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| Forms and Instructions - Recent Status - Chapter 11 Trustee Reports - Creditor's Comm. Updates - Contact Information |
January 21, 2004 Trustee's Report EVERGREEN SECURITY, LTD CASE NO. 01-00533-6B1 TRUSTEE REPORT TO CREDITORS' COMMITTEE January 21, 2004 Ladies and Gentlemen: My last report to the Committee was October 17, 2003. This report will not repeat my prior reports, which can be found at www.evergreencreditorscommittee.com. The following table outlines the status of the litigation:
Five of the suits against managers were settled for $580,000, a house in North Carolina sold for $700,000 and two lots in North Carolina with a sale pending for $18,000. The one pending suit will be set for trial in the coming months. The broker test case against Harold James Kime and First American Life and Health Insurance Corporation resulted in judgements against the defendants for over $192,000. The defendants filed an appeal, which they dismissed during the fourth quarter. After the test case the Court ordered mediation in 47 broker cases. Twenty-one mediations were held from September 2003 to January 2004. Nineteen of these settled for a total of $374,400. Many of these settlements are still shown as pending in the table above, since they are subject to Court approval. A few mediations have been continued into February. The cases that do not settle will be set for trial in the coming months. The Zylka et al defendants, which are pending, include individuals and businesses who received part of the $27.7 million taken from Evergreen by William J. Zylka and James P. Conroy. Mr. Zylka pleaded guilty and Mr. Conroy was convicted in New York for their parts in the funds taken. Mr. Conroy has appealed his conviction. The five pending suits are in various stages of discovery and should be tried during 2004. The twenty-two settlements produced over $500,000 in cash, real estate listed for sale for $60,000, over 11.8 million shares in the NASDAQ listed Crystal Graphite Corporation and royalty rights in a gold mine in British Columbia of over $2.7 million payable with interest. The "Other" suits include suits against law firms, accounting firms, investment advisory firms, custodians, trustees, consultants, directors and the initial owner of Evergreen. Also included is a suit against Mr. Zylka, Mr. Conroy and his law firm, which is being heard in Federal District Court. These "Other" suits are in various stages of discovery and will be tried in 2004. Two of the twelve settlements have produced $180,000 in cash. Ten of the settlements are with Surety Bank, a bank in liquidation in Nassau, Bahamas, its liquidator, directors and shareholders. Its liquidators have estimated that Evergreen will receive between $3.5 million and $4.0 million from its liquidation. They are holding $4.7 million on deposit for the liquidation, with $700,000 of claims other then Evergreen's claim. Evergreen funds in excess of $5.9 million have been deposited to the bankruptcy accounts since my appointment through December 31, 2003. Additional funds will be obtained from: the liquidation of Surety Bank, sales of stock, and sale of real estate. The pending litigation, however, will provide the most significant source of recovery for Evergreen. Most of the professionals filed fee applications with the Court during this quarter. Administrative costs through December 31, 2003 were $3.6 million, of which $2.3 million have been disbursed. It is normal for administrative costs to be high at this stage of the bankruptcy, which is highly dependent on the success of litigation. Most of the large cases have not settled or been tried at this point. The claims objection process has nearly been completed. Most of the claim objections have been resolved, with the exceptions of one trustee who will not identify its underlying investors and a few individual claims. A settlement with this trustee is pending and it appears a resolution will take place without Court action. I have previously advised the Committee that I will file a motion for preliminary distribution to creditors after the claims objection process is complete and I have recovered $10 million. The liquidation of Surety Bank is the largest pending settlement. Other pending settlements with funds in escrow and the Surety liquidation should be enough to file a motion for preliminary distribution. I am unable to make a time projection of when I will file this motion due to the uncertainty of the Surety liquidation timing and the final resolution of claim objections. The Committee in its second report to Evergreen creditors, dated December 19, 2003, stated "The Committee is hopeful that the Crystal Graphite shares under the control of the Trustee will be distributed directly to creditors…". I have advised the Committee for over a year that there are three alternatives for this 11.8 million share block of stock: 1. Sell the shares, 2. hold the shares, or 3. distribute the shares to creditors. I have sought advice in making this complex decision and have not reached a conclusion. Since CGC is a development stage company with no sales of its product, it is a highly risky investment. CGC does not meet the investment criteria for investors looking for low risk and high income investments like most of the Evergreen creditors. CGC has over twenty-five million shares outstanding, but less then 50,000 are traded daily. CGC has traded in the range of $ .14 to $ .70 in the past year, but with such low trading volume, the trading price is not a good indicator of the block. The block is restricted stock and is not tradable without registration. The block is the largest minority position and thus effectively has voting control, which could make it worth substantially more as a block then if it is distributed. I plan to continue to seek advice on the disposition of this investment and will keep the Committee advised. The criminal trial for Anthony Huggins and John M. Knight was held during December 2003 in New York and ended in a mistrial on December 23, 2003. According to the New York District Attorney's office, Mr. Huggins and Mr. Knight will be retried in 2004. Mr. Huggins and Mr. Knight were arrested on charges of grand larceny and other charges for taking $6.5 million from the Evergreen securities portfolio they were managing. Several creditors have questioned whether they can deduct their investment in Evergreen on their income tax return. Each creditor should consult their income tax advisor about this question, as it is a highly complex legal question, which has no simple answer. I cannot advise a creditor or the Committee on this deduction. The Committee in its second report to Evergreen creditors, discussed this matter, but gave no guidance to creditors and suggested they consult their tax advisors. If you would like to provide me with any information in this case, please mail, fax or e-mail it to me. I have listed my contact information below. You should continue to contact the Creditors’ Committee web site for information in this case. Also many newspapers have carried articles about this case. The largest collection of articles can be found at www.orlandosentinel.com. R. W. (Bill) Cuthill, Jr., CPA, CFE Chapter 11 Trustee 341 N. Maitland Ave., Suite 210 Maitland, Fl 32751 Phone 407-644-3781 ext. 235 Fax 407-644-3943 e-mail rcuthill@msn.com |
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| Official Committee of Unsecured Creditors for Evergreen Security, Ltd. |