Certi?ed Document Number: 61333821 - Page I of 68 6/26/2014 10.46 48 AM Chris Daniel Clerk Hams County 2014-36580 Court? 061 Envelope No 1639462 By Nelson Cuero CAUSE NO: RONALD LAVONNE ELLISOR, RICHARD J. KADLICK, RAMESH SAILAJA KONDURI, ROBERT P. FICKS, LARRY W. MULLINS, KOHUR SUBRAMAN IAN, TIMOTHY B. KOEHL, MARTIN GROSBOLL, DOUGLAS KAY SHAFFER, PHILLIP R. ALISA K. JONES, ALLISON CAMERON, M. BRANNON MICHELE KUYKENDALL, KEVIN J. DEERING, JOHNNY BETTY GAUNTT, MARCUS ERICKSON, KURT EVERSON, GEORGE MARENE TOMPKINS, TOMPKINS 2007 PARTNERSHIP, RICHARD BURKHARDT, JAMES PATRICIA STEWART, ROBERT L. HORLANDER, JR. AND BRENDA K. HORLANDER, INDIVIDUALLY AND AS MEMBERS OF HORLANDER, LLC, DONALD L. MARTHA M. KEIL, GERALD CROUCH, INDIVIDUALLY AS GENERAL PARTNER OF POST OAK FAMILY, L.P., PAUL E. SIMONA WILLIAMS, STEPHEN C. COOK, FLORENCE REILEY, CARLOS BORDERO. RAYMOND L. WARNER, HAL TOMPKINS, JOSEPH MILLER, INDIVIDUALLY DIBIA NADA POR NADA, LTD., ELLIS V. COUCH, SEAN F. REED, ANITA CHANDLER, and JOHN WILLIS, EXECU TOR OF THE ESTATE OF GERALDINE WILLIS, Plainti??k, Y. DANIEL ERISHBERG, DAVID GORDON WALLACE, JR, COSTA BAJJALI, WALLACE BAJJALI DEVELOPMENT PARTNERS, LP, WALLACE BAJJALI INVESTMENT FUND II, L.P., WALLACE BAJJALI MANAGEMENT, L.L.C.. WHITNEY LEIGH WALLACE 1996 SUB-S TRUST, JACQUELINE MARIE WALLACE 1996 SUB-S TRUST, WB SUBSTITUTE, GP, L.L.C., LAFFER FRISHBERG WALLACE ECONOMIC OPPORTUNITY FUND, L.P., WB REAL ESTATE HOLDINGS, L.L.C., WEST HOUSTON WB REALTY FUND, L.P.. WC PERRY PROPERTIES REALTY FUND, L.P., ARTHUR LAFFER, and BOYAR MILLER, P.C. Defendants. IN THE DISTRICT COURT OF HARRIS COUNTY, TEXAS JUDICIAL DISTRICT ORIGINAL PETITION Certi?ed Document Number: 61333821 - Page?! of 68 COME NOW, Ronald Lavonne Ellisor, Richard J. Kadlick, Ramesh and Sailaja Konduri, Robert P. Ficks, Larry W. Mullins, Kohur Subramanian, Timothy B. Koehl, Martin Grosboll, Douglas Kay Sha?'er, Phillip R. Alisa K. Jones, Allison Cameron, Brannon Michele Kuykendall, Kevin J. Deering, Johnny Betty Gauntt, Marcus Erickson, Kurt Everson, George Marene Tompkins, Tompkins 2007 Family Partnership, Richard Burkhardt, James Patricia Stewart, Robert L. Horlander, Jr. Brenda K. Horlander, Individually and as Members of Horlander, LLC, Donald L. Martha M. Keil, Gerald Crouch, Individually and as General Partner of Post Oak Family, L.P., Paul E. Simona Williams, Steph C. Cook, Florence Reiley, Carlos Borbero, Raymond L. Warner, Hal Tompkins, Joseph Miller, Individually d/b/a Nada Por Nada, Ltd., Ellis V. Couch, Sean F. Reed, Anita Chandler, and John Willis, Executor of the Estate of Geraldine Willis (hereinafter ?Plainti??s?) in the above-styled and numbered cause, complaining of Daniel Frishberg, David Gordon Wallace, Jr., Costa Bajjali, Wallace Bajjali Development Farmers, L.P., Wallace Bajjali Investment Fund, II, L.P., Wallace Bajjali Management, L.L.C., Whitney Leigh Wallace 1996 Sub-S Trust, Jaqueline Marie Wallace 1996 Sub-S Trust, WB Substitute GP, L.L.C., Laffer Frishberg Wallace Economic Opportunity Fund, L.P., WB Real Estate Holdings, L.L.C., West Houston WB Realty Fund, L.P., WC Perry Properties Realty Fund, LP, Arthur Laffer and Boyar Miller, P.C. (hereinafter ?Defendants?) and for cause of action would show the Court and Jury as follows: I. Discovm Control Plan 1. Plaintiffs intend to conduct discovery under Level 3 of Texas Rule of Civil Procedure 190.4. 11. Parties Id Certi?ed Document Number: 6133382] - Page 3 of 68 2 Plaintiffs, Ronald and Lavonne Ellisor, are residents of Houston, Harris County, Texas 3 Plaintiff, Richard J. Kadlick, is a resident of Houston, Han?is County, Texas 4. Plainti??, Ramesh and Sailaja Konduri, are residents of Houston, Harris County, Texas. 5. Plainti??, Robert P. Ficks, is a resident of Sugar Land, Fort Bend County, Texas. 6. Plainti??, Lany W. Mullins, is a resident of Angleton, Brazoria County, Texas. 7. Plainti??, Kohur Subramanian, is a resident of Sugar Land, Fort Bend County, Texas. 8. Plainti?', Timothy B. Koehl, is a resident of Houston, Harris County, Texas. 9. Plaintiff, Martin Grosboll, is a resident of Humble, Harris County, Texas. 10. Plaintiffs, Douglas Kay Shaffer, are residents of Bacli??e, Galveston County, Texas. 11. Plainti??s, Phillip R. and Alisa K. Jones, are residents of Spring, Harris County, Texas. 12. Plainti??, Allison Cameron, is a resident of Dallas, Dallas County, Texas. 13. Plaintiffs, M. Brannon and Michele Kuykendal], are residents of The Woodlands, Montgomery County, Texas. 14. Plaintiff, Kevin J. Deering, is a resident of Argyle, Denton County, Texas. 15. Plainti?'s, Johnny and Betty Gauntt, are residents of Pasadena, Harris County, Texas. 16 Plaintiff, Marcus Erickson, is a resident of Missouri City, Fort Bend County, Texas 17 Plaintiff, Kurt Everson, is a resident of Missouri City, Fort Bend, Texas Certi?ed Document Number: 6133382] - Page 4 of 68 18 Plaintiffs, George and Marene Tompkins and Tompkins 2007 Family Partnership are residents of Houston, Harris County, Texas. 19 Plaintiff, Richard Burkhardt, is a resident of Malako??, Henderson County, Texas 20. Plaintiff, James and Patricia Stewart, are residents of San Antonio, Bexar County, Texas. 21. Plainti??s, Robert L. Horlander, Jr. and Brenda K. Horlander, Individually and as Members of Horlander, LLC, are residents of Houston, Harris County, Texas. 22. Plaintiff, Donald and Martha M. Keil, are residents of Seguin, Guadalupe County, Texas. 23. Plainti??, Gerald Crouch, Individually and as the General Partner of Post Oak Family, LP, is a resident of Shavano Park, Bexar County, Texas. 24. Plainti??s, Paul E. and Simona Williams, are residents of Houston, Harris County, Texas. 25. Plaintiff, Stephen C. Cook, is a resident of Houston, Harris County, Texas. 26. Plaintiff, Florence Reiley, is a resident of Bellaire, Antrim County, Michigan. 27. Plaintiff, Carlos Borbero, is a resident of Katy, Harris County, Texas. 28. Plainti??, Raymond L. Warner, is a residt of Spring, Harris County, Texas. 29. Plaintiff, Hal Tompkins, is a resident of Harris County, Texas. 30. Plaintiff, Joseph Miller, Individually and dfb/a Nada Por Nada, Ltd., is a resident of Bexar County, Texas. 31. Plainti?', Ellis V. Couch is a resident of Tulsa, Oklahoma. 32 Plaintiff, Sean F. Reed, is a resident of Sugar Land, Fort Bend County, Texas. 33. Plainti?', Anita Chandler, is a resident of Baytown, Harris County, Texas. Certi?ed Document Number: 61333821 - Page 5 of 68 34 Plaintiff, John Willis, Executor of the Estate of Geraldine Willis, is a resident of Houston, Harris County, Texas 35. Defendant, Daniel rishberg is a resident of Miami?Dade County, Florida, he may be sewed with process at his residence at 8855 Collins Avenue, Apt 5b, Surfside, Florida 33154- 3452. 36. Defendant, David Gordon Wallace, Jr., is a resident of Sugar Land, Fort Bend County, Texas; he may be served with process at his residence at 19 Sweetwater Court, Sugar Land, Texas 77479. 37. Defendant, Costa Bajjali, is a resident of Missouri City, Fort Bend County, Texas; he may be served with process at his residence at 2911 Waters Lake Lane, Missouri City, Texas 77459. 38. Defendant, Wallace Bajjali Development Partners, L.P., is a domestic limited partnership located at 1200 Soldiers Field Drive, Suite 20, Sugar Land, Texas 77479; it may be served by serving its registered agent, David G. Wallace, Jr., 3050 Post Oak Blvd, Suite 1690, Houston, TX 77056. 39. Defendant, Wallace Bajalli Investment Fund, II, L.P., is a domestic limited partnership located at 1200 Soldiers Field Drive, Suite 20, Sugar Land, Texas 77479; it may be served by serving its registered agent, David Wallace, Jr., 3050 Post Oak Blvd, Suite 1690, Houston, TX 77056. 40. Defendant Wallace Bajjali Management, L.L.C. is a domestic limited liability Company located at 13131 Dairy Ashford, Ste 175, Sugar Land, Texas 77478; it may be served by serving its registered agent, David G. Wallace at 13131 Dairy Ashford, Ste 175, Sugar Land, Texas 77478. Certi?ed Document Number: 61333821 - Page 6 of 68 4] Defendant Whitney Leigh Wallace 1996 Sub-S Trust is a Trust created pursuant to the provisions of the Wallace Minors Trust Agreement dated July 8, 1996, it may he served by serving its Trustee, Nancy Gollan at 13135 Dairy Ashford, Ste 150, Sugar Land, Texas 77478. 42. Defendant Jaqueline Marie Wallace 1996 Sub-S Trust is a Trust created pursuant to the provisions of the Wallace Minors Trust Agreement dated July 8, 1996, it may be served by serving its Trustee, Nancy Gollan at 13135 Dairy Ashford, Ste 150, Sugar Land, Texas. 43. Defendant WB Substitute GP, L.L.C. is a domestic limited liability company located at 13131 Dairy Ashford, Ste 175, Sugar Land, Texas 77478. It may be served by serving its registered agent David G. Wallace at 13131 Dairy Ashford, Ste 175, Sugar Land, Texas 77478. 44. Defendant, Laffer Frishberg Wallace Economic Opportunity Fund, L.P., is a domestic limited partnership located at 1200 Soldiers Field Drive, Suite 20, Sugar Land, Texas 77479; it may be served by serving its registered agent, David G. Wallace, Jr., 3050 Post Oak Blvd, Suite 1690, Houston, TX 77056, or wherever he may be found. 45. Defendant, Arthur Betz Laffer, is an individual is a resident of Nashville, Davidson County, Tennessee; he may be served with process at his residence at 2909 Poston Avenue, Nashville, Tennessee 37203 or 103 Murphy Court, Nashville, Tennessee 37203 or where ever he may be found. 46. Defendant Boyar Miller, RC. is a law ?rm located at 4265 San Felipe #1200, Houston, TX 770027 and may be served by serving its chairman, Chris Hanslik at his of?ce at 4265 San Felipe, #1200, Houston, TX 77027. 47 Defendant WB Real Estate Holdings, L.L.C. is a domestic limited liability company located at 1200 Soldier?s Field Drive, Suite 20, Sugarland, TX 77479; it may be served Certi?ed Document Number: 61333821 - Page 7 of 68 by serving its registered agent, David Wallace at 13131 Dairy Ashford, Ste 175, Sugar Land, Texas 77478. 48. Defendant West Houston WB Realty Fund, LP. is a domestic limited partnership located at 1200 Soldier?s Field Drive, Suite 20, Sugarland, Texas 77479; it may be served by serving its registered agent, David G. Wallace at 13131 Dairy Ashford, Ste 175, Sugar Land, Texas 77478. 49. Defendant WC Perry Properties, LP. is a domestic limited partnership located at One Sugar Creek Blvd, Ste 925 Sugarland, Texas 77478; it may be served by serving its registered agent, John C. Millard One Sugar Creek Blvd, Ste 925 Sugarland, Texas 77478. 111. Jurisdiction 50. This Court has jurisdiction over this lawsuit because the amount in controversy is within this Court?s jurisdictional requirements. Plaintiffs seek monetary relief over $1,000,000 in accordance with Rule 47 of the Texas Rules of Civil Procedure. IV. Venue 51. Venue for this suit is proper in Harris County under Civil Practice Remedies Code ?15.002 and ?15.005. 52. At the center of this dispute are the now defunct Business Radio Network, LP. d/b/a BizRadio and its af?liates (?BizRadio?). BizRadio was a network of radio stations that broadcasted and marketed ?nancial and economic programing designed to attract clients for Kaleta Capital Management Daniel Frishberg Financial Services, Inc. and their co-conspirators?the Defendants herein Albert Kaleta (KCM), DFFS, and the Defendants Certi?ed Document Number: 6133382] - Page 8 of 68 used BizRadio as a platform to market their investment businesses. BizRadio was a ?nancial disaster as a stand-alone entity, losing millions each year. Indeed, the only value in BizRadio was the new investors that it attracted to KCM, DFFS and the Defendants. BizRadio was simply the the] for a Ponzi scheme whose survival was predicated on the continual investment of substantial new capital each year to fund millions in annual losses. Indeed, Daniel Fri shberg, the principal of BizRadio, referred to the station as a ?loss leader? for his Registered Investment Advisory business DFFS. Investors? ?Jnds raised by Defendants and their confederate, Albert Kaleta, ?owed freely to the ?nancially insecure BizRadio in a desperate attempt to keep the BizRadio pipeline of new investors open so that they could be steered to KCM, DFFS and Defendants. 53. Defendants David Wallace and Costa Bajjali are the of?cers, managers and control persons of Wallace Bajjali Development Partners, LP. Wallace Bajjali Investment Fund 11, LP, La??er Frishberg Wallace Economic Opportunity Fund, LP. Fund") and West Houston WB Realty Fund, L.P. f/k/a WC Perry Properties Realty Fund, L.P. (?West Houston Fund?). On May 26, 2009 the real estate assets of H, LFW Fund and the West Houston Fund were contributed to WB Real Estate Holdings, L.L.C. Holdings?) in exchange for ownership interests in W.B. Holdings. (WBIF IL LFW Fund, West Houston Fund, and WB Holdings collectively referred herein to as the Partnerships?). Defendant Arthur La??er (?Lat-fer?) is a promoter of the WBL Partnerships and advisory board member and namesake of the LFW Fund. Laffer is a former member of President Reagan?s Economic Policy Advisory Board, a high pro?le speaker, spokesperson and an expert in the ?eld of economics and ?nance. La??er lent his name to Kaleta and the Defendants for a fee to increase the credibility of their offerings so they could solicit more investors. Laffer endorsed Certi?ed Document Number. 61333821 - Page 9 of 68 and vouched for the credibility of BizRadio, the WBL Limited Partnerships and Messrs. rishberg, Kaleta, Wallace, and Bajjali. S4 Defendants Wallace Bajjali Management, L.L.C. Management?), WB Substitute GP, L.L.C., Whitney Leigh Wallace 1996 Sub-S Trust (?Whitney Trust?) and Jaqueline Marie Wallace 1996 Sub-S Trust (?Jaqueline Trust?) are entities owned and controlled by Wallace and Bajjali and said entities were used by the Defendants to carry out the acts described herein. These Defendants are vicarioust liable for the acts of their af?liates. 55. Defendants and their co-conspirator, Kaleta (KCM), de?'auded Plaintiffs into making and keeping investments in BizRadio and Defendants? other investments schemes in several ways: Investors purchased limited partnership interests in BizRadio ?BizRadio Equity Plaintiffs?); (ii) Investors loaned money to BizRadio with Frishberg, Wallace, Bajjali and Laffer soliciting and approving the investment and Wallace and Bajjali acting as agent for the Investors ("BizRadio Note Plaintiffs"); Investors purchased promissory notes from KCM, which promised to invest the funds in a diverse portfolio of investments, but which instead was merely a Ponzi scheme, paying interest to old investors from the contributions of new investors Note Plainti??s?); and (iv) Investors loaned money to and/or purchased limited partnership interests in one of the WBL Partnerships that in turn sent money back to Bi zRadio to be used to ?nd more investors Partnerships Plaintiffs?). 56. The WBL Partnerships are investment vehicles run by Defendants Wallace and Bajjali, with endorsement and participation in management by La??er. Defendants rishberg, Wallace, Bajjali (WBDP) and Laffer marketed the WBL Partnerships as vehicles for investment in allegedly high quality, low risk real estate when in fact a high percentage of these funds? assets were ultimately invested into BizRadio. In September 2006, WBIF II made its ?rst investment in BizRadio in the form of advancing convertible Promissory Notes. By December Certi?ed Document Number: 61333821 - Page 10 of 68 3 l, 2006, WBJF 11 had advanced $1,493,170.00 to BizRadio, and by June 30, 2007 the invested balance in a failing BizRadio was up to $3,157,170.00. The WBL Partnerships and their af?liates would eventually fraudulently invest many millions more of Plainti??s? money into BizRadic. By mid-2008, the mounting BizRadio losses were so substantial that Defendants were forced to merge the real estate assets of the WBL Partnerships into a single holding company Holdings?) in a failed attempt to resolve cash ?ow problems created by the cancerous BizRadio investments. 57. These investments in BizRadio arose from the close relationship betwe Defendants Wallace and Bajjali, and their co-conspirators who controlled BizRadio (Daniel Frishberg and Albert Kaleta). Wallace and Bajjali were likewise at times of?cers, directors and/or advisory board members of BizRadi o. Frishberg and Kaleta were investment counselors, and Frishberg, like La??er, was an on-air personality for BizRadio touting Defendants and their investment strategies. The BizRadio and businesses, however. were a simple Ponzi scheme. Money was freely commingled between these businesses without proper documentation or accounting. BizRadio never generated suf?cient revenue through the sale of airtime to keep itself a viable entity. Instead, Daniel Frishberg and Albert Kaleta redirected business opportunities that came from the radio station to their personal companies, KCM and DFFS, and to their co-conspirators -- Wallace, Bajjali and Laffer. BizRadio was able to exist solely through the continuous in?ux of additional capital each year until it eventually collapsed upon itself when Defendants were no longer able to dupe new investors because of Securities and Exchange Commission charges. Even after the SEC placed KCM and DFF and BizRadio in Receivership, Messrs. Kaleta, Frishberg, Wallace, and Bajjali continued to maintain that the SEC Receivership would be resolved and that BizRadio would recover Plaintiffs and other new 10 Certi?ed Document Number: 61333821 - Page 11 of 68 investors of Defendants were unknowingly the primary source of BizRadio?s incessant hunger for new working capital. 58. Early on, Defendants were aware, or should have been aware, that BizRadio was unable to support itself and was simply a ?loss leader? for and Defendants? investment opportunities. Plaintiffs, who often were already investors in one or more of Defendants? or Kaleta?s investments, were repeatedly solicited for additional investments in BizRadio or the WBL Partnerships with promises of returns which Defendants knew were not possible except through a Ponzi scheme. Defendants continued to previde funding to BizRadio through funds invested in the WBL Partnerships and their af?liates, or by facilitating direct loans to or investments in KCM or BizRadio to the detriment of the Plaintiffs to whom they owed a ?duciary duty, long after they were aware that the promised returns were false and that BizRadio, Frishberg and Kaleta were perpetrating a ?'aud on the investors. Defendants relied on BizRadio?s broadcasts to bring new investors to their real estate businesses. As a result, it made sense for them to continue sending investors? money to BizRadio to keep the station ?on the air,? and to keep the pipeline of new investors ?owing. Each of the Plaintiffs in this case was one of the defrauded investors that came through that pipeline. 59. On November 13, 2009, the SEC commenced an action against Kaleta and his investment fund, KCM, alleging multiple violations of the antifraud provisions of the federal securities laws arising from the fraudulent offering of promissory-note securities. Beginning in December 2007, Kaleta - with the aid of Defendants - raised capital for BizRadio from the public offering of promissory notes Notes?) to the KCM Note Plaintiffs. KCM sold more than $10 million of the KCM Notes to Plaintiffs and others. The vast majority of the proceeds of the KCM Notes, similar to Plaintiffs? other investments, ?mded the operations of BizRadio, DFF S, KCM and other related entities This was directly contrary to Kaleta?s and ll Certi?ed Document Number: 61333821 - Page 12 of 68 Defendants' representations that the funds would be used to make high interest, short-term loans to credit-worthy small businesses. Instead, funds were freely transferred between and among BizRadio, Kaleta and Defendants without regard to the transferee?s ability to repay the loans. 60. A Receiver was ultimately appointed for KCM and the Receivership was later expanded to include BizRadio and Frishberg?s investment fund, DFFS. The SEC ?led additional enforcement actions including SEC v. Gordon Wallace Jr. and Costa Bajjali, Civil Action No. 4:11-cv-1932, in the United States District Court for the Southern District of Texas, Houston Division, alleging violations of and (3) of the Securities Act of 1933 (the ?Securities Act?)1. The basis of the action was ?funds fraudulently obtained by KCM from investors, and other tort claims related to the business dealings between certain ?Wallace Bajjali Parties? and Frishberg and Kaleta. KCM and DFFS, however, were not the only parties fraudulently obtaining for BizRadio and their af?liates. Defendants were part of the same effort to keep BizRadio, KCM and DFFS afloat at any cost so that new investors could be attracted for Defendants? investment schemes. VI. CAUSES OF ACTION A. BIZRADIO EQUITY PLAINTIFFS 61 Plaintiffs incorporate the above paragraphs as if set forth here completely. 62. DFFS, Albert Kaleta (KCM), and Defendants, engaged in a scheme in which they solicited and sold limited partnership interests in BizRadio to the BizRadio Equity Plaintiffs. Defendants, Frishberg, Wallace and Bajjali, as of?cers and/or directors of BizRadio, and as ?duciaries for their own clients who purchased equity in BizRadio, had a duty to disclose to the Plaintiffs note that they are not making a claim for violation of the Federal Securities Laos Rather, they limit their claims in this regard to the violations of Texas Securities Act. 12 Certi?ed Document Number: 61333821 - Page 13 of 68 BizRadio Equity Plainti??s that BizRadio was an insolvent loss leader for another business and that it was being used to serve Defendants? purposes. ?aglggent Misreggesentation 63. Defendants negligently and grossly misrepresented the ?nancial condition and economic viability of BizRadio to the BizRadio Equity Plaintiffs. BizRadio?s business plan was a hoax. BizRadio lost millions each year and its survival depended solely on the ability to raise new working capital via new investment. BizRadio was merely a ?loss leader? for Frishberg (DFFS), Kaleta (KCM) and the Defendants that attracted new investors for their deals. Unknown to the BizRadio Equity Plaintiffs, BizRadio was consistently unable to meet its ?nancial obligations and had to raise new money under the guise of a new unworkable ?business plan? each year in order to survive. Quite simply, BizRadio had no viable business plan at any point 64. Defendants negligently misrepresented to the BizRadio Equity Plainti?s that an investment in BizRadio was a suitable investment. That representation was false, made negligently at the least, and was made to induce the BizRadio Equity Plaintiffs to rely on its accuracy and purchase interests in BizRadio. 65. Defendants negligently misrepresented BizRadio?s: ?nancial performance and condition, (ii) the economic viability of its business p1an(s), the source of its working capital and how such working capital was obtained, and (iv) its true nature as a Ponzi scheme. The misrepresentations occmred prior to the BizRadio Equity Plaintiffs making their investments, and continued after their investments had been made. The misrepresentations include not only af?rmative statements that were false, but also the failure to disclose material facts that would have a?'ected the BizRadio Equity Plaintiffs? decision to make an initial investment in 13 Certi?ed Document Number? 61333821 - Page 14 of 68 BizRadio and (ii) to keep investing additional funds in BizRadio or other investment vehicles offered by the Defendants and Kaleta (KCM). 66. The BizRadio Equity Plaintiffs have suffered millions in damages as a result of Defendants? negligent and grossly negligent misrepresentations. The harm extends beyond the amount of Plainti?'s? investments in BizRadio because had Defendants not misrepresented the character and nature of BizRadio, Plaintiffs would not have made any investments with the Defendants and Kaleta. As a result, the BizRadio Equity Plainti?s are entitled to actual, consequential and special damages in an amount to be proven at trial. Defendants? actions were at a minimum reckless, and with a conscious indifference of the harm to Plaintiffs and thereby also warrant punitive and exemplary damages. Breach of Fiducm Dug; 67. Plaintiffs incorporate the above paragraphs herein as if set forth completely. 68? Daniel Frishberg (DFFS) and Albert Kaleta (KCM) were of?cers and directors of BizRadio, (1i) exercised dominant control over BizRadio directly and through the general partner of BizRadio, and acted as investment advisors to the BizRadio Equity Plaintiffs. As a result of these relationships, Frishberg (DFFS) and Kaleta (KCM) were ?duciaries of the BizRadio Equity Plaintiffs. 69. As of?cers and directors of BizRadio, and as designated agents of most of the BizRadio Equity Plaintiffs pursuant to an Agency Agreement, Wallace and Bajj ali (WBDP) and Laffer owed ?duciary duties to the BizRadio Equity Plaintiffs. 70. Frishberg, Wallace, Bajjali, Laffer, and WBDP owed the BizRadio Equity Plaintiffs a high duty of care, ?ee of negligence, and coupled with the utmost of ?delity, good faith, and fair dealing, devoid of any misrepresentation or deceit. Because they owed the BizRadio Equity Plaintiffs such duties, a presumption of unfairness attaches to the BizRadio 14 Certi?ed Document Number: 61333821 - Page 15 of 68 Equity Plaintiffs? investment in BizRadio (which bene?ted Defendants by keeping the insolvent Biz?Radio - and their confederate Kaleta - in business to secure more funding which cannot be overcome unless these Defendants prove: The investment in BizRadio was fair and equitable to the BizRadio Equity Plaintiffs; They made reasonable use of the con?dence the BizRadio Equity Plaintiffs placed in them; They acted in utmost good faith and executed the most scrupulous honesty toward the Biz Radio Equity Plaintiffs; They placed the BizRadio Equity Plainti??s interests above their own. They did not place themselves in any position in which their self-interest might con?ict with their obligations as ?duciary; and They ??ly and fairly disclosed in a timely manner all material information concerning BizRadio and the WBF Limited Partnerships who invested in BizRadio. 71. Defendants Frishberg, Wallace, Bajjali, WBDP, and Laffer cannot prove any of these requirements. Indeed, the opposite is true in each and every case. Thus the transactions at issue are tainted with breaches of ?duciary duty. 72. Frishberg, Wallace, Bajjali, WBDP, and La??er also breached their ?duciary duties to the BizRadio Equity Plaintiffs through misrepresentations regarding the quality and nature of the investments in BizRadio and the character of the individuals and entities involved, and/or in failing to disclose material facts regarding the quality and nature of the investments and the character of the individuals and entities involved. These Defendants knew or should have known that BizRadio was not generating revenue suf?cient to maintain its operations, much less to pay its spiralling debt Despite this knowledge and obligation to disclose such information to their principals, Frishberg, Wallace, Bajjali, WBDP and Laffer said nothing and allowed Plaintiffs? loans and investments to be wasted with no reasonable expectation of recovery. 15 Certi?ed Document Number: 61333821 - Page 16 of 68 Likewise, these Defendants knew that the BizRadio Equity Plaintiffs had already invested significant sums in BizRadio, but failed to disclose to investors that money entrusted to Defendants and KCM was also being redeployed to BizRadio to prop up the Ponzi scheme. 73. Defendants made pro?ts in soliciting and acquiring money for BizRadio which continued even after they had knowledge that BizRadio was insolvent. Defendants had an obligation to disclose these facts to the BizRadio Equity Plaintiffs and a duty to fully apprise them of the risks in proceeding with these transactions with BizRadio. Instead of alerting the BizRadio Equity Plaintiffs, the Defendants conspired with BizRadio, DFFS and Albert Kaleta (KCM) to misrepresent BizRadio?s ?nancial health and prospects. Frishberg, Wallace, Bajjali, WBDP and Laffer, directly, and indirectly through DFPS, KCM and the WBL Partnerships, made pro?ts off these transactions at the same time knowing that BizRadio Equity Plaintiffs? investments would be lost. 74. Because these Defendants, solemn ?duciaries, have bene?ted from transactions with the BizRadio Equity Plaintiffs, the BizRadio Equity Plaintiffs request that in addition to the legal remedies for damages, that the Court also grant equitable relief in the form of restitution or rescission damages against Defendants, andfor enter an Order imposing a constructive Trust on the proceeds from their investment activities. 75. Frishberg?s, Wallace?s, Bajjali?s, and Laffer?s actions constitute an intentional breach of ?duciary duty tantamount to constructive and actual fraud. As a result, the BizRadio Equity Plaintiffs are entitled to all actual, consequential, special, and/or rescission damages in an amount to be proven at trial. 76. These Defendants? actions also warrant the imposition of punitive and exemplary damages because their actions were intentional and done with malice. Knowing garticgp? ation in Breach athiduc-ia? Dug l6 Certi?ed Document Number: 61333821 - Page 17 of 68 77. Plaintiffs incorporate the above paragraphs herein as if set forth completely 78. Daniel Frishberg (DFFS) and Albert Kaleta (KCM) were of?cers and directors of BizRadio, (ii) exercised dominant control over BizRadio directly and through the general partner of BizRadio, and acted as investment advisors to the BizRadio Equity Plaintiffs. As a result of these relationships, Frishberg (DFFS) and Kaleta (KCM) were ?duciaries of the BizRadio Equity Plaintiffs. 79. As of?cers and directors of BizRadio, and as designated agents of most of the BizRadio Equity Plaintiffs pursuant to an Agency Agreement, Wallace and Bajj ali (WBDP) and Laffer owed ?duciary duties to the BizRadio Equity Plaintiffs. 80. Frishberg (DFFS), Kaleta (KCM), Wallace, Bajjali and Laffer each breached their ?duciary duties to the BizRadio Equity Plaintiffs with the actual and knowing participation of one another and other Defendants. Because Kaleta (KCM) and Defendants all pro?ted ?'om the investment in BizRadio, a presumption of unfairness attached to the sale of interests in BizRadio which cannot be overcome unless Defendants show: a. The sales were in the best interest of the BizRadio Equity Plainti??s; b. That the Fiduciary Defendants made reasonable use of the con?dences placed in th; e. That the Fiduciary Defendants acted in utmost good faith and exercised scrupulous honesty toward the BizRadio Equity Plaintiffs; d. That the ?duciaries placed their interests above the BizRadio Equity Plaintiffs; e. That the ?duciaries did not use their position to gain any bene?ts for themselves at the BizRadio Equity Plaintiffs? expense; f. That the fiduciaries did not place themselves in any position in which their self- interest might con?ict with their obligations as ?duciary; and g. That the ?duciaries fully and fairly disclosed all material and important information regarding BizRadio in a timely manner. Certi?ed Document Number: 61333821 - Page 18 of 68 81. None of these Statements are true. Frishberg (DFFS), Kaleta (KCM), Wallace, Bajjali, and Laft'er each breached their ?duciary duty in each and every manner set forth herein, with the knowing participation and aid of one another and other Defendants. Thus, the transactions at issue are tainted by Defendants knowing participation in a breach of ?duciary. 82. Fn'shberg (DFFS), Kaleta (KCM), Wallace, Bajjali, and Laffer with the aid and assistance of one another and other Defendants, also breached their duties to the BizRadio Equity Plaintiffs through misrepresentations regarding the quality and nature of the investments in BizRadio and the character of the individuals and entities involved, and/or in failing to disclose material facts regarding the quality and nature of the investments and the character of the individuals and entities involved. Defendants knew or should have known that BizRadio was not generating revenue suf?cient to maintain its operations, much less to pay its spiralling debt Despite this knowledge, Defendants actively aided breaches of ?duciary duty by helping raise money in investments with no reasonable expectation of recovery. Defendants knew that Plainti?'s had already invested signi?cant sums in BizRadio, but failed to disclose to BizRadio Equity Plaintiffs that money entrusted to KCM, DFFS and WBL Partnerships was also being redeployed to BizRadio to prop up the Ponzi scheme. 83. Kaleta (KCM) and Defendants made pro?ts in soliciting and acquiring money for BizRadio which continued even after Defendants had knowledge that BizRadio was insolvent. Kaleta (KCM) and Defendants had an obligation to disclose these facts to the BizRadio Plaintiffs and a duty to ?illy apprise them of the risks in proceeding with these transactions with BizRadio. Instead of alerting these Plaintiffs, Defendants conspired with each other and BizRadio, and Al Kaleta (KCM) to continue raising ?mds for the fraudulent enterprise. Kaleta (KCM) and Defendants made pro?ts off these transactions with full knowledge that the BizRadio Equity Plaintiffs? investments would be lost. 18 Certi?ed Document Number: 61333821 - Page 19 of 68 84. The BizRadio Equity Plaintiffs are entitled to all actual, consequential, special, or rescission damages from the Defendants in an amount to be proven at trial. 85. The BizRadio Equity Plaintiffs are also entitled to punitive and exemplary damages as a result of Defendants? intentional and malicious conduct. (iv) Common Law Fraud 86. Plaintiffs incorporate the above paragraphs herein as if set forth completely. 87. In addition, or in the alternative, the BizRadio Equity Plaintiffs assert a cause of action against Defendants for common law fraud, including fraud in the inducement, fraud in the transaction, fraud in the operation of BizRadio, conspiracy to defraud and aiding and abetting a ?aud. 88. Defendants knew or recklessly disregarded the fact that the above described acts, practices, misleading statements and omissions would be relied upon by the BizRadio Equity Plaintiffs to their detriment in making decisions regarding investments in and/or loans to KCM, BizRadio and the WBL Partnerships (which in turn invested in BizRadio). 89. Defendants knew,or recklessly disregarded the fact that because they were in a ?duciary relationship, the BizRadio Equity Plaintiffs were relying on any statements, representations or documents provided by the ?duciary Defendants and all Defendants knew or recklessly disregarded the fact that BizRadio Equity Plaintiffs did not have alternative sources of information regarding these loans and investments. 90. Defendants ?audulently misrepresented the ?nancial viability of BizRadio. Defendants knew or recklessly disregarded that BizRadio was a Ponzi scheme that had not generated and would not generate the revenues represented to the BizRadio Equity Plaintiffs. l9 Certi?ed Document Number: 61333821 - Page 20 of 68 91 Defendants failed to disclose material facts that were of critical importance to BizRadio Equity Plaintiffs, which made the disclosures that Defendants and others made to the BizRadio Equity Plaintiffs misleading, including, but not limited to: 92. (ii) (iv) (V) (vi) (vii) (ix) (X) least the following: (ii) That ?mds were being invested in and loaned to an insolvent BizRadio; That BizRadio was a Ponzi scheme; That loans were being made to and investments made in Bi zRadio through KCM and the WBL Partnerships so that promissory notes could be held in a Fidelity account so that Frishb erg. could continue to charge management fees on the principal; That BizRadio was a ?loss leader? for the DFFS, KCM and Defendants? businesses; That BizRadio had ownership interests in the WBL Partnerships; That Wallace, Bajjali and their Funds had ownership stakes in BizRadio; That the WBL Partnerships received most of their capital through BizRadio; That Defendants had a con?ict of interest in dealing with BizRadio because of the mutually dependent relationship between the two groups of entities; That more than 30% of the WBIF 11?s and WBL Fund?s assets were being invested in BizRadio; and That much of investors? funds invested in BizRadio were being used to pay down original purchase money debt for the radio station rather than furthering a viable business plan. By reason of the foregoing, Defendants have engaged in common law ?'aud by at employing devices, schemes, conspiracies and arii?ces to defraud; making untrue statements of material facts or failing to state material facts necessary to make the statements made not untrue in light of the circumstances under which they were made; and engaging in acts, practices, and a course of business which operated as fraud or deceit upon Plaintiffs in connection with their investments in, and loans made to 20 Certi?ed Document Number: 6133382] - Page 21 of 68 BizRadio. 93. The BizRadio Equity Plaintiffs have suffered substantial damages as a result of these actions and are entitled to all actual, consequential, special, rescission, exemplary and punitive damages as a result of Defendants? intentional and malicious acts. Violations of the Texas Securities Act 94. The BizRadio Equity Plaintiffs incorporate the above paragraphs herein as if set forth completely. 95. The BizRadio Equity Plaintiffs assert this cause of action for violations of the Texas Securities Act, Tex-Rev. Civ. Stat. Ann. Art. 581-1 et seq, and in particular Art. 581-33 of the Texas Securities Act 96. AIL of the Texas Securities Act provides that any person (person is de?ned to include individuals or companies) ?who offers or sells a security by means of an untrue statement of mateiial fact or an omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading, is liable to the person selling the security to him.? 97. Plaintiffs? Limited Partnership interests in BizRadio are ?securities? within the meaning of the Texas Securities Act. 98. DFF S, Kaleta (KCM) and/or Defendants failed to disclose material facts that were of critical importance to BizRadio Equity Plaintiffs, including, but not limited to: That funds were being invested in and loaned to an insolvent BizRadi 0, (ii) That BizRadio was a Ponzi scheme; That loans to and investments in BizRadio were being made through KCM and the WBL Partnerships so that promissory notes could be held in a Fidelity account so that Frishberg, er ad. could continue to charge management fees on the principal; 2] Certi?ed Document Number: 61333821 - Page 22 of 68 (iv) That BizRadio was a ?loss leader? for the DFFS, KCM and Defendants? businesses; That BizRadio had ownership interests in the WBL Partnerships, (vi) That Wallace and Bajjali and their Funds had ownership stakes in BizRadio; (vii) That the WBL Partnerships received most of their capital from BizRadio; That Defendants had a con?ict of interest in dealing with BizRadio because of the mutually dependent relationship between the two groups of entities; (ix) That more than 30% of the WBJF 11?s and LFW Fund?s assets were being invested in BizRadio; and That much of investors? funds invested in BizRadio were being used to pay down original purchase money debt for the radio station rather than furthering a viable business plan. 99. Defendants? statements or omissions described in the above paragraphs were untrue or misleading. But for those misrepresentations and omissions, the BizRadio Equity Plaintiffs would not have purchased an interest in BizRadio or made additional investments in BizRadio or Defendants? other investment vehicles. 100. By reason of the foregoing, Defendants have violated, conspired with other Defdants -- and/or DFFS and Kaleta (KCM) to violate, and/or aid and abet, violations of Article 581-33 of the Texas Securities Act by making untrue statements of material fact, or omitting to state material facts necessary in order to make the statements which were made not misleading, in light of the circumstances in which the statemts were made. 101. By reason of the foregoing misrepresentations and omissions, Defendants violated, aided, abetted or controlled another who violated Article 581-33 of the Texas Securities Act and the Defendants are jointly and severally liable to Plaintiffs. 22 Certi?ed Document Number: 61333821 - Page 23 of 68 102. The BizRadio Equity Plaintiffs have suffered substantial damages as a result of Defendants acts and omissions and are entitled to all damages, relief and attorneys? fees permitted by the Texas Securities Act. vi) Civil Canm' acy 103. The BizRadio Equity Plaintiffs incorporate the above paragraphs herein as if set forth completely. 104. Defendants conspired with each other, DFFS and Kaleta (KCM) to defraud the BizRadio Equity Plainti??s as set forth above. 105. Accordingly, Defendants have engaged in an unlawful civil conspiracy by: A combination of two or more persons; (ii) The objective to be accomplished of which is an unlawful purpose or a purpose by unlaw?il means; A meeting of the minds on the object or course of action; with (iv) One or more unlawful, overt acts; and Damages as the proximate result. 106. The BizRadio Equity Plainti?'s have suffered substantial damages as a result of Defendants? and their co-conspirators? acts and are entitled to all actual, consequential, special, rescission exemplary and punitive damages as a result of Defendants? intentional and malicious conduct. B. BIZ RADIO NOTE PLAINTIFFS 107. Wallace and Bajjali acting through WBDP - entered into Agency Agreements with the BizRadio Note Plaintiffs. Under the Agency Agreements, Wallace and Bajjali acted as agents (?duciaries) for the BizRadio Note Plaintiffs in evaluating, recommending and negotiating appropriate secured promissory notes (?The BizRadio Promissory Notes?) to supposedly quali?ed borrowers (BizRadio) and enforcing the right and remedies of the BizRadio 23 Certi?ed Document Number: 61333 82] - Page 24 of 68 Note Plaintiffs thereunder. Wallace and Bajjali were authorized in and required by the Agency Agreement to hire counsel (Boyer Miller) to represent the BizRadio Note Plaintiffs in the transactions and to assist in the preparation of loan documents and enforcement of remedies thereunder if necessary. Wallace and Bajjali promised and represented to the BizRadio Note Plaintiffs that these loans would be secured by a perfected security interest on all of the assets of the Borrower: BizRadio. The BizRadio Note Plainti?'s? attorneys, Defendant Boyar Miller, however, failed to obtain this protection. 108. Becaue of a settlement with the receiver of BizRadio, and a bar order entered by the Federal District Court in BizRadio?s receivership proceeding, the Defendants other than Danie] Frishberg, Arthur Laffer and Boyar Miller cannot be sued for claims related to the BizRadio Promissory Notes. The Biz Radio Note claims alleged herein, therefore, are limited to causes of action against Defendants Daniel Frishberg, Arthur Laffer and Boyar Miller. Bayar Miller?s Neglgg? mac and Gross Negltg' once 109. Plainti?'s incorporate the above paragraphs herein as if set forth completely. 110. Boyer Miller, hired by Wallace and Bajjali (WBDP) as attorney for the BizRadio Note Plainti?'s, generated all of the documents used in this transaction. During the Receivership proceedings, the BizRadio Note Plaintiffs learned that there are signi?cant irregularities in the BizRadio Promissory Note documents of which Defendant Boyar Miller knew or should have known. These irregularities may signi?cantly impair the BizRadio Note Plaintiffs? recovery of BizRadio?s assets when the receiver ultimately distributes BizRadio?s assets. The irregularities may ultimately render the BizRadio Security Agreements essentially worthless. Defendant Boyar Miller failed to take the necessary steps to document and perfect the BizRadio Note Plainti??s? purported security interests. 24 Certi?ed Document Number: 61333821 - Page 25 of 68 111. Offering documents for the BizRadio Promissory Notes contain representations that the funds obtained from the BizRadio Note Plaintiffs would be applied in certain ways and would be protected with perfected security interests in collateral of BizRadio. Defendant Boyar Miller failed in its duty to ensure that the transactions were carried out as represented and breached the duty of care owed by a reasonably prudent attorney in this transaction. 112. The conduct of Boyar Miller complained about above constitutes negligence because they breached the duty of care owed by a reasonably prudent attorney and constitutes gross negligce because such conduct was done with malice or such conscious indi??erence as to constitute malice or intentional neglect. Defendant Boyar Miller is vicariously liable for the conduct of its attorneys because at all times material they also represented the BizRadio Note Plaintiffs as agents, servants, representatives and/or principals of Defendant, Boyar Miller. Speci?cally, and in addition to the acts complained above, Boyar Miller was negligent or grossly negligent in any one or more of the following: Upon information and belief; the attorneys failed to ?illy advise the BizRadio Note Plainti??s of the con?icts and potential con?icts that existed through the joint representation of both the BizRadio Note Plaintiffs and Defendants, and did not advise the BizRadio Note Plaintiffs to obtain independent counsel; (ii) Boyar Miller did not make full disclosure to the BizRadio Note Plainti??s of all known and foreseeable risks associated with the terms of the loan documents or transactions; Boyar Miller failed to fully disclose the language and effect of the terms of the loan documents; (iv) Boyar Miller failed to draft the loan documents in terms consistent with and in keeping with the transaction?s intent and purpose, including, but not limited to, identifying the wrong or non-existent BizRadio entities on Promissory Notes and/or Security Agreements; Boyer Miller failed to ?le ?nancing documents with the correctly identi?ed debtors and creditors which caused the BizRadio Note Plaintiffs to lose the value of the collateral securing the loans, 25 Certi?ed Document Number: 61333821 - Page 26 of 68 (vi) (vii) (ix) (xi) 113. Boyar Miller failed to advise and/or fully disclose to the BizRadio Note Plaintiffs that the Agreement, as executed, did not accurately re?ect the intent, purposes or understanding of the business terms or objectives the Parties had for the Agreement; Boyar Miller failed to perform as a ?duciary; Boyar Miller failed to faith?rlly represent the BizRadio Note Plaintiffs; Boyar Miller withheld relevant information from the BizRadio Note Plaintiffs; Boyar Miller failed to provide information reasonably necessary to permit the BizRadio Note Plaintiffs to make fully informed decisions regarding their interest in Biz Radio; and Boyar Miller violated provisions of the Texas Disciplinary Rules of Professional Conduct. The foregoing acts or omissions, jointly or singularly, were a proximate cause of damage to the BizRadio Note Plaintiffs for which this suit is maintained. 114. Alternatively, all of the errors and omissions complained about herein, including the factual analysis set forth above, were done with such conscious indifference or reckless disregard of their responsibility as attorneys so as to constitute an entire want of care, ill will, or malice as those terms are understood under the law. Therefore, such conduct constitutes malice sufficient to justify the imposition of punitive or exemplary damages. 115. The BizRadio Note Plainti??s have suffered substantial damages as a result of Boyar Miller?s negligence and gross negligence and are entitled to all actual, consequential, special and punitive damages as a result of Boyar Miller?s grossly negligent actions. (ii) 116. 117. Boyar Miller?s Breach of Fiducm' Duty Plaintiff?s incorporate the above paragraphs herein as if set forth completely. Under Texas law, the attorney-client relationship gives rise to ?duciary duties as a matter of law. Defendants Wallace and Bajjali, through WBDP, were Plaintiff's? agents for the BizRadio Promissory Note transactions and engaged Boyar Miller as attorney to represent the 26 Certi?ed Document Number: 61333821 - Page 27 of 68 BizRadio Note Plaintiffs and prepare de?nitive loan documents on behalf of these Plaintiffs. Boyar Miller owed the BizRadio Note Plaintiffs ?duciary duties in their dealings regarding the various loans made to, and investments in, BizRadio. 118. Boyar Miller owed the BizRadio Note Plaintiffs a high duty of care, he of negligence, and coupled with the utmost of ?delity, good faith, and fair dealing, devoid of any misrepresentation or deceit Boyar Miller abused that con?dence. 119. Boyar Miller breached its ?duciary duties to the Biz Radio Note Plaintiffs by the acts or omissions set forth above. 120. Boyar Miller also failed to disclose material facts to the BizRadio Note Plaintiffs that were of critical importance to the BizRadio Note Plaintiffs, including, but not limited to: That funds were being invested in and loaned to an insolvent BizRadio; (ii) That BizRadio was a Ponzi scheme; That loans were being made through WBL Partnerships so that promissory notes could be held in a Fidelity account so that Frishberg, er :11. could continue to charge management fees on the principal; (1v) That BizRadio was a ?loss leader? for the DFFS, KCM and Defendants? businesses; That BizRadio had ownership interests in the WBL Partnerships. (vi) That Wallace and Bajjali had ownership stakes in BizRadio; (vii) That the WBL Partnerships received most of their capital from BizRadio; That Defendants had a con?ict of interest in dealing with BizRadio because of the mutually dependent relationship between the two groups of ent1t1es; (ix) That more than 30% of the WBIF 11?s and LFW Fund?s assets were being invested in BizRadio; and That much of investors? ?mds invested in BizRadio were being used to pay down original purchase money debt for the radio station rather than furthering a viable business plan. 27 Certi?ed Document Number: 61333821 Page 28 of 68 121. The BizRadio Note Plaintiffs have suffered substantial damages as a result of Boyar Miller?s breach of ?duciary duty and are entitled to all actual, consequential, special rescission and punitive damages as a result of Boyar Miller?s intentional breach of ?duciary duty. Daniel Frishberg?s Breach of Fiducm? Duty 122. The BizRadio Plaintiffs incorporate the above paragraphs herein as if set forth completely. 123. Daniel Frishberg (DFFS) and Albert Kaleta (KCM) were of?cers and directors of BizRadio, (ii) exercised dominant control over BizRadio directly and through the general partner of BizRadio, and acted as investment advisors to the BizRadio Equity Plaintiffs. As a result of these relationships, Frishberg (DFFS) and Kaleta (KCM) were ?duciaries of the BizRadio Equity Plainti??s. Frishberg directed and supervised Kaleta?s actions. 124. Frishberg owed the BizRadio Note Plaintiffs a high duty of care, free of negligence, and coupled with the utmost of ?delity, good faith, and fair dealing, devoid of any misrepresentation or deceit. Because he owed the BizRadio Note Plaintiffs such duties, a presumption of unfairness attaches to the BizRadio Note Plain?ffs? investment in BizRadio (which bene?ted Frishberg by keeping the insolvent BizRadio - and his confederates Kaleta and DFFS -- in business to secure more ?mding which cannot be overcome unless Frishberg proves: The investment in BizRadio was fair and equitable to the BizRadio Note Plaintiffs; (ii) Frishberg made reasonable use of the confidence the BizRadio Note Plaintiffs placed in him; Frishberg acted in utmost good faith and executed the most scrupulous honesty toward the Biz Radio Note Plainti?'s; (iv) Frishberg placed the BizRadio Note Plaintiffs interests above his own; 28 Certi?ed Document Number: 61333 82] - Page 29 of 68 Frishberg did not place himself in any position in which his self-interest might con?ict with his obligations as ?duciary; and (vi) Frishberg fully and fairly disclosed in a timely manner all material information concerning BizRadio and the WBL Limited Partnerships who invested in BizRadio. 125. Frishberg cannot prove any of these requirements. Indeed, the opposite is true in each and every case. Thus the transactions at issue are tainted with breaches of ?duciary duty. 126. Frishberg also breached his ?duciary duties to the BizRadio Note Plaintiffs through misrepresentations regarding the quality and nature of the investments in BizRadio and the character of the individuals and entities involved, and/or in failing to disclose material facts regarding the quality and nature of the investments and the character of the individuals and entities involved. Frishberg knew or should have known that BizRadio was not generating revenue sufficient to maintain its operations, much less to pay its spiralling debt. Despite this knowledge and obligation to disclose such information to his principals, Frishberg said nothing and allowed Plaintiffs? loans and investments to be wasted with no reasonable expectation of recovery. Likewise, Frishberg knew that the BizRadio Note Plaintiffs had already invested signi?cant sums in BizRadio, but failed to disclose to investors that money entrusted to WBL Limited Partnerships was also being redeployed to BizRadio to prop up the Ponzi scheme. 127. Frishberg made pro?ts in soliciting and acquiring money for BizRadio that continued even after he had knowledge that BizRadio was insolvent. Frishberg had an obligation to disclose these facts to the BizRadio Note Plaintiffs and a duty to ?illy apprise them of the risks in proceeding with these transactions with BizRadio. Instead of alerting the BizRadic Note Plaintiffs, the Defendants conspired with BizRadio, DFFS and Albert Kaleta (KCM) to misrepresent BizRadio?s ?nancial health and prospects. rishberg directly, and indirectly through DFFS, KCM and the WBL Partnerships, pro?ted from these transactions while at the same time knowing that BizRadio Note Plaintiffs? investments would be lost. 29 Certi?ed Document Number: 61333821 - Page 30 of 68 128. Because Frishberg, a solemn ?duciary, bene?ted from transactions with the BizRadio Note Plaintiffs, the BizRadio Note Plaintiffs request that in addition to the legal remedies for damages, that the Court also grant equitable relief in the form of restitution or rescission damages against Frishberg, and/or enter an Order imposing a constructive Trust on the proceeds from his investment activities. 129. Frishberg?s actions constitute an intentional breach of ?duciary duty tantamount to constructive and actual fraud. As a result, the BizRadio Note Plaintiffs are entitled to all actual, consequential, special and/or rescission damages in an amount to be proven at trial. 130. Frishberg?s actions also warrant the imposition of punitive and exemplary damages because his actions were intentional and done with malice. La?er?s and Bayar Miller?s Knowing participation in Breach of Fiducm Dug: 131. Plaintiffs incorporate the above paragraphs herein as if set forth completely. 132. Daniel Frishberg (DFFS) and Albert Kaleta (KCM) were of?cers and directors of BizRadio, (ii) exercised dominant control over BizRadio through the general partner of BizRadio, and acted as investments advisers to the BizRadio Note Plaintiffs. As a result of these relationships, Frishberg (DFFS) and Kaleta (KCM) became the BizRadio Note Plaintiffs? ?duciaries. Laffer and Boyer Miller had actual notice of the ?duciary relationships. 133. Wallace and Bajjali (WBDP) became the BizRadio?s Note Plaintiffs? ?duciaries by virtue of the Agency Agreement between them. Laffer had notice of this relationship, and, on information and belief, Boyar Miller attorneys drafted the agency agreements at issue, so they also had actual notice of the relationship. 134. Frishberg (DFFS), Kaleta (KCM), Wallace, and Bajjali (WBDP) breached their ?duciary duties to the BizRadio Note Plainti?s, with the actual and knowing participation of one another and Defendants Laffer and Boyar Miller. Because Frishberg (DFF S), Kal eta (KCM) and 30 Certi?ed Document Number: 61333821 - Page 31 of 68 Defendants all pro?ted from loans to BizRadio, a presumption of unfairness attached to the loans which cannot be overcome unless Defendants La??er and Boyer Miller show: (ii) (M (V) (vi) (vii) 135. The sales were in the best interest of the BizRadio Note Plainti??s; That Kaleta (KCM), Frishberg (DFFS), Wallace and Bajjali (WBDP) made reasonable use of the con?dences placed in th; That Frishberg (DFF S), Kaleta (KCM), Wallace and Bajjali (WBDP) acted in utmost good faith and exercised scrupulous honesty toward the BizRadio Note Plaintiffs; That Frishberg (DFF S), Kaleta (KCM), Wallace and Bajj ali (WBDP) placed their interests above the BizRadio Note Plaintiffs; That Frishberg (DFFS), Kaleta (KCM), Wallace and Bajj ali (WBDP) did not use their position to gain any bene?ts for themselves at the BizRadio Note Plaintiffs? expense; That Frishberg (DFF S), Kaleta (KCM, Wallace and Bajj ali (WBDP) did not place themselves in any position in which their self-interest might con?ict with their obligations as ?duciary; and That Frishberg (DFFS), Kaleta (KCM), Wallace and Bajjali (WBDP) ?rlly and fairly disclosed all material and important information regarding BizRadio in a timely manner. None of these statements are true; Frishberg (DFFS), Kaleta (KCM), Wallace and Bajjali (WBDP) breached their ?duciary duty in each and every manner set forth herein, with the knowing participation and aid of Defendants Laffer and Boyar Miller. Thus, the transactions at issue are tainted by Laffer?s and Boyar Miller?s actions. 136. Frishberg (DFFS), Kaleta (KCM), Wallace and Bajjali (WBDP) with the aid and assistance of Letter and Boyar Miller, also breached their ?duciary duties to the BizRadio Note Plaintiffs through misrepresentations regarding the quality and nature of the investments in BizRadio and the character of the individuals and entities involved, and/or in failing to disclose material facts regarding the quality and nature of the loans and the character of the individuals and entities involved. Defendants Laffer and Boyar Miller knew or should have known that 31 Certi?ed Document Number: 61333821 - Page 32 of 68 BizRadio was not generating revenue suf?cient to maintain its operations, much less pay its spiralling debt Despite this knowledge, Defendants La??er and Boyar Miller said nothing about the perilous ?nancial condition of BizRadio, and instead, actively aided Frishberg (DFF S), Kaleta (KCM), Wallace and Bajjali (WDBF) in acts constituting a breach of ?duciary duty. These Defendants knew, or should have known, that Plaintiffs had already invested signi?th sums in BizRadio, but failed to disclose to investors that money entrusted to WBL Partnerships was also being redeployed to BizRadio to prop up the fraudulent Ponzi scheme. 137. Defdant Laffer made pro?ts in soliciting and acquiring money for BizRadio, vouching for BizRadio, Frishberg (DFFS), Kaleta (KCM) and the other Defendants. Laffer touted these parties, and the investments in BizRadio, even after he had knowledge or should have had knowledge that BizRadio was a sham and/or insolvent. Upon information and belief, Defendant Boyar Miller generated legal fees from the BizRadio Promissory Notes and representation of Defendants and Plaintiffs in other transactions surrounding BizRadio. Defendants La?'er and Boyar Miller had an obligation to disclose relevant facts to the BizRadio Note Plaintiffs concerning con?icts of interests and a duty to fully apprise them of the risks in proceeding with the investments in BizRadio. Instead of alerting the BizRadio Note Plaintiffs, La?'er and Boyar Miller conspired with BizRadio, DFFS, Albert Kaleta (KCM) and other Defendants to continue raising funds for a fraudulent enterprise -- BizRadio. Defendants Laffer and Boyar Miller made pro?ts off these transactions at the same time they lcnew or should have known that the BizRadio Note Plainti??s? investments would be lost. 138. The BizRadio Note Plaintiffs have suffered substantial damages as a result of La??er?s and Boyar Miller?s knowing participation in a breach of ?duciary duty and are entitled to all actual, consequential, special, rescission and punitive damages as a result of Laffer?s and Boyar Miller?s intentional and malicious conduct. 32 Certi?ed Document Number: 61333821 Page 33 of 68 139. Plaintiffs incorporate the above paragraphs herein as if set forth completely. 140. In addition or in the alternative, the BizRadio Note Plaintiffs assert a cause of action for common law fraud against Frishberg, Boyar Miller and Laffer (including fraud in the inducement, fraud in the transaction, conspiracy to defraud and aiding and abetting a fraud). 141. Defendants Frishberg, La??er and Boyar Miller knew or recklessly disregarded the fact that the above described acts, practices, misleading statements and omissions would be relied upon by the BizRadio Note Plaintiffs to their detriment in making decisions regarding loans to BizRadio and the Defendants. 142. Defendants Frishberg, La??er and Boyar Miller knew or recklessly disregarded that BizRadio was a Ponzi scheme which had not and would not generate the revenues represented to investors including Plaintiffs. 143. Defendants Frishberg, La?'er and Boyar Miller aided and abetted Kaleta (KCM) and/or the other Defendants who represented that funds invested by Plaintiffs were being loaned to quali?ed third parties with fully-perfected security interests in assets with value in excess of the amount of the loans. This representation was knowingly false when made. 144. Defendants Frishberg, Laffer and Boyar Miller failed to disclose material facts, which they knew of or should have known of, that were of critical importance to the BizRadio Note Plaintiffs, and which made the disclosures that Defendants and others made to these Plainti?'s misleading, including, but not limited to: That funds were being invested in and loaned to BizRadio; (ii) That BizRadio was part of a Ponzi scheme; That loans were being made through Wallace Bajjali entities so that promissory notes could be held in a Fidelity account so that Frishberg, et at. could continue to charge management fees on the principal; 33 Certi?ed Document Number: 61333821 - Page 34 of 68 W) (V) (vi) (vii) (ix) (X) That BizRadio was a ?loss leader? for the BIA business; That BizRadio, Frishberg, and Laffer had ownership and/or pro?t interests in the Wallace Bajjali funds; That Wallace and Bajj ali had ownership stakes in BizRadio; That the Wallace Bajjali funds received most of their capital from BizRadio; That Defendants bad a con?ict of interest in dealing with BizRadio because of the mutually dependent relationship between the two groups of entities; That more than 30% of the WBIF 11 and WBL Fund?s assets were being invested in BizRadio; and That investors? funds were being used to pay down purchase money debt for the radio station rather than ?irthering a viable business plan. 145. By reason of the foregoing, Defendants have engaged in common law fraud by one or more of the following: 6) (ii) employing devices, schemes, conspiracies and arti?ces to defraud; Making untrue statements of material facts or failing to state material facts necessary to make the statements made not untrue in light of the circumstances under which they were made; and engaging in acts, practices, and a course of business which operated as a fraud or deceit upon Plaintiffs in connection with their investments in, and loans made to BizRadio. 146. The BizRadio Note Plaintiffs have suffered substantial damages as a result of Frishberg?s, Laffer?s, and Boyar Miller?s fraud and are entitled to all actual, consequential, special, rescission and punitive damages as a result of Frishberg?s, Laffer?s and Boyar Miller?s intentional and malicious actions. (vi) Frishberg?s, Laffer?s Boyar Miller?s Violations of the Texas Securities Act 147. The BizRadio Note Plaintiffs incorporate the above paragraphs herein as if set forth completely. 34 Certi?ed Document Number: 61333821 - Page 35 of 68 148. The BizRadio Note Plaintiffs assert this cause of ac1ion for violations of the Texas Securities Act, Tex. Rev. Civ. Stat. Ann; Art 581-1 et seq., and in particular Art. 581-33 of the Texas Securities Act. 149. Art. of the Texas Securities Act provides that any person (person is de?ned to include individuals or companies) ?who offers or sells security by means of an untrue statement of material fact or an omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading, is liable for to the person selling the security to him.? 150. The BizRadio Promissory Notes are ?securities? within the meaning of the Texas Securities Act. 151. Frishberg (DFFS), Laffer and Boyar Miller failed to disclose material facts that were of critical importance to the BizRadio Note Plaintiffs, and which made the disclosures that Defendants and others made to the BizRadio Note Plaintiffs misleading, including, but not limited to: (1) That funds were being invested in and loaned to an insolvent BizRadio; (ii) That BizRadio was a Ponzi scheme; That loans were being made through WBL Partnerships so that promissory notes could be held in a Fidelity account so that Frishberg, et al. could continue to charge management fees on the principal; (1v) That BizRadio was a ?loss leader? for the DFFS, KCM and Defendants? businesses; That BizRadio, Fri shberg, and Laff'er had ownership and/or pro?t interests in the WBL Partnerships. (vi) That Wallace and Bajjali and their Funds had ownership stakes in BizRadio; (vii) That the WBL Partnerships received most of their capital from BizRadio; 35 Certi?ed Document Number: 61333821 - Page 36 of 68 That Defendants Frishberg, Laffer and Boyar Miller had a con?ict of interest in dealing with BizRadio because of the mutually dependent relationship between the two groups of entities; (ix) That more than 30% of the WBIF 11?s and LFW Fund?s assets were being invested in BizRadio; and That much of investors' ?mds invested in BizRadio were being used to pay down original purchase money debt for the radio station rather than furthering a viable business plan. 152. Defendants? statements or omissions described in the above paragraphs were untrue or misleading. But for those misreprestations and omissions, The BizRadio Note Plaintiffs would not have acquired the BizRadio Promissory Notes. 153. By reason of the foregoing Defendants Frishberg, Laffer and Boyar Miller have violated, conspired with each other and/or with other Defendants and/or with Kaleta (KCM) - to violate, and/or aided and abetted violations of Article 581-33 by making untrue statements of material fact, or omitting to state material facts necessary in order to make the statements which were made not misleading, in light of the circumstances in which the statements were made. 154. By reason of their misrepresentations and omissions, Defendants Frishberg, La??er and Boyar Miller violated, aided, abetted or controlled another who violated Article 581- 33 of the Texas Securities Act and the Defendants are jointly and severally liable to the BizRadio Note Plaintiffs. 155. The BizRadio Note Plaintiffs have suffered substantial damages as a result of Defendants acts and omissions and are entitled to all damages and attorneys? fees permitted by the Texas Securities Act. (vii) Civil Conspirag 156. Plaintiffs incorporate the above paragraphs herein as if set forth completely. 157. Defendants Frishberg, Laffer and Boyar Miller conspired with each other and/or with other Defendants and/or Kaleta (KCM) to defraud Plaintiffs as set forth above. 36 Certi?ed Document Number: 61333821 Page 37 of 68 158. Accordingly, these Defendants have engaged in an unlawful civil conspiracy by: (1) A combination of two or more persons; (ii) The objective to be accomplished of which is an unlawful purpose or a lawful purpose by unlawful means; A meeting of the minds on the object or course of action; with (Iv) One or more unlaw?rl, overt acts, and Damages as the proximate result. 159. The BizRadio Equity Plaintiffs have suffered substantial damages as a result of Defendants? and their co-conspirators? acts and are entitled to all actual, consequential, special, rescission, exemplary and punitive damages ?om Fri shberg, Laffer and Boyar Miller as a result of these Defendants? intentional and malicious conduct. C. KCM NOTE PLAINTIFFS 160. Plaintiffs incorporate the above paragraphs herein as if set forth completely. 161. Albert Kaleta (KCM), aided and abetted by Defendants, solicited and sold Promissory Notes Notes?) to the KCM Note Plaintiffs. Frishberg, Wallace, Bajjali and La??er assisted in the sale of KCM Notes to the KCM Note Plainti??s, most of whom were Frishberg?s investment advisory clients. Kaleta and Defendants represented to investors that KCM would use the pooled proceeds of the KCM Notes to make high-interest, short-term loans to credit-worthy small businesses (the Loans?). Kaleta, with Defendants? aid and assistance, represented to the KCM Note Plaintiffs that KCM loans would only be made to businesses whose investment models had been thoroughly researched and had the ability to repay the KCM notes. Further security was promised for the KCM Notes through an alleged reserve to purportedly ensure timely repayment. None of these representations was true. Instead, most of the proceeds from the KCM notes were used to make more worthless loans to an insolvent BizRadio and DFFS. 37 Certi?ed Document Number: 61333821 - Page 38 of 68 Nggligent Misrepresentation 162. Defendants negligently misrepresented how the proceeds of the KCM Notes would be used and the ?nancial condition and economic viability of BizRadio. The misrepresentations rose to the level of gross negligence with malice toward the KCM Note Plaintiffs. BizRadio?s business plan was a hoax. BizRadio lost millions each year and its survival depended solely on the ability to raise new working capital via new investment BizRadio was merely a ?Loss Leader? for Frishberg (DFFS), Kaleta (KCM) and the Defendants that attracted new investors for their deals. Unknown to the KCM Note Plainti?'s, BizRadio was consistently unable to meet its ?nancial obligations and had to raise new money under the guise of a new unworkable ?Business Plan? each year in order to survive. Quite simply, BizRadio had no viable business plan at any point. 163. Defendants knew or should have known that neither BizRadio nor DFF was the type of business that Kaleta and Defendants represented to the KCM Note Plaintiffs would receive KCM loans. More importantly, Defendants most certainly knew or should have known that neither BizRadio nor DFFS had the ability to repay such loans. Contrary to Defendants? representations, the primary purpose of the KCM Notes was to keep BizRadio afloat, which, in turn, was used to promote Frishberg as a ?nancial guru and tout Defendants? investments so as to grow Frishberg? and the other Defendants? client bases. 164. Defendants negligently misrepresented to the KCM Note Plaintiffs that a loan to KCM was a suitable safe investment. That representation was false, made negligently at the least, and was made to induce KCM Note Plaintiffs to rely on its accuracy and lend money to KCM. 165. Defendants negligently misrepresented BizRadio?s: Financial performance and condition, (ii) the economic viability of its business plan(s), the source of its working capital 38 Certi?ed Document Number: 61333821 - Page 39 of 68 and how such working capital was obtained, and (iv) its true nature as a Ponzi scheme. These misrepresentations occurred prior to the KCM Plaintiffs making their investments, and continued after their investments had been made. The misrepresentations include not only affirmative statements that were false, but also the failure to disclose material facts that would have affected the KCM Plaintiffs? decision to keep investing additional funds in Biz Radio or other investment vehicles offered by the Defendants and Kaleta (KCM). 166. KCM and the Defendants bene?ted ?nancially in soliciting and acquiring money for BizRadio and DFFS which continued even after Defendants had knowledge that DFFS and BizRadio were insolvent. Kaleta and Defendants had an obligation to disclose these facts to the KCM Note Plaintiffs and a duty to ?Jlly apprise them of the risks in proceeding with these transactions with BizRadio. Instead, of alerting these Plaintiffs, Defendants conspired with BizRadio, DFF and Albert Kaleta (KCM) to continue raising funds for the ?audulent enterprises. Frishberg, Kaleta and Defendants made pro?ts off these transactions with the full knowledge that the KCM Note Plaintiffs? investments would be lost. 167. The KCM Note Plaintiffs are entitled to all actual, consequential, special, or rescission damages from the Defendants in an amount to be prov at trial. 168. The KCM Note Plaintiffs are also entitled to punitive and exemplary damages as a result of Defendants? intentional and malicious conduct. 169. The KCM Note Plaintiffs have suffered millions in damages as a result of Kaleta and Defendants? negligent and grossly negligent misrepresentations. The harm extends beyond the amount of Plaintiffs? loans to KCM because had Defendants not misrepresented the character and nature of BizRadio, and the KCM Notes, Plaintiffs would not have made any ?irther investments with the Defendants or Kaleta (KCM). As a result, the KCM Note Plaintiffs are entitled to actual, consequential and special damages in an amount to be proven at trial. 39 Certi?ed Document Number: 61333821 - Page 40 of 68 Defdant?s actions were at a minimum reckless, and with conscious indifference of the harm to Plaintiffs and thereby also warrant punitive and explary damages. (ii) Frishberg?s Breach of Fiducm Dug 170. Plaintiffs incorporate the above paragraphs herein as if set forth completely. 171. As an investment advisor to the KCM Note Plaintiffs, Frishberg (DFFS) owed ?duciary duties to the KCM Note Plaintiffs. Frishberg owed the KCM Note Plainti??s a high duty of care, free of negligence, and coupled with the utmost of ?delity, good faith, and fair dealings, devoid of any misrepresentation or deceit. Because Frishberg owed the KCM Note Plaintiffs such duties, a presumption of unfairness attaches to the KCM Note Plaintiffs? investments in KCM (which bene?ted Defendants by keeping the insolvent DFFS and BizRadio and their confederate Kaleta in business to secure more investment funding) which cannot be overcome unless Frishberg proves: The loans to KCM were fair and equitable to the KCM Note Plaintiffs; (ii) He made reasonable use of the con?dence the KCM Note Plaintiffs placed in him; He acted in utmost good faith and executed the most scrupulous honesty toward the KCM Note Plainti??s; (iv) He placed the KCM Note Plaintiffs? interests above his own; He did not place himself in any position in which his self-interest might con?ict with his obligations as a ?duciary; and (vi) He ?illy and fairly disclosed in a timely manner all material information concerning the KCM Notes and KCM Loans (including information about BizRadio, and DFFS). 172. Frishberg cannot prove any of these requirements. Indeed, the opposite is true in each and every case. Thus the transactions at issue are tainted with breaches of ?duciary duty. 173. Frishberg also breached his ?duciary duties to the KCM Note Plaintiffs through misrepresentations regarding the quality and nature of KCM Notes and KCM Loans and the 40 Certi?ed Document Number: 51333921 - Page 41 of 68 character of the individuals and entities involved, and/or in failing to disclose material facts regarding the quality and nature of the investments and the character of the individuals and entities involved. Kaleta, Frishberg and Defendants verbally misrepresented to investors the following: that KCM would use the proceeds from the KCM Notes to make short-term loans to small businesses, that KCM loans would only be made to credit-worthy entities whose investment models had been ?rlly researched and understood, that due diligence would be performed to ensure that such entities had the ability to repay the KCM Loans, that KCM would charge borrowing entities 12% to 14% annual interest on the KCM Loans, that KCM would pro?t from the spread between the interest on the KCM Loans and the 10% promised to KCM Note Investors, and that Kaleta maintained a reserve account to cover note repayments and that he personally guaranteed the KCM Notes indicating that he had suf?cient personal wealth to repay investors in full. 174. In fact as Frishberg knew or should have known when he directed Kaleta to offer the KCM Notes to DFF clients the vast majority of the money raised through the sale of KCM Notes was funneled to BizRadio and DFFS, two non-credit worthy a??liate entities to which Kaleta and Frishberg were insiders, from which Frishberg and Kaleta received salaries and said entities had no reasonable prospect of repaying the KCM Loans they received. Frishberg knew or should have known that Kaleta did not perform due diligence to ensure that BizRadio and DFFS had the ability to repay their KCM Loans, and ?irther failed to disclose the con?icts of interests between KCM on the one hand and BizRadio and DFFS on the other, namely that Frishberg and Kaleta would receive salaries from the companies that would ultimately receive the proceeds from the sale of KCM Notes, and in fact those salaries would be paid with KCM Note proceeds. Frishberg knew or should have known that the promised reserve account to cover investor losses was not maintained. 41 Certi?ed Document Number: 61333821 - Page 42 of 68 175. Indeed, KCM loaned BizRadio approximately $5.5 million of investor money. During the ?rst eight (8) months of 2009, BizRadio received $3.6 Million ?'om KCM while its books showed more than $1.6 million in losses. Furthermore, its only signi?cant assets were illiquid radio station licences. KCM also loaned approximately $1.2 Million to DFFS, which did not have suf?cient revenue or assets to service such a loan. Frishberg, Kaleta and others proceeded with the KCM Note offering to clients knowing that the KCM note proceeds would be redirected to BizRadio and DFF S, entities Frishberg and Kaleta knew had little to no prospect of repaying the KCM Loans repayment which Frishberg himself controlled as CEO and which they knew would also compensate them through salary, personal loans, and improperly paid personal expenses. 176. This negative ?nancial information regarding BizRadio and DFFS was available to Frishberg and Kaleta when they orchestrated the KCM Loans to BizRadio and DFF S. Frishberg approved and Kaleta recommended the KCM Notes to DFFS clients even though the notes were not suitable for such clients. The KCM Plaintiffs included among their investment objectives the expectation of earning interest and receiving a return of principal. BizRadio? and ?nancial condi?ons were so poor that they had only nominal prospects for paying back the KCM Loans, and the prospect for repayment of KCM Notes was equally poor. Frishberg and Kaleta knew or were reckless in not knowing this when recommending the KCM Notes to the KCM Note Plainti?'s. 177. Not surprisingly, BizRadio and DFFS have not made any repayments to the KCM Note Plaintiffs. Frishberg and Defendants should be held liable to the KCM Note Plainti?'s in the unpaid amounts. 178. Frishberg bene?ted ?nancially from soliciting and acquiring money for and BizRadio which continued even after he had knowledge that DFFS and BizRadio were insolvent. 42 Certi?ed Document Number: 61333821 - Page 43 of 68 Frishberg had an obligation to disclose these facts to the KCM Note Plaintiffs and a duty to fully apprise them of the risks in proceeding with the transactions with KCM. Instead of alerting the KCM Note Plaintiffs, Frishberg conspired with BizRadio, DFFS and Albert Kaleta (KCM) to misrepresent the viability of the KCM Notes and BizRadio?s ?nancial health and prospects. Defendants directly and indirectly through the WBL partnerships, made pro?ts off these transactions at the same time knowing that KCM Note Plaintiffs? investments would be lost 179. Because Frishberg, a solemn ?duciary has bene?ted from transactions with the KCM Note Plaintiffs, the KCM Note Plaintiffs request that in addition to the legal redies for damages, that the court also grant equitable relief in the form of restitution or recissionary damages against Defendants, and/or enter and order imposing a constructive Trust on the proceeds ??om their investment activities. 180. Frishberg?s actions constitute an intentional breach of ?duciary duty tantamount to constructive and actual fraud. As a result, the KCM Note Plainti?'s are entitled to all actual, consequential, special, and/or rescission damages in an amount to be proven at trial 181. Frishberg?s actions also warrant the imposition of punitive damages and exemplary damages because his actions were intentional and done with malice. Knowing Participation in Breach of Fiducigy Duty 183. Plainti?'s incorporate the above paragraphs herein as if set forth completely. 184. Daniel Frishberg (DFFS) and Albert Kaleta (KCM) were o?icers and directors of KCM and BizRadio, (ii) exercised dominant control over KCM and BizRadio directly and through the general partner of KCM and BizRadio, and acted as investments advisers to the KCM Note Plaintiffs. As a result of these relationships, Frishberg (DFFS) and Kaleta (KCM) were ?duciaries of the KCM Note Plaintiffs. 43 Certi?ed Document Number: 61333821 - Page 44 of 68 185. As set forth in paragraph 1 to 190, Frishberg (DFFS) and Kaleta (KCM) breached their ?duciary duties to the KCM Note Plainti??s with the actual and knowing participation of the other Defendants. Because Frishberg (DFFS) and Kaleta (KCM) and the other Defendants all pro?ted from the loans to KCM, a presumption of unfairness attaches to the sale of the KCM Notes which cannot be overcome unless Defendants show: i. The loans to KCM were in the best interest of the KCM Note Plaintiffs; ii. That Kaleta (KCM) and Frishberg (DFFS) made reasonable use of the con?dences placed in them; That Frishberg (DFFS) and Kaleta (KCM) acted in utmost good faith and exercised scrupulous honesty toward the KCM Note Plaintiffs; iv. That Frishberg (DFFS) and Kaleta (KCM) placed their interest above the KCM Note Plaintiffs; v. That Frishberg (DFFS) and Kaleta (KCM) did not use their position to gain any bene?ts for themselves at the KCM Note Plaintiffs? expense; vi. That Frishberg (DFFS) and Kaleta (KCM) did not place themselves in any position in which their self-interest might con?ict with their obligations as ?duciary; and vii. That Frishberg (DFF S) and Kaleta (KCM) fully and fairly disclosed all material and important information regarding the KCM Notes and BizRadio in a timely manner. 186. None of these statements are true. Frishberg (DFF S) and Kaleta (KCM) breached their ?duciary duty in each and every manner set forth herein, with the knowing participation and aid of one another and other Defendants. Thus, the transactions at issue are tainted by Defendants knowing participation in a breach of ?duciary duty. 187. Frishberg (DFF S) and Kaleta (KCM) with the aid and assistance of one another and the other Defendants, also breached their duties to the KCM Note Plaintiffs through misrepresentations regarding the quality and nature of the investments in KCM and BizRadio and the character of the individuals and entities involved and/or in failing to disclose material 44 Certi?ed Document Number: 61333 821 - Page 45 of 68 facts regarding the quality and nature of the investments and the character of the individuals and tities involved. Kaleta with Defendants assistance verbally misrepresented to investors the following: that KCM would use the proceeds from the KCM Notes to make short-term loans to small businesses, that KCM loans would only be made to credit?worthy entities whose investlnent models had been fully researched and understood, (0) that due diligence would be performed to ensure that such entities had the ability to repay the KCM Loans, that KCM would charge borrowing entities 12% to 14% annual interest on the KCM Loans, that KCM would pro?t from the spread between the interest on the KCM Loans and the 10% promised to KCM Note Investors, and that Kaleta maintained a reserve account to cover note repayments and that he personally guaranteed the KCM Notes - indicating that he had suf?cient personal wealth to repay investors in ?ill. 188. Defendants La?'er, Frishberg, and Wallace made statements, took action, and failed to disclose information known to them that endorsed Kaleta and KCM and gave Plaintiffs con?dence to purchase KCM Notes. Laffer, Frishberg, and Wallace failed to disclose their ?nancial interests in promoting the KCM Notes and other investments to investors. 189. In fact as Defendants knew or should have known when they assisted Fri shberg in directing Kaleta to offer the KCM Notes to DFFS clients the vast majority of the money raised through the sale of KCM Notes was funneled to BizRadio and DFF S, two non-credit worthy af?liate entities to which Kaleta and Frishberg were insiders, from which Frishberg and Kaleta received salaries and which had no reasonable prospect of repaying the KCM Loans they received. Defendants knew or should have known that Kaleta did not perform due diligence to ensure that BizRadio and DFFS had the ability to repay their KCM Loans, and further failed to disclose the con?icts of interests between KCM on the one hand and BizRadio and BF on the other, namely that Fn'shberg and Kaleta would receive salaries from the companies that would 45 Certi?ed Document Number: 61333 821 Page 46 of 68 ultimately receive the proceeds from the sale of KCM Notes, and in fact those salaries would be paid with KCM Note proceeds. Defendants knew or should have known that the promised reserve account to cover investor losses was not maintained. 190. Indeed, KCM loaned BizRadio approximately $5.5 million of investor money. During the ?rst eight (8) months of 2009, BizRadio received $3.6 Million from KCM while its books showed more than $1.6 million in losses. Furthermore, its only signi?cant assets were illiquid radio station licenses. KCM also loaned approximately $1.2 Million to DFFS, which did not have suf?cient revenue or assets to service such a loan. Frishberg and Kaleta?with the knowledge and help of the other Defendants - proceeded with the KCM Note offering to clients knowing that the KCM note proceeds would be redirected to BizRadio and DFF S. Defendants knew or should have known these entities had little to no prospect of repaying the KCM Loans - repayment which Frishberg himself controlled as CEO -- and which they knew would also compensate them through salary, personal loans, and improperly paid personal expenses. 191. This negative ?nancial information regarding BizRadio and DFFS was available to Defendants when they helped Kaleta and Frishberg orchestrate the sale of the KCM Notes and the KCM Loans to BizRadio and DFFS. Frishberg approved and Kaleta recommended the KCM Notes to the KCM Note Plaintiffs even though the note3 were not suitable for such clients. The KCM Note Plaintiffs included among their investment objectives the expectation of earning interest and receiving a return of principal. BizRadio? and ?nancial conditions were so poor that they had only nominal prospects for paying back the KCM Loans, and the prospect for repayment of KCM Notes was equally poor. Defendants knew or were reckless in not knowing this when assisting in the sale of the KCM Notes to the KCM Note Plaintiffs. 46 Certi?ed Document Number: 61333821 - Page 47 of 68 192. Not surprisingly, BizRadio and DFFS have not made any repayments to KCM Note Plaintiffs. Defendants should be held liable to the KCM Note Plaintiffs in the unpaid amounts. 193. Frishberg, KCM and the other Defendants made pro?ts in soliciting and acquiring money for BizRadio and DFFS which continued even after Defendants had knowledge that DFFS and BizRadio was insolvent. Frishberg, Kaleta and the other Defendants had an obligation to disclose these facts to the KCM Note Plaintiffs and a duty to ??ly apprise them of the risks in proceeding with these transactions with KCM. Instead, of alerting these Plaintiffs, Defendants conspired with each other and with BizRadio, DFFS and Albert Kaleta (KCM) to continue raising funds for the fraudulent enterprises. Kaleta and Defendants made pro?ts off these transactions with the full knowledge that the KCM Note Plaintiffs? investments would be lost. 194. The KCM Note Plaintiffs are entitled to all actual, consequential, special, or rescission damages from the Defendants in an amount to be proven at trial. 195. The KCM Note Plaintiffs are also entitled to punitive and exemplary damages as a result of Defendants? intentional and malicious conduct. (iv) Common Law Fraud 196. Plaintiffs incorporate the above paragraphs herein as if set forth completely. 197. In addition or in the alternative, the KCM Note Plaintiffs assert a cause of action for common law fraud against Defendants (including fraud in the inducement, fraud in the transaction, fraud in the operation of KCM and BizRadio, conspiracy to defraud and aiding and abetting a fraud). 198. Defendants knew or recklessly disregarded the fact that the above described acts, practices, misleading statements and omissions would be relied upon by the KCM Note Plaintiffs 47 Certi?ed Document Number: 61333821 - Page 48 of 68 to their detriment in making decisions regarding investments in and/or loans to KCM, BizRadio and the WBL Partnerships (which in turn invested in BizRadi 199. Defendants fraudulently misrepresented the ?nancial viability of the KCM Loans and BizRadio. Defendants verbally misrepresented to investors the following: that KCM would use the proceeds from the KCM Notes to make short-term loans to small businesses that KCM loans would only be made to credit-worthy entities whose investment models had been ?rlly researched and understood, that due diligence would be performed to ensure that such entities had the ability to repay the KCM Loans, that KCM would charge borrowing entities 12% to 14% annual interest on the KCM Loans, that KCM would pro?t from the spread between the interest on the KCM Loans and the 10% promised to KCM Note Investors, and that Kaleta maintained a reserve account to cover note repayments and that he personally guaranteed the KCM Notes -- indicating that he had suf?cient personal wealth to repay investors in full. 200. In fact as Defendants knew or should have known when they assisted Frishberg in directing Kaleta to o??er the KCM Notes to DFF clients that the vast majority of the money raised through the sale of KCM Notes was funneled to BizRadio and DFFS, two non-credit worthy af?liate entities to which Kaleta and Frishberg were insiders, from which Frishberg and Kaleta received salaries and which had no reasonable prospect of repaying the KCM Loans they received. Defendants knew of should have known that Kaleta did not perform due diligence to ensure that BizRadio and DFFS had the ability to repay their KCM Loans, and further failed to disclose the con?icts of interests between KCM on the one hand and BizRadio and DFF on the other, namely that Frishberg and Kaleta would receive salaries from the companies that would ultimately receive the proceeds from the sale of KCM Notes, and in fact those salaries would be 48 Certi?ed Document Number: 61333821 Page 49 of 68 paid with KCM Note proceeds. Defendants knew of or should have known that the promised reserve account to cover investor losses was not maintained. 201. Indeed, KCM loaned BizRadio approximately $5.5 million of investor money. During the ?rst eight (8) months of 2009, BizRadio received $3.6 Million from KCM while its books showed more than $1.6 million in losses. Furthermore, its only signi?cant assets were illiquid radio station licenses. KCM also loaned approximately $1.2 Million to DFFS, which did not have suf?cient revenue or assets to service such a loan. Frishberg and Kaleta with the help of the other Defendants - proceeded with the KCM Note offering to KCM Note Plaintiffs knowing that the KCM note proceeds would be redirected to BizRadio and DFFS, entities Defendants knew or should have known had little to no prospect of repaying the KCM Loans - repayment which Fri shberg himself controlled as CEO - and which they knew would also compensate thorn through salary, personal loans, and improperly paid personal expenses. 202. This negative ?nancial information regarding BizRadio and DFFS was available to Defendants when they helped Frishberg and Kaleta orchestrate the sale of the KCM Notes and made the KCM Loans to BizRadio and DFFS. Fri shberg approved and Kaleta recommended the KCM Notes to the KCM Note Plaintiffs even though the notes were not suitable for such clients. The KCM Note Plaintiffs included among their investment objectives the expectation of earning interest and receiving a return of principal. BizRadio? and ?nancial conditions were so poor that they had only nominal prospects for paying back the KCM Loans, and the prospect for repayment of KCM Notes was equally poor. Defendants knew or were reckless in not knowing this when assisting in the sale of the KCM Notes to the KCM Note Plaintiffs. 203. Defendants Laffer, Frishberg, and Wallace made false statements of material fact, took action, and failed to disclose information known to them that endorsed Kaleta and KCM and gave Plaintiffs con?dence to purchase KCM Notes. Lafi?er, Frishberg, and Wallace failed to 49 Certi?ed Document Number: 61333821 - Page 50 of 68 disclose their ?nancial interests in promoting the KCM Notes and other investments to investors, despite having a duty to have done so. 204. Not smprisingly, BizRadio and DFFS have not made any repayments to the KCM Note Plainti?'s. Defendants should be held liable to the KCM Note Plaintiffs in the unpaid amounts. 205. Defendants failed to disclose material facts regarding the KCM Loans to the KCM Note Plaintiffs that were of critical importance to the KCM Note Plaintiffs, and which made the disclosures that Defendants and others made to KCM Note Plaintiffs misleading, including, but not limited to: C1) (Ii) (Iii) (iv) (V) (vi) (vii) (ix) That KCM loan proceeds were being invested in and loaned to an insolvent DFFS and BizRadio; That KCM, DFFS and BizRadio were a Ponzi scheme; That BizRadio was a ?loss leader? for the DFFS, KCM and Defendants? businesses; That BizRadio, La?'er, and Frishberg had ownership and/or pro?t interests in the WBL Partnerships. That KCM, Wallace and Bajjali and their Funds had ownership stakes in BizRadio; That KCM, DFFS and the WBL Partnerships received most of their capital from BizRadio; That Defendants had a con?ict of interest in dealing with BizRadio because of the mutually dependent relationship between the two groups of entities; That more than 30% of the WBIF 11?s and LFW Fund?s assets were being invested in BizRadio; and That much of investors? funds invested in KCM Notes (and BizRadio) were being used to pay down original purchase money debt for the radio station rather than furthering a viable business plan. 50 Certi?ed Document Number: 61333821 - Page 51 of 68 206. By reason of the foregoing, Defendants have engaged in common law fraud by at least the following: employing devices, schemes, conspiracies and arti?ces to defraud, (ii) Making untrue statements of material facts or failing to state material facts necessary to make the statements made not untrue in light of the circumstances under which they were made, engaging in acts, practices, and a course of business which operated as a fraud or deceit upon Plaintiffs in connection with their loans to KCM and investments in, and loans made to BizRadio. 207. The KCM Note Plaintiffs have suffered substantial damages as a result of these actions and are entitled to all actual, consequential, special, rescission, exemplary and punitive damages as a result of Defendants? intentional and malicious acts. Violations of the Texas Securities Act 208. The KCM Note Plaintiffs incorporate the above paragraphs herein as if set forth completely. 209. The KCM Note Plaintiffs assert this cause of action for violations of the Texas Securities Act, Tex. Rev. Civ. Stat. Ann. Art. 581-1 et seq., and in particular Art. 581-33 of the Texas Securities Act. 210. Art. of the Texas Securities Act provides that any person (person is defined to include individuals or companies) ?who offers or sells a by means of an untrue statement of material fact or an omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading, is liable to the person selling the security to him.? 211. .KCM Notes are ?securities? within the meaning of the Texas Securities Act. 212. Defendants misrepresented to investors the following: that KCM would use the proceeds from the KCM Notes to make short-term loans to small businesses, that KCM 51 Certi?ed Document Number: 61333821 - Page 52 of 68 loans would only be made to credit?worthy entities whose investment models had been fully researched and understood, that due diligence would be performed to ensure that such entities had the ability to repay the KCM Loans, that KCM would charge borrowing entities 12% to 14% annual interest on the KCM Loans, that KCM would pro?t from the spread between the interest on the KCM Loans and the 10% promised to KCM Note Investors, and that Kaleta maintained a reserve account to cover note repayments and that he personally guaranteed the KCM Notes -- indicating that he had suf?cient personal wealth to repay investors in full. 213. In fact Defendants knew or should have known when they assisted Frishberg and Kaleta in offering and selling the securities to the KCM Note Plaintiffs that the vast majority of the money raised through the sale of KCM Notes was ?mneled to BizRadio and DFFS, two non-credit worthy af?liate entities to which Kaleta and Frishberg were insiders, from which Frishberg and Kaleta received salaries and which had no reasonable prospect of repaying the KCM Loans they received. Defendants knew or should have known that Kaleta did not perform due diligence to ensure that BizRadio and DFFS had the ability to repay their KCM Loans, and ?nther failed to disclose the con?icts of interests between KCM on the one hand and BizRadio and DFFS on the other, namely that Frishberg and Kaleta would receive salaries from the companies that would ultimately receive the proceeds from the sale of KCM Notes, and in fact those salaries would be paid with KCM Note proceeds. Defendants knew or should have known that the promised reserve account to cover investor losses was not maintained. None of the above was disclosed to the KCM Note Plainti?'s. 214. Indeed, KCM loaned BizRadio approximately $5.5 million of investor money. During the ?rst eight (8) months of 2009, BizRadio received $3.6 Million from KCM while its books showed more than $1.6 million in losses. Furthermore, its only signi?cant assets were illiquid radio station licenses and equipment. KCM also loaned approximately $1.2 Million to 52 Certi?ed Document Number: 61333821 - Page 53 of 68 DFFS, which did not have suf?cient revenue or assets to service such a loan. Frishberg and Kaleta with the help of other Defendants - proceeded with the KCM Note offering to the KCM Note Plaintiffs knowing that the KCM note proceeds would be redirected to BizRadio and DFFS, entities Defendants knew or should have known had little to no prospect of repaying the KCM Loans - repayment which Frishberg himself controlled as CEO and which they knew would also compensate them through salary, personal loans, and improperly paid personal expenses. 215. This negative ?nancial information regarding BizRadio and DFFS was available to Defendants when they helped Frishberg and Kaleta orchestrate the sale of the KCM Notes and KCM Loans to BizRadio and DFFS. Frishberg approved and Kaleta recommended the KCM Notes to the KCM Note Plaintiffs even though the notes were not suitable for such clients. KCM Note Plaintiffs included among their investment objectives the expectation of earning interest and receiving a realm of principal. BizRadio?s and ?nancial conditions were so poor that they had only nominal prospects for paying back the KCM Loans, and the prospect for repayment of KCM Notes was equally poor. Defendants knew or were reckless in not knowing this when assisting in the sale of the KCM Notes to KCM Note Plaintiffs. 216. Frishberg (DFFS), Kaleta (KCM) and Defendants failed to disclose material facts that were of critical importance to the KCM Note Plaintiffs including, but not limited to: That funds were being invested in and loaned to an insolvent DFFS and BizRadio in order to bene?t all Defendants except Boyer Miller; (ii) That KCM, DFFS, the WBL Partnerships, and BizRadio were a Ponzi scheme; That BizRadio was a ?loss leader? for the DFFS, KCM and Defendants? businesses; (iv) That BizRadio had ownership interests in the WBL Partnerships. 53 Certi?ed Document Number: 61333821 - Page 54 of 68 That KCM, Wallace and Bajjali and their ?mds had ownership stakes in BizRadio; (vi) That KCM, DFFS and the WBL Partnerships received most of their capital from BizRadio; (vii) That Defendants had a con?ict of interest in dealing with BizRadio because of the mutually dependent relationship between the various groups of entities; and That much of investors? funds invested in KCM Notes (and BizRadio) were being used to pay down original purchase money debt for the radio station rather than furthering a viable business plan. 217. Defendants? statements or omissions described in the above paragraphs above were untrue or misleading. But for those misrepresentations and omissions, the KCM Note Plainti?'s would not have loaned money to KCM, purchased an interest in BizRadio or made additional investments in BizRadio or Defendants? other investment vehicles. 218. By reason of the foregoing, Defendants have violated, conspired with other Defendants -- and/or with DFFS and Kaleta (KCM) to violate, and/or aid and abet, violations of Article 581-33 of the Texas Securities Act by making untrue statements of material fact, or omitting to state material facts necessary in order to make the statements which were made not misleading, in light of the circumstances in which the statements were made. 219. By reason of the foregoing misrepresentations and omissions, Defendants violated, aided, abetted or controlled another who violated Article 581-33 of the Texas Securities Act and the Defendants are jointly and severally liable to Plaintiffs. 220. The KCM Note Plainti?'s have suffered substantial damages as a result of Defendants acts and omissions and are entitled to all damages, relief and attorneys? fees permitted by the Texas Securities Act. (vi) Civil Canmiracy 54 Certi?ed Document Number: 61333821 - Page 55 of 68 221. The KCM Note Plaintiffs incorporate the above paragraphs herein as if set forth completely. 222. Defendants conspired with each other and DFFS and Kaleta (KCM) to defraud the KCM Note Plaintiffs as set forth above. 223. Accordingly, Defendants have engaged in an unlawful civil conspiracy by: A combination of two or more persons; (ii) The objective to be accomplished of which is an unlawful purpose or a lawful purpose by unlawful means; A meeting of the minds on the object or course of action; with (IV) One or more unlaw??, overt acts, and Damages as the proximate result. 224. The KCM Note Plaintiffs have suffered substantial damages as a result of Defendants? and their co-conspirators? acts and are entitled to all actual, consequential, special, rescission, exemplary and punitive damages as a result of Defendants? intentional and malicious conduct. D. WBL PARTNERSHIPS PLAINTIFFS Negligence and Negligent Misrepresentation 225. Plainti?'s incorporate the above paragraphs herein as if set forth completely. 226. The WBL Partnerships Plaintiffs loaned money to or bought partnership interests in WBIF 11, LFW Fund, West Houston Fund and their af?liates. Defendants negligently misrepresented that the WBL Partnerships would invest in low risk, high quality real estate, however, much of the investment funds were actually invested in BizRadio. 227. Defendants negligently and grossly misrepresented the ?nancial condition and economic viability of the WBL Partnerships (and BizRadio) to the WBL Partnership Plainti??s. BizRadio?s business plan was a hoax. BizRadio lost millions each year and its survival 55 Certi?ed Document Number: 61333 821 - Page 56 of 68 depended solely on the ability to raise new working capital via new investment. BizRadio was merely a ?Loss Leader? for DFFS, KCM and the Defendants that attracted new investors for their deals. Unknown to the WBL Partnerships Plainti??s, BizRadio was consistently unable to meet its ?nancial obligations and had to raise new money under the guise of a new unworkable ?business plan? each year in order to survive. Quite simply, BizRadio had no viable business plan at any point. 228. Defendants negligently misrepresented to the WBL Partnership Plaintiffs that the loans to and investments in the WBL Partnerships were suitable investments for these Plaintiffs. That representation was false, was made negligently, was made in a business transaction, and was made to induce the WBL Partnership Plaintiffs to rely on its accuracy and loan money to and/or purchase interest in the WBL Partnerships. 229. Defendants negligently misrepresented to the WBL Partnership Plaintiffs that investments by the WBL Partnerships would be made at an arms-length basis and that they would be made for the purpose of generating a pro?t. That representation was false, was made negligently, was made in a business transaction, and was made to induce the WBL Partnerships Plainti?'s to rely on its accuracy and loan money to and/or purchase interests in the WBL Partnerships. 230. Wallace and Bajjaii (WBDP) with the help of the other Defendants and in conspiracy therewith -- negligently misrepresented the WBL Partnerships? ?nancial performance and condition, (ii) the economic viability of its business plan(s), the source of their working capital and how such working capital was obtained, and (iv) and BizRadio?s true nature as a Ponzi scheme. 231. The WBL Partnership Plaintiffs have suffered millions in damages as a result of Defendants? negligence and negligent misrepresentations. As a result, the WBL Partnership 56 Certi?ed Document Number: 61333821 Page 57 of 68 Plaintiffs are entitled to actual, consequential and special damages in an amount to be proven at trial. Defendants? actions were at a minimum reckless, and with a conscious indifference of the harm to Plaintiffs and thereby also warrant punitive and exemplary damages. (ii) Breach of Fiducim Dug 232. The WBL Partnership Plaintiffs incorporate the above paragraphs herein as if set forth completely. 233. Daniel Frishberg (DFFS) and Albert Kaleta (KCM) were officers and directors of BizRadio, (ii) exercised dominant control over BizRadio directly and through the general partner of BizRadio, and acted as investment advisors to the BizRadio Equity Plainti?'s. As a result of these relationships, Frishberg (DFFS) and Kaleta (KCM) were ?duciaries of the BizRadio Equity Plaintiffs. 234. Defendants Wallace and Bajjali were of?cers, directors and dominant control persons of the WBL Partnerships, and they controlled the general partner of the WBL Partnerships. Defendants Wallace and Bajjali (WBDP), therefore, were ?duciaries of WBL Partnership Plaintiffs. 235. Because Frishberg, Wallace and Bajj ali owed the WBL Partnership Plaintiffs such duties, a presumption of unfairness attaches to the WBL Partnership Plaintiffs? investment in the WBL Partnership (which bene?ted Defendants by keeping the insolvent BizRadio -- and their confederates Kaleta and Frishberg in business to secure more funding) which cannot be overcome unless Frishberg, Wallace and Bajj ali (WBDP) prove: The loans to and/or investment in WBL Partnerships was fair and equitable to the WBL Partnership Plaintiffs; (ii) Frishberg, Wallace and Bajjali (WBDP) made reasonable use of the con?dence the WBL Partnership Plaintiffs place in them; 57 Certi?ed Document Number: 61333821 - Page 58 of 68 Frishberg, Wallace and Bajjali (WBDP) acted in utmost good faith and executed the most scrupulous honesty toward the WBL Partnership Plainti??s; (iv) Frishberg, Wallace and Bajjali (WBDP) placed the WBL Partnership Plaintiffs interest above their own. Frishberg, Wallace and Bajjali (WBDP) did not place themselves in any position in which their self-interest might con?ict with their obligations as ?duciary; and (vi) Frishberg, Wallace and Bajjali (WBDP) fully and fairly disclosed in a timely manner all material information concerning BizRadio and the WBF Limited Partnerships who invested in BizRadio. 236. Frishberg, Wallace and Bajjali (WBDP) cannot prove any of these requirements. Indeed, the opposite is true in each and every case. Thus the transactions at issue are tainted with breaches of ?duciary duty. 237. Defendants Frishberg, Wallace and Bajjali (WBDP) breached their duties to the WBL Partnerships Plaintiffs through misrepresentations regarding the quality and nature of the investments and the character of the individuals and entities involved, and/or in failing to disclose material facts regarding the quality and nature of the investments and the character of the individuals and entities involved. These Defendants knew or should have known that BizRadio, in which a large percentage of assets was invested, was not generating revenue su?'icient to maintain its operations, or the operations of the WBL Partnerships. Despite this knowledge and obligation to disclose such information to the WBL Partnership Plaintiffs, Frishberg, Wallace and Bajjali (WBDP) said nothing and allowed these Plaintiffs? loans and investments be wasted with no reasonable expectation of recovery. Likewise, these Defendants knew that many of the WBL Partnership Plaintiffs had already invested signi?cant sums in BizRadio, but failed to disclose to investors that money entrusted to WBL Partnerships was also being redeployed to BizRadio to prop up the scheme. 58 Certi?ed Document Number: 61333821 - Page 59 of 68 238. Frishberg, Wallace and Bajjali (WBDP) made pro?ts ?'om new clients by soliciting and acquiring money for BizRadio and the WBL Partnerships Plaintiffs, which continued even after they had lmowledge that BizRadio and certain other investments in the WBL Partnerships were insolvent. Frishberg, Wallace and Bajj ali (WBDP) had an obligation to disclose these facts to the WBL Partnership Plaintiffs and a duty to fully apprise them of the risks in proceeding with these transactions with BizRadio and the WBL Partnerships. Instead of alerting these Plaintiffs, Frishberg, Wallace and Bajjali (WBDP) conspired with BizRadio, Al Kaleta - and the other Defendants - to continue raising funds for a hopelessly inolvent BizRadio. Frishberg, Wallace and Bajjali (WBDP), directly and through the WBL Partnerships, made pro?ts off these transactions at the same time knowing that the WBL Partnerships? investments would be lost. 239. Because Frishberg, Wallace and Bajjali (WBDP), solemn ?duciaries, and the other Defendant conspirators, bene?ted from these transactions with the WBL Partnership Plainti?'s, the WBL Partnership Plaintiffs request that in addition to the legal remedies for damages, that the Court also grant equitable relief in the form of restitution or rescission damages against Defendants, and/or enter an Order imposing a constructive Trust on the proceeds from their investment activities. 240. Frishberg, Wallace and Bajjali actions constitute an intentional breach of ?duciary duty tantamount to constructive and actual fraud. As a result, the WBL Partnership Plainti?'s are entitled to all actual, consequential, special damages and/or recessionary damages in an amount to be proven at trial. 241. These Defendants actions also warrant the imposition of punitive and exemplary damages because their actions were intentional and done with malice. Knowing Participation in Breach of Fiducim Duty 59 Certi?ed Document Number: 61333821 - Page 60 of 68 243. Plaintiffs incorporate the above paragraphs herein as if set forth completely. 244. Daniel Frishberg (DFFS) and Albert Kaleta (KCM) were: o?icers and directors of BizRadio, (ii) exercised dominant control over Biz Radio directly and through the general partner of BizRadio, and acted as investments advisors to the WBL Partnerships Plaintiffs. As a result of these relationships, Frishberg (DFF S) and Kaleta (KCM) were ?duciaries of WBL Partnership Plaintiffs. 245. Defendants Wallace and Bajjali were of?cers, directors and dominant control persons of the WBL Partnerships, and they controlled the geral partner of the WBL Partnerships. Defendants Wallace and Bajjali (WBDP), therefore, were also ?ducian'es of WBL Partnership Plainti??s. 246. Frishberg (DFFS), Kaleta (KCM), Wallace and Bajjali (WBDP) each breached their ?duciary duties to the WBL Partnerships Plaintiffs, with the actual and knowing participation of one another and the other Defendants. Because Frishberg (DFFS), Kaleta (KCM) and Defendants all pro?ted from the investment in the WBL Partnerships (and BizRadio), a presumption of unfairness attaches to the loans to and/or to the sale of interests in WBL Partnerships which cannot be overcome unless Defendants show: The loans and acquisitions of interests in the WBL Partnerships were in the best interest of the WBL Partnerships Plaintiffs; (1i) Frishberg (DFFS), Kaleta (KCM), Wallace and Bajjali (WBDP) made reasonable use of the con?dences placed in them; Frishberg (DFFS), Kaleta (KCM), Wallace and Bajjali acted in utmost good faith and exercised scrupulous honesty toward the WBL Partnerships Plaintiffs; (iv) Frishberg (DFFS), Kaleta (KCM), Wallace and Bajjali (WBDP) placed their interest above the WBL Partnerships Plaintiffs; Frishberg (DFFS), Kaleta (KCM), Wallace and Bajjali (WBDP) did not use their position to gain any bene?ts for themselves at the WBL Partnerships Plaintiffs? expense; 6O Certified Document Number: 61333821 - Page 61 of 68 (vi) Frishberg (DFFS), Kaleta (KCM), Wallace and Bajjali (WBDP) did not place themselves in any position in which their self-interest might con?ict with their obligations as ?duciary; and (vii) Frishberg (DFFS), Kaleta (KCM), Wallace and Bajjali (WBDP) fully and fairly disclosed all material and important information regarding the WBL Partnerships (and BizRadio) in a timely manner. 247. None of these items are true. Frishberg (DFFS), Kaleta (KCM), Wallace and Bajjali (WBDP) breached their ?duciary duty in each and every manner set forth herein, with the knowing participation and aid of other Defendants. Thus, the transactions at issue are tainted by these Defendants knowing participation in a breach of ?duciary. 248. Frishberg (DFFS), Kaleta (KCM), Wallace and Bajjali (WBDP) with the aid and assistance of one another and other Defendants, also breached their duties to the WBL Partnerships Plaintiffs through misrepresentations regarding the quality and nature of the investments in BizRadio and the character of the individuals and entities involved, and/or in failing to disclose material facts regarding the quality and nature of the investments and the character of the individuals and entities involved. Defendants knew or should have known that the WBL Partnerships (and BizRadio) were not genera?ng revenue suf?cient to maintain their investments in real estate or BizRadio. Despite this knowledge, the WBL Partnership Plaintiffs, Defendants said nothing and allowed the WBL Partnerships Plaintiffs? funds to be wasted with no reasonable expectation of recovery. Likewise, Defendants knew that Plaintiffs had already invested signi?cant sums in BizRadio, but failed to disclose to investors that large sums of money entrusted to the WBF Limited Partnerships was being redeployed to BizRadio to prop up the Ponzi scheme. 249. Defendants Laffer and Frishberg made false statements of material fact, took action, and failed to disclose information known to them that endorsed Wallace, Bajjali, and the WBL Partnerships and gave Plaintiffs con?dence to invest in or loan money to the WBL 61 Certi?ed Document Number: 61333 821 - Page 62 of 68 Partnerships. La??er and Frishberg failed to disclose their ?nancial interests in promoting the WBL Partnerships and other investments to investors, despite having a duty to have done so. 250. Frishberg (DFFS), Kaleta (KCM), Wallace and Bajjali (WDBP) with the aid and assistance of one another and other Defendants - made pro?ts in soliciting and acquiring money for the WBL Partnerships (and BizRadio) which continued even after Defendants had knowledge that BizRadio and many of the WBL Partnership Plainti??s? real estate investments were insolvent. Frishberg (DFFS), Kaleta (KCM) and Defendants had an obligation to disclose these facts to the WBL Partnership Plaintiffs and a duty to fully apprise them of the risks in proceeding with these transactions with BizRadio. Instead of alerting the WBL Partnership Plaintiffs, Defendants conspired with BizRadio, DFFS, A1 Kaleta (KCM), Wallace and Bajjali (WBDP) to continue raising ?mds for a fraudulent enterprise?BizRadio. DFFS, Kaleta and Defendants made pro?ts off these transactions at the same time knowing the WBL Partnerships Plaintiffs? investments would be lost. 251. The WBL Partnerships Plaintiffs are entitled to all actual, consequential, special, and rescission damages from the Defendants in an amount to be proven at trial. 252. The WBL Partnerships Plaintiffs are also entitled to punitive and exemplary damages as a result of Defendants? intentional and malicious conduct. (iv) Common Law Fraud 253. The WBL Partnerships Plaintiffs incorporate the above paragraphs herein as if set forth completely. 254. In addition or in the alternative, the WBL Partnerships Plaintiffs assert a cause of action for common law fraud against Defendants (including fraud in the inducement, fraud in the transaction, ?aud in the operation of the WBL Partnerships, conspiracy to de?'aud and aiding and abetting a fraud). 62 Certi?ed Document Number: 61333821 - Page 63 of 68 255. Defendants knew or recklessly disregarded the fact that the above described acts, practices, misleading statements and omissions would be relied upon by WBL Partnerships Plaintiffs to their detriment in making decisions regarding investments in BizRadio and WBL Partnerships. 256. Defendants knew or recklessly disregarded the fact that as Plaintiffs? ?duciaries, the WBL Partnerships Plaintiffs were relying on any statements, representations or documents provided by Frishberg (DFFS), Al Kaleta (KCM), Wallace and Bajjali (WBDP), and Defendants knew or recklessly disregarded the fact that the WBL Partnership Plainti?'s did not have alternative sources of information regarding these loans and investments. 257. Defendants knew or recklessly disregarded that BizRadio was a Ponzi scheme which had not and would not generate the revenues represented to investors including the WBL Partnership Plaintiffs. 258. Defendants failed to disclose material facts that were of critical importance to the WBL Partnership Plaintiffs, including, but not limited to: That funds invested in the WBL Partnership were being invested in and loaned to an insolvent BizRadio; (ii) That BizRadio was a Ponzi scheme; That loans were being made through WBL Partnerships so that promissory notes could be held in a Fidelity account so that Frishberg, er :11. could continue to charge management fees on the principal; (iv) That BizRadio was a ?loss leader? for the DFFS, KCM and Defendants? businesses; That BizRadio had ownership interests in the WBL Partnerships. (vi) That Wallace and Bajjali and their Funds had ownership stakes in BizRadio; (vii) That Laffer was paid to promote BizRadio, the WBL Partnerships, and Messrs. Fri shberg and Wallace; 63 Certi?ed Document Number: 61333821 - Page 64 of 68 That the WBL Partnerships received most of their capital from BizRadio; (ix) That Defdants had a con?ict of interest in dealing with BizRadio because of the mutually dependent relationship between the two groups of entities; That more than 30% of the WBIF 11?s and LFW Fund?s assets were being invested in BizRadio; and (xi) That much of investors? ?rnds invested in BizRadio were being used to pay down original purchase money debt for the radio station rather than ?rrthering a viable business plan. 259. The WBL Partnerships Plaintiffs have suffered substantial damages as a result of these actions and are entitled to all actual, consequential, special, rescission, exemplary and punitive damages as a result of Defendants? intentional and malicious acts. [vi Violations of the Texas Securities Act 260. Plaintiffs incorporate the above paragraphs herein as if set forth completely. 261. The WBL Partnerships Plaintiffs assert this cause of action for violations of the Texas Securities Act, Tex. Rev. Civ. Stat. Ann. Art. 581-] et seq., and in particular Art. 581-33 of the Texas Securities Act. 262. Art. of the Texas Securities Act provides that any person (person is de?ned to include individuals or companies) who offers to buy or sells security by means of an untrue statement of material fact or an emission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading, is liable for to the person selling the security to him. 263. Plaintiffs? Limited Partnership interests in the WBL Partnerships and Plaintit?fs' loans to the WBL Partnerships are ?securities? within the meaning of the Texas Securities Act 264. DFFS, Al Kaleta (KCM) and Defendants failed to disclose material facts that were of critical importance to BizRadio Equity Plainti??s, including, but not limited to: That funds were being invested in and loaned to an insolvent BizRadio; 64 Certi?ed Document Number: 61333821 - Page 65 of 68 (ii) That BizRadio was a Ponzi scheme; That loans were being made through WBL Partnerships so that promissory notes could be held in a Fidelity account so that Frishberg, et a1. could continue to charge management fees on the principal; (1v) That BizRadio was a ?loss leader? for the DFFS, KCM and Defendants? businesses; That BizRadio had ownership interests in the WBL Partnerships. (vi) That Wallace and Bajjali and their Funds had ownership stakes in BizRadio; (vii) That La??er was paid to promote BizRadio, the WBL Partnerships, and Messrs. Frishberg and Wallace; That the WBL Partnerships received most of their capital from BizRadio; (ix) That Defendants had a con?ict of interest in dealing with BizRadio because of the mutually dependent relationship between the two groups of entities; That more than 30% of the WBIF 11?s and LFW Fund?s assets were being invested in BizRadio; and (xi) That much of investors? funds invested in BizRadio were being used to pay down original purchase money debt for the radio station rather than furthering a viable business plan. 265. Defendants? statements or omissions described in the above paragraphs were untrue or misleading. But for those misrepresentations and omissions, the WBL Partnerships Plaintiffs would not have purchased an interest in or loaned money to the WBL Partnerships. 266. By reason of the foregoing Defendants have violated, conspired with other Defendants -- and/or with DFFS and Kaleta (KCM) - to violate, and/or aided and abetted violations of Article 581-33 of the Texas Securities Act by making untrue statements of material fact, or omitting to state material facts necessary in order to make the statements which were made not misleading, in light of the circumstances in which the statements were made. 65 Certi?ed Document Number: 61333821 - Page 66 of 68 267. By reason of their misrepresentations and omissions, Defendants violated, aided, abetted or controlled another who violated Article 581?33 of the Texas Securities Act and the Defendants are jointly and severally liable to WBL Partnership Plaintiffs. 268. The WBL Partnership Plaintiffs have suffered substantial damages as a result of Defendants acts and omissions and are entitled to all damages, relief and attorneys? fees permitted by the Texas Securities Act. (vi) Civil Conm? 269. The WBL Partnership Plaintiffs incorporate the above paragraphs herein as if set forth completely. 270. Defendants conspired with each other and DFFS and Kaleta (KCM) to defraud WBL Partnership Plaintiffs as set forth above. 271. Accordingly, Defendants have engaged in an unlawful civil conspiracy by: A combination of two or more persons; (ii) The objective to be accomplished of which is an unlawful purpose or a lawful purpose by unlawful means; A meeting of the minds on the object or course of action; with (iv) One or more unlawful, overt acts, and (iv) Damages as the proximate result 272. The WBL Partnership Plaintiffs have suffered substantial damages as a result of Defendants? and their co-conspirators? acts and are entitled to all actual, consequential, special, rescission, and punitive damages as a result of Defendants? intentional and malicious conduct G. Damages 273. The foregoing paragraphs are incorporated herein for all purposes. 274. As a proximate result of Defendants? breaches, negligence, misrepresentations, fraud, violations of the Texas Securities Act and conspiracy, Plaintiffs have been harmed and 66 . . Certi?ed Document Number: 61333821 - Page 67 of 68 have incurred, actual, special, consequential and recissionary damages in an amount to be determined by the jury. In addition, due to intentional and malicious nature of Defendants? acts, Plaintiffs are entitled to punitive and exemplary damages. 275. Plaintiffs further plead for all costs and attorney?s fees allowed by law. Prayer For the reasons stated above, Plainti?t" 5 ask the Court to issue citations for Defendants to appear and answer, and that Plaintiffs be awarded a judgment against Defendants for the following: a Recovery for investinent lost; b. recovery for loss of investmant opportunities; 0. all actual, consequential and special damages allowed by law; (1. exemplary and punitive damages; e. attorney?s fees and expenses; f. pre-judgment and post judgment interest at the maximum rate allowed by law; g. costs of court; and h. such other relief to which Plaintiffs may be justly entitled. 67 Certi?ed Document Number: 61333821 - Page 68 of 68 Respect??ly submitted, Scanan LAW FIRM, PLLC By: 6%962?7? C. Thomas Schmidt State Bar No. 007973 86 3701 Kirby Drive, Suite 845 Houston, Texas 77098 713/568-4898 telephone 815-301-9000 facsimile ATTORNEYS OR PLAINTIFF 68 . ItChris Daniel, District Clerk of Harris County, Texas certify That this is a true and correct copy of the original record ?led and or recorded in my of?ce, electronically or hard copy, as it appears on this date. Wimess my of?cial hand and seal of of?ce this Jenny 29, 2015 Certi?ed Document Number. 61333821 Chris Daniel, DISTRICT CLERK HARRIS COUNTY, TEXAS In accordance with Texas Govermnent Code 406.013 electronically transmitted authenticated documents are valid. If there is a question regarding the validity of this document and or seal please e-mail