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SECURITIES AND EXCHANGE COMMISSION v.
FREEDOM ENVIRONMENTAL SERVICES, INC., et al.
Case No. 6:12-cv-01415-Orl-28DAB
UPDATED JUNE 13, 2013 by Robert B. Morrison, Receiver for Freedom Environmental Services, Inc., et al. (“Freedom”);
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THE RECEIVER RECEIVED THE COURT’S APPROVAL TO COMPLETE THE SALE OF ASSETS AS PRESENTED IN THE Receiver’s Motion to Approve Procedures for Sale of Certain Estate Assets, and to Conduct Sale of Estate Assets by Public Auction Pursuant to the Proposed Sale Procedures AND ATTACHED EXHIBITS THERETO (click on hyperlink). THE RECEIVER AND THE BUYER ARE PREPARING TO CLOSE THE TRANSACTION. BASED ON THE PURCHASE PRICE PAID AND THE AMOUNT OF LIABILITIES OF FREEDOM et al., THERE WILL BE NO FUNDS AVAILABLE AT THIS TIME FOR DISTRIBTION TO EQUITY HOLDERS. PLEASE READ THE Order Authorizing the Receiver’s Sale of Certain Assets of the Receivership AND ATTACHED EXHIBIT (click on hyperlink) FOR A COMPLETE UNDERSTANDING OF THE TRANSACTION.
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On September 17, 2012, the Securities and Exchange Commission (SEC) filed a law suit against Freedom, Michael Borish, and Michael Ciarlone alleging violations of the Securities Exchange Act of 1934. Along with the Complaint, the SEC sought and was granted a Temporary Restraining Order (“TRO”) against Freedom and Messrs. Borish and Ciarlone.
Concurrent with the filing of the Complaint and the TRO, the SEC also sought and was granted the appointment of me as Receiver for Freedom, vesting in me “all powers, authorities, rights and privileges heretofore possessed by the officers, directors, managers and general and limited partners of the Companies under applicable state and federal law, by the governing charters, by-laws, articles and/or agreements in addition to all powers and authority of a receiver at equity, and all powers conferred upon a receiver by the provisions of 28 U.S.C. §§ 754, 959 and 1692, and Fed.R.Civ.P. 66”.
Also on September 17, 2012, the SEC issued Release No. 67869 in which it announced a temporary suspension of the trading in the securities of Freedom because of questions that were been raised about the accuracy and adequacy of publicly disseminated information concerning, among other things, the identity of the persons in control of the operations and management of the company, the company’s current financial condition, and the misappropriation of corporate funds. The temporary suspension expired at 11:59 PM on September 28, 2012.
On October 1, 2012, the Federal Court granted the SEC’s motion for a preliminary injunction against Freedom, Michael Borish, and Michael Ciarlone.
On October 31, 2012, I filed the Receiver's First Report (the “First Report”). The First Report contains summary financial information through September 30, 2012, in addition to narrative regarding the status of the receivership. Among other things, I reported that I believed the potential recovery and ability to pay claims against the receivership estate would be greater if the companies, or their assets, were sold as a going concern and not liquidated and that it was my intent to continue to operate the companies and sell them as going concerns. On December 14, 2012, I filed a plan for an exit strategy ("Exit Plan"). The Exit Plan contemplates negotiating with two identified parties to sell the companies and/or their assets as going concerns. Any sale of the companies or their assets will require approval from the Court. To the extent that a reasonable offer cannot be obtained from either of the two identified parties, I intend to seek the Court's approval to retain a business intermediary to market the companies and/or their assets as going concerns. If the intermediary is unsuccessful ion generating a reasonable offer to purchase the assets and/or the companies, the receiver intends to seek approval from the Court to conduct a closed bid process to sell the companies or their assets as going concerns.
On January 3, 2013, I, as Receiver of Freedom and after negotiations with the Securities and Exchange Commission (“SEC”), made an Offer of Settlement of Freedom Environmental Services, Inc. (the “Settlement”) with the SEC. Terms of the Settlement include Freedom’s consent to the entry of an order by the SEC that revokes the registration of the company’s securities. While drastic, the SEC advised me and my counsel that it would seek revocation of the registration whether or not Freedom consented. Through negotiations with the SEC, the SEC agreed to not seek monetary damages against Freedom. Any such damages would need to be paid before any distributions to shareholders. Further, the Freedom could not afford the annual costs of compliance with the Securities Exchange Act of 1934
The Receiver's Fourth Quarter 2012 Report (the “4Q 2012 Report”) was filed with the Court on February 5, 2013. The 4Q 2012 Report contains summary financial information in addition to narrative regarding the status of the receivership.
On April 16, 2013, the Receiver filed the Receiver’s Motion to Approve Procedures for Sale of Certain Estate Assets, and to Conduct Sale of Estate Assets by Public Auction Pursuant to the Proposed Sale Procedures (the “Motion to Sell Assets”; Doc. No. 54).
The Receiver received two competing offers from prospective purchasers of the Company’s assets as a going concern. After inspection and analysis of the competing offers, the Receiver and his counsel began to negotiate the terms of an asset purchase agreement with BSP Holdings, LLC (BSP), one of the competing bidders. A final asset purchase agreement was executed by the parties on April 15, 2013 (the “BSP Offer” and the “BSP Purchase Agreement”), and is attached as Exhibit B to the Motion to Sell Assets.
The Motion to Sell Assets sought approval to conduct an open auction to sell the assets of the Company to the bidder that offered the most favorable terms. The Motion to Sell Assets also sought approval to sell the assets to BSP pursuant to the BSP Purchase Agreement in the event that the auction did not produce a competing bid that exceeded the BSP Offer by at least $250,000.
On April 29, 2013, the Court heard the Motion to Sell Assets. Objections from one of the individual defendants in the core litigation and a creditor of the Company were also heard. The Court denied the objections and approved the Motion to Sell Assets. As of the date of this report, the order on the Motion to Sell Assets was not yet filed.
The general terms of the BSP Offer are as follows:
$50,000 security deposit;
Purchase price of $2,000,000, the assumption of approximately $1,200,000 of liabilities and debt, and the amount of professional fees of the Receiver and his counsel as approved by the Court (but not to exceed $250,000);
$50,000 “break-up fee” should BSP not be the highest bidder;
Excluded assets include all assets of B&P and all Freedom assets except vehicles; and
Excluded liabilities include all liabilities of B&P and any other liabilities not referenced on Schedule 2.1 of the BSP Purchase Agreement.
The BSP Purchase Agreement also provides that BSP will acquire all causes of action from the Receiver and will, as a contingent purchase price, pay to “third party non-insider shareholders” 50% of the net recoveries from the pursuit of such actions.
The auction will be held during the month of May and will close on May 31, 2013. The Court asked that a hearing be set before June 6, 2013 to hear a final motion to sell the assets to the highest bidder.
The Receiver’s First Quarter 2013 Report (the “1Q 2013 Report”) was filed with the Court on May 2, 2013. The 1Q 2013 Report contains summary financial information in addition to narrative regarding the status of the receivership.
On May 3, 2013, the Court granted the Receiver’s Motion to Approve Procedures for Sale of Certain Estate Assets, and to Conduct Sale of Estate Assets by Public Auction Pursuant to the Proposed Sale Procedures (the “Motion to Sell Assets”; Doc. No. 54).
The bidding process in the Motion to Sell Assets and approved by the Court was implemented by the Receiver. The bid period ended May 31, 2013. During that time, the Receiver received no bids that competed with the BSP offer as presented in the BSP Purchase Agreement.
On June 7, 2013, the Court entered its Order Authorizing the Receiver’s Sale of Certain Assets of the Receivership (the “Sale Order”, Doc. No. 70) authorizing the Receiver to consummate the transaction contemplated in the BSP Purchase Agreement.
The Receiver and BSP are preparing to close the transaction.
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