Case 8:09-cv-00059-JVS-MLG Document 441 Filed 03/15/12 Page 1 of 25 Page ID #:9887 LJ..i->LA... GJI-!u0 !LJ..J;;;;::::: 1-=:.! CQ 15 2012 C'V - ('.,! t() - J . SBN#l31947 OFFICES OF JOHN Ridgewood Rd. 1 mo, 94507 (925) 831-1882 (925) 831-1899 }k ail: omey tor P1aintiffs Association ofKazakh lnvestors -and Eiltrepr n rs; 8 Public Foundation Our House Yerkin Bekta v; Berik Bektay; Kan.et ' 9 11 1.2 t4 IS 16 18 19 21 22 25 26 27 IN UN1TED STATES COURT FOR mE OF CALIFORNIA DMSION-SANTA et al. Piaintiffs v. .. et al. Defendants TURAN INC. Defendant and Third-Party Plaintiff v. WELLS FARGO et al. Third-Party Defendants Docket No.08:09cv00059-JVS Assigried fur furpQs.es to; Hon. James V. SeJ.na, Dept: 1. VERIFIED SECOND AND BYYERKIN AND FOR RELIEF BASE.D ON: 1. CORRUPT 2. OF SECUR111ES LAWS; 3. CONVERSION; 4. BREACH OF 5. FRAUDAND ATION; 6, UNJUST 7. CIVIL CONSPIRACY; 3115/2012 1:25:3() Case 8:09-cv-00059-JVS-MLG Document 441 Filed 03/15/12 Page 2 of 25 Page ID #:9888Mar 15 2012 Schreiber Offioes .925J 831-18'99 2 4 5 6 7 8 9 1{) 12 13 J5 16 J7 )8 1\) 20 2J 22 and KANET ME1RMANOY, CounterDefendants and 11tird-Party Ptnintiffs v. ASIAN PACIFIC OIL & GAS in the Seychelles . slan s); AI,DIGAN YURI ROBERT.VANbUREN; ROBIN BISARY FINANCIAL ALCJNA . (all three Beli:r.e); PINE BROOK S.A., S.A. (both Panama); ESSEX MANAGERS L1D., V ARRIAI .. FINANCIAL L m. British Virgin .Islands ); COASTFINANCE 111 STOCK INC. ThirdwParty Defendants 8. FRAUDULENT CONVEYANCES; 9. 1 O.DECLARATORY REI..IEF; FOR JURY TRIAL 1 .. NATURE OF 23 1. Pursuant to Federal Rule ofCivil Procedure 14 and the Court Order da.ted 24 June 2009, Plaintiffs and Oefendants in Counterclaim Yerkin Bektayev and 25 Kanet Meirmanov respectfully file their Verified Amended 26 Complaint .for relief both in law and in for monetary damagest punitive 27 damages and injunctive reHel Third-Party Plaintiffs a11ege as foiJows. 3/15/2012 1:25:30 Case 8:09-cv-00059-JVS-MLG Document 441 Filed 03/15/12 Page 3 of 25 Page ID #:9889Mer 15 2012 Schreiber Law Officeg 1 1 - .IJ. AR'I]J.$. ,IN .. 2 2. Defendant in Counterc]aim and P1aintiff i.n this Amended Complaint BEKTAYEV (hereinafter '"Bektayev,') is citizen of 4 en,gaging in bttsiness in and intemarionally; with the s address: (hereinafter 33 Dostyk, #2, Almaty, 6 Kazakh.stan. At all tirnes :relevant Bektayev was the Director of as 1 well as the Pres)dent ofTuranEnerpetroleum s 3. Defendant in. Counterclaim and P1aintiff in tbls Third-Party Amended 9 Complai.nt KANET (hereinafter is citizen of 1 engaging in bu.siness in Kazakhstan and internationally, with the 1.1 address: 33 Dostyk St . #2, Ahnaty, Kazakhstan. At all relevant timesj 12 Meirmanov was the employee of and stake holder therein; he also 1;; a.ssisted in setting seismic tests for the project at issue. ,., 4. Both Piaintiffs in this Third-Party Cross.--Claim were elected on Februa.ry 19, 2009 as the interim directors of INC. 16 corporation organized under the laws of the State of 17 pending restructuring of its a:ffairs as more particuJarly discussed 1s herein. distinction is m.ade that PJaintiffs have suing in tbls action an 19 associ.ation under similar corporate but consisting of 20 several indjvidua1s residing in. California" who have operated as Turan 21 Petroleum when it was eithcr not tegiste:red or later when its corpom1:e powers 22 were foxfeited in Califomia. Without corporate authority, those Califomia residents continue to act in the of the corporation in the Sta.te of 24 CaHfomia, despite the forfeiture of its corpora.te status in California and in violation. of the Desist and Refrain Order issued the State of California on April 1 2009 an.d n10re particularly discussed herein. That unincorporated 2.1 association operating in California is identified he:rein as ''P'ort"eited. Tl:tird Pmty 3 1:;!5:3(1 Case 8:09-cv-00059-JVS-MLG Document 441 Filed 03/15/12 Page 4 of 25 Page ID #:9890Mar 15 2012 Schreiber Offices a25J 5. Defendant in ASIAN PACIF.IC OIL & GAS L1D. 2 (hereinafter is she11 under the Jaws of the 3 SeycheHes Islands, IBC No. 050476, with registered address: Suite l:o 4 Complex, D'Arhoa, Providence, 1004, Mahe, s Seychelles. APOG's and its real address is: 33 Skyridge, Newport 6 Coast, 92657, where it accepted service. APOG engages in business ix1 the 1 V.S. and in.temationally. APOG is subject to the jurisdicti011 of this Court s because it was used for the unlawful transfer of 20% of the asaets represented 9 rights under the because it became invol.ved with assets 10 jn California) and APOG was transferee ot assets in violation of the 11 Califomia Unifonn Fraudulent Transfer Cai.Civ,Cod.e 3439. 12 6. ALDIZHAN (hereinafter also "Dzbakishev;') is the principal of APOG, residing at: 33 Newport Coast, 92657; !4 as weJf as 30 Rublnslttein St.7 Almaty, Dzhakisbev is subject to the 1 s jurisdiction of this Courtt because is the principal of AIOG, who, whiJe being resident of Califorriia, s.igned an agreement with certain other Defendants 11 regarding the transfer of the concession rights at issue. Dzhakishev was involved in the unlawful transfer of Turan's assets, causing approxim.ately $5 19 million in procecds to &aud.ulently transferred in California in violation of 2t1 Cal.Civ.Code 3439 and other law. 21 7. Defendant (hereinafter also "Amirgan") is zz the oth.er principal of residing at; 33 Skyridge, Newport Coas'4 23 92657, as well as 30 St., Almaty, Kazakhstan. is subject 24 to the jurisdictio11 of tbls Court, because he is principal of APOG, is involved 25 in the unlawfu1 transfer of Turan$s stock, causing approximately $5 in 2(i proceeds to transfemd in California in vio]ation of 21 Cal.Civ.Code 3439 and taw. Arncnd(:d Third Party O:l.rnplainl 4 Case 8:09-cv-00059-JVS-MLG Document 441 Filed 03/15/12 Page 5 of 25 Page ID #:9891 15 2012 Schreiber 825) 831-1899 8. .Defendant YURI v (hereina.fter also is an mdividual 2 residing at 18301 Von Karroan Avenue, Irvine, 92612, who engaged in business in Califomia and wl1o was an original of Turan. Yu.ri is 4 subject to the jutisdiction of this Court because he has involved in the s unJ.awful transfer of s as.sets". in processing the: receipt of certain. proceeds 6 through third pa.rty distributions and other acts that originated in 7 Califomia, and because he knowing1y violated CaJ.Civ.Code 3439 and other law. 9 9. Defendant ROBERT VAN DUREN (hereinafter a1so ''Van is an individ11al who} until of2008, un]awfully held himself out as Turan's director) residing at; 3720 S. Susan St; Ana, 92704.-.6967, and at: 812 12 Monticello Dr. Naperville, IL 60563. Van Duren was an active participant in the sccurities fraud schemes described herein; bls sign.ature can found on 14 most of the unlawfully issued stock certificatest including "duplicate 1.s certificates," and he facilitated &audulent offshore transters of corporate assets. 16 This Court has jurisdiction over Van Duren who acted knowingly contrary to t7 Cal.Civ.Code 3439 and other law. 1 Defendant ROBIN BISAR (h.ereinafter also "Bisarya!') is an 19 individuaJ; &om June of2008 to ApriJ of2009 unlawfully held blmselfout w as Turan"'s secretary and treasurer, with the address: Deve1opment I ... CC, 21 940 South Coast Dr., 1 Costa Mesa, 92626. Bisarya was an active 22 participant in the securities fraud sch.em.es herejn.. Assisting .he managed Turan's accounts and drafted the wire transfers 24 involved in wire fraud at WeiJs Fargo Bank. This Court has jurisdiction over 2s Bisarya who acted knowingly contrary to Cal.Civ.Code 3439 and other 26 la\v. 27 5 113M4!)20541'\26tif. Case 8:09-cv-00059-JVS-MLG Document 441 Filed 03/15/12 Page 6 of 25 Page ID #:9892Mar 15 2012 .325.1 I 1. Defendant F"INANCIAL, LTD. also is shell 2 o1:ga.nized under the laws ofBelize, No. 15768. Okke engages in business in the U.S. and being, on infomation and 4 alter ego. the de facto address: Ibar Developme.nt LLC, s 940 South Coast Dr., 100, Costa Mesa, 92626. Okke;s registered address 6 is: Morgan & Morgan Trust C...orp. (Belize) 35 Regent St., Belize, 7 Be1ize. Okke is subject to the jurisdiction of this Court it was used for s ftaudulent contrary to Cal.Civ.Code 3439 and other 9 laws. 10 12. Defendant ALCINA CORP. (hereinafter also "Aicina'') is 11 shell under 1aws of Belize, lBC No. 52723. Alcina 12 engages in business in the U.S. and intemationaJly, on infonnation and belief, Karabayev's alter ego, with thc de facto address: lbar Development t4 LLC::- 940 South Coast Dr 100, Co$ta 92626. Alcina's registered 1s address is: Suc-re & Sucre Ltd., 6() M.arket Square, Belize. Alcina is subject to the jurisdiction of this Court because it was used for r.1 fraudulent transfers assets, contrary to Ca1.Civ.Code 3439 and other 18 laws. t9 13. Defendant PINGTON L1D. (hereinafter aJso "Pington") zo )$ shell compa.tly organized under the laws of Belize. Pington engages in 2t business in the U.S. and i.ntemationalJy, being, on infonnation and belief, Karabayev"s alter ego, with the de facto address: lbar Devclopment 23 940 South Coast Dr., 1 Costa Mesa, 92626. registered 24 address is at: Morgan and Morgan Trust Corporation {Belize), of Regent Street, Belize Belize (the same for Okke). Pington is subject to 26 the ju....-jsdiction of this Court because it vtas used for {r.audulent transfers of 27 Tumn's assets, contrary to Cai.Civ.Code 3439 andother laws. 1 Amr.-:ndcd Tbird Party Complait1t 6 Case 8:09-cv-00059-JVS-MLG Document 441 Filed 03/15/12 Page 7 of 25 Page ID #:9893Nar 15 2012 325) 831-1888 14. Detendant V ARRlAL FINANCIAL I .. TD. (bereinafter also 2 is shell company organized under the laws of the British Virgi.n Is.lands, at: Overseas Management Tt11st Ltd.) R.G. Hodge Plaza 4 2nd FJoor, 31152 Road Town1 Torto1a, the BV1. IBC No. 425957. s Vanial engages in business i.n the U.S. and intern.ationally, being, on 6 informatiot1 and s alter ego, with th.e de facto address: Ibar '7 DeveJopment LLC, 940 South Coast Dr., 100, Costa 92626. V arri.al (which has had stake in cert.ain realty in Califomia) is subject to the 9 jurisdiction of this Court it was used for ftaudulent tra.nsfers of the assets of Turan, contrary to Cal.Civ.Code 3439 and other laws. 11 J 5. Defendant ESSEX L 1D. (here:inafter also "Essex") is 12 sheiJ company organized the laws of the British Virgin at the J;) preseJJt registered agent's address: Blcnheim Trust Ltd., R.G. Hodge 1-1 PJaza Road Town, TortoJa, the BVIt IBC No. 5 I 7296. Initially, 11 it was inco:rporated on October 14t 2002 and operated while su.spended in the 16 BVI for nonpayment of the agent's fees before being reinstated effective 11 January 1, 2007. engag:es in business in the U.S. and 18 be.ing, on information and Anatoly Vanetik's alter egot wi.th the de facto 19 address: 3720 South Susan St.? Suite 100, Santa Ana, 92704. Essex is 20 subject to the jurisdiction of this Court because it was used for fraudulent 21 transfers asscts, contra.ry to Cal.Civ.Code 3439 and other applicabl.e :n Jaws. 16. Detendant HINES S.A. (hereina:fter also is shell organized under the laws ofPanama on 14.2007, IBC zs at the regi.stered address: El Cangreso 17, 26 Panama City, Panama. Hines engages in business in the tl.S. and intemationally, 21 011 information and Anatoly alter egc, with the de facto Secnod Third .f"11rty Cumplait1t ? Case 8:09-cv-00059-JVS-MLG Document 441 Filed 03/15/12 Page 8 of 25 Page ID #:9894Mar 15 2012 12:56F Schreiber Law Offiaes address: 3720 South Susan Su.ite 100, Santa Ana, 92704. Hines is 2 subject to the jurisdiction of this Court because it was used for ftaudulent transfers ofTuran's to Cal.Civ.Code 3439 and otl1er 4 laws, s 17. Defendant PINE BROOK, S.A. (hereinafter also "Pine Brook") is shel1 organized under the laws of Panama_. registered on March 16; 2007, 1 #8491-274, 44607/4122, at the registered address: Plaza, 8 Panama City, agent Brigido Navarro. Pine Brook engages in business in the 9 tJ.S. and intemationa:Hy, on and beliet: Anatoly Vanetik's 10 alter ego, wi.th the defacto address: 3720 South Susan St., Suite Santa 11 92 704. Pine Brook is subject to the jurisdiction of because it was 12 used for ftaudulent transfers of Turan's contrary to Cal.Civ.Code 3439 and other laws. 1.t. 18. De.fen&nt COAST FINANCE; Lm. (hereinafter also is shel! 1.s organized, on information and be1ief, under the laws of an offshore jurisdiction yet to identified. Coast engages i11 business in the U.S. 11 on infom1ation and beliet s alter ego, with the 18 de facto address: DeveJopment IJ .... C, 940 South Coast Dr., 1 Costa 19 Mesa, 92626. Coast is subject to the jurisdiction of tbls Court because it :ro was used for fraudulent transfers of assets, contrat:y to CaJ.Civ.Code 21 3439 and other ]aws. zz 19. Defendant 111 (hereinafter is company ()fganized under the laws on January 30, 2008, that engages 24 in bus:iness intema.tionally, being, on infonnation and belief, Karabayev's alter .Z5 ego, with the de facto address: Ibar .Development LLC, 940 South Coast Dr+, 26 100, Costa Mesa, 92626. Karabayev's mother-inlaw purportedly 21 incorporated Karlan in Aktoby, and has its director. Kar1an is Aroended Third Party CompJ11int Case 8:09-cv-00059-JVS-MLG Document 441 Filed 03/15/12 Page 9 of 25 Page ID #:9895Msr 15 2012 Schreiber Law Offices 925) 831-1899 10 subject to the jurisdiction of this Court because it was used tor frauduient 2 transfers assets! contrary to Cal.Civ.Code 3439 and other ]aws. 4 20. Detendant (hereinafter js 5 company organized under the laws of that engages in business 6 ittternationally with two different offices in Almaty, It was 7 incorporated in April of 2005 as wholly owned subsidiary. Bek1ayev served as its Dire Yuri and other operato.rs 10 on the Pink Sheets, as directed Yuri in his e-mail the 4-phase plan. The price was set at $1.2.50 per on and couple of 12 transa.ctions of only 100 shares on the Pink Sheets. Tbls manipulation was done s3 to attract investors and inflate the apparent value of the stock sold to various t4 investors. 44. Since its inception, has had no business revenues. From J6 the start, Vanetik and certain other Defendants never intended to make Turan n but as the vehic1e for an Ponzi scheme to divert the proceeds of their tblrd party distributions to theii own including through the 19 accounts of ofl:Shore entities in Swit:r.erland, and to spend as Httle as on 20 business purposes. (d) Iss.uing iq Order to Acquire Concession 45. purchase the 100% interest in the Concessiont Vanetik proposed to Bektayev to compensate interest in transfening 27 million shares 24 in Turan (with 50 million authorized which represented 54% rnajority 2s stock). purohase contract also included an option on 10 26 shares in Turan that could exercised later. However, give11 the 27 !5 :J{1f,>l:/()1(' 1:2!;30 I'M Case 8:09-cv-00059-JVS-MLG Document 441 Filed 03/15/12 Page 16 of 25 Page ID #:9902 15 2012 I:01PM Schreiber Law Offices 3251 831-1898 17 secret distribution of "founders;' stock a.nd the overissue, V anetik did not intetld 1 to meke that optio:n to Bektayev. 46. 24,381,862 of these shares were to held through Nevada holding 4 corporation (Trck Resources, Inc.; see be1ow) to set up specificaJ1y for that 5 purpose Vaneti.k: for Bektayev's benefit. Additionally, 2,618,138 shares in 6 Turan were to issued directly in Bektayev' s 1 4 7. That Maroh 26, 2005 agreemen.t represented to an.d YEv that was authorized to issue 100 tnillion shares. However, both the 9 ficritious Janua:ry 25, 2005 increase in authorized shares and the 10 misrepresentation to and YEV in the 26, 2005 agreement 11 that TURAN was authorized to issue 100 million shares were fulse. On 12 February 7, with V signing as President of prepared its Exchange Commission Information and Disclosure 14 Staternent pursuant to .Rule of the Securities Exchange Act of 1934. Js Item vi of this Statement stated that the number of total TURAN sha:res 16 authorized was 50 with shares outstanding. VANE11K and 11 with 50 authorized and almost 33 shares J8 outstanding, therefore could not have validly co.mmitted as of that date to sell 19 27 shares in to BEKTAYEV and sa.le is void 20 un1awful and fraudulent . .21 48. While the allegations in Parngraphs 47 through 48 of this Seco11d :zz Amended Vetified Third Party CompJaint may vary in detaHs from the 23 allegations contained in Paragraphs 4 7 and 48 of the Amended Verified 2-1 Party Complaint, the variations de.rive &om addi.tiona1 information revealed zs ftom discovery, including, not limited to the f'ebruary 7 2005 SEC Rule 26 Infonnation and Disclosure Statement, from obtained 21 between Iat.e September 2009 and January after the appeaJ in Ninth 16 11 - 12 1:25:30 Case 8:09-cv-00059-JVS-MLG Document 441 Filed 03/15/12 Page 17 of 25 Page ID #:9903Mar 15 2012 l:OlPM Circuit Court of Appeals No. 09-56329 and before the January 19. 2011 2 mandate issued the Ninth Circuit i.n this case. proceedings in whicb and BEKTAYEV obtained this discovery were I.,ube}]ki1 et. al. v. Turan 4 et aj., Carson City) First Judicial District, Case No. 5 submitted for decision following oraJ argument on January 11, 2012 in Nevada 6 Suprerne Court Case Nos. 55488t 56908. allegations are consistent., 7 however, in that: the January 25, 2005 document that purported to increase the s of authorized shares was bogus and w.ithout any authority, making the 9 representations to and YEV cont.ained therein false and mis1eading an.d that the agreement would have given YEV and the 1argest 11 singl.e of shares in TORAN, giving these plaintiffs control over the 12 Concession. the statements on the 11JRAN share certificate 83, 93, and 95 show that 50 miJiion shures ofTURAN were a.uthorized 14 also represented to and TURAN that they owned 54% ts interest in 11JRAN and thus over the Concession. !6 49. According t Case 8:09-cv-00059-JVS-MLG Document 441-3 Filed 03/15/12 Page 14 of 25 Page ID #:9975' ; ; ! : ------- -(r;nr ', N!IJo\1!!!.111 :Z$0 "' ... .., ........ .......... 1_ .. ._._ .. ____ ._..,_ .,.. ... , ......... -_ .. _ ....______ -----........ "__......,....,.. .... __ .._. ...... _____ _ --J!< ... _ _,.._ ____ ..... ..... -$fiAIIIE$ .. :. INC c...-:.=:J '"', : . .. - v:;;> .... COMMON COMMON STOCK CUS!P 1!8989J10G --.. -CI!fl ..... -""""' "tiiAT - FoUI"tsen Hu:dl1!d Elgttty.One Elght FUU.Y PAIO NC 11014-ASSESSA&E 01' COINON 01' I"E'J'ROU:U!'t(. 'INC. itf fk i:J lh /'wlfW ,.,-,.. hliJ llilm.ltd ",CW: i1f tlilr CN'/ifit1N. "11it.t tJ .., 111< 'l"nvftr """"'' tk jiiVifffitt -r fr,U tl,...OilJ'I!S 16{1!1 00""'' 21!115 lle .. .......,._ .. ,.... .. ..... -Case 8:09-cv-00059-JVS-MLG Document 441-3 Filed 03/15/12 Page 15 of 25 Page ID #:9976APPENDIX et al. v. TURAN PETROLEUM, et al. EXHIBIT Title for Exhibit: Memorandum of Defendant Freeman Freeman Smiley LLP, Dated July 29, 2008 Case 8:09-cv-00059-JVS-MLG Document 441-3 Filed 03/15/12 Page 16 of 25 Page ID #:9977freeman freeman Memorandum ATTORNEY -CLIENT PRIVILEGED AND CONFIDENTIAL FROM: DATE: SUBJECT: Turan Petro!eum, lnc. ('Turan" or the company") Sylvia Scott July 29, 2008 Analysis of lnformation Gathered Ouring Turan's lnternal Audit; Oue Diligence for Revised Private Placement Memorandum; and Proposed Solutions This memorandum provides an analysis of factual findings resulting from an internal audit performed Turan's Robln Bisarya. This memorandum also serves as due diligence for needed revisions to Turan's private placement memorandum and anticipated capital raise. The purpose of this memorandum, outlined in the of contents below, is to simultaneously identify and solutions so that the can move forward in positive direction and decisively address the issues described herein. At the end of each section of this memorandum there is summary that includes: 1} concise statement of the (2) why the is signiftcant; and (3) proposed solutions to the Case 8:09-cv-00059-JVS-MLG Document 441-3 Filed 03/15/12 Page 17 of 25 Page ID #:9978ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL ABLE OF CONTENTS 1. Background of the Company 11. lssue: Whether Certain Stock Transfers Relating to Trek 4 Resources, the Bektayev Group, Karlan 111 and Pine Brook Were Authorized/Legal Facts Relevant to the lssue 4 and Solutions 9 1. Concise Statement of the 9 2. Why the is Significant 9 3. ltems and Proposed Solutions 11 111. lssue: of Disclosure to lnvestors; Uses of 12 Turan's Funds 12 Facts Relevant to the lssue 14 and Solutions 14 1. Concise Statement of the 14 2. Why the is Significant 14 Action ltems and Proposed Solutions IV. lssue: Commingling; lnternal Controls and Recordkeeping 15 Facts Relevant to the lssue 15 and Solutions 16 1. Concise Statement of the 16 2. Why the is Significant 16 3. Action ltems and Proposed Solutions 16 2 Case 8:09-cv-00059-JVS-MLG Document 441-3 Filed 03/15/12 Page 18 of 25 Page ID #:9979 -CLIENT PRIVILEGED AND CONFIDENTIAL 1. Background of the Company Turan was incorporated in Nevada in March 2001 under the name, Elite Registry, lnc. ("Eiite") and is currently based in Costa Mesa, California. Elite's name was changed to Turan in December 2004 and. in January 2005, the Company's Articles were amended to designate as its "initia! directors" Vanetik and Robert Van Duren. The January 2005 Amended Articles also authorized Turan to issue 100 Million shares. On 2/22/07, the Articles were amended to authorize the issuance of 150 Million shares. the Articles were amended to authorize the issuance of 200 Million shares. Currentry, there are approximately 113 Million shares of Turan stock and outstanding. Additionally, there are approximately 40 Million shares of stock options issued and outstanding. Mr. Vanetik was Turan's President from the Company's inception through about 2008. Mr. Van Duren was Turan's Secretary and Treasurer from about November 2004 to 2008. (Yuri Vanetik was the Secretary from April2001 to about December 2004 and Vanetik was the Treasurer to about November 2004.) Mr. Vanetik is the Chairman of the Board of Turan. ln or about June 2008, the following new officers were appointed: 1. President and Askar Karaba_yev 2. Chief Exploration Officer S,guyres 3. VP of Business Development Jacky 4. VP of Operations Naum Voloshin 5. Secretary & Treasurer Robln Bisarya 6. VP of Administration and Alex Striganov echnical Support The had virtually no operations until2004, when it entered into the oil and gas industry recruiting new management and acquiring Turan EnerPetroleum, LLP organized and domiciled in the of Kazakhstan. is the holder of license granted the Kazakhstan government (the "Concession") to explore and extract hydrocarbons in territory consisting of over 5,000,000 acres located in South Kazakhstan (close to China and Uzbekistan). ln June 2006, Turan entered into certain agreements with Resources, lnc. ('TRI"). TRI is privately held, institutionally controlled, international oil and gas exploration and technology company. lt utiJizes what it claims to advanced Case 8:09-cv-00059-JVS-MLG Document 441-3 Filed 03/15/12 Page 19 of 25 Page ID #:9980 -CLIENT PRIVILEGED AND CONFIDENTIAL technology to increase the efficiency of the exploration efforts in oll and gas. ln July 2008, the Turan-TRI agreements were renegotiated and the companies look forward to productive relationship. Since its inception, Turan has had no revenues, other than the receipt of proceeds from the sale of piece of another concession for $300,000 to Russian Angel Acquisition, LLP. The Company's financial statements have been audited since the end of 2005. Additionally, the Company has never filed tax returns with federal or state authorities. However, recently the has undertaken an internal audit of the Company's books ar1d records. 11. lssue: Whether Certain Stock Transfers Relating to Trek Resources, the Bektayev Group, Karlan 111 and Pine Brook Were Authorized/Legal facts Relevant to the lssue The "Trek" Transactions way of background, March 26, 2005, Turan entered into contract with Kazenercom Kazakhstan LLC) and Yerkin Bektayev (collectively, the ''Bektayev Group") entitled. Enerpetroteum Confidential Asset Purchase Agreement" (hereinafter, Agreement"). Under the agreed to purchase 100% of TEP's assets in exchange for the payment of 26,181,372 Turan shares to the Bektayev Group. Turan paid the Bektayev Group under Agreement forming Trek Resources, lnc. ("Trek") to house most of the shares. Trek, formed in April 2005, is Nevada corporation. Bektayev was initially the President, Secretary, Treasurer and sole director. Turan paid the Bektayev Group under effecting the following Turan stock transfers: Bektayev: Trek: TOTAL: 2,618,138 24,381,862 27,000,0001 ln about 2006, the Bektayev Group (through LLC) filed lawsuit against Turan in Kazakhstan alleging that pursuant to Nominal Purchase Agreement between the Bektayev Group and Turan, dated 25, 2005 (two months after the Agreement), was to Kazenercom for its 49% interest in 1 letter dated June 2. 2006, the transfer agent (Empire) confirmed that Bektayev his shares 2005 (certificate 83); and Trek received its shares July 12, 2005 (9,800,000 shares/certificate 93) and August 22, 2005 (14,581 ,862 shares/certificate no. 95). 4 Case 8:09-cv-00059-JVS-MLG Document 441-3 Filed 03/15/12 Page 20 of 25 Page ID #:9981 -CLIENT PRIVILEGED AND CONFIDENTIAL TEP's nominal capital total of 49,000 (roughly $400 USD), plus $450,000 USD in accordance with additional terms mentioned in the Purchase Agreement. ln July 2006, the Court issued Decision (the "July 2006 Court Order") ruling in favor ofTuran finding that the Nominal Purchase Agreement was ancillary to the Purchase Agreement. Significantly, the July 2006 Court Order also found that the Bektayev Group had received adequate and fair compensation for the asset sale because they had received 27 Turan shares as represented Turan's President in letter dated July 1 3, 2006 which was submitted to the Court. [The July 2006 Court Order and July 13, 2006 Letter (both translated into English) are attached hereto as Attachment An appeal and two more lawsuits were filed the Bektayev Group against Turan. The second lawsuit resulted in the Bektayev Group getting back the 49% stock ownership interest in about March 2007. The third lawsuit the Bektayev Group was an attempt them to get the remaining 51% stock ownership interest. The initial court decision resulted in an award ofthe remaining 51% to the Bektayev Group. Although the time to appeal this award had expired, through certain Kazakh contacts oblained the current President of Turan and Karlan 111 (hereinafter, "Karlan"), belated appeal was successfully lodged and Turan got back its 100% ownership interest in This was an important victory for Turan because (along with its exploration and drilling license), was (and is} Turan's only significant asset. The net result of the events is that Turan is to the Bektayev Group total of 27 Million shares and to Karlan 111 total of 35 Million shares. However, review of Turan's transfer agent records and other documents show that the 24,381,862 Turan shares held in Trek's name for the benefit of the Bektayev Group were transferred to persons not for the benefit of the Bektayev Group and in apparent violation of the July 2006 Court Order. Unbeknownst to the Bektayev Group and through certain activities that are not currently known Turan's senior management staff, Bektayev was somehow removed as President, Secretary, Treasurer and sole director of Trek in April 2006 and the following replacement officers and directors were appointed: President: Sergey lipatov (replacing Bektayev) Secretary: Anatoly Vanetik (replacing Bektayev) Treasurer: Anatoly Vanetik (replacing Bektayev) Directors: Sergey Lipatov and Alexy Stojarov (replacing Bektayev) 2 Karlan has significant contacts in Kazakhstan which are also important to the retention of the licenses held For these services and as further detailed in the "Confidential Turan Petroleum Consulting Subscription Agreement for Karlan 111 ," dated February 15, 2008, Turan was required to Karlan 35 Million shares of Turan. 5 Case 8:09-cv-00059-JVS-MLG Document 441-3 Filed 03/15/12 Page 21 of 25 Page ID #:9982ATTORNEY -CLIENT PRIVILEGED AND CONFIDENTJAL Thereafter, in October 2006, Alexander Kushnirenko became the new president, treasurer and director of the and Asylkhan Burbayev became the nev11 secretary of Trek. According to emails dated October 26 and 31, 2006, these changes were assisted Mr. Vanetik. The emails are attached as Attachment Pursuant to undated Stock Powers that are signed Mr. Kushnirenko, Trek was divested of all of its Turan stockholdings and the shares were transferred to three entities controlled Karlan as payment for the contract between Turan and Karlan (referenced above) and to Hines lnvestments, SA ("Hines"). According to Articles of lncorporation for Hines that Mr. Karabayev received from Mr. Vanetik, Hines is Panama corporation. The Karlan companies received approximately 16 Million shares and Hines received approximately 8.4 Million shares. Hines transferred approximately 6.24 Million of its shares to two companies. which were further distributed to various investors. These transfers are apparently invalid because the shares should have remained with Trek (i.e., the Bektayev Group) according to the Jufy 2006 Court Order. Additionally, the legality of the new Trek officer/director appointments is an open question given that Bektayev (the original and sole officer/director of Trek) has no knowledge of these appointments and would strenuously oppose them. Additionally, even assuming Bektayev was legally removed without his knowledge (if for example 100% of Trek's shares were owned another person), Bektayev is likely to claim that he was fraudulently induced to transfer his shares to Trek as result of false or misleading representations made agents of Turan that the Turan shares would remain in Trek for the benefit of the Bektayev Group. Bektayev's attorneys have already threatened lawsuits as they have recently learned that something is amiss, as discussed below. Below is flow chart detailing the Turan stock transfers away from Trek to various persons: [THIS SPACE INTENTIONALL LEFT 6 Case 8:09-cv-00059-JVS-MLG Document 441-3 Filed 03/15/12 Page 22 of 25 Page ID #:9983 -CLIENT PRIVILEGED AND CONFIDENTIAL Stock Transfers From Trek (Bektayev) to Various Persons Pington lnv. (Karlan) 5,333,000 shs (8/07) Private Equity Mgt 4,240,000 shs (2/08) 24,381,862 shares received Trek Varrial Fin. (Karlan) (July/Aug 2005) 5,333,000 shs (8/07) HJnes t-----t>i 888 Capital LLC as required Transfrs/Sel/s July 2006 Cour1 Order Coast Fin. (Karlan) 5,333.000 shs (8/07) Transfrs!Sel/s 2,000,000 shs (3/08) Hines lnv. SA 8,382,862 shs (10/07) 1. Nhung Thi Nguyen Hines 2,142,000 shs (bal.) ransfrs!Sells 35,000 shs transfr req'd NRG 2. Bui Nevada LLC 100,000 shs transfr req'd NRG Vivian Nguyen 80,000 shs transfr req'd NRG 4. Chrlstlan Llsing 20,000 shs (3/08); transfr req'd NRG 5. Le 888 Dynasty 83,333 shs transfr req'd NRG 6. Kevln Jones Brightstone 250,000 shs {3/08); transfr req'd NRG 7. Judv Trinh 20,000 shs (3/08); transfr req'd NRG Delta Fine Chemicals 1 Mil shs (3/08); transfr req'd NRG 9. Partners 2 Mil shs (3108); transfr req'd NRG 10. 3 Polnt lnvestment 20,000 shs (4108); transfr req'd Turan 11. FamiLee lnvestment 46,000 shs (4108); transfr req'd Turan 12. Tlffany 14,290 shs (4/08); transfr req'd Turan 1 Minh Tran 2000 shs (4/08); transfr req'd Turan 14. 569,337 shs (balance as of 4/08) 7 Case 8:09-cv-00059-JVS-MLG Document 441-3 Filed 03/15/12 Page 23 of 25 Page ID #:9984 -CLIENT PRIVILEGED AND CONFIDENTIAL The "Pine Brook" Transactions With regard to Turan's Agreement to Karlan 35 Million shares ofTuran, 10 Million of those shares were transferred to Pine Brook (or Brooke) as evidenced transfer agent records and various documents. Pine Brook is unrelated to Karlan. This transfer was facilitated letter to Turan, dated February 22, 2008, and allegedly signed Manat Torbergenova, principal of Kar!an (the "alleged Torbergenova Letter" or "Letter"). The al/eged Torbergenova Letter is in English; however, Ms. Torbergenova does not speak or read EngHsh (she speaks Russian). Turan's current President (Askar Karabayev) questioned Ms. Torbergenova about the Letter and she stated that the signature was not hers and that it is forgery. The Letter instructs Turan to issue 35 Million shares as follows: 1. Pine Brook, SA (Panama City, Balboa Plaza. Panama: 1 Million shares); 2. Varrial Financial Trading (affiliated with Karlan): 10 Million shares; 3. Karlan 111 : 15 shares. The alleged Terbergenova Letter was from Van Duren, attached to an email from Mr. Van Duren to Turan's senior management, dated July 8, 2008 (''Van Duren Email"). The Letter and Van Duren Email are attached to this memorandum as Attachment "D". ln the Van Duren Email, Mr. Van Duren states, among other things the following: "On February 15, 2008 we passed Board resolution regarding entering into contract with Karlan 111 obligatlng Turan to issue 35,000,000 shares in return for services provided Karlan 111 . . .. ony (Vanetik] asked me to prepare resolution to issue the shares in the name of 3 separate companies. Since this was change from the name of the entity that we had executed the contract with (Karlan 111) 1 asked to get an instruction letter from Karlan 111 instructing Turan to issue the shares in the names Tony had provided. provided me with the attached instruction letter on February 22 (the alleged Tobergenova Letter] .... lf mistake was made in the issuance of the shares it needs to resolved .... ln reviewing the records from the transfer agent 1 see 3 separate certificates were issued as result of the board action regarding the 35,000.000 share transaction. One of the certificates was # 296 issued in the name of Pine Brooke SA in the amount of 10,000,000 shares. 417-08 the transfer agent broke certificate # 296 into several different certificates. 1,000,000 shares were issued into new names represented 4 separate certificates numbered 334, 335, 336, 8 Case 8:09-cv-00059-JVS-MLG Document 441-3 Filed 03/15/12 Page 24 of 25 Page ID #:9985 PRIVILEGED AND CONFIDENTIAL and 337. The balance of 9,000.000 shares were reissued into the name of Pine Brooke SA represented certificate # 333. On the transfer agent cancelled certificate number 333 and reissued certificate # 340 in the name of Pine Brook SA in the amount of 9,000,000 shares. As you may notice this is slightly different spelling. Mr. Van Duren goes on to advise that freeze placed the shares relating to the Pine Brook transfer. As referenced in the Van Duren Email, and reflected in transfer agent records, the 1 Million shares issued to Pine Brook were broken up and 1 Million of the shares was issued to four (4) recipients. all of whom have the same address in Switzerland. The recipients of the 1 Million shares apparently have no affiliation with Karlan. Three of the certificates are in the name of UArticle Second Trust" and one of the certificates is in the name of "Eiizabeth Fago Trust." Turan. in consultation with corporate counsel. has placed freeze on the certificates relating to the Pine Brook transfers. pending Turan's continuing inguiry into this matter. Additionally, in light of the other transfers, Turan has instructed the transfer agent to get all stock transfer reguests pre-approved Turan's Secretarv (Robln Bisarva) until further notice. This was done to prevent the continuation of activities that might in contravention of federal and state securities laws, among other things. As regards the identity of Pine Brook, the Terbergenova Letter indicates that it is Panama corporation (like Hines). Mr. Van Duren also stated that Pine Brook is Panama Corporation. agent records report that Pine Brook's address is the United States is the same as NRG's (which is Turan's former address), i.e., 3720 South Susan St., Santa Ana, According to bank wire transfers relating to the Lee" transaction, discussed below, Pine Brook has bank account in Switzerland. and Solutions 1. Concise Statement of the Substantial shares of Turan (24,381 ,862 ) have been transferred out of Trek in apparent violation ofthe July 2006 Court Order. Most ofthose shares (15,999,0000) were transferred to entities controlled Karlan pursuant to contract between it and Turan. lf the transfers of Turan stock away from Trek are illegal, then the stock transfers to Karlan are invalid. This further results in failure Turan to the consideration it owes to Kar/an under the contract, potentially threatening to undermine an important relationship and trigger lawsuit. Additionally, assuming that Bektayev or Trek never had right to the 24,381,862 shares, why were they not returned to Turan and cancelled? 9 Case 8:09-cv-00059-JVS-MLG Document 441-3 Filed 03/15/12 Page 25 of 25 Page ID #:9986ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL 2. W/ry the is Significant 1, The appointment of Trek's current officers/directors and the removal of Bektayev may not legal because Bektayev {Trek's sole officer/director at the time of the appointments/removal) did not authorize these actions. lf the removal of Bektayev was not legal, the divestment of Trek's stockholdings in Turan is not legal; nor are the subsequent transfers to Karlan, et al. Additionally, if any Turan officers or directors facilitated any illicit activities, Turan willlikely the subject of regulatory scrutiny and private lawsuits, 2. Karlan is an important partner for Turan as it has key contacts in Kazakhstan, which are essential for TEP's retention of its license. Additionally, Karlan provided services for Turan with regard to the lawsuits the Bektayev Group and TEP's renewal of its license with the Kazakh government. lf Turan's relationship with Karlan is compromised, lawsuits are likely and TEP's license (Turan's only significant asset at this time) would in peril. Attorneys for the Bektayev Group have contacted Turan threatening lawsuit because they have received information that Bektayev no longer has any interest in Trek.3 At this point, Bektayev's attorneys do not know that all of the Turan shares have been transferred out of Trek. lawsuit is practically certain if they become aware of this fact. 4. Registration lssues: The sales Private Equity Management, lnc. (which is apparently not broker-dealer) to 14 persons raises issues of whether acted as an unregistered broker-dealer and/or sales agent in violation of state and/or federallaws.4 Additionally, if purchased the shares with view towards 3 Specifically, one of Trek's current officers, Mr. lipatov, sent letter to attorneys for the Bektayev Group (Rutan Tucker in New York) that Mr. Bektayev has interest in Trek. 4 Brokers and dealers in securities are required register with the SEC. Similarly, each state has its own requirements for broker/dealer registration. Under federallaw, "broker" is any person engaged in the business of effecting transactions in securities for the account of others, but does not include bank. "dealer" is person engaged in the business of buying and selling securities for his own account, through broker or otherwise. lssuers {i.e., companies) generally are not "brokers" because they sell securities for their own accounts and not for the accounts of others. lssuers generaliy are not "dealers" because they do not buy and sell their securities for their own accounts. Persons associated with issuers could brokers is they receive transaction based compensation. 10 Case 8:09-cv-00059-JVS-MLG Document 441-4 Filed 03/15/12 Page 1 of 17 Page ID #:9987ATTORNEV-CLIENT PRIVILEGED AND CONFIDENTIAL distribution and there is no exemption this raises issues of compliance with securities registration requirements.5 3. Action ltems and Proposed Solutions Action /tem(s) 1. answers to the following questions as soon as How was the removal of Bektayev and of new officers and directors for Trek accomp/ished and whom (i.e., confirm whether legal; get of Trek's By/aws)? With regard to the recipient of the Trek shares (other then the Karlan companies, who are known), ascertain: (1) general information regarding the identity of the persons (i.e., who controls the entities, are the individuals affiliated in any way with Turan or any of its control persons); and (2) what consideration if any was paid the recipients of the shares. Who controls Pine Brook and why did Pine Brook receive shares earmarked for Karlan?6 Who controls Hines and what consideration, if any, did Hines for the Turan shares it received. Proposed Solution(s): With regard to Finders, the SEC's interpretation of the finder's exemption is predicated on the finder merely making to the issuer, introduction or otherwise, the identity of interested investors, and the absence of certain factors (i.e., participation in negotiations, counseling investors of the merits of investing, recommending the investment to investors, receiving compensation based on percentage of the offering proceeds, holding or cash, conducting sales efforts). 5 is not to confused with Private Equity Management Group (hereinafter, "PEMGROUP"). PEMGROUP is global private equity investment firm located in North America and Asia, with over US$4 blllion in assets under management and over 100 investment professionals worldwide. Turan has leamed from PEMGROUP that it believes it has cause of action against for improper use of its corporate name. PEMGROUP has apparently received calls from Turan sharehotders who have stated that is essentially posing as PEMGROUP, triggering the possibllity of further lawsuits in which Turan could get looped in (even if Turan engaged in no wrongdoing). 6 The Company's Secretary has put forth substantial efforts to get these and related questions answered and has encountered Consequently, in the absence of legal action, it may not to get these questions answered. 11 Case 8:09-cv-00059-JVS-MLG Document 441-4 Filed 03/15/12 Page 2 of 17 Page ID #:9988 -CLIENT PRIVILEGED AND 1 Cancel all of the shares (24,381,862) that were issued as result of the divestment of al! of Trek's stockholdings in Turan (unless immediate responses received as to the above-listed questions indicating that different action is appropriate). 2. Re-issue to Trek new shares of Turan totaling 24,381,862 (unless immediate responses are received as to the questions indicating that different action is appropriate). 3. Cancel the 10 Million shares that were issued to Pine Brook (and re-issued to various Swiss accounts) and issue 10 Million shares to Karlan or its designee(s) (unless immediate responses are received as to the above-listed questions indicating that different action is appropriate). 4. Re-issue to Karlan (or its beneficial designees) new shares of Turan to1aling 15,999,000. 5. Send letters to each of the recipients of Turan shares apparently belonging to Trek notifying them that: 1) their Turan certificates have been cancelled pending an internal audit; 2) their shares will immediately re-issued to them pending receipt and evaluation of certain requested information, as appropriate. 6. Return all of the Turan shares (24,381,862) back to Trek and re-issue new Turan shares (15,999,000) to the three entities controlled Karlan. Additionally, re-issue Turan shares to those who are legally entitled to them (i.e., recipients who have "fully paid for" the Turan shares they received). 7. Adopt corporate governance documents (i.e., Corporate Governance Guidelines, etc.) and establish Finance and Audit Committee as soon as to evaluate these and other issues referenced in this memorandum. 8. Continue to require Turan's transfer agent to oblain pre-approval Turan's Secretary for all stock transfer requests, until Turan completes its investigation into the stock transfers. 111. lssue: Adequacy of Disclosure to lnvestorsj Uses of Turan's Funds Facts Relevant to the lssue Turan's does not disclose the risks and uncertainties relating to Turan's primary asset as result of the Bektayev and use of investor proceeds. While the makes general reference to the Bektayev litigation,7 it goes on to state, 7 The dated February 2007 states, initiated litigation in the United States against Kazakhstan national and Kazakhstan based company. ln addition. 12 Case 8:09-cv-00059-JVS-MLG Document 441-4 Filed 03/15/12 Page 3 of 17 Page ID #:9989 PRIVILEGEO ANO CONFIDENTIAL 'The does not believe that the Legal Proceedings it is currently involved in have material impact on its business.'' During the tirne Turan was in litigation with the Bektayev Group (frorn about 2006 to September 2007), Turan was at risk of Josing its sole asset Further, various court orders (that were subject to appeal and eventually overturned) found that Turan did not have right to all or part of its claimed ownership interest in (from about March 2007 to September 2007). Turan's only asset apparently remains at risk because the Bektayev Group has not received the 24,381,862 shares of Turan required the July 2006 Court Order. lf the Bektayev Group learns that all of these shares have been transferred out of Trek and into the hands of other persons, lawsuit is highly likely. This could, again, jeopardize Turan's only asset. Specifically, lf Kazakh Court finds that Turan violated the July 2006 Court Order, there is substantial risk that the Court could issue rulings negatively impacting Turan's interest in or otherwise penalizing Turan. During the pending litigation with the Bektayev Group, substantial number of Turan shares (8,382,862) were sold to various institutions and individuals, as detailed in the chart above. Additional shares were sold to other investors. There are no versions of Turan's private placement identified to date that disclose the Bektayev litigation. the substantial threat that Turan lose its only asset and the fact of court rulings that found against Turan as to all or part of its ownership interest in Failure to disclose these facts willlikely viewed as omission of fact under federal and state securlties laws.8 Turan's internal audit (the details of which are addressed in the next section of this memorandum) found that shareholder proceeds were used to expenses incurred other persons and not for the Company's Concession. lnformation is still being gathered the Company on this issue: however, the has oblained historical document indicating that significant of funds Turan's checking account were distributed for uses inconsistent with disclosures regarding use of the has been the defendant against litigation initiated in Kazakhstan the individual and entity. The parties recently reached an agreernent to end all of the outstanding litigation .... " 8 Facts are if investor would consider them important in an investment decision and would view disclosure of them as significantly altering the total of made The of relating to financial condition, solvency and profitabllity is not subject to serious challenge." SEC v. Murphy, 626 F.2d 633, 653 (9th Cir. 1980), cited us in Charles French, 52 S.E.C. 858, 863 n.19 (1996). See also, Leandro Emerg. Med. Group Proflt Sharing Plan v. Philip Morris Cos., 75 F.3d 801,809 (2d Cir. 1996) ("Material facts include ... those facts which affect the future of the company.") (quoting SEC v. Texas Gulf Sulphur 401 P.2d 833, 849 (2d Cir. 1968)). 13 Case 8:09-cv-00059-JVS-MLG Document 441-4 Filed 03/15/12 Page 4 of 17 Page ID #:9990 PRIVILEGED AND CONFIDENTIAL proceeds. The states that all net proceeds will used to develop the Concesslon. According to historical ledgers and the Company's former accountant Taylor), Turan paid expenses to NRG Resources Corp. ("NRG") totaling $413,330.00. Additionally, an employee of Turan for several years specifically identified number of expense items paid for Turan tha1 were not for the benefit of Turan. Such items included, among other things, the fo/lowing payment: 1 $50,000.00 payment to Gintautas Vileita (apparently related to ''aluminum deal" having nothing to do with Turan); 2. $98,000.00 in payments to law firm representing NRG; 3. $150,000.00 payment to Judy Trinh (the wife of former Turan Secretary, Hiep Trinh); and 4. $7,000.00 payment to Len Futaba, an employee of NRG.9 and Solutions 1. Concise Statement of the Whether Turan shareholders received adequate disclosure regarding: (1) the Bektayev litigation and the threat it posed (and continues to pose) as to Turan's sole asset and (2) use of proceeds. 2. Why the is Significant F ailure to disclose material information to investors and/or making materially misleading statements constitutes fraud under federal (SEC) and state securities laws. Even if this did not actually occur, red flags or highly suspicious activities indicating that it has occurred expose Turan to private lawsuits and investigation (or prosecution) the regulators (i.e., the SEC and/or state regulators). 3. Action ltems and Proposed Solutions Action Jtem(s) answers to the questions outlined in Section 11.8.3, above, and below. 9 Most recently, in June 2008, an improper expense was charged to Turan (i.e .. Victoria's Secret). Though the amount was small and reimbursement was received after the incident was called to the attention of NRG, this occurrence underscores the need for immediate implementation of internal controls and corporate governance policies and procedures. 14 Case 8:09-cv-00059-JVS-MLG Document 441-4 Filed 03/15/12 Page 5 of 17 Page ID #:9991 ATTORNEY -CLIENT PRIVILEGED AND CONFIDENTIAL Proposed Solution(s): Revise Turan's as soon as Send out shareholder letter with an update of current and past events, if appropriate and as additional information is lf an investor complains and depending upon the basis for the complaint, consider settling the matter offering to rescind the transaction, if appropriate and in consideration of the merits, litigation risk, cost of litigation, and negative Adopt strong corporate governance policies/procedures and internal controls addressing shareholder disclosure issues. IV. lssue: Comminglingj lnternal Controls and Recordkeeping Facts Relevant to the lssue As noted above, Turan's ongoing internal audit has identified significant expenses paid the Company via checks and wire transfer that may not have been appropriate.11 Additionally, with regard to the total amount of money raised Turan, corporate records received to date state that total total of $15,237.082 worth of Turan shares were sold for comblnation of cash and services. Total cash received Turan amounts to $2.635,610, according to records received to date. Additionally, the internal audit has been to identify only $5.193,466 worth of services received. Additionally, sales third parties of their Turan stock have resulted in the receipt of far more cash than Turan has ever raised to date (for example, see Sam lee Transaction, below). Turan's Secretary is continuing to seek answers to these issues working with NRG employees and others. This task is complicated the fact that segregated bank accounts were apparently not kept for Turan and NRG. Additionally, records were apparently not kept of whether given expense was to Turan only, NRG only or joint Turan/NRG expense. Turan's former accountant stated that she attempted to oblain this information from the companies but was to get responses from them. Consequently, the ledgers that she did keep do not have the requisite detail. That said, separate historicalledgers were kept of expenses submitted NRG and expenses submitted Mr. Vanetik for disbursements from Turan checking account. As noted above, the NRG ledger shows expenses for the 10 Turan has received complaints from certain investors through their attorneys who have questioned, among other things, Turan's recordkeeping and stock transfer. Those matters being handled corporate counsel. 11 The checks were apparently signed Mr. Vanetick and the wires were apparently sent an NRG employee (Haneczka Czernaichowski). 15 Case 8:09-cv-00059-JVS-MLG Document 441-4 Filed 03/15/12 Page 6 of 17 Page ID #:9992ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL period $413,330.00 for the period February 2005 to 2008. The Vanetik ledger shows expenses of $1,781.962.00 for the period February 2005 to 2008. Turan's Secretary has not yet successful in his continuing efforts to details for these ledgers. During Turan's internal audit, Turan's Secretaryrrreasurer further requested copies of the Company's historical minutes of all meetings of the board of directors in order to reconstruct the purpose of various significant expenditures and understand the basis for Turan's of substantial amounts of shares (including the stock transfers discussed above). As noted above, to date, Turan has issued total of approximately 11 Million shares. The received the Secretary summarized document Board of Directors Summary." This document is attached hereto as Attachment Some of the actual are do not identify the and do not details, it difficult to events. For example, 12/14/04, states oean Miller 1, 600,000 shares." 1t is clear from the corresponding minutes the nature of the benefit received (or to received) Consequently, it is unclear whether these many other Turan stock issuances were fully paid, as required. of stock options were to persons apparently involved with Turan or with apparent benefit to Turan. Many of these stock options are referenced Turan's board of directors minutes or board The Sam Lee Transaction high net worth with whom Mr. Karabayev had done business, Sam Lee, told Mr. Karabayev that he was in Turan. Mr. Karabayev, who was pre-occupied with various business matters, introduced Lee to Mr. Vanetik and Hiep to raise money for Turan. Subsequently, Lee purchased 1 Million shares of Turan for purchase price of $3.80 per share, for total purchase price of $3.8 Million. However, Mr. Lee apparently purchased his shares from Essex Management, Turan (which has and to in of capital). (The effect at the time had purchase price of $5.00 per share.) Records include Private Stock Sale Agreement Essex Management and Mr. Lee ("Essex/Lee dated February 1, 2008, attached hereto as Attachment F. The signor the Essex/Lee Agreement is Sergey Polyanichkin. to Alex Striganov consultant who also worked in NRG's offices), Mr. is involved an aluminum deal in which Vanetick is involved. According to emails and other documents during internal audit, Attachment G, Mr. Yuri Vanetik is affiliated with Essex. These documents also reflect Turan Board Action (with Mr. Vanetik and Mr. Van Duren as signors), dated July 5, 2005, the issuance of 10 Million shares to Essex at $6.00 per share in of cash and financial consu!ting services relating to the raising of capital for [Turan] outside of the United States .... " 16 Case 8:09-cv-00059-JVS-MLG Document 441-4 Filed 03/15/12 Page 7 of 17 Page ID #:9993 CLIENT PRIVILEGED AND CONFIDENTIAL Mr. Lee paid for his shares via three wires dated February, and June 2008. totaling $3.8 Million (substantially more than total cash apparently ever raised Turan through its sale of shares- i.e., $2.6 Million). The money ($3.8 Million) was wired to Swiss bank account in the name of "Pine Brook." The wire transfer requests are included in Attachment F. referenced above. As result of these transactions, Turan missed the opportunity to raise millions of dollars. Mr. Karabayev stated that he was unaware of these transactions until Mr. Lee happened to them to his attention. Mr. Karabayev further stated that he was deeply concerned about the Sam Lee transactions because Turan really needed these funds to fulfill its under the contract for exploration on ARYS with the government of Kazakhstan. Continuing lnternal Audit of the lssues uran recently sent out questionnaires to shareholders in an attempt to ascertain the identity of certain shareholders and whether consideration had been paid the shareholder. One of tfle responses states that the shareholder did not for the shares he received. The questionnaire response is attached hereto as Attachment The continues to collect and analyze information it has received to provide further answers. However, substantial facts have already been verified the as detailed herein. and Solutions 1. Concise Statement of the Turan's recordkeeping and internal controls have raised serious questions regarding proper use of Turan's funds and whether other activities were proper and/or authorized. 2. W/1y the is Significant Misuse of investor funds constitutes fraud under federal (SEC) and state securities laws. Even if this did not actually occur, red fiags or highly suspicious activities indicating that it has occurred expose Turan to private lawsuits and investigation (or prosecution) the regulators (i.e., the SEC and/or state regulators). The recordkeeping and internal controls at Turan place the Company at risk for corporate abuse, which in turn trigger lawsuits and regulatory scrutiny. 3. Actlon ltems and Proposed Solutions Additional information is needed for Turan to further assess the of the issues detailed above. However, what is known to date demonstrates that Turan 17 Case 8:09-cv-00059-JVS-MLG Document 441-4 Filed 03/15/12 Page 8 of 17 Page ID #:9994APPENDIX VERIFIED AMENDED THIRD-PARTY COMPLAINT et al. v. TURAN PETROLEUM, et al. EXHIBIT F Title for Exhibit: Chart Admitted Turan Petroleum, Inc. in V erified Complaint Against its Board Chairman Anatoly Vanetik Showing Misappropriation of Plaintiffs' Stock through Panama offshore Case 8:09-cv-00059-JVS-MLG Document 441-4 Filed 03/15/12 Page 9 of 17 Page ID #:9995r Escrow For 24.6 snares NewShares NewShares / / -- - -- -- -- -------- ----- ------ --- - --- - Attacks in Kazakhstan Have to restarted Criminal. legal Case 8:09-cv-00059-JVS-MLG Document 441-4 Filed 03/15/12 Page 10 of 17 Page ID #:9996r i Escrow For 24.61\11 shares New Shares 2461\11 r -------------.---------------------- Attack&, based on "racketeenng and alit:n s tatus :Redacted : . . Lw' ,. rt.a 1 Attacks on Bektayev in Kazakh$tan Have to restarted Cnminal, legal Augmented extract, on information and belief, pierces attorney-client privilege Case 8:09-cv-00059-JVS-MLG Document 441-4 Filed 03/15/12 Page 11 of 17 Page ID #:9997APPENDIX et al. v. TURAN PETROLEUM, et al. EXHIBIT G Title for Exhiblt: Letter of Demand to Defendant Freeman Freeman Smiley LLP, dated March 2, 2009 Case 8:09-cv-00059-JVS-MLG Document 441-4 Filed 03/15/12 Page 12 of 17 Page ID #:9998\ k i \ Case 8:09-cv-00059-JVS-MLG Document 441-4 Filed 03/15/12 Page 13 of 17 Page ID #:9999\ Case 8:09-cv-00059-JVS-MLG Document 441-4 Filed 03/15/12 Page 14 of 17 Page ID #:10000Case 8:09-cv-00059-JVS-MLG Document 441-4 Filed 03/15/12 Page 15 of 17 Page ID #:10001APPENDIX et al. v. TURAN PETROLEUM, et al. EXHIBIT Title for Exhiblt: Banking Records of $5 million Transfer Defendant Adilzhan Dzhakishev on February 3, 2009 Case 8:09-cv-00059-JVS-MLG Document 441-4 Filed 03/15/12 Page 16 of 17 Page ID #:10002I.JEt.LS FI\RGO BA!IK II.A. FULl TRANSACTION REPORT >>> *F 2F 2 **** ---*** MESSAGE *** MESSAGE HISTORY SEQUENCE Page 49122 FOR 03-FEB-2009 - - - - - - - - ~ SND DATE: 09/02/03 CUR:USD TRDR# Case 8:09-cv-00059-JVS-MLG Document 441-4 Filed 03/15/12 Page 17 of 17 Page ID #:10003\JELLS FARGO BAI4K FUI.L REPORT ;;::;;-:.; TRIJ: 090203069058 > **** Page 30870 FOR 03-FEB-2009 SNO DATE: 09/02/03 CUR:USD TRDR# ________ FTRL ___ FNDS :S C.!LCi;DB: R Cll;_l\ . :JL .. ------------------------------------------------------*** MESSAGE *** NRF 0000006DOOOO.OOSFTR 2FTR 0015000150 01iH=Accordi ng to 2 .1. of attachment - 2 to the Turan Entergetroleum LLP -share Sale d""td""."'""'"'J""a""'n""?=-',""i:z""o----------- Pacific Oil and Gas LTD) SRF=FW00150034469671 DZHAKISHEV -33 SKYR!DGE BNF=D/5738215283 -TURAN PETROLEUM INC :.9,40 S COAST DR STE 100 -COSTA MESA 92626-7851 MESSAGE HISTORY SEQUENCE 121 -------R 114114 -------------