This page has a written summary of the Bullion Direct Creditors' (341) Meeting. It is
what was said. If you have any questions, refer to the
. I skipped a bit that I felt was not very relevant (such as questions that
had already been answered). And I often paraphrased. I did try to take down important information verbatim, but please refer to the audio if there are any questions. In most cases, I included the initials or name of the spreaker; normally, if it is not shown, it is the person who was last identified.
The first column is the time, so you can easily reference the audio of the meeting.
DB: Contacted by Mr. Martinec mid-to-late June. First time he heard of BD. Had discussions with Chad.
Took 3 full days to see if potential of reorganizing.
DB: understood from meetings that not much money was left in accounts. Some coins in IDS vault, finally
understood some 60,000 customer accounts used in past 15 years.
DB: Goal was to get info on whether could reorganize. Frustration was could not get accurate financial info.
DB: They didn't have it. Balance sheets for all the companies had not benn posted since 2010; june 30 2010.
DB: No effective control, all they had was a bookkeeper.
DB: Appeared to never have an effective controller in the operations of the company.
DB: July 20 determined it was time to try to salvage company if it could be done. Otherwise, would deteriorate
further, Chapter 7.
DB: When things are bad with a bankruptcy, his company tries to make sure it doesn't get worse.
DB: Books they do have are with a multitude of cloud providers.
DB: Right after we filed [bk] forced to get a hold of the tax returns that had been filed, we got a copy of all
the tax returns that had been filed. Tax returns were filed through June 30, 2010 [fiscal year 2009]
DB: Tax years from July 1 through June 30. Got info on income/expenses and balance sheet.
DB: And in doing that we created and got a summary of all the expenses that were on the tax return and what
occurred between what was reported on the tax returns as income and expense and what was reported on the
tax return's balance sheet. And based on our analysis of that, that we finished a week or so ago, we
realized that this company was losing money from 1999, the day it started operations.
The only way I can say it is that it was a failed business plan or failed execution, one of the two.
The company's profit idea was to charge commissions 1%-1%. They assumed suffient to cover a lot of their
problems and operations. That 2% was not always there. Between 1999 and 2010 the price of gold was very
volatile and going to the upside.
One thing that occured is this company got involved in catalog sales. In an up market they can't buy the
items in the catalog in order to sell them to the buyer until they receive the buyer's funds.
In the 10 years we have tax returns for... 2007-2010 were most volatile, they had a gross margin loss of
close to $6M.
It was apparent this company had not fulfilled all its obligations as of that time, and they had a liability
on its books for what they see as notes payable, what they state on the tax returns as notes payable, for
what is really probably made up of unfulfilled liabilities. Unfulfilled orders.
The company spend a lot of time and money developing software on top of these other problems
Platform lacked sufficient internal controls to control what was actually going on.
The reason that we're looking at this company as a potential restructuring activity is that it
has created good IP. At point it can obtain exclusive rights.
Do no harm: so do not touch metal in vault. We only want to use the operating capital that is there
to obtain a clearer picture of liabilities/obligations and bk issues.
By time done, we've made it easier.
We are working diligently but not charging this company or Nucleo for it. Work with provider of the
IP to obtain exclusive rights (huh? Not Nucleo's?)
My company not billing Nucleo; if it works, we get paid, if not, not.
Any income from Nucleo could be "brought upstream for BDI"
Last 2 weeks, I've been contacted by a lot of the creditors that their amounts are not shown in the
obligations; thanks to those E-mails. There were a couple of fields we did not pull down for those
[JG: Actually, I alerted Bullion Direct to that issue before the first list was published]
Until we can get the court to agree on valuation of metals, we cannot say any claim is definitive.
That is reason for disputed amounts.
We are working with UCC who we met with yesterday, working with attys for other creditors.
DB: Bank accounts were operational accounts.
VW: If a customer paid for a product, would it go into one of these accounts?
VW: Records showing how attributable to customers?
DB: Yes, bank statements and a database...
VW: Schedules list 2 firearms, where are they now?
DB: One of them the 9mm is in one of the storage facilities we have. The other firearm is in the custody
of one of the employees that has left, a person named Randy Russell, and we are trying to obtain that.
VW: The debtor shows 100% ownership in NBD Holdings, LLC. What is that entity?
DB: It is a holding company entity that owns BDI mostly.
[JG: Nope, Bullion Direct owns BDI]
VW: So NBD Holdings is a parent company of BDI?
JM: I think it is a subsidiary of BDI.
VW: The interest in NBD is valued at $56,000, how was that value determined?
DB: That is based on a notes receivable that NBD has with a renter.
VW: Nucleo Development developed trading platform (DB: Yes). Did it have any other business besides that
trading platform? (DB: Not that I am aware of).
VW: How did the Nucleo accounts receivable arise?
That came from the funding of the development of the platform.
BDI paid for Nucleo's expenses for developing the platform.
VW: There is a $98,000 note receivable from Fort Worth Coin Co (DB: Not sure)
VW: There is a BDI Trust, with Charles McAllister as Trustee, do you know what that is for? (DB: Not yet)
VW: There is a potential claim against a person named Corbin Tuma, do you know who he is?
DB: He was from what we understand the inventory specialist at BDI for a number of years, he left around
2010 or 2011. There was a potential belief that there is a possibility that he may have stolen some
inventory, although there is no firm proof of it.
VW: What is the nature of the potential claim against Equity?
DB: Those are the companies that managed the IRA. The potential claim is that they were negligent in not
observing what metal BDI actually had in custody.
DB: BDI essentially had custody of the [IRA] metals that were put in its custody.
VW: And the patent that is listed, that is the Nucleo platform? DB: Patent in 2001, CM one of inventors.
Very beginning of when BDI got started. BDI owns patent.
VW: $115,000 of inventory, where is that located?
DB: That inventory has been shipped to IDS, so that inventory is currently at IDS.
VW: Claim against Natasha Bernal regarding American Express charges, do you know how those arose?
DB: She had a company American Express card, but I am not aware that there was an outstanding balance.
VW: You've listed a number of people on Schedule F as Website Claimants. What do you mean by Website Claimant?
DB: They were a claimant on the platform on the website of Bullion Direct. ... We do not know if they had
a potential claim or not.
VW: The $65K owed to Dillon Gage, was that for metals purchased by Bullion Direct?
DB: That is what was represented to us.
VW: Mr. Martinec, would you explain why the Website Claimants claims were listed as disputed?
JM: Normally in Chapter 11 you ask for accounts payable list, but that only contained office supplies
and things like that. They didn't have any books or records that directly related to that issue as to
the people who were customers of the website. The way they generated what they called obligations was
... it will have ounces designated in their books and records. Their records and books do not work for
JM: So you have this issue of what was the value of gold at the time they book it into their system.
We don't know the answer to that. And the question of whether the gold really exists is an entirely
different issue. ... In this case, there was no accounts payable list. Whether that was intentional, I
have no idea.
JM: We are working on filing a Schedule F not listed as disputed, contingent, or unliquidated so people do
not have to file Proof of Claims.
JM: We're not answering the question of whether they are there or not. Sadly, it looks like there is a lot
of it that isn't there.
JM: So what is the value, if you bought 20 ounces of gold, what is the value? We cannot just say unlaterally
that it is worth this many dollars, in part because I don't think that Bullion Direct actually owns it.
I think that to the extent it exists it is owned by individuals. either in allocated or pooled interest,
but we cannot make the decision as to which of those is correct.
JM: What we can do is by agreement, there is a judge's order... we'll then have a net figure that will
become the baseline number that would constitute your claim in this case. You can still file a Proof of
Claim if you object to it, but do not have to if you agree to the dollar amount.
VW: Mr. Bensimon, there is a Patrice McAllister listed on Schedule F, do you know if she is related to Charles
McAllister in any way? DB: We believe she is his wife.
VW: Co-debtors on American Express card, are those employees? DB: Yes.
VW: And there is a brokers' agreement with ... from 2014, are you familiar with that agreement? DB: No.
From what I understand they used different brokers to become... to help them do purchase orders and stuff.
VW: Going to the Statement of Financial Affairs, how were the income amounts determined?
DB: It was based on the sales commission, not the total sales that occurred on the website.
VW: And you testified that the metals that were here at 700 Lavaca have now been shipped to IDS, is that
correct? DB: Yes. [NOTE: Makes it sound like that was post-bk]
VW: Why did Richard Dacey get a financial statement in July, 2014? DB: I do not know.
VW: And the monies received by Mr. Plies stated that those amounts had not yet been determined...
DB: We have contacted, all the employees were leased employees, we have contacted the lessor, the lessor
is supposed to give us back that information.
VW: From April of this year through middle of June of this year a number of payments were made to Dillon
Gage, do you know what those payments were for? DB: We understand those payments were made for the purchase
of metals. VW: Were those contemporaneous purchases, do you know? DB: That's what we understand.
VW: Mr. Martinec, have you made any analysis of the payments made within 90 days of the bankruptcy which
might be preferences? JM: I have not. My analysis leads me to believe that that would be a good project
for the creditors' committee.
VW: Mr. McAllister received severance wages, who approved those? DB: I assume Mr. McAllister. I was not
involved in that.
VW: With respect to reimbursements to Mr. McAllister, do you know what the trips to Dubai and Italy were?
DB: I do not know. VW: Do you know what sort of vehicle Mr. McAllister drove, which caused him to receive
a car allowance? DB: I do not know.
VW: In the list of property held for other people, coins and the like, is there any way to attribute any
coins to a particular customer? DB: At this point in time we have not been able to do that.
VW: Reference to say a silver bullion bar of 10 ounces, could it be owned by one person? DB: It could be,
but we have no documentation. VW: So 10 people could each have a 1 ounce interest in that bar,
DB: For that particular bar we do not know.
VW: Do you have any estimate to the value of the intellectual property? DB: The debtor had an estimate
[JG: 'estimate' not 'valuation'?] done 3 years ago, and they came up with $10M. VW: Do you know who
made that valuation? DB: I can't remember. JM: I don't remember. DB: I don't know.
[JG: This was one of the very first questions on the list he was handed a day before the meeting....]
VW: And what do you anticipate Nucleo doing with its patent. DB: We expect Nucleo to be able to sell or
lease the intellectual property.
VW: Do you know if Nucleo has any debts of its own? DB: Nucleo has debt to NBD of $1,350,00, to BDI of $1,319,000,
accounts payable of about $5,000.
VW: Is there any insurance covering any of the stored metal? DB: Not that I am aware of.
VW: Did Bullion Direct invest in or make loans to Battery Outdoors?... NBFog? DB: I am not aware of any.
[JG: Um, Nucleo has $375K investment in NBFog on its books.]
VW: To the extent there is a difference in what customers believe they are owed and the amount that is in
BDI's posession, do you know what is the cause in the discrepancy in those amounts?
DB: We know there is going to be some discrepancy due to the cash shortfall the company had over the
years. Some due to losses over the years. Whether some due to other reasons, we do not know at this point.
VW Are you aware if any Website Claimants are businesses rather than individuals?
DB: There are Website Claimants that are Market Makers. 4 of them, actual businesses. Suppliers to BDI
for coins. VW: Do you know if Dillon Gage is one of the Market Makers? DB: I do not know, I could look
it up. [pause, no answer]
VW: Do you know what requirements BDI had to make sure that a persons' IRA holdings conformed with IRA
regulations? DB: I do not know. I do know that most of the inventory was held as a pool rather than as
an individual. VW: Are you aware if persons holding metals in IRA are entitled to any higher priority
than those holding outside an IRA? DB: I do not known. JM: I am not aware of any specific priorities.
I think there is a priority if someone takes your deposit.
VW: I understand that BDI had different Terms of Service Agreements. DB: That is correct.
VW: Do you know if customers were made aware of changes to the Terms of Service agreements. DB:
We were told that on the website people had to sign off on what the current Terms of Service was.
[Several in background: 'That is not true']
VW: Did BDI also accept precious metals purchases from other companies to store in IDS's vaults? DB: Yes.
VW: Do you have any idea of what that procedure entailed? DB: No, I do not.
VW: Do you have any idea of BDI's profits or losses after it stopped filing federal income taxes?
DB: We do not know that yet. If there were any profits, they were miniscule if any.
VW: I understand that some customers would purchase metals and take possession of the metals, other would
purchase the metals and then have it held by IDS, is that correct? DB: Held by BDI.
VW: Do you know why IDS got involved? DB: We were told that BDI wanted to move its vault out of Texas due
to personal property taxes.
VW: Have you seen any indications that there might have been 2 sets of books? DB: We haven't seen different
sets of books, we had a hard time just finding one set of books.
[JG: Um, usually a 2nd set of books is not obvious!]
VW: Are you aware of any government agencies investigating BDI or former officers/directors? DB: We've heard
rumors, but personally I am not aware.
VW: All right, Mr. Martinec what do you see next in this case? JM: I have drafted a proposed motion that would
in essence allow us to reschedule all those claimants by an agreed valuation so we could list them as not
being disputed. I can see an interesting dynamic here when Mr. Bensimon says he is told something and
someone yells out 'that is false' That could be what Mr. Bensimon was told was false, or that he was not
told it. I wish they would be more precise.
JM: When Mr. McAllister showed up, he showed up without any employees, without any direct full access even to
the database. We received the information that [Mr. McAllister] chose to show us. ...
We believe there is other information out there, but we haven't received it. We may very well want to
interview some of the people who believe that the truth isn't being told.
VW: VW talked about creditors' committee.
VW: Unsecured Creditors' Commitee acts like a funnel between all the unsecured creditors and the debtor
and the bankruptcy court.
Mr. Moore ("M:"): There just simply aren't enough assets at this point to continue in Chapter 11 in the long
term unless we can get this initial licensing deal done for this wet ink signature. We will be signing
an NDA so we can see the letters of intent and vet the deal on our own. If that deal gets done, we get
some cash to figure out how further to proceed.  Give back to creditors,  fund litigation and get
forensic analysis of where funds went,  finalize software platform to see if we can get it to a point
to maximize value of asset.
M: Rest assured that creditors are skeptical of what can be done here, but on the other hand we do have
an apparent valuation ... $10M, $6-7M sunk in, to let it completely go might not be the wisest thing to
do. Serious questions asked of Mr. McAllister and others of what happened to the money.
M: Based on our understanding, slowly lost over 15 years, doesn't speak well of finding that the gold
is buried somewhere. Chance of quick recovery through litigation minimal.
M: Initial sale will be done within a few weeks; we'll know if this will be a viable Chapter 11. If not,
I'm afraid it will conver toa Chapter 7. In Chapter 7 it would be a long time before anybody gets
JM: I'd like to note again that the creditors' committee serves a very important function. ... I welcome the
creditors' committee. I know from the E-mails I've gotten that some creditors assume that anyone who has
even met Charles McAllister is suspect. ... Everything we see will be available to the creditors' committee.
JM: ... E-mails that you have been sending me, very personal and insulting, based on absolutely nothing other
than anger, which I understand. But anger won't get you anywhere. You need to know what the facts are.
JM: We've got a guardian angel over here or somebody, a probation officer if you wish, that is looking,
watching what we're doing to make sure we are doing what we can do, we've been doing it right, shooting
straight. We're all for that. There is not an adversarial relationship between the creditors' committee
and the debtor in this case
VW: Gets creditors to come up.
RB, a top 20 creditor by amount. I am not on the list of top 20 creditors.
JM: Some people are on E-mail list, but not schedules.... we want everyone on the list who should be on the
list. We are relying on the books and records provided by Mr. McAllister, and so far he has proven to be
significantly less than entirely credible.
RB: How many vaults were seized? DB: I am not aware of any. RB: Didn't the FBI seize workings of
Bullion Direct on June 20? DB: I am not aware of that. RB: What is the status of the FBI's case?
DB: I don't know, I haven't talked to the FBI.
RB: Can you give us an estimate of the current assets? DB: Aside from IP, only assets really what is in
the vault, about $700,000.
RB: Will IRA accounts be handled differently than regular accounts? DB: As of this time they are not being
treated differently. We will have to investigate to see if we have to treat them separately.
RB: Will the Top 20 Creditors List be re-issued? DB: ... it will be issued.
RB: I called the court and asked if I was on the Top 20 Creditors List since it was blacked out
[JG: That was likely the redacted copy I posted, the original was not redacted]
DB: We've done it account by account, maybe by not consolidating those accounts...
[JG: It's one listing for cash, one for the metal, apparently not combined by DB]
JM: 20 largest is primarily for selected creditors' committee.
VW: We have 3 members on the committee. We like having an odd number to prevent ties. We try to get a
good cross-section of claims. I Will not be reconstituting the committee.
Jim: May 28th check cashed, apparently after product stopped being shipped. Did someone advice Charles
McAllister to stop the checks? DB: I didn't meet with Charles until June 16.
[JG: He was apparently shipping until about June 12]
Jim: Is it reasonable to assume that he knew at this point he could not ship?
DB: We never recommended that, we did not know those things were happening.
Moore: I'm going to try to get a website set up.
JM: We're going to try to do that. Point to get access to accounts. People are contacting me saying
they don't know if they are on Schedule F or not, they do not seem to have access to the document
[JG: Well, that's because I didn't publicize it, so people wouldn't get confused by 'disputed' and
think they were all set]
JM: If we can send out the document via E-mail, we will.
Jim: Is there any knowledge of payroll taxes that may be due? DB: Lessor said everything paid up to date.
JM: IRS filed a claim for $2M, but they do that. DB will be responsible for getting tax returns up to date.
Jim: Do we know the total value of the website claimants? DB: No, not until we determine how to value it.
[JG: But, they did for Top 20. And even if they choose a different date for the spot price, they can givbe
a good ballpark guess -- I already had].
DB: We do believe it is in excess of $15M.
[JG: Yes, in excess of $20M]
Jim: You mentioned severance payments. Do you know the amounts? DB: ~$35,00 to Charles McAllister.DB: We've been able to reconcile everything that has been given to us [unlisted creditors].
LM: I'm Dr. Louis McCann, chairman of the creditors committee.
George: I'm an IRA holder with Bullion Direct, or at least I think I am.
2-3% return, that would be for a Chapter 7, correct? [Moore?] That might be closer to best case
if we are able to get any money back from Mr. McAllister. Divide 33 million (owed) by $600,000 (assets)
and I think you get 2-3%.
George: So it's closer to $30M than the $15M just discussed. Moore: That's just what I am going on, I'm
not an expert so I don't know.
[JG: The $15M is DB's value of the metal, which was more like $20M; the $33M includes cash. It's now
very different, about $24M total owed, mostly metal].
George: IP/Nucleo question. ?: The debts do not necessarily equal the assets.
$10M value, these debts expand the value? JM: If you liquidated Nucleo, creditors get paid first, most
$$$ would flow up to BDI. Aside from a few thousand dollars of debt, rest would upstream to BDI.
JM: These are international companies we are dealing with, we are getting NDAs signed to show to the
JM: The transaction has been going on for like 6 months. Mr. McAllister was right in the middle of it.
I think he knows the third party that would be the buyer in essence from Nucleo. There are licensing
rights that would flow into nucleo and out to this third party. I believe he knows someone there at
the final destination. If we can get those transactions completed it will create some cash flow.
JM: It's important to know that we talked about this yesterday is that when the buyer discovers that
they are no longer dealing with Mr. McAllister and that the parent company is in Chapter 11 we don't
know what effect that will have on the negotiations. If that doesn't materialize, the value of the IP
becomes liquidation value, and its value is going to be greatly depleted.
JM: DB felt that the transaction could be beneficial to BDI, but knows it could fall apart.
DB: There are 2 IPs we are talking about. There is the actual rights, resell rights. Then there is the
website platform, it is very customer friendly. Allows many things that other websites do not allow.
We have been able to reconcile everything with that platform, it keeps great records.
Platform has significant deficiencies, lack of reporting controls. To make it successful, we have to
 Overcome stigma of BD going under, and  correct those deficiencies. $250,000 investment. Should
not be made until first IP one makes up for it. Good fulfillment capability, few have that.
DB: Could assist startups batching products, something almost every vendor is concerned about.
VW: Mr. McCann, I have saved you for last, because you will have plenty of opportunity to talk to
Mr. Bensimon and Mr. Martinec.
McCann: I apologize if I came in mad. The bad guys are not in this room. We need to find the most cost
effective way to recover anything we can. Like you, I am a creditor, lost a lot of money.
DB: I feel sorry for the losses that have occured. I fight for creditors to get everything I can.
I usually get an answer from JM within an hour. My Q is right now website is still running, and my info
is all in there. Will it keep running? DB: We have made everything non-operational. At some point in
time we are going to cut that off too. JM: One problem is that everyone would go to website, go into
the program, ask to be shipped. It was on autopilot. No employees since May/June. We tried twice to
get feature turned off.
JM: It wasn't the websites fault that people lost millions of dollars.
?: Creditors committee, you might want to tell everybody how they can contact you, you are sending
out E-mails. Moore: I like to talk to everyone as long as they need to. 512-703-6325.
Moore: I'm hoping to get a claims processing system. Chapter 11: at some point we're going to have
to have a class of creditors vote for the plan.
JM: We have been struggling on how to send out E-mails that are not pleadings. We have sent out what
we call a general comment, where I was trying to give people an idea of what was going on.
JM: I know it is difficult for people to figure out how to fill out the Proof of Claim
[JG: Yeah, because I haven't posted anything, because it shouldn't be done at this point]
because even the online instructions doesn't fit this bankruptcy very well. We wanted to give you
specific instructions, but wanted the input of creditors' committee. I think in the near future
we will be able to send out something of an agreed tutorial on those issues.
[JG: That would be great. But it's been a month since you said that, and nothing.]
DB?: Just as a point of information I received 93 E-mails and answered them this past week. I have come
up with something that I have been sending out to everyone, but it is outdated. We need a website for
someone to go to. I guarantee this guy [JG: which guy?] cannot go it alone.
JM: We would like to see a lot less confusion. There are some people out there giving you advice, some
of it is good, some of it is not. I am not going to authorize you to go to a website and take legal
advice from a blogger. The blogger might be right. But the problem with it is that you get what you
pay for to some degree. And if we and the creditors' committee can agree on the instruction I think
that would be reliable. And it may be the same thing the blogger is saying. Just be cautious about
taking advice from people who don't really have official advice.
[JG: For the record, I haven't given out advice on how to fill out the Proof of Claim form (what Mr.
Martinec is talking about here), I have suggested people contact him for details.]
?: One final question. Are you able to keep the creditors involved in felony prosecutions? ?: That
would be part of the website.
David K: I found my name on the last schedule. I didn't have activity back to 2012. On August 8, 2013,
internal transfer of my product for some reason. Took everything I had, 'system migration to new
portfolio structure', never got an E-mail. DB: That's when they put in the new stuff for the website.
They did that, as I understand, because of the website upgrade.
Moore: I don't represent individual creditors. For example, there are boxes on Proof of Claim form,
like security and priority, I cannot let you know if you have those rights or how to assert those rights,
they play one creditor against another. I just want to get as much in to the estate as possible to
distrubute to whoever.
JM: We do hope to create some guidelines [for the Proof of Claim form].
Tim W: Do you know what Lloyds policy covered? JM: Covered product in possession of Bullion Direct
for the vault. At one time, had their own vault. I think it covered metal at IDS vault. Only recovery
has been for missing shipments. Policy may or may not be helpful. We were told it was cancelled by
Mr. McAllister shortly before the case was filed.
Tim W: Do we know the volume or weight of those metals? JM: IDS provided inventory. We know what is in there.
We do not know who owns those coins.
Tim W: And regarding internal controls needed, can you describe those?
DB: When CC is entered, the platform doesn't maintain the cash balance for the whole day, so you cannot
reconcile with the bank statement. Second, portfolio balances are generated for a different day; they
should match inventory lists. Could manipulate stuff in inventory. Last, if customer service makes
adjustment, exception report to be viewed by management. Needs to be in system.
When will audio be available? VW: If you want a copy, send a blank unused CD disk to me [VW]
Tim W: You said there were substantial losses due to catalog sales and raising metals prices.
Can we assume Bullion Direct was selling these metals without having them in their possession first?
DB: That is what we believe.
VW: My guess is it was not legal to sell something you don't have.
Ron: I purchased metal, stored it, based on representation that it was allocated, not asset of Bullion
Direct. I think that it should be referred to criminal side. Proof of Claim: if I file, it represents
amount I sent to BD. That could differ from amount you arrived at.
JM: I cannot tell you which is the correct number, both are plausible, I guess you would file for the
higher number, see if anyone complains ("That is not advice, just a comment").
Ron: Is it correct I can log on to account... record of dates... could calculate price of old coins.
JM: In early discussions with creditors' committee over what date for valuing metals, Equity Trust
sent out statements with value attached to that, do we agree on a common standard?
JM: If you want to take a higher claim, you should talk to a lawyer to determine if the cost of the
higher claim is worth the possible expense of contesting it.
Ron: Does the database have a suffient record to determine what the offering price was?
DB: There are 3 different prices you can use. We have to figure out which index everyone is going to follow.
JM: Unless Nucleo works out, you are hoping for single digit percentages, so don't let the lawyers have
it [e.g. due to litigation over which spot price to use].
Ron: I would like to ask about the intellectual property. DB: It's a function patent. Those patents
are very good, but don't really protect the intellectual property because people can use a slightly
Ron: You mentioned a valuation, how was that arrived at? DB: The company hired an outside firm, I think
it was from Dallas, who reviewed this and made a calculation that if you went out an sold this, how
many times could you sell it through licensing, and how would you go about it and the costs of selling
it and so forth. And they came up with I think it was 9 times sales for the valuation. JM: It was a
very colorful report.
Ron: Has there ever been an attempt to assert it. DB: There has never been a challenge to the patent.
Ron: Has Bullion Direct ever attempted to apply the patent rights against another company. DB: There
are a lot of trading sites out there, and they all operate differently. The beauty of this trading site
is that it allows fulfillment to be done fairly accurately and allows good customer service. eBay
and some other trading sites are not based on transactional.
DB: eBay was used on large transactions, that is how it got started. eBay uses a lot of different
mechanisms than this.
DB: It would be a great website for someone who buys and refurbishes airplanes. Antique cars, that kind
of stuff. Not for everything under the sun.
Ron: Is your restructuring plan to try to license... DB: It is two stages. The most important thing is
to generate cash flow. Gives you options. First, capitalize on ability of Nucleo to become an exclusive
licensee of a process that is not in place for the global market. We have a letter of intent, close to
finalizing agreement. Agreement is important. If we can use that technology, there are two customers
that have approached us (one now, one down the road). We have a letter of intent with them.
DB: If we can make that work in the next few weeks, the potential of generating thousands of dollars
per month that will assist the case. Lead to a potential of a million or more per year that can be
generated out of that. The potential is real and is there if we can execute it properly. If that
occurs, it opens up the ability to modify the platform and have people license this platform. We don't
see selling the platform as being profitable, we see the most potential in licensing it.
Ron: Would a portion of that income be used to... DB: It depends. We have visions, but don't have it
out on the table. The plan would show how that money would flow. We see a significant amount of that
money going to the unsecured creditors. We understand businesses need management and other things to
work, a portion of the money would be used to attract new investors and management.
DB: I am currently president of Bullion Direct and I am also President of Nucleo. I am the one who is
starting to negotiate contracts. Nucleo will pay me when it has money. We are putting some skin in the
Randy: Question about customer status. DB: We are treating all customers the same, as unsecured creditors.
VW: Adversary is lawsuit within a bankruptcy case, it is much more complex than just a motion and a hearing.
JM: It does not answer who owns metal in the vault, allocated or pool. Proof of claim does not go into
whether you have any ownership of what is in the vault. If you do recover something from the vault, it
would be deducted from your claim. When filing a Proof of Claim you are not giving up any claim to any
metal you may have in the vault.
JM: We're back to if it isn't resolved by November 23rd, and it hasn't been extended, I think you should
probably file a Proof of Claim. That's just my opinion. ... But if for some reason it doesn't get resolved
by November 23rd, [I'd probably advise my clients to file a Proof of Claim?].
Laura Fontain, attorney for Dillon Gage and IDS. Are you still in touch with Chad McAllister?
DB: Occasionally, yes. LF: Is he cooperating? DB: Yes. LF: Does he have his own attorney?
DB: I would assume he does. LF: Is he willing to sit down for a 2004 exam? DB: I've never asked him that.
JM: One of our issues clearly has been, like him or not, he is the only one who has the keys. So when
we were trying to figure things out we obviously had to ask him a lot of questions, and hope we could
verify what he said was true.
JM: We elected not to sue him on day one because we thought that would cut off the information. I think he
and his lawyers understand that all of this is coming.
LF: Are you still in touch with any of the former contractemployees of Bullion Direct?
DB: The only one I am in contact with is Natasha, who is the bookkepper. She is assisting me in trying
to get information out of the cloud. LF: Have you contacted any of the other employees? DB: I don't
know which other employees you are referring to. I did talk to Bradley Plies before we filed, I have
seen him once since the time of filing. We did have discussions about the database and how it works.
I don't know what you mean by other employees. I haven't talked to anyone else.
LF: We've heard a lot about the changes to the website in 2012, but do you know if they changed the
way they did business at that time? DB: We do not. LF: Do you know if Bullion Direct was ever purchasing
metals in advance of the customers requesting delivery? DB: I do not. They did not have inventory per se
of their own.
LF: Was there any time Bullion Direct was keeping enough metal in its possession to cover its obligations?
DB: The only time that it had inventory metal based on the tax returns is 1999. After that it did not
have any inventory.
?: I wanted to ask about the Nucleo exchange. DB: Nucleo Exchange is the name of the platform.
DB: The patent was not valued, the actual platform, the actual website that is used was. We're not
talking about the patent being able to be sold at that price. It was valued not as it was being used by
Bullion Direct, but as it would be licensed or through a sale. They took three years worth of sales, and
used a 9 multiple of that, on the average net income for those three years.
?: A website like this could be built for a few tens of thousands of dollars, these are cheap things to do.
You could have one built on elance for $10,000 and it would be perfectly fine. JM: So you are saying if
there is $250,000 available to improve this one, we would be better off giving you the money to build a
new one. ?: [Laughing] No, no. JM: I'm not joking.
DB: This platform can handle millions of transactions. To do that, communicate directly with E-mail, be
able to control the security at a certain level becomes more expensive as buying increases. For $10,000
I don't think it would be able to handle millions of transactions right off the bat.
DB: Trading websites are becoming more popular. Someone really wants to get into a company doing a lot
of trading activity. Not a startup someone is putting $5,000 into, it's going to be something a lot
bigger. There is some value there. There is an ability to transfer that value into some financial gain
for the unsecured creditors.
DB: The maintenance costs would be around $8,000 a month. It is all contracted out, there is no storage
in house. Most of those contracts were terminated prior to bankruptcy.
Pete: I've been a customer of Bullion Direct since 2009. I have an IRA account. ... What I'm saying here
is I'm coming up short given the material that is supposed to be held in an IRA account, allocated
storage, isn't present. JM: And? Pete: Can't find it. We need to find it, what happened to it.
I'd like it if Bullion Direct could reorganize. Creditors would become equity shareholders, so might
as well get some stock. [Discussion of running business as it is, DB: 3-4% margin needed]
DB: A couple competitors. But nobody doing the kind of volume that Bullion Direct was doing.
Pete: The IRAs were supposed to be allocated, insured, is that just smoke? JM: Didn't cover someone
selling out of vault inventory. We have at least 2 policies, need to get someone to check out extent
of coverage. Doesn't look it to me, but there are special rules for insurance policies. Mr. McAllister
appears to have cancelled that policy somewhere toward the end.
JM: There's some magic out there that relates to that. There is a fully, as far as we can tell, paid up
existing general liability policy that could be as much as $5M. But the question is going to be what is
it intended to... if that $5M can come in to creditors, that's great.
[Discussion of $10,000 of coins in gun safes at 700 Lavaca, for 24 customers to be returned]
[Discussion of IRA accounts, 2004 depositions]
JM: One way of reorganization is basically equity->debt swap. Offer creditors stock rather than cash,
especially if cash is non-existent. Needs to be explored.
JM: "Secure Packaging" is what Nucleo is looking to license short-term.
DB: If you cannot agreement on management [Equity->Debt swap], it creates a problem.
DB: Figuring out volume, what your commission has to be. Are you buying business? Right now, it's just
Google. Those discussions guide the company. With a diverse group of creditors, it creates a lot of
DB: If you don't have inventory, there's a problem. They did not have inventory. They had $75M of activity
with an average of $1,000 per transactions. 750,000 transactions. Did they have inventory to support
1,000 transactions a day? I know they didn't have inventory to cover that.
JM: We've had preliminary phone conversations with Equity, and they probably told you what they told me,
that is, that they have no liability.
David: Based on discussions about proper cost basis should be for claims, will you be consulting with
some sort of tax professionals, because likely the best we will be able to get out of this is being
able to write this off on taxes. Will this be compliant with IRS standards, whatever you come up with?
JM: It's usually part of a disclosure plan process includes an analysis of the tax effect on creditors.
David: I am not familiar with schedules. Where is my claim in schedules to verify?
Moore? There is currently someone who has posted, I don't have the URL, but you can post. JM: about.ag.
Moore: They have posted a full copy of the schedules that you can download for free there rather than
having to go through the courts.
David: I want to make sure that you consult with tax professionals and whatever you come up with is in
compliance with the tax code.
[JG: I'm not an accountant, but cannot see how Bullion Direct can affect the tax basis here]
Moore: Basis is a done deal. DB: If there is a trust set up, with creditors as beneficiaries, if that
basis is different than your basis, that is an immediate tax deduction. If they don't recover 100% of
that basis by the time the trust is over, you again have a recovery tax-wise for the difference.
David: I had some initial consultations with some tax professionals and they thought the basis should
be whatever the value of the assets was on the declaration of the bankruptcy. DB: That would be the
value for the new trust. DB: Your basis is whatever you paid for it.
JM: Lots of people have said that they love the website, generally complementary
[JG: I think they really meant that company itself, the website was just part of that]
It's about.ag? Is it run by a new group? JM: Joshua Gibbons.
George. Wants to use spot price as of a certain date to determine what creditors are owed.
Reliability of Bullion Direct website in question, I've done 150 transactions, I've never found a time
when transactions were not flawless. Actual books in shambles perhaps, but Nucleo product is pretty
JM: When I wrote this, it was very unreliable.
George: I thought maybe you guys didn't understand [that specific coins owned, not just ounces].
DB: We can determine what the exact portfolio is for each customer.
It sounds like Proof of Claims would chew up a lot of assets. Why not just use the database?
DB: That's what we are doing. In the first schedule we took the portfolio value, but it only tells you
the metal, not the value of the metal.
DB: What we did wrong int he first schedule is we didn't take in a couple of fields. One was catalog
orders that had been paid for but had not been shipped. We're going to test that new schedule against
all the complaints we have had so far. We're probably going to find mistakes again and issue it again.
We should have that schedule by November 23 and people should not have to file Proofs of Claim.
DB: If not done by then, you should file a Proof of Claim.
George: I read that there was some doubt as to the ownership of metal in the IDS vault. Was the ownership
disputed between several parties? DB: No, the issue is that there is not as much metal as in the portfolios.
We know that gold belongs to the customers, we are debating which customer it belongs to.
By the way, I'm impressed with the job you have done so far. It sounds like you learned it pretty well.
Please work with the FBI. I would argue that if wrongdoing is found we could pierce the corporate shield.
Their houses, cars, etc. should not be shielded if there was criminal activity.
DB: There are obvious issues out there. At this point we are more concerned about getting records, and
trying to get cash flow into the estate.
DB: What is always important is having sufficient cash to keep your options open [e.g. re: lawsuits to
Atty Kimber Powell? You don't really have any insight into the standard procedure for how the company
took orders, identify particular metals for that customer? DB: 90% of the time we've seen the company
would take a catalog order, it would fulfill order with funds it received. In normal cases within 14-21
days it would be shipped. That changed around March, 2015.
The 10% of the time they could not fulfill it. That was an issue. What may have happened is that they
took inventory belonging to another customer and used that to fulfill the order. That appears to be the
Powell: I'm not sure of your access to the vault. DB: We haven't been there. JM: They sent us an
inventory, we have an agreement, no metal goes out without our approval. Nothing is designated by
[discussion about what if there were unique items that obviously belonged to just one customer]
Atty Steven Shultz. The creditor he represents sent him a list of questions, most have been answered.
Did Bullion Direct report to other IRA custodians? DB: We have no record that they did.
SS: Will Bullion Direct go to IDS' vault to do their own due diligence to see what is inside the vault?
DB: We have not contemplated that at this time. JM: Processes like that, doing it without the cooperation
of the creditors' committee may result in duplication. If everyone thinks it is appropriate, someone will
SS: There was inventory on Schedule B. DB: Some of that inventory was shipped to IDS. There isn't really
any substantial inventory at 700 Lavaca. SS: How is the inventory different than all of the assets
reported on the stipulation? DB: It's a list of what was on hand, not actual inventory, it is held for
DB: Nobody has the authority to modify transactions. JM: E-mail communication is there, we just cannot
receive it yet [bills not paid].
DB: Our intent is to download the entire database by the end of this month.
SS: Did Bullion Direct have a disaster recovery plan? DB: Until recently, they had some backup servers
at storage facilities. Cloud offers double-backup.
SS: As of now, you don't have access to that backup.
Atty: Peter Ruggerio. I appreciate your efforts. You took oath, correct? DB: Yes. When was the first
time you met or talked to Chad McAllister. DB: Sometime in June, probably 18th, 19th, 20th. 2015.
PR: Are any of the conversations you had this year recorded in audio format? DB: No, unless he recorded
George: Please open up account history page, needed for tax purposes. DB: We closed that because people
tried shipping their gold, and would get charged. Bradley Plies cut this off. I was told it would cost
money to do something different than just cut it off.
George: Should take about 10 minutes; guessing for someone who knew code an hour or two.
JM: My impression is that Brad was lead programmer. We were contemplating hiring him. He went and got
another job, his availability became a serious problem. That may be worth the hassle and money.
Atty Jim Hoeffner. Yesterday I and several other attorneys met in Mr. Martinecs office, and you were
there and answered some questions. I remember you saying this was a flawed business plan from the
inception. What do you mean?
DB: When I look at tax return, it was just developing a software package, spend several million to build
it, incurring admin costs in range of $1M+. Those together do not fit concept of charging 2% commission
on $40-$50M sales. And, didn't maintain inventory, put company at risk.
DB: We can disclose salaries to a certain point. JM: That information isn't available to a certain
extent. This is from tax returns filed by BDI, maybe cannot be trusted.
JH: I just distributed a summary tax return by year dated Sept 16, 2010. Does this appear to be a copy
of what you furnished me yesterday? DB: It is. JH: Do you know who prepared this? DB: This was
prepared by their tax person in 2010. He did all these returns at the same time.
JH: When we go down the line to the taxable income, when we go to 1999, it reflects $147K loss. If we
sweep across, we only see 2 years where it had taxable income, 2002-2005. Go to summary re: taxable income
for previous 11 tax years, it has loss of $16.8M. This is a smoking gun of a flawed business plan.
JH: Compensation of officers is compensation of Mr. McAllister, correct? DB: That is my understanding,
correct. He took home $1,554,093. Salaries and wages were for other people. Did Mr. McAllister tell
you anything to the effect of when he started getting worried about matters?
DB: Remember, none of these returns were prepared until September, 2010. In my discussions with him
indicated that June 30 2007 ("2006") was the year he became real worried about fulfillment.
JH: If we go to balance sheet, we see loans to shareholders. Who was shareholder receiving loans?
DB: 2 loans to Mr. McAllister, 1 for a house $900K, that transaction was supposedly negated in 2011
when they sold the house and we have given Jesse information that relates to that.
[JG: The house sold around Dec 2009...]
The other one was when the tax financial person did all this work, that person estimated that $500,000
of the reimbursed American Express card expenses were over-reimbursement to Mr. McAllister, and that
was a loan to Mr. McAllister
JH: 2004-2009 I added up $2.5M in loans. Was any paid back by Mr. McAllister? DB: This is an accumulation.
A build-up, not adding. The bulk is the house, which was resolved. The buildup of the loans from
$84,000 to $500,000 more is all the over-reimbursed American Express. That $500K is still due today.
DB: We've been told that the $500K that is outstanding has not changed since June 30, 2010, but we do
not know that for a fact.
JH?: Do we know of any other allowance that Mr. McAllister received after the 2009? DB: I am not aware
of any. JM: The in-house transaction appears to have been completed in 2011. (?)
JM: Where I think Dan gave the impression that the $900,000 related to the house was resolved, that is
what we were told but we don't actually know that.
JH: Salary after 2009, we do not know? DB: In 2015 was around $300,000 not including severance.
We believe his income was $250K-$350K category.
JH: Mr. McAlister, he left town 2-3 days before the bankruptcy was filed, correct?
JM: He has been back and forth. He left town very dramatic(?). He moved to Auburn, AL, where his
daughter is in school and he says his wife had a teaching job there. He has been going back and forth
from what I understand.
JH: He did this immediately prior to the filing of this bankruptcy. JM: You're trying to make a causal
relationship that I don't know whether it exists or not. He left, he moved to Auburn, AL sometime in
that period. I know we have extradition treaties with Alabama.
JH: Part of the impetus for this move was his daughter going to Auburn and him wanting to be nearby.
[JG: Doesn't make sense; he lived in Texas, his other 2 kids in Texas. Just one went to college in Auburn]
DB: They also wanted to move before the school year, he has 2 other kids that go to school there, instead of
transferring them out. Part of the reason he explained to us he was moving at that time was because of
the upcoming school year and his wife had a job "lined up." That is what was represented to us.
JH: It was alluded to that Mr. McAllister has retained 2 attorneys, their specialty is criminal law.
JM: We all recognize the lawyers as being criminal lawyers.
JH: Have you been able to determine if Bullion Direct furnished the retainers to these attorneys?
DB: I have not been able to determine that as I do not have access to the books yet.
JH: Presently your work for Nucleo is free, is that correct? DB: I hope not. Presently I am not being
paid for it, there is no cash outlay to me. JH: You are not charging the estate, correct? DB: That
is correct, I am not charging the estate for this. JH: From an incentive standpoint, what is the
incentive for you to go forward with Nucleo? DB: The biggest incentive for me is that I think it is
going to work. I am in the waning years of my career. It would be beneficial for me to have a few more
JH: And if there is a success, would you be looking for money? DB: The agreement on Nucleo allows me
to... I expect to get a monetary reward for that, yet. JH: You're willing to put some skin in the game
because you think it is going to work. DB: Yes.
[JG: Well, sory-of: He is getting paid a'plenty for his work with Bullion Direct.]
JH: It is my understanding that the debtor is willing to turn over any and all causes of action it has
against anyone to the unsecured creditors' committee, is that correct? JM: It is not my call, but that
is our intent.
JH: On the statement of financial affairs, question #1, gross income. DB: This would be gross margin
in essence, based on commission received in those years, not gross receipts.
JH: Right now, Mr. McAllister has withdrawn as director, officer, employee. He is totally gone now.
JH: In regard to the storage with IDS, do you have a storage contract that you have found? DB: I
have not seen the storage contract, just the unexecuted storage contract from joint stipulation.
Louis McCann Jr. Chairman of Creditors' Committee. I did the same things everyone else has done, I
had an account with Equity International. At no time did anyone represent to me that the relation
I had with Equity, Sterling, or Bullion Direct, had 3 of its people to move my coins or hard assets
from one facility to another or to sell them or trade them or do anything else. They were supposed
to be in the vault and secure.
I believed that to be true because I had sold some gold and silver I had purchased in the early 1980s
and 1990 through Bullion Direct and Nucleo Exchange and it seemed to work fine.
[JG: I think he meant early 2000s and 2009]
The idea that suddenly a new agreement occurred in 2012 because they posted something on the website
is ridiculous. That was not the way I set this up. Not the way it should have been done.
On June 30, 2015 I received my quarterly statement from Equity International, it clearly says I have
$253,000 worth of gold, silver, and platinum yet in the filings for the bankruptcy proceedings I am
listed as creditors #5 or 6 as $226,000. What happened in that period of time, why did it go down from
$253 to $226? That's a difference of $25K-$35.
McCann: This Exhibit B listed coinage that has specific notations. Some of the order numbers, one of
them was 2ABC23UCP. GCCM100 this guy received 10 of those coins on June 15 2015. I owned those coins
in my account with Bullion Direct. How did Thad get my coins? I have other coins like that.
DB: You know it came out of your portfolio? McCann: Yes, sir, they did. I want you to go back and
see these transactions. I had basically about 15-20 coins out of 215 coins that I can identify.
I would like to know, there is an entity called BDI trust. We don't have any records or access to
BDI trust. I want info on it, and how to pierce the corporate veil and see if they have any of our
JM: We have requested a copy of the trust on numerous occasions, never a refusal. We have some
records with R.J. O'Brien where BDI Trust was funded to the tune of something like $1M to do hedge
transactions. The most recent statement ... $10,000. We were told the beneficiary was Bullion
McCann: I'd like to know any names, addresses of people involved with it.
Corbin Tuma, do you know where he is? JM: No, we do not. Nor do we have an explanation as to why if
they thought he stole from the Austin vault at 700 Lavaca why they never filed criminal charges
against him. DB? We know of no associations between him and any other organization. JM: After
the accusation was made, I don't know if he left after the accusation was made, or if it was
JM: It was said 'there was a suspicion he stole from the vault.' DB: This was years ago.
McCann: Sterling or BDI had Lloyds policy, did Equity? JM: We do not know. Our impression is that the
contract is between you and Equity; you would make claim you can assert. McCann: they said custodial
account. I don't why I paid them anything unless they controlled the gold silver or platinum, controlled
the vault or knew what was in it.
JM: As you know there are some cases out there. They are not the same. I talked to an attorney today
who feels there is a strong case against Equity.
McCann: There is a name I first heard today, a Patrice McAllister, the wife of Charles. Is she a
shareholder of Bullion Direct? DB: I don't know.
[JG: I do know, off the top of my head. She is not.]
McCann: The other gentleman's name was Vivek Katyal. 40% shareholder. JM: Yes.
McCann: None of these [shareholders] had control over assets? JM: Our conclusion is that Vivek
may have had involvement as late as 2001, none after. They did private offerings, showing management
team, brochure with McAllister and Katyal as managers. But Katyal not after 2001.
McCann: What was the relationship between Katyal and McAllister? JM: I don't know. I'm guessing he
was an advisor to McAllister.
[JG: No. He was not an advistor; they were college buddies that ran a coin store for years before this.]
VW: Thank you for serving on the committee. Any more questions? No more questions, so I am concluding
this meeting. 5:03PM.