Records Subpoenaed — Len Krick’s Nightmare Continues

Comment from Tom West:

The issues between the state of Nevada and Len Krick continues. So far, as Len points out, the federal government has not become involved – yet.

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So far, this civil case only claims I violated Nevada State Securities laws. It could very easily be expanded, though, to claim I violated Federal laws as well. We are sort of waiting for that shoe to drop.

At this point, the Nevada State Securities has only subpoenaed all my records (which I am reproducing right now); they have not yet indicted me. Obviously, we are hoping that they decide not to proceed. The question is, would I be willing to sign a “Consent Decree,” promising not to do any of these deals in the future? The answer is “How can I promise that when I didn’t create the problem in the first place and am powerless to prevent it in the future? But, my question to you is: Other than showing the SEC that state regulators are starting to deal with this problem on their own, what relevance does the subpoena have to the SEC?

Incidentally, producing confidential records for the State is an issue in and of itself. Those records include business and personal Federal Income Tax Returns and, in almost every case (even if I didn’t list their business) they have multiple-year recasts with footnotes for each adjustment. If you don’t think that has potential to harm the client or buyer, we had an IRS agent pose as a Buyer a few years ago. Based partially on our recasts, the IRS was able to convict a client of tax evasion, and the client spent 18 months in prison. My attorneys are trying to figure out if some of the documents should be excluded from production. See the attached Excel file I made for them. (Items are listed following Len’s letter, and demonstrate the kind of record keeper he is.)

With regard to finding examples to give to the SEC staff in support of our requests for action, why don’t we mount an all-out campaign to find some actual cases by doing one, or both, of the following:

1. Have the AM&AA and the IBBA send out a survey to all of its members. In that on-line survey (i.e. Zoomerang), we ask them about their experiences with this problem. I would think that the questions can be progressively more specific. For example, just off the top of my head, here are some questions that would supply data that would help us:

a. How long have you been doing business brokerage?

b. Do you have a real estate license?

c. Do you have a securities license?

d. How many did you close in the last three years (or, maybe 5 years)?

e. Do you know what the “2006 CBI No-Action Letter” is?

f. Have you ever had a deal start out as an asset sale and convert to a stock sale (sale of equity), without your involvement ?

g. If so, how many of these have happened in the last three years?

h. When does this conversion happen most frequently? Choose one: When the Offer is Made, During Due Diligence, After escrow is opened but before closing.

i. Does the frequency increase when the Selling entity is a C-Corp?

j. Does the frequency increase when there are licenses that need to be continued and cannot transfer as an asset sale?

k. Does the frequency increase when there are contracts that, for the sake of business continuity, cannot be disturbed?

l. What percentage of the deals that you have done in the last 3 years that had an earn-out (“contingent”) element?

m. What percentage of the deals that you have done in the last 3 years that had a promissory note to the Seller, secured by stock or assets?

n. What percentage of the deals that you have done in the last 3 years did the Seller keep some percentage ownership in the Selling entity (with or without a Buy/Sell Agreement for the balance of the equity?

o. What percentage of the deals that you have done in the last 3 years did the principal owner of the Selling entity remain with the company as a consultant or employee, after the close of escrow?

p. Have you, or anyone you know, ever been denied a commission because a deal was restructured by the parties as the sale of equity?

q. Have you, or anyone you know, ever been contacted by a State Securities Division for possible securities law violations because a deal was restructured by the parties as the sale of equity?

r. If you answered “yes” to question “p” or “q,” may we contact you?

s. If so, please give us your contact information.

t. Would you be willing to contribute to the legal defense fund for Len Krick in Las Vegas?

2. Have Tom West and Jack Sanders, who are both very sympathetic to our ‘cause” and who have a large e-mail databases of business brokers, send out this survey.

That’s my solution to finding applicable cases.

Len Krick, MBA, SBA, CMEA

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LIST OF DOCUMENTS:

Operating Documents:

Sunbelt Business Brokers of Las Vegas, Inc.:

Corporate Documents

Financial Statements

Tax Returns

Policy Manuals

Operating Manuals

Franchise Agreement

Bank Statements

Payroll Records

Personnel Files

Broker Files

Independent Contractor Agreements

Real Estate Licenses

Business Broker Permits

Awards and Certificates

Commission Disbursements

Letterhead

Checkbooks

Deposit Slips

United Business Brokers of Nevada, LLC:

Financial Statements

Tax Returns

Policy manuals

Operating Manuals

Operating Agreement

Corporate Documents

Bank Statements

Payroll Records

Personnel Files

Broker Files

Independent Contractor Agreements

Real Estate Licenses

Business Broker Permits

Awards and Certificates

Commission Disbursements

Marketing Plans

Sunbelt Corporate:

Licensed Materials

Marketing Materials

Operating Manuals

Office Owner Materials

Generic Collateral Materials

Leonard S. Krick

Checkbooks

Bank Statements

Tax Returns (Joint )

Listing Documents:

Listing Agreement (formerly known as “Letter of Authorization”)

Duties Owed (State form)

Seller’s Disclosure Statement

Listing Termination Form

Documents Relating to a Business Being Sold or Considered By Broker as a listing:

Business Financial Statements

Profit/Loss

Profit/Loss with Adjustments (i.e. Recasts)

Balance Sheets

Statements of Cash Flow

Federal Tax Returns

Monthly Sales and Use Tax Reports

Accounts Receivable Aging reports

Accounts Payable Aging Reports

Work in Process Reports

Staffing and Wage Reports

Depreciation Schedules

Monthly Sales Trend Analysis

Franchise System Reports

Other Documents and Data:

Hard Asset Lists (Furniture, Fixtures, and equipment)

Space Leases

Equipment Leases

Appraisals of Real Property

Appraisals of Business

Franchise Agreements

Licensing Agreements

Patients and Trademark Rights

Photos

Business’s Marketing Materials

Vendor Agreements

Service Agreements

Maintenance Agreements

Utilities Agreements

Franchise Marketing Collateral

Business Brokerage Marketing Materials:

Marketing to Sellers:

Prospecting Lists

Direct Mail Letters to Seller Prospects

Drop Notes

Postcards

Brochures

Business Cards

Folders with Presentation Sheets

Marketing to Generate Buyers:

Newspaper Ads

Internet Listings

Industry Publication Display Ads

Prospecting Lists

Direct Mail Letters to Buyer Prospects

Prescreening Materials

Buyer Documents:

E-Mail Correspondence

Buyer Profile (does not have SS#)

Confidentiality Agreement

Record of Showing

Confidential Buyer Financial Info (Net Worth Statement)

Signed Duties Owed Form

Signed Seller’s Disclosure Statement

Termination of Due Diligence

SBA Loan Submission Materials (Loan Application, may have SS#)

Business Sales Process Documents:

Letters of Intent

Offer for Purchase and Sale of Assets

Addendum to Offer for Purchase and Sale of Assets

Amendment to Offer for Purchase and Sale of Assets

Due Diligence Checklist

Transaction Timetable

Proposed Promissory Note Amortization

Buyer’s Disclosure Statement

Receipt of Earnest money

Authorization to Open Escrow During Due Diligence

Contingency Removal Form

Authorization to Open Escrow

Stock Sale Acknowledgment, Notification, and Disclaimer

Receipt for escrow Deposit and copy of Check

Transaction Fee Agreement

Escrow Opening Checklist and Worksheet

Correspondence:

E-mail Print-Outs

Letters

Faxes

Inter-Office Memos

Notes From:

Meetings

Phone Calls

Phone Message Pads

Closing Documents:

Seller Order to Pay Commission from Seller’s Proceeds

UCC Financing Statement

Business Sale Escrow Instructions (which has a copy of the Purchase Agreement, etc.)

Certificate of Limited Liability Company Status and Authority of Sellers by the LLC members

Certificate of Limited Liability Company Status and Authority of Buyers by the LLC members

Certificate of Corporation Status and Authority of Sellers by the Shareholders

Certificate of Corporation Status and Authority of Buyers by the Shareholders

Affidavit of Creditors

Allocation of the Purchase Price

Asset Acquisition Statement (IRS Form 8594)

Bill of Sale

List of assets Being Sold

Assignment of Seller’s Interest in Trade Name

Assignment of Seller’s Interest in Patient

Assignment of Seller’s Interest in Copyright

Assignment of Seller’s Interest in Telephone Number

Promissory Note

Security Agreement

Personal Guaranty

Agreement to Use Contractor License

Sales Tax Agreement

State of Nevada Unemployment “DETR” Tax Agreement

Uniform Commercial Code and Federal Tax Lien Document Report

Joint Acknowledgement of Change of Possession

Authorization to Close escrow, Release of All Contingencies, Affidavit, Indemnity, and Mutual Release

Statement and Affidavit regarding Ownership Interest

Covenant Not To Compete

Hold-Back Agreements

Resignation of Manager

Resignation of Managing Member

Resignation of President

Buyer’s Closing Statement