Arista Records LLC et al v. Lime Wire LLC et al

Filing 309

DECLARATION of Anthony M. Lendez in Opposition re: 242 MOTION for Preliminary Injunction Freezing Defendants' Assets.. Document filed by Mark Gorton, Lime Group LLC, Lime Wire LLC, M.J.G. Lime Wire Family Limited Partnership. (Klausner, Tonia Maria)

IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK ARIST A RECORDS LLC; ATLANTIC RECORDING CORPORATION; BMG MUSIC; CAPITOL RECORDS, INC.; ELEKTRA ENTERTAINMENT GROUP INC.; INTERS COPE RECORDS; LAFACE RECORDS LLC; MOTOWN RECORD COMPANY, L.P.; PRIORITY RECORDS LLC; SONY BMG MUSIC ENTERTAINMENT; UMG RECORDINGS, INC.; VIRGIN RECORDS AMERICA, INC.; and WARNER BROS. RECORDS INC., Plaintiffs, v. LIME WIRE LLC; LIME GROUP LLC; MARK GORTON; GREG BILDSON; and MJ.G. LIME WIRE FAMILY LIMITED PARTNERSHIP, Defendants.
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06 Civ. 05936 (KMW) ECF CASE

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DECLARATION OF ANTHONY M. LENDEZ, CPA, CFE, CFF IN SUPPORT OF DEFENDANTS' OPPOSITION TO PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION FREEZING DEFENDANTS' ASSETS Anthony M. Lendez, CPA, CFE, CFF being duly sworn, deposesand statesas follows: Background and Scope 1. I am a partner of BDO Consulting, a division of BDO Seidman LLP ("BDO"). I am a

Certified Public Accountant and Certified Fraud Examiner and also have the designation of Certified in Financial Forensics. I have over 30 years of experience in accounting and

-2auditing. I have worked as an Audit Manager for KPMG LLP where I was responsible for performing audits of companies in various industries, including companies registered with the U.S. Securities and Exchange Commission ("SEC"). I have also worked as a Technical Manager for the SEC Practice Section of the American Institute of Certified Public Accountants where I investigated alleged audit failures involving national and local public accounting firms. At BDO, I direct the Financial Reporting Disputes and Investigations

practice, which encompasses securities litigation, accountants' professional liability, and corporate internal investigations. I assist companies with matters involving alleged financial statement fraud and management fraud. I also assist counsel in evaluating audit, accounting, and financial reporting issues and in preparing for trial. I have been involved in various high profile securities litigation matters and investigations, including but not limited to the Enron, New Century, Fannie Mae and AOL Time Warner matters. Specifically on AOL Time Warner, I served as the accounting advisor to the Independent Examiner, who was retained by AOL Time Warner pursuant to a Consent Order between the company and the SEC to investigate the company's accounting for online advertising revenue to determine whether the company's accounting practices complied with U.S. generally acceptedaccounting principles ("GAAP"). Prior to joining BDO Consulting, I was a member ofBDO's National Assurance

Department, where I assistedin the development of the Firm's audit and accounting guidance and related training materials, and responded to technical inquiries involving the application of audit, accounting, financial reporting, and Firm policy matters.

-32. I was retained by Defendants and Defendants' counsel to quantify the profits! of the software business of Lime Wire LLC ("Lime Wire") from its inception in August 2000 through present? In addition, I was asked to quantify funds disbursed from Lime Wire to Mark Gorton ("Gorton") as well as to entities that he founded and/or in which he has or had an ownership interest (referred to herein as "related entities"), from August 4, 2003 through present" (the "relevant period"). This quantification included disbursements such as

distributions, compensation, and other payments. I also performed data analysis of the cash disbursement activity reports of Lime Wire, Lime Group LLC ("Lime Group"), and MJ.G. Lime Wire Family Limited Partnership ("Lime Wire FLP") to evaluate whether there was any evidence suggesting a possible dissipation of assets.' Other BDO professionals, whom worked under my supervision and direction, have assistedme in this matter. 3. Based on discussions with the company and a review of the relevant documents, I gained an understanding of the corporate structures of Lime Wire, Lime Group, and Lime Wire FLP as well as Gorton, his family members, and his related entities. I also independently

conducted my own investigative due diligence to corroborate my understanding of the above.

term "profits" referred to herein is defined as net income as reflected in Lime Wire LLC's accounting records. At the time I conducted my analyses, the most recent financial data available for Lime Wire was through the month ended April 30, 2010. 3 The term "related entities" referred to herein was defined by counsel. As discussed further below, I conducted independent research to confirm the related entity information provided by counsel. 4 The cash disbursement activity reports for Lime Wire were provided through May 31, 20 I 0 whereas the reports for M.J.G. Lime Wire FLP and Lime Group LLC were provided through June 4,2010 and June 5, 2010, respectively. Therefore, the date range for cash disbursements varies slightly. 5 The term "dissipation of assets" was defined by counsel as the intentional moving or concealment of assets in an attempt to hide, protect or otherwise shield them from potential judgment creditors.
2

I The

-4-

Specifically, I performed public records research to identify and confirm the existence of Gorton's related entities beyond the related entities provided by counsel. Quantification of Profits Related to Lime Wire's Software Business 4. To quantify the profits of the software business of Lime Wire, I obtained the monthly financial statementsfor Lime Wire from the company." I verified the mathematical accuracy of the financial statements. In addition, I verified the completeness of the financial statements by reperfonning the exporting process from Lime Wire's general ledger accounting system on a test basis and by agreeing the consolidated revenue and profit amounts to the respective year's income tax return. Based on my understanding of Lime

Wire's business and my experience with the high technology and software industries, I reviewed the various income statement line items to identify the revenue and expensesrelated to the software business. Because Lime Wire's financial statements included financial information relating to LimeWire Store, a separatebusiness unit from Lime Wire's software business, I made certain adjustments to exclude the revenue and expensesrelated to this nonsoftware-related businessunit. To deduct LimeWire Store's financial information from Lime Wire's financial statements,I obtained an allocation schedule from the company, comprising the revenue and expenses for LimeWire Store, and analyzed it for reasonableness. I also

The consolidated financial statementswere obtained for Lime Wire LLC (the parent), which included the financial statements for the individual subsidiaries, Lime Wire and Lime Engine. Lime Engine, which is no longer operational, was a start-up company that was developing a entertainment-focused search advertising engine and was unrelated to Lime Wire's software business. Therefore, my quantification of profits related to the software business was based solely on the Lime Wire subsidiary's financial statements.
6

-5gained an understanding of the company's methodology for preparing the allocation schedule. This allocation schedule consisted of a line-by-line analysis of the income statement line items that were allocated between the software business and LimeWire Store. Expenseswere allocated based on employee headcount and/or the nature of the expense incurred. Once the LimeWire Store revenue and expenseswere deducted from Lime Wire's financial statements, I analyzed the revenue and expensesrelated specifically to the software business, calculated the profits for the relevant period and summarized the profits by year. 5. Based on my calculations, total profits for Lime Wire's software business were $62,995,481 from its inception in August 2000 through April 30, 2010. Had LimeWire Store's revenue and expensesbeen considered in my calculations, total profits for Lime Wire would have been $48,754,935 (as originally reported in the Lime Wire subsidiary's financial
7 statements).

A summary of Lime Wire's software business-related profits by year is

referenced as Exhibit A of this declaration. Quantification of Funds Disbursed from Lime Wire to Mark Gorton or Related Entities 6. To quantify funds disbursed to Gorton and his related entities, I obtained the cash disbursements activity reports for the financial institution accounts of Lime Wire, Lime Group and Lime Wire FLP. These reports included distributions, system generated checks, manual checks, automated clearing house ("ACH") payments, and wire transfers for the

7 Total profits on a consolidated basis for Lime Wire (including the wholly owned subsidiary, Lime Engine) were $47,202,832.

-6relevant period. I was advised by the company that the financial institution accounts and the related cash disbursement activity included in the data analysis were a complete and accurate listing of all financial institution accounts of Lime Wire, Lime Group and Lime Wire FLP. I verified the completeness of the cash disbursement activity reports by reviewing a sample of the bank reconciliations and agreeing the cashbalances to the respective bank statements and balance sheets. In addition, the cash balances per Lime Wire's consolidated balance sheets were agreedto the respective year's income tax return. 7. To perform my analysis, queries' were developed to identify funds disbursed from Lime Wire to Gorton personally, as well as to his related entities. To capture both "direct"

disbursements from Lime Wire to Gorton, as well as "indirect" disbursements to Gorton through Lime Group or Lime Wire FLP, I analyzed disbursements not only from Lime Wire to Gorton, but also disbursements from Lime Group and Lime Wire FLP to Gorton. To avoid double-counting, I allocated disbursements from Lime Group and Lime Wire FLP to Gorton based on the percentage of incoming funds Lime Group and Lime Wire FLP received from Lime Wire during the relevant year." For example, assume that in 2005, Lime Wire

disbursed $100,000 to Lime Group and Lime Group disbursed $80,000 to Gorton. Also assume that, in 2005, total incoming funds for Lime Group were $200,000. In this example, Lime Wire was the source of 50% of Lime Group's funds in 2005 ($100,000 / $200,000).

The tenn "queries" referred to herein is defined as searchesof certain criteria in a relational databaseto obtain lists of records that match the search criteria and operations to count items and sum amounts. 9 Lime Group and Lime Wire FLP received funds from sourcesother than Lime Wire.
8

-7Therefore, in my analysis of disbursements, I would estimate that 50% of any disbursements from Lime Group during 2005 would be derived from Lime Wire funds. As a result, $40,000 of Lime Group's $80,000 in disbursements in 2005 to Gorton would be calculated as related to Lime Wire. The remaining $60,000 of the $100,000 disbursed from Lime Wire to Lime Group in 2005 would be classified as a disbursement to Lime Group. The main point is that, in quantifying disbursements from Lime Wire to Gorton in 2005, it would be inappropriate to simply add the disbursements from Lime Wire to Lime Group of $100,000 to the disbursements from Lime Group to Gorton of $80,000 because doing so would double-count the same funds: once when the funds are disbursed from Lime Wire, and then again when the funds are disbursed from Lime Group. 8. Using the methodology described above, I calculated the gross amount of funds disbursed from Lime Wire to Gorton personally of $14,945,45310 from August 4, 2003 to present. The gross amount of funds disbursed from Lime Wire to Gorton's related entities, including entities in which Gorton has any ownership interest whatsoever, totaled $21,836,541 from August 4, 2003 to present.I I This includes total amounts disbursed to these entities without regard to Gorton's percentage ownership in the related entity.l'' Of the gross amounts

disbursed to Gorton and his related entities, 88% of the disbursements constituted

10 This amount is comprised of $14,906,762 in disbursementsfrom Lime Group and Lime Wire FLP and $38,691 in compensation paid to Gorton from Lime Group's payroll provider through June 15,2010. 11 Entities with total disbursements of less than $1,000 over the entire relevant period were considered de minimis and, therefore, I excluded them from my quantification. 12 Gorton's ownership interests in these entities ranged from approximately 25% to approximately 48%.

-8-

distributions of profits in the normal ordinary course (see below for my analysis of investor distributions). As discussed in the paragraph below, the remaining disbursements (totaling

$4,403,178 over approximately seven years) constituted disbursements for normal expenses incurred by Lime Wire in the ordinary course of business. 9. After performing the foregoing gross calculations, I adjusted my quantification of funds disbursed from Lime Wire to Gorton and his related entities to: (a) account for funds disbursed from Lime Group 13 and Lime Wire FLP to Lime Wire and (b) deduct funds that were normal ordinary course business expenses. These adjustments reduced the gross amount of funds disbursed from Lime Wire to Gorton and his related entities. After these adjustments, the total net amount of funds disbursed from Lime Wire to Gorton and his related entities, including entities in which Gorton has any ownership interest whatsoever, was $31,697,520. Specifically, $14,945,453 was disbursed to Gorton (as discussed above), $13,60 1,754 was disbursed to Lime Wire FLP (in which Gorton has a 48% ownership interest), and $3,150,313 was disbursed to Lime Group (in which Gorton has a 48% ownership interest). After taking into consideration Gorton's ownership interest in Lime Wire FLP and Lime Group, the allocated proportion of total net funds effectively disbursed to Gorton was $22,986,445. My calculations described in paragraphs 8 and 9 are referenced as Exhibit B of this declaration.

13 While not reflected in the quantification of funds disbursed from Lime Group to Lime Wire, which only includes disbursements made from August 4, 2003 forward, between September 2000 and October 2001 Lime Group made capital contributions to Lime Wire totaling $1,380,000.

- 9Analysis of Cash Disbursement Activity Reports 10. I performed additional data analysis on the cash disbursement activity reports of Lime Wire, Lime Group, and Lime Wire FLP to evaluate whether there was any evidence of possible dissipation of assets. Specifically, I analyzed historical trends in the cash

disbursements by developing queries to identify changes in disbursement patterns, unusual payments to vendors or related parties, or irregular disbursement amounts for the relevant period. The cash disbursements analysesincluded, but were not limited to, summarizing and reviewing disbursementsby payee by month and year as well as analyzing the commentary in the "memo" (i.e., description) field in the cash disbursement activity reports. In addition, I compared vendor addressesto Gorton's addresshistory as established from the investigative due diligence procedures I performed (described above) to identify any additional related entities in which Gorton may have an interest. In performing my analyses, I considered common patterns and characteristics typically found suggesting a possible dissipation of assets (e.g., unusual payments to family members or related entities, abnormal payments of personal expenses,unpaid loans, unnecessaryand/or excessive purchasesof assets, amounts in even dollars). I selected certain specific disbursements for further investigation and

analyzed the supporting documentation. 11. Based on my analyses,I conclude that disbursementsmade from Lime Wire, Lime Group and Lime Wire FLP appear to be related to distributions of profits and normal business expensesincurred in the ordinary course of business. No entities were identified with vendor

- 10addressesthat were the same as those related to Gorton, and no unusual payments to Gorton's family members or other entities or individuals were identified. Moreover, it appears that

disbursements from Lime Wire, Lime Group, and Lime Wire FLP to Gorton and his related entities significantly decreased from 2007 to present. Thus, I have seen no evidence to indicate the possible dissipation of assets. 12. I also analyzed historical trends of the distributions made to investors of Lime Wire. Specifically, I compared the changes in Lime Wire's consolidated profits to the changes in Lime Wire's distributions of profits over the relevant period. Due to certain lags in the

timing of the distributions relative to the respective period's profits, I utilized a two-year moving average to smooth out any short-term fluctuations and identify longer-term trends. To illustrate, the average amount of profits for years 2002 and 2003 were compared to the average amount of distributions to investors for years 2002 and 2003. I then calculated the increase/decreasen Lime Wire's consolidated average profits and distributions for each twoi year period and compared the respective percentageincrease/decreaseo the averages for the t prior two-year period. 13. For the periods that included 2006, I adjusted the 2006 consolidated profits to exclude a one-time expense of $3,196,394 incurred in December 2006 related to the cancellation of certain company stock options.i" Adjustment of this one-time expense was necessary to

14 Neither Gorton or any of his relatives were Lime Wire stock option holders. Therefore, they did not participate in or benefit from the cancellation offer.

- 11 make Lime Wire's consolidated profits and distributions for 2006 consistent with other years becausedistributions were made to investors throughout 2006 before the decision was made to offer Lime Wire's stock option holders the opportunity to cancel their stock options and receive cash consideration in lieu of the stock options. The cancellation of these stock options had a significant impact on the fourth quarter 2006 consolidated profits and, thus, caused a significant aberration in my data analysis. As a result, I adjusted Lime Wire's 2006 consolidated profits as originally reported from $10,449,827 to $13,646,221. 14. A summary of the comparisons I made reflecting the foregoing 2006 one-time adjustment follows:

Two-Year Period

Average Profits for Two % Years Change

Average Investor Distributions for Two Years

%
Change

2002 & 2003 & 2004 & 2005 & 2006 & 2007 &
15.

2003 2004 2005 2006 2007 2008

$ $ $ $ $ $

1,051,406 2,340,309 7,183,983 12,191,994 14,630,707 10,595,293

123% 207% 70% 20% -28%

$ $ $ $ $ $

919,750 1,947,125 5,695,375 9,126,750 11,567,625 7,711,750

112% 193% 60% 27% -33%

Based on my analysis, the distributions made to investors were substantially consistent with the consolidated profits of Lime Wire. As illustrated in the table above, in four of the five comparative periods, the increase (decrease)in distributions made to investors was less (more) than the increase (decrease) in consolidated profits. For the 2006 and 2007

- 12 comparative period, the increase In distributions was fairly In line with the increase In consolidatedprofits. 16. Based on my analysis of the individual distributions to Lime Wire investors, I did not identify any disproportionate distributions to Gorton or his related entities or individuals during the relevant time period. The amounts distributed to each Lime Wire investor were substantially consistent with each investor's respective ownership interest. Furthermore, no distributions were made to Gorton or his related entities (or to any other investors, including Gorton's relatives) after February 2008.15 In fact, Lime Wire FLP actually made an

additional capital contribution to Lime Wire of$616,250 in January 2009. 17. In summary, based on the results of the work performed, I have not identified any changes in disbursementpatterns, unusual payments to vendors or related parties, irregular disbursementamounts, or other evidence that would be indicative of the possible dissipation of assets. I declare under penalty of perjury that the foregoing is true and correct. Executedthis fh day of June2010 in New York, New York.

,;:29

15 The February 2008 distribution, which approximated $2,051,750, was the only distribution made subsequent to November2007.

Exhibit A

Arista RecordsllC et

31. II.

Lime Wire llC ct at.

lime Wire LLC - Software
August

Business

Profit & Loss Statement
1, 2000(Inception) hroughApril 30,2010 t

Exhibit A

B/l/2ooo12/31/2000 Ordinarylncome/EJo:pense Total Income Less: LimeWireStorelncome Total roccme
·

'001 161,499 161,499

'00' S 2,076,983

'003

'00'

'008

2009 20,954,489 517.413 20,437,075 1,161,440 307,269 854,171 19,793,049 210,144 19,582,90S

1/1/20104/30/2010 8,595,762 233,949 8,361,813 418,691 129,462 289,229 8,177,071 104,487 8,072,583

Total 128,841,363 854.653 127,986,710 6,538,046 491,894 6,046,lS2 122,303,316 362,759 121,940,5S7

s s
$

2,420,481

s
S

5,816,478

s

15,595,031 15,S9S,031 811,842 811,842

s

21,322,775

s s
$

25,332,734

Software Business

s

2,076,9B3 160,075 160,075

$ 2,420,481 165,117 165,117

s S,816,478
281,543 281,543

s

S 21,322,775 1,205,310 1,205,310 $ 20,117,466 $ S 20,117,466

$ 25,332,734 1,150,568 1,150,568

26,565,130 103,290 26,461,840 1,183,460 55,163 1,128,298 25,381.670 48,128
l5,333,S42

Total COGS Less: LimeWire Store COGS Total COGS·Software Business Total GrossProfit Less: LimeWire store GrossProfit Total Gross Profit - Software Business bpense Total Payroll Less: LimeWire store Payroll Total Payroll· Software Business Total sactnues tessumewbe stcre seouues Total Facilities· Software Business Total ProfessionalFees less: LimeWire Store ProfessionalFees Total Professionalrees . Software Business Total TechnologV& Infrastructure less: LimeWire Store Technology& Infrastructure Total Technology& Infrastructure - Software Business Total Depreciation & Amortization Less: UmeWire Store Depreciation & Amortization Total Depreciation & Amortization - settware Business license Fees Less:LimeWireStore LicensingFees Total LicensingFees- Software Business Total Recruiting Less:LimeWire5tore Recf\.liting Total Recruiting-Software Business Total Marketing & Promotion Less: LimeWire Store Marketing & Promotion ·Total Marketing & Promotion - Software Business Total Other Expenses less: LimeWireStore Other Expenses Total Other Expenses Software Business Total Expense less: LimeWireStore Total Expenses Total Expenses Software Business Net Ordinary Income less: UmeWire Store Net Ordinary Income Net Ordinary Income - Software Business Dtherlncomej'Expense Total Other Income less: LimeWire store Net Other Income Net Other loccme- Software Business Total Othe~Expense Less:limeWire Store Net Other Income Net Other Income - Software Business Net Other Income/Expense less: LimeWire 5tore Net Other Income Net Other roccme- Software Business Net Income less: LimeWireStore Net Income Net Income - Software Business (4,502) 12,601 $ 100 6,983 254,062 2S4,062 10,797 10,797 1,346 1,346 4,907 4,907 10,832 10,832 950,102 9S0,102 119,507 119,S07 3,578 3,S78 132,489 132,489 22,026 161,499 161,499

s

$ 1,916,908 $ S 1,916,908

S 2,255,365 $ S 2,25S,365

$ 5,534,935 $ S 5,534,935

$ 14,783,189 $ S 14,783,189

$ 24,182,166 S 24,182,166

S

656,494 6S6,494 206,498 206,498 40,789 40,789 46,678 46,678 17,193

S

756.400 756,400 206,110 206,110 66,116 66,116

S 1,162,827
S $ 1,162,827 $ 205,992 20S,992 102,827 102,827 80,180 80,180
27,140

2,991,341

S 7,409,763

S 4,330,587

s

s

s

2,991,341 205,992 20S,992 140,117 140,117 66,936 66,936 25,212.

s

7,409,763 249,878 249,878

s s

1,485,098 2,845,489 186,645 65,665 120,980

8,717,621 3,029,453 5,688.168 1,634,268 724,094 910,174 5,448,086 14,466 5,433,620 824,193 382,967 441,226 1,411,510 269,953

10,582,706 4,049,330 6,533,377 1,968,337 870,612 1,097,726 1.514,057 33,121 1,480,936 1,493,468 699,025 794,443 2,708,282 410,412 2,297,860

4,653,466 510,456 4,143,010 535,455 73,886 461,569 988,088 19B,882 789,206 576,309 173,677 402,632 186,363 59,251 127,113 50.000 50,000

42,465,370 9.074,337 33,391,033 5,529,479 1,734,257 3,79S,222 13,310,639 246,46B 13,064,170 3,891,821 1,255,669 2,636,152 4,742,653 739,626 4,003,027 50,000 50,000 1,412.027 1,412,027 171.829 101,459 70,370 4,772,557 1,451,488 3,321,068 76,346,374 14,603,305 61,743,069 45,956,942 (14,240,S46) 60,197,488

s s

s s

s
S

S 1,025,294
S 1,025,294 82,125 82,12S 91.922

s
S

3.980,342 3,980,342 482,160 482,160 223,958

s

s

102,377 102,377 18,215

380,070

534,154 534,154

128,416 128,416 67,702 36,978 30,724 542,500 158,455 384,045 7,728.299 1,211,584 6,516,715 448.772 (1,107,097) 1,5S5,868

37,294 34,354 2,940 165,000 66,413 $ 100,359

~

43.6l3 16,721

4,869

s

121.173

134.113

440,275

568,611

1,389,174

~

1.240,070

780,222

476,424 763,646
20,084,689

286,912

$

1,409,275

$ 1,034,615

s

S 1,255,031

s

$ 1,712,874

s

3,597,952

$

9,361,905

10,032,606 1,761,658

19,842,216 5,064,238

6,565,825 13,518,864
(291,640)

(6,355,681) 6,064,040

351,700

2,043,083 2,043,083 183,405 183,405

166,549 166,549 42,083 42,083 124,467 124,467 573,239 11.107,097) 1,680,33S

5,048,648 5,048,648 2,250,655 2,2S0,6S5 2,797,993 2,797,993 48,754,935 t14,240,S46) 62,995,481

77,598

1,859,678 1,859,678 1,568,037 (6,3S5,681) 7,923,718

Declaration of Anthony M. tencea dated June 29, 2010

sege

i cr i

Exhibit B

Exhibit B
S~~~;;~f ~ ----L __
f;~l-i;;'~-wi~~lLC;;kGO~t~-&R~;di;;titi~l----M; ~ F;-;;'A~~U54.20-03 to May 31,-2010 t
2- --.,------------------.--------------~-

Arista Records llC et at.

v. Lime Wire LlC et al. Disburs~~;~~;

---l5UMMA.RY~FD[SBURSEMENT?_~_~~~_Ll!'fIEWI_REllC

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2004

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(194,330):

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9 (2S,389,SOO)

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s

{69,128)i (549,128)

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$

S $

(205,992)1s (2,792,134) $

(205,492)' (7,674,229)

$

$

(9,009,734)

S $

(571,017)] (13,013,352)

-- -

,Amounts

PaId to Mark Gorton from (allocated

based on

funds);

1 I
!

I

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S $

(598,500)1 (3,031,445)

S $

(244,622)1s (459,453)

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S S

12,251,706) 136,743,303)

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-.J~l!~:::..~~~~:.~~C~~gFUndSjn~~Lime----:vy~~f-~-~.!.~?mLi~e

000%1

~:J:l,~~~~~~:G~~~~~;ed!~~=~~"~LL=~~~~~~;~~~~-=~:~:jl~ ! tompensatioMarGortorn mimGroup'.. n k foL e .. ....
I
from

~=-[=~~~il=~!::",::t:::'k::G::-r!odn~vir e,d~mWe"eL:~,;:::-~~-=---:t;::"'=~:~w~::~-~:;::~:~t~'~~!~:+:.t.'.T~~::r:li~- -r=1· =L ~ ~ - ~~ :' ' . i - r : : . ~ ~ ' ~ j' ' - 3 J; ::d i:: ~ o t e Lo
" I
'I.... ...· ...'
.J

__

~=_I:_:t~:~17=3=~-!!! _-_
000% . 99.98%:_ 99.39%

r-· ·------r-----·L _ ____'
I$ S ~2~

I .J.$

,

10.64%1

,- $.

----t~--~-- _-_-_.
28.07%!

21.17%1

9.09%1

8.68%: 3,735,366

--- -

~,4~2!~'?_~Jj I

..

_'1' __

--(~":~~

.

100.00%:

__96.04%1

~I~:~t·.i - :).. _t_J~ ~
~,790,O~0_L$ .

i·

_L~ _
i

__. __

-1

0.00%1

0.00%1_-

,H~)

=L~i~~!~:·"-~~..=~~~F-..:~;',~I;=-.,'~~~~=="}jlHF~~1~~~===~:i:;-~~ll::::m~ =.'.. -u
=~

---r'=-------=-- i-~~$I~~~G:~~~~f~--:~-~=--~':~'=-'==------P1~--=~--H-- -:'--:"-23itf~-=--==="i66fI--= ~- = :h P '
$ {7,256j $

9 1 ,06T

(~'7~~~_.

~~5):

$_ _

19~~r

138,691)

--~o~~
100 I $

1

~----=R-=-=-~'::'j:6~H--=-~61~~·H ---~+--.-·-·6m~~ -·
I$
2,642! S 676,057I S

$

I$

731 $

1,766I $

IS

681,296

----L-

~~~.tot.n,,,esI..:=--t--=-:~~~:.:.=-.-_-~=-=-=-.---lI
I ! : {1] (2] I·The cash disbursement varies slightly.

~S~~fi~t~;~~:-==~~~~~=~f~~L ~~~;_~=J~=;~i~~ ~:I ~ :; · ~ ~ ~ ~ =~ ~
:

~=~
__ -L

.L_

... _.

._._ ..._~ __.~ .

..

IS

69,128I $

265,509I $ $

ADJUSTED sIUMMA~Y

OFDISBURSEMENTS FROM-LIMEIRElC - WL 3~TL';;;-eo;;;;;PLLc-- ---------------

-

=it~~~~~:~':;~n::Y~m:t:d~~~~~~
I

~=

----=-~==1~t-==~~6~~-~~~-1-=--=--~~Et~~t~fl~~il =-=- _J]I~~~~~~~~~-==6--~=}:i]~}4~T)_~l~r- ~=J:1:~Hl ~ ~ =
- --

1-

--- __ L ~

- --

L- -

------1--- -----!---(l,366,061U

279,2291$

505,484' S

1,366,227 $ 1

1,244,320:S

459,453i S

213,829IS

4,403,178

- .... 1 _ --.--·--+-------------1--------- , _ . - ----

----- --- -----

----- _..-----

---Ti$---(375,4~--

(i~471,233)1

S

1$

--h--------2.642Ts-. -.--.

5-9~807jS·---

_-··---_-+r------(3,""150,313)

NET AMOUNTI

S

(489,068)

S

(2,533,150)

$

(7,401,498)

S

(8,505,927)

$

(11,652,243)

S

(1,788,738)

$

674,041

S

(937)

$

(31,697,520)

__=::c---T~~-:-:--·--··-~_~~~-:~~·-~_-_-_-·_:r<?TAl

NIT AMOUNT

I

Related entities with total disbursements

_._~

activity reports for Lime Wire were provided through

.. __ ~ __ .

of less than $1,000 over the entire relevant period were considered

-~-=~===~==--=~~}L==~~=-:J===== ~
ALLOCATED TOMARK GORTONi

$

(293,825)

$

(1,768,109)

$

(4,896,626)

...

de minimis and were therefore
.·

excluded from my analysis of disbursements.
·· .---. --------

:

$

(4,083,769)

~--j~_:~-~_==-=-_=--=i=~-~_=__~~_==_--+==~_=__ ~~~=_~ ±
---..-.-.---.--.--. _._ ··· ._.

$

(10,510,881)

$

(1,754,789)

$

322,491

$

(937)

$

(22,986,445)

u_

..

---

May 31,2010

whereas M.J.G. Lime Wire FLP and lime Group LlC were provided through June 4, 2010 and June 5, 2010, respectively.

Therefore,

the date range for cash disbursements

L_
I +-_ i
I

I

I

1--

~I

[3]

--L-~
I

IThese related entitles ICompensation

__-.--- .. ~______ .
Include 377 Tower Realty Ll.C,

h-t-----.-·------·-(4]

-------c~-..-.-------. . . ~------.---paid to Mark Gorton from Lime Group LlC was provided through June 15, 2010. This amount IS not included 10 the gross amount for Lime Group LLC because It was paid through Lime Group's payroll provider,

-~--------

Lime

Brokerage Holdings llC, Lime Labs LLC, and Lime Labs India Pvt Ltd.

..

...

.._. ._. .

~~

__ .

...
not through a related entity.

---.----- . .

(5)

As these disbursements

were made payable to lime Wire Ll.C, they were excluded from my analysis of disbursements

to Mark Gorton or his related entities (above).

However, these amounts were added back (r.e.. reducing total disbursements)

as they represent

------_.,

(6)

IA~ these disburseme~ts !dlsbursements

,

funds returned

to Lime Wire LlC and thus were netted against the total disbursements

were made to related entities for expenses incurred in the normal course of Lime Wire llC's business (e.g., rent, allocated expenses related to engineering services, management

-

to properly reflect the net amount disbursed from Lime Wire LLC.

----~-

..----------.--------------------. .. . .... .

fees). these expenses were deducted

from total

----J- -~--~-. I
i
1' -.-.--.L .

-Il-----L-----(7) deducted.

in arriving at total net disbursements.

[The amounts included represent management

.. .- --

fees and allocated expenses charged by Lime Group lLC to Lime Wire llC.

.----.--- .. ----.----- . . -Distributions

of profits disbursed from Lime Wire Ll.C to lime Group llC were appropriately

excluded from this adjustment

and were thus not '

Declaration

of Anthony

M. lendez dated June 29, 2010

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