Fifth Status Report – May 24, 2006

May 24, 2006

FIFTH STATUS REPORT

Settlement Discussions . There have been no settlement discussions since September 2005.

Receivers’ Activities . The receivers have been continuing their efforts to locate and hold assets and to analyze the financial records of HICP. They have been filing monthly summaries of their activities with the court. We have posted their summaries online at http://www.hawaii.gov/dcca/ocp/udgi/lawsuits/hicp/ .

Defense counsel . The Honolulu law firm of Ayabe, Chong, Nishimoto, Sia and Nakamura are continuing to vigorously defend the case on behalf of the Defendants Pacific Educational Services Company, Monroe and Criswell. They have been appointed by an insurance company, Executive Risk Indemnity.

Insurance . Executive Risk has filed its own lawsuit in federal court here in Honolulu seeking a ruling that it is not obligated to provide coverage for the claims we have asserted. We are pleased to report that the receivers have been granted permission to intervene in the lawsuit filed by Executive Risk and they will be allowed to argue that the insurance coverage should be available to contribute to the restitution in the event we ultimately prevail. The policy has a coverage limit of $1 million, but any amounts paid to the Ayabe law firm to defend our case would decrease that amount. Again I stress that it is not clear whether there is any coverage under this policy and, if so, how much would ultimately be available.

Trial Date . Trial has been set for May 14, 2007. I should stress that this date is not set in concrete and often civil trial dates are postponed for a variety of reasons. Nonetheless we must assume the trial will take place on that date and are planning accordingly. A trial in this case presents unusual challenges. Virtually all of the eyewitnesses are no longer in the state of Hawaii and hence cannot be subpoenaed to appear at trial. As a result we will be taking sworn statements from them, called depositions, to be used at the trial. And although typically jury trials are not permitted in these types of cases, the defendants have requested one. A hearing to determine whether the trial will be before a jury or Judge McKenna is scheduled for next month.

Pretrial Proceedings . There have been a variety of pretrial proceedings which have occurred and which will continue to occur. We have taken depositions of the two brothers of Denise Criswell who were identified as corporate officers and/or directors and of her father, who was identified as a shareholder of PES. They knew nothing about the case, were not involved in any significant sense and received nothing of value from the school or Ms. Criswell. The depositions of three representatives of the accreditor are scheduled for June as are a number of depositions of representative students at HICP. Other depositions will be taken later this summer. The defendants have asked us to produce all documents and records in our possession relating to the case and we have done so. They have also asked us a series of written questions and we are in the process of responding to them. We have similarly asked them to turn over various documents and to answer written questions as well. This exchange of information will continue through the summer, fall and winter of this year.