Elliott Companies $120M Counterclaim Supplemental Information

ELLIOTT COMPANIES $120M COUNTERCLAIM PRESS RELEASE
02.10.10.
SUPPLEMENTAL INFORMATION
Excerpts from 526 Affirmative Defense and Counterclaim Filing
FACTUAL OVERVIEW
1. Frederick ("Fred") Elliott and Derek Elliott (the "Elliotts"), principals of the
Corporate Defendants, are businessmen with 22 years experience in tourism and resort
development in the Dominican Republic.
2. The Elliotts are both of good character and have no criminal convictions.
3. Prior to 1987 Fred Elliott was engaged in financial services and the syndication of
real estate developments.
4. Beginning in 1987, Fred Elliott solicited a group of Canadian investors to begin the
process of acquiring raw land in the Dominican Republic ("DR") for development. The initial
intention was to acquire an approximately 23-acre parcel in a section of Puerto Plata on the
northern coast of the DR, commonly known as Cofresi Beach. Over the course of the last 22
years the "Sun Village Resort" development has grown from there as set out below.
5. In order to carry out the development a number of companies or partnerships have
been incorporated or otherwise established over the last 22 years. These companies/partnerships
have all taken detailed and appropriate advice from law firms, accountants, bankers and other
specialist advisers. Reference to such advice is not, and shall not be construed as a waiver with
respect to the Corporate Defendants' attorney-client privilege attendant to such advice. The
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LAW OFFICES OF MELAND RUSSIN & BUDWICK, P.A.
3000 WACHOVIA FINANCIAL CENTER, 200 SOUTH BISCAYNE BOULEVARD, MIAMI, FLORIDA 33131 • TELEPHONE (305) 358-6363
purpose of taking such advice has been to establish legitimate, compliant and efficient businesses
to undertake the various developments with which these companies have been involved. The
many legitimate considerations for these developments include:
a. minimizing the effects of DR land transfer taxes and capital gains taxes;
b. legitimately reducing tax burdens of participant investors in countries such
as Canada;
c. ensuring compliance with securities laws in the Turks and Caicos Islands
("TCI") and Ontario where there have been public offerings in respect of inter alia
Corporate Defendant EMI Sun Village Inc ("EMISVI") and other companies identified
below; and
d. compliance with US securities and other laws relating to the selling of time
share and fractional interests to United States citizens.
6. The list of advisers to the Corporate Defendants over the years includes:
a. Lang Michener, one of Canada’s major law firms and its Toronto, Ottawa
and Vancouver offices, until about 2000;
b. Gardiner Roberts LLP, another of Canada's major law firms, from
approximately 2000 to date following the change in Firm from Lang Michener of a senior
partner William P. Lambert;
c. Greenberg Traurig – a high profile and well respected US national (and
international) widely regarded for its expertise in timeshare and fractional ownership
products;
d. Misick and Stanbrook, a TCI law firm from about 1993 to date;
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e. Miller Simons O’Sullivan, a TCI law firm, who advised in respect of the
transactions related to the property located in Miches;
f. Ernst & Young, accountants, Santo Domingo, DR; and
g. Salas Piantini & Associates, accountants from Santo Domingo, DR.
7. Nothing in any advice asked for or given by any of the professional firms over 22
years was intended to establish or did establish or create a fraudulent or unlawful scheme or RICO
enterprise as the Plaintiffs' seek to unfairly infer.
8. In 2003 Fred Elliott went into semi retirement and acted as Chairman of some of
the Elliott companies. He then returned in May 2008 to assist with the then impending economic
downturn and the need to restructure the Elliott companies to meet foreseeable economic
challenges. What was not foreseen was the pre-emptive and destructive litigation tactics brought
upon the Elliott Companies by Catledge and his Impact Entities (as defined herein).
The History of the Development
The purpose of the following recitation of the history of the development is to

demonstrate that the development which is the subject of the instant dispute
existed long before the Plaintiffs or Catledge and his Impact Entities and agents
came onto the scene. The structures used have grown to accommodate the needs
of purchasers and different business opportunities, and they were not designed to
defeat creditor claims of the Plaintiffs or any other claims.
9. By 1989, a plan of subdivision was prepared in respect of the initial 23 acre parcel
at Cofresi Beach, with the intention being to sell or develop lots. This was not a waterfront
parcel. The 23 acre parcel was purchased in the name of Mirador Cofresi Limited Partnership,
("MCLP") an Ontario Limited Partnership.
10. The 23 acre parcel purchase was funded by 18 Ontario based investors as limited
partners. During the period from 1989 to 1998, a number of lots in the aforementioned parcel
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were developed. 5 lots were developed with houses. Four lots were sold to EMISVI (formerly
known as Hacienda Sun Village Inc.). Three remain with EMISVI today. The remaining lands
were sold to EMISVI by MCLP in exchange for shares in EMISVI by approved limited
partnership resolution.
11. In 1993 an adjacent property was acquired by another developer, Merlin Travel
(later Connex Caribe). This was a large Austrian Tour Operator whose principal was a Helmut
Mauerbauer. The adjacent property was then developed into a US$100m + resort complex (the
Hacienda Resort) with 60 -70 private villas, various hotels, suites, and apartment complexes.
12. In 1994 it was agreed with Mr. Mauerbauer to construct a 48 room two building
annex to one of the Hacienda developments known as "Hacienda Elisabeth." Ontario investors
participated in this $1,200,000 project via a DR company. This development ("Annex 94") was
sold to EMISVI in exchange for shares in 2002, which was approved by shareholder resolution.
13. In 1995 the Elliotts and the Corporate Defendants (and/or other Elliott owned or
controlled entities) (the "Elliott Companies") undertook another 36 hotel room development
annex to Hacienda Elisabeth ("Annex 95"). This was done using a TCI company, Seaweed
Investment Corporation, via an exempt offering in Ontario. The applicable offering memorandum
was filed with the Ontario Securities Commission ("OSC"). This property was then sold to
EMISVI in 2002 in exchange for shares in EMISVI, which was approved by shareholder
resolution.
14. In 1997 Amber Coast Resort Corporation Ltd was formed as a TCI company and
made an exempt share offering in Ontario. Again the offering memorandum was filed with the
OSC. Amber Coast acquired the 66 room Hacienda Elisabeth from Mr. Mauerbauer. These
rooms were then leased back to him as a hotel operator.
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15. The relationship with Mr. Mauerbauer/Hacienda Resorts collapsed in
approximately 2000 when Hacienda Resorts failed to meet payment obligations in respect of hotel
rooms it was leasing and (later) managing.
16. One of the effects of the breakdown of the relationship with Mr.
Mauerbauer/Hacienda Resorts was that it left the properties the Elliott Companies owned without
effective beach access. The Elliott Companies had previously enjoyed beach access through
property owned by Mr. Mauerbauer.
17. As a result of the lack of beach access, in 2000 the Elliott Companies negotiated
with a Juan Carlos Morales, a DR businessman and property owner, to acquire an adjacent
beachfront property to ensure that the existing properties enjoyed beachfront access. This was
ultimately achieved by a joint venture with Mr. Morales.
18. In late 2000, this joint venture conveyed a portion of the beachfront lands to a
company the Elliott Companies formed in the TCI, namely, EMI Beach Palms Inc. ("Beach
Palms").
19. In order to raise capital, Beach Palms conducted a public offering pursuant to a
TCI prospectus, which was submitted to and approved by the TCI Financial Services Commission
("FSC").
20. Further plans to develop this joint venture and to sell the beach access to other
resorts eventually led to all of these resorts and ventures being merged into EMISVI in 2002 in
exchange for shares and with shareholder approval.
21. The only company not merged into EMISVI was EMI Cofresi Developments Inc.
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22. EMI Cofresi Developments Inc is 50% owner of Cofresco Holdings Inc. of which
Mr. Morales owns the other 50%. This is now the corporate vehicle for the aforementioned joint
venture with Mr. Morales.
23. The joint venture owns the remainder of the joint venture beachfront lands which
are adjacent to the Sun Village Resort ("Treasure Bluff").
24. EMI Cofresi Developments Inc. conducted its own TCI prospectus offering in
2002 pursuant to a prospectus approved by the FSC.
25. The purchase monies used by EMI Cofresi Developments Inc. were acquired long
before any of the Plaintiffs appeared and many years before the Elliotts even knew James Catledge
or had any dealings whatsoever with him or his Impact Entities and agents. Thus, Plaintiffs have
no valid cause of action against EMI Cofresi Developments Inc. under any scenario.
26. Cofresco Holdings Inc. never contracted with any of the Plaintiffs or other
purchasers. It has never received any monies which are the subject of the Plaintiffs’ purchases.
Thus, Plaintiffs have no valid cause of action against EMI Cofresi Developments Inc. under any
scenario.
27. To mitigate against the effects of the DR land transfer taxes, the various property
acquisitions referred to were effected by transfer of the shares for contribution in kind of the
various DR companies that owned the land parcels. The result of this is that there are six DR land
owning companies that own all of the parcels comprising the Sun Village Resort & Spa at Cofresi,
DR. In turn these companies are ultimately owned by EMISVI. Cofresco Holdings Inc. owns
land adjacent to the Sun Village Resort, also through a DR corporate subsidiary.
28. EMISVI is 100% owned by approximately 1,700 shareholders. Many of these are
original shareholders of an initial offering of shares of $32,000,000 in 2000. This offering was
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subject to a detailed prospectus which, in accordance with the TCI Companies Ordinance, was
reviewed and approved by the TCI FSC.
29. The FSC prospectus is a voluminous public document. As already indicated there
have been numerous offerings between 1998 and 2003. In fact, all business that the Elliott
Companies have ever conducted has been with the highest level of compliance and disclosure and
subject to shareholder approval.
30. As a result of the acquisitions referenced above, the Sun Village Resort & Spa
offered 300 rooms, master suites, and luxury villas; seven pools and a children's pool, and a
waterslide; four restaurants, and three bars; among other amenities.
31. In order to fund the costs to acquire and develop this resort, EMISVI raised
approximately $38,000,000 in equity capital by public share offerings and the issuance of shares in
exchange for land contributions.
32. The Sun Village Resort opened briefly in October 2001 as planned, but then closed
due to (i) the impact of 9/11 on the travel industry and (ii) opening mechanical issues.
33. The Resort re-opened in February 2002.
34. In May of 2003 the northern DR suffered an earthquake of 6.7 of the Richter scale
which caused damage to the Sun Village Resort. This necessitated brief closure of damaged areas
and repairs.
35. In October of 2003 4 restaurants at the Sun Village Resort were destroyed by
accidental fire. Six weeks later the insurer covering these losses, Segna Insurance, declared
bankruptcy with a consequent loss of insurance coverage through no fault of the Elliott
Companies. Unfortunately, the Elliott Companies were unable to recover from Segna as a result
of Segna's bankruptcy, and the Elliott Companies suffered over a million dollar blow.
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36. These issues all created operational and financial difficulties for a new resort and it
took time, energy and expense to repair the Sun Village Resort and restore good will and trust
with tour operators. It was in this atmosphere that the Elliott Companies began their disastrous
relationship with Catledge and his Impact Entities and agents as described below.
37. Importantly, prior to their introduction to Catledge and his Impact Entities, the
Elliott Companies' business model consisted of capitalizing their projects through registered
offering memorandums and prospectuses in the appropriate jurisdictions. Put differently, the
Elliott Companies had never, prior to their ill-fated relationship with Catledge and the Impact
Entites, offered purchasers fractional ownership product. However, as described below, once
advised of the so-called benefits of fractional ownership product by Catledge, the Elliotts, with
Catledge at their side, met with lawyers from the law firm Greenberg Traurig which was retained
to draft complaint documentation – at a cost of many hundreds of thousands of dollars.
The EMI Residence
38. Utilizing a portion of the parcel now owned by EMISVI, it was decided in or
around 2004 to construct a new development, known as the EMI Residence.
39. This project was initially to consist of 198 one and two bedroom luxury master
suites and spacious studios.
40. In 2004, in order to provide for additional funding to complete the construction of
the resort, EMISVI began to sell timeshare interests at the request of Catledge and Impact.
41. This timeshare product was referred to as the "Residence Product."
42. The Residence Product allowed individuals to purchase seasonal timeshare weeks.
The timeshare owner would have the option of occupying the room during their allotted week(s).
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If the owner did not use the timeshare unit, EMISVI had the option to utilize the week for rental
to tour operators.
43. The revenue generated from this would on a discretionary basis be split. A fixed
amount for each week utilized, known as a "non-use fee" ("NUF") is payable to a timeshare
owner, but (i) only in the event that the applicable timeshare week was actually used for rental and
(ii) on a discretionary basis vested in the developer.
44. The NUF would be paid on a quarterly basis to the timeshare owner as
compensation for the use of their timeshare week(s).
45. The Plaintiffs, through their lack of disclosure of the purchase documents
materially misrepresents the agreement in their Amended Complaint.
46. The NUF is discretionary (in the developer) and is payable only if the unit is used
by the developer and not otherwise.
47. During any period of construction no NUF would be contractually payable in any
event. Any NUF paid during construction was part of a built in construction budget cost of
financing and in no way can be considered a ponzi or "ponzi-like" scheme.
48. EMISVI retained the option to purchase the owner's week(s) after five years, at
the timeshare owner's original purchase price. However, the owner also had the option to sell
their timeshare week(s) prior to the expiration of this five year period, in which case the timeshare
week(s) would be sold through an on-site sales service programme, which was exclusively
operated by sales agents (in this case Impact).
49. Selling and marketing costs and the related sales commission associated with the
sale of timeshare inventory would, as is customary and contractually disclosed, be deducted from
the timeshare owner's sales proceeds.
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50. It is a common feature of the sale of interests in tourism and resort developments
that developers incur significant marketing and sales costs. These resorts were no different.
51. The selling and marketing of time share interests (as opposed to the entire interest
in a unit/condominium) involves much higher marketing costs. Each condo/unit can be sold many
times according to the fractional interest. It is accepted in the time share industry that marketing
and sales costs can account for as much of 50% of the sales proceeds. To non industry personnel
this percentage seems high but is an accepted cost of such a business.
52. The EMI Residence project, and all fees and amounts payable to non-arms' length
parties were approved by resolutions of the shareholders of EMISVI.
53. The capital intensive business of developing real estate in prime beach vacation
locations for the sale of timeshares, and the earning of resultant service fees, is a normal legal
enterprise in the United States, Canada, Mexico, the Caribbean and elsewhere.
54. As is typical in the timeshare industry, cash flows from the sales of timeshare
properties, and the ancillary services provided by risk-taking investors via their legally instituted
companies, were used to fund continuing construction costs and resort improvements at the
Residence.
The Cofresi Fractional Ownership Product
55. During the construction phase of the EMI Residence, EMISVI adapted to changes
in the marketplace. It was felt that a ‘higher end’ product was a better business model. This led
to a substantial upgrade of the quality level of the Residence project. For example, room sizes
were increased which necessitated a reduction in the overall number of rooms from 198 to 108.
The project became known as the "Maxim Bungalows," later changed to the "Bungalows."
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56. In early 2007, EMISVI based on advice from Catledge/Impact, decided to market
more popular "fractional interests" in respect of the Bungalows (this product had actually been
previously developed in connection with the Juan Dolio project, discussed below).
Notwithstanding the licensing issues with Catledge/Impact in the United States (that the Elliott
Companies were working with Catledge/Impact and the appropriate regulatory agencies to
rectify), there was no licensing requirement in the Dominican Republic for such fractional
interests; and therefore, such fractional interests could be sold.
57. With respect to the efforts the Elliotts took to rectify the discovered licensing
issues, the Elliott Companies took immediate and decisive action. For example, the Elliott
Companies spent in excess of $120,000 with the law firm Cassels Brock in Toronto, Canada to
take whatever action was required to assist Catledge and his Impact agents with compliance with
Canadian law. Moreover, when the Elliotts learned Catledge was using unlicensed representatives
in Idaho, rather than abandoning his agents and his clients, the Elliott Companies spent over
$600,000 with Greenberg Traurig further assisting Catledge and his Impact agents with
compliance with the laws of the state of Idaho. In addition to these steps, the Elliott Companies
(1) sent staff to Idaho and California to assist Impact purchasers with the deficiencies in their
documentation and (2) hired a compliance officer (Brian Tenpenny) to stay in Impact's offices in
Henderson to assist the Impact Entities with compliance issues.
58. Importantly, during this time, the Elliotts made crystal clear to Catledge that
although they were willing to assist Catledge and the Impact Entities and agents with getting
compliant with applicable regulatory agencies to a point, ultimately Catledge and the Impact
Entities were responsible for the misrepresentations they had made, and upon which the Elliott
Companies relied, and if the Catledge and Impact Entities and agents did not become compliant,
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for whatever reason, Catledge and the Impact Entities would be held to account for their
malfeasance including, at a minimum, claw back of the prepaid commisions.
59. This product involved dividing seasonal timeshare units into 13 fractions, covering
the 13 four week periods in each year.
60. As with any other offering the Elliott Companies had conducted previously the
Elliott Companies contracted premier international legal advisors to prepare the compliant
disclosure and purchase documents along with shareholder approval.
61. Former Residence timeshare purchasers were allowed to convert into this
fractional product, as was contemplated in the original Residence agreements (Section 9.4 of the
Schedule thereto).
62. Fractional purchasers were also given the option of entering into rental agreements
in respect of their fractional interests, which did not allow for rental pooling which is common
place in the industry, and was executed pursuant to fully comliant documentation prepared by
Greenberg Traurig. The Elliott Companies were in the process of completing the condominium
regime which was halted due to the Plaintiff’s reckless litigation described below.
The Juan Dolio Property
63. In late 2004, some of the Corporate Defendants, together with Catledge, acquired
an existing hotel property for redevelopment located at Juan Dolio, another popular resort
destination beach area in the DR (the "Juan Dolio Property").
64. The property contained a Sheraton hotel consisting of 268 rooms and was owned
by two DR banks, Banco de Reservas and Banco del Progreso, which acquired the property from
the previous owner in a foreclosure proceeding. At the time, the Juan Dolio Property was then
being operated as a deep discount hotel.
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65. Sun Village Juan Dolio Inc. ("SVJD") paid for, via a down payment of $4.5m (plus
soft costs of US$400,000), and agreement to assume the banks' debt of approximately $8.5m the
Juan Dolio Property, and began efforts to re-develop and market the property as a luxury resort,
with approximately 241 rooms that would be sold as fractional interests.
66. As part of the Juan Dolio project, Catledge and his Impact sales force designed a
new product called "Passport."
67. This product differed from the Residence product in that it offered the purchaser
an ownership interest in a unit.
68. Catledge has a 42.5% beneficial interest in the Gibraltar parent corporation of
SVJD, namely, Cellwave Networks Limited ("Cellwave").
69. Cellwave was organized as a shareholder holding company.
70. The Cellwave vehicle appealed to Catledge as he told the Elliotts on several
occasions it allowed him to have an ownership interest in the Juan Dolio Property without
disclosing the same to his Impact sales "associates" (the sales force). Catledge also required that
various commissions and "overrides" be paid.
71. EMISVI and SVJD paid a total of $19.7 million to, as it turns out, Catledge's
secret (from Impact associates) Cook Islands trust, namely, D.R.C.I. Trust ("DRCI"). These
were the stated contractual commissions per the relevant agreements.
72. These Passport interests were sold pursuant the Residential Beneficial Interest
Disclosure Documents and Purchase Contract. Any "Deposit Agreement" that Catledge or
Impact used in advance of the signature of these agreements was expressly stated to be merely an
"expression of interest" after which the detailed and binding contract was entered into which
superseded any prior documentation.
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73. Catledge and the Impact Entities required an upfront payment of the
aforementioned deposit in order to allow for the immediate payment of commissions to Impact
and to DRCI.
74. The total commissions and marketing cost structure in respect of the Passport
product was 40%. Of itself this is not unusual in the timeshare industry. However, what made
the Passport product unusual is that commissions and marketing costs on 100% of the purchase
price were to be paid upfront, from the 50% initial deposit.
75. What is tragic is that SVJD paid 40% commissions etc. on the 50% of the
purchase price which was secured by a promissory note from the purchaser and due to the
development. However, the notes were never paid. In other words on a typical sale with a
purchase price of $100,000.00, total commisions to Catledge and the Impact Entities were
$28,000.00, and another $22,000.00 in commissions went to the Elliott Companies which were
put back into the project, leaving $50,000 due from Catledge and the Impact Entities purchaser
which was never collected. The net effect is that $28,000 which went to Catledge and the Impact
Entities, plus the $50,000 due from the purchasers was never collected, leaving the project
hopelessly underfunded. Importantly, these are Catledge and the Impact Entities purchasers,
Catledge and the Impact Entities structure, and Catledge and the Impact Entitites were the only
entities that profited from this arrangement. Finally, it was Catledge and the Impact Entities
obligation to collect the $50,000 due from the purchasers, but they failed to fulfill their
obligations, choosing litigation to deflect attention from this obvious civil theft.
76. SVJD originally intended to factor the 50% unpaid portion of the purchase price
but, unfortunately, was never able to do so, largely due to the fact that Impact had engaged in a
rogue, totally non-compliant sales program in respect of the same.
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77. The "Deposit Agreements" were utilized by Catledge and the Impact Entities to
obtain initial deposits, and in effect, reserve a unit, but were never intended or authorized by the
Elliott Companies to ultimately bind purchases. Catledge and the Impact Entities simply failed to
require their purchasers to review and execute the compliant documentation.
78. SVJD had from the outset retained Greenberg Traurig, highly experienced U.S.
counsel, who were assisted by Canadian and DR counsel, to fully and properly structure the
fractional interests and develop the fractional interest purchase documentation. This was done at
a cost of approximately $1,000,000.
79. James Catledge was at the initial planning meeting and had represented that he
would follow the disclosure requirements that were outlined and that he would comply with all
licensing requirements. This compliant documentation prepared by counsel supersedes any
previous representations and agreements, including the Deposit Agreements that may have been
used by the Impact sales force.
80. The fractional interest documentation was made compliant in California and Idaho
and Saint Vincent and the Grenadines, through subsidiary corporations. Unfortunately, Impact
and its sales agents did not themselves become compliant in any of those states, contrary to
Impact’s representations to and agreements with SVJD.
81. Impact actually refused to become compliant because, upon information and belief,
Catledge did not wish to spend the legal and other fees required to become complaint, and
Catledge further insisted that all purchases had to be "closed" in the Dominican Republic,
necessitating the development of a complete set of the fractional interest purchase documentation
for that application.
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82. Impact also insisted that all purchasers be reimbursed for their airfare to the
Dominican Republic, and be entitled to stay at the hotel, with all food and beverages, free of
charge.
83. Impact agents were instructed by Catledge to alter and change the presentation of
the legal documents.
84. These closing packages included closing statements, rental agreements and
promissory notes, whereby prospective purchasers were obligated to pay the remaining 50% of
the purchase price for the fractional interests.
85. The final documents were the properly prepared compliant documents and clearly
superseded any non-compliant documentation created Catledge and Impact. For example, the so
called deposit agreement states that it is merely an expression of interest and is not a binding
document.
86. Although the Elliott Companies, via the Impact sales organization, were paid
almost $36 million in cash from sales, most of this has been paid out in commissions and legal
costs, and the costs of closings in the Dominican Republic.
87. The resort was approximately $8-9 million dollars in construction investments
away from completion. Construction re-started at Juan Dolio on March 5th, 2009 and was
expected to open an initial tower for owners in late 2010.
88. The original loans used to finance the Juan Dolio development have not been
settled due to cash flow problems caused by the payment of excessive commissions and
prepayment of commissions not collected from the Impact sales force, construction cost overruns
and Plaintiffs' litigation tactics.
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89. Further, the timing of the global economic downturn in 2007 significantly reduced
demand for timeshare investments and their use, thus significantly negatively impacting the ability
to restructure loans, and obtain new sources of capital, and has caused purchasers to withhold
cash needed for operating the resort and fund construction.
90. Nevertheless, restructuring efforts were well under way, as SVJD had hired Remax
as sales agent, implementing a traditional sales agent force, with compliant selling strategies and
legal framework. Remax filed an affidavit with the court anticipating complete sell out by Spring
2010 and ensuring completion and delivery of all products.
Relationship of Catledge and the Impact

Entities and Agents to the Elliott Companies
91. Fred and Derek Elliott were introduced to Catledge in 2004. Catledge was the
president of what was understood to be legitimate financial services company offering mortgages,
annuities, insurance, mutual funds and real estate/time share products out of Henderson Nevada.
Catledge owned and still owns a web of network marketing companies known by various names
such as Impact, Inc. ("Impact"), ImpactNetWorth.com, ImpactAmerica, Impact-America.com,
Impact Lending, Impact Corporate, Impact Holdings, Inc., Net Worth Solutions, Inc.,
("Solutions"); Impact Net Worth, LLC, ("Net Worth,", Impact Net Worth, ImpactNetWorth.com
(collectively "Impact Entities").
92. The introduction was made by a Michael Fitzpatrick, who was an investor of
EMISVI and EMI Cofresi Developments Inc. who knew the Elliotts wanted to expand the Sun
Village Resort.
93. Catledge represented to Derek Elliott, and later to Fred Elliott, that he had a
strong sales team and was fully experienced and licensed in sales of real estate products,
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insurance, mortgages and annuities which the Elliotts and the Elliott Companies discovered later
to be a false and material representation upon which the Elliotts and the Elliott Companies
detrimentally relied when entering into contractual relationships with Catledge and the Impact
entities as described below.
94. In or around 2004-2007, certain of the Elliott Companies (which include the
Corporate Defendants) contracted with and otherwise allowed Catledge and the Impact Entities
and their representatives, through exclusive sales agreements, to offer and sell resort-related
vacation ownership products to individuals in various jurisdictions including the United States.
95. The vacation ownership products at issue in this case can generally be divided
between two locations and two products at each location. The two locations are Sun Village
Resort & Spa, Cofresi ("Cofresi"), and Sun Village Resort & Spa, Juan Dolio ("Juan Dolio").
96. Purchasers could purchase time-share interests known as "The Residence" or
fractional ownership interests at either Cofresi or Juan Dolio, referred to by the Plaintiffs as
"Passport" even though the term Passport was the creation of Catledge and the Impact Entities.
97. Regardless of which location and which product, all purchases of resort-related
vacation ownership products offered by the Elliott Companies came through Catledge and his
Impact Entities and agents. Thus, the fulcrum upon which the Plaintiffs' (and the Corporate
Defendants) damages rests is James Catledge and his Impact Entities and agents.
98. Importantly, as a requirement for Catledge and the Impact Entities and agents to
sell such resort-related vacation ownership products, Catledge and the Impact Entities were
required to hold valid state and federal regulatory licenses.
99. Catledge and the Impact agents made affirmative and fraudulent representations
and provided false documentation to the Elliott Companies and their attorneys that appeared to
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show that Catledge and the Impact agents did have valid state and federal regulatory licenses
when, in fact, they did not.
100. However, in January 2006, the Elliott Companies discovered that Catledge and the
Impact Entities and agents did not have valid state and federal securities licenses, nor did they
have state time share licenses. The Elliott Companies further discovered that Catledge and the
Impact Entities and agents had provided false documentation to the Elliott Companies (upon
which the Elliott Companies reasonably relied) suggesting that Catledge and the Impact agents
did have valid regulatory licenses.
101. Specifically, the Corporate Defendants discovered that (1) Catledge's registration
with an NASD member brokerage firm was terminated as of July 13, 2005, (2) Impact was not an
NASD member brokerage firm, (3) neither Catledge nor any other member of Impact held a
current valid regulatory license.
102. Upon discovery of Catledge and the Impact agents' failure to hold proper
regulatory licenses, the Corporate Defendants demanded that Catledge and the Impact agents
immediately obtain proper valid regulatory licenses. However, after several promises made by
Catledge, and hundreds of thousands of dollars spent by the Corporate Defendants to prepare
compliant documentation (which Catledge and the Impact Entities failed to use) Catledge and the
Impact agents were ultimately unable or unwilling to get proper licensing.
103. Accordingly, on October 17, 2008, the Elliott Companies (called the Elliott
Group) issued a demand letter (the "Demand Letter") upon Catledge and the Impact Entities
pursuant to which the malfeasance discovered by the Elliott Companies was detailed.
104. Specifically, the Elliott Companies advised Catledge as follows:
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As you know, Impact/Net Worth have "sold" considerable amount of Elliott
product over the last four or so years. In doing so, Impact/Net Worth and James
Catledge personally have received payment of tens of millions of dollars in
commissions.
It has become painfully obvious that these "sales" by Impact/Net Worth have been
grossly deficient, for the following reasons (without limitation):
1. Impact/Net Worth have failed to utilize compliant documentation

provided by Elliott Group and developed by Elliott Group at the cost of hundreds
of thousands of dollars.
2. Despite signed agreements to do so, Impact/Net Worth have

completely failed to obtain requisite broker and agent registrations required in
connection with such sales.
3. Impact/Net Worth have grossly misrepresented Elliott products to

purchasers.
4. Impact/Net Worth have engaged in reprehensible sales practices,

designed to maximize sales and commissions payable to Impact/Net Worth,
without regard to client needs. In this regard, a number of clients have been
encouraged by Impact/Net Worth to apply or lever virtually their entire asset base
for the purpose of purchasing such product.
5. Impact/Net Worth misrepresented and manipulated Elliott [Group]

into promoting offerings with an almost exclusive goal of maximizing commissions
to Impact/Net Worth.
6. Impact/Net Worth have libeled and slandered the Elliott Group

throughout and have actively impeded Elliott Group's efforts to raise funds.
7. Impact/Net Worth have acted in bad faith disregard of their

contractual and fiduciary obligations to the Elliott Group.
8. Impact/Net Worth's overall conduct in this regard has been

fraudulent.
As a result of the aforementioned malfeasance by Impact/Net Worth, the Elliott

Group faces massive costs in cleaning up the resulting mess. Examples of this
include dealings with the State of Idaho Department of Finance, which have cost
the Elliott Group $1.2 million to date, the Spalding Litigation in California, with
exposure to the Elliott Group of $5-10 million, and threatened rescissions by
scores of purchasers.
20
Elliott Group considers that James Catledge, as the directing mind of Impact/Net
Worth and the principal beneficiary of the malfeasance and frauds of Impact/Net
Worth, is personally liable for all liabilities and obligations of Impact/Net Worth.
Demand Letter, October 17, 2008. A true and correct copy of the Demand Letter is attached
hereto as "Exhibit A."
105. Through the Demand Letter, the Elliott Companies demanded Catledge and
Impact/Net Worth pay $29,000,000 as a result of the losses and damages incurred by the Elliott
Companies because of the malfeasance, breach of contract, negligence and bad faith of
Impact/Net Worth.
106. Upon information and belief, in October 2008, Catledge, in an effort to deflect
attention away from himself, and in order to take revenge on the Elliotts for asserting claims
against him, began a brutal campaign to discredit and destroy the Elliotts and their companies
with litigation and defamatory publicity spanning multiple jurisdictions, including this one.
Catledge and his Attorneys' Campaign to Discredit and Destroy the Elliotts
107. Upon information and belief, Catledge and Michael Diaz, Jr., managing partner of
Diaz Reus, decided to exploit a group of investors (Rick Hawker, Ruben Meja, David Rocheford,
Richard Smith, Norm Sorensen, Steve Thompson and Martha Valeria), who had formed a
committee that wished to sue the Elliotts, called the "EClient Committee" ("ECC").
108. The ECC – through the use of the internet (www.eclientscom.com) and telephone
solicitation – had been recruiting investors to join in a collective action against the Elliott
Defendants. James Catledge was a financial backer and participant – if not the mastermind as well
– of this group.
21
109. Initially, the ECC required each plaintiff investor to contribute one percent of their
investment to the ECC to pay attorneys’ fees.1
U.S. Litigation
110. Sometime in November, 2008, the ECC was convinced to retain the Diaz Reus law
firm to "investigate the actions of Derek & Fred Elliott (Elliotts) and their representatives in
connection with the sale of fractional real estate, residences products and other interests in the
Dominican Republic referred by Impact, Impact Net Worth, Net Worth Solutions and/or other
related entities and individuals."2
111. On November 13, 2008, Diaz wrote a letter to the members of the ECC informing
them that James Catledge and Impact officers Tom O’Hagan and John Thomson had contributed
to the ECC Retainer Fund and that the ECC would not sue these individuals or Impact in any
legal action.3
112. Over the ensuing four (4) months, the Diaz Reus team reviewed "hundreds of
thousands" of documents4 and used the ruse of criminal prosecution to turn Gregory Clark, the
Elliott Companies' former Chief Financial Officer against the Elliotts and improperly extract
1
Subsequently, the amount increased to 1.5% and then 2%. After these contributions were insufficient to meet the
mounting attorneys’ fees and costs, the Diaz Reus law firm began sending the individual investors bills for their
pro-rated share of the outstanding fees and costs. The bills did not explain how the fees and costs were incurred or
how the division of fees and costs were allocated across the investors.
2
See The Elliott Defendants' Motion to Disqualify Counsel From Diaz Reus and Arnstein & Lehr, LLP for
Conflicts of Interest and Incorporated Memorandum of Law (the "Motion to Disqualify Counsel") [D.E. 617],
exhibit 4 at 1. A true and correct copy of exhibit 4 to the Motion to Disqualify Counsel is attached hereto as
"Exhibit B."
3
See Exhibit B, id at 4.
4
Declaration of Rob Buenaflor [D.E. 173-10], attached hereto as Exhibit C.
22
confidential and privileged information from him regarding the operations of the Elliott Group of
Companies.5
113. In a February 17, 2009, conference call with investors and ECC Clients, Diaz told
the investors that he had proof that they were victimized by the Elliotts, and not Catledge:
There is overwhelming evidence that everyone that is on the phone is a victim of a

million, several million dollars, hundreds of millions of dollar, in fraud. We have
the evidence, not just the testimony. We have the actual documents that support
the allegations that you were victimized. Not by the sales groups but by the
Elliotts. We have worked tirelessly since around December when we first
received the documents, and continue to receive additional documents that
corroborate that you were victims of this massive fraud.
Motion to Disqualify Counsel, Transcript of February 17, 2009 Conference Call at 6,

contained in Declaration of Rob Buenaflor [D.E. 173-10], Exhibit 5 (emphasis added).
114. During this same conference call, Richard Smith, head of the ECC, explained the
Diaz’ strategy: "[W]e’re taking the kind of action that when we launch this lawsuit it will be so
overwhelming that the battle will be won at the time we launch."6
115. On March 3, 2009, the ECC "launched" its litigation by having Klaus Hofmann file
a 53-page RICO complaint. The Hofmann complaint was signed by Hilda Piloto of Arnstein &
Lehr, LLP and not Michael Diaz or any attorney from his firm. Diaz used Piloto as a front to
avoid the appearance of impropriety arising from a conflict of interest between his then clients, the
innocent investors and Catledge and his Impact agent investors.
116. Subsequently, on March 13, 2009, Aurelio Aguilar and 414 former Impact agents
filed a RICO complaint that simply parroted the Hofmann complaint, including attaching
Hofmann’s contracts as exhibits.
5
R. Farzad, Big Game Asset Hunters, attached hereto as Exhibit D.
6
See Exhibit C, id.
23
117. On March 16, 2009, Diaz sent another letter to the 737 members of the ECC
informing them that he has filed two lawsuits "in an effort to assist you in recovering your
investment and protecting your interests in the fractional interests and or residence investment
products that you purchased in the Dominican Republic from the Elliotts."7 Diaz also advised that
he had been retained to represent Catledge in a Utah lawsuit and other actions and informed his
clients that Catledge has been "instrumental in providing . . .information" and that they have
"collective interests in this litigation against the Elliott Defendants."8
The Turks and Caicos Litigation
118. On March 3, 2009, a combination of so-called "innocent investors" (Klaus
Hoffman, David Rocheford, and Steve Thompson) and Impact agent investors (Norman
Sorensen) filed a class action in the Turks and Caicos Islands on behalf of "all other persons,
which I estimate to number about 1500, who form a class of persons who have contracted with
the Defendants concerning the acquisition of time shares, and fractional condominium interests in
resorts located in Puerto Plata and Juan Dolio in the Dominican Republic."9
119. This combination of purchasers also took an ex parte TRO obtained in the U.S. to
the Turks and Caicos Islands and used it to obtain an ex parte TRO from the Turks and Caicos
Islands court.
120. In obtaining the Turks and Caicos TRO, Plaintiffs and their counsel never informed
the Turks and Caicos court of the expiration of the U.S. TRO, and made additional
misrepresentations concerning the background and status of this matter. After the Turks and
7
Letter of March 16, 2009 from M. Diaz, attached hereto as Exhibit E.
8
See Exhibit B, id. at 4.
9
Carlos Gonzalez (of the Diaz law firm) Affidavit, attached hereto as Exhibit F.
24
Caicos court learned of the Plaintiffs’ deceit, on April 9, 2009 the court discharged the TRO by an
order in which the Chief Justice, in reference to the actions of the Hofmann and Aguilar Plaintiffs,
including their counsel, stating:
This case causes me some disquiet. The timing of an application of this nature
at the same time as a similar action in Florida, the failure to mention so many
clearly important material facts in an affidavit prepared by an attorney
specifically for an ex parte application, the subsequent manner in which the
order was publicized and the failure to take similar action to advise of the
amendment to the original order all add to that disquiet.
Motion to Disqualify, Reason for Decision dated April 20, 2009, attached as Exhibit 12.
(emphasis added).
Dominican Republic Litigation
121. On May 1, 2009 and May 29, 2009, the two groups of investors each obtained ex
parte TROs from two different Dominican Republic courts, freezing the Elliott Companies' assets
and endangering (and ultimately preventing) the completion of the Juan Dolio resort. 10
122. In obtaining the TRO, Catledge and his counsel (the Diaz Law Firm) informed the
court that the United States and the Turks and Caicos Islands entered TROs, and never told the
court that this Court allowed the U.S. TRO to expire and that the Turks and Caicos Islands’ court
discharged its ex parte TRO.11
Effect of Hofmann and Aguilar Plaintiffs' Self-Destructive Legal Strategy
123. As a direct and proximate result of Plaintiffs' (and former Aguilar Plaintiffs)
litigation strategy in the United States, the Turks and Caicos Islands and the Dominican Republic,
the Cofresi and Juan Dolio properties have been foreclosed with massive loss of value to the
Corporate Defendants and, indeed, the Plaintiffs.
10
Dominican Republic TRO (translation) at 23, 37, 43, and 51, attached hereto as Compositie Exhibit G.
25
124. On September 10, 2009, Banco del Progresso and Banco Reservas successfully
foreclosed on their mortgage in the sum of $7.7 million and took possession of the Juan Dolio
property which had been appraised in April 2009 at $60,830,221.00.
125. On October 7, 2009, Banco Leon successfully foreclosed on its loan which was
secured by the Cofresi property. The winning bidder in the auction sale paid $4.5 million for the
property which had been appraised only months before in July 2009 at $58,084,617.71.
126. As a result of the disastrous legal strategy employed by Plaintiffs, the entire equity
value of the Corporate Defendants has been obliterated, thus destroying any chance of recovery
for the Plaintiffs from the sale of Corporate Defendant assets. 12
Plaintiffs' Counsel Refuses to Sue Catledge and the Impact Entities and Agents
127. In lawsuits around the country, Catledge and his agents have been sued for
participating in an alleged "ponzi scheme" for securities fraud, but not here.
128. As of the time of this filing, counsel for the remaining Plaintiffs (formerly referred
to as the Hofmann Plaintiffs) has steadfastly refused to sue Catledge and the Impact Entities and
agents, even though it is Catledge and the Impact Entities who have direct privity with the
Plaintiffs!
129. Putting aside for the moment the obvious conflict of interest that would arise were
Plaintiffs' counsel to sue Catledge and the Impact Entities and agents, this refusal is suspicious
because Plaintiffs have adopted the Special Master's Report [D.E. 832] pursuant to which the
Special Master identified wrong-doing perpetrated by Catledge and the Impact Entities.
130. Obviously, something is very wrong when Plaintiffs' counsel refuses to sue the
individuals and entities in actual privity with the Plaintiffs, and whom have been singled out as
11
See id.
26
having been the "main architect" of a "ponzi-like" scheme which allegedly caused millions in
damages to such Plaintiffs.
Plaintiffs have Failed to Join all Necessary and/or Indispensable Parties
131. The damages of which Plaintiffs complain were caused in whole or in part by non-
parties whom Plaintiffs have failed to join in this action and who are necessary and/or
indispensible parties pursuant to Fed.R.Civ.P. 19. Specifically, Plaintiffs have failed to join James
B. Catledge ("Catledge") and his Impact-related companies and agents (the "Catledge Group")
whom are responsible for the Plaintiffs' losses.
132. The following individuals and entities, upon information, investigation and belief
comprise the necessary and/or indispensable parties that comprise the Catledge Group for the
purposes of this Affirmative Defense:
133. Companies:
a. Impact, Inc., a Nevada corporation d/b/a ImpactNetWorth.com, d/b/a
ImpactAmerica, d/b/a Impact-America.com, d/b/a Impact Lending, d/b/a Impact
Corporate, d/b/a Impact Holdings, Inc.("Impact");
b. Net Worth Solutions, Inc., ("Solutions");
c. Impact Net Worth, LLC, a Nevada limited liability company ("Net Worth"
collectively with Impact and Solutions, the "Impact Entities") d/b/a Impact Net
Worth, d/b/a ImpactNetWorth.com.
d. Power Millennium Real Estate;
e. Trust Company of the Pacific; and
12
The foreclosure auction sale of Cofresi is currently under appeal in the Dominican Republic.
27
f. Financial Broker Group
134. Individuals
a. James B. Catledge, Founder, President and Chief Executive Officer of Impact,
Solutions and Managing Member of Net Worth;
b. Jerome F. Gerber, Chief Financial Officer, Impact, Solutions and Net Worth (2003
– 2008);
c. David Brimley, Vice President, Impact Lending, Impact, Solutions and Net Worth
(2004 – 2007); Also brokered mortgages for Impact, Net Worth and Solutions
through Meridias Capital, CMO (2007 – 02/2008);
d. Tom O'Hagan, Vice President, Compliance, Net Worth (04/2006 – 10/2007);
Chief Operating Officer, Net Worth and Solutions (11/2007 – 11/2008) Honorary
Board Member, Impact, Net Worth and Solutions;
e. Levi Rogers, Vice President, Field Operations, Net Worth (03/2005 – 07/2007);
Honorary Board Member, Impact, Net Worth and Solutions, Silver Marketing
Advisor (70% Contract), Impact, Net Worth and Solutions;
f. Brent Goodrich, Chief Operating Officer (03/2007 – 01/2008) Net Worth and
Solutions; Chief Financial Officer (02/2008 – 08/2008) Solutions;
g. Roger Walser, Qualified Marketing Advisor (65% Contract), Net Worth and
Solutions; received $20,000 payment from James Catledge then rallied potential
plaintiffs against Corporate Defendants; President and CEO of Power Millennium
Real Estate;
h. John Thompson, Sr., Permanent and Senior Board Member and Senior Marketing
Advisor (80% Contract), Impact, Net Worth and Solutions;
28
i. Linda Thompson, , Silver Marketing Advisor (70% Contract), Net Worth and
Solutions;
j. Barbara Nagel, Permanent Board Member and Silver Marketing Advisor (70%
Contract), Impact, Net Worth and Solutions;
k. Steve Cabezud, Permanent Board Member and Senior Marketing Advisor (80%
Contract), Impact – Top Money Earner, Net Worth, Solutions;
l. Norm Sorensen, Qualified Marketing Advisor (65% Contract), Net Worth and
Solutions;
m. Richard Smith, Qualified Marketing Advisor (65% Contract), Net Worth and
Solutions;
n. Jeff Morgan, Qualified Marketing Advisor (65% Contract), Net Worth and
Solutions;
o. Hans Braun, Qualified Marketing Advisor (65% Contract), Net Worth and
Solutions;
p. Mark Craner Qualified Marketing Advisor (65% Contract), Net Worth and
Solutions;
q. Garnet Hyde, Jr. Qualified Marketing Advisor (65% Contract), Net Worth and
Solutions;
r. Peter Jeong Qualified Marketing Advisor (65% Contract), Net Worth and
Solutions;
s. Dustin Simpson Qualified Marketing Advisor (65% Contract), Net Worth and
Solutions;
29
t. Greg Aldrich Qualified Marketing Advisor (65% Contract), Net Worth and
Solutions;
u. Janet Faust Qualified Marketing Advisor (65% Contract), Net Worth and
Solutions;
v. Michael Gibson Qualified Marketing Advisor (65% Contract), Net Worth and
Solutions;
w. Roy Anderson Qualified Marketing Advisor (65% Contract), Net Worth and
Solutions;
x. Israel Chavez Qualified Marketing Advisor (65% Contract), Net Worth and
Solutions;
y. Martha Valencia Qualified Marketing Advisor (65% Contract), Net Worth and
Solutions;
z. Carlos Soria Qualified Marketing Advisor (65% Contract), Net Worth and
Solutions;
aa. Frank Orcino, Qualified Marketing Advisor (65% Contract), Impact, Net Worth
and Solutions, Board Member;
bb. Margaret Currie, Qualified Marketing Advisor (65% Contract), Impact, Net Worth
and Solutions;
cc. Francisco Reyes, Silver Marketing Advisor (70% Contract), Impact, Net Worth
and Solutions, Board Member, Net Worth and Solutions, Leader of Majority of
Spanish Agents
dd. Robert Vaughan, Financial Broker Group, Branch Manager
30
Impact/Net Worth Hierarchy
135. Upon information and belief, Catledge operates Impact as a network marketing
company. Much like a pyramid scheme, Impact has a tiered compensation system which has a
"promotion level" and an "ownership" level. Impact's compensation plan identified 10 levels of
promotion potential, with each level receiving compensation for products and services sold or
referred to them for sale by incoming associates:
136. Promotional Level
a. Referral Associate, personal commission of 10%;
b. Associate, personal commission of 32.5%;
c. Impact Certified Trainer (ICT), personal commission of 40%; must
complete personal "CNA" and hire five Associates;
d. Impact Certified Leader (ICL), personal commission of 50%, Must own
product, turn in top 40 dream list, have five guests attend a "BPM, complete five
training sales and promote one ICT;
Ownership Level
e. Qualified Marketing Advisor (QMA), personal commission of 65%;
ICT/ICL qualified, life and real estate license required. 13 5 recruits (3 Direct legs)
Exchange Leg – selected by the promoting QMA 75,000 base points rolling 13 weekly
cycles;
13
Upon information and belief, none of the Impact agents at any "Ownership Level" actually obtained real estate
licenses. Once this was discovered by the Corporate Defendants, this, among other reasons including
misrepresentations regarding securities and time share licensing, led the Corporate Defendants to terminate the
relationship with Catledge and the Impact Entities in June 2008. A demand letter was sent to Catledge in October
2008, and shortly thereafter Catledge began his campaign against the Elliotts and the Corporate Defendants
31
f. Silver QMA, personal commission of 75%, Build 3 QMAs Direct, 125,000
Base thru 1st points in rolling 13 weekly cycles, life and real estate license required;
g. Senior Marketing Advisor (SMA), personal commission of 80%, Build 10
QMAs Direct, 300,000 Base thru 1st points in rolling 13 weekly cycles, life and real
estate license required;
h. National Marketing Advisor (NMA), personal commission of 85%, Build
20 QMAs Direct, 750,000 Base through 1st points in rolling 13 weekly cycles, life
and real estate license required; and
137. Marketing Vice President (MVP), personal commission of 90%, Build 35 QMAs
Direct, 1.2 Million Base through 1st points in rolling 13 weekly cycles, life and real estate license
required.
138. Catledge and the Impact agents listed above as indispensable parties are all
members of the "Ownership Level" of the Impact Entities, and as "owners," they are responsible
for the direct and indirect malfeasance of those below them in the Impact/Net Worth corporate
structure..
Failure to State a Claim for Lack of Documentation
139. In their Amended Complaint, Plaintiffs assert, at fn. 1, page 43 as follows:
Copies of one Plaintiffs' purchase documents are attached as exhibits to this

amended complaint. Attaching all Plaintiffs' documents is extremely voluminous.
In addition, the parties are in possession of all relevant purchase documents as they
should have been kept in the ordinary course of business. To the extent any party
claims not to be in possession of each Plaintiffs' purchase documents, the
documents are available for review and inspection at the undersigned's office at a
mutually convenient date and time.
Amended Complaint, fn. 1.
culminating in the instant lawsuit (among others brought in the Turks & Caicos Islands and the Dominican
32
140. As it turns out, this statement is blatantly and demonstrably false for a couple of
reasons:
141. First, the Corporate Defendants are not in possession of any relevant purchase
documents, because the Special Master has custody and control of same, and as a result
Corporate Defendants have no access thereto as Plaintiffs are unquestionably aware.
142. Second, counsel for the Corporate Defendants did attempt to review the alleged
purchase documents supposedly held by Plaintiffs' counsel. Although counsel for the Corporate
Defendants was unable to review all of the files held by Plaintiffs' counsel, one thing became
crystal clear as a result of the preliminary review: Plaintiffs' counsel does not have all or even
most of the proper purchase documents that would support a claim for relief before this Court.
143. For example, counsel for the Corporate Defendants discovered the following
deficiencies, without limitation, during his preliminary review:
a. Duane Barney. Pursuant to the Amended Complaint, Duane Barney
"purchased property from the Elliotts." First, "the Elliotts" did not sell property, so the
statement is demonstrably incorrect. Second, upon inspection, counsel for the Corporate
Defendants discovered that Plaintiffs' counsel has no documentation whatsoever
evidencing proof of a contractual relationship between this Plaintiff and the Corporate
Defendants.
b. Laura Ann Olsen Barney. Pursuant to the Amended Complaint, Laura Ann
Olsen Barney "purchased property from the Elliotts." First, the Elliotts did not sell
property, so the statement is demonstrably incorrect. Second, upon inspection, counsel
for the Corporate Defendants discovered that Plaintiffs' counsel has no documentation
Republic).
33
whatsoever evidencing proof of a contractual relationship between this Plaintiff and the
Corporate Defendants.
c. Stephen Biddulph. Pursuant to the Amended Complaint, Stephen Biddulph
purchased "one Maxim Bungalows Passport Superior, Cofresi." However, upon
inspection, counsel for the Corporate Defendants discovered that Plaintiffs' counsel has no
documentation whatsoever evidencing proof of a contractual relationship between this
Plaintiff and the Corporate Defendants.
d. Robert Garcia Ceja. Pursuant to the Amended Complaint, Robert Garcia
Ceja "purchased units." First, this description is utterly devoid of any specificity as to
what type of product was allegedly purchased. Second, upon inspection, counsel for the
Corporate Defendants discovered that Plaintiffs' counsel has no documentation
e. William Matz. Pursuant to the Amended Complaint, William Matz
"purchased investments." First, this description is utterly devoid of any specificity as to
what type of product was allegedly purchased and where. Second, upon inspection,
counsel for the Corporate Defendants discovered that Plaintiffs' counsel has no
f. Erica Matz. Pursuant to the Amended Complaint, Erica Matz (mentioned
with William Matz) "purchased investments." First, this description is utterly devoid of
any specificity as to what type of product was allegedly purchased and where. Second,
upon inspection, counsel for the Corporate Defendants discovered that Plaintiffs' counsel
34
has no documentation whatsoever evidencing proof of a contractual relationship between
this Plaintiff and the Corporate Defendants.
g. Martha Spence. Pursuant to the Amended Complaint, Martha Spence
"purchased property." First, there is no description of what property was sold and by
whom and where. Second, "the Elliotts" did not sell property, so even assuming the
allegation is meant to refer to the Elliotts, the statement is demonstrably incorrect. Third,
upon inspection, counsel for the Corporate Defendants discovered that Plaintiffs' counsel
has no documentation whatsoever evidencing proof of a contractual relationship between
this Plaintiff and the Corporate Defendants.
h. Jeffrey Wolf. Pursuant to the Amended Complaint, Jeffrey Wolf purchased
"two units." First, this description is utterly devoid of any specificity as to what type of
product was allegedly purchased and where. Second, upon inspection, counsel for the
Corporate Defendants discovered that Plaintiffs' counsel has no documentation
i. Lolita Wolf. Pursuant to the Amended Complaint, Lolita Wolf (mentioned
with Jeffrey Wolf) purchased "two units." First, this description is utterly devoid of any
specificity as to what type of product was allegedly purchased and where. Second, upon
inspection, counsel for the Corporate Defendants discovered that Plaintiffs' counsel has no
144. In many other instances too numerous to mention (for the sake of brevity)
Plaintiffs counsel has nothing more than a Business Submission Form from one of the Impact
35
Entities, which does not indicate in any manner whatsoever a contractual relationship that was
concluded between the individual Plaintiff and the Corporate Defendants.
145. Regardless, just from the inspection reference above, the hollow nature of
Plaintiffs' documentary support is revealed. Clearly, Plaintiffs have attempted to skirt their
pleading obligations by making references to "voluminous" documents that, in fact, in some cases
do not even exist. Moreover, incredibly, in some cases the Plaintiffs argue that "documentation is
pending" nearly a year after this action was commenced. See e.g., Pauline Traub, Amended
Complaint at ¶ nnnnn, pg. 28.
146. Additionally, some of the information for the alleged Plaintiffs is run together such
that it is impossible to know exactly what Plaintiffs are claiming as the product purchased. For
example, Plaintiffs' Amended Complaint inexplicably and confusingly combines information for
Ramiro Efrain and Silva Barrera such that it is impossible to know exactly what product has been
purchased by either Ramiro Efrain or Silva Barrera.
147. Accordingly, the Amended Complaint, at the very minimum, must be amended to
include copies of the relevant and legally binding purchase documents for each and every Plaintiff.
Until such documents are provided to the Corporate Defendants, the Corporate Defendants are
unable to frame a response to the claims asserted by the Plaintiffs in the Amended Complaint.
GENERAL ALLEGATIONS WITH RESPECT TO PLAINTIFFS' ABUSE OF PROCESS
1. Upon information and belief, Catledge and Michael Diaz, Jr., managing partner of
Diaz Reus, decided to exploit a group of investors (Rick Hawker, Ruben Meja, David Rocheford,
Richard Smith, Norm Sorensen, Steve Thompson and Martha Valeria), who had formed a
committee that wished to sue the Elliotts, called the "EClient Committee" ("ECC").
36
2. The ECC – through the use of the internet (www.eclientscom.com) and telephone
solicitation – had been recruiting investors to join in a collective action against the Elliott
Defendants. James Catledge was a financial backer and participant – if not the mastermind as well
– of this group.
3. Initially, the ECC required each plaintiff investor to contribute one percent of their
investment to the ECC to pay attorneys’ fees. 14
U.S. Litigation
4. Sometime in November, 2008, the ECC was convinced to retain the Diaz Reus law
firm to "investigate the actions of Derek & Fred Elliott (Elliotts) and their representatives in
connection with the sale of fractional real estate, residences products and other interests in the
Dominican Republic referred by Impact, Impact Net Worth, Net Worth Solutions and/or other
related entities and individuals."15
5. On November 13, 2008, Diaz wrote a letter to the members of the ECC informing
them that James Catledge and Impact officers Tom O’Hagan and John Thomson had contributed
to the ECC Retainer Fund and that the ECC would not sue these individuals or Impact in any
legal action.16
14
Subsequently, the amount increased to 1.5% and then 2%. After these contributions were insufficient to meet
the mounting attorneys’ fees and costs, the Diaz Reus law firm began sending the individual investors bills for
their pro-rated share of the outstanding fees and costs. The bills did not explain how the fees and costs were
incurred or how the division of fees and costs were allocated across the investors.
15
See The Elliott Defendants' Motion to Disqualify Counsel From Diaz Reus and Arnstein & Lehr, LLP for
Conflicts of Interest and Incorporated Memorandum of Law (the "Motion to Disqualify Counsel") [D.E. 617],
exhibit 4 at 1. A true and correct copy of the Motion to Disqualify Counsel with accompanying exhibits is attached
hereto as "Exhibit B."
16
See Exhibit B, id 4 at 2.
37
6. Over the ensuing four (4) months, the Diaz Reus team reviewed "hundreds of
thousands" of documents17 and used the ruse of criminal prosecution to purportedly "flip"
Gregory Clark, the Elliott Companies' former Chief Financial Officer, and improperly extract
confidential and privileged information from him regarding the operations of the Elliott Group of
Companies.18
7. In a February 17, 2009, conference call with investors and ECC Clients, Diaz told
the investors that he had proof that they were victimized by the Elliotts, and not Catledge:
There is overwhelming evidence that everyone that is on the phone is a victim of a

million, several million dollars, hundreds of millions of dollar, in fraud. We have
the evidence, not just the testimony. We have the actual documents that support
the allegations that you were victimized. Not by the sales groups but by the
Elliotts. We have worked tirelessly since around December when we first
received the documents, and continue to receive additional documents that
corroborate that you were victims of this massive fraud.
Motion to Disqualify Counsel, Transcript of February 17, 2009 Conference Call at 6,

contained in Declaration of Rob Buenaflor [D.E. 173-10], Exhibit 5 (emphasis added).
8. During this same conference call, Richard Smith, head of the ECC, explained the
Diaz’ strategy: "[W]e’re taking the kind of action that when we launch this lawsuit it will be so
overwhelming that the battle will be won at the time we launch."19
9. On March 3, 2009, the ECC "launched" its litigation by having Klaus Hofmann file
a 53-page RICO complaint. The Hofmann complaint was signed by Hilda Piloto of Arnstein &
Lehr, LLP and not Michael Diaz or any attorney from his firm. Diaz used Piloto as a front to
17
Declaration of Rob Buenaflor, attached hereto as Exhibit C.
18
R. Farzad, Big Game Asset Hunters, attached hereto as Exhibit D..
19
See Exhibit C, id.
38
avoid the appearance of impropriety arising from a conflict of interest between his then clients, the
innocent investors and Catledge and his Impact agent investors.
10. Subsequently, on March 13, 2009, Aurelio Aguilar and 414 former Impact agents
filed a RICO complaint that simply parroted the Hofmann complaint, including attaching
Hofmann’s contracts as exhibits.
11. On March 16, 2009, Diaz sent another letter to the 737 members of the ECC
informing them that he has filed two lawsuits "in an effort to assist you in recovering your
investment and protecting your interests in the fractional interests and or residence investment
products that you purchased in the Dominican Republic from the Elliotts."20 Diaz also advised
that he had been retained to represent Catledge in a Utah lawsuit and other actions and informed
his clients that Catledge has been "instrumental in providing . . .information" and that they have
"collective interests in this litigation against the Elliott Defendants."21
The Turks and Caicos Islands Litigation
12. On March 3, 2009, a combination of so-called "innocent investors" (Klaus
Hoffman, David Rocheford, and Steve Thompson) and Impact agent investors (Norman
Sorensen) filed a class action in the Turks and Caicos Islands on behalf of "all other persons,
which I estimate to number about 1500, who form a class of persons who have contracted with
the Defendants concerning the acquisition of time shares, and fractional condominium interests in
resorts located in Puerto Plata and Juan Dolio in the Dominican Republic."22
20
See Exhibit E, id.
21
See Exhibit B, id. at 4.
22
See Exhibit F, id.
39
13. This combination of purchasers also took an ex parte TRO obtained in the U.S. to
the Turks and Caicos Islands and used it to obtain an ex parte TRO from the Turks and Caicos
Islands court.
14. In obtaining the Turks and Caicos TRO, Plaintiffs and their counsel never informed
the Turks and Caicos court of the expiration of the U.S. TRO, and made additional
misrepresentations concerning the background and status of this matter. After the Turks and
Caicos court learned of the Plaintiffs’ deceit, on April 9, 2009 the court discharged the TRO,
stating:
This case causes me some disquiet. The timing of an application of this nature
at the same time as a similar action in Florida, the failure to mention so many
clearly important material facts in an affidavit prepared by an attorney
specifically for an ex parte application, the subsequent manner in which the
order was publicized and the failure to take similar action to advise of the
amendment to the original order all add to that disquiet.
Motion to Disqualify, Reason for Decision dated April 20, 2009, attached as Exhibit 12.
(emphasis added).
The Dominican Republic Litigation
15. On May 1, 2009 and May 29, 2009, the two groups of investors each obtained ex
parte TROs from two different Dominican Republic courts, freezing the Elliott Companies' assets
and endangering (and ultimately preventing) the completion of the Juan Dolio resort. 23
16. In obtaining the TRO, Catledge and his counsel (the Diaz Law Firm) informed the
court that the United States and the Turks and Caicos Islands entered TROs, and never told the
court that this Court allowed the U.S. TRO to expire and that the Turks and Caicos Islands’ court
discharged its ex parte TRO.24
23
See Compositie Exhibit G, id.
24
See id.
40
Effect of Counter-Defendants' Abuse of Process on Corporate Defendants
17. As a direct and proximate result of Counter-Defendants' (and the former Aguilar
Plaintiffs) abuse of process in the United States, the Turks and Caicos Islands and the Dominican
Republic, the Cofresi and Juan Dolio properties have been foreclosed with massive loss of value
to the Corporate Defendants and, indeed, the Counter-Defendants.
18. On September 10, 2009, Banco del Progresso and Banco Reservas successfully
foreclosed on their mortgage in the sum of $7.7 million and took possession of the Juan Dolio
property which had been appraised in April 2009 at $60,830,221.00.
19. On October 7, 2009, Banco Leon successfully foreclosed on its loan which was
secured by the Cofresi property. The winning bidder in the auction sale paid $4.5 million for the
property which had been appraised only months before in July 2009 at $58,084,617.71.
20. As a result of the abuse of process employed by the Counter-Defendants, the entire
equity value of the Corporate Defendants has been obliterated, thus destroying any chance of
recovery for the Plaintiffs from the sale of Corporate Defendant assets.
41

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ELLIOTT COMPANIES $120M COUNTERCLAIM PRESS RELEASE

Excerpts from 526 Affirmative Defense and Counterclaim Filing

development in the Dominican Republic.

real estate developments.

5. In order to carry out the development a number of companies or partnerships have

many legitimate considerations for these developments include:

b. legitimately reducing tax burdens of participant investors in countries such

share and fractional interests to United States citizens.

and Vancouver offices, until about 2000;

b. Gardiner Roberts LLP, another of Canada's major law firms, from

partner William P. Lambert;

c. Greenberg Traurig – a high profile and well respected US national (and

transactions related to the property located in Miches;

f. Ernst & Young, accountants, Santo Domingo, DR; and

g. Salas Piantini & Associates, accountants from Santo Domingo, DR.

enterprise as the Plaintiffs' seek to unfairly infer.

The History of the Development

The purpose of the following recitation of the history of the development is to

("MCLP") an Ontario Limited Partnership.

rooms were then leased back to him as a hotel operator.

rooms it was leasing and (later) managing.

property owned by Mr. Mauerbauer.

ultimately achieved by a joint venture with Mr. Morales.

exchange for shares and with shareholder approval.

venture with Mr. Morales.

are adjacent to the Sun Village Resort ("Treasure Bluff").

2002 pursuant to a prospectus approved by the FSC.

reviewed and approved by the TCI FSC.

subject to shareholder approval.

waterslide; four restaurants, and three bars; among other amenities.

exchange for land contributions.

33. The Resort re-opened in February 2002.

to draft complaint documentation – at a cost of many hundreds of thousands of dollars.

The EMI Residence

around 2004 to construct a new development, known as the EMI Residence.

suites and spacious studios.

41. This timeshare product was referred to as the "Residence Product."

(ii) on a discretionary basis vested in the developer.

compensation for the use of their timeshare week(s).

materially misrepresents the agreement in their Amended Complaint.

by the developer and not otherwise.

financing and in no way can be considered a ponzi or "ponzi-like" scheme.

operated by sales agents (in this case Impact).

the timeshare owner's sales proceeds.

this percentage seems high but is an accepted cost of such a business.

parties were approved by resolutions of the shareholders of EMISVI.

The Cofresi Fractional Ownership Product

interests; and therefore, such fractional interests could be sold.

Henderson to assist the Impact Entities with compliance issues.

malfeasance including, at a minimum, claw back of the prepaid commisions.

the 13 four week periods in each year.

disclosure and purchase documents along with shareholder approval.

The Juan Dolio Property

destination beach area in the DR (the "Juan Dolio Property").

being operated as a deep discount hotel.

with approximately 241 rooms that would be sold as fractional interests.

new product called "Passport."

an ownership interest in a unit.

SVJD, namely, Cellwave Networks Limited ("Cellwave").

69. Cellwave was organized as a shareholder holding company.

various commissions and "overrides" be paid.

were the stated contractual commissions per the relevant agreements.

superseded any prior documentation.

price were to be paid upfront, from the 50% initial deposit.