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UNITED STATES BANKRUPTCY COURT DISTRICT OF COLORADO In re: UNITED WESTERN BANCORP, INC. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

Case No. 12-13815 ABC Chapter 11

Debtor In re: MATRIX BANCORP TRADING, INC.

Case No. 11-13822 ABC Chapter 11

Debtor In re: MATRIX FUNDING CORP.

Case No. 12-13824 ABC Chapter 11

Debtor

Jointly Administered Under Case No. 12-13815 ABC

OBJECTION OF THE FEDERAL DEPOSIT INSURANCE CORPORATION AS RECEIVER TO DISCLOSURE STATEMENT FOR DEBTORS PLANS OF LIQUIDATION DATED NOVEMBER 6, 2012

The Federal Deposit Insurance Corporation, in its capacity as receiver for United Western Bank of Denver, Colorado (the FDIC-Receiver), by and through its undersigned counsel, hereby objects to approval of the Disclosure Statement for Debtors Plans of Liquidation Dated November 6, 2012 [Docket No. 213]1 (the Disclosure Statement) proposed by United Western Bancorp, Inc. (UWBK), Matrix Bancorp Trading, Inc. (MBT) and Matrix Funding Corp. (MF, and together with UWBK and MBT the Debtors). In support of its objection, the FDIC-Receiver states as follows:

Unless otherwise noted all references to Docket Nos. are to chapter 11 case no. 12-13815.

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I.

INTRODUCTION

The Disclosure Statement should not be approved because it fails to contain sufficient information to enable the FDIC-Receiver and the Debtors creditors to make an informed judgment about the Plans (defined below) proposed by the Debtors. As is described in more detail below, on nearly every important factor that is likely to influence the decision of creditors on whether to support the Plans, the Disclosure Statement fails to provide basic information. Therefore, the Disclosure Statement should not be approved in its present form. II. BACKGROUND

On January 21, 2011, United Western Bank of Denver, Colorado (the Bank) was closed by the Office of Thrift Supervision and the FDIC-Receiver was named receiver. As the Banks receiver, the FDIC-Receiver succeeded to all rights, titles, powers and privileges of the insured depository institution, and of any stockholder, member, accountholder, depositor, officer, or director of such Bank. 12 U.S.C. 1821(d)(2)(A)(i). Prior to the receivership, the Bank was a wholly-owned subsidiary of UWBK. On March 2, 2012 (the Petition Date), the Debtors each filed voluntary petitions seeking relief under chapter 11 of title 11 of the United States Code (the Bankruptcy Code) in the United States Bankruptcy Court for the District of Colorado (the Court). To date, no trustee or examiner has been appointed in the Debtors bankruptcy cases (together, the Chapter 11 Cases) and the Office of the United States Trustee has not appointed an official committee of unsecured creditors. On August 30, 2012, the FDIC-Receiver filed a proof of claim in the Chapter 11 Cases which is identified as Claim No. 28 on the Debtors claim register (the FDIC-Receiver Claim). Through the FDIC-Receiver Claim, the FDIC-Receiver asserts claims arising from consolidated

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tax returns filed by UWBK on behalf of, among others, the Bank and for tax related intercompany balances held by the Debtors, including those that may have arisen under law or pursuant to any tax allocation agreement or tax sharing agreement between the Bank and UWBK, among others (together, the Tax Refunds). The FDIC-Receiver estimates the amount of the Tax Refunds to be $4,847,000.00. Through the FDIC-Receiver Claim, the FDIC-Receiver also asserts claims for fraudulent transfers or unlawful dividends under 12 U.S.C. 1821(d)(17), ownership rights and entitlements to the proceeds of certain insurance policies and unearned premiums, and claims for reimbursement. Although the Debtors have not objected to the FDICReceiver Claim, the Debtors contend that all or substantially all of the Tax Refunds belong to the Debtors and not the FDIC-Receiver. On November 9, 2012, the FDIC-Receiver filed the Motion of the Federal Deposit Insurance Corporation as Receiver for an Order Pursuant to 105 and 363 of the Bankruptcy Code regarding Establishment of a Segregated Joint Account [Docket No. 199] (the Motion to Establish Joint Account). By the Motion to Establish Joint Account, the FDIC-Receiver sought the entry of an order to permit the Tax Refunds to be negotiated and deposited into a segregated interest-bearing account while the Debtors and the FDIC-Receiver attempt to resolve their disagreement regarding ownership of the Tax Refunds. On December 26, 2012, the Court entered the Agreed Order Resolving Motion of the Federal Deposit Insurance Corporation as Receiver for an Order Pursuant to 105 and 363 of the Bankruptcy Code regarding Establishment of a Segregated Joint Account [Docket No. 220] (the Agreed Order) which granted the Motion to Establish Joint Account. On November 6, 2012, UWBK filed United Western Bancorps Plan of Liquidation Dated November 6, 2012 [Docket No. 194] (the UWBK Plan) and MBT and MF filed Matrix

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Bancorp Trading, Inc. and Matrix Funding Corp.s Joint Plan of Liquidation Dated November 6, 2012 [Docket No. 36 in chapter 11 case no. 12-13822 and Docket No. 51 in chapter 11 case no. 12-13824] (the MBT/MF Plan, and together with the UWBK Plan the Plans). On December 12, 2012, the Debtors filed the Disclosure Statement. By order dated January 8, 2013, the Court set February 7, 2013 as the deadline to file and serve objections to the Disclosure Statement. By that same order the Court set a hearing to approve the Disclosure Statement for February 21, 2013. On January 7, 2013, counsel for the FDIC-Receiver sent email correspondence to counsel for the Debtors raising various questions and concerns about the adequacy of the Disclosure Statement. A copy of this correspondence is attached hereto as Exhibit A. Another request to discuss the Disclosure Statement was made to Debtors counsel on January 16, 2013. Debtors counsel failed to respond to these requests until February 5, 2013 at 7:17 pm (Eastern - the time zone where the FDIC-Receivers offices are located); nearly a month after the FDIC-Receiver first raised some of its concerns to counsel for the Debtors. A copy of the Debtors response is attached hereto as Exhibit B. The substance of the Debtors response does not sufficiently address the inadequate information provided in the Disclosure Statement, discussed in detail below. III. JURISDICTION

The Court has jurisdiction over the Chapter 11 Cases commenced by the Debtors pursuant to 28 U.S.C. 157 and 1334. Approval of the Disclosure Statement is a core

proceeding pursuant to 28 U.S.C. 157(b). Venue regarding the adequacy of the Disclosure Statement is proper before the Court pursuant to 28 U.S.C. 1408 and 1409.

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The FDIC-Receiver reserves its rights with respect to the jurisdiction of this Court to resolve the underlying dispute between it and the Debtors. The filing of this objection is not and shall not constitute an admission by the FDIC-Receiver that the Bankruptcy Court has the jurisdiction or authority to resolve disputes between the FDIC-Receiver and the Debtors.2 IV. ARGUMENT

The Disclosure Statement may not be approved unless the Court finds that it contains adequate information. information as: [I]nformation of a kind, and in sufficient detail, as far as is reasonably practical in light of the nature and history of the debtor and the condition of the debtors books and records . . . that would enable [a creditor] . . . to make an informed judgment about the plan, and in determining whether a disclosure statement provides adequate information, the court shall consider the complexity of the case, the benefit of additional information to creditors and other parties in interest, and the cost of providing additional information; 11 U.S.C. 1125(a). The purpose of a disclosure statement is to inform equity holders and claimants about the probable financial results of the acceptance or rejection of that particular plan. In re Aspen Limousine Serv., Inc., 193 B.R. 325, 334 (D. Colo. 1996) (citing In re Stanley Hotel, 13 B.R. 926, 929 (Bankr. D. Colo. 1981)). In re Unichem Corp., 72 B.R. 95, 97 (Bankr. N.D. Ill. 1987); see also, In re Egan, 33 B.R. 672, 675 (Bankr. N.D. Ill. 1983) ([T]he purpose of [the] disclosure [statement] is to present the parties voting on the plan with sufficient factual information to Section 1125(a) of the Bankruptcy Code defines adequate

Under 12 U.S.C. 1821(j), no court may take any action . . . to restrain or affect the exercise of powers or functions of the [Federal Deposit Insurance Corporation] as a conservator or a receiver. Courts have described 1821(j) as effect[ing] a sweeping ouster of courts' power to grant equitable remedies. Mile High Banks v. Fed. Deposit Ins. Corp., 11-cv-01417-WJM-MJW, 2011 WL 2174004, at *2 (quoting Freeman v. Fed. Deposit Ins. Corp., 56 F.3d 1394, 1399 (D.C. Cir. 1995)); see also Gross v. Bell Sav. Bank, 974 F.2d 403, 408 (3d Cir. 1992) (reversing injunction). The FDIC-Receiver reserves all of its jurisdictional arguments, under section 1821(j) or otherwise. See

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independently evaluate the merits of the proponents plan.) (internal citations omitted). Because disclosure statements are intended by Congress to be the primary source of information upon which creditors and shareholders could rely when making a judgment as to a reorganization plan, a disclosure statement should contain all facts known to the debtor that may impact the success or failure of the plan. In re Scioto Valley Mortg. Co., 88 B.R. 168, 170 (Bankr. S.D. Ohio 1988). A disclosure statement that contains bare assertions of opinion without the supporting facts fails to provide adequate information as required by section 1125(a) of the Bankruptcy Code. In re Egan, 33 B.R. at 676. The determination of what is adequate information in a disclosure statement is a practical and variable inquiry made on a case-by-case basis. In re Sparta Surgical Corp., 06-cv02601, 2008 WL 878948, *3 (D. Colo. March 28, 2008) (citing In re Aspen Limousine Serv., Inc., 193 B.R. at 334). Beyond the statutory guidelines set forth in section 1125 of the

Bankruptcy Code, the decision to approve or reject a disclosure statement is within the discretion of the bankruptcy court. Id. The legislative notes to section 1125 of the Bankruptcy Code provide that [b]oth the kind and form of information are left essentially to the judicial discretion of the court, guided by the specification . . . that it be of a kind and in sufficient detail that a reasonable and typical investor can make an informed judgment about the plan. The information required will necessarily be governed by the circumstances of the case. S. Rep. No. 95-989 (1978).

also 12 U.S.C. 1821(d)(13)(D) (in connection with statutory provisions setting forth receivership claims process, providing that no court shall have jurisdiction over specified claims or actions).

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V.

THE DISCLOSURE STATEMENT FAILS TO PROVIDE ADEQUATE INFORMATION

The Disclosure Statement cannot be approved because it fails to meet the most basic standard required - that it provide adequate information to creditors. Its bare bones presentation fails to provide interested parties with sufficient facts to evaluate the Plans that it purports to describe, and with respect to those facts it does contain, it fails to provide sufficient context. In other instances, it is simply confusing or misleading. Set forth below are specific examples of where the Disclosure Statement is insufficient. A. The Disclosure Statement Fails to Explain Why this Liquidation Case Should Proceed Pursuant to a Plan Although the Disclosure Statement states that the Debtors assets will be liquidated under the Plans, there is no adequate explanation as to why the cases filed by the Debtors should proceed as liquidation proceedings under chapter 11 with an insider appointed as Liquidating Trustee (as defined in the Disclosure Statement). [Disclosure Statement, Art. IX, XVIII]. There is no business being conducted by the Debtors that requires any ongoing expertise from present management. [Disclosure Statement, Art. II]. The Debtors should explain to their creditors why the appointment of a private trustee is preferable to a chapter 7 trustee who would act under the supervision of this Court. The proposed Liquidating Trustee is Theodore Abariotes. As UWBKs Chief Restructuring Officer, he has been paid at the rate of $212,500 per year since the case was filed. During that period, which started in March 2012, absolutely nothing positive has been accomplished in this case. There is no reason to expect this will change after confirmation. B. Inadequate Disclosure of District Court Litigation

The Disclosure Statement contains a cursory description of certain litigation pending in the United States District Court for the District of Columbia (the District Court Litigation) that

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seeks a monetary recovery for the wrongful takeover by federal authorities of the Bank. [Disclosure Statement, Art. II]. A successful recovery in the District Court Litigation is the foundation of the proposed Plans. [Disclosure Statement, Art. II, IX]. While the Disclosure Statement acknowledges that there are motions pending to dispose of the District Court Litigation with no recovery, it does not describe the bases for these motions. [Disclosure Statement, Art. II]. In fact, the Disclosure Statement fails to disclose that the litigation as originally brought was dismissed in part, and that the District Court has already ruled that the only proper plaintiff in that litigation is the Bank. United W. Bank v. Office of Thrift

Supervision, 793 F.Supp. 2d 357, 365-68 (D.D.C. 2011). This means that none of the Debtors are a party plaintiff and the Disclosure Statement provides no explanation of how the Debtors could even benefit from a successful outcome of the litigation. Further, the section of Financial Institutions Reform, Recovery and Enforcement Act under which the suit seeks recovery, 12 U.S.C. 1464(d)(2)(B), does not provide for monetary damages but merely for a removal of a receiver appointed by the Office of Thrift Supervision. There is no discussion in the Disclosure Statement of how a monetary recovery could be had under such circumstances. These facts should be disclosed to those voting on the Plans. C. Inadequate Disclosure of Litigation Regarding the Tax Refunds

The other potential asset described in the Plans as available to the Debtors and recognized in the Disclosure Statement is the alleged ability to recover certain Tax Refunds. There is a dispute between the Debtors and the FDIC-Receiver over the ownership of the Tax Refunds. The Disclosure Statement provides little if any information by which creditors can evaluate the strength of the Debtors claim to the Tax Refunds. In order to recover the Tax Refunds, the Debtors will need to rely upon a Tax Allocation Agreement dated as of January 1, 2008 (the

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Tax Allocation Agreement) that states [i]n essence, this Agreement requires that each firsttier subsidiary be treated as a separate taxpayer with UWBI merely being an intermediary between an Affiliate and the Internal Revenue Service. This means that the Debtors lack any ownership interest in the refunds but merely hold the refunds for the benefit of their affiliates. Given such an express provision, the Debtors should never be awarded the Tax Refunds. In re Harrison, 430 B.R. 679, 682 (Bankr. D. Kan. 2010) (debtor that only had bare legal interest in property and no equitable interest in property did not acquire equitable interest in property as a result of bankruptcy filing and debtor was not entitled to use such property for benefit of creditors). The Debtors should at least disclose the terms of the Tax Allocation Agreement upon which their case rests so that creditors can evaluate whether a plan that relies upon a recovery makes sense. In re Dakota Rail, Inc., 104 B.R. 138, 146-7 (Bankr. D. Minn. 1989) (disclosure statement not approved where it did not accurately describe debtors claim to certain property and creditors could not make informed decision regarding whether property was owned by the debtor or other parties). Further, the Disclosure Statement should make clear that future

litigation over the Tax Refunds is expressly contemplated and not barred. D. No Disclosure Is Made of the FDIC-Receivers Unsecured Claim

The FDIC-Receiver filed the FDIC-Receiver Claim herein on August 30, 2012, by which the FDIC-Receiver asserts, among other things, an unsecured claim in the event it loses the dispute regarding the Tax Refunds because it will then be entitled to a claim in the amount of the Tax Refunds owed to it by the Debtors under the terms of the aforementioned Tax Allocation Agreement. The FDIC-Receivers unsecured claim is not discussed at all in the Disclosure Statement, nor is it covered by the Plans. [Disclosure Statement, Art. VI E. and F.] (discussing other claims of the FDICReceiver, but not the unsecured claim).

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Although the Disclosure Statements general description of the Plans implies that there will be future litigation over the Tax Refunds, the Plans also suggests that it resolves all claims against the estate. [Disclosure Statement, II, VI A.]. This contradiction must be resolved. E. The Illustration Relating to Distributions is Misleading

The Disclosure Statement contains an illustration of a possible distribution under the Plans. [Disclosure Statement, Art. VI. D., E., F.]. The illustration posits a large recovery in the District Court Litigation and then describes overwhelming recoveries for creditors. Id. Such an illustration is misleading in that it has no basis in fact. In re Dakota Rail, Inc., 104 B.R. at 149 (A disclosure statement is misleading where it contains glowing opinions or projections, having little or no basis in fact and/or contradicted by known fact.). F. Inadequate Disclosure of Risk Factors

The section of the Disclosure Statement on risk factors, consisting of two paragraphs, does little to explain to creditors the consequences of the risks involved in going forward with the Plans, and the descriptions of the risks themselves, relating to litigation, are inadequate for the reasons outlined above. [Disclosure Statement, Art. XVI]; In re Cardinal Congregate I, 121 B.R. 760, 765 (Bankr. S.D. Ohio 1990). (Generally, a disclosure statement must contain all pertinent information bearing on the success or failure of the proposals in the plan of reorganization.). The Disclosure Statements description of the risks associated with the dispute over the Tax Refunds is entirely inadequate. The Disclosure Statement only states that there is a risk that the FDIC will prevail against Debtor UWBK in a dispute over ownership of the Tax Refunds, and does not contain any discussion of the merits of either the FDIC-Receivers arguments or the Debtors arguments. [Disclosure Statement, Art. XVI B.]. Further, the

Disclosure Statement fails to adequately disclose that the Tax Refunds, which the Debtors claim

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will be used to make distributions to unsecured creditors, may also be used and consumed to pay some of the costs and expenses incurred in the Debtors pursuit of the District Court Litigation. This is particularly troubling considering that if the Debtors recover any damages in the District Court Litigation, those damages will be for the primary benefit of the Debtors secured creditors and professionals. [Disclosure Statement, Art. IX E.]. G. There Is No Liquidation Analysis

At a minimum, the disclosure statement must include a liquidation analysis . In re S.E.T. Income Prop., III, 83 B.R. 791, 792 (Bankr. N.D. Okla. 1988); see also, In re Scioto Valley, 88 B.R. at 171 (including a liquidation analysis in a list of the type of information which should be addressed by a disclosure statement). The Disclosure Statement contains no such analysis. At a minimum, the Disclosure Statement should comply with the basic liquidation analysis set forth in Official Form 25B (Exhibit E) applicable to disclosure statements in small business cases under chapter 11. Further, any meaningful liquidation analysis in this case would require a thoughtful evaluation of the likelihood of litigation recoveries. Such an analysis is completely absent from the Disclosure Statement. H. Inadequate Information Regarding the Liquidating Trustee

The Plans are to be administered by a Liquidating Trustee who is a former officer of the Debtors. The Disclosure Statement provides no information on the background or experience of the proposed Liquidating Trustee to determine if he has any potential conflicts or other impediments that would make him an inappropriate candidate for the job. For instance, are there potential claims against former officers and directors?3 How could this Liquidating Trustee possibly evaluate them? The Liquidating Trustee is also being compensated based on the outcome of the District Court

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Litigation. [Disclosure Statement, IX D.]. Although any settlement will require approval, how can the Debtors creditors be confident in the Liquidating Trustees judgments concerning litigation strategy? From what little we know, Mr. Abariotes was involved in the Debtors failure and because his compensation is based on the outcome of the District Court Litigation, his individual interests (both financial and personal) could diverge from that of the creditors. Ches v. Archer, 827 F.Supp. 159, 168 (W.D.N.Y. 1993) (Where an officer/trustee clearly has substantial career and financial interests conflicting with a plans beneficiaries, the Court noted it may be almost impossible for him to discharge his duties solely in the beneficiaries interest and the fiduciary may need to step aside, at least temporarily, from the management of the plan wherein he faces the conflicting interests and for the duration of the event that is creating the conflict.) (citations omitted). Mr. Abariotes conflict of interest is unlike the conflict that an appointed chapter 7 or chapter 11 trustee would face, because unlike an appointed trustee Mr. Abariotes compensation is not subject to any requirement that it be reasonable or related in any way to the hours or effort he exerts. See In re MiniScribe Corp., 309 F.3d 1234 (10th Cir. 2002) (a chapter 7 trustee is only allowed reasonable compensation which is subject to a lodestar test and a statutory cap under 326(a)). Instead, Mr. Abariotes compensation will be based on the amount of any recovery in the District Court Litigation. As such, he is incentivized to pursue the District Court Litigation regardless of the costs and delays it may impose upon the Debtors bankruptcy estates so that he can preserve his own chance at a financial windfall in that case, perhaps to the detriment of preserving tax refunds owed to the entire consolidated group. Without adequate disclosure, at a minimum, no judgment on plan approval can be responsibly made.

The Disclosure Statement suggests that there are, but does not describe what these claims might be. [Disclosure Statement, Art. IX A.].

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I. Claimants

Inadequate Information Is Provided in Order to Determine the Priority of

The Disclosure Statement describes the priority schedule under the UWBK plan. [Disclosure Statement, Art. VI E.]. Among the parties to be paid as unsecured creditors are certain debenture holding claimants. [Disclosure Statement, Art. VI F.(5), IX E.]. At least one of the debentures is described as junior subordinated debentures. Id. A more complete description is needed in order to evaluate whether the plan treats the holders of these instruments appropriately. Who are they junior to? Are they properly classified? This is the essence of adequate disclosure. J. The Disclosure Statement Contains an Incorrect Cross-Reference

The cross reference on Page 20 of the Disclosure Statement to Section 7.4 makes no sense. [Disclosure Statement, Art. IX E.(2)].

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VI.

CONCLUSION

WHEREFORE, because the Disclosure Statement does not provide the adequate information required by section 1125 of the Bankruptcy Code, the FDIC-Receiver requests that the Court deny approval of the Disclosure Statement and grant such other and further relief as the Court deems just and proper. Dated: February 6, 2013 /s/ John F. Young John F. Young, #26989 Markus Williams Young & Zimmerman LLC 1700 Lincoln Street, Suite 4000 Denver, Colorado 80203-4505 Telephone: (303) 830-0800 Facsimile: (303) 830-0809 E-mail: jyoung@markuswilliams.com - and Alan P. Solow DLA Piper LLP (US) 203 North LaSalle Street, Suite 1900 Chicago, Illinois 60601 Telephone: (312) 368-4000 Facsimile: (312) 630-6303 E-mail: alan.solow@dlapiper.com Counsel for the Federal Deposit Insurance Corporation, in its capacity as Receiver of United Western Bank of Denver, Colorado Of Counsel: B. Amon James, Acting Senior Counsel Jason Ballard, Counsel Federal Deposit Insurance Corporation 3501 Fairfax Drive Arlington, Virginia 22226 Telephone: (703) 562-2631

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CERTIFICATE OF SERVICE The undersigned certifies that on February 6, 2013, I caused to be served by CM/ECF electronic service the OBJECTION OF THE FEDERAL DEPOSIT INSURANCE CORPORATION AS RECEIVER TO DISCLOSURE STATEMENT FOR DEBTORS PLANS OF LIQUIDATION DATED NOVEMBER 6, 2012 on all parties against whom relief is sought and those otherwise entitled to service pursuant to the Fed. R. Bankr. P. and these L.B.R. at the following Address: Theodore Brin 1601 Blake St., Ste. 305 Denver, CO 80202 Paul G. Urtz 1660 Lincoln St., Ste. 2850 Denver, CO 80264 Ethan Birnberg 600 17th St., Ste. 1800 Denver, CO 80202 Regina Ries 1660 Lincoln St., Ste. 2200 Denver, CO 80264 David Warner 1660 Lincoln St., Ste. 2200 Denver, CO 80264 Joel Laufer 5290 DTC Pkwy, Ste. 150 Englewood, CO 80111 Angela D. Dodd 175 W. Jackson Blvd., Ste. 900 Chicago, IL 60604 Alan K. Motes United States Trustee Program 999 18th St., Ste. 1551 Denver, CO 80202 United Western Bancorp, Inc. Matrix Bancorp Trading, Inc., and Matrix Funding Corp. 12301 Grant Street, Suite 110 Thornton, CO 80241 /s/ Jenny F. Tokuoka Jenny F. Tokuoka Maria J. Flora 1763 Franklin St. Denver, CO 80218 Jeffrey M. Lippa 1200 17th St.,Ste. 2400 Denver, CO 80202 Jessica Kumar 155 N. Wacker Dr., Ste. 3200 Chicago, IL 60606 Harvey Sender 1660 Lincoln St., Ste. 2200 Denver, CO 80264 Matthew D. Skeen P.O. Box 218 Georgetown, CO 80444 Brendon C. Reese 1300 Broadway, 8th Floor Denver, CO 80203 Jarrod Martin 999 18th St. Ste. 1551 Denver, CO 80202 Jared S. Roach Reed Smith, LLP 225 Fifth Avenue Pittsburgh, PA 15222

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