Plaintiff, United States Securities and Exchange Commission (“SEC”), respectfully

____________________________________ 
UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF ILLINOIS 

EASTERN DIVISION 

: 
UNITED STATES SECURITIES : 
AND EXCHANGE COMMISSION, : CASE NO. 1:07-cv-4538 
:
            Plaintiff,            :            Hon.            Elaine            E.            Bucklo            
:
            v.            :            Magistrate            Judge            Arlander            Keys            
: 
BRIAN N. HOLLNAGEL and : 
BCI AIRCRAFT LEASING, INC. : 

:

            Defendants.            :            

____________________________________: 

PLAINTIFF UNITED STATES SECURITIES AND EXCHANGE COMMISSION’S 
MOTION FOR ORDER TO SHOW CAUSE 
Plaintiff, United States Securities and Exchange Commission (“SEC”), respectfully 
moves this Court for an order to show cause why Defendants Brian N. Hollnagel (“Hollnagel”) 
and BCI Aircraft Leasing, Inc. (“BCI”) (collectively “Defendants”) should not be held in 
contempt of the Court’s August 22, 2007 Order (“Order”) in light of their multiple violations of 
the Order.
1
  Defendants are not repaying all of the investors in cash as required by the Order.  
Defendants have also failed to comply, and continue to fail to comply, with the reporting 
requirements in the Order.  Defendants appear to believe they are not required to comply with 
those provisions of the Order, have provided virtually no supporting information or documents to 
the SEC necessary to its role as monitor, and have misled the Court regarding their ability to 
repay investors. It also appears that Defendants have conducted new fraudulent securities sales, 
in violation of the Order and the federal securities law. 
This Motion to Show Cause also serves to correct misstatements and misleading statements in 
Defendants’ September 19th Surreply, Docket No. 47.  In addition, as part of the SEC’s monitoring role 
under the Order, this filing serves as an updated report to the Court regarding Defendants’ progress in 
repaying investors. 
1 

Defendants misled the Court during the hearing and have subsequently made materially 
misleading statements in its Reports to the SEC and its filings with the Court.  While reporting to 
investors, the SEC, and the Court that great progress was being made and that their repayment 
plan was on track, Defendants were telling Bridgeview Bank that the death of the potential $36+ 
million buyout, and the seizure of funds by Bridgeview pursuant to BCI’s default, was “truly, 
actually, killing us,” and Defendants’ counsel was telling Mr. Hollnagel that, unless the issues 
with Bridgeview were “cleared up in the VERY near future,” his options “are few.”
2
 In the 
meantime, Defendants’ former counsel, Ungaretti & Harris LLP, has filed an application to 
intervene in this matter because Defendants are using this Court’s Order to justify not paying  
$500,000 in outstanding legal bills.  Likewise, the SEC is aware of two other substantial 
creditors, one of which was required to be paid pursuant to a Court order, that have similarly not 
been paid. As is typical in collapsing Ponzi schemes, and despite displaying confidence 
regarding their financial health, Defendants simply do not have enough money to satisfy their 
investors and creditors.  This is exactly the type of impending financial debacle that requires the 
appointment of a receiver. 
Finally, in addition to the fact that Defendants have made a virtual mockery of this 
Court’s Order through their contemptuous non-compliance, this Court needs to address 
Defendants’ multiple violations of the Order as soon as possible because there is an immediate 
danger that Defendants continue to victimize investors.  Instead of repaying investors with cash 
as required, Defendants Hollnagel and BCI, the same parties preliminarily found by this Court to 
have committed securities fraud, now appear to have made new securities offers and sales to 
previously victimized investors.  Defendants’ purported repayment plan appears to have reverted 
Hollnagel forwarded an email from his Counsel to an officer at Bridgeview Bank as part of an 
email to that officer.  See Exhibit 1. 
2

2 

 
3 
to a mere continuation of their original Ponzi scheme: pledging assets rightfully belonging to 
prior investors (but who were fraudulently bought out of their interests) to other investors, now 
as “repayment” of their investments.  Defendants are doing all of this under a veil of secrecy, 
producing virtually nothing in response to the SEC’s multiple requests for information and 
documents regarding these new transactions with investors and their repayment progress.   
Alarmingly, Jason Hyatt (“Hyatt”) and Jay Johnson (“Johnson”), the principals of Hyatt 
Johnson Capital, LLC (“Hyatt Johnson”), the purported representatives of 110 individual 
investors who invested nearly $23 million in BCI securities, have informed the SEC through 
counsel that they will assert their Fifth Amendment privilege against self-incrimination in 
response to SEC subpoenas. These subpoenas, among other things, seek information about their 
communications and dealings with Defendants regarding the new offers and sales of securities.  
In other words, not only do the Defendants not want this Court or the SEC to know anything 
about their dealings with investors (including new offers and sales of securities), but purported 
representatives of investors believe that there is a reasonable likelihood of criminal prosecution 
in connection with their dealings with Defendants, including possibly these new securities sales.
3 
The SEC believes these are sufficiently disturbing developments to warrant immediate action by 
this Court, such as finding Defendants in contempt of the August 22nd order, imposing an asset 
freeze, and appointing a receiver, to protect investors from being further defrauded. 
The entity Hyatt Johnson Capital LLC has produced documents and has promised to produce 
more.  Of course, the entity cannot assert the Fifth Amendment privilege against self-incrimination.  
However, the SEC has recently learned that there is a substantial amount of information relating to Hyatt 
Johnson Capital in the possession of Hyatt and Johnson.  Based on what its counsel has told the SEC, the 
office of Hyatt Johnson Capital was located in Johnson’s home.  This office had separate Hyatt Johnson 
Capital computers for Hyatt and Johnson.  The SEC has been informed that there exists approximately 30 
gigabytes of electronic information copied from those Hyatt Johnson Capital computers by counsel for 
Hyatt and Johnson, and these copies, and the original computers, remain in the possession of Hyatt and 
Johnson.  Counsel for Hyatt Johnson Capital does not yet possess a copy of this information.  Johnson, 
through Counsel, has informed the SEC that he intends to produce all Hyatt Johnson Capital material, but 
the SEC does not know whether Hyatt will do the same. 
3


I. 	THE COURT, FINDING FRAUD, IMPOSED NUMEROUS REQUIREMENTS 
ON DEFENDANTS IN ITS ORDER. 
A. 	The SEC’s Complaint alleged fraud in the offer and sale, and later, in the 
offer and repurchase, of securities by Defendants. 
The SEC filed its Complaint in this matter, along with a motion for a temporary 
restraining order, an asset freeze, and a receiver, against Defendants on August 13, 2007.  The 
Complaint alleged, among other things, that Defendants defrauded investors by, among other 
things, not purchasing aircraft on behalf of the investor LLC with investors’ money, despite 
raising investor money for that express purpose, and by misappropriating assets or profits 
belonging to investors. See Docket no. 1 at ¶¶ 74-128. The Complaint also alleged that 
Defendants further defrauded investors through a buyback in the spring of 2007, when they made 
misleading statements regarding the status of the investments.  See id. at ¶¶ 182-95. In 
particular, the SEC alleged that Defendants misrepresented the value of the investors’ interests in 
the LLCs and thus fraudulently repurchased investors’ interests in the LLCs, keeping the 
accumulated equity to themselves.   See id.   Defendants also sold or refinanced aircraft 
purchased using investor funds, or otherwise belonging to investors, in order to raise the money 
required to buy out other investors, without disclosing these facts to either set of investors.  See 
id. at ¶¶ 191-194. 
B. 	The Court issued an injunction against further antifraud violations. 
On August 22, 2007, after a two day evidentiary hearing and hours of arguments from 
both parties, this Court issued a Temporary Injunction against Defendants which, among other 
things, prohibited them from further violations of certain of the anti-fraud provisions of the 
Federal securities laws.  The Court also entered a Memorandum Opinion and Order (the 
“Order”). That Order, among other things, made factual findings, including “It is undisputed that 
4


BCI made material misrepresentations in its LLC offering documents...” to investors and that 
“[t]here can be no doubt that BCI and Hollnagel acted with scienter.  There is also a risk of 
repetition.” Order at 7-8. Based on these and other findings, the Court entered a temporary 
injunction enjoining Defendants from further securities fraud.  Based on Defendants’ repeated, 
comprehensive, and ongoing contempt of the Order, it appears that the Court’s concerns about 
possible recidivism by Defendants were well-founded. 
C. 	The Court ordered that Defendants repay investors and report information 
to the SEC. 
The Court declined the SEC’s request for the appointment of a Receiver and an asset 
freeze, but rather, ordered that Defendants repay all of their noteholders within 60 days.
4
 In 
addition, the Court ordered that Defendants report to the SEC their progress in repaying 
investors, and imposed certain other reporting requirements on Defendants.  It is apparent from 
the language and reasoning of the Order that the Court intended the repayment of investors to be 
in the form of cash.  Indeed, that is what Defendants promised at the hearing. 
During the hearing Defendants repeatedly promised the Court that investors would be 
repaid in cash if no asset freeze were instituted.  For example, during closing arguments counsel 
for Defendants represented to the Court that Defendants were in negotiations “with regard to a 
transaction which will net well in excess of the $36 or $37 million that will be necessary to pay 
off” the remaining noteholders.  See August 20, 2007 Transcript at 208.  Counsel further 
represented to the Court that, notwithstanding the SEC’s complaint and the temporary injunctive 
hearing, “that transaction is still on course.”  Id. at 209. Counsel for Defendants also stated to 
These “noteholders” were all previously investors in LLCs managed by Defendants, certain of 
whom exchanged those equity interests for promissory notes guaranteed by BCI. 
5

4 

the Court that, no matter the outcome of that particular deal, Defendants still would have 
sufficient cash to repay their investors.  Counsel stated: 
 [i]n addition to that transaction, and I don’t want to suggest that we don’t think 
it’s going to happen, there are three alternatives that the company was also 
working on that would generate sufficient cash to pay these people off. Your 
Honor, as we look at what are now, I think, accepted financials, or at least not 
disputed financials, there’s enough value here to do that.  There is a great plenty 
value here to do that in the $95 million net equity after paying everybody off on 
the evidence that’s been presented to the Court. 
Id. at 209 (emphasis added). 
The Court specifically referenced these representations in its Order as the basis for not 
issuing an asset freeze and appointing a Receiver.  In fact, the Court specifically noted that “the 
SEC has not shown at present that BCI will not be able to pay the notes as BCI has represented 
to the Court.” Order at 8-9. The Court, while discussing the position of the noteholders, further 
observed that the noteholders believed that Defendants have a greater ability “to obtain the funds 
to pay the notes than a receiver...”  Id. at 8. Thus, based on Defendants’ representations and the 
language and reasoning of the Court, the Order clearly contemplated that Defendants would 
repay their noteholders in cash. 
In addition to the repayment of noteholders, the Court imposed five specific reporting 
conditions on Defendants: 
1) BCI must report to the SEC on a weekly basis its progress in paying off the 
noteholders;            
2) [BCI must] provide an immediate accounting of the LLC in which one investor 
continues to hold equity; 

3) [BCI must] provide to the SEC on a weekly basis all proposed withdrawal of funds; 

4) significant withdrawals (in excess of $20,000) may be made only with 48 hours notice 

to the SEC; [and] 

6


5) all money paid to BCI or any BCI affiliate, including LLCs and Hollnagel in 
connection with BCI, shall be reported to the SEC on a weekly basis. 
Id. at 9. Finally, the Court ordered that: 
If noteholders are not repaid within 60 days, or for any other reason it becomes 
apparent before that time that BCI will not be able to pay its noteholders, the SEC shall 
inform the Court and I will reconsider the SEC’s request for a freeze of assets and 
appointment of a receiver.  
Id.  As discussed below, Defendants have violated virtually every provision of the Court’s Order, 
and continue to do so. 
II.	DEFENDANTS ARE NOT REPAYING INVESTORS IN CASH, AND HAVE 
STATED THEIR INTENTION TO NOT COMPLY WITH THE COURT’S 
ORDER TO REPAY INVESTORS IN CASH WITHIN 60 DAYS. 
Defendants essentially concede that, over 30 days into the Court-ordered repayment 
period, they are unable to repay their investors with cash.  Instead, Defendants have proposed to 
repay most remaining investors via the sales of new securities or the parceling out of aircraft or 
other assets. Defendants have stated that only two of the remaining noteholders, representing a 
total of about $10.7 million, are to be paid in cash “from the net proceeds of sale or financing 
transactions” which to this date have not yet occurred and may never occur.  See Exhibit 2 to 
SEC’s September 14th Reply, Docket No. 45, at 3. Hollnagel has told one of these investors that 
the transaction is unlikely to happen within 60 days of the Order.  The other remaining 
noteholders, a total of about $33 million, have been or will be repaid by being given either assets 
or new securities, or in Defendants’ words, “convey to them 100% of the ownership interests of 
entities owning specified aircraft subject to existing leases.”  See id. 
Throughout the hearing, Defendants repeatedly represented to the Court that a potential 
$36+ million buyout of aircraft, later identified as involving Bridgeview Bank, was the lynchpin 
7


of their plan to repay investors.
5
  As noted by the SEC in its September 14th Reply, this 
transaction ceased to be viable as of August 29th, when Bridgeview notified Defendants that 
there would be no such buyout. Defendants failed to disclose this development to the SEC or to 
this Court. Defendants later played down the importance of the death of this potential buyout, 
insisting that there were other potential deals in the works to repay investors, none of which have 
actually occurred. However, this potential buyout was much more vital to Defendants’ 
repayment ability than they have previously admitted.  The day that Bridgeview informed 
Defendants that the buyout was no longer viable, Mr. Hollnagel’s counsel informed him that, 
unless these issues with Bridgeview were “cleared up in the VERY near future,” his options “are 
few.” See Exhibit 1. The next day, when Bridgeview seized another $2 million pursuant to a 
default by BCI on a loan from GMAC, Mr. Hollnagel told Bridgeview that this was “truly, 
actually, killing us.” See Exhibit 2. Defendants have never admitted to investors, the Court, or 
to the SEC in its monitoring role, how devastating the Bridgeview and GMAC defaults and the 
death of the $36 million buyout were to their ability to repay investors. 
Defendants’ plan to no longer repay noteholders with cash was first acknowledged in 
their September 10th Response.  See Docket No. 43 at 5-7. In their Response, Defendants 
claimed as a sign of “significant progress” that investors were paid $12.5 million on August 23, 
2007. However, Defendants failed to tell the Court in their Response that approximately $6 
million of the checks for the $12.5 million repayment had been returned for insufficient funds.  
See id. at 2-5. Defendants have not further asserted that they could or would repay those 
investors in cash now that the checks have bounced.  In fact, Defendants have not paid these 
It was the SEC, and not Defendants, who first identified Bridgeview as being the entity that 
Defendants claimed at the hearing would participate in a transaction with BCI that would generate enough 
cash to repay all investors.   
8

5 

investors cash. Instead, Defendants claimed that they would convey to three of these investors 
“100% ownership of specified aircraft in full satisfaction of BCI’s obligations to them” and 
“100% ownership of a specified aircraft on lease, although in this case, BCI has agreed to 
repurchase this aircraft if and when a sale of the aircraft can be arranged” to another investor.  Id. 
at 6. Defendants also stated that Hollnagel had “substantive and significant discussions” with 
two of the largest BCI investors, and has reached exit agreements with them.  Id.  Defendants 
omitted any details about these exit agreements, although clearly they bear directly upon 
Defendants’ ability to repay, and progress in repaying, investors.  These details are also 
necessary to the SEC’s mandate to alert the Court if “it becomes apparent before [60 days have 
passed] that BCI will not be able to pay its noteholders.”  Order at 9.  These are but two minor 
examples of Defendants’ contempt of this Court’s Order. 
III.	DEFENDANTS ARE APPARENTLY ENGAGED IN NEW SECURITIES SALES 
AND OTHER SUSPECT TRANSACTIONS IN ORDER TO REPAY INVESTORS. 
In their Response, Defendants also repeatedly claimed that they would be able to repay 
the remaining noteholders in cash.  Defendants claimed, as they had repeatedly claimed at the 
hearing, that they were engaged in transactions that “would result in net proceeds more than 
sufficient to satisfy BCI’s obligations in full to all remaining noteholders” and, that “BCI has 
solicited and received no less than three proposals for financing that would result in net proceeds 
to BCI more than sufficient to satisfy BCI’s obligations in full.”  Docket No. 43 at 7. 
Notwithstanding Defendants’ September 10th pledge to repay the remaining noteholders 
in cash, along with claims of their ability to do so, just over a week later Defendants indicated 
that they would not fulfill this promise.  In Defendants’ September 19th Surreply, Defendants for 
the first time disclosed any details about its exit strategy with its largest investor, Hyatt Johnson.  
9


In their Surreply, Defendants stated that the Hyatt Johnson repayment consisted of the 
conveyance of “100% ownership rights of numerous aircraft in satisfaction of approximately $21 
million” due to Hyatt Johnson.  Docket No. 47 at 2-3.  Thus, it was not a repayment of cash to 
Hyatt Johnson or the 110 investors it represents, rather, simply an exchange of one security for 
another.
6 
Furthermore, in their September 19th Surreply, Defendants changed their September 10th 
promise “to satisfy BCI’s obligations in full to all remaining noteholders” with cash, to now 
promising to repay only “those remaining noteholders desiring cash.” Id. at 4 (emphasis added).  
At least three other investors are being repaid with new securities, and it is apparent that 
Defendants are unable to repay their noteholders in cash.  In fact, all remaining noteholders 
wanted to be paid in cash. However, Defendants have informed numerous investors that they 
cannot repay them in cash.  Instead, Defendants have offered investors an all or nothing 
proposition: accept equity interests in aircraft or receive nothing in exchange for their promissory 
notes. Hollnagel told at least one investor that if a receiver is ever appointed, all of Defendants’ 
aircraft will be seized by banks, and that investors will then receive nothing.
7
 Consequently, 
investors appear to be accepting “repayment” offers from Defendants out of fear of recovering 
nothing, not because such offers fairly represent what investors are entitled to, or desire, and 
certainly not resulting from being given full and complete disclosure of all material information. 
6 
As was stated in the SEC’s September 14th Reply, without the knowledge or approval of its 
investors, in July 2007 Hyatt Johnson exchanged their investors’ equity interests in the various LLCs 
managed by BCI for an approximately $23 million promissory note.  See Docket No. 45 at 10. 
7 
At the same time, of course, Defendants were representing to the Court that BCI was “healthy and 
vibrant” with over $95 million in equity. 
10


A. Misrepresentations in Connection with the Hyatt Johnson “Settlement” 
Defendants’ “repayment” to Hyatt Johnson was in fact a new issuance of securities that 
failed to disclose material facts.  Pursuant to a September 10, 2007 agreement (“HJ Agreement”), 
Defendants purportedly repaid in full and final satisfaction all amounts owed to Hyatt Johnson.
 8 
See HJ Agreement (provided to the Court on September 14, 2007).  Under this agreement, 
Defendants conveyed to Hyatt Johnson their “membership interests” in three LLCs controlled by 
Defendants and cash to be paid at a later date in exchange for Hyatt Johnson’s release of the 
promissory note owed by Defendants.  According to the agreement, on July 19, 2007, BCI issued 
a promissory note to Hyatt Johnson in the amount of $22,689,560, presumably representing the 
full amount of capital investment in the LLCs managed by Defendants.
9 
See id. at 1. Then, on 
September 10th, in exchange for the release of this note, BCI conveyed to Hyatt Johnson “100% 
of its Membership Interest” in BCI Investment 2005-1, BCI Investment IRL, and BCI 2004-8.  
Defendants also agreed to pay Hyatt Johnson $1.2 million in cash by December 31, 2007 or 
when the refinancing of a particular BCI aircraft occurs (whichever occurs sooner), and agreed to 
assign $3.5 million from the sale of an aircraft in BCI 2005-15.
10 
See id. at 4-5. Of the more 
than $22.6 million owed to Hyatt Johnson, Defendants have apparently agreed to repay only $4.7 
8 
As discussed previously, and explained more fully below, both Hyatt and Johnson, through 
counsel, have informed the SEC that they intend to assert their Fifth Amendment privilege against self-
incrimination regarding all questions or the production of personal documents relating to their dealings 
with Defendants, including these recent transactions. 
9 
This note has not been produced by Defendants, Hyatt Johnson Capital, Hyatt, or Johnson.  This 
exchange was done without the knowledge or approval of the Hyatt Johnson investors whose nearly $23 
million had been invested in BCI LLCs. 
10 
Of this payment, $2 million is to be paid to a Hyatt Johnson Capital investor who loaned $2 
million to Hyatt Johnson which purportedly was then loaned to BCI.  The SEC is unable to locate this $2 
million loan to BCI anywhere in Defendants’ accounting records, and despite the SEC’s August 31, 2007 
discovery request for documents from Defendants relating to this loan, Defendants have not provided any 
information.   
11


million of this amount in cash, $3.5 million of which will be paid upon BCI’s sale of a specific 
aircraft, which, under the agreement, could occur as late as January 8, 2008, if at all.  See id. at 5. 
In the September 10th agreement, Defendants represent that BCI is the sole member and 
owner of the LLCs known as BCI 2004-8, BCI 2005-1, and BCI Investment IRL.   See HJ 
Agreement at 1.  Defendants do not acknowledge or address, however, the claims of the SEC in 
its Complaint, or the findings of the Court in its Order that Defendants defrauded at least some of 
the prior investors in these LLCs.  In particular, Defendants failed to disclose to Hyatt Johnson 
that BCI 2004-8 owns an aircraft that was purchased with misappropriated funds belonging to 
investors in BCI 2004-6. The SEC has previously alleged and presented evidence during the 
hearing that Defendants sold the aircraft belonging to BCI 2004-6 and misappropriated most of 
the proceeds of the sale from investors.  Defendants also failed to disclose that BCI 2005-1 owns 
an aircraft that was purchased in part with misappropriated funds belonging to investors in yet 
another offering, BCI 2004-7. These assignments of assets by Defendants, purchased using other 
investors’ funds, to a new LLC now owned by Hyatt Johnson, is nothing more than a 
continuation of the original Ponzi scheme.   
In addition, with respect to the proposed sale of the BCI 2005-15 aircraft, Defendants 
failed to disclose material facts concerning their ability to generate sufficient sales proceeds.  For 
there to be enough money generated from Defendants’ sale of the BCI 2005-15 aircraft as 
represented in the agreement, the sale must at least be valued at $14 million.  According to 
documents submitted to Deloitte as part of the draft “audit” in February 2007, however, the fair 
market value of that aircraft was estimated to be between $4.65 and $7.85 million.  Thus, from 
the available evidence, barring a more than doubling of the aircraft’s market value in the last 
seven months, it appears that Defendants, knowing the estimated market value of the aircraft, 
12


pledged to investors sale proceeds that are highly unlikely to ever exist and are, at a minimum, 
materially misleading.  This appears to constitute yet another material misrepresentation by 
Defendants in connection with the offer and sale of a security, in violation of the antifraud 
provisions of the federal securities laws, and also in violation of this Court’s injunction. 
This transaction involves securities because it is an investment that ultimately relies on 
the efforts of Defendants.  The September 10th agreement does not explicitly state that BCI will 
remain the manager of these LLCs, but the transaction only conveys BCI’s “membership 
interest” in the LLCs to Hyatt Johnson. Consequently, it appears that at least as of the execution 
of the agreement, BCI will still remain as manager of these LLCs, continue to collect the rental 
income, guarantee the loans on the various aircraft, and control the assets of the LLCs, with only 
beneficial ownership and profits, if any, passing on to Hyatt Johnson.  Furthermore, Hyatt 
Johnson will be relying on BCI’s efforts to sell the BCI 2005-15 aircraft at a high enough price 
such that Hyatt Johnson will be able to recoup its $3.5 million from the sale after $7.5 million of 
debt, plus $3 million earmarked for “one other group,”
11
 is deducted from the sales proceeds.
12 
See HJ Agreement at 5.  
In their September 19th Surreply, Defendants claim that the SEC’s assertion that the 
Hyatt Johnson transaction constitutes an offering of securities is “an esoteric theory.”  Docket 
No. 47 at 3. Far from being an esoteric theory, this is the very definition of an investment 
contract: Defendants offered and sold to Hyatt Johnson, in exchange for a release of the note 
they owed to Hyatt Johnson, a membership interest in LLCs managed by Defendants.  In 
11 
Defendants have not produced any information regarding this “other group” to whom this first $3 
million in net proceeds was pledged. 
12 
Under the agreement, this sale is intended to occur within 120 days after the date of the 
agreement, which is approximately January 8, 2008. 
13


addition, Hyatt Johnson is relying on Defendants’ efforts to sell a certain aircraft at a high 
enough price to generate sufficient net proceeds. Hyatt Johnson has invested, on behalf of its 
110 investors, through a release of their note (also a securities transaction), in an enterprise in 
which it relies on the efforts of Defendants as manager of the LLCs and sellers of the aircraft.  
This constitutes an investment contract in every sense of that term.
13
  To call this “an esoteric 
theory” strains credibility.  In fact, this new transaction is nothing more than the original fraud 
repackaged. Simply put, the Hyatt Johnson settlement is nothing more than a continuation of the 
original Ponzi scheme: pledging assets rightfully belonging to prior investors (but who were 
fraudulently bought out of their interests) to other investors as “repayment” of the Hyatt Johnson 
note, a note that Hyatt Johnson investors never knew of or approved.   
Defendants also express surprise that despite their claim that investors being offered new 
securities are “all extremely sophisticated and wealthy investors in aircraft” the SEC would still 
allege that these investors “are in need of the government’s protection.”  September 19th 
Surreply, Docket No. 47, at 3.  The antifraud provisions apply to all investors.
14
 It is not 
permissible to defraud investors simply because they are well off financially. 
This Court should be greatly concerned about this new securities offering in light of the 
lack of disclosure by Defendants and, for that matter, Hyatt and Johnson’s refusal to provide 
information about their dealings with Defendants. Despite repeated voluntary requests and 
expedited discovery requests from the SEC, and importantly, their obligation to disclose such 
information pursuant to the Court’s Order, Defendants have not produced any documentation 
regarding the buyout of Hyatt Johnson.  The limited information the SEC has learned from this 
13 
See SEC v. Howey, 328 U.S. 293, 298-99 (1946).   
14 
See SEC’s Motion to Strike Defendants’ Affirmative Defenses and supporting Memorandum, 
filed September 20, 2007, Docket Nos. 49-50. 
14


15 
transaction has come from third parties, including Hyatt Johnson investors.  Defendants have 
simply refused to provide any further details or documents regarding this transaction.  The lack 
of disclosure from Defendants concerning Hyatt Johnson is compounded by the fact that Hyatt 
and Johnson, the principals of Hyatt Johnson Capital, have both asserted, through counsel, their 
Fifth Amendment privileges against self-incrimination, and their counsel have informed the SEC 
that neither will appear for a deposition in this matter and that they will not produce any personal 
documents pursuant to subpoena.
15 
Initially, counsel for Hyatt offered to provide the SEC a letter, signed by his client, memorializing 
the fact that Hyatt would assert his Fifth Amendment privilege against self incrimination.  Counsel for 
Johnson also informed the SEC that his client would invoke the Fifth Amendment privilege and the SEC 
requested a letter signed by Johnson to that effect.  After the SEC, as a courtesy, informed Defendants 
that it intended to seek a Motion to Show cause, counsel for Hyatt called and asked the SEC counsel to 
keep Hyatt’s assertion of the privilege confidential.  He also asked if the SEC intended to use the fact of 
his client's assertion in any Court filing.  Similarly, late in the afternoon of October 4th, counsel for 
Johnson made a similar request of SEC counsel using many of the same arguments.  The SEC refused to 
agree to keep Hyatt's and Johnson’s assertions of the Fifth Amendment privilege secret for several 
reasons, including the fact that simultaneously with negotiating new deals with Defendants, purportedly 
on behalf of Hyatt Johnson investors, Hyatt and Johnson were refusing to provide information to the SEC 
about those and their other dealings with Defendants.  The SEC believed this was material because 
investors were not being told of Hyatt’s or Johnson’s actions.  In addition, the SEC told counsel for Hyatt 
and Johnson that it believed that sharing this information was required under its monitoring role under the 
Order. Finally, with regard to whether the SEC would use the fact of Hyatt's assertion in any court filing, 
the SEC told Hyatt's counsel that we would not confirm whether we were going to make any filings in the 
near future but, if the information was necessary to Hyatt's decision, then he should assume the worst.  In 
a follow up telephone call, counsel for Hyatt again told the SEC that his client would assert his Fifth 
Amendment privilege but that, unless the SEC agreed to keep this information secret, he would not put 
that information in writing and his client would not sign an official assertion of the privilege.  Counsel for 
Hyatt also said that he believed it was inappropriate, irrelevant and prejudicial if the SEC would use the 
fact of Hyatt's assertion in any filing.  More than once counsel for Hyatt expressed to the SEC that he 
believed we cannot use the information, that it was inappropriate, and that it should be subject to a 
protective order. Counsel for Hyatt also told the SEC that he reserved the right to argue that the SEC’s 
use of the information was inappropriate.  The SEC disagreed with the position of Counsel for Hyatt and 
asked for authority. Counsel for Hyatt pointed to local rule 83.53.6.  Also, the SEC as it had done in the 
previous conversation, invited counsel for Hyatt to seek a protective order if he felt that was necessary. 
Counsel for Johnson made many of the same arguments, particularly the argument that the assertion of 
the Fifth Amendment privilege was not relevant.  Johnson’s counsel also asked that the SEC file any 
documents mentioning Johnson’s invocation of the Fifth Amendment under seal. The SEC declined to do 
so, among other reasons, because such a filing would deprive investors, and any other third parties 
involved in these transactions, from material information. 
15


 
B. Other Suspect Transactions 
The SEC has also learned of other transactions involving Defendants’ supposed 
repayments to investors that appear to be a mere continuation of the original Ponzi scheme.  
Again, Defendants have disclosed virtually no information about these supposed deals and the 
SEC is concerned that these suspect transactions may involve pledging assets rightfully 
belonging to prior investors (but who were fraudulently bought out of their interests) to other 
investors. Certain of the BCI noteholders other than Hyatt Johnson, representing a total of about 
$10 million, have already been or will be purportedly repaid by being given ownership of new 
securities or assets owned by Defendants.  Defendants have agreed with several investors to 
exchange their promissory notes for BCI’s interests in LLCs plus the promise of some future 
partial repayments in cash, well beyond the 60-day deadline imposed in the Order.  In addition, 
The SEC believes that telling the Court, and the investors in this case, that the person negotiating 
on their behalf and purportedly protecting their interests, is simultaneously refusing to discuss their 
dealings with Defendants, including these new transactions, is highly relevant to both the SEC as Plaintiff 
and in its monitoring role under the Order.  The SEC also believes it goes to its request for a Receiver.   
Obviously, "...the public has a right to every man's evidence..." unless privileged. In re Corrugated 
Container, 661 F.2d 1145, 1149 (7th Cir. 1983).  In order to assert the Fifth Amendment privilege, an 
individual must believe they have a reasonable likelihood of criminal prosecution. See id. at 1150.  
Appropriate inferences can be drawn from an assertion of the Fifth Amendment Privilege.  See Baxter v. 
Palmigiano, 425 U.S. 308 (1976).  However, even with the Fifth Amendment privilege there is a 
presumption of innocence. 
If the SEC would have agreed to Hyatt and Johnson’s efforts to keep their assertions of the Fifth 
Amendment privilege secret, the SEC would have been complicit from keeping this important 
information from both the Court and Hyatt Johnson investors.  The SEC would have also, if it did not 
provide this information to the Court, both as Plaintiff and under its monitoring role under the Order, 
made the Court an unwitting accomplice in not providing the investors with information they could use in 
considering their options.  The Court also would have been deprived of information about individuals 
who, through their partnership, raised approximately $23 million from 110 individuals.  Moreover, it was 
Hyatt who wrote the Court on August 14th, allegedly on behalf of their investors (but in reality without 
consulting them), asking the Court not to appoint a Receiver.  Hyatt and Johnson, currently engaged in 
negotiating new deals for the issuance of new securities, would have their assertions of their Fifth 
amendment privilege kept secret so they can continue to keep their investors, and this Court, in the dark.  
The SEC was simply unwilling to be complicit in that deception.  Also, of course, since “the public at 
large pays for the courts and therefore has an interest in what goes on at all stages of a judicial 
proceeding,” such action on the part of a public agency would appear to violate public policy.  Citizens 
First National Bank of Princeton v. Cincinatti Insurance Co., 178 F.3d 943, 945 (7th Cir. 1999). 
16


similar to the Hyatt Johnson agreement, many of these new agreements are not repayments in 
cash, but instead are offers and/or sales of new securities.  In most cases, Defendants offered new 
securities to the investors as repayment of their promissory notes.  However, certain of the 
investors rejected Defendants’ offer of securities, insisting on instead receiving assets, namely 
aircraft under Defendants’ control – aircraft which may or may not rightfully belong to investors 
defrauded during the spring 2007 repurchasing as alleged in the SEC’s Complaint. 
As described further below, the terms of these agreements appear to have changed 
significantly from week to week as reported in Defendants’ progress reports.  See discussion in 
Section IV (A) infra. With regard to one investor who was supposed to receive “100% 
ownership of a specified aircraft on lease, although in this case, BCI has agreed to repurchase 
this aircraft if and when a sale of the aircraft can be arranged,” the agreement apparently has 
since changed.  See September 10th Response, Docket No. 43, at 6.  In an agreement executed on 
September 21st, it now appears that this investor has received $350,000, plus conveyance of 
BCI’s interest in an LLC under its control, plus $1.65 million from the sale of an aircraft BCI 
will attempt to sell.
16 
See Exhibit 3. This is the same aircraft, as described above, from which 
Hyatt Johnson will receive $3.5 million in sales proceeds when BCI finally succeeds in selling it.   
In the September 10th Hyatt Johnson agreement, the sales proceeds of the aircraft would 
purportedly go to (1) repay $7.5 million in debt, (2) pay $3 million to an unknown group, and 
then (3) $3.5 million to Hyatt Johnson.  See HJ Agreement at 4-5.  However, in this investor’s 
The investor in question was originally told he would receive approximately $3.2 million in cash, 
the amount of his note.  In their August 23rd Progress Report, Defendants reported that he had, in fact, 
been repaid $3.2 million in cash.  However, that check was returned for insufficient funds, and it appears 
that Defendants are unable to make good on that bounced check again, and the investor thus appears to 
have settled for receiving a fraction of the originally promised cash, plus a new security from Defendants.  
Like Hyatt Johnson, this investor is relying on Defendants’ efforts to sell this aircraft at a high enough 
price to repay him, and thus this settlement agreement is an issuance of a security. 
17

16 

September 21st agreement, the sales proceeds of the aircraft would purportedly go to (1) repay 
$7.5 million in debt, and then (2) $3.5 million to Hyatt Johnson, with no mention of the $3 
million supposedly going to the unknown group.  See Exhibit 3 at 3, 6-7. Thus, it appears that 
Defendants misled this investor regarding the amount of previously pledged sales proceeds.  
While it is possible that in the intervening period, the unknown group was paid their $3 million 
through other means, and thus explains the inconsistency, Defendants have not reported to the 
SEC, as required, repaying any group of investors $3 million in the intervening period, nor have 
Defendants made any other $3 million payments.   
Despite being specifically asked to provide it, and as required by an expedited discovery 
request for documents issued on August 31st, Defendants have refused to provide any further 
information regarding this settlement.
17
  However, from the available evidence it appears that, as 
described above, Defendants have, yet again, made a material misrepresentation in connection 
with the offer and sale of a security, in violation of the antifraud provisions of the federal 
securities laws, and also in violation of this Court’s injunction.  Finally, as noted above, it 
appears that the aircraft in question does not have sufficient market value to repay the amounts 
promised to investors and that Defendants are fully aware of this. 
The SEC has also learned that Mr. Hollnagel represented to the trustee of a major 
investor that Defendants are unable to repay the $8 million note owed to that investor.  
Defendants offered instead to convey to this investor 100% of the membership interests of 
specific LLCs under Defendants’ control, with BCI continuing to be the manager.  The investor 
rejected this offer, and appears now to be contemplating a transaction in which the investor will 
give an additional $7 million in new money to BCI, plus a waiver of repayment of his $8 million 
Defendants provided a copy of the September 21st agreement itself, but have not produced any 
other related documents or information about this transaction. 
18

17 

note, in exchange for ownership of three LLCs under BCI’s control.  The investor will then hire 
a manager to operate the LLCs with the hopes of selling the aircraft as quickly as possible.  In 
Defendants’ September 30th Progress Report, attached as Exhibit 4, they claim that $2 million of 
that total has already been satisfied by the conveyance of one aircraft to that investor.  Again, 
this investor is not being repaid in cash as promised by Defendants and as ordered by this Court, 
and Defendants have provided no information concerning this deal to the SEC. 
On October 4th, the SEC learned from an investor that Defendants paid two investors a 
total of $10.65 million on October 3rd.  Defendants provided the SEC no notice whatsoever 
regarding these payments, and no details regarding the source of these funds.  The SEC is 
concerned that at least part of this $10.65 million was derived from the $7 million new money 
raised from the investor as described above, or from the sale of aircraft rightfully belonging to 
other investors. In addition, the SEC learned that, in these recent transfers, Defendants allegedly 
accidentally wired $9 million to the investor owed $1.65 million, and $1.65 million to the 
investor owed $9 million.  Complicating this scenario is the fact that the $9 million wire went to 
an investor in the Cayman Islands, and that Defendants may have a difficult time recovering the 
excess $7.35 million payment to that investor.  Considering the fact that this Court has already 
preliminarily found defendants to have engaged in fraud, Defendants simply should not be 
trusted to engage in these secretive and suspect transactions for any amounts, let alone nearly 
$11 million. 
IV.	DEFENDANTS HAVE FAILED TO COMPLY, AND CONTINUE TO FAIL TO 
COMPLY, WITH THE REPORTING REQUIREMENTS IN THE ORDER. 
During the course of the SEC’s monitoring of BCI, Defendants have failed to provide 
numerous reports required by the Order.  Additionally, when Defendants have provided 
19


information to the SEC, they have provided only late, incomplete, or inaccurate reports and 
notices. In an attempt to obtain necessary information for its monitoring function, the SEC has 
attempted to request more details, both voluntarily and through expedited discovery requests, but 
other than one instance, Defendants have refused to provide any such documents.  The sum total 
of Defendants’ behavior is a blatant contempt of the Order and obstruction of the SEC’s 
monitoring of the repayment progress, a role this Court specifically ordered it to perform. 
A.	Defendants have failed to provide complete and accurate reports of their 
weekly progress in repaying investors. 
1. 	Defendants’ August 23rd Progress Report 
The weekly progress reports of Defendants’ repayment to investors have been 
incomplete, inconsistent, and lack sufficient detail to be meaningful.  Defendants’ first report of 
their weekly progress in repaying investors was sent to the SEC on August 23, 2007.  See Exhibit 
1 to September 14th Reply, Docket No. 45.  This progress report listed payments that BCI made 
to twelve investors on that date, a total of approximately $12.1 million.   
2. 	Defendants’ September 9th Progress Report 
On September 9, 2007, Defendants reported that between August 22nd and September 
9th, only seven of these investors had been repaid, a total of about $6.1 million.  See Exhibit 2 to 
September 14th Reply, Docket No. 45.  Defendants failed to explain why five of the twelve 
investors, representing $6 million, were not repaid.  As the SEC has previously stated, the SEC 
learned from Bridgeview Bank, and not Defendants, that five of the investors, a total of $6 
million, were not in fact repaid on August 23rd as represented by Defendants.  Instead, these 
checks to investors were returned for insufficient funds because they were drawn on the 
Bridgeview account from which the $25 million had been seized the week before.  Defendants 
20


failed to mention in their September 9th progress report that these checks had been sent out but 
bounced, and Defendants never disclosed this fact to the SEC.  Instead, Defendants stated in the 
September 9th progress report that four of those missing investors had entered into a joint 
agreement with BCI to receive equity interests in certain LLCs under Defendants’ control, in lieu 
of the approximately $4.5 million these investors had purportedly been sent two weeks prior.   
One of these investors informed the SEC that, contrary to Defendants’ representations, there was 
no such agreement.  Thus, Defendants provided a report to the SEC that was clearly false and 
misleading. 
3. Defendants’ September 14th Progress Report 
In Defendants’ September 14th progress report, they reported that in addition to investors 
already repaid, one additional investor, Jan Soderberg, had been paid.  See Exhibit 5. However, 
this payment is not reflected in any “Check Detail” reports provided to the SEC.  See Exhibit 6. 
Furthermore, Defendants’ “Check Detail” report for that period shows that an investor named 
Thomas Thorelli was not paid until September 14th, despite Defendants’ representations in their 
August 23rd, September 9th, and September 14th reports that Mr. Thorelli had already been paid.  
See Exhibits 1-2 to SEC’s September 14th Reply; Exhibits 5-6.  Again, Defendants’ reports were 
false and misleading. 
4. Defendants’ September 23rd Progress Report 
Then, in Defendant’s September 23rd progress report, it appears that the agreement 
between BCI and the four investors, as described in Defendants’ September 9th report, had 
significantly changed. See Exhibit 7. Now, one of the investors, Jan Soderberg, had been repaid, 
and Mr. Strokirk appears to no longer be participating in this deal. Instead, only Abelia 
Investments and the Soderstroms have reached a “final agreement” with BCI.  Defendants have 
21


provided no information or explanation about the original agreement and why it changed.  It is 
unknown whether the original agreement was a sale of securities, whether fraudulent or 
legitimate.  Finally, there is no explanation for why Mr. Strokirk is no longer part of this deal or 
how he will be repaid now that he is not participating in this deal. 
B. Defendants failed to provide a complete and accurate accounting as ordered. 
Defendants provided an accounting for the LLCs designated KLM BCI 2002-1, BCI 
2004-5, and BCI 2004-6, the LLCs in which an investor still holds equity.  Defendants were 
ordered to provide an “immediate” accounting of these LLCs.  The accounting, not provided 
until September 6th, is materially incomplete and inaccurate in many important respects, and 
thus does not comply with the Court’s Order that Defendants provide a complete and accurate 
accounting of those LLCs. See Exhibits C-D to September 7th Report, Docket No. 40.  By its 
very definition, an accounting must “account for” money used in an enterprise or transaction, 
which Defendants have failed to even attempt.
18
 The SEC wrote a letter to Defendants, 
describing in detail the missing information and inaccuracies in the accounting, and requesting 
clarifying and corrected information.  See id.  Despite this request, Defendants have still not 
provided a complete and accurate accounting as ordered by the Court. 
First, the accounting is materially incomplete because it fails to account for the actual use 
of investor funds obtained by these LLCs, including oversubscribed funds, and funds obtained 
after the aircraft were already purchased, and funds obtained after the aircraft in BCI 2004-5 and 
BCI 2004-6 were sold. Because these LLCs were significantly oversubscribed, only a small 
fraction of the investor funds were used to purchase aircraft.  Defendants thus provided no 
accounting or explanation regarding what was done with the majority of investor funds.  For 
See Exhibit 8. 
22

18 

example, the aircraft owned by KLM BCI 2002-1 was purchased in July 2002 using investors’ 
funds totaling approximately $4.1 million. Then, after this aircraft was purchased, Defendants 
raised another $2.12 million in investor funds, including $100,000 in July 2003 from the investor 
who continues to hold equity.  Defendants have made no attempt to account for what they did 
with any of these additional funds, which were clearly not used to purchase the aircraft.  
Second, the accounting is materially incomplete because it fails to account for the 
purported reinvestment of BCI 2004-5 and BCI 2004-6 investors’ capital in replacement aircraft 
after the initial aircraft were sold in December 2004.  Defendants repeatedly represented to 
investors that after those LLCs’ aircraft were sold, investors’ capital was reinvested in new 
aircraft.  Mr. Hollnagel also testified during the SEC’s investigation that this occurred.  In 
reality, these representations were false: investor funds were never reinvested in substitute 
aircraft owned by those LLCs. It is unsurprising, then, that Defendants neglected to include any 
information about reinvestment of capital in their accounting: there was none.  The SEC pointed 
out this discrepancy to Defendants in its letter on September 7th, and in response, Defendants 
claimed in their September 17th letter that these substitute aircraft were “somehow omitted in the 
preparation of the [accounting].”
19 
See Exhibit 8. In reality, now that the SEC pointed out 
Defendants’ earlier claims regarding reinvestment of funds, Defendants are merely scrambling to 
keep their story straight. 
Third, the accounting is materially incomplete because it fails to account for any of the $3 
million in investments in BCI 2004-6 by Hyatt Johnson USA 2004 and Hyatt Johnson USA 
2005, raised from approximately 38 investors.  In their September 17th letter, Defendants claim 
The updated accounting now lists the purported substitute aircraft as being purchased by these 
LLCs, but Defendants provided no supporting information or documents for this assertion.  In fact, all 
documents from BCI or its auditors indicate that these aircraft were never purchased by BCI 2004-5 and 
BCI 2004-6. In fact, these particular aircraft were owned by other investors. 
23

19 

 
that no Hyatt Johnson related entities were ever members of BCI 2004-6, and that Hyatt Johnson 
was included on tax returns for this LLC in error. See Exhibit 8. This is false. Defendants’ own 
accounting records and numerous other BCI records, including the Deloitte draft audit performed 
in early 2007, show that Hyatt Johnson USA 2004 and Hyatt Johnson USA 2005 held equity 
positions in BCI 2004-6.  In addition, copies of cancelled checks to those Hyatt Johnson LLCs 
indicate that payments were made for their membership in BCI 2004-6.  There is no good faith 
basis for Defendants’ claim that no Hyatt Johnson entities were ever invested in BCI 2004-6. 
In addition to being materially incomplete, the accounting contains numerous material 
inaccuracies.  First, the accounting for BCI 2004-6 states that the initial aircraft was sold at a 
loss, while the tax returns prepared for BCI 2004-6 and numerous letters from BCI to investors 
in BCI 2004-6 state that this aircraft was sold at a profit.  In addition, Mr. Hollnagel testified 
before the SEC that this aircraft was definitely sold at a profit, which he “guesstimated” to be 
about 10%.
20
  Second, the “Total Purchase Price” cited for the aircraft in KLM BCI 2002-1, BCI 
2004-5, and BCI 2004-6 is between $2 million and $3 million more than what is reflected in the 
actual purchase agreements for those aircraft, or what was reported in the draft audit by Deloitte 
in early 2007, as well as what was reported on the tax returns prepared for these LLCs.   
Despite being ordered to provide a complete and accurate accounting, and despite being 
asked by the SEC to provide complete and accurate information, in response to the SEC’s 
assertions that Defendants’ accounting failed to account for the use of investor funds, Defendants 
responded: 
[W]e do not believe it appropriate to litigate this matter [by] email.  
We believe your assertions as to a purported failure to provide for 
an accounting for the ‘use of all investor funds’ in these LLCs goes 
to the heart of our dispute, to be resolved at trial. 
See Hollnagel Testimony Transcript, Attachment A to Declaration of Scott Hlavacek, at 370-80.   
24

20 

See Exhibit 8. Rather than producing an accurate and complete accounting as ordered, or 
petitioning the Court for relief from this obligation, Defendants have simply declared their 
unwillingness to comply.  It is difficult to imagine more boldfaced contempt. 
C.	Defendants have failed to provide any weekly reports of proposed 
withdrawals of funds. 
Defendants have never provided even a single weekly report of proposed withdrawals of 
funds, despite the fact that the Order explicitly required such reports.  Instead, the SEC is 
provided only after-the-fact, vague, incomplete reports of money spent - their “Check Detail 
Reports,” attached as Exhibit 6 – and all attempts by the SEC to obtain further information about 
expenditures have been ignored by Defendants.  Defendants have simply made no efforts to 
comply with this requirement of the Order. 
D.	Defendants have failed to provide numerous 48 hour notices of withdrawals 
of funds. 
The Court’s Order required 48 hours notice be given to the SEC prior to all expenditures 
of $20,000 or more.  Despite this, Defendants have repeatedly failed to provide the SEC notice 
regarding their expenditures. On September 7th, Defendants withdrew funds for two cashier’s 
checks totaling $460,000, and on September 14th, Defendants mailed a check for $157,500 to an 
investor.  Defendants failed to provide the SEC with any notice of these expenditures until after 
the fact, when they appeared in Defendants’ “Check Detail” report on September 17th.  Finally, 
at some point between September 10th and 14th, Defendants paid $210,000 to an investor.  
Defendants never provided notice of this payment to the SEC.  Furthermore, this payment has 
not appeared in any of Defendants’ “Check Detail” reports, so it is unknown in what form this 
payment was made.  See Exhibit 6. Likewise, Defendants reported on August 29, 2007 that they 
25


would be making a monthly payroll expenditure of $210,000.  Defendants have not provided any 
notice, 48 hour or otherwise, of any payroll expenditures since then.  Therefore, Defendants 
either have not paid any of their employees’ salaries for the past five and a half weeks or have 
failed to report such payments to the SEC as required by the Order.  Finally, the SEC learned 
from an investor on October 4th that Defendants paid two investors a total of $10.65 million on 
October 3rd. Defendants provided no notice whatsoever regarding these payments, and no 
details regarding the source of these funds. 
E.	Defendants have failed to provide weekly reports of “all money paid to BCI 
or any BCI affiliate, including LLCs and Hollnagel in connection with BCI.” 
The Court ordered that Defendants provide weekly reports of “all money paid to BCI or 
any BCI affiliate, including LLCs and Hollnagel in connection with BCI.”  Despite this explicit 
command, Defendants did not submit any such report to the SEC until September 15, 2007.  See 
September 19th Surreply, Docket No. 47, at 7.  This report appears to include only information 
related to BCI; it does not specify any funds paid to any of the LLCs under BCI’s control, and 
contains no reference to Hollnagel.  Defendants have twice acknowledged their failure to comply 
with this provision of the Order. In their Response, Defendants claimed that “BCI did not 
understand initially that under the Order, BCI was to report funds received by BCI.”  Docket No. 
43 at 10. In their Surreply, Defendants claimed that they “[misunderstood] the requirement of 
reporting to the SEC all monies paid to BCI.”
21
 Docket No. 47 at 7. Nevertheless, despite this 
attempt to explain why they haven’t complied with this provision of the Court Order, Defendants 
have still not produced weekly reports relating to money paid to BCI affiliates or Hollnagel, and 
These claims strain credulity, considering Defendants had at least six attorneys from four law 
firms at their disposal to carefully read the Court’s nine-page Order, the last page of which very clearly 
states each of the requirements placed on Defendants.   
26

21 

have not asked the Court for relief from this requirement.  See Exhibit 9. Once again, 
Defendants simply chose to thumb their noses at the Court’s Order. 
F.	To the extent Defendants did report transactions required by the Order, 
Defendants failed to provide meaningful information about the sources and 
uses of such funds. 
To the extent that Defendants did report transactions as required by the Order, they failed 
to provide any meaningful information about the source of such funds, or the purpose of these 
transactions. The SEC believes that the Court intended for each of the reports required under the 
Order to be meaningful, i.e. to help the SEC evaluate the transaction, and if warranted alert the 
Court, and thus that the Order requires Defendants to provide at least some level of detail 
regarding sources and uses of money used in reported transactions.  For example, on August 29th 
Defendants reported that they were making a monthly payroll expenditure of $210,000, without 
providing any breakdown of which BCI employees were paid which portions of that total.  Even 
after requests for a simple breakdown by employee, Defendants have refused to provide any 
details. In another example, on August 31, 2007, the SEC made a discovery request for 
documents relating to the approximately $12.2 million purportedly paid to investors on August 
23, 2007, documents relating to $687,000 purportedly paid to a lender on August 28, 2007, and 
documents relating to the accounting being prepared by Defendants.  The SEC has not received 
any documents responsive to these simple requests.  The SEC is concerned that payments to 
some investors and lenders may have come from sales of assets belonging to other investors, or 
from new investments or loans from third parties, in furtherance of the same Ponzi scheme 
27


Defendants have perpetrated.
22
  Defendants’ refusal to provide any details regarding the sources 
of the funds being paid out only heightens and legitimizes the SEC’s concerns. 
Furthermore, for the SEC’s monitoring function to have any meaning as intended by this 
Court, any reports or notices provided by BCI must include details regarding sources and uses of 
funds. The SEC has made numerous document requests to Defendants specifically in order to 
obtain such details, and, despite the fact that over 30 days have passed since the issuance of most 
of these requests, Defendants have produced virtually nothing in response.  Requests by the SEC 
for such information are not “harassing” as repeatedly characterized by Defendants but instead 
are necessary to give this Court’s Order real meaning.  It even appears that the SEC’s monitoring 
is being relied upon by investors: on September 12th, Hyatt Johnson sent a letter to its investors 
citing the SEC’s monitoring function under the Order as a safeguard that Defendants will repay 
investors as promised.  Defendants should simply not be allowed to continue to flout their 
responsibilities both under the Order and their expedited discovery obligations. 
V.	INCREDULOUSLY, DEFENDANTS BELIEVE THEY ARE NOT REQUIRED TO 
COMPLY WITH THE ORDER’S REPORTING REQUIREMENTS.   
Defendants have repeatedly claimed that they believe they are not required to comply 
with the Court’s Order that they provide certain reports and information to the SEC.  In their 
Response, Defendants claim that “BCI, its limited staff and its few informed counsel have been 
spending virtually every waking moment since August 22nd on the number one priority: 
satisfying BCI’s obligations to the investors.”  Docket No. 43 at 5.  Then, in their Surreply, 
Defendants state: “Defendants are attempting in good faith to follow this Court’s Order and 
As a further example, it appears that in August, Defendants sold aircraft in an LLC known as the 
TUI transaction.  The investors in that LLC have not yet received the proceeds from the sale of that 
aircraft. Because Defendants have not provided any information about the TUI sale or the source of any 
payments, the SEC is concerned that proceeds from the sale of that aircraft are being given to other 
investors in unrelated deals in furtherance of Defendants’ Ponzi scheme.   
28

22 

achieve the main result the Defendants, and presumably the Plaintiff, understand to be the focus 
of the Court’s Order, namely, satisfaction of investors.”  Docket No. 47 at 6. Defendants are 
essentially claiming that as long as they are working towards the Court’s Order that Defendants 
repay investors, the other portions of the order, including the reporting requirements the Court 
imposed on Defendants, are optional and can simply be ignored.  This is incorrect. Furthermore, 
the evidence shows that Defendants are not in fact acting in good faith, as evidenced by their 
contempt of the Court’s Order, their obstructionist efforts – including their refusal to provide 
virtually any information to the SEC required under its monitoring role – and their misleading 
statements to the Court. 
If Defendants believed they would be unable to comply with every provision in the 
Court’s Order, they had an obligation to seek relief from the Court.  Defendants have not sought 
relief from the Order, either by asking to be released from the Order, asking for the reporting 
requirements to be modified or reduced, asking the Court to reconsider its Order, or asking that 
the SEC be removed as monitor.  Instead, Defendants have simply violated, flouted and ignored 
numerous provisions in the Order and continue in their contumacy.  No one subject to a court 
order – even a void order – is allowed to simply refuse to obey it. 
VI.	DEFENDANTS MISLED THE COURT REGARDING THE BRIDGEVIEW 
DEFAULT. 
A.	During the hearing, Defendants failed to tell the Court that Bridgeview had 
declared default and seized $25 million from BCI’s accounts. 
As stated in previous filings, BCI was declared in default of a covenant on a line of credit 
and other loans with Bridgeview, which Defendants were informed of by a default letter on 
August 16th.  Under this default, Bridgeview seized approximately $25 million in BCI’s 
accounts on August 16th, the first full day of the evidentiary hearing before this Court, and 
29


notified Defendants of this seizure that day. Disturbingly, despite repeated opportunities to do 
so, Defendants never informed the SEC or the Court of these facts.  Instead, Defendants 
repeatedly represented to the Court that $12 million of this money was to be paid to investors as 
long as the Court did not order an asset freeze.
23
  Simply stated, and contrary to representations 
made to the Court, after this seizure occurred, Defendants no longer had $12 million to repay 
some investors, let alone the $36 million required to repay the remaining investors, and 
Defendants knew it. Defendants never told the Court or the SEC, either during the hearing or 
after, that this money had been seized and was no longer available to repay investors.   
Just as disturbing, Mr. Hollnagel specifically instructed one of the Bridgeview Bank 
officers to not be present in court on August 20th, the last day of the hearing, despite his offer to 
appear, because Mr. Hollnagel didn’t “want the bank brought into this.”  See Exhibit 10. In fact, 
Mr. Hollnagel had witnessed the SEC’s impromptu calling of Mr. Trabish to the witness stand on 
the previous day of the hearing. Defendants likely feared that if the Bridgeview officer were 
present, the SEC would call him as a witness on that day of the hearing, and thus that BCI’s 
default, and the seizure of the $25 million in funds, would be revealed during his testimony.  
Instead, Mr. Hollnagel instructed the Bridgeview officer to not “come near open court,” and 
Defendants successfully concealed the default from the SEC and the Court until long after the 
Court issued its Order declining to impose an asset freeze or appoint a receiver. 
As noted by the Court in its Order, “BCI says it can immediately pay eleven of the note holders, 
leaving the three largest in an amount of $36 million.”  This “immediate payment” was the $12 million 
figure cited by Defendants.  At the hearing, Defendants left no doubt that those payments would be made 
in cash, even though they had actual notice that Bridgeview Bank had just seized virtually all of their 
operating cash. 
30

23 

B.	Defendants represented to the Court that they concealed nothing from the 
Court, and that they did not know when they received the August 16th 
default letter from Bridgeview. 
Incredibly, despite their behavior, Defendants claim that they “concealed nothing from 
the Court.” September 19th Surreply, Docket No. 47, at 5.  In fact, as stated above, Defendants 
concealed the August 16th Bridgeview default letter from the Court.  In particular, Defendants 
chose to not disclose this fact on August 20th, the last full day of the hearing.  Defendants claim 
that they “do not recall when they received” the default letter, pleading ignorance of the default, 
and thus claiming that they did not conceal that fact from the Court.  Id.  This is a blatant 
misrepresentation.  The SEC has learned that Defendants received the default letter from 
Bridgeview on August 16th via fax and on August 17th via overnight mail.  In addition, based on 
facts discovered by the SEC, Bridgeview’s counsel discussed the default letter via telephone with 
Brian Fitzgerald, one of Defendants’ counsels, at around 6pm on August 16th.  Mr. Fitzgerald 
indicated to Bridgeview’s counsel that he was aware of the default before that conversation.  Mr. 
Fitzgerald is a law partner of Philip Feigin, one of Defendants’ counsels, who was present before 
the Court on every day of the hearing. Thus, it is clear that Defendants were fully aware on 
August 16th that Bridgeview had declared BCI in default and was seizing $25 million in funds 
from its accounts to repay outstanding loans.  Defendants then deliberately chose to conceal this 
from the Court on the last day of the hearing, August 20th, and then misled the Court in its 
Surreply regarding its knowledge of that default.   
VII.     	ARGUMENT     
A. 	Civil Contempt Proceedings 
Civil contempt proceedings are authorized by 18 U.S.C. § 401(3) which states, in 
pertinent part, that “[a] court of the United States shall have power to punish by fine or 
31


imprisonment, or both, at its discretion, such contempt of its authority, and none other, as ... 
[d]isobedience or resistance to its lawful writ, process, order, rule, decree, or command.”  The 
purpose of a civil contempt proceeding is wholly remedial and is intended to either coerce 
compliance with a prior court order or compensate for losses suffered as a result of non­
compliance with that order.  See McComb v. Jacksonville Paper Co.
, 336 U.S. 187, 191 (1949); 
Commodity Futures Trading Commission v. Premex, Inc.
, 655 F.2d 779, 785 (7
th
 Cir. 1981). 
Where an injunction imposes a duty to obey specified provisions of a statute, failure to abide by 
the injunction constitutes contempt.  See McComb, 336 U.S. at 191-92. 
In a civil contempt proceeding, the moving party must prove, by clear and convincing 
evidence, that the respondent has violated the court’s order.  See McComb, 336 U.S. at 191; 
Stotler & Co. v. Able, 870 F.2d 1158, 1163 (7th Cir.1989). To support a federal civil contempt 
conviction, it must be proved: “(1) that the court entered a lawful order of reasonable specificity; 
(2) the order was violated.” Matter of Betts, 927 F.2d 983, 986 (7th Cir.1991); CFTC v. 
Nickolaou, 2000 WL 1029622 at 8 (N.D.Ill. 2000).  To make a prima facie showing of contempt, 
the movant need only prove that a defendant has failed to comply with a valid court order.  See 
Heinold Hog Market, Inc. v. McCoy
, 700 F.2d 611, 615 (10th Cir. 1983). A district court does 
not have to find that the violation was “willful” or intentional. See McComb
, 336 U.S. at 191; 
Grove Fresh Distributors, Inc. v. John LaBatt Ltd.
, 888 F.Supp. 1427, 1436 (N.D. Ill. 1995). In 
civil contempt proceedings, intent is not an issue, but rather, the question is whether a party has 
complied with the court's order.  See McComb, 336 U.S. at 191; SEC v. McNamee, 481 F.3d 
451, 456 (7
th
 Cir. 2007) In re General Motors Corp., 61 F. 3d 256, 258 (4
th
 Cir. 1995); Donovan 
v. Mazzola, 716 F.2d 1226, 1240 (9th Cir. 1983), cert. denied, 464 U.S. 1040 (1984). 
32


 
Once a prima facie case has been shown, the burden shifts to the defendant to come 
forward with evidence showing categorically and in detail why he was unable to comply with 
court orders. See United States v. Rylander, 460 U.S. 752, 755, 757 (1983) reh. denied, 462 U.S. 
1112 (1983); Chicago Truck Drivers v. Brotherhood Labor Leasing, 207 F.3d 500, 505 (8
th
 Cir. 
2000). Further, if the defendant is responsible for an inability to comply, such a defense is 
unavailable. See United States v. Bryan, 339 U.S. 323, 330-32 (1950); U.S. v. Seetapun, 750 
F.2d 601, 605 (7
th
 Cir. Ill. 1984). Even the presence of good faith on the part of a defendant 
does not constitute a defense.  See Donovan, 716 F.2d at 1240. If the meaning of the order is 
clear, the issue is whether it has been violated.  See Abbott Laboratories v. Apotex, Inc., 455 
F.Supp. 831, 833 (N.D.Ill. 2006) (citing McComb v. Jacksonville Paper Co., 336 U.S. 187, 191, 
69 S.Ct. 497, 93 L.Ed. 599 (1949); Additive Controls & Measurement Systems, Inc. v. Flowdata, 
Inc., 154 F.3d 1345, 1353 (Fed.Cir.1998). “If it has been [violated], even if in good faith, that is 
a civil contempt.” Id. Importantly, “[a] person or firm that has been enjoined has a duty to make 
a good-faith effort to comply with the injunction.”  Abbott Laboratories, 455 F.Supp. at 837. 
B. Defendants’ Non-Cash Payments Violate Order. 
Defendants essentially concede that, more than 30 days into the Court-ordered repayment 
period, they are unable to repay their investors with cash.  Instead of repaying investors with 
cash, Defendants proposed to make whole their investors by issuing them new securities.  This is 
not what was promised by Defendants during the hearing before this Court, nor ordered by this 
Court. Further, these new securities sales are a new fraud and, as such, violate this Court’s 
injunction against further violations of the antifraud provisions of the federal securities laws.    
In the Order, the Court explicitly directed Defendants to repay their noteholders within 60 
days. Order at 9.  It is also apparent from the Order that this directive to repay noteholders was 
33


to repay them with cash. Never during the hearing did Defendants represent that they would 
parcel out aircraft or interests in LLCs as satisfaction of the notes held by the investors.  
Defendants unambiguously told this Court that they would repay the noteholders in cash.  It is 
clear that these representations are no longer true, if they ever were.  Thus, Defendants’ 
repayment of noteholders with anything but cash violates the Court’s Order.  
In addition, Defendants attempt to repay noteholders with new securities fulfills this 
Court’s finding that Defendants presented an ongoing risk of future securities fraud.  Defendant 
Hollnagel unambiguously stated during his testimony that he was done with investors, despite 
the fact, demonstrated at the hearing, that Defendants offered new securities to their noteholders 
in May of 2007. The Court found this fact determinative in ruling in its Order that there is an 
ongoing risk of repetition of securities fraud. See Order at 8. Defendants’ attempted repayment 
of noteholders with new securities violates the Court’s directive to repay investors in cash.  As 
the Court has recognized with its imposition of the injunction against future fraud, Defendants 
have lost the benefit of the doubt in such matters.   
Furthermore, the ad hoc manner in which investors are being repaid is inequitable, in that 
similarly situated investors are receiving disparate treatment.  Investors are not given a choice 
between cash and equity. Defendants have never explained why certain investors are offered 
cash while others are forced to accept equity or aircraft.  Investors in equal standing have been 
treated differently by Defendants, as those not receiving cash are dependent upon the future 
management of Defendants to ensure the value of their investment, or are burdened with the 
responsibility of managing commercial aircraft themselves.  In addition, at least one investor is 
receiving 25% in profits above and beyond his principal, while others are only receiving their 
34


principal.
24
  This is certainly not what this Court provided for in its Order to repay the 
noteholders. The most important directive of this Court’s Order was to repay the investors, and 
that Order, based on Defendants’ promises, was that they would be repaid in cash.  Defendants 
have not and cannot comply with this Order.  For this reason alone, the SEC requests that the 
Court order Defendants to Show Cause why they should not be held in Contempt.       
C.	Defendants’ Issuance of New Securities Violates the Anti-Fraud Provisions of 
the Order. 
The membership interests in the LLCs that BCI exchanged with its investors in 
satisfaction of their promissory notes or other LLC equity interests are securities in the form of 
investment contracts.  Section 2(1) of the Securities Act and Section 3(a)(10) of the Exchange 
Act define “security” to include, among other things, “investment contracts.”  Although 
“investment contract” is not defined in these statutes, the Supreme Court has defined the term to 
mean: (1) an investment of money; (2) in a common enterprise; (3) with an expectation of profits 
to be derived solely from the efforts of others. See SEC v. Howey, 328 U.S. 293, 298-99 
(1946). The Court has stressed that the definition of an investment contract “embodies a flexible 
rather than a static principle, one that is capable of adaptation to meet the countless and variable 
schemes devised by those who seek the use of the money of others on the promise of profits.” Id. 
at 299. More recently, the Court reiterated that Congress intended a broad, inclusive definition 
of investment contract, stating that “Congress’ purpose in enacting the securities laws was to 
regulate investments, in whatever form they are made and by whatever name they are called.  To 
that end, it enacted a broad definition of “security,” sufficient “to encompass virtually any 
instrument that might be sold as an investment.” SEC v. Edwards
, 540 U.S. 389, 393 (2004) 
(citations omitted) (italics in original).  Applying these principles and the test set out in Howey
, 
This investor’s representative, Steven Trabish, testified to this effect at the hearing. 
35

24 

the membership interests in the LLCs offered by Defendants in exchange for the promissory 
notes are investment contracts and therefore securities covered under the federal securities laws. 
In this case, the first Howey factor is satisfied, as it is clear that investors in the LLCs 
provided an investment of money to Defendants.  In all instances, the investors and noteholders 
were offered membership interests LLCs managed by Defendants.  The Court found these facts 
to be true in its Order, and in fact, Defendants admitted that they sold membership interests in 
LLCs to investors in its Answer. See Docket No. 38 at ¶ 1. 
The “common enterprise” factor appears to be satisfied here, as well.  The Seventh 
Circuit requires “horizontal commonality,” meaning that there must be a pooling of interests 
between the investors and the developer or the promoter, as well as a pooling of interests among 
the investors. See Wals v. Fox Hill Development Corp., 24 F.3d 1016, 1017-19 (7th Cir. 1994); 
Stenger v. R.H. Love Galleries, Inc., 741 F.2d 144, 146-47 (7
th
 Cir. 1984). With at least the Hyatt 
Johnson buyout, a common enterprise with the required pooling of interests occurred.  According 
to the settlement agreement, BCI and Hyatt Johnson collapsed all of the multiple investments of 
Hyatt Johnson into one promissory note in July 2007.  Then, this note was later exchanged for 
BCI’s equity interests in LLCs which are under the management of Defendants.  Thus, all Hyatt 
Johnson investors were pooled together and placed in equal standing with one another.  Their 
interests are also intertwined with BCI in that Defendants remain the manager of the LLCs that 
the Hyatt Johnson investors received in exchange for releasing their promissory note.  The 
success of their investments depends on the success of Defendants’ management of the LLCs, as 
the manager is responsible for leasing and maintaining the aircraft owned by the LLCs.  
Accordingly, horizontal commonality is present.       
36


The third Howey factor, profits from the efforts of others, is also met.  As described 
above, the LLC investments were offered such that investors expected their profits to come 
solely from the efforts of Defendants as manager of the LLCs.  In this instance, Hyatt Johnson 
received BCI’s purported equity interests in the LLCs they also manage, and is relying on 
Defendants to sell one of the aircraft they control in order to repay Hyatt Johnson a portion of the 
sales proceeds. The agreement does not remove BCI from their role as manager, and thus, Hyatt 
Johnson will be dependent upon Defendants. Based on the information provided the SEC, the 
Hyatt Johnson buyout is an investment contract, and as such, under the purview of the federal 
securities laws. 
Defendants have not produced any information to the SEC related to the Hyatt Johnson 
buyout. Despite repeated requests for more information, Defendants have only stated to the SEC 
that they are proceeding with the repayment of Hyatt Johnson but have supplied no details of the 
deal. Importantly, the only details the SEC has received on this deal came from third parties, 
including Hyatt Johnson investors. The Hyatt Johnson settlement agreement appears to 
misrepresent and omit material facts.  First, Defendants represent that BCI is the 100% owner of 
the LLCs that they are offering to Hyatt Johnson.  This agreement omits, however, that the SEC 
has alleged in the Complaint that Defendants misappropriated investor funds to enrich 
themselves, and further defrauded investors through the offer to buy out their investors beginning 
in early 2007. These are the means by which Defendants obtained their purported interest in the 
majority of the LLCs it claims it owned – through misappropriated investor funds or the 
deceptive buyouts.  The agreement is also silent about the findings of this Court that Defendants 
defrauded their investors and acted with scienter.  Furthermore, the agreement is silent as to 
37


other material facts, among them, that the one of the pledged LLCs obtained its aircraft through 
misappropriated funds.   
In terms of this repayment, these proposed deals represent ongoing fraudulent conduct 
presenting additional risk of loss to the investors.  Not only are the investors reliant upon 
Defendants’ continued management of the LLCs, the fraudulent nature in which Defendants 
came to possess the LLCs imposes additional exposure to the investors that cash may not.  As the 
Seventh Circuit recently ruled, if money or property is obtained through knowingly false 
representations, the scheme to defraud is established, regardless of whether the defendant hoped, 
intended, or even expected that the victims would eventually be repaid.  See U.S. v. Hamilton, 
2007 WL 2429477 at 2 (7th Cir. 2007).  Instead of making them whole, these non-cash 
settlement offers present more problems to the noteholders, and in fact, violate the Court’s 
injunction against future securities laws violations.    
Moreover, it is impossible for the SEC, in its role as monitor, to endorse or passively 
observe the Hyatt Johnson buyout when Defendants in this action refuse to disclose any facts 
related to this deal and the other principals in the deal, Messrs. Hyatt and Johnson, have 
informed counsel for the Commission that they would both assert their Fifth Amendment 
privilege against self-incrimination.  The Court should find no comfort in Defendants’ claims 
that they are satisfying their obligations to repay their investors amid these circumstances.  While 
simultaneously negotiating with Defendants on behalf of their investors, Hyatt has refused to 
provide any information, either documents or testimony, concerning this buyout and his dealings 
with Defendants on the grounds that it may incriminate him.  For his part, Johnson has informed 
the Commission he will refuse to answer any questions relating to his dealings with BCI or 
produce any personal documents which may relate to these dealings.  These assertions of their 
38


Fifth Amendment privilege, combined with Defendants’ complete lack of candor relative to the 
deal, forces the SEC to alert the Court to this ongoing fraud on investors.   
D. Defendants’ Failure to Provide Disclosures to the SEC Violates the Order. 
In addition to their failure to repay the noteholders, Defendants have repeatedly violated 
the Court’s Order compelling the disclosure of certain financial information.  In several 
instances, the information provided by Defendants was late or incomplete to the extent that the 
disclosures were meaningless.  On other occasions, Defendants have never disclosed reports or 
records they were required to produce.  Even after several requests by the SEC, Defendants have 
simply refused to supply mandated information. 
As expressed above, Defendants have produced only minimal documents and records 
related to their progress in repaying their noteholders.  Only after the SEC informed Defendants 
that it would file a Motion to Show Cause did Defendants begin to produce documents and 
records responsive to document requests relating to the repayment of its noteholders.  These 
minimal disclosures, however, contained only partial productions of only two of the numerous 
settlement agreements with investors.  Defendants have thus far refused to produce any 
information about the source of funds used repay certain investors. 
Defendants also failed to provide other required documents and reports to the SEC.  The 
accounting provided by Defendants is incomplete and inaccurate.  The accounting does not 
account for the actual use of investor funds, including oversubscribed funds, and funds obtained 
after the aircraft were already purchased, and funds obtained after the aircraft in BCI 2004-5 and 
BCI 2004-6 were sold. The accounting also fails to identify any reinvestment of investor capital 
after Defendants sold the aircraft belonging to BCI 2004-5 and BCI 2004-6.  The accounting also 
fails to address any of the $3 million of Hyatt Johnson investments in BCI 2004-6.  In addition to 
39


these deficiencies, the accounting, as explained above, contains numerous inaccuracies, 
including the false representations that aircraft were sold at a loss. 
There have been several other violations of the disclosure requirements.  Defendants have 
never provided a weekly report of proposed withdrawals of funds, despite the explicit order to do 
so. On several occasions, Defendants have failed to provide 48 hour notice on expenditures over 
$20,000. Defendants have only provided one purported report of “all money paid to BCI or any 
BCI affiliate, including LLCs and Hollnagel in connection with BCI.”  However, this document 
only reports money paid to BCI; it does not include any reference to any money paid to 
Hollnagel or any BCI affiliate. Thus, Defendants’ failure to follow the Court’s Order is not 
limited to repayment of noteholders.  Defendants have repeatedly disregarded the Court’s 
reporting requirements, substantially impairing the SEC’s role as monitor to the point such that 
this role is illusory. 
These actions reveal Defendants’ deliberate disregard of the Court’s Order.  Defendants’ 
repeated, comprehensive violations of the Order indicate willful conduct.  Of course, it is black 
letter law that no one has the right to flout or ignore a Court order.  See McComb, 336 U.S. at 
192. If there are extenuating circumstances, or if the Order is too burdensome, Defendants could 
have petitioned this Court for modification or clarification of the Order.  Id. In this case, 
however, Defendants have not done so. As stated by the Supreme Court in McComb
, when 
Defendants decide for themselves the meaning of a Court Order, they act at their own peril.  Id. 
This principle was recognized more recently in this Circuit.  As expressed by the Honorable 
Milton I. Shadur: 
After all, he [Defendant Thomas Quinn] has arrogantly and 
surreptitiously flouted a court order of which he was fully 
cognizant. No one has the right to do that even if such a court 
40 

order is downright void. That has been crystal clear for nearly a 
half-century.  It cost the United Mine Workers of America $3.5 
million to learn that lesson–at a time when that represented real 
money. U.S. v. United Mine Workers of America
, 330 U.S. 258, 
91 L. Ed 884, 67 S. Ct. 677 (1947). Indeed, so powerful is the 
notion that litigants must observe the regularized form of judicial 
proceedings by moving to vacate even a void court order, rather 
than engaging in self-help by ignoring it, that such obligation 
prevails even where the litigant’s conduct involves the exercise of 
First Amendment rights. (Id
.) (Citations omitted) (Emphasis in 
original) 
SEC v. Arnold Kimmes, et al., 753 F. Supp. 695, 700 (N.D. Ill. 1990). The Court made explicit 
the conditions upon which Defendants were to conduct their affairs in lieu of the appointment of 
a receiver. Defendants repeatedly violated these conditions and continue to do so. 
E. Defendants’ Weak Financial Condition Further Threatens Investors. 
As described in prior filings with this Court, Defendants’ weak financial condition has 
been exposed since the Order. Even preceding the filing of this lawsuit, Defendants have 
consistently failed to repay their investors and creditors.  Despite offers to buy out its investors in 
March 2007, Defendants were able to repay only a portion.  The majority of investors received 
only promissory notes, guaranteed by BCI.  If Defendants had the ability to pay its investors in 
cash in the spring and summer of 2007, it would and should have done so.  Immediately 
following the SEC’s Complaint, and during the evidentiary hearing, one of Defendants’ primary 
creditors, Bridgeview Bank, seized more than $25 million from Defendants’ bank accounts, 
which was the entire cash balance in Defendants’ operating account.  Defendants, however, kept 
this fact secret, and instead represented to this Court that BCI was a “healthy and vibrant” 
company and could easily repay all investors in cash.  Clearly, matters were not what they 
appeared or what Defendants would have this Court believe. 
41


In addition to the actions of Bridgeview Bank, other creditors have already instituted 
actions against Defendants. Fifth Third Bank and GMAC Credit (“GMAC”) have either seized 
cash or have initiated foreclosure proceedings against Defendants.  GMAC issued to Defendants 
a default letter in early May 2007, well before the SEC’s lawsuit.  Unsecured creditors who 
cannot self-help have also taken steps against Defendants.  Unsecured creditor Ungaretti & 
Harris LLP have moved to intervene in this action because of Defendants’ failure to pay more 
than $500,000 in legal bills.  See Docket at 52-53. The SEC has learned that Defendants owe 
approximately $350,000 to a Plaintiff, pursuant to a settlement agreement in a lawsuit in the 
Northern District of Illinois, towards which they have made no payments, despite being required 
to do so under an order by Judge Kennelly. Finally, the SEC is aware of at least one other 
creditor who claims to be owed $110,000 by Defendants and who has not been paid.  
Defendants’ attempts to repay certain noteholders with securities interests or aircraft are 
admissions that they cannot pay cash.  It also reveals that Defendants are offering preferential 
treatment to similarly situated noteholders: some noteholders are offered cash, others are not.  
The actions of Defendants’ creditors further indicate that Defendants are not financially sound.  
Together, these facts, along with Defendants’ contempt and violation of the Temporary 
Injunction, demonstrate the need for a receiver over BCI, who will ensure that all noteholders 
and creditors are treated equitably. 
VIII.   CONCLUSION   
For the reasons stated above, the SEC moves this Court for an Order to Show Cause why 
Defendants should not be held in contempt of the Court’s August 22, 2007 Order.  Defendants 
cannot, and have expressed their clear intention not to, repay investors in cash within 60 days as 
required under the Order. Defendants have also failed to comply, and continue to fail to comply, 
42


with the reporting requirements in the Order.  In addition to Defendants’ misconduct, creditors 
have engaged in self-help actions against Defendants, further weakening Defendants’ ability to 
repay their investors. Events since the Order demonstrate Defendants’ contempt and utter 
unwillingness to be open and honest regarding its dealings with investors, and the continued 
need for a receiver in this matter.      
                                                                        Respectfully            submitted,            
s/ Robin Andrews 
Gregory von Schaumburg, IL Bar No. 3127782 
Robin Andrews, IL Bar No. 6285644 
John J. Kaleba 
Charles J. Kerstetter 
Attorneys for Plaintiff 
U.S. SECURITIES AND 
EXCHANGE COMMISSION 
175 W. Jackson Blvd., Suite 900 
Chicago, IL 60604 
Telephone: (312) 353-7390 
Facsimile: (312) 353-7398 
Dated: October 5, 2007 
43

____________________________________ 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF ILLINOIS 


EASTERN DIVISION 


: 
UNITED STATES SECURITIES : 
AND EXCHANGE COMMISSION, : CASE NO. 1:07-cv-4538 

:
 Plaintiff, : Hon. Elaine E. Bucklo 

:
 v. : Magistrate Judge Arlander Keys 

: 
BRIAN N. HOLLNAGEL and : 
BCI AIRCRAFT LEASING, INC. : 


:

 Defendants. : 


____________________________________: 


PLAINTIFF UNITED STATES SECURITIES AND EXCHANGE COMMISSION’S 
MOTION FOR ORDER TO SHOW CAUSE 

Plaintiff, United States Securities and Exchange Commission (“SEC”), respectfully 

moves this Court for an order to show cause why Defendants Brian N. Hollnagel (“Hollnagel”) 

and BCI Aircraft Leasing, Inc. (“BCI”) (collectively “Defendants”) should not be held in 

contempt of the Court’s August 22, 2007 Order (“Order”) in light of their multiple violations of 

the Order.1  Defendants are not repaying all of the investors in cash as required by the Order.  

Defendants have also failed to comply, and continue to fail to comply, with the reporting 

requirements in the Order.  Defendants appear to believe they are not required to comply with 

those provisions of the Order, have provided virtually no supporting information or documents to 

the SEC necessary to its role as monitor, and have misled the Court regarding their ability to 

repay investors. It also appears that Defendants have conducted new fraudulent securities sales, 

in violation of the Order and the federal securities law. 

This Motion to Show Cause also serves to correct misstatements and misleading statements in 
Defendants’ September 19th Surreply, Docket No. 47.  In addition, as part of the SEC’s monitoring role 
under the Order, this filing serves as an updated report to the Court regarding Defendants’ progress in 
repaying investors. 

1 



Defendants misled the Court during the hearing and have subsequently made materially 

misleading statements in its Reports to the SEC and its filings with the Court.  While reporting to 

investors, the SEC, and the Court that great progress was being made and that their repayment 

plan was on track, Defendants were telling Bridgeview Bank that the death of the potential $36+ 

million buyout, and the seizure of funds by Bridgeview pursuant to BCI’s default, was “truly, 

actually, killing us,” and Defendants’ counsel was telling Mr. Hollnagel that, unless the issues 

with Bridgeview were “cleared up in the VERY near future,” his options “are few.”2  In the 

meantime, Defendants’ former counsel, Ungaretti & Harris LLP, has filed an application to 

intervene in this matter because Defendants are using this Court’s Order to justify not paying  

$500,000 in outstanding legal bills.  Likewise, the SEC is aware of two other substantial 

creditors, one of which was required to be paid pursuant to a Court order, that have similarly not 

been paid. As is typical in collapsing Ponzi schemes, and despite displaying confidence 

regarding their financial health, Defendants simply do not have enough money to satisfy their 

investors and creditors.  This is exactly the type of impending financial debacle that requires the 

appointment of a receiver. 

Finally, in addition to the fact that Defendants have made a virtual mockery of this 

Court’s Order through their contemptuous non-compliance, this Court needs to address 

Defendants’ multiple violations of the Order as soon as possible because there is an immediate 

danger that Defendants continue to victimize investors.  Instead of repaying investors with cash 

as required, Defendants Hollnagel and BCI, the same parties preliminarily found by this Court to 

have committed securities fraud, now appear to have made new securities offers and sales to 

previously victimized investors.  Defendants’ purported repayment plan appears to have reverted 

Hollnagel forwarded an email from his Counsel to an officer at Bridgeview Bank as part of an 
email to that officer.  See Exhibit 1. 

2


2 



 

3 

to a mere continuation of their original Ponzi scheme: pledging assets rightfully belonging to 

prior investors (but who were fraudulently bought out of their interests) to other investors, now 

as “repayment” of their investments.  Defendants are doing all of this under a veil of secrecy, 

producing virtually nothing in response to the SEC’s multiple requests for information and 

documents regarding these new transactions with investors and their repayment progress.   

Alarmingly, Jason Hyatt (“Hyatt”) and Jay Johnson (“Johnson”), the principals of Hyatt 

Johnson Capital, LLC (“Hyatt Johnson”), the purported representatives of 110 individual 

investors who invested nearly $23 million in BCI securities, have informed the SEC through 

counsel that they will assert their Fifth Amendment privilege against self-incrimination in 

response to SEC subpoenas. These subpoenas, among other things, seek information about their 

communications and dealings with Defendants regarding the new offers and sales of securities.  

In other words, not only do the Defendants not want this Court or the SEC to know anything 

about their dealings with investors (including new offers and sales of securities), but purported 

representatives of investors believe that there is a reasonable likelihood of criminal prosecution 

in connection with their dealings with Defendants, including possibly these new securities sales.3 

The SEC believes these are sufficiently disturbing developments to warrant immediate action by 

this Court, such as finding Defendants in contempt of the August 22nd order, imposing an asset 

freeze, and appointing a receiver, to protect investors from being further defrauded. 

The entity Hyatt Johnson Capital LLC has produced documents and has promised to produce 
more.  Of course, the entity cannot assert the Fifth Amendment privilege against self-incrimination.  
However, the SEC has recently learned that there is a substantial amount of information relating to Hyatt 
Johnson Capital in the possession of Hyatt and Johnson.  Based on what its counsel has told the SEC, the 
office of Hyatt Johnson Capital was located in Johnson’s home.  This office had separate Hyatt Johnson 
Capital computers for Hyatt and Johnson.  The SEC has been informed that there exists approximately 30 
gigabytes of electronic information copied from those Hyatt Johnson Capital computers by counsel for 
Hyatt and Johnson, and these copies, and the original computers, remain in the possession of Hyatt and 
Johnson.  Counsel for Hyatt Johnson Capital does not yet possess a copy of this information.  Johnson, 
through Counsel, has informed the SEC that he intends to produce all Hyatt Johnson Capital material, but 
the SEC does not know whether Hyatt will do the same. 

3




I. 	 THE COURT, FINDING FRAUD, IMPOSED NUMEROUS REQUIREMENTS 
ON DEFENDANTS IN ITS ORDER. 

A. 	 The SEC’s Complaint alleged fraud in the offer and sale, and later, in the 
offer and repurchase, of securities by Defendants. 

The SEC filed its Complaint in this matter, along with a motion for a temporary 

restraining order, an asset freeze, and a receiver, against Defendants on August 13, 2007.  The 

Complaint alleged, among other things, that Defendants defrauded investors by, among other 

things, not purchasing aircraft on behalf of the investor LLC with investors’ money, despite 

raising investor money for that express purpose, and by misappropriating assets or profits 

belonging to investors. See Docket no. 1 at ¶¶ 74-128. The Complaint also alleged that 

Defendants further defrauded investors through a buyback in the spring of 2007, when they made 

misleading statements regarding the status of the investments.  See id. at ¶¶ 182-95. In 

particular, the SEC alleged that Defendants misrepresented the value of the investors’ interests in 

the LLCs and thus fraudulently repurchased investors’ interests in the LLCs, keeping the 

accumulated equity to themselves.   See id.   Defendants also sold or refinanced aircraft 

purchased using investor funds, or otherwise belonging to investors, in order to raise the money 

required to buy out other investors, without disclosing these facts to either set of investors.  See 

id. at ¶¶ 191-194. 

B. 	 The Court issued an injunction against further antifraud violations. 

On August 22, 2007, after a two day evidentiary hearing and hours of arguments from 

both parties, this Court issued a Temporary Injunction against Defendants which, among other 

things, prohibited them from further violations of certain of the anti-fraud provisions of the 

Federal securities laws.  The Court also entered a Memorandum Opinion and Order (the 

“Order”). That Order, among other things, made factual findings, including “It is undisputed that 

4




BCI made material misrepresentations in its LLC offering documents...” to investors and that 

“[t]here can be no doubt that BCI and Hollnagel acted with scienter.  There is also a risk of 

repetition.” Order at 7-8. Based on these and other findings, the Court entered a temporary 

injunction enjoining Defendants from further securities fraud.  Based on Defendants’ repeated, 

comprehensive, and ongoing contempt of the Order, it appears that the Court’s concerns about 

possible recidivism by Defendants were well-founded. 

C. 	 The Court ordered that Defendants repay investors and report information 
to the SEC. 

The Court declined the SEC’s request for the appointment of a Receiver and an asset 

freeze, but rather, ordered that Defendants repay all of their noteholders within 60 days.4  In 

addition, the Court ordered that Defendants report to the SEC their progress in repaying 

investors, and imposed certain other reporting requirements on Defendants.  It is apparent from 

the language and reasoning of the Order that the Court intended the repayment of investors to be 

in the form of cash.  Indeed, that is what Defendants promised at the hearing. 

During the hearing Defendants repeatedly promised the Court that investors would be 

repaid in cash if no asset freeze were instituted.  For example, during closing arguments counsel 

for Defendants represented to the Court that Defendants were in negotiations “with regard to a 

transaction which will net well in excess of the $36 or $37 million that will be necessary to pay 

off” the remaining noteholders.  See August 20, 2007 Transcript at 208.  Counsel further 

represented to the Court that, notwithstanding the SEC’s complaint and the temporary injunctive 

hearing, “that transaction is still on course.”  Id. at 209. Counsel for Defendants also stated to 

These “noteholders” were all previously investors in LLCs managed by Defendants, certain of 
whom exchanged those equity interests for promissory notes guaranteed by BCI. 

5


4 



the Court that, no matter the outcome of that particular deal, Defendants still would have 

sufficient cash to repay their investors.  Counsel stated: 

 [i]n addition to that transaction, and I don’t want to suggest that we don’t think 
it’s going to happen, there are three alternatives that the company was also 
working on that would generate sufficient cash to pay these people off. Your 
Honor, as we look at what are now, I think, accepted financials, or at least not 
disputed financials, there’s enough value here to do that.  There is a great plenty 
value here to do that in the $95 million net equity after paying everybody off on 
the evidence that’s been presented to the Court. 

Id. at 209 (emphasis added). 

The Court specifically referenced these representations in its Order as the basis for not 

issuing an asset freeze and appointing a Receiver.  In fact, the Court specifically noted that “the 

SEC has not shown at present that BCI will not be able to pay the notes as BCI has represented 

to the Court.” Order at 8-9. The Court, while discussing the position of the noteholders, further 

observed that the noteholders believed that Defendants have a greater ability “to obtain the funds 

to pay the notes than a receiver…”  Id. at 8. Thus, based on Defendants’ representations and the 

language and reasoning of the Court, the Order clearly contemplated that Defendants would 

repay their noteholders in cash. 

In addition to the repayment of noteholders, the Court imposed five specific reporting 

conditions on Defendants: 

1) BCI must report to the SEC on a weekly basis its progress in paying off the 
noteholders; 

2) [BCI must] provide an immediate accounting of the LLC in which one investor 
continues to hold equity; 


3) [BCI must] provide to the SEC on a weekly basis all proposed withdrawal of funds; 


4) significant withdrawals (in excess of $20,000) may be made only with 48 hours notice 

to the SEC; [and] 


6




5) all money paid to BCI or any BCI affiliate, including LLCs and Hollnagel in 
connection with BCI, shall be reported to the SEC on a weekly basis. 

Id. at 9. Finally, the Court ordered that: 

If noteholders are not repaid within 60 days, or for any other reason it becomes 
apparent before that time that BCI will not be able to pay its noteholders, the SEC shall 
inform the Court and I will reconsider the SEC’s request for a freeze of assets and 
appointment of a receiver.  

Id.  As discussed below, Defendants have violated virtually every provision of the Court’s Order, 

and continue to do so. 

II.	 DEFENDANTS ARE NOT REPAYING INVESTORS IN CASH, AND HAVE 
STATED THEIR INTENTION TO NOT COMPLY WITH THE COURT’S 
ORDER TO REPAY INVESTORS IN CASH WITHIN 60 DAYS. 

Defendants essentially concede that, over 30 days into the Court-ordered repayment 

period, they are unable to repay their investors with cash.  Instead, Defendants have proposed to 

repay most remaining investors via the sales of new securities or the parceling out of aircraft or 

other assets. Defendants have stated that only two of the remaining noteholders, representing a 

total of about $10.7 million, are to be paid in cash “from the net proceeds of sale or financing 

transactions” which to this date have not yet occurred and may never occur.  See Exhibit 2 to 

SEC’s September 14th Reply, Docket No. 45, at 3. Hollnagel has told one of these investors that 

the transaction is unlikely to happen within 60 days of the Order.  The other remaining 

noteholders, a total of about $33 million, have been or will be repaid by being given either assets 

or new securities, or in Defendants’ words, “convey to them 100% of the ownership interests of 

entities owning specified aircraft subject to existing leases.”  See id. 

Throughout the hearing, Defendants repeatedly represented to the Court that a potential 

$36+ million buyout of aircraft, later identified as involving Bridgeview Bank, was the lynchpin 

7




of their plan to repay investors.5  As noted by the SEC in its September 14th Reply, this 

transaction ceased to be viable as of August 29th, when Bridgeview notified Defendants that 

there would be no such buyout. Defendants failed to disclose this development to the SEC or to 

this Court. Defendants later played down the importance of the death of this potential buyout, 

insisting that there were other potential deals in the works to repay investors, none of which have 

actually occurred. However, this potential buyout was much more vital to Defendants’ 

repayment ability than they have previously admitted.  The day that Bridgeview informed 

Defendants that the buyout was no longer viable, Mr. Hollnagel’s counsel informed him that, 

unless these issues with Bridgeview were “cleared up in the VERY near future,” his options “are 

few.” See Exhibit 1. The next day, when Bridgeview seized another $2 million pursuant to a 

default by BCI on a loan from GMAC, Mr. Hollnagel told Bridgeview that this was “truly, 

actually, killing us.” See Exhibit 2. Defendants have never admitted to investors, the Court, or 

to the SEC in its monitoring role, how devastating the Bridgeview and GMAC defaults and the 

death of the $36 million buyout were to their ability to repay investors. 

Defendants’ plan to no longer repay noteholders with cash was first acknowledged in 

their September 10th Response.  See Docket No. 43 at 5-7. In their Response, Defendants 

claimed as a sign of “significant progress” that investors were paid $12.5 million on August 23, 

2007. However, Defendants failed to tell the Court in their Response that approximately $6 

million of the checks for the $12.5 million repayment had been returned for insufficient funds.  

See id. at 2-5. Defendants have not further asserted that they could or would repay those 

investors in cash now that the checks have bounced.  In fact, Defendants have not paid these 

It was the SEC, and not Defendants, who first identified Bridgeview as being the entity that 
Defendants claimed at the hearing would participate in a transaction with BCI that would generate enough 
cash to repay all investors.   

8


5 



investors cash. Instead, Defendants claimed that they would convey to three of these investors 

“100% ownership of specified aircraft in full satisfaction of BCI’s obligations to them” and 

“100% ownership of a specified aircraft on lease, although in this case, BCI has agreed to 

repurchase this aircraft if and when a sale of the aircraft can be arranged” to another investor.  Id. 

at 6. Defendants also stated that Hollnagel had “substantive and significant discussions” with 

two of the largest BCI investors, and has reached exit agreements with them.  Id.  Defendants 

omitted any details about these exit agreements, although clearly they bear directly upon 

Defendants’ ability to repay, and progress in repaying, investors.  These details are also 

necessary to the SEC’s mandate to alert the Court if “it becomes apparent before [60 days have 

passed] that BCI will not be able to pay its noteholders.”  Order at 9.  These are but two minor 

examples of Defendants’ contempt of this Court’s Order. 

III.	 DEFENDANTS ARE APPARENTLY ENGAGED IN NEW SECURITIES SALES 
AND OTHER SUSPECT TRANSACTIONS IN ORDER TO REPAY INVESTORS. 

In their Response, Defendants also repeatedly claimed that they would be able to repay 

the remaining noteholders in cash.  Defendants claimed, as they had repeatedly claimed at the 

hearing, that they were engaged in transactions that “would result in net proceeds more than 

sufficient to satisfy BCI’s obligations in full to all remaining noteholders” and, that “BCI has 

solicited and received no less than three proposals for financing that would result in net proceeds 

to BCI more than sufficient to satisfy BCI’s obligations in full.”  Docket No. 43 at 7. 

Notwithstanding Defendants’ September 10th pledge to repay the remaining noteholders 

in cash, along with claims of their ability to do so, just over a week later Defendants indicated 

that they would not fulfill this promise.  In Defendants’ September 19th Surreply, Defendants for 

the first time disclosed any details about its exit strategy with its largest investor, Hyatt Johnson.  

9




In their Surreply, Defendants stated that the Hyatt Johnson repayment consisted of the 

conveyance of “100% ownership rights of numerous aircraft in satisfaction of approximately $21 

million” due to Hyatt Johnson.  Docket No. 47 at 2-3.  Thus, it was not a repayment of cash to 

Hyatt Johnson or the 110 investors it represents, rather, simply an exchange of one security for 

another.6 

Furthermore, in their September 19th Surreply, Defendants changed their September 10th 

promise “to satisfy BCI’s obligations in full to all remaining noteholders” with cash, to now 

promising to repay only “those remaining noteholders desiring cash.” Id. at 4 (emphasis added).  

At least three other investors are being repaid with new securities, and it is apparent that 

Defendants are unable to repay their noteholders in cash.  In fact, all remaining noteholders 

wanted to be paid in cash. However, Defendants have informed numerous investors that they 

cannot repay them in cash.  Instead, Defendants have offered investors an all or nothing 

proposition: accept equity interests in aircraft or receive nothing in exchange for their promissory 

notes. Hollnagel told at least one investor that if a receiver is ever appointed, all of Defendants’ 

aircraft will be seized by banks, and that investors will then receive nothing.7  Consequently, 

investors appear to be accepting “repayment” offers from Defendants out of fear of recovering 

nothing, not because such offers fairly represent what investors are entitled to, or desire, and 

certainly not resulting from being given full and complete disclosure of all material information. 

6 As was stated in the SEC’s September 14th Reply, without the knowledge or approval of its 
investors, in July 2007 Hyatt Johnson exchanged their investors’ equity interests in the various LLCs 
managed by BCI for an approximately $23 million promissory note.  See Docket No. 45 at 10. 

7 At the same time, of course, Defendants were representing to the Court that BCI was “healthy and 
vibrant” with over $95 million in equity. 

10




A. Misrepresentations in Connection with the Hyatt Johnson “Settlement” 

Defendants’ “repayment” to Hyatt Johnson was in fact a new issuance of securities that 

failed to disclose material facts.  Pursuant to a September 10, 2007 agreement (“HJ Agreement”), 

Defendants purportedly repaid in full and final satisfaction all amounts owed to Hyatt Johnson. 8 

See HJ Agreement (provided to the Court on September 14, 2007).  Under this agreement, 

Defendants conveyed to Hyatt Johnson their “membership interests” in three LLCs controlled by 

Defendants and cash to be paid at a later date in exchange for Hyatt Johnson’s release of the 

promissory note owed by Defendants.  According to the agreement, on July 19, 2007, BCI issued 

a promissory note to Hyatt Johnson in the amount of $22,689,560, presumably representing the 

full amount of capital investment in the LLCs managed by Defendants.9 See id. at 1. Then, on 

September 10th, in exchange for the release of this note, BCI conveyed to Hyatt Johnson “100% 

of its Membership Interest” in BCI Investment 2005-1, BCI Investment IRL, and BCI 2004-8.  

Defendants also agreed to pay Hyatt Johnson $1.2 million in cash by December 31, 2007 or 

when the refinancing of a particular BCI aircraft occurs (whichever occurs sooner), and agreed to 

assign $3.5 million from the sale of an aircraft in BCI 2005-15.10 See id. at 4-5. Of the more 

than $22.6 million owed to Hyatt Johnson, Defendants have apparently agreed to repay only $4.7 

8 As discussed previously, and explained more fully below, both Hyatt and Johnson, through 
counsel, have informed the SEC that they intend to assert their Fifth Amendment privilege against self-
incrimination regarding all questions or the production of personal documents relating to their dealings 
with Defendants, including these recent transactions. 

9 This note has not been produced by Defendants, Hyatt Johnson Capital, Hyatt, or Johnson.  This 
exchange was done without the knowledge or approval of the Hyatt Johnson investors whose nearly $23 
million had been invested in BCI LLCs. 

10 Of this payment, $2 million is to be paid to a Hyatt Johnson Capital investor who loaned $2 
million to Hyatt Johnson which purportedly was then loaned to BCI.  The SEC is unable to locate this $2 
million loan to BCI anywhere in Defendants’ accounting records, and despite the SEC’s August 31, 2007 
discovery request for documents from Defendants relating to this loan, Defendants have not provided any 
information.   

11




million of this amount in cash, $3.5 million of which will be paid upon BCI’s sale of a specific 

aircraft, which, under the agreement, could occur as late as January 8, 2008, if at all.  See id. at 5. 

In the September 10th agreement, Defendants represent that BCI is the sole member and 

owner of the LLCs known as BCI 2004-8, BCI 2005-1, and BCI Investment IRL.   See HJ 

Agreement at 1.  Defendants do not acknowledge or address, however, the claims of the SEC in 

its Complaint, or the findings of the Court in its Order that Defendants defrauded at least some of 

the prior investors in these LLCs.  In particular, Defendants failed to disclose to Hyatt Johnson 

that BCI 2004-8 owns an aircraft that was purchased with misappropriated funds belonging to 

investors in BCI 2004-6. The SEC has previously alleged and presented evidence during the 

hearing that Defendants sold the aircraft belonging to BCI 2004-6 and misappropriated most of 

the proceeds of the sale from investors.  Defendants also failed to disclose that BCI 2005-1 owns 

an aircraft that was purchased in part with misappropriated funds belonging to investors in yet 

another offering, BCI 2004-7. These assignments of assets by Defendants, purchased using other 

investors’ funds, to a new LLC now owned by Hyatt Johnson, is nothing more than a 

continuation of the original Ponzi scheme.   

In addition, with respect to the proposed sale of the BCI 2005-15 aircraft, Defendants 

failed to disclose material facts concerning their ability to generate sufficient sales proceeds.  For 

there to be enough money generated from Defendants’ sale of the BCI 2005-15 aircraft as 

represented in the agreement, the sale must at least be valued at $14 million.  According to 

documents submitted to Deloitte as part of the draft “audit” in February 2007, however, the fair 

market value of that aircraft was estimated to be between $4.65 and $7.85 million.  Thus, from 

the available evidence, barring a more than doubling of the aircraft’s market value in the last 

seven months, it appears that Defendants, knowing the estimated market value of the aircraft, 

12




pledged to investors sale proceeds that are highly unlikely to ever exist and are, at a minimum, 

materially misleading.  This appears to constitute yet another material misrepresentation by 

Defendants in connection with the offer and sale of a security, in violation of the antifraud 

provisions of the federal securities laws, and also in violation of this Court’s injunction. 

This transaction involves securities because it is an investment that ultimately relies on 

the efforts of Defendants.  The September 10th agreement does not explicitly state that BCI will 

remain the manager of these LLCs, but the transaction only conveys BCI’s “membership 

interest” in the LLCs to Hyatt Johnson. Consequently, it appears that at least as of the execution 

of the agreement, BCI will still remain as manager of these LLCs, continue to collect the rental 

income, guarantee the loans on the various aircraft, and control the assets of the LLCs, with only 

beneficial ownership and profits, if any, passing on to Hyatt Johnson.  Furthermore, Hyatt 

Johnson will be relying on BCI’s efforts to sell the BCI 2005-15 aircraft at a high enough price 

such that Hyatt Johnson will be able to recoup its $3.5 million from the sale after $7.5 million of 

debt, plus $3 million earmarked for “one other group,”11 is deducted from the sales proceeds.12 

See HJ Agreement at 5.  

In their September 19th Surreply, Defendants claim that the SEC’s assertion that the 

Hyatt Johnson transaction constitutes an offering of securities is “an esoteric theory.”  Docket 

No. 47 at 3. Far from being an esoteric theory, this is the very definition of an investment 

contract: Defendants offered and sold to Hyatt Johnson, in exchange for a release of the note 

they owed to Hyatt Johnson, a membership interest in LLCs managed by Defendants.  In 

11 Defendants have not produced any information regarding this “other group” to whom this first $3 
million in net proceeds was pledged. 

12 Under the agreement, this sale is intended to occur within 120 days after the date of the 
agreement, which is approximately January 8, 2008. 

13




addition, Hyatt Johnson is relying on Defendants’ efforts to sell a certain aircraft at a high 

enough price to generate sufficient net proceeds. Hyatt Johnson has invested, on behalf of its 

110 investors, through a release of their note (also a securities transaction), in an enterprise in 

which it relies on the efforts of Defendants as manager of the LLCs and sellers of the aircraft.  

This constitutes an investment contract in every sense of that term.13  To call this “an esoteric 

theory” strains credibility.  In fact, this new transaction is nothing more than the original fraud 

repackaged. Simply put, the Hyatt Johnson settlement is nothing more than a continuation of the 

original Ponzi scheme: pledging assets rightfully belonging to prior investors (but who were 

fraudulently bought out of their interests) to other investors as “repayment” of the Hyatt Johnson 

note, a note that Hyatt Johnson investors never knew of or approved.   

Defendants also express surprise that despite their claim that investors being offered new 

securities are “all extremely sophisticated and wealthy investors in aircraft” the SEC would still 

allege that these investors “are in need of the government’s protection.”  September 19th 

Surreply, Docket No. 47, at 3.  The antifraud provisions apply to all investors.14  It is not 

permissible to defraud investors simply because they are well off financially. 

This Court should be greatly concerned about this new securities offering in light of the 

lack of disclosure by Defendants and, for that matter, Hyatt and Johnson’s refusal to provide 

information about their dealings with Defendants.  Despite repeated voluntary requests and 

expedited discovery requests from the SEC, and importantly, their obligation to disclose such 

information pursuant to the Court’s Order, Defendants have not produced any documentation 

regarding the buyout of Hyatt Johnson.  The limited information the SEC has learned from this 

13 See SEC v. Howey, 328 U.S. 293, 298-99 (1946).   

14 See SEC’s Motion to Strike Defendants’ Affirmative Defenses and supporting Memorandum, 
filed September 20, 2007, Docket Nos. 49-50. 

14




15 

transaction has come from third parties, including Hyatt Johnson investors.  Defendants have 

simply refused to provide any further details or documents regarding this transaction.  The lack 

of disclosure from Defendants concerning Hyatt Johnson is compounded by the fact that Hyatt 

and Johnson, the principals of Hyatt Johnson Capital, have both asserted, through counsel, their 

Fifth Amendment privileges against self-incrimination, and their counsel have informed the SEC 

that neither will appear for a deposition in this matter and that they will not produce any personal 

documents pursuant to subpoena.15 

Initially, counsel for Hyatt offered to provide the SEC a letter, signed by his client, memorializing 
the fact that Hyatt would assert his Fifth Amendment privilege against self incrimination.  Counsel for 
Johnson also informed the SEC that his client would invoke the Fifth Amendment privilege and the SEC 
requested a letter signed by Johnson to that effect.  After the SEC, as a courtesy, informed Defendants 
that it intended to seek a Motion to Show cause, counsel for Hyatt called and asked the SEC counsel to 
keep Hyatt’s assertion of the privilege confidential.  He also asked if the SEC intended to use the fact of 
his client's assertion in any Court filing.  Similarly, late in the afternoon of October 4th, counsel for 
Johnson made a similar request of SEC counsel using many of the same arguments.  The SEC refused to 
agree to keep Hyatt's and Johnson’s assertions of the Fifth Amendment privilege secret for several 
reasons, including the fact that simultaneously with negotiating new deals with Defendants, purportedly 
on behalf of Hyatt Johnson investors, Hyatt and Johnson were refusing to provide information to the SEC 
about those and their other dealings with Defendants.  The SEC believed this was material because 
investors were not being told of Hyatt’s or Johnson’s actions.  In addition, the SEC told counsel for Hyatt 
and Johnson that it believed that sharing this information was required under its monitoring role under the 
Order. Finally, with regard to whether the SEC would use the fact of Hyatt's assertion in any court filing, 
the SEC told Hyatt's counsel that we would not confirm whether we were going to make any filings in the 
near future but, if the information was necessary to Hyatt's decision, then he should assume the worst.  In 
a follow up telephone call, counsel for Hyatt again told the SEC that his client would assert his Fifth 
Amendment privilege but that, unless the SEC agreed to keep this information secret, he would not put 
that information in writing and his client would not sign an official assertion of the privilege.  Counsel for 
Hyatt also said that he believed it was inappropriate, irrelevant and prejudicial if the SEC would use the 
fact of Hyatt's assertion in any filing.  More than once counsel for Hyatt expressed to the SEC that he 
believed we cannot use the information, that it was inappropriate, and that it should be subject to a 
protective order. Counsel for Hyatt also told the SEC that he reserved the right to argue that the SEC’s 
use of the information was inappropriate.  The SEC disagreed with the position of Counsel for Hyatt and 
asked for authority. Counsel for Hyatt pointed to local rule 83.53.6.  Also, the SEC as it had done in the 
previous conversation, invited counsel for Hyatt to seek a protective order if he felt that was necessary. 
Counsel for Johnson made many of the same arguments, particularly the argument that the assertion of 
the Fifth Amendment privilege was not relevant.  Johnson’s counsel also asked that the SEC file any 
documents mentioning Johnson’s invocation of the Fifth Amendment under seal.  The SEC declined to do 
so, among other reasons, because such a filing would deprive investors, and any other third parties 
involved in these transactions, from material information. 

15




 

B. Other Suspect Transactions 

The SEC has also learned of other transactions involving Defendants’ supposed 

repayments to investors that appear to be a mere continuation of the original Ponzi scheme.  

Again, Defendants have disclosed virtually no information about these supposed deals and the 

SEC is concerned that these suspect transactions may involve pledging assets rightfully 

belonging to prior investors (but who were fraudulently bought out of their interests) to other 

investors. Certain of the BCI noteholders other than Hyatt Johnson, representing a total of about 

$10 million, have already been or will be purportedly repaid by being given ownership of new 

securities or assets owned by Defendants.  Defendants have agreed with several investors to 

exchange their promissory notes for BCI’s interests in LLCs plus the promise of some future 

partial repayments in cash, well beyond the 60-day deadline imposed in the Order.  In addition, 

The SEC believes that telling the Court, and the investors in this case, that the person negotiating 
on their behalf and purportedly protecting their interests, is simultaneously refusing to discuss their 
dealings with Defendants, including these new transactions, is highly relevant to both the SEC as Plaintiff 
and in its monitoring role under the Order.  The SEC also believes it goes to its request for a Receiver.   
Obviously, "...the public has a right to every man's evidence..." unless privileged. In re Corrugated 
Container, 661 F.2d 1145, 1149 (7th Cir. 1983).  In order to assert the Fifth Amendment privilege, an 
individual must believe they have a reasonable likelihood of criminal prosecution. See id. at 1150.  
Appropriate inferences can be drawn from an assertion of the Fifth Amendment Privilege.  See Baxter v. 
Palmigiano, 425 U.S. 308 (1976).  However, even with the Fifth Amendment privilege there is a 
presumption of innocence. 

If the SEC would have agreed to Hyatt and Johnson’s efforts to keep their assertions of the Fifth 
Amendment privilege secret, the SEC would have been complicit from keeping this important 
information from both the Court and Hyatt Johnson investors.  The SEC would have also, if it did not 
provide this information to the Court, both as Plaintiff and under its monitoring role under the Order, 
made the Court an unwitting accomplice in not providing the investors with information they could use in 
considering their options.  The Court also would have been deprived of information about individuals 
who, through their partnership, raised approximately $23 million from 110 individuals.  Moreover, it was 
Hyatt who wrote the Court on August 14th, allegedly on behalf of their investors (but in reality without 
consulting them), asking the Court not to appoint a Receiver.  Hyatt and Johnson, currently engaged in 
negotiating new deals for the issuance of new securities, would have their assertions of their Fifth 
amendment privilege kept secret so they can continue to keep their investors, and this Court, in the dark.  
The SEC was simply unwilling to be complicit in that deception.  Also, of course, since “the public at 
large pays for the courts and therefore has an interest in what goes on at all stages of a judicial 
proceeding,” such action on the part of a public agency would appear to violate public policy.  Citizens 
First National Bank of Princeton v. Cincinatti Insurance Co., 178 F.3d 943, 945 (7th Cir. 1999). 

16




similar to the Hyatt Johnson agreement, many of these new agreements are not repayments in 

cash, but instead are offers and/or sales of new securities.  In most cases, Defendants offered new 

securities to the investors as repayment of their promissory notes.  However, certain of the 

investors rejected Defendants’ offer of securities, insisting on instead receiving assets, namely 

aircraft under Defendants’ control – aircraft which may or may not rightfully belong to investors 

defrauded during the spring 2007 repurchasing as alleged in the SEC’s Complaint. 

As described further below, the terms of these agreements appear to have changed 

significantly from week to week as reported in Defendants’ progress reports.  See discussion in 

Section IV (A) infra. With regard to one investor who was supposed to receive “100% 

ownership of a specified aircraft on lease, although in this case, BCI has agreed to repurchase 

this aircraft if and when a sale of the aircraft can be arranged,” the agreement apparently has 

since changed.  See September 10th Response, Docket No. 43, at 6.  In an agreement executed on 

September 21st, it now appears that this investor has received $350,000, plus conveyance of 

BCI’s interest in an LLC under its control, plus $1.65 million from the sale of an aircraft BCI 

will attempt to sell.16 See Exhibit 3. This is the same aircraft, as described above, from which 

Hyatt Johnson will receive $3.5 million in sales proceeds when BCI finally succeeds in selling it.   

In the September 10th Hyatt Johnson agreement, the sales proceeds of the aircraft would 

purportedly go to (1) repay $7.5 million in debt, (2) pay $3 million to an unknown group, and 

then (3) $3.5 million to Hyatt Johnson.  See HJ Agreement at 4-5.  However, in this investor’s 

The investor in question was originally told he would receive approximately $3.2 million in cash, 
the amount of his note.  In their August 23rd Progress Report, Defendants reported that he had, in fact, 
been repaid $3.2 million in cash.  However, that check was returned for insufficient funds, and it appears 
that Defendants are unable to make good on that bounced check again, and the investor thus appears to 
have settled for receiving a fraction of the originally promised cash, plus a new security from Defendants.  
Like Hyatt Johnson, this investor is relying on Defendants’ efforts to sell this aircraft at a high enough 
price to repay him, and thus this settlement agreement is an issuance of a security. 

17


16 



September 21st agreement, the sales proceeds of the aircraft would purportedly go to (1) repay 

$7.5 million in debt, and then (2) $3.5 million to Hyatt Johnson, with no mention of the $3 

million supposedly going to the unknown group.  See Exhibit 3 at 3, 6-7. Thus, it appears that 

Defendants misled this investor regarding the amount of previously pledged sales proceeds.  

While it is possible that in the intervening period, the unknown group was paid their $3 million 

through other means, and thus explains the inconsistency, Defendants have not reported to the 

SEC, as required, repaying any group of investors $3 million in the intervening period, nor have 

Defendants made any other $3 million payments.   

Despite being specifically asked to provide it, and as required by an expedited discovery 

request for documents issued on August 31st, Defendants have refused to provide any further 

information regarding this settlement.17  However, from the available evidence it appears that, as 

described above, Defendants have, yet again, made a material misrepresentation in connection 

with the offer and sale of a security, in violation of the antifraud provisions of the federal 

securities laws, and also in violation of this Court’s injunction.  Finally, as noted above, it 

appears that the aircraft in question does not have sufficient market value to repay the amounts 

promised to investors and that Defendants are fully aware of this. 

The SEC has also learned that Mr. Hollnagel represented to the trustee of a major 

investor that Defendants are unable to repay the $8 million note owed to that investor.  

Defendants offered instead to convey to this investor 100% of the membership interests of 

specific LLCs under Defendants’ control, with BCI continuing to be the manager.  The investor 

rejected this offer, and appears now to be contemplating a transaction in which the investor will 

give an additional $7 million in new money to BCI, plus a waiver of repayment of his $8 million 

Defendants provided a copy of the September 21st agreement itself, but have not produced any 
other related documents or information about this transaction. 

18


17 



note, in exchange for ownership of three LLCs under BCI’s control.  The investor will then hire 

a manager to operate the LLCs with the hopes of selling the aircraft as quickly as possible.  In 

Defendants’ September 30th Progress Report, attached as Exhibit 4, they claim that $2 million of 

that total has already been satisfied by the conveyance of one aircraft to that investor.  Again, 

this investor is not being repaid in cash as promised by Defendants and as ordered by this Court, 

and Defendants have provided no information concerning this deal to the SEC. 

On October 4th, the SEC learned from an investor that Defendants paid two investors a 

total of $10.65 million on October 3rd.  Defendants provided the SEC no notice whatsoever 

regarding these payments, and no details regarding the source of these funds.  The SEC is 

concerned that at least part of this $10.65 million was derived from the $7 million new money 

raised from the investor as described above, or from the sale of aircraft rightfully belonging to 

other investors. In addition, the SEC learned that, in these recent transfers, Defendants allegedly 

accidentally wired $9 million to the investor owed $1.65 million, and $1.65 million to the 

investor owed $9 million.  Complicating this scenario is the fact that the $9 million wire went to 

an investor in the Cayman Islands, and that Defendants may have a difficult time recovering the 

excess $7.35 million payment to that investor.  Considering the fact that this Court has already 

preliminarily found defendants to have engaged in fraud, Defendants simply should not be 

trusted to engage in these secretive and suspect transactions for any amounts, let alone nearly 

$11 million. 

IV.	 DEFENDANTS HAVE FAILED TO COMPLY, AND CONTINUE TO FAIL TO 
COMPLY, WITH THE REPORTING REQUIREMENTS IN THE ORDER. 

During the course of the SEC’s monitoring of BCI, Defendants have failed to provide 

numerous reports required by the Order.  Additionally, when Defendants have provided 

19




information to the SEC, they have provided only late, incomplete, or inaccurate reports and 

notices. In an attempt to obtain necessary information for its monitoring function, the SEC has 

attempted to request more details, both voluntarily and through expedited discovery requests, but 

other than one instance, Defendants have refused to provide any such documents.  The sum total 

of Defendants’ behavior is a blatant contempt of the Order and obstruction of the SEC’s 

monitoring of the repayment progress, a role this Court specifically ordered it to perform. 

A.	 Defendants have failed to provide complete and accurate reports of their 
weekly progress in repaying investors. 

1. 	 Defendants’ August 23rd Progress Report 

The weekly progress reports of Defendants’ repayment to investors have been 

incomplete, inconsistent, and lack sufficient detail to be meaningful.  Defendants’ first report of 

their weekly progress in repaying investors was sent to the SEC on August 23, 2007.  See Exhibit 

1 to September 14th Reply, Docket No. 45.  This progress report listed payments that BCI made 

to twelve investors on that date, a total of approximately $12.1 million.   

2. 	 Defendants’ September 9th Progress Report 

On September 9, 2007, Defendants reported that between August 22nd and September 

9th, only seven of these investors had been repaid, a total of about $6.1 million.  See Exhibit 2 to 

September 14th Reply, Docket No. 45.  Defendants failed to explain why five of the twelve 

investors, representing $6 million, were not repaid.  As the SEC has previously stated, the SEC 

learned from Bridgeview Bank, and not Defendants, that five of the investors, a total of $6 

million, were not in fact repaid on August 23rd as represented by Defendants.  Instead, these 

checks to investors were returned for insufficient funds because they were drawn on the 

Bridgeview account from which the $25 million had been seized the week before.  Defendants 

20failed to mention in their September 9th progress report that these checks had been sent out but 

bounced, and Defendants never disclosed this fact to the SEC.  Instead, Defendants stated in the 

September 9th progress report that four of those missing investors had entered into a joint 

agreement with BCI to receive equity interests in certain LLCs under Defendants’ control, in lieu 

of the approximately $4.5 million these investors had purportedly been sent two weeks prior.   

One of these investors informed the SEC that, contrary to Defendants’ representations, there was 

no such agreement.  Thus, Defendants provided a report to the SEC that was clearly false and 

misleading. 

3. Defendants’ September 14th Progress Report 

In Defendants’ September 14th progress report, they reported that in addition to investors 

already repaid, one additional investor, Jan Soderberg, had been paid.  See Exhibit 5. However, 

this payment is not reflected in any “Check Detail” reports provided to the SEC.  See Exhibit 6. 

Furthermore, Defendants’ “Check Detail” report for that period shows that an investor named 

Thomas Thorelli was not paid until September 14th, despite Defendants’ representations in their 

August 23rd, September 9th, and September 14th reports that Mr. Thorelli had already been paid.  

See Exhibits 1-2 to SEC’s September 14th Reply; Exhibits 5-6.  Again, Defendants’ reports were 

false and misleading. 

4. Defendants’ September 23rd Progress Report 

Then, in Defendant’s September 23rd progress report, it appears that the agreement 

between BCI and the four investors, as described in Defendants’ September 9th report, had 

significantly changed. See Exhibit 7. Now, one of the investors, Jan Soderberg, had been repaid, 

and Mr. Strokirk appears to no longer be participating in this deal. Instead, only Abelia 

Investments and the Soderstroms have reached a “final agreement” with BCI.  Defendants have 

21




provided no information or explanation about the original agreement and why it changed.  It is 

unknown whether the original agreement was a sale of securities, whether fraudulent or 

legitimate.  Finally, there is no explanation for why Mr. Strokirk is no longer part of this deal or 

how he will be repaid now that he is not participating in this deal. 

B. Defendants failed to provide a complete and accurate accounting as ordered. 

Defendants provided an accounting for the LLCs designated KLM BCI 2002-1, BCI 

2004-5, and BCI 2004-6, the LLCs in which an investor still holds equity.  Defendants were 

ordered to provide an “immediate” accounting of these LLCs.  The accounting, not provided 

until September 6th, is materially incomplete and inaccurate in many important respects, and 

thus does not comply with the Court’s Order that Defendants provide a complete and accurate 

accounting of those LLCs. See Exhibits C-D to September 7th Report, Docket No. 40.  By its 

very definition, an accounting must “account for” money used in an enterprise or transaction, 

which Defendants have failed to even attempt.18  The SEC wrote a letter to Defendants, 

describing in detail the missing information and inaccuracies in the accounting, and requesting 

clarifying and corrected information.  See id.  Despite this request, Defendants have still not 

provided a complete and accurate accounting as ordered by the Court. 

First, the accounting is materially incomplete because it fails to account for the actual use 

of investor funds obtained by these LLCs, including oversubscribed funds, and funds obtained 

after the aircraft were already purchased, and funds obtained after the aircraft in BCI 2004-5 and 

BCI 2004-6 were sold. Because these LLCs were significantly oversubscribed, only a small 

fraction of the investor funds were used to purchase aircraft.  Defendants thus provided no 

accounting or explanation regarding what was done with the majority of investor funds.  For 

See Exhibit 8. 
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18 



example, the aircraft owned by KLM BCI 2002-1 was purchased in July 2002 using investors’ 

funds totaling approximately $4.1 million. Then, after this aircraft was purchased, Defendants 

raised another $2.12 million in investor funds, including $100,000 in July 2003 from the investor 

who continues to hold equity.  Defendants have made no attempt to account for what they did 

with any of these additional funds, which were clearly not used to purchase the aircraft.  

Second, the accounting is materially incomplete because it fails to account for the 

purported reinvestment of BCI 2004-5 and BCI 2004-6 investors’ capital in replacement aircraft 

after the initial aircraft were sold in December 2004.  Defendants repeatedly represented to 

investors that after those LLCs’ aircraft were sold, investors’ capital was reinvested in new 

aircraft.  Mr. Hollnagel also testified during the SEC’s investigation that this occurred.  In 

reality, these representations were false: investor funds were never reinvested in substitute 

aircraft owned by those LLCs. It is unsurprising, then, that Defendants neglected to include any 

information about reinvestment of capital in their accounting: there was none.  The SEC pointed 

out this discrepancy to Defendants in its letter on September 7th, and in response, Defendants 

claimed in their September 17th letter that these substitute aircraft were “somehow omitted in the 

preparation of the [accounting].”19 See Exhibit 8. In reality, now that the SEC pointed out 

Defendants’ earlier claims regarding reinvestment of funds, Defendants are merely scrambling to 

keep their story straight. 

Third, the accounting is materially incomplete because it fails to account for any of the $3 

million in investments in BCI 2004-6 by Hyatt Johnson USA 2004 and Hyatt Johnson USA 

2005, raised from approximately 38 investors.  In their September 17th letter, Defendants claim 

The updated accounting now lists the purported substitute aircraft as being purchased by these 
LLCs, but Defendants provided no supporting information or documents for this assertion.  In fact, all 
documents from BCI or its auditors indicate that these aircraft were never purchased by BCI 2004-5 and 
BCI 2004-6. In fact, these particular aircraft were owned by other investors. 

23


19 



 

that no Hyatt Johnson related entities were ever members of BCI 2004-6, and that Hyatt Johnson 

was included on tax returns for this LLC in error. See Exhibit 8. This is false. Defendants’ own 

accounting records and numerous other BCI records, including the Deloitte draft audit performed 

in early 2007, show that Hyatt Johnson USA 2004 and Hyatt Johnson USA 2005 held equity 

positions in BCI 2004-6.  In addition, copies of cancelled checks to those Hyatt Johnson LLCs 

indicate that payments were made for their membership in BCI 2004-6.  There is no good faith 

basis for Defendants’ claim that no Hyatt Johnson entities were ever invested in BCI 2004-6. 

In addition to being materially incomplete, the accounting contains numerous material 

inaccuracies.  First, the accounting for BCI 2004-6 states that the initial aircraft was sold at a 

loss, while the tax returns prepared for BCI 2004-6 and numerous letters from BCI to investors 

in BCI 2004-6 state that this aircraft was sold at a profit.  In addition, Mr. Hollnagel testified 

before the SEC that this aircraft was definitely sold at a profit, which he “guesstimated” to be 

about 10%.20  Second, the “Total Purchase Price” cited for the aircraft in KLM BCI 2002-1, BCI 

2004-5, and BCI 2004-6 is between $2 million and $3 million more than what is reflected in the 

actual purchase agreements for those aircraft, or what was reported in the draft audit by Deloitte 

in early 2007, as well as what was reported on the tax returns prepared for these LLCs.   

Despite being ordered to provide a complete and accurate accounting, and despite being 

asked by the SEC to provide complete and accurate information, in response to the SEC’s 

assertions that Defendants’ accounting failed to account for the use of investor funds, Defendants 

responded: 

[W]e do not believe it appropriate to litigate this matter [by] email.  
We believe your assertions as to a purported failure to provide for 
an accounting for the ‘use of all investor funds’ in these LLCs goes 
to the heart of our dispute, to be resolved at trial. 

See Hollnagel Testimony Transcript, Attachment A to Declaration of Scott Hlavacek, at 370-80.   
24


20 



See Exhibit 8. Rather than producing an accurate and complete accounting as ordered, or 

petitioning the Court for relief from this obligation, Defendants have simply declared their 

unwillingness to comply.  It is difficult to imagine more boldfaced contempt. 

C.	 Defendants have failed to provide any weekly reports of proposed 
withdrawals of funds. 

Defendants have never provided even a single weekly report of proposed withdrawals of 

funds, despite the fact that the Order explicitly required such reports.  Instead, the SEC is 

provided only after-the-fact, vague, incomplete reports of money spent - their “Check Detail 

Reports,” attached as Exhibit 6 – and all attempts by the SEC to obtain further information about 

expenditures have been ignored by Defendants.  Defendants have simply made no efforts to 

comply with this requirement of the Order. 

D.	 Defendants have failed to provide numerous 48 hour notices of withdrawals 
of funds. 

The Court’s Order required 48 hours notice be given to the SEC prior to all expenditures 

of $20,000 or more.  Despite this, Defendants have repeatedly failed to provide the SEC notice 

regarding their expenditures. On September 7th, Defendants withdrew funds for two cashier’s 

checks totaling $460,000, and on September 14th, Defendants mailed a check for $157,500 to an 

investor.  Defendants failed to provide the SEC with any notice of these expenditures until after 

the fact, when they appeared in Defendants’ “Check Detail” report on September 17th.  Finally, 

at some point between September 10th and 14th, Defendants paid $210,000 to an investor.  

Defendants never provided notice of this payment to the SEC.  Furthermore, this payment has 

not appeared in any of Defendants’ “Check Detail” reports, so it is unknown in what form this 

payment was made.  See Exhibit 6. Likewise, Defendants reported on August 29, 2007 that they 

25




would be making a monthly payroll expenditure of $210,000.  Defendants have not provided any 

notice, 48 hour or otherwise, of any payroll expenditures since then.  Therefore, Defendants 

either have not paid any of their employees’ salaries for the past five and a half weeks or have 

failed to report such payments to the SEC as required by the Order.  Finally, the SEC learned 

from an investor on October 4th that Defendants paid two investors a total of $10.65 million on 

October 3rd. Defendants provided no notice whatsoever regarding these payments, and no 

details regarding the source of these funds. 

E.	 Defendants have failed to provide weekly reports of “all money paid to BCI 
or any BCI affiliate, including LLCs and Hollnagel in connection with BCI.” 

The Court ordered that Defendants provide weekly reports of “all money paid to BCI or 

any BCI affiliate, including LLCs and Hollnagel in connection with BCI.”  Despite this explicit 

command, Defendants did not submit any such report to the SEC until September 15, 2007.  See 

September 19th Surreply, Docket No. 47, at 7.  This report appears to include only information 

related to BCI; it does not specify any funds paid to any of the LLCs under BCI’s control, and 

contains no reference to Hollnagel.  Defendants have twice acknowledged their failure to comply 

with this provision of the Order. In their Response, Defendants claimed that “BCI did not 

understand initially that under the Order, BCI was to report funds received by BCI.”  Docket No. 

43 at 10. In their Surreply, Defendants claimed that they “[misunderstood] the requirement of 

reporting to the SEC all monies paid to BCI.”21  Docket No. 47 at 7. Nevertheless, despite this 

attempt to explain why they haven’t complied with this provision of the Court Order, Defendants 

have still not produced weekly reports relating to money paid to BCI affiliates or Hollnagel, and 

These claims strain credulity, considering Defendants had at least six attorneys from four law 
firms at their disposal to carefully read the Court’s nine-page Order, the last page of which very clearly 
states each of the requirements placed on Defendants.   

26


21 



have not asked the Court for relief from this requirement.  See Exhibit 9. Once again, 

Defendants simply chose to thumb their noses at the Court’s Order. 

F.	 To the extent Defendants did report transactions required by the Order, 
Defendants failed to provide meaningful information about the sources and 
uses of such funds. 

To the extent that Defendants did report transactions as required by the Order, they failed 

to provide any meaningful information about the source of such funds, or the purpose of these 

transactions. The SEC believes that the Court intended for each of the reports required under the 

Order to be meaningful, i.e. to help the SEC evaluate the transaction, and if warranted alert the 

Court, and thus that the Order requires Defendants to provide at least some level of detail 

regarding sources and uses of money used in reported transactions.  For example, on August 29th 

Defendants reported that they were making a monthly payroll expenditure of $210,000, without 

providing any breakdown of which BCI employees were paid which portions of that total.  Even 

after requests for a simple breakdown by employee, Defendants have refused to provide any 

details. In another example, on August 31, 2007, the SEC made a discovery request for 

documents relating to the approximately $12.2 million purportedly paid to investors on August 

23, 2007, documents relating to $687,000 purportedly paid to a lender on August 28, 2007, and 

documents relating to the accounting being prepared by Defendants.  The SEC has not received 

any documents responsive to these simple requests.  The SEC is concerned that payments to 

some investors and lenders may have come from sales of assets belonging to other investors, or 

from new investments or loans from third parties, in furtherance of the same Ponzi scheme 

27




Defendants have perpetrated.22  Defendants’ refusal to provide any details regarding the sources 

of the funds being paid out only heightens and legitimizes the SEC’s concerns. 

Furthermore, for the SEC’s monitoring function to have any meaning as intended by this 

Court, any reports or notices provided by BCI must include details regarding sources and uses of 

funds. The SEC has made numerous document requests to Defendants specifically in order to 

obtain such details, and, despite the fact that over 30 days have passed since the issuance of most 

of these requests, Defendants have produced virtually nothing in response.  Requests by the SEC 

for such information are not “harassing” as repeatedly characterized by Defendants but instead 

are necessary to give this Court’s Order real meaning.  It even appears that the SEC’s monitoring 

is being relied upon by investors: on September 12th, Hyatt Johnson sent a letter to its investors 

citing the SEC’s monitoring function under the Order as a safeguard that Defendants will repay 

investors as promised.  Defendants should simply not be allowed to continue to flout their 

responsibilities both under the Order and their expedited discovery obligations. 

V.	 INCREDULOUSLY, DEFENDANTS BELIEVE THEY ARE NOT REQUIRED TO 
COMPLY WITH THE ORDER’S REPORTING REQUIREMENTS.   

Defendants have repeatedly claimed that they believe they are not required to comply 

with the Court’s Order that they provide certain reports and information to the SEC.  In their 

Response, Defendants claim that “BCI, its limited staff and its few informed counsel have been 

spending virtually every waking moment since August 22nd on the number one priority: 

satisfying BCI’s obligations to the investors.”  Docket No. 43 at 5.  Then, in their Surreply, 

Defendants state: “Defendants are attempting in good faith to follow this Court’s Order and 

As a further example, it appears that in August, Defendants sold aircraft in an LLC known as the 
TUI transaction.  The investors in that LLC have not yet received the proceeds from the sale of that 
aircraft. Because Defendants have not provided any information about the TUI sale or the source of any 
payments, the SEC is concerned that proceeds from the sale of that aircraft are being given to other 
investors in unrelated deals in furtherance of Defendants’ Ponzi scheme.   

28


22 



achieve the main result the Defendants, and presumably the Plaintiff, understand to be the focus 

of the Court’s Order, namely, satisfaction of investors.”  Docket No. 47 at 6. Defendants are 

essentially claiming that as long as they are working towards the Court’s Order that Defendants 

repay investors, the other portions of the order, including the reporting requirements the Court 

imposed on Defendants, are optional and can simply be ignored.  This is incorrect. Furthermore, 

the evidence shows that Defendants are not in fact acting in good faith, as evidenced by their 

contempt of the Court’s Order, their obstructionist efforts – including their refusal to provide 

virtually any information to the SEC required under its monitoring role – and their misleading 

statements to the Court. 

If Defendants believed they would be unable to comply with every provision in the 

Court’s Order, they had an obligation to seek relief from the Court.  Defendants have not sought 

relief from the Order, either by asking to be released from the Order, asking for the reporting 

requirements to be modified or reduced, asking the Court to reconsider its Order, or asking that 

the SEC be removed as monitor.  Instead, Defendants have simply violated, flouted and ignored 

numerous provisions in the Order and continue in their contumacy.  No one subject to a court 

order – even a void order – is allowed to simply refuse to obey it. 

VI.	 DEFENDANTS MISLED THE COURT REGARDING THE BRIDGEVIEW 
DEFAULT. 

A.	 During the hearing, Defendants failed to tell the Court that Bridgeview had 
declared default and seized $25 million from BCI’s accounts. 

As stated in previous filings, BCI was declared in default of a covenant on a line of credit 

and other loans with Bridgeview, which Defendants were informed of by a default letter on 

August 16th.  Under this default, Bridgeview seized approximately $25 million in BCI’s 

accounts on August 16th, the first full day of the evidentiary hearing before this Court, and 

29




notified Defendants of this seizure that day. Disturbingly, despite repeated opportunities to do 

so, Defendants never informed the SEC or the Court of these facts.  Instead, Defendants 

repeatedly represented to the Court that $12 million of this money was to be paid to investors as 

long as the Court did not order an asset freeze.23  Simply stated, and contrary to representations 

made to the Court, after this seizure occurred, Defendants no longer had $12 million to repay 

some investors, let alone the $36 million required to repay the remaining investors, and 

Defendants knew it. Defendants never told the Court or the SEC, either during the hearing or 

after, that this money had been seized and was no longer available to repay investors.   

Just as disturbing, Mr. Hollnagel specifically instructed one of the Bridgeview Bank 

officers to not be present in court on August 20th, the last day of the hearing, despite his offer to 

appear, because Mr. Hollnagel didn’t “want the bank brought into this.”  See Exhibit 10. In fact, 

Mr. Hollnagel had witnessed the SEC’s impromptu calling of Mr. Trabish to the witness stand on 

the previous day of the hearing. Defendants likely feared that if the Bridgeview officer were 

present, the SEC would call him as a witness on that day of the hearing, and thus that BCI’s 

default, and the seizure of the $25 million in funds, would be revealed during his testimony.  

Instead, Mr. Hollnagel instructed the Bridgeview officer to not “come near open court,” and 

Defendants successfully concealed the default from the SEC and the Court until long after the 

Court issued its Order declining to impose an asset freeze or appoint a receiver. 

As noted by the Court in its Order, “BCI says it can immediately pay eleven of the note holders, 
leaving the three largest in an amount of $36 million.”  This “immediate payment” was the $12 million 
figure cited by Defendants.  At the hearing, Defendants left no doubt that those payments would be made 
in cash, even though they had actual notice that Bridgeview Bank had just seized virtually all of their 
operating cash. 

30


23 



B.	 Defendants represented to the Court that they concealed nothing from the 
Court, and that they did not know when they received the August 16th 
default letter from Bridgeview. 

Incredibly, despite their behavior, Defendants claim that they “concealed nothing from 

the Court.” September 19th Surreply, Docket No. 47, at 5.  In fact, as stated above, Defendants 

concealed the August 16th Bridgeview default letter from the Court.  In particular, Defendants 

chose to not disclose this fact on August 20th, the last full day of the hearing.  Defendants claim 

that they “do not recall when they received” the default letter, pleading ignorance of the default, 

and thus claiming that they did not conceal that fact from the Court.  Id.  This is a blatant 

misrepresentation.  The SEC has learned that Defendants received the default letter from 

Bridgeview on August 16th via fax and on August 17th via overnight mail.  In addition, based on 

facts discovered by the SEC, Bridgeview’s counsel discussed the default letter via telephone with 

Brian Fitzgerald, one of Defendants’ counsels, at around 6pm on August 16th.  Mr. Fitzgerald 

indicated to Bridgeview’s counsel that he was aware of the default before that conversation.  Mr. 

Fitzgerald is a law partner of Philip Feigin, one of Defendants’ counsels, who was present before 

the Court on every day of the hearing. Thus, it is clear that Defendants were fully aware on 

August 16th that Bridgeview had declared BCI in default and was seizing $25 million in funds 

from its accounts to repay outstanding loans.  Defendants then deliberately chose to conceal this 

from the Court on the last day of the hearing, August 20th, and then misled the Court in its 

Surreply regarding its knowledge of that default.   

VII. 	ARGUMENT 

A. 	 Civil Contempt Proceedings 

Civil contempt proceedings are authorized by 18 U.S.C. § 401(3) which states, in 

pertinent part, that “[a] court of the United States shall have power to punish by fine or 

31




imprisonment, or both, at its discretion, such contempt of its authority, and none other, as … 

[d]isobedience or resistance to its lawful writ, process, order, rule, decree, or command.”  The 

purpose of a civil contempt proceeding is wholly remedial and is intended to either coerce 

compliance with a prior court order or compensate for losses suffered as a result of non­

compliance with that order.  See McComb v. Jacksonville Paper Co., 336 U.S. 187, 191 (1949); 

Commodity Futures Trading Commission v. Premex, Inc., 655 F.2d 779, 785 (7th Cir. 1981). 

Where an injunction imposes a duty to obey specified provisions of a statute, failure to abide by 

the injunction constitutes contempt.  See McComb, 336 U.S. at 191-92. 

In a civil contempt proceeding, the moving party must prove, by clear and convincing 

evidence, that the respondent has violated the court’s order.  See McComb, 336 U.S. at 191; 

Stotler & Co. v. Able, 870 F.2d 1158, 1163 (7th Cir.1989). To support a federal civil contempt 

conviction, it must be proved: “(1) that the court entered a lawful order of reasonable specificity; 

(2) the order was violated.” Matter of Betts, 927 F.2d 983, 986 (7th Cir.1991); CFTC v. 

Nickolaou, 2000 WL 1029622 at 8 (N.D.Ill. 2000).  To make a prima facie showing of contempt, 

the movant need only prove that a defendant has failed to comply with a valid court order.  See 

Heinold Hog Market, Inc. v. McCoy, 700 F.2d 611, 615 (10th Cir. 1983). A district court does 

not have to find that the violation was “willful” or intentional. See McComb, 336 U.S. at 191; 

Grove Fresh Distributors, Inc. v. John LaBatt Ltd., 888 F.Supp. 1427, 1436 (N.D. Ill. 1995). In 

civil contempt proceedings, intent is not an issue, but rather, the question is whether a party has 

complied with the court's order.  See McComb, 336 U.S. at 191; SEC v. McNamee, 481 F.3d 

451, 456 (7th Cir. 2007) In re General Motors Corp., 61 F. 3d 256, 258 (4th Cir. 1995); Donovan 

v. Mazzola, 716 F.2d 1226, 1240 (9th Cir. 1983), cert. denied, 464 U.S. 1040 (1984). 

32




 

Once a prima facie case has been shown, the burden shifts to the defendant to come 

forward with evidence showing categorically and in detail why he was unable to comply with 

court orders. See United States v. Rylander, 460 U.S. 752, 755, 757 (1983) reh. denied, 462 U.S. 

1112 (1983); Chicago Truck Drivers v. Brotherhood Labor Leasing, 207 F.3d 500, 505 (8th Cir. 

2000). Further, if the defendant is responsible for an inability to comply, such a defense is 

unavailable. See United States v. Bryan, 339 U.S. 323, 330-32 (1950); U.S. v. Seetapun, 750 

F.2d 601, 605 (7th Cir. Ill. 1984). Even the presence of good faith on the part of a defendant 

does not constitute a defense.  See Donovan, 716 F.2d at 1240. If the meaning of the order is 

clear, the issue is whether it has been violated.  See Abbott Laboratories v. Apotex, Inc., 455 

F.Supp. 831, 833 (N.D.Ill. 2006) (citing McComb v. Jacksonville Paper Co., 336 U.S. 187, 191, 

69 S.Ct. 497, 93 L.Ed. 599 (1949); Additive Controls & Measurement Systems, Inc. v. Flowdata, 

Inc., 154 F.3d 1345, 1353 (Fed.Cir.1998). “If it has been [violated], even if in good faith, that is 

a civil contempt.” Id. Importantly, “[a] person or firm that has been enjoined has a duty to make 

a good-faith effort to comply with the injunction.”  Abbott Laboratories, 455 F.Supp. at 837. 

B. Defendants’ Non-Cash Payments Violate Order. 

Defendants essentially concede that, more than 30 days into the Court-ordered repayment 

period, they are unable to repay their investors with cash.  Instead of repaying investors with 

cash, Defendants proposed to make whole their investors by issuing them new securities.  This is 

not what was promised by Defendants during the hearing before this Court, nor ordered by this 

Court. Further, these new securities sales are a new fraud and, as such, violate this Court’s 

injunction against further violations of the antifraud provisions of the federal securities laws.    

In the Order, the Court explicitly directed Defendants to repay their noteholders within 60 

days. Order at 9.  It is also apparent from the Order that this directive to repay noteholders was 

33




to repay them with cash. Never during the hearing did Defendants represent that they would 

parcel out aircraft or interests in LLCs as satisfaction of the notes held by the investors.  

Defendants unambiguously told this Court that they would repay the noteholders in cash.  It is 

clear that these representations are no longer true, if they ever were.  Thus, Defendants’ 

repayment of noteholders with anything but cash violates the Court’s Order.  

In addition, Defendants attempt to repay noteholders with new securities fulfills this 

Court’s finding that Defendants presented an ongoing risk of future securities fraud.  Defendant 

Hollnagel unambiguously stated during his testimony that he was done with investors, despite 

the fact, demonstrated at the hearing, that Defendants offered new securities to their noteholders 

in May of 2007. The Court found this fact determinative in ruling in its Order that there is an 

ongoing risk of repetition of securities fraud. See Order at 8. Defendants’ attempted repayment 

of noteholders with new securities violates the Court’s directive to repay investors in cash.  As 

the Court has recognized with its imposition of the injunction against future fraud, Defendants 

have lost the benefit of the doubt in such matters.   

Furthermore, the ad hoc manner in which investors are being repaid is inequitable, in that 

similarly situated investors are receiving disparate treatment.  Investors are not given a choice 

between cash and equity. Defendants have never explained why certain investors are offered 

cash while others are forced to accept equity or aircraft.  Investors in equal standing have been 

treated differently by Defendants, as those not receiving cash are dependent upon the future 

management of Defendants to ensure the value of their investment, or are burdened with the 

responsibility of managing commercial aircraft themselves.  In addition, at least one investor is 

receiving 25% in profits above and beyond his principal, while others are only receiving their 

34




principal.24  This is certainly not what this Court provided for in its Order to repay the 

noteholders. The most important directive of this Court’s Order was to repay the investors, and 

that Order, based on Defendants’ promises, was that they would be repaid in cash.  Defendants 

have not and cannot comply with this Order.  For this reason alone, the SEC requests that the 

Court order Defendants to Show Cause why they should not be held in Contempt.       

C.	 Defendants’ Issuance of New Securities Violates the Anti-Fraud Provisions of 
the Order. 

The membership interests in the LLCs that BCI exchanged with its investors in 

satisfaction of their promissory notes or other LLC equity interests are securities in the form of 

investment contracts.  Section 2(1) of the Securities Act and Section 3(a)(10) of the Exchange 

Act define “security” to include, among other things, “investment contracts.”  Although 

“investment contract” is not defined in these statutes, the Supreme Court has defined the term to 

mean: (1) an investment of money; (2) in a common enterprise; (3) with an expectation of profits 

to be derived solely from the efforts of others. See SEC v. Howey, 328 U.S. 293, 298-99 

(1946). The Court has stressed that the definition of an investment contract “embodies a flexible 

rather than a static principle, one that is capable of adaptation to meet the countless and variable 

schemes devised by those who seek the use of the money of others on the promise of profits.” Id. 

at 299. More recently, the Court reiterated that Congress intended a broad, inclusive definition 

of investment contract, stating that “Congress’ purpose in enacting the securities laws was to 

regulate investments, in whatever form they are made and by whatever name they are called.  To 

that end, it enacted a broad definition of “security,” sufficient “to encompass virtually any 

instrument that might be sold as an investment.” SEC v. Edwards, 540 U.S. 389, 393 (2004) 

(citations omitted) (italics in original).  Applying these principles and the test set out in Howey, 

This investor’s representative, Steven Trabish, testified to this effect at the hearing. 
35


24 



the membership interests in the LLCs offered by Defendants in exchange for the promissory 

notes are investment contracts and therefore securities covered under the federal securities laws. 

In this case, the first Howey factor is satisfied, as it is clear that investors in the LLCs 

provided an investment of money to Defendants.  In all instances, the investors and noteholders 

were offered membership interests LLCs managed by Defendants.  The Court found these facts 

to be true in its Order, and in fact, Defendants admitted that they sold membership interests in 

LLCs to investors in its Answer. See Docket No. 38 at ¶ 1. 

The “common enterprise” factor appears to be satisfied here, as well.  The Seventh 

Circuit requires “horizontal commonality,” meaning that there must be a pooling of interests 

between the investors and the developer or the promoter, as well as a pooling of interests among 

the investors. See Wals v. Fox Hill Development Corp., 24 F.3d 1016, 1017-19 (7th Cir. 1994); 

Stenger v. R.H. Love Galleries, Inc., 741 F.2d 144, 146-47 (7th Cir. 1984). With at least the Hyatt 

Johnson buyout, a common enterprise with the required pooling of interests occurred.  According 

to the settlement agreement, BCI and Hyatt Johnson collapsed all of the multiple investments of 

Hyatt Johnson into one promissory note in July 2007.  Then, this note was later exchanged for 

BCI’s equity interests in LLCs which are under the management of Defendants.  Thus, all Hyatt 

Johnson investors were pooled together and placed in equal standing with one another.  Their 

interests are also intertwined with BCI in that Defendants remain the manager of the LLCs that 

the Hyatt Johnson investors received in exchange for releasing their promissory note.  The 

success of their investments depends on the success of Defendants’ management of the LLCs, as 

the manager is responsible for leasing and maintaining the aircraft owned by the LLCs.  

Accordingly, horizontal commonality is present.       

36




The third Howey factor, profits from the efforts of others, is also met.  As described 

above, the LLC investments were offered such that investors expected their profits to come 

solely from the efforts of Defendants as manager of the LLCs.  In this instance, Hyatt Johnson 

received BCI’s purported equity interests in the LLCs they also manage, and is relying on 

Defendants to sell one of the aircraft they control in order to repay Hyatt Johnson a portion of the 

sales proceeds. The agreement does not remove BCI from their role as manager, and thus, Hyatt 

Johnson will be dependent upon Defendants. Based on the information provided the SEC, the 

Hyatt Johnson buyout is an investment contract, and as such, under the purview of the federal 

securities laws. 

Defendants have not produced any information to the SEC related to the Hyatt Johnson 

buyout. Despite repeated requests for more information, Defendants have only stated to the SEC 

that they are proceeding with the repayment of Hyatt Johnson but have supplied no details of the 

deal. Importantly, the only details the SEC has received on this deal came from third parties, 

including Hyatt Johnson investors. The Hyatt Johnson settlement agreement appears to 

misrepresent and omit material facts.  First, Defendants represent that BCI is the 100% owner of 

the LLCs that they are offering to Hyatt Johnson.  This agreement omits, however, that the SEC 

has alleged in the Complaint that Defendants misappropriated investor funds to enrich 

themselves, and further defrauded investors through the offer to buy out their investors beginning 

in early 2007. These are the means by which Defendants obtained their purported interest in the 

majority of the LLCs it claims it owned – through misappropriated investor funds or the 

deceptive buyouts.  The agreement is also silent about the findings of this Court that Defendants 

defrauded their investors and acted with scienter.  Furthermore, the agreement is silent as to 

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other material facts, among them, that the one of the pledged LLCs obtained its aircraft through 

misappropriated funds.   

In terms of this repayment, these proposed deals represent ongoing fraudulent conduct 

presenting additional risk of loss to the investors.  Not only are the investors reliant upon 

Defendants’ continued management of the LLCs, the fraudulent nature in which Defendants 

came to possess the LLCs imposes additional exposure to the investors that cash may not.  As the 

Seventh Circuit recently ruled, if money or property is obtained through knowingly false 

representations, the scheme to defraud is established, regardless of whether the defendant hoped, 

intended, or even expected that the victims would eventually be repaid.  See U.S. v. Hamilton, 

2007 WL 2429477 at 2 (7th Cir. 2007).  Instead of making them whole, these non-cash 

settlement offers present more problems to the noteholders, and in fact, violate the Court’s 

injunction against future securities laws violations.    

Moreover, it is impossible for the SEC, in its role as monitor, to endorse or passively 

observe the Hyatt Johnson buyout when Defendants in this action refuse to disclose any facts 

related to this deal and the other principals in the deal, Messrs. Hyatt and Johnson, have 

informed counsel for the Commission that they would both assert their Fifth Amendment 

privilege against self-incrimination.  The Court should find no comfort in Defendants’ claims 

that they are satisfying their obligations to repay their investors amid these circumstances.  While 

simultaneously negotiating with Defendants on behalf of their investors, Hyatt has refused to 

provide any information, either documents or testimony, concerning this buyout and his dealings 

with Defendants on the grounds that it may incriminate him.  For his part, Johnson has informed 

the Commission he will refuse to answer any questions relating to his dealings with BCI or 

produce any personal documents which may relate to these dealings.  These assertions of their 

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Fifth Amendment privilege, combined with Defendants’ complete lack of candor relative to the 

deal, forces the SEC to alert the Court to this ongoing fraud on investors.   

D. Defendants’ Failure to Provide Disclosures to the SEC Violates the Order. 

In addition to their failure to repay the noteholders, Defendants have repeatedly violated 

the Court’s Order compelling the disclosure of certain financial information.  In several 

instances, the information provided by Defendants was late or incomplete to the extent that the 

disclosures were meaningless.  On other occasions, Defendants have never disclosed reports or 

records they were required to produce.  Even after several requests by the SEC, Defendants have 

simply refused to supply mandated information. 

As expressed above, Defendants have produced only minimal documents and records 

related to their progress in repaying their noteholders.  Only after the SEC informed Defendants 

that it would file a Motion to Show Cause did Defendants begin to produce documents and 

records responsive to document requests relating to the repayment of its noteholders.  These 

minimal disclosures, however, contained only partial productions of only two of the numerous 

settlement agreements with investors.  Defendants have thus far refused to produce any 

information about the source of funds used repay certain investors. 

Defendants also failed to provide other required documents and reports to the SEC.  The 

accounting provided by Defendants is incomplete and inaccurate.  The accounting does not 

account for the actual use of investor funds, including oversubscribed funds, and funds obtained 

after the aircraft were already purchased, and funds obtained after the aircraft in BCI 2004-5 and 

BCI 2004-6 were sold. The accounting also fails to identify any reinvestment of investor capital 

after Defendants sold the aircraft belonging to BCI 2004-5 and BCI 2004-6.  The accounting also 

fails to address any of the $3 million of Hyatt Johnson investments in BCI 2004-6.  In addition to 

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these deficiencies, the accounting, as explained above, contains numerous inaccuracies, 

including the false representations that aircraft were sold at a loss. 

There have been several other violations of the disclosure requirements.  Defendants have 

never provided a weekly report of proposed withdrawals of funds, despite the explicit order to do 

so. On several occasions, Defendants have failed to provide 48 hour notice on expenditures over 

$20,000. Defendants have only provided one purported report of “all money paid to BCI or any 

BCI affiliate, including LLCs and Hollnagel in connection with BCI.”  However, this document 

only reports money paid to BCI; it does not include any reference to any money paid to 

Hollnagel or any BCI affiliate. Thus, Defendants’ failure to follow the Court’s Order is not 

limited to repayment of noteholders.  Defendants have repeatedly disregarded the Court’s 

reporting requirements, substantially impairing the SEC’s role as monitor to the point such that 

this role is illusory. 

These actions reveal Defendants’ deliberate disregard of the Court’s Order.  Defendants’ 

repeated, comprehensive violations of the Order indicate willful conduct.  Of course, it is black 

letter law that no one has the right to flout or ignore a Court order.  See McComb, 336 U.S. at 

192. If there are extenuating circumstances, or if the Order is too burdensome, Defendants could 

have petitioned this Court for modification or clarification of the Order.  Id.  In this case, 

however, Defendants have not done so. As stated by the Supreme Court in McComb, when 

Defendants decide for themselves the meaning of a Court Order, they act at their own peril.  Id. 

This principle was recognized more recently in this Circuit.  As expressed by the Honorable 

Milton I. Shadur: 

After all, he [Defendant Thomas Quinn] has arrogantly and 
surreptitiously flouted a court order of which he was fully 
cognizant. No one has the right to do that even if such a court 

40order is downright void. That has been crystal clear for nearly a 
half-century.  It cost the United Mine Workers of America $3.5 
million to learn that lesson–at a time when that represented real 
money. U.S. v. United Mine Workers of America, 330 U.S. 258, 
91 L. Ed 884, 67 S. Ct. 677 (1947). Indeed, so powerful is the 
notion that litigants must observe the regularized form of judicial 
proceedings by moving to vacate even a void court order, rather 
than engaging in self-help by ignoring it, that such obligation 
prevails even where the litigant’s conduct involves the exercise of 
First Amendment rights. (Id.) (Citations omitted) (Emphasis in 
original) 

SEC v. Arnold Kimmes, et al., 753 F. Supp. 695, 700 (N.D. Ill. 1990). The Court made explicit 

the conditions upon which Defendants were to conduct their affairs in lieu of the appointment of 

a receiver. Defendants repeatedly violated these conditions and continue to do so. 

E. Defendants’ Weak Financial Condition Further Threatens Investors. 

As described in prior filings with this Court, Defendants’ weak financial condition has 

been exposed since the Order. Even preceding the filing of this lawsuit, Defendants have 

consistently failed to repay their investors and creditors.  Despite offers to buy out its investors in 

March 2007, Defendants were able to repay only a portion.  The majority of investors received 

only promissory notes, guaranteed by BCI.  If Defendants had the ability to pay its investors in 

cash in the spring and summer of 2007, it would and should have done so.  Immediately 

following the SEC’s Complaint, and during the evidentiary hearing, one of Defendants’ primary 

creditors, Bridgeview Bank, seized more than $25 million from Defendants’ bank accounts, 

which was the entire cash balance in Defendants’ operating account.  Defendants, however, kept 

this fact secret, and instead represented to this Court that BCI was a “healthy and vibrant” 

company and could easily repay all investors in cash.  Clearly, matters were not what they 

appeared or what Defendants would have this Court believe. 

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In addition to the actions of Bridgeview Bank, other creditors have already instituted 

actions against Defendants. Fifth Third Bank and GMAC Credit (“GMAC”) have either seized 

cash or have initiated foreclosure proceedings against Defendants.  GMAC issued to Defendants 

a default letter in early May 2007, well before the SEC’s lawsuit.  Unsecured creditors who 

cannot self-help have also taken steps against Defendants.  Unsecured creditor Ungaretti & 

Harris LLP have moved to intervene in this action because of Defendants’ failure to pay more 

than $500,000 in legal bills.  See Docket at 52-53. The SEC has learned that Defendants owe 

approximately $350,000 to a Plaintiff, pursuant to a settlement agreement in a lawsuit in the 

Northern District of Illinois, towards which they have made no payments, despite being required 

to do so under an order by Judge Kennelly. Finally, the SEC is aware of at least one other 

creditor who claims to be owed $110,000 by Defendants and who has not been paid.  

Defendants’ attempts to repay certain noteholders with securities interests or aircraft are 

admissions that they cannot pay cash.  It also reveals that Defendants are offering preferential 

treatment to similarly situated noteholders: some noteholders are offered cash, others are not.  

The actions of Defendants’ creditors further indicate that Defendants are not financially sound.  

Together, these facts, along with Defendants’ contempt and violation of the Temporary 

Injunction, demonstrate the need for a receiver over BCI, who will ensure that all noteholders 

and creditors are treated equitably. 

VIII. CONCLUSION 

For the reasons stated above, the SEC moves this Court for an Order to Show Cause why 

Defendants should not be held in contempt of the Court’s August 22, 2007 Order.  Defendants 

cannot, and have expressed their clear intention not to, repay investors in cash within 60 days as 

required under the Order. Defendants have also failed to comply, and continue to fail to comply, 

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with the reporting requirements in the Order.  In addition to Defendants’ misconduct, creditors 

have engaged in self-help actions against Defendants, further weakening Defendants’ ability to 

repay their investors. Events since the Order demonstrate Defendants’ contempt and utter 

unwillingness to be open and honest regarding its dealings with investors, and the continued 

need for a receiver in this matter.      

      Respectfully submitted, 

s/ Robin Andrews 
Gregory von Schaumburg, IL Bar No. 3127782 
Robin Andrews, IL Bar No. 6285644 
John J. Kaleba 
Charles J. Kerstetter 
Attorneys for Plaintiff 
U.S. SECURITIES AND 
EXCHANGE COMMISSION 
175 W. Jackson Blvd., Suite 900 
Chicago, IL 60604 
Telephone: (312) 353-7390 
Facsimile: (312) 353-7398 

Dated: October 5, 2007 

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