The Profit Connect Receiver has recovered $9.1 million.
The announcement was made as part of the Receiver’s Second Status Report, filed February 7th.
The Receiver’s operations report begins by disclosing that last August, what was left of Profit Connect was hit by COVID-19.
On August 4, 2021, Brent Kovar notified the Temporary Receiver that one of the Profit Connect employees had tested positive for COVID-19.
The Temporary Receiver, with the support of Brent Kovar, immediately sent everyone home and requested they get tested and provide documentation of a negative test result prior to returning to work.
At least six employees and one member of the Temporary Receivers team tested positive and were asked to follow CDC protocols for
The Temporary Receiver hired a professional cleaning company to clean and sanitize the entire facility.
Recovery efforts thus far have centered around selling property and assets acquired through Profit Connect.
In December the Receiver held a virtual auction that raised $1.25 million.
Some of the big ticket items included the sale of three Can-Ams that sold for $182,750, a 2021 RAM 1500 BigHorn that sold for $46,250, the 2021 Ford F650 that sold for $86,500, and large amounts of computer hardware that sold well above retail prices.
An additional $4 million was recovered through liquidation of seized cryptocurrency. This was a $2 million net-profit against the purchase price.
The sale of various real-estate assets and interests also remains pending.
A final balance provided by the Receiver pegs the Total Equity amount held by the Receivership at $18.5 million.
Fees charged by the Receivership stand at $495,000.
Unfortunately in addition to operational expenses, Profit Connect affiliates are running up Receivership legal fees.
the Receiver has discovered multiple lawsuits filed by investors
to recoup their investments ahead of other investors.
One investor refused to either dismiss or stay his lawsuit pending the receivership, requiring the Receivers counsel to file a motion to enjoin the investor’s lawsuit under the All Writs Act.
Upon receiving a copy of the motion, the investor promptly dismissed his lawsuit.
That investor was Jeffrey Nicholas, who filed suit against his upline Troy Sutton.
In an ironic turn of events, after Nicholas filed his lawsuit, one of his Profit Connect downline filed suit against him.
There is yet another investor lawsuit pending in Texas state court making similar allegation, albeit this time against Mr. Nicholas.
The Receivers counsel has been in conversation with that investors counsel and anticipates that the parties will reach a resolution that benefits the receivership estate.
The Receivership has also learned of a planned class-action by yet another group of Profit Connect investors.
These lawsuits are all barred by the granted preliminary injunction. They will either go nowhere or be dismissed, but do run up Receivership costs in the process.
Non-cooperation by third-parties and Profit Connect having “no identifiable accounting books and records”, are also causing headaches.
Moving on to clawbacks, a $500,000 lawsuit has already been filed against Profit Connect net-winner William Roshak.
The pleadings are closed, initial disclosures have been made, and the parties have a settlement conference scheduled before Magistrate Judge Weksler on March 24, 2022.
Looking forward, the Receiver warns;
Based on his continuing investigation, the Receiver anticipates there may be further litigation to clawback fraudulently transferred funds and/or seek damages related to the Profit Connect scheme.
With respect to Profit Connect victims, the Receiver claims to have sent “thousands of emails and conducting numerous phone calls”.
One particularly disturbing aspect of how Profit Connect solicited investment, was encouraging investors to taking out a lien against property.
The liens appear to have been given by investors who were told that they could invest in Profit Connect by giving Profit Connect a lien against their residence for a particular amount, with the amount
secured by the lien then being invested in Profit Connect.
To the extent that no cash actually changed hands, the Receiver will seek Court authority to release these liens so that title can be fully reconveyed to the homeowners.
The Receivership held a webinar on September 29th, 2021. “Almost 150 interested parties” attended the meeting.
Through the established Receivership website, the Receiver additionally claims to have
collected nearly 400 forms sent in through the website that include contact information and specific information with how they are associated with Profit Connect.
The Receiver is using this information to update the database of records obtained from Profit Connects internal computer systems.
No word on a claims process yet, so there’s no indication on what distribution figures might look like later down the track.
Considering the SEC pegged Profit Connect as a $12 million Ponzi, victim recovery at this stage looks promising.
Update 26th May 2022 – Pursuant to his clawback efforts, the Receiver has requested permission to employ legal counsel.
If approved, said counsel will be authorized to commence clawback litigation against
Troy Sutton, Emerald Star Enterprises, Inc., South Towne Enterprises, Inc. of Abilene, Jeff Nicholas, Nicholas Financial, Allianz Life Insurance Company of North America, and their insurers, affiliates, agents, tenants, and subsidiaries.
If approval is granted I’ll be able to provide full details once a complaint against the parties above is filed.
An approval hearing was scheduled for May 24th but, due to a scheduling conflict, was rescheduled for later today.
I’ll check back in later in the week for an update.
Update 30th May 2022 – The court has granted the Receiver’s request to employ legal counsel.
There’s no timeline but presumably at some point we can expect clawback litigation filed against the above quoted parties.
Update 24th August 2022 – This is from the Profit Connect Receiver’s Fourth Status Report;
The Court approved the Receiver’s retention of counsel in Texas on a contingency fee basis to investigate and pursue an action against certain agents of Profit Connect.
The Receiver anticipates filing further clawback actions as his investigation progresses, as well as damages actions for the
role certain parties played in perpetuating the Profit Connect fraud.
As noted in prior reports, multiple investors have filed actions in an effort to recoup their losses which are prohibited by order.
These include two lawsuits filed in Texas that have been dismissed in favor of the action to be brought by the Receiver.
The Receiver has successfully halted these actions so that the claims can instead be brought on behalf of the receivership estate.
We’ll keep you posted on Profit Connect clawback developments.