<p style= text-align: justify; ><b>Lawsuit 09/23/2008</b></p> <p style= text-align: justify; > </p>
<p style= text-align: justify; >According to the U.S. Commodity Futures Trading Commission (“CFTC”), the CFTC sued Michael A. Meisner, who resides in Boca Raton, Florida, and his company, Phoenix Diversified Investment Corp. (Phoenix), charging defendants with commodity pool fraud.</p>
<p style= text-align: justify; > </p>
<p style= text-align: justify; >Specifically, the CFTC complaint filed on September 23, 2008 in the U.S. District Court for the Southern District of Florida, charges Meisner and Phoenix with fraudulently soliciting customers to participate in the Phoenix commodity pool, which traded exchange-traded commodity futures, and misappropriating pool participants’ funds. The accounts associated with the commodity pool allegedly suffered net losses of approximately $5.8 million between May 2003 and March 2008.</p>
<p style= text-align: justify; > </p>
<p style= text-align: justify; >According to the CFTC’s complaint, Meisner solicited pool participants by claiming that Phoenix owned a valuable software program that dictated trading patterns in the futures markets and guaranteed high profits. Meisner allegedly made several material misrepresentations and failed to disclose material facts to induce prospective and current pool participants to invest or remain invested in the pool. These included false representations about the past profitability of the pool and the actual value of the pool. The CFTC alleges that, according to Phoenix account statements provided to pool participants dated March 31, 2008, those participants had a cumulative balance of over $4 million in the pool. However, between March 31, 2008 and the present, Phoenix refused to honor pool participants’ requests to withdraw funds and several Phoenix checks were returned for insufficient funds.</p>
<p style= text-align: justify; > </p>
<p style= text-align: justify; >Allegedly, on April 21, 2008, Meisner sent letters to some or all pool participants advising them that “[D]ue to an unanticipated cash flow situation, Phoenix will be ceasing its regular day to day business activities.” He allegedly followed up with a second letter the next day, in which he indicated that Phoenix was out of cash and had no money available in any trading account because it was used to pay distributions to pool participants and to support his lifestyle.</p>
<p style= text-align: justify; > </p>
<p style= text-align: justify; >In addition to fraud and misappropriation allegations, the CFTC complaint also charges Phoenix with operating without being registered with the CFTC as a commodity pool operator, as required by federal commodities law.</p>
<p style= text-align: justify; > </p>
<p style= text-align: justify; >Additionally, Victoria R. Meisner, Meisner’s wife, also of Boca Raton, is named in the complaint as a relief defendant for receiving at least $1 million of funds to which she was not entitled.</p>
<p style= text-align: justify; > </p>
<p style= text-align: justify; >In its continuing litigation against Meisner and Phoenix, the CFTC is seeking a statutory restraining order, preliminary and permanent injunctive relief, the return of funds to defrauded participants, the repayment of ill-gotten gains, and civil monetary penalties.</p>
<p style= text-align: justify; > </p>
<p style= text-align: justify; >Disgruntled pool participants brought an involuntary petition in bankruptcy court against Phoenix, and Meisner filed for bankruptcy protection individually.</p>
<p style= text-align: justify; > </p>
<p style= text-align: justify; ><b>Judgment 12/03/2008</b></p>
<p style= text-align: justify; > </p>
<p style= text-align: justify; >According to the U.S. Commodity Futures Trading Commission (“CFTC”), the CFTC announced the issuance of consent orders of preliminary injunction by the U.S. District Court for the Southern District of Florida against Phoenix Diversified Investment Corporation, Inc. (Phoenix), a commodity pool operator (CPO) based in Boca Raton, Florida, and its former president and director Michael A. Meisner.</p>
<p style= text-align: justify; > </p>
<p style= text-align: justify; >The orders, entered by the Honorable Kenneth L. Ryskamp, prohibit Phoenix and Meisner from engaging in fraud, deception, or making false statements in connection with the trading of commodity futures and options. The orders also freeze certain assets of Meisner, Phoenix, and Meisner’s wife, Victoria R. Meisner, and prohibit them from dissipating, withdrawing, transferring, removing, concealing or disposing of financial or physical assets. In the continuing litigation in this action, the CFTC seeks permanent injunctive and other equitable relief including, the disgorgement of ill-gotten gains and civil monetary penalties.</p>
<p style= text-align: justify; > </p>
<p style= text-align: justify; >The consent orders stem from a complaint filed by the CFTC on September 23, 2008 (see CFTC Press Release 5556-08, September 25, 2008). The CFTC complaint charges that Meisner and Phoenix fraudulently solicited investors to participate in a commodity pool operated under the name of Phoenix, misappropriated investors’ funds, and issued false account statements to investors that overstated the value of their interests in the pool.</p>
<p style= text-align: justify; > </p>
<p style= text-align: justify; >The CFTC alleges that the trading accounts associated with the commodity pool suffered net losses of approximately $5.8 million between May 2003 and March 2008, even as Meisner and Phoenix touted profits. The complaint charges that Meisner concealed losses by using monies received from “new” pool participants to repay “earlier” pool participants, in a manner characteristic of a Ponzi scheme. The scheme collapsed around April 21, 2008, when Phoenix shuttered its doors without warning. The complaint further alleges that on April 22, 2008, Meisner sent a letter to pool participants admitting that Phoenix’s trading accounts were depleted, and that he had misappropriated pool participant funds to support a lavish lifestyle.</p>
<p style= text-align: justify; > </p>
<p style= text-align: justify; >The CFTC’s complaint also charges Phoenix with operating as a CPO without being registered with the CFTC. Victoria Meisner is named in the complaint as a relief defendant for allegedly receiving at least $1 million of participant funds to which she is not entitled.</p>