Doc577 complaint action against officers directors legal audit etc

Jeffrey M. Tillotson, P.C.
Texas Bar No. 20039200
Eric W. Pinker, P.C.
John Volney
LYNN TILLOTSON PINKER & COX, L.L.P.
2100 Ross Avenue, Suite 2700
Dallas, Texas 75201
(214) 981-3800 Telephone
(214) 981-3839 Facsimile
jmt@lynnllp.com
epinker@lynnllp.com
jvolney@lynnllp.com

ATTORNEYS FOR PLAINTIFF

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

In re: § Chapter 11
§
FIRSTPLUS FINANCIAL GROUP, INC., § Case No. 09-33918-HDH
§
Debtor. §
___________________________________ § ___________________________________
§
MATTHEW D. ORWIG, §
AS CHAPTER 11 TRUSTEE OF §
FIRSTPLUS FINANCIAL GROUP, INC., §
§
Plaintiff, §
§
v. § Adversary No. ________________
§
§
ROBERT FREEMAN; JAMES ROUNDTREE; §
DANIEL PHILLIPS; DAVID WARD; §
JOHN FITZGERALD; JOHN MAXWELL; §
WILLIAM HANDLEY; DR. ROBERT O’NEAL; §
JACK ROUBINEK; GARY D. ALEXANDER; §
ROGER S. MEEK; DAVID ROBERTS; §
JOSEPH P. STEWARD; WILLIAM HICKMAN; §
PAUL BALLARD; OLSHAN GRUNDMAN §
FROME ROSENZWEIG & WOLOSKY LLP; §
DAVID ADLER, ESQ.; §
EIZEN FINEBURG & McCARTHY P.C.; §
GARY J. McCARTHY, ESQ.; §
WILLIAM T. MAXWELL, ESQ.; §
WILLIAM MAXWELL PLLC; §
WILLIAM T. MAXWELL, P.C.; §

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BUCKNO LISICKY & COMPANY, P.C.; §
ANTHONY BUCZEK, CPA; §
SIEGAL & DROSSNER, P.C.; §
HOWARD DROSSNER, CPA; §
KENSINGTON COMPANY & AFFILIATES, §
INC.; KEN STEIN; SALVATORE PELULLO; §
SEVEN HILLS MANAGEMENT, LLC; §
LEARNED ASSOCIATES OF §
NORTH AMERICA, LLC; and §
NICODEMO S. SCARFO, JR., §
§
Defendants. §
______________________________________________________________________________

COMPLAINT
______________________________________________________________________________

Matthew D. Orwig, the chapter 11 Trustee (the “Trustee”) for the estate of FirstPlus

Financial Group, Inc. (the “Debtor”), by and through his undersigned counsel brings this action

against the Debtor’s former officers, directors and its legal, accounting and auditing

professionals and alleges as follows:

NATURE OF THIS ACTION

1. On June 23, 2009, the Debtor filed for Chapter 11 Bankruptcy protection in the

United States Bankruptcy Court for the Northern District of Texas, case No. 09-33918 (hdh).

The Bankruptcy Court appointed Plaintiff Matthew D. Orwig Chapter 11 Trustee.

2. This action seeks damages from the Debtor’s former officers, directors and the

legal, accounting and auditing professionals allegedly employed and/or engaged by or for the

benefit of the Debtor. The purported “services” provided by the Defendants were woefully

inadequate and failed to satisfy the Defendants’ professional and ethical responsibilities to the

Debtor.

3. In particular, the Trustee asserts claims against the Defendants for, among other

claims, breaches of fiduciary duties, professional negligence and conspiracy relating to the role

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each Defendant played in the takeover of the Debtor, the siphoning off of the Debtor’s assets and

the preparation of and/or participation in the Debtor’s misleading public filings.

JURISDICTION AND VENUE

4. This Court has jurisdiction over this adversary proceeding under 28 U.S.C.

§§ 157(a) and (b) and 1334. This is a core proceeding as defined in 28 U.S.C. § 157(b). If any

part of this adversary proceeding is found to be “non-core” under Bankruptcy Rule 7008, the

Trustee consents to the entry of final orders and judgments by this Court.

5. Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409.

PARTIES

6. Plaintiff Matthew D. Orwig brings this suit in his capacity as chapter 11 Trustee

for the Debtor.

7. The Trustee brings this suit against eight sets of defendants: (1) the members of

the Debtor’s Board of Directors under Chairman Robert Freeman (the “Freeman Board”); (2) the

members of the Debtor’s Board of Directors under Chairman John Maxwell (the “Maxwell

Board”); (3) the members of the Debtor’s Board of Directors under Chairman Robert O’Neal

(the “O’Neal Board”); (4) the Debtor’s outside attorneys and law firms (the “Attorney

Defendants”); (5) the Debtor’s accountants, auditors, and their public accounting firms (the

“Accountant Defendants”); (6) the Debtor’s business valuation experts (the “Kensington

Defendants”); (7) William Maxwell and his law firms (“William Maxwell”); and (8) Salvatore

Pelullo, Nicodemo Scarfo, Jr. and their affiliated entities (the “Pelullo Group”). The individuals

and entities that belong to each of these eight categories are listed below:

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The Freeman Board

8. In this Complaint, the “Freeman Board” collectively refers to Robert Freeman,

Daniel Phillips, James Roundtree, David Ward, and John Fitzgerald.

9. Robert Freeman was a director and officer of the Debtor from 1998 through 2007.

Mr. Freeman resides at 28 Corn Hill Drive, Morristown, New Jersey 07960. He may be served

by delivering a copy of the summons and the complaint to him personally or by mailing a copy

of the summons and complaint via registered or certified mail with return receipt requested to the

address above. Alternatively, he may be served via the Texas Secretary of State, an agent for

service over a nonresident defendant that does not have a designated agent for service of process,

given his contacts arose from his business in the state of Texas.

10. Daniel Phillips was a director and chief executive officer of the Debtor from 1994

through 2007. Mr. Phillips resides at 116 Eastbury, Williamsburg, Virginia 23188. He may be

served by delivering a copy of the summons and the complaint to him personally or by mailing a

copy of the summons and complaint via registered or certified mail with return receipt requested

to the address above. Alternatively, he may be served via the Texas Secretary of State, an agent

for service over a nonresident defendant that does not have a designated agent for service of

process, given his contacts arose from his business in the state of Texas.

11. James Roundtree was a director and chief financial officer of the Debtor between

2006 and 2007. Mr. Roundtree resides at 17811 Cedar Creek Canyon, Dallas, Texas 75252. He

may be served by delivering a copy of the summons and the complaint to him personally or by

mailing a copy of the summons and complaint via registered or certified mail with return receipt

requested to the address above.

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12. David Ward was a director of the Debtor between 1999 and 2007. Mr. Ward

resides at 204 North Road, Chester, New Jersey 07930. He may be served by delivering a copy

of the summons and the complaint to him personally or by mailing a copy of the summons and

complaint via registered or certified mail with return receipt requested to the address above.

Alternatively, he may be served via the Texas Secretary of State, an agent for service over a

nonresident defendant that does not have a designated agent for service of process, given his

contacts arose from his business in the state of Texas.

13. John Fitzgerald was a director of the Debtor during 2007. Mr. Fitzgerald resides

at 408 Arborcrest Drive, Richardson, Texas 75080. He may be served by delivering a copy of

the summons and the complaint to him personally or by mailing a copy of the summons and


The Maxwell Board

14. In this Complaint, the “Maxwell Board” collectively refers to John Maxwell,

William Handley, Dr. Robert O’Neal, Roger S. Meek, David Roberts, Gary Alexander and

Joseph P. Steward.

15. John Maxwell was both an officer and director of the Debtor, having served in

several executive capacities including chairman of the board, chief executive officer and

president beginning on June 7, 2007. John Maxwell resides at 509 Robinhood Drive, Irving,

Texas 75061. He may be served by delivering a copy of the summons and the complaint to him

personally or by mailing a copy of the summons and complaint via registered or certified mail

with return receipt requested to the address above.

16. William Handley was both an officer and director of the Debtor, having served in

several executive capacities including chief financial officer, treasurer, and chief executive

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officer beginning on June 7, 2007. Mr. Handley resides at 9911 SW 48th Street, Miami, Florida

33165. He may be served by delivering a copy of the summons and the complaint to him


with return receipt requested to the address above. Alternatively, he may be served via the Texas

Secretary of State, an agent for service over a nonresident defendant that does not have a

designated agent for service of process, given his contacts arose from his business in the state of

Texas.

17. Dr. Robert O’Neal was both an officer and director of the Debtor under the

Maxwell Board, having served in several executive capacities beginning on June 7, 2007.

Dr. O’Neal resides at 5944 Falcon Crest, Lumberton, Texas 77657. He may be served by

delivering a copy of the summons and the complaint to him personally or by mailing a copy of

the summons and complaint via registered or certified mail with return receipt requested to the

address above.

18. David Roberts was a director and secretary of the Debtor on the Maxwell Board

beginning on June 7, 2007. Mr. Roberts resides at 325 West End Avenue, Apt. 11D, New York,

New York 10023. He may be served by delivering a copy of the summons and the complaint to

him personally or by mailing a copy of the summons and complaint via registered or certified

mail with return receipt requested to the address above. Alternatively, he may be served via the

Texas Secretary of State, an agent for service over a nonresident defendant that does not have a

designated agent for service of process, given his contacts arose from his business in the state of

Texas.

19. Roger S. Meek is a certified public accountant who lives and works in Beaumont,

Texas. He was added to the Maxwell Board in August 2007 and served as chairman of the audit

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and compensation committees. Mr. Meek resides at 19 Dowlen Place, Beaumont, Texas 77706.

He may be served by delivering a copy of the summons and the complaint to him personally or

by mailing a copy of the summons and complaint via registered or certified mail with return

receipt requested to the address above.

20. Gary Alexander is a certified public accountant who joined the Maxwell Board in

November 2007 as an independent director and served on the audit and compensation

committees. Mr. Alexander resides at 263 SW Hatteras Court, Palm City, Florida 34990. He

may be served by delivering a copy of the summons and the complaint to him personally or by


requested to the address above. Alternatively, he may be served via the Texas Secretary of State,

an agent for service over a nonresident defendant that does not have a designated agent for

service of process, given his contacts arose from his business in the state of Texas.

21. Joseph P. Steward is a lawyer who lives and works in Philadelphia, Pennsylvania.

Mr. Steward joined the Maxwell Board in November 2007 as an independent director and served

on the compensation and audit committees. Mr. Steward resides at 13021 Trina Drive,

Philadelphia, Pennsylvania 19166. He may be served by delivering a copy of the summons and

the complaint to him personally or by mailing a copy of the summons and complaint via

registered or certified mail with return receipt requested to the address above. Alternatively, he

may be served via the Texas Secretary of State, an agent for service over a nonresident defendant

that does not have a designated agent for service of process, given his contacts arose from his

business in the state of Texas.

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The O’Neal Board

22. In this Complaint, the “O’Neal Board” collectively refers to Defendants

Dr. Robert O’Neal, Gary Alexander, William Hickman, Paul Ballard, and Jack Roubinek.

23. Dr. Robert O’Neal was chairman of the O’Neal Board and a member of the

Executive Committee. Dr. O’Neal was a member of the Maxwell Board and he may be served

as set forth above.

24. Gary Alexander was acting chief financial officer of the O’Neal Board.

Mr. Alexander was a member of the Maxwell Board and he may be served as set forth above.

25. William Hickman was a director on the O’Neal Board starting in June 2008 and a

member of the Executive Committee. Mr. Hickman resides at 9020 Allisons Way, Lumberton,

Texas 77657. He may be served by delivering a copy of the summons and the complaint to him


with return receipt requested to the address above.

26. Paul Ballard was a director on the O’Neal Board starting in July 2008.

Mr. Ballard resides at 445 Hanging Oak, Spring Branch, Texas 78070. He may be served by



address above.

27. Jack Roubinek was a director on the O’Neal Board and a member of the

Executive Committee. Mr. Roubinek resides at 2126 Clearspring Drive N, Irving, Texas 75063.

He may be served by delivering a copy of the summons and the complaint to him personally or


receipt requested to the address above.

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The Attorney Defendants

28. In this Complaint, the “Attorney Defendants” collectively refers to Defendants

Olshan Grundman Frome Rozenzweig & Wolosky LLP (“Olshan Grundman”), David Adler,

Eizen Fineburg & McCarthy P.C. (“Eizen Fineburg”), and Gary J. McCarthy.

29. Defendant Olshan Grundman is a law firm operating as a New York limited

liability partnership with its principal place of business at Park Avenue Tower, 65 East 55th

Street, New York, New York 10022. Olshan Grundman may be served by delivering a copy of

the summons and the complaint to Mr. David Adler, the managing partner of the firm, personally

or by mailing a copy of the summons and complaint via registered or certified mail with return

receipt requested to Mr. Adler at the address above. Alternatively, Olshan Grundman may be

served via the Texas Secretary of State, an agent for service over a nonresident defendant that

engaged in business in Texas without having a regular place of business in the state and does not

have a designated agent for service of process, given its contacts arose from its business in the

state of Texas.

30. Defendant David Adler is the managing partner of Olshan Grundman. Mr. Adler

may be found at his business address in care of Olshan Grundman, Park Avenue Tower, 65 East

55th Street, New York, New York 10022. He may be served by delivering a copy of the

summons and the complaint to him personally or by mailing a copy of the summons and





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31. Defendant Eizen Fineburg is a Philadelphia law firm operating as a Pennsylvania

professional corporation with its principal place of business at Two Commerce Square, 34th

Floor, 2001 Market Street, Philadelphia, Pennsylvania 19103. Eizen Fineburg may be served by

delivering a copy of the summons and the complaint to Mr. Bernard Eizen, the president of the

firm, personally or by mailing a copy of the summons and complaint via registered or certified

mail with return receipt requested to Mr. Eizen at the address above. Alternatively, Eizen

Fineburg may be served via the Texas Secretary of State, an agent for service over a nonresident

defendant that engaged in business in Texas without having a regular place of business and does

not have a designated agent for service of process, given its contacts arose from its business in

the state of Texas.

32. Defendant Gary J. McCarthy is a partner at Eizen Fineburg. Mr. McCarthy may

be found at his business address in care of Eizen Fineburg, Two Commerce Square, 34th Floor,

2001 Market Street, Philadelphia, Pennsylvania 19103. He may be served by delivering a copy

of the summons and the complaint to him personally or by mailing a copy of the summons and





The Accountant Defendants

33. In this Complaint, the “Accountant Defendants” collectively refers to Buckno

Lisicky & Company, P.C. (“Buckno Lisicky”), Anthony Buczek, Siegal & Drossner, P.C.

(“Siegal Drossner”), and Howard Drossner.

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34. Defendant Buckno Lisicky is a registered public accounting firm operating as a

Pennsylvania professional corporation with its principal place of business at 1524 Linden Street,

Allentown, Pennsylvania 18102. Buckno Lisicky may be served by delivering a copy of the

summons and the complaint to Mr. Randal R. Dietz, the president of the company, personally or


receipt requested to Mr. Dietz at the address above. Alternatively, Buckno Lisicky may be




state of Texas.

35. Anthony Buczek is a shareholder at Buckno Lisicky and lead audit partner for the

Debtor. Mr. Buczek may be found at his business address, in care of Buckno Lisicky, 1524

Linden Street, Allentown, Pennsylvania 18102. He may be served by delivering a copy of the






36. Defendant Siegal Drossner is a certified public accounting firm operating as a

Pennsylvania professional corporation with its principal place of business at 300 Yorktown

Plaza, Elkins Park, Pennsylvania 19027. Siegal Drossner may be served by delivering a copy of

the summons and the complaint to Mr. Howard Siegal, the president of the company, personally

or by mailing a copy of the summons and complaint via registered or certified mail with return

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receipt requested to Mr. Drossner at the address above. Alternatively, Siegal Drossner may be




state of Texas.

37. Defendant Howard Drossner is a certified public accountant and managing partner

of Siegal Drossner. Mr. Drossner may be found at his business address, in care of Siegel

Drossner, 300 Yorktown Plaza, Elkins Park, Pennsylvania 19027. He may be served by






The Kensington Defendants

38. In this Complaint, the “Kensington Defendants” collectively refers to Kensington

Company & Affiliates, Inc. (“Kensington Company”) and Kenneth Stein.

39. Kensington Company is a corporation incorporated under the laws of the State of

New York with its principal place of business at 185 Roslyn Road, Roslyn Heights, New York

11577. Kensington Company may be served by delivering a copy of the summons and the

complaint to Mr. Kenneth Stein, the CEO of the company, personally or by mailing a copy of the

summons and complaint via registered or certified mail with return receipt requested to Mr. Stein

at the address above. Alternatively, Kensington Company may be served via the Texas Secretary

of State, an agent for service over a nonresident defendant that engaged in business in Texas

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without having a regular place of business in the state and does not have a designated agent for

service of process, given its contacts arose from its business in the state of Texas.

40. Ken Stein is founder and CEO of Kensington Company. Mr. Stein may be found

at his business address, 185 Roslyn Road, Roslyn Heights, New York 11577. He may be served

by delivering a copy of the summons and the complaint to him personally or by mailing a copy

of the summons and complaint via registered or certified mail with return receipt requested to the




William Maxwell

41. In this Complaint, “William Maxwell” collectively refers to Defendants

William T. Maxwell, William Maxwell PLLC, and William T. Maxwell, P.C.

42. Defendant William T. Maxwell is a lawyer who practices law in his offices

located at 1300 McGowan Street, Houston, Texas 77004. He may be served by delivering a

copy of the summons and the complaint to him personally or by mailing a copy of the summons

and complaint via registered or certified mail with return receipt requested to the address above.

43. William Maxwell PLLC is a law firm operating as a Texas professional limited

liability company with its principal place of business located at 1300 McGowan Street, Houston,

Texas 77004. William Maxwell PLLC may be served by delivering a copy of the summons and

the complaint to William T. Maxwell, the sole managing member of the firm, personally or by


requested to William T. Maxwell at the address above.

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44. William T. Maxwell, P.C. is a law firm operating as a Texas professional

corporation with its principal place of business located at 1300 McGowan Street, Houston, Texas

77004. William T. Maxwell P.C. may be served by delivering a copy of the summons and the

complaint to William T. Maxwell, the registered agent for the firm, personally or by mailing a


to William T. Maxwell at the address above.

The Pelullo Group

45. In this Complaint, the “Pelullo Group” collectively refers to Defendants Salvatore

Pelullo, Nicodemo S. Scarfo, Jr., Seven Hills Management Company, LLC (“Seven Hills”), and

Learned Associates of North America, LLC (“Learned Associates”).

46. Salvatore Pelullo is a member of and the Vice President of Operations for Seven

Hills. Mr. Pelullo may be found at the following address: Atlantic Business Litigation Services,

LLC, 7909 Bustleton Avenue, Philadelphia, Pennsylvania 19152. He may be served by






47. Nicodemo S. Scarfo, Jr. is, upon information and belief, a member of Learned

Associates of North America, LLC. Mr. Scarfo may be found at the following address: 129

Kensington Drive, Galloway, New Jersey 08205. He may be served by delivering a copy of the



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48. Seven Hills claims to be a management consulting company that operates as a

Pennsylvania limited liability company with its principal place of business at 1231 Bainbridge

Street, Philadelphia, Pennsylvania 19147. Seven Hills may be served by delivering a copy of the

summons and the complaint to Ms. Anna Pelullo, the president of the company, personally or by


requested to Ms. Pelullo at the address above. Alternatively, Seven Hills may be served via the

Texas Secretary of State, an agent for service over a nonresident defendant that engaged in

business in Texas without having a regular place of business in the state and does not have a

designated agent for service of process, given its contacts arose from its business in the state of

Texas.

49. Learned Associates claims to be a consulting company that operates as a New

Jersey limited liability company with its principal place of business at 2509 Centennial Avenue,

Atlantic City, New Jersey 08401. Learned Associates may be served by delivering a copy of the

summons and the complaint to Mr. John A. Parisi, its registered agent, personally or by mailing a


to Mr. Parisi at the address above. Alternatively, Learned Associates may be served via the

Texas Secretary of State, an agent for service over a nonresident defendant that engaged in

business in Texas without having a regular place of business in the state and does not have a

designated agent for service of process, given its contacts arose from its business in the state of

Texas.

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FACTS

A. The Early Years

50. In the mid-1990s, the Debtor was a successful, multi-billion dollar mortgage

company specializing in high loan-to-value second mortgages. The Debtor’s stock traded on the

New York Stock Exchange (NYSE) and NASDAQ during the 1990s and reached a trading price

of more than $60/share.

51. Since 1999, the Debtor had been essentially dormant after one of its most

profitable subsidiaries, FirstPlus Financial, Inc. (“FPFI”), filed for bankruptcy. After FPFI’s

bankruptcy, the Debtor was delisted from NYSE and NASDAQ and the Debtor’s stock

plummeted to pennies on the dollar.

52. Although FPFI was bankrupt, it had valuable assets in the form of securitized

pools of mortgages, which were expected to generate revenues for at least a decade. The

bankruptcy court set up a creditor’s trust (“Creditor Trust”) to receive and distribute the

mortgage revenue to FPFI’s creditors. The court appointed David Obergfell to be the trustee of

the Creditor Trust.

53. The Debtor was a creditor in FPFI’s bankruptcy case and obtained an allowed

claim (the “Intercompany Claim”) that entitled the Debtor to distributions of no less than $50

million. The Intercompany Claim would become the Debtor’s primary source of funds during

the 2000s.

54. The Debtor had its own financial difficulties in the early 2000s. As part of its

efforts to avoid bankruptcy, the Debtor assigned portions of its Intercompany Claim to its own

creditors.

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55. In 2002, the Debtor created a self-settled trust (the “Grantor Trust”) and assigned

52.4% of its distributions from the Creditor Trust to the Grantor Trust.

56. In 2004, the Debtor started receiving cash distributions from the Creditor Trust on

account of its Intercompany Claim.

57. In 2006, the Debtor settled a class action suit with its shareholders by assigning

them 50% of the distributions received by the Grantor Trust. The documents governing the

Grantor’s Trust were amended consistent with this settlement.

58. By June 2007, the Debtor had received almost $29,000,000 from the Creditor

Trust and had more than $12,000,000 in cash and cash equivalents.

B. The Takeover of the Debtor

59. The Freeman Board served as the Debtor’s Board of Directors from the start of

2007 through June 7, 2007.

60. On information and belief, in 2007, the Pelullo Group learned about the Debtor’s

cash position and identified the Debtor as an ideal target for the Pelullo Group to implement a

scheme to siphon millions of dollars from the Debtor. The Pelullo Group and others, including,

but not limited to, Defendants David Adler, William Maxwell, Nicodemo Scarfo, Sr., and non-

party Harold Garber (deceased) engaged in a series of meetings to discuss the logistics for taking

over the Debtor.

61. On June 7, 2007, the Freeman Board received an unsolicited takeover proposal

from individuals acting on behalf of the Pelullo Group. On information and belief, the Maxwell

Board, William Maxwell and the Attorney Defendants assisted the Pelullo Group in carrying out

the takeover for the benefit of the Pelullo Group.

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62. The Pelullo Group’s takeover proposal was unusual. It did not involve a purchase

of the Debtor’s stock or a proxy fight for an election of directors because such actions would

trigger disclosure obligations to the U.S. Securities and Exchange Commission (“SEC”).

Instead, the Pelullo Group merely demanded that the Freeman Board appoint five individuals

associated with the Pelullo Group to the Debtor’s board of directors and then resign in favor of

these new directors. On information and belief, the Freeman Board members were threatened

with the disclosure of certain improprieties if they refused to resign. In exchange for their

resignations, the Freeman Board members were promised handsome severance packages.

63. The Freeman Board agreed to hand over control to the Maxwell Board. To make

the transition from the Freeman Board to the Maxwell Board, the Freeman Board took three

actions during the June 7, 2007 meetings.

64. First, the Freeman Board voted to expand the Debtor’s board by five seats and

then unanimously appoint five individuals associated with the Pelullo Group to those seats:

(1) John Maxwell; (2) Harold Garber; (3) Dr. Robert O’Neal; (4) William Handley; and

(5) David Roberts.

65. Second, the members of the Freeman Board agreed to assign the voting rights to

their aggregate two million shares of Debtor stock to John Maxwell, the new CEO and President

of the Debtor, as well as turn over the Debtor’s cash, bank accounts and records to the Maxwell

Board.

66. Third, the Freeman Board then resigned despite: (1) never receiving a legitimate

business proposal from the takeover group; (2) never consulting experts to determine how to

defend against the takeover effort; (3) never consulting or considering the best interests of the

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Debtor or its shareholders; and (4) never considering that the Maxwell Board members did not

have any particular expertise or experience in building or operating the Debtor’s business.

67. A week following the takeover, federal law enforcement officials documented a

conversation between Defendant Scarfo, Jr. and his father, Nicodemo Scarfo, Sr. (serving a

prison sentence at that time) whereby the two discussed how Harold Garber was instrumental in

the takeover of the Debtor but that they were six to ten months away from “helping everyone.”

C. The Maxwell Board - Groundwork for Insider Transactions

68. The Maxwell Board was comprised of directors who were to serve an integral role

in the Pelullo Group’s overarching scheme to deplete the Debtor of its cash. The Maxwell Board

included not only the five directors originally appointed on June 7, 2007, but also three directors

who joined the Maxwell Board at later dates: (1) Gary Alexander; (2) Roger S. Meek; and

(3) Joseph Steward.

69. On the same day that the Maxwell Board assumed control of the Debtor, the

Maxwell Board hired William Maxwell, the brother of the newly appointed CEO and President

of the Debtor, John Maxwell, as Special Counsel pursuant to a Legal Services Agreement (the

“LSA”). The Maxwell Board approved a compensation package for William Maxwell with

seven-figure bonuses, lucrative expense accounts and a salary of $100,000 per month.

70. By approving the LSA, the Maxwell Board abdicated its responsibility to manage

the Debtor and delegated that responsibility to William Maxwell. The LSA vested William

Maxwell with what amounted to executive authority to run business and legal affairs of the

Debtor as he saw fit, without any checks or balances, or oversight by the Board.

71. Specifically, the LSA provided William Maxwell with broad authority to act for

the Debtor and gave William Maxwell the sole authority to, among other things: (1) review and

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approve acquisitions; (2) retain or dismiss all accounting firms concerning any audit or

compliance work; (3) retain or dismiss any legal counsel; (4) retain or dismiss any consulting

firms; (5) restrict disclosure of information to the Debtor’s Board; and (6) conduct any

investigation on any matter without board approval.

72. Ultimately, the LSA provided William Maxwell with broad powers to implement

the Pelullo Group’s scheme. William Maxwell used his broad authority to hire attorneys,

accountants and consultants ostensibly on the Debtor’s behalf to provide independent

professional advice and services to the Debtor. In reality, these professionals were allied with

the Pelullo Group and were to serve an integral role in carrying out the next phase of the Pelullo

Group’s scheme, namely, to force the Debtor to pay millions of dollars for essentially worthless

companies that were controlled by the Pelullo Group.

73. William Maxwell hired Olshan Grundman and David Adler, attorneys that

assisted William Maxwell and the Maxwell Board in taking control of the Debtor, to represent

the Debtor in connection with the acquisitions of entities controlled by the Pelullo Group. The

Pellulo Group retained Gary McCarthy and Eizen Fineburg, attorneys that also assisted William

Maxwell and the Maxwell Board in taking control of the Debtor to assist Seven Hills and

Learned Associates with the Insider Transactions described below. Gary McCarthy and Eizen

Fineburg would go on to represent the Debtor at various points during the Maxwell Board’s

tenure.

74. Upon information and belief, the Pelullo Group, Attorney Defendants, William

Maxwell and the Maxwell Board agreed that the Attorney Defendants would work together to:

(1) make the Insider Transactions appear legitimate; (2) extract as much money from the Debtor

as possible for the benefit of the Pelullo Group, the Attorney Defendants, William Maxwell and

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members of the Maxwell Board; and (3) avoid making necessary disclosures to reduce the

likelihood of an authority uncovering the scheme.

75. Additionally, William Maxwell terminated the Debtor’s independent Dallas-based

registered public accounting firm, Lightfoot Guest & Moore, and hired two Philadelphia-based

accountants allied with the Pelullo Group: (1) Anthony Buczek of Buckno Lisicky, and

(2) Howard Drossner of Siegal Drossner. Anthony Buczek and his firm would audit the Debtor

while Howard Drossner and his firm would provide accounting services for the Debtor and work

with the auditors to prepare the Debtor’s financial statements.

76. Additionally, William Maxwell entered into and/or approved a variety of lucrative

“consulting agreements” with the Pelullo Group: (1) on May 1, 2007, prior to the takeover of the

Debtor’s Board, William Maxwell hired Seven Hills to provide consulting services at a flat fee of

$100,000 in connection with the takeover attempt; (2) on June 15, 2007, William Maxwell hired

Seven Hills as the “Debtor’s consultant” under a two-year agreement (with an option for a third

year) that: (a) paid Seven Hills $100,000 per month; (b) provided Seven Hills with an expense

account of $30,000 per month; and (c) provided Seven Hills with unfettered authority to hire its

own “consultants”; and (3) in July, 2007, Seven Hills entered into a consulting agreement with

Learned Associates where Learned Associates would provide consulting services to the Debtor

and William Maxwell for $33,000 per month plus expenses.

77. These consulting agreements provided Seven Hills and Learned Associates with

broad operational authority over the Debtor’s business to, among other things: (1) develop and

oversee an administrative support team, an IT support team, an operations team, a financial and

accounting team, and a sales and marketing team; (2) prepare business plans; (3) handle media

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relations; (4) create media materials; (5) procure top-level management to serve as officers of the

Debtor; (6) procure lines of credit; and (7) procure private equity from lenders.

78. In conjunction with these engagements, the Maxwell Board, either unilaterally or

in conjunction with the Attorney Defendants, avoided implementing any measures that would

disclose the true purpose of these agreements and decisions, much less exercise any oversight or

control of Seven Hills, Learned Associates, or Salvatore Pelullo. For example, the Maxwell

Board did not disclose the existence of the consulting agreements in SEC filings (based on the

advice of Mr. Adler and Olshan Grundman), failed to appoint legitimately independent directors

and did not form an audit committee until months after the takeover and long after the Maxwell

Board, William Maxwell, the Attorney Defendants, the Accountant Defendants and the

Kensington Defendants had siphoned off millions of dollars from the Debtor’s accounts for their

own benefit and the benefit of the Pelullo Group.

D. Insider Transactions

79. Immediately after the Maxwell Board, William Maxwell, the Attorney

Defendants and Accountant Defendants were settled in their defined roles, the scheme

progressed with three costly purchases by the Debtor that provided millions of dollars to the

Pelullo Group and handsomely compensated the Attorney Defendants, Accountant Defendants

and the Kensington Defendants for their work: (1) on July 23, 2007, the Maxwell Board

approved the purchase of Rutgers Investment Group, LLC (“Rutgers”) for $1,825,000 in cash

and 500,000 shares of the Debtor’s common stock; (2) days after the Rutgers transactions closed,

on July 30, 2007, the Maxwell Board caused two of Debtor’s wholly-owned subsidiaries to

purchase Globalnet Enterprises, LLC and its three wholly-owned subsidiaries (collectively

“Globalnet”) for a cash payment of $4,540,000 and 1,100,000 shares of Debtor’s common stock;

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and (3) on January 31, 2008, the Debtor purchased the membership interests of Premier Group,

LLC “(Premier”) for a cash payment and 1,000,000 shares of the Debtor’s common stock in a

purchase that resulted in the Debtor paying for worthless membership interests while assuming

hundreds of thousands of dollars in liabilities.

1. Rutgers

80. The purchase of Rutgers was the first of the three insider transactions devised by

William Maxwell, the Maxwell Board, the Attorney Defendants, Accountant Defendants, the

Kensington Defendants and the Pelullo Group.

81. Gary McCarthy and Eizen Fineburg organized Rutgers for Seven Hills and

Learned Associates only a few months prior to the Maxwell Board’s takeover of the Debtor.

Seven Hills and Learned Associates were members of Rutgers.

82. On July 10, 2007, the Maxwell Board executed a unanimous written consent to

purchase Rutgers pursuant to an Asset Purchase Agreement dated July 23, 2007, which provided

for payment of $1,825,000 and 500,000 shares of the Debtor’s common stock for the purchase of

the entity.

83. The Maxwell Board did not conduct any legitimate due diligence regarding the

Rutgers transaction prior to rubber-stamping its approval for the purchase.

84. Instead, the Maxwell Board relied on a bogus Business Evaluation Report created

by the Kensington Defendants to justify the inflated purchase price of Rutgers (the “Rutgers

Report”). Upon information and belief, the Kensington Defendants knew that the Rutgers

Report would be used to justify the Rutgers purchase price. The Kensington Defendants,

however, did not provide a complete appraisal. Rather, the Kensington Defendants conducted a

baseless valuation analysis that did not rely on verified financial information or any generally

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accepted practice of valuing an entity. Instead, the Kensington Defendants valued the company

based on “aggressive” projections that assumed Rutgers would grow at an incredibly high rate to

match the value of established “industry peers.” As a result, the Kensington Defendants

concluded that a four-month old lending business with virtually no assets and no licenses could

be reasonably valued at $2,500,000 (plus an additional $1,000,000 when the company received

its own regulatory licenses).

85. William Maxwell and the Maxwell Board engaged Mr. Adler and Olshan

Grundman to represent the Debtor in the Rutgers transaction. Rutgers was represented by

Mr. McCarthy and Eizen Fineburg.

86. Instead of representing the Debtor’s best interests, Mr. Adler and Olshan

Grundman took direction from William Maxwell and the Pelullo Group to implement the

overarching scheme. This was in breach of Adler’s and Olshan Grundman’s duties of loyalty

and care to Debtor. Mr. Adler and Olshan Grundman failed to advise the Debtor of the risks

associated with this Insider Transaction - particularly that the Debtor’s “Consultant” Salvatore

Pelullo was profiting from the sale. Additionally, Mr. Adler and Olshan Grundman failed to

advise the Maxwell Board that a member of the Maxwell Board was directly benefiting from the

proposed transaction.

87. The Rutgers transaction closed on July 23, 2007. On that date, the Maxwell

Board created a wholly-owned subsidiary of the Debtor, Rutgers Investment Group, Inc.

(“Rutgers Investment Group”), to purchase substantially all of Rutgers’s assets from Seven Hills

and Learned Associates.

88. A month after the Rutgers transaction closed, Mr. Buczek and Buckno Lisicky

purportedly audited Rutgers Investment Group’s books. Defendants Buczek and Buckno Lisicky

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opined that Rutgers Investment Group’s financial statements fairly and completely represented

the financial condition of the company. Specifically, Mr. Buczek and Buckno Lisicky approved

allocating almost the entire value of Rutgers to goodwill. Buckno Lisicky’s approval of such

accounting helped conceal (for a short time) that the Rutgers transaction was a sham.

89. The SEC uncovered this sham late in 2008. In November 2008, the SEC

challenged the Debtor’s reporting on the assets acquired from Rutgers and focused on the fact

that almost the entire purchase price of Rutgers was allocated to goodwill.

90. In December 2008, the Debtor conceded that the Rutgers Investment Group’s

accounting was incorrect and effectively conceded that the true value of the purchased assets was

a small fraction, if anything at all, of the amount paid for Rutgers.

2. Globalnet

91. The purchase of Globalnet was the second of three insider transactions devised by



92. Seven Hills and Learned Associates owned and controlled Globalnet Enterprises

LLC and its three wholly-owned subsidiaries: (1) Globalnet Facility Services Co., LLC,

(2) Globalnet Development Co., LLC, and (3) Globalnet Restoration Co., LLC. Gary McCarthy

and Eizen Fineburg organized Globalnet for Seven Hills and Learned Associates less than a year

prior to the Maxwell Board’s takeover of the Debtor.

93. William Maxwell again hired the Kensington Defendants to create a Business

Evaluation Report for the benefit of the Debtor to justify the predetermined inflated purchase

price of Globalnet (the “Globalnet Report”). Upon information and belief, the Kensington

Defendants knew that the Globalnet Report would be used to justify the Globalnet purchase

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price. The Kensington Defendants, however, did not provide a complete appraisal. Rather, the

Kensington Defendants again conducted a baseless valuation analysis that did not rely on

verified financial information or any generally accepted practice of valuing an entity. Instead,

the Kensington Defendants valued the company based on “aggressive” projections that assumed

Globalnet would grow at an incredibly high rate to match the value of established industry

“peers.”

94. The Kensington Defendants concluded that Globalnet, an entity lacking any

verifiable assets, could be reasonably valued at $4,993,082. The Kensington Defendants used

Globalnet’s financial statements prepared by Siegal Drossner as the basis for the rich valuation.

The truth was that Globalnet was worth a small fraction of the value stated in the Globalnet

Report.

95. Moreover, at no point in the Globalnet Report did the Kensington Defendants

disclose that Defendant Ken Stein served as the exclusive Franchise Broker for Globalnet

Restoration and Cleaning Services, LLC, a wholly-owned subsidiary of Globalnet.

96. After approving the transaction, William Maxwell and the Maxwell Board again

used Mr. Adler and Olshan Grundman to represent the Debtor in the Globalnet transaction.

Globalnet was represented by Mr. McCarthy and Eizen Fineburg.


Grundman took direction from William Maxwell and the Pelullo Group. Mr. Adler and Olshan

Grundman failed to advise the Debtor of the risks associated with this Insider Transaction,

particularly that the Debtor’s “Consultant” Salvatore Pelullo was profiting from the sale.

Additionally, Mr. Adler and Olshan Grundman failed to advise the Debtor that the Kensington

Defendants, supposedly independent valuation experts, had a financial interest in Globalnet.

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Moreover, Mr. Adler and Olshan Grundman failed to advise the Debtor that Globalnet had

commercial lease agreements that financially benefited Salvatore Pelullo.

98. The Maxwell Board used the Globalnet Report to justify the exorbitant purchase

price for Globalnet and rubber stamp the Globalnet transaction. On July 25, 2007, the Maxwell

Board executed an unanimous written consent to the purchase of Globalnet for $4,540,000 in

cash ($3,045,000 due at closing and $1,495,000 due on the second anniversary of the closing)

along with 1,100,000 shares of (Regulation D) stock. As part of the closing payment, Eizen

Fineburg received 100,000 shares of Debtor stock.

99. On July 30, 2007, the Globalnet transaction closed.

100. After the Globalnet purchase closed, Mr. Buczek and Buckno Lisicky purportedly

audited Globalnet’s books which were created by Siegal Drossner. Defendants Buczek and

Buckno Lisicky opined that Globalnet’s financial statements fairly and completely represented

the financial condition of the company. Specifically, Mr. Buczek and Buckno Lisicky again

approved allocating almost the entire value of the Globalnet transaction to goodwill. By

approving such accounting, Buckno Lisicky was able to conceal (for a short time) that the

Globalnet transaction was a sham.

101. The Accountant Defendants failed to apprise the Debtor of the suspicious

transactions on Globalnet’s transaction report. For example, during the six-month period leading

up to the closing, the following suspicious payments were made:

a. 6/21/07 - $50,000 payment to Seven Hills for “miscellaneous;”
b. 6/21/07 - $50,000 payment to Learned Associates for “miscellaneous;”
c. 7/6/07 - $982,869 payment to Seven Hills for “legal and professional
expenses;” and
d. 7/6/07 - $436,369 payment to Learned Associates for “legal and
professional expenses.”

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102. Additionally, the Accountant Defendants failed to apprise the Debtor of a

suspicious entry on Globalnet Enterprises, LLC’s balance sheet: a $667,600.00 loan payable to

Rutgers Investment Group - before the entity was ever created.

103. Moreover, on information and belief, the Accountant Defendants helped conceal

the fact that Seven Hills and Learned Associates did not truly transfer the assets of Globalnet to

the Debtor’s subsidiaries. Rather, upon information and belief, the Pelullo Group continued to

operate Globalnet’s business after the sale to the Debtor and used the Debtor’s assets to finance

the business they retained.

104. The SEC uncovered this sham late in 2008. In November 2008, the SEC

challenged the Debtor’s reporting of the assets acquired from Globalnet, particularly the

Debtor’s failure to assign any value to the purchased assets and its decision to allocate the entire

purchase price to goodwill.

105. Additionally, the SEC found that the Debtor did not disclose that the Maxwell

Board approved early payment of the deferred portion of the Globalnet purchase price

($1,495,000) in the Fall of 2007 - roughly two years prior to its due date. The Maxwell Board

approved this payment despite the fact that it threatened the Debtor’s solvency.

106. In December 2008, the Debtor conceded that the Globalnet accounting was

incorrect and effectively conceded that the true value of the purchased assets was a small

fraction, if anything at all, of the amount paid for Globalnet.

3. Premier Group

107. The purchase of Premier was the last of three insider transactions devised by



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108. As with Rutgers and Globalnet, Premier was principally owned by Seven Hills

and Learned Associates, the consulting firms purportedly hired by William Maxwell and the

Maxwell Board to advise the Debtor. Less than a month before the Pelullo Group’s takeover of

the Debtor, Gary McCarthy and Eizen Fineburg assisted the Pelullo Group in forming Premier.

109. In October 2007, Seven Hills recommended to William Maxwell that the Debtor

acquire Premier’s membership interests. Cory Leshner from Seven Hills submitted the

recommendation. Neither Mr. Leshner nor Seven Hills disclosed that Mr. Leshner was a Premier

employee who would ultimately receive a $25,000 cash payment from the Debtor once the

transaction closed. Moreover, upon information and belief, at the time of the recommendation,

Premier did not own the majority of the assets that would later serve as the alleged basis for the

Debtor’s purchase price.

110. In December 2007, Mr. McCarthy and Eizen Fineburg represented Seven Hills

and Learned Associates in Premier’s acquisition of assets from an insurance adjustment

company. Premier paid $100,000 in cash, assumed a variety of liabilities and acquired real

property located at 14399 Southwest 143rd Court, Miami, Florida 33186 merely by assuming the

mortgage on the property. These assets would ultimately be flipped to the Debtor’s subsidiary

for a grossly inflated price.

111. William Maxwell and the Maxwell Board again used Mr. Adler and Olshan

Grundman to represent the Debtor in the Premier transaction. Mr. McCarthy and Eizen Fineburg

again represented Seven Hills and Learned Associates. At the time, McCarthy and his firm had

an established attorney-client relationship with Debtor.


Grundman took direction from William Maxwell and the Pelullo Group. Mr. Adler and Olshan

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Grundman failed to advise the Debtor of the risks associated with this Insider Transaction -

particularly that the Debtor’s “consultant “ Salvatore Pelullo was profiting from the sale.

Additionally, Mr. Adler and Olshan Grundman failed to advise the Debtor that Premier did not

own the necessary insurance licenses to conduct its business. Rather, the insurance licenses were

owned by Premier’s employees. Furthermore, although a reasonably prudent attorney would

have discovered that Premier’s real estate had title issues, Mr. Adler and Olshan Grundman

never properly raised this issue with the Debtor prior to closing. Moreover, Mr. Adler and

Olshan Grundman failed to ensure that the mortgage on the Premier “warehouse” was transferred

from the original borrower at the time of the acquisition. As a result, one year after the Premier

purchase, Mr. Pelullo demanded $25,000 to sign off and transfer the mortgage (which was at that

point in default) to release the property.

113. William Maxwell and the Maxwell Board again enlisted the help of the

Kensington Defendants to obtain an inflated valuation. Upon information and belief, the

Kensington Defendants knew that the report would be used to justify the Premier purchase price.

The Kensington Defendants, however, did not provide a complete appraisal. Rather, the

Kensington Defendants again conducted a baseless valuation analysis that did not rely on

verified financial information or any generally accepted practice of valuing an entity.

Specifically, the Kensington Defendants relied on two asset values to reach its valuation: (1) an

inflated real estate valuation that did not take into account that the property was encumbered; and

(2) unverified accounts receivable. Concerning the real estate valuation, this was the same

property that Premier had acquired only one month earlier by simply assuming the mortgage.

Premier valued the property at $400,000 for enterprise valuation purposes (completely

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disregarding the mortgage and liabilities associated with the property). The Kensington

Defendants used this “Asset Based Approach” to “reasonably state” Premier’s value at $916,895.

114. The truth was that Premier was worth a small fraction of the value stated in the

Premier Report.

115. The Maxwell Board used the Premier Report and Seven Hill’s recommendation to

justify the Premier purchase. The Maxwell Board consented to the Premier purchase for

$992,440 through an unanimous written consent, executed on January 31, 2008.

116. That same day, the Premier transaction closed. Included within the purchase

price, the Debtor agreed to pay $425,000 (payable at 7.5% interest per annum) for the Pelullo

Group’s membership interests, assumed $300,000 (payable at 7% interest per annum) in

liabilities and issued 1,000,000 shares of Debtor stock to the Pelullo Group. Seven Hills and

Learned Associates were to receive hundreds of thousands of dollars from the transaction and

hundreds of thousands of shares of Debtor common stock. Additionally, Seven Hills and

Learned Associates were each to receive $100,000 for “loans” that were never included on

Premier’s Balance Sheet prior to closing.

E. Attorney Defendants’ Assistance to Dissolve Trusts

117. On July 24, 2007, Seven Hills directed Gary McCarthy to contact William

Maxwell regarding the possible termination of the Grantor Trust. Upon information and belief,

William Maxwell hired Mr. McCarthy and Eizen Fineburg to represent the Debtor for this

matter.

118. Mr. McCarthy and Eizen Fineburg were providing counsel to the Debtor

concerning these issues at the same time they were representing the Pelullo Group in the Insider

Transactions.

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119. Mr. McCarthy and Eizen Fineburg worked with Mr. Adler and Olshan Grundman

to carry out this scheme. The Attorney Defendants sought to carry out this scheme even though

the Grantor Trust was amended to benefit the Debtor’s shareholders. By assisting such conduct,

the Attorney Defendants placed the interests of the Pelullo Group ahead of the interests of the

Debtor’s shareholders.

120. Moreover, at the direction of Mr. Pelullo and Seven Hills, David Adler and Gary

McCarthy engaged teams within their firms to investigate ways to give Mr. Pelullo control over

the millions of dollars flowing through the Creditor Trust at the expense of the Debtor. The

objective was to remove Mr. Obergfell as trustee and install a “friendly” trustee to operate the

Creditor Trust with allegiance to the Pelullo Group.

121. In early August 2007, Michael Fox (Olshan Grundman), Mr. Pelullo and the

Maxwell Board engaged in an email exchange concerning ways to take control of the Creditor

Trust’s funds. Within this exchange, Mr. Pelullo expressed his control over the Debtor, his

intentions to take control of the Creditor Trust, and the efforts underway to accomplish his goal.

Mr. Pelullo wrote:

Now go get are [sic] money and are [sic] company from that
fucking dog and maybe we won’t prosacute [sic] him[.] I told you
he couldn’t do what he did lawfuly [sic] and I want controll [sic]
back and the money back by Friday close of day. I Love you
mike pleas [sic] give me your thoughts before you take off today.
The barbarians are at the gate go in for the kill. S.P.

122. Throughout August and September 2007, Eizen Fineburg and Olshan Grundman

threatened David Obergfell with litigation for alleged breaches of fiduciary duties, self dealing,

and waste. David Obergfell responded with a post on the FPFI Creditors Trust website that he

would withhold trust distributions until the dispute with the Debtor was resolved.

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123. Soon thereafter, Mr. Fox sent a letter to Mr. Obergfell stating that the Debtor’s

issues with the Creditor Trust had been resolved.

F. The Improper O’Neal Loans

124. On May 8, 2008, federal officials executed a search warrant at the Debtor’s

corporate offices in Irving, Texas and at the Debtors’ subsidiaries’ offices.

125. Between May 8, 2008 and June 25, 2008, the O’Neal Board took control of the

Debtor’s board of directors from the Maxwell Board, purportedly to clean up the Debtor’s

management and isolate the bad actors. In reality, the O’Neal Board benefited Dr. O’Neal by

funneling to him the Debtor’s stock and money.

126. On June 26, 2008, the O’Neal Board approved a scheme by which Dr. O’Neal

would ostensibly loan money to the Debtor. In return, the Debtor would agree to unfavorable

terms that would enrich Dr. O’Neal while providing little or no value to the Debtor.

127. On June 27, 2008, Dr. O’Neal entered into a loan agreement with the Debtor

under which he would lend the Debtor $300,000 seemingly to help the Debtor pay its bills.

Under the terms of the agreement, Dr. O’Neal had sole signing authority over the loaned funds

and sole operational control over the Debtor’s money. At the time, Debtor could not have

obtained similar financing (or any financing for that matter) from a disinterested lender.

128. The O’Neal Board approved and executed the loan agreement on June 30, 2008.

As consideration for making this purported loan to the Debtor, Dr. O’Neal received two million

shares of the Debtor’s common voting stock and the option to purchase an additional ten million

shares at his sole discretion within seven and one-half years of the contract date at $.04 per share.

129. The loan agreement further provided that the Debtor was to submit a list of bills

to be paid to Dr. O’Neal. Dr. O’Neal had sole discretion about which bills to pay “via a payment

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system [Dr. O’Neal] controls.” The loan agreement provided that by Dr. O’Neal “paying the

bill, [the Debtor] agrees that said payment is proof of the money loaned by [Dr. O’Neal]….”

130. On July 23, 2008, the O’Neal Board executed a Written Consent in Lieu of a

Special Meeting appointing an Executive Committee comprised of Dr. O’Neal, Mr. Hickman

and Mr. Roubinek. The Executive Committee was to have complete and unfettered control over

the Debtor and all its subsidiaries.

131. On December 8, 2008, the Debtor received $2,252,836 from the Creditor’s Trust.

132. On or about December 23, 2008, the Executive Committee paid Dr. O’Neal

$348,712.77, for the “retirement of debt.”

133. On information and belief, Dr. O’Neal did not loan the full amount of the so-

called “loan” to the Debtor nor did he pay any bills on the Debtor’s behalf; rather, the Executive

Committee paid the Debtor’s bills with the funds received from the Creditor Trust.

134. The Executive Committee caused the Debtor to enter into a second loan

agreement with Robert O’Neal on January 16, 2009. The January 16, 2009 loan agreement

included the same material terms as the June 30, 2008 loan agreement. Along with the loan

agreement, the Debtor executed a security agreement in favor of Dr. O’Neal that granted

Dr. O’Neal a security interest in all of the Debtor’s property (including proceeds received from

the Creditor Trust). Jack Roubinek, then the Debtor’s chief executive officer and a member of

the Executive Committee, signed both the January 16, 2009 promissory note and the security

agreement.

135. Upon information and belief, as with the June 30, 2008 loan, Dr. O’Neal did not

transfer the full amount of any funds to the Debtor or pay any bills. In reality, the promissory

notes and security agreements were used as instruments to disguise the transfer of hundreds of

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G. Suspicious and Exorbitant Transactions

136. In addition to the Insider Transactions, the Maxwell Board approved and/or

entered into a number of exorbitant transactions that served no benefit for the Debtor and served

to benefit the Maxwell Board members, members of the Maxwell family, William Maxwell and

the Pellulo Group.

137. First, multiple Defendants withdrew funds directly from the Debtor’s bank

accounts (including from the Grantor Trust account) for costly travel, dining and personal

expenses. In the six months the Maxwell Board was in control of the Debtor in 2007, they

caused the Debtor to spend: (1) $106,948.72 on “Travel and Entertainment Expenses”;

(2) $139,121.61 on “Accommodation Expenses” mainly comprised of stays at luxury hotels such

as the Four Seasons and Grove Isle Resort; (3) $144,548.95 on “Airfare and Transportation”; and

(4) $73,064.33 on “Meals,” including numerous lavish meals at high-end restaurants.

138. Second, the Maxwell Board authorized the following reimbursements for John

Maxwell: (1) $1,529.98 for “Car Chargers”; (2) $2,740.85 for “Cleaners”; (3) $1,500.00 for

“Communications”; (4) $3,653.81 for “Cleaning Costs”; and (5) $8,915.00 for home expenses.

139. Third, the Debtor’s bank account statements show repeated transfers of cash to

Brent Maxwell and Cole Maxwell, who are believed to be John Maxwell’s sons. In 2007, the

Maxwell Board caused the Debtor to pay Cole Maxwell more than $20,000 and Brent Maxwell

more than $7,000 for expenses described as “Travel and Entertainment.”

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140. Fourth, over the course of 16 days in September 2007, John Maxwell and/or other

Maxwell Board members used the Debtor’s bank account to pay for nine separate purchases at

Men’s Warehouse totaling $5,912.45.

141. Fifth, under the direction of the Maxwell Board, the Debtor transferred millions of

dollars directly to William Maxwell. While the Legal Services Agreement provided for William

Maxwell to earn the exorbitant salary of $100,000 per month, the Debtor transferred over $5

million dollars to William Maxwell from June 2007 through April 2008.

H. Suspicious Cash Management Practices

142. After the takeover, there were insufficient control mechanisms in place to ensure

that the Debtor’s sizeable cash accounts and numerous cash expenditures were managed and

monitored responsibly.

143. William Maxwell took advantage of the lack of control mechanisms and the broad

authority vested by Legal Services Agreement to assume control of the Debtor’s accounts.

William Maxwell accomplished this by changing the mailing addresses on certain of the

Debtor’s existing investment accounts at Oppenheimer to the Baytown office address.

Additionally, Mr. Maxwell opened up new accounts to solidify control over the Debtor’s

accounts.

144. William Maxwell and the Maxwell Board then moved the books and records from

corporate headquarters in Irving, Texas, to Philadelphia, Pennsylvania to be managed by

Kimberly Grasty. Ms. Grasty, a Seven Hills employee before the takeover, became the Debtor’s

“controller.” Although she worked for the Debtor, Ms. Grasty was located in Philadelphia and

had practical control over the Debtor’s bank accounts and the QuickBooks accounts of the

Debtor’s subsidiaries. Giving Ms. Grasty possession and practical control of the Debtor’s

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accounts enabled the Pelullo Group and William Maxwell to control the Debtor’s funds to their

advantage.

145. On information and belief, Ms. Grasty created a complex web of bank accounts

for the Debtor and each of its subsidiaries to enable frequent transfers of cash through these

multiple accounts. William Maxwell and the Maxwell Board directed such transfers for the

benefit of the Maxwell Board, William Maxwell and the Pelullo Group.

146. After the federal government raided Debtor’s offices Texas offices and the offices

of its subsidiaries, Debtor’s counsel in connection with the criminal investigation wrote to the

Assistant United States Attorney for the District of New Jersey. In his letter, Debtor’s counsel

admitted that Debtor could not provide any accurate accounting for its assets or the assets of its

subsidiaries because the Debtor’s accounting records had been moved from Debtor’s Texas

headquarters to Pennsylvania, where the accounting functions were controlled by Kimberly

Grasty, a confederate of Salvatore Pelullo. In that letter, Debtor’s counsel also stated that it was

Debtor’s “position that the acquisition of the East Coast Companies [i.e., Rutgers, Globalnet, and

Premier] may have been the product of fraud.”

147. Moreover, after the SEC uncovered serious improprieties within the Debtor’s

financial records, the Debtor was forced to report that it had insufficient internal controls over

financial reporting while William Maxwell and the Maxwell Board had direct control over the

accounts.

I. Improper Accounting

148. The Accountant Defendants helped keep certain transactions from the public until

the SEC uncovered the problems in late 2008, including the Insider Transactions, the improper

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O’Neal Loans, the suspicious and exorbitant transactions and the suspicious cash management

practices.

149. As the Debtor’s public accounting firm, Mr. Buczek and Buckno Lisicky made

myriad auditing errors in connection with their work for the Debtor:

1. they failed to properly audit the Debtor’s financial statements;
2. they failed to obtain the competent evidential matter to support
their audit opinion in connection with the Debtor’s financial
statements and/or caused such errors by virtue of their joint effort
with Siegal Drossner to prepare the underlying financial
statements/data;
3. they failed to properly notify the Debtor about the improper
accounting associated with the Insider Transactions, thereby
leading to material misstatements;
4. they failed to provide a “going concern” opinion in connection
with the audit of the Debtor’s financial statements in the Form 10-
KSB filed on March 31, 2008 (for the period ending December 31,
2007);
5. they failed to properly consider that the Debtor could not generate
enough income to continue operating in the near future combined
with the obvious risk factors (recurring losses, net capital
deficiencies and other operating issues);
6. they failed to properly account for the Debtor’s lack of corporate
governance and organizational oversight, as evidenced by the
millions of dollars transferred to William Maxwell and the Pelullo
Group without any supporting documentation;
7. they failed to account for the Pelullo Group’s influence on
management despite clear and obvious risk factors;
8. they failed to uncover the numerous suspicious transactions and/or
suspicious cash management practices;
9. they failed to notify the Debtor that their interests were allied with
the Pelullo Group and against the Debtor;
10. they failed to uncover all other irregularities in their audit that
would have been discovered if audited with the proper level of
skill and care, forcing the Debtor to restate earnings;
11. they failed to identify and report internal control deficiencies; and
12. they failed to identify and report material weaknesses in internal
controls.

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150. As the Debtor’s internal accountants, Mr. Drossner and Siegal Drossner also

made myriad accounting errors in connection with their work for the Debtor:

1. they failed to properly account for transactions in the Debtor’s
financial statements, including, but not limited to the Insider
Transactions, thereby leading to material misstatements;
2. they failed to obtain the competent evidential matter to justify the
Debtor’s financial statements and/or caused such errors by virtue
of their joint effort with Buckno Lisicky to prepare the underlying
financial statements/data;
3. they failed to properly account for the Debtor’s lack of corporate
governance and organizational oversight, as evidenced by the
millions of dollars transferred to William Maxwell and the Pelullo
Group without any supporting documentation;
4. they failed to uncover the numerous suspicious transactions and/or
suspicious cash management practices;
5. they failed to account for the Pelullo Group’s influence on
management despite clear and obvious risk factors;
6. they failed to notify the Debtor that their interests were allied with
the Pelullo Group and against the Debtor;
7. they failed to uncover all other irregularities that would have been
discovered if the accounting was performed with the proper level
of skill and care, forcing the Debtor to restate earnings;
8. they failed to indentify and report internal control deficiencies; and
9. they failed to identify and report material weaknesses in internal
controls.

151. The Accountant Defendants also engaged in wrongful conduct by blurring the line

between an outside auditor and internal accountant. The Accountant Defendants worked

together to create financial records that served as the support for the Debtor’s financial reporting

and preparation of financial statements. This compromised the accuracy and independence of

both the audit and the financial reporting.

152. As a result, Buckno Lisicky and Mr. Buczek misrepresented that they were

“independent” in the “Report of Independent Registered Accounting Firm” included within the

Debtor’s Form 10-KSB filed on March 31, 2008 (for the period ending December 31, 2007).

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Buckno Lisicky lacked independence because, among other things: (1) they prepared or assisted

in preparing the financial statements that were the subject of the audit; (2) they provided other

accounting services in concert with Siegal Drossner, such as preparing the underlying source

data for the financial statements; and (3) they represented the interests of the Pelullo Group and

William Maxwell.

153. Due to Mr. Buczek and Buckno Lisicky’s lack of independence, their certification

was incorrect and they should have been prohibited from issuing audit opinions for the Debtor.

As a result, the Debtor’s audits were not in compliance with generally accepted auditing

standards and/or applicable rules and regulations concerning publicly-traded companies.

154. Most importantly, the Accountant Defendants’ actions and omissions facilitated

the overarching scheme by the other Defendants to deplete the Debtor of its cash and resources.

J. Letter Inquiries by the SEC into Debtor’s Accounting

155. In November 2008, the SEC contacted the Debtor to identify a number of

problems with the company’s financial statements in a series of comment letters sent to the then-

acting chief financial officer, Gary Alexander.

156. On February 13, 2009, the Debtor, in consultation with Defendants Buckno

Lisicky and Mr. Buczek, agreed to restate the 2007 and 2008 (Q1 and Q2) financial statements.

157. Mr. Alexander, Mr. Buczek and Buckno Lisicky, were compelled to acknowledge

that the Debtor’s financial statements for 2007 and 2008 contained numerous material errors

and/or misstatements.

158. Among the numerous errors and/or misstatements, the Debtor was forced to:

(1) reclassify professional fees and other costs for acquisition as operating expenses, a

reclassification that resulted in a restatement in operating expenses of over $8 million; (2) admit

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that it failed to disclose the accelerated payment of the deferred portion of the Globalnet

purchase for the benefit of the Pelullo Group ($1,495,000); (3) reclassify the gains from the sale

of the Ole Auto Group, resulting in an increased loss from Continuing Operations of more than

$1 million; and (4) admit that it failed to properly classify William Maxwell’s $5,000,000.00

contingent bonus.

159. In addition, Mr. Alexander admitted that: (1) Rutgers Investment Group only had

$114,376 in total assets and $0 in equity as of the acquisition date; and (2) the consolidated

operations of Globalnet as of the acquisition date demonstrated that the Globalnet entities were

worth a small fraction of the value paid by the Debtor.

CAUSES OF ACTION
COUNT I: BREACH OF FIDUCIARY DUTY
(FREEMAN BOARD & MAXWELL BOARD)

160. Plaintiff adopts and realleges Paragraphs 1 through 159 as if fully set forth herein.

161. As directors and/or officers of the Debtor, each member of the Freeman Board

and the Maxwell Board was a fiduciary of the Debtor.

162. As a fiduciary, each member of Freeman Board and the Maxwell Board owed the

Debtor the duty of care and the duty of loyalty.

163. Additionally, the supposedly independent directors on the Maxwell Board

(Mr. Meek, Mr. Steward and Mr. Alexander) had affirmative duties to monitor and enforce

proper corporate governance when the remainder of the Maxwell Board engaged in self-dealing

transactions.

164. The Freeman Board members breached their fiduciary duties to the Debtor by,

among other things:

1. relinquishing control of the board to the Maxwell Board without
any prior due diligence;

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2. failing to implement proper controls to ensure that the Debtor’s
assets would not be left vulnerable;
3. seeking to protect their own interests (whether by protecting their
reputations or receiving lucrative severance packages) at the
expense of the Debtor;
4. acting with the intention that the Maxwell Board be able to
perpetuate its overarching scheme to loot the Debtor;
5. breaching their duty of care to Debtor; and
6. breaching their duty of loyalty to Debtor.

165. The Maxwell Board members breached their fiduciary duties to the Debtor by,

among other things:

1. ceding effective control of the Debtor to the Pelullo Group and
William Maxwell;
2. rubber stamping the Rutgers, Globalnet and Premier transactions
without engaging in proper, independent due diligence;
3. failing to act in the best interests of the Debtor by engaging in self-
dealing and by engineering transactions primarily to benefit the
Pelullo Group and William Maxwell;
4. knowingly acquiescing to consulting agreements with Seven Hills
and Learned Associates that provided the Pelullo Group with
operational and executive control of the Debtor;
5. failing to implement internal controls and otherwise monitor the
Debtor’s expenditures;
6. using Debtor’s funds to pay for lucrative travel, entertainment,
airfare and accommodation expenses, as well as transferring
significant funds to Maxwell Board members and their families;
7. purchasing an aircraft and/or paying for use of an aircraft at a time
when the Debtor had trouble meeting its existing financial
obligations;
8. otherwise wasting corporate assets;
9. breaching their duty of care to Debtor; and
10. breaching their duty of loyalty to Debtor.

166. In committing these breaches, the Freeman Board and the Maxwell Board

members violated the duties they owed to the Debtor and acted egregiously, intentionally, and

willfully.

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167. Moreover, the Freeman and Maxwell Board members breached their duties with

the deliberate intent to participate in the scheme orchestrated by the Pelullo Group to deplete the

Debtor’s resources for the Pelullo Group’s benefit.

168. As a direct and/or proximate result of these breaches, the Debtor suffered

financial harm and Defendants the Freeman Board and the Maxwell Board were unjustly

enriched.

REMEDIES AGAINST FREEMAN BOARD AND MAXWELL BOARD

169. Chapter 11 Trustee Matthew D. Orwig prays that this Honorable Court enter a

judgment in Debtor’s favor, and against the Freeman Board and the Maxwell Board members

jointly and severally:

(a) Awarding actual damages, in an amount to be determined at trial;

(b) Awarding exemplary and punitive damages sufficient to punish these Defendants

and to deter similar conduct in the future;

(c) Awarding restitution to Debtor in an amount to be determined at trial, but equal to

the total unjust benefit these Defendants received based upon the alleged conduct;

(d) Imposing a constructive trust and/or a constructive lien over the assets of these

Defendants, in an amount to be determined at trial and equal to the amount of monetary transfers

and/or benefits that each these Defendants were paid and/or obtained from the Debtor, and

ordering that the United States Marshall seize and sell the property subject to the constructive

trust and/or constructive lien and apply such sales proceeds to the payment of the judgment

amount that such Defendants are adjudged to owe the estate;

(e) Awarding pre- and post-judgment interest; and

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(f) Including such further relief as the Court deems just and proper under the

circumstances.

COUNT II: BREACH OF FIDUCIARY DUTY (O’NEAL BOARD)


171. As directors and/or officers of the Debtor, each member of the O’Neal Board was

a fiduciary of the Debtor.

172. As a fiduciary, each member of O’Neal Board owed the Debtor the duty of care

and duty of loyalty.

173. The O’Neal Board members breached their fiduciary duties to the Debtor by,

among other things:

1. acquiescing to the June 30, 2008 sham loan from Robert O’Neal;
2. failing to put proper controls in place to ensure that Robert O’Neal
contributed the funds he agreed to provide;
3. granting O’Neal a security interest on all property of the Debtor;
and
4. ceding control of the Debtor’s board of directors to the Executive
Committee without effective controls.

174. In committing these breaches, the O’Neal Board members violated the duties they

owed to the Debtor and acted egregiously, intentionally, and willfully.


financial harm and Defendants the O’Neal Board were unjustly enriched.

REMEDIES AGAINST O’NEAL BOARD


judgment in Debtor’s favor, and against the O’Neal Board members jointly and severally:


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the total unjust benefit these Defendants received based upon the alleged conduct;









circumstances.

COUNT III: BREACH OF FIDUCIARY DUTY
(ATTORNEY DEFENDANTS)


178. The Debtor sought and received legal counsel and services from the Attorney

Defendants. The Attorney Defendants provided legal counsel and services to the Debtor in

connection with the Attorney Defendants’ employment, creating an attorney-client relationship

between the Attorney Defendants and the Debtor.

179. As attorneys to the Debtor, the Attorney Defendants were the Debtor’s

fiduciaries.

180. As fiduciaries, the Attorney Defendants owed the Debtor the duty of care and

duty of loyalty to act in the Debtor’s best interests.

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181. The Attorney Defendants violated the fiduciary duties owed to the Debtor by,

among other things:

1. placing the interests of William Maxwell and the Pelullo Group
above those of the Debtor;
2. helping to create the appearance of legitimacy for the Rutgers,
Globalnet and Premier transactions to cover up the sham
transactions;
3. failing to render a full and fair disclosure of facts material to their
representation of the Debtor;
4. engaging in self-dealing that pursued their own pecuniary interests
above those of the Debtor;
5. using their positions of trust to facilitate a plan to deplete the
Debtor’s cash and assets;
6. improperly using client confidences learned in the course of their
representation of the Debtor to the detriment of the Debtor;
7. jointly participating in the attempts to aid the Pelullo Group in
taking control of the funds in the Grantors Trust and Creditors
Trust;
8. breaching their duty of loyalty to Debtor; and
9. breaching their duty of care to Debtor.

182. The breaches were the result of the Attorney Defendants engaging in self-dealing

in order to obtain a benefit for themselves and the Pelullo Group at the expense of the Debtor.

183. In committing these breaches, the Attorney Defendants violated their duties to the

Debtor and acted egregiously, intentionally, and willfully.

184. Moreover, in breaching their duties, the Attorney Defendants acted with the intent

to participate in the deliberate scheme orchestrated by the Pelullo Group to deplete the Debtor’s

resources for the Pelullo Group’s benefit.


financial harm and the Attorney Defendants were unjustly enriched.

REMEDIES AGAINST ATTORNEY DEFENDANTS

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judgment in Debtor’s favor and against the Attorney Defendants, jointly and severally:





the total unjust benefit these Defendants received (including, but not limited to, the fees they

received in connection with their representation) based upon the alleged conduct;









circumstances.

COUNT IV: LEGAL MALPRACTICE
(ATTORNEY DEFENDANTS)

187. Pleading in the alternative, Debtor brings Count IV against the Attorney

Defendants and would show as follows:


189. The Debtor sought and received legal counsel and services from the Attorney

Defendants. The Attorney Defendants provided legal counsel and services to the Debtor in

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connection with the Attorney Defendants’ employment, creating an attorney-client relationship

between the Attorney Defendants and the Debtor.

190. The Attorney Defendants had a duty to exercise the degree of care, skill,

competence and/or diligence that a reasonably prudent attorney would exercise under similar

circumstances.

191. The Attorney Defendants breached that duty by providing legal advice and

services that were inadequate, detrimental to the Debtor and contrary to that which would have

been provided by reasonably skilled legal counsel under the same or similar circumstances.

192. Mr. Adler and Olshan Grundman held, and continue to hold, themselves out as

qualified to perform corporate and securities legal work including, but not limited to, counseling

boards of directors and guiding clients through compliance with state and federal securities laws.

193. However, Mr. Adler and Olshan Grundman failed to exercise the proper degree of

care and competence in their representation by, among other things:

1. failing to perform proper due diligence on the sham Rutgers,
Globalnet and Premier transactions;
2. failing to uncover that the Pelullo Group was benefiting from the
sham Rutgers, Globalnet and Premier transactions while advising
the Debtor to enter into such transactions;
3. failing to disclose that their allegiance to the Pelullo Group was
directly in conflict with the interests of the Debtor;
4. failing to disclose in SEC filings that Mr. Pelullo and Seven Hills
had the power to direct the management and policies of the Debtor;
5. failing to advise the Debtor to retain separate counsel in light of the
conflict of interest; and
6. failing to render a full and fair disclosure of facts material to their
representation of the Debtor.

194. Mr. McCarthy and Eizen Fineburg failed to exercise the proper degree of care and

competence in their representation by, among other things:

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