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UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _____________________________________________________________ NO. 10-10683-BB _________________________________________ WILLIAM F. PERKINS, PLAN TRUSTEE FOR INTERNATIONAL MANAGEMENT ASSOCIATES, LLC Appellant, v. AENA Y. HAINES, ET AL Appellees. _________________________________________ ON DIRECT APPEAL FROM THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION ___________________________________________________________ REPLY BRIEF OF APPELLANT WILLIAM F. PERKINS, PLAN TRUSTEE FOR INTERNATIONAL MANAGEMENT ASSOCIATES, LLC ____________________________________________________________ Colin M. Bernardino Georgia Bar No. 054879 KILPATRICK STOCKTON, LLP 1100 Peachtree Street, Suite 2800 Atlanta, Georgia 30309 Tel: (404) 815-6500 Fax: (404) 815-6555 Mark S. Kaufman Georgia Bar No. 409194 Bryan E. Bates Georgia Bar No. 140856 MCKENNA LONG & ALDRIDGE LLP 303 Peachtree Street, N.E., Suite 5300 Atlanta, Georgia 30308 Tel: (404) 527-4000 Fax: (404) 527-4198

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TABLE OF CONTENTS Page TABLE OF CONTENTS...........................................................................................i TABLE OF CITATIONS ....................................................................................... iii ARGUMENT AND CITATIONS OF AUTHORITY .............................................1 I. This case is governed by operation of law, rather than notions of fairness..........................................................................................1 A. Surprisingly, the SEC has weighed in on this case for the first time, pronouncing what it has determined to be the fair result.................................................................................3 This Court should reject the Investor Defendants additional extraneous arguments as either wholly unavailing or not properly before the Court ..............................7

B.

II.

The Investor Defendants and the SEC fail to demonstrate why historically decided Ponzi scheme case law should be extended to afford redeeming equity holders the same treatment as distributions to debt holders ...............................................................12 A. This Court should refuse to follow the Ninth Circuits ruling in In re AFI Holding, Inc. because that court relied on inapposite precedent, wholly failing to analyze fundamental legal considerations that bear on the assertion of fraud claims by equity holders .............................16

III.

Section 510(b) of the Bankruptcy Code mandates that fraudbased rescission claims of equity holders be subordinated to the claims or interests of similarly situated equity holders; thus, the principles of Section 510(b), read together with Sections 1123(a)(4) and 1129(b)(1), prohibit defrauded equity holders who assert fraud-based rescission claims from receiving better treatment than similarly situated equity holders .................................... 19 A. The history of the enactment of Section 510(b) of the Bankruptcy Code indicates that Congress clearly mandated that equity holders cannot utilize fraud claims to elevate their positions to be equal to general creditors nor even ahead of similarly situated equity holders ................22

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TABLE OF CONTENTS (continued) Page B. The application of contemporary principles of Section 510(b) of the Bankruptcy Code to the facts at bar shows that the Investor Defendants clearly are prohibited from receiving better treatment than their similarly situated equity holder peers, based on the assertion of fraud claims .......................................................................................25

CONCLUSION.......................................................................................................28 CERTIFICATE OF COMPLIANCE......................................................................30

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TABLE OF CITATIONS Page(s) CASES Ashoff v. City of Ukiah, 130 F.3d 409 (9th Cir. 1997) ................................................................................7 Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).....................................6, 7 Eby v. Ashley, 1 F.2d 971 (4th Cir. 1924) ...............................................................14, 15, 16, 19 In re AFI Holding, Inc., 525 F.3d 700 (9th Cir. 2008) ............................................................16, 17, 18, 19 In re Geneva Steel Co., 281 F.3d 1173 (10th Cir. 2002) ..........................................................................22 In re Granite Partners, 208 B.R. 332 (Bankr. S.D.N.Y. 1997)................................................................18 In re Terry Mfg. Co., Inc., 2007 WL 274319 (Bankr. M.D. Ala. 2007) .................................................18, 19 In re United Energy Corp., 944 F.2d 589 (9th Cir. 1991) ........................................................................16, 17 Jezarian v. Raichle (In re Stirling Homex Corp.), 579 F.2d 206 (2d Cir. 1978) .........................23, 24 Newton National Bank v. Newbegin, 74 F. 135 (8th Cir. 1896) ....................................................................................21 Oppenheimer v. Harriman Nat'l Bank & Trust Co., 301 U.S. 206, 57 S.Ct. 719, 81 L.Ed. 1042 (1937).............................................22

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TABLE OF CITATIONS (continued) Page Perkins v. Smith, Gambrell & Russell, LLP et al, United States District Court for the Northern District of Georgia, Civil Action No. 1:08-CV-2673-JEC ............................................................................9 Scholes v. Lehmann, 56 F.3d 750 (7th Cir 1995) .................................................................................26 Skidmore v. Swift & Co., 323 U.S. 134, 65 S.Ct. 161, 89 L.Ed. 124 (1944).................................................7 STATUTES 11 U.S.C. 510(b) ............................................................................................passim 11 U.S.C. 1123(a)(4).......................................................................................19, 27 11 U.S.C. 1129(b)(1).......................................................................................19, 27 OTHER AUTHORITIES H.R.Rep.No.95-595, 95th Cong., 1st Sess. (1977)............................................23, 24

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Appellant William F. Perkins, Plan Trustee (the Trustee) for the substantively consolidated post-confirmation debtor (the Debtor or Debtors, or generally IMA), with the advice of the Plan Committee (the Committee),1 by and through undersigned counsel, and submits this consolidated reply to the briefs filed by appellees/defendants (the Investor Defendants) and the Securities and Exchange Commission (the SEC). ARGUMENT AND CITATIONS OF AUTHORITY I. This case is governed by operation of law, rather than notions of fairness. The Investor Defendants miscast the basis of the Trustees position, arguing disingenuously that the result urged by the Trustee and the Committee in this appeal is premised on principles of fairness. Joint Appellee Brief

(Jt.App.Brf.), Pgs 39-41. Fairness is not the basis of the Trustees claims; indeed, in his opening brief, the Trustee explicitly disclaimed any notion that the fairness of requiring an equal sharing of the financial pain among all victims of IMAs fraud warranted the relief sought. Trustees Appellant Brief (Tr.Brf.), Pgs 11-12. To the contrary, after the Trustee observed the moral dilemma of having to choose between a result that leaves the defrauded investor where you

Counsel for the Committee has prepared this brief. By agreement with the Trustee, Committee counsel will take the lead role in arguing the matters raised herein.

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find them as opposed to an approach that seeks to ratably equalize losses among similarly situated defrauded victims, the Trustee made it explicitly clear that his pursuit of the avoidance claims in the case was not being justified on some notion of fairness, but rather because that result is what the law requires: namely, because IMA investors acquired equity interests in IMA as opposed to claims against it, none were entitled to receive, as the Investor Defendants did, distributions greater than the value of his or her ratable share of the enterprise at the time those distributions were received in exchange for the return of their equity interests. Id. While the Bankruptcy Court observed that the fairer result among Ponzi scheme investors might be to put them all in the same place and assure a ratable distribution of the Ponzi enterprises assets to them [Doc 38, Pg 13], others can perhaps as persuasively urge that leaving recovering investors alone is an equal or even stronger moral imperative. Resolving this case on which virtue should reign supreme is problematic here, where no answer, grounded on whats the right thing to do, is inherently correct. Instead, and thankfully so, courts can look to legal doctrines to guide the outcome and avoid the moral choice that is inherent in a fairness based analysis. Thus, as the Trustee readily concedes, where investors make a debt based investment in what is later found to be a fraudulent enterprise, even though that enterprise induced the investment with actual fraud and despite
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the fact that every investment transaction it conducted was with its intent to delay, hinder and defraud, investors are legally permitted to keep what they recover from the enterprise before the fraud was discovered. That result is so because their recovery is deemed for value since what they received was in satisfaction of an antecedent debt -- a claim that is protected from avoidance under Sections 548(c) and (d) of the Bankruptcy Code and correlative state law (assuming the recovering investor acted in good faith, and outside the applicable preference period). Whether that result is viewed as fair to other equally defrauded investors who had not recovered a dime is not the issue; it is what well-established law requires. Conversely, in an equity investment scenario where the right conferred is an interest in an enterprise, the proper legal result is directly opposite to one where the investment gave rise to a claim against it; but here, again, the resolution should not be premised on it being the fairer result, but rather on what long-standing legal principles mandate. A. Surprisingly, the SEC has weighed in on this case for the first time, pronouncing what it has determined to be the fair result.

In its amicus brief, the SEC actually attempts to ground its support for the Investor Defendants position based on its views of what is fair, concluding that the disruption caused by the Trustees pursuit of claims against innocent investors who have gotten back money invested goes too far. SEC.Brf., Pg 20.

Conceding that there is arguably some merit in making pro rata distributions
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among equally defrauded equity investors, the SEC nevertheless concludes that this consideration is outweighed by the hardship that would be inflicted on individual investors forced to return principal payments received in good faith. Id. at 21. It is one thing for the Investor Defendants to strenuously urge their biased notions of what is fair as a defense, though their assessment is anything but objective. It is much more disconcerting, though, for the SEC, the

governmental body whose fundamental purpose is to properly police, regulate and assure the integrity of our investment market place, to choose sides on whether the hardship that might be inflicted on investors forced to return principal recoveries is entitled to greater dignity than protecting, through the ratable distribution concept, the plight of other innocent victims, no less defrauded, who were fully invested when the fraudulent scheme came to light. While the SEC purports to rest its conclusion on long-standing judicial precedent that innocent victims who recover their investments before a Ponzi scheme collapses not be required to disgorge the return of recovered principal, that precedent was developed in debt claim investment cases. While correct in the debt claim context, it must be cabined to that circumstance, and not, as the SEC attempts, expanded on fairness notions to the equity investment context where legal doctrines developed over hundreds of years require a different result.

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Even more curious than its decision to opine about what it thinks is a fairer result is the SECs branding as illusory the Trustees distinction between debt and equity investments and how they are to be treated under the law. SEC.Brf., Pg 21. While the SEC concedes at the outset that the answer to the question posed in this case is important and will have a significant impact on the treatment of investors defrauded in Ponzi schemes purporting to offer equity investments [id. at 2], the Commission fails to directly address any of the arguments advanced by the Trustee to premise the equity versus debt distinction, with no discussion of 11 U.S.C. 510(b) and correlative judicial authorities that make manifestly clear that fraud-based tort claims arising from what initially was an equity investment are entitled to recovery from the fraudulent enterprise on no basis superior to that of all other similarly situated equity investors. Id. at 2. This parity in treatment among interest holders principle, clear in both statutory and judicial authorities, is utterly ignored by the SEC. For the SEC, the governmentally-appointed watchdog whose purpose it is to ensure disciplined markets, full and accurate disclosures and the protection of the investor public, to assail as illusory the Trustees position that signed equity based investment documents mean nothing and that such investors should be treated the same as if they loaned money to the fraudulent enterprise would appear to be totally contrary to the SECs purpose. Contrary to providing predictability
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and bolstering confidence in the publics right to rely upon documents they signed as the most salient guidepost for measuring their rights, the SECs reasoning seems antithetical to those goals. Logically extended, its position renders written

agreements an unworthy substitute for what one judge might think from time to time appears the moral or right thing to do. Nothing could be more destabilizing to our financial markets. The SEC endorses the reasoning that merely because the IMA investors were lured into their investments by fraud, the documents they signed -- which put all such investors on an equal footing should the enterprise fail for any reason -should be totally disregarded, thereby fundamentally emasculating the contractual understanding that such risks were to be equally shared among all equity holders. True, a fraud claim arises in favor of every deceived investor as of the date they were deceived, but for multiple reasons the justification for permitting some to recover on a basis superior to other similarly situated defrauded investors cannot be premised on the fraud, and the failure to see that distinction is the fundamental flaw in the SECs reasoning.2

In any event, the SECs positions should be afforded no special deference by this Court. Generally, courts defer to determinations of a governmental agency where the agency offers a reasonable interpretation of a legal issue under a statutory framework in which Congress explicitly or implicitly delegated authority to the agency. See Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Such deference is not extended
(footnote continued on next page)

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B.

This Court should reject the Investor Defendants additional extraneous arguments as either wholly unavailing or not properly before the Court.

Aside from miscasting the Trustees position as being based on fairness, the Investor Defendants other arguments not devoted to the for value inquiry -- the sole issue before this Court -- are likewise unavailing. As to the Investor

Defendants strained statute of limitations analogy [Jt.App.Brf., Pgs 38-40], while, as in every field of law, statutes of limitations may bar some claims but not others, the fact that a limitations period may bar the Trustee from the pursuit of certain investors has no relevance to whether well-established rules of law, rather than personal views of what is fair, ought to govern whether a line is drawn or a distinction is made between holders of debt and equity.
(footnote continued from previous page)

There are, indeed,

to agency positions that are wholly unsupported by regulations, rulings, or administrative practice. Ashoff v. City of Ukiah, 130 F.3d 409, 411 (9th Cir. 1997). The United States Court of Appeals for the Second Circuit, in In re New Times Securities Services, Inc., reasoned that the SECs interpretation of provisions of the Securities Investor Protection Act was entitled to no special deference under Chevron because the SEC had never previously proffered its interpretation in a rule, regulation or other form. 371 F.3d 68, 81-82 (2nd Cir. 2004). Accordingly, the Second Circuit deemed the SECs positions worthy only of non-controlling consideration, and only to the extent that that the court deemed its arguments to be persuasive. Id. at 83, 87; see also Skidmore v. Swift & Co., 323 U.S. 134, 65 S.Ct. 161, 89 L.Ed. 124 (1944). Because (i) the SECs positions asserted herein are not based on a conferral of authority by Congress, (ii) the SEC has no special claim to expertise regarding the issues at stake in this appeal, (iii) the SEC has not asserted any interpretations based on rules or regulations that are within its area of expertise, and (iv) the SECs arguments simply are not persuasive, this Court should give no deference to the SECs arguments.

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winners and losers irrespective of which view this Court adopts on the legal question presented; but that fact, or the consequence that a statute of limitations defense might alter the result for some, does not mean that this Court should not premise who wins or loses other than by applying sound legal analyses and rigorously adhering to statutes and well-developed legal principles that govern the treatment of equity investors inter se.3 The Investor Defendants also attempt to buttress the correctness of the Bankruptcy Courts decision to not permit recovery of principal paid by IMA to the Investor Defendants on the notion that the costs of such litigation will likely exceed the recoveries. Jt.App.Brf, Pgs 40-41. This contention rests on nothing more than pure conjecture. Without any evidence to support their contention, the Investor Defendants boldly assert that the Trustees pursuit of the claims at bar will actually cause a dilution of estate assets, presumptively because the administrative costs of pursuit of the claims will be significant and because in Moreover, the Investor Defendants try to make much more of their statute of limitations argument that in fact exists. Quick to find something purportedly arbitrary about the Trustees line-drawing distinction between debt and equity, the Investor Defendants offer the alleged statute of limitations inequity as illustrative of arbitrariness without advising this Court that the Bankruptcy Court, in a decision rendered on April 9, 2010, found that the statute of limitations otherwise applicable to the subject avoidance claims in this case was tolled until the fraudulent nature of IMAs scheme became public. See Perkins v. TBC Capital, Inc. et al, United States Bankruptcy Court for the Northern District of Georgia, Case No. 08-06623PWB, Docket Entry No. 23.
3

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many instances [the Investor Defendants] may be incapable of paying funds back to the Estate because they do not have the resources to do so. Id. Needless to say, the Trustee conducted his own cost-benefit analysis before commencing suit and concluded that pursuit of the claims at issue here made financial sense. Indeed, determinations were made about which recovering investors to sue based on the cost of such litigation as compared to the amounts sought to be recovered. Investor Defendants, who obviously have reasons to see the calculus differently, have no standing to raise the administrative cost argument as a defense, and that is especially so where their contention rests entirely on rank speculation regarding the non-collectability of judgments against some of the Investor Defendants. Aside from whether the Investor Defendants can pay judgments rendered against them, the pursuit of the claims at bar is vitally important to assuring appropriate future distributions to those who presently sit empty handed.4 The Trustee notes that many of the Investor Defendants have recovered some, but not all, of the amount they invested, and thus stand to further recover from the estate.

Contrary to the Investor Defendants contentions, the Trustee is pursing meaningful additional recoveries for the estate beyond the claims asserted against the Investor Defendants. See, e.g., Perkins v. Smith, Gambrell & Russell, LLP et al, United States District Court for the Northern District of Georgia, Civil Action No. 1:08-CV-2673-JEC, Docket Entry No. 91 (denying defendants motion for summary judgment on estates legal malpractice claim against IMAs pre-petition law firm).

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Hence, on what basis such partially recovering investors should share in future distributions is raised by this appeal as well. If the Trustee prevails on the theory that those who recovered all or a portion of their equity investment in IMA must disgorge those recoveries to create a level playing field among all of the Ponzi scheme victims, then apart from whether all the Investor Defendants have the ability pay the judgments against them, those that recovered in part, but still hold claims, would, at a minimum, not be entitled to receive any further distributions until all injured investors had recovered the same percentage of their investment. Conversely, if the Trustee fails in pursuit of the avoidance claims sub judice, any distributions made to the Investor Defendants would be ratable to the amount they still claim.5 The Investor Defendants also attempt to re-raise to this Court the res judicata and estoppel arguments that were presented to, and were explicitly rejected by, the Bankruptcy Court below. Jt.App.Brf., Pgs 41-47. The Investor Defendants argue that the Trustees formal acknowledgement in the Plan and Disclosure Statement of the now-known fraud claims of all of IMAs defrauded Thus, if Able and Baker each invested $500,000 in IMA, and Baker had recovered $300,000 of his investment before IMAs fraudulent scheme had become public, unless this Court adopts the Trustees equality of treatment theory here asserted, both Baker and Able would share in any distributions ratably from the first dollar now or hereafter distributed, even though Baker had already recovered 3/5 of his investment.
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investors should bar the Trustee from seeking to avoid transfers made to the Investor Defendants on the basis that they received disproportionate distributions in respect of their equity interests in IMA. Id. The Investor Defendants estoppel and res judicata defenses to the avoidance actions sub judice are meritless. First, those defenses are not before this Court because only the for value defense was certified for immediate review. Second, the mere fact that the Plan and Disclosure Statement provided that all deceived investors were to be treated as tort claimants did not waive the Trustees right to pursue the avoidance actions. As previously observed, the fact that defrauded IMA investors held tort claims, though unarticulated, arising from the date they were deceived into making their IMA investment, begs the question whether those who were fortunate to receive distributions from IMA can defeat avoidance actions to recover those distributions. Contrary to the Investor Defendants contentions, the Disclosure Statement made the Trustees intention to pursue such avoidance actions explicit, and finding nothing in the Plan unclear, the Bankruptcy Court agreed. Doc 37, Pgs 84, 88. Finally, in a separate brief filled by Investor Defendants James, Nathaniel and Simone Bronner (the Bronners), the Bronners argue that, if the Court deems IMAs investors to be solely equity holders, the Trustees fraudulent transfer claims would be precluded because the Trustee would be unable to satisfy certain elements of his prima facie case for avoidance claims against the Investor
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Defendants. The Bankruptcy Court did not treat the Bronners arguments in its Order because, for purposes of its consideration of the value issue, both in the Bankruptcy Court below and for purposes of its certification for immediate appeal, the Bankruptcy Court assumed that the Trustee had established his prima facie case. Doc 37, Pg 77. Hence, the issues raised by the Bronners are not properly before this Court, and should be disregarded. To the extent that this Court wishes to even consider the Bronners arguments, the Trustee refers the Court to the Trustees extensive treatment of this topic in his reply briefing to the Bankruptcy Court below. Doc 31, Pgs 17-26. Certainly, the Bronners will have an opportunity to address these arguments to the Bankruptcy Court on remand, at such time as the Bankruptcy Court affirmatively considers the issue of whether the Trustee can establish, as he fully anticipates the overwhelming evidence will support, his prima facie case. II. The Investor Defendants and the SEC fail to demonstrate why historically decided Ponzi scheme case law should be extended to afford redeeming equity holders the same treatment as distributions to debt holders. The Investor Defendants and the SEC predictably focus on the line of judicial reasoning developed in the fraudulent investment scheme context holding that defrauded investors who recover investments from a fraudulent enterprise prior to the frauds discovery are entitled to retain all of what they recovered up to the full amount of the principal they invested, based on a legal fiction whereby
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payments made to the schemes victims in respect of their principal investments can be retroactively recharacterized as having been paid to satisfy unasserted, and then unknown, fraudulent inducement claims that arose when each investor initially invested in the scheme. The Trustee fully acknowledged the existence of this line of judicial reasoning in his opening brief, and, in fact, does not contest the appropriate application of such reasoning in factual circumstances where defrauded investors initial investments were in the nature of debt claims from the outset. However, where, as here, the defrauded investors initial investments were in the nature of equity interests, the application of such reasoning inappropriately operates to retroactively recharacterize distributions affirmatively made in respect of equity interests into transfers in respect of debt claims. By this retroactive recharacterization process, the transfers made to the Investor Defendants in satisfaction of their previously unasserted and unarticulated fraud claims, totally circumvents the extensive litigation process required to prove a fraud claim, wholly disregards requisite notice requirements to other affected interest holders, and violates the principles of Section 510(b) of the Bankruptcy Code, discussed infra, that prohibit the assertion of fraud claims by equity holders to elevate their distribution status. The Investor Defendants and the SEC argue that the distinction between being an investor creditor as opposed to an investor interest holder is irrelevant to
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the value exchange analysis in the avoidance context, because the mere existence of a potential fraud claim (though unarticulated) should be sufficient to make an equity investor into a creditor claimant investor. The Investor Defendants and the SEC compare the facts of the instant case to those found in Eby v. Ashley, and in a line of cases following Eby, and argue that this Court should afford the Investor Defendants the same protections provided to defrauded investors by the Eby court and those courts that have followed its reasoning. Eby v. Ashley, 1 F.2d 971 (4th Cir. 1924), cert. denied, 266 U.S. 631, 45 S.Ct. 197, 69 L.Ed. 478 (1925). While all fraudulent investment scheme cases share common themes and symmetries among them, the facts of the case at bar clearly differ from Eby and its progeny, and create a meaningful distinction that should prevent Ebys reasoning from being extended to this case. As set forth in the Trustees opening brief, the investors in the Eby scheme unquestionably held, from the outset, claims against the fraudulent scheme, based on the debt nature of their investments. In reasoning that the transfers to those defrauded investors satisfied their fraudulent inducement claims, the Eby court merely acknowledged the existence of an alternate and distinct basis for a debt claim against that scheme -- one based on the initial nature of the investment that gave rise to the investors right of repayment from the outset, and the other on account of the defrauded investors fraudulent inducement claim (what the Trustee
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denominates Claim2 in his opening brief). The Trustee has never contested the analysis in Eby and its progeny that a potential fraudulent inducement claim arose at the time each defrauded investor made his investment into the scheme, and does not contest the analysis undertaken by cases that have appropriately applied the Claim2 concept where there are two separate and distinct bases for debt claims against the Ponzi entity -- i.e., where the investments made by those defrauded gave rise to contractual debt claims from the outset.6 However, neither the Eby court nor the vast majority of courts that adopted its reasoning in any way involved the transmutation of what was originally an equity interest into a fraud-based debt claim. Accordingly, for the reasons set forth herein and in the Trustees opening brief, this Court should deem inapposite the analysis from Eby and its debtinvestment case progeny.

As set forth in the Trustees opening brief, the Trustee does not contest the application of the Claim2 analysis in debt cases because, aside from the asserted fraud, the investor, with limited exceptions, had a right to be preferred over other investors. Whereas the claim of a holder of a legitimate debt against an enterprise may properly be paid prior to and in preference over other similarly situated debt holders, outside some statutory preference period, and provided that the investor has acted in good faith, by contrast, state and bankruptcy law clearly mandate that payments in excess of the value of an investors ratable interest in the enterprise are prohibited, thereby assuring the equality of treatment among all equity holders. See Tr.Brf., Pgs 31-36.

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A.

This Court should refuse to follow the Ninth Circuits ruling in In re AFI Holding, Inc. because that court relied on inapposite precedent, wholly failing to analyze fundamental legal considerations that bear on the assertion of fraud claims by equity holders.

Only one court in the Eby line has addressed an equity investment structure similar to that before this Court. In his opening brief, the Trustee extensively addressed the decision in In re AFI Holding, Inc., 525 F.3d 700 (9th Cir. 2008), in which the United States Court of Appeals for the Ninth Circuit extended Ebys Claim2 reasoning to factual circumstances where the investors were equity interest holders, not debt claimants, in the fraudulent enterprise. Id. at 708-09; Tr.Brf., Pgs 36-50. In reaching its conclusion that distributions in respect of equity interests may be retroactively deemed to be in satisfaction of unasserted, unarticulated fraud claims, the AFI court relied almost exclusively on the reasoning of a prior Ninth Circuit case, In re United Energy Corp., 944 F.2d 589 (9th Cir. 1991). Id. United Energy undeniably involved factual circumstances where the investors were debt claimants from the outset; thus, United Energy no more supported

recharacterization of a transfer in respect of an original equity interest into a transfer in respect of a debt claim than did Eby. See id. The AFI court, however, completely disregarded that critical fact, and simply extended the Claim2 reasoning to its equity investment facts. Id. at 708. AFIs total reliance on United Energy was misplaced, and by improperly relying on

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United Energy without any critical analysis of the fact that United Energy was a Claim2 case, the AFI court wholly failed to conduct any reasoned analysis regarding the fundamental legal issues that should be addressed in connection with any attempt to transmute the character of a distribution in respect of an equity investment into a distribution in respect of a debt claim. Specifically, the AFI court completely missed applicable fundamental legal considerations, as raised by the Trustee both to this Court and to the Bankruptcy Court below, that absolutely should have shaped its analysis, such as (i) the propriety of retroactive transmutation of equity interests into debt claims without any prior articulation of such claims, (ii) due process concerns in light of claims being fully recognized and deemed satisfied without any prior notice to other equity investors at the time the claims were deemed satisfied and paid, (iii) the uniform state law proscription of disproportionate distributions to equity holders, and (iv) the operation of Bankruptcy Code provisions mandating equality in treatment among similarly situated parties, and precluding equity holders from obtaining superior treatment by asserting fraud claims. Essentially, the AFI court just sought to harmonize two prior Ninth Circuit cases, neither of which was on all fours with its facts, and merely parroted the reasoning from the United Energy debt-investment case without any analysis of whether the result should be the same where the case at bar concerned the rights of equity interest holders. Therefore, this Court should give
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no persuasive weight to the Ninth Circuits ruling in AFI, and recognize that the specific matters and arguments before this Court essentially are of first impression. In contrast to AFI, the United States Bankruptcy Court for the Middle District of Alabama, in In re Terry Mfg. Co., Inc., 2007 WL 274319 (Bankr. M.D. Ala. 2007), recognized that fundamental distinctions exist between equity interests and debt claims, and concluded that such distinctions do not permit courts to simply transmute a distribution in respect of an equity interest into a distribution in respect of a debt claim. Id. at *6-7. The Investor Defendants and the SEC argue that Terry is inapposite because it did not involve a fraudulent scheme from its inception. This argument is wholly without merit, because there is no distinction between an inceptive fraud claim and one that arises at some later point in time in the context of an equity holder seeking to retroactively transmute his interest into a claim. See In re Granite Partners, 208 B.R. 332 (Bankr. S.D.N.Y. 1997)

(reasoning that subordination under Section 510(b) properly applies to later arising fraud claims as well as inceptive fraud claims). In either case, the defrauded equity holders seek to assert, later in time, a previously unarticulated fraud claim as a basis for protecting prior distributions affirmatively made in exchange for an equity position. Unlike AFI, the Terry court appropriately considered the impact of patent fundamental distinctions that exist between the rights of equity holders and debt holders, particularly the impact of those distinctions where defrauded
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equity holders seek to assert fraud claims to elevate their distribution status. Terry at *6-7. In light of such distinctions, the Terry court appropriately refused to convert equity interests into debt claims by retroactively recognizing and deeming satisfied previously unasserted fraud claims. Id. No court in Ebys line, and specifically AFI, ever undertook any such reasoned analysis as did the court in Terry. Consistent with Terry, and consistent with the Trustees arguments herein, the Trustee respectfully requests that this Court consider and apply the wealth of legal principles that bear on the matters before this Court, beyond the inapposite rulings of Eby and its progeny. III. Section 510(b) of the Bankruptcy Code mandates that fraud-based rescission claims of equity holders be subordinated to the claims or interests of similarly situated equity holders; thus, the principles of Section 510(b), read together with Sections 1123(a)(4) and 1129(b)(1), prohibit defrauded equity holders who assert fraud-based rescission claims from receiving better treatment than similarly situated equity holders. In addition to the Trustees arguments asserted herein and in his opening brief, Section 510(b) of the Bankruptcy Code provides an incremental and independent basis for this Court to reject the arguments of the Investor Defendants and the SEC that the Investor Defendants previously unasserted fraud claims can now be retroactively recognized and deemed satisfied through the Debtors bankruptcy cases. The Investor Defendants have now asserted for the very first time, during the pendency of the Debtors bankruptcy case, fraudulent inducement

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claims against the Debtors arising from their purchase of equity interests in the Debtors. No Investor Defendant claims that he or she ever asserted a fraudulent inducement claim against a Debtor at the time of the distributions that the Investor Defendant received from the Debtors.7 Both the Investor Defendants and the SEC go to great length to explain how the Bankruptcy Codes expansive definition of the term claim should encompass the Investor Defendants newly asserted fraudulent inducement claims against the Debtors. Jt.App.Brf., Pgs 15-17;

SEC.Brf, Pgs 11-12. This is a red herring argument because the Trustee has never contested that all of IMAs defrauded investors had potential fraudulent inducement claims against the Debtors arising from the date that each of IMAs investors were defrauded by Kirk Wright.8 The Trustee asserts that the proper treatment of the now recognized fraud claims of all of IMAs defrauded investors, including those asserted by the Investor Defendants, must be governed by applicable provisions and policies of the Bankruptcy Code and consistent judicial interpretations thereof. Given that the Investor Defendants and the SEC rely so Had any Investor Defendant previously asserted a fraud claim, such assertion would destroy the Investor Defendants ability to establish good faith receipt of the distribution. See Tr.Brf., Pgs 55-57. Both in the Plan and the accompanying Disclosure Statement, the Trustee referred to the defrauded IMA equity investors as holders of Investor Tort Claims because the Trustee acknowledged that they should be, and he expected that they would be, treated as tort claimants once their fraud claims were allowed in a public judicial forum.
8 7

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heavily on the Bankruptcy Code to support the existence of the Investor Defendants fraud claims against the Debtors, certainly they cannot deny that the other provisions of the Bankruptcy Code should govern the treatment of the very claims that the Bankruptcy Code provides. As discussed further below, for well over a century, courts have considered attempts by equity holders to improve their distribution position relative both to general creditors and to other similarly situated equity holders through the assertion of fraud claims against the failed enterprise in which they invested. But as the United States Court of Appeals for the Eighth Circuit as long ago as 1896 warned, When a corporation becomes bankrupt, the temptation to lay aside the garb of a shareholder, on one pretense or another, and to assume the role of a creditor, is very strong, and all attempts of that kind should be viewed with suspicion. Newton National Bank v. Newbegin, 74 F. 135, 140 (8th Cir. 1896). The Eighth Circuits warning foreshadowed contemporary judicial and statutory recognition of the need to proscribe retroactive conversions from equity to debt. Since 1896, the judicial treatment of equity holder fraud claims has evolved such that today, and for more than thirty years, a fraud-based claim of an equity holder is given no better treatment than what that investor would receive in respect of his equity interest in the fraudulent enterprise. Not only have judicial authorities

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adopted this approach, but when Congress enacted the 1978 Bankruptcy Code, it made this result abundantly clear. A. The history of the enactment of Section 510(b) of the Bankruptcy Code indicates that Congress clearly mandated that equity holders cannot utilize fraud claims to elevate their positions to be equal to general creditors nor even ahead of similarly situated equity holders.

Section 510(b) of the Bankruptcy Code mandates that an equity holders fraud-based rescission claim must be subordinated to claims or interests that are senior or equal to the equity holders underlying equity position, such that an equity holders fraud-based rescission claim cannot be used to elevate his distribution position over that of his similarly situated equity holder peers. 11 U.S.C. 510(b). Prior to the enactment of Section 510(b) in 1978, the law had not always been so clear. As chronicled by the United States Court of Appeals for the Tenth Circuit in In re Geneva Steel Co., 281 F.3d 1173 (10th Cir. 2002), courts struggled for over a century to determine the appropriate treatment of fraud claims asserted by equity holders in a failed enterprise. Id. at 1175-76. Prior to 1900, courts generally reasoned, like contemporary courts, that equity investors could not utilize fraud claims to elevate their distribution position. Id. at 1176. By the

1930s, however, equity investors were generally permitted to rescind their equity purchases, and be treated equal with, or even superior to, creditor claims. Id.; see also Oppenheimer v. Harriman Nat'l Bank & Trust Co., 301 U.S. 206, 215, 57

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S.Ct. 719, 81 L.Ed. 1042 (1937). Over forty years later, with the enactment of the sweeping Bankruptcy Reform Act of 1978, Congress clearly mandated that the law no longer support defrauded equity holders efforts to utilize their fraud claims to elevate their distribution status, and enacted Section 510 of the Bankruptcy Code to expressly provide both that equity holders fraud claims must be subordinated to creditor claims, and, as is critical to this case, that equity holders fraud claims cannot be afforded more favorable treatment than the claims or interests of similarly situated equity holders. Contemporaneously with Congressional consideration of the proposed language of Section 510, but shortly before its enactment, the United States Court of Appeals for the Second Circuit, in the bankruptcy case of Jezarian v. Raichle (In re Stirling Homex Corp.), 579 F.2d 206, 213 (2d Cir. 1978), considered whether claims of defrauded equity holders should be subordinated to creditor claims under the Bankruptcy Act.9 Id. at 208. The Second Circuit expressly considered both the proposed language of Section 510, as well as the House Report on the proposed bill. Id. at 214-15; H.R.Rep.No.95-595, 95th Cong., 1st Sess. (1977). While not controlling authority, the court found the reasoning behind the proposed bill persuasive, and ruled that the subordination of equity fraud claims to general The Bankruptcy Act preceded, and was substantially overhauled by, the Bankruptcy Reform Act of 1978, as codified, the Bankruptcy Code.
9

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creditor claims similarly was required by the standards of the Bankruptcy Act. Id. at 215. With the enactment of Section 510(b) of the Bankruptcy Code, and the contemporaneous ruling by the Second Circuit in Stirling, both current statutory provisions as well as judicial authorities clearly establish that fraud claims of equity holders no longer provide any basis for a defrauded equity holder to elevate his right to distributions to be equal to that of general creditors or even to any priority higher than that of similarly situated equity holders, whether or not they were likewise victims of fraud. This Court should reject the Investor Defendants attempts to minimize the importance of the principles behind Section 510(b) to the facts at bar. The Investor Defendants mistakenly try to limit the principles of Section 510(b) to only preclude attempts by defrauded equity holders to elevate their positions above creditor claims. Jt.App.Brf., Pg 37. While Section 510(b) certainly proscribes defrauded equity holders from asserting fraud claims to elevate their position relative to general creditors, it also explicitly prohibits efforts by defrauded equity holders to elevate their position relative to other similarly situated defrauded equity holders. The Investor Defendants either miss or ignore this critical feature of Section

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510(b), and their attempt to mischaracterize the import of that feature is quite telling and necessitates additional discussion.10 B. The application of contemporary principles of Section 510(b) of the Bankruptcy Code to the facts at bar shows that the Investor Defendants clearly are prohibited from receiving better treatment than their similarly situated equity holder peers, based on the assertion of fraud claims.

Just like defrauded equity investors before them, the Investor Defendants seek to use their fraudulent inducement claims to secure superior treatment over their similarly situated equity holder peers. The Investor Defendants seek to

distance themselves from that impression by calling themselves the Defrauded Investors, so as to suggest (i) that they are somehow representative of all of the investors defrauded by the IMA scheme, and (ii) that no other group of defrauded investors exists relative to whom the Investor Defendants seek to get ahead. In fact, the Investor Defendants are just those investors who were fortunate enough to receive material distributions from the Debtors prior to the discovery of the fraud. There exists a much larger body of defrauded IMA investors who received little or The Investor Defendants devote merely one short paragraph to address the Trustees arguments under Section 510(b). Jt.App.Brf., Pg 37. The SEC fails to address the Trustees Section 510(b) arguments at all. As set forth in the Trustees opening brief, the Bankruptcy Court, too, mistakenly only considered the import of Section 510(b) with respect to its application to the absolute priority rule (creditors before equity), failing to consider its impact on the inter se relationship among equity holders. Doc 38, Pg 12; Tr.Brf, Pgs 44-45.
10

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no distributions from the scheme, people whose investments effectively funded the distributions received by the Investor Defendants. It is this body of similarly defrauded investors over whom the Investor Defendants undeniably seek materially better treatment, on the basis that their now-asserted fraud claims should be retroactively recognized and satisfied as of the time of their distributions from the Debtors. The Trustee consistently has acknowledged that all of the defrauded investors in the IMA scheme have potential tort claims that arose at the time each investor invested in the Debtors, assuming the investors good faith; claims that may now be formally validated. See Scholes v. Lehmann, 56 F.3d 750 (7th Cir 1995) (recognizing that unknowingly defrauded limited-partner investors were potential tort creditors, and that their claims made the enterprise insolvent at all times relevant to transfers). Both in the Plan and the accompanying Disclosure Statement, the Trustee referred to all of the defrauded IMA equity investors as holders of Investor Tort Claims because the Trustee acknowledged that they should be, and he expected that they would be, treated as tort claimants once their fraud claims were recognized in an open judicial forum of the Bankruptcy Court. It is precisely this scenario for which Section 510(b) of the Bankruptcy Code was created -- to govern the interrelationship among similarly defrauded equity holders in a failed enterprise, and proscribe the assertion of fraud-based rescission claims
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as a means to elevate an equity holders position over that of other similarly situated equity holders. Notwithstanding the clear directives of Section 510(b), the Investor Defendants ask this Court to treat their fraud claims materially better than the fraud claims of their similarly defrauded peers. They ask this Court to retroactively deem their just-now-asserted claims to have been asserted and satisfied at an earlier point in time; by contrast, they ask this Court to treat the fraud claims of their similarly situated defrauded equity peers like traditional bankruptcy claims, subject to pro rata distribution of estate assets. Accordingly, the Investor

Defendants seek a result where the recognition of their fraud claims results in them receiving satisfaction of their claims (or a portion thereof) ahead of similarly situated equity holders who are now asserting the same claims at the same time. Put simply, Section 510(b) and the principles behind it do not permit this result. The Investor Defendants argue that the operation of Section 510(b) should apply only to the priority of prospective distributions to be made by the IMA estate on allowed claims. Sections 510(b), 1123(a)(4) and 1129(b)(1), read together, clearly evidence the Congressional mandate that similarly situated parties cannot be subject to unfairly discriminatory treatment, and require that (i) similarly situated parties receive the same treatment, and (ii) defrauded equity holders not be permitted to elevate their status over similarly situated parties. The legal principles
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undergirding the enactment of these bankruptcy provisions flowed from equitable considerations regarding the appropriate division of assets of a failed enterprise. Such principles should apply irrespective of whether the issue is payment of future distributions or payments made by the estate prior to the frauds discovery, and should be given no less respect when applied to fraudulent conveyance claims of the estate as distinct from distributions to be made by the estate. To cabin the import of Section 510(b) only to prospective estate distributions would countenance a result whereby some equity holders receive distributions ahead of other equity holders, which result violates the essential principles of Section 510(b). Accordingly, Section 510(b) critically bears on the analysis of the matters before this Court, and provides a significant incremental basis to reject the attempts by the Investor Defendants to elevate their distribution status relative to their defrauded IMA investor peers. CONCLUSION The Trustee respectfully requests that this Court reverse the Bankruptcy Courts decision, and remand the case for further proceedings consistent with this Courts opinion.

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Respectfully submitted this 2nd day of August, 2010.

MCKENNA LONG & ALDRIDGE LLP

/s/ Bryan E. Bates Mark S. Kaufman Georgia Bar No. 409194 Bryan E. Bates Georgia Bar No. 140856 303 Peachtree Street, Suite 5300 Atlanta, Georgia 30308 404-527-4000 (phone) 404-527-4198 (fax) Attorneys for the Plan Committee

Submitted through and with the approval of: KILPATRICK STOCKTON, LLP /s/ Colin M. Bernardino Colin M. Bernardino Georgia Bar No. 054879 1100 Peachtree Street, Suite 2800 Atlanta, Georgia 30309 Tel: (404) 815-6500 Fax: (404) 815-6555 Attorneys for William F. Perkins, Plan Trustee

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CERTIFICATE OF COMPLIANCE I certify that this brief complies with the type-volume limitation set forth in Fed.R.App.P. 32(a)(7)(B)(ii) because this brief contains 6,980 words.

MCKENNA LONG & ALDRIDGE LLP /s/ Bryan E. Bates Mark S. Kaufman Georgia Bar No. 409194 Bryan E. Bates Georgia Bar No. 140856 303 Peachtree Street, N.E., Suite 5300 Atlanta, Georgia 30308 Tel: (404) 527-4000 Fax: (404) 527-4198 Attorneys for the Plan Committee

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CERTIFICATE OF SERVICE I hereby certify that on the 2nd day of August, 2010, I caused to be served a true and correct copy of the foregoing REPLY BRIEF OF APPELLANT WILLIAM F. PERKINS, PLAN TRUSTEE FOR INTERNATIONAL MANAGEMENT ASSOCIATES, LLC via First Class US mail postage prepaid to the parties listed below.
James E. Dearing, Jr. PC Counsel for Alyce and Janis Ware Suite 560 730 Peachtree St. NE Atlanta, GA 30308 Paul M Spizzirri, Esq. Bernadine H Layne, Esq. Counsel for Clays Spizzirri Law Offices Midtown Proscenium Center 1170 Peachtree Street NE, Suite 1200 Atlanta, GA 30309

Service 08/02/2010

Michael F. Holbein, Esq. Counsel for Manuel F. Mair Arnall Golden Gregory LLP Suite 2100 171 17th Street, NW Atlanta, GA 30363

David W. Cranshaw, Esq. Counsel for Joseph P. Thornton Morris, Manning & Martin, L.L.P. 1600 Atlanta Financial Center 3343 Peachtree Road, N.E. Atlanta, GA 30326 Marco D. Coleman c/o Michael V. Coleman, Esq. Sharon M. Lewonski, Esq. Epstein, Becker & Green, P.C. 945 East Paces Ferry Road, Suite 2700 Atlanta, Georgia 30326

Charles H. Louis 1308 East Gloria Switch Lafayette, LA 70507

Rodney Williams-Cochrane 199 Buffalo Avenue Apt. # 3 Brooklyn, NY 11213-3206

Jonathan H Fain, Esq. Counsel for X-Spurts Investment et al., David Laird, et al.; George Curtis, et al. Jonathan H. Fain and Assoc., PC 3555 Eaglerock Drive Atlanta, GA 30340

Ibrahim Abdur-Rabbani 567 West End Place Atlanta, GA 30310

Ivy Anderson 147-14 229th Street Springfield, NY 11413

Erroll J. Bailey 6 Wieuca Trace Atlanta, GA 30342

Central Georgia Anesthesia Services, PC Dr. Sanjiwan Tarabadkar 840 Pine Street, Suite 770 Macon, GA 31201

James Braxton Jo Ann Braxton Davis Craig Davis c/o Jerry A. Daniels, LLC 33 South Clayton Street, Suite 301 Lawrenceville, GA 30045

Joan Edwards 4720 LaBranch Houston, TX, 77004

David & Deborah H. Laird George Russell Curtis, et al. c/o Timothy W. Mungovan, Esq. Nixon Peabody LLP 100 Summer Street Boston, MA 02110

Nathaniel, Simone & James Bronner c/o Robert J. Mottern, Esq. Investment Law Group of Gillett, Mottern 1230 Peachtree Street NE, Ste. 2445 Atlanta, GA 30346

Cheryl Edwards 29 Avenida Fiori St. Henderson, NV 89011

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Delmena Bryan 183-26 Arcade Avenue St. Albans, NY 11412

TBC Capital, Inc., J. Shelton, J. Shelton, III, K. Burks & Cornell Shelton c/o Angela R. Fox, Esq. Thomas M. Byrne, Esq. Sutherland Asbill & Brennan LLP 999 Peachtree St, NE Atlanta, Georgia 30309-3996

Theodore Burnett Suite 918 8540 South Sepulceda Boulevard Los Angeles, CA 90045

Theodore Paris 220 Northwest 12th Street Delray Beach, FL 33444

Elayne R. Rossi Revocable Trust c/o , Elayne R. Rossi, Trustee 700 South Ute Avenue Aspen, CO 81611

Eric Curtright c/o Lee A. Frison, Jr. Promenade II, Suite 1900 1230 Peachtree Street Atlanta GA, 30309

Booker T. Seymour 4260 Wieuca Overlook Atlanta, GA 30342

Laura Pinkney 3996 Degan Blvd. Los Angeles, CA 90008

Terrence J. Edwards 285 Centennial Park Drive No. 1006 Atlanta, GA 30313

Cara Flint 1870 Crestridge Place Atlanta, GA 30345

Blaine E. Bishop 3117 West Addison Drive Alpharetta, GA 30022

William J. Gallassero 1222 Anse Broussard Highway Breaux Bridge, LA 70517

Keenan P. Gist c/o Edward F. Danowitz, Esq. Danowitz & Associates, P.C. 300 Galleria Parkway, Suite 960 Atlanta, GA 30339

Paul DeRobbio 1019 Delaware Street Huntington Beach, CA 92648

Duvall & Claude Hall 400 Diplomate Parkway, Apt. 611 Hallandale, FL 99009

Joseph and Lydia Gardner 9783 Midship Way Building 202 # 202 West Palm Beach, FL 33411

Erinn F. Harley-Lewis 520 West 43rd Street New York, NY 10036

Karen Thompkins 550 Peachtree Sreet Suite 1275 Atlanta, GA 30308

Glenn M. Herbert Vocational Rehabilitation Services of Lafayette 222-B Rue DeJean Lafayette, LA 70508

Akil Kenneth Secret, Esq. Counsel for Joyce Wright Suite 204 4153-B Flat Shoals Parkway Decatur, GA 30034

Bruce A. and Cynthia Hines 5970 Riverwood Drive NW Atlanta, GA 30328

Gregory and Lawrence Hooper c/o Sblend A. Sblendorio, Esq. Catosha L. Woods, Esq. Hoge Fenton Jones & Appel, Inc. 6155 Stoneridge Drive, Ste. 200 Pleasanton, CA 94588

Melvin Bishop 313 West Smithfield Drive Dolomite, AL 35061

Thomas Barrett Registered Agent for International Medical Systems, LLC 7889 Ancon Drive Fayetville, NC 28304

Linda C. Jackson 300 Commons Gate Court Roswell, GA 30075

Mt. Nebo Baptist Life Center, Inc. c/o Gregory T. Bailey, Esq. 571 Culberson Street Atlanta, GA 30310

George L. Jeter 1704 Lake Cove Way Atlanta, GA 30331

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Suzanne Mair 6466 West Sample Road Coral Springs, FL 33065

John & Roxanne Maughan c/o Robert H. McDonnell, Esq. 260 Peachtree Street Suite 2200 Atlanta, GA 30303

William McDade c/o Mark G. Trigg, Esq. Greenberg Traurig LLP Suite 400 The Forum 3290 Northside Parkway Atlanta, GA 30327

Thomas P. McManners 805 Clemont Drive, NE Atlanta, GA 30306

Hyacinth Miller 54 Randolph Place South Orange, NJ 07079

Joseph Moore c/o Kevin M. Farmer, Esq. Farmer, Hiers, Bushnell & Drye LLC 990 Hammond Drive, Suite 200B Atlanta, GA 30338

Michelle Peoples-Wisneski David Wisneski c/o Christopher D. Phillips Lamberth Cifelli Stokes Ellis & Nason, PA 3342 Peachtree Road, NE Ste. 550 Atlanta, GA 30326

Valerie Peoples 3320 Hagger Way East Point, GA 30344

Paul DeRobbio 1161 Montana Avenue Apt. 103 Los Angeles, CA 90049

Roland Pinkney 370 Prestmoor Place Atlanta, GA 30331

Mustafa Qudsi 135 Caillouet Place Lafayette, LA 70501-7807

Fred C. & Sherri D. Redfern 600 Whitney Ranch Drive Henderson, NV 89014

James Eric Reese 6542 Shenandoah Avenue Los Angeles, CA 90056

Stephen Regan, Sr. 1061 Weeping Willow Drive Breaux Bridge, LA 70517

Anthony Ricciardi 901 Donelle Ave Las Vegas, NV, 89123

Star 6 Investments, Ltd. c/o Ben Chang Wang, Registered Agent 3331 Colbert Avenue Los Angeles, CA 90066

Algernon O. Steele Marcia G. Riley 320 West Berwicke Common Atlanta, GA 30342

Ernest Whonder 4 Cypress Lane Cortland, NY 10567

Takeo Spikes 5005 Heatherwood Court Roswell, GA 30075

Kheisha Friday 6031 Hitt Lake Court Stone Mountain, GA 30087

Bruce & Renee Withers 18700 Kuhlman Road Bend, OR 97701

Cheryl Worthy-Pickett 2129 Briarlake Drive Atlanta, GA 30345

William T. Perkins c/o Rodney L. Eason, Esq. The Eason Law Firm 6150 Old National Highway, Suite 200 College Park, GA 30349-4367

Charles I. Pollack & William R. Lester, Esqs. Counsel for Atlanta Perinatal, Page, Bootstaylor, Grone, Dorsey, Andrews, Page Segal, Fryer, Shuster & Lester, P.C. 1050 Crown Pointe Parkway, Suite 410 Atlanta, GA 30338

Erich G. Randolph & DeCarlo, Amanda Eskridge & Laverne Jones c/o Kevin A. Stine, Esq. Joshua N. Tropper Baker Donelson Monarch Plaza, Suite 1600 3414 Peachtree Road, N.E. Atlanta, GA 30326

Edwana Adams 2607 Willow Grove Road, NW Acworth, GA 30101

Mario & Charisse Brossard 7714 13th St. NW Washington, DC 20012

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Frederick T. Work One Baltimore Place Suite 400 Atlanta, GA 30308

Carol Pinkney 13521 Brandy Oaks Drive Chesterfield, VA 23832

Roger O'Neal Family Trust Roger O'Neal, Trustee c/o GTO Development, LLC 2301 Rosecrans Avenue El Segundo, CA 90245

Stephen Atwater 2510 Sugarloaf Club Drive Duluth, GA 30097

Marcus Bishop c/o Max C. Pope, Jr. Esq. 1929 Third Avenue North, Suite 700 Birmingham, AL 35203

AENA HAINES c/o ARYEH D. SCHWARTZ SCHWARTZ LAW FIRM, P.L.L.C. 201 N. Central Avenue 33rd Floor PHOENIX, AZ 85004

Annette K. Bond c/o James K. Knight, Jr. 401 Atlanta Street Marietta, GA 30060

William J. Gallassero PO Box 1443 Breaux Bridge, LA 70517

Jessie & Joyce Champagne c/o Thomas D. Brumbaugh, Esq. Champagne & Brumbaugh P.O. Box 3764 Lafayette, LA 70502

David and Joni Robison 9100 Eagle Hills Drive Las Vegas, NV 89134

Robert L. Edwards, III 1350 Audubon Estates SW Atlanta, GA 30311

John & Roxanne Maughan c/o Robert H. McDonnell, Esq. 260 Peachtree Street, Suite 2200 Atlanta, GA 30303

Keeling Hall 7653 NW 122nd Drive Parkland, FL 33076

Valerie July c/o Kaaren Anderson Robinson Kaaren Anderson Robinson, P.C. P. O. Box 1835 Lithia Springs, GA 30122

Horace Noble 5555 West Desert Inn Road Las Vegas, NV 89146

Craig A. & Carole Wilson c/o Herbert C. Broadfoot, Esq. Ragsdale Beals Seigler Patterson & Gray 229 Peachtree Street, NE 2400 International Tower, Peachtree Center Atlanta, GA 30303

Evelyn Hall 7653 Northwest 122nd Drive Parkland, FL 33076

Martin D. Jeffries c/o Heather D. Brownn, Esq. Mark A. Kelley, Esq. Kitchens Kelley Gaynes, P.C. Eleven Piedmont Center,Suite 900 Atlanta, Georgia 30305

Todd Perman 848 Greenwood Avenue Atlanta, GA 30306

Dr. Lloyd Geddes 345 Boulevard NE Atlanta, GA 30312

Jenny Lynn Perman 4565 Fitzpatrick Way Norcross, GA 30092-1002

Dr. Lloyd Geddes 465 Winn Way Ste 231 Decatur, Georgia 30030

Dr. Lloyd Geddes 511 Peachtree Street, N.E. Atlanta, GA 30308

David M. Becker, Esq., Mark D. Cahn, Esq. Jacob H. Stillman, Esq., Katharine B. Gresham, Esq. Morgan Bradylyons, Esq. Securities and Exchange Commission 100 F St. NE Washington, DC 20549-8030

Clarence and Valerie July c/o Kaaren Anderson Robinson Kaaren Anderson Robinson, P.C. P. O. Box 1835 Lithia Springs, GA 30122

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This 2nd day of August, 2010. KILPATRICK STOCKTON, LLP

/s/ Colin M. Bernardino Colin M. Bernardino Georgia Bar No. 054879 1100 Peachtree Street, Suite 2800 Atlanta, Georgia 30309 Tel: (404) 815-6500 Fax: (404) 815-6555 Attorneys for William F. Perkins, Plan Trustee

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