Dear Fellow Investor,
First the meat:
Dan Harkey Testimony
Dan Harkey is expected to be called to the stand to testify as early as this afternoon, Tuesday May 7, 2013. For those who attend, and because there is little room for plaintiffs behind the attorney's table, we request that plaintiffs be given gallery seating priority over non-plaintiffs. Otherwise we expect interesting testimony when Harkey is questioned by the plaintiffs' attorney, Dave Grant, and well rehearsed speeches and sound bites when questioned by defense attorney Benice.
Because trials are fluid and events can change on a moments notice, do not be disappointed if Harkey goes on the stand sooner than the afternoon, later in the day, or even tomorrow. The court has a mind of its own.
Gwen Melanson Testimony
Gwen Melanson took the stand last week and testified that borrowers never paid origination fees were ever paid out of 'independent' borrower's funds at closing. She stated that once investors purchased "shares" in NFL that their money "belonged" to NFL. She then tried to claim that loan origination fees and Interest hold-back accounts were funded with NFL's funds. Let's examine this for a minute.
You buy a share of stock in NFL with your money. You write a check and your money is deposited into a Point Center Financial trust account designated for the NFL pool. Your money (because there is no other money in the trust account other than yours) is used to pay Point Center's origination fees that Point Center collects up-front, when the loan closes.
Then, your money is used to fund an interest hold-back account where it sits until it is time for Point Center to distribute your monthly interest payment; to you; with your own money.
So you've paid Point Center's loan origination fees and you've paid yourself borrower interest with your own investment. What ever happened to the "borrower has to have skin in the game" speech that Harkey pontificated in the seminars and on the DVD?
That is not to say that all borrowers never made their interest payments. But on the loans that were underfunded, that defaulted into foreclosure (especially the big loans), where the borrower rarely if ever made an interest payment, you received interest payment funded from your own principal.
Melanson testified that whenever Point Center partially funded a loan that Point Center paid itselfall of its loan origination fees; not it's pro-rata portion. She also testified that if an underfunded loan defaulted that Point Center never refunded any fees back to the investors (or the pool) on the unfunded portion of the loan, nor did she feel that they had any obligation to do so.
Melanson also testified that "loan servicing" fees and "management" fees were "one in the same". Yet the governing documents for the NFL clearly stated that there were "no management fees".
What, then, gave Point Center the right to pay itself "accrued" management fees? To understand this better, "loan servicing fees" are earned as long as a loan performs. When the borrower defaults and the property goes into foreclosure (and becomes an REO asset) the loan isextinguished. It cannot pay itself a "loan servicing fee". Instead Point Center accrues a "management fee". But if the NFL governing documents clearly state that there are no management fees, then by what right does Point Center have to pay itself fees for something it is expressly not entitled to?
If you're confused, think how the jury feels.
Diane Harkey Testimony
Diane Harkey's Testimony was lackluster at best. When questioned she mostly answered with "I don't know, you need to ask Dan." She testified that the FEC reports that expressly reported that she was an employee of Point Center did not reflect what was filed.
The matter of fraudulent conveyance of the Harkey Home to Diane Harkey shortly after the NFL redemptions were fully frozen in 2007 not allowed to be testified to during this portion of the trial. The decision not to allow testimony before the jury however will not prevent it from being heard before the judge at a later date along with matters of "alter ego" and piercing the corporate veil.
Boring Stuff
Unlike television and the movies, civil court trials tend to move at glacial speeds and the trial at hand is no exception. Once the bankruptcy stay was lifted and the trial was allowed to proceed in civil court there were a number of procedural "issues" that needed to be argued before the court before jury selection could begin. These issues are presented to the court as "Motions in Limine". There were 23 and they will soon be posted to the web site along with more recent filings. (Time (and our wallets) have limited our ability to collect and post filings for the case online (but we promise to try to do better.))
The Motions in Limine addressed many issues, such as whether or not the term "Ponzi" could be used in front of the jury, whether the Harkey's lavish lifestyle (built on the backs of defrauded investors) could be disclosed, whether fraud in the inducement outside of the documents investors signed could be argued, etc. The resolution of these issues were critical in shaping how the trial would be conducted because the court's rulings could (and in some cases should) restrict the kind of evidence that can be presented by both sides. All but two of Point Center's motions were denied by the Court.
Jury selection took almost 10 days to complete. The court tries to start the selection process with a pool of 60 prospective jurors however criminal proceedings preempted the selection process twice. There came a moment when Judge Perk became so concerned about the availability of pool members that he suggested the parties consider either a non-jury trial (trial by judge) or select a smaller jury of 7. In the end the court was able to supply sufficient jurors for a 12 person jury plus 4 alternates.
Plaintiff Investor Testimony
Over the course of the past three weeks a number of plaintiff/investors were put on the stand. Their stories were heart-wrenching. Plaintiffs described how Harkey and other employees of Point Center assured them that their investments were safe, conservative, and well diversified when they put their money into the NFL pool. One plaintiff described how Dan Harkey had personally assured her how safe her money would be; money her husband had left after his passing to ensure she was taken care of through the final years of her life.
Most of the plaintiffs are elderly. Several have passed away without ever tasting justice, or knowing whether or not they would have something of value to pass onto their heirs. Others are having a very difficult time making ends meet.
True to form, Harkey's defense was to draw attention to the "four corners" of the documents signed by each investor and pontificate about the "global economic meltdown" of 2007. What will become clear over the next several days is that the loans that failed were doomed from the start and would have failed regardless of the state of the economy.
Twitter Feed
We have started a Twitter feed @PCFInvestor which can be found on the web at:
We're behind on the blog website, but plan to catch up soon. In the meantime, we do post interesting soundbites as they occur from the courtroom almost every day on Twitter if you want to tune in.
That's all for now.
Sincerely,
PCFInvestor
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