Case 2:11-cv-00099-BSJ Document 92 Filed 12/23/11 Page 1 of 31 MANNING CURTIS BRADSHAW & BEDNAR LLC David C. Castleberry [11531] [email protected] Aaron C. Garrett [12519] [email protected] 170 South Main, Suite 900 Salt Lake City, UT 84101-1655 Telephone (801) 363-5678 Facsimile (801) 364-5678 Attorneys for Plaintiff R. WAYNE KLEIN, the Court-Appointed Receiver UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff, MEMORANDUM IN SUPPORT OF RECEIVER’S MOTION TO v. COMPEL PRODUCTION OF DOCUMENTS ON HARD DRIVE U.S. VENTURES LC, a Utah limited liability OF ROBERT ANDRES company, WINSOME INVESTMENT TRUST, an unincorporated Texas entity, Case No. 2:11CV00099 BSJ ROBERT J. ANDRES and ROBERT L. HOLLOWAY, Judge Bruce S. Jenkins Defendants. R. Wayne Klein, the Court-Appointed Receiver1 (the “Receiver”), by and through his counsel of record, hereby moves for permission to access and view all electronic files on a 1 The Receiver has been appointed over U.S. Ventures LC (“USV”), Winsome Investment Trust (“Winsome”), and all the assets of Robert J. Andres (“Andres”) and Robert L. Holloway (“Holloway”), collectively, the “Receivership Defendants.” Case 2:11-cv-00099-BSJ Document 92 Filed 12/23/11 Page 2 of 31 computer owned by Winsome and controlled by Andres – despite Andres’s claim that most of the files are privileged. STATEMENT OF FACTS Andres Is Required to Provide the Receiver Access to Computerized Records On January 25, 2011, this Court entered an order appointing a receiver and requiring Winsome and Robert Andres to turn over to the Receiver all records of Winsome and related companies, including computer records. Order Granting Plaintiff’s Ex Parte Motion for Statutory Restraining Order, Expedited Discovery, Accounting, Order to Show Cause re Preliminary Injunction and other Equitable Relief (“Order”) (dkt. no. 15). The Order is replete with provisions requiring Andres to cooperate with the Receiver and provide business records of Winsome and other companies controlled by Winsome or Andres (“Receivership Entities”): • “Defendants . . . are immediately restrained and enjoined from . . . concealing . . . any documents that relate to the business practices or business . . . of Defendants and their subsidiaries or affiliates.” Order at ¶ 23. • “[T]he Receiver shall immediately be allowed to inspect the books, records, and other documents of Defendants and their agents, including, but not limited to, electronically stored information, tape recordings and computer discs, . . . and to copy said documents, information and records . . . .” Order at ¶ 24. • “Defendants . . . shall cooperate fully with the Commission and/or the Receiver to locate and provide to representatives of the Commission and/or the Receiver all books and records of Defendants . . . .” Order at ¶ 25. ii Case 2:11-cv-00099-BSJ Document 92 Filed 12/23/11 Page 3 of 31 • “The Receiver is directed and authorized to . . . [a]ssume full control of the corporate Defendant . . . .” Order at ¶ 27(a). • “[T]he Defendants . . . shall immediately . . . deliver over to the Receiver . . . [p]ossession and custody of documents of the Defendants . . . .” Order at 27(b). • “The Defendants . . . shall cooperate fully with and assist the Receiver. This cooperation and assistance shall include . . . providing any password required to access any computer or electronic files in any medium . . . .” Order at ¶ 29. Andres Has Refused and Thwarted the Receiver’s Requests for Records of Winsome and Andres Despite these clear mandates from the Court, Andres provided very few records to the Receiver before August 23, 2011. The volume of records that were provided before that date is miniscule in comparison to what would be expected in light of the size and complexity of the enterprises operated by Winsome and the $92.7 million that was deposited into bank accounts of Winsome and affiliated companies. The few records Andres provided to the Receiver before August 23, 2011 are: Date # Docs # Pages Description Event 2/28/11 4 17 Two affidavits signed in 2008, two copies of Sent via e-mail a 2010 settlement agreement between Winsome and USV. 3/22/11 12 27 UCC filing, Andres letter written to Federal Delivered at Reserve, correspondence from an attorney first day of Andres was seeking to (but did not) engage. deposition 3/29/11 2 962 Flash drive containing 177 spreadsheet files Delivered at listing daily amounts owed to investors from second day of July 06 to April 07, a two-page document deposition. with investor account names. iii Case 2:11-cv-00099-BSJ Document 92 Filed 12/23/11 Page 4 of 31 The Receiver has made frequent requests to Andres that he deliver Winsome documents to the Receiver. With the exception of the documents listed in the chart above, those requests have been ignored.2 Actions Taken by the Receiver to Obtain a Copy of Winsome’s Computer Hard Drive On August 23, 2011, the Receiver made a special trip to Houston to meet with Andres. The meeting was at Andres’ request, to discuss his proposal that he be allowed to pursue claims against others in his own name. The Receiver had insisted that Andres make his computer available for copying at that meeting. The Receiver had arranged for a computer forensic specialist to make a copy of the hard drive on the Winsome computer. At that time, Andres claimed that the computer contained many privileged documents and refused to allow the Receiver access to those documents. Andres claimed there were two types of privileged documents on the computer: (i) documents relating to legal services he provided to others; and (ii) documents relating to communications between Andres and attorneys representing him personally. The Receiver proposed a compromise, which was reduced to writing. A copy of this compromise agreement is attached as Exhibit 1. Under the compromise: • The computer forensic specialist was allowed to copy the computer drives at that time; • Andres was given ten days to provide the Receiver with a list of files or 2 In some instances, when confronted with his failure to keep promises to deliver documents, Andres stated that he had few hard copy documents and that most of his documents were kept electronically on his computer and fax machine. iv Case 2:11-cv-00099-BSJ Document 92 Filed 12/23/11 Page 5 of 31 documents that he claims are privileged; • The Receiver would avoid accessing or reviewing any data on the hard drive copy for ten days; • For any files or documents that Andres claimed were privileged, Andres was required to provide an explanation of the basis for the claim of privilege; and • The Receiver would not access or review any data or documents that were subject to a claim of privilege without the consent of Andres or order by this Court. The Privilege Log Created by Andres Claimed Privilege for Most Files On September 12, 2011, Andres sent to the Receiver a privilege log 18 pages long. A copy of this privilege log is attached as Exhibit 2. The privilege log identified three formats of documents for which Andres was claiming a privilege (.pdf, .doc, and .pst formats). The log contained little explanation of the basis for the privilege he was claiming. As described below, the Receiver believes that the vast majority of the “privileged” files are ordinary business records of Winsome and that there is no legitimate basis for Andres to claim a privilege for those records. 1. “PDF” Files. These are computer files containing scanned images of documents. Andres identified 90 files to which he asserts a privilege. He does not identify the basis for the privilege as to any of these documents. Based on the file names assigned to these documents by Andres, the Receiver believes that most of them relate to matters under investigation by the Receiver. For example: v Case 2:11-cv-00099-BSJ Document 92 Filed 12/23/11 Page 6 of 31 a. Ruby Gemstone3 There are five files labeled “Ruby,” including one that says it is a photo and two that state they are appraisals. This appears to relate to a precious gem and may represent an asset that belongs to the Receivership. The Receiver needs to access these files to determine the value, status, and location of this asset. b. RIO Systems/Guatemala Refinery There are eleven files with the label RIO, Guatemala, Eduardo, or FundaGuam. These appear to relate to an investment program involving efforts to construct a refinery in Guatemala. To date, the Receiver has identified $2.2 million in payments from Receivership Entities for this project. In addition, the Receiver has filed suit against RIO Systems and others, seeking to recover payments made. Additional lawsuits are planned against other recipients of funds related to these projects. These computer files are needed for the Receiver’s ongoing efforts to recover payments made pursuant to this investment scheme. c. Staz/Yu The computer hard drive has four files with labels for Staz. The Receiver believes this is a company controlled by Andres. Therefore, Staz is included as one of the companies that should be in the possession and control of the Receiver. Some of these document labels refer to Yu (believed to be the person who claimed to have $10 billion on deposit at the Federal Reserve Board) and Citibank (a possible source of recovery). d. Guerrero A file is labeled Guererro. The Receiver has found records indicating that a person named Guerrero sent money to Andres or one of the Receivership 3 The underlined headings are the names of the computer files that Andres said were privileged. vi Case 2:11-cv-00099-BSJ Document 92 Filed 12/23/11 Page 7 of 31 Entities. Consequently, this appears to be a document relating to the operation of the Receivership Entities and should be made available to the Receiver. e. JC – BMW The Receiver believes this file relates to a BMW automobile that Winsome purchased for Jerome Carter. The Receiver believes that information in this file would assist him in seeking recovery of assets from Carter (who has already been sued by the Receiver). f. CA – Discovery Response In November 2007, the California Department of Corporations ordered Andres and Winsome to desist and refrain from unlawfully selling securities. The Receiver suspects that this file relates to information Andres sent to California securities regulators. If so, the contents of this file are relevant to the work of the Receiver and constitute business records of the Receivership Entities. g. Payton Three .pdf files have labels referencing Payton. The Receiver suspects these relate to Kathryn Payton – to whom $455,125.00 was sent by the Receivership Entities. The Receiver believes these records would assist him in understanding the purposes of the payments to Payton and whether funds can be recovered for victims. h. Perkins – Settlement If this file relates to a settlement agreement with an investor, it is a record of the Receivership Entities and would be highly relevant to identifying another person with more information about the operations of the Receivership Entities and possibly indicating a source of recovery of funds. i. Scogin – Ltr Confirming Funds The Receiver believes this label indicates the file contents would have information about funds that Scogin – a third-party marketer vii Case 2:11-cv-00099-BSJ Document 92 Filed 12/23/11 Page 8 of 31 – sent to Winsome. This is a record of the Receivership Entities. j. Cindy Moore Prom Note The Receiver has filed suit against Cindy Moore, seeking recovery of $3.04 million paid to Moore or to others on her behalf. If this file contains a copy of a promissory note relating to Cindy Moore, it would assist the Receiver in his litigation against Moore and might identify assets that can be recovered. k. Shiloh Inv doc 150M Based on this file label, the Receiver believes this might contain information about an investor. If so, the record should be available to the Receiver and might contain information about a victim and possibly about potential recoveries. There is also a second file folder with the name Shiloh in the title. l. CarolB There are three files with labels beginning with CarolB. The Receiver suspects these relate to Carol Ballard, the wife of Clayton Lynn Ballard. The Receiver has sued Clayton Lynn and Carol Ballard seeking the recovery of $2.1 million in payments made to them and to others on their behalf. m. O – 500MT JV This file and two others beginning with O are suspected of relating to Tetsuo Oyamada, the person claiming to own 500 metric tons of gold in a Swiss bank. The label “JV” suggests there was a joint venture agreement with “O.” If a joint venture agreement exists with Winsome and because Winsome claimed the Swiss gold was an asset of Winsome, these are records of Receivership Entities and are relevant to the efforts of the Receiver to determine where funds have been spent and what might be recovered. n. Trust SS4 – LS The Receiver suspects this relates to Lewis Scogin, a marketer for Winsome. The Receiver believes these files are relevant to his investigation viii Case 2:11-cv-00099-BSJ Document 92 Filed 12/23/11 Page 9 of 31 of Scogin and potential recoveries from Scogin. o. WIT There are seven files beginning with WIT in the document name. The Receiver believes these are a reference to Winsome Investment Trust. These document names include references to Scogin, CLB (believed to be Clayton Lynn Ballard), and Sellers (another married couple sued by the Receiver). The Receiver believes these documents relate to the business of Winsome and have information important to the continuing work of the Receiver. p. Sellers CT Notice This file appears to relate to Al and Cherylyn Sellers, two people who helped Andres market Winsome. The Sellers have been sued by the Receiver for over $144,000.00. The contents of this file are expected to be relevant to the Receiver’s ongoing investigation and his lawsuit against the Sellers. q. RA FOSSBERG (Bahamas) It may be that this file describes bank accounts or funds sent to the Bahamas by Winsome or Andres. There is nothing in the document name to suggest it relates to legal services provided by or for Andres. In fact, the Fossberg name is identified in two of the “WIT” files described above, suggesting that Fossberg had connections to Winsome and that these are records relating to the business of Winsome. r. 15A – 4M AFFS3A Amend The Receiver believes this document relates to American Financial Freedom Society, which had financial transactions with Winsome. The label suggests that AFFS was to provide to – or receive from – Winsome the sum of $4 million. The Receiver believes this information would be helpful in his ongoing investigation. ix Case 2:11-cv-00099-BSJ Document 92 Filed 12/23/11 Page 10 of 31 s. Other Files There are other files with names where the contents and purpose of the documents are unclear, but where the Receiver suspects the documents relate to the business of Winsome – and not legal services provided by or for Andres. These document names include references to “Loan – Triumph Fee,” “Visa Invitation” (three such documents – which might relate to the many overseas transfers by Winsome), “ATFI – Funds,” “2-CD-ICC-Myrup” (which might be a reference to certificates of deposit), “3-JVA” (which might refer to amendments to joint venture agreements used by Winsome), “Travel Visa,” “JD-NFX_Business_Summary” (which may relate to Joseph Dixon, who received money from Winsome), and “wyattindictment” (which may be relevant in light of Winsome having paid legal defense fees for Jerome Carter, Al Sellers, Jesus Baca, and others). 2. “DOC” Files The second category of files on the computer contained documents created using a word processing program. Instead of providing a list of “privileged” files, Andres said that all .doc files are privileged except those for which he granted specific permission to access. Andres provided a list of a limited number of documents that he said were non-privileged and available for review by the Receiver.4 The Receiver has not reviewed any of these supposedly privileged files. As with the .pdf files, the file names for many of these documents suggest that they are business records of Andres and Winsome and that they do not qualify for the assertion of any legitimate privilege. The following are samples of some of the 4 The first document on this list is labeled “19 – Perfect Woman.” It is a picture of a naked woman with sayings about what makes a woman perfect. The Receiver suspects Andres placed this as the first document on the non- privileged list as a perverted joke on the Receiver. x