UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

Transcription

1 Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 1 of 21 Page ID #: DAVID R. ZARO (BAR NO ) TED FATES ~AR NO ) 2 TIM C. HSU BAR NO ) ALLEN MAT INS LECK GAMBLE 3 MALLORY & NATSIS LLP 515 South Figueroa Street, Ninth Floor 4 Los Angeles~Califomia Phone: ( Fax: (213) E-Mai1: dzaro@allenmatkins.com 6 tfates@allenniatkins.com thsu@allenmatkins.com 7 Attorneys for Court-appointed Receiver 8 KRISTAL. FREITAG 9 10 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA 11 WESTERN DIVISION 12 SECURITIES AND EXCHANGE Case No. CV JFW-MRW COMMISSION, 13 NOTICE OF MOTION AND MOTION Plaintiff, FOR ORDER APPROVING: ( 1) SALE 14 OF GLEN IVY GOLF COURSE, (2) v. OVERBID PROCEDURES, AND (3) 15 REAL ESTATE BROKER'S WORLD CAPITAL MARKET INC.; COMMISSION; MEMORANDUM OF 16 WCM777 INC.; WCM777 LTD. d/b/a POINTS AND AUTHORITIES WCM777 ENTERPRISES, INC.; and 17 MING XU a/k/a PHIL MING XU, Date: March 14, Defendants, 19 KINGDOM CAPITAL MARKET, LLC; MANNA HOLDING GROUP, LLC; 20 MANNA SOURCE INTERNATIONAL, INC.; WCM RESOURCES, INC.; 21 AEON OPERATING, INC.; PMX JEWELS, LTD.; TOPACIFIC INC.; 22 TO PACIFIC INC.; VINCENT J. MESSINA; and INTERNATIONAL 23 MARKET VENTURES, 24 Relief Defendants. TO ALL INTERESTED PARTIES: Time: 1 :30 p.m. Ctrm: 16 Judge: Hon. John F. Walter 27 PLEASE TAKE NOTICE that on March 14, 2016, at 1 :30 p.m. in 28 Courtroom 16 of the above-entitled Court, located at 312 North Spring Street, Los LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP I /LA -1-.

2 Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 2 of 21 Page ID #: Angeles, California 90012, Krista L. Freitag (the "Receiver"), the Court-appointed 2 permanent receiver for Defendants World Capital Market Inc.; WCM777 Inc.; 3 WCM777 Ltd. d/bla WCM777 Enterprises, Inc.; and Relief Defendants Kingdom 4 Capital Market, LLC; Manna Holding Group, LLC; Manna Source 5 International, Inc.; WCM Resources, Inc.; ToPacific Inc.; To Pacific Inc.; and their 6 subsidiaries and affiliates (collectively, "Receivership Entities"), will and hereby 7 does move the Court for an Order Approving: (1) Sale of Glen Ivy Golf Course, (2) 8 Overbid Procedures, and (3) Real Estate Broker's Commission. 9 This Motion is based on this Notice of Motion and Motion, the attached 10 Memorandum of Points and Authorities, the Declaration of Krista L. Freitag, the 11 documents and pleadings already on file in this action, and upon such further oral 12 and documentary evidence as may be presented at the time of the hearing. 13 Procedural Requirements: If you oppose this Motion, you are required to 14 file your written opposition with the Office of the Clerk, United States District 15 Court, 312 North Spring Street, Los Angeles, California and serve the same 16 on the undersigned not later than twenty-one (21) calendar days prior to the hearing. 17 IF YOU FAIL TO FILE AND SERVE A WRITTEN OPPOSITION by the 18 above date, the Court may grant the requested relief without further notice. This 19 Motion is made following the conference of counsel pursuant to L.R Dated: February 10, ALLEN MATKINS LECK GAMBLE MALLORY & NATSIS LLP DAVID R. ZARO TED FATES TIMC.HSU By: Isl Tim C. Hsu TIMC.HSU Attorneys for Court-appointed Receiver KRISTAL. FREITAG LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP -2-

3 ..! i Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 3 of 21 Page ID #: TABLE OF CONTENTS I. INTRODUCTION... 1 II. RELEVANT FACTS... 2 A. Background of Property and Operations... 2 B. Neighboring Residential Development's Homeowner's Association... 3 C. Adjacent Property Owners and Water Features... 5 D. The Receiver's Marketing Efforts... 5 III. PURCHASE AND SALE AGREEMENT... 7 IV. PROPOSED OVERBID PROCEDURES... 9 v. NOTICE OF THE PROPOSED SALE VI. ARGUMENT A. The Sale Subject to Overbid Should Be Approved B. Further Notices/Appraisals Should Be Waived C. Additional Relief VII. CONCLUSION Page LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP (i)

4 ~ Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 4 of 21 Page ID #: TABLE OF AUTHORITIES Cases Page(s) 4 0 Beet 3F~2<ls7~zsg(9tfc i:. 1~2~)~.~.~~.~~~.~~.. ~~:: Blakely Airport Joint Venture II v. Federal Sav. and Loan Ins. Corp., F. Supp. 154 (N.D. Tex. 1988) Commodities Futures Trading Comm 'n. v. Topworth Int'l, Ltd., 205 F.3d 1107 (9th Cir. 1999) First Nat'l Bank v. Shedd, U.S. 74 (1887) Gockstetter v. Williams, 9 F.2d 354 (9th Cir. 19) Key bank Nat'l Ass 'n v. Perkins Rowe Assocs., L.L. C., U.S. Dist. LEXIS (M.D. La. 2012) Miner~fF2~o{5rr;i[~~tJ~r[933 ~~~~~: SEC v. American Cap)tal Invest., Inc., F.3d 1133 ~9th Cir. 1996), cert. denied 520 U.S SEC v.3~t~~3~ ~33s(~[{;(Sf~.~~~S) SEC v. Elliot, F.2d 1560 (11th Cir. 1992) SEC v. Elliott 953 F.2d 1560 (11th Cir. 1992) SEC v. HardJ!., F.2d 1034 (9th Cir 1986) SEC v. Wencke, 622 F.2d 1363 (9th Cir. 1980) US. v. Heasley_, F.2d 422 (8th Cir. 1960) US. v. Little, 2008 U.S. Dist. LEXIS (E.D. Cal. 2008) US. v. Peters, F.2d 1294 (7th Cir. 1985) LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP I /LA (ii)

5 -----i Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 5 of 21 Page ID #: Statutes Page(s) 3 28 U.S.C , U.S.C. 200l(a) U.S.C. 2001(b)... 14, U.S.C Rules 8 Local Rule Treatises 10 2 Ralp8 J~~~1 ij2)1~,.. ~~.~~:!.~~.~~.~~~. ~.:.~~~~:~~ Ralpf3 J~~~1 ij2) 1 ~'.. ~~.~~:!.~~.~~.~~~. ~.:.~~~~:~~.. ~(~~~~.~~.~~~.. ~(~~~~.~~.~~~.. ~. ~.~.: ~.. ~.~? Ralpf3 J~~~1 ij2)1~'.. ~~.~~:!~~.~~.~~~.~~~.:.~~~~:~~.. ~(~~~~ i ~.~~~.. ~.~~~ Ralph Ewing Clark, Treatise on Law and Practice of Receivers (3d ed. 1992) Ralph Ewing Clark, Treatise on Law and Practice of Receivers 17 (tj~~. 1992) Ralpf3J~~~1iJ2)~'.. ~~.~~~~~~.~.~.~~~.~~~.~~~~:~~~.. ~.~.~~.~~~~~~~.~.. :~:... 12, Ralp8 J~~~1 ij2)1~,.. ~~.~~:!.~~.~~.~~~.~~~.:.~~~~:~~.. ~( ~~~~ i ~.~~~.. ~. ~.~? Ralp8 J~~~1 ij2)1~,.. ~~.~~:!.~~.~~.~~~.~~~.:.~~~~:~~.. ~( ~~~ ~ i ~~~~.. ~. ~?..~ LAW OFFICES Allen Matkins Leck Gamble Mallory & Natsis LLP (iii)

6 Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 6 of 21 Page ID #: MEMORANDUM OF POINTS AND AUTHORITIES 2 I. INTRODUCTION 3 Pursuant to the TRO and Preliminary Injunction Order issued by the Court at 4 the outset of the case, the Receiver took possession of and assumed authority and 5 control over all assets of the Receivership Entities, including the golf course 6 facilities and associated amenities commonly known as the Glen Ivy Golf Club 7 ("Glen Ivy Golf Course") and located at Trilogy Parkway, Corona, 8 California. (Declaration of Krista L. Freitag ("Freitag Deel."), ii 3.) This is a 9 Motion for the sale of the Glen Ivy Golf Course, which is an 18-hole, par-72, daily 10 fee golf course facility and includes all improvements, furniture, fixtures, 11 equipment, and other tangible and intangible property 1 associated therewith 12 (together, the "Property"). (Id.) The Property was purchased by Defendant 13 Kingdom Capital Market, LLC ("KCM") in August 2013 for $6.5 million. 2 (Id.) 14 The Receiver engaged real estate broker W Realty Group ("Broker"), who 15 worked with the Receiver to diligently market the Property through commercially 16 reasonable and customary channels. As a result of the Broker and the Receiver's 17 combined marketing efforts, the Receiver secured a ready, willing and able buyer, 18 Sunland Properties, Inc. ("Buyer"), and accepted an offer from Buyer to purchase 19 the Property for $3.9 million on an "AS IS, WHERE IS" basis, subject to Court 20 approval and the overbid procedures described herein. This offer is the highest and 21 best offer received in the "Best and Final Offer Round", after providing for more 22 than 90 days of due diligence to approximately 30 prospective purchasers The specific property items that are included as part of the proposed sale of the golf course facilities are as indicated in Section 1.2 of the Purcbase and Sale Agreement and Joint Escrow Instructions dated January 4, 2016 (the "Purchase and Sale Agreement"), attached as Exhibit 2 to the Freitag Deel. filed in support 27 of this Motion. 2 Title to the Pro2erty was originally taken in the name of Defendant World 28 Capital Market Inc., and was deeded shortly thereafter to KCM. (Freitag Deel. ii 3.) -1-.

7 Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 7 of 21 Page ID #: Based upon the present facts and circumstances, and absent an overbid, the 2 Receiver believes $3.9 million is the best price attainable and respectfully requests 3 the Court grant the Motion and approve: (1) the sale of the Property; (2) the 4 proposed overbid procedures; and (3) payment of Broker's commission. 5 II. RELEVANT FACTS 6 A. Background of Property and Operations 7 KCM purchased the Property in August 2013 for $6.5 million. (Freitag Deel. 8 if 3.) The Property is approximately 2 acres (per a boundary survey) and features 9 an 18-hole, daily fee golf course, driving range, practice green and other golf-related 10 structures and facilities, including a clubhouse/pro shop,.restaurant, and 11 maintenance/cart facilities. (Id.) 12 After taking control of Glen Ivy Golf Course upon her appointment, the 13 Receiver discovered an overall lack of organizational and management oversight, 14 including but not limited to lack of bank reconciliations, business plans, due 15 diligence materials, operating budgets for the golf course, and the commingling of 16 expenses with other properties owned by the Receivership Entities. (Id. at if 4.) In 17 addition, although there were existing operations personnel for the facility, these 18 individuals lacked formal qualifications. (Jd.) 19 Since her appointment, the Receiver sought and obtained authority to engage 20 an independent third-party management company to assist in improving operations 21 and performance of the golf course, and in preparing the Property and obtaining due 22 diligence information necessary to maximize the value in a sale. (Dkt. No. 42.) The 23 Receiver also engaged a third-party to improve the agronomy and maintenance 24 operations of the golf course, and to improve the maintenance and utility costs of the Property all while maintaining the playability standards of a highly rated Southern California golf course. (Freitag Deel. if 5.) 27 In anticipation of the sale, in July 2015, the Receiver commissioned several 28 broker's opinions of value ("BOV") for the Property. One such BOV was conducted /LA -2-

8 Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 8 of 21 Page ID #: /LA 1 by John Knudson of Insight Land & Investments ("Insight"). (Id. at i-f 6.) In 2 preparing the BOY, Insight considered the specific characteristics of Glen Ivy Golf 3 Course, including its circumstances, market factors and customary valuation 4 methods for golf courses of this nature. (Id.) The BOY concluded that the Property 5 has a market value between $4,000,000 and $4,500,000, in line with the $3,900,000 6 offer submitted by B.uyeL (Id.) 7 Empirical evidence, including the property's 2013 and 2014 assessed values, 8 show that $6.5 million paid by KCM for the purchase of the property in 2013 was 9 not likely a market value for the Property at the time. (Id. at~ 7.) In fact, 10 supplemental tax bills received following KCM's purchase increased the real 11 property taxes by 37%, and the buyer for the Property preceding KCM's purchase 12 had paid only $4.6 million in November (Id.) Meanwhile, the property's 13 revenues decreased from 2012 to 2013, and recent market comparables also support 14 the highest and best offer presented by Buyer, not the $6.5 million previously paid 15 by KCM. (Id.) 16 B. Neighboring Residential Development's Homeowner's Association 17 There is an ongoing dispute with the local neighboring residential 18 development, the Trilogy Glen Ivy Maintenance Association ("Trilogy"), over water.19 rights. Glen Ivy Golf Course receives its irrigation water from the Temescal Valley 20 Water District ("District"); the irrigation water comes into the golf course through 21 the golf courses' water system ("Golf Course Water Lines"). (Freitag Deel. i-fi ) The same water lines provide water to the local neighboring Trilogy residential 23 development, which draws such irrigation water from the Golf Course Water Lines 24 for use on certain common areas as designated in an existing water agreement recorded in the County of Riverside. (Id.) Under the water agreement, usage of water obtained through the Golf Course 27 Water Lines by Trilogy is restricted to certain defined common areas. (Id.) The 28 Receiver was informed by Trilogy and the District that for many years Trilogy has -3-

9 Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 9 of 21 Page ID #: watered certain avocado groves, which are believed to be outside of the designated 2 common areas in the water agreement, with potable water from the District. (Id.) 3 The District has now told Trilogy to discontinue this practice and switch to 4 irrigation water. (Id.) Without putting in new infrastructure, the Receiver 5 understands Trilogy has no access to irrigation water other than through the Golf 6 Course Water Lines. (Id.) 7 Trilogy, therefore, approached the Receiver about expanding access to the 8 Golf Course Water Lines to irrigate the avocado groves and certain other areas not 9 designated in the water agreement. (Id.) Based on water usage data provided by 10 Trilogy, the volume of water for these new areas could nearly double the current use 11 by Trilogy of the Golf Course Water Lines. (Id.) The Receiver has sought to 12 address Trilogy's request over many months, including providing Trilogy access to 13 assess the possibility of such expansion, but the parties have disagreed on one 14 central issue in that the Receiver is not willing to allow a large expansion of water 15 service to Trilogy via the Golf Course Water Lines for areas not designated in the 16 water agreement unless Trilogy agrees that if there were water delivery cutbacks in 17 light of the ongoing drought, this expanded water service would be subordinate to 18 the water needs of the golf course. The Receiver has also pushed for Trilogy to 19 contribute its pro rata share of the maintenance and replacement costs attributable to 20 its usage of the Golf Course Water Lines and related pumping equipment. (Id.) 21 Such equipment is impaired by Trilogy's usage thereof, however, Trilogy does not 22 currently contribute to any maintenance or replacements costs thereof. (Id.) 23 In light of this disagreement, Trilogy previously threatened to come onto the 24 Glen Ivy Golf Course without the Receiver's authorization to modify the existing Golf Course Water Lines by installing submeters to allow for Trilogy's expanded irrigation use. (Id.) The Receiver was prepared to move ex parte for a temporary 27 restraining order prohibiting Trilogy's unauthorized actions, but upon giving notice 28 to Trilogy's counsel, Trilogy indicated it would not enter the property until March -4-

10 Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 10 of 21 Page ID #: , 2016 at the earliest. (Id.) The Receiver and her Broker have, and will continue 2 to, keep Buyer and other prospective purchasers appraised of this dispute. (Id.) The 3 Receiver wishes to avoid further expenditure of administrative expenses on this 4 matter, but if the water rights issue with Trilogy is not resolved prior to the close of 5 this transaction in March 2016, it may become necessary to seek injunctive relief 6 until such time as the sale closes and the buyer can address the matter with Trilogy. 7 (Id.) 8 c. Adjacent Property Owners and Water Features 9 Pursuant to an existing easement, certain pumping equipment for the Golf 10 Course Water Lines is located offsite on property adjacent to the golf course. 11 (Freitag Deel. if 12.) The equipment is specifically situated on the boundary 12 between two adjacent properties, one of which is used as a junk yard while the other 13 is undeveloped land. (Id.) The Receiver has been informed by these property 14 owners and their representatives that a dispute may exist as to exactly where the 15 boundary lies between these properties and the validity and scope of the existing 16 easement for the pumping equipment. (Id.) 17 The Receiver has informed these owners of the anticipated sale of the 18 Property, but as of the date of this filing, the Receiver has not received any 19 indication that these parties intend to oppose the proposed sale. (Id.) The Receiver 20 has further disclosed the potential dispute to the Buyer and other prospective 21 bidders, non:e of whom have expressed any significant concern, and will continue to 22 keep these parties appraised of the potential dispute through the close of sale. (Id.) 23 The Receiver has also provided Buyer with prospective bids for repair of several 24 water features located throughout the Property. (Id.) D. The Receiver's Marketing Efforts The Receiver, her staff and her Broker have diligently marketed the Property 27 through commercially reasonable and customary channels and successfully 28 generated a significant amount of interest in the Property through their efforts. -5-

11 Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 11 of 21 Page ID #: Specifically, since Broker was engaged in September 2015, it has worked with the 2 Receiver to introduce the Property to more than 3,000 prospective purchasers 3 through a national campaign. (Freitag Deel. i-f 14.) In addition, Broker also 4 created a list of prospective purchasers from existing golf course owners and 5 investors in Southern California, and reached out to these owners and investors to 6 solicit interest in the Property. (Id.) Broker followed up with respondents and 7 provided prospective purchasers with due diligence materials 3 after securing 8 customary non-disclosure agreements. (Id.) The Property was also placed on 9 Loopnet.com, one of the leading online platforms for marketing commercial real 10 properties, and was also placed on Broker's websites for circulation. (Id.) Through 11 Loopnet, the Property was also advertised on national and local partner websites, 12 including the New York Times, Los Angeles Times, Chicago Tribune, Boston 13 Globe, and Washington Post, resulting in up to 815 searches within the last 30 days 14 of such advertising. (Id.) 15 As a result the marketing and sale efforts, 31 separate groups of investors 16 responded with serious inquiries, 30 of whom signed non-disclosure agreements and of whom conducted due diligence for the Property. (Id. at i-f 15.) Ultimately, 18 letters of intent were received in response to the Broker's Call for Offers from 19 several different parties, including Buyer. (Id.) The Receiver then directed a 20 request for a highest and best offer from each based on the multiple offers received. 21 (Id.) In response, several parties each submitted their highest and best offers, one of 22 which was subsequently rescinded. (Id.) Buyer's offer was the highest and best 23 qualified offer received and the Receiver accepted its offer, subject to Court 24 approval, as reflected in the purchase and sale agreement described below. (Id.) 3 Even though this is an "As Is-Where Is" sale, the Receiver populated the due 27 diligence 'war room' with a significant amount of due diligence materials including a form purchase and sale agreement. (Freitag Deel. i-f 14.} Prospective, 28 qualified bu_yers were given more than 90 days to review same and inspect the Property. (Id.) -6-

12 Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 12 of 21 Page ID #: In addition to the parties that submitted highest and best offers, including the 2 Buyer, two other parties have expressed interest in participating in the overbid 3 process. (Id. at if 16.) 4 III. PURCHASE AND SALE AGREEMENT 5 A copy of the Purchase and Sale Agreement for the sale to Buyer is attached 6 as Exhibit 2 to the Freitag Declaration. Its terms are summarized as follows: 4 7 Court Approval. All aspects of the Purchase and Sale Agreement and the 8 sale are subject to approval by the Court. 9 Purchase Price. $3,900,000. The estimated net proceeds to the receivership 10 estate after payment of the proposed Broker's commission of 4% (or $156,000) is 11 approximately $3,715,000 (factoring in estimated escrow, closing, and other costs- 12 primarily the property tax proration-of nearly $29,000). 13 Closing Date. Escrow to close within ten business days following Court 14 approval. 15 Deposit. Buyer has deposited $117,000 into escrow, refundable only ifthe 16 Court does not approve the sale to Buyer, or approves the sale to another party, or if 1 7 the Receiver defaults on the sale. 18 As Is/Where Is Purchase. Buyer agrees to purchase the Property on an "AS- 19 IS, WHERE-IS" basis. 20 Buyer's Representations and Warranties. Buyer represents and warrants 21 that it is qualified to own and operate the golf course on the Property. Buyer further 22 agrees to maintain the golf course in first class condition and state of repair 23 consistent with the standards and customs common in the industry for similar public 24 golf courses in Southern California The terms of the Purchase and Sale Agreement are summarized herein for convenience only. In the event of any conflict between the Purchase and Sale Agreement and the summary provided herein, the Purchase and Agreement governs and controls. -7- I /LA

13 Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 13 of 21 Page ID #: Overbid Procedures. The sale is subject to the proposed overbid procedures 2 detailed herein. Pursuant to these procedures, if Buyer is not the highest qualified 3 bidder at the auction, its deposit will be returned. 4 Broker's Commission. By separate agreement, the Receiver has agreed, 5 subject to Court approval, to pay Broker a commission of 4% of the final purchase 6 price. (Freitag Deel.~ 13.) Pursuant to that agreement, Broker will compensate 7 cooperating and referring brokers, and thus would split the commission as 8 applicable. (Id.) In the case of Buyer, there will be no split in commission as Buyer 9 is also represented by Broker. (Id.) Based on the Receiver's extensive experience in 10 real estate transactions, the amount of the commission is commercially reasonable, 11 and was fully negotiated by the Receiver after reviewing proposed terms from five 12 other qualified brokers. 5 (Id.) Each of the other brokers interviewed by the Receiver 13 and her staff required higher commissions, and only one other broker offered to 14 accept a commission of 4%, but required 6% ifthe buyer is represented by a 15 separate broker. (Id.) This broker was also based out of Florida and would be 16 unable to personally service the transaction on a day-to-day basis. (Id.) 17 As explained above, since its engagement in September 2015, Broker has 18 invested substantial time in assisting the Receiver with the preparation of marketing 19 materials for the Property, locating potential purchasers, marketing the Property to 20 them, and negotiating terms. (Freitag Deel.~~ ) In addition, since the 21 Purchase and Sale Agreement with Buyer was signed, Broker has continued to 22 market the Property and provide notice of the opportunity to overbid in an effort to 23 promote active overbidding at the auction. (Id.) Based on the Receiver's extensive 24 experience in real estate transactions, and in light of the challenges presented, the amount of the commission to Broker represents commercially reasonable 27 5 One of the other five brokers interviewed included Insight, who is working with 28 Broker and taking the lead on marketing the Property to out of state buyers, and will be compensated by Broker directly. (Freitag Deel. ~ 11.) -8-

14 Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 14 of 21 Page ID #: compensation for the work required in order to secure a serious buyer and 2 prospective overbidders for the Property. (Id. at 13.) 3 IV. PROPOSED OVERBID PROCEDURES 4 The Receiver requests that the following overbid procedures be approved: 5 (a) Qualified Bidders. To be determined a qualified bidder, a prospective 6 purchaser must: (i) provide a fully executed purchase and sale agreement for 7 the Property in a form substantially similar to the Purchase and Sale 8 Agreement, (ii) provide evidence, in a form reasonably acceptable to the 9 Receiver that the Qualified Bidder has the ability to pay at least the minimum 10 initial overbid amount set forth below, and (iii) provide an earnest money 11 deposit by wire transfer or cashier's check in the amount of 3% of their 12 respective purchase offer payable to the Receiver, which amount shall be nonrefundable to the qualified bidder with the highest and best bid at the auction if for any reason (a) the highest and best bidder fails to close the sale or 15 (b) the highest and best bidder fails to provide the balance of the purchase 16 price to the Receiver on or before three business days after this Court's 17 approval of the auction. Buyer is a Qualified Bidder. Each Qualified Bidder 18 must provide the above-described executed purchase and sale agreement and 19 earnest money deposit to the Receiver no later than 7 business days before the 20 hearing. Qualified bidders shall appear at the hearing/auction in person, or 21 through a duly authorized representative. At that hearing, the Court will 22 conduct an auction of the Property among any qualified bidders. The highest 23 and best bidder's deposit shall be applied to the purchase price, if the sale is 24 approved by the Court. (b) Due Diligence. All prospective bidders shall have had. the opportunity to inspect the Property and any documentation relating thereto prior to the 27 auction

15 ----, Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 15 of 21 Page ID #:8537 J 1 (c) Overbids. The initial overbid shall be at least $3,939,000. Subsequent 2 overbids shall be in increments of at least $10,000. If no Qualified Bidder 3 submits a bid in the amount of the initial overbid or higher, the Purchase and 4 Sale Agreement will be submitted to the Court for approval in its current 5 form. 6 ( d) No Contingencies. The sale to any qualified bidder shall not be subject 7 to any contingencies, including without limitation, for financing, due 8 diligence or inspection. 9 ( e) As Is/Where Is Purchase. The sale to any qualified bidder shall be on an 10 "AS-IS, WHERE-IS" basis as described in the Purchase and Sale Agreement. 11 These procedures were formulated by the Receiver with the goal of obtaining 12 the highest and best price for the Property, thus ensuring a maximum return to the 13 receivership estate. 14 v. NOTICE OF THE PROPOSED SALE 15 The Receiver's counsel is concurrently serving this Motion by mail on all 16 parties to the action who do not already receive electronic service, as well as 1 7 Trilogy, and all known parties with potential interest in purchasing the Property. 18 The Receiver is also posting a copy of this Motion on the receivership website 19 ( accompanied by the following notice 20 of the proposed sale and the opportunity to overbid at the hearing: /LA In the action pending in U.S. District Court for the Central District of California, Southern Division, Case No. CV JFW-MRW, Securities and Exchange Commission v. World Capital Market Inc, et al., notice is hereby given that the court-appointed Receiver has contracted to sell the real property located at Trilogy Parkway, Corona, California along with the related golf course facilities, associated amenities, and personal property commonly known as the Glen Ivy Golf Club for the amount of $3,900,000. Sale is subject to overbid and Court confirmation. Hearing set for March 14, 2016 at 1 :30 p.m., courtroom of the Honorable John F. -10-

16 Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 16 of 21 Page ID #: VI. Walter, United States Courthouse, 312 North Spring Street, Los Angeles, California. Minimum overbid is $3,939,000. Overbids must be received by 5:00 p.m. Pacific Standard Time, at least 7 business days before the scheduled hearing, by the Receiver at 355 S. Grand Ave., Suite 2450, Los Angeles, California, in order to be considered. In addition, to be considered a qualified bidder, a prospective purchaser must abide by the overbid procedures as set forth in the sale motion, a copy of which is available on this website. If interested in submitting an overbid, please contact Geno Rodriguez at (619) or at grodriguez@ethreeadvisors.com for the form of Purchase and Sale Agreement and other information. ARGUMENT "The power of a district court to impose a receivership or grant other forms of ancillary relief does not in the first instance depend on a statutory grant of power l 3 from the securities laws. Rather, the authority derives from the inherent power of a 14 court of equity to fashion effective relief." SEC v. Wencke, 622 F.2d 1363, (9th Cir. 1980). The "primary purpose of equity receiverships is to promote orderly 16 and efficient administration of the estate by the district court for the benefit of l 7 creditors." SEC v. Hardy, 803 F.2d 1034, 1038 (9th Cir 1986). As the appointment l 8 of a receiver is authorized by the broad equitable powers of the court, any l 9 distribution of assets must also be done equitably and fairly. See SEC v. Elliot, F.2d 1560, 1569 (I Ith Cir. 1992). 21 District courts have the broad power of a court of equity to determine the 22 appropriate action in the administration and supervision of an equity receivership. 23 See SEC v. Capital Consultants, LLC, 397 F.3d 733, 738 (9th Cir. 2005). The Ninth 24 Circuit explained: A district court's power to supervise an equity receivership and to determine the appropriate action to be taken in the administration of the receivership is extremely broad. The district court has broad powers and wide discretion to determine the appropriate relief in an equity receivership. The basis for this broad deference to the district court's supervisory role in equity receiverships arises out of the /LA -11-

17 Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 17 of 21 Page ID #: fact that most receiverships involve multiple parties and complex transactions. A district court's decis10n 2 concerning the supervision of an equitable receivership is reviewed for abuse of discretion. 3 Id (citations omitted); see also Commodities Futures Trading Comm 'n. v. Topworth 4 Int'!, Ltd., 205 F.3d 1107, 1115 (9th Cir. 1999) ("This court affords 'broad deference' 5 to the court's supervisory role, and 'we generally uphold reasonable procedures 6 instituted by the district court that serve th[ e] purpose' of orderly and efficient 7 administration of the receivership for the benefit of creditors."). 8 Accordingly, this Court has broad equitable powers and discretion in 9 formulating procedures, schedules and guidelines for administration of the 10 receivership estate and disposition of receivership assets. 11 A. The Sale Subject to Overbid Should Be Approved. 12 It is generally conceded that a court of equity having custody and control of 13 property has power to order a sale of the same in its discretion. See, e.g., SEC v. 14 Elliott, 953 F.2d 1560, 1566 (11th Cir. 1992) (finding that the District Court has 15 broad powers and wide discretion to determine relief in an equity receivership). 16 "The power of sale necessarily follows the power to take possession and control of 17 and to preserve property." See also SEC v. American Capital Invest., Inc., 98 F.3d , 1144 (9th Cir. 1996), cert. denied 520 U.S (decision abrogated on other 19 grounds) (citing 2 Ralph Ewing Clark, Treatise on Law & Practice of Receivers (3d ed. 1992) (citing First Nat'! Bankv. Shedd, 121 U.S. 74, 87 (1887)). 21 "When a court of equity orders property in its custody to be sold, the court itself as 22 vendor confirms the title in the purchaser." 2 Ralph Ewing Clark, Treatise on Law 23 and Practice of Receivers 487). 24 "A court of equity, under proper circumstances, has the power to order a receiver to sell property free and clear of all encumbrances." Miners' Bank of Wilkes-Barre v. Acker, 66 F.2d 850, 853 {2d Cir. 1933). See also, 2 Ralph Ewing 27 Clark, Treatise on Law & Practice of Receivers 500. To that end, a federal court

18 ----1 ' Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 18 of 21 Page ID #: is not limited or deprived of any of its equity powers by state statute. Beet Growers 2 Sugar Co. v. Columbia Trust Co., 3 F.2d 755, 757 (9th Cir. 19) (state statute 3 allowing time to redeem property after a foreclosure sale not applicable in a 4 receivership sale). 5 Generally, when a court-appointed receiver is involved, the receiver, as agent 6 for the court, should conduct the sale of the receivership property. Blakely Airport 7 Joint Venture II v. Federal Sav. and Loan Ins. Corp., 678 F. Supp. 154, (N.D. Tex. 1988). The receiver's sale conveys "good" equitable title enforced by an 9 injunction against the owner and against parties to the suit. See 2 Ralph Ewing 10 Clark, Treatise on Law and Practice of Receivers 342, 344, 482(a), 487, 489, "In authorizing the sale of property by receivers, courts of equity are vested 12 with broad discretion as to price and terms." Gockstetter v. Williams, 9 F.2d 354, (9th Cir. 19). 14 Here, the proposed sale to Buyer for $3,900,000, subject to the proposed 15 overbid procedures, should be approved. In particular, the proposed overbid 16 procedures are designed to (a) induce Buyer to remain in place as the initial, or 17 "stalking horse" bidder, (b) allow qualified bidders to overbid, and ( c) generate the 18 highest and best price for the Property. The proposed initial overbid of $3,939, is sufficient to make the net proceeds to the estate (after payment of the Broker's 20 commission, and estimated escrow, closing and repair costs) approximately $37, greater than under the Purchase and Sale Agreement. The subsequent bid 22 increments of $10,000 are also sufficient to ensure an orderly and efficient auction 23 at the hearing. The Receiver submits that these amounts are reasonable and fair to 24 all interested parties. Although the proposed purchase price is substantially lower than what KCM paid for the Property in August 2013, the Receiver believes, as discussed herein, 27 given a) the issues impacting the golf course, b) the relevant and current comparable 28 sales, and c) empirical evidence showing that the $6.5 million purchase price was -13-

19 Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 19 of 21 Page ID #: unlikely market value when KCM purchased the Property, that the price and terms 2 of the proposed sale to Buyer, negotiated at arm's length and secured through the 3 commercially reasonable and customary channels of marketing the Property with an 4 experienced broker, reflect the fair market value of the Property. In addition, and as 5 explained above, the Receiver and Broker have diligently marketed the Property for 6 sale through commercially reasonable and customary channels, resulting in serious 7 interest generated among 31 prospective purchasers, 30 of which signed non- 8 disclosure agreements and 17 of whom conducted due diligence. (Freitag Deel. 9 ilil ) From these parties, several competing offers were submitted, and a 10 second round of offers was solicited, ultimately resulting in the highest and best 11 offer submitted by Buyer in the amount of $3,900,000, which closely matches the 12 estimated fair market value of the Property as reflected in a BOY commissioned by 13 the Receiver. (Id. at 6, ) Accordingly, the Receiver believes, in her 14 reasonable business judgment, that the proposed sale to Buyer, subject to overbid, is 15 fair and reasonable, in the best interests of the receivership estate, and will generate 16 the highest and best value for the Property. (Id. at if 17.) 17 To ensure the highest and best price is obtained from sale of the Property, the 18 proposed sale to Buyer is subject to overbid by potential purchasers that qualify 19 themselves as bidders. The Receiver, with the assistance of Broker, has continued 20 to market the Property with the goal of promoting active overbidding in accordance 21 with the proposed overbid procedures described herein. 22 B. Further Notices/Appraisals Should Be Waived 23 Sales of real property out of federal receivership are governed by 28 U.S.C , which provides that notice shall be given "by publication or otherwise as the court directs..." 28 U.S.C. 200l(b). Thus, "[t]he statute on its face vests the court with discretion in directing the terms and conditions of the public sale." 27 KeybankNat'l Ass'n v. Perkins Rowe Assocs., L.L.C., 2012 U.S. Dist. LEXIS , *4 (M.D. La. 2012); see also US. v. Little, 2008 U.S. Dist. LEXIS 93467, -14-

20 I Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 20 of 21 Page ID #: *4-5 (E.D. Cal. 2008) (finding that "[t]he Court has broad discretion in setting the 2 terms and conditions of a sale pursuant to 28 U.S.C "); US. v. Heasley, F.2d 422 (8th Cir. 1960) (finding that in the context of 28 U.S.C. 2001(b), "the 4 matter of confirming a judicial sale rests in the sound judicial discretion of the trial 5 court... "); US. v. Peters, 777 F.2d 1294 (7th Cir. 1985) (noting that 28 U.S.C (a) authorizes a court to direct the terms and conditions of the sale). 7 Here, the proposed notices of sale provided by mail and publication on the 8 Receiver's website are reasonable given the extensive marketing efforts undertaken 9 by the Receiver and her Broker, which efforts included extensive advertisement of 10 the Property in commercially reasonable and customary channels, and the Receiver 11 and her Broker's continuing efforts to market and publicize the sale of the Property 12 and the opportunity to overbid. The Receiver submits that further mailing or 13 publication of notice and obtaining independent appraisals would impose significant 14 costs on the receivership estate with little or no corresponding benefit. Accordingly, 15 to the extent 28 U.S.C. 2001, 2002 and Local Rule 66-7 require further mailing 16 or publication of notice, appraisals, or other procedures, such provisions should be 17 waived. 18 c. Additional Relief 19 Pursuant to its broad equitable powers with respect to the administration of 20 receivership assets, the Receiver requests that the Court authorize payment from the 21 proceeds of sale of the Property, the valid liens, 6 taxes, and any other claims on the 22 Property, subject to any objections to such liens, taxes, or claims by the Receiver. 23 The Receiver also requests authority to pay Broker a commission in the amount of 24 4% of the final purchase price. Regardless of whether the ultimate buyer is 6 The Receiver is not aware of any valid monetary liens on the Property, which 27 was purchased by KCM with all cash. (Id. at,-r 3.) However, there exists a lien recorded by the county: which requires certain repairs to be performed [>y a lessee 28 of the Property. (Id.) The existing lien has been full;: disclosed to the Buyer and will also oe disclosed to other potential purchasers. (Id.) -15- AUTHORJZING SALE OF GLEN IVY GOLF COURSE

21 Case 2:14-cv JFW-MRW Document 413 Filed 02/10/16 Page 21 of 21 Page ID #: represented by independent brokers, the commission paid to Broker will remain at 2 4% and any commissions to buyer's broker will be paid from those funds. 3 As explained above, Broker's commission is the lowest offered by competing, 4 comparable brokerage companies, and is fair and reasonable given that the sale of 5 the Property required considerable time and effort on the part of Broker. Based on 6 her extensive experience in real estate transactions, the Receiver believes that such 7 commission is commercially reasonable and consistent with the real estate industry 8 standard for sales of similar commercial property, and should be approved by this 9 Court. (Freitag Deel.~ 13.) 10 VII. CONCLUSION 11 For the reasons set forth herein, the Receiver respectfully requests entry of an 12 Order approving and authorizing: ( 1) sale of the Property to Buyer or the highest 13 and best bidder; (2) the proposed overbid procedures; (3) payment of the proposed 14 4o/o commission to Broker from the sale proceeds Dated: February 10, ALLEN MATKINS LECK GAMBLE MALLORY & NATSIS LLP DAVID R. ZARO TED FATES TIMC.HSU BY.: /s/ Tim C. Hsu TIMC.HSU Attorneys for Court-appointed Receiver KRISTAL. FREITAG -16-