Securities and Exchange Commission v. Defendants Brian N. Hollnagel and Bci Aircraft Leasing, Inc., et al.

____________________________________ 
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 
SUPPLEMENT TO ITS MOTION FOR ORDER TO SHOW CAUSE 
Plaintiff, United States Securities and Exchange Commission (“SEC”), respectfully 
supplements its October 5, 2007 Motion for 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 addition to 
the conduct described in detail in the SEC’s October 5, 2007 Motion, the SEC has learned, after 
its Motion was filed, of transactions entered into by Defendants in violation of the Court’s Order, 
specifically payments made without any notice to the SEC, as well as the unreported sale at 
auction of six BCI aircraft due to foreclosure action by GMAC.  Finally, the SEC feels it 
necessary to inform the Court that in Defendants’ October 9th Progress Report, they falsely 
claim to have repaid all investors, and to have fully satisfied the Court’s Order.  In addition, they 
have contemptuously declared that they are no longer required to file the reports required by the 
Court’s Order, despite having never asked this Court’s permission to be released from this 
obligation and despite the fact that all investors have not been repaid. 

I. 	DEFENDANTS FAILED TO PROVIDE THE SEC WITH NOTICE OF 
NUMEROUS RECENT WITHDRAWALS OF FUNDS, IN VIOLATION OF THE 
COURT’S ORDER. 
As noted in the SEC’s Motion, one of Defendants’ creditors, Ungaretti & Harris LLP 
(“U&H”), filed a motion to intervene in this matter because Defendants had failed to repay 
$500,000 in legal fees. See Docket Entry No. 56 at 42.  The SEC recently learned from counsel 
for U&H that on October 8th, Defendants reached an agreement with U&H, resulting in U&H 
withdrawing their motion.  According to counsel for U&H, Defendants paid to U&H $100,000 
on October 8th and agreed to make payments for the next three to four months, until all $500,000 
owed is repaid. Under this Court’s Order, Defendants are required to provide 48 hour notice to 
the SEC for all withdrawals over $20,000.  The SEC received no notice of this $100,000 
payment on October 8th, and as of this filing, Defendants have still not notified the SEC about 
this payment.  Counsel for Defendants specifically represented to counsel for U&H on October 
9th that Defendants had notified the SEC about the $100,000 payment.  This was false. 
In addition, Defendants have admitted to making numerous other recent payments for 
which they have provided no notice to the SEC as required under the Order.  In their October 9th 
Progress Report, Defendants reported recently making nearly $11 million in payments to four 
investors. See Exhibit 1 at 2. Defendants failed to provide any notice of these recent payments 
to the SEC or even the identity of the payees.  Instead, the SEC learned of three of these 
payments, wire transfers totaling approximately $10.7 million, from an investor, and reported 
these transfers in its Motion. See Docket Entry No. 56 at 19. 
2


 
II. 	DEFENDANTS FAILED TO DISCLOSE GMAC’S FORECLOSURE TO THE 
SEC OR TO THE COURT. 
Defendants have never disclosed to this Court or the SEC that BCI defaulted under loan 
agreements with GMAC Commercial Finance LLC (“GMAC”) totaling $33 million and that 
GMAC foreclosed on six commercial aircraft securing these loans.  By May of 2007, BCI was 
in default under two loan agreements with GMAC, which were secured by six commercial 
aircraft in the possession of BCI or BCI related entities.  See Exhibit 2 at 6 (citing Exhibit 3). On 
August 23, 2007, GMAC issued a notice of Default, Notice of Acceleration, and Notice of 
Foreclosure of Pledges under loan agreements for six aircraft owned by BCI.  This default was 
based on BCI’s repeated failure to provide audited financial statements (as required under the 
loan agreements), GMAC’s concerns regarding BCI’s financial condition, and GMAC’s 
concerns regarding the improper commingling of security deposits and maintenance reserves 
with BCI’s other funds. See id. at 3-4. The aircraft securing the loans from GMAC had 
“deposits and maintenance reserves that amount to millions of dollars.”  Id.  GMAC further 
questioned BCI’s financial stability by citing to BCI’s failure to produce audited financial 
statements in December 2006 and February 2007, and BCI’s failure to pay maintenance expenses 
on GMAC collateral, resulting in a mechanic’s lien in excess of $2 million.
1 
See id. at 5, 8. On 
August 29, 2007, GMAC issued a Notification of Disposition of Collateral regarding the six 
aircraft, scheduling a foreclosure sale of those six aircraft on September 26, 2007.   
Defendants unsuccessfully attempted to prevent the foreclosure sale by GMAC.  On 
September 20, 2007, Defendants filed a complaint and motion for a temporary restraining order 
against GMAC in state court in New York attempting to halt the foreclosure sale, which was 
During the hearing before this Court, Defendant Hollnagel testified that BCI was permitted to use 
the maintenance reserves and security deposits as its own funds for the operation of its business.  That is 
simply incorrect. 
3

1 

then rescheduled to October 9, 2007 pending the resolution of Defendants’ motion.  In its 
response to BCI’s motion, GMAC expressed having “serious concerns regarding BCI’s and the 
BCI [LLCs’] representations concerning its financial condition.”  Id. at 3. On October 5, 2007, 
the Supreme Court of New York denied Defendants’ motion, and the foreclosure sale of the six 
aircraft occurred on October 9th. Again, Defendants never disclosed any of these events to the 
Court or to the SEC. 
BCI’s motion for a temporary restraining order, and GMAC’s response, raise serious 
questions regarding Defendants’ honesty and integrity.  First, one of the BCI entities in the New 
York Complaint seeking to halt the foreclosure by GMAC is BCI Bermuda 2006-1, an entity 
under the control of BCI. This LLC was not reported by the Defendants as an asset of BCI on 
their Exhibit 10 to the Defendants’ Response to the Motion for a Temporary Restraining Order.  
However, BCI 2006-1 was reported as an asset of BCI.  The SEC does not know whether BCI 
Bermuda 2006-1 and BCI 2006-1 are the same entity.  BCI 2006-1, however, is one of the 
entities pledged as satisfaction of BCI’s obligations to its investors in this case.  Due to the lack 
of information from the Defendants regarding this transaction, it is not clear whether this entity is 
related to BCI Bermuda 2006-1 which had its planes foreclosed on by GMAC this week.  
Second, GMAC represented that BCI directed a sublessee to make rent and maintenance reserve 
payments to a new account, which was not the account to which payments under such subleases 
were required to be paid. See Exhibit 2 at 8. This misdirection of funds and Defendants’ failure 
to disclose this to GMAC constituted additional events of default under the GMAC loan 
agreements, and further call into question the good faith nature of Defendants’ business 
practices. 
4


Despite being required to report on their progress in repaying investors and, presumably, 
matters which would impair that progress, at no time did Defendants disclose to the SEC or to 
the Court GMAC’s notices of Default or Disposition of Collateral or the scheduled foreclosure 
sale of the aircraft. The SEC learned of the foreclosure sale (and Defendants’ attempts to stop it) 
from GMAC’s counsel on October 9th.  This is yet another example of Defendants’ failure to 
report events directly bearing on their ability to repay all investors in cash as ordered by the 
Court. 
III.	DEFENDANTS’ PROGRESS REPORT MISLEADINGLY CLAIMS 
REPAYMENT OF ALL INVESTORS. 
In Defendants’ October 9th Progress Report, they claim that “as of October 5, 2007, BCI 
succeeded in satisfying all remaining obligations to [investors].”  See Exhibit 1 at 1. This 
statement is simply untrue.  All investors have not been repaid in cash.  The October 9th 
Progress Report admits that Defendants only repaid approximately $17.8 million owed to 
investors in cash, a fraction of the approximately $49 million owed to investors.  The remaining 
$31.2 million was repaid with aircraft or promises of proceeds from contingent sales of aircraft 
under Defendants’ control.  As explained in detail in the SEC’s Motion, this promise of proceeds 
from future contingent sales of aircraft by Defendants constitutes the sale of a new security.  See 
Docket Entry No. 56 at 11-14. In either event, as the SEC stated in its Motion, Defendants 
repeatedly represented to the Court, and the Court’s Order contemplates, repayment of all 
investors in cash. See id. at 5-6. 
To date Defendants have failed to provide any information about these repayments.  
Defendants have not provided any information about which aircraft were pledged to investors as 
part of their settlement.  The SEC is unable to determine whether aircraft belonging to defrauded 
5


investors are being sold or given to other investors.  Defendants claim that “the cash involved in 
the cash transactions came from three sources: (i) sale of aircraft; (ii) cash on hand; and (iii) the 
proceeds of a loan to BCI by commercial bank.”  Nevertheless, Defendants have failed to 
provide the SEC any information regarding which aircraft were sold, the source of the “cash on 
hand,” or the commercial bank loan.   
Finally, Defendants claim that they have completely satisfied and complied with the 
Court’s Order that they repay all investors within 60 days, stating: “As we believe the above 
describes the completion of BCI’s efforts regarding its remaining investors, we do not intend to 
provide any further progress reports.”
2
 Exhibit 1 at 2. This statement is simply false.  Investors 
have not been paid cash. At the very least, certain investors are still relying on contingent sales 
that still have not occurred. In addition, and more importantly, Defendants simply are not 
permitted to decide what they will or will not do under the Court’s Order.  To usurp the Court’s 
role in deciding what Defendants will or will not do under the Order without even a “by your 
leave” is simply the most recent of a long line of examples of Defendants’ contempt for this 
Court, the investors, and their obligations in connection with this lawsuit.  
Defendants’ claim that they “are pleased to report” that they have “succeeded in 
satisfying all remaining obligations to [investors]” is pure fiction.  Defendants have misled the 
Court, the SEC, and investors.  Ironically, at the emergency hearing, the very things Defendants 
claimed they feared most if a Receiver and asset freeze were imposed have all come to pass.  The 
“wrecking ball,” a phrase Defendants used early and often at the hearing (without disclosing to 
the Court that the wrecking had already begun), has done substantial damage with Defendants 
Nothing in the Court’s Order releases Defendants from their reporting obligations even if they 
believe that they have “satisfied all remaining obligations to [investors].”  Only additional action by the 
Court would release them from these obligations.  Defendants have not sought any such action from the 
Court. 
6

2 

remaining in control of the company.  Secured creditors have seized assets; investors are being 
treated inequitably, victimized yet again; certain creditors are not being paid; new fraudulent 
securities sales have occurred; Defendants have committed systemic contempt; and Defendants 
have withheld critical information from this Court and from the SEC in its monitoring role under 
the Order. Despite Defendants’ protestations to the contrary at the emergency hearing, all of 
these events simply would not have occurred had there been an asset freeze and receiver in place.  
In sum, Defendants simply must be stopped; Defendants cannot be trusted; Defendants have 
utterly no respect for this Court, its orders or for the public; and thus Defendants should not be 
permitted to continue their fraud. 
IV. 	DEFENDANTS’ BEHAVIOR CONSTITUTES CONTEMPT OF THE ORDER 
AND OBSTRUCTION OF THE SEC’S MONITORING ROLE UNDER THE 
ORDER. 
As another example of Defendants’ disrespect of this Court, one must look no further 
than Defendants’ responses, or lack thereof, to the SEC’s efforts to obtain information relevant to 
its role as Plaintiff and critical to its monitoring role under the Order.  On August 31st, and on 
subsequent dates, the SEC issued discovery requests to Defendants for documents and other 
information regarding their progress in repaying investors.  As of the date of the SEC’s Motion, 
virtually the only documents produced by Defendants were related to events occurring before the 
Order.
3
  In a rare instance of post-Order documents being produced, pursuant to the SEC’s 
August 31st discovery request, Defendants recently produced a copy of the QuickBooks records 
for the various BCI-managed LLCs.  However, Defendants conveniently failed to produce any 
post-Order QuickBooks records for BCI itself, doubtless because these accounting records would 
have confirmed Defendants’ recent violations of this Court’s order, and who knows what else.   
The SEC intends to move to compel production of documents called for by its various discovery 
requests to Defendants. 
7

3 

Defendants have produced virtually no information regarding their recent settlements 
with investors, despite the fact they have recently given that information to third parties and 
could have easily made copies of these documents to produce to the SEC.  Clearly, details 
regarding settlements and new transactions would be essential to any complete and accurate 
progress report regarding efforts to repay investors and relevant to the SEC’s monitoring role.  
Moreover, no information has been given to the SEC, either in its monitoring role under the 
Order or in response to its numerous discovery requests, regarding the source of funds used by 
Defendants to make the August 23rd cash payments to investors.  Defendants appear to not want 
the SEC or this Court to know the source of those funds, even though at the hearing, Defendants 
admitted knowing the source of the $12.2 million that was “ready to be paid” to investors.  
Defendants have never disclosed the source of those funds to the Court or, despite repeated 
requests, the SEC, causing concern that these funds may have in fact belonged to other investors.  
Defendants have likewise not provided the SEC with any e-mails or other electronic 
communications of Defendant Hollnagel to any third parties, including Jay Hyatt and Jay 
Johnson. These communications, certain of which the SEC knows exist, clearly would be 
relevant to the issues in connection with the SEC’s role as monitor, as well as issues central to 
this lawsuit. 
Finally, the SEC has asked Defendants, in a discovery request, for information regarding 
legal fees paid by BCI and Hollnagel. First, this information is relevant to whether Defendants 
BCI or Hollnagel are paying any of the legal fees of any third party, including Hyatt and 
Johnson. In addition, such information is relevant to the source of funds used to pay those legal 
8


fees, as well as whether a Receiver should be appointed.
4
 It would be a cruel irony to later 
discover that money or assets belonging to investors were being spent defending the very people 
who defrauded the investors once, and are now victimizing many of them again.  This is a 
particularly important issue given that there are at least four law firms who have worked on the 
case during and since the hearing.  The SEC is aware that one of those law firms was paid a $1 
million retainer in April 2007.  The SEC is certain that significant additional funds, possibly in 
the millions of dollars, have been spent by Defendants for their defense.  However, due to 
Defendants’ refusal to provide easily produced documents relating to legal fees, the SEC has no 
idea how much Defendants have subsequently paid this law firm, or any of the other three law 
firms, or the source of those funds. 
Taken as a whole, these actions, and Defendants’ continued contempt, show that their 
behavior “...corruptly...influences, obstructs or impedes or endeavors to influence, obstruct or 
impede, the due administration of justice...” in connection with the SEC’s responsibilities as 
monitor and in this case in general.  18 U.S.C. § 1503. 
V.        CONCLUSION        
As a general matter, in order for the SEC to fulfill its statutory mission of protecting 
investors, it is absolutely vital that court orders such as the August 22nd Order the SEC obtained 
from this Court are enforced.  This Court thus needs to address the Defendants’ multiple 
violations of this Court’s Order and not allow Defendants to essentially “cherry-pick” whichever 
part of the Order they wish to follow.  Otherwise, failure to enforce the Order will create a 
dangerous precedent in which wrongdoers, without any serious ramifications, will be able to 
Of course, it is 7th Circuit law that a fraudster cannot use victims’ funds to pay for his defense.  
See SEC v. Quinn
, 997 F.2d 287, 289 (7th Cir. 1993) (“a swindler in securities markets cannot use the 
victims' assets to hire counsel who will help him retain the gleanings of crime”); SEC v. Cherif
 933 F.2d 
403, 416 (7th Cir. 1991); SEC v. Van Waeyenberghe et al.
, 284 F.3d 812 (7th Cir. 2002). 
9

4 

ignore on their own whims court orders intended to protect the interests of the investing public.  
Bluntly put, Defendants must not be allowed to mislead this Court, hide information critical to 
this Court’s role in doing justice and engage in serial contempt.  Not only do such actions erode 
the dignity and authority of this Court, but such actions may embolden other like-minded 
violators of the federal securities laws. 
                                                                        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 11, 2007 
10

____________________________________ 

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 
SUPPLEMENT TO ITS MOTION FOR ORDER TO SHOW CAUSE 

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

supplements its October 5, 2007 Motion for 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 addition to 

the conduct described in detail in the SEC’s October 5, 2007 Motion, the SEC has learned, after 

its Motion was filed, of transactions entered into by Defendants in violation of the Court’s Order, 

specifically payments made without any notice to the SEC, as well as the unreported sale at 

auction of six BCI aircraft due to foreclosure action by GMAC.  Finally, the SEC feels it 

necessary to inform the Court that in Defendants’ October 9th Progress Report, they falsely 

claim to have repaid all investors, and to have fully satisfied the Court’s Order.  In addition, they 

have contemptuously declared that they are no longer required to file the reports required by the 

Court’s Order, despite having never asked this Court’s permission to be released from this 

obligation and despite the fact that all investors have not been repaid. 



I. 	 DEFENDANTS FAILED TO PROVIDE THE SEC WITH NOTICE OF 
NUMEROUS RECENT WITHDRAWALS OF FUNDS, IN VIOLATION OF THE 
COURT’S ORDER. 

As noted in the SEC’s Motion, one of Defendants’ creditors, Ungaretti & Harris LLP 

(“U&H”), filed a motion to intervene in this matter because Defendants had failed to repay 

$500,000 in legal fees. See Docket Entry No. 56 at 42.  The SEC recently learned from counsel 

for U&H that on October 8th, Defendants reached an agreement with U&H, resulting in U&H 

withdrawing their motion.  According to counsel for U&H, Defendants paid to U&H $100,000 

on October 8th and agreed to make payments for the next three to four months, until all $500,000 

owed is repaid. Under this Court’s Order, Defendants are required to provide 48 hour notice to 

the SEC for all withdrawals over $20,000.  The SEC received no notice of this $100,000 

payment on October 8th, and as of this filing, Defendants have still not notified the SEC about 

this payment.  Counsel for Defendants specifically represented to counsel for U&H on October 

9th that Defendants had notified the SEC about the $100,000 payment.  This was false. 

In addition, Defendants have admitted to making numerous other recent payments for 

which they have provided no notice to the SEC as required under the Order.  In their October 9th 

Progress Report, Defendants reported recently making nearly $11 million in payments to four 

investors. See Exhibit 1 at 2. Defendants failed to provide any notice of these recent payments 

to the SEC or even the identity of the payees.  Instead, the SEC learned of three of these 

payments, wire transfers totaling approximately $10.7 million, from an investor, and reported 

these transfers in its Motion. See Docket Entry No. 56 at 19. 

2




 

II. 	 DEFENDANTS FAILED TO DISCLOSE GMAC’S FORECLOSURE TO THE 
SEC OR TO THE COURT. 

Defendants have never disclosed to this Court or the SEC that BCI defaulted under loan 

agreements with GMAC Commercial Finance LLC (“GMAC”) totaling $33 million and that 

GMAC foreclosed on six commercial aircraft securing these loans.  By May of 2007, BCI was 

in default under two loan agreements with GMAC, which were secured by six commercial 

aircraft in the possession of BCI or BCI related entities.  See Exhibit 2 at 6 (citing Exhibit 3). On 

August 23, 2007, GMAC issued a notice of Default, Notice of Acceleration, and Notice of 

Foreclosure of Pledges under loan agreements for six aircraft owned by BCI.  This default was 

based on BCI’s repeated failure to provide audited financial statements (as required under the 

loan agreements), GMAC’s concerns regarding BCI’s financial condition, and GMAC’s 

concerns regarding the improper commingling of security deposits and maintenance reserves 

with BCI’s other funds. See id. at 3-4. The aircraft securing the loans from GMAC had 

“deposits and maintenance reserves that amount to millions of dollars.”  Id.  GMAC further 

questioned BCI’s financial stability by citing to BCI’s failure to produce audited financial 

statements in December 2006 and February 2007, and BCI’s failure to pay maintenance expenses 

on GMAC collateral, resulting in a mechanic’s lien in excess of $2 million.1 See id. at 5, 8. On 

August 29, 2007, GMAC issued a Notification of Disposition of Collateral regarding the six 

aircraft, scheduling a foreclosure sale of those six aircraft on September 26, 2007.   

Defendants unsuccessfully attempted to prevent the foreclosure sale by GMAC.  On 

September 20, 2007, Defendants filed a complaint and motion for a temporary restraining order 

against GMAC in state court in New York attempting to halt the foreclosure sale, which was 

During the hearing before this Court, Defendant Hollnagel testified that BCI was permitted to use 
the maintenance reserves and security deposits as its own funds for the operation of its business.  That is 
simply incorrect. 

3


1 



then rescheduled to October 9, 2007 pending the resolution of Defendants’ motion.  In its 

response to BCI’s motion, GMAC expressed having “serious concerns regarding BCI’s and the 

BCI [LLCs’] representations concerning its financial condition.”  Id. at 3. On October 5, 2007, 

the Supreme Court of New York denied Defendants’ motion, and the foreclosure sale of the six 

aircraft occurred on October 9th. Again, Defendants never disclosed any of these events to the 

Court or to the SEC. 

BCI’s motion for a temporary restraining order, and GMAC’s response, raise serious 

questions regarding Defendants’ honesty and integrity.  First, one of the BCI entities in the New 

York Complaint seeking to halt the foreclosure by GMAC is BCI Bermuda 2006-1, an entity 

under the control of BCI. This LLC was not reported by the Defendants as an asset of BCI on 

their Exhibit 10 to the Defendants’ Response to the Motion for a Temporary Restraining Order.  

However, BCI 2006-1 was reported as an asset of BCI.  The SEC does not know whether BCI 

Bermuda 2006-1 and BCI 2006-1 are the same entity.  BCI 2006-1, however, is one of the 

entities pledged as satisfaction of BCI’s obligations to its investors in this case.  Due to the lack 

of information from the Defendants regarding this transaction, it is not clear whether this entity is 

related to BCI Bermuda 2006-1 which had its planes foreclosed on by GMAC this week.  

Second, GMAC represented that BCI directed a sublessee to make rent and maintenance reserve 

payments to a new account, which was not the account to which payments under such subleases 

were required to be paid. See Exhibit 2 at 8. This misdirection of funds and Defendants’ failure 

to disclose this to GMAC constituted additional events of default under the GMAC loan 

agreements, and further call into question the good faith nature of Defendants’ business 

practices. 

4




Despite being required to report on their progress in repaying investors and, presumably, 

matters which would impair that progress, at no time did Defendants disclose to the SEC or to 

the Court GMAC’s notices of Default or Disposition of Collateral or the scheduled foreclosure 

sale of the aircraft. The SEC learned of the foreclosure sale (and Defendants’ attempts to stop it) 

from GMAC’s counsel on October 9th.  This is yet another example of Defendants’ failure to 

report events directly bearing on their ability to repay all investors in cash as ordered by the 

Court. 

III.	 DEFENDANTS’ PROGRESS REPORT MISLEADINGLY CLAIMS 
REPAYMENT OF ALL INVESTORS. 

In Defendants’ October 9th Progress Report, they claim that “as of October 5, 2007, BCI 

succeeded in satisfying all remaining obligations to [investors].”  See Exhibit 1 at 1. This 

statement is simply untrue.  All investors have not been repaid in cash.  The October 9th 

Progress Report admits that Defendants only repaid approximately $17.8 million owed to 

investors in cash, a fraction of the approximately $49 million owed to investors.  The remaining 

$31.2 million was repaid with aircraft or promises of proceeds from contingent sales of aircraft 

under Defendants’ control.  As explained in detail in the SEC’s Motion, this promise of proceeds 

from future contingent sales of aircraft by Defendants constitutes the sale of a new security.  See 

Docket Entry No. 56 at 11-14. In either event, as the SEC stated in its Motion, Defendants 

repeatedly represented to the Court, and the Court’s Order contemplates, repayment of all 

investors in cash. See id. at 5-6. 

To date Defendants have failed to provide any information about these repayments.  

Defendants have not provided any information about which aircraft were pledged to investors as 

part of their settlement.  The SEC is unable to determine whether aircraft belonging to defrauded 

5




investors are being sold or given to other investors.  Defendants claim that “the cash involved in 

the cash transactions came from three sources: (i) sale of aircraft; (ii) cash on hand; and (iii) the 

proceeds of a loan to BCI by commercial bank.”  Nevertheless, Defendants have failed to 

provide the SEC any information regarding which aircraft were sold, the source of the “cash on 

hand,” or the commercial bank loan.   

Finally, Defendants claim that they have completely satisfied and complied with the 

Court’s Order that they repay all investors within 60 days, stating: “As we believe the above 

describes the completion of BCI’s efforts regarding its remaining investors, we do not intend to 

provide any further progress reports.”2  Exhibit 1 at 2. This statement is simply false.  Investors 

have not been paid cash. At the very least, certain investors are still relying on contingent sales 

that still have not occurred. In addition, and more importantly, Defendants simply are not 

permitted to decide what they will or will not do under the Court’s Order.  To usurp the Court’s 

role in deciding what Defendants will or will not do under the Order without even a “by your 

leave” is simply the most recent of a long line of examples of Defendants’ contempt for this 

Court, the investors, and their obligations in connection with this lawsuit.  

Defendants’ claim that they “are pleased to report” that they have “succeeded in 

satisfying all remaining obligations to [investors]” is pure fiction.  Defendants have misled the 

Court, the SEC, and investors.  Ironically, at the emergency hearing, the very things Defendants 

claimed they feared most if a Receiver and asset freeze were imposed have all come to pass.  The 

“wrecking ball,” a phrase Defendants used early and often at the hearing (without disclosing to 

the Court that the wrecking had already begun), has done substantial damage with Defendants 

Nothing in the Court’s Order releases Defendants from their reporting obligations even if they 
believe that they have “satisfied all remaining obligations to [investors].”  Only additional action by the 
Court would release them from these obligations.  Defendants have not sought any such action from the 
Court. 

6


2 



remaining in control of the company.  Secured creditors have seized assets; investors are being 

treated inequitably, victimized yet again; certain creditors are not being paid; new fraudulent 

securities sales have occurred; Defendants have committed systemic contempt; and Defendants 

have withheld critical information from this Court and from the SEC in its monitoring role under 

the Order. Despite Defendants’ protestations to the contrary at the emergency hearing, all of 

these events simply would not have occurred had there been an asset freeze and receiver in place.  

In sum, Defendants simply must be stopped; Defendants cannot be trusted; Defendants have 

utterly no respect for this Court, its orders or for the public; and thus Defendants should not be 

permitted to continue their fraud. 

IV. 	 DEFENDANTS’ BEHAVIOR CONSTITUTES CONTEMPT OF THE ORDER 
AND OBSTRUCTION OF THE SEC’S MONITORING ROLE UNDER THE 
ORDER. 

As another example of Defendants’ disrespect of this Court, one must look no further 

than Defendants’ responses, or lack thereof, to the SEC’s efforts to obtain information relevant to 

its role as Plaintiff and critical to its monitoring role under the Order.  On August 31st, and on 

subsequent dates, the SEC issued discovery requests to Defendants for documents and other 

information regarding their progress in repaying investors.  As of the date of the SEC’s Motion, 

virtually the only documents produced by Defendants were related to events occurring before the 

Order.3  In a rare instance of post-Order documents being produced, pursuant to the SEC’s 

August 31st discovery request, Defendants recently produced a copy of the QuickBooks records 

for the various BCI-managed LLCs.  However, Defendants conveniently failed to produce any 

post-Order QuickBooks records for BCI itself, doubtless because these accounting records would 

have confirmed Defendants’ recent violations of this Court’s order, and who knows what else.   

The SEC intends to move to compel production of documents called for by its various discovery 
requests to Defendants. 

7


3 



Defendants have produced virtually no information regarding their recent settlements 

with investors, despite the fact they have recently given that information to third parties and 

could have easily made copies of these documents to produce to the SEC.  Clearly, details 

regarding settlements and new transactions would be essential to any complete and accurate 

progress report regarding efforts to repay investors and relevant to the SEC’s monitoring role.  

Moreover, no information has been given to the SEC, either in its monitoring role under the 

Order or in response to its numerous discovery requests, regarding the source of funds used by 

Defendants to make the August 23rd cash payments to investors.  Defendants appear to not want 

the SEC or this Court to know the source of those funds, even though at the hearing, Defendants 

admitted knowing the source of the $12.2 million that was “ready to be paid” to investors.  

Defendants have never disclosed the source of those funds to the Court or, despite repeated 

requests, the SEC, causing concern that these funds may have in fact belonged to other investors.  

Defendants have likewise not provided the SEC with any e-mails or other electronic 

communications of Defendant Hollnagel to any third parties, including Jay Hyatt and Jay 

Johnson. These communications, certain of which the SEC knows exist, clearly would be 

relevant to the issues in connection with the SEC’s role as monitor, as well as issues central to 

this lawsuit. 

Finally, the SEC has asked Defendants, in a discovery request, for information regarding 

legal fees paid by BCI and Hollnagel. First, this information is relevant to whether Defendants 

BCI or Hollnagel are paying any of the legal fees of any third party, including Hyatt and 

Johnson. In addition, such information is relevant to the source of funds used to pay those legal 

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fees, as well as whether a Receiver should be appointed.4  It would be a cruel irony to later 

discover that money or assets belonging to investors were being spent defending the very people 

who defrauded the investors once, and are now victimizing many of them again.  This is a 

particularly important issue given that there are at least four law firms who have worked on the 

case during and since the hearing.  The SEC is aware that one of those law firms was paid a $1 

million retainer in April 2007.  The SEC is certain that significant additional funds, possibly in 

the millions of dollars, have been spent by Defendants for their defense.  However, due to 

Defendants’ refusal to provide easily produced documents relating to legal fees, the SEC has no 

idea how much Defendants have subsequently paid this law firm, or any of the other three law 

firms, or the source of those funds. 

Taken as a whole, these actions, and Defendants’ continued contempt, show that their 

behavior “...corruptly...influences, obstructs or impedes or endeavors to influence, obstruct or 

impede, the due administration of justice...” in connection with the SEC’s responsibilities as 

monitor and in this case in general.  18 U.S.C. § 1503. 

V. CONCLUSION 

As a general matter, in order for the SEC to fulfill its statutory mission of protecting 

investors, it is absolutely vital that court orders such as the August 22nd Order the SEC obtained 

from this Court are enforced.  This Court thus needs to address the Defendants’ multiple 

violations of this Court’s Order and not allow Defendants to essentially “cherry-pick” whichever 

part of the Order they wish to follow.  Otherwise, failure to enforce the Order will create a 

dangerous precedent in which wrongdoers, without any serious ramifications, will be able to 

Of course, it is 7th Circuit law that a fraudster cannot use victims’ funds to pay for his defense.  
See SEC v. Quinn, 997 F.2d 287, 289 (7th Cir. 1993) (“a swindler in securities markets cannot use the 
victims' assets to hire counsel who will help him retain the gleanings of crime”); SEC v. Cherif 933 F.2d 
403, 416 (7th Cir. 1991); SEC v. Van Waeyenberghe et al., 284 F.3d 812 (7th Cir. 2002). 

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4 



ignore on their own whims court orders intended to protect the interests of the investing public.  

Bluntly put, Defendants must not be allowed to mislead this Court, hide information critical to 

this Court’s role in doing justice and engage in serial contempt.  Not only do such actions erode 

the dignity and authority of this Court, but such actions may embolden other like-minded 

violators of the federal securities laws. 

      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 11, 2007 

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