IN RE AMERICAN FREEDOM SECURITIES INC., (Bankr.W.D.N.Y. 2001)

JOHN NINFO, Chief Judge, BankruptcyPage 2

BACKGROUND

In August 1998, Samuel A. Yacono ("Yacono"), under investigation by the United States Securities and Exchange Commission (the "Commission"), committed suicide. Prior to his death, Yacono was the sole and/or controlling shareholder of a number of corporations (the "Yacono Controlled Entities"), including American Freedom Securities, Inc. ("American Freedom"), Bloch Industries, Inc. ("Bloch"), First American Reliance, Inc. ("First American"), Money Managers, Inc. ("Money Managers"), Quaker Maid/Bloch Industries, Inc. ("Quaker Maid"), The Schoolhouse Group of Companies, Inc. ("Schoolhouse"), Unified Commercial Capital, Inc. ("Unified Commercial") and Wealth Security Planning, Inc. ("WSP").

On October 6, 1998 the Commission commenced an injunctive action (the "Civil Injunctive Action") in the United States District Court for the Western District of New York (the "District Court") against American Freedom, First American, Money Managers, Unified Commercial (the "Yacono Defendant Companies"), The Prudential Insurance Company of America ("Prudential") and William Penn Life Insurance Company of New York ("William Penn"). The Action requested, along with other relief, that the District Court impose a constructive trust on the proceeds (the "Insurance Proceeds") of five (5) insurance policies on the life of Yacono (the "Yacono Policies") and that the Proceeds be paid over for distribution to the defrauded investors in the Yacono Defendant Companies, rather than to the named beneficiaries of the Policies (the "Beneficiaries"). In the Action, the Commission asserted that Yacono and the Defendant Yacono Controlled Entities had been engaged in a "Ponzi" scheme.

A "Ponzi" scheme, as that term is generally used, refers to an investment scheme in which returns to investors are not financed through the success of the underlying business venture, but are taken from principal sums of newly attracted investments. Typically, investors are promised large returns for their investments. Initial investors are actually paid the promised returns, which attracts additional investors, Merrill v. Abbott (In re Indep. Clearing House Co., 41 B.R. 985, 994 n. 12 (Bankr. D. Utah 1984) (citation omitted).

In connection with the Civil Injunctive Action, the District Court appointed a temporary receiver (the "Receiver") for the Yacono Controlled Entities who was directed to file Chapter 7 bankruptcy cases for each of the companies. After Chapter 7 cases were filed by American Freedom on October 16, 1998, Bloch on November 19, 1998, First American on October 16, 1998, Money Managers on October 16, 1998, Quaker Maid on October 23, 1998, Schoolhouse on November 19, 1998, Unified Commercial on October 16, 1998 and WSP on October 30, 1998, Douglas J. Lusting, Esq. (the "Trustee") was appointed as the Chapter 7 Trustee in each of the bankruptcy cases.

On October 28, 1998, Prudential commenced an interpleader action against Steven M. Donsky, as Trustee for the October 14, 1993 Samuel A. Yacono Revocable Living Trust, and other defendants claiming an interest in the Yacono Policies issued by Prudential, which requested that it be permitted to deposit the proceeds of the Policies into the District Court. William Penn filed a similar interpleader action, and on February 4, 1999, the District Court directed Prudential and William Penn to deposit the Insurance Proceeds into the Registry of the Court.

The Prudential and William Penn interpleader actions will be referred to collectively as the "Interpleader Action."

In each of the Chapter 7 cases of the Yacono Controlled Entities, the Trustee applied to the Bankruptcy Court (the "Bankruptcy Court") for an order approving the employment of: (1) himself and his firm, Saperston Day, P.C. ("Saperston Day"), a regional law firm which employs more than seventy (70) attorneys; and (2) Warren B. Rosenbaum, Esq. ("Rosenbaum") and his firm, Shapiro, Rosenbaum, Liebschutz Nelson, LLP ("Shapiro, Rosenbaum"), to serve as attorneys for the Trustee.

The following representations were included in each application (the "Retention Applications") filed by the Trustee for the approval of the employment of himself and Saperston Day, as attorneys for the Trustee:

SPECIAL FACTS SHOWING NECESSITY FOR SUCH EMPLOYMENT:

This case involves potential fraudulent conveyances, preferences, estate, securities and a variety of issues. Although certain matters will be handled by the separate appointment of special counsel, there will be a number of legal matters that may need attention throughout the bankruptcy case of a specific and/or general nature. . . .

PROFESSIONAL SERVICE TO BE RENDERED:

Specific or general services as may be required throughout the case. It is anticipated that there will be assistance provided to certain special counsel in investigating, litigating and seeking to preserve assets as the case proceeds. . . .

Although it is completely understood that ALL COMPENSATION IS SUBJECT TO COURT APPROVAL, the maximum compensation (emphasis added) the firm to be employed typically receives is $195.00 per hour (emphasis added) for Douglas J. Lustig, Esq.

Each of the Retention Applications filed by the Trustee for the appointment of Rosenbaum and Shapiro, Rosenbaum included the following representations:

SPECIFIC FACTS SHOWING NECESSITY FOR SUCH EMPLOYMENT:

. . . One of the primary sources of funds which may be available to satisfy investors and other creditor claims are approximately $4,000,000 in the proceeds of life insurance policies purchased by Yacono with the proceeds of his allegedly fraudulent scheme. As Yacono purchased the policies with the money illegally obtained from investors, the proceeds of the policies should be subject to a constructive trust for the benefit of those defrauded. The other sources of funds which may be available to satisfy investor claims are potential fraudulent transfers, transfers made in the breach of fiduciary duties, preferential transfers to insiders and others and the recovery of pre-petition receivables on behalf of the debtor.

The success of the Trustee's efforts at recovery of funds with which to pay investors and other creditors will be dependent, in part, on the aggressive pursuit of claims in behalf of the debtor with the assistance of knowledgeable and experienced counsel. . . .

PROFESSIONAL SERVICE TO BE RENDERED;

Investigation and recovery of insurance proceeds, pre-petition receivables, preferences, fraudulent conveyances and recovery of damages for potential Securities Laws violations. . . .

Although it is completely understood that ALL COMPENSATION IS SUBJECT TO COURT APPROVAL, the maximum compensation (emphasis added) the person to be employed typically receives for matters such as this is $185.00 per hour (emphasis added).

After the Office of the United States Trustee (the "UST") reviewed the Retention Applications and consented to the appointments of the Trustee, Saperston Day, Rosenbaum and Shapiro, Rosenbaum, the Bankruptcy Court entered orders approving their employment. However, on the October 20, 1998 Order Approving the Employment of the Trustee and Saperston Day (the "Approval Order"), which was the first of the orders entered by the Bankruptcy Court approving their employment in the cases of the Yacono Controlled Entities, the Court added the following language: "Not to duplicate the services of special counsel approved by Order of 10/20/98."

In early 1999, the Trustee interposed a cross-claim in the Interpleader Action (the "Trustee's Constructive Trust Claim"), which asserted that the District Court should impose a constructive trust on the Insurance Proceeds for the benefit of all of the creditors of the Yacono Controlled Entities, not just the investors in the Yacono Defendant Companies as requested by the Commission.

On February 1, 2000, the Trustee and the Commission entered into a settlement agreement (the "Settlement Agreement") which provided that any Insurance Proceeds recovered by either the Trustee or the Commission in the Civil Injunctive Action or the Interpleader Action would be placed into an "Insurance Recovery Fund" that would be distributed: (1) first, to pay the costs and expenses of the Trustee incurred in connection with the recovery, including the reasonable attorneys' fees and expenses of the attorneys for the Trustee; (2) next, to pay a capped commission to the Trustee; (3) then, eighty percent (80%) of the remaining balance would be used to pay a pro rata distribution on the claims of the investors in the Yacono Defendant Companies; and (4) last, the remaining balance would be used to pay a pro rata distribution on the claims of all of the creditors of the Yacono Controlled Entities, including the claims for any unpaid amounts still due to the investors of the Yacono Defendant Companies.

The Settlement Agreement also provided that the attorneys for the Trustee would "seek compensation for their services in this litigation pursuant to Sections 327, 328, 330 and 331 of the Bankruptcy Code," but it did not specifically provide whether the application for compensation would be brought before the District Court, which had jurisdiction over the Insurance Proceeds from which the compensation would be paid, or the Bankruptcy Court, which had authorized the employment of the attorneys and. was clearly the "Court" referred to in the Retention Applications that was to approve any compensation for acting as an attorney for the Trustee.

After the Commission, the Trustee and the Beneficiaries entered into a global settlement agreement regarding the Insurance Proceeds (the "Global Settlement Agreement"), which provided for approximately $4,200,000.00 or ninety-four percent (94%) of the possible Insurance Proceeds to be paid into the Insurance Recovery Fund, the parties, in a joint application to the District Court and the Bankruptcy Court, sought approval of the Global Settlement Agreement. On December 20, 2000, at a joint hearing, the District Court and the Bankruptcy Court approved the Global Settlement Agreement. On the same date, notwithstanding that Section 330 of the Bankruptcy Code requires notice to the parties-in-interest and a hearing, the Trustee, Saperston Day, Rosenbaum and Shapiro, Rosenbaum applied ex parte to the District Court for awards of compensation for their services rendered and expenses incurred in connection with the Civil Injunctive Action and the Interpleader Action. The requests for compensation were supported by written applications (the "District Court Fee Applications"), which included detailed time records (the "Timesheets") setting forth the services performed by the attorneys for the Trustee.

Although the notice of the joint hearing to approve the Global Settlement Agreement was served upon all creditors, it contained no notice of the amounts being requested as compensation by the attorneys for the Trustee.

Notwithstanding that the Trustee in the Retention Applications for himself and Saperston Day had represented that the maximum compensation typically received for their legal services was $195.00 per hour, the Trustee and Saperston Day in their District Court Fee Application requested that they be compensated for 301.1 hours of services at the rate of $250.00 per hour, together with a fee enhancement of $184,725.00, for a total compensation for services performed of $260,000.00.

Notwithstanding that in the Retention Applications for Rosenbaum and Shapiro, Rosenbaum, the Trustee had represented that the maximum compensation typically received for the matters in question was $185.00 per hour, Rosenbaum and Shapiro, Rosenbaum in their District Court Fee Application requested that they be compensated for their 432.4 hours of services at the rate of $250.00 per hour, together with a fee enhancement of $281,900.00, for a total compensation for services performed of $390,000.00.

The UST and the Commission vigorously objected to the District Court Fee Applications and asserted that: (1) The Trustee and Saperston Day should be compensated only at an hourly rate of $195.00, the maximum hourly rate set forth in their Retention Applications; (2) Rosenbaum and Shapiro, Rosenbaum should be compensated only at an hourly rate of $185.00, the maximum hourly rate set forth in the Retention Applications, which appeared to be the hourly rate negotiated by the Trustee when he hired them as special counsel; (3) based upon the services rendered and the standards set forth in Section 330 and relevant case law, reasonable and appropriate compensation for the Trustee, Saperston Day, Rosenbaum and Shapiro, Rosenbaum should be based upon the application of a lodestar (their respective $195.00 and $185.00 hourly rates times the number of actual and necessary hours expended); (4) there were not the rare and exceptional circumstances presented that would warrant the District Court, in its discretion, making an upward adjustment or enhancement to a lodestar compensation in order ensure that the attorneys for the Trustee were adequately and fairly compensated for the services they performed; (5) although Yacono's financial dealings were complex, the legal and factual issues presented in the Civil Injunctive Action and the interpleader Action were relatively straightforward and not complex; (6) although the attorneys for the Trustee may have provided quality legal services, they merely assisted the Commission in prosecuting constructive trust claims; and (7) there appeared to be some trustee services included in the District Court Fee Applications of the Trustee and Saperston Day that should not be compensated for as if they were attorney for the Trustee services.

On January 12, 2001, the District Court entered a Decision and Order (the "District Court Order") that: (1) determined that under the terms of the Settlement Agreement the compensation of attorneys for the Trustee for services in connection with the Civil Injunctive Action and the Interpleader Action were to be governed by the provisions of Sections 327, 328, 330 and 331 of the Bankruptcy Code; (2) noted that the Bankruptcy Court had familiarity with the procedural and substantive requirements of these professional compensation Sections of the Bankruptcy Code; (3) remanded to the Bankruptcy Court the determination of the reasonable compensation to be awarded to the attorneys for the Trustee; and (4) noted that in its opinion excellent service had been performed by The Trustee and Rosenbaum in bringing these complex matters to a satisfactory conclusion.

On January 26, 2001, in accordance with the District Court Order, Saperston Day and Shapiro, Rosenbaum filed applications with the Bankruptcy Court (the "Bankruptcy Court Fee Applications") for awards of compensation for their services performed in connection with the Civil Injunctive Action and the Interpleader Action. In the Bankruptcy Court Fee Applications, which included declarations by Rosenbaum (the "Rosenbaum Declaration") and by the Trustee (the "Trustee Declaration") and a Trustees Memorandum of Law (the "Memorandum"): (1) Shapiro, Rosenbaum requested total compensation of $270,250.00 representing a lodestar of $108,100.00 (432.4 x $250.00 per hour), together with a fee enhancement of $162,150.00; a lodestar compensation of $108,100.00 times a 2.5 multiplier; and (2) Saperston Day requested total compensation of $188,187.50, representing a lodestar of $72,275.00 (301.1 x $250.00 per hour), together with a fee enhancement of $112,912.50; a lodestar compensation of $72,275.00 times a 2.5 multiplier.

In their Declarations and Memorandum, the attorneys for the Trustee, in support of their Applications and requests for compensation, asserted that: (1) by any standard, the Global Settlement, reached as a result of the joint litigation efforts of the Commission, the Trustee and the attorneys for the Trustee, represented an exceedingly favorable result which eliminated: (a) the delays and costs of any further litigation; and (b) the risks of a less favorable result after trial; (2) the risks of trial were Significant, since certain of the legal theories asserted by the Commission and the Trustee were based upon issues of law not fully settled in New York State, and there were significant factual issues that might have to be resolved at trial; (3) the fees requested by the attorneys for the Trustee in the District Court had been reduced in the Bankruptcy Court by $191,562.50, approximately thirty percent (30%), in response to the opposition filed in the District Court by the Commission and the UST;

(4) even though the potential for recovery was far from certain at the onset of the litigation, the attorneys for the Trustee put aside work on other more immediately compensable matters, and devoted substantial time and energies in prosecuting the Trustee's Constructive Trust

Claim; (5) the legal services required to effectively prosecute the Trustee's Constructive Trust Claim were unique and challenging; (6) the constructive trust claims of the Commission and the Trustee had to be built from the ground up; (7) no one surviving individual had knowledge of the workings of the entire "Ponzi" scheme, which necessitated the interviewing and/or taking of depositions of a large number of material witnesses; (8) most of the Beneficiaries were represented by highly skilled and aggressive counsel; (9) prosecuting the Trustee's Constructive Trust Claim was complicated by the claims of the Commission which were asserted to favor only the investors in the Yacono Defendant Companies, rather than all the creditors of the Yacono Controlled Entities; (10) it was only when the Commission and the Trustee entered into the Settlement Agreement that there was a reasonable likelihood that the Trustee might recover any of the Insurance Proceeds; (11) the attorneys for the Trustee along with th

e Trustee and the attorneys for the Commission, jointly developed legal theories, planned discovery and developed strategy and tactics; (12) under the Settlement Agreement, the Trustee's attorney's fees were limited to $205.00 per hour only for services rendered in connection with making distributions from the Insurance Recovery Fund, not for services rendered in connection with the Civil Injunctive Action and the Interpleader Action; (13) the case was appropriate for the application of a multiplier factor or fee enhancement because: (a) there was a substantial recovery for creditors; (b) there was a joint effort by the attorneys for the Trustee and the Commission's staff which resulted in the substantial recovery; (c) the Trustee's Constructive Trust Claim was fully litigated to a settled conclusion; (d) without minimizing the Commission's role, the attorneys for the Trustee aggressively pursued his Constructive Trust Claim to conclusion for the benefit of investor and non-investor creditors; (e) the attorneys for the Trustee had devoted an extraordinary amount of time, energy and concentration to these matters, which required that they put aside other cases; (f) the reputation of the attorneys for the Trustee, which is that they aggressively pursuing litigation to a conclusion, made the prospect of a favorable settlement more likely; (g) the litigation was prosecuted by the attorneys for the Trustee on a conting

ency basis; (h) the Retention Applications "simply recite that the customary hourly rate charged was . . ., " which did not confine the attorneys for the Trustee to compensation at that rate for legal services in connection with the Civil Injunctive Action and the Interpleader Action; (i) the attorneys for the Trustee performed services without knowing whether the Trustee would recover any of the Insurance Proceeds; (j) when the Settlement Agreement was approved by the Bankruptcy Court and the Global Settlement Agreement approved by the District Court and the Bankruptcy Court, all creditors were given notice that there would be compensation awarded to the attorneys for the Trustee, and no creditor objected to the fact that compensation would be awarded; (k) the compensation for the attorneys for the Trustee should be based upon the full recovery of approximately $4.2 million, not just the amount that will be paid to non-investor claimants; (1) the attorneys for the Trustee performed under a real risk of nonpayment, different than the risk of nonpayment that counsel for bankruptcy trustees face in typical cases where there is a predetermination by counsel that there is a high likelihood of success on the merits before they agree to be retained; and (m) in the District Court Order, the Court noted that the constructive trust litigation involved complex matters; (14) a "common fund approach" was the

appropriate and preferable method for determining compensation in connection with the services performed by the attorneys for the Trustee in the Civil Injunctive Action and the Interpleader Action; (15) the services performed by Shapiro, Rosenbaum and Saperston Day were not duplicative of each other; (16) there was no dispute that the services for which compensation was sought were actually rendered, nor, to the knowledge of the attorneys for the Trustee, was there a dispute that the services were necessary to the proper prosecution of the joint efforts of the Commission and the Trustee in the Civil Injunctive Action and the Interpleader Action; (17) the experience and ability of the attorneys for the Trustee justified an hourly rate of $250.00 in connection with any lodestar analysis; (18) even if a common fund or percentage of recovery method were not found by the Bankruptcy Court to be the appropriate and preferable method for compensating the attorneys for the Trustee, the facts and circumstances presented were such that it would be appropriate to award compensation based upon a lodestar plus a multiplier or fee enhancement basis; (19) a $250.00 hourly rate would be appropriate to reflect the reputation, experience and previous success of the attorneys for the Trustee, and would represent a competitive market hourly rate for cases involving complex litigation; (

20) a multiplier or fee enhancement analysis would be appropriate because an excellent and substantial recovery was obtained by the efforts of the attorneys for the Trustee, and there was a substantial risk of litigation and nonpayment; and (21) the failure to compensate the attorneys for the Trustee for assuming a material risk of nonpayment would unjustly enrich the creditors of the bankruptcy estates, because they would have been provided with valuable legal services at below marketplace rates, and it would discourage experienced attorneys from pursuing such claims on behalf of bankruptcy trustees in the future.

On February 23, 2001, after the UST had renewed her opposition to the request for compensation by the attorneys for the Trustees by relying upon the opposition which she interposed in the District Court, the Commission once again tiled opposition to the request for compensation by the attorneys for the Trustee, which: (1) asserted that any award of compensation beyond a lodestar amount, based upon a common fund, percentage fee enhancement approach, was inappropriate under the facts and circumstances of this case; (2) even after the downward modification of their requests, the compensation sought by the attorneys for the Trustee, equating to approximately $600.00 per hour, was excessive; (3) it was the Commission, not the attorneys for the Trustee, that carried the "laboring oar" with respect to the constructive trust litigation; (4) an award of compensation to the attorneys for the Trustee that exceeded a lodestar amount would be against the public interest, because it would undermine the efforts of the Comm

ission to ensure a maximum recovery for the defrauded investors; (5) the prosecution of the constructive trust claims of the Commission and the Trustee was not common fund litigation, and any analogy to common fraud cases in setting compensation would be inappropriate; (6) the attorneys for the Trustee simply assisted the Commission, and the best measure of the value of that assistance was an award of compensation based upon a lodestar amount; (7) the accountants for the Trustee, who performed valuable services and did extensive and excellent work, did not request, and were not awarded, compensation by the District Court based upon a common fund, multiplier or fee enhancement approach; (8) nothing in the Retention Applications indicated that the attorneys for the Trustee were being retained on a contingency basis; (9) there was no greater risk in assisting the Commission in prosecuting its constructive trust claim and pursuing the Constructive Trust Claim of the Trustee, than in any other case where attorneys prosecute claims on behalf of a trustee;, — and (10) awarding compensation to the attorneys for the Trustee beyond a lodestar amount would:

(a) discourage the Commission in the future from utilizing bankruptcy proceedings as a means to effect a distribution to defrauded investors; and (b) encourage the Commission to utilize equity receiverships to ensure that a maximum recovery was obtained for defrauded investors.

DISCUSSION

I COMMON FUND APPROACH

I find that the use of a common fund approach to determine an award of reasonable compensation for the services the attorneys for the Trustee performed in connection with the Civil Injunctive Action and the Interpleader Action would be inappropriate and not a proper exercise of discretion, because: (1) the District Court Order remanded the determination of a reasonable compensation to the Bankruptcy Court with instructions to make the determination in accordance with Sections 327, 328, 330 and 331 of the Bankruptcy Code, and did not even suggest that the determination should or could be based upon a common fund approach; (2) the "fund" that the attorneys for the Trustee had encouraged the Court to view as a Common Fund, the Insurance Proceeds, was: (a) already in existence and paid into the Registry of the District Court before the attorneys performed any substantial services; and (b) not created by the efforts of the attorneys; (3) the Civil Injunctive Action and Interpleader Action litigation were simply a

bout how much of the previously created "fund" on deposit with the District Court would be awarded to the Beneficiaries, the claims of unpaid investors in the Yacono Defendant Companies or the claims of all of the creditors of the Yacono Controlled Entities; (4) the constructive trust legal issues, principally developed by the Commission, and the tracing financial issues, principally addressed by the Commission and the forensic accountants, were straight forward and not complex, even though it may have required a substantial amount of time to organize and prosecute them, and the settlement negotiations conducted do not appear to have been any more difficult than in most other commercial or bankruptcy related litigation with multiple claimants; (5) nothing in the record indicates that prior to the filing of their District Court and Bankruptcy Court Fee Applications, the attorneys for the Trustee in any way indicated to the District Court, the Commission, the creditors of the Yacono Controlled Entities, the UST or the Bankruptcy Court that they were performing services on behalf of the Trustee in connection with the Civil Injunctive Action and the Interpleader Action with the expectation that their compensa

tion would be based upon a common fund approach; (6) nothing in the record indicates that the Trustee retained the attorneys for the Trustee with the expectation that their compensation for services performed in connection with the Civil Injunctive Action and Interpleader Action would be based upon a common fund approach; (7) there was nothing in the Retention Applications that indicated to the Bankruptcy Court or the UST that an award of compensation would be requested by the attorneys for the Trustee for the services performed in connection with the Civil Injunctive Action and the Interpleader Action based upon a common fund approach; and (8) the use of a common fund approach, as suggested by the attorneys for the Trustee, would unfairly give them, rather than the creditors of the Yacono's Controlled Entities, the benefit of all of the efforts of the Commission.

II PERCENTAGE, FEE ENHANCEMENT OR MULTIPLIER APPROACH

In In re Interco Systems, Inc., 206 B.R. 63 (Bankr. W.D.N.Y. 1997), this Bankruptcy Court held that only in rare and exceptional circumstances would the Court approve a fee enhancement to an award of compensation based upon a lodestar amount, and, if it did, it would only be where an attorney for a trustee achieved exceptional results and the Court, in its discretion, felt that after application of a lodestar billing analysis a professional had still not been adequately and fairly compensated.

I find that the use of a fee enhancement, percentage or multiplier approach to an award of compensation based upon a lodestar amount for the services performed by the attorneys for the Trustee in connection with the Civil Injunctive Action and the Interpleader Action would be inappropriate and not a proper exercise of discretion, because: (1) although in the District Court Order the Court stated that the matters involved were complex, I agree with the Commission and the UST that the services performed were not any more complex than services routinely performed by attorneys for trustees in cases where: (a) the financial affairs of a debtor are complex; (b) there are multiple parties involved in a litigated matter; and (c) there are difficult settlement negotiations involved; (2) I am unaware of any fee enhancement being approved or awarded by a Bankruptcy Court to the attorneys for a trustee when there have been vigorous and valid objections interposed by fiduciary parties in interest, such as the objections interposed in this matter by the Commission and the UST, especially where, as in this case, the legal staff for one of the fiduciary parties in interest was intimately involved in the litigation and in the best position to evaluate the reasonab

le value of the services performed by the attorneys for the Trustee; (3) the attorneys for the Trustee are excellent individual attorneys and law firms, and if it were not for their experience, reputation and abilities, they would not, and should not, have been retained by the Trustee to perform the services in question; (4) if the attorneys for the Trustee did not perform exactly as they did, devoting the necessary time required to handle the matters in question and performing to the level of their reputation, experience and abilities, when determining an award of compensation based upon a lodestar amount, the attorneys might not even be awarded their customary maximum hourly rate; and (5) based upon all of the facts and circumstances of this case, an award of compensation based upon a lodestar amount will fully, reasonably and appropriately compensate the attorneys for the Trustee for the reasonable and necessary legal services that they performed.

III LODESTAR COMPENSATION

A. Overview

"Normally . . . the Lodestar Fee — the number of billable hours times reasonable hourly rates — reflects the novelty and complexity of the case, the experience and special skill of counsel, the quality of the representation and the results obtained." See, In re UNR Indus, Inc., 986 F.2d 207, 210 (7th Cir. 1993).

In determining the amount of reasonable compensation to be awarded in accordance with Section 330 of the Bankruptcy Code, the Bankruptcy Court must take into account all relevant factors, including whether the compensation is reasonable based upon the customary compensation charged by comparably skilled practitioners in cases other than those under this title.

In determining a reasonable hourly rate as part of a Lodestar analysis for the services performed by the attorneys for the Trustee in connection with the Civil Injunctive Action and the Interpleader Action, although the range of reasonable hourly rates that might be charged by comparably skilled practitioners performing the services might include an hourly rate of as high as the $250,00 hourly rate requested by the Attorneys for the Trustee: (1) in their Retention Applications, it was represented to the Bankruptcy court, the UST and all parties in interest, including creditors, given the fact that the Applications were on file with the Court, that the "maximum" customary rate charged was $185.00 for Rosenbaum and. Shapiro Rosenbaum and $195.00 for the Trustee and Saperston Day; and (2) these represented "maximum" customary hourly rates are well within the range of reasonable hourly rates charged for handling these kinds of matters by comparably skilled practitioners in the areas covered by the Western District of New York.

Although the term maximum customary rate charged may seem ambiguous: (a) the use of the work "maximum" clearly imposes a cap; and (b) the term cannot mean that there could be more than one maximum hourly rate.

In arriving at an award of compensation based upon a Lodestar amount, since, while performing their services in connection with the Civil Injunctive Action or Interpleader Action, the attorneys for the Trustee never: (1) amended their Retention Applications; or (2) otherwise advised the District Court, Bankruptcy Court, Commission, UST or creditors that they did not believe that they were bound by the representations in their Applications that services were being performed at maximum hourly rates of $185.00 and $195.00 respectively, those maximum hourly rates are now binding upon the attorneys for the Trustee.

The attorneys for the Trustee in their Bankruptcy Court Declarations and Memorandum asserted that the Retention Applications only stated that these hourly rates were their customary hourly rates for those services, failing to: (1) note that the word "maximum" was used in the Applications; or (2) make any attempt to explain why the use of the word "maximum" did not result in a cap on their hourly rates.

In determining the reasonable and necessary hours that are compensable based upon a Lodestar amount, the Bankruptcy Court Fee Applications of Rosenbaum and Shapiro, Rosenbaum must be reviewed differently than those of the Trustee and Saperston Day, because; (1) the Trustee and Saperston Day were put on notice by the Bankruptcy Court in the Approval Order that their requests for awards of compensation would be scrutinized to ensure that there was no duplication of legal services; (2) the Trustee, since he was at all times acting both as the Trustee and as an attorney for the Trustee, was under a duty, unlike special counsel, to ensure that there was no duplication of legal services; and (3) Rosenbaum and Shapiro, Rosenbaum were under no obligation to: (a) review the Bankruptcy Court Fee Applications of the Trustee and Saperston Day to ensure that they were consistent with their applications; or (b) provide sufficient detail in any entries on their Timesheets to make it clear that there had been no duplication of legal services; (4) the Trustee, since he was at all times acting both as the Trustee and as an attorney for the Trustee on notice of the Bankruptcy Court's concern that there be no duplication of legal services, was under a duty to carefully review all of the fee applications for all of the attorneys for the Trustee to ensure that the Bankruptcy Court Fee Application of the Trustee and Saperston Day made it clear, if there could be any appearance that there had been a duplication of legal

services, why the services performed by the Trustee and Saperston Day were reasonable, necessary and not duplicative, — and (5) the Trustee, since he was at all times acting both as the Trustee, who had retained special litigation counsel, and as an attorney for the Trustee, was under a duty to carefully review the Bankruptcy Court Fee Application of the Trustee and Saperston Day to ensure that the Application fully explained why each and every billed legal service was properly categorized as an "attorney service" rather than as a "trustee service."

B. The Fee Application of Rosenbaum and Shapiro, Rosenbaum

With some minor exceptions, neither the Trustee, UST Commission nor any creditors asserted that any of the time expended by Rosenbaum and Shapiro, Rosenbaum, or any of the services performed by Rosenbaum and Shapiro, Rosenbaum were unnecessary, unreasonable, duplicative or otherwise not compensable. After a detailed review of the Timesheets included in the Bankruptcy Court Fee Application of Rosenbaum and Shapiro, Rosenbaum, I find that all of the services performed were reasonable and necessary services, and compensable as an attorney for the Trustee.

At the hearing on the Bankruptcy Court Fee Applications, an attorney for one of the investor creditors asserted that any award of compensation in excess of a Lodestar amount would be excessive.

Although the UST questioned the time expended by Rosenbaum and Shapiro, Rosenbaum in preparing their Fee Applications, I assume that the time they spent attempting to justify an award of compensation for the attorneys for the Trustee based upon approaches other than a Lodestar amount was pursuant to instructions from the Trustee.

Although there is some time included in the Bankruptcy Court Fee Application of Rosenbaum and Shapiro, Rosenbaum for services performed prior to their appointment as attorneys for the Trustee, I believe that, given all the facts and circumstances presented, compensating them for those services is appropriate.

As I stated at the hearing on the Bankruptcy Court Fee Applications filed by the attorneys for the Trustee, Rosenbaum is recognized as one of the finest commercial litigators in the Western New York area, and he and his partners consistently provide the highest level of legal services as special counsel to various panel Trustees.

An award of compensation for Rosenbaum and Shapiro, Rosenbaum, based upon a Lodestar amount, which I find represents a reasonable and appropriate compensation, based on all the facts and circumstances presented and after taking into account all of the factors required under Section 330, is $80,000.00, which represents $185.00 per hour times 432.4 billed hours worked and found to be reasonable and necessary, slightly rounded up.

C. The Fee Application of the Trustee and Saperston Day

An award of compensation for the Trustee and Saperston Day, as attorneys for the Trustee, based upon a Lodestar amount without any deductions, would be $58,714.50, which represents $195.00 per hour times 301.1 billed hours (the "Initial Lodestar Compensation").

After: (1) reviewing in detail the Timesheets submitted with the Bankruptcy Court Fee Application of the Trustee and Saperston Day, copies of which are attached as "Appendix A"; and (2) taking into account all of the factors required under Section 330 and the facts and circumstances presented, I have made deductions from the Initial Lodestar Compensation in the total amount of $31,434.00 for:

(1) billed services that I find are trustee services rather than attorney for the trustee services, because the Trustee has not met his burden to fully explain to the Court why these services, which appear to be administrative services routinely performed by trustees in these kinds of cases where they have hired special litigation counsel, are attorney services;

(2) billed services that indicate that there was a conference or telephonic conference with special counsel, but the conference was not billed by special counsel;

(3) billed services that I find are duplicative of the services performed by special counsel, because the Trustee has not met his burden to fully explain to the Court why these services were reasonable, necessary and not duplicative of services performed and billed by special counsel;

(4) billed services where the time reported exceeds the time billed by special counsel for performing the same services;

(5) billed services where I find that the time reported exceeds the reasonable and necessary time that should have been expended by the attorney billing the service given the attorneys experience and expertise;

(6) billed services that do not appear to be sufficiently related to the Civil Injunctive Action and the Interpleader Action, (this is without prejudice to an application for compensation being made by the Trustee for these services at a different time); and

(7) billed services that appear to be covered by other time entries of the Trustee and Saperston Day, because the Trustee has not met his burden to fully explain why these are not inadvertent double billings.

With respect to the deductions made for billed services marked as (2) (not reported by special counsel), the Trustee and Saperston Day shall have 20 days from the date of the entry of this Decision Order to provide a certification by special counsel that the conferences reported in fact took place, but special counsel was either directed by the Trustee not to report the services or it otherwise elected not to report the services, along with an explanation from the Trustee as to why those services, presumably duplicative, were different from other apparently duplicative services that were billed by the Trustee and Saperston Day. If a certification is received by the various attorneys for the Trustee, the Court will reconsider awarding compensation for the entries in question.

After the deductions to the Initial Lodestar Compensation set forth on Appendix "A", I find that a reasonable and appropriate compensation for the services the Trustee and Saperston Day, performed as attorneys for the Trustee in connection with the Civil Injunctive Action and the Interpleader Action is $27,250.00, which represents $195.00 per hour times 139.70 billed hours worked and found to be reasonable and necessary, slightly rounded up.¹¹

CONCLUSION

Rosenbaum and Shapiro, Rosenbaum are awarded a reasonable compensation of $80,000.00, along with disbursements of $14,251.20, and the Trustee and Saperston Day are awarded a reasonable compensation of $27,250.00.

IT IS SO ORDERED.

Appendix A FIRST AMERICAN RELIANCE INC.

CASE NO. RB30397

Key

CYS-Celeste Yacono-Sharpe DG-David Gold DJL-Douglas J. Lustig FAR-First American Reliance GB-Gail Barwald GEP-Glenn E. Pezzulo JEM-Joan E. MeKown JF-Joseph Frate JGV-James G. Vazzana JJG-John J. Graubard JM-Jim Morasco JR-Joan Russell KK-Kathleen Keegan MK-Marjorie Keegan

MS-Mark Schoenfeld PN-Phillip Nuciola PW-Paul Warren SAY-Samuel A. Yacono SEC-Securities Exchange Comm SGY-Salvatore G. Yacono SMD-Steven M. Donsky TAW-Thomas A. Warnick UCC-Unified Commercial Capital WE-Wade Eaton WR-Warren Rosenbaum WS-William Sepka. 9/29/98 Review correspondence com WR regarding the representation of investors who placed funds with SAY his related entities .2 10/6/98 Review SEC's complaint against FAR, Money Managers Inc., UCC and 2.0 American Freedom Securities Inc. and Memorandum of Law 10/12/98 Review correspondence from WR regarding actions commenced against .7 SAY, FAR, Money Managers Inc., American Freedom Securities, The Schoolhouse Group of Companies UCC and related Yacono entities by the SEC 10/14/98 Review correspondence from PW regarding request for access to the .5 investigative and other non-public files of the SEC related to the SEC v. FAR case 0/14/98 Conference at Schoolhouse with SEC attorneys, WR, PW, etc. 4.0 0/15/98 Review correspondence from PW regarding submission of original .3 bank records with respect to SAY revocable Living Will Trust pursuant to the SEC's first request for productions 0/15/98 Review correspondence from PW regarding freezing of any and all .3 accounts in the name of either SAY or SAY Living Will Trust at First National Bank and a request for statements of account from 1996 to present 0/16/98 Review Wayne County Surrogate Court resignation of Trustee filed .3 by Jeffrey Johnston on behalf of SMD, Trustee of the SAY Revocable Living Trust SUBTOTAL: 8.3 10/16/98 Telephone conference with WR regarding Certificate of Registration 3 10/20/98 Review correspondence from JJG, Sr. Attorney Enforcement Division, .2 Branch 11 of the SEC regarding the Notice of Appearance request for notices filed by the SEC with the Clerk of the US Bankruptcy Court for the Western District of N.Y. 10/20/98 Prepare Trustee correspondence to SEC Attorney Graubard regarding .5 the appointment of the Trustee and request for access to the investigative and other non-public files of the SEC related to the case of SEC v. FAR 10/20/98 Review Notice of Appearance and request for notices submitted by .2 JJG, Sr. Arty for SEC in the FAR bankruptcy 10/20/98 Conference with WR and John Liebschutz regarding Surrogate Court 1 .0 strategy regarding Yacono Estate 10/21/98 Various and multiple conferences with WR, PW, District 5.5 Court, Bankruptcy Judge, US Trustee, etc. 10/21/98 Review Order of preliminary injunction, continued asset freeze and 2.0 other relief 10/22/98 Review draft and edit proposed order and final Order extending 2 5 appointment of temporary receiver to QM/BI and granting other relief 10/23/98 Review correspondence from PW regarding Court order extending .2 appointment of temporary receiver to QM/BI and discontinuation of the Mercury Capital Corp. foreclosure action against Bloch Industries Inc. et al. 10/23/98 Conference with JM, PW at the Schoolhouse to identify 4.9 location of records and planning, etc. 10/26/98 Conference at Schoolhouse with JM and James Leisner and 2 1 follow-up with WR 10/27/98 Surrogate Court appearance, etc. 2.6 10/28/98 Conference with WR .5 11/2/98 Review correspondence from WR of regarding the filing by Daniel .3 Carroll on behalf of his client, Prudential Insurance Company of America, of a defensive in pleader action regarding the ownership and disposition of proceeds of the life insurance policies on SAY 11/2/98 Conference with WR regarding intervention and review 2.5 correspondence from WR regarding the appointment of the Trustee and the Trustee's intervention in the SEC v. FAR SUBTOTAL: 25.3 11/2/98 Review SEC's correspondence from Attorney Graubard regarding the .2 SEC's proposed Order of Preliminary Injunction, continued asset freeze and other relief 11/4/98 Review Motion to intervene as party defendants filed by GB, JF, DG 1.0 and PN 11/4/98 Review Motion to intervene as party defendants filed by CYS and SGY 1.5 11/4/98 Review proposed November Court Order regarding preliminary 1.0 injunction continued asset freeze and other relief 11/4/98 Telephone conference with WR regarding proposed order regarding .5 preliminary injunction 11/4/98 Two telephone conferences with PW regarding status cases, SEC, .6 labor, etc. 11/5/98 Review correspondence from PW regarding notices to Putnam .4 Investments and Cantella Co. Inc. concerning the appointment of receiver, freeze of all debtor accounts and delivery of proceeds to the receiver 11/5/98 Review correspondence from WR concerning the SEC Proposed Order .9 relating to the preliminary injunction, continued asset freeze and Other relief 11/6/98 Review Court Order vacating November Order of preliminary injunction 1.5 continued asset freeze and other relief and review strategies going forward 11/10/98 Conference with P W, WR and forensic accountants 2.2 11/10/98 Conference with JM, James Leisner, PW, WR, regarding progress 11.0 status in immediate direction of Yacono matter 11/11/98 Review correspondence from Mark Malone regarding William Perm Life .3 Insurance Company's preparation of an in pleader action in the SEC v. FAR case 11/12/98 Review Order extending the filing date for William Penn Life .2 Insurance Company to file an interpleader action 11/12/98 Discussion and review proposed order extending appointment of 1.5 Tony Rivera 11/13/98 Review Motion by mortgagee's of the property owned by SAY, 1.0 revocable living Trust located at 97 West Utica Street, 201-203 West Eighth Street, 2815 Baird Road and 2825 Baird Road to publish notice of sale of the premises pursuant to a judgment of foreclosure and sale SUBTOTAL: 23.8 11/13/98 Review Court Order extending appointment of temporary receiver .3 to Bloch Industries, Inc. and The Schoolhouse Group of Companies and granting other relief 11/16/98 Review correspondence from JEM, Chief Counsel of the SEC, concerning .5 the SEC's grant of access to commission documentation in the matter of FAR and the limitations and scope of the access granted to the Trustee 11/16/98 Telephone call to S. Fallman regarding foreclosure .2 11/17/98 Telephone conference with JGV regarding estate issues 1.0 11/17/98 Review of correspondence from PW regarding the mechanic's lien .2 filed by Luther Nadler on the 2815 Baird Road property 11/18/98 Review submission of answer of intervening defendant Trustee .5 in bankruptcy 11/19/98 Review correspondence from WR regarding the naming of the Trustee as a defendant/claimant in Charles A, Reid's proposed interpleader .3 action in the case The Prudential Insurance Co of America v SMD et al and request for amendment of interpleader Complaint for the addition of the Trustee in order to avoid the Trustee's bringing an application to intervene in the interpleader action 11/20/98 Review Court Notice regarding motions to intervene as party .3 defendants and Pittsford Capital's Motion for Publication in the SEC v, FAR case 11/25/98 Review Notice of Appearance by counsel of WR on behalf of the .3 Trustee of FAR, Money Managers, UCC, American Freedom Securities, Wealth Securities Planning, QM/BI, in the case The Prudential Insurance Co of America v. SMD, MR, Daniel Shippers, Heather Yacono, John Lovato, Barry Wisset, GB, WS, DG, JF, SGY, PN, KK, CYS, Marjorie Edmuston, Joseph Sciontion, SEC and PW 11/25/98 Review correspondence from WR regarding Notice of Appearance in the .3 Prudential Insurance Co of America v. SMD et al proceeding 12/1/98 Review correspondence from Eugene Welch regarding the resignation .3 of SMD as Trustee of the SAY Revocable Living Trust etc. 12/3/98 Review Order by Judge Telesca extending the deadline for the SEC to .3 file an amended complaint 12/3/98 Conference with JM, PW concerning the format of records and 9.5 investor listings for submission SUBTOTAL: 14.0 12/4/98 Review correspondence from PW regarding request to Greentree .2 Financial Servicing Corp for all documentation 12/4/98 Review Notice of Motion for an order permitting the mortgagee of .5 property owned by the SAY revocable living trust located at 2825 Baird Road to publishing notice of sale of the premises submitted by Richard T. Williams II of Kaman, Berlove, Marafioti, Jacobstein Goldman, attorneys for JR 12/4/98 Review proposed Court Order allowing JR to continue foreclosure .2 action on 2825 Baird Road 12/7/98 Review correspondence from Anthony Danielle regarding his appearance .2 as counsel for defendant, Marie Edmuston in the case, The Prudential Insurance Co of America v SMD et al 12/8/98 Review correspondence from PW regarding the repossession of 1979 1.0 Cessna airplane to lien and supporting documentation 12/8/98 Review correspondence from WR regarding the filing of an Answer to .3 interpleader Complaint with claim in interpleader in behalf of the Trustee in the Prudential Insurance Co of America v. SMD et al matter 12/8/98 Review Answer of Trustee with claim in interpleader in the case The .4 Prudential Insurance Co of America v SMD, MR, Daniel Shippers, Heather Yacono, John Lovato, Barry Wisset, GB, WS, DG, JF, SGY, PN, KK, CYS, Marie Edmuston, Joseph Sciontion, SEC, PW and DJL 12/10/98 Review Complaint to collect pre-petition account receivable in the .3 case, DJL, Trustee v. Donna Zimmerman 12/11/98 Review December Order of Court regarding preliminary 1.0 injunction continued asset freeze and other relief 12/11/98 Telephonce conference with WR regarding Court order and going forward .5 12/12/98 Review Answer of Administrator CTA with claim in interpleader Of TAW .4 submitted by his attorney, JGV, in the case, The Prudential Insurance Co of America v. SMD, MR, Daniel Shippers, Heather Yacono, John Lovato, Barry Wisset, GB, WS, DG, JF, SGY, PN, KK, CYS, Marie Edmuston, Joseph Sciontion, SEC, PW, DJL and TAW 12/12/98 Review appearance by counsel submitted by JGV, on behalf of TAW, .2 Administrator CTA of the Estate of SAY, in the case of The Prudential Insurance Co of America v. SMD, MR, Daniel Shippers, Heather Yacono, John Lovato, Barry Wisset, GB, WS, DG, JF, SGY, PN, KK, CYS, Marie Edmuston, Joseph Sciontion, SEC, PW, DJL and TAW SUBTOTAL: 5.2 12/14/98 Review Motion by Canandaigua National Bank for relief from the 1.0 freeze imposed by the Court 12/14/98 Telephone conference with C. Brown, attorney for CNB .5 12/14/98 Review correspondence from JGV regarding JGV's Notice of Appearance .2 and Answer on behalf of TAW as Administrator CTA of the Estate of SAY 12/14/98 Review declaration of WR, attorney for Trustee in bankruptcy in .4 response to relief requested in Order to Show Cause dated November 1998 in the case, The Prudential Insurance Co of America v. SMD, MR, Daniel Shippers, Heather Yacono, John Lovato, Barry Wisset, GB, WS, DG, JF, SGY, PN, KK, CYS, Marie Edmuston, Joseph Sciontion, SEC, PW, DJL and TAW 12/14/98 Conference with WR; review interpleader pleading and response 1.0 to motion 12/10/98 Review SEC's Motion for Leave to Amend Complaint and response to 2.0 Order to Show Cause and amended Complaint 12/16/98 Review Answer and Affirmative Defense of relief defendant, The .2 Prudential Insurance Company of American submitted by its attorney, Charles A. Reid III 12/16/98 Review Answer to second amended interpleader Complaint filed .2 by defendant, Joseph D. Sciortino, by his Attorney, WE 12/16/98 Review correspondence from WE regarding his client, Joseph .5 D. Sciortino, Answer to second amended interpleader Complaint 12/17/98 Review correspondence from Richard T. Williams II regarding the .2 proposed Order of JR authorizing the publication and auction sale of the 2825 Baird Road premises 12/21/98 Conference with JM regarding strategy to remove valuables 7.5 from Schoolhouse premises and safe 12/22/98 Conference with WR regarding District Court insurance policy suits 1.0 12/29/98 Review correspondence from Michelle M. Bufano regarding .2 the Stipulation Extending Time to Answer and Answer of the relief defendant. Prudential Insurance Company of America 12/31/98 Review Stipulation Extending Time to Answer between Charles A. .2 Reid III, attorney for relief defendant, The Prudential Insurance Co of American and JJG of the SEC SUBTOTAL: 15.1 1/5/99 Review and prepare analysis of investor transfers between 3.7 companies (1.5) and conference with WR and Matthew M. Donsky examination results (2.2) 1/5/99 Conference with WR and JM regarding forensic examination of books 2.2 and records of debtor corporations 1/5/99 Conference with JM and WR regarding discussion and review of books of 2.2 the company and work product 1/6/99 Conference with JM, P W, John Reynolds at Schoolhouse regarding 3.0 auction, open items and updates 1/11/99 Telephone conference with JGV .1 1/13/99 Telephone conference with PW regarding status of SEC, etc. .3 1/13/99 Review correspondence from PW regarding payments received .2 1/14/99 Review material on SEC, estate issues, investor information, 1.5 etc. for matter 1/15/99 Conference with WR regarding review of all cases, litigation 5.0 strategy, investigations, the SEC, etc. 1/20/99 Telephone conference with PW regarding SEC action .3 1/20/99 Telephone conference with Leibshutz regarding SEC .1 1/21/99 Review correspondence from Gale L. Curtis of The Prudential .2 Insurance Company of America regarding receipt of Notice of Bankruptcy of PW 1/21/99 Review correspondence from Eldredge Fox Poretti regarding .5 details of professional services rendered 1/24/99 Review and edit Answer to First Amended Complaint with Counter 2.0 Claim and Cross-Claims of relief 1/26/99 Telephone conference with WR regarding case of strategies .8 1/26/99 Review correspondence from WR regarding a 30-day adjournment of the .2 SEC's Motion to Dismiss 1/27/99 Conference with WR regarding deposition of Fray, SEC, Motion .5 to Dismiss 2/1/99 Review correspondence from WR regarding adjournment of SEC's .2 Motion to Dismiss the Trustee's Counter Claim and affirmative defense SUBTOTAL: 22.8 2/4/99 Telephone conference with JGV regarding SEC appearance and .4 procedures 2/9/99 Review correspondence from PW regarding payments received by Mr. .1 Warren and payable to American Freedom Securities 2/26/99 Review correspondence from WR regarding Lascell's citation and .3 petition for appointment concerning the SAY revocable Living Trust 2/27/99 Review various mails, messages, issues concerning SEC status; 2.0 filing proof of claims, etc. 3/2/99 Telephone conference with WR regarding SEC possible agreement and .3 settlement 3/3/99 Review JGV letter to Judge Telesca, etc. regarding estate assets .3 3/3/99 Review SEC's correspondence from Attorney Graubard regarding the .3 joint request of the SEC and the Trustee to adjourn the SEC's Motion to Dismiss the Counter Claim of the Trustee 3/3/99 Review correspondence from JGV regarding the status of asset sales 1.2 3/12/99 Review correspondence from WR concerning the submission of .2(j) responding papers to the SEC's Motion to Dismiss the Trustee's Counter Claim and adjournment of the Motion 3/16/99 Review miscellaneous letters for PW, WR regarding SEC claim, etc. 1.3 3/22/99 Telephone conference update with WR regarding SEC claim, motions in .5 Federal Court 3/29/99 Review miscellaneous matters, telephone conference with JGV, .8 SEC matters, payments from A/R, etc. 3/30/99 Review correspondence from WR concerning the Trustee's and SEC's .2 joint application to adjourn the SEC Motion to Dismiss so that the matter could be settled 3/30/99 Review SEC issues, A/R on various companies, letter of response, etc. 1.0 4/1/99 Review compromise message from WR regarding SEC issues, status, .8 progress, etc. 4/5/99 Telephone conference with WR regarding Frate claims, etc. .8 4/6/99 Review correspondence from WR regarding review and investigation .2 of the liability of Gerald Frate to the Yacono entities and Lascell proposal SUBTOTAL: 9.7 4/9/99 Review correspondence from Lascell regarding Gerald Frate, the Yacono Trust and releases to be executed .2 4/12/99 Review SEC's correspondence from Attorney Graubard regarding the proposed Settlement Agreement between the SEC and the Trustee and 1.5 enclosing a copy of the proposed Agreement 4/14/99 Continued review of proposal by SEC and modification .5 4/20/99 Continued review of SEC settlement offer and modification. 1.2 4/21/99 Review and conference with WR regarding SEC issues; upcoming PTC with Judge, etc. 1.5 4/21/99 Conference with WR regarding SEC settlement 1.5 4/22/99 Review correspondence from WR concerning the Trustee's response to the SEC's draft Settlement Agreement (.4) and telephone conference .$ with WR and telephone conference with WR (.4) 4/22/99 Review relief defendant William Penn Life Insurance Companies, 1.0 Answer to First Amended Complaint with Counter Claim and Cross-Claims of relief defendant William Penn Life Insurance Co. and third-party Complaint submitted by Mark K. Malone 4/23/99 Review correspondence from Malone regarding payment of $2 million + .3 to the Clerk of the Court 4/23/99 Preparation and District Court conference; also conference with 2.5 WR, SEC, etc., JGV and many others 4/23/99 Telephone conference with JGV regarding estate issues .5 4/27/99 Review Proposed Order authorizing sale of property for the .5 liquidation of vehicles, automobiles, motorcycles, jet skis, snowmobiles and parts, coins, guns, watches owned by SAY, deceased, submitted by JGV 4/29/99 Review correspondence from WR regarding conditions imposed by the .3 Trustee, TAW, as Administrative CTA of the Estate of SAY, David M. Lascell, successor Trustee of the SAY Revocable Living Trust 5/3/99 Telephone conference with WR .1 5/3/99 Discussion with WR regarding Trustee issues, SEC settlement .5 5/4/99 Conference with WR prior to telephone conference with SEC 2.5 on settlement of restitution, etc. SUBTOTAL: 15.4 5/5/99 Review filings, review multiple correspondence, follow-up on 1.0 SEC meeting 5/6/99 Reviewing correspondence in SEC matter, reviewing file 1.5 5/6/99 Review correspondence from JJG regarding proposed settlement agreement revisions for discussion purposes and further 1.0 review by Bankruptcy Counsel Bambach and Assistant Regional Director Schoenfeld 5/7/99 Continued reviewing and editing SEC settlement draft 1.0 5/10/99 Continued reviewing and editing SEC counter offer .5 5/10/99 Review correspondence from WR regarding additions, .2 corrections, changes to the settlement agreement prepared by JG of the US SEC 5/11/99 Review Reply of plaintiff SEC to counter-claim of William Perm .2 Life Insurance Co of N.Y. submitted by JJG 5/11/99 Review WR correspondence regarding additional terms and changes .2 in provisions of the settlement agreement prepared by JJG in the SEC v. FAR case 5/12/99 Review correspondence from GEP regarding Mr. Pezzulo's .2 representation of KK in the SEC v. FAR case 5/12/99 Reviewing miscellaneous matters, SEC counter letter from WR, etc. 1.7 5/14/99 Discussion with WR regarding SEC settlement counter .5 5/14/99 Review correspondence from WR regarding settlement changes with .3 SEC 5/19/99 Review defendant, DJL, as Trustee in bankruptcy, Answer and cross .3 claims of relief defendant DJL as Trustee in Bankruptcy to cross claims of William Perm Life Insurance Co. of N.Y. submitted by WR 5/25/99 Review Answer of third party defendant PW to Cross-Claims of .3 William Perm Life Insurance Co of N.Y. in the SEC v. FAR et al case 5/27/99 Review correspondence from JJG regarding a revision of the .5 settlement agreement 6/1/99 Reviewing proposal and SEC stipulation 1.0 6/3/99 Telephone conference with WR's office; review of stipulation with SEC .5 SUBTOTAL: 10.9 6/28/99 Telephone conference with and review correspondence from WR .3 regarding DJL v. Frate execution of stipulation of settlement by the defendant and Attorney Cole 6/29/99 Telephone conference with Welch regarding status of SEC .5 preference issues, fraud action, etc. 7/2/99 Telephone conference with WR regarding status on SEC matters, etc. .5 7/6/99 Review WR correspondence concerning finalization of the .2 settlement agreement by the SEC in the case, SEC v. FAR 7/8/99 Review motion by counsel, correspondence by PW, SEC information, etc. 1.0 7/9/99 Review correspondence from JIG concerning the submission of notice .2 to Judge Telesca at the US District Court regarding the agreement between the Trustee and the SEC to dismiss the counter-claim filed by the defendant Trustee in the SEC v. FAR case 7/12/99 Telephone conference with WR regarding SEC settlement and adjourned .3 motion 7/14/99 Review notice from bankruptcy court regarding hearing date and time .1 in the SEC v. FAR, Prudential v. Donsky, et al case 7/19/99 Telephone conference with SEC, WR, etc. regarding litigation status .5 7/20/99 Review Proposed Order received from JJG concerning the .2 authorization of destruction of property 7/20/99 Review SEC and information for conference with Judge Telesca et al 1.0 7/20/99 Conference with Judge Telesca et al regarding SEC claim issues, etc. 1.0 7/23/99 Review correspondence from JGV regarding suggestions for .2 additional language in the proposed Order for the destruction of the weapons 8/3/99 Review multiple letters, information, correspondence, etc.: 2.0 review of certain remaining issues, SEC, accountant's fees, etc. 8/4/99 Review JGV correspondence to JJG/SEC regarding Surrogate Court 1.0 proceedings and the number of claims filed in the Surrogated Court proceedings, etc. 8/18/99 Conference with WR regarding strategies on various 2.2 issues, i.e. modifications, etc. 9/21/99 Review status of SEC claim issues, etc. with WR .3 SUBTOTAL: 11.5 10/29/99 Review response of Trustee in bankruptcy to successor Trustee's 2.0 statement of material facts not in dispute, Memorandum of Law in support of successor Trustee's motion for partial summary judgment and declaration in behalf of Trustee in response and in partial support of successor Trustee's motion for partial summary judgment on intra-beneficiary issues in the SEC 11/8/99 Review correspondence from Louis B. Cristo concerning the .3 substitution of counsel and request for adjournment of motions 11/12/99 Review correspondence from Louis B. Cristo concerning submission of .2 late papers etc. 11/17/99 Review response of Trustee with WR to interpleader plaintiff 1.3 statement of material facts not in dispute, Memorandum of Law in opposition to SGY and CYS's Motion for Summary Judgment Declaration in behalf of Trustee in opposition to motion for partial summary judgment made by SGY and CYS 11/17/99 Review material for conference with Volta, Attorney JGV; 2.0 conference with Volta regarding Yacono assets, etc. 11/22/99 Review Consent to Change Attorney submitted by Cristo substituting 2 Cristo as the attorney of record and replacing Frederick Gary as counsel for DG and PN 11/23/99 Review Notice of Motion, Statement of Facts, Affidavit of Cristo, 2.0 and Memorandum of Law in opposition to the successor Trustee's motion for summary judgment in support of the cross motion for summary judgment of interpleader plaintiffs, DG and PN, submitted by Louis B. Cristo of Trevett, Lenweaver Salzer 11/23/99 Review correspondence from Cristo regarding the executed consent .1 to change attorneys in regard to DG and PN 11/29/99 Review correspondence and discus with WR regarding a declaration in .8 behalf of the Trustee in bankruptcy and response of Trustee in bankruptcy o DG and PN's statement of material facts not in dispute, etc. 12/10/99 Review correspondence from WR concerning additions for the .2 Schedule A annexed to the Proposed Settlement Agreement between the Trustee and the SEC 12/21/99 Conference with WR regarding order and strategies going forward 1.0 1/4/00 Telephone conference with WR and status call with SEC, etc. .5 SUBTOTAL: 10.6 1/5/00 Review materials; conference with WR, JGV regarding outstanding 2.7 issues and matters to resolve in SEC matter, etc. 1/11/00 Review correspondence from Lascell regarding order adn .5 remaining issues 1/20/00 Telephone conference with WR regarding SEC and procedures, etc. .3 1/25/00 Review SEC's correspondence from attorney JJG concerning .3 presentation of the Trustee/SEC Settlement Agreement to the SEC for approval 1/25/00 Telephone conference with JJG regarding claim in various cases .3 1/26/00 Telephone conference with WR regarding meetings, letter, SEC .2 2/1/00 Review Settlement Agreement between Trustee and the SEC submitted by .4 the SEC to resolve the SEC v. FAR case 2/2/00 Review SEC agreement, stipulation, discussion with WR and 1.3 signing stipulation, etc. 2/7/00 Review correspondence from WR to District and Bankruptcy Court .3 regarding the settlement agreement reached between the SEC and the Trustee 2/8/00 Review material regarding SEC settlement .5 2/9/00 Review correspondence from WR regarding Proposed Notice, Motion for .3 Approval and Proposed Order concerning the compromise of the controversy between the SEC and the Trustee with respect to the Yacono policy proceeds 2/900 Review and edit proposed Notice of Hearing, Application Order 1.3 approving compromise of competing claims between the Trustee and the SEC (1.0) and communicate to WR (.3) 2/15/00 Review correspondence and First Set of Interrogatories and 1.0 Request for Production of Documents in the SEC v. FAR case for DG/PN attorney 2/16/00 Telephone conference with WR regarding notice of compromise .2 with SEC 2/28/00 Review strategies for preference claim as to defendant in SEC 1.5 case and review motion with SEC etc. 3/3/00 Review correspondence from Cristo to J. Bauer concerning the .3 settlement proposal etc. SUBTOTAL: 11.4 3/10/00 Review correspondence from Lacy, Katzen, Ryen Mittleman .2 regarding the withdrawal of David Anderson as the representative of the Estate of SAY, in the case, SEC v. FAR, Prudential Insurance Co v. SMD, et al 3/14/00 Telephone conference with WR regarding pre-settlement conference .3 of SEC case 3/14/00 Review objection of Pinnacle Business Management Inc, to the 1.0 Trustee's proposed compromise with SEC 3/14/00 Telephone conference with WR regarding discussion of opposition .2 to SEC 3/15/00 Review correspondence from WR regarding oral examination of .2 non-party witness Tracy McDonald, personal secretary to SAY in the SEC v. FAR case, the Prudential Insurance Co v. SMD et al proceeding 3/15/00 Review correspondence from JGV regarding the scheduling of 1.0 pre-trial conference to discuss the settlement of the SEC v, FAR matter 3/17/00 Conference with WR regarding SBC settlement conference and review 4.0 situation going forward 3/20/00 Review various correspondence papers from WR regarding SEC, etc. 1.2 3/28/00 Review of WR response to Court regarding SEC settlement .3 3/29/00 Review and analysis of correspondence from Christopher A, 1.5 DiPasquele, Louis B. Cristo, Anthony Danielle, GEP, Francis C. Affronti of Barney Affronti, FAR letter memorandum. Review correspondence from Lenweaver Salzer, Anthony Danielle, GEP, Francis C. Affronti and Jeffrey K. Newman on behalf of the in pleader plaintiffs in the SEC v. FAR case concerning the authority of the SEC to create a constructive Trust, the likelihood that a constructive Trust could be created the tracing of funds to show that investor funds paid the premiums, and lastly, on the issue of damages, the in pleaders' position on the appropriateness of allowing a greater recovery under the theory of constructive trust rather than under the statutory recovery 3/30/00 Review deposition, notices, subpoenas for WS, Edmeston, 2.7 Sciortino, Hall, Crumm, Keegan, Sharpe and Trustee SEC settlement, etc. 4/4/00 Conference with WR regarding multiple matters SEC, Fye, Frate, etc. 1.2 4/14/00 Review deposition of Marie Edmeston, etc. 3.2 4/26/00 Review papers in SEC case, etc. .5 5/1/00 Telephone conference with JGV regarding status, fees, etc. .3 SUBTOTAL: 17.8 5/4/00 Conference with WR regarding accountant Ewanyk and forensic 1.5 accountants regarding Yacono books and records and financial condition 5/5/00 Review SEC's correspondence from attorney JJG concerning analysis 1.3 of various deposits into SAY's personal account at Chase Bank 5/12/00 Conference with WR regarding SEC .7 5/18/00 Telephone conference with WR; review status of SEC .4 5/25/00 . Review letter from MS regarding schedule of PTC .3 5/31/00 Review expert witness report of Louie J. Camarella, Jr. and James Marasco in the SEC v. FAR matter 6/6/00 Prepare for PTC at Federal Court 3.0 6/7/00 Prepare for, attend and follow-up of pre-trial conferences with SEC 9.0 with Judge Bauer, attorneys for insurance, claimants, SEC, co-counsel, etc. 6/9/00 Review proposed settlement agreements between the SEC, Trustee and .5 MR, Heather Yacono, KK, TAW, Administrator CTA of the Estate of SAY, and IF and Daniel Shippers 6/15/00 Discussion with Higgins regarding insurance, SEC matter, settlement .4 6/19/00 Discussion with WR regarding SEC case and discussion with Higgins .3 6/19/00 Conference with WR regarding PN/Gold claims, assets, SEC, etc. 6.0 and settlements of insurance issuer 6/20/00 Review correspondence from WE. regarding settle WS's interest in .2 the Yacono life insurance policy 6/21/00 SEC telephone conference with Danielle regarding settlement (.6) 1.0 and follow-up of specific issues (.4) 6/23/00 Telephone conference with WR regarding Stock Mortgage Co. and 3 conversation with Danielle and message by WE 7/5/00 Review new proposed settlement agreement on Heather Yacono and 1.0 Daniel Schippers 7/1.1/00 Review correspondence from WR regarding settlement agreements .2 between the SEC, the Trustee, Heather Yacono and Daniel Schippers 7/24/00 Telephone conference with WR and SEC regarding insurance .7 settlement status, depositions of experts, summary judgment motion timing, etc. 7/26/00 Meeting with Judge Bauer regarding pre-trial conferences, etc. .4 SUBTOTAL: 30.2 8/11/00 Review and conference with SEC regarding settlement negotiations 1.0 8/12/00 Two telephone conferences with WR and SEC regarding settlement 1.7 proposals in constructive trust insurance litigation 8/14/00 Preparation for Answer, conference with WR, telephone 6.0 conference, negotiations to settle with SEC and Judge Bauer 8/15/00 Review settlement offer and telephone conference with WR, Judge 1.0 Bauer, SEC, settlement negotiations 8/15/00 Telephone conference with Judge Bauer .3 8/15/00 Teleconference with WR regarding Magistrate Bauer, settlement, 2.6 settlements regarding Edmeston, Sciortino, SGY, CYS insurance claims 8/17/00 Review correspondence from Margaret Garrity of Chase Bank regarding .3 receipt of notice of hearing to compromise or settle and bankruptcy accounts held by the debtor 8/21/00 Review letter from JGV to SEC regarding taxes .4 8/22/00 Review August bill summary of the Trustee's accountants, Eldredge, .5 Fox Porretti with other matters 8/23/00 Review SEC settlement Order with WR .7 8/23/00 Teleconference with WR regarding review and analysis of 1.3 settlement agreements for Frate, Heather Yacono, Keegan, Shippers, executed by SEC counsel, etc. 8/24/00 Review correspondence from WR regarding settlement documentation .3 8/24/00 Review correspondence from WR regarding settlement agreements .2 forwarded to GEP for execution by MR and KK and WR's application to the bankruptcy court for the approval of the settlement on notice to creditors and other parties and interests in the matter SEC v FAR MR and KK 8/24/00 Prepare First American Reliance regarding attorney fee application 8.1 related o adversary proceeding with the SEC concerning insurance policies and settlement/discontinuance of the action 9/7/00 Prepare First American regarding SEC's adversary proceedings and 1.7 settlement negotiations to resolve claims against the Yacono life insurance proceeds and the attorney fee application in the SEC proceeding against the Yacono companies 9/8/00 Review multiple e-mails, faxes, papers from SEC pending matters 2.0 SUBTOTAL: 28.1 9/8/00 Prepare First American re attorney fee application and SEC .6 settlement of adversary proceedings 9/18/00 Review miscellaneous e-mails regarding SEC settlements, etc. .7 9/21/00 Review correspondence from WR regarding the 2.5% interest of WS in 4 the proceeds of the Yacono insurance policy, Trustee's offer to 5 settle and SEC and the Trustee's application to District Court to dismiss the WS claim with prejudice 9/25/00 Telephone conference and conferences with WR, JGV, SEC regarding 3.5 settlement of claims against decedent's Estate. Wisset settlement and related SEC settlement matters, etc. 9/25/00 Conference and teleconference with WR, SEC and JGV regarding 2.1 settlement of claim against Yacono Estate, Wisset/Frate settlements, etc. 9/27/00 Prepare FAR re SEC adversary proceeding and interpleader 4.3 actions concerning Yacono insurance policies and attorney fee application 9/29/00 Conference with WR and accountant Marasco regarding SEC suit 2.9 settlement and investor fraudulent conveyances and preferences and vendor preference actions and inter-company transfers 10/4/00 Review correspondence from JGV regarding analysis of total cash 1.5 requirements of the Estate of SAY, are-examination of the estate tax potential, the cash settlements of with individuals out of the insurance proceeds and details of the settlements with the claims for the proceeds of the Yacono insurance policy 10/4/00 Telephone conference with WR regarding status of settlements .5 with insurance claimants 10/4/00 Review JGV letter; conference with WR regarding JGV letter .5 and procedure follow-up in case 10/5/00 Review correspondence of WR regarding resolution of the Yacono .5 Estate claims in the SEC versus FAR case 10/5/00 Prepare FAR regarding attorney fee application and .8 settlement Proceedings concerning the SEC 10/12/00 Telephone conference with WR regarding preparation for meeting .2 with Judge Bauer 10/13/00 Review material for conference with Judge Bauer on estate issues 1.0 SUBTOTAL: 20.2 10/13/00 Review correspondence from WR regarding correction of settlement .4 agreement to include a release of any of JF's claims against the Yacono Estate 10/13/00 Conference with WR and SEC regarding settlements, etc. 2.0 10/13/00 Follow up with Wret al on SEC matter 1.0. 10/17/00 Review correspondence from WR. regarding settlement agreements .5 reached with Daniel Shippers and Heather Yacono 10/18/00 Prepare SEC versus FAR re adversary proceeding by the SEC and 4.6 William Penn Life and Prudential Life and attorney fee application on settlement of insurance proceeds 10/23/00 Conference with WR; review settlements with three of the .6 beneficiaries, signed papers, etc. 10/24/00 Review correspondences from WR regarding execution of the .3 settlement agreements for Marie Edmeston, EB, Sciortino et al 10/24/00 Conference with WR regarding Edmeston insurance claim settlement .4 10/26/00 Prepare First American fee application re settlement with SEC 5.6 and interpleader parties 10/26/00 Review of compromise motion procedures (.5); telephone conference .9 with WR regarding stipulations on settlements and motion draft SEC (.4) 11/6/00 Review correspondence from WR regarding Estate of SAY, SGY and .2 CYS settlement reached between the Trustee, Yacono and Sharpe's attorney, DiPasquale 11/6/00 Conference with WR regarding compromise motion 1.5 11/7/00 Conference with WR regarding settlement management issues and 1.0 procedure for fee applications 11/8/00 Letter from WR regarding the Estate of SAY and the WS .2 settlement between the Trustee and Mr. Sepka 11/14/00 Prepare FAR re fee application on settlement with the SEC, William 2.1 Perm Life, Prudential Life and the interpleader plaintiffs and defendants 12/2/00 Review time sheets, preparation of fee application 8.0 SUBTOTAL: 20.8 TOTAL: 301.1