Cohen Kaye Suit

Case 4:15-cv-00225-O Document 1 Filed 03/24/15
Page 1 of 6 PageID 1
BTXN 150 (rev. 11/10)
In Re:
Latitude Solutions, Inc.
Debtor(s)
Carey D. Ebert
Plaintiff(s)
vs.
Howard Miller Appel et al.
Defendant(s)
Case No.: 1246295rfn11

Chapter No.: 11
Adversary No.: 1404107rfn
CIVIL CASE COVER SHEET

The JS 44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service of pleadings or other papers as required by law,
except as provided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is required for the use of the Clerk of
Court for the purpose of initiating the civil docket sheet.
I. (a) PLAINTIFF
Carey D. Ebert
DEFENDANT
Michael Gustin, Jeffery Wohler, John Paul Dejoria, Harvey N.
Klebanoff, Helen Klebanoff, Howard Miller Appel, Earnest A.
Bartlett, III, Bellcreast Advisors, LLC, Capital Growth Investment
Trust, Capital Growth Realty, Inc., Deborah Cohen, Matthew J.
Cohen, DIT Equity Holdings, Virginia Dadey, DeRosa Family
Trust, FEQ Realty, LLC, Michael Garnick, Vernon Ray Harlow,
Hawk Management Group, Inc., Island Capital Management, LLC,
KWL Exploration and Development, Inc., Moggle, LLC, RMS
Advisors, Inc., SLD Capital Corp., TSS Investments, Inc.
(b) County of Residence of First Listed Party:

(EXCEPT IN U.S. PLAINTIFF CASES)
County of Residence of First Listed Party:

(IN U.S. PLAINTIFF CASES ONLY)
(c) Attorney's (Firm Name, Address, and Telephone Number)

John C. Anderson
Anderson Firm, LLC
Post Office Box 82982
Baton Rouge, LA 70884
(225) 2521645
(225) 6157598 (fax)
jca@andersonfirm.net
Attorney's (If Known)

Defendants Michael Gustin, Jeffery Wohler, and John Paul Dejoria
Attorney:
Joseph Randolph Burton
Burleson, LLP
700 Milam, Ste. 1100
Houston, TX 77002
(713) 3581762
(713) 3581766 (fax)
rburton@burlesonllp.com
Patrick N. Broyles
Broyles Law Firm, LLC
12345 Perkins Road, Bulding Two
(225) 6632223
(225) 2081670 (fax)
broyles@broyleslawfirm.com
Defendants Harvey N. Klebanoff and Helen Klebanoff Attorney:

Mark Joseph Petrocchi
Griffith, Jay & Michel, LLP
2200 Forest Park Blvd.
Ft. Worth, TX 76110
(817) 9262500
(817) 9262505 (fax)
mpetrocchi@lawgjm.com
Joseph E. Cullens, Jr.

Walters, Papillion, Thomas, Cullens, LLC
12345 Perkns Road, Building One
(225) 2363636
(225) 2363650 (fax)
cullens@lawbr.net
All other Defendants Pro Se
Robin Eric Phelan

Haynes & Boone, LLP
2323 Victory Avenue, Suite 700
Dallas, TX 752197673
(214)6515612
(214)2000649 (fax)
robin.phelan@haynesboone.com
II. BASIS OF JURISDICTION

1
U.S. Government
Plaintiff
U.S. Government
Defendant
Federal Question
(U.S. Government
Not a Party)
Diversity
(Indicate Citizenship
of Parties in Item III)
III. CITIZENSHIP OF PRINCIPAL PARTIES

Citizen of This State
Citizen of Another State
Citizen or Subject of a
Foreign Country
Incorporated or Principal Place

of Business In This State
Incorporated and Principal Place

of Business In Another State
Foreign Nation
IV. NATURE OF SUIT

422 Appeal 28 USC 158
423 Withdrawal 28 USC 157
890 Other Statutory Actions
V. ORIGIN
1
5
Original Proceeding
Transferred from
another district
Removed from State

Court
Multidistrict
Litigation
Remanded from Appellate Court
Reinstated or
Reopened
Appeal to District Judge from

Magistrate Judgment
VI. CAUSE OF ACTION

Cite the U.S. Civil Statute under which you are filing (Do not cite jurisdictional statutes unless diversity):
28 USC 157
Brief description of cause:
Motion to withdraw reference
VII. REQUESTED IN COMPLAINT:

CHECK IF THIS IS A CLASS ACTION UNDER F.R.C.P. 23
VIII. RELATED CASE(S) IF ANY

Judge:
DATED: 3/24/15
DEMAND $
Docket Number:
FOR THE COURT:
Tawana C. Marshall, Clerk of Court
by: /s/Karyn Rueter, Deputy Clerk
CHECK YES only if demanded in complaint:

JURY DEMAND:
Yes
No
BTXN 138 (rev. 03/15)
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF TEXAS
In Re:
Latitude Solutions, Inc.
Carey D. Ebert
vs.
Howard Miller Appel et al.
Carey D. Ebert
Debtor(s)
Plaintiff(s)
Defendant(s)
Plaintiff(s)
vs.
Michael Gustin, Jeffery Wohler, John Paul Dejoria,
Harvey N. Klebanoff, Helen Klebanoff, Howard Miller
Appel, Earnest A. Bartlett, III, Bellcreast Advisors,
LLC, Capital Growth Investment Trust, Capital Growth
Realty, Inc., Deborah Cohen, Matthew J. Cohen, DIT
Equity Holdings, Virginia Dadey, DeRosa Family Trust,
FEQ Realty, LLC, Michael Garnick, Vernon Ray
Harlow, Hawk Management Group, Inc., Island Capital
Management, LLC, KWL Exploration and
Development, Inc., Moggle, LLC, RMS Advisors, Inc.,
SLD Capital Corp., TSS Investments, Inc.
Defendant(s)
Case No.: 1246295rfn11

Chapter No.: 11
Adversary No.:
1404107rfn
Civil Case No.:
NOTICE OF TRANSMITTAL REGARDING WITHDRAWAL OF REFERENCE

I am transmitting:
One copy of the Motion to Withdraw Reference (USDC Civil Action No. DNC Case) NOTE:
A Status Conference has been set for April 27, 2015 at 1:30 p.m., in Room 204, 501 W. 10th
Street, Fort Worth, TX 76102 before U.S. Bankruptcy Judge Nelms . The movant/plaintiff,
respondent/defendant or other affected parties are required to attend the Status Conference.
One copy of: .
TO ALL ATTORNEYS: Fed.R.Bankr.P. 5011(a) A motion for withdrawal of a case or proceeding shall be heard by
a district judge, [implied] that any responses or related papers be filed likewise.
DATED: 3/24/15
FOR THE COURT:

Tawana C. Marshall, Clerk of Court
by: /s/Karyn Rueter, Deputy Clerk
BTXN 116 (rev. 07/08)

WITHDRAWAL OF REFERENCE SERVICE LIST

Transmission of the Record
BK Case No.: 1246295rfn11
Adversary No.: 1404107rfn
Received in District Court by:
Date:
Volume Number(s):
cc: Russell F. Nelms
Laurie Rea
Karyn Rueter
Attorney(s) for Appellant
Plaintiff Carey D. Ebert

John C. Anderson
Anderson Firm, LLC
(225) 2521645
(225) 6157598 (fax)
Patrick N. Broyles
Broyles Law Firm, LLC
12345 Perkins Road, Bulding Two
(225) 6632223
(225) 2081670 (fax)
Joseph E. Cullens, Jr.
Walters, Papillion, Thomas, Cullens, LLC
12345 Perkns Road, Building One
(225) 2363636
(225) 2363650 (fax)
cullens@lawbr.net
Robin Eric Phelan
Haynes & Boone, LLP
Dallas, TX 752197673
(214)6515612
(214)2000649 (fax)
robin.phelan@haynesboone.com
Defendant Michael Gustin

Burleson, LLP
Houston, TX 77002
(713) 3581762
(713) 3581766 (fax)
Defendant Jeffery Wohler

Burleson, LLP
Houston, TX 77002
(713) 3581762
(713) 3581766 (fax)
Defendant John Paul Dejoria

Burleson, LLP
Houston, TX 77002
(713) 3581762
(713) 3581766 (fax)
Defendant Harvey N. Klebanoff

Ft. Worth, TX 76110
(817) 9262500
(817) 9262505 (fax)
Defendant Helen Klebanoff

Ft. Worth, TX 76110
(817) 9262500
(817) 9262505 (fax)
Defendant Howard Miller Appel, Earnest A. Bartlett, III, Bellcreast Advisors, LLC, Capital Growth Investment
Trust, Capital Growth Realty, Inc., Deborah Cohen, Matthew J. Cohen, DIT Equity Holdings, Virginia Dadey,
DeRosa Family Trust, FEQ Realty, LLC, Michael Garnick, Vernon Ray Harlow, Hawk Management Group, Inc.,
Island Capital Management, LLC, KWL Exploration and Development, Inc., Moggle, LLC, RMS Advisors, Inc.,
SLD Capital Corp., TSS Investments, Inc.
Pro Se Defendants
Case 4:15-cv-00225-O Document 1-1 Filed 03/24/15
Randy Burton
State Bar No. 03479050
Trent L. Rosenthal
trosenthal@burlesonllp.com
Landon Speights
lspeights@burlesonllp.com
Burleson LLP
700 Milam Street, Suite 1100
Houston, Texas 77002
(713) 358-1700
Counsel for Defendants Jeffery Wohler,
Michael Gustin, and John Paul DeJoria
FORT WORTH DIVISION
In re:
LATITUDE SOLUTIONS, INC.
Chapter 11
Debtor
Case No.: 12-46295-rfn-11

Plaintiff,
v.
HOWARD APPEL, ERNEST A. BARTLETT,
III, MATTHEW J. COHEN, RMS ADVISORS,
INC., CAPITAL GROWTH REALTY, INC.,
CAPITAL GROWTH INVESTMENT TRUST,
Adversary No. 14-04107-rfn
DIT EQUITY HOLDINGS, KWL
EXPLORATION AND DEVELOPMENT,
INC., VIRGINIA DADEY, BELLCREST
ADVISORS, LLC, DEBORAH COHEN,
HAWK MANAGEMENT GROUP, INC., FEQ
REALTY, LLC, HARVEY KLEBANOFF
AJKJA HARVEY KAYE, HELEN
KLEBANOFF, MOGGLE, LLC, ISLAND
CAPITAL MANAGEMENT, LLC, TSS
INVESTMENTS, INC., VERNON RAY
HARLOW, JEFFERY WOHLER, MICHAEL

GUSTIN, WILTOMO REDEMPTION
FOUNDATION, SLD CAPITAL CORP.,
DeROSA FAMILY TRUST, WILLIAM
BELZBERG REVOCABLE LIVING
TRUST, MICHAEL GARNICK, and JOHN
PAUL DeJORIA
Defendants.
MOTION TO WITHDRAW REFERENCE MADE TO A U.S. DISTRICT JUDGE
PURSUANT TO LOCAL RULE 5011 AND 28 U.S.C.A. 157(D)
AND DEMAND FOR JURY TRIAL
TO: THE HONORABLE UNITED STATES DISTRICT COURT
1.
Defendants MICHAEL GUSTIN, JEFFERY WOHLER, AND JOHN PAUL
DEJORIA (collectively, the Movants), by and through their counsel, Burleson LLP, hereby
move to withdraw reference of this adversary proceeding under Local Bankruptcy Rule 5011 and
28 U.S.C.A. 157(d) and on the grounds set forth in the Memorandum of Law and Brief (the
Memorandum of Law) filed concurrently herewith in support of this Motion to Withdraw
Reference (the Motion).
2.
Movants expressly do not consent to the entry of final judgments or orders by the
Bankruptcy Court in this adversary proceeding, and expressly state that the matters are non-core,
nor are they related to or arising under a case under title 11 of the United States Code. The
Movants are entitled to a jury trial on these claims under the Seventh amendment to the U.S.
Constitution and applicable law. Movants do hereby demand a jury trial on all issues on which
they are entitled to a jury trial under the U.S. Constitution.
3.
By signing and filing this Motion, Movants are not waiving any rights they may
have to contest subject matter or personal jurisdiction, or otherwise waiving any right or remedy
available to them, including, without limitation, the right to move to dismiss the Complaint filed
against them in this Adversary Proceeding,
WHEREFORE, Movants request that the reference of this adversary proceeding to the
Bankruptcy Court be withdrawn, that this adversary proceeding be transferred to the United
States District Court for this district, that the Bankruptcy Court transfer all pleadings related to
the Adversary Proceeding to the Clerk for the District Court, and that Movants have such other
relief as may be just and appropriate.
Respectfully submitted,
/s/ Randy Burton
Randy Burton
Trent L. Rosenthal
Landon Speights
Burleson LLP
(713) 358-1700
CERTIFICATE OF SERVICE
The undersigned, an attorney, hereby certifies that the above and foregoing motion was
served on counsel for Plaintiffs on this 23rd day of March, 2015, by either the Courts ecf system
or United States Mail, first class, postage prepaid.
/s/ Randy Burton

Randy Burton
CERTIFICATE OF CONFERENCE
Prior to the filing of this Motion to Withdraw Reference, the undersigned counsel
verbally requested in a face-to-face meeting with Trustees Counsel on Tuesday, March 10,
2015, that Trustees Counsel agree to a motion to withdraw the reference of this adversary
proceeding (by the district court.) Trustees Counsel stated that they would get back to Movants
counsel. Not having received a response, the undersigned counsel, again, requested whether
Trustees Counsel would agree to a motion to withdraw the reference via electronic mail, on
Saturday, March 14, 2014. On Monday, March 16, 2015, Trustees Counsel stated that We are
discussing your request to withdraw the reference and will reply to you soon. As of the date of
the filing of the attached Motion to Withdraw Reference, the undersigned attorney has received
no response from Trustees Counsel concerning Trustees agreement to withdraw reference or
oppose it.
/s/ Randy Burton
Randy Burton
Randy Burton
Trent L. Rosenthal
Landon Speights
Burleson LLP
(713) 358-1700
FORT WORTH DIVISION
In re:
Chapter 11
Debtor
Case No.: 12-46295-rfn-11

Plaintiff,
v.
HOWARD APPEL, ERNEST A. BARTLETT, III,
MATTHEW J. COHEN, RMS ADVISORS, INC.,
CAPITAL GROWTH REALTY, INC., CAPITAL
GROWTH INVESTMENT TRUST, DIT EQUITY
HOLDINGS, KWL EXPLORATION AND
DEVELOPMENT, INC., VIRGINIA DADEY,
BELLCREST ADVISORS, LLC, DEBORAH
COHEN, HAWK MANAGEMENT GROUP, INC.,
FEQ REALTY, LLC, HARVEY KLEBANOFF
AJKJA HARVEY KAYE, HELEN KLEBANOFF,
MOGGLE, LLC, ISLAND CAPITAL
MANAGEMENT, LLC, TSS INVESTMENTS,
INC., VERNON RAY HARLOW, JEFFERY
WOHLER, MICHAEL GUSTIN, WILTOMO
REDEMPTION FOUNDATION, SLD

CAPITAL CORP., DeROSA FAMILY TRUST,
WILLIAM BELZBERG REVOCABLE LIVING
PAUL DeJORIA,
Defendants.
MEMORANDUM OF LAW AND BRIEF IN SUPPORT OF

ii
TABLE OF CONTENTS
Table of Contents ........................................................................................................................... iii
Table of Authorities ....................................................................................................................... iv
Procedural Facts ...............................................................................................................................1
Summary of Argument ...................................................................................................................5
Legal Standards for Withdrawal of Reference.................................................................................6
Mandatory Withdrawal ....................................................................................................................7
Permissive Withdrawal ....................................................................................................................9
Cause Exists for Permissive Withdrawal of the Reference ...............................................13
1.
Efficient Use of Judicial Resources .......................................................................13
2.
Delay and Cost to the Parties .................................................................................14
3.
Uniformity of Bankruptcy Administration ............................................................15
4.
Prevention of Forum Shopping ..............................................................................15
5.
Other Factors, such as Jury Trial Demand .............................................................15
6.
Reference to Appendix ..........................................................................................16
Certificate of Service .....................................................................................................................17

Certificate of Conference ...............................................................................................................17
iii
TABLE OF AUTHORITIES
Cases
Commodity Futures Trading Comm'n v. Schor,
478 U.S. 833, 106 S.Ct. 3245, 92 L.Ed.2d 675 (1986) ............................................... 11, 12
Dev. Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP,
462 B.R. 457 (S.D.N.Y. 2011).................................................................................... 13, 14
Executive Benefits Insurance Agency v. Arkison (In re Bellingham
Insurance Agency, Inc.), 702 F3d. 553 (9th Cir. 2012) ................................................ 9, 11
Granfinanciera, S.A. v. Nordberg,
492 U.S. 33, 109 S. Ct. 2782, 106 L. Ed. 2d 26, 18 Fed. R. Serv. 3d 435 (1989) .............. 5
In re Baldwin-United Corp.,
57 B.R. 751, 14 Bankr. Ct. Dec. (CRR) 361 (S.D. Ohio 1985) ...................................... 7, 8
In re BP RE, L.P.,
735 F.3d 279 (2013), 58 Bankr.Ct.Dec. 187, Bankr. L. Rep. P 82, 534 ..................... 11, 12
In re Castlerock Properties,
781 F.2d 159 (9th Cir. 1986) ............................................................................................ 13
In re Cinematronics,
916 F.2d 1444 (9th Cir. 1990) .......................................................................................... 14
In re Frazin,
732 F.3d at 319 ................................................................................................................. 12
In re Galaz,
765 F.3d 426 (2014) Bankr. L. Rep. P 82,697 ............................................................ 12, 13
In re White Motor Corp.,
42 B.R. 693, 12 Bankr. Ct. Dec. (CRR) 235, 11 Collier Bankr. Cas. 2d (MB) 993, 5
Employee Benefits Cas. (BNA) 2169 (N.D. Ohio 1984) ................................................... 7
Michigan Milk Producers Ass'n v. Hunter,
46 B.R. 214, 12 Collier Bankr. Cas. 2d (MB) 166, Bankr. L. Rep. (CCH) P 70310, 19851 Trade Cas. (CCH) P 66475 (N.D. Ohio 1985) ................................................................. 8
Northern Pipeline Construction Co. v. Marathon Pipe Line Company,
102 S.Ct. 2858, 458 U.S. 50 (1982) .............................................................................. 6, 10
iv
Sec. Farms v. Int'l Bhd. Of Teamsters, Chauffers, Warehousemen & Helpers,

124 F.3d 999 (9th Cir. 1999) ......................................................................................... 9, 13
Stern vs. Marshall,
564 U.S. 2 (2011), 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011) ............. 3, 6, 9, 10, 11, 12, 14
Waldman v. Stone,
698 F.3d 910(6th Cir.2012), ................................................................................. 10, 11, 12
Statutes
11 U.S.C. 548(a)(1)(A) and (B) ................................................................................................... 2
11 U.S.C. 544(b) .......................................................................................................................... 2
11 U.S.C. 550 ............................................................................................................................... 2
28 U.S.C. 157(c)(2) .................................................................................................................... 12
28 U.S.C. 157(b)(2) ..................................................................................................................... 10
28 U.S.C.A. 1334(a) .................................................................................................................... 6
28 U.S.C.A. 157 ......................................................................................................................... 12
28 U.S.C.A. 157(a) ...................................................................................................................... 6
28 U.S.C.A. 157(d) .............................................................................................................. 1, 7, 8
F.S.A. 726.101 et seq. .................................................................................................................. 2
Nev. Rev. Stat. Ann. 112.140 et seq., (2) .................................................................................... 2
Rules
Local Bankruptcy Rule 5011 ...................................................................................................... 1, 6
Fed. R. Bankr. P. 7012 .............................................................................................................. 8, 12
Fed. R. Civ. P. 12 ........................................................................................................................ 4, 8
MEMORANDUM OF LAW AND BRIEF IN SUPPORT OF

Defendants MICHAEL GUSTIN, JEFFERY WOHLER, and JOHN PAUL DEJORIA
(collectively, the Movants), by and through their counsel, Burleson LLP, file their Memorandum
of Law and Brief (Memorandum of Law) in support of their Motion to Withdraw Reference
under Local Bankruptcy Rule 5011 and 28 U.S.C.A. 157(d), filed concurrently herewith, and in
support thereof, state:
PROCEDURAL FACTS
1.
On November 9, 2011, Latitude Solutions, Inc. (the Debtor) filed a voluntary
petition under Chapter 7 of Title 11 of the United States Code (the Bankruptcy Code or Code.)
2.
On March 26, 2013, the Unofficial Committee of Certain Shareholders of the
Debtor (the Committee) filed a motion to convert the Chapter 7 case to a Chapter 11 under the
Bankruptcy Code and to retain the current trustee, Carey Ebert, as the Chapter 11 trustee (the
Trustee.)
3.
On April 4, 2013, the motion to convert the bankruptcy case from Chapter 7 to
Chapter 11 was heard. On April 5, 2013, the Order Granting Motion to Convert Case was entered.
4.
On November 9, 2014, the Trustee, in her representative capacity and on behalf of
the Debtor, initiated the Original Complaint and Demand for Jury Trial as an adversary proceeding
against the Movants and numerous other defendants, both individuals and corporate entities (the
Adversary Proceeding,) alleging, inter alia, that the defendants, collectively, engaged in: (1)
Fraudulent Transfers under 11 U.S.C. 544(b) and 550 of the Bankruptcy Code, the Florida
Uniform Fraudulent Transfer Act, F.S.A. 726.101 et seq., or, alternatively, the Nevada Uniform
Page 1
Fraudulent Transfer Act, Nev. Rev. Stat. Ann. 112.140 et seq., (2) Fraudulent Transfers under
548(a)(1)(A) and (B) and 550(a) of the Bankruptcy Code; (3) Breaches of their Fiduciary
Duties, (4) Aiding and Abetting the Breaches of others Fiduciary Duties, (5) Common Law Fraud,
(6) Conspiracy to Commit Common Law Fraud, (7) Aiding and Abetting others Common Law
Fraud, (8) Actual Damages; (9) Punitive Damages; and, (10) Attorneys Fees (the Claims.) This
Complaint was never served upon any defendant.
5.
On February 13, 2015, the Trustee filed her First Amended and Restated Adversary
Complaint against the Movants and others (the Complaint) under which no causes of action were
added to the Original Complaint.
6.
No Disclosure Statement or Chapter 11 Plan of Reorganization has yet been filed
in this case. The case has been pending for over 2 years. Reorganization does not appear likely.
7.
By the Adversary Proceeding, the Trustee has asserted causes of action that are a
mixed combination of core and non-core state law claims. All of these causes of action with the
exception of the Fraudulent Transfer claims are state law claims; namely, the claims for Breaches
of their Fiduciary Duties, Aiding and Abetting the Breaches of others Fiduciary Duties, Common
Law Fraud, Conspiracy to Commit Common Law Fraud, Aiding and Abetting others Common
Law Fraud, and for Actual and Punitive Damages and Attorneys Fees. The bankruptcy process
is not implicated at all by these non-core claims whatsoever, which could have all been filed in
State Court.
8.
As such, with the sole exception of the Fraudulent Transfer claims, the remaining
claims raised in the Complaint are all non-core claims and are totally unrelated to the Debtors
Chapter 11 case.
Page 2
9.
More importantly, even the core claims of fraudulent transfers have nothing to do
with Movants because Movants received no such transfers. The 4-page Addendum to Trustees
Complaint identifies in great detail each and every fraudulent transfer for each defendant in this
Adversary Proceeding, except for the Movants. The Complaint provides the following information
concerning said defendants fraudulent transfers: (1) Cash; (2) Cash Transfer Dates; (3) Shares; (4)
Share Transfer Dates; (5) Minimum Est. Actual Share Value at Issuance; (6) Est. Value of All
Issues (sic) Shares; (7) Warrants; and (8) Warrant Transfers. For the Movants, on the other hand,
the Trustee cannot show and does not show any information for Movants, only the statement: To
be determined. Accordingly, the Trustee has not even alleged a valid fraudulent transfer claim
against Movants because the Trustee has not identified any transfers to the Movants. Therefore,
with respect to Movants, all of the claims raised should be considered non-core, and not related to
or arising under a title 11 case.
10.
Clearly, for this reason alone, the Claims against the Movants are distinguishable
from those against the other defendants and have no basis as bankruptcy law causes of action, such
as fraudulent transfer. Moreover, the tort claims alleged by Trustee against Movants and the other
defendants predicated upon alleged Securities Fraud violations are much better addressed by the
District Court. The Bankruptcy Court simply does not have subject matter jurisdiction over these
claims, and under Stern vs. Marshall, 564 U.S. 2 (2011), 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011)
does not have the authority to enter a valid final judgment or order on these claims.
11.
Alternatively, because the Complaint on its face and in substance alleges claims
which will require consideration of both Title 11 and other laws of the United States regulating
organizations or activities affecting interstate commerce such as the alleged Securities Fraud
violations implicating the laws of the States of Florida, Nevada, Texas and, perhaps, other states,
Page 3
Movants have filed for Withdrawal of the reference of this Adversary Proceeding.
These
Securities Fraud claims purport to affect shareholders and creditors located in numerous states not
yet identified.
12.
Accordingly, Movants file the Motion as for a threshold determination prior to
answering Trustees Complaint, challenging the Bankruptcy Courts subject matter jurisdiction of
this proceeding and Movants demand a jury trial. Movants note that the Trustee has also requested
a jury trial, and, the Trustee is surely aware that the Bankruptcy Court cannot conduct a jury trial
without consent of all the parties. Movants expressly do not consent to allow the Bankruptcy Court
to conduct a jury trial.
13.
Concurrently herewith, Movants have also filed a Motion to Dismiss this Adversary
Proceeding under Rule 12(b) of the Federal Rules of Civil Procedure.

14.
The Motion is filed as an initial pleading by the Movants in this Adversary
Proceeding and is seeking to withdraw the reference.
By filing this Motion to Withdraw
Reference, Movants are not consenting to the Bankruptcy Courts subject matter jurisdiction over
them, and reserve all of their arguments set forth in their various Motions to Dismiss and other
motions. This pleading is expressly subject to the jurisdictional arguments raised. This pleading
is not any general submission to the jurisdiction of the Bankruptcy Court and specifically denies
that the Bankruptcy Court has jurisdiction over the Claims against Movants. Movants also deny
that the claims raised against them are core claims.
15.
The Movants have simultaneously filed with this motion a Demand for a Jury Trial,
by which they have demanded a jury trial. Movants do hereby demand a jury trial on all issues on
which they are entitled to a jury trial under the U.S. Constitution. Notably, the Trustee has already
requested a jury trial as well.
Page 4
16.
The Movants expressly do not consent to the Bankruptcy Courts exercise of
subject matter jurisdiction or the entry of final judgments or orders in this Adversary Proceeding
and expressly state that the Claims against them are non-core and are unrelated to and not arising
under a case under Title 11 of the United States Code. Movants are entitled to a jury trial on these
claims as a matter of constitutional right under the Seventh amendment to the U.S. Constitution
and applicable law. Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S. Ct. 2782, 106 L. Ed.
2d 26, 18 Fed. R. Serv. 3d 435 (1989).
17.
Movants believe that it would be a more efficient use of judicial resources to have
the District Court hear all matters in connection with the Complaint as it relates to the claims
against the Movants. Additionally, since the causes of action against Movants are non-core or
essentially non-core, the District Court is the better forum to hear all matters in connection with
the Complaint. And, since the Bankruptcy Court does not have subject matter jurisdiction over
these claims and cannot conduct a jury trial, it only makes sense that the Court withdraws the
reference to the District Court.
SUMMARY OF ARGUMENT
18.
The District Court should promptly withdraw the reference of this adversary
proceeding for all purposes.
Movants request that the Bankruptcy Court make that
recommendation to the District Court. Contemporaneously with the filing of this Memorandum of
Law and Brief in Support of Motion to Withdraw the Reference, Movants filed their Motion to
Withdraw Reference with the Clerk of the United States Bankruptcy Court but directed to the
United States District Court for the Northern District of Texas (the Defendants Motion to
Withdraw Reference) in accordance with Local Bankruptcy Rule 5011-1.
19.
In the Complaint, the Trustee has raised claims that are fundamentally or expressly
Page 5
non-core, private claims against Movants that do not arise out of and/or are not related to Latitude
Solutions, Inc.s chapter 11 case. Northern Pipeline Construction Co. v. Marathon Pipe Line
Company, 102 S.Ct. 2858, 458 U.S. 50 (1982). The Adversary Proceeding against Movants
involves solely state law claims between the Debtor and non-debtor entities that have no close
nexus to the bankruptcy case whatsoever. Under Stern vs. Marshall, the Bankruptcy Court does
not have subject matter jurisdiction over these claims and cannot enter final judgments or orders,
and the Bankruptcy Court does not have constitutional authority to enter final judgments or orders
on these claims. The Trustee and Movants have also requested a jury trial, which the Bankruptcy
Court cannot conduct. These claims against the Movants are entirely different than claims raised
by the Complaint against the other defendants for recovery of fraudulent transfers.
LEGAL STANDARDS FOR WITHDRAWAL OF REFERENCE
20.
United States District Courts have original (though not exclusive) subject matter
jurisdiction of all Bankruptcy Code cases pursuant to 28 U.S.C.A. 1334(a). District Court
jurisdiction extends to all civil proceedings arising under and arising in or related to
Bankruptcy Court jurisdiction over cases involving a debtor under Title 11. Such jurisdiction is
derived from 28 U.S.C.A. 157(a), which grants the district court authority to refer all bankruptcy
cases, as well as proceedings arising in or related to a case under Title 11, to the Bankruptcy Court.
21.
Because the District Court has original jurisdiction over all bankruptcy cases, it also
has the following power and duty:

The district court may withdraw, in whole or in part, any case or proceeding
referred under this section, on its own motion or on timely motion of any party, for
cause shown. The district court shall, on timely motion of a party, so withdraw a
proceeding if the court determines that resolution of the proceeding requires
consideration of both title 11 and other laws of the United States regulating
organizations or activities affecting interstate commerce.
(Emphasis added.) 28 U.S.C.A. 157(d). Thus, withdrawal of reference is mandatory where an
Page 6
action requires consideration of both bankruptcy law and non-bankruptcy federal law affecting
interstate commerce. Furthermore, a proceeding is subject to withdrawal in both core and noncore
proceedings. In re White Motor Corp., 42 B.R. 693, 12 Bankr. Ct. Dec. (CRR) 235, 11 Collier
Bankr. Cas. 2d (MB) 993, 5 Employee Benefits Cas. (BNA) 2169 (N.D. Ohio 1984).
MANDATORY WITHDRAWAL
22.
The conditions which must be met before mandatory withdrawal is appropriate are
as follows:
First, the person seeking withdrawal must be a party to the proceeding;
Second, the motion to withdraw the reference must be timely filed; and,
Third, resolution of the proceeding must require consideration of both of the Bankruptcy
Code and of non-bankruptcy federal statutes regulating interstate commerce.
In re Baldwin-United Corp., 57 B.R. 751, 14 Bankr. Ct. Dec. (CRR) 361 (S.D. Ohio 1985).
23.
In the case at bar, the first requirement, that the movant be a party to the proceeding,
is fulfilled in that Movants JOHN PAUL DEJORIA, JEFF WOHLER, and MIKE GUSTIN have
been named as defendants in this adversary proceeding.
24.
The second requirement of timeliness is fulfilled if the motion to withdraw
reference was made as promptly as possible in light of the developments in the bankruptcy
proceeding. Id. This motion is filed on or within the time established for the filing of Movants
answers or file a Fed. R. Bankr. P. 7012/ Fed. R. Civ. P. 12(b) motions. Indeed, many courts are
far more lenient with regard to what constitutes timely filing. Given that Movants Motion to
Withdraw Reference has been filed shortly after the filing of the Trustees Amended Complaint
where the original Complaint was never served on any defendants and was within the time
specified for the filing of Movants answers, Movants Motion to Withdraw Reference is clearly
made in timely fashion.
Page 7
25.
The third requirement states that the resolution of the proceedings requires
consideration of both bankruptcy law and non-bankruptcy federal laws regulating interstate
commerce. In interpreting 157(d), courts have required that the non-bankruptcy federal law be
a substantial and material consideration in the resolution of the proceeding. Baldwin, 57 B.R.
at 757; Michigan Milk Producers Assn v. Hunter, 46 B.R. 214, 12 Collier Bankr. Cas. 2d (MB)
166, Bankr. L. Rep. (CCH) P 70310, 1985-1 Trade Cas. (CCH) P 66475 (N.D. Ohio 1985).
Furthermore, the non-bankruptcy federal statutes must be necessary for the resolution of a case or
proceeding and not simply a consideration in the proceeding. Michigan Milk, 46 B.R. at 216. The
Trustee has pled a number of state-based tort claims against Movants. In addition, the Trustee has
alleged though not formally pled numerous violations of federal securities fraud statutes related
to the illegal trading of stock in publicly-traded companies by various of the defendants, though
not the Movants, including: (1) allegations that certain the defendants received consulting fees
for bringing investors to and running a publically traded corporation ( 27); (2) LSI was paying
Appel, a convicted securities fraud felon, illegal commissions in the form of cash and/or LSI stock,
all in direct violation of applicable law and SEC rules and regulations ( 294); and, (3) the selfdealing, insider trading, pattern of fraud, and alleged breach of securities fraud laws alleged herein
against the Director and Officer Defendants ( 299).
PERMISSIVE WITHDRAWAL
26.
The District Court may withdraw the reference, in whole or in part, for cause
shown, such as the efficient use of judicial resources, delay and costs to the parties, uniformity of
bankruptcy administration, prevention of forum shopping and other factors. Sec. Farms v. Intl
Bhd. Of Teamsters, Chauffers, Warehousemen & Helpers, 124 F.3d 999, 1008 (9th Cir. 1999).
Other relevant factors include whether the case is core, or non-core, and whether a jury trial has
Page 8
been requested. While a Bankruptcy Court may hear a non-core proceeding, it may not enter final
judgment on such matters absent consent of all parties and the Bankruptcy Court shall submit
proposed findings of fact and conclusion of law to the district court, which shall enter appropriate
findings of fact and conclusions of law after de novo review.
27.
Under the rationale of Stern v. Marshall, a bankruptcy court cannot enter a final
judgment on a cause of action traditionally within the judicial power of an Article III Court and
does not have the constitutional authority to do so with respect to private, state-law-based rights.
While not specifically applicable here, in the recent 9th Circuit opinion, Executive Benefits
Insurance Agency v. Arkison (In re Bellingham Insurance Agency, Inc.), 702 F3d. 553 (9th Cir.
2012), the 9th Circuit considered Stern v. Marshall as it related to a Bankruptcy Courts authority
to enter a final order in a fraudulent transfer action, and held that, in that case, consent to the entry
of such final judgment by the Bankruptcy Court may be implied from the conduct in the litigation,
such as where the defendant filed a proof of claim. In this instance, the proof(s) of claim, if any,
filed by Movants are irrelevant to the adjudication of the Claims raised by the Trustee in her
Complaint. The 9th Circuit upheld the expansive view of Stern v. Marshall that a bankruptcy court
cannot adjudicate cases involving private (not public) rights. Additionally, in evaluating whether
or not to withdraw the reference, the Court should consider whether, under Stern v Marshall,1 the
bankruptcy court is constitutionally empowered to adjudicate the causes of action alleged in the
underlying complaint.
28.
In 2013, the Fifth Circuit, interpreting Stern v. Marshall, emphasized the
significance of guarding Article III powers, citing Northern Pipeline Construction Co. v. Marathon
1
In Stern, the Supreme Court held that the bankruptcy courts power to enter final judgments on matters is not co-extensive with
what 28 U.S.C. 157(b)(2) considers core, and some matters considered core cannot be finally adjudicated in the Bankruptcy
Court where they involve only private rights that will not necessarily be determined in ruling on a proof of claim filed against the
estate, unless all parties consent. Id. at 2594.
Page 9
Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982)2:
When a suit is made of the stuff of the traditional actions at common law tried by
the courts at Westminster in 1789, Northern Pipeline, 458 U.S. at 90, 102 S.Ct.
2858 ... (Rehnquist, J., concurring in judgment), and is brought within the bounds
of federal jurisdiction, the responsibility for deciding that suit rests with Article III
judges in Article III courts. The Constitution assigns that jobresolution of the
mundane as well as the glamorous, matters of common law and statute as well as
constitutional law, issues of fact as well as issues of lawto the Judiciary. Id., at
8687, n. 39, 102 S.Ct. 2858 ... (plurality opinion).
Turning to whether the bankruptcy court had the constitutional authority to enter
final judgment, we are bound to apply Stern, which held that, regardless of statutory
authority, the bankruptcy court did not have the constitutional authority to enter a
final judgment on claims that are so deeply at the heart of the federal judiciarys
Article III powers and are not necessary to the resolution of the bankruptcy estate.
What is plain here is that this case involves the most prototypical exercise of
judicial power: the entry of a final, binding judgment by a court with broad
substantive jurisdiction, on a common law cause of action, when the action neither
derives from nor depends upon any agency regulatory regime. Stern, 131 S.Ct. at
2615.
Construing Stern, the Sixth Circuit convincingly reached a similar conclusion
involving non-core claims in Waldman v. Stone, 698 F.3d 910, 919 (6th Cir.2012),
cert. denied, U.S. , 133 S.Ct. 1604, 185 L.Ed.2d 581 (2013): [W]hen a
debtor pleads an action arising only under state-law, as in Northern Pipeline; or
when the debtor pleads an action that would augment the bankrupt estate, but not
necessarily be resolved in the claims allowance process[,] [Stern,] 131 S.Ct. at
2618; then the bankruptcy court is constitutionally prohibited from entering final
judgment.
In re BP RE, L.P., 735 F.3d 279, 286 (2013), 58 Bankr.Ct.Dec. 187, Bankr. L. Rep. P 82,534,
29.
However, while the Fifth Circuit agreed with the Sixth and Ninth Circuits position
that the bankruptcy courts lacked the constitutional authority to enter final judgment on state-law
claims, the Fifth Circuit strongly disagreed with the Ninth Circuit on whether individual litigants
in bankruptcy may cure the constitutional deficiency merely by agreeing to waive their rights to
In Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598
(1982), which had held the 1978 Bankruptcy Act unconstitutional, the Court found: In short, there is no doubt that
the bankruptcy judges created by the Act are not Art. III judges. N. Pipeline, 458 U.S. at 61, 102 S.Ct. 2858. This
was not cured by The Bankruptcy Code enacted in 1984.
Page 10
be heard by an Article III court:

...[We] must address whether BPREs consent to have its claims heard in
bankruptcy court cures the constitutional deficiency. We adopt the compelling and
thorough reasoning of Waldman, which held that parties cannot consent to such
circumvention of Article III that impinges on the structural interests of the Judicial
Branch.9 Waldman was the first post-Stern appellate decision *287 to address
consent as it relates to the bankruptcy courts constitutional authority.10 The Sixth
Circuit persuasively rejected the notion that the constitutional issue could be
waived.
In Waldman, the court looked both to Stern and to Commodity Futures Trading
Commn v. Schor, 478 U.S. 833, 106 S.Ct. 3245, 92 L.Ed.2d 675 (1986),
concluding that this issue implicates Article IIIs structural interests. Article III,
Section 1 not only seeks to preserve individual litigants right to an independent
judiciary but also serves as an inseparable element of the constitutional system of
checks and balances. Waldman, 698 F.3d at 917 (quoting Schor, 478 U.S. at 850,
106 S.Ct. 3245). The court rejected the theory that, because the bankruptcy courts
are part of the Judicial Branch, there was no threat of encroachment but only a
waivable personal right. Id. at 91718.
We acknowledge that the Ninth Circuits opinion in Executive Benefits is in conflict
on the issue of consent. We do not dispute that parties may waive constitutional
rights, Schor, 478 U.S. at 84849, 106 S.Ct. 3245, but Executive Benefits disregards
the critical structural interests underlying Article III. It does so by reasoning that
Stern allowed waiver...That line of reasoning in Executive Benefits misses the mark,
however, because Stern determined only that Pierce had waived the issue of
statutory authority, see Stern, 131 S.Ct. at 2608, and did not reach the constitutional
issue as to waiver.
...Allowing bankruptcy courts to enter final judgments on state-law claims that are
not necessary to address the bankruptcy issues confers the essential attributes of
judicial power on non-Article III courts.
Where a structural interest is triggered, the parties cannot by consent cure the
constitutional difficulty for the same reason that the parties by consent cannot
confer on federal courts subject-matter jurisdiction beyond the limitations imposed
by Article III, 2. Schor, 478 U.S. at 851, 106 S.Ct. 3245. When these Article
III limitations are at issue, notions of consent and waiver cannot be dispositive
because the limitations serve institutional interests that the parties cannot be
expected to protect. Id.
30.
More recently, the 5th Circuit reiterated its position on waiver with In re Galaz, 765
F.3d 426 (2014) Bankr. L. Rep. P 82,697. In Galaz, the Firth Circuit held that even with the
Page 11
express or implied consent of the parties, a bankruptcy court may not enter a final judgment on
private, state court based claims because they are non-core claims, merely relating to the
bankruptcy:
While Section 157 gives bankruptcy courts statutory authority to enter final
judgment on specific bankruptcy-related claims, Article III of the Constitution
prohibits bankruptcy courts from finally adjudicating certain of those claims. Id.
at 2168. Congress may not bypass Article III simply because a proceeding may
have some bearing on a bankruptcy case; the question is whether the action at issue
stems from the bankruptcy itself or would necessarily be resolved in the claims
allowance process. Stern, 131 S.Ct. at 2618. Thus, when a debtor pleads an action
arising only under state-law, ... or when the debtor pleads an action that would
augment the bankrupt estate, but not necessarily be resolved in the claims
allowance process [,] then the bankruptcy court is constitutionally prohibited from
entering final judgment. Waldman, 698 F.3d at 919 (quoting Stern, 131 S.Ct. at
2618). Accord In re BP RE, 735 F.3d at 285.
The district court treated Lisas TUFTA [Texas Uniform Fraudulent Transfer Act]
claim as being related to the bankruptcy rather than a core bankruptcy claim. We
agree with this characterization. The court went on, however, to hold that the
bankruptcy court had authority to enter a final judgment based on the Appellants
implied consent. 28 U.S.C. 157(c)(2); Bankr.Rule 7012; Memo Op., Galaz v.
Galaz, No. 1100425 (W.D. Tex. April 17, 2012). This courts later decisions in In
re Frazin and In re BP RE are at odds with the district courts consent rationale.
Each of these cases holds that according to Stern, the parties express or implied
consent cannot cure the constitutional deficiency that results from circumventing,
or diminishing, the Article III structural protections for the federal judiciary. In re
BP RE, 735 F.3d at 28687 (relying on Waldman, 698 F.3d at 917, 918); In re
Frazin, 732 F.3d at 319.
In re Galaz, 765 F.3d 426, 432 (2014), Bankr. L. Rep. P 82,697
CAUSE EXISTS TO WITHDRAW THE REFERENCE

31.
The claims raised against Movants in the Complaint are all clearly non-core, and
are not related to the bankruptcy case. Moreover, as stated above, the alleged core claims of
fraudulent transfer against Movants have no foundation since they are To be determined
according to Debtors own pleadings. An analysis of each of the factors that support permissive
withdrawal of the reference is as follows:
Page 12
1.
Efficient Use of Judicial Resources. The Claims raised in the Complaint
against Movants have nothing to do with the claims raised in the underlying lawsuit. The
primary factor in deciding a motion to withdraw the reference is whether the bankruptcy
court has authority to finally determine claims underlying the Motion to Withdraw the
Reference. Dev. Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP, 462 B.R. 457,
469 (S.D.N.Y. 2011). Historically, this was determined by examining the core versus noncore distinction of the claims and whether there was a timely demand for a jury trial. 3 Id.
Judicial efficiency is promoted by withdrawing the reference for those matters that are noncore since non-core claims are subject to de novo review. In re Castlerock Properties, 781
F.2d 159, 162 (9th Cir. 1986). Efficiency is enhanced by withdrawing the reference when
non-core issues predominate. Security Farms, 124 F.3d at 1008. Inasmuch as a
bankruptcy courts determination on non-core matters are subject to de novo review by the
district court, unnecessary costs could be avoided by a single proceeding in the district
court. Castlerock, 781 F.2d at 162. The Ninth Circuit has held that it was an abuse of
discretion not to withdraw the reference when there is a non-core matter and a timely jury
demand. In re Cinematronics, 916 F.2d 1444, 1451 (9th Cir. 1990). After Stern v.
Marshall, the following additional analysis is required to determine the advantages and
disadvantages of leaving the underlying Complaint before the Article I court or moving it
to an Article III court: whether (1) the rights being adjudicated are public rights or (2) the
rights being adjudicated will necessarily be resolved in ruling on a creditors proof of claim,
or (3) the parties unanimously consent to the bankruptcy court adjudicating their claims.
Development Specialists, Inc. at 467. Here, we are dealing with tort claims against Movants
Movants have concurrently herewith filed their demand for a jury trial and non-consent to adjudication by the
Bankruptcy Court.
Page 13
not involving any proof of claim or any bankruptcy law, and, the parties have not consented
to entry of final judgments by the Bankruptcy Court. Additionally, based on the rationale
and arguments raised in the Movants Motions to Dismiss and related Motions, which are
incorporated herein for all purposes, the Complaint against Movants should be dismissed
for lack of subject matter jurisdiction.
The Bankruptcy Court lacks subject matter
jurisdiction, and, there are no other grounds for jurisdiction in the District Court, i.e. no
federal question and no related to or arising under a bankruptcy case jurisdiction. For
that reason, once the reference is withdrawn, the District Court should dismiss the
Complaint on the grounds set forth in Movants Motion to Dismiss assuming the
Bankruptcy Court has not already granted such relief prior to withdrawal of the reference.
2.
Delay and Cost to the Parties. If the Bankruptcy Court were to hear the
case, it would only be able to submit proposed findings of fact and conclusions of law to
the District Court for de novo review. Movants would thereafter be required to file a
response to the proposed findings and conclusions, which would consume time and cost.
Moreover, since two Courts would be required to consider the same issues, there would
obviously be delay involved. There could also be further delays associated with appeals
from the District Court orders, essentially causing a review by three Courts of the same
issue. The request for jury demand by both the Trustee and Movants makes it more
economical for this Court to consider the case from the start and familiarize itself with the
issues in preparation for the jury trial for which it must conduct.
3.
Uniformity of Bankruptcy Administration. The claims raised in the
Complaint against Movants are all non-core and not arising from or related to the
bankruptcy case. Therefore, consideration of the claims by the Bankruptcy Court will not
Page 14
improve the uniformity of bankruptcy administration since the claims against Movants deal
with state law created rights, not bankruptcy law. Withdrawal of the reference will not
interfere with the bankruptcy case, which has numerous other unrelated adversary
proceedings pending as well.
4.
Prevention of Forum Shopping. Movants are not forum shopping. They
are just requesting that the Court that would be in a position to conduct the jury trial hear
the case from beginning to end.
5.
Other Factors, such as Jury Trial Demand.
Obviously this is an
important factor because the Bankruptcy Court is not in a position to conduct a jury trial.
Assuming the claims are not dismissed on jurisdictional grounds as requested in the Motion
to Dismiss, it makes sense for the Article III Court to consider these state law created
claims. They have nothing to do with the bankruptcy. Both the Trustee and Movants have
requested a jury trial.
6.
Reference to Appendix. In further support of this Motion to Withdraw
Reference, Movants present the following pleadings filed in the captioned adversary case,
which shall constitute an appendix and exhibits to the Motion to Withdraw Reference:
(i)
Movants Motion to Dismiss Under Rule 12 of The Federal Rules of

Civil Procedure as Made Applicable to Adversary Proceedings Under
Rule 7012 of The Federal Rules of Bankruptcy Procedure, and
Memorandum of Law and Brief in Support Thereof; and,
(ii)
First Amended and Restated Adversary Complaint, filed on February

13, 2015, Doc. 10.
WHEREFORE, for the reasons stated herein, Movants request that the reference of this
adversary proceeding to the Bankruptcy Court be withdrawn, that this adversary proceeding be
transferred to the United States District Court for this district, that the Bankruptcy Court transfer
Page 15
all pleadings related to the Adversary Proceeding to the Clerk for the District Court, and that
Movants have such other relief as may be just and appropriate.
Page 16
/s/ Randy Burton
Randy Burton
Trent L. Rosenthal
Landon Speights
Burleson LLP
(713) 358-1700
/s/ Randy Burton
Randy Burton
Page 17
APPENDIX I
MOVANTS MOTION TO DISMISS UNDER RULE 12 OF THE FEDERAL RULES OF CIVIL PROCEDURE
AS MADE APPLICABLE TO ADVERSARY PROCEEDINGS UNDER RULE 7012 OF THE FEDERAL RULES
OF BANKRUPTCY PROCEDURE, AND MEMORANDUM OF LAW AND BRIEF IN SUPPORT THEREOF
Randy Burton
Trent L. Rosenthal
Landon Speights
Burleson LLP
(713) 358-1700
Counsel for Defendants Jeffery Wohler, Michael
Gustin, and John Paul DeJoria
FORT WORTH DIVISION
In re:
Chapter 11
Debtor
Case No.: 12-46295-rfn-11

Plaintiff,
v.
EXPLORATION AND DEVELOPMENT, INC.,
VIRGINIA DADEY, BELLCREST ADVISORS,
LLC, DEBORAH COHEN, HAWK
MANAGEMENT GROUP, INC., FEQ REALTY,
LLC, HARVEY KLEBANOFF AJKJA HARVEY
KAYE, HELEN KLEBANOFF, MOGGLE, LLC,
ISLAND CAPITAL MANAGEMENT, LLC,
TSS INVESTMENTS, INC., VERNON RAY

BELZBERG REVOCABLE LIVING TRUST,
MICHAEL GARNICK, and JOHN PAUL
DeJORIA
Defendants.
MOTION TO DISMISS UNDER RULE 12 OF THE FEDERAL RULES OF CIVIL
PROCEDURE AS MADE APPLICABLE TO ADVERSARY PROCEEDINGS UNDER
RULE 7012 OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE
TO: THE HONORABLE UNITED STATES BANKRUPTCY JUDGE
DEFENDANTS JEFFERY WOHLER, MICHAEL GUSTIN, AND JOHN PAUL
DeJORIA (collectively, the Movants), by and through their counsel, Burleson LLP, move to
dismiss the claims pleaded against them in this matter. As grounds, the Movants would
respectfully submit that (1) this Court lacks subject matter jurisdiction; (2) that the Plaintiff,
Chapter 11 Trustee Carey Ebert (hereinafter Trustee), has failed to plead her causes of action
with the specificity required under federal law; (3) the Trustee has failed to state claims upon
which relief can be granted; and (4) on the other grounds set forth in the Memorandum of Law
and Brief (the Memorandum of Law) filed concurrently herewith in support of this Motion to
Dismiss (the Motion).
Movants expressly do not consent to the entry of final judgments or orders by the
Bankruptcy Court in this adversary proceeding, and expressly state that the matters are non-core,
nor are they related to or arising under a case under title 11 of the United States Code. The
Movants are entitled to a jury trial on these claims under the Seventh amendment to the U.S.
Constitution and applicable law. Movants do hereby demand a jury trial on all issues on which
they are entitled to a jury trial under the U.S. Constitution.
By signing and filing this Motion, Movants are not waiving any rights they may have to
contest subject matter or personal jurisdiction, or otherwise waiving any right or remedy
available to them, including, without limitation, the right to move to dismiss the Complaint filed
against them in this Adversary Proceeding,
WHEREFORE, Movants request that all counts of the Plaintiffs Amended Complaint
alleged against Defendants MICHAEL GUSTIN, JEFFERY WOHLER, and JOHN PAUL
DeJORIA be dismissed with prejudice and that Movants have such other relief as may be just
and appropriate.
/s/ Randy Burton
Randy Burton
Trent L. Rosenthal
Landon Speights
Burleson LLP
(713) 358-1700
/s/ Randy Burton
Randy Burton

Randy Burton
Trent L. Rosenthal
Landon Speights
Burleson LLP
(713) 358-1700

FORT WORTH DIVISION
In re:
Debtor
Chapter 11
Case No.: 12-46295-rfn-11

Plaintiff,
v.
EXPLORATION AND DEVELOPMENT,
INC., VIRGINIA DADEY, BELLCREST
ADVISORS, LLC, DEBORAH COHEN,
HAWK MANAGEMENT GROUP, INC., FEQ
REALTY, LLC, HARVEY KLEBANOFF
AJKJA HARVEY KAYE, HELEN
KLEBANOFF, MOGGLE, LLC, ISLAND
CAPITAL MANAGEMENT, LLC, TSS
INVESTMENTS, INC., VERNON RAY

PAUL DeJORIA,
Defendants.
MEMORANDUM OF LAW AND BRIEF IN SUPPORT OF DEFENDANTS JEFFERY

WOHLER, MICHAEL GUSTIN, AND JOHN PAUL DeJORIAS MOTION TO
DISMISS UNDER RULE 12(B) OF THE FEDERAL RULES OF CIVIL PROCEDURE
AS MADE APPLICABLE TO ADVERSARY PROCEEDINGS UNDER RULE 7012 OF
THE FEDERAL RULES OF BANKRUPTCY PROCEDURE
ii
TABLE OF CONTENTS
Table of Contents ........................................................................................................................... iii
Table of Authorities .........................................................................................................................v
I.
Summary ..............................................................................................................................1
II.
Introduction ..........................................................................................................................2
III.
Failure of Pleadings .............................................................................................................5

Standard of Review ..............................................................................................................5
Federal Rules of Civil Procedure Rule 9(b) .............................................................5
Federal Rules of Civil Procedure Rule 12(b)(6) ......................................................6
A Summary of the Allegations Regarding the Movants ......................................................7
Fraudulent Transfers ............................................................................................................9
Fraud Claims ......................................................................................................................10
Punitive Damages and Attorneys Fees .............................................................................11
Argument ...........................................................................................................................11
The Trustees Pleadings Fail to Allege Facts Sufficient to Plead a Claim Against the
Movants..............................................................................................................................11
Fraudulent Transfer ............................................................................................................13
Fraud ..................................................................................................................................13
IV.
Lack of Subject Matter Jurisdiction under FRCP 12(b)(1) ................................................14

Summary of Argument ......................................................................................................17
Legal Standards for Dismissal for Lack of Subject Matter Jurisdiction ............................18
iii
V.
Consent Not Sought ...........................................................................................................22
VI.
Demand for Jury Trial ........................................................................................................22
VII.
Jurisdiction .........................................................................................................................22
VIII.
Conclusion .........................................................................................................................22
Certificate of Service .....................................................................................................................23
iv
TABLE OF AUTHORITIES
Case
Page
Ashcroft v. Iqbal,
556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) .................................................... passim
Bell Atl. Corp. v. Twombly,
550 U.S. 554 (2007) .............................................................................................. 6, 7, 12, 13, 14
Bramlett v. Med. Protective Co. of Fort Wayne, Ind.,
855 F.Supp.2d 615 (N.D.Tex.2012) ........................................................................................... 6
Commodity Futures Trading Comm'n v. Schor,
478 U.S. 833, 106 S.Ct. 3245, 92 L.Ed.2d 675 (1986) ....................................................... 20, 21
DiLeo v. Ernst & Young,
901 F.2d 624 (7th Cir.1990) ....................................................................................................... 5
Executive Benefits Insurance Agency v. Arkison (In re Bellingham Insurance Agency, Inc.,
702 F3d. 553 (9th Cir. 2012) ....................................................................................... 18, 20, 21
Granfinanciera, S.A. v. Nordberg,
492 U.S. 33, 109 S. Ct. 2782, 106 L. Ed. 2d 26, 18 Fed. R. Serv. 3d 435 (1989) .............. 17, 22
In re BP RE, L.P.,
735 F.3d 279 (2013), 58 Bankr.Ct.Dec. 187, Bankr. L. Rep. P 82,534 ........................ 20, 21, 22
In re Frazin,
732 F.3d at 319 ......................................................................................................................... 22
In re Galaz,
765 F.3d 426 (2014) Bankr. L. Rep. P 82,697 .................................................................... 21, 22
Interspan Distribution Corp. v. Liberty Ins. Underwriters, Inc.,
CIV.A. H-07-1078, 2008 WL 905354 (S.D. Tex. Mar. 31, 2008) ............................................ 13
Melder v. Morris,
27 F.3d 1097 (5th Cir.1994) ....................................................................................................... 5
Northern Pipeline Construction Co. v. Marathon Pipe Line Company,
102 S.Ct. 2858, 458 U.S. 50 (1982) .............................................................................. 18, 19, 20
Ridge at Red Hask, L.L.C. v. Schneider,
493 F.3d 1174 (10th Cir. 2007) ................................................................................................ 13
Southland Sec. Corp. v. Inspire Ins. Solutions Inc.,
365 F.3d 353 (5th Cir.2004) ....................................................................................................... 5
Stern vs. Marshall,
564 U.S. 2 (2011), 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011) ............................................. passim
Tuchman v. DSC Commc'ns Corp.,
14 F.3d 1061 (5th Cir.1994) ....................................................................................................... 5
U.S. ex rel. Lemmon v. Envirocare of Utah, Inc.,
614 F.3d 1163 (10th Cir. 2010) ................................................................................................ 14
Waldman v. Stone,
698 F.3d 910(6th Cir.2012), ......................................................................................... 20, 21, 22
Williams v. WMX Techs., Inc.,

112 F.3d 175 ........................................................................................................................... 5, 6
Statutes
28 U.S.C.A. 157 ......................................................................................................................... 21
28 U.S.C.A. 157(a) .................................................................................................................... 18
28 U.S.C. 157(b)(2) ..................................................................................................................... 19
28 U.S.C. 157(c)(2) .................................................................................................................... 22
28 U.S.C.A. 157(d) .................................................................................................................... 17
28 U.S.C.A. 1334(a) .................................................................................................................. 18
Rules
Federal Rules of Bankruptcy Proceedure Rule 7012 ............................................................ 1, 2, 22
Federal Rules of Civil Procedure Rule 8 ................................................................................ 13, 14
Federal Rulce of Civil Procedure 8(a)(2)..................................................................................... 1,6
Federal Rules of Civil Procedure Rule 9 .................................................................................. 2, 14
Federal Rules of Civil Procedure Rule 9(b) .......................................................................... 1, 5, 14
Federal Rules of Civil Procedure Rule 12 .............................................................................. 1, 2, 5
Federal Rules of Civil Procedure Rule 12(b)(1) ......................................................................... 1, 5
Federal Rules of Civil Procedure Rule 12(b)(6) ..................................................................... 1, 6, 7
Local Bankruptcy Rule 5011 ........................................................................................................ 17
vi
10
MEMORANDUM OF LAW AND BRIEF IN SUPPORT OF DEFENDANTS JEFFERY

WOHLER, MICHAEL GUSTIN, AND JOHN PAUL DeJORIAS MOTION TO
DISMISS UNDER RULE 12(B) OF THE FEDERAL RULES OF CIVIL PROCEDURE
AS MADE APPLICABLE TO ADVERSARY PROCEEDINGS UNDER RULE 7012 OF
THE FEDERAL RULES OF BANKRUPTCY PROCEDURE
TO THE HONORABLE UNITED STATES BANKRUPTCY JUDGE:
DEFENDANTS JEFFERY WOHLER, MICHAEL GUSTIN, AND JOHN PAUL
DeJORIA (collectively, the Movants), by and through their counsel, Burleson LLP, move to
dismiss the claims pled against them in this matter. As grounds, the Movants would respectfully
submit that the Plaintiff, Chapter 11 Trustee Carey Ebert (hereinafter Trustee), has failed to
plead her causes of action with the specificity required under federal law, the Trustee has failed to
state claims upon which relief can be granted, the Bankruptcy Court lacks subject matter
jurisdiction over this adversary proceeding, and the only appropriate remedy is dismissal. In
further support of the motion, Movants would state:
I. SUMMARY
1.
This Motion is filed pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules
of Civil Procedure, as made applicable to bankruptcy cases by Rule 7012 of the Federal Rules of
Bankruptcy Procedure. As set forth below, this Court lacks subject matter jurisdiction as it does
not have the constitutional authority to enter judgments or final orders on these non-core claims
under the rationale of Stern vs. Marshall.
2,
Trustee has alleged two counts of Fraudulent Transfer (Counts One and Two 334-
357). As a species of fraud, Federal Rules of Civil Procedure Rule 9(b) dictates that the Trustee
must state with particularity the circumstances constituting fraud or mistake, and, Rule 8(a)(2)
mandates a statement of the claim showing that the pleader is entitled to relief. By failing to
allege a single example of a fraudulent transfer committed by Movants, Trustee did not comply
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with these rules. Attachment One to the Trustees Amended Complaint lists numerous allegations
of fraudulent transfer, but none against Movants. Instead, in reference to the Movants, Attachment
One merely states To be Determined. Trustee has wholly failed to state a claim against the
Movants pursuant to Rule 12 of the Federal Rules of Civil Procedure, as made applicable to
bankruptcy cases by Rule 7012 of the Federal Rules of Bankruptcy Procedure; accordingly,
Trustees fraudulent transfer causes of action against Movants should be dismissed with prejudice.
3.
Further, Trustees entire action is premised on the allegation that certain persons
not Movants - perpetrated a fraudulent pump-and-dump scheme against the Debtor Latitude
Solution, Inc. (LSI). Accordingly, every one of Trustees claims (Fraudulent Transfer, Common
Law Fraud, Conspiracy, Aiding and Abetting, Breach of Fiduciary Duty, Punitive Damages and
Attorneys Fees) sounds in fraud, and, the Trustee must plead with particularity the circumstances
constituting fraud. Movants are entitled to, but did not receive, the who, what, when, where,
and how. Trustee failed to meet the well-established pleading specificity required under federal
law; consequently, the Trustees claims against Movants should be dismissed pursuant to Rule
Nos. 9 and 12 of the Federal Rules of Civil Procedure, as made applicable to bankruptcy cases by
Rule 7012 of the Federal Rules of Bankruptcy Procedure.
II. INTRODUCTION
This lawsuit arises out of a fraudulent pump-and-dump scheme (1 Amended Complaint)
4.
This matter arises from the wrongdoing of Defendants Howard Appel, Matthew
Cohen, and a group of co-conspirators intent on perpetrating a pump-and-dump scheme on LSI.

For the most part, that wrongdoing by Mr. Appel, Mr. Cohen, and their co-conspirators is well
pleaded in Act One of Trustees Amended Complaint ( 120 180). However, in an attempt to
maximize recovery for the LSIs bankruptcy estate at all cost, Trustee has also chosen to pursue
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an incredibly tenuous case against the Movants for an obvious reason. If Trustee had wanted to
bring a legitimate case against LSIs Board of Directors, she could have sued all of the board
members, but she did not. Instead, she chose to sue one particular board member and his two close
associates. It is no secret that Movant John Paul DeJoria is a very wealthy individual and Jeffery
Wohler and Michael Gustin are his close associates. This has resulted in Trustees dogged pursuit
of Mr. DeJoria as the proverbial pot of gold at the end of the rainbow.
5.
Presumably, the Trustee has every email, every accounting document, and every
contract ever signed by LSI at her disposal, yet is unable to produce a single piece of hard evidence
proving Movants Jeffery Wohler, Michael Gustin, or John Paul DeJoria participated in the pumpand-dump scheme perpetrated on LSI. In fact, if Trustee sought to be fair, she could easily provide
this court with: (a) accounting documents that prove that the Movants never offered for sale nor
sold a single share of LSI stock, (b) emails from Defendant Howard Appel exonerating John Paul
DeJoria, or, (c) praise for the fact that the Movants spent hundreds of thousands of dollars of their
own money investigating Howard Appel, Matthew Cohen, and their known associates and
submitting the evidence from that investigation to the DOJ, FBI, and SEC. But the Trustee does
not seek to do the right or fair thing. The Trustee knows that [t]he pump-and-dump orchestrated
and executed by the Appel/Bartlett Group was in full swing when DeJoria and the [Movants] got
involved in LSI (Amended Complaint 180) but still chooses to bring this action (which is
tantamount to extortion) against the Movants.
6.
When LSI filed for bankruptcy, Mr. DeJoria was the largest shareholder and a
significant creditor of LSI. By all accounts, he is far and away the largest victim of the pump-anddump scheme. Rather than protect his interests alongside the other shareholders and creditors or
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attempt to bring the true perpetrators to justice, the Trustee has chosen to sue Mr. DeJoria and his
close associates simply because he has a large bank account.
7.
The Trustee would have this Court believe that Appel/Bartlett group is a
sophisticated group of serial securities manipulater(s) capable of orchestrating a massive fraud

against shareholders and creditors. At the same time, she contends, only the Movants knew or
should have known about this sophisticated scheme. In fact, like the other shareholders and
creditors, Movants were completely unaware of the fraud despite their best efforts and intentions
to protect LSI. Indeed, Movants lost more money, time and energy attempting to salvage LSI than
anyone. Though they turned evidence of the insider trading and other securities fraud concerning
Howard Appel, Ernest Bartlett, Matt Cohen, and others, over to the federal authorities, they alone
among the so-called Second Board have been pegged by the Trustee as breaching their fiduciary
duty to the Company. It defies logic that the Movants are parties to this case for any other reason
than Mr. DeJorias net worth.
8.
In the Trustees Amended Petition, she attempts to paint all 27 Defendants with a
broad brush, often equating the Movants in with those who perpetrated the pump-and-dump
against LSI. Again, Trustee does not have a scintilla of evidence because none exists that
Movants participated in the pump and dump scheme.
9.
The poverty of pleadings related to Trustees allegations of Fraudulent Transfer
(Amended Complaint Counts 1 and 2), Breach of Fiduciary Duty (Counts 3 and 4), and Fraud
(Counts 5, 6 and 7), perpetrated by the Movants is only one of the reasons that Trustees claims
are so dubious. Unlike where insiders are directly involved, directly participating, and directly
sharing ill-gotten gains amongst themselves, the Trustees case against the Movants is based on
non-specific allegations of non-conduct by unspecified people. The Trustee has not merely
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generalized about the Movants conduct; the Trustee has generalized about the universe of conduct
by all actors, irrespective of whether there is any actual evidence of any actual conduct by that
particular defendant. Stated simply, Trustee has failed to specify how the claims in her Amended
Complaint apply to the Movants and the Movants purported fraudulent conduct. Thus, the Trustee
has not stated a claim against the Movants,
10.
Additionally, for the reasons set forth below, the Complaint should be dismissed
under Rule 12(b)(1) of the Federal Rules of Civil Procedure as this Courts lacks subject matter
jurisdiction and does not have the constitutional authority to enter final judgments or orders on
these non-core claims under the rationale of Stern vs. Marshall.
III. FAILURE OF PLEADINGS
Standard of Review
Federal Rules of Civil Procedure Rule 9(b)
11.
Federal Rules of Civil Procedure Rule 9(b) provides that [i]n alleging fraud or
mistake, a party must state with particularity the circumstances constituting fraud or mistake.
Under Rule 9(b), a complaint alleging fraud must specify the time, place, and contents of the false
representations, as well as the identity of the person making the misrepresentation and what [that
person] obtained thereby. Tuchman v. DSC Commc'ns Corp., 14 F.3d 1061, 1068 (5th Cir.1994).
A plaintiff must specify the statements contended to be fraudulent, identify the speaker, state
when and where the statements were made, and explain why the statements were fraudulent.
Southland Sec. Corp. v. Inspire Ins. Solutions Inc., 365 F.3d 353, 362 (5th Cir.2004) (quoting
Williams v. WMX Techs., Inc., 112 F.3d 175, 17778 (5th Cir.1997)). In other words, the who,
what, when, where, and how. Melder v. Morris, 27 F.3d 1097, 1100 n. 5 (5th Cir.1994) (citing
Page 5
15
DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir.1990)). This Rule should be applied with
force, without apology. Williams, 112 F.3d at 178.
Federal Rules of Civil Procedure Rule 12(b)(6)
12.
In deciding the Movants Motion to Dismiss under Rule 12(b)(6), the Court
evaluates the sufficiency of the Trustees complaint by accepting all well-pleaded facts as true,
viewing them in the light most favorable to the plaintiff. Bramlett v. Med. Protective Co. of Fort
Wayne, Ind., 855 F.Supp.2d 615, 618 (N.D.Tex.2012). To survive the Movants motion, the
Trustee must plead enough facts to state a claim to relief that is plausible on its face. Bell Atl.
Corp. v. Twombly, 550 U.S. 554, 570 (2007). A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173
L.Ed.2d 868 (2009). The plausibility standard is not akin to a probability requirement, but it
asks for more than a sheer possibility that a defendant has acted unlawfully. Id. (quoting Twombly,
550 U.S. at 556); see also Twombly, 550 U.S. at 555 (Factual allegations must be enough to raise
a right to relief above the speculative level.) [W]here the well-pleaded facts do not permit the
court to infer more than the mere possibility of misconduct, the complaint has allegedbut it has
not shownthat the pleader is entitled to relief. Iqbal, 556 U.S. at 679. Threadbare recitals
of the elements of a cause of action, supported by mere conclusory statements do not suffice. Id.
at 678. Furthermore, under Rule 8(a)(2), a pleading must contain a short and plain statement of
the claim showing that the pleader is entitled to relief. Although the pleading standard Rule 8
announces does not require detailed factual allegations, it demands more than labels and
conclusions. Iqbal, 556 U.S. at 678. [A] formulaic recitation of the elements of a cause of action
will not do. Id.
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13.
A motion to dismiss should be granted pursuant to Rule 12(b)(6) if the Trustee is
unable show enough facts to set forth a plausible claim for relief. See Twombly, 550 U.S. at 547.
Put differently, the Trustee is not entitled to speculate that evidence may later come to exist, or
that because there is evidence as to other non-parties, there might be evidence as to the Movants.
Instead, the Trustee must proffer clear allegations of actions or omissions on the part of the
Movants, and clearly state the basis of their grounds for relief. As pleaded, the Trustees Amended
Complaint does not constitute the sorts of allegations regarding the Movants required by our
Supreme Courts settled precedent.
A Summary of the Allegations Against the Movants
14.
Trustees Amended Complaint consists of rote pleadings that have been used
against twenty seven (27) different Defendants, coupled with a few speculative allegations directed
at Movants Jeffery Wohler, Michael Gustin, and John Paul DeJoria that have absolutely nothing
to do with fraud, fraudulent transfers, or the pump-and-dump scheme.
Accordingly, in
summarizing the allegations against the Movants below, Movants first describe the allegations that
are factually-based and directed towards the members of the Movants individually, then
summarize the non-specific, conclusory allegations at the end of the Amended Complaint.
15.
While there is fleeting mention of the Movants throughout the other parts of the
Amended Complaint, the Keystone Kops a derogatory term used by the Trustee to belittle the
Movants primarily star in Act Two. Act Two ( 181 300) proves three things; first, the
Trustee has full access to LSIs emails and documents; second, the Trustee is well versed in the
inner workings of LSI; and, third, that Trustee does not have a scintilla of evidence to establish her
allegations of fraud or fraudulent transfer against the Movants. In 120 paragraphs, spanning 37
pages, Trustee painstakingly lays out her version of the facts. Misconstrued as they may be, the
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facts as she has alleged them, do not place Jeffery Wohler, Michael Gustin, or John Paul DeJoria
on notice of a single Fraud or Fraudulent Transfer claim. Without belaboring the court with an
analysis of every paragraph, the Movants find only two broad-stroke allegations of fraud that could
be deemed applicable to them. Both alleged broadly against Defendants:
246. The failure of Defendants to act timely and decisively to end these
fraudulent practices and run LSI like a publically traded corporation must
be run, constitutes fraud, breach of fiduciary duty, and squander of
corporate assets.
277. For Defendants to allow Appel and Bartlett to run LSI is fraud, a gross
violation of their fiduciary to LSI, and inexcusable conduct that warrants
punitive damages.
The term Defendants is not specific. Paragraph 110 of the Amended Complaint defines
Defendants as:
Defendants shall refer to and mean all named defendants: Howard Miller Appel,
Ernest A. Bartlett, III, Harvey N. Klebanoff a/k/a Harvey Kaye, Helen Klebanoff,
V. Ray Harlow, Matthew Cohen, Hawk Management Group, Inc., Deborah Cohen,
Virginia Dadey, Jeffrey Wohler, Michael Gustin, John Paul DeJoria, RMS
Advisors, Inc., Capital Growth Realty, Inc., Capital Growth Investment Trust,
Bellcrest Advisors, LLC, DIT Equity Holdings, Inc., KWL Exploration and
Development, Inc., Moggle Investors, LLC k/n/a Virtual Piggy, Inc. (a/k/a Oink),
FEQ Realty, LLC, Wiltomo Redemption Foundation, TSS Investments, Inc., SLD
Capital Corp., DeRosa Family Trust, William Belzberg Revocable Living Trust,
and Michael Garnick. (Emphasis Added)
16.
Assuming for a moment that both 246 and 277 refer to Jeffery Wohler, Michael
Gustin, and/or John Paul DeJoria, individually, it is readily apparent that the Trustee believes that
a claim for breach of fiduciary duty and a claim for fraud are one and the same. Thus, they should
be held to the same standard of pleading. While it is true that perpetrating a fraud against LSI
could be considered a breach of fiduciary duty; that is not what the Trustee has alleged. The
Trustee seems to have alleged the opposite; a breach of fiduciary duty is inherently fraud.
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Obviously that blanket assumption is not supportable under Texas, Florida, or federal law, and for
the purposes of this Motion to Dismiss, does not rise to the pleading standards required for fraud.
17.
The Trustees fraud claims are as follows:

x
x
x
x
x
x
Count One ( 334-345) Avoidance and Recovery of Fraudulent

Transfers;
Count Two ( 346-357) Avoidance and Recovery of the Fraudulent
Transfers;
Count Five ( 373-378) Fraud Against All Defendants;
Count Six ( 379-381) Conspiracy to Commit Fraud Against All
Defendants;
Count Seven ( 382-386) Aiding and Abetting Fraud Against All
Defendants; and
Count Eight ( 387 - 394) Punitive Damages and Attorneys Fees.
Fraudulent Transfers
18.
Trustees Fraudulent Transfer Claims specifically state that they pertain to Movants
but include no specific allegations against them. Trustee makes numerous allegations against the
Appel/Bartlett Group1 and Insider Defendants2 (Movants is included in Insider Defendants);
however, Trustee does not properly apprise any of the Movants of the acts they allegedly
committed which Trustee believes constitutes a Fraudulent Transfer.
19.
The centerpiece of the Trustees Fraudulent Transfer Claims, and the sole exhibit
to the Amended Complaint, is titled: Attachment One: Fraudulent Transfers from LSI to
Appel/Bartlett Group and Insider Defendants. Attachment One attempts to list an allegation of
Appel/Bartlett Group shall refer to and mean Howard Appel, Earnest J. Bartlett, III, Matthew J. Cohen,
Harvey Klebanoff a/k/a Harvey Kaye, Helen Klebanoff, V. Ray Harlow, Virginia Dadey, Deborah Cohen, Hawk
Management Group, Inc., RMS Advisors, Inc., Capital Growth Realty, Inc., Capital Growth Investment Trust,
Bellcrest Advisors, LLC, DIT Equity Holdings, Inc., KWL Exploration and Development, Inc., Moggle, LLC, FEQ
Realty, LLC, Wiltomo Redemption Foundation, TSS Investments, Inc., SLD Capital Corp, DeRosa Family Trust,
William Belzberg Revocable Living Trust, and Michael Garnick.
Insider Defendants shall refer to and mean Howard Appel, Earnest J. Bartlett, III, Matthew J. Cohen,
Deborah Cohen, Harvey Klebanoff a/k/a Harvey Kaye, Helen Klebanoff, Vernon Ray Harlow, Jeffery Wohler,
Michael Gustin and John Paul DeJoria. (Emphasis added)
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Fraudulent Transfer for every member of the Appel/Bartlett Group and Insider Defendants except
for the Movants. For each of the Movants Defendants, Attachment One simply reads: To Be
Determined.
20.
A fraudulent transfer is a specific event and cannot be alleged in the abstract.
Trustee fails to provide any information with respect to a single allegation of fraudulent transfer
against the Movants. Essentially, Trustee has alleged that the Movants Defendants have received
a transfer of something of value from LSI, but, Trustee does not know what, if anything, was
transferred, and will presumably provide that information to the Movants at a later date. The
fraudulent transfer allegation against Movants is clearly a failure to state a claim and must be
dismissed.
Fraud Claims
21.
Trustees Fraud claims ( 373-386) take generalities to the extreme, accusing
Defendants of everything from lying to stock manipulation but never stating a single allegation
with any specificity.
22.
Fraud Counts Five (Common Law Fraud) and Seven (Aiding and Abetting) contain
an introductory paragraph stating [Trustee] repeats and realleges each and every allegation set
forth in the foregoing paragraphs as if fully set forth herein ( 373 & 382); Count Six (Conspiracy)
does not. Regardless, as previously explained, the previous paragraphs fail to alert the Movants
to any fraud that has been alleged against them. As required by federal law, the who, what, when,
where, and how was never provided to the Movants. Accordingly, the Fraud Claims against the
Movants should be dismissed.
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Punitive Damages and Attorneys Fees

23.
To the extent the Trustees claim for Punitive Damages and Attorneys Fees sounds
in fraud, the Trustee must plead with particularity the circumstances constituting fraud.
Accordingly, a favorable ruling from the court on this motion would necessitate a dismissal of
Trustees Claim for Punitive Damages and Attorneys Fees. Notwithstanding Trustees unfounded
and unplead allegations (concerning the Movants) of gross negligence ( 338) and reckless conduct
(390), it is clear that each claim is predicated upon the fraudulent pump-and-dump scheme
perpetrated against LSI by some Defendants:
391. Plaintiff alleges that, upon a showing of clear and convincing evidence,
Defendants have been guilty of oppression, fraud or malice, express or
implied, directed at LSI, its shareholders, and its creditors, all whom were
exposed to such conduct, and were damages by the same.
24.
Because Trustees pleadings never give the Movants the Who, What, When,
Where, and How required likely because the Trustee does not have a scintilla of evidence that
the Movants Defendant played a role in the pump-and-dump scheme Trustees claim for Punitive
Damages and Attorneys Fees must be dismissed alongside Trustees other fraud claims.
Argument
25.
The Trustees claims, including Trustees Breach of Fiduciary Duty claims (Counts
Three and Four,) repeatedly sound in fraud. Trustees Fraudulent Transfer claims relate either to
two- or four-year claims, and appear to either arise out of the pump-and-dump scheme or the lack
of equivalency of exchange at the time the transfers were made. Further, Trustees Fraud claims
are simply attached to their Breach of Fiduciary Duty allegations. At no point are these claims
pleaded with any specificity as it relates to the Movants. All Fraud claims against Movants should,
therefore, be dismissed.
The Trustees Pleadings Fail to Allege Facts Sufficient to Plead a Claim
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Against the Movants

26.
Counts One and Two of the Amended Complaint nominally allege elements of
claims associated with fraudulent, unspecified transfers that Trustee believes she may find against
the Movants. These claims are wholly insufficiently pled under either Twombly or Iqbal. In
different ways, Twombly and Iqbal impose a substantial burden on Trustee to allege the facts
underlying their claims with additional clarity and specificity.
27.
In Twombly, the Court noted that a proper pleading requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will not do. Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 546. Iqbal, a few years later, observed that a plaintiffs
complaint must set forth more than recitals of the elements of a cause of action, supported by
mere conclusory statements. Ashcroft v. Iqbal, 556 U.S. 662. The burden is neither onerous nor
unreasonable, and, this Amended Complaint, though extremely long, is short on actual allegations
of fraud, especially fraudulent transfer, against the Movants.
28.
A complaint must be dismissed, as a matter of law, when it fails to allege enough
facts to state a claim to relief that is plausible on its face. Twombly, 550 U.S. at 570. A claim
has facial plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged. Iqbal, 129 S/Ct at
1949 (internal citation omitted). If a plaintiff cannot nudge the claims across the line from
conceivable to plausible, the complaint must be dismissed. Id. at 570.
29.
Before reaching the ultimate question of whether there is a viable claim arising
from what is left over and the conclusions and legal contentions are rejected, this Court should
rejected the possibility of speculation as a basis for a surviving claim:
The mere metaphysical possibility that some plaintiff could prove some set of facts
in support of the pleaded claims is insufficient; the complaint must give the court
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reason to believe that this plaintiff has a reasonable likelihood of mustering factual
support for these claims.
Interspan Distribution Corp. v. Liberty Ins. Underwriters, Inc., CIV.A. H-07-1078, 2008 WL
905354, at *8 (S.D. Tex. Mar. 31, 2008) (citing Ridge at Red Hask, L.L.C. v. Schneider, 493 F.3d
1174, 1177 (10th Cir. 2007)). While the Twombly/Iqbal rule does not require extraordinary
specificity in ordinary claims, it does set aside speculation and conclusion and focuses on facts. A
plaintiffs allegations must be enough that, if assumed to be true, the plaintiff plausibly not just
speculatively has a claim for relief.
30.
As Iqbal explained, the District Court must embark on a two-step inquiry. First, the
Court must identify those allegations that are nothing more than legal conclusions and therefore
not entitled to the assumption of truth; and, then, second, consider whether the factual allegations
plausibly suggest an entitlement to relief. Iqbal, 129 S.Ct. at 1951. As part of the first step, the
Court should not accept as true [t]hreadbare recitals of the elements of a cause of action, supported
by mere conclusory statements... Id., 129 S.Ct. at 1949. Such allegations should be disregarded
for the purposes of this analysis.
Fraudulent Transfer
31.
In the Amended Complaint, Trustee did not list a single allegation of fraudulent
transfer against the Movants. Trustee attempts to reserve the right to sue for transfers that are not
known by simply stating To be Determined. Of course, it is Trustees duty to know such things,
not speculate about them, and Counts One and Two should be deemed waived given the passage
of the applicable statutes of limitations, Trustees ample opportunity to amend her complaint to
state such claims, and the prejudice to the Movants inherent in Trustee reservation of the right to
sue them for some transfers at some point in the future. Trustee does not meet the Twombly/Iqbal
threshold. Rule 8 demands more than an unadorned, the-defendant-unlawfully-harmed me
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accusation, Iqbal, 129 S.Ct. at 1949. Because the Trustee has not done so, the claims must be
dismissed.
Fraud
32.
While Trustees Fraud allegations (Counts Five, Six, and Seven) deal directly with
Common Law Fraud, there is no question that Plaintiffs Fraudulent Transfer (Counts One and
Two), and Punitive Damages and Attorneys Fees (Count Eight) Claims arise under, or directly
relate to, fraud. Accordingly, Trustee failed to plead said counts with the requisite specificity
required under federal law, and all counts should be dismissed. Simply stated, the Trustee never
gives the Movants the Who, What, When, Where, and How because the Trustee does not have
a scintilla of evidence that the Movants Defendant played a role in the pump-and-dump scheme,
the minimum for a satisfactory pleading of a fraud allegation.
33.
The Federal Rules of Civil Procedure require that the circumstances constituting
the alleged fraud be pleaded with particularity. FED. R. CIV. P. 9(b). Though Twombly and Iqbal
clarified [Rule] 9(b)s requirements, the Rules purpose remains unaltered; namely, to afford
defendant fair notice of plaintiffs claims and the factual ground upon which they are based. U.S.
ex rel. Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1172 (10th Cir. 2010)
34.
Here, the Trustee does not specifically allege any fraudulent conduct by the
Movants, and instead, assumes that broad allegations of Breach of Fiduciary duty, and a reference
to To be Determined will suffice. This does not constitute the sort of specificity required by Rule
8 or Rule 9; accordingly, the Trustees complaint should be dismissed with prejudice.
IV. LACK OF SUBJECT MATTER JURISDICTION
The Bankruptcy court lacks the constitutional authority to finally adjudicate the claims against
Movants under Stern v. Marshall, and, therefore, lacks Subject Matter Jurisdiction.
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35.
By the Adversary Proceeding, the Trustee has asserted causes of action that are a
mixed combination of core and non-core state law claims. All of these causes of action with the
exception of the Fraudulent Transfer claims are state law claims; namely, the claims for Breaches
of their Fiduciary Duties, Aiding and Abetting the Breaches of others Fiduciary Duties, Common
Law Fraud, Conspiracy to Commit Common Law Fraud, Aiding and Abetting others Common
Law Fraud, and for Actual and Punitive Damages and Attorneys Fees. The bankruptcy process
is not implicated at all by these non-core claims whatsoever, which could have all been filed in
State Court.
36.
As such, with the sole exception of the Fraudulent Transfer claims, the remaining
claims raised in the Complaint are all non-core claims and are totally unrelated to the Debtors
Chapter 11 case. These claims could have no conceivable effect on the outcome of the bankruptcy
case, and there is no related to jurisdiction either.
37.
More importantly, even the core claims of fraudulent transfers have nothing to do
with Movants because Movants received no such transfers. The 4-page Addendum to Trustees
Complaint identifies in great detail each and every fraudulent transfer for each defendant in this
Adversary Proceeding, except for the Movants. The Complaint provides the following information
concerning said defendants fraudulent transfers: (1) Cash; (2) Cash Transfer Dates; (3) Shares; (4)
Share Transfer Dates; (5) Minimum Est. Actual Share Value at Issuance; (6) Est. Value of All
Issues (sic) Shares; (7) Warrants; and (8) Warrant Transfers. For the Movants, on the other hand,
the Trustee cannot show and does not show any information for Movants, only the statement: To
be determined. Accordingly, the Trustee has not even alleged a valid fraudulent transfer claim
against Movants because the Trustee has not identified any transfers to the Movants. Therefore,
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with respect to Movants, all of the claims raised should be considered non-core, and not related to
or arising under a title 11 case.
38.
Clearly, for this reason alone, the Claims against the Movants are distinguishable
from those against the other defendants and have no basis as bankruptcy law causes of action, such
as fraudulent transfer. Moreover, the tort claims alleged by Trustee against Movants and the other
defendants predicated upon alleged Securities Fraud violations are much better addressed by the
District Court. The Bankruptcy Court simply does not have subject matter jurisdiction over these
claims, and under Stern vs. Marshall, 564 U.S. 2 (2011), 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011),
the Bankruptcy Court does not have the authority to enter a valid final judgment or order on these
claims.
39.
Alternatively, the Bankruptcy Court lacks subject matter jurisdiction over this
matter because the Complaint on its face and in substance alleges claims which will require
consideration of both Title 11 and other laws of the United States regulating organizations or
activities affecting interstate commerce such as the alleged Securities Fraud violations implicating
the laws of the States of Florida, Nevada, Texas and, perhaps, other states. These Securities Fraud
claims purport to affect shareholders and creditors located in numerous states yet to be identified.
40.
Accordingly, Movants file their Motion to Dismiss as for a threshold determination
prior to answering Trustees Complaint, challenging the Bankruptcy Courts subject matter
jurisdiction of this proceeding and Movants demand a jury trial. Movants note that the Trustee
has also requested a jury trial, and, the Trustee is surely aware that the Bankruptcy Court cannot
conduct a jury trial without consent of all the parties. Movants expressly do not consent to allow
the Bankruptcy Court to conduct a jury trial.
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41.
Concurrently herewith, Movants have also filed a Motion to Withdraw Reference
under Reference under Local Bankruptcy Rule 5011 and 28 U.S.C.A. 157(d).
42.
The Motion to Dismiss is filed as an initial pleading by the Movants in this
Adversary Proceeding and is seeking a dismissal of all of Trustees claims with prejudice. By
filing this Motion to Dismiss, Movants are not consenting to the Bankruptcy Courts subject matter
jurisdiction over them, and reserve all of their arguments as set forth in this Motion to Dismiss and
other motions. This pleading is expressly subject to the jurisdictional arguments raised. This
pleading is not any general submission to the jurisdiction of the Bankruptcy Court and specifically
denies that the Bankruptcy Court has jurisdiction over the Claims against Movants. Movants also
deny that the claims raised against them are core claims.
43.
The Movants have simultaneously filed with this motion a Demand for a Jury Trial,
by which they have demanded a jury trial. Movants do hereby demand a jury trial on all issues on
which they are entitled to a jury trial under the U.S. Constitution. Notably, the Trustee has already
requested a jury trial as well.
44.
2d 26, 18 Fed. R. Serv. 3d 435 (1989).
Summary of Argument
45.
In her Complaint, the Trustee has raised claims that are fundamentally or expressly
non-core, private claims against Movants that do not arise out of and/or are not related to Latitude
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Solutions, Inc.s chapter 11 case. Northern Pipeline Construction Co. v. Marathon Pipe Line
Company, 102 S.Ct. 2858, 458 U.S. 50 (1982). The Adversary Proceeding against Movants
involves solely state law claims between the Debtor and non-debtor entities that have no close
nexus to the bankruptcy case whatsoever. Under Stern vs. Marshall, the Bankruptcy Court does
not have subject matter jurisdiction over these claims and cannot enter final judgments or orders,
and the Bankruptcy Court does not have constitutional authority to enter final judgments or orders
on these claims. The Trustee and Movants have also requested a jury trial, which the Bankruptcy
Court cannot conduct. These claims against the Movants are entirely different than claims raised
by the Complaint against the other defendants for recovery of fraudulent transfers which, as stated
above, do not pertain to Movants.
Legal Standards for Dismissal For Lack of Subject Matter Jurisdiction
46.
United States District Courts have original (though not exclusive) subject matter
jurisdiction of all Bankruptcy Code cases pursuant to 28 U.S.C.A. 1334(a). District Court
jurisdiction extends to all civil proceedings arising under and arising in or related to
Bankruptcy Court jurisdiction over cases involving a debtor under Title 11. Such jurisdiction is
derived from 28 U.S.C.A. 157(a), which grants the district court authority to refer all bankruptcy
cases, as well as proceedings arising in or related to a case under Title 11, to the Bankruptcy Court.
47.
Under the rationale of Stern v. Marshall, a bankruptcy court cannot enter a final
judgment on a cause of action traditionally within the judicial power of an Article III Court and
does not have the constitutional authority to do so with respect to private, state-law-based rights.
While not specifically applicable here, in the recent 9th Circuit opinion, Executive Benefits
Insurance Agency v. Arkison (In re Bellingham Insurance Agency, Inc.), 702 F3d. 553 (9th Cir.
2012), the 9th Circuit considered Stern v. Marshall as it related to a Bankruptcy Courts authority
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to enter a final order in a fraudulent transfer action, and held that, in that case, consent to the entry
of such final judgment by the Bankruptcy Court may be implied from the conduct in the litigation,
such as where the defendant filed a proof of claim. In this instance, the proof(s) of claim, if any,
filed by Movants are irrelevant to the adjudication of the Claims raised by the Trustee in her
Complaint. The 9th Circuit upheld the expansive view of Stern v. Marshall that a bankruptcy court
cannot adjudicate cases involving private (not public) rights. Additionally, in evaluating whether
or not to withdraw the reference, the Court should consider whether, under Stern v Marshall,3 the
bankruptcy court is constitutionally empowered to adjudicate the causes of action alleged in the
underlying complaint.
48.
In 2013, the Fifth Circuit, interpreting Stern v. Marshall, emphasized the
significance of guarding Article III powers, citing Northern Pipeline Construction Co. v. Marathon
Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982)4:
When a suit is made of the stuff of the traditional actions at common law tried by
the courts at Westminster in 1789, Northern Pipeline, 458 U.S. at 90, 102 S.Ct.
2858 ... (Rehnquist, J., concurring in judgment), and is brought within the bounds
of federal jurisdiction, the responsibility for deciding that suit rests with Article III
judges in Article III courts. The Constitution assigns that jobresolution of the
mundane as well as the glamorous, matters of common law and statute as well as
constitutional law, issues of fact as well as issues of lawto the Judiciary. Id., at
8687, n. 39, 102 S.Ct. 2858...(plurality opinion).
Turning to whether the bankruptcy court had the constitutional authority to enter
final judgment, we are bound to apply Stern, which held that, regardless of statutory
authority, the bankruptcy court did not have the constitutional authority to enter a
final judgment on claims that are so deeply at the heart of the federal judiciarys
Article III powers and are not necessary to the resolution of the bankruptcy estate.
What is plain here is that this case involves the most prototypical exercise of
3
In Stern, the Supreme Court held that the bankruptcy courts power to enter final judgments on matters is not co-extensive with
what 28 U.S.C. 157(b)(2) considers core, and some matters considered core cannot be finally adjudicated in the Bankruptcy
Court where they involve only private rights that will not necessarily be determined in ruling on a proof of claim filed against the
estate, unless all parties consent. Id. at 2594.
4
In Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598
(1982), which had held the 1978 Bankruptcy Act unconstitutional, the Court found: In short, there is no doubt that
the bankruptcy judges created by the Act are not Art. III judges. N. Pipeline, 458 U.S. at 61, 102 S.Ct. 2858. This
was not cured by The Bankruptcy Code enacted in 1984.
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judicial power: the entry of a final, binding judgment by a court with broad
substantive jurisdiction, on a common law cause of action, when the action neither
derives from nor depends upon any agency regulatory regime. Stern, 131 S.Ct. at
2615.
Construing Stern, the Sixth Circuit convincingly reached a similar conclusion
involving non-core claims in Waldman v. Stone, 698 F.3d 910, 919 (6th Cir.2012),
cert. denied, U.S. , 133 S.Ct. 1604, 185 L.Ed.2d 581 (2013): [W]hen a
debtor pleads an action arising only under state-law, as in Northern Pipeline; or
when the debtor pleads an action that would augment the bankrupt estate, but not
necessarily be resolved in the claims allowance process[,] [Stern,] 131 S.Ct. at
2618; then the bankruptcy court is constitutionally prohibited from entering final
judgment.
In re BP RE, L.P., 735 F.3d 279, 286 (2013), 58 Bankr.Ct.Dec. 187, Bankr. L. Rep. P 82,534,
49.
However, while the Fifth Circuit agreed with the Sixth and Ninth Circuits position
that the bankruptcy courts lacked the constitutional authority to enter final judgment on state-law
claims, the Fifth Circuit strongly disagreed with the Ninth Circuit on whether individual litigants
in bankruptcy may cure the constitutional deficiency merely by agreeing to waive their rights to
be heard by an Article III court:
...[We] must address whether BPREs consent to have its claims heard in
bankruptcy court cures the constitutional deficiency. We adopt the compelling and
thorough reasoning of Waldman, which held that parties cannot consent to such
circumvention of Article III that impinges on the structural interests of the Judicial
Branch.9 Waldman was the first post-Stern appellate decision *287 to address
consent as it relates to the bankruptcy courts constitutional authority.10 The Sixth
Circuit persuasively rejected the notion that the constitutional issue could be
waived.
In Waldman, the court looked both to Stern and to Commodity Futures Trading
Commn v. Schor, 478 U.S. 833, 106 S.Ct. 3245, 92 L.Ed.2d 675 (1986),
concluding that this issue implicates Article IIIs structural interests. Article III,
Section 1 not only seeks to preserve individual litigants right to an independent
judiciary but also serves as an inseparable element of the constitutional system of
checks and balances. Waldman, 698 F.3d at 917 (quoting Schor, 478 U.S. at 850,
106 S.Ct. 3245). The court rejected the theory that, because the bankruptcy courts
are part of the Judicial Branch, there was no threat of encroachment but only a
waivable personal right. Id. at 91718.
We acknowledge that the Ninth Circuits opinion in Executive Benefits is in conflict
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on the issue of consent. We do not dispute that parties may waive constitutional
rights, Schor, 478 U.S. at 84849, 106 S.Ct. 3245, but Executive Benefits disregards
the critical structural interests underlying Article III. It does so by reasoning that
Stern allowed waiver...That line of reasoning in Executive Benefits misses the mark,
however, because Stern determined only that Pierce had waived the issue of
statutory authority, see Stern, 131 S.Ct. at 2608, and did not reach the constitutional
issue as to waiver.
...Allowing bankruptcy courts to enter final judgments on state-law claims that are
not necessary to address the bankruptcy issues confers the essential attributes of
judicial power on non-Article III courts.
Where a structural interest is triggered, the parties cannot by consent cure the
constitutional difficulty for the same reason that the parties by consent cannot
confer on federal courts subject-matter jurisdiction beyond the limitations imposed
by Article III, 2. Schor, 478 U.S. at 851, 106 S.Ct. 3245. When these Article
III limitations are at issue, notions of consent and waiver cannot be dispositive
because the limitations serve institutional interests that the parties cannot be
expected to protect. Id.
50.
More recently, the 5th Circuit reiterated its position on waiver with In re Galaz, 765
F.3d 426 (2014) Bankr. L. Rep. P 82,697. In Galaz, the Firth Circuit held that even with the
express or implied consent of the parties, a bankruptcy court may not enter a final judgment on
private, state court based claims because they are non-core claims, merely relating to the
bankruptcy:
While Section 157 gives bankruptcy courts statutory authority to enter final
judgment on specific bankruptcy-related claims, Article III of the Constitution
prohibits bankruptcy courts from finally adjudicating certain of those claims. Id.
at 2168. Congress may not bypass Article III simply because a proceeding may
have some bearing on a bankruptcy case; the question is whether the action at issue
stems from the bankruptcy itself or would necessarily be resolved in the claims
allowance process. Stern, 131 S.Ct. at 2618. Thus, when a debtor pleads an action
arising only under state-law, ... or when the debtor pleads an action that would
augment the bankrupt estate, but not necessarily be resolved in the claims
allowance process [,] then the bankruptcy court is constitutionally prohibited from
entering final judgment. Waldman, 698 F.3d at 919 (quoting Stern, 131 S.Ct. at
2618). Accord In re BP RE, 735 F.3d at 285.
The district court treated Lisas TUFTA [Texas Uniform Fraudulent Transfer Act]
claim as being related to the bankruptcy rather than a core bankruptcy claim. We
agree with this characterization. The court went on, however, to hold that the
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bankruptcy court had authority to enter a final judgment based on the Appellants
implied consent. 28 U.S.C. 157(c)(2); Bankr.Rule 7012; Memo Op., Galaz v.
Galaz, No. 1100425 (W.D. Tex. April 17, 2012). This courts later decisions in In
re Frazin and In re BP RE are at odds with the district courts consent rationale.
Each of these cases holds that according to Stern, the parties express or implied
consent cannot cure the constitutional deficiency that results from circumventing,
or diminishing, the Article III structural protections for the federal judiciary. In re
BP RE, 735 F.3d at 28687 (relying on Waldman, 698 F.3d at 917, 918); In re
Frazin, 732 F.3d at 319.
In re Galaz, 765 F.3d 426, 432 (2014), Bankr. L. Rep. P 82,697
51.
For these reasons, defendant asks the Court to grant defendant's motion to dismiss
Trustee's suit for lack of subject-matter jurisdiction and award Movants just costs as allowed by
law.
V. CONSENT NOT SOUGHT
52.
Because of the dispositive nature of the relief requested, and in accordance with the
Local Rules of the Northern District of Texas, the Movants did not seek concurrence in the relief
sought from counsel for the Trustee.
VI. DEMAND FOR JURY TRIAL
53.
Movants hereby demand a jury trial on all issues on which they are entitled to a
jury trial under the U.S. Constitution.

VII. JURISDICTION
54.
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32
2d 26, 18 Fed. R. Serv. 3d 435 (1989).

VIII. CONCLUSION
WHEREFORE, for the reasons stated herein, Movants request that all counts of the
Plaintiffs Amended Complaint alleged against Defendants MICHAEL GUSTIN, JEFFERY
WOHLER, and JOHN PAUL DeJORIA be dismissed with prejudice and that Movants have such
other relief as may be just and appropriate.
/s/ Randy Burton
Randy Burton
Trent L. Rosenthal
Landon Speights
Burleson LLP
(713) 358-1700
/s/ Randy Burton
Randy Burton
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APPENDIX II
FIRST AMENDED AND RESTATED ADVERSARY COMPLAINT,

FILED ON FEBRUARY 13, 2015, DOC. 10
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J. E. Cullens, Jr. (admitted pro hac vice)

Walters, Papillion, Thomas, Cullens LLC
12345 Perkins Road, Building One
(225) 236-3636
John C. Anderson (admitted pro hac vice)

Anderson Firm, LLC
(225) 252-1645
Patrick N. Broyles (admitted pro hac vice)

Broyles Law Firm LLC
12345 Perkins Road
Building Two, Suite 203
(225) 663-2223
Robin E. Phelan
Haynes and Boone, LLC
2323 Victory Avenue
Suite 700
Dallas, TX 75219
(214) 651-5000
Special Counsel for Carey Ebert,

as Trustee for Latitude Solutions, Inc.
FORTH WORTH DIVISION
In re:
Debtor
Chapter 11
Case No.: 12-46295-rfn-11
CAREY D. EBERT, AS TRUSTEE FOR

Plaintiff,
v.
HOWARD APPEL, ERNEST A.
BARTLETT, III, MATTHEW J. COHEN,
RMS ADVISORS, INC., CAPITAL GROWTH
REALTY, INC., CAPITAL GROWTH
INVESTMENT TRUST, DIT EQUITY
COHEN, HAWK MANAGEMENT
GROUP, INC., FEQ REALTY, LLC,
HARVEY KLEBANOFF A/K/A HARVEY
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KAYE, HELEN KLEBANOFF, MOGGLE,
LLC, ISLAND CAPITAL MANAGEMENT,

LLC, TSS INVESTMENTS, INC., VERNON
RAY HARLOW, JEFFERY WOHLER,
MICHAEL GUSTIN, WILTOMO
REDEMPTION FOUNDATION, SLD
CAPITAL CORP., DeROSA FAMILY TRUST,
WILLIAM BELZBERG REVOCABLE
LIVING TRUST, MICHAEL GARNICK, and
JOHN PAUL DeJORIA
Defendants
FIRST AMENDED AND RESTATED ADVERSARY COMPLAINT

This action is brought by Plaintiff, Carey D. Ebert, as Trustee (Trustee) for the Chapter
11 estate of the Debtor, Latitude Solutions, Inc. (LSI), against Defendants Howard Appel,
Earnest A. Bartlett, III, Matthew J. Cohen, Harvey Klebanoff a/k/a Harvey Kaye, Helen Klebanoff,
Vernon Ray Harlow, RMS Advisors, Inc., Capital Growth Realty, Inc., Capital Growth Investment
Trust, DIT Equity Holdings, Inc., KWL Exploration and Development, Inc., Moggle, LLC,
Virginia Dadey, Bellcrest Advisors, LLC, Deborah Cohen, Hawk Management Group, Inc., FEQ
Realty LLC, Jeffery Wohler, Michael Gustin, Island Capital Management, LLC, TSS Investments,
Inc., Wiltomo Redemption Foundation, SLD Capital Corp., DeRosa Family Trust, William
Belzberg Revocable Living Trust, Michael Garnick, and John Paul DeJoria.
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TABLE OF CONTENTS
INTRODUCTION..........................................................................................................................6
JURISDICTION AND VENUE ....................................................................................................8
PARTIES ........................................................................................................................................9
THE PLAINTIFF .......................................................................................................................9
THE DEFENDANTS...............................................................................................................10
Howard Miller Appel ......................................................................................................10
Ernest A. Bartlett, III ......................................................................................................14
Harvey N. Klebanoff .......................................................................................................16
Helen Klebanoff .............................................................................................................17
Vernon Ray Harlow ........................................................................................................18
Matthew Cohen ...............................................................................................................19
Deborah Cohen ...............................................................................................................20
Hawk Management Group, Inc. ......................................................................................20
Virginia Dadey ................................................................................................................20
Bellcrest Advisors, LLC .................................................................................................21
Jeffrey Wohler ................................................................................................................21
Michael Gustin ................................................................................................................22
John Paul DeJoria ...........................................................................................................23
APPEL AND BARTLETT RELATED ENTITIES ................................................................25
ISLAND CAPITAL MANAGEMENT, LLC..........................................................................27
DEFINED TERMS ..................................................................................................................28
FACTUAL ALLEGATIONS ......................................................................................................29
SUMMARY .............................................................................................................................29
ACT ONE: THE BAD COPS .................................................................................................32
The Early Years ..............................................................................................................32
Cohen, Kaye, and Appel .................................................................................................33
LSI Subsidiaries ..............................................................................................................34
Latitude Energy Services, LLC.......................................................................................35
BAMCO, Texas Midstream, Freedom Pipeline and Red Mountain Resources .............37
Behind the Curtain: The Appel Show ............................................................................39
The Appel Pump-And-Dump: An Overview ..................................................................40
The Fraudulent Transfers ................................................................................................40
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The Pumps ......................................................................................................................43

The Cross-Trades ............................................................................................................43
The DTC Sheets ..........................................................................................................45
ACT TWO: THE KEYSTONE COPS ...................................................................................47
The Second Board Knowingly Partners with Nice Guys Appel, Bartlett, and
Cohen .....................................................................................................................47
DeJoria Loans $2,000,000 to His Friends, Appel and Bartlett .......................................49
LSI is the VictimNot DeJoria .....................................................................................52
Appel Will Not Allow LSI Share to Trade Without His Permission..............................55
DeJoria Joins LSIs Board as a Non-Liable Director ..................................................56
Jose Lugo Verifies the Corruption ..................................................................................57
The Email of Concern .................................................................................................62
Who is This Animal?...................................................................................................63
The Stock Transfers Spreadsheet ................................................................................64
The Second Board Knows that LSI is Being Controlled by the Appel/Bartlett
Group .....................................................................................................................65
The Second Board Plays Both Sides ...............................................................................66
Cohens Sexual Harassment ...........................................................................................67
The March 14, 2012, Fax ................................................................................................68
The Keyston Cops Catch, Then Excuse, Cohens Insider Trading.................................72
Appel, Bartlett, and DeJoria Use LSI to Suit Their Own Interests .................................74
Wohler Claims that DeJoria Made Him Do It ................................................................75
Gross Incompetence, Lack of Internal Controls, and Oversight .....................................77
ACT THREE: THE GOOD COP ...........................................................................................80
Director and CEO Jerry J. Langdon Blows the Whistle .................................................80
The Second Board Settles on Putting LSI into Bankruptcy............................................85
The Second Board Hopes to Cover Their Tracks ...........................................................85
CLAIMS FOR RELIEF ..............................................................................................................88
COUNT ONE: Avoidance and Recovery of Fraudulent Transfers Under Sections
544(B) and 550 of the Bankruptcy Code and The Florida Uniform Fraudulent
Transfer Act, F.S.A. 726.101, et seq., or, alternatively, The Nevada Uniform
Fraudulent transfer Act, Nev. Rev. Stat. Ann. 112.140, et seq.
Against the Appel/Bartlett Group and the Insider Defendants (Appel, Bartlett,
Kaye, Helen Klebanoff, Harlow, Cohen, Deborah Cohen, Dade, Wohler,
Gustin, DeJoria, and all of the Appel and Bartlett Related Entities)..................88
COUNT TWO: Avoidance and Recovery of the Fraudulent Transfers Under Sections
548(a)(1)(A) and (B) and 550(a) of The Bankruptcy Code
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Against the Appel/Bartlett Group and the Insider Defendants (Appel, Bartlett,
Kaye, Helen Klebanoff, Harlow, Cohen, Deborah Cohen, Dade, Wohler, Gustin,
DeJoria, and all of the Appel and Bartlett Related Entities) .......................................91
COUNT THREE: Breach of Fiduciary Duty Against the Director and Officer
Defendants (Cohen, Kaye, Harlow, Wohler, Gustin, and DeJoria) ................................93
COUNT FOUR: Aiding and Abetting Breach of Fiduciary Duty Against All
Defendants (Appel, Bartlett, Kaye, Helen Klebanoff, Harlow, Cohen, Deborah
Cohen, Dadey, Wohler, Gustin, DeJoria, all of the Appel and Bartlett Related
Entities, and Island Capital Management, LLC) ...........................................................95
COUNT FIVE: Fraud Against All Defendants (Appel, Bartlett, Kaye, Helen
Klebanoff, Harlow, Cohen, Deborah Cohen, Dadey, Wohler, Gustin, DeJoria, all
of the Appel and Bartlett Related Entities, and Island Capital Management,
LLC) ................................................................................................................................97
COUNT SIX: Conspiracy to Commit Fraud Against All Defendants (Appel, Bartlett,
Kaye, Helen Klebanoff, Harlow, Cohen, Deborah Cohen, Dadey, Wohler, Gustin,
DeJoria, all of the Appel and Bartlett Related Entities, and Island Capital
Management, LLC) .........................................................................................................98
COUNT SEVEN: Aiding and Abetting Fraud Against All Defendants (Appel, Bartlett,
Kaye, Helen Klebanoff, Harlow, Cohen, Deborah Cohen, Dadey, Wohler, Gustin,
DeJoria, all of the Appel and Bartlett Related Entities, and Island Capital
Management, LLC) .........................................................................................................99
COUNT EIGHT: Punitive Damages and Attorneys Fee Claims Against All
Defendants (Appel, Bartlett, Kaye, Helen Klebanoff, Harlow, Cohen, Deborah
Cohen, Dadey, Wohler, Gustin, DeJoria, all of the Appel and Bartlett Related
Entities, and Island Capital Management, LLC) .........................................................100
JURY DEMAND ........................................................................................................................101
PRAYER FOR RELIEF............................................................................................................102
ATTACHMENT ONE
FRAUDULENT TRANSFERS FROM LSI TO APPEL/BARTLETT GROUP AND
INSIDER DEFENDANTS (four page document)
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INTRODUCTION
1.
This lawsuit arises out of a fraudulent pump-and-dump scheme perpetrated by two
groups of corporate insiders and co-conspirators who all misused the Debtor, Latitude Solutions,
Inc., and its subsidiaries (LSI), its shareholders, and its creditors. The first group of insiders (the
First Board), created LSI, paid themselves with LSIs cash, acquired upwards of 50% of its
freely tradable shares, and sold them piecemeal in a pump-and-dump. The second group (the
Second Board), corporate fiduciaries all, partnered with them in the hope of taking the original
pump-and-dump program global.
Controlling both Boards from the shadows was the
Appel/Bartlett Group, a group led by Howard Appel (Appel), a serial securities manipulator who
had previously been convicted of securities fraud and who had a lengthy track record of corporate
stock manipulation. Knowing full well that LSI, a publically traded corporation, was being run by
a den of securities fraudsters, the Second Board deliberately disregarded the plunder that was
taking place, and knowingly allowed the pillage to continue under their watch. Instead of trying
to save the company from the Appel/Bartlett Group, the Second Board acted purely in their own
self-interests, grossly mismanaged LSI's business, and squandered corporate assets, all while
talking out of both sides of their mouth. Out of one side of their proverbial mouth, the Second
Board allowed Appel to continue running LSI and praised Appel for extracting money from
unsuspecting investors. The Second Board then wasted the capital on extravagant expenses and
ill-advised business prospects designed to market LSI, not conduct legitimate business activities.
Yet out of the other side their proverbial mouth, they demonized the First Board and the
Appel/Bartlett Group and went to great lengths to investigate and document their fraudulent
scheme, so that if LSI were to bleed to death, they could lay all of the blame on Appel and the First
Board, conveniently diverting attention away from themselves. All the while LSI sank deeper in
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debt. When the pump-and-dump scheme seized up and the well ran dry, the Second Board put
LSI into Chapter 7 and submitted a dossier on Appel and his lackey, Matt Cohen (a founder of LSI
and its CFO until almost the end), to the Department of Justice, in the hope that the Second Boards
allegations of wrong-doing against Appel and Cohen would shield them from their own culpability
in causing LSI's failure. In reality, the First Board and the Second Board were partners in crime,
and their combined fraud and corporate waste caused LSI to fail, leaving creditors with potentially
more than $40 million in debt.
2.
The Trustee brings claims against the Defendants (i) to recover the value of LSIs
assets awarded to purported, former consultants of LSI (the Consultant Defendants) and others
at the direction of certain LSI Directors and Officers, namely Harvey Kaye, Matthew Cohen, and
V. Ray Harlow, (the First Board); (ii) to avoid transfers pursuant to 108, 544(b), 546, 547 and
548 of the Bankruptcy Code, Fed. R. Bankr. P. 7001(1), Fla. Stat. Ann. 726.101 et seq. (or,
alternatively, Nev. Rev. Stat. Ann. 112.140 et. seq; (iii) to preserve and recover such transfers,
or the value of such transfers, from the Defendants, or from any other person or entity for whose
benefit the transfers were made, pursuant to 550(a)(1) and 551 of the Bankruptcy Code and Fla.
Stat. Ann. 726.109 (or, alternatively, Nev. Rev. Stat. Ann. 112.220); (iv) equitable
subordination of certain claims pursuant to 510 of the Bankruptcy Code; and (v) for all other
relief under applicable statutory and common law theories of avoidance and recovery.
3.
The Trustee brings state-law claims against the various Defendants as identified
herein, seeking all recoverable compensable and punitive damages, caused by Defendants breach
of fiduciary duty, aiding and abetting breach of fiduciary duty, gross mismanagement and selfdealing, fraud, aiding and abetting fraud, conspiracy, corporate waste, negligent misrepresentation,
and unjust enrichment.
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4.
During the course of this action, Plaintiff may learn (through discovery or
otherwise) of additional fraudulent transfers, and it is Plaintiffs intention to avoid and recover all
transfers made by the Estate of any interest of the Estate in property to, or for the benefit of, the
Insider Defendants or any other transferee. Plaintiff reserves the right to amend this Complaint
to include: (i) further information regarding the transfers described herein, (ii) additional transfers,
(iii) additional defendants, and/or (iv) additional causes of action that may become known to
Plaintiff at any time during this action, through formal discovery or otherwise, and for such
amendments to relate back to filing of this Complaint.
JURISDICTION AND VENUE
5.
The United States Bankruptcy Court for the Northern District of Texas (the
Bankruptcy Court) has jurisdiction over this adversary proceeding under 28 U.S.C. 157 and
1334 and the Standing Order of the United States District Court for the Northern District of Texas
referring to the Bankruptcy Judges in this District all cases and proceedings arising under title 11
of the United States Code (the Bankruptcy Code). The causes of action alleged herein arise
under, arise in, or are related to the above-styled and numbered Chapter 11 case.
6.
This adversary proceeding constitutes a core proceeding as defined in 28 U.S.C.
157(b)(2) to the extent of certain of the causes of action alleged by the Plaintiff and is non-core
with respect to those causes of action which constitute related proceedings. Because the Plaintiff
has requested a jury trial Plaintiff consents to the entry of final orders and judgments by the
Bankruptcy Judge, pursuant to Rule 7008 of the Federal Rules of Bankruptcy Procedure only to
the extent that such consent is compatible with the jury trial rights of the Plaintiff and does not
consent to the exercise of such authority by the Bankruptcy Judge if the exercise of such authority
is not compatible with the jury trial rights of the Plaintiff.
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7.
Venue in the Northern District of Texas is proper under 28 U.S.C. 1408 and 1409
because this adversary proceeding arises under, arises in, and is related to the above-styled and
numbered case commenced under the Bankruptcy Code.
8.
On November 9, 2012, LSI filed a voluntary petition under Chapter 7 of the
Bankruptcy Code. (Doc. No. 1)

9.
On April 5, 2013, LSIs bankruptcy proceeding was converted from Chapter 7 to a
Chapter 11 bankruptcy. (Doc. No. 106)

10.
On April 5, 2013, the Court ordered the United States Trustee to appoint a Trustee
for this case. (Doc. No. 108)

11.
On April 11, 2013, the Court ordered the appointment of Carey Ebert as Trustee.
(Doc. No. 111)

PARTIES
THE PLAINTIFF
12.
The Plaintiff, Carey D. Ebert, is Trustee (Trustee) for the Chapter 11 estate of
Latitude Solutions, Inc., a publically-traded corporation.

13.
LSI is a Nevada corporation which, during the time of its operations relevant to this
proceeding, had its principal place of business in Boca Raton, Florida. In approximately August
2012, LSI allegedly moved its principal executive offices to Fort Worth, Texas, just prior to
seeking bankruptcy protection on November 9, 2012. Upon information and belief, LSI did not
conduct extensive business from its Texas office, other than preparing for bankruptcy.
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THE DEFENDANTS
HOWARD MILLER APPEL

14.
Howard Miller Appel is an adult citizen of Pennsylvania. Appels tortious actions
alleged herein were directed at LSI and its operations in the State of Florida.
15.
Mr. Appels sordid history of illegal acts in the securities arena spans roughly
twenty-five years. As more fully alleged herein, Appels fraud committed against LSI is yet
another example of history repeating itself.
16.
In 1989, a brokerage firm party owned by Appel, named Bailey, Martin & Appel,
Inc. was accused of stock manipulation by acquiring 70 percent of the stock of Northgate Industry,
a shell corporation with no assets. After acquiring this Northgate Industry stock at 20 cents per
share, the brokerage firm later increased the price of the stock to $3.00 per share by buying and
selling shares despite "limited wholesale and retail demand for the stock. By way of settlement,
the National Association of Securities Dealers (NASD) 1 fined the brokerage $50,000 and
suspended both the brokerage and its owners from the Association.
17.
In 1991, Bailey, Martin & Appel, Inc. and Howard Appel were each fined $125,000
by the NASD for further wrongdoing. Appel was also barred from association with any member
of the NASD in any capacity. The NASD found that the brokerage firm, through Appel, effected
principal sales of equity securities, agency cross transactions, and municipal securities to public
customers at unfair prices. According to the findings, the firm, acting through Appel, failed to
make certain disclosures on confirmations and sold unregistered shares of common stock to
customers. In addition, the NASD found that the firm, acting through Appel, sold limited
In 2007, the NASD became the Financial Industry Regulatory Authority (FINRA) through the consolidation of
NASD and the member regulation, enforcement and arbitration operations of the New York Stock Exchange.
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partnership interests on an all or none basis and caused funds to be disbursed from the escrow
account before the contingency was met. The findings also stated that the firm, acting through
Appel, failed to comply with NASD rules concerning options accounts, failed to maintain a
program of written supervisory procedures, failed to maintain accurate books and records, and
filed inaccurate FOCUS reports. Furthermore, the NASD determined that the firm did not record
on its order tickets the names of the dealers contacted and the quotations received for transactions
in non-NASDAQ securities. 2
18.
In 2003, Appel was implicated in another securities fraud scheme. The plaintiff
company contended that, although Appel had no official relationship with the defendant company,
Net Value Holdings, Inc., he effectively controlled it through affiliated individuals and entities.
The plaintiff further contended that Appel, and others, artificially inflated the stock prices of
companies controlled by Appel and sold their own stock at high profits and thereafter allowed the
stock prices to plummet, rendering worthless other shareholders' investments. Although the court
concluded that the plaintiffs reliance upon the defendant's representations was not reasonable, the
court provided enlightening details of some of Appel's methodology used in prior dealings: 3
Neither in negotiations leading up to plaintiff's investment in NETV nor in the stock
purchase agreement itself did defendants mention any connection between NETV
and Howard Appel, who since 1991 had been barred by the NASD for life from
associating with any member of that organization in any capacity. Disbarment of
Appel for life came about, in part, because of his sale of unregistered securities to
customers. Plaintiff later learned that defendant's CEO Panzo had had a long history
of collaborating with Appel in various investment schemes. Further, through a
series of affiliated entities and individuals Appel played a significant role in
NETV's founding, financing and particularly, in its control.
See NASD Disciplinary Actions Report (August 1991).

Emergent Capital Inv. Mgmt., LLC v. Stonepath Grp., Inc., 343 F.3d 189, 193-194 (2d Cir. 2003) disapproved of by
Glidepath Holding B.V. v. Spherion Corp., 590 F. Supp. 2d 435 (S.D.N.Y. 2007).
3
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***
Appel, through an affiliated company, would acquire control of a public shell
corporation and exercise that control to install defendant Panzo as a director or a
senior officer, because Appel himself, on account of his past record, could not be a
director of a public company. With Panzo in a top management position, the
company would transfer substantial quantities of stock or warrants to Appel and
Panzos affiliates, either in a sale transaction, or in payment for purported
consulting or investment banking services, or as a finders fee in anticipation of a
merger. Then the two men through extraordinarily complex corporate legal
maneuvers, often by way of subsidiaries of the companies of which they were
principals, such as reverse mergers, stock exchanges between public and private
corporations, reverse stock splits, a bewildering list of corporate name changes, and
other corporate devices would end up with large amounts of stock or warrants to
purchase stock. Appel affiliates would then sell the securities at a relatively high
price, generating large profits for Appel and Panzo. Subsequently, these companies'
stock became virtually worthless.
NETV itself was similarly created through a merger of a public shell corporation
with a private company largely owned by persons who were affiliated with Appel,
and who also had participated as shareholders in eight other PanzoAppel ventures.
After the merger, these persons became NETV shareholders, and additional
quantities of NETV stock were first transferred to and later sold by another Appel
affiliate.
As will be described in greater detail below, if one were to substitute LSI for NETV and
Cohen for Panzo in the above-quotation, one would have a concise description of Appels
modus operandi, and how he manipulated LSI and its directors for his own personal gain.
19.
In 2004, Appel was charged with conspiracy to commit securities fraud, and
conspiracy to commit money laundering in relation to a stock manipulation scheme of over the
counter stocks. The U.S. Attorney charged that Appel, and others, would obtain large blocks of
stock of thinly traded over the count stocks for little or no consideration and deposit them into
secret nominee accounts at various brokerages. Further, the U.S. Attorney charged that Appel paid
secret kickbacks to brokers, in the form of cash and free stock, in exchange for the brokers causing
their clients to purchase blocks of the stock from Appel and others at artificially inflated prices.
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Mr. Appel ultimately pled guilty to both counts and received two one year and one day sentences
(concurrent) and was ordered to pay $2.8 million in restitution. In July 2011, a time during which
Appel was interacting with LSI and its stock, he paid $1.5 million in restitution to the court. Upon
information and belief, Appel obtained this money through the fraud committed against LSI with
the help of other defendants named in this suit.
20.
In yet another, more recent securities fraud scheme, Appel served as an authorized
representative and secretary of Bamco Gas, LLC (Bamco), a private, manager-managed

Delaware LLC formed in 2004 to, inter alia, acquire exploration and development assets in the
Texas Gulf Coast Region. Through a number of affiliated companies controlled by Appel,
including 1025 Partners, LP; RMS Advisors; DHH Resources; RMS Gas, LLC; and PHT Gas,
LLC, Appel was the single largest Principal Member with control of Bamco, owning 27.29% of
that company.
21.
Following an extensive investigation into Bamco, the Arkansas Securities
Commission found that Appel and Bartlett committed securities fraud by withholding material
facts and information necessary to render private placement memoranda relating to Bamco not
misleading. On July 9, 2013, the Arkansas Securities Commissioner issued a public Cease and
Desist Order directed to Appel and Bartlett ordering them to refrain from violating applicable laws,
rules, and regulations surrounding the sale of securities.
22.
As was the case with his dealings with LSI, Appels significant involvement and
control of Bamco through numerous affiliated entities was hidden from the outside investors and
creditors of LSI, and certainly, Appels long-history of adverse legal and regulatory history were
not disclosed to outside investors or creditors of LSI.
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23.
Appel served his prison time for securities fraud violations from June 12, 2008,
through April 24, 2009. His involvement with LSI began either when he was still in prison or
shortly after his release.
24.
It is the habit or routine practice of Appel to engage in conduct which violates the
laws, rules, and regulations surrounding the sale and purchase of securities.
25.
Appel is a convicted felon and serial securities fraud violator.
26.
Appel was, at all times relevant to this proceeding, an insider of LSI, as that term
is defined by the Bankruptcy Code, given that he was in de facto control of LSI, the Debtor.
27.
Appel, Bartlett, DeJoria, and/or entities with which they are associated have been
involved in a myriad of complex securities offerings spanning an undetermined period of time; it

is the habit or routine practice of Appel, Bartlett, and DeJoria to do business together in such a
manner.
ERNEST A. BARTLETT, III

28.
Earnest Ancin Bartlett, III (Bartlett) is an adult citizen of Arkansas. Bartletts
tortious actions alleged herein were directed at LSI and its operations in the State of Florida.
29.
Bartlett was a broker-deal agent with E.F. Hutton & Co., Inc. from 1986-1987, and
with Prudential-Bache Securities, Inc. from 1987-1988. Through a decision rendered on June 14,
1989, the National Association of Securities Dealers (NASD) (n/k/a FINRA), censured Bartlett,
fined him $15,000.00, and barred him from association with any NSDA-registered broker-dealer
in any capacity. NASD found that Bartlett exercised discretionary power over three customer
accounts and purchased and sold securities without the prior written consent of the customers.
Additionally NASDA found that Bartlett used high-pressure sales tactics and made exaggerated
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and misleading statements to customers to solicit their business. Bartlett also failed to respond to
NASD requests for information pursuant to the NASD Rules of Fair Practice.
30.
At all material times herein, Bartlett served as the president and principal of FEQ
Investments, Inc. (FEQ Investments), a Delaware corporation which served as the manager of
FEQ Gas, LLC (FEQ Gas), a manager-managed Delaware LLC for which Bartlett also served
as principal. Bartlett, along with Appel, was a principal interest holder with control of Bamco,
owning some 8.32% of this company through his FEQ entities.
31.
As alleged in detail supra, the Arkansas Securities Commission found that Appel
and Bartlett committed securities fraud by withholding material facts and information necessary
to render private placement memoranda relating to Bamco not misleading, and on July 9, 2013,
the Arkansas Securities Commissioner issued a public Cease and Desist Order directed to Appel
and Bartlett ordering them to refrain from violating applicable laws, rules, and regulations
surrounding the sale of securities.
32.
According to the Cease and Desist Order issued by the Arkansas Securities
Commissioner in the Bamco matter, on the day that Appel entered prison in 2008, he sent an email
to individuals trying to reach him to either email him or coordinate with Bartlett, as he would be
tough to reach.
33.
Bartlett is a serial securities fraud violator with close ties to Appel.
34.
It is the habit or routine practice of Bartlett to engage in conduct which violates the
laws, rules, and regulations surrounding the sale and purchase of securities.
35.
Bartlett was, at all times relevant to this proceeding, an insider of LSI, as that
term is defined by the Bankruptcy Code, given that he was in de facto control of LSI, the Debtor.
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36.

manner.
HARVEY N. KLEBANOFF
37.
Harvey N. Klebanoff a/k/a Harvey Kaye (Kaye) is an adult citizen of Florida.
Kayes tortious actions alleged herein were directed at LSI and its operations in the State of
Florida.
38.
Kaye was the CEO of LSI from 2009 January 18, 2012, and was instrumental in
propagating the LSI pump-and-dump.

39.
Kaye served on the Board of Directors of LSI from its inception until April 22,
40.
Kaye was employed by LSI and received an excessive salary during his
2012.
employment with LSI.

41.
Like other defendants involved in the scheme to loot LSI, Kaye has a history of
violating securities laws and market manipulation in particular.

42.
In 1974, Kaye was barred from the securities industry by the Securities and
Exchange Commission. The sanctions were based on findings that Kaye and his business associate
manipulated the prices and markets of several securities, caused an investment company over
which they had control to purchase securities to its detriment without disclosing the adverse factors
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attendant to such investments, and in connection with sales of various securities to customers made
misrepresentations regarding their market prices and investment qualities. 4
43.
Kaye was also the owner and managing member of Gulfstream Capital Group, L.C.
(Gulfstream). Upon information and belief, Gulfstream Capital Group, L.C. is the alter ego of
Kaye. In regulatory filings signed by Kaye, Gulfstream is described as a merchant banking,
consulting and financial advisory organization, which provides advisory and corporate finance
services to both public and private companies. 5 Gulfstream operated out of its office located at
190 NW Spanish River Blvd., Suite 101, Boca Raton, FL 33431 the same address as LSI. Kaye
regularly conducted LSI business and received substantial funds from LSI through Gulfstream.
For example, LSIs 2011 Form 10-KA states that during the year ending December 31, 2010, Kaye
received total compensation from LSI in the amount of $183,789. Of this amount, only $89,451
was paid to Harvey Kaye directly, whereas $94,338 was paid to Gulfstream Capital Group, owned
by Harvey Kaye. Likewise, during 2009, $154,782 of Kayes compensation as CEO and President
of LSI was paid to Gulfstream. Only $5,000 of his compensation was paid to Kaye directly.
44.
Kaye was, at all times relevant to this proceeding, an insider of LSI, as that term
is defined by the Bankruptcy Code, given that he was a director and officer of LSI, the Debtor.
HELEN KLEBANOFF
45.
Helen Klebanoff is an adult citizen of Florida, and was, for all relevant times, the
spouse of Harvey N. Klebanoff. Helen Klebanoffs tortious actions alleged herein were directed
at LSI and its operations in the State of Florida.
SEC News Digest, Issue 74-60, (March 27, 1974).

LSI Form 10-KA, filed May 20, 2011. Gulfstream is referenced as Gulfstream Capital Group, Inc. in regulatory
filings. However, emails sent by Kaye in 2099 and thereafter on LSI-related business reference Gulfstream Capital
Group, L.C. Upon information and belief, Gulfstream Capital Group, Inc. is Gulfstream Capital Group, L.C.
5
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46.
Helen Klebanoff was, at all times relevant to this proceeding, an insider of LSI,
as that term is defined by the Bankruptcy Code, given that she was a relative of Harvey N.
Klebanoff, a director and officer of LSI, the Debtor.
VERNON RAY HARLOW

47.
Vernon Ray Harlow (Harlow) is an adult citizen of Florida. Harlows tortious
actions alleged herein were directed at LSI and its operations in the State of Florida.
48.
Harlow was the Chief Operating Officer of LSI and Latitude Energy Solutions,
LLC (LES), from approximately August 17, 2011, until January 16, 2012, and was instrumental
in propagating the LSI pump-and-dump.
49.
Harlow was employed by LSI and received an excessive salary during his
employment with LSI and LES.

50.
Prior to and during his involvement with LSI, Harlow was the CEO and Director
of Maverick Oil & Gas, Inc. (MAVO), an infamous energy business based in Fort Lauderdale,
Florida that reportedly lost over $100 million, had its securities registration revoked by the SEC
on March 4, 2013, for the protection of investors, and upon information and belief, was, not
surprisingly, partially funded by Appel and Bartlett.
51.
LSIs attorney performed a background check on Harlow at Cohens request and
made a few observations:

...Some points of interest you may wish to consider[Harlow] allowed his 1.6 million
dollar house to go into foreclosure in 2003 and a foreclosure judgment was issued. In 1990
he had a $110,000 judgment against him from the FDICboth are financial issues that
concern me. In 2005 he turned around and bought a home for 1.45 million.... Corporate
records indicate a number of entities he either owns or controls as director or officer
including IDC Palm Energy, LLC (since 2008), HMH Energy, Inc. (1984-2009), Hyde Oil
and Gas (1982-2009), Harlow & Teutsch (since 2009), Champion Group Capital (20082009), etcthe list is included..numerous entitiesmany for only a year or so...
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52.
Harlow became involved in LSI through his overlapping business dealings with
Appel. Harlow, Appel, Bartlett and Mike Teutsch (one of Harlows business partners) owned 30%
of LES.
53.
Harlow was, at all times relevant to this proceeding, an insider of LSI, as that
term is defined by the Bankruptcy Code, given that he was a director and officer of LSI, the Debtor.
MATTHEW COHEN
54.
Matthew Cohen (Cohen) is an adult citizen of Florida. Cohens tortious actions
55.
Cohen was the Chief Financial Officer (CFO), Secretary, and Treasurer of LSI
from approximately 2009 until July 3, 2012.

56.
Cohn served as a director of LSI from approximately 2009 until July 3, 2012.
57.
With the possible exception of Appel, Cohens fraudulent conduct described herein
was the most blatant and most instrumental in propagating the LSI pump-and-dump.
58.
Cohens tenure, fraud, and breach of fiduciary duty spanned almost the entire
existence of LSI.
59.
Cohen was Appels proxy, his insider at LSI who provided Appel and Bartlett all
of the inside information regarding LSI they needed to fuel the pump-and-dump.
60.
Cohen was employed by LSI and received an excessive salary during his
employment with LSI.

61.
During his employment with LSI, and while he served on the Board of Directors,
Cohen allegedly sexually harassed and molested a subordinate, female employee and improperly
provided inside information to Appel and Bartlett. Through the influence of Appel, Bartlett, and
DeJoria, among others, Cohen was never fired for cause because of his abhorrent conduct. Instead,
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he remained as CFO and director, continued to be paid his excessive salary, and may have even
been rewarded with a favorable severance package that was negotiated on his behalf by Appel.
Furthermore, the well-being of the thinly-capitalized LSI was significantly damaged by the
excessive legal fees incurred and paid by LSI to defend itself and Cohen regarding this sexual
harassment suit, all to the detriment of LSI, its shareholders, and its creditors.
62.
Cohen was, at all times relevant to this proceeding, an insider of LSI, as that term
DEBORAH COHEN
63.
Deborah Cohen is an adult citizen of Florida, and was, for all relevant times, the
spouse of Matthew Cohen. Deborah Cohens tortious actions alleged herein were directed at LSI
and its operations in the State of Florida.
64.
Deborah Cohen was, at all times relevant to this proceeding, an insider of LSI, as
that term is defined by the Bankruptcy Code, given that she was a relative of Cohen, a director and
officer of LSI, the Debtor.
HAWK MANAGEMENT GROUP, INC.

65.
Hawk Management Group, Inc. is a Florida corporation, with its principal place of
business in Florida.
Hawk Management Group, Inc. is closely affiliated with and effectively
controlled, either through ownership or managerial or operational control or otherwise, by Cohen.
VIRGINIA DADEY
66.
Virginia Dadey (Dadey) is an adult citizen of New York. Dadeys tortious
67.
Dadey was employed by LSI and received an excessive salary during her
employment. Upon information and belief, Dadey was LSIs Financial Representative.
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68.
Dadey has known and been business associates with Howard Appel and/or Bartlett
for a long time.

69.
Dadey cooperated, conspired with, and was used by Appel to acquire and exploit
inside information from Dadey which she learned through her association and/or manipulation of
Cohen.
BELLCREST ADVISORS, LLC

70.
Bellcrest Advisors, LLC, is a New York Limited Liability Company, with its
principal place of business in New York. The members of this LLC are unknown at this time, but
Dadey is its registered agent, and upon information and belief, its top executive. Bellcrest
Advisors, LLC is closely affiliated with and effectively controlled, either through ownership or
managerial or operational control or otherwise, by Dadey.
JEFFREY WOHLER
71.
Jeffrey Wohler (Wohler) is an adult citizen of California. Wohlers tortious
72.
Wohler served on the Board of Directors of LSI from January 20, 2012 until
November 9, 2012, when LSI filed for bankruptcy protection and all of its directors resigned.
73.
Wohler was President and interim CEO of LSI from January 2012 until May 2012,
and served as President and CEO from July 3, 2012 until August 28, 2012.
74.
Wohler was employed by LSI and received an excessive salary during his
employment.
75.
Wohler has known and been a business associate of John Paul DeJoria for
approximately thirty years.
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76.
Wohler was hand-picked by DeJoria initially to conduct due diligence of LSI in
relation to DeJorias initial involvement and investment in LSI in early 2011.

77.
Wohler was chosen by DeJoria to serve as the interim CEO of LSI during the
purported transition from the First Board to the Second Board.

78.
Wohler was, at all times relevant to this proceeding, an insider of LSI, as that
term is defined by the Bankruptcy Code, given that he was a director and officer of LSI, the Debtor.
MICHAEL GUSTIN
79.
Michael Gustin (Gustin) is an adult citizen of Texas. Gustins tortious actions
80.
Gustin served on the Board of Directors of LSI from January 20, 2012, to
November 9, 2012, when LSI filed for bankruptcy protection and all of its directors resigned.
81.
Gustin was employed by LSI and received an excessive salary during his
employment.
82.
Gustin has known and been a business associate of John Paul DeJoria for
approximately thirty years.

83.
Gustin was hand-picked by DeJoria initially to conduct due diligence of LSI in
relation to DeJorias initial involvement and investment in LSI in early 2011.

84.
Gustin was chosen by DeJoria to serve as a director of LSI during the purported
transition from the First Board to the Second Board.

85.
Gustin was, at all times relevant to this proceeding, an insider of LSI, as that term
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JOHN PAUL DEJORIA

86.
John Paul DeJoria (DeJoria) is an adult citizen of Texas. DeJorias tortious
87.
DeJoria served on the Board of Directors of LSI from October 21, 2011 until
September 20, 2012, and was LSIs principal shareholder at the time of its collapse.
88.
DeJoria first invested money into LSI in April 2011; at the time of LSIs
bankruptcy, he owned more that approximately 15% of LSIs outstanding stock, more than any
other single shareholder, but roughly the same percentage as the Appel/Bartlett Group controlled
while they were defrauding LSI.
89.
DeJoria is a celebrity business personality with a reported net worth of more than
$3 billion. DeJoria is best known for being the co-founder and owner of the Paul Mitchell studios
and line of hair products (John Paul Mitchell Systems, Inc.); DeJoria reportedly owns 70% of
Patron Spirits Company (Patron Tequila), among other businesses. DeJoria is also a close friend
and business associate of at least Ernest Bartlett, if not Howard Appel.
90.
DeJoria has a history of investing in other companies with Bartlett and Appel.
91.
In 2004, a TSX Venture Daily Bulletin reports that DeJoria purchased a convertible
debenture ($300,000 face value) and 750,000 warrants from Touchstone Resources, Ltd.
(TCH.U) for $200,000, with a finders fee of 150,000 shares being paid to Ernest Bartlett.
Touchstone Resources USA, Inc. became Cygnus Oil and Gas Corporation (CYNS.PK), a
corporation that the SEC identifies as one having connections to DeJoria, Bartlett, and Appel
92.
In 2007, an SEC Form S-3 filed by Cytomedix, Inc. (CMXI)(n/k/a Nuo
Therapeutics) lists DeJoria as the owner of 1,504,999 shares (or 4.7%), FEQ Gas, LLC (a Bartlett
company) as the owner of 1,156,200 shares (or 3.5%), FEQ Investments, Inc. (a Bartlett company)
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as the owner of 1,037,900 shares (or 3.2%), and William F. Miller, the Goldman Sachs financial
advisor who knows DeJoria, Appel, Bartlett, and Langdon, as discussed infra, as the owner of
632,850 shares (or 2.0%).
93.
In 2009, Virtual Piggy, Inc. (VPIG.OB), went public under the name Moggle,
Inc. According to SEC filings, early shareholders of Virtual Piggy, Inc. included Capital Growth
Trust, whose trustee was Vicki Appel, a close relative of Howard Appel; and FEQ Realty, LLC
and FEQ Gas, LLC, whose president is Ernest A. Bartlett, III. DeJoria, through a family trust, also
was and may still be a major shareholder in Virtual Piggy, Inc.
94.
At the October 31, 2011, Annual Shareholders Meeting of LSI, after DeJoria
became a director of the corporation, DeJoria told the audience: [What] really excited me about
this [LSI] technology [was] when my dear friend, Ernest Bartlett, first presented it to me, I thought,
Wow! Its pretty cool but is it real? So I took my friend Michael Gustin of 27-years and sent
him to check out the technology. He came back and said, J.P., it is really real. This is the real
thing. He had no second thoughts . . . I want to get involved in this because it is a good thing.
95.
DeJoria was, at all times relevant to this proceeding, an insider of LSI, as that
term is defined by the Bankruptcy Code, given that he was a director and controlling shareholder
of LSI.
96.

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APPEL AND BARTLETT RELATED ENTITIES

Upon information and belief, each of the following corporations, company's, individuals,
and/or trusts actively and knowing participated in cross-trading shares among the Appel/Bartlett
entities in furtherance of the pump-and-dump and is closely associated with Bartlett and/or Appel:
97.
RMS Advisors, Inc. is a Nevada corporation, with its principal place of business
in Nevada. RMS Advisors, Inc. is closely affiliated with and effectively controlled, either through
ownership or managerial or operational control or otherwise, by Appel.
98.
Capital Growth Realty, Inc. is a Delaware corporation, with its principal place of
business in Delaware.
Capital Growth Realty, Inc. is closely affiliated with and effectively
controlled, either through ownership or managerial or operational control or otherwise, by Appel.

99.
Capital Growth Investment Trust is a trust with its principal place of business in
Pennsylvania, whose Trustee is Vicki Appel, a close relative of Howard Appel. The identity of all
individuals associated with this trust is unknown. Capital Growth Investment Trust is closely
affiliated with and effectively controlled, either through ownership or managerial or operational
control or otherwise, by Appel.
100.
DIT Equity Holdings, Inc. is a Delaware corporation, with its principal place of
business in Delaware.
DIT Equity Holdings, Inc. is closely affiliated with and effectively
controlled, either through ownership or managerial or operational control or otherwise, by Appel.

101.
KWL Exploration and Development, Inc. is a Delaware corporation, with its
principal place of business in Delaware.
KWL Exploration and Development, Inc. is closely
control or otherwise, by Appel.
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102.
Moggle, LLC is a Delaware Limited Liability Company, which upon information
and belief, is related to Moggle Investors, LLC k/n/a Virtual Piggy, Inc. (a/k/a Oink) a Delaware
corporation, with its principal place of business in Delaware. The identity of all members of these
LLCs are unknown. Moggle, LLC and Moggle Investors, LLS k/n/a Virtual Piggy, Inc. are closely
control or otherwise, by Appel and/or Bartlett.
103.
FEQ Realty, LLC is an Arkansas limited liability company, with its principal place
of business in Arkansas. The identity of all members of this LLC is unknown. FEQ Realty, LLC
is closely affiliated with and effectively controlled, either through ownership or managerial or
operational control or otherwise, by Bartlett.
104.
Wiltomo Redemption Foundation, is an unincorporated foundation with its
principal place of business in Pennsylvania. The identity of all individuals associated with this
foundation is unknown. Wiltomo Redemption Foundation is closely affiliated with and effectively
controlled, either through ownership or managerial or operational control or otherwise, by Bartlett.
105.
TSS Investments, Inc. is a Nevada corporation with its principal place of business
in Nevada. TSS Investments, Inc. is closely affiliated with and effectively controlled, either
through ownership or managerial or operational control or otherwise, by Appel and/or Bartlett.
106.
SLD Capital Corp. is a Pennsylvania corporation with its principal place of
business in Pennsylvania. SLD Capital Corp. is closely affiliated with and effectively controlled,
either through ownership or managerial or operational control or otherwise, by Appel.
107.
DeRosa Family Trust is a trust with its principal place of business in California,
whose Trustee is currently unknown. The identity of all individuals associated with this trust is
unknown. Upon information and belief, DeRosa Family Trust is closely affiliated with and
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effectively controlled, either through ownership or managerial or operational control or otherwise,

by Appel and/or Bartlett.
108.
William Belzberg Revocable Living Trust is a trust with its principal place of
business in California, whose Trustee is William Belzberg. The identity of all individuals
associated with this trust is unknown. Upon information and belief, William Belzberg Revocable
Living Trust is closely affiliated with and effectively controlled, either through ownership or
managerial or operational control or otherwise, by Appel and/or Bartlett.
109.
Michael Garnick is an adult citizen of Pennsylvania. Upon information and belief,
Michael Garnick is closely affiliated with and effectively controlled or otherwise significantly
influenced by Appel and/or Bartlett.
ISLAND CAPITAL MANAGEMENT, LLC

110.
Island Capital Management, LLC is a Delaware Limited Liability Company with
its principal place of business in Florida.
Island Stock Transfer is a division of Island Capital
Management, LLC, and Island Capital Management, LLC does business as Island Stock Transfer.
The members of this LLC are unknown at this time. Island Capital Management, LLC d/b/a Island
Stock Transfer was the transfer agent used by LSI to effectuate and record the transfer of
certificated LSI shares certificates and book entry shares in a series of convoluted, manifestly
illegal cross-trades by and between the First Board, the Appel/Bartlett Group and the Consultant
Defendants for purposes of (a) perpetrating and hiding the pump-and-dump and market
manipulation that was taking place, (b) laundering shares owned by First Board, the Appel/Bartlett
Group and the Consultant Defendants; (c) transferring shares to Cede and Co. (DTC) so that the
First Board, the Appel/Bartlett Group and the Consultant Defendants could sell shares on the open
market and reap huge gains, and (d) concealing the identities of the First Board, the Appel/Bartlett
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Group and the Consultant Defendants as ultimate beneficiaries of the shares. These trades,
discussed below, were patently fraudulent, and Island Stock Transfer willingly and knowingly
caused them to happen and kept direct communication with Cohen, and sometimes even with
Appel.
DEFINED TERMS
As used herein, the following terms are defined as follows:
Appel/Bartlett Group shall refer to and mean Howard Appel, Earnest J. Bartlett, III,
Matthew J. Cohen, Harvey Klebanoff a/k/a Harvey Kaye, Helen Klebanoff, V. Ray
Harlow, Virginia Dadey, Deborah Cohen, Hawk Management Group, Inc., RMS Advisors,
Inc., Capital Growth Realty, Inc., Capital Growth Investment Trust, Bellcrest Advisors,
LLC, DIT Equity Holdings, Inc., KWL Exploration and Development, Inc., Moggle, LLC,
FEQ Realty, LLC, Wiltomo Redemption Foundation, TSS Investments, Inc., SLD Capital
Corp, DeRosa Family Trust, William Belzberg Revocable Living Trust, and Michael
Garnick.
Appel and Bartlett Related Entities shall refer to and mean RMS Advisors, Inc., Capital
Growth Realty, Inc., Capital Growth Investment Trust, DIT Equity Holdings, Inc., KWL
Exploration and Development, Inc., Moggle, LLC, FEQ Realty, LLC, Wiltomo
Redemption Foundation, TSS Investments, Inc., SLD Capital Corp, DeRosa Family Trust,
William Belzberg Revocable Living Trust, and Michael Garnick.
Director and Officer Defendants shall refer to and mean Matthew J. Cohen, Harvey
Klebanoff a/k/a Harvey Kaye, Vernon Ray Harlow, Jeffery Wohler, Michael Gustin, and
John Paul DeJoria.
Debtor shall refer to and mean Latitude Solutions, Inc. and its subsidiaries.
Defendants shall refer to and mean all named defendants: Howard Miller Appel, Ernest
A. Bartlett, III, Harvey N. Klebanoff a/k/a Harvey Kaye, Helen Klebanoff, V. Ray Harlow,
Matthew Cohen, Hawk Management Group, Inc., Deborah Cohen, Virginia Dadey, Jeffrey
Wohler, Michael Gustin, John Paul DeJoria, RMS Advisors, Inc., Capital Growth Realty,
Inc., Capital Growth Investment Trust, Bellcrest Advisors, LLC, DIT Equity Holdings,
Inc., KWL Exploration and Development, Inc., Moggle Investors, LLC k/n/a Virtual
Piggy, Inc. (a/k/a Oink), FEQ Realty, LLC, Wiltomo Redemption Foundation, TSS
Investments, Inc., SLD Capital Corp., DeRosa Family Trust, William Belzberg Revocable
Living Trust, and Michael Garnick.
First Board shall refer to and mean defendants, Matthew J. Cohen and Harvey Klebanoff
a/k/a Harvey Kaye.
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Insider Defendants shall refer to and mean Howard Appel, Earnest J. Bartlett, III,
Matthew J. Cohen, Deborah Cohen, Harvey Klebanoff a/k/a Harvey Kaye, Helen
Klebanoff, Vernon Ray Harlow, Jeffery Wohler, Michael Gustin and John Paul DeJoria.
LSI shall refer to and mean Latitude Solutions, Inc. and its subsidiaries.
Plaintiff shall refer to and mean Carey D. Ebert, as the Trustee for the Chapter 11 estate
of the Debtor, LSI.
Second Board shall refer to and mean Jeffery Wohler, Michael Gustin, and John Paul
DeJoria.
Trustee shall refer to and mean Carey D. Ebert, the Trustee for the Chapter 11 estate of
the Debtor, Latitude Solutions, Inc.
FACTUAL ALLEGATIONS
Summary
111.
This adversary proceeding arises out of an elaborate scheme to pillage LSI, the
wanton and reckless indifference of, and self-dealing by, those who breached their fiduciary duties
owed to LSI, and the actions of those who aided and abetted the fraudsters and/or LSIs fiduciaries
in breaching their fiduciary duties. The pump-and-dump scheme was carried out between LSI
insiders and a group of individuals with a history of securities fraud convictions.
112.
In a typical pump-and-dump, corporate insiders in a micro-cap give themselves
stock in a company, intentionally manipulate the stocks price through press releases, marketing,
and illegal trades, and then unload their shares at extravagant profits before letting the company
die. However, the pump-and-dump perpetrated on LSI had a twist: unlike a typical pump-anddump where the company is essentially a sham enterprise, LSI actually had real technology for the
purification of water in the oil and gas industry and other industries that, were it not for the
Defendants actions, would have generated tremendous value for the company.
113.
LSIs core products were mobile water-remediation units (housed on large trailers)
that could be transported to its customers site (either a well site, fracking site, waste-water
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treatment location, etc.), and then used to purify contaminated water.
According to LSIs
promotional materials, which were used throughout LSIs existence by all Defendants, LSIs
proprietary Electro-Precipitation (EP) technology provided a cost effective, highly efficient,
and environmentally sustainable means of treating the large amounts of contaminated water
resulting from various oil and gas, energy and mining extraction projects worldwide. LSIs
products were also used to purify water in the maritime industry, mining and industrial field, food
industry (e.g., poultry processing plants, seafood processing plants, etc.), and others.
114.
The first generation of LSIs products were manufactured and supplied to LSI by
IP Automation, Inc., a Colorado-based engineering firm established in 1998; IP Automation, Inc.

is a significant creditor of LSI which has asserted a claim herein against the Debtor for more than
$1.3 million. The second generation of LSIs products were manufactured and supplied to LSI by
Jabil Circuit, Inc., a Delaware corporation with manufacturing employees in 90 plants in 23
countries around the world; Jabil Circuit, Inc. is a significant creditor of LSI which has asserted a
claim herein against the Debtor for over $9.5 million.
115.
By causing LSI to spend millions designing and building water-remediation units,
the Defendants brought another layer of sophistication to their scheme. By weaving their pumpand-dump into a company with actual products and viable technology, they were better able to
cover up their fraud and sell LSI to outside investors on the open market. The technology also gave
the schemers a fall back: if despite their actions, the company were to succeed, they could emerge
from the pump-and-dump holding millions of shares in a company with global reach and longterm promise.
116.
But rather than focus on building a successful company based on viable technology,
the schemers used the story of LSIs proprietary Electro-Precipitation water remediation
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technology to bring cash into the company only to take it for themselves. They paid each other
excessive salaries and consultant fees in the form of stock, warrants and cash for which effectively
nothing was done in return. They traded LSI stock among themselves in a series of bewildering
transactions designed to launder their shares and manipulate the stocks price by controlling the
supply and demand and trading volume. At the same time, they pumped the stock of the company
through the issuance of multiple press releases and interest blogs. All of this was done to bleed
the corporation of its cash, squander its assets, and steal stock and warrants to the detriment of
LSI. By working in concert with LSIs directors and officers, the Appel/Bartlett Group caused
LSI to pay them with millions of shares of LSI, LSI warrants and cash despite having done nothing
to deserve such lucrative payments.
117.
The Second Board, who became involved in LSI in early 2011 and started to
manage LSI in early 2012 (or at least made attempts to manage it), knew of the ongoing pumpand-dump, but did not stop it and did not attempt to rid LSI of the Appel/Bartlett Group. In fact,
the Second Board, led by DeJoria, allowed Cohen to remain as the CFO of LSI until almost the
very end and allowed the Appel/Bartlett Group to control LSI every step of the way. Deliberately
and through abject incompetence, the Second Board permitted the pump-and-dump to continue
until an outside, independent director not affiliated with Appel, Bartlett, or DeJoria, insisted on
blowing the whistle on LSI.
118.
The LSI story consists of three acts. Act One: The Bad Cops, the First Board
and the Appel/Bartlett Group create and profit from a pump-and-dump. Act Two: The Keystone
Cops, the Second Board, through their complicity and abject incompetence, effectively partner
with the Appel/Bartlett Group and allow the pump-and-dump to continue. Act Three: The Good
Cop, the outside, independent director, Jerry Langdon, blows the whistle on this fraud and, in
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effect, forces the Second Board to put LSI in bankruptcy and blame everything on the First Board
in the hopes of covering their tracks.
119.
In essence, all of the Defendants, including the First Board and the Second Board,
treated LSI as if it was their own private plaything, not the publically traded corporation it was.
ACT ONE: THE BAD COPS
THE EARLY YEARS
120.
The predecessor corporation to LSI was originally incorporated in 1983 in Idaho,
purportedly to acquire and develop mineral claims located in the Miller Mountain Mining District
near Idaho City, Idaho. The original venture ultimately failed. In March 2007, the predecessor
corporation changed its corporate domicile from the State of Idaho to the State of Nevada by
effecting a change of domicile merger with a Nevada corporation named Genex Biopharma, Inc.
that was created in October 2005; the name of the surviving Nevada Corporation was changed to
GMMT, Inc. In July 2009, the Articles of Incorporation of this entity were amended to change the
corporate name to Latitude Solutions, Inc. In July 2009, a reverse stock split of all issued and
outstanding shares of common stock on a one share for 23.1975 shares basis occurred. As a result
of the stock split, the number of shares of LSIs issued and outstanding common stock was
decreased to approximately 500,000 shares.
121.
From mid-2008 to early-2009, GMMT sold approximately 1.8 million shares
through private placement at $0.25, raising roughly $363,000.

122.
On or about March 24, 2009, GMMT entered into agreements to acquire 6709800
Canada, Inc. d/b/a GpsLatitude, Trinity Solutions, Inc. and Latitude Clean Tech Group, Inc.
(LCTG) through its wholly-owned subsidiary, GMMT Acquisitions, Inc. Under the terms of the
agreements, GMMT Merger, Inc. acquired 50% of the issued and outstanding shares of 6709800
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Canada d/b/a GpsLatitude and 100% of all the stock in Trinity Solutions, Inc. and Latitude Clean
Tech Group, Inc. GMMT Acquisitions then merged with and into GMMT Merger, with GMMT
Merger, Inc. being the surviving corporate entity. Purportedly in consideration for the acquisition,
the stockholders of GMMT Merger were issued 19.5 million shares of common stock, post split,
to reflect the 1 share for 23.1975 shares ratio.
123.
Upon completion of the acquisitions, GMMT Merger changed its corporate name
to Latitude Solutions, Inc.

COHEN, KAYE, AND APPEL
124.
The connection between Appel, Bartlett, Kaye and Cohen goes back to at least
125.
On March 27, 2008, Kaye was copied on an email from Jan Rowinski (who was to
2008.
become LSIs Executive Vice President) to Robert Gauthier attaching a teaser sheet and
executive summary for Gauthiers company, Nutraxis. Nutraxis is a Canada-based company
that sells over-the-counter dietary supplements, including one called GSH Complex which the
company has marketed on its website as providing protection against the Ebola virus.
126.
The original email from Rowinski to Robert Gauthier instructed Gauthier to send
the Nutraxis investment packages to Howard Appel, who had just been sentenced to serve 366
days in prison for securities fraud and conspiracy to commit money laundering. Rowinski also
told Gauthier to send an investment package to Kenneth Koock, who later became a consultant
of LSI and was paid roughly $160,000 from LSIs coffers.
127.
Kaye forwarded this email four days later to Cohen to review for useful items,
presumably so that they could create similar marketing material for GMMT, Inc. (GMMT).
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LSI SUBSIDIARIES
128.
Over the course of LSIs existence, Defendants created and used numerous LSI
subsidiaries to funnel money and, in general, were used to cloud the true ownership and operational
control of LSI. LSIs complex and confusing web of subsidiary and affiliated entities, most if not
all of which did not engage in meaningful operations, is further evidence of defendants bad faith.
129.
As of January 2011, LSI had three subsidiaries: (1) Latitude Clean Tech Group,
Inc.; (2) 6709800 Canada, Inc. d/b/a GpsLatitude; and (3) Trinity Solutions, Inc.
130.
In approximately February 2011, another related company, Latitude Energy
Services, LLC (LES) was formed by Appel, Bartlett, Harlow and others; 70% of LES was
originally owned by LSI, and the remaining 30% by Appel, Bartlett, Harlow and others; see
discussion, infra.
131.
Upon information and belief, at or around the time that John Paul DeJoria first
became involved with LSI, in approximately mid-2011, other Latitude related companies were
either formed or renamed; specifically: Latitude Resource Group, Inc.; Latitude Industrial Water
Solutions, Inc.; Latitude R&D, Inc. Prior to approximately January 2012, these Latitude related
companies were primarily run by Matthew Cohen, Harvey Kaye a/k/a Klebanoff, Warren Blasland,
and/or others. After approximately January 2012, these Latitude related companies were
primarily run by Matthew Cohen, Jeffrey Wohler, and/or others.
132.
Upon information and belief, at or around the time that John Paul DeJoria first
became involved with LSI, in approximately mid-2011, several Water the World entities were
either formed or renamed; specifically: Water the World, LLC and Water the World with Latitude.
These Water the World entities were primarily run by Jeffrey Wohler, Mike Gustin, Matthew
Cohen, and/or others, and were controlled by John Paul DeJoria.
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133.
Beginning in the summer or fall of 2011, LSI formed a number of international
Latitude companies for the ostensible purpose of spreading and profiting from the core LSI
technology around the world; specifically: Latitude Water Solutions, B.V. (Dutch); Latitude
Worldwide, B.V. (Dutch); and WWW, UK, PLC (Frankfurt Exchange). The original and ultimate
principals of these foreign entities are unknown; however, according to various organizational
charts found within LSIs business records, and upon information and belief, the same individuals
who owned, managed, and controlled all of the other Latitude and Water the World entities
also ran these foreign entities.
134.
At the end of the day, the complexity of these interrelated and affiliated Latitude
companies is staggering especially for a business that had a relatively modest revenue stream.
135.
Upon information and belief, none of these Latitude companies ever had
meaningful operations and no such services were ever provided worldwide.

LATITUDE ENERGY SERVICES, LLC
136.
According to regulatory filings, Latitude Energy Services, LLC (LES) was
organized in the state of Nevada on February 8, 2011. LSI has a 70% equity ownership in LES. In
filings with the SEC, Kaye disclosed that the remaining 30% equity ownership is owned by third
party entities but did not mention the identities of those third parties: FEQ Realty, LLC (controlled
by Earnest Bartlett); DIT Equity, LLC (controlled by Howard Appel); Moondog, LLC (controlled
by Ray Harlow); and Logoly Farms, LLC (controlled by Mike Teutsch). FEQ, DIT, Moondog and
Logoly Farms were four of the five managers of LES. LSI was the fifth manager.
137.
According to regulatory filings, LES was to provide water remediation services to
the Oil, Gas and Energy industries worldwide utilizing innovative and patented technologies
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developed by its majority equity owner, Latitude Solutions, Inc. ("LSI") and its subsidiary
companies.
138.
Upon information and belief, LES never had meaningful operations and no such
services were ever provided worldwide.

139.
According to regulatory filings, LES (Nevada) was dissolved on or about January
20, 2012, by the Second Board of LSI because of the administrative expenses associated with the
subsidiary. According to records on file with the Florida Secretary of State, Latitude Energy
Services, LLC (Nevada) was converted to a Florida limited liability company on February 6, 2012.
Upon information and belief, Appel and Bartlett continued to profit from LES well after it was
converted to a Florida LLC.
140.
Despite having been in existence for less than a year and having had no meaningful
operations, LES racked up at least $950,000 in payroll expense that was paid by LSI from LSIs
operating account to numerous employees. Harlow alone made over $160,000 in 2011. Upon
information and belief, significant sums were funneled back to Appel and Bartlett as well.
141.
For example, pursuant to an employment agreement dated February 1, 2011,
between LES and Harlow, LES was to pay Harlow $12,500 per month ($150,000 per year), plus
62,500 shares of stock and 62,500 warrants. And pursuant to an employment agreement dated
June 1, 2011, between LSI and Harlow, LSI was to pay Harlow $17,500 per month ($210,000 per
year), 900,000 warrants. All told, LSI and LES was to pay Harlow $30,000 per month ($360,000
per year), plus 62,500 shares of stock and 62,500 warrants. And did LSI receive comparable value
from Harlow in exchange for this generous executive salary? According to defendant Wohler,
who would become a director and CEO of LSI in 2012: Ray Harlow, as we soon discovered, was
a liar. He would tell us that he was in a particular stage of a dialogue with [a given customer, but]
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. . . we would find out that Ray was lying about it, that they werent anywhere near close to signing
a deal. And it was one of the many reasons why we fired him.
BAMCO, TEXAS MIDSTREAM, FREEDOM PIPELINE AND RED MOUNTAIN RESOURCES
142.
In 2008, Bamco Gas, LLC (Bamco), an entity controlled by Bartlett and Appel,
sold subordinate debentures to investors to raise money for the acquisition of a 45% interest in
Freedom Pipeline, LLC (Freedom Pipeline). These debentures were sold without disclosing to
investors that Jedco Properties, LLC (Jedco) held a $7.8 million promissory note secured by the
assets of Freedom Pipeline (the Jedco note). Bamco was placed in receivership in May of 2009
for failing to deposit all its revenues with the trustee for the debentures, and Bartlett and Appel
were ordered by the Arkansas Securities Commissioner to cease and desist from committing
further securities fraud. Bartletts step-son-in-law, Alan Barksdale, was the successor receiver for
Bamco.
143.
Texas Midstream Acquisition Corp., LLC (Texas Midstream) was formed and
used by the Appel/Bartlett Group to acquire Freedom Pipelines assets by purchasing the Jedco
note in a foreclosure sale and then transferring the assets to Red Mountain Resources, Inc.
(RMR), which was also controlled by Appel, Bartlett and their associates. Kaye and Koock
initially were the managers, but Koock resigned in March of 2011 and Cohen assumed his interest.
Texas Midstream had the same Boca Raton business address as LSI. Its operations mainly emails
and document exchanges were conducted out of LSIs office using LSI email addresses.
144.
Texas Midstream ultimately acquired the Jedco note in a foreclosure sale for the
purchase price of $3,566,500, without competing bids, on November 1, 2011.

145.
Red Mountain Resources, Inc. was previously named Teaching Time, Inc.
(Teaching Time).
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146.
Teaching Time was a Florida corporation formed on January 19, 2010. According
to its last quarterly financials filed with the SEC before changing its name, Teaching Time
described itself as a development stage company incorporated to design, develop, and market
instructional products and services for the corporate, education, government, and healthcare elearning industries. It was to be committed to high quality instructional design and educational
new media development, and provide a core set of deliverable programs, courses, and learning
objects for the distance education, distributed learning, and e-learning markets. Teaching Time
also reported that it had $10,300 in assets and a net loss of $11,351 from its date of inception.
Teaching Times sole officer and director was Lisa Lamson.
147.
On February 2, 2011, Lamson resigned from Teaching Time and the company
changed its name to Red Mountain Resources, Inc. That same day, Ray Harlow, Kenneth J. Koock
(an LSI director at the time), Lynden B. Rose (also an LSI director at the time) and Paul Vassilakos
took seats on RMRs board.
148.
From the moment Red Mountain Resources changed its name, it had extensive ties
to members of the Appel/Bartlett Group and other major LSI investors, including Bartlett, Capital
Growth Investment Trust, William Belzberg, SST Advisors, Inc., Michael Garnick, Bill Miller,
and Fiordaliso Investments Ltd., the initial shareholder of RMR. Fiordaliso is based in Turks and
Caicos and is controlled by David Stevenson, see infra. Michael Littman, who represented LSI on
various matters, including securities regulatory compliance, also represented RMR in the Freedom
Pipeline deal.
149.
According to Red Mountain Resources 2011 10-K, its name change came about
when [d]uring the first quarter of 2011, the Companys management reviewed its progress in
pursuit of [Teaching Times] business plan and determined that it was no longer in the best interest
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of the Company to pursue such an business plan and began to look to identify new corporate
opportunities in the energy industry. RMR explained that, as a result of this reflective moment,
it chang[ed] the direction of its business plan and...subsequently changed its name to Red
Mountain Resources, Inc. to better reflect its current business plan. Red Mountain Resources, Inc.,
a Florida corporation, is an independent, growth oriented, energy company that intends to acquire
and develop oil and gas properties. Teaching Time purportedly shifted its business from designing
and developing educational products to oil and gas exploration, development, production,
gathering and transportation...in the Permian Basin in New Mexico & Texas and onshore Gulf
Coast of Louisiana & Texas.
150.
In fact, Red Mountain Resources was crafted by the Appel/Bartlett Group using
Teaching Times shell to roll up and acquire assets from Texas Midstream (i.e., Freedom Pipeline)
and other entities connected with or controlled by the Appel/Bartlett Group, including The
StoneStreet Group, Inc., Black Rock Capital, LLC and Bamco Gas, LLC.
BEHIND THE CURTAIN: THE APPEL SHOW
151.
From 2010 2012, Howard Appel ran LSI through back channels, hidden from the
public eye. His primary contact on the inside was Matt Cohen, the Chief Financial Officer of LSI.
However, Appel also knew Kaye from prior business dealings.
152.
From 2010 2012, Cohen took instructions directly from Appel on all LSI-related
matters. Cohen also funneled inside information to Appel to assist him in defrauding LSI and
furthering his pump-and-dump. For his part in furthering the fraud, Cohen was rewarded with a
$215,934.00 (not less than $180,000.00) base salary paid by LSI and corporate credit cards, plus
millions of shares of LSI stock and cash paid by LSI to Cohens shell company, Hawk
Management Group, Inc.
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153.
The emails exchanged between Appel and Cohen during this time establish a
pattern of this fraud, all as more fully alleged herein.

THE APPEL PUMP-AND-DUMP: AN OVERVIEW
154.
In order to control the market for LSI, manipulate stock prices, and, ultimately, to
make millions of dollars trading LATI, the Appel/Bartlett Group needed to control a large block
of LSIs stock. Beginning in 2010 and continuing through at least 2011, the Appel/Bartlett Group
aggressively acquired millions of shares of LSI. They accomplished this in at least two ways: (a)
purchasing certificated shares of LATI both from the corporation and from other investors in
private transactions, well below market prices, and (b) receiving millions of shares and warrants
in LATI under the guise of compensation for services rendered pursuant to bogus consulting
agreements.
THE FRAUDULENT TRANSFERS
155.
In complete dereliction of their fiduciary duties, the First Board authorized LSI to
enter into written and verbal agreements, sometimes called consulting agreements, finders
agreements or employment agreements (collectively, Consulting Agreements), with the
Appel/Bartlett Group, the Insider Defendants, and others. 6 Then, pursuant to these Consulting
Agreements, LSI transferred millions in LSIs cash, stock and warrants to the Appel/Bartlett Group
and the Insider Defendants without receiving reasonably equivalent value in return (the
Appel/Bartlett Group Transfers and the Insider Transfers, respectively). The Appel/Bartlett
Group Transfers and the Insider Transfers were all modes, direct or indirect, absolute or
Several individuals have been sued by the Trustee in separate adversary proceedings for recovery of Consultant
Transfers and are referred to as Consultant Defendants.
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conditional, voluntary or involuntary, of disposing of or parting with, LSIs assets or property, or

LSIs interest in an asset or property.
156.
The Appel/Bartlett Group Transfers and the Insider Transfers were done in
furtherance of the fraudulent pump-and-dump scheme orchestrated by the Appel/Bartlett Group

and with the actual intent to hinder, delay and defraud LSIs then present and future creditors. LSI
handed out cash, shares and warrants worth millions of dollars to the Appel/Bartlett Group and the
Insider Defendants like candy at Halloween 7 at prices well below their value and market price
and for less than reasonably equivalent value. The Appel/Bartlett Group Transfers and the Insider
Transfers were in exchange for the Appel/Bartlett Group and the Insider Defendants efforts in
keeping the pump-and-dump alive and provided no benefit to LSI. The Appel/Bartlett Group
Transfers and the Insider Transfers were also illegal to the extent they were commissions paid to
persons and entities acting as unlicensed securities brokers for finding investors for LSI. At the
time of the Appel/Bartlett Group Transfers and the Insider Transfers, the sum of LSIs debts
exceeded its assets at a fair valuation, LSI was generally not paying its debts as they became due,
LSI was engaged or was about to engage in a business or a transaction for which the remaining
assets of LSI were unreasonably small in relation to the business or transaction, and LSI reasonably
should have believed that it would incur debts beyond its ability to pay as they became due.
157.
Cohen touched upon the true nature of these consulting agreements in an email
exchange with Bob Carter, an LSI consultant, on October 6, 2011. Carter asked Cohen to have
his agreement renewed with an award of 100,000 warrants. For Cohen, this was like looking the
gift horse in the month. Cohen responded:
From the draft fax dated March 14, 2012, from Wohler to DeJoria
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Subsequent to my discussions with Harv [sic] with respect to your consulting

agreement renewal, I feel that your request for 100,000 warrants is egregious and
more so shows a very greedy part of you. Do I need to review all the favorable
agreements and favors that we did on your behalf.
Consulting agreements, finders agreements, accepting subscriptions at a heavily
discounted amount, at the most opportune time where the company presented a risk
free investment as it had plenty of money and a proven technology.
You should put yourself in my position as I still take heat on those aforementioned
agreements executed on your behalf.[...]
158.
Cohen forwarded Appel his email to Carter. Appel replied, F--kin A!! Bravo and
start speaking up a lot more buddy. Were 110% behind you and the clown show HAS to stop!!
Even Appel, who was getting paid millions in stock and cash through FEQ Realtys consulting
agreement with LSI for bringing his people to the trough, referred to Carters deal as a clown
show.
159.
After the Appel/Bartlett Group and the Insider Defendants received their LSI shares
and/or warrants, they typically traded them among themselves as part of the Appel/Bartlett
Groups master plan to stockpile huge blocks of LSI shares in order to control the market for LSI
shares and manipulate the stocks price before selling them on the open market.
160.
The Appel/Bartlett Group and the Insider Defendants are believed to have made
millions of dollars from the Appel/Bartlett Group Transfers and the Insider Transfers, at the
expense of LSI and its present and future creditors. Although the precise amount of cash, stock
and warrants comprising the Appel/Bartlett Group Transfers and the Insider Transfers is as of yet
unknown, Attachment One, appended hereto and referenced as if copied here in extenso, styled
Fraudulent Transfers from LSI to the Appel/Bartlett Group and Insider Defendants, identifies the
Appel/Bartlett Group Transfers and the Insider Transfers, and estimates the approximate,
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minimum value of these fraudulent transfers, the sum of which Plaintiff seeks to recover as
damages herein.
THE PUMPS
161.
The Appel/Bartlett Group and the Insider Defendants pumped LSI to the general
public through numerous press releases, public statements and meetings, marketing, websites and
internet blogs believed to be controlled by Kaye All of this was designed to make LSI sound like
it was signing contracts and on the brink of exploding into a world-wide leader in water
remediation. In reality, many of the newly touted business opportunities and other announcements
were not accurate. However, the carefully crafted news, and the timing of the dissemination of
such news, was enough to cause the public to trade LSIs shares at high prices so that the
Appel/Bartlett Group could make huge gains on the open market. LSI, on the other hand, did not
benefit from the increased share prices, as stock was not being issued at these prices. Rather, it
was being issued to the Appel/Bartlett Group and the Insider Defendants well below market price.
THE CROSS-TRADES
162.
Once the Appel/Bartlett Group had LSI stock certificates in the hands, they engaged
in a fraudulent scheme of systematic cross-trading between numerous entities and individuals

controlled by the Appel/Bartlett Group and their business associates. Typically, multiple
Appel/Bartlett co-conspirators were involved on one or both sides of the deal, causing convoluted
cancellations and issuances of multiple stock certificates in a single transaction. All of this was
done by design to accomplish at least three goals: (a) they were able to manipulate the sale price
of LSI shares by trading amongst themselves at pre-arranged prices; (b) they were able to hide the
huge positions they held in LSI from regulators and the general public among the various multitiered shell corps, trusts, closely-help businesses and individuals they controlled; and (c) they were
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able to hide the money trail by laundering shares in and out of issued and cancelled stock
certificates.
163.
Ultimately, the vast majority of the physical stock certificates acquired by the
Appel/Bartlett Group were cancelled, registered with DTC and recorded by Island Capital
Management, LLC d/b/a Island Stock Transfer in the stock transfer journal as book entries in the
name of Cede & Co. as nominee for DTC. From there, the Appel/Bartlett Groups interests in LSI
were traded electronically on the open market, with only their broker-dealers having record of their
transactions and the number of shares owned by them. This allowed them to continue manipulating
the market for LSI and put them in the perfect position to dump their shares on unsuspecting public
investors at a moments notice.
164.
Many of the stock certificates acquired by the Appel/Bartlett Group had restrictive
legends and could not be DTC-eligible until the legend was removed. In these instances, the
Appel/Bartlett Group primarily would use a lawyer out of Hawaii, Robert Deiner, who would issue
opinion letters at a moments notice authorizing the removal the legends from the certificates.
Cohen paid Deiner for his services with LSIs money, even though LSI was not a party to the
transactions. The sales were to or between members of the Appel/Bartlett Group, and they harmed
LSI, in part, by diverting the majority of its tradable shares into one faction. These obviously
suspect trades, orchestrated by Cohen, Appel, Bartlett, Kaye and other members of the
Appel/Bartlett Group, and willingly carried out by Island Stock Transfer Company, at times in
direct communication with Appel, ultimately put LSI in the hands of the Appel/Bartlett Group.
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THE DTC REPORTS

165.
The Depository Trust Company, or DTC, is one of the worlds largest securities
depositories and acts as a clearinghouse to process and settle trades of unrestricted book entry
securities. i.e., freely-tradable securities whose ownership is recorded electronically.
166.
Appel controlled an enormous number of LSI shares and LSIs investors, and
consequently, he knew which broker-dealers were holding these shares in their accounts for
various investors. But in order to better carry out his scheme to manipulate LSIs share price and
control the market, Appel needed inside information. DTC Security Position Reports (DTC
reports) were an important source of such information.
167.
DTC reports provide valuable information on the position holdings of broker-
dealers in the issuers security at a specified point in time and are only available to issuers, trustees,
and authorized third-party agents. By having access to the DTC reports for LATI, Appel was able
to know how many LSI shares were being traded on a given day among broker-dealers that held
LATI in DTC-registered accounts. The DTC reports also could be cross-referenced with LSIs
stock transfer journal to identify investors moving shares into a margin account. With the DTC
reports, Appel was able to plan and coordinate the cross-trades with his co-conspirators, ensure
that his people were doing what they were supposed to do to effectuate the fraud, and rein them in
if they were trading without his permission.
168.
Appels only access to DTC reports for LSI was from inside LSI. Cohen was the
person inside LSI that fed DTC reports to Appel, and he did so on a regular basis.
169.
On April 26, 2011, Cohen emailed Appels assistant, Cecile Dibona, and asked her
for help with procuring DTC listings.
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170.
The next day, Dibona asked for clarification. Cohen responded to her email, typing
his answers behind her questions:

[Dibona] So Im clear are you looking to receive the DTC sheets
weekly? [Cohen] Thats correct. [Dibona] If so, who at latitude do you want to
receive them. [Cohen] That would be me. [Dibona] I will need their email
address. [Cohen] You have it. [Dibona] Let me know and I can take care of that
today. Thanks. [Cohen] THANK YOU!!!
171.
Later that day, Dibona registered LSI with DTC so that Cohen could begin collected
the DTC reports.

172.
The following Monday, May 2, 2011, Dibona emailed Cohen requesting the DTC
reports; Appel was asking for them:

Matt, would you please email or fax last weeks dtc sheets to howard? His email
is howard@hmaadvisors.net and his fax is 610-828-0884. Thanks.
173.
Cohen responded, Once I request it, I will comply.
174.
The next day Cohen emailed Appel and Dibona the DTC Security Position Report
on LATI for April 1, 2011.

175.
Each daily DTC report cost $120 to obtain. When Appel requested DTC sheets for
the entire month of September, Cohen realized that it was going to cost $2,700 to obtain the reports.
After that, Cohen subscribed annually.
176.
As alleged herein, Appel continued to request DTC reports from Cohen over the
next 12 months, both through his assistant and directly. He then shared his information with other
investors in his fold.
177.
For example, on October 10, 2011, Appel emails Cohen, writing Im catching
major sh-t from everyone who wants answers!! Got to have those dtc reports ASAP!!! On
December 5, 2011, Appel sends Cohen an email with only the subject line: need to see last week's
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dtcs ASAP. got to see whos [sic] f---ing us NOW. And again on December 10, Appel emails
Cohen, asking Can we get the dtc repts today? I really need to see who's out there asap.
178.
On February 12, 2012, Appel emailed Cohen and asked him for DTC reports on
two companies: Need dtcs for last week for lati and rdmp. RDMP is the stock ticker for Red
Mountain Resources.
179.
Cohen was obedient in providing Appel with the insider information he was
requesting.
180.
The pump-and-dump orchestrated and executed by the Appel/Bartlett Group was
in full swing when DeJoria and the Second Board got involved in LSI.
ACT TWO: THE KEYSTONE COPS 8
THE SECOND BOARD KNOWINGLY PARTNERS WITH NICE GUYS
APPEL, BARTLETT, AND COHEN
181.
Although the fictional Keystone Cops are reputed for their gross incompetence, the
Keystone Cops here, LSIs Second Board, were more than grossly incompetent in their
management of LSI: they knowingly partnered with securities fraud criminals, knowingly allowed
the Appel/Bartlett Group to continue to exploit and run LSI, and knowingly did not complain
publically about the Appel/Bartlett Group until it was in the Second Boards self-interest to do so
and it was too late for LSI.
182.
The Second Boards knowing participation in the Appel/Bartlett Groups fraud
constitutes a conspiracy to commit fraud, self-dealing, and is a gross violation of the Second
Boards fiduciary duty of loyalty, good faith, and care to LSI, its shareholders, and its creditors.
The Keystone Cops (often spelled "Keystone Kops") were fictional incompetent policemen, featured in silent film
comedies in the early 20th century. The term has since come to be used to criticize any group for its gross
incompetence.
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183.
There should be no doubt that DeJoria was well aware of Appel and Bartletts
involvement and their well-documented history of securities fraud before he even considered
getting involved in LSI.
184.
DeJoria was introduced to LSI through his financial advisor, Bill Miller, and his
close friend, Bartlett, in early 2011.

185.
DeJoria initially dispatched his long-time and close business associates, Gustin and
Wohler, to do his due diligence of the corporation and report back to him.
186.
In a March 17, 2011, email, as the founders of LSI do their own due diligence on
DeJoria and Gustin, Harlow informed Cohen that John Paul [DeJoria] is the guy I was thinking
of. He has a history with Howard [Appel] and Ernst [Bartlett] and is Patron Tequila.
187.
DeJorias first investment in LSI occurred in April of 2011, when he purchased
2,000,000 shares for $0.50/share, plus 2,000,000 warrants at a strike price of $1.25. This
$1,000,000 investment was followed by another investment of $500,000, again at $0.50 per share,
with 1,000,000 warrants at a strike price of $1.25.
188.
In a June 3, 2011, email to Gustin and Ken Holmes, Wohler explains:
As it relates to Howard Appel, I have never met the man but his history in the financial
sector seems more than a bit tarnished and according to Mike [Gustin], he was not the
person who introduced us to LSI. Ernest Bartlett called Mike [Gustin] on a
recommendation from his brother about LSI. Mike then called John Paul [DeJoria] who
told Mike to get his @#$ down to Colorado Springs and evaluate the deal. . . . John Paul
loaned Howard [Appel] and his group $1 million dollars and secured his loan with their
LSI stock.
189.
In the spring or early summer of 2011, Wohler commissioned a private
investigation company called Specialty Resources Group to conduct thorough background checks
on Appel, Bartlett, and Harlow. On June 20, 2011, formal reports regarding Appel, Bartlett, and
Harlow were generated and given to Wohler. In short, this private investigation and these reports
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disclose that Appel and Bartlett are security fraud veterans will long histories of being on the
wrong side of the law.
190.
After providing these revealing reports regarding Appel, Bartlett, and Harlow to
DeJoria, Wohler shared his understandable concerns with DeJoria on June 29, 2011; in Wohlers
own words: 9
Mike Gustin and I met with John Paul [DeJoria] . . . [and] revealed our concerns about LSI
complete lack of interest in the character of Howard [Appel], et al to John Paul. He stated
that they were all nice guys . . . .
Wohler also reports being told in July 2011 that Cohen informed him that Ray [Harlow] and
Howard [Appel] were the tails wagging the dog for LSI.
191.
Unlike the many shareholders who invested in LSI and the creditors who did
business with LSI, DeJoria, Wohler, and Gustin knowingly got into bed with Appel, Bartlett,
Harlow, and Cohen when they decided to rescue LSI. Rather than clean up LSI, unfortunately,
DeJoria, Wohler, and Gustin knowingly partnered with Appel, Bartlett, and Cohen to continue
wasting LSIs assets and business opportunities all to the detriment of LSI and its creditors.
DEJORIA LOANS $2,000,000 TO HIS FRIENDS, APPEL AND BARTLETT
192.
On April 19, 2011, DeJoria agreed in writing to loan $2,000,000 to Appel, Bartlett
and K. David Stevenson, who controlled Fiordaliso Investments, Ltd. and Fenmore Consultants
Ltd., investors in LSI and cross-traders with the A/B Group Stevenson, through his various
entities, was also a major investor in Maverick Oil & Gas, Inc.
193.
This $2,000,000 promissory note, states, in its entirety, as follows:
Dear JP
Emphasis added.
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Further to your text and our previous fax, please see below our new terms
1.
Loan amount US $2,000,000.
2.
Security to be 3,000,000 shares of Latitude. The shares of Latitude will

either be physically delivered to Veronika or the CFO of Latitude will
acknowledge that once the shares of Latitude are issues they will be sent to
Veronika to hold as collateral pursuant to the terms of this letter.
3.
Repayment amount $3,000,000.
4.
Repayable in 90 days from receipt of funds.
5.
Option to extend by borrowers for a further 30 days for an extra 100,000

shares of Latitude systems.
6.
If not fully extended the loan is to be repaid in shares or cask by no later

than 120 days from receipt of funds.
Sincerely,
_/s/_K. David Stevenson
_/s/__Howard Appel
_/s/ Ernest Bartlett__
194.
This money was not loaned to LSI. DeJoria, Appel and Bartlett had a side deal.
195.
In order to get their loan, Appel and Bartlett needed to provide DeJoria with a letter
from Cohen, LSIs CFO, confirming that their 3,000,000 shares (which they did not own) would
be sent to DeJoria to hold as collateral. On April 20, 2011the next dayAppel emailed Cohen:
Matt, please put the letter below on your letterhead and email to veronikaj@;pms.com and
fax to 512-263-:
John Paul DeJoria
Dear John Paul,
I am writing this letter to confirm that I have been instructed by the shareholders listed
below to send to Veronika Judish at your offices in Beverly Hills the share certificates they
will own in Latitude Solutions ("LSI") once the shares have been issued by the transfer
agent for LSI in the amounts listed below:
DIT Equity Fund 1,400,000
FEQ Realty LLC 1,100,000
Capital Growth Realty 250,000
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Wiltomo Redemption Foundation 250,000

Total 3,000,000
We anticipate that these shares will be issued and sent to Veronika within the next few
weeks. Please let me know if you have any questions.
Sincerely,
Matthew Cohen
Chief Financial Officer
Latitude Solutions
196.
On April 21, 2011, Cohens assistant sent this letter, signed by Cohen, to DeJorias
assistant just as Appel commanded. Appell, Bartlett and Stevenson then received their $2,000,000.
197.
As alleged infra, Appel and Bartlett ultimately were issued their shares, without
consideration. However, they did not send them to DeJoria.

198.
By the end of August, DeJoria still had not been paid back his $2,000,000 loan and
the $1,000,000 interest payment. DeJoria dictated an email sent by his assistant, Veronika Judish,
to Stevenson and Appel on August 30, 2011, with a request that they forward it to Bartlett:
Dear David, Howard and Ernest:
The agreement you signed for me was the 19th of April, 2011. The money was transferred
the following day. The agreement was for 90 days, which would have been July 20th with
a 30 day extension for 100,000 shares. Total due 120 days after receipt of funds. My
friends, it has been over 120 days. Would you be so kind as to immediately wire my $3
Million or immediately notify Latitude to transfer 3 million of your shares in my name.
I am sure it was an oversight on your behalf. I would appreciate if you would handle this
immediately since it is delinquent. Look forward to receiving the $3 Million or verification
for the 3 million shares transfer to my name today or tomorrow.
Peace, love and happiness:
John Paul DeJoria
199.
The next day, Veronika Judish sent another dictated email from DeJoria, only this
time it was addressed to Harvey Kaye: Harvey I am calling the note. Please register the 3
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million shares that they have authorized you to hold into my entity. Please transfer the shares into
JPs Nevada Trust, trustee Tom Grimmett. But DeJorias deal was not with LSI. It was with
Appel, Bartlett and Stevenson.
200.
Nevertheless, DeJoria received an additional 3,000,000 shares of LSI. However,
they did not come from Appel and Bartlett. They were new shares issued by LSI.
LSI IS THE VICTIM NOT DEJORIA
201.
Although DeJoria invested millions of dollars into LSI, once his money was
transferred to LSI, it became LSIs capital not DeJorias. Although DeJoria may have treated
LSI as if he owned it because he was its largest shareholder, as a director of LSI, DeJorias
fiduciary duty was to the corporationnot to himself or any of his nice guy friends or fellow
board members. It is not DeJoria who lost money in LSI, but LSI who lost money and business
opportunities because of Defendantsincluding DeJoriasbreach of fiduciary duties, selfdealing, and squander of corporate assets.
202.
Presumably as a reward for getting their friend DeJoria to invest in LSI, Appel and
Bartlett were paid 1,440,000 shares and $1,440,000 warrants for consulting services at $1.50 per
share.
203.
However, these shares were not issued directly to Appel or Bartlett. They were not
even issued solely to FEQ Realty, even though it was the only consultant identified in the
pertinent consulting agreement with LSI. On June 8, 2011, Earnest Bartlett sent Matt Cohen the
following email: matt, pursuant to our consulting agreement with latitude, please find attached a
list of transferees for the issuance of 1,440,000 shares and 1,440,000 warrants. let me know if
theres [sic] any problem. thanks, ernest. Bartlett attached a document explaining that FEQs
shares and warrants were to be issued as follows:
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COMMON SHARES:
Shareholder
Number of Shares
Wiltomo Redemption Foundation

EIN/SSN: 45-1197621
630 W. Germantown Pike Suite 180
Plymouth Meeting, PA 19462
250,000
Capital Growth Realty, Inc.

EIN/SSN: 02-0589195
630 W. Germantown Pike
Suite 180
250,000
TSS Investments, Inc.

EIN/SSN: 27-5379684
600 W. Germantown Pike
Suite 400
40,000
Gerald Appel
EIN/SSN: 026-24-4335
7161 Promenade Dr. 201E
Boca Raton, FL 33433
10,000
Corporate Consulting International Group, Inc.

EIN/SSN: 11-3455742
277 Great River Road
Great River, NY 11739
30,000
FEQ Realty, LLC

EIN/SSN: 14-1926913
24224 Kanis Road
Little Rock, AR 72223
100,000
DeRose Family Trust d/t/d 11/18/86

PO Box 8082
Rancho Santa Fe, CA 92067
069-38-3882
220,000
William Belzberg Revocable Living Trust,

d/t/d 10/5/84
c/o Westminster Capital
9665 Wilshire Blvd, Ste M
100,000
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Beverly Hills, CA
Michael Garnick
1590 Stocton Road
Meadowbrook, PA 19046
209-50-5559
340,000
RMS Advisors
630 W. Germantown Pike, Suite 180
68-0525114
100,000
TOTAL SHARES:
1,440,000
WARRANTS:
FEQ Realty, LLC
EIN/SSN: 14-1926913
24224 Kanis Road
Little Rock, AR 72223
620,000
Capital Growth Investment Trust

EIN/SSN: 23-7780195
13 Pasho Street
Andover, MA 01810
621,000
Kendra Altman
266 19th Street
Santa Monica, CA 90402
549-57-4181
33,000
Greggory Belzberg
9140 St. Ives Drive
Los Angeles, CA 90069
549-57-3144
33,000
Elana Belzberg
9036 Cynthia Street
West Hollywood, CA 90069
549-57-7135
33,000
RMS Advisors
630 W Germantown Pike, Ste 180
68-0525114
100,000
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TOTAL WARRANTS:
204.
1,440,000
RMS Advisors, Capital Growth Investment Trust, Capital Growth Realty, Inc.,
Wiltomo Redemption Foundation and TSS Investments, Inc. are controlled by Howard Appel.
205.
FEQ Realty is controlled by Earnest Bartlett. Gerald Bartlett is Earnest Bartletts
206.
DeRosa Family Trust, William Belzberg Revocable Living Trust, the Belzberg
son.
family, and Michael Garnick are all, upon information and belief, related to either Appel and/or
Bartlett.
207.
Appel and Bartlett needed to spread their shares among various entities and persons,
but the original consulting agreement pursuant to which the shares and warrants were issued was
between FEQ Realty and LSI. So Appel drafted an amended consulting agreement that gave FEQ
Realty the right to have its shares issued to whomever it liked. Appel circulated the amended
agreement to Cohen in multiple drafts between June 28 and July 16, 2011 before it was signed.
208.
It was through these types of stock awards and the elaborate scheme to amass
millions of LSI shares that Kaye and Cohen handed over LSI to the Appel/Bartlett Group.
APPEL WILL NOT ALLOW LSI SHARES TO TRADE WITHOUT HIS PERMISSION
209.
Running a pump-and-dump required that Appel not only monitor and control the
price and movement of the stock, but that he also keep his co-conspirators happy. Appel was
continually insistent on getting DTC sheets from Cohen so that he could determine not only who
was trading LSI, but who might be about to trade LSI. If LSI shares were being sold without
Appels permission, he did everything he could to put a stop to it.
210.
One such instance occurred in November of 2011, when LATI saw end-of-the-
week spikes in trading volume. For example, 14,600 shares were traded on November 10, whereas
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84,200 shares were traded on Friday, November 11 an almost six-fold increase in trading volume
in one day.
211.
On November 23, 2011, Appel sent the following email to Cohen, establishing that
Appel was in charge of controlling LSIs stock price for a group of co-conspirators, and that Cohen
and Kaye were knowing participants in the scheme: 10
Harvey has to talk to his guys and make sure they're not piling out here. A few of
your good old buddies have been banging the shit out of the stock over the last
few days and its causing a huge problem. if [sic] this keeps up for a few more days
of constant and unfettered selling this will end up back at $1.50-2 and you can
forget raising any money for this company at $2. At which case we'll have a real
problem with any of our guys who paid $2 for their private placement stock over
the last few months.
212.
Cohen responded later that evening with two words: Got cha.
213.
The exchange described above between Appel and Cohen is an agreement between
co-conspirators to manipulate the price of LSI stock.

DEJORIA JOINS LSIS BOARD
AS A NON-LIABLE DIRECTOR
214.
DeJoria first loaned or invested money in LSI in April 2011. After doing his due
diligence, investing more money into LSI, and sending his long-time friends and business
associates, Wohler and Gustin, to investigate LSI, on October 7, 2011, DeJoria accepted LSIs
invitation to join its Board of Directors. LSIs Schedule 13D filed with the SEC sometime after
November 1, 2011, reports that DeJoria was appointed to LSIs board on October 21, 2011.
215.
In his hand-written note to Harvey Kaye, signed and dated by DeJoria on 7 Oct
2011, wherein he accepts LSIs invitation to join its board of directors, DeJoria writes: Thank
10
Emphasis added.
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you, Please make sure Im a non-liable Director! [peace sign, heart shape, smiley face] (emphasis
in original).
216.
After performing almost a year of due diligence regarding LSI, DeJoria was either
convinced that he could take Appels pump-and-dump worldwide, or was convinced that he could
export and profit from LSIs water-remediation technology around the globe or both.
217.
Regardless of DeJorias true motives, once he effectively took over the reins of LSI
as the leading director and largest, controlling shareholder, he owed a fiduciary duty to LSI and its
shareholders and creditors to run a real business.
218.
Between the time that DeJoria agreed to serve on the board and October 26, 2011,
when his appointment was made public, more than 500,000 shares were deposited into brokerage
accounts, most if not all held by the Appel/Bartlett Group and their associates. This is according
to the daily DTC sheets that Cohen was sending Appel. Trading volume from October 6 through
the 25th spiked several times.
219.
Unfortunately, instead of running LSI like a publically traded corporation must be
run, DeJoria knowingly condoned Cohens regular practice of feeding inside information to the
Appel and Bartlett Group, allowed Appel to continue to run the corporation, and refused to clean
up the blatantly obvious problems with LSIs management and wasteful practices.
JOSE LUGO VERIFIES THE CORRUPTION
220.
In November of 2011, Mike Gustin purportedly engaged Jose Antonio Lugo, Jr.
(Lugo) to give advice on DeJorias participation as a LSI Board Member. Although Lugos
exact credentials are not known at this time, he was described by Wohler in sworn testimony as a
financial analyst who lives in Madrid, Spain.
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221.
In a memo titled Latitude Solutions Consulting Work Performed and to be
Performed emailed on February 28, 2012, Lugo recounts the first time he was engaged by Gustin,
writing in part:
I received a telephone call from Mike [Gustin] with concerns about John Paul
DeJoria being elected to Board of Directors questions regarding accepting such
appointment and concerns about previous acts of Board. My advice was not to have
JPD accept Directorship as I was concerned about possible previous acts of Board
that may neutralize JPD from taking action against Board for possible wrong doing
and not acting in a prudent manner.
This was good advice that went unheeded.
222.
Lugo was formally retained on January 30, 2012. The consulting agreement signed
between Lugo and Gustin o/b/o LSI states in part that Lugo was being retained to review all
issuances of securities and to whom to determine if the appropriate payment was made to the
company. The consulting agreement also lists the following duties to be undertaken by Lugo:
-
Work with the CFO of the company and have him provide other documents so
that we can have a defined list of presumed violations so that if we have any
inquiry into the future or any problem with a shareholder we are prepared to
give answers immediately and stop any potential action against the company if
possible.
I will review all of the transfer agent documents to make sure if there are any
other violations
Substantiate any of the rumors regarding Investor Relation firms being paid
substantial amounts of stock for their work in the marketplace and make sure it
was all properly done
223.
In the memo circulated on February 28, 2012, Lugo writes that he was asked to
take an overall look at the company transfer records, possible violations of securities laws by
certain individuals and to get an idea of who is making money on the stock dealing of the company
when the company is going broke.
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224.
On February 12, 2012, Lugo sent Gustin an email containing his initial findings
from the investigation into the LSI stock transfers: 11

Dear Jeff,
I have examined all of the documents from Island Stock Transfer Company and not
all of the beneficial owners of stock are reflected and I believe that we must ask for
a list of all "Book Entries" which include DWAC, etc.
I discovered this when I was researching a name that was on the Stock Transfer
Journal but not on the "List Stop" and listed on the "List of Certificates" and the
reason is that when the transfer agent makes a book entry they are crediting a broker
dealer with the stock and at the same time making an entry for DTC (Depository
trust company NY) in which no physical certificate is issued but only done by
electronic entry (Book Entry).
The name I was looking for is Clariden Leu AG who happens to have an address in
Zurich, Switzerland and there is a 500,000 shares issued by "Book Entry" on
August 11, 2011 and the stock came from Capital Growth Investment Trust.
The movement of stock is as follows:
Aladin Gaston certificate number 208 in the amount of 1,608,750 was transferred
into 4 different names as follows:
Capital Growth Investment Trust 500,000 shares certificate number 929
FEQ Realty, LLC 250,000 shares Book Entry electronic no certificate number
RMS Advisors Inc. 150,000 shares Book Entry electronic no certificate number.
Aladin Gaston 708,750 shares Book Entry electronic no certificate number
Total of all of the above is 1,608,750 so these entries balance on the records of the
transfer agent.
Now Capital Growth Investment Trust surrenders certificate number 929 and
there is a "Book Entry" to Clariden Leu AG, Zurich Switzerland, in the
amount of 500,000 shares.
Why is all this important?
I believe that Capital Growth Investment Trust and many other entities listed below,
is a nominee for Howard [Appel], and the Book Entry to Clariden Leu AG is the
11
All emphasis is original to the document.
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account of Howard in Zurich in the amount of 500,000 shares. In addition, I believe

that Feq Realty LLC and RMS Advisors is also Howard. The address of Feq Realty
and RMS Advisors is the same located at 630 W Germantown Pike Ste 180,
Plymouth Meeting PA 19462. The address for Capital Growth Investment is
different and is located at 13 Pasho Street, Andover, MA 01810.
At this point in time, this is all theory and I believe the following other entities and
or persons are also Howard.
Wiltomo Redemption Foundation
Capital Growth Realty, Inc.
TSS Investment, Inc. address different
DIT Equity Holdings, LLC
KWL Exploration & Development
Interactional Corporate Management
Fiordaliso Ltd different address
Claniden Leu AG different address
RMS Advisors
Janice Thoroski different address
Excelsius Capital Partners, Inc.
Independence Avenue different address
Jacques Faguy different address
Deworth H Williams different address
SLD Capital Corp different address
Ray Lee which is really Kyung Won Lee as per conversation with Matt Cohen
Moggle Investors LLC with TSS Investors LLC signing for Moggle Investors
which I have seen document with such signatures.
I need a fast as possible a list of all Book Entries from the transfer agent and we are
going to see a very interesting story. In addition, I will bet that the volume in the
common stock of the company was higher than usual at the time the Book Entries
were made by the transfer agent for persons or corporations that I believe is
Howard.
Please order a list of all BOOK ENTRIES from the transfer agent
and when we examine the print out we will see a very interesting
story.
Thanks,
Jose
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225.
Lugo also summarized his findings in a memorandum created and emailed to
Gustin on February 27, 2012, titled Howard Appel: Confidential Report for Mike Gustin. In it,
Lugo writes: 12
When I was ask to review certain transactions regarding Howard Appel and the
manner in which he conducted his business one step removed from LATI I did find
certain facts which seem to be disturbing. I believe that Howard had certain
investors purchase shares in the private placement that were in some way
reserved for Howard or better said a prearranged agreement to sell their holdings
at a fixed price sometime in the future no matter what the market price maybe at
the time of sale. There are many transactions that Howard purchased shares at
$1.00 per share when the quoted market price was substantially higher. In some
transactions whereby Howard purchased shares at $1.00 per share when in fact
the market price was $3.50 per shares therefore discounting the shares by well
over 70%.
This is not normal and if I were a regulator I could probably prove a manipulation
type of transactions to benefit Howard. Transactions with this type of discount is
not normal, and in my opinion not good. I have been advised by Matt Cohen that
the investor was not a seasoned investor or an investor that has little or no
knowledge of stock market, and therefore accepted a discount as referred to above.
This is not a good answer as all of the investors were required to fill out a questioner
when they subscribed to the shares in the private placement of LATI. I believe if
there is ever a period of time in the future that a regulator were to ask questions of
the investors who sold there [sic] shares to Howard at deep discount, there [sic]
story may not be what Howard would expect as when an investor is under oath and
is being questioned by the SEC or Justice they are going to tell the truth and not
commit perjury. Howard could have some serious problems if such an investigation
were to start.
I do not have proof of what have reported but I do have sufficient experience to
read between the lines and the transactions that I discovered do not smell good.
Jose Lugo
226.
As it turns out, Lugo was correct. However, when Lugo asked Cohen (Appels co-
conspirator) whether Appels purchase of shares from other shareholders at a deep discount was
12
Emphasis added.
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prearranged, Cohen insinuated that Appel had merely ripped the investors off. Whether prearranged or a deliberate scheme to take shares from unwitting investors, Cohen was instrumental
in making these trades happen.
THE EMAIL OF CONCERN
227.
No later than February 11, 2012, the Second Board knew that Cohen was feeding
Appel insider information on LSI.

228.
On or about February 10, 2012, Cohen asked Island Stock Transfer to provide him
with a breakdown of which LSI shareholders owned non-restricted shares. Cohen needed this
information to give to Appel.
229.
Jake Metzler at Island Stock Transfer obliged Cohens request, sending him several
attachments that, together, identified every LSI shareholder, the number of restricted shares and
non-restricted shares owned by each shareholder, the date and amount of each stock transaction,
and the total number of non-restricted shares that were freely tradable on the open market. Cohen
forwarded the attachments to Appel by email the same day.
230.
On Saturday, February 11, 2012, Nancy Greco, LSIs office administrator, was
looking for suspicious emails on LSIs server and found the email Cohen had sent to Appel the
previous day. She copied it and sent the email and attachments to Jeff Wohler, who then forwarded
it to Gustin, Link, and Jose Lugo. The subject line of her email read Email of concern.
231.
During her weekend search of LSIs email server, Greco found more emails linking
Cohen and Appel, converted them to PDFs, emailed them to herself and, upon information and
belief, shared these emails and attachments with members of the Second Board as well.
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WHO IS THIS ANIMAL?

232.
One of the emails Greco discovered was an email string between Appel and Cohen
on December 21, 2011 with the subject line FW: Latitude. The string begins with an email
from Katie Messinger at Island Stock Transfer requesting that Cohen authorize the removal of
restrictive legends on two LSI stock certificates. As was Cohen and Appels customary practice,
Cohen forwarded Island Stock Transfers email to Appel, letting him know that another LSI
shareholder was trying to free up shares to trade on the open market. Cohen wrote, Add him to
the list.
233.
By this time, Appel was becoming incensed that shareholders were potentially
trading LSI without his blessing. He responded immediately to Cohen, asking Who is this
animal?
234.
As it turns out, Cohen knew of the shareholder. He responded, Happens to be a
great guy. Came in early when we needed the money. He is a very high level retired New York
City detective that is tied in big time with the NY judicial system.
235.
Appel wrote back, Can we get him on side at ascendiant? Who should be talking
to him? Cohen replied, Harvey and I will take care of [him].

236.
Ascendiant Capital Markets, LLC (Ascendiant) is a brokerage firm located in
Irvine, CA. It held LSI shares in brokerage accounts for members of the Appel/Bartlett Group,
including FEQ Realty, Moggle Investors and the William Belzberg Revocable Living Trust, and
Wohler and Gustin knew this.
237.
Approximately two weeks before this email string was discovered by Greco, Gustin
and Wohler had learned from Lugo that Ascendiant was the biggest seller of LSI stock. Lugo sent
Gustin the following email on January 27, 2012:
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Dear Mike,
ASCENDIANT CAPITAL MARKETS
This broker is located in Florida and California sold for there (sic) clients 4,000,000
shares of LATI. They were the biggest seller. I would like to find out who is this
firm and who has the connection at LATI with this firm. I believe it will be
interesting to find out the answers to my questions. The 4,000,000 shares could be
equal to 8 to 12 million dollars if my numbers are correct.
Jose
Three days later, Gustin forwarded Lugos email to Wohler.
THE STOCK TRANSFERS SPREADSHEET
238.
On Monday, February 13, 2012, Appel met with members of the Second Board.
One of the topics of discussion was Appels control over LSI and the trading of its stock. Indeed,
Lugo had even prepared a document titled Questions for Howard Appel for the Second Board
in preparation for their meeting with Appel.
239.
Howard Appel prepared his own set of documents for the meeting. One was a
spreadsheet unassumingly titled Stock Transfers, which he emailed to Cohen in draft and final
form and asked him to print out and bring to the meeting on February 13.
240.
Greco found these emails as well during her weekend search of LSIs server, and
she emailed them to herself with the subject line print. Upon information and belief, Greco
provided the Second Board with these emails and the Stock Transfers spreadsheet.
241.
Howard Appels Stock Transfers spreadsheet purports to list every member of
the Appel/Bartlett Group and the number of shares purchased by each. The following information
comes directly from the spreadsheet:
total historic shares purchased by Bartlett/Appel group
private purchases
8,808,644
4,090,833
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shares deposited into system

and sold thru brokerage accts
3,148,852
shares deposited but under lock

up agreement
1,568,959
8,808,644
242.
Appel specifically identifies the members of what he refers to as the Bartlett/Appel
Group who took part in amassing nearly nine million shares of LSI, including several of the
Defendants: Moggle Investors, Michael Garnick, FEQ Realty, Capital Investment Trust, and RMS
Advisors.
243.
According to Appels calculations and the figures provided by Island Stock
Transfer to Cohen, as of February 10, 2012, Appel and Bartlett together had required at least 47%
of all freely tradable LSI shares and over 14% of all outstanding LSI shares. These figures do
not take into account Kaye and Cohens holdings.
THE SECOND BOARD KNOWS THAT LSI IS BEING CONTROLLED BY
THE APPEL/BARTLETT GROUP
244.
Given Lugos investigation and reported findings to Gustin and Wohler, and the
emails and attachments uncovered by Greco and shared with her superiors, the Defendants had
more than compelling evidence of Appels exploitation of corporate assets, insider trading, and his
de facto control over the corporation no later than February of 2012. In short, the Second Board
knew that LSI was being held hostage by a convicted felon and his associates.
245.
Despite this actual knowledge, however, Defendants took no steps to stop these
injurious and illegal practices. Defendants made no effort to break the chains and free LSI of the
Appel/Bartlett Group. And Defendants certainly did not inform shareholders and creditors that
the Appel/Bartlett Group was controlling LSI and manipulating its stock prices.
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246.
The failure of Defendants to act timely and decisively to end these fraudulent
practices and run LSI like a publically traded corporation must be run, constitutes fraud, breach of
fiduciary duty, and squander of corporate assets.
THE SECOND BOARD PLAYS BOTH SIDES
247.
Instead of inciting appropriate corporate action by Defendants, the Lugo
investigation and report led Wohler and Gustin, and possibly DeJoria, to play both sides. That is,
rather than either use this evidence of fraud against Cohen and Appel directly, or deciding to
debunk or refute this evidence, Wohler and Gustin decide to do both at the same time.
248.
For example, regarding Appels getting paid some $350,000 by LSI through a
consulting agreement for bringing investors to LSI, Wohler explained in sworn testimony that
such payments to Appel for consulting work were unjustified, as were most of the consulting
agreements. I mean I think the number exceeds 20, which is extraordinarily high number for a
pink sheet startup company to have outstanding. I mean these were consulting agreements to
people that never showed up, as in they didnt do anything. Wohler testified that Lugos
investigation supported this conclusion.
249.
However, a document drafted by Lugo, and believed to have been edited and
circulated by Wohler, completely contradicts everything that Lugo had written to Gustin just three
days earlier:
Howard Appel Compensation
The compensation received by Howard Appel and his group was in my opinion
justified and earned as a result of their efforts in assisting Latitude Solutions, Inc.
in acquiring equity funding in the amount of $12,000,000. The compensation
received was in the form of common stock and warrants issued to Mr. Appel and
his group along with cash payments of approximately $350,000 which, in my
opinion, were not excessive.
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Howard Appels expertise in the placement of large blocks of common stock being
sold in the market place were very helpful in maintaining an orderly market for the
companys common stock being traded in the United States. Large blocks of
common stock that certain shareholders wished to sell were negotiated and
purchased by the Appel group. This purchase of stock and monies earned by them
did not involve the company and therefore the compensation realized should not be
addressed as it did not affect the financial statements of the company.
If any other detail is required, please contact me at your convenience.
Dated this 15 day of February, 2012
Jose Antonio Lugo
250.
Lugos sudden change of heart came two days after the meeting between Appel and
the Second Board. This document and the sentiment it carries exemplifies how the Second Board
was playing both sides, leaving them the option to either use Appel to raise capital and pump the
stock, or turn on Appel and play the victim. The document also establishes that the Second Board
knew Appel had cornered the market and was, in Lugos words, maintaining an orderly market
for the companys common stock being traded in the United States i.e., Appel was manipulating
pricing and controlling the sale of LSIs stock.
COHENS SEXUAL HARASSMENT
251.
On or about February 5, 2012, a female secretary employed by LSI, Carly Singer
(Singer), openly accused Cohen, her superior, of sexual harassment, sexual assault, and sexual
battery. Ultimately, Singer would file a federal complaint against both LSI and Cohen seeking
compensable damages for this alleged sexual harassment, assault, and battery. On November 21,
2013, a professional arbitrator awarded compensatory damages against LSI in favor of Singer of
$550,000, and punitive damages against LSI and in favor of Singer of $100,000, resulting in a total
judgment, including attorneys fees and interest of $851,081.55.
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252.
Consistent with Wohlers contradictory dealings with LSI, although he considered
Cohen to be a predator and guilty of the sexual harassment charges leveled against him by
Singer, Wohler and the rest of the board of directors of LSI maintained Cohens CFO position at
LSI, maintained Cohens seat on the board of directors, and did not terminate his employment and
directorship until July 2012.
253.
Indeed, rather than fire Cohen for cause immediately and force him to retain
separate counsel on his own nickel, defendants kept paying Cohen his regular salary, attempted to
negotiate a lucrative severance package for Cohen in the summer of 2012, and paid for the same
counsel to represent both Cohen and LSI regarding Singers sexual harassment suit. The terms of
this severance package were even negotiated with LSI by Howard Appel o/b/o Cohen.
254.
Although the Second Board was very critical of Cohens activities when LSI filed
bankruptcy in November 2012, when Cohen was actively involved in insider trading, actively
assisting Appel manipulate the market, and actively assaulting LSI employeesall to the
detriment of LSIWohler, Gustin, and DeJoria actually helped Cohen continue his gross
malfeasance.
THE MARCH 14, 2012, FAX
255.
In a draft fax letter dated March 14, 2012, from Wohler to DeJoria, Wohler recounts
prior events concerning the illegal acts of the Appel/Bartlett Group, infighting between the Second
Board and the Appel/Bartlett Group, and DeJorias knowledge of critical issues facing the
company issues that the entire Board should have addressed immediately but instead ignored,
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focusing instead on attacking the Appel/Bartlett Group and continued squandering of corporate
assets. 13
256.
This letter is dated more than a month after Jose Lugo informed Wohler in writing
that he believed Appel had obtained more than 2.1 million shares of LSI through various entities
and had transferred these shares into a broker-dealer account, ostensibly so that the shares could
be traded on the open market all clear indicia of a scheme to defraud LSI.
257.
Most of the letter focuses up on an apparent disagreement between DeJoria on the
one hand and Wohler, Mike Gustin, and Ken Link on the other concerning the number of shares
to Wohler, Gustin and Link for their service on the Board. Wohler writes:
Regarding the spreadsheet listing share allocation to Mike, Ken and myself, we
were insulted by your comment to both me and Mike that we attempted to slip one
in and attempted get one by you and that what we did was wrong. I have
heard you tell people on more than one occasion that Mike Gustin is one of the
most honest people you know. During the character assignation [sic] time with LSI
where Howard, Earnest, Ray Harlow and rest were discrediting Mike, you stood up
and defended your partner of over 25 years with passion. So when you accused us
to trying to slip one by you on our share allocation it was hurtful and uncalled for.
* * *
We were surprised when you brought it up and Harvey, Lynden and Matt
immediately agreed to disregard the [board] resolution each of them had already
approved. Talk about wishy-washy lack of backbone people. We were shocked not
so much about your desire to offer us something other than that which they had
approved but that they couldnt wait to agree with you.
258.
Wohler then attempts to justify his stock award by comparing it to what the
Appel/Bartlett Group received for securing DeJorias investment in LSI, proving that the entire
Second Board was well aware of, and indeed did not disapprove of, the outrageous, fraudulent
stock issuances and cash payments made by LSI to the Appel/Bartlett Group that Wohler knew
13
This letter contains handwritten edits believed to have been made by Wohler, Gustin and/or Link. The quotes to
the letter contain these edits. Bold italics have been added for emphasis.
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had occurred. Wohler was not mad about the fact that the Appel/Bartlett Group had been given
millions of shares for bringing in investors he was incensed that he, Gustin and Link we not
receiving the same favorable treatment:
We didnt just pick numbers out of the sky. We arrived at the number of shares
after careful consideration and evaluation of what Howards Group received for
your investment of $8.8 million, knowing what we had done to save the company.
In addition, we knew we were not going to take shares from the Company treasury.
These shares were going to come from shares allocated by Harvey inappropriately.
We had already clawed back 750,000 shares from Harvey and had asked Warren
Blasland for 750,000 as well.
259.
Even more, Wohler claims in his letter that everyone the Appel/Bartlett Group,
the First Board, and the Second Board, including DeJoria, knew that the shares and cash that went
to the Appel/Bartlett Group should have gone to Gustin but that they (Wohler, Gustin and Link)
did not fight it. Instead, Wohler, Gustin and Link wanted the same reward:
We all know that your investment came as a direct result of Mikes positive
endorsement of the LSI technology; not Ernest or Howard's recommendation. LSI
issued 880,000 shares plus $350,000 cash [to the Appel/Bartlett Group] for your
investment which should have gone to Mike. Once we found out about this
misallocation of shares, we didn't fight it. We did insist we would be compensated
for any future funds from you or anyone else we brought to the table. In addition
to Howard's group receiving those shares and cash, they also were issued another
1,575,000 shares for other money raised.
260.
According to Wohler, the Appel/Bartlett Group received a grand total of 2,455,000
shares of LSI stock and $350,000 in cash for bringing DeJoria and other investors into LSI. All
of this was paid to the Appel/Bartlett Group pursuant to their consulting agreement with LSIs
First Board.
261.
However, Wohler does not stop here. He goes on to justify the shares he is asking
for and incriminates the First Board for dolling out shares to bogus consultants who performed no
actual services to LSI:
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We are not going to fight you on this issue but we would certainly feel a lot better
about the twelve hour days, six to seven days a week, moving away from our
families, and literally saving this company and your substantial investment from
certain death if you would at least acknowledge that we are all honest hard working
guys without an agenda to sneak around you and get shares that we are earning as
opposed to most of the other 41 consulting agreements. Harvey Kaye handed out
LSI shares like candy at Halloween, without any expectation of performance.
262.
After attacking the First Board and the Appel/Bartlett Group for having fleeced
LSI, Wohler turns to the topic of Matt Cohen and characterizes Cohens service as CFO as
criminal negligence. Wohler also solidifies the level of control that Appel and Bartlett had over
LSI. In short, Appel and Bartlett wanted Cohen to stay with LSI despite Cohens deliberate
disregard for the best interests of LSI, to which he owed fiduciary duties.
You have indicated to Mike and I that you believe Matt should be removed as CFO
and board member. Yesterday Matt told me that he was advised by Howard and
Ernest that his position was firm with LSI. They told him that they had spoken with
you and that you agreed. Could you please clarify for us what your position is on
Matt. As additional information, LSI has already expended over twenty thousand
dollars on legal, IT costs and staff time. We anticipate that number will exceed the
$75,000 deductible stated in our insurance policy. Jabil has strongly indicated that
they don't believe Matt is capable of moving the company forward from a financial
standpoint. His negligence in never raising a flag about LSI's financial position is
criminal. It is our collective opinion that Mr. Cohen can never stay on as CFO.
263.
Of course, the reason the Appel/Bartlett Group wanted Cohen to stay on as CFO
was simple: Cohen was feeding Appel insider information so that the Appel/Bartlett Group could
manipulate stock prices and trading volume and continue their pump-and-dump at LSIs expense.
And DeJoria, faced with the option of following Wohler's advice and firing Cohen and cutting
Appel and Bartlett out of LSI affairs, or following the desires of his friend, the "good guys" Appel
and Bartlett, DeJoria chose Appel, Bartlett, and Cohen.
264.
Wohler concludes by pointing the finger directly at Kaye, accusing him of the dire
condition of LSI when the Second Board took over:
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The disruptive influence of people like Harvey Kaye cannot be allowed to continue.
He needs to be removed from the board immediately. He is a prime target for us
clawing back shares. Harvey currently owns over 4.8 million shares. Let us never
forget that he is directly responsible for the dire condition of the company when we
took over. Bear in mind he has absolutely refused to take ANY RESPONSIBILITY
for the failure of this company. Instead he will tell anyone that LSI was the best
managed company in America. That is a direct quote.
265.
This last paragraph on Wohlers letter is telling. The Second Board believed Kaye
was responsible for the dire condition of LSI. Given their knowledge of the Appel/Bartlett Groups
influence over LSI, and the First Board in particular, the Second Board should have taken
immediate steps to sever all ties to the Appel/Bartlett Group and remove both Kaye and Cohen.
Keeping Kaye and Cohen on the Board, and allowing Cohen to continue to serve as CFO, defies
all reason in light of Wohlers account. And given that Wohler characterizes LSI as being in a dire
condition as early as January of 2012, the Second Board should have taken measures to stop the
squandering of LSIs assets. This did not happen. In fact, the Second Board continued to blow
LSIs cash reserves on First-Class airfare, cross-country and international commutes, chauffeurs
and corporate cars, luxury water-front condos, and ill-advised business ventures.
THE KEYSTONE COPS CATCH, THEN EXCUSE, COHENS INSIDER TRADING
266.
On May 7, 2012, roughly three months after the Second Board learned that Cohen
and Appel were engaging in insider trading, Wohler sent Cohen a memo in which he formally
accuses Cohen of leaking insider information to Appel and being his lackey, writing in part:
You habitually have passed on confidential information to Howard Appel and
others. i.e. the Westwater deal where you secretly negotiated a potential deal with
Mitch Burroughs and Howard to acquire an interest in the project without
consulting the Executive Committee or the Board. Here again this was in direct
conflict with the company's ongoing dialog with Mr. Burroughs. This interference
with our business objectives to the benefit of third parties was inappropriate and
outside the scope of your authority.
* * *
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You submitted financial information to Mr. Langdon without the Executive

Committee/Board's prior approval. Additionally, you took direction and action on
the instruction and advice of an individual who lacks the authority to act on behalf
of the company (Howard Appel).
* * *
You ordered Martin to meet with Mr. Langdon take him on all sales calls and
inspect the unit at Energen without authority to do so from the Executive
Committee. You again were acting on the direction of Howard Appel who has no
authority whatsoever to direct company activity or deployment of resources.
267.
The very next day, May 8, 2012, Wohler sent an email to Appel which solidifies
Appels role in pumping LSI and further establishes Wohlers self-serving plan to work both sides
in order to maximize his chances of making money without regard to LSI: 14
Good results on our press release. One of the guys we met in Texas just bought
150,000 shares.
Work your magic Mr. Appel and bring me some money please!
268.
Wohler did not care how Appel raised money, or whether what Appel was doing
was illegal (which he knew) as long as the money was coming in. Eighteen minutes later, Wohler
emails Appel again, and referring to the $150,000 Appel raised, writes:
Hell I don't care where it comes from just so it comes. Good work.
269.
So, in the dysfunctional and incompetent world of LSI, one day Appel was persona
non-grata, and the very next day he was the magician who could pump illicit money to LSI
anytime he wanted.
14
Emphasis added.
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APPEL, BARTLETT, AND DEJORIA USE LSI

TO SUIT THEIR OWN INTERESTS
270.
DeJoria, Appel, and Bartlett ran the show. Speaking to Wohler at the March 2,
2012, meeting of the Executive Committee, Appel (whose presence at such a meeting is strange
enough) candidly explained:
Ernest [Bartlett] and I are not on an Org. Chart but neither of us want to be there but in fact
I believe we have a legitimate voice to raise because we have to deal with this shit every
day. . . My agenda is the same as yours. I am the one who answers every day . . . you are
CEO but me and JP [DeJoria] have all the money in this. This [finding a new CEO for
LSI] is not a CEO responsibility. Ernest [Bartlett] and I all day long takes calls. I will
respect what everyone says but JP [DeJoria] needs to tell me what we need to accomplish
here. All due respect . . . if you are interim CEO it is irrelevant if you meet him.
Translation: DeJoria, Appel, and Bartlett will select LSIs CEO and run this corporation as we see
fit; sit down and be quiet, Mr. Wohler.
271.
Appel attended Executive Committee meetings of LSI. Appel negotiated severance
packages with exiting directors or executives of LSI, like Harlow and Cohen. Appel had input
regarding how best to handle the sexual harassment claim against Cohen and LSI. Appel asked to
recommend new CEOs for LSI. Although deliberately hidden from public view, Appel was the
de facto CEO and Chairman of LSI.
272.
In an email dated March 20, 2012, COO Martin Donegani openly asked Wohler:
Who are Bill [Miller] and Howard [Appel]? Can they control the BOD? Somebody needs to end
this, such a damned waste of time. Of course, as was well know by this time to Defendants,
Appel, Bartlett, and DeJoria did in fact control the board of directors of LSI.
273.
In an email dated August 14, 2012, Bill Rhea, who became LSIs CEO after
Wohlers resignation, writes that given the voluminous number of emails to Appel et al disclosing
non-public information strongly suggest that Appel et al were operating the company remotely.
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274.
Outside counsel advising LSI at the time (August 2012) agreed that Appel was
operating the company remotely. The emails I forwarded . . . support that Appel was calling the
shots. Harvey [Kaye] routinely forwarded emails and communicated about contracts, and other
developments to Howard [Appel].
275.
Even Wohler, when summarizing his history at LSI for outside counsel, wrote in
August 2012: I didnt realize the extent of control that Howard [Appel] had over the company
until we arrive on the scene in Boca Raton in or around January 2012.
276.
Convicted securities fraud felons who have been permanently barred from selling
securities or having anything to do with publically traded corporations like LSI, should not be
receiving consulting fees for bringing investors to the corporationsmuch less running a
publically traded corporation.
277.
For Defendants to allow Appel and Bartlett to run LSI is fraud, a gross violation of
their fiduciary to LSI, and inexcusable conduct that warrants punitive damages.
WOHLER CLAIMS THAT DEJORIA MADE HIM DO IT
278.
Although Wohler now claims that he wanted to get rid of Cohen and cut off ties to
Appel and Bartlett in as early as January 2012, if not sooner, when confronted with either serving
the best interests of LSI, its shareholders, and creditors or serving the wishes of DeJoria, Wohler
consistently chose to place DeJorias interests above those of LSI.
279.
As Wohler essentially confessed in an email dated August 17, 2012: 15
I am also more than concerned about backlash since we have been attempting to circle the
wagons on Howard since day one but John Paul has thwarted us on every single
occasion. To the point where he refused to acknowledge board minutes mentioning
wrong doing of The Appel group. I tried to fire Matt Cohen for numerous
documented issues with JP's authority and then Howard, Ernest would call him and
15
Emphasis added.
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he would force me to rescind the firing. I kid you not. Howard was even invited to a
board meeting in Austin in May where John Paul wanted him to hear what was going
on in the company. I was appalled but JP was paying the bills and refused to
acknowledge the clear wrongdoing of all of these people. Virginia Dadey is another
example of JP lack of belief of her clear violations of SEC rules of soliciting for
commissions without a FINRA license. Jim Smith and I wrote this up and JP still wanted
us to pay her an additional $167,000 in commissions because she has a handicapped child
and she earned the commission. Ultimately he agreed to let her go without compensation
but it was a very disruptive battle.
I could go on for days with the stories but the bottom line is that I know I will be a target
for multiple lawsuits and other than shitty D & O coverage I am exposed. I doubt JP will
want to cover my costs of defending myself and the time and energy required when he was
the one who asked me to aid in taking over this pile of crap to begin with In order to protect
his interest. Hell I have even deferred my compensation for the past two months to save
money while I work every day managing this company. I am not the only one not being
compensated. Bill Rhea, Mike Gustin, Ken Link are all deferring their fees.
Something is very wrong with this picture.
Although Wohler may have felt forced, appalled, and thwarted, by DeJorias conduct, in the
final analysis, he violated his fiduciary duties to LSI and allowed DeJoria to protect the
Appel/Bartlett Group at the direct expense of LSI and its creditors.
280.
As outside counsel advised Wohler and others in August 2012 as LSI contemplated
bankruptcy: 16
I remain VERY concerned about the Howard Appel issues. The stories about forgiveness
of Appels past transgressions and that he is a changed man seems to reflect a widespread
if not pervasiveindifference to Appels involvement through various proxies in the
daily operations of LSI. Appels modus operandi that has resulted in prior criminal and
civil cases against him and the companies he was similarly involved with is virtually
identical to what has occurred with LSI.
This outside counsel goes on to describe the many ways how the board of LSI will probably be
sued for their various violations of their fiduciary duties regarding their failure to act, the
16
Emphasis in original.
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continuing misrepresentations, the collusion with Appels fraud, and other potentially
actionable conduct.
281.
Wohlers duty of good faith, loyalty, and due care was owed to LSInot DeJoria.
Unfortunately, Wohler served DeJorianot LSI.

GROSS INCOMPETENCE, LACK OF INTERNAL CONTROLS, AND OVERSIGHT
282.
The fiduciary duty that the Director and Officer Defendants owe to the corporation
they serve is well-settled. The Director and Officer Defendants owed LSI and its shareholders the
fiduciary obligations of good faith, loyalty, and due care.
283.
Each Director and Officer Defendant owed to LSI and its shareholders the fiduciary
duty to exercise good faith and diligence in the administration of the affairs of the corporation. In
addition, the Director and Officer Defendants owed a duty to LSI and its shareholders to implement
adequate internal controls and procedures and to assure that the financial condition and business
prospects of the publically-traded corporation were reported truthfully and accurately. Further,
the Director and Officer Defendants owed a duty to ensure that the corporation complied with all
applicable state and federal laws, and that the corporations financial statements were prepared and
presented in accordance with GAAP.
284.
Because LSI was insolvent at all relevant times, the Director and Officer
Defendants owed these fiduciary duties to the legitimate creditors of LSI as well.
285.
Upon information and belief, at all relevant times, LSI utilized QuickBooks to
manage its financial affairs.

286.
Also upon information and belief, LSI implemented no other financial software to
control its books and records.
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287.
Upon information received and to the extent such efforts were undertaken at all,
LSI utilized manually-maintained spreadsheets to consolidate the financial performance of

numerous subsidiaries of LSI and their collective operations.
288.
Also upon information and belief, at least defendant Cohen, if not others, had carte
blanche to edit LSIs books, records, and financial reports, as CFO of LSI.
289.
LSI did not maintain any checks and balances to ensure that the information
provided by Cohen and LSI to third parties was complete, fair and accurate.
290.
In fact, in letter dated April 2012 from LSI outside accountants, Mallah Furman,
addressed to the board of directors and management of LSI, the director defendants were informed
in writing that these CPAs considered certain matters involving internal control and its operation
to have significant deficiencies or material weaknesses according to the Public Company
Oversight Board.
291.
As is laid bare by the specific allegations made in this Complaint, the Director and
Officer Defendants had actual and/or constructive knowledge of liability-creating activities and/or
omissions of the corporation that should have been disclosed.
292.
The Director and Officer Defendants had a duty, by proper diligence, to keep
informed of facts which the corporate books and records would have disclosed, and to assure that
any statements made to the public regarding LSI, through press releases, SEC filings, or otherwise,
are accurate and truthful, and do not contain any material misstatements of fact or material
omissions of fact.
293.
The Director and Officer Defendants engaged in a sustained and systemic failure
to exercise oversightsuch as an utter failure to attempt to assure that a reasonable information

and reporting system existed at LSI. The Director and Officer Defendants named herein utterly
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failed to implement a risk reporting or information systems or controls; or, in the alternative,
having implemented such a system of risk reporting, information systems or controls, the Director
Defendants named herein consciously failed to monitor or oversee its operations.
294.
Additionally, upon information and belief, LSI was paying Appel, a convicted
securities fraud felon, illegal commissions in the form of cash and/or LSI stock, all in direct
violation of applicable law and SEC rules and regulations.
295.
Additionally, upon information and belief, LSI was paying Bartlett, who was
previously reprimanded and sanctioned by the SEC, illegal commissions in the form of cash and/or
LSI stock, all in direct violation of applicable law and SEC rules and regulations.
296.
Additionally, upon information and belief, LSI was paying Virginia Dadey, an
unlicensed broker and known, long-time associate of Appel and Bartlett, illegal commissions in
the form of cash and/or LSI stock, all in direct violation of applicable law and SEC rules and
regulations.
297.
Defendants knew of these illicit practices and chose to disregard them by
knowingly participating in this scheme, or in the alternative, Defendants were grossly negligent
and derelict in their duty owed to LSI by not discovering and ending these egregious practices at
LSI.
298.
Given the magnitude and duration of the Director and Officer Defendants alleged
wrongdoing, and their utter failure to implement any internal controls regarding corporate
mismanagement, including accurate financial reporting, this failure of the defendant directors to
act constitutes a lack of good faith.
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299.
Given the nature of the self-dealing, insider trading, pattern of fraud, and alleged
breach of securities fraud laws alleged herein against the Director and Officer Defendants, this
failure to act constitutes a violation of their duty of loyalty.
300.
The Director and Officer Defendants violated their fiduciary duties and abdicated
their oversight responsibilities that they owed to LSI. As a result, the corporation has been
subjected to the possibility of being a defendant in securities fraud lawsuits and is bankrupt. As a
further result, upon information and belief, LSI is the subject of a SEC investigation and possibly
other law enforcement investigations.
ACT THREE: THE GOOD COP
DIRECTOR AND CEO JERRY J. LANGDON BLOWS THE WHISTLE
301.
Jerry J. Langdon (Langdon) is a respected business executive with more than
forty (40) years of experience in the energy industry. Prior to joining LSI, Langdon served as the
Chief Administrative and Compliance Officer of Energy Transfer Partners, a $10 Billion +
company specializing in the transportation of natural gas and related services.
302.
In early May 2012, a retired CPA, colleague, and friend of Langdon, George
McDaniel (McDaniel), suggested that he meet with Robert Miller (Miller), a Goldman Sachs
investment advisor and associate of both Langdon and McDaniel, about a company called LSI.
Prior to this date, Langdon had never heard of, much less been involved with LSI. Upon
information and belief, Miller has been a long-time associate of Appel, Bartlett, and DeJoria.
303.
On or about May 2, 2012, Langdon had dinner with McDaniel, Miller, and Appel
at a restaurant in Houston to talk about LSI. Prior to this date, Langdon did not know and had
never dealt with Appel in any way.
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304.
After being told of LSIs promising technology and DeJorias involvement with
LSI, Langdon expressed interest in the possibility of working with LSI in some capacity.
305.
After this dinner, Langdon researched Appel and discovered some of his history of
securities fraud violations. Langdon initially was not interested in getting involved in a company
associated with Appel; however, when Appel called Langdon on or about May 4, 2012, to discuss
the possibility of Langdon being hired as the Chairman and CEO of LSI, Langdon warmed to the
possibility of joining LSIsubject to him doing sufficient due diligence. At the end of this
discussion, Appel called DeJoria on his cell phone and had him talk directly to Langdon about this
possibility.
306.
From Langdons perspective, Appel and DeJoria were working closely together on
behalf of LSI to recruit him as Chairman and CEO.

307.
Langdon next talked to Cohen who had forwarded him some of LSIs financial
statements. Soon thereafter, Langdon spoke to Wohler who insisted that he sign a non-disclosure
agreement regarding the financials and told him to communicate only with him (Wohler) going
forward.
308.
As part of his due diligence, Langdon eventually met with Mike Gustin and others
at LSI. Langdon travelled to both sites in Texas and Florida to see LSIs water units in place: in
operation in Texas and in Jabils warehouse in Florida. In short, after conducting research,
communicating with LSIs management team, meeting with Jabil executives, and making site
visits over the course of about two weeks, Langdon concluded that although LSIs financial
situation was dire, with the commitment of DeJoria and new management in place, LSIs
technology was commercially viable.
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309.
On May 15, 2012, Langdon travelled from Boca Raton to Austin with DeJoria on
his private jet. Initially Langdon intended to decline joining LSI, but during the 2.5 hour flight,
DeJoria convinced Langdon that he was committed to do whatever it took to make LSI successful.
Based upon DeJorias personal commitment, Langdon agreed to join LSI as its Chairman and
CEO.
310.
On May 21, 2012, Langdon was approved by the Board of Directors to be the new
Chairman and CEO of LSI.

311.
Langdon was introduced to Bartlett for the first time on May 22, 2012, the day after
he joined LSI. From Langdons perspective, DeJoria, Bartlett, and Appel were all working closely
together in and with LSI; i.e., DeJoria, Bartlett, and Appel were running the corporation.
312.
Although Langdon was told of some of the problems facing LSI before he accepted
his appointment to the board, he was not told about LSIs practice of providing inside information
to outsiders like Appel on a regular basis.
313.
Given his substantial experience and background as regulatory compliance officer,
unlike defendants, Langdon took these allegations of insider trading very seriously and engaged
outside counsel, the law firm of Akin and Gump, to investigate this matter further.
314.
Langdon was not the only board member who wanted to do the right thing. In one
email at this time, director Bill Brennan, who was independent of the First Board and the Second
Board (and joined LSI in the spring of 2012) asked, Where do we stand as far as Appel and all
affiliates and the complete disassociation with them so we can start clean and run the company
without any interference that have apparently had from an individual who is a convicted felon.
This action should have obviously taken place long before then.
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315.
When Langdon reported this outside investigation led by Akin Gump to DeJoria,
he became angry. DeJoria wanted consultantspresumably like Lugoto conduct such an

internal investigation, not outside counsel. According to Langdon, at one point, DeJoria asked
me why I just didnt fire Wohler and Gustin and get on with fixing the company.
316.
For DeJoria to suggest to Langdon that he should fire his close business associates
of more than twenty-five (25) years, Wohler and Gustin, in the hope of preventing Langdon from
bringing outside attorneys into LSI to review its business practices, speaks volumes.
317.
Concerned that an independent, reasonable, and objective attorney would probably
conclude that defendants were breaching their fiduciary duties to LSI, if not committing outright
securities fraud, defendants, including DeJoria, were not happy about Langdons investigation.
318.
Ultimately, in late June 2012, Langdon met with Akin Gump attorneys, Wohler,
and others to discuss these various matters in Houston. According to Langdon, the conclusion
following the more than 3.5 hour meeting was that there were clearly issues that needed to be
investigated and that there was likely disclosure issues that needed to be addressed and possibly
disclosed.
319.
After Langdon raised concerns about possible liability and reported this conclusion
to DeJoria, DeJoria confided in Langdon that he (DeJoria) could not possibly be liable for
anything that he did not know about the Appel/Bartlett/Dadey group, and that he wanted us to
schedule a Board meeting the next day so he could resign as lead director. Langdon did not share
DeJorias belief in his innocence or lack of responsibility.
In fact, given the extensive
communications between DeJoria and the other defendants regarding the nature and extent of the
inside information being shared between Cohen and Appel, not to mention how poorly the
company was being managed and the wasteful practices of Wohler, Gustin, and Cohen, is it
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probable that DeJoria knew of Appel and Bartletts scheme, and embraced it. DeJoria certainly
did not do anything to stop it.
320.
In fact, as Langdon was leaving LSI, DeJoria told him that he (DeJoria) would not
put any more money into LSI unless and until Appel did. Rather than satisfy the duty of good
faith, fair dealing, loyalty, and care that DeJoria owed to LSI, at the end, he opted to allow Appel,
the convicted felon, to decide whether LSI would receive any more capital or not.
321.
If DeJoria, Wohler, and Gustin really wanted to distance LSI from Appel and
Bartlett, they would not be using them to recruit CEOs, raise money, spearhead business
opportunities, capitalize the enterprise, and, in effect, run the company.
322.
Langdon formally resigned his position and directorship at LSI on June 28, 2012.
323.
After his departure, Wohler asked Langdon if LSI could issue a press release
explaining that Langdon resigned to pursue philanthropic pursuits in conjunction with DeJorias
Water the World effort. Since this was not true, Langdon objected. On July 10, 2012, defendants
issued the materially false press release anyway. According to Langdon, this false press release
confirmed the blatant disregard for the SEC rules, the truth, its investors, and my integrity.
Furthermore it confirmed that I made the right decision to resign.
324.
Nothing Langdon, the Good Cop, observed or experienced during his short, 39-
day tenure at LSI, convinced him that LSIs technology was not commercially viable. According
to Langdon, it was clear that the technology that LSI had in place wasnt a complete solution. It
needed some tweaking andbut it wasit was clear to me that Jabil and others were working on
those tweaks and that eventually they would resolve it.
325.
The Bad Cops used and abused LSI through their pump-and-dump. The Keystone
Cops allowed the Bad Cops to maintain control over LSI and continue with business as usual. The
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Good Cop, seeing the potential of LSI's technology while simultaneously recognizing the
corruption and incompetence of its management, resigned when confronted with a leading director
and controlling shareholder, DeJoria, who told him one thing, but did another.
THE SECOND BOARD SETTLES ON PUTTING LSI INTO BANKRUPTCY
326.
Faced with Langdons refusal to go along with the status quo, while staring at the
very real possibility that the First Boards pump-and-dump and the Second Boards complicity in
allowing Appel and Bartlett to continue the scheme under their watch would become public (i.e.,
that the SEC would become aware of the situation), Defendants chose to lower the curtain on LSI
by opting for bankruptcy. Instead of pushing Appel and Bartlett out of the front door, Defendants
acted in their own self-interest and tip-toed out the back.
327.
Furthermore, Defendants chose to blame everything that went wrong at LSI on
Appel and Cohen, conveniently overlooking the very prominent role that they and Bartlett played
in killing the corporation.
THE SECOND BOARD HOPES TO COVER THEIR TRACKS
328.
As DeJoria, Wohler, and Gustin were turning the proverbial lights out at LSI, and
as found in a written memorandum purportedly given to the Department of Justice and/or the SEC
at or around the time LSI filed bankruptcy, Cohen has systematically provided material nonpublic
information to Appel. The emails also appear to demonstrate that Cohen considered Appel as his
boss. . . . The evidence may ultimately show that Cohen worked in concert with [sic] to artificially
inflate the value of LSI stock by appraising Appel when LSI stock would be coming to market and
ensuring that they were locked-up or sold in off the book deals prior to becoming available.
Although LSI hoped to cast Cohen and Appel as the scapegoats for the gross mismanagement and
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plundering of LSI, as alleged in detail herein, DeJoria, Wohler, and Gustin knew of and actively
participated in Cohen and Appels scheme.
329.
Furthermore, as specifically alleged by LSI at the time of its bankruptcy:
1. On or about May 8, 2012, James B. Smith, the current Chief Financial Officer of Latitude
Solutions Inc., had a conversation with Cohen detailing Cohens purposeful delivery of
nonpublic company reports to Howard Appel. In an affidavit prepared by Mr. Smith on
May 11, 2012, Mr. Smith memorialized his conversation that included the following, Matt
then explained to me that he would deliver both reports on a weekly basis to Howard Appel
for his review
2. Between April 2011 and June 2012, Cohen, the former Chief Financial Officer of Latitude
Solutions Inc., sent numerous emails containing nonpublic reports to Appel. Attached
under Exhibit B, are 38 emails that include 39 nonpublic reports sent to/received by Appel.
3. Between December 2011 and March 2012, Cohen, the former Chief Financial Officer of
Latitude Solutions Inc., forwarded numerous emails from Island Stock transfer to Appel.
These emails contained requests for removal of the restrictive legends from LSI certain
stock certificates. Appel often responded by indicating the need to determine who
controlled that investor and the need to corral them.
4. Between May 2011 and February 2012, Cohen the former Chief Financial Officer of
Latitude Solutions Inc., forwarded, and even asked for Mr. Appels comments, on LSI
press releases, in advance of their release to the public. Attached under Exhibit D are 3
examples of such occurrences.
5. Between June and December 2011, Cohen and Appel exchanged hundreds of e-mails.
Certain emails may suggest an attempt to manipulate the Latitude Solution Inc. stock.
Attached under Exhibit E are six examples of such emails.
(references to Exhibits A-E omitted).
330.
At the time of its initial bankruptcy filing, LSI alleged that Cohen, from at least
April 2011 through June 2012, violated at least six (6) criminal / civil securities fraud violations:
18 U.S.C. 1348 (Sarbanes-Oxley Act of 2002)Securities Fraud; 18 U.S.C. 1341 (SarbanesOxley Act of 2002)Mail Fraud; 18 U.S.C 1343 (Sarbanes-Oxley Act of 2002)Wire Fraud;
18 U.S.C. 1349(Sarbanes-Oxley Act of 2002)Criminal Conspiracy; 18 U.S.C. 2Aiding and
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Abetting; 17 C.F.R. 243.100 et seq. (Regulation FEDImproper Disclosures; 18 U.S.C.

1956Money Laundering.
331.
It has also been suggested that the Second Board opted for bankruptcy so that either
they and/or the Appel/Bartlett Group could acquire the LSI technology for themselves. The Vice
President of Sales and Marketing of LSI, Peter Letizia, has testified under oath that I happen to
know from the owners of Natural Shrimp [one of LSIs customers], they . . . actually signed draft
agreements under Water the World [not LSI] with millions of dollars in pro formas attached. So
again, my problem with this you, again, have a responsibility as officers of Latitude Solutions to
represent the property, intellectual property and clients in the best interest of the shareholders and
creditors, and instead, youre trying to take the company bankrupt. Your intent is to take the
company bankrupt. Your intent is to go private, and then you are now using that intellectual
property . . . and youre using that technology for your own contract and your own purposes while
youre still representing LSI. If Mr. Letizias allegations are accurate, such self-dealing is a gross
violation of a directors duty of good faith and loyalty.
332.
Although the Second Board initially contemplated seeking Chapter 11 bankruptcy
protection following Langdons resignation, the Second Board ultimately sought Chapter 7
protection when it filed herein on November 9, 2012. The decision to seek liquidation rather than
reorganization further suggests that the Second Board was trying to cover their tracks.
333.
By highlighting Cohen and Appels fraud, DeJoria, Wohler, and Gustin hoped to
hide their complicity and excuse their culpability.
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CLAIMS FOR RELIEF

COUNT ONE:
Avoidance and Recovery of Fraudulent Transfers Under Sections 544(b) and 550 of the
Bankruptcy Code and the Florida Uniform Fraudulent Transfer Act, F.S.A. 726.101 et
seq., or, alternatively, the Nevada Uniform Fraudulent Transfer Act, Nev. Rev. Stat. Ann.
112.140 et seq.
Against the Appel/Bartlett Group and Insider Defendants
(Appel, Bartlett, Kaye, Helen Klebanoff, Harlow, Cohen, Deborah Cohen, Dadey, Wohler,
Gustin, DeJoria, and all of the Appel and Bartlett Related Entities)
334.
Plaintiff repeats and realleges each and every allegation set forth in the foregoing
paragraphs as if fully set forth herein.

335.
The Consultant Agreements, the Appel/Bartlett Group Transfers and the Insider
Transfers were made with and to Appel/Bartlett Group and the Insider Defendants with the actual
intent to hinder, delay and/or defraud LSIs then present and future creditors insofar as the transfers
of cash, stock and warrants were illegal and part of the Appel/Bartlett Groups scheme to rob LSI
of its cash and stock, control the flow of information and the movement of LSIs stock, and
manipulate share prices in order to sell their LSI shares on the open market at significant gains.
336.
Several factors listed in listed in Fla. Stat. Ann. 726.105 support a finding that the
Consultant Agreements, the Appel/Bartlett Group Transfers and the Insider Transfers were made
with the actual intent to defraud LSIs then present and future creditors, including the following:
a.
Appel/Bartlett Group Transfers and the Insider Transfers were to Insiders.
b.
The illegality of the Appel/Bartlett Group Transfers and the Insider

Transfers was concealed;
c.
Before certain Appel/Bartlett Group Transfers and the Insider Transfers

were made, LSI had been sued or threatened with suit;
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d.
LSI removed assets and property through the Appel/Bartlett Group

Transfers and the Insider Transfers; and
e.
The Appel/Bartlett Group Transfers and the Insider Transfers occurred

shortly before or shortly after a substantial debt was incurred by LSI.
337.
LSI did not receive reasonably equivalent value in exchange for entering into the
Consultant Agreements and making the Appel/Bartlett Group Transfers and Insider Transfers to
the Appel/Bartlett Group and the Insider Defendants. To the contrary, LSI was greatly damaged
by entering into the Consultant Agreements and making the Appel/Bartlett Group Transfers and
Insider Transfers. By knowingly and willingly entering into the Consultant Agreements with LSI,
accepting the Appel/Bartlett Group Transfers and Insider Transfers and re-selling their LSI shares
on the open market at massive gains, the Appel/Bartlett Group and the Insider Defendants helped
hold LSI hostage to a pump-and-dump and aided and abetting the First Board and the Second
Board in breaching their fiduciary duties to LSI, which caused LSI to sustain millions of dollars in
damages.
338.
LSI did not receive reasonably equivalent value in exchange for the Appel/Bartlett
Group Transfers and Insider Transfers it made to the Appel/Bartlett Group and the Insider
Defendants.
339.
Upon information and belief, the sum of LSIs debts exceeded its assets at a fair
valuation at the time of the Appel/Bartlett Group Transfers and Insider Transfers it made to the
Appel/Bartlett Group and the Insider Defendants.
340.
At the time of the Consultant Transfers, LSI was generally not paying its debts as
they became due.
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341.
At the time of the Appel/Bartlett Group Transfers and Insider Transfers, LSI was
engaged or was about to engage in a business or a transaction for which the remaining assets of
LSI were unreasonably small in relation to the business or transaction.
342.
At the time of the Appel/Bartlett Group Transfers and Insider Transfers, LSI
reasonably should have believed that it would incur debts beyond its ability to pay as they became
due.
343.
Pursuant to 11 U.S.C. 544(b), the Appel/Bartlett Group Transfers and Insider
Transfers described above are avoidable by LSIs creditors holding claims allowable under 11
U.S.C. 502.
344.
Plaintiff seeks to recover the full value of the funds, assets, and LSIs interest in the
assets comprising the Appel/Bartlett Group Transfers and the Insider Transfers from the
Appel/Bartlett Group, the Insider Defendants and all subsequent transferees who took any portion
of the funds, assets, and LSIs interest in assets comprising the Appel/Bartlett Group Transfers and
the Insider Transfers not in good faith.
345.
Attachment One, appended hereto and referenced as if copied here in extenso,
styled Fraudulent Transfers from LSI to the Appel/Bartlett Group and Insider Defendants,
identifies the Appel/Bartlett Group Transfers and the Insider Transfers, and estimates the
approximate, minimum value of these fraudulent transfers, the sum of which Plaintiff seeks to
recover as damages herein.
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COUNT TWO:
Avoidance and Recovery of the Fraudulent Transfers Under Sections 548(a)(1)(A) and (B)
and 550(a) of the Bankruptcy Code
Against the Appel/Bartlett Group and Insider Defendants
Gustin, DeJoria, and all of the Appel and Bartlett Related Entities)
346.

347.
Certain Appel/Bartlett Group Transfers and the Insider Transfers occurred within
two years prior to the Petition Date (Two-Year Appel/Bartlett Group Transfers and Insider
Transfers).
348.
The Two-Year Appel/Bartlett Group Transfers and Insider Transfers were made to
the Appel/Bartlett Group and the Insider Defendants with the actual intent to hinder, delay and/or
defraud LSIs then present and future creditors insofar as the transfers of cash, stock and warrants
were illegal and part of the Appel/Bartlett Groups scheme to rob LSI of its cash and stock, control
the flow of information and the movement of LSIs stock, and manipulate share prices in order to
sell their LSI shares on the open market at significant gains.
349.
Several traditional badges of fraud support a finding that the Two-Year
Appel/Bartlett Group Transfers and Insider Transfers were made with the actual intent to defraud
LSIs then present and future creditors, including the following:
a.
The Two-Year Appel/Bartlett Group Transfers and Insider Transfers were

to Insiders.
b.
The illegality of the Two-Year Appel/Bartlett Group Transfers and Insider

Transfers was concealed;
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c.
Before certain Two-Year Appel/Bartlett Group Transfers and Insider

Transfers were made, LSI had been sued or threatened with suit;
d.
LSI removed assets and property through the Two-Year Appel/Bartlett

Group Transfers and Insider Transfers; and
e.
The Two-Year Appel/Bartlett Group Transfers and Insider Transfers

occurred shortly before or shortly after a substantial debt was incurred by
LSI.
350.
LSI did not receive reasonably equivalent value in exchange for entering into the
Consultant Agreements and making the Two-Year Appel/Bartlett Group Transfers and Insider
Transfers to the Appel/Bartlett Group and the Insider Defendants. To the contrary, LSI was greatly
damaged by entering into the Consultant Agreements and making the Two-Year Appel/Bartlett
Group Transfers and Insider Transfers. By knowingly and willingly entering into the Consultant
Agreements with LSI, accepting the Two-Year Appel/Bartlett Group Transfers and Insider
Transfers and re-selling their LSI shares on the open market at massive gains, the Appel/Bartlett
Group and the Insider Defendants helped hold LSI hostage to a pump-and-dump and aided and
abetting the First Board and the Second Board in breaching their fiduciary duties to LSI, which
caused LSI to sustain millions of dollars in damages.
351.
LSI did not receive reasonably equivalent value in exchange for the Two-Year
Appel/Bartlett Group Transfers and Insider Transfers it made to the Appel/Bartlett Group and the
Insider Defendants.
352.
Upon information and belief, the sum of LSIs debts exceeded its assets at a fair
valuation at the time of the Two-Year Appel/Bartlett Group Transfers and Insider Transfers it
made to the Appel/Bartlett Group and the Insider Defendants.
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353.
At the time of the Consultant Transfers, LSI was generally not paying its debts as
they became due.

354.
At the time of the Two-Year Appel/Bartlett Group Transfers and Insider Transfers,
LSI was engaged or was about to engage in a business or a transaction for which the remaining
assets of LSI were unreasonably small in relation to the business or transaction.
355.
At the time of the Two-Year Appel/Bartlett Group Transfers and Insider Transfers,
LSI reasonably should have believed that it would incur debts beyond its ability to pay as they
became due.
356.
Plaintiff seeks to recover the full value of the funds, assets, and LSIs interest in the
assets comprising the Two-Year Appel/Bartlett Group Transfers and the Insider Transfers from
the Appel/Bartlett Group, the Insider Defendants and all subsequent transferees who took any
portion of the funds, assets, and LSIs interest in assets comprising the Two-Year Appel/Bartlett
Group Transfers and the Insider Transfers not in good faith.
357.
Attachment One, appended hereto and referenced as if copied here in extenso,
styled Fraudulent Transfers from LSI to the Appel/Bartlett Group and Insider Defendants,
identifies the Appel/Bartlett Group Transfers and the Insider Transfers, and estimates the
approximate, minimum value of these fraudulent transfers, the sum of which Plaintiff seeks to
recover as damages herein.
COUNT THREE:
Breach of Fiduciary Duty Against the Director and Officer Defendants
(Cohen, Kaye, Harlow, Wohler, Gustin, and DeJoria)
358.
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359.
The Director and Officer Defendants owed LSI, its shareholders, and its creditors
fiduciary duties of loyalty, including the exercise of oversight as pled herein, due care, and the
duty to act in good faith and in the best interests of LSI.
360.
Because LSI was insolvent at all relevant times, the Director and Officer
Defendants owed these fiduciary duties to the legitimate creditors of LSI as well.
361.
The Director and Officer Defendants breached their fiduciary obligations in the
following, non-exclusive, ways:

a. They caused and/or allowed LSI to misrepresent the financial condition and
business prospects of the corporation, and they failed to correct LSIs publiclyreported financial results and guidance;
b. They knowingly permitted Appel and Bartlett to control and manage LSI
without regard to the best interests of the corporation;
c. They knowing abused or allowed abuse of positions in the corporation for their
own personal gain and to the detriment of LSI, its creditors, and its
shareholders, and engaged in continuous self-dealing;
d. They failed to fulfill their fiduciary obligation to manage LSI with the best
interests of the corporation in mind;
e. They knowingly paid illegal commissions to non-licensed brokers for selling
securities;
f. They knowingly paid excessive salaries, professional service fees, and
consulting fees, as alleged herein, without receiving appropriate value to the
corporation;
g. They failed to implement or cause to be implemented internal controls that
would have prevented the wrongdoing alleged with particularity herein;
h. They committed corporate waste by paying or allowing to be paid excessive
compensation to themselves and using the corporations assets to support their
own unnecessary expenses, while at the same time exposing the corporation to
millions of dollars in liabilities and costs;
362.
The Director and Officer Defendants allowed their fellow officers and directors to
exercise unsupervised and unrestrained authority over the corporation.
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363.
The Director and Officer Defendants failed to exercise any oversight over the
corporations financial affairs.

364.
The Director and Officer Defendants, in breaching both their duty of loyalty and
duty of care, showed a conscious disregard for the best interests of the corporation.
365.
As a direct and proximate result of the foregoing failures of the Director and Officer
Defendants to perform their fiduciary obligations, the Debtor, its shareholders, and its creditors
have sustained substantial, compensable and punitive damages for which the Director and Officer
Defendants are liable.
366.
The compensable damages proximately caused by the Director and Officer
Defendants conduct include, but are not limited to, damages in the form of lost profits, damages
in an amount reasonably calculated to pay defrauded investors who have claims against the Debtor
as a result of Defendants conduct (potentially as much as $40 million or more), the return or
restitution of all sums fraudulently transferred to any of the Defendants or entities related to them,
disgorgement of all profits, benefits and other compensation obtained by Defendants, punitive
damages, damages for deepening insolvency (in the alternative), and all costs and disbursements
of this action, including reasonable attorneys fees, accountants and experts fees, costs, and
expenses incurred by the Debtor herein.
COUNT FOUR:
Aiding and Abetting Breach of Fiduciary Duty Against All Defendants
Gustin, DeJoria, all of the Appel and Bartlett Related Entities, and Island Capital
Management, LLC)
367.
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368.
As set forth more fully above, the Director and Officer Defendants breached their
fiduciary duties owed to LSI, it shareholders, and its creditors.

369.
At all relevant times, each of the Defendants were knowing participants in, and
gave substantial assistance or encouragement to, the breach of fiduciary duties and gross
mismanagement perpetrated by the Director and Officer Defendants that permeated the day-to-day
management of LSI, all as set forth herein.
370.
Each of the Defendants knowingly assisted, actively participated in, and/or failed
to perform his/her/its obligation to monitor against and prevent, inter alia: (i) the gross
mismanagement of the corporation; (ii) the improper diversion of funds out of the corporation; (iii)
the failure to pay the corporations proper creditors; (iv) the publication of materially false
information regarding LSI and its affairs to the investing public, LSI shareholders and potential
shareholders, and actual and potential creditors of LSI; (v) the failure to disclose the involvement
in LSI of Appel and Bartlett and/or the extent of such involvement; (vi) the payment of illegal
commissions; and (vii) the failure to disclose the full amount of the corporations obligations.
371.
As a direct and proximate result of the foregoing conduct, the Debtor, its
shareholders, and its creditors have sustained substantial, compensable and punitive damages for
which the Defendants are liable.
372.
The compensable damages proximately caused by the Defendants conduct include,
but are not limited to, damages in the form of lost profits, damages in an amount reasonably
calculated to pay defrauded investors who have claims against the Debtor as a result of Defendants
conduct (potentially as much as $40 million or more), the return or restitution of all sums
fraudulently transferred to any of the Defendants or entities related to them, disgorgement of all
profits, benefits and other compensation obtained by Defendants, punitive damages, damages for
130
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deepening insolvency (in the alternative), and all costs and disbursements of this action, including
reasonable attorneys fees, accountants and experts fees, costs, and expenses incurred by the
Debtor herein.
COUNT FIVE:
Fraud Against Defendants All Defendants
Management, LLC)
373.

374.
Defendants defrauded LSI, its shareholders, and creditors by utilizing a seemingly
unending series of misrepresentations and lies to make the publically traded corporation appear
more financially sound and commercially viable than it was. In reality, the market price of LSIs
shares were consistently manipulated by Defendants.
375.
Defendants intended that LSIs creditors and investors rely upon their
misrepresentations in conducting business with LSI.

376.
LSI, its shareholders, and its creditors relied upon the misrepresentations made by
Defendants in continuing to conduct business with, and extend credit to, LSI.
377.
LSI and its creditors suffered compensable damages as a direct and proximate result
of Defendants scheme to defraud LSI, its shareholders, and its creditors, and manipulate the
market.
378.
131
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Debtor herein.
COUNT SIX:
Conspiracy to Commit Fraud Against All Defendants
Management, LLC)
379.
As described herein, the Defendants conspired with one another to commit an
intentional or willful act to deceive, mislead, fraudulently induce, and cause damage to LSI, its
shareholders, and its creditors. Defendants agreed to defraud Plaintiffs and did in fact execute
their agreement to deceive, mislead, and damage LSI, its shareholders, and its creditors.
380.
Defendants' conspiracy caused LSI, its shareholders, and its creditors to sustain
compensable damages; furthermore, as co-conspirators, Defendants are jointly and severally liable
unto Plaintiff for the entirety of all recoverable damages.
381.
132
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Debtor herein.
COUNT SEVEN:
Aiding and Abetting Fraud Against All Defendants
Management, LLC)
382.

383.
As set forth above, Defendants defrauded and conspired to defraud LSI, its
shareholders, and its creditors by utilizing a seemingly unending series of misrepresentations and
lies to make the publically traded corporation appear more financially sound and commercially
viable than it was. In reality, the market price of LSIs shares were consistently manipulated by
Defendants.
384.
Although Plaintiff alleges that all Defendants were active, knowing participants in
this fraudulent scheme and conspiracy, to the extent that any Defendant lacked sufficient
knowledge of this fraudulent scheme to be held liable for either fraud or conspiracy to commit
fraud, it is hereby alleged, in the alternative, that any such Defendant substantially assisted in this
pattern of fraud, and is therefore liable unto Plaintiff for aiding and abetting fraud.
385.
LSI and its creditors suffered compensable damages as a direct and proximate result
of Defendants aiding and abetting the fraud committed against LSI, its shareholders, and its
creditors, to manipulate the market.
133
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386.
Debtor herein.
COUNT EIGHT:
Punitive Damages and Attorneys Fee Claim Against All Defendants
Management, LLC)
387.

388.
Defendants intentional or grossly negligent conduct described herein is so
egregious that it warrants the imposition of an award of punitive damages pursuant to applicable
law, either according to Florida Statute 768.72. et seq.; Nevada Revised Statute 42.001, et seq.;
and/or Texas Civ. Prac. & Rem. Code Ann. 41.003, et seq.
389.
Plaintiff alleges that, upon a showing of clear and convincing evidence, Defendants
had actual knowledge of the wrongfulness of their conduct and the high probability that damage
to LSI, its shareholders, and its creditors would result and, despite that knowledge, intentionally
pursued that course of conduct, resulting in said damage.
134
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390.
Plaintiff alleges that, upon a showing of clear and convincing evidence,
Defendants conduct was so reckless or wanting in care that it constituted a conscious disregard or
indifference to the rights of LSI, its shareholders, and its creditors, all whom were exposed to such
conduct, and were damages by the same.
391.
Plaintiff alleges that, upon a showing of clear and convincing evidence, Defendants
have been guilty of oppression, fraud or malice, express or implied, directed at LSI, its
shareholders, and its creditors, all whom were exposed to such conduct, and were damages by the
same.
392.
Plaintiff alleges that, upon a showing of clear and convincing evidence, the
damages sought by LSI, its shareholder, and its creditors herein, were caused by Defendants fraud,
malice, and/or gross negligence.
393.
Plaintiff is entitled to, and hereby demands, an award for all of plaintiffs reasonable
attorneys fees incurred in bringing this action against Defendants, whether based upon an
applicable contract, statute, law, or as a matter of equity.
394.
Plaintiff demands and prays for all punitive damages that are reasonable and just
against all Defendants under the facts pled herein.

JURY DEMAND
395.
Plaintiff demands a trial by jury.
135
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PRAYER FOR RELIEF

WHEREFORE, Plaintiff prays for relief and judgment, as follows:
a.
Against the Defendants, jointly and severally, and in favor of Plaintiff for the amount
of all actual, compensable, and equitable damages sustained by Plaintiff and prayed
for herein, because of the Defendants breaches of fiduciary duties, fraud, selfdealing, abuse of control, gross mismanagement, waste of corporate assets, including
lost profits, attorneys fees, accounting fees, investigation expenses and other costs
and expenses incurred in connection with the LSIs restatement, any SEC
investigation and any securities class action lawsuits;
b.
Awarding damages for deepening insolvency resulting from Defendants breaches of

fiduciary duties, fraud, self-dealing, abuse of control, gross mismanagement, waste
of corporate assets, including attorneys fees, accounting fees, investigation expenses
and other costs and expenses incurred in connection with the LSIs restatement;
c.
Awarding Plaintiff an amount reasonably calculated to pay defrauded investors who

have claims against the debtor of potentially as much as $40 million or more. The
cutoff date for filing claims has not yet been set. The Debtor has been damaged
because it would not have incurred these obligations but for the actionable conduct
of the Defendants described herein;
d.
Avoiding any fraudulent transfers made by LSI to the Defendants and any subsequent
transferees not in good faith and recovering any such transferred property for the
benefit of these estates and their proper creditors;
e.
Awarding extraordinary equitable and/or injunctive relief as permitted by law, equity

and state statutory provisions sued hereunder, including attaching, impounding,
imposing a constructive trust on or otherwise restricting the proceeds of the
Defendants trading activities or their other assets so as to ensure that Plaintiff has an
effective remedy;
f.
Awarding to LSI restitution from the Defendants, and ordering disgorgement of all
profits, benefits and other compensation obtained by these Defendants;
g.
Awarding to LSI costs and disbursements of the action, including reasonable

attorneys fees, accountants and experts fees, costs, and expenses;
h.
Awarding punitive damages and all other just and appropriate relief related to the
misconductincluding fraud and misrepresentationset forth in this Complaint;
i.
Granting such other and further relief as the Court deems just and proper.
136
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Filed on: February 13, 2015.

/s/ J. E. Cullens, Jr.
__________________________________________
J. E. Cullens, Jr. (admitted pro hac vice)
WALTERS, PAPILLION,
THOMAS, CULLENS, LLC
12345 Perkins Road, Building One
(225) 236-3636
cullens@lawbr.net
/s/ Patrick N. Broyles
__________________________________________
Patrick N, Broyles (admitted pro hac vice)
BROYLES LAW FIRM LLC
12345 Perkins Road
Building Two, Suite 203
(225) 663-2223
/s/ John C. Anderson
__________________________________________
John C. Anderson (admitted pro hac vice)
ANDERSON LAW FIRM
(225) 252-1645
/s/ Robin E. Phelan
__________________________________________
Robin E. Phelan
HAYES BOONE, LLC
Dallas, TX 75219
(214) 651-4512
Robin.Phelan@haynesboone.com
137
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I hereby certify that a copy of the foregoing FIRST AMENDED AND RESTATED
ADVERSARY COMPLAINT was served on all counsel of record herein via the Courts electronic
notification system on this 13th day of February, 2015.
/s/ J. E. Cullens, Jr.
__________________________________________
J. E. Cullens, Jr.
138
Case 14-04107-rfn Doc 10-1 Filed 02/13/15
Page 1 of 4
Entered 02/13/15 14:37:15
AttachmentOne:FraudulentTransfersfromLSItoAppel/BartlettGroupandInsiderDefendants
DEFENDANT
FEQRealty,LLC
HowardMillerAppel
CASH
CASHTRANSFERDATES
MINIMUMEST.ACTUAL
EST.VALUEOFALLISSUES
SHAREVALUEAT
SHARES
ISSUANCE
$150,000.00
8/10/2011 50,000
3/22/2011
$3.00
$150,000.00
$200,000.00
10/18/2011 666,666
4/25/2011
$1.45
$966,665.70
100,000
6/10/2011
$1.94
$194,000.00
170,000
8/4/2011
$3.34
$567,800.00
$100,000.00
50,000
8/25/2011
$3.50
$175,000.00
120,000
1/19/2012
$1.47
$176,400.00
3/4/2011
CapitalGrowthRealty,Inc.
HarveyKaye
SHARETRANSFER
DATES
SHARES
6/10/2011
$1.94
$485,000.00
Tobedetermined
Tobedetermined
$120,000.00
2012(est.) 2,023,960
7/31/2009
$3.90
$7,893,444.00
$277,380.60
2011(income) 750,000
6/16/2011
$1.97
$1,477,500.00
2011(miscincome)
$1,000.00
2011(miscincome)
$183,789.00
2010(income)
$159,782.00
2009(income)
$5,000.00
1/29/09
$7,638.82
2/24/09
$4,323.78
7/17/09
$1,396.51
9/16/09
$1,055.91
12/21/09
$3,480.51
12/21/09
$80.00
3/9/10
$5,240.03
8/27/10
$5,240.03
10/13/10
$7,500.00
11/23/10
$2,500.00
12/28/10
$25,000.00
3/3/11
$700.00
3/14/11
$1,065.28
3/28/11
$30,000.00
4/4/11
$18,438.34
4/5/11
$750.00
4/6/11
$750.00
5/9/11
$67.80
5/9/11
1,440,000
WARRANT
TRANSFERDATE
6/10/2011
Tobedetermined
250,000
$5,000.00
WARANTS
Page1of4
139
Page 2 of 4
DEFENDANT
CASH
CASHTRANSFERDATES
$750.00
6/7/11
$750.00
7/15/11
HelenKlebanoff
Entered 02/13/15 14:37:15
SHARETRANSFER
DATES
SHARES
2,023,960
MattCohen
$225,642.94
2011(income)
$11,000.00
2011(miscincome)
$98,328.64
2012(income)
$13,593.76
2012(miscincome)
$193,724.00
2010(income)
$146,000.00
2009(income)
$25,000.00
5/2/12
$3,000.00
11/4/08
$5,000.00
11/19/08
$5,000.00
12/8/08
$3,000.00
12/22/08
$5,000.00
1/16/09
$6,000.00
1/28/09
$2,500.00
2/4/09
$3,500.00
2/13/09
$500.00
2/13/09
$2,500.00
3/6/09
$5,000.00
3/12/09
$4,500.00
3/27/09
$500.00
3/27/09
$500.00
4/7/09
$5,500.00
4/13/09
$3,000.00
5/18/09
$300.00
6/4/09
$2,500.00
6/15/09
$2,250.00
7/20/09
$2,500.00
9/7/10
$7,500.00
11/22/10
$2,500.00
12/23/10
$10,000.00
2/4/11
$5,000.00
2/25/11
$700.00
3/8/11
$7,796.14
4/1/11
MINIMUMEST.ACTUAL
SHAREVALUEAT
SHARES
ISSUANCE
7/31/2009 $3.90
$7,893,444.00
Tobedetermined
Tobedetermined
6/21/2011
750,000 $1.99
$81,022.85
6/6/2012
10,000 $1.26
$51,743.16
Page2of4
WARANTS
WARRANT
TRANSFERDATE
140
Page 3 of 4
DEFENDANT
CASH
CASHTRANSFERDATES
$750.00
4/6/11
$750.00
5/9/11
$750.00
6/7/11
$750.00
7/15/11
HawkManagementGroup
VernonRayHarlow
$123,750.00
WARANTS
$5,004,998.70
Tobedetermined
2011wages 195,229
4/25/2012 $1.18
$230,370.22
Tobedetermined
Tobedetermined
2012wages
$432.68
2012unknown
$21,197.66
2011bonus
$25,000.00
2011misc
$3,750.00
2012misc
$4,717.50
7/15/11
$15,000.00
5/1/12
$15,000.00
5/2/12
$15,000.00
5/30/12
$15,000.00
6/29/12
$6,250.00
2/2/11
$6,250.00
2/15/11
$6,250.00
2/28/11
$6,250.00
3/15/11
$20,000.00
3/30/11
RMSAdvisors,Inc.
TSSInvestment,Inc.
MINIMUMEST.ACTUAL
SHAREVALUEAT
SHARES
ISSUANCE
7/31/2009 $3.90
$4,687.50
$31,549.30
SHARETRANSFER
DATES
SHARES
1,283,333
DITEquityHoldings,LLC
KWLExploration
Entered 02/13/15 14:37:15
600,000
06/08/11
$1.94
$1,164,000.00
100,000
06/08/11
$1.94
$194,000.00
310,500
6/8/2011
$1.94
$602,370.00
75,000
7/26/2011
$3.20
$240,000.00
50,000
8/25/2011
$3.50
$175,000.00
666,666
4/25/2011
$1.15
$766,665.90
103,500
08/25/11
$3.50
$362,250.00
100,000
03/22/11
$3.00
$300,000.00
100,000
06/10/11
$1.94
$194,000.00
4/20/11to11/14/11
WARRANT
TRANSFERDATE
Tobedetermined
Tobedetermined
500,000
Page3of4
4/25/2011
$1.15
$575,000.00
Tobedetermined
141
Page 4 of 4
DEFENDANT
CASH
CASHTRANSFERDATES
DeRoseFamilyTrustD/T/D11/18/86
WilliamBelzbergRevocableLivingTrust
WiltomoRedemptionFoundation
VirginiaDadey
$39,000.00
2011wages
$12,347.14
2011expenses
$39,612.25
2012wages
$3,250.00
2012severance
$19,627.58
2012expenses
$5,687.50
2012misc
MichaelGarnick
Entered 02/13/15 14:37:15
SHARETRANSFER
DATES
SHARES
220,000
6/10/2011
MINIMUMEST.ACTUAL
SHAREVALUEAT
SHARES
ISSUANCE
WARANTS
$1.94
$426,800.00
Tobedetermined
Tobedetermined
760,000
3/22/2010
$3.90
$2,964,000.00
100,000
6/10/2011
$1.94
$194,000.00
250,000
6/10/2011 $1.94
$485,000.00
Tobedetermined
Tobedetermined
100,000
3/22/2011
$3.00
$300,000.00
50,000
9/6/2011
$3.73
$186,500.00
340,000
6/10/2011
$340,000.00
500,000
4/25/2011
$500,000.00
Tobedetermined
JefferyWohler
Tobedetermined
Tobedetermined
Tobedetermined
MichaelGustin
Tobedetermined
Tobedetermined
Tobedetermined
JohnPaulDeJoria
Tobedetermined
Tobedetermined
Tobedetermined
Total
WARRANT
TRANSFERDATE
$2,570,623.20
$35,316,974.53
Page4of4
142
Randy Burton
Trent L. Rosenthal
Landon Speights
Burleson LLP
(713) 358-1700
FORT WORTH DIVISION
In re:
Debtor
Chapter 11
Case No.: 12-46295-rfn-11

Plaintiff,
v.
HOWARD APPEL, ERNEST A. BARTLETT, III,
MATTHEW J. COHEN, RMS ADVISORS, INC.,
CAPITAL GROWTH REALTY, INC., CAPITAL
GROWTH INVESTMENT TRUST, DIT EQUITY
COHEN, HAWK MANAGEMENT GROUP, INC.,
FEQ REALTY, LLC, HARVEY KLEBANOFF
AJKJA HARVEY KAYE, HELEN KLEBANOFF,
MOGGLE, LLC, ISLAND CAPITAL
MANAGEMENT, LLC, TSS INVESTMENTS,
INC., VERNON RAY HARLOW, JEFFERY
WOHLER, MICHAEL GUSTIN, WILTOMO
REDEMPTION FOUNDATION, SLD CAPITAL
CORP., DeROSA FAMILY TRUST, WILLIAM

PAUL DeJORIA,
Defendants.
DEMAND FOR JURY TRIAL
Defendants MICHAEL GUSTIN, JEFFERY WOHLER, and JOHN PAUL DEJORIA
(collectively, the Movants), by and through their counsel, Burleson LLP, file their Demand for
Jury Trial, and in support thereof, state:
1.
Movants hereby demand a jury trial on all issues on which they are entitled to a
jury trial under the U.S. Constitution.

2.
under a case under Title 11 of the United States Code. Movants are entitled to a jury trial on
these claims as a matter of constitutional right under the Seventh amendment to the U.S.
Constitution and applicable law. Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S. Ct.
2782, 106 L. Ed. 2d 26, 18 Fed. R. Serv. 3d 435 (1989).
3.
Movants note that the Trustee has also requested a jury trial, and, the Trustee is
aware that the Bankruptcy Court cannot conduct a jury trial without consent of all the parties.
Movants expressly do not consent to allow the Bankruptcy Court to conduct a jury trial.
/s/ Randy Burton
Randy Burton
Trent L. Rosenthal
Landon Speights
Burleson LLP
(713) 358-1700
/s/ Randy Burton

Randy Burton

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Case 4:15-cv-00225-O Document 1 Filed 03/24/15

BTXN 150 (rev. 11/10)

Case No.: 1246295rfn11

CIVIL CASE COVER SHEET

(b) County of Residence of First Listed Party:

County of Residence of First Listed Party:

(c) Attorney's (Firm Name, Address, and Telephone Number)

Attorney's (If Known)

Defendants Harvey N. Klebanoff and Helen Klebanoff Attorney:

Joseph E. Cullens, Jr.

All other Defendants Pro Se

Robin Eric Phelan

II. BASIS OF JURISDICTION

III. CITIZENSHIP OF PRINCIPAL PARTIES

Incorporated or Principal Place

Incorporated and Principal Place

IV. NATURE OF SUIT

423 Withdrawal 28 USC 157

890 Other Statutory Actions

Case 4:15-cv-00225-O Document 1 Filed 03/24/15

Removed from State

Remanded from Appellate Court

Appeal to District Judge from

VI. CAUSE OF ACTION

VII. REQUESTED IN COMPLAINT:

VIII. RELATED CASE(S) IF ANY

CHECK YES only if demanded in complaint:

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Civil Case No.:

NOTICE OF TRANSMITTAL REGARDING WITHDRAWAL OF REFERENCE

FOR THE COURT:

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UNITED STATES BANKRUPTCY COURT

WITHDRAWAL OF REFERENCE SERVICE LIST

Plaintiff Carey D. Ebert

Case 4:15-cv-00225-O Document 1 Filed 03/24/15

Defendant Michael Gustin

Defendant Jeffery Wohler

Case 4:15-cv-00225-O Document 1 Filed 03/24/15

Defendant John Paul Dejoria

Defendant Harvey N. Klebanoff

Defendant Helen Klebanoff

Case 4:15-cv-00225-O Document 1-1 Filed 03/24/15

Page 1 of 171 PageID 7

Case No.: 12-46295-rfn-11

LATITUDE SOLUTIONS, INC.

Case 4:15-cv-00225-O Document 1-1 Filed 03/24/15

Page 2 of 171 PageID 8

HARLOW, JEFFERY WOHLER, MICHAEL

Defendants MICHAEL GUSTIN, JEFFERY WOHLER, AND JOHN PAUL

Case 4:15-cv-00225-O Document 1-1 Filed 03/24/15

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/s/ Randy Burton

Case 4:15-cv-00225-O Document 1-1 Filed 03/24/15

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Case 4:15-cv-00225-O Document 1-1 Filed 03/24/15

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Case No.: 12-46295-rfn-11

LATITUDE SOLUTIONS, INC.

Case 4:15-cv-00225-O Document 1-1 Filed 03/24/15