The method that class counsel is using for calculating your loss for purposes of participating in this settlement is based upon a simple net out of pocket loss formula. It takes all money you invested in Aequitas securities, and subtracts all payments you received from Aequitas. DRIP (Dividend Reinvestment Program) payments are not taken into account in this formula. In other words, if you were entitled to dividends and elected to have them reinvested into Aequitas, your investment amount is not increased by the amount of the reinvested dividends, even though under the terms of the notes they were principal contributions. On the flip side, investors who received cash dividend payments get a reduction in their net loss by the amount of those payments, even though, under the terms of the notes, those payments did not reduce the principal amount owed. In this way, DRIP and non-DRIP investors are getting equal treatment. Under the net out of pocket loss formula, every loss is measured by the actual dollars contributed, less actual dollars received.
A different situation arises where an investor purchased a note several years ago that was repaid in full with regular quarterly dividend payments along the way. In that case, the Aequitas investment resulted in a net gain for the investor. If that investor also had 2 other notes that went into default, then, under our formula, the gains on the first note offset (reduce) the losses on the later notes. The reason is that the profit was at the expense of other investors. We believe, and the SEC has alleged in its complaint, that Aequitas was using new investor funds to meet payment obligations on existing notes going back to 2011. Our formula recognizes that some investors may have profited at the expense of other investors, and that it is only fair to take that into consideration in determining the net loss. The law does recognize this approach in the Ponzi clawback area, which is analogous to our situation. (In clawback cases, a trustee or receiver can require investors who profited from a Ponzi scheme investment to return their profits, on the principal that the profits they received were not from legitimate operations, but from the investments made by later investors.)
No formula is perfect, and no formula will meet with universal approval. People naturally tend to favor the formula that gives them the greatest return. We have used a formula that I think is the most fair for the group as a whole. If you disagree with the formula, you have the right to file an objection to the formula that Class Counsel has proposed. To file an objection, you must follow the instructions on the Notice you received in the mail. All objections are due to the Court on September 29, 2017.