UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NORTH CAROLINA CHARLOTTE DIVISION. Plaintiff, CASE NO. 3:16-CV-285 RECEIVER S SEVENTH REPORT

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1 SECURITIES AND EXCHANGE COMMISSION, UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NORTH CAROLINA CHARLOTTE DIVISION v. Plaintiff, CASE NO. 3:16-CV-285 RICHARD W. DAVIS, JR., and Defendant, DCG REAL ASSETS, LLC, et al., Relief Defendants. RECEIVER S SEVENTH REPORT A. Cotten Wright as Receiver (the Receiver ) for the assets of DCG Real Assets, LLC; DCG Commercial Fund I, LLC; H20, LLC; DCG PMG, LLC; DCG PMF, LLC; Finely Limited, LLC; DCG Funds Underwriting, LLC; DCG ABF Management, LLC; DCG Funds Management, LLC; Davis Capital Group, Inc.; Davis Financial, Inc.; DCG Partners, LLC; DCG Real Estate Development, LLC; Huntersville Plaza Phase One, LLC; Huntersville Plaza Phase Two, LLC; North Lake Business Park, LLC; and Richard Davis Enterprises, LLC (collectively, the Receivership Defendants ), files this Receiver s Seventh Report pursuant to this Court s Temporary Receivership Order entered on June 8, 2016, which was made permanent by Orders entered on August 5, 2016 and September 22, 2016 (collectively, the Receivership Order ). This report focuses on the Receiver s activities for the quarter ending December 31, 2017 (the Reporting Period ) in conformance with paragraphs 23 and 24 of the Receivership Order. Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 1 of 22

2 I. SUMMARY OF RECEIVER S ACTIVITIES A. Summary of Operations. Each of the Receivership Defendants had ceased operations before the receivership (the Receivership ) was filed. Therefore, the Receiver did not operate any business of the Receivership Defendants during the Reporting Period and, likewise, will not be operating any business of the Receivership Defendants during the pendency of this case. With respect to Receivership operations, the Court entered its Order Establishing Procedures for Miscellaneous Motions; Procedures for the Sale of Assets; and Case Closing Procedures (the Procedures Order ) on August 5, 2016, which sets out certain procedures to be followed in this case. In particular, the Procedures Order outlines the process to be followed in connection with sales of real property. B. Cash on Hand / Receipts and Disbursements. On June 23, 2016, the Receiver established an account for the Receivership at Rabobank, N.A. Funds on deposit with Rabobank are insured by the F.D.I.C. A report as to activity in that account through December 31, 2017 is attached as Exhibit A. C. Description of Known Receivership Property. The Receiver has continued her efforts to marshal and liquidate receivership property (the Receivership Assets ). On July 5, 2016, the Receiver and her counsel had a phone conference with Defendant Richard Davis during which they requested information about a number of Receivership matters. In particular, the Receiver asked Davis to identify any assets that he may not have previously disclosed. 2 Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 2 of 22

3 Identification of Assets. Attached as Exhibit B is an updated chart listing all assets identified by the Receiver as assets of the Receivership Defendants along with either the amounts that the asset sold for or their estimated gross values, which either reflect the tax values or appraised value of the parcels of real property listed on Ex. B. With respect to property that has not been sold yet, recorded liens or litigation claims are noted in the descriptions of those properties on Ex. B but have not been deducted from the values indicated. The Receiver s investigation of the validity of alleged liens and litigation claims will continue as various assets are liquidated, and asset values will be adjusted accordingly. Information regarding specific estate assets is summarized below. (1) Real Property in Mecklenburg County, NC. The Receiver has previously obtained limited title searches on each of the four (4) parcels of undeveloped real property in Huntersville, Mecklenburg County, North Carolina. (a) Property contiguous to the Town of Huntersville property. Two parcels of Receivership property, 102 S. Old Statesville Road and 109 Gilead Road, were surrounded by or adjacent to property owned by the Town of Huntersville. Additionally, the Receiver foreclosed on deeds of trust held by Aegis/DCG Asset Backed Fund, LLC, now known as DCG Commercial Fund I, LLC, on a portion of two additional parcels that are contiguous to property owned by the Town, identified as Mecklenburg County Tax Parcel Nos and During the prior reporting period and with the approval of the Court, the Receiver sold all the Receivership property adjacent to parcels owned by the Town of Huntersville to the Town for a total sale price of $165, Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 3 of 22

4 (b) Property titled to Finely Limited, LLC. The Receivership property located at Alexandriana Road, Huntersville, North Carolina, is being marketed for sale by the Receiver s realtor, Trinity Partners. (c) Property titled to Huntersville Plaza Phase One, LLC. During the Reporting Period, the Receiver negotiated a contract for the sale of receivership property located at Old Statesville Rd, Huntersville, NC for a gross sale price of $700, That sale closed, with Court approval, on December 21, 2017, and the net proceeds were deposited to the Receivership account. (d) Property titled to Davis Financial, Inc. The residential real property located at 9137 Mount Holly-Huntersville Road, Huntersville, North Carolina (the Residential Property ), was sold during the Reporting Period. This property was titled jointly to Davis Financial, Inc. and M.B. and Bina M. Shah. Because the property required extensive repairs, two potential buyers backed out of their sale contracts after the sales had been advertised in accordance with the Case Procedures Order. Eventually, the Receiver and the Shahs agreed to accept an offer of $140,000.00, a sale price that had previously been advertised, and that sale closed on November 28, Following the sale of the Residential Property, the Receiver negotiated with counsel for the Shahs as to the appropriate allocation of the net sale proceeds based on the respective interests held by the Shahs and the Receivership estate. The Receiver disputed the validity of one of the three deeds pursuant to which Davis Financial purported to transfer fractional ownership interests to the Shahs. Additionally, the Receivership had borne the costs of maintaining the property 4 Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 4 of 22

5 while was marketed. On December 15, 2017, the Court entered a Consent Order whereby the Shahs agreed to accept 55% of the sale proceeds, less the 55% of the expenses associated with maintaining the Residential Property, and the Receivership retained 45% of the proceeds, net of the Receivership s share of the expenses. (2) Real Property in McDowell County, N.C. As previously reported, the Receivership obtained turnover of surplus tax foreclosure sale proceeds with respect to property formerly owned by H20, LLC in McDowell County. Other McDowell County property titled to H20, LLC was abandoned pursuant to an Order entered by the Court. (3) Real Property in Grayson County, VA. During the Reporting Period, the real property titled to H2O, LLC in Grayson County, Virginia, remained on the market for a list price of $1,100, On April 24, 2017, the Court entered an Order approving a proposed settlement with Ken Hageman, who had brought a pre- Receivership complaint alleging a constructive trust as to the Grayson County Property. Although previously the Receiver had negotiated as to the sale of the Grayson County Property with an entity identified as Venture Corb, Inc., a Wyoming corporation, that entity appeared to have lost interest during the Reporting Period. Meanwhile, the Court has instructed the Receiver that she should negotiate a finder s fee with Davis in the event that he procures a buyer for Receivership property. Venture Corb s principal, Mr. Corbitt, was referred to the Receiver s realtor by Davis. (4) Real Property in Caldwell County, NC. The residential lot titled to Richard Davis Enterprises, LLC located at 5330 Beacon Ridge, Granite Falls, Caldwell County, North Carolina, remained on the market during the Reporting Period with an 5 Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 5 of 22

6 asking price of $18, (5) Bank Funds. During prior reporting periods, the Receiver obtained turnover of funds held in various bank accounts owned by the Receivership Defendants as set out in Ex. A. Despite having issued subpoenas to various banks, the Receiver did not identify any additional funds. (6) Disgorgement as to DCG Commercial Holdings, LLC and DCG Commercial, LLC. During a prior reporting period, DCG Commercial Holdings, LLC and DCG Commercial, LLC were dismissed from this case upon their compliance with an Order requiring disgorgement of $13, to the Receivership account. (7) Mining Claims. Early in the Receivership case, the Receiver confirmed that no mining claims or interests were held by any of the Receivership Defendants as of the date of the Receivership. (8) Arbitration Award Regarding Willow Creek Mine. On April 10, 2015, an Arbitration Award was made in favor of Ray E. Bluff against Davis, Davis Capital Group, Inc., and Integrity Mining, LLC (the Respondents ) relative to an agreement by Davis Capital Group to purchase a fifty percent (50%) interest in Willow Creek Placer Group, LLC, the owner of certain real property that is the site of the Willow Creek mine in Pershing County, Nevada. The arbitration panel concluded that the full consideration for the agreed-to purchase had not been provided and terminated whatever interest Respondents held in Willow Creek Placer Group, LLC, if any. In addition, however, the arbitration decision provided that Ray Bluff was to return $175, to the Respondents provided that all equipment and living units belonging to them or under 6 Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 6 of 22

7 their control were removed from the Willow Creek mine area within sixty (60) days (the Arbitration Award ). Davis appealed the Arbitration Award with the Pershing County, Nevada, District Court, which appeal was pending on the date of the Receivership. During the prior reporting period, the Receiver s attorneys entered into discussions of a possible resolution of the Nevada civil action with attorneys for Ray E. Bluff. On August 25, 2017, the Receiver filed a motion to approve a settlement of the Nevada litigation that provided for dismissing the appeal and motion to vacate the arbitration award; allowing Guy Bluff to file a claim in the Receivership Case, subject to the Receiver s objection; and acknowledging this Court s exclusive jurisdiction to determine whether or not Bluff should be required to pay the $175, Arbitration Award to the Receivership. On September 15, 2017, Davis filed an opposition to that motion, and the Receiver filed a reply. The Court entered an order approving the settlement motion on November 7, (9) Mining Equipment. During prior reporting periods, the Receiver identified certain mining equipment, vehicles, and the like that constitute Receivership property existing in Nevada (the Mining Equipment ). The Receiver opted to engage the services of a private investigator to locate and retrieve the Mining Equipment. The Receiver s investigator, working together with local law enforcement and a heavy equipment hauling company, attempted to take possession of the Mining Equipment; however, certain individuals controlling the Mining Equipment refused to surrender possession thereof to the Receiver. Thereafter, on June 2, 2017, the Receiver filed a lawsuit to recover possession of the Mining Equipment and obtained a permanent 7 Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 7 of 22

8 injunction freezing any disposition of the Mining Equipment and directing the defendants (the Mining Equipment Defendants ) to turn it over to the Receiver. During the Reporting Period, the Receiver reached a settlement of the remaining claims in the lawsuit with counsel for the Mining Equipment Defendants, and a motion to approve the settlement was filed on October 26, The Court entered an order approving the settlement motion on November 13, Meanwhile, Ritchie Bros. Auctioneers was approved by the Court to auction the Mining Equipment and held auctions for certain of the Mining Equipment during the Reporting Period. As of the close of the Reporting Period, the Receiver had not received a settlement statement from Ritchie Bros. Auctioneers for the auction of the Mining Equipment. (10) Miscellaneous Personal Property. (a) 2014 Dodge RAM During a prior reporting period, the Receiver obtained an Order allowing a Dodge Ram that was titled to Richard Davis Enterprises, LLC to be abandoned because it was encumbered by a lien that exceeded its value. (b) Personal Property Stored at 9137 Mount Holly-Huntersville Road. During a prior reporting period, Mr. Davis removed his personal property from the house at 9137 Mount Holly-Huntersville Road in accordance with an Order entered by the Court. D. Description of Claims Held by the Receivership Estate. Claims relative to the Receivership s real property interests are reported above. The Receiver has not yet identified any other claims that may be held by the Receivership Estate. 8 Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 8 of 22

9 E. Communications with Investors. In accordance with her duties as Special Master in the criminal case against Richard Davis (United States v. Richard Wyatt Davis, Jr., 3:16CR312 (W.D.N.C.)), the Receiver has provided updates to victim-investors through the Receivership webpage and notices. On December 3, 2017, Davis filed a motion to dismiss the government s indictment as to allegations of wire fraud and securities fraud, which drew a response from the government on December 12, Davis filed a reply to the government s response on December 13, The trial in the criminal case is set for February, Meanwhile, however, on December 12, 2017, the Receiver was informed that the government is considering a plea agreement with Davis. If a plea agreement is reached, the Receiver will give investor-victims as much notice as possible of the same. Early in this case, the SEC provided the Receiver with lists of investors in the Receivership Defendants. Additional parties have also contacted the Receiver indicating that they were investors in one or more of the Receivership Defendants. The Receiver has contact information for most of investors. However, there remain purported investors for whom the Receiver does not have contact information. As additional investors are identified, their names and contact information will be added to the investor list. Upon the Court s direction, the Receiver is prepared to file (under seal or otherwise) a list of purported investors known to the Receiver. The Receiver has received informal information as to certain creditors of the Receivership Defendants, including the attorney who represented Davis Capital Group in the Nevada arbitration and a Charlotte lawyer who represented Huntersville Plaza Phase Two, LLC in filing for bankruptcy protection. 9 Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 9 of 22

10 On November 13, 2017, the Court entered Orders approving the Receiver s fifth application for compensation and the third application for compensation by Middleswarth Bowers & Company ( Bowers ), the accountant for the Receiver. On December 28, 2017, the Receiver made a partial distribution on approved fees for Grier Furr & Crisp. The Receiver expects to pay approved professional fees in full in the next quarter in conformance with the SEC Guidelines, which limit compensation and expense reimbursement available to the Receiver and her professionals to thirty percent (30%) of any net recoveries. F. Other Issues. During the prior reporting period, the Receiver had received requests for information as to any pre-receivership funds paid to certain relatives of Davis and from the Internal Revenue Service. After searches of Receivership records proved inefficient and unproductive, the Receiver requested that her accountants search the QuickBooks files for this information. Ultimately, the Receiver s accountants prepared an accounting satisfactory to the I.R.S. during the Reporting Period. G. Status of Claims Proceedings. Claims Process. During the prior reporting period, the Receiver s 93 claims were filed by investors in accordance with procedures approved by the Court. The Receiver is in the process of reviewing those claims. Ultimately, the Receiver intends to recommend to the Court the allowance of the principal amount invested by each investor, not to include any profit that may have been reported by the Receivership Defendants and, for purposes of distributions by the Receiver, taking into account any withdrawals by investors. Distribution Procedures. The Receiver intends to file a motion with the Court seeking approval of a distribution procedure after reviewing the claims that were filed and upon 10 Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 10 of 22

11 sufficient liquidation of Receivership assets. The Receiver will give investors notice and an opportunity to object to the proposed distribution process when that motion is filed. Net Winner Investors. As of the date of this Report, the Receiver has not identified any investors as net-winners by virtue of their having withdrawn more than they invested in the Receivership Defendants. To the extent that any such net-winners are identified, the Receiver will determine the appropriate steps to take. Distribution. Once the Receiver is satisfied from her investigation as to the amounts invested by investors and any withdrawals taken by investors, and after the Court has approved the Receiver s proposed distribution method, the Receiver plans to recommend approval of an interim distribution. Ultimately, all funds collected by the Receiver as property of the Receivership Estate, less the costs of administration of the Receivership and any other disbursements approved by the Court, will be available for distribution to investors. G. Receiver s Recommendations. The Receiver recommends that the Receivership be continued in order to allow for sufficient time to liquidate Receivership Assets for the benefit of the investors. At this point, the Receiver cannot predict how long it will take to liquidate the various parcels of real property owned by the Receivership Defendants, which reflect the bulk of the Receivership Estate. Further, to the extent that litigating issues related to assets is necessary, that process would likely take months. Accordingly, the Receiver is unable to forecast how long it will take to convert all Receivership assets to cash, but will, by filing periodic reports, keep the Court and investors apprised of her best estimate of the progress of the Receivership and the estimated time it will take to conclude it. 11 Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 11 of 22

12 Respectfully submitted, this 9th day of January, Exhibits: A. Receipts and Disbursements B. List of Assets /s/ A. Cotten Wright A. Cotten Wright (State Bar No ) Grier Furr & Crisp, PA 101 North Tryon Street, Suite 1240 Charlotte, North Carolina Phone: ; Fax: Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 12 of 22

13 EXHIBIT A Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 13 of 22

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18 EXHIBIT B Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 18 of 22

19 Case Asset Report Page: 1 Case Number: 3:16-CV-285 GCM Trustee: (530380) A. Cotten Wright Case Name: DCG RECEIVERSHIP Opened / Filed: 06/08/16 Period Ending: 01/09/18 Ref. # Asset Description Estimated Net Value (Original Value Less Liens, Exemptions, and Other Costs) Sale/Funds Received by the Estate Asset Fully Administered ()/ Gross Value of Remaining Assets Alexandriana Rd, Huntersville, NC - 13 acr Parcel No , Mecklenburg County, NC. Property titled to Finely Limited, LLC. Value shown is appraised value as of 1/26/17. Tax value is $1,020,900. Currently listed for sale by Trinity Partners. (See Asset #20 for compensation for sale of easement across this property.) (See Footnote) 846, , Old Statesville Rd, Huntersville ac Parcel ID No , Mecklenburg County, NC. Property titled to Huntersville Plaza Phase One, LLC. Property was sold on December 21, The lien in favor of receivership defendant DCG Commercial Fund I, LLC, f/k/a Aegis / DCG Asset Backed Fund was released in connection with the sale. The original value reflects appraisal dated 9/22/ , , S Old Statesville Rd, Huntersville -.04 ac Parcel ID No , Mecklenburg County, NC. Property is titled to DCG Commercial Fund I, LLC. Value shown is tax value. Lien in the amount of $100,000 is held by receivership defendant DCG Real Assets, LLC. Property at 109 Gilead Rd, Huntersville is collateral for the same lien. This property is subject to a pending Court approved sale to the Town of Huntersville. 11, , Gilead Rd, Huntersville, NC -.25 acres Parcel No , Mecklenburg County, NC. Property is titled to DCG Commercial Fund I, LLC. Value shown is tax value. Property is subject to lien in the amount of $100,000 held by receivership defendant DCG Real Assets, LLC. Property at 102 S Old Statesville Rd is subject to the same lien. This property is subject to a pending Court approved sale to the Town of Huntersville. 114, , Hwy 221, Marion, NC - 2 acres Parcel No , McDowell County, NC. Property is titled to H2O, LLC. Property is subject to a lien in the amount of $110,000 held by John Hyatt. This asset was abandoned pursuant to Order entered on , DE Land & warehouse, Grayson County, VA acres Lots 52-A-43, 52-A-43A & 52-A-43B, Grayson County, VA. Property is titled to H2O, LLC. The Court has approved a settlement of litigation brought by Kenneth Hageman in Grayson County, VA in which he claimed a constructive trust. Value shown is appraised value as of 1/5/2017. This property is 1,250, ,250, Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 19 of 22

20 Case Asset Report Page: 2 Case Number: 3:16-CV-285 GCM Trustee: (530380) A. Cotten Wright Case Name: DCG RECEIVERSHIP Opened / Filed: 06/08/16 Period Ending: 01/09/18 Ref. # Asset Description Estimated Net Value (Original Value Less Liens, Exemptions, and Other Costs) Sale/Funds Received by the Estate Asset Fully Administered ()/ Gross Value of Remaining Assets currently listed for sale at $1,100, based on realtor's advice. (See Footnote) 7 Surplus Foreclosure Proceeds - McDowell County, Surplus proceeds from tax foreclosure sale of property titled to H2O, LLC located in McDowell County, NC. 196, , Cash - Bank of North Carolina Remaining balance in Bank of North Carolina account held by DCG PMF, LLC Cash - Bank of the Ozarks Remaining cash held in account at Bank of the Ozarks for Huntersville Plaza Phase Two, LLC Cash - Aquesta Bank - DCG Real Assets 1, , Cash - Aquesta Bank - Finely Limited Mining Equipment in Nevada Certain mining equipment was left in three different locations in Nevada near the Willow Creek mine. The Receiver learned the whereabouts of the equipment and filed suit to obtain an injunction as to certain defendants who have been using the equipment. Unknown 0.00 Unknown 13 Potential Arbitration Award Potential recovery on Arbitration Award relative to the Willow Creek mine that was pending appeal as of the date of the Receivership. 175, , Turnover per Court Order Asset reflects funds disgorged by DCG Commercial Holdings, LLC and DCG Commercial, LLC pursuant to Order entered on 8/5/16, DE , , Lot Beacon Ridge, Granite Falls, NC Caldwell County Parcel # ; value reflects appraised value; tax value is $52,000. Tilted to Richard Davis Enterprises, LLC. Property is currently listed for sale at $18, (See Footnote) 20, , Lien Rights - Vacant land, Huntersville, NC Aegis/ DCG Asset Backed Fund (now DCG Commercial Fund I) held lien on a portion of Unknown 28, Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 20 of 22

21 Case Asset Report Page: 3 Case Number: 3:16-CV-285 GCM Trustee: (530380) A. Cotten Wright Case Name: DCG RECEIVERSHIP Opened / Filed: 06/08/16 Period Ending: 01/09/18 Ref. # Asset Description Estimated Net Value (Original Value Less Liens, Exemptions, and Other Costs) Sale/Funds Received by the Estate Asset Fully Administered ()/ Gross Value of Remaining Assets Mecklenburg County Parcels # and # The Receiver foreclosed on that lien and took title to the property. This property, along with property located at 102 Old Statesville Rd and 109 Gilead Rd, is subject to a Court approved pending sale to the Town of Huntersville. 17 Interest-9137 Mt. Holly-Huntersville Rd, Hunters The origianl value shown reflected half of the appraised value of $195, The property was sold on 11/28/17 for a gross sale price of $140, In addition, a defaulting buyer forfeited $1000 in earnest money prior to the sale. The Receiver and the co-owners reached an agreement whereby the receivership estate retained 45% of the sale proceeds, net of closing costs, taxes, realtor commissions, and funds paid by the estate to maintain and repair the property, for a total of $54, , , Dodge Ram 2500 Truck Taking into consideration the amount of the lien against this asset and the cost to liquidate it, the Receiver determined that it had no value for the Receivership estate and moved to abandon it. An Order allowing abandonment was entered on 1/5/ , Personal property at 9137 Mt. Holly-Huntersville The Receiver was authorized to abandon personal property located at 9137 Mount Holly-Huntersville Rd by an Order entered on April 4, Easement across Alexandriana Rd On April 18, 2017, the Court authorized the Receiver to grant an easement to Blue Green Capital Partners I, LLC in exchange for $5, in compensation. The value of the easement was determined by the appraisal of the real property. (See Footnote) 5, , Refund from Duke Energy Mount Holly-Hunte Partial refund of deposit for service at 9137 Mount Holly-Huntersville Rd Assets Totals (Excluding unknown values) $3,285, $1,214, $2,291, RE PROP# 1 SCHEDULED / APPRAISED Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 21 of 22

22 Case Asset Report Page: 4 Case Number: 3:16-CV-285 GCM Trustee: (530380) A. Cotten Wright Case Name: DCG RECEIVERSHIP Opened / Filed: 06/08/16 Period Ending: 01/09/18 Ref. # Asset Description Estimated Net Value (Original Value Less Liens, Exemptions, and Other Costs) Sale/Funds Received by the Estate Asset Fully Administered ()/ Gross Value of Remaining Assets RE PROP# 6 RE PROP# 15 RE PROP# 20 SCHEDULED / APPRAISED SCHEDULED / APPRAISED SCHEDULED / APPRAISED Case 3:16-cv GCM Document 165 Filed 01/09/18 Page 22 of 22