Fact Sheet of the Receivership

A. A receivership is the legal process by which an independent person is appointed to take custody of the business, property, and assets of a party to a lawsuit pending a final decision on disbursement.
A. An independent person appointed by a court for the purpose of preserving the business, property and assets of a party to a lawsuit pending a final decision on disbursement, where there is a danger that, in the absence of such an appointment, the property would be lost, removed, or injured. In this instance, Timothy J. Coleman, a partner at the law firm Dewey & LeBoeuf LLP, has been appointed Receiver for the Wextrust Entities by the United States District Court for the Southern District of New York in accordance with Section 20(b) of the Securities Act and Section 21(d) of the Securities Exchange Act. In his role as Receiver, Mr. Coleman is charged with preserving the business, property and assets of the Wextrust Entities and related entities, and preserving the Court’s ability to approve a fair distribution to victims of the alleged fraud.
A. By statute, Mr. Coleman was appointed Receiver by the Court after the Court determined a proper showing had been made by the Securities and Exchange Commission that the appointment of a Receiver was necessary to preserve the business, property and assets of the Wextrust Entities.
A. The purpose of appointing the Receiver is to:
  1. preserve the status quo;
  2. ascertain the true financial condition of the Wextrust Entities;
  3. determine the extent of commingling of funds between the Wextrust Entities and related entities;
  4. prevent further dissipation of property and assets;
  5. prevent the encumbrance or disposal of property and assets;
  6. preserve the books, records and documents of the Wextrust Entities and related entities;
  7. be available to respond to investor inquiries; and
  8. determine if the Wextrust Entities or related entities should undertake a bankruptcy filing.

Because the company is in receivership, none of the company’s assets can be spent, sold or seized without court approval. Part of the Receiver’s job is to recover any assets that belong to the company and maximize the value of assets under his control. In order to accomplish this, the Receiver, among other things, reviews company records, and records from others, seeks to identify and recover any missing funds, works with the government authorities who are investigating criminal activity, records claims against the company, and oversees the administration of the company.

A. At present, it cannot be determined when the Wextrust Receivership will end. The Receiver and his advisors are currently gathering as much information as possible about Wextrust in order to fulfill the Receiver’s mandate to preserve the status quo, ascertain the true financial condition of the Wextrust Entities, preserve the assets, books and records of the Wextrust Entities, respond to investor inquiries, and take other actions. To date, the Securities and Exchange Commission has filed a civil complaint; the United States Attorney has filed a criminal complaint against Steven Byers and Joseph Shereshevsky; and the Court has entered orders (i) freezing the assets of Steven Byers, Joseph Shereshevsky and the Wextrust Entities and (ii) temporarily freezing the assets of Elka Shereshevsky.
A. By court order, the Receiver is empowered to:
  1. take and retain immediate possession and control of the defendant Wextrust Entities and all entities they control or in which they have an ownership interest, and all books, records, and documents of the defendant Wextrust Entities and all entities they control or in which they have an ownership interest;
  2. have exclusive control of, and be made the sole authorized signatory for, all accounts at any bank, brokerage firm, or financial institution that has possession or control of any assets or funds of the defendant Wextrust Entities and all entities they control or in which they have an ownership interest;
  3. succeed to all rights to manage all properties owned or controlled, directly or indirectly, by the Wextrust defendants, pursuant to the LLC and operating agreement relating to each entity;
  4. pay from available funds necessary business expenses required to preserve the assets and property of the defendant Wextrust Entities and all entities they control or in which they have an ownership interest, including the books, records, and documents of the defendants, notwithstanding the asset freeze imposed by the Court’s Order Freezing Assets issued on August 11, 2008;
  5. take preliminary steps to locate assets that may have been conveyed to third parties or otherwise concealed;
  6. take preliminary steps to ascertain the disposition and use of funds obtained by the defendants resulting from the sale of securities issued by the defendants and the entities they control;
  7. engage and employ persons, including accountants, attorneys, and experts, to assist in the carrying out of the Receiver’s duties and responsibilities hereunder;
  8. take all necessary steps to gain control of the defendants’ interests in assets in foreign jurisdictions, and those funds maintained in accounts in foreign institutions, which may be proceeds of the defendants’ fraud, including, but not limited to, taking steps necessary to repatriate foreign assets;
  9. establish a new cash management system by closing, transferring, consolidating, and opening bank accounts and securities accounts, so long as records are kept of the sources and uses of all funds;
  10. invest all cash of the Wextrust Entities in U.S. government securities or U.S. government guaranteed securities having remaining maturities of up to two years and in money market accounts maintained by financial institutions having net worths of no less than $50 billion;
  11. discharge his duties as Receiver by making and authorizing in the ordinary course payments and disbursements from the funds and assets under his control, incurring expenses, and entering into agreements, including loan agreements and credit facilities, all as reasonably necessary or advisable under the circumstances;
  12. notwithstanding the terms of the Interim Appointment Order, encumber assets of the Wextrust Entities and any entities they control or in which they have an ownership interest, to the extent such actions are deemed necessary by the Receiver based on his own experience and on input from his advisors to be most beneficial to preserving enterprise value for one or more of the Wextrust Entities and those entitled to the proceeds; provided that encumbrances in excess of $750,000 shall first require at least four (4) business days’ written notice (unless shortened by court order) to the Securities and Exchange Commission, the Individual Defendants (such notice to be given to the Individual Defendants via ECF, facsimile, e-mail, and/or hand delivery to their respective counsel of record), and such other Wextrust entity investors who request such notice; provided further that the Receiver may apply for an order under seal or a hearing in camera, as circumstances require;
  13. use, lease, sell, and convert into money all assets of the Wextrust Entities, either in public or private sales or other transactions on terms the Receiver reasonably believes based on his own experience and input from his advisors to be most beneficial to the Wextrust Entities and those entitled to the proceeds; provided, however, all leases and sales of property appraised for or having a cost basis of $750,000 or more shall only be consummated with prior court approval on at least four (4) business days’ written notice (unless shortened by court order) to the Securities and Exchange Commission, the Individual Defendants (such notice to be given to the Individual Defendants via ECF, facsimile, e-mail, and/or hand delivery to their respective counsel of record), and creditors and Wextrust entity investors having filed notices of appearance in the above-captioned case; provided further that the Receiver may apply for an order under seal or a hearing in camera, as circumstances require;
  14. investigate, prosecute, defend, intervene in, and otherwise participate in, compromise and adjust actions in any state, federal, or foreign tribunal of any kind as the Receiver believes in his sole discretion advisable or proper to collect, conserve, or otherwise recover assets of the Wextrust Entities or entities they own or control; and
  15. take such further action as the Court shall deem equitable, just, and appropriate under the circumstances upon proper application of the Receiver.

By court order, the Receiver is further empowered to issue subpoenas for documents, testimony, and property inspections, consistent with the Federal Rules of Civil Procedure.

By court order, if the Receiver determines that any of the Wextrust Entities and entities they own or control should undertake a bankruptcy filing, the Receiver is authorized to commence cases under title 11 of the United States Code for such entities in the Southern District of New York, and in such cases the Receiver must prosecute the bankruptcy petitions in accordance with title 11 subject to the same parameters and objectives as a chapter 11 trustee and will remain in possession, custody, and control of the title 11 estates subject to the rights of any party in interest to challenge such possession, custody, and control under 11 U.S.C. § 543. Before taking action, however, at least two (2) business days’ written notice (unless shortened by court order) stating that the Receiver is contemplating action under title 11 must be provided to the Securities and Exchange Commission, the Individual Defendants, and any other Wextrust entity investors who request such notice; provided further that the Receiver may apply for an order under seal or a hearing in camera, as circumstances require. Additionally, on December 17, 2008, the Court modified its previous orders to permit any party or non-party to apply to the Court on three days’ notice for an order seeking permission to file an involuntary bankruptcy petition upon a showing that such a petition is appropriate and will benefit the receivership estate. The Receiver would automatically succeed to the role of debtor-in-possession in the event of a bankruptcy filing.

A. Once the Order Appointing Receiver is signed by the Court, the Receiver immediately succeeds to the (1) rights, titles, powers, and privileges of Wextrust, and any officer or director of Wextrust with respect to Wextrust and its assets; and (2) title to all books, records, and assets of Wextrust held by any other custodian or third party. The Receiver is then charged with the duty to preserve the business, property, and assets of Wextrust pending a final decision on disbursement.
A. The Wextrust Entities will continue to operate during the Receivership. The Receiver is managing Wextrust's various properties and business operations.
A. The Receiver is managing all Wextrust assets and properties in the United States, and is responsible for approving all necessary business expenses required to preserve Wextrust assets and property, such as payroll disbursements, loan payments and utility bill payments. By court order, the Receiver is empowered to make and authorize in the ordinary course of business payments and disbursements from the funds and assets under his control.
A. As directed by the Court, the Receiver has carefully considered whether any or all of the Wextrust Entities or Affiliates should file bankruptcy petitions. Based on the advice of the Receiver’s bankruptcy counsel and other advisors, and on the Receiver’s business judgment, it would not be in the best interests of the receivership estate for any of the entities to file bankruptcy petitions at the present time. A bankruptcy in the circumstances of this case would result in severe adverse consequences. In a bankruptcy case, the individual single asset limited liability companies would become debtors in possession and the Receiver, in his role as managing member of those companies, would continue to manage the property owned by them, subject to the supervision of the Bankruptcy Court. In addition, one or more creditors’ committees could be appointed, and would be entitled to retain counsel and professional advisors, also at the expense of the estate. In this case, there is reason to believe that the existing unofficial creditors’ committees would seek official recognition in a bankruptcy case, adding to the administrative costs of the estate. In addition, a bankruptcy filing would further delay a distribution to victims of the Wextrust fraud. In the Receiver’s judgment, it is likely that the expense and delay added by the commencement of Chapter 11 cases by one or more of the Wextrust Entities or Affiliates would be substantial. Another adverse consequence of bankruptcy is that it would likely favor some groups of victims over others. In bankruptcy, lenders having perfected mortgages and rent assignments with respect to each individual property would have priority over all unsecured creditors and investors, and would be entitled to adequate protection of their interests in the debtor’s property. Wextrust investors, all or substantially all of whom are tort creditors with unliquidated claims, would be required to litigate their fraud claims, likely increasing further the costs to the estate. Finally, in the Receiver’s judgment, the possibility of reorganization is remote at best, and the potential benefit of reorganization should be given little if any weight. Absent reorganization, there is no reason to believe that liquidation in bankruptcy would yield a better result than a forced auction by the Receiver.
A. The Receiver’s authority is limited to the duties set forth in the court order appointing the Receiver. The U.S. Securities and Exchange Commission and the Court must approve the Receiver’s fees.
A. The Receiver is an independent person appointed by the Court. Investors may consult the Receiver for information about the Wextrust Receivership but the Receiver cannot give legal or financial advice to individual investors in connection with this case.
A. No.
A. The Court has ordered that the defendants shall pay the reasonable costs, fees, and expenses of the Receiver incurred in connection with the performance of his duties.
A. Investors may check the Receivership website www.wextrustreceiver.com, send an email to wextrustreceiver@dl.com or call the Receiver’s toll free hotline at 1-888-518-2410 for updates about the Receivership.
A. People who invested with Wextrust are both victims and witnesses to an alleged fraud. Investors are urged to contact the Receiver’s investor relations team to talk about their investments and their communications with Wextrust representatives. Investors are also urged to send the Receiver any relevant documents in their possession, including emails, notes, letters, marketing materials, statements or other papers. This information may be important in helping to resolve the legal issues involving Wextrust.
A. All Wextrust bank accounts that we have been able to locate have been frozen. A copy of the court order freezing the assets of the Wextrust Entities can be found here, and a copy of the order temporarily freezing Elka Shereshevsky’s assets can be found here. Investors who have information regarding Wextrust bank accounts are encouraged to contact the Receiver by telephone at 1-888-518-2410 and/or by email to wextrustreceiver@dl.com.
A. Pursuant to court order, all assets of the Wextrust Entities have been frozen. The Receiver does not have the authority to pay distributions to investors. The Receiver intends to submit a proposed plan of distribution, subject to court approval.
A. It is too early to determine the timing of any distribution and any distribution percentage. The Receiver is making every effort to recover assets for the benefit of the investors.
A. On September 4, 2008, Joseph Shereshevsky was ordered released on a $10 million bond, subject to restrictions designed to ensure his continued appearance. He is confined to home detention, subject to electronic monitoring, and is allowed to leave his home only for medical reasons and to attend religious services. The United States government has taken Shereshevsky’s passport. On August 20, 2008, Steven Byers was released on a $4 million bond, subject to restrictions designed to ensure his continued appearance. Byers is under strict pre-trial supervision, his travel is limited to districts where he is required to appear in court, and he has been required to surrender his passport and any other travel documents to the U.S. Government. On November 10, 2008, a federal grand jury in the Southern District of New York returned an indictment charging Steven Byers and Joseph Shereshevsky with conspiracy and securities fraud. The criminal case has been assigned to Judge Denny Chin, who is also presiding over the related civil case brought by the U.S. Securities and Exchange Commission. The defendants were arraigned before Judge Chin on Friday, November 14, 2008, at 3:00 p.m. Finally, on Monday, January 12, 2009, Judge Denny Chin modified defendant Steven Byers' bail conditions. Byers' attorneys represented that he had been unable to provide property sufficient to secure the $4 million bond previously set. Judge Chin modified the terms of Byers' order of release to require security of $1.9 million in property, with additional co-signors, and gave Byers three weeks to comply with these new bail conditions. During that time, the defendant is subject to electronic monitoring and home detention.