IN THE CIRCUIT COURT FOR ANNE ARUNOEL COUNTY
PREMIUM OF AMERICA, LLC *
1501 IVY HILL ROAD
COCKEYSVILLE, MD 21030, *
V. * CASE No.
TURNING BLOCK, LLC *
12000 NORTH DALE MABRY HIGHWAY, SUITE 110
TAMPA, FLORIDA 33618 * r- .
SERVE ON: *
M. SANFORD RICHARDSON, PRESIDENT
2 ISAACS STREET
ANNAPOLIS, MARYLAND 21401
* fl -
ALLIANCE ADvisoRs, LLC
209 COOPER AVENUE *
UPPER MONTCLAIR, NEW JERSEY 07034
SERVE ON RESIDENT AGENT:
KEVIN MACKEY *
112 CHOPIN DRIVE
WAYNE, NJ 07470
MARVIN SANFORD RICHARDSON *
A/K/A SANFORD RICHARDSON
ANNAPOLIS, MARYLAND 21401
EDWARD HOLT, MD
3 SEVERN COURT *
ANNAPOLIS, MARYLAND 21401,
* * * * * * * * * * * * *
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
Plaintiff, Premium of America, LLC ("POA"), by ts attorneys, files this complaint
for declaratory and injunctive relief against defendants Turning Block, LLC ("Turning
Block"), Alliance Advisors, LLC, Marvin Sanford Richardson and Edward Holt, MD
(collectively, the "Defendants"), and states:
1. Plaintiff POA is a Delaware limited liability company with its principal place
of business in Baltimore County, Maryland, at 1501 Ivy Hill Road, Cockeysvilie, MD
2. Defendant Turning Block is a limited liability company organized under the
laws of the State of Florida. Turning Block identifies its principal place of business as
12000 North Dale Mabry Highway, Suite 110, Tampa. Florida 33618. That address is
also the identical address of a Florida attorney who appears to run an "incorporation
mill," that offers to file inexpensive, boiler-plate documents for people who wish to
incorporate their businesses. Turning Block is neither registered nor qualified to do
business in the State of Maryland.
3. Defendant Marvin Sanford Richardson, also known as Sanford
Richardson, is an individual and president of Turning Block. Upon information and
belief, Mr. Richardson conducts the business of Turning Block from his home in Anne
Arundel County, Maryland. Mr. Richardson signed the Tender Offer at issue in this
case as "President" of Turning Block.
4. Defendant Alliance Advisors, LLC is a limited liability company organized
under the laws of the State of New Jersey, with its principal place of business at 209
Cooper Avenue, Upper Montclair, New Jersey 07043. Alliance Advisors, LLC is not
registered to do business in the State of Maryland. However, it appears that the co
defendants in this lawsuit contracted with Alliance Advisors, LLC for that company to
serve as "Information Agent," to advise the other defendants with respect to the Tender
Offer and to provide administrative and logistical support in soliciting POA's members.
By soliciting members in the state of Maryland, Alliance Advisors LLC has purposely
availed itself of the privilege of doing business in the state and is subject to the
jurisdiction of the Maryland Courts.
5. Defendant Edward Holt is an individual and a member of Premium of
America. At all times relevant to this Complaint, Edward Flolt resided and conducted
business in Anne Arundel County, Maryland.
JURISDICTION AND VENUE
6. This Court has jurisdiction over this matter pursuant to MD. CODE ANN.1
CTs. & JUD. PROC. § 6-102(a) (2010).
7. Venue is appropriate in Anne Arundel County pursuant to Mu. CODE ANN.,
CTS. &JUD. PROC. § 6-201(b) (2010).
FACTS COMMON TO ALL COUNTS
8. This action is brought to enjoin the efforts of Turning Block to unlawfully
acquire a majority interest in POA. Turning Block's actions in attempting to acquire a
majority interest in POA violate the terms of the Limited Liability Company Agreement
(the "LLC Agreement") that governs the affairs of POA as well as various common-law
and statutory provisions of state and federal law designed to protect investors from
fraudulent and misleading transactions involving sale of securities.
9. A viatical is an investment in the right to receive the death benefit from an
insurance policy on the life of a terminally ill third party.
10. POA manages a portfolio of viaticals that were sold by a now-defunct
family of companies including Beneficial Financial Services. Inc., Beneficial Assurance,
Ltd., Beneficial Funding Corporation, Inc., Beneficial Services Corporation, Beneficial
Assistance, Inc. and Premium Escrow Services, Inc. (collectively, the "Beneficial
11. The Beneficial Companies filed bankruptcy in the United States
Bankruptcy Court for the District of Columbia on November 20, 2002 in order to avoid
enforcement proceedings brought by the Maryland Securities Commissioner.
Securities regulators in Maryland and throughout the United States brought similar
actions against the Beneficial Companies and others selling viaticals because these
investment contracts were being sold without registering them as securities as required
by state law.
12. The Maryland Securities Commissioner also successfully enjoined the
further sale of viaticals by the principals and officers of Beneficial.
13. The Official Committee of Unsecured Creditors of the Beneficial
Companies proposed an "Amended Plan of Reorganization of Premium Escrow
Services, Inc." that was confirmed by the bankruptcy court on August 11, 2003, and
entered on August 12, 2003 (the "Plan"). The Plan provided for, among other things, (i)
the creation of POA to administer the viaticals, (ii) the assignment by individual
investors of their rights under their viaticals in exchange for membership in POA (each a
"Member"); (iii) the distribution of the proceeds of the viaticals to POA's Members in
amounts equal to each Member's pro rate share of the aggregate investment; and (iv)
the adoption of the LLC Agreement for the LLC Agreement to govern the affairs of POA.
14. Under the Plan, individual investors could elect to become Members or opt
out and become members of a trust that itself became a Member of POA. The vast
majority of investors, numbering over 4,600 people and including defendant Edward
Holt, elected to assign their rights to POA and become Members.
15. POA owns each Member's right, title and interest in and to all viaticals
purchased through Beneficial companies, together with any claims such Members may
have related to their acquisition of viaticals.
THE LIMITED LIABILITY COMPANY AGREEMENT
16. By electing to become members of POA, the Members entered into the
LLC Agreement that regulates POA's business affairs and describes Members' rights
and obligations. A copy of the LLC Agreement is attached as Exhibit 1.
17. Under the terms of the LLC Agreement, POA is managed by a Board of
Managers (the "Board") elected by the Members.
18. In order to protect the Members and POA from the risks inherent in the
possible sale or transfer of their membership units (the "Units") the LLC Agreement
requires the Members to submit any proposed transfer of Units to the Board for a
determination regarding the applicability of state and federal securities laws to the
19. Section 8.3 of the LLC Agreement provides that:
Notwithstanding any other provision in this Agreement, no Member or Unit
Holder shall Transfer any Units without the registration of such Units under
the Securities Act unless or until the Company shall have received such
legal opinions or other assurances that such Transfer is exempt from the
registration requirements under the Securities Act and applicable state
securities laws as the Board in good faith deems appropriate in light of the
facts and circumstances relating to such proposed Transfer, together with
.such representations, warranties and indomnifications from the Transferor
and the Transferee as the Board in good faith deems appropriate.
20. The LLC Agreement also requires the Board to make a determination as
to whether the any transfer of a Member's interest will result in POA being treated as a
publicly traded partnership under the Internal Revenue Code.
21. Section 8.4 of the LLC Agreement provides that:
Notwithstanding any other provision of this Agreement, in the event of a
Transfer of all or any portion of a Member's interest in the Company, such
Transfer shall not be recognized by the Company, nor shall the Company.
admit the Transferee as a Member or otherwise recognize any rights of
such Transferee (such as, without limitation, a right of the Transferee to
receive distributions (directly or indirectly) or to acquire an interest in the
profits or capital of the Company) unless the Board determines in its sole
(A) The Transfer is described in Treasury Regulation Sections
(B) The Transfer is described in Treasury Regulation Section
(C) The Transfer is described in Treasury Regulation Section
(D) The Transfer is described in Treasury Regulation Section
(E) The Transfer would not cause the Company to be treated as
a publicly traded partnership under Code Section 7704.
THE TENDER OFFER
22. On or about August 20, 2010, Turning Block solicited some of POA's
Members for the express purpose of "purchasing" such Member's interest in POA (the
23. The essence of the Tender Offer is that Members are offered a promissory
note in the principal amount of less than 8.7% of each member's initial investment in the
viaticals, plus simple interest at the rate of 18% per year. No cash is offered upon
signing, and interest only is payable in the first year, beginning at the end of the third
month after some unspecified date.
24. In exchange, an accepting Member is required to irrevocably assign all
Units and all voting rights to Turning Block, despite the fact that such Member does not
receive any money at the time of the assignment.
25. The written solicitation consists of a set of documents including (a) a two-
page letter from Ed Holt, MD; (b) a document entitled "Tender Offer for All of the
Outstanding Membership Interests in Premium of America, LLC." (c) an Offer
customized for each Member; (d) an Offer Summary and Instructions customized for
each Member; (e) a Transfer of Membership Interest customized for Each Member; (f) a
Member Information Verification for Premium of America Members; (g) a Note, allegedly
secured by assets owned by POA; and (h) a Litigation Summary purporting to describe
the prospects for success in litigation brought by POA against various officers,
investment solicitors and trustees of the Beneficial Companies (collectively the "Tender
Offer Documents.") A copy of the Tender Offer Documents sent to one of POA's
Members, Mr. Leroy H. Koontz, is attached as Exhibit 2.
FAILURE TO COMPLY WITH FEDERAL AND STATE SECURITIES LAW AND THE LLC AGREEMENT
26. POA Units are securities within the meaning of the Securities Act of 1933
and of the laws of the numerous states to which the Tender Offer was directed.
27. The Tender Offer is an offer to purchase securities under federal and state
securities laws, and is thus subject to regulation and likely registration requirements.
28. Defendants have not registered the Tender Offer with any federal or state
29. Defendants have not submitted the terms of the Tender Offer to POA for a
determination as to whether the offer must be registered with any regulatory authority or
for an opinion of counsel that the proposed transaction is exempt from such
requirements. Thus, the Tender Offer and any proposed transfer of Units by any
Member violates the terms of Section 8.3 of the LLC Agreement.
30. Defendants have not submitted the terms of the Tender Offer to POA for a
determination as to whether the offer would cause POA to become a publicly traded
partnership within the meaning of Section 7704 of the Internal Revenue Code. Thus,
the Tender Offer and any proposed transfer of Units by any Member violates the terms
of Section 8.4 of the LLC Agreement.
31. Not only have Defendants failed to submit the terms of the Tender Offer to
the Board, they have specifically conditioned the Tender Offer upon the affirmative
promise by solicited Members that they not disclose the offer to the Board.
FRAUDULENT MISREPRESENTATIONS AND OMISSIONS OF MATERIAL FACT
32. Turning Block makes a number of materially false and misleading claims
in the Tender Offer Documents.
33. The only consideration given to a Member who accepts the Tender Offer
is a "Note Secured by Pledge of Assets" provided as part of the Tender Offer
Documents. The Note Secured by Pledge of Assets purports to pledge all of Turning
Block's "right, title and interest in and to that certain life insurance portfolio which
[Member] conveyed to [Turning Block] in the Transfer Agreement." The representation
that any Member has any right, title or interest in the life insurance portfolio to assign to
Turning Block is false for the following reasons:
a. A Member has no interest in the life insurance portfolio itself;
having assigned such interest to POA upon becoming a member.
b. The Transfer Agreement submitted by Turning Block does
not even purport to transfer to Turning Block any right, title or interest in the life
c. Thus, the "Note Secured by Pledge of Assets" is in fact
secured by any assets at all. Thus, the note is unsecured and all that a Member
receives is a bare promise to receive payments in the future from a party that has
no assets from which to fulfill that promise.
d. The only conceivable way for Turning Block to pay for a
Member's interest is to seize control of POA, convert the assets of POA to
Turning Block's own use in violation of the rights of the non-assigning Members,
and keep the profit for itself.
34. The August 20, 2010 letter from Ed Holt, which is included by Turning
Block as part of the Tender Offer Documents, contains numerous false representations
of material fact.
35. Among the material misrepresentations in the Holt letter is the statement
in the first paragraph that "Turning Block's experience as reputable investors and
financial professionals ensures immediate and expert follow through." This statement is
materially false and misleading because, among other things:
a. Turning Block was formed on August 16, 2010 as a Florida
Limited Liability Company by a "Nicholas Spradlin, Esquire," who is a Florida
attorney with no investment experience of the sort touted in the Tender Offer
b. Turning Block's President, identified in the Tender Oiler
Documents as "Sanford Richardson," is also known variously by the names "M.
Sanford Richardson," 'Marvin S. Richardson" and "Marvin Sanford Richardson."
Mr. Richardson does not own the home in which he resides, has no motor
vehicles registered in his name and is being sued by Chase Bankcard Services,
Inc. for nonpayment of $26,175,12 in credit card charges. Chase filed suit in the -
District Court of Maryland for Anne Arundel County, Case No.
070200100942010. Mr. Richardson was served with process on July 29. 2010—
several weeks before he signed the Tender Offer Documents. A review of the
court's electronic database indicates that Mr. Richardson has not filed any
papers with the court challenging the amount due or the obligation to pay. Trial is
scheduled for September 13, 2010.
c. The Tender Offer Documents do not include any other
information, biographical or otherwise, that might support the claim that Turning
Block is operated by experienced, "reputable investors and financial
d. Thus, there is no basis for Holt's representation that Turning
Block has experience as a reputable investor or financial professional.
36. Ed HoIt's August 20, 2010 letter also misrepresents that Turning Block has
"done substantial research on POA and its portfolio." This representation is false if for
no other reason than that, on August 20 when it began soliciting Members with the
Tender Offer Documents, Turning Block had been in existence just four da y s. This
material fact also is not disclosed to the Members in the Tender Offer.
37. The Tender Offer Documents are materially false and misleading because
they fail to inform Members that Turning Block has no assets of its own with which to
make the payments it promises. Unless a sufficient number of the policies POA owns
"mature" by virtue of insureds' deaths, Turning Block will have no money with which to
distribute the promised 20% of the face value of the policies to the Members who accept
its Tender Offer.
38. The Tender Offer Documents also contain misrepresentations and
omissions regarding the effectiveness of the proposed transfer, of interests. The Tender
Offer Documents contain the representation that the Tender Offer "becomes effective
upon acceptance by Turning Block and delivery of a signed promissory note.' This
representation is materially false and misleading because, among other things:
a. It fails to disclose to Members that the offer must be
submitted to the Board for a determination as to whether applicable securities
and tax laws must be complied with before any transfer may occur.
b. It fails to disclose that any purported assignment or transfer
of membership interests may not be recognized by POA until the assigning
Member complies with the terms of the LLC Agreement, and as a result, Turning
Block will not be able to obtain control of the life insurance assets which are the
sole source of funds with which to pay for the transfer.
c. It fails to disclose that the Tender Offer is subject to review
by federal and state securities regulators for a determination as to whether the
Units and POA must be registered as a pubflcly traded partnership and whether,
as such 1 the TenderOffer must be registered and. approved by either the
Securities Exchange Commission or state regulatory authorities, or both.
39. The Tender Offer materially misrepresents both the terms of the offer and
the projected returns each Member can expect to receive by retaining his or her Units in
an effort to induce Members to transfer their interests to Turning Block. In particular,
the Tender Offer misrepresents, among other things:
a. The total expected return to investors upon POA's
maximization of the return from the life insurance portfolio;
b. The net return to Members who transfer their interest by
failing to disclose the tax consequences of their receipt of interest payments
under the note; and
c. The likelihood of success on the merits of the lawsuit
pending in the Circuit Court for Baltimore City.
40. The Tender Offer also falsely represents that it is being presented to all of
the Members. Neither Heidi Cohen nor Ira Rigger, two of the members of POA's Board
of Managers, were presented with the opportunity to accept the Tender Offer. Upon
information and belief, other Members who are known to support the current Board of
Managers have not been presented with the Tender Offer.
41. In furtherance of Defendants' plan to defraud, the Tender Offer requires
that Members who sign the Transfer of Membership Interest form agree not to disclose
to POA or anyone employed or affiliated with POA that they have entered into the
Agreement until Turning Block delivers the notice of the transfer to POA. This is an
obvious attempt to conceal the true nature of the Tender Offer from the Members and
accomplish a "sneak attack" on POA.
TELEPHONE AND WIRE FRAUD
42. Beginning on August 23, 2010, POA started receiving concerned
telephone calls from Members who received Turning Block's Tender Offer.
43. Upon information and belief, Turning Block has initiated a telephone
campaign directed toward POA Members. Agents and/or employees of Turning Block
are systematically representing by telephone calls to Members that POA's Board is
supporting the Tender Offer. These representations are false; the Board has
unanimously voted to oppose the Tender Offer.
44. Members reported that they are receiving multiple calls from callers
pressuring them to accept the Tender Offer.
45. Upon information and belief, Turning Block's telephone solicitations repeat
the misrepresentations contained in the documents and use aggressive and unfair sales
tactics in support of the Tender Offer.
46. POA repeats and realleges the factual allegations of the foregoing
47. There exists an actual controversy between the parties as to the validity
and construction of the Tender Offer and the Tender Offer Documents.
48. Turning Block has made rio effort to either (1) register the Tender Offer in
accordance with federal or state securities laws or (2) present the Tender Offer to
POA's Board of Managers to give it the opportunity to obtain a legal opinion as to the
applicability of and compliance with such laws.
49. All Members must obtain approval from POA's Board pursuant to Article 8
of the Limited Liability Company Agreement prior to entering into an agreement to
transfer their interests to anyone.
50. Turning Block is actively and aggressively soliciting Members of POA to
transfer their Membership interests in POA without first obtaining POA's approval of the
transfer and in violation of the Limited Liability Company Agreement.
51. Any Member who enters into the Transfer Agreement with Turning Block
without first obtaining POA's approval of the transfer does so in violation of the LLC
52. The purpose of the restrictions on transfer of Units in the LLC Agreement
is to assure that POA is in compliance with federal and state securities and tax laws.
53. Unless a determination is made that the Tender Offer is null and void
under the LLC Agreement and by operation of law, the rights and obligations of the
parties will remain in dispute.
WHEREFORE, POA requests that this Court enter judgment against all
defendants declaring that:
A. The Tender Offer is null and void and of no force and effect;
B. Any purported transfer of a Member's Units pursuant to the Tender Offer
is null and void and of no force or effect;
C. The provisions of 8.3 and 8.4 of the LLC Agreement must be fully
complied with prior to the recognition of any transfer of Member's Units to Turning Block
or any other person or entity;
D. The provisions of the LLC Agreement are valid, binding and enforceable;
E. For such other and further relief as the Court deems appropriate..
(PRELIMINARY AND PERMANENT INJUNCTION)
54. POA repeats and realleges the factual allegations of the foregoing
55. Unless an injunction is issued against defendants in these proceedings,
POA and its Members will suffer immediate, substantial and irreparable injury.
56. There is no adequate remedy at law.
WHEREFORE, Premium of America, LLC requests that this Court grant the
A. That the Court enter a preliminary and permanent injunction enjoining any
transfer to Turning Block, LLC of Members' interests in Premium of America, LLC; and
B. That the Court enter a preliminary and permanent injunction voiding and
setting aside any purported transfer to Turning Block LLC of any Members' interests in
Premium of America, LLC;
C. That the Court enter a preliminary and permanent injunction preventing
the defendants from taking any further action in furtherance of the Tender Offer, and
take such other and further action as deemed necessary to void any transfer made prior
to the entry of any action hereunder; and
D, That the Court grant Premium of America, LLC such other and further
reiief as its cause may require.
Steven K. Fedder
Steven N. Leitess
Shannon A.S. Knox
Joseph A. Pulver
Leitess Leitess Friedberg + Fedder PC
One Corporate Center
10451 MIII Run Circle, Suite 1000
Owings Mills, Maryland 21 117
(410) 581-7410 (facsimile)
Attorneys for Premium of America, LLC