What is a Receivership?

A receivership is usually put into place by the court when there is litigation and there might be (or has been) significant damage to one of the litigants. Sometimes, a receiver is appointed when there are accusations of fraud and someone is required to run the company, other than those accused of wrongdoing. The duty of the receiver is to "preserve" the remaining assets.

At this point, the receivership is only over the assets of Trans Continental Airlines, Inc., Trans Continental Airlines Travel Service, Inc., Trans Continental Enterprises, LLC and while there are a number of other entities where the state asked to have the assets "frozen", the receivership at this point, does not encompass those entities. Having said that, virtually all of the Trans Continental companies, with the exception of the one owning the Church Street Station Properties, appear to be, at least at first blush, relatively worthless shells. To the extent that Companies do have assets, the lien on those assets generally exceeds the values of those assets. In some cases, a receivership may be necessary, if for no other reason than to act as a conduit for getting information to all of the investors. Even if absolutely no money can be found, investors need to know this.

To the extent there are any individual civil suits, they probably would be against persons responsible for the sales to specific individuals. I also may be pursuing recovery of any commissions paid on the sales of these products.

Generally, the timing of the lawsuit has little to do with the timing of the recovery or the priority of the recovery. I will say, where there are major banks or lenders which filed lawsuits and are secured by specific assets (real estate or airplanes, cars, office equipment and those types of items), certainly these lenders would have a higher priority than the average investor. It would appear that all of the investors (both EISA and stock investors) would be treated equally, if and when there were any distributions.

If I were an investor, I might want to talk to a lawyer experienced in securities law. There is no class action lawsuit that I know about, and it may not be appropriate. However, there are a number of lawyers pursuing individual claims. In addition to Lou Pearlman and his companies, you may have a legal claim against the agent who sold you the investment, a lawyer who referred you to that agent if there was one, or a third-party trustee who participated in the decision making process, if you used one. Many of these people will say that they too were duped by Pearlman. However, depending on the individual's circumstances, legitimate legal claims could possibly be made against certain parties.

Unfortunately, winning a legal judgment and collecting it are two different things. Pearlman already has upwards of $160-million in lawsuits and legal judgments against him. Agents who sold a lot of these investments will have a lot of people suing them, including potentially the receiver, who may be trying to recover commissions paid.

The state may or may not prosecute these individuals. However, the receiver is not the proper party to press criminal charges or any other regulatory charges. Again, while you may have legal recourse (depending on your individual circumstances), collectibility, even if successful, may well be a problem.

The receiver will have to go after various entities that received EISA funds inappropriately, which most likely will involve a number of time-consuming and expensive lawsuits. Also, keep in mind that much of the missing money was paid out to investors to keep the fraud continuing. Since the money was not invested at the rates Lou Pearlman promised investors, guess where the money came from when an investor received an interest payment or made a withdrawal? It came from other investors.

There is no evidence whatsoever to indicate that any of the private investor funds were covered by the FDIC or any insurance company or agencies. At this point, it does not appear that there is any insurance to cover any of the investor losses.

The last contacts with Mr. Pearlman appear to have come from Germany. Although Mr. Pearlman had agreed to cooperate with the investigators retained jointly by the state and Trans Continental Airlines, Inc., in the past, information requested during the review was never provided. Consequently, the state requested my appointment as receiver.

There are other civil filings and these can be found through the public records. At this time only five or six individual investors have filed suit.

At this time, no formal complaint or forms need to be filed with the receiver or any government agency. Should that become necessary, you will be contacted.

Currently, my in-house staff consists only of the receptionist and the computer technology person. We have been inundated with telephone calls and e-mails. Calls have decreased from 160 per day down to about 60 per day, while e-mails have consistently run about 50-60 per day. Physically, there are not enough hours in the day to return the calls and answer all of the e -mails. The initial press release by the state did give a telephone number for me and I think some have felt obliged to call that number, likewise our web page (www.t-con.com) has an email address for me, but unless there is really unusual information or knowledge of where assets may have been hidden, investors should not feel obliged to contact me. As we go through the process, we will let investors know when additional information is needed.

It is imperative that we manage the process and as I said in my cover letter, if any funds can be found to support an investor relations person that will be actually the first person that I hire.

I do not anticipate sending any 1099 information out at this time. Generally, unless someone actually received cash, it is highly unlikely that they will have received income from their Trans Continental Airline investment in the current year. Tax matters in many instances are highly dependent on each individual's tax situation and these matters should be discussed with your own tax advisors.

As mentioned above, we have set up a web-page (www.t-con.com), which we will update periodically, generally monthly. The cost of a mailing is somewhat expensive and time consuming; therefore, if you have Internet access, you will be able to review that page. If you do not have Internet access, you can send a letter to our offices at the address below and we may be able to send you a copy of the posting on the web, if resources and time permit.

Additionally, the St. Pete Times reporter, Helen Huntley, has done an excellent job in covering the story. (Some of the FAQ's above and answers to same are a direct result of her column). I would suggest that people periodically catch up on the comments and responses on the pages of her blog at http://blogs.tampabay.com/money

It means that many of the relevant documents, including records pertaining to your investment account are not physically within our control and our direct access. We will not be able to answer specific questions about your account on any timely basis. We would first have to go through the correct agency to coordinate any review. It means that many of the records necessary to perform our forensic work will have to be shared. We have not yet begun the process of reconciling investor records and accounts to those of the Company and typically would not undertake that step until further along in the process anyway.