accelerated (and discounted) buyout of his New Note payable:

493

o $278 thousand payable on March 30, 2015494

o $278 thousand payable on May 15, 2015495

o $278 thousand payable on June 15, 2015496

• Reimbursement and a $200 hourly rate for any work completed after the Separation Date

Apart from Janke, several executives’ departures have led to buyout agreements of their AM Units. In 

each buyout agreement, the executive and Jesenik would determine the appropriate buyout price and 

payment terms. However, unlike in the Janke buyout, these payments would be completed over time and 

492 April 1, 2015, “AM Ownership Chart with Jesenik Changes 3-31-2015.xlsx”, F04452-E0038-00187758. 493 Per Janke’s Membership Interest Sale Agmt, the New Note balance was to be $1.3 million, with quarterly payments of 1.25% the original principal balance, until it 

was paid off by April 2022. However, per Janke’s Employment Separation Agreement, he agreed that if Aequitas completes the three accelerated payments described 

above, the purchase price of the New Note would be adjusted down to reflect the New Note as paid in full as of June 2015 (seven years before it was due). 494 May 6, 2015, “Janke Payment 3-30-2015.pdf”. 495 May 14, 2015, “Janke Payment 5-15-2015.pdf”. 496 June 15, 2015, “Janke Payment 6-15-2015.pdf”. 

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follow an amortization schedule spread out over three to seven years, depending on the amount of the AM 

note held. 

In contrast, Janke’s agreement required unprecedented accelerated payments, with his first buyout 

payment being due 30 days before his separation from Aequitas and his final payment received within 45 

days, in exchange for a discounted New Note purchase price. Per the original terms of the New Note, 

Janke was to receive quarterly payments of $16 thousand, until the balance of the $1.3 million New Note 

was paid in full in April 2022. Janke’s agreed to reduce the purchase price of the New Note to $835 

thousand (a 38% reduction), should he receive the payment within 45 days of separation, rather than paid 

quarterly throughout the next seven years. 

As Janke oversaw the daily cash management of the enterprise, was involved in the frequent cash 

liquidity issues with Jesenik and the management team and was leaving amid disagreements over the 

proper way to continue Aequitas business, there is a logical tie between the demanded acceleration and 

Janke’s uncertainty that Aequitas would have sufficient liquidity to pay out per the normal amortization 

schedule. In fact, it is indisputable that the only source of funds for the payment of Janke’s agreement 

was from Investors. Within 13 months of acquiring his AM Units, and without investing any cash into 

the venture, Janke walked away with $1.3 million in cash for the “value” of his interest in AM – which 

value arguably declined during his tenure - plus $370 thousand in incentive compensation paid after 

announcing his resignation. 

J. Information gathering

Upon taking possession of the Aequitas’ offices, the Receiver’s team performed a cursory review of all 

records located on the premises. The team specifically sought out and reviewed in greater detail records 

pertaining to accounting, Investors/fundraising, legal communications, acquisition/disposition of assets, 

and other related matters. These records consisted of both physical documents and computer files. All 

pertinent records and data were reviewed in detail as appropriate during investigation and administration 

of the Receivership. The universe of records continues to grow as the forensic accounting and other 

investigations continue.

J.1. Collection and preservation of hard copy data and electronically stored information

As of the date of this Report, the Receiver has consolidated all digital data within his control into a 

centralized, organized database (hosted by FTI Technology) which consists of all Aequitas data collected 

from local data servers, email archives, and third-party legal discovery platforms integrated into a single, 

managed repository. The database contains more than 13 million documents/emails and was edited to 

remove non-Aequitas material (iTunes music libraries, personal pictures/videos, etc.). In addition to the 

Receivership’s database, the Receiver has also integrated the multiple data repositories in Document 

Technologies Inc.497 possession as well as the data repository hosted by Pepper Hamilton, LLP.

498 The 

Receiver is currently utilizing the centralized database to prepare his response to SEC requests for 

production and has granted access to multiple interested parties.

Additionally, Aequitas maintained data in both hosted (any data service and/or data repository that is 

hosted by an external third-party provider and managed by Aequitas personnel) and on-premise data 

497 Document Technologies, Inc. was the previous eDiscovery solution employed by Aequitas, and the database contains valuable work product related to prior 

productions in the ASFG litigation and to the SEC.

498 The Pepper Hamilton repository contains valuable work product as to the files provided by Sidley Austin and the SEC, as well as the ongoing privilege dispute by 

the Individual Defendants.

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services (any data service and/or data repository that is maintained and managed by Aequitas personnel 

on Aequitas-owned infrastructure within the bounds of Aequitas-managed facilities).

J.1.1.Hosted data services

J.1.1.1. Microsoft Exchange email communications

All corporate Microsoft Exchange email services are hosted via the Microsoft Office 365 Cloud Platform. 

https://www.microsoft.com/en-us/trustcenter/cloudservices/office365

J.1.1.2. Email data archiving service

All corporate email (inbound/outbound) is journaled and archived in real-time to the SMARSH Cloud 

Archiving & Discovery Platform. https://www.smarsh.com/email-archiving-solutions

J.1.1.3. Secure online file sharing service

Secure file sharing with non-Aequitas third parties is hosted on the Citrix ShareFile platform. 

https://www.sharefile.com/features

J.1.1.4. Online virtual data room service

Secure online virtual data room services for Aequitas are hosted on the Citrix ShareFile Virtual Data 

Room platform. https://www.sharefile.com/virtual-data-room 

J.1.1.5. Salesforce CRM data (deprecated 2017) 

Salesforce CRM data was previously hosted on the Salesforce.com Enterprise cloud platform up until the 

end of 2017. A complete data download of all Salesforce data now resides in the Receivership data 

warehouse (on-premise).

J.1.1.6. Concur employee expense data (deprecated 2017) 

Aequitas Concur employee data was previously hosted on the Concur cloud platform until early 2017. A 

complete data download of all Concur data now resides in the Receivership Ringtail Discovery Platform 

(hosted).

J.1.2.On-premise data services

J.1.2.1. Microsoft active directory services

All Aequitas user accounts, security principals, service accounts and access groups were managed via 

Microsoft Active Directory Security Services on-premise by Aequitas IT personnel. 

J.1.2.2. Microsoft windows network file sharing services

Microsoft Windows Network File Sharing Services provide Aequitas personnel secure access to business 

data on network file shares located on the local Aequitas network. All file shares are secured via 

Microsoft Active Directory Security Services and managed on-premise by Aequitas IT personnel. 

J.1.2.3. Aequitas data warehouse services

Aequitas maintained a significant data repository of financial portfolio and other operational business 

databases both current and historical. The data is hosted on-premise using Microsoft SQL Server and 

managed by Receivership IT personnel.

J.1.2.4. Virtual server infrastructure services

Aequitas maintained and hosted VMware virtual server infrastructure in support of the business 

computing and data needs. The Receivership currently maintains 52 total virtual servers within the 

VMware environment managed on-premise by Receivership IT personnel.

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J.1.2.5. Enterprise data backup services

Receivership IT personnel maintain the local enterprise data backup service, which integrates with the 

VMware virtual server infrastructure and is responsible for the core enterprise data backup services 

outlined in the Data Protection Policy. 

J.2. Accounting data 

Aequitas managed its business using Microsoft Dynamics GP (aka “Great Plains”) as its core enterprise 

resource planning financial accounting system. Each entity was assigned a company number and 

financial transactions were recorded using double-entry accounting in each entity impacted by the 

transaction. A review of the accounting records for the Receivership Entity showed that similar 

transactions were not recorded consistently both from entity to entity and within the individual entities 

themselves. This resulted in transaction data that is not comparable and made it difficult to generate 

functional reports from such data. 

To perform the analyses requested and generate useful reports from the accounting data, the forensic team 

reviewed cash transactions for the 48 Receivership entities and categorized them to facilitate the analysis 

and create reports to answer questions posed during the course of the Investigation. To start, cash debit 

and credit transactions from Great Plains were downloaded for each Receivership entity. This included 

both cash and restricted cash accounts and produced over 65 thousand lines of data for review.

Also downloaded from Great Plains were the non-cash transactions. Because journal entries often 

included entries to both cash and non-cash accounts, these were sometimes used as a resource for

additional information about the transactions that helped to place that transaction in the most appropriate 

category. Due to the volume of transactions and the time necessary to download, non-cash transactions 

for CPLLC were not downloaded.

J.3. Bank data 

After the cash transactions had been categorized, a reconciliation to the bank statements was performed to 

ensure that all cash transactions were included in the cash analysis and that the data set was complete. At 

the time this Report was issued, Aequitas did not have complete bank statements or other records 

necessary to tie all cash transactions to this third-party evidence. Most of the missing documents were 

related to a subset of Bank of America accounts for which Aequitas used an online banking tool

commonly referred to as CashPro.499 Despite the missing bank records, an analysis of the Receivership 

Entity showed that approximately 94% of the lines of data could be verified to bank statements. 

Additional validation methods were employed to compensate where there was a lack of physical bank 

statements. No exceptions were noted during that validation. 

J.4. Payroll data

Aequitas maintained all payroll-related data and files in accordance with the federal Fair Labor Standards 

Act, IRS and Equal Employment Opportunity Commission. Aequitas utilized various cloud-based online 

payroll platforms to run its bi-monthly payroll.500 These secure sites provide online access to all 

employee data, including employee contact information, pay history, employee earnings and deductions, 

tax documents, etc. In addition to the online payroll tools, Aequitas maintained electronic payroll reports 

on a per-payroll basis, which are securely saved in the document repository tool, Document Locator. 

Access to payroll-specific files is strictly limited to members of IT, HR and one Accounting Contractor. 

499 CashPro is a registered trademark of Bank of America Corporation and is used to identify its electronic platform for managing banking and treasury functions. 500 Paychex 2009 – 2010; Paylocity (cloud-based online tool) 2011 – 2014 and Paychex 2015 – present.

Page 135 of 137

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 137 of 174
J.5. Tax returns

J.5.1.Tax return preparers

Aequitas has had tax returns prepared by several firms in the past. Starting with the most recent years and 

working back, the preparers were:

• 2015 and forward: a tax preparer retained by the Receivership, Barbara M. Smith Accounting 

Inc., has prepared the returns for 2015 and forward.

• 2013 to 2014: Deloitte Tax prepared the returns for 2013 and 2014.

• 2012: EisnerAmper LLP prepared the 2012 returns. 

• 2008 to 2011: EisnerAmper LLP prepared returns for several of the Aequitas Funds for 2008 thru 

2011. The 2010 returns (and years before that) show the firm name as Harb, Levy & Weiland 

LLP, a firm that was merged into EisnerAmper LLP. The rest of the Aequitas entity returns for 

these years were prepared by AKT LLP. 

• Before 2008: Based on the copies of returns available, AKT LLP (formerly known as Aldrich 

Kilbride & Tatone LLC) prepared the Aequitas returns in years back to about 2005. 

J.5.2.Electronic tax records

The Aequitas Shared Drive contains electronic tax records for years back to 2004. For years prior to 

2013, the electronic files are mainly only copies of returns. Some information related to the preparation 

of returns from those earlier years on the Aequitas server; however, the Receiver has not confirmed the 

completeness of the workpapers.

Starting in 2013, and for all years thereafter, tax information provided to the tax preparer, review copies, 

work papers and final tax returns were saved on the Aequitas server along with copies of extensions, 

payments and estimates.

The tax information on the Aequitas server also contains various topic folders, copies of local tax returns 

(personal property tax returns, etc.), tax notices, tax planning, research and other folders related to the 

operation of the Tax department. For the most part, information from 2013 and forward is saved 

electronically (there are some paper files). Information from earlier years may or may not be included in 

the electronic files. 

J.5.3.Other tax records

Paper copies of prior-year tax returns (generally all from years 2010 and back) are kept on the premises. 

About four drawers of tax topic files are also located on the premises. The paper files are mostly from 

years prior to 2013 and are not complete.

J.6. Management of data/records

In addition to its electronic data sources, Aequitas maintains certain hard-copy records consisting of 

signed documents and accounting support. This inventory consists of 72 banker boxes of records stored 

on-premises and 644 banker boxes inventoried and warehoused offsite in DataSafe storage.501

501 https://www.datasafe.com/

Page 136 of 137

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 138 of 174
J.7. Information from Aequitas Entity personnel

The Receiver retained several former Aequitas employees as members of the Receivership accounting 

and forensic team. This staff includes personnel knowledgeable in the Investor, Tax, Treasury, Portfolio

Management and IT operations of Aequitas who contributed greatly to the content of this Report. 

Page 137 of 137

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 139 of 174
NOTE: Does not include inactive

and non‐operating entities

~12.6%

Aequitas

Management, LLC

(OR)

Aequitas

Holdings, LLC

(OR)

83.6%

Ownership

100% Control

Executive

Falcon, LLC

(OR)

100%

Aequitas

Commercial

Finance, LLC

(OR)

100%

CarePayment

Holdings, LLC

(DE)

CarePayment,

LLC

(OR)

Campus Student

Funding, LLC

(OR)

ML Financial

Holdings, LLC

(DE)

MotoLease

Financial, LLC

(OR)

Aequitas

Peer‐To‐Peer

Funding, LLC

(DE)

ACC

Holdings 1, LLC

(DE)

100%

100%

100% 100%

100% 100%

100% 100%

CP Funding I

Holdings, LLC

(DE)

100%

ACC F Plus

Holdings, LLC

(DE)

100%

100%

Aequitas Capital

Management, Inc.

(OR)

Aequitas

Capital

Opportunities

GP, LLC

(DE)

Spouting

Rock Financial

Partners, LLC

(DE)

100% 2.7% 75% 100%

A

I

Op

Fu

Aequitas

ETC Founders

Fund, LLC

(DE)

Aequitas

Income

Opportunity

Fund II, LLC

(DE)

Aequitas

Hybrid Fund, LLC

(OR)

Aequitas

Commercial

Finance, LLC

100% 15.4%

Aequitas

WRFF I, LL

(DE)

Aequitas

Holdings, LLC

14% 

Aequitas Capital

Opportunities

Fund, LP

(DE)

51.9%

3.6%

GP; 1% LP

Aequitas

Enterprise

Services, LLC

(DE)

100%

25%

EDPlus

Holdings, LLC

(OR)

Alternative

Capital

Advisers, LLC

(DE)

MotoLease,

LLC

(DE)

SCA

Holdings, LLC

(WA)

CarePayment

Technologies, Inc.

(OR)

ETC Global

Group, LLC

(DE)

QuarterSpot, Inc.

(DE)

Window Ro

Aequitas Resid

Recovery Fun

(DE)

LP

17.9% 92.1% 79% 23% 4.9% 25%

28.9%

100%

Ivey

Performance

Marketing, LLC

(OR)

Gridbox

Media, LLC

(DE)

24.3%

80.3% 9

100% 100% 

ACC

Holdings 2, LLC

(DE)

100%

ACC

C Plus

Holdings, LLC

(DE)

100%

Aequitas

Senior Housing

Operations, LLC

(DE)

Ledgestone

Management, LLC

(DE)

32.9%

Ledgestone

Holdings, LLC

(DE)

Ledgestone

Property

(DE)

32.9%

100%

Aequitas

Corporate

Lending, LLC

(OR)

100%

Portland Seed

Fund II, LLC

(DE)

LP

Aequitas

Wealth

Management, LLC

(DE)

Hickory Growth

Partners, LLC

(DE)

100%

80%

Aspen Grove

Equity

Solutions, LLC

(OR)

Private Advisory

Group, LLC

(WA)

60%

68.2%

Aequitas Wealth

Management

Partner Fund, LLC

(DE)

100%

AAM Fund

Investment, LLC

(DE)

Innovator

Holdings, LLC

(DE)

Aequitas Asset

Management

Oregon, LLC

(DE)

100%

100%

100% 100%

Strategic

Capital

Alternatives, LLC

100%

Argentus

Partners, LLC

75%

MOGL Loyalty

Services, Inc.

(DE)

Independence

Bancshares, Inc.

(SC)

Aequitas

International

Holdings, LLC

(DE)

Aequitas

International

Opportunities LP

(Cayman Islands)

GP

ACC

Holdings 5, LLC

(DE)

ACC Funding

Series Trust

2015‐5

(DE)

100%

12.6%

9.9%

11%

7.1%

29.2% 

Innovator

Management, LLC

(DE)

51%

<.1

Aequitas

Holdings, LLC 8.1%

ACC Funding

Trust 2014‐2

(DE)

ACC Funding

Trust 2014‐1

(DE)

CP Funding

I Trust

(DE)

100% 100% 100%

Pa

C

Marketing

Services

Platform, Inc.

(DE)

Skagit

Gardens, 

(WA)

Aequitas

Investment

Management, LL

(OR)

Pipeline Health

Holdings, LLC

(DE)

Unigo Student

Funding, LLC

(DE)

The Hill

Land, LLC

(OR)

Aequitas Senior

Housing, LLC

(DE)

Aequitas

Private Client

Fund, LLC

(DE)

Executive

Citation, LLC

(OR)

Ownership RelationshipTrust Beneficiary RelationshipInvestment Advisory Relationship

Aequitas Operating EntityAequitas Managed FundPrivate CreditPrivate EquityOtherOn Chart in Other Area

In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity’s Business Conduct

Exhibit A

Aequitas Organizational Chart

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 140 of 174
In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit B

Glossary

Term Definition Page

40 Act the 1940 Investment Companies Act 64

ACCCPH ACC C Plus Holdings, LLC; an entity in the Receivership Entity 5

ACCFPH ACC F Plus Holdings, LLC; an entity in the Receivership Entity 5

ACCFT-1 ACC Funding Trust 2014-1; an entity in the Receivership Entity 17

ACCFT-2 ACC Funding Trust 2014-2; an entity in the Receivership Entity 17

ACCFST-5 ACC Funding Series Trust 2015-5; an entity in the Receivership Entity 58

ACCH2 ACC Holdings 2, LLC; an entity in the Receivership Entity 28

ACCH5 ACC Holdings 5, LLC; an entity in the Receivership Entity 122

ACF Aequitas Commercial Finance, LLC; an entity in the Receivership Entity, and one 

of the Entity Defendants

5

ACF-AH Note the intercompany receivable due from Aequitas Holdings, LLC payable to Aequitas 

Commercial Finance, LLC

19

ACF-CPYT Note the various loan receivables due from CarePayment Technologies, Inc. payable to 

Aequitas Commercial Finance, LLC

19

ACF-ETCFF Loan loan receivable due from Aequitas ETC Founders Fund, LLC and payable to 

Aequitas Commercial Finance, LLC

124

ACF-Op the operating bank account of Aequitas Commercial Finance, LLC 14

ACF-PN the Private Note bank account of Aequitas Commercial Finance, LLC 13

ACL Aequitas Corporate Lending, LLC; an entity in the Receivership Entity 5

ACL-CPYT Note the ACF-CPYT Note after Aequitas Commercial Finance, LLC contributed its 

interests in the notes receivable due from CarePayment Technologies, Inc. to 

Aequitas Corporate Lending, LLC

19

ACM Aequitas Capital Management, Inc.; an entity in the Receivership Entity, and one of 

the Entity Defendants

5

ACP Aequitas Capital Partners, an Aequitas run RIA membership group which provided 

benefits to Registered Investment Advisers who promoted Aequitas investment 

products. 

79

AB Aequitas Advisory Board - consisted of William McCormick, Edmund Jensen, 

Patrick Terrell, Martin Brantley, William Glasgow J.D., Keith Barnes, Donna 

Miles, Robert (Bob) Zukis and Gerry Frank as of January 28, 2016.

8

AEF Aequitas Equipment Finance, LLC; a former Aequitas entity not included in the 

Receivership Entity

67

Aequitas or Aequitas Entity the Entity Defendants and its 43 subsidiaries and/or majority-owned affiliates 5

Aequitas Funds a general term to describe any outside investor fund, with exception of Private 

Notes, Direct Notes, and equity funds. These funds are: Aequitas Enhanced Income 

Fund, LLC; Aequitas Income Opportunity Fund, LLC; Aequitas Income 

Opportunity Fund II, LLC; Aequitas Income Protection Fund, LLC; Aequitas 

Private Client Fund, LLC

12

AES Aequitas Enterprise Services, LLC; an entity in the Receivership Entity 39

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 141 of 174
AFSN Aequitas Financial Services Network, an Aequitas run Registered Investment 

Advisors membership group which provided benefits to Registered Investment 

Advisers who promoted Aequitas investment products. 

63

AGES Aspen Grove Equity Solutions, LLC; an entity in the Receivership Entity 19

AH Aequitas Holdings, LLC; an entity in the Receivership Entity, and one of the Entity 

Defendants

5

AHF Aequitas Hybrid Fund, LLC; an entity in the Receivership Entity 5

AICPA American Institute of Certified Public Accountants 6

AIO Aequitas International Opportunities LP; one of the Extended Entities under the 

Final Receivership Order

5

AIO-SA Aequitas Income Opportunities (Luxembourg) SA; a former Aequitas entity not 

included in the Receivership Entity

122

AIM Aequitas Investment Management, LLC; an entity in the Receivership Entity, and 

one of the Entity Defendants

5

AM Aequitas Management, LLC; an entity in the Receivership Entity, and one of the 

Entity Defendants

5

AM Units equity membership units of Aequitas Management, LLC 130

AH-AM Note the intercompany note receivable due from Aequitas Management, LLC payable to 

Aequitas Holdings, LLC

81

AP2PF Aequitas Peer-To-Peer Funding, LLC; an entity in the Receivership Entity 5

APF Aequitas Partner Fund, LLC; an entity in the Receivership Entity 5

ASA Administrative Services Agreement 9

ASFG ASFG, LLC, an former Aequitas entity later known as Campus Student Funding, 

LLC

14

ASFGLI ASFG Leverage I, LLC; an Aequitas entity later known as CSF Leverage I, LLC 14

ASFG-Op the bank account of ASFG, LLC 14

ASFG, Inc. American Student Financial Group, Inc., a Delaware corporation, is a separate and 

distinct entity from ASFG, LLC. American Student Financial Group, Inc. is not part 

of the Receivership Entity or otherwise affiliated with the Receivership.

55

Asset Allocation Policy a internal Aequitas policy established in 2014 and updated in 2015 for the issuance 

of Manufactured Notes to Aequitas Funds

33

ASU Accounting Standards Update No. 2013-08 issued by the Financial Accounting 

Standards Board

40

Atalaya Atalaya Asset Income Fund II LP, and certain of its affiliates 59

AWM Aequitas Wealth Management, LLC; an entity in the Receivership Entity 9

Bad Assets Aequitas' terminology for certain equity and security assets that would trigger 

registration under the 1940 Investment Companies Act

64

Billing accounts healthcare accounts that are originated under the program and CarePayment 

Technologies, Inc. services, but that were not acquired by CarePayment, LLC or its 

affiliates at the point of origination. These accounts were typically converted to 

Funded after certain number of payments were received from the patients

42

BSR Business Service Revenue, a calculation as defined by Aequitas, intended to be a 

net interest margin calculation. Otherwise known as a Program Management Fee

38

C+ Loans a portfolio of unsecured consumer loans denominated as ConsolidationPlus or "C+" 

loans held by ACC Funding Trust 2014-2 and ACC Funding Series Trust 2015-5

58

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 142 of 174
Cana's Feast Cana's Feast Winery, LLC 82

CapitalSource CapitalSource Inc. 14

CashReady Judgment the judgment in favor of Income Opportunity Fund, LLC in the litigated dispute 

against CashReady, LLC and Brandon Becker

82

Catalyst Fund Aequitas Catalyst Fund, LLC; a former Aequitas entity not included in the 

Receivership Entity

48

Cerberus Cerberus Capital Management L.P. 54

CFPB the Consumer Financial Protection Bureau 9

CoCo Corinthian Colleges, Inc. 9

COF Aequitas Capital Opportunities Fund, LP; an entity in the Receivership Entity 5

COFGP Aequitas Capital Opportunities GP, LLC; an entity in the Receivership Entity 41

Commission or SEC the Securities and Exchange Commission 5

Complaint the complaint filed on March 10, 2016 by the Commission against the Entity 

Defendants and the Individual Defendants [Dkt. 1]

5

Complaint Date March 10, 2016 5

Comvest Comvest Capital, III, L.P. 59

Comvest Lenders Comvest Capital, III, L.P., Atalaya Asset Income Fund II, LP, and certain of its 

affiliates

59

Comvest Notes two secured loans from the third party Comvest Lenders used as acquisition 

financing with respect to the Consumer Loan Portfolios

59

Consumer Loan Portfolios two portfolios of unsecured consumer loans – the F+ Loans and the C+ Loans – 

held by the Receivership Entity

58

Covert or conversion a transfer of an asset or liability from one Aequitas Entity to another without cash 

consideration

9

CPA Certified Public Accountants 6

CPD Capital Pending Deployment term used by Aequitas in the note manufacturing 

process to reflect the total capital raised within a defined time period, which had not 

been collateralized by a note to a SPE

31

CPF Aequitas CarePayment Fund, LLC; a former Aequitas entity not included in the 

Receivership Entity

14

CPFIT CP Funding 1 Trust 55

CPH CarePayment Holdings, LLC; an entity in the Receivership Entity 5

CPLLC CarePayment, LLC; an entity in the Receivership Entity 14

CPYT CarePayment Technologies, Inc.; an Extended Entity of the Receivership 19

CRC Aequitas Conflicts Review Committee 84

CSF Campus Student Funding, LLC; an entity in the Receivership Entity, formerly 

known as AFSG

14

CSFLI CSF Leverage I, LLC; an entity formerly known as AFSGLI, that was later merged 

into Campus Student Funding, LLC

12

CSF-Op the operating bank account of Campus Student Funding, LLC 16

CSS Certified Security Solutions, Inc. 82

DCEF DC Equipment Finance, LLC; a former Aequitas entity that is not included in the 

Receivership Entity

25

Direct Note(s) debt instruments of SPEs of Aequitas Commercial Finance, LLC, and Aequitas 

Holdings, LLC, where an Investor invests directly into a specific SPE, rather than 

through an Aequitas Fund. Entities with outstanding notes to Investors include; 

ACC C Plus Holdings 2, ACC F Plus Holdings 2, Aequitas Corporate Lending, 

Aequitas Peer-to-Peer Funding, CarePayment Holdings, MotoLease Financial 

Holdings and MotoLease Financial

5

EdPlus EDPlus Holdings, LLC; an Extended Entity of the Receivership 19

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 143 of 174
EIF Aequitas Enhanced Income Fund, LLC; an entity in the Receivership Entity 5

Entity Defendants the entities Aequitas Management, LLC; Aequitas Holdings, LLC; Aequitas 

Commercial Finance, LLC; Aequitas Capital Management, Inc.; Aequitas 

Investment Management, LLC

5

ETC ETC Global Group, LLC, ETC USA, ETC Canada, and affiliates 52

ETCFF Aequitas ETC Founders Fund, LLC; an entity in the Receivership Entity 5

Etelos Etelos, Inc. f/k/a Cloudward, Inc. 83

Extended Entities Aequitas affiliated entities which must cooperate fully with the Receiver, but are 

not otherwise included in the Receivership Entity. Extended Entities are located in 

Exhibit B of the Final Receivership Order [Dkt. 156]

5

External APF Investors non-Aequitas investors in Aequitas Partner Fund, LLC; William McCormick, 

Richard Terrell and PatRick Investments.

85

F+ Loans a portfolio of unsecured consumer loans denominated as FreedomPlus or "F+" loans 

held by ACC Funding Trust 2014-1 and ACC Funding Series Trust 2015-5

58

Fargo Rose The Fargo Rose, LLC, a Aequitas restaurant investment which ultimately became a 

part of the Northbranch restructuring

67

FFN Freedom Financial Network and its affiliates 17

Fieldstone Fieldstone Financial Management Group, LLC 19

Final Receivership Order the Order Appointing Receiver filed on April 14, 2016 appointing Ronald 

Greenspan as Receiver for the Receivership Entity [Dkt. 156]

5

FINRA Financial Industry Regulatory Authority, Inc. 53

FTI Consulting FTI Consulting, Inc. 6

Funded accounts healthcare accounts that are originated under the program and that CarePayment, 

LLC or its affiliate acquires and provides the funding for

42

Gladstone Technology Gladstone Technology Partners, LLC; and its affiliates 19

Good Assets Aequitas' terminology for assets that allow Aequitas to maintain compliance with 

the 1940 Investment Companies Act, through an exemption for companies that 

hold higher percentages of consumer and corporate debt.

64

Great Plains Microsoft Dynamics GP, the financial accounting system of Aequitas 135

Ground Lease with an 

Option to Purchase

April 26, 2013 lease agreement and put option between Westside Christian High 

School and The Hill Land, LLC

60

Hill Land The Hill Land, LLC; an entity in the Receivership Entity 60

IBAT an affiliate of Integrity Bank & Trust 8

IC the Aequitas Investment Committee 20

Individual Defendants Robert J. Jesenik, Brian A. Oliver, and N. Scott Gillis 5

Interim Receivership Order the Stipulated Interim Order Appointing Receiver filed on March 16, 2016 

appointing Ronald Greenspan as Receiver for the Receivership Entity on an interim 

basis [Dkt. 30]

5

Investigation the Receiver's investigation into the manner in which the financial and business 

affairs of the Receivership Entity were conducted, as empowered under the Final 

Receivership Order

5

Investors the defrauded Investors of Aequitas Entities 5

IOF Aequitas Income Opportunity Fund, LLC; an entity in the Receivership Entity 5

IOF–ACF(MLF) Note note receivable due from Aequitas Commercial Finance, LLC and payable to 

Aequitas Income Opportunity Fund, LLC, backed by Aequitas Commercial 

Finance's equity in MotoLease Financial, LLC

108

IOF–ACF(SL) Note note receivable due from Aequitas Commercial Finance, LLC and payable to 

Aequitas Income Opportunity Fund, LLC, backed by Aequitas Commercial 

Finance's equity in Non-Recourse Student Loans

108

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 144 of 174
IOFII Aequitas Income Opportunity Fund II, LLC; an entity in the Receivership Entity 5

IPF Aequitas Income Protection Fund, LLC; an entity in the Receivership Entity 5

Ivey Ivey Performance Marketing, LLC; an Extended Entity of the Receivership 48

Manchester Manchester Partners (later to be known as Hancock Investment Advisors) 62

Manufactured Notes A self-described program, for which Aequitas management would assign collateral 

to Aequitas Funds in the form of a note from a SPE. The SPE would assume the 

liability of repaying the note, often times without receiving any direct cash 

consideration.

8

Membership Interest Sale 

Agreement

agreement between Aequitas Management, LLC and Olaf Janke for the sale of his 

membership interest in Aequitas Management, LLC, executed on March 9, 2015

131

MHLXU microHelix, Inc. 42

MLF MotoLease Financial, LLC; an entity in the Receivership Entity 5

MLFH ML Financial Holdings, LLC; an entity in the Receivership Entity 5

MotoLease, LLC separate and distinct entity, not included in the Receivership. MotoLease, LLC 

originated and to an extent serviced the receivables, purchased by MotoLease 

Financial, LLC. As of the Complaint Date, Aequitas Capital Opportunities Fund, 

LP held 230 membership units at a total purchase price of $1.8 million, representing 

23% equity ownership in MotoLease, LLC

126

MSP Marketing Services Platform, Inc.; an Extended Entity of the Receivership 9

nD nD Bancgroup, an entity in which Aequitas Capital Opportunities Fund, LP held an 

equity investment in, for a total purchase price of $2.6 million

20

New Note the promissory note for $1.3 million, with a maturity date of April 15, 2022, owed 

to Olaf Janke from Aequitas, under the terms of his Membership Interest Sale 

Agreement

132

Newman Loan the December 17, 2010 loan from Aequitas Commercial Finance, LLC to Michael J. 

and Susan L. Newman with a original principal balance of $325 thousand, and 

remaining principal balance of $222 thousand

65

NIM fee paid by Aequitas to CarePayment Technologies, Inc. and EdPlus Holdings, 

LLC, intended to be the net interest margin, also referred to as BSR or Program 

Management Fee

43

NorthBranch NorthBranch, LLC 66

NorthBranch Member 

Loans

the limited recourse loans from Aequitas Holdings, LLC to the NorthBranch 

Members to fund the buyout of RDA, and continued funding of the NorthBranch 

restructuring

68

NorthBranch Members the managing members of NorthBranch, LLC following the May 15, 2011 buyout 

of RDA, LLC

68

NorthBranch Notes the NorthBranch Member Loans and the additional promissory note from Riffle, 

assigned to NorthBranch, LLC

70

OA outdoor amusement industry (carnivals, fairs, waterparks, etc.) 62

OCCO meeting Office of the Chief Compliance Officer meeting 74

OCIO the Aequitas Office of the Chief Investment Officer 33

Operating Entities Aequitas Enterprise Services, LLC, Aequitas Capital Management, Inc., and 

Aequitas Investment Management, LLC

88

PAG Private Advisory Group, LLC 79

PatRick Investments PatRick Investments, LLC; a company managed by Patrick (Pat) Terrell, Aequitas 

Advisory Board Member.

82

PCF Aequitas Private Client Fund, LLC; an entity in the Receivership Entity 5

Pipeline Health Pipeline Health Holdings, LLC 85

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 145 of 174
PMA Program Management Agreement between CarePayment Technologies, Inc. and 

Aequitas Commercial Finance, LLC, in which CarePayment Technologies, Inc. 

were to provide administrative services and strategic advice regarding operations, 

planning, and financing

43

PPM Private Placement Memorandum; a document provided to prospective investors in 

specific Aequitas Funds or SPEs, otherwise also known as an offering document.

77

Prairie Prairie Financial, Inc. 61

Private Note debt instruments of Aequitas Commercial Finance, LLC 5

Product Menu an Aequitas produced report which, as a part of the Manufactured Note process, 

would list SPEs which had "available collateral" based on a Aequitas calculation, in 

order to issue a note or liability to a Aequitas Fund

31

Program Management Fee intended to be net interest margin, also known as BSR or NIM 43

Proposed Receivership 

Order

the Proposed Stipulated Order Appointing Receiver filed on March 10, 2016 by the 

Commission and the Entity Defendants [Dkt. 2-2]

5

PTI Printing Today, Inc. a company under the control of Ivey Performance Marketing 49

AM Purchase Note the promissory note with principal balance of $1.2 million and a maturity date of 

January 1, 2019 owed by Olaf Janke to Aequitas Management, LLC

131

Quantlab Quantlab Investments, LLC 54

Quarter Club an additional premium tier of Aequitas Capital Partners, for Registered Investment 

Advisers who sold Aequitas product greater than $25.0 million

79

RDA RDA, LLC (dba Roses Bakery), a Aequitas restaurant investment which ultimately 

became a part of the Northbranch restructuring

67

Receiver Ronald Greenspan 5

Receivership or 

Receivership Entity

the Entity Defendants and its 43 subsidiaries and/or majority-owned affiliates. A 

list of Receivership Entities can be found on Exhibit A of the Final Receivership 

Order [Dkt. 156]

5

Receivership Property all assets of the Receivership Entity 5

Relevant Time Period the period of January 1, 2014 through March 10, 2016 determined by the Receiver 

to be the most relevant time period for the Investigation

5

Report the Report Regarding the Investigation of the Receivership Entity's Business 

Conduct

5

RIA Registered Investment Adviser 62

Riffle Riffle NW, LLC, a Aequitas restaurant investment which ultimately became a part 

of the Northbranch restructuring

67

Rock and Roll Restaurants 

Note

a note receivable with Rock and Roll Restaurants, LLC with a book balance of 

$500 thousand, held by Aequitas Partner Fund, LLC as of the Complaint Date

82

SCA Strategic Capital Alternatives, LLC 79

SCAH SCA Holdings, LLC 19

SCG Strategic Capital Group, LLC 79

Scottrade Scottrade Bank 62

SEC or Commission the Securities and Exchange Commission 5

Service Only accounts healthcare accounts that the health care providers retain ownership of, but which 

they request CarePayment Technologies, Inc. to service

42

Skagit Skagit Gardens, Inc.; an Extended Entity of the Receivership 14

SPE a Special Purpose Entity 9

Special Units Class A Special Units of Aequitas Holdings, LLC 82

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 146 of 174
Stock Purchase Agreement Agreement between Aequitas ETC Founders Fund, LLC and ETC Global Holdings, 

LLC dated September 26, 2011

124

Syncronex Syncronex, LLC; an Extended Entity of the Receivership 19

Tear Sheet A fact sheet and marketing material compiled by Aequitas for Aequitas Funds or 

SPEs, intended to summarize the holdings and financial performance of the 

Aequitas Fund or SPE, and provided to current and prospective investors

91

Timely Payment Test alternative solvency test which assesses whether, at the time of the transfer, the 

debtor intended to incur, or believed that it would incur, debts beyond its ability to 

pay such debts as they matured

128

TGM Terrell Group Management; A company controlled by Patrick (Pat) Terrell, 

Aequitas Advisory Board Member.

14

TGM-ACL Note the senior secured promissory note owed by Aequitas Corporate Lending, LLC 

payable to Terrell Group Management

26

U.S. GAAP United States generally accepted accounting principles 41

UFTA the Uniform Fraudulent Transfer Act 7

Unreasonably Small Assets 

Test

a test used by courts to determine solvency, focusing on the financial stability of the 

company, based on the company’s ability to generate sufficient profits to sustain 

operations, pay its debts and remain financially stable

128

WCHS Westside Christian High School, Inc. 60

Weider Weider Health and Fitness 12

Weider/Forman Weider Health and Fitness, together with Weider's CFO Bruce Forman 12

WR WindowRock/Aequitas Residential Recovery Fund, L.P. 123

WRFF Aequitas WRFF I, LLC; an entity in the Receivership Entity 5

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 147 of 174
In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit C.1

Cash Raised During Relevant Time Period

Aequitas Legal Entity Beginning Investor 

Account Balances

Cash Raised During 

Period [1]

Unique Accounts for 

Cash Raised [2]

Aequitas Funds

Aequitas Enhanced Income Fund, LLC $ - $ 6,490,978 10 

Aequitas Income Opportunity Fund, LLC 34,661,669 804,139 5 

Aequitas Income Opportunity Fund II, LLC - 67,988,383 71 

Aequitas Income Protection Fund, LLC 48,835,893 15,227,290 23 

Aequitas Private Client Fund, LLC - 300,000 1 

Aequitas Funds Total $ 83,497,562 $ 90,810,790 110 

Aequitas Commercial Finance, LLC – Private Note $ 248,904,528 $ 205,453,682 832 

Equity Funds

Aequitas Capital Opportunities Fund, LP - 27,248,480 59 

[3] Aequitas ETC Founders Fund, LLC 14,858,390 - - 

[3] Aequitas Hybrid Fund, LLC 6,801,784 - - 

Aequitas Partner Fund, LLC - - - 

[3] Aequitas WRFF I, LLC - 25,749,912 44 

Equity Funds Total $ 21,660,174 $ 52,998,392 103 

Direct Notes

[4] ACC C Plus Holdings, LLC - 2,500,000 3 

ACC F Plus Holdings, LLC - 2,000,000 2 

Aequitas Corporate Lending, LLC - 3,677,100 2 

Aequitas Peer-to-Peer Funding, LLC - 1,025,000 4 

CarePayment Holdings, LLC - 11,000,000 9 

[5] CSF Leverage I, LLC 12,625,000 - - 

[6] DC Equipment Finance, LLC 2,338,000 7,600,500 1 

MotoLease Financial, LLC - 8,000,000 7 

[7] ML Financial Holdings, LLC - 2,700,000 3 

Direct Notes Total $ 14,963,000 $ 38,502,600 31 

Aequitas International Opportunities, LP - 15,400,000 1 

Grand Total $ 369,025,264 $ 403,165,464 1,077 

[1] Does not include intercompany transfers from Aequitas entities (current Receivership Entity or former Aequitas entities) relating to Investor transfers.

[2] Aequitas entities with Integrity Bank and Trust ("IBAT") as an investor, count IBAT as only one "Unique Account" for cash raised per entity.

[3] "Beginning Investor Account Balance" amounts include effects of net income allocations on the Investors' investment accounts.

[4] Investors included under ACC C Plus Holdings, LLC ("ACCCPH") initially invested into ACC Holdings 2, LLC ("ACCH2"), a Receivership Entity,

in March 2015; these investments were assumed by ACCCPH, the sole member of ACCH2, in May 2015. The consolidated investment activity is shown.

[5] CSF Leverage I, LLC was the investment vehicle for the Weider Health and Fitness and Bruce Forman notes prior to Weider's conversion to CarePayment

Holdings, LLC.

[6] DC Equipment Finance, LLC was the investment vehicle for the Terrell Group Management notes prior to its conversion to Aequitas Corporate Lending, LLC.

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 148 of 174
In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit C.2

Cash Payments During Relevant Time Period

Aequitas Legal Entity Principal Payments to Investors Returns Paid to Investors Principal Payments to Insiders 

Aequitas FundsAequitas Enhanced Income Fund, LLC $ - $ (771,654) $ - $ Aequitas Income Opportunity Fund, LLC (9,926,304) (7,234,179) (500,000) 

Aequitas Income Opportunity Fund II, LLC - (6,737,797) - 

Aequitas Income Protection Fund, LLC (17,354,474) (7,420,230) - Aequitas Private Client Fund, LLC - (1,021,520) - 

Aequitas Funds Total $ (27,280,778) $ (23,185,380) $ (500,000) $ 

Aequitas Commercial Finance, LLC – Private Note $ (113,533,514) $ (55,382,776) $ (4,519,778) $ 

Equity FundsAequitas Capital Opportunities Fund, LP (444,529) - (380,332) Aequitas ETC Founders Fund, LLC - - - 

Aequitas Hybrid Fund, LLC (2,102,666) - - Aequitas Partner Fund, LLC - - - 

Aequitas WRFF I, LLC (6,028,632) - - 

Equity Funds Total $ (8,575,827) $ - $ (380,332) $ 

Direct NotesACC C Plus Holdings, LLC - (259,373) - 

ACC F Plus Holdings, LLC - (52,000) - 

Aequitas Corporate Lending, LLC (2,964,086) (925,794) (2,964,086) 

Aequitas Peer-to-Peer Funding, LLC (800,000) (148,182) - 

CarePayment Holdings, LLC - (1,558,819) - 

[1] CSF Leverage I, LLC (6,625,000) (1,198,771) - [2] DC Equipment Finance, LLC (4,020,500) (884,152) (4,020,500) 

MotoLease Financial, LLC (1,000,000) (216,125) - 

ML Financial Holdings, LLC - (174,412) - Direct Notes Total $ (15,409,586) $ (5,417,629) $ (6,984,586) $ 

Aequitas International Opportunities, LP (350,000) (479,469) - 

Grand Total $ (165,149,706) $ (84,465,254) $ (12,384,696) $ 

[1] CSF Leverage I, LLC was the investment vehicle for the Weider Health and Fitness and Bruce Forman notes prior to Weider's conversion to CarePaym[2] DC Equipment Finance, LLC was the investment vehicle for the Terrell Group Management notes prior to its conversion to Aequitas Corporate Lendin

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 149 of 174
In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit C.3

Amount Remaining Due to Investors as of March 10, 2016

(includes accrued and unpaid interest)

Aequitas Legal Entity

Amount Due to 

Investors 3.10.16

Aequitas Funds

Aequitas Enhanced Income Fund, LLC $ 14,230,375

Aequitas Income Opportunity Fund, LLC 18,009,400 

Aequitas Income Opportunity Fund II, LLC 104,563,054

Aequitas Income Protection Fund, LLC 9,347,999 

Aequitas Private Client Fund, LLC 37,230,590 

Aequitas Funds Total $ 183,381,419

Aequitas Commercial Finance, LLC – Private Note $ 315,981,042

Equity Funds

[1] Aequitas Capital Opportunities Fund, LP 20,246,646 

[1] Aequitas ETC Founders Fund, LLC 14,687,326 

[1] Aequitas Hybrid Fund, LLC 4,944,375 

[1] Aequitas Partner Fund, LLC 1,330,723 

[1] Aequitas WRFF I, LLC 21,908,430 

Equity Funds Total $ 63,117,500

Direct Notes

ACC C Plus Holdings, LLC 2,500,000 

ACC F Plus Holdings, LLC 2,000,000 

Aequitas Corporate Lending, LLC 7,668,000 

Aequitas Peer-to-Peer Funding, LLC 225,000 

CarePayment Holdings, LLC 17,000,000 

CSF Leverage I, LLC - 

DC Equipment Finance, LLC - 

MotoLease Financial, LLC 8,000,000 

ML Financial Holdings, LLC 2,700,000 

Direct Notes Total $ 40,093,000

Aequitas International Opportunities, LP 15,050,000 

Grand Total $ 617,622,960

[1] Ending Balances for these investments include effects of net income allocations.

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 150 of 174
In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit C.4

Investments through IRA Custodians

Aequitas Legal Entity

Amount Invested in 

IRA Custodians [1]

Unique Accounts in 

IRA Custodians [1]

Aequitas Funds

Aequitas Enhanced Income Fund, LLC $ - - 

Aequitas Income Opportunity Fund, LLC 4,070,084 32 

Aequitas Income Opportunity Fund II, LLC 1,953,411 16 

Aequitas Income Protection Fund, LLC 709,238 3 

Aequitas Private Client Fund, LLC 651,786 2 

Aequitas Funds Total $ 7,384,519 53 

Aequitas Commercial Finance, LLC – Private Note $ 81,132,572 564 

Equity Funds

Aequitas Capital Opportunities Fund, LP - - 

Aequitas ETC Founders Fund, LLC - - 

Aequitas Hybrid Fund, LLC - - 

Aequitas Partner Fund, LLC - - 

Aequitas WRFF I, LLC 2,240,700 5 

Equity Funds Total $ 2,240,700 5 

Direct Notes

ACC C Plus Holdings, LLC 500,000 1 

ACC F Plus Holdings, LLC - - 

Aequitas Corporate Lending, LLC - - 

Aequitas Peer-to-Peer Funding, LLC - - 

CarePayment Holdings, LLC - - 

CSF Leverage I, LLC - - 

DC Equipment Finance, LLC - - 

MotoLease Financial, LLC - - 

ML Financial Holdings, LLC - - 

Direct Notes Total $ 500,000 1 

Aequitas International Opportunities, LP - - 

Grand Total $ 91,257,791 623 

[1] Aequitas Legal Entities with Integrity Bank and Trust ("IBAT") as an investor count IBAT as only one "Unique Account"

per entity for purposes of these exhibits. While IBAT may have investors who invested through IRA custodians, these

accounts are not included.

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 151 of 174
In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit C.6.7

Redemptions after September 1, 2015

Aequitas Legal Entity Principal Payments to 

Investors

Principal Payments to 

Insiders

Aequitas Funds

Aequitas Enhanced Income Fund, LLC $ - $ -

Aequitas Income Opportunity Fund, LLC (500,000) - 

Aequitas Income Opportunity Fund II, LLC - - 

Aequitas Income Protection Fund, LLC (472,825) - 

Aequitas Private Client Fund, LLC - - 

Aequitas Funds Total $ (972,825) $ -

Aequitas Commercial Finance, LLC – Private Note $ (28,368,020) $ (1,800,000)

Equity Funds

Aequitas Capital Opportunities Fund, LP - - 

Aequitas ETC Founders Fund, LLC - - 

Aequitas Hybrid Fund, LLC - - 

Aequitas Partner Fund, LLC - - 

Aequitas WRFF I, LLC (2,590,140) - 

Equity Funds Total $ (2,590,140) $ -

Direct Notes

ACC C Plus Holdings, LLC - - 

ACC F Plus Holdings, LLC - - 

Aequitas Corporate Lending, LLC (1,677,100) (1,677,100) 

Aequitas Peer-to-Peer Funding, LLC (800,000) - 

CarePayment Holdings, LLC - - 

CSF Leverage I, LLC - - 

DC Equipment Finance, LLC - - 

MotoLease Financial, LLC (1,000,000) - 

ML Financial Holdings, LLC - - 

Direct Notes Total $ (3,477,100) $ (1,677,100)

Aequitas International Opportunities, LP (350,000) - 

Grand Total $ (35,758,086) $ (3,477,100)

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 152 of 174
In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding Investigation of the Receivership Entities' Business Conduct

Exhibit C.8

Payments and Loans to Individual Defendants 2014-2016

Payroll & 

Allowances1 Expenses Consulting

Member 

Distributions2

& Advances Subtotal

Newman 

Loan

Northbranch 

Loans Subtotal G

Gillis $ 526,799 42,643$ 34,675$ $ - $ 604,117 -$ -$ -$ $ 

Jesenik3 1,728,669 147,434 - 1,009,502 2,885,605 222,450 359,603 582,053 

Oliver 1,183,376 81,090 - 190,502 1,454,968 - 218,555 218,555 Total 3,438,844 $ 271,166$ 34,675$ $ 1,200,004 $ 4,944,690 222,450$ $ 578,158 800,608$ $ 

 Direct Payments 

to Individual Defendants 

 Outstanding Loans 

(principal balance) 

1. These figures do not include employer paid portions of the Individual Defendants health insurance, dental insurance, life insurance, s

disability, long term disability, or health savings account contributions.

2. Member Distributions include distributions and advances on Special Units and AM Units.3. Jesenik’s Member Distribution & Advance payment includes a $250 thousand payment received in October 2013, as an advance for A

distribution paid out in February 2014. Additionally, in January 2015 Jesenik received an additional $75 thousand “advance” on a futdistribution, which never came to fruition.

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 153 of 174
In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit C.9

Investor Funds Spent on Commissions, Advisory, and Consulting Fees during the Relevant Time 

Period

Names Commissions Loans Consulting 

Fees Other Total

RP Capital, LLC $ 8,087,824 5,750$ $ 8,093,574

Fieldstone Financial 1,408,994 1,408,994

Kristofor Behn 25,000 25,000

Circle Squared Alternative Investments, LLC 500,000 500,000 1,000,000

Sica Wealth Management, LLC 1,020,000 1,020,000

Atherton Capital Holdings, LLC 672,000 19,429 691,429

Tom Szabo 13,424 13,424

Fortress Investment Management, LLC 326,833 69,455 396,288

Accelerate-IT, LLC 41,860 41,860

MBO Partners (James Alexander) 155,000 160,000 66,887 381,887

Jerome Anglade 210,000 210,000

PPG Partners 225,000 225,000

Nicholas Mavroleon 205,000 18,258 223,258

Keith Gregg 115,323 30,617 145,939

James Reinmuth 125,000 1,257 126,257

Rachel Minard (Minard Capital) 90,000 8,341 98,341

Matrix Capital 71,086 71,086

William (Bill) Corbett 69,000 69,000

George King 65,000 65,000

Capital Alliance Partners 50,786 257 51,043

Allen & Associates (Marcia Allen) 35,000 35,000

Integrity Bank & Trust 22,224 22,224

Hancock Securities 19,509 19,509

Ocean Avenue Wealth Mgmt 19,500 19,500

Elite Wealth Management Inc 4,512 4,512

Total $ 8,352,919 $ 1,908,994 $ 3,658,942 $ 537,271 $ 14,458,125

Names Advisory Fees Commissions Transaction 

Fees Other Total Cash Payments Expense 

Offsets2

Accrued and 

Unpaid3

Terrell Mgt. Group (Pat Terrell) $ 93,000 $ 171,591 262,188$ $ 109,781 636,560 $ $ (309,781) $ (393,114) $ 113,953

William (Bill) McCormick 360,000 - - - 360,000 (270,000) (26,000) 182,875

William (Will) Glasgow 135,000 - - 7,027 142,027 (132,027)

Gerry Frank 135,000 - - - 135,000 (125,000)

Martin Brantley 135,000 - - - 135,000 (125,000)

Donna Miles 105,354 - - 4,785 110,139 (103,099)

Robert (Bob) Zukis 31,000 - - 4,771 35,771 (25,271)

Gillis Mgt. Solutions, Inc. (Scott Gillis) 30,000 - - 4,675 34,675 (34,675)

Edmund Jensen - - - - - -

Keith Barnes - - - - - -

- 10,000

- 10,000

- 10,000

- 12,000

- 10,500

- -

- -

- -

Total $ 1,024,354 $ 171,591 $ 262,188 $ 131,038 $ 1,589,172 $ (1,124,853) $ (419,114) $ 349,328

1. Q1 2016 amount is estimated based off available actual data, and estimates for standard expenses

2. Offsets include Aequitas payment of Advisory Board members office rent, healthcare, direct employees salary and healthcare, etc.

3. Includes carry over accrued and unpaid balances from 2013

Accrued 2014 -Q1 20161 Fees

Advisory Board Members

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 154 of 174
Cash Flow 2014 2015 2016 Total

Fundraising $193.3 $213.5 $5.0 $411.9

(Redemption) -61.2 -107.7 -2.2 -171.2

(Interest) -33.1 -41.3 -9.7 -84.0

Net Fundraising 99.0 64.5 -6.8 156.7

Institutional Debt & Portfolio Fees

Institutional Debt Advances 90.1 158.0 39.8 287.9

(Institutional Debt Paydowns) -117.5 -91.1 -35.3 -243.9

(Interest and Portfolio Fees/Expenses) -19.9 -33.2 -4.3 -57.3

Net Institutional Debt -47.2 33.7 0.1 -13.3

Portfolio Activity

(Receivable Purchases) -95.4 -162.1 -19.5 -277.0

Receivable Collections 100.8 152.0 37.4 290.1

Net Portfolio Activity 5.4 -10.1 17.9 13.1

Outside Investment Activity

(Loans/Investment Out) -29.7 -49.6 -1.4 -80.8

Repayment/Sale 5.7 5.1 1.9 12.7

Interest Payments 4.9 5.0 0.4 10.4

Settlement Revenue 0.5 1.0 0.3 1.8

Net Investment Activity -18.6 -38.5 1.2 -55.9

Overhead & BSR

(Expenses) -49.9 -61.7 -5.8 -117.4

CPYT/EdPlus Cash Rebill Payments 13.2 14.0 0.4 27.6

CPYT/EdPlus Cash ASA Payments 8.2 5.8 0.0 14.0

(BSR) -14.2 -8.0 -0.5 -22.6

Net Overhead and BSR -42.7 -49.8 -5.9 -98.4

-$4.1 -$0.2 $6.4 $2.2

Excludes internal payments and blocked funds

Management Fee Coverage 2014 2015 2016 Total

Expenses -$49.9 -$61.7 -$5.8 -$117.4

CPYT/EdPlus Cash Rebill Payments 13.2 14.0 0.4 27.6

Net Expenses -36.7 -47.6 -5.5 -89.8

CPYT/EdPlus Cash ASA Payments 8.2 5.8 0.0 14.0

Internal ASA Payments* 0.9 0.9 0.0 1.8

Management Fees* 8.3 10.9 3.6 22.7

Net Expense Coverage -$19.4 -$30.0 -$1.9 -$51.3

*Excludes Management Fee and ASA payments between one Operating Entity to another

Approx. Account Balance Increase (Decrease)

In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit C.11

Annual Cash Flow

(in millions)

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 155 of 174
In re AEQUITAS MANAGEMENT, LLC, et al. 

Case No: 3:16-cv-00438-PK 

Report Regarding the Investigation of the Receivership Entity’s Business Conduct 

Exhibit C.12 

Timeline of Events Leading to Corinthian Colleges Closure (2012-2015) 

 April 2012 - CoCo was served with a Civil Investigative Demand (“CFPB CID”) from

the U.S. Consumer Financial Protection Bureau (“CFPB”). The CFPB CID stated that its

purpose is to “determine whether for-profit postsecondary companies, student loan

origination and servicing providers, or other unnamed persons, have engaged or are

engaging in unlawful acts or practices relating to the advertising, marketing, or

origination of private student loans.” The CFPB CID contained extensive interrogatories

and document production demands related to the Company’s involvement with student

loans and many other aspects of the Company’s business.

 September 2013, the CFPB withdrew its prior CFPB CID and issued a new CFPB CID

to the CoCo covering substantially the same matters as the prior CFPB CID.

 October 10, 2013 - the California Attorney General filed a lawsuit against CoCo for false

and predatory advertising, intentional misrepresentations to students, securities fraud, and

unlawful use of military seals in advertisements

 December 2013 - The CFPB issues a Notice and Opportunity to Respond and Advise

(the “NORA Letter”) informing CoCo that the CFPB’s Office of Enforcement is

recommending that legal action be taken against CoCo for alleged violations of the

Consumer Financial Protection Act of 2010.

 January 2014 – Aequitas Counterparty Risk Review advises that “funding under the

CoCo 2.0 program should cease immediately due to the increased operational and legal

risk at Corinthian.”

 June 19, 2014 - The Federal Department of Education ("DOE") announces that it has

placed CoCo on an increased level of financial oversight due to its failure to turn over

records to assist in an ongoing investigation of its business practices. DOE suspends

CoCo’s access to student aid funds, creating cash flow crisis.

 June 26, 2014 - California Department of Veterans Affair suspends GI Bill benefits for

veterans at CoCo’s schools.

 July 3, 2014 - The DOE announces that it and CoCo have agreed to an operating plan

requiring the company to either close or sell all its campuses over the next six months,

and appointing an independent monitor to oversee the process. DOE restores access to

student aid funds to facilitate orderly wind-down.

 August 8, 2014 - CoCo receives a grand jury subpoena from the U.S. Attorney’s Office

in the Central District of California about an ongoing criminal investigation.

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 156 of 174
 September 16, 2014 - The CFPB files a civil complaint against CoCo in the U.S. District

Court for the Northern District of Illinois alleging that CoCo engaged in an illegal

predatory lending scheme.

 February 3, 2015 – CoCo sells most of its campuses to Zenith Education Group, a

subsidiary of the education debt collection company ECMC. No California campuses are

part of the deal. The CFPB approves the sale on condition that ECMC forgive 40% of

students’ outstanding private debt and agree to other consumer protection measures.

 February 13, 2015 – California Student Aid Commission suspends Cal Grant Payments

to Heald.

 April 1, 2015 - Members of the Debt Collective and the "Corinthian 100" meet with the

DOE in Washington and submit hundreds of applications to discharge CoCo students’

loans.

 April 9, 2015 - Nine state Attorneys General call on the DOE to discharge the federal

loans of CoCo students.

 April 14, 2015 - The DOE releases an “intent to fine notice” finding that CoCo

misrepresented job placement rates and other information to students. It fines the

company $30 million, suspends Heald College’s Salinas and Stockton campuses, and

bars all Heald campuses from receiving federal funds for new enrollments.

 April 16, 2015 - California’s Bureau for Private Post-Secondary Education issues an

emergency decision ordering CoCo to cease enrollment of any new students in all

programs at Everest College and Wyotech locations in California effective upon close of

business. The California Student Aid Commission permanently terminates Heald’s

eligibility for the Cal Grant program.

 April 27, 2015 – CoCo closed all California campuses and shuts down its website.

 May 4, 2015 – CoCo files for Chapter 11 bankruptcy protection.

Sources: 

https://www.sec.gov/Archives/edgar/data/1066134/000110465914037670/a14-9787_110q.htm

http://www.publiccounsel.org/tools/assets/files/0635.pdf

http://www.lao.ca.gov/handouts/education/2015/Corinthian-Colleges-051315.pdf

http://www.leginfo.ca.gov/pub/15-16/bill/asm/ab_0551-0600/ab_573_cfa_20150911_212134_asm_floor.html

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 157 of 174
ID Date Transaction

Note 

Holder

Cash/ Journal

Entry 

(JE)

CarePayment 

Fund 

(CPF)

Campus Student 

Funding Leverage 

(AFSGLI & 

CSFLI)

CarePayment 

Holdings 

(CPH)

Aequitas 

Commercial 

Finance 

(Private Note)

Total

Investment

E

ultim

benef

1 05/03/11 Debt at ACF Weider Cash 2,000,000 2,000,000 IOF 2 07/19/11 Debt at ACF Forman Cash* 125,000 2,125,000 ACF/CS

3 05/25/12 Debt at CPF Weider Cash 2,000,000 4,125,000 CPLLC 4 06/27/12 Debt at CPF Forman Cash 100,000 4,225,000 CPF 

5 01/29/13 Debt at AFSGLI Weider Cash 5,000,000 9,225,000 ACF/IO

6 05/17/13 Additional debt at AFSGLI Weider Cash 3,000,000 12,225,000 CSF 

6b 05/17/13 Additional debt at AFSGLI Forman Cash 500,000 12,725,000 CSF 6c 05/17/13 ACF Transfer to AFSGLI Forman Cash - Interco 125,000 (125,000) 12,725,000 ACF 

7 09/10/13 CPF Pays Forman Forman Cash (100,000) 12,625,000 - 

8a 11/15/13 CPF Debt transferred to AFSGLI Weider Cash - Interco (2,000,000) 2,000,000 12,625,000 ACF/CP8b 11/15/13 ACF Debt transferred to AFSGLI Weider Cash - Interco 2,000,000 (2,000,000) 12,625,000 ACF/CP

9 10/03/14 CSFLI debt transferred to CPH Weider JE - Interco (6,000,000) 6,000,000 12,625,000 - 

9b 10/03/14 CSFLI Pays Weider Weider Cash (2,000,000) 10,625,000 - 

9c 10/03/14 CSFLI Pays Forman Forman Cash (625,000) 10,000,000 - 

10 11/06/14 CSFLI Pays Weider Weider Cash (1,500,000) 8,500,000 - 

11 11/13/14 CSFLI Pays Weider Weider Cash (1,000,000) 7,500,000 - 

12 12/01/14 CSFLI Pays Weider Weider Cash (1,500,000) 6,000,000 - 

13a 06/29/15 Subsequent debt at CPH Weider Cash 4,000,000 10,000,000 - 13b 06/30/15 Subsequent debt at CPH Forman Cash 500,000 10,500,000 - 

- - 10,500,000 - 

Non Cash Adustments 6,000,000 (6,000,000)

6,000,000 4,500,000

*Note- bank statement and wire activity missing for 7/19/11 investment

In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit E.1.2

Summary of Weider / Forman Investments

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 158 of 174
Underlying Asset Level: Originations, Purchases, and Collections

Trust Level: Utilize proceeds from the Parent Level & Lenders to fund Underlying AssetsParent Level: Issue Senior & Subordinated Notes to fund the Equity in the Trusts

Note Manufacturing Process

CP Funding I Trust

CarePayment

(CP)

Holdings

Aequitas Commercial Finance

Equity Holdings

Affiliated Entities

Lines of Credit

Healthcare Receivables

Private Note

JR

SR

CP Funding II Trust

CP Funding III Trust

Lender

No. 1

Lender

No. 2

Lender

No. 3

U Student Funding I Trust

Unigo

(U)

Holdings

Education Receivables

JR

SR

U Student Funding II Trust

U Student Funding III Trust

Lender

No. 1

Lender

No. 2

Lender

No. 3

ACC Funding I Trust

Aequitas Consumer Credit

(ACC)

Holdings

Consumer Loans

JR

SR

ACC Funding II Trust

ACC Funding III Trust

Lender

No. 1

Lender

No. 2

Lender

No. 3

AP2P Funding I Trust

Aequitas Peer‐to‐Peer

(AP2P)

Holdings

Small Business Loans

JR

SR

AP2P Funding II Trust

AP2P Funding III Trust

Lender

No. 1

Lender

No. 2

Lender

No. 3

ML Funding I Trust

MotoLease

(ML)

Holdings

Transportation Receivab

ML Funding II Trust

ML Funding III Trust

In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit E.1.6.a

Copy of Aequitas Document Entitled

"Aequitas_Note Manufacturing Process_2015_05_01.pdf"

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 159 of 174
Product Menu: Manufactured Notes Available for Sale

As of: 20-May-15

Gross

Program Yield

Underlying 

Assets

Issuing 

Entity Available for Sale Available for Sale Available for Sale Available for Sal

MLFH Sr. 75% $16.7MM $16.2MM $16.8MM $17.4MM MLFH Sub. 25% $5.6MM $5.4MM $6.0MM $6.5MM ACL Sr. 70% $29.8MM $29.8MM $29.8MM $29.8MM ACL Sub. 30% $12.8MM $12.8MM $12.8MM $12.8MM ACCFPH Sr. 70% $1.9MM $6.7MM $11.2MM $16.4MM ACCFPH Sub. 30% $8.5MM $10.0MM $11.5MM $13.3MM ACCCPH Sr. 90% $1.8MM $5.3MM $8.5MM $11.6MM ACCCPH Sub. 10% $0.6MM $0.0MM $0.4MM $0.8MM 

TOTAL $121MM $78MM $86MM $97MM $109MM

$22MM$25MM$29MM

Corporate 

Loans 10% $44MM

Structure

MotoLease 23%

Current 30-Day Forecast 60-Day Forecast 90-Day Foreca

Freedom F+ 18%

Freedom C+ 20%

In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit E.1.6.b

Example of a 

Product Menu, 

as emailed on May 2

0, 2015

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 160 of 174
Product Menu: All Aequitas Credit Strategies

As of: 20-May-15

Program Yield*

Gross 

Assets

Issuing

Entity

Net Assets 

Available**

Notes 

Outstanding

Net Assets 

Available**

Notes Matured 

(Issued)

Net Assets 

Available**

Notes Matured 

(Issued)

Net Assets 

Available**

Notes M

(Iss

CPH Sr. 85% $0.3MM $0.0MM $0.2MM $0.0MM $0.2MM $0.0MM $0.2MM CPH Sub. 15% $0.0MM ($6.0MM) $1.9MM $1.0MM $3.9MM $0.0MM $5.7MM CSF Sr. 25% ($0.1MM) ($7.9MM) ($0.5MM) $0.0MM ($0.5MM) $0.0MM ($0.5MM) CSF Sub. 75% ($0.8MM) ($24.1MM) ($2.0MM) $0.0MM ($1.9MM) $0.0MM ($1.8MM) MLFH Sr. 75% $9.5MM ($7.2MM) $9.0MM $0.0MM $9.6MM $0.0MM $10.2MM MLFH Sub. 25% $0.0MM ($5.6MM) ($0.2MM) $0.0MM $0.4MM $0.0MM $1.0MM AP2PF Sr. 50% $1.3MM ($0.8MM) $1.2MM $0.0MM $1.1MM $0.0MM $1.0MM AP2PF Sub. 50% $0.0MM ($2.1MM) ($0.1MM) $0.0MM ($0.1MM) $0.0MM ($0.1MM) ACF Sr. 70% $1.3MM $0.0MM $1.2MM $0.0MM $1.1MM $0.0MM $1.1MM ACF Sub. 30% $0.6MM $0.0MM $0.5MM $0.0MM $0.5MM $0.0MM $0.5MM ACCFPH Sr. 70% $1.9MM ($0.0MM) $6.7MM $0.0MM $11.2MM $0.0MM $16.4MM ACCFPH Sub. 30% $8.5MM $0.0MM $10.0MM $0.0MM $11.5MM $0.0MM $13.3MM ACCCPH Sr. 90% $1.8MM $0.0MM $5.3MM $0.0MM $8.5MM $0.0MM $11.6MM ACCCPH Sub. 10% $0.6MM ($2.5MM) $0.0MM ($0.8MM) $0.4MM $0.0MM $0.8MM ACL Sr. 70% $20.8MM ($9.1MM) $20.8MM $0.0MM $20.8MM $0.0MM $20.8MM ACL Sub. 30% $11.0MM ($1.8MM) $11.0MM $0.0MM $11.0MM $0.0MM $11.0MM ACF Sr. 70% $0.0MM $0.0MM $0.0MM $0.0MM ACF Sub. 30% $0.0MM $0.0MM $0.0MM $0.0MM WRFF Sr. 0% $0.0MM $0.0MM $0.0MM $0.0MMWRFF Sub. 100% $4.5MM $4.5MM $4.5MM $4.5MM 

TOTAL $228MM $61MM $70MM $82MM $96MM

MANAGED FUND RESERVE (STAGES 3, 4, & 5) ($9MM) ($9MM) ($9MM) ($9MM)MANAGED FUND RESERVE (FORWARD FLOW BUDGET) ($3MM) ($7MM) ($10MM)NET AVAILABLE ASSETS (CASH CUSHION) $52MM $57MM $66MM $76MM

*Net of loan loss provisions & asset management fee | **Net of Sr. Secured & Subordinated Promissory Notes Outstanding | ***Per anum

$0MM$5MM

$44MM

OnDeck 22%

Freedom F+ 18%

$22MM

$4MM

$28MM$31MM

$2MM

MotoLease

Structure

CarePayment 29%

Unigo 10%

Current 30-Day Forecast 60-Day Forecast 90-Day Foreca

$41MM$51MM

Real Estate 

(CBFL) 46%

Real Estate 

(WR) 38%

Freedom C+ 20%

QuarterSpot 28%

10% Corporate Loans23%

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 161 of 174
As of: 20-May-15

Product Menu by Entity Detail

Program

Gross 

Assets Entity

Loans & Notes 

Outstanding

Net Assets 

Available**

Net Assets 

Available**

Notes Matured 

(Issued)

Net Assets 

Available**

Notes Matured 

(Issued)

Net Assets 

Available**

Notes M

(Iss

CP LLC B of A ($18.2MM)CP Funding I Trust Well Fargo ($17.7MM)CP Holdings AE Funds ($6.0MM) $0.3MM $2.1MM $1.0MM $4.1MM $0.0MM $5.8MM CSF LLC Scottrade ($5.1MM)CSF LLC AE Funds ($47.6MM) ($0.9MM) ($2.5MM) $0.0MM ($2.4MM) $0.0MM ($2.3MM) ACC Funding Trust 2 Comvest ($25.8MM)ACC C Plus Holdings AE Funds ($2.5MM) $2.4MM $5.3MM ($0.8MM) $8.9MM $0.0MM $12.3MM ACC Funding Trust 1 Comvest ($17.7MM)ACC F Plus Holdings AE Funds $0.0MM $10.4MM $16.7MM $0.0MM $22.6MM $0.0MM $29.7MM MLFH LLC AE Funds ($12.7MM) $9.5MM $8.9MM $0.0MM $10.0MM $0.0MM $11.2MM AP2PF LLC AE Funds ($3.0MM) $1.4MM $1.1MM $0.0MM $1.0MM $0.0MM $1.0MM ACL Ruh & TGM ($9.1MM)ACL AE Funds ($1.8MM) $31.8MM $31.8MM $0.0MM $31.8MM $0.0MM $31.8MM WRFF PN $0.0MM $4.5MM $4.5MM $0.0MM $4.5MM $0.0MM $4.5MM ACF PN $0.0MM $1.8MM $1.7MM $0.0MM $1.6MM $0.0MM $1.5MM 

TOTAL $228MM ($167MM) $61MM $70MM $82MM $96MMMANAGED FUND RESERVE (STAGES 3, 4, & 5) ($9MM) ($9MM) ($9MM) ($9MM)

MANAGED FUND RESERVE (FORWARD FLOW BUDGET) ($3MM) ($7MM) ($10MM)NET AVAILABLE ASSETS (CASH CUSHION) $52MM $57MM $66MM $76MM

*Net of loan loss provisions & asset management fee | **Net of Sr. Secured & Subordinated Promissory Notes Outstanding

MotoLease $22MM

OnDeck $4MM

Corp. Loans $44MM

WR $5MM

QuarterSpot $2MM

Funding Source

Freedom F+ $28MM

Current 30-Day Forecast 60-Day Forecast 90-Day Foreca

CarePayment $41MM

Unigo $51MM

Freedom C+ $31MM

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 162 of 174
In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit E.1.6.c

Example of an Aequitas Manufactured Note Issuances and Allocation Summary, as 

emailed on May 27, 2015

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 163 of 174
Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 164 of 174
Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 165 of 174
In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit E.2.1.1

Cash Flows From Operating Activities for Aequitas Commercial Finance, LLC (2011 - 

2015)

Unaudited Audited Audited 

2015 2014 2013 

Net income $ 8,928,858 $ 12,025,861 $ 21,219,400 $ 

Adjustments to reconcile net income to net cash used in operating activities:

Amortization of unearned income (16,811,546) (13,425,519) (10,062,184) 

Amortization of deferred charges 526,585 373,460 1,106,736 

Net realized gain (loss) on investments (273,902) 871,338 (594,077) 

Net unrealized gain on fair value option election assets (42,116,028) (39,481,017) (37,827,636) 

Provision for credit losses 7,105,224 6,230,482 8,441,137 

Changes in assets and liabilities: - - - 

Deposits in escrow 1,012,938 1,730,054 2,879,157 

Accounts receivable (2,287,816) 3,603,146 (2,188,484) Receivable from affiliates (1,098,236) (669,530) (844,261) 

Other assets 2,471,133 (1,364,128) (3,694,900) 

Accounts payable and accrued expenses (63,406) (6,913,510) 7,275,877 

Payable to affiliates 7,071,787 2,644,857 4,894,890 

Accrued interest payable 9,557,034 7,112,342 3,397,949 

Subtotal of adjustments to net income (34,906,232) (39,288,025) (27,215,796) 

Net cash used in operating activities $ (25,977,374) $ (27,262,164) $ (5,996,396) $ Aequitas Commercial Finance, LLC

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 166 of 174
In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit 2.1.2.a

COF Equity Interests

G/L

2013 PreTransfer COF 2013 Post- Transfer Audited Audited 

Balance at Change in Initial Change in Balance at Change in Balance at 

COF Equity Interests 12/31/2012 Purchases unrealized gain Investment unrealized gain 12/31/2013 Purchases unrealized gain 12/31/2014 

[1] ETC Global Holdings, Inc. $ 8,000,000 $ 1,854,561 $ (1,640,626) $ 8,213,935 $ 358,745 $ 8,572,680 $ - $ 527,320 $ 9,100,000 $ 

[1][2] Motolease, LLC 800,000 - 800,000 - - 800,000 1,040,000 6,470,000 8,310,000 

QuarterSpot, Inc.

Common Shares - - - - - - 3,695,460 1,404,275 5,099,735 

Warrants - - - - - - 100 (100) - 

nD Bank - - - - - - - - - 

MOGL Loyalty Services - - - - - - - - - 

Subtotal $ 8,800,000 $ 1,854,561 $ (1,640,626) $ 9,013,935 $ 358,745 $ 9,372,680 $ 4,735,560 $ 8,401,495 $ 22,509,735 $ 

[3] Carepayment Technologies, Inc 21,398,220 5,971,505 11,476,623 38,846,348 5,153,652 44,000,000 - 48,000,000 92,000,000 [4] EdPlus Holdings, Inc. - 1,732,760 5,357,240 7,090,000 17,910,000 25,000,000 - (13,300,000) 11,700,000 [4] Strategic Capital Alternatives, LLC - 800,000 - 800,000 - 800,000 533,334 2,666,666 4,000,000 

Total $ 30,198,220 $ 10,358,826 $ 15,193,237 $ 55,750,283 $ 23,422,397 $ 79,172,680 $ 5,268,894 $ 45,768,161 $ 130,209,735 $ 

[1] Transferred to COF from ACF[2] Includes membership units and warrants[3] Transferred to COF from AH and ACF[4] Transferred to COF from AH; Includes Class A and B Common Stock

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 167 of 174
In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit E.2.1.2.b

FTI Consulting Review of Investment Valuations

($ in millions)

Valuation Ranges for CarePayment Technologies

Valuation Date November 30, 2013 December 31, 2013 June 30, 2014 December 31, 2014 June 30, 2015 

Range Low High Fair Value1 Low High Fair Value1 Low High Fair Value1 Low High Fair Value1 Low High Fa

Duff & Phelps 25.0$ 35.0$ 58.0$ 75.0$ 90.0$ 110.0$ Aequitas 44.0$ 62.0$ 92.0$ 

$ 

FTI Consulting 9.2$ 12.0$ 15.1$ 19.7$ 28.0$ 35.5$ 

The Duff & Phelps November 30, 2013 valuation range represents the more conservative "Existing Product Only" case, which excludes revenue associated with new products slated to launch in 2015 and thereafter.The Duff & Phelps valuation also included a Management Case with a range of $35.0M to $45.0M.

Valuation Ranges for EdPlus

Valuation Date November 30, 2013 December 31, 2013 June 30, 2014 December 31, 2014 June 30, 2015 

Range Low High Fair Value1 Low High Fair Value1 Low High Fair Value1 Low High Fair Value1 Low High Fa

Duff & Phelps 13.0$ 31.0$ 29.5$ 35.0$ 30.0$ 35.0$ Aequitas 25.0$ 20.7$ 11.7$ 

$ 

FTI Consulting -$ 0.9$ -$ -$ -$ -$ 

Valuation Ranges for ETC

Valuation Date November 30, 2013 December 31, 2013 June 30, 2014 December 31, 2014 June 30, 2015 

Range Low High Fair Value1 Low High Fair Value1 Low High Fair Value1 Low High Fair Value1 Low High Fa

Duff & Phelps 34.5$ 47.5$ 37.9$ 48.4$ 32.0$ 44.1$ 44.3$ 59.5$ Aequitas 45.5$ 44.0$ 47.8$ 

$ 

FTI Consulting 5.7$ 7.3$ 11.6$ 14.9$ 14.4$ 18.6$ 

[1] Fair values represented by Aequitas to investors in investment update reports.

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 168 of 174
In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit E.2.1.2.3.a

History of MSP Equity Investments (2008 - 2016)

APF - 

Investment 

MSP

Catalyst - 

Investment 

MSP

ACF - 

Investment MSP 

(from Catalyst)

AH - 

Investment 

MSP

Valuation 

Adjustment

AH - Series E 

Preferred 

Stock

Total Equity 

Investment

Balance 12/31/2008 -$ 2,880,237 $ $ - $ - $ - $ - $ 2,880,237

June 30, 2009- Debt to Equity Conversion 3,593,855 3,593,855 

Market Value Adjustment (1,604,092) (1,604,092)

Balance 12/31/2009 -$ 4,870,000 $ $ - -$ -$ -$ $ 4,870,000

Balance 12/31/2010 -$ 4,870,000 $ $ - -$ -$ -$ $ 4,870,000

Adjustment Market Value (600,000) (600,000)

Balance 12/31/2011 -$ 4,270,000 $ $ - -$ -$ -$ $ 4,270,000

Sale from Catalyst to ACF thru AH 12/31/2012 (2,000,000) 2,000,000 - 

Adjustment Market Value (737,007) (737,007)

Balance 12/31/2012 -$ 1,532,993 $ $ 2,000,000 -$ -$ -$ $ 3,533,493

Purchase of MSP Stock & Loans from Jim 

McDaniel 5/3/2013

 1,581,381 

 1,581,381 

Adjust MSP Stock Valuation 12/31/2013 (771,999) (771,999)

Transfer from Catalyst to APF 12/31/2013 1,532,933 (1,532,993) (60)

Balances 12/31/2013 $ 1,532,933 -$ $ 2,809,382 -$ -$ $ 4,342,815

2014 Valuation Adjustment 100,618 100,618

2014 ACF to AH - (2,910,000) 2,910,000 - 

2014 AH Contribution to APF 2,910,000 (2,910,000) -

9/30/2014 Valuation Adjustment 727,067 727,067

Balance 12/31/2014 $ 4,442,933 -$ $ - -$ 727,067$ $ - $ 5,170,500

March 1 Debt Conversion to Preferred Stock 14,998,764 14,998,764 

Balance 12/31/2015 $ 4,442,933 -$ $ - -$ 727,067$ $ 14,998,764 $ 20,169,264

Balance 12/31/2016 $ 4,442,933 -$ $ - -$ 727,067$ $ 14,998,764 $ 20,169,264

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 169 of 174
In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit E.2.1.2.3.b

History of MSP Debt (2008 - 2016)

DCEF Note 

& Interest 

Receivable

Catalyst MSP 

Note & Interest 

Receivable

Catalyst Printing 

Today Note & 

Interest Receivable

AIOF Note & 

Interest 

Receivable

Hybrid Note & 

Interest 

Receivable

ACF Notes & 

Interest 

Receivable1

ACF - Loan 

Loss Reserve

Total Notes & Int 

Receivable1

Balance 9/30/2008 $ - $ - $ - $ - $ 4,592,681 $ 913,009 $ - $ 5,505,690 

2008 Debt Assignment from ACF to Hybrid2 913,009 (913,009) - 

2008 Hybrid Increases2 5,440,432 5,440,432 

2008 Hybrid Decreases2 (5,274,879) (5,274,879)

Balance 12/31/2008 -$ $ - $ - -$ 5,671,243 $ $ - -$ $ 5,671,243

Note Funding 3,414,214 900,000 250,000 4,564,214 

2009 Interest Accrued 179,641 72,353 81,460 1,290,393 16,027 1,639,874 

Possible Interest Payments (44,288) (395,279) (439,567)

Move from Hybrid to AIOF 1,100,000 (1,100,000) - 

June 30, 2009- Debt to Equity Conversion (3,593,855) (3,593,855)

Balance 12/31/2009 -$ $ - $ 928,065 $ 1,181,460 $ 5,466,357 $ 266,027 -$ $ 7,841,909

Loan Funding 1,000,000 1,250,000 2,250,000 

Interest Accrued 214,289 276,884 594,508 129,289 1,214,970 

Possible Interest Paid thru Accts Rec (157,139) (223,875) 182,639 (198,375)

Transfer from ACF to DCEF 6/30/2010 1,645,316 (1,645,316) - 

Balance 12/31/2010 $ 1,702,466 $ - $ 1,981,074 $ 1,364,099 $ 6,060,865 $ - -$ 11,108,504 $ 

Loan Funding 1,417,500 350,000 305,500 2,073,000 

Payments (139,863) (139,863)

Interest Accrued 147,758 261,766 164,945 310,437 884,906 

Possible Interest Paid thru Accts Rec (39,025) (132,547) (53,817) (225,389)

Balance 12/31/2011 $ 3,228,699 $ - $ 2,460,293 $ 1,475,227 $ 6,371,302 $ 165,637 -$ 13,701,158 $ 

ACF In and Loan MSG 1/20/2012 300,000 300,000 

Loan Funding 637,917 1,134,196 1,772,113 

Interest Accrued 121,126 52,177 182,389 810,542 1,166,234 

Payments (80,077) (92,538) (65,432) (238,047)

Transfer Note from ACF to DCEF 296,086 (296,086) - 

Transfer Note from Catalyst to ACF thru AH (3,384,197) 3,384,197 - 

Record Loan Loss Reserve - (344,000) - 

Balance 12/31/2012 $ 4,203,751 $ - $ 169,931 $ 1,657,616 $ 7,181,844 $ 3,488,316 $ (344,000) $ 16,701,458

Loan Funding 1,137,555 1,137,555 

Interest Accrued 574,846 189,963 910,621 873,246 2,548,676 

Payments (477,651) (88,578) (566,229)

Purchase of MSP Stock & Loans from Jim 

McDaniel 5/3/2013 2,697,807 2,697,807 

Move Deferred Interest to From Catalyst to ACF (169,931) 169,931 - 

Adjust Loan Loss Reserve (26,228) (2,116,000) (26,228)

Balances 12/31/2013 $ 4,300,946 $ - $ 1,821,351 - $ $ 8,092,465 $ 8,278,277 $ (2,460,000) $ 20,033,039

2014 Interest Accrued 525,968 230,992 1,026,326 977,370 2,760,656

2014 Interest Paid (530,645) - - (530,645) 

Principal Payments - (15,541) (15,541) 

Balance 12/31/2014 $ 4,296,268 $ - $ - 2,052,343 $ $ 9,118,791 $ 9,240,106 $ (2,460,000) $ 22,247,509

2015 Interest Accrued 85,032 13,773 1,156,520 161,406 1,416,731

2015 Interest Paid (172,946) - (172,946) 

Principal Payments - (28,786) (28,786) 

Reverse Bad Debt Reserve - 2,460,000 2,460,000

March 1 Debt Conversion to Preferred Stock (4,208,354) (2,092,344) (8,698,066) (14,998,764)

Transfer from ACF to AIOF 674,660 (674,660) - 

Balance 12/31/2015 -$ $ - $ 648,432 - $ $ 10,275,311 $ - -$ 10,923,744 $ 

2015 Interest Accrued 12,128 1,306,933 - 1,319,061

2015 Interest Paid (2,975) - (2,975) 

Principal Payments (543,892) (543,892) 

Balance 12/31/2016 -$ $ - $ 113,693 - $ $ 11,582,244 $ - -$ 11,695,938 $ 

1. Includes a $2.46M Bad Debt Reserve.

2. No documentation of transaction found.

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 170 of 174
In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit E.2.1.3.3

Summary of Freedom Portfolios at Face Value Compared to Outstanding Debt

Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 

Consumer Debt Portfolios at Face ValueC+ Face Value - Investments 14,785,866 25,659,852 34,577,351 42,043,094 49

F+ Face Value - Investments 7,388,958 20,586,872 27,220,278 26,925,819 23

Total Consumer Debt Portfolios at Face Value 22,174,825 46,246,723 61,797,628 68,968,913 73,

Outstanding DebtC+ Total Debt 8,461,997 24,806,642 35,487,121 41,752,392 50

F+ Total Debt 585,413 13,021,816 26,282,190 28,938,388 25

Total Outstanding Debt 9,047,411 37,828,458 61,769,311 70,690,780 76,

Net Consumer Debt Porfolios Less Debt 13,127,414 8,418,265 28,317 (1,721,868) (3,

AH and ACF Cash Investment 24,210,825 12,088,820 17,555,232 19,253,040 17,

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 171 of 174
In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit E.6

Summary of Aequitas Portfolio Assets to Debt

Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 201

Consumer Portfolios at Fair Value 191,923,379 177,250,792 166,165,352 171,881,983 186,488,102 206,301,102 226,979,698 240,148

Institutional Debt (65,446,542) (58,534,736) (51,125,812) (39,647,265) (38,404,496) (75,176,348) (89,988,524) (103,608Value After Retiring Institutional Debt 126,476,837 118,716,056 115,039,540 132,234,717 148,083,606 131,124,754 136,991,174 136,539

Investor Debt 345,474,171 363,326,635 381,399,704 410,893,696 445,713,388 464,635,584 474,155,496 469,440

Portfolio Coverage for Institutional Debt 293% 303% 325% 434% 486% 274% 252% 2Portfolio Coverage for Investor Debt 37% 33% 30% 32% 33% 28% 29% 

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 172 of 174
In re AEQUITAS MANAGEMENT, LLC, et al.

Case No. 3:16-cv-00438-PK

Report Regarding the Investigation of the Receivership Entity's Business Conduct

Exhibit E.8

Summary of Disclosure Language in Quarterly Updates

Private Note Private Note Tear Sheet Summary

Q1 2014 Book Value of Assets Not Shown Education C

Collaterla Value of Assets Healthcare CSubordinated Debt Corporate DSenior Debt and Credit Facilities Corporate E

Transportati

Other AssetsCash

Q2 2014 Book Value of Assets 482,190,000.00 Education C

Collateral Value of Assets 646,976,000.00 Healthcare CSubordinated Debt 275,511,000.00 Corporate DSenior Debt and Credit Facilities 102,464,000.00 Corporate E

Transportati

Other Assets Cash 

Q3 2014 Book Value of Assets 512,436,000.00 Education C

Collateral Value of Assets 674,495,000.00 Healthcare CSubordinated Debt 316,829,000.00 Corporate DSenior Debt and Credit Facilities 88,408,000.00 Corporate E

Transportati

Other Assets Cash 

Q1 2015 Book Value of Assets 610,261,000.00 Education C

Collateral Value of Assets 772,259,000.00 Healthcare CSubordinated Debt 364,822,000.00 Corporate DSenior Debt and Credit Facilities 136,721,000.00 Corporate E

TransportatiConsumer & Other Assets Cash 

Q2 2015 Book Value of Assets 575,456,000.00 Education C

Collateral Value of Assets 82,292,000.00 Healthcare CSubordinated Debt 139,045,000.00 Corporate DSenior Debt and Credit Facilities 344,265,000.00 Corporate E

TransportatiConsumer & Other Assets Cash 

The Aequitas Private Note ("Private Note") is a high yielding subordinated debt instrument issued by Aequitas Commercial Finance, LLC ("ACF"). The Private Notes are issued as direct obligations of ACF and are supported by the balance sheet of ACF. The Notes are structured to provide a fixed quarterly return and principal return upon maturity. ACF uses proceeds from Private Note primarily to fund or finance the purchase of student loan receivables from education providers, patient-pay receivables from healthcare providers, other private credit strategy receivables and loan portfolios, or direct collateralized loan and lease obligations, equities and secured liquidity lines to affiliates for general corporate purposes. 

1. Book value of assets is not an indication of liquidation value. In the event of a smay or may not be realized.2. Aequitas controlling equity and related party Private Note investments.3. Interest rates are annualized; paid after any applicable advisor fees; rates exclus4. Annual weighted average interest rate is calculated as of quarter end, then dividquarter. The annual rate is the weighted average interest rate as of December 31 omost recently completed quarter. Weighted average interest rate contains returns oinvestments effective January 1, 2014. Index returns are shown as cumulative yea5. The assets held in Corporate Equity include equity investments which are interindependent third party audit firm.6. Cash includes $976,000 of restricted cash primarily related to reserve accounts originator. These reserve accounts are restricted to their use per the terms of each 

ACF Collateral Summary 

The Aequitas Private Note ("Private Note") is a high yielding subordinated debt instrument issued by Aequitas Commercial Finance, LLC ("ACF"). The Private Notes are issued as direct obligations of ACF and are supported by the balance sheet of ACF. The Notes are structured to provide a fixed quarterly return and principal return upon maturity. ACF uses proceeds from Private Note primarily to fund or finance the purchase of student loan receivables from education providers, patient-pay receivables from healthcare providers, other private credit strategy receivables and loan portfolios, or direct collateralized loan and lease obligations, equities and secured liquidity lines to affiliates for general corporate purposes. The Aequitas Private Note ("Private Note") is a high yielding subordinated debt instrument issued by Aequitas Commercial Finance, LLC ("ACF"). The Private Notes are issued as direct obligations of ACF and are supported by the balance sheet of ACF. The Notes are structured to provide a fixed quarterly return and principal return upon maturity. ACF uses proceeds from Private Note primarily to fund or finance the purchase of student loan receivables from education providers, patient-pay receivables from healthcare providers, other private credit strategy receivables and loan portfolios, or direct collateralized loan and lease obligations, equities and secured liquidity lines to affiliates for general corporate purposes. The Aequitas Private Note ("Private Note") is a high yielding subordinated debt instrument issued by Aequitas Commercial Finance, LLC ("ACF"). The Private Notes are issued as direct obligations of ACF and are supported by the balance sheet of ACF. The Notes are structured to provide a fixed quarterly return and principal return upon maturity. ACF uses proceeds from Private Note primarily to fund or finance the purchase of student loan receivables from education providers, patient-pay receivables from healthcare providers, other private credit strategy receivables and loan portfolios, or direct collateralized loan and lease obligations, equities and secured liquidity lines to affiliates for general corporate purposes. The Aequitas Private Note ("Private Note") is a high yielding subordinated debt instrument issued by Aequitas Commercial Finance, LLC ("ACF"). The Private Notes are issued as direct obligations of ACF and are supported by the balance sheet of ACF. The Notes are structured to provide a fixed quarterly return and principal return upon maturity. ACF uses proceeds from Private Note primarily to fund or finance the purchase of student loan receivables from education providers, patient-pay receivables from healthcare providers, other private credit strategy receivables and loan portfolios, or direct collateralized loan and lease obligations, equities and secured liquidity lines to affiliates for general corporate purposes. 

Aequitas footnotes to values included in Q2 2015 tear sheet

Footnote on Assets Under Management (AUM):

Footnote on Aequitas Investment:

Footnote on Interest Rate Schedule:

Footnote on Weighted Average Interest Rate (2008-2015):

Footnote on Corporate Equity:

Footnote on Cash and Other Assets:

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 173 of 174
Private Note Private Note Tear Sheet Summary

Q3 2015 Book Value of Assets 633,819,000.00 Corporate E

Less: Non-controlling Members' Equity (123,635,000.00) Loans To AfLess: Credit Facilities and Senior Debt (168,012,000.00) Loans to AffAssets Securing Subordinated Debt 342,172,000.00 Education CSubordinated Debt 321,332,000.00 Healthcare C

Cash & Othe

removal of : Collateral Value of Assets Consumer & 

Senior Debt and Credit Facilities Transportati

Loans to Aff

removal of : Corporate D

IOF II IOF II Tear Sheet Summary

Q4 2014 Education 1,309,000.00 Not included

Transportation 935,000.00Consumer 1,122,000.00

Small Vusinesses 374,000.00Other Assets 27,735,000.00Cash & Short Term Investments 268,000.00

Q1 2015 Education 33,391,000.00

Transportation 18,290,000.00Consumer 7,155,000.00Small Businesses - Other Assets 9,296,000.00Cash & Short Term Investments 1,453,000.00

Q2 2015 Education 33,391,000.00 Senior Secur

Transportation 18,290,000.00 Subordinated Consumer 7,155,000.00 Other Small Businesses - Other Assets 9,296,000.00Cash & Short Term Investments 1,453,000.00

Q3 2015 Education 44,191,000.00 Senior Secur

Transportation 23,960,000.00 2nd Lien SenConsumer 8,615,000.00 Other Middle Market 7,379,000.00Other Assets 3,873,000.00Cash & Short Term Investments 1,453,000.00

The Aequitas Income Opportunity Fund II (“IOF II” or “Fund”) follows a value investing approach by acquiring or investing in receivables or loans. IOFII accomplishes this by investing in receivables, loans, and leases, often at discounted prices, through the Aequitas Capital platform. Aequitas Capital hasestablished itself within large and inefficient credit markets such as education, healthcare and private credit, where it provides unique financing solutionsto companies and their consumers, many through its proprietary platform. This platform provides the Fund with a consistent toward flow of assets withsimilar credit characteristics, within given risk parameters, and structures to provide predictable, stable yields, allowing IOF II to offer investors principalsecurity, low market correlation, and upside potential. The Aequitas Income Opportunity Fund II (“IOF II” or “Fund”) follows a value investing approach by acquiring or investing in receivables or loans. IOFII accomplishes this by investing in receivables, loans, and leases, often at discounted prices, through the Aequitas Capital platform. Aequitas Capital has established itself within large and inefficient credit markets such as education, healthcare and private credit, where it provides unique financing solutionsto companies and their consumers, many through its proprietary platform. This platform provides the Fund with a consistent toward flow of assets with similar credit characteristics, within given risk parameters, and structures to provide predictable, stable yields, allowing IOF II to offer investors principal security, low market correlation, and upside potential. The Aequitas Income Opportunity Fund II (“IOF II” or “Fund”) follows a value investing approach by acquiring or investing in receivables or loans. IOFII accomplishes this by investing in receivables, loans, and leases, often at discounted prices, through the Aequitas Capital platform. Aequitas Capital has established itself within large and inefficient credit markets such as education, healthcare and private credit, where it provides unique financing solutionsto companies and their consumers, many through its proprietary platform. This platform provides the Fund with a consistent toward flow of assets with similar credit characteristics, within given risk parameters, and structures to provide predictable, stable yields, allowing IOF II to offer investors principal security, low market correlation, and upside potential. The Aequitas Income Opportunity Fund II (“IOF II” or “Fund”) follows a value investing approach by acquiring or investing in receivables or loans. IOFII accomplishes this by investing in receivables, loans, and leases, often at discounted prices, through the Aequitas Capital platform. Aequitas Capital has established itself within large and inefficient credit markets such as education, healthcare and private credit, where it provides unique financing solutionsto companies and their consumers.These companies provide a forward flow of assets with similar credit characteristics, within given risk parameters, and structured to provide predictable, stable yeilds, allowing IOF II to offer investors stated yield payments and low market correlation. 

ACF Collateral Summary

Aequitas footnotes to values included in Q3 2015 tear sheet

Footnote on Assets Under Management (AUM):

Footnote on Interest Rate Schedule:

Footnote on Weighted Average Interest Rate (2008-2015):

Footnote on Assets Securing Subordinated Debt:

Footnote on Corporate Equity:

Footnote on Cash and Other Assets:

The Aequitas Private Note ("Private Note") is a high yielding subordinated debt instrument issued by Aequitas Commercial Finance, LLC ("ACF"). The Private Notes are issued as direct obligations of ACF and are supported by the balance sheet of ACF. The Notes are structured to provide a fixed quarterly return and principal return upon maturity. ACF uses proceeds from Private Note primarily to fund or finance the purchase of student loan receivables from education providers, patient-pay receivables from healthcare providers, other private credit strategy receivables and loan portfolios, or direct collateralized loan and lease obligations, equities and secured liquidity lines to affiliates for general corporate purposes. 

1. Book value of assets is not an indication of liquidation value. In the event of a investments may or may not be realized.2. Interest rates are annualized; paid after any applicable advisor fees.3. Annual weighted average interest rate is calculated as of quarter-end, then divinext quarter. The annual rate is the weighted average interest rate as of December as of the most recently completed quarter. Weighted average interest rate contains renewing investments effective January 1, 2014. Index returns are shown as cumunot represent the performance of the underlying assets; it only represents the fixed 4. The remainder of assets are pledged to senior debt and non-controlling membe5. The assets held in Corporate Equity include equity investments which are interindependent third party audit firm.6. Cash includes $973,000 of restricted cash primarily related to reserve accounts receivable originator. These reserve accounts are restricted to their use per the term

A

Case 3:16-cv-00438-JR Document 663 Filed 11/21/18 Page 174 of 174