AgFeed USA, LLC, et al.

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10/19/2016 Update on SEC Fairness Fund Distribution 
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Sources of Recovery for Trust Beneficiaries in AgFeed
(Shareholders as of the November 4, 2014 Distribution Record Date)

     AgFeed shareholders who held common stock as of November 4, 2014 are now beneficiaries (“Beneficiaries”) of certain assets of the AgFeed Liquidating Trust (“Trust”). 

     AgFeed’s stock was cancelled under the Bankruptcy Court approved Plan of Liquidation (“Plan”) on November 4, 2014, which was both the record date for shareholder participation in the Trust and the date that the plan was approved by the Bankruptcy Court (also known as “confirmed”). 

     On November 4, 2014, shareholders received a fractional interest in the portion of the Trust created for the sole benefit of such shareholders in exchange for their stock as the company ceased to exist and was replaced by the Trust.

     Beneficiaries (former shareholders who held stock as of November 4, 2014) may have up to three potential sources of recovery:

  1. A fund established for the benefit of the Beneficiaries, former shareholders as of November 4, 2014 (“Shareholder Fund”);
  2. The SEC Fairness Fund established for the benefit of shareholders who held shares during times relevant to the SEC’s enforcement of securities laws violations occurring around and after late 2011; and
  3. The Class Fund established for the benefit of beneficiaries of a securities class action settlement consisting of shareholders who purchased AgFeed securities during March 16, 2009 through September 29, 2011 (“Class Action Settlement”).

     All three of these sources of recovery are subject to their own requirements and conditions.  The Liquidating Trustee, as successor to the Debtors and Equity Committee, ONLY CONTROLS the Shareholder Fund, which is for the sole benefit of shareholders as of the record date (November 4, 2014).

     A Beneficiary, former shareholder as of November 4, 2014, may also be entitled to recovery from one or both of the SEC Fairness Fund and the Class Fund. 

     Your total per share recovery is comprised of one or more of these three sources of recovery.

    The Liquidating Trustee does not control eligibility for either the SEC Fairness Fund or the Class Action Settlement.  The SEC determines eligibility for the SEC Fairness Fund, and the Class Fund administrator and Class counsel determine eligibility for the Class Fund. 

     THE TRUST TAKES NO POSITION ON WHETHER BENEFICIARIES, FORMER SHAREHOLDERS AS OF NOVEMBER 4, 2014, CAN ALSO PARTICIPATE IN THE CLASS FUND OR SEC FAIRNESS FUND.

     Although the Trust has no control over eligibility for the Fairness Fund or Class Action, Trust professionals have received multiple calls and inquiries on the issue.  In response, the Trust is providing this information about all three recovery sources as a courtesy to Beneficiaries (former shareholders who held stock as of November 4, 2014) who may be eligible for recovery from the Fairness Fund and/or Class Fund in addition to the Shareholder Fund.   

The money available for these three sources of recovery comes from two sales of the Debtors’ assets and interests.  One sale was for all the Debtors’ U.S.-based assets.  The other was the sale of the Debtors’ stock of China-based affiliates which was held by an affiliate incorporated in the British Virgin Islands.

  1. On August 29, 2013, the bankruptcy court approved the sale of substantially all of the assets of AgFeed USA to High Plans Pork, LLC, Cohoma-Pork, LLC, and Murphy-Brown LLC for a purchase price of $53,191,304.  A copy of the sale order, docket number 257, can be found here.
  2. On November 26, 2013, the bankruptcy court approved AgFeed Industries’s sale of the stock of AgFeed Industries, Inc. (British Virgin Islands) to Good Charm International Development Ltd. for $52,880,000.  A copy of the stock sale order, docket number 640, can be found here.  

   The proceeds of the sales, after post-closing adjustments, were used to pay all secured debt held by Farm Credit Services of America and all unsecured claims other than those claims where there is a pending cause of action against the claimant or are otherwise disputed claims.  Amounts related to disputed, unpaid unsecured claims are being held in a reserve account.  If those claims are allowed (approved), they will be paid in full with interest to the extent of the allowed claim.  To the extent those claims are disallowed or reduced in amount, the funds reserved for those claims will return to the Trust. 

    The creation of the SEC Fairness Fund and the Class Fund arose as a result of substantial claims asserted against the Debtors by the SEC and securities class action litigants.  Those claims together were asserted in an amount exceeding $50 million and perhaps as high as $80 million, an amount that far exceeded the cash remaining from the asset sales after payment of secured claims, and would have resulted in a zero distribution to Current Shareholders.  Both the SEC and Class counsel, on behalf of the securities Class, asserted these claims on behalf of shareholders who were injured and held stock during the period when AgFeed admitted it filed fraudulent financial statements.  Beneficiaries of these claims included former shareholders who may have been damaged by AgFeed’s fraud but no longer held shares.

     A further complication was the fact that the SEC, pursuant to its regulatory authority, had the option of keeping some or all of the funds it recovered from AgFeed for the benefit of the U.S. Treasury. 

     The Equity Committee was actively involved in negotiations with the SEC and Class Counsel and was instrumental in the final settlement with both groups, which resulted in substantial funds being set aside for the sole benefit of the estate’s Beneficiaries, former shareholders as of November 4, 2014, and the creation of the Fairness Fund and Class Fund. 

     Among other actions, the Equity Committee hired the National Economic Research Associates (“NERA”), which produced reports demonstrating that a large portion of the defrauded shareholders represented by the SEC and Class claims were still shareholders of AgFeed Industries.  Armed with this information, the Equity Committee successfully argued in negotiations that Current Shareholders were deserving of a significant portion of the proceeds available from the sale of the Debtors’ assets.  The SEC accepted this analysis and agreed to settle its claim against the Debtors for $18 million dollars and to contribute $12.5 million back to the Liquidating Trust, keeping the balance of $5.5 million in the Fairness Fund. 

     NERA also produced reports that were used to estimate the damages asserted in the Class Action that helped to resolve the Class claim, resulting  in a claim of $7.0 million less approved fees to the Class counsel, and a net Class Fund of  $4.785 million potentially available for former shareholders who qualify, including Beneficiaries.

     The Plan and accompanying Disclosure Statement discusses these sources of recovery.  A copy of the debtors’ chapter 11 plan, docket number 1360, can be found here.  The order confirming the Plan, docket number 1535, can be found here.  A copy of the Disclosure Statement, docket number 1361, can be found here.  For further details regarding the scope of the SEC litigation and settlement, see pages 34 and 44 of AgFeed’s disclosure statement. 

     Use below links to view a brief summary for each source of funding:

Trust

Class Fund

SEC Fairness Fund
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Main Debtor13-11761 AgFeed USA, LLC, et al.
Total Number of Debtors16
CourtDistrict of Delaware
JudgeHon. Brendan L. Shannon
Chapter11
Petition Filing DateJuly 15, 2013
General Bar DateNovember 12, 2013
Governmental Bar DateJanuary 13, 2014
Meeting of CreditorsSeptember 11, 2013
Ballot DeadlineOctober 20, 2014
Deadline for Plan Confirmation ObjectionsOctober 20, 2014
Confirmation Hearing DateOctober 27, 2014
Record Holding DateNovember 4, 2014
Attorneys for the Liquidating TrustElliott Greenleaf
1105 North Market Street
17th Floor
Wilmington, DE 19801
(Website)    (Contacts)
 Sugar Felsenthal Grais & Hammer LLP
30 N. LaSalle Street, Suite 3000
Chicago, IL USA 60602
Phone: (312) 704-9400
(Website)    (Contacts)
Liquidating TrusteeJII Consultants Inc.
William Kaye

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