EFI victims question attorney’s actions

February 4, 2009

By KAREN VELIE and DANIEL BLACKBURN

An attorney with a prominent San Luis Obispo law firm who injected himself into the ongoing hard money lending scandal has assembled a group of investor clients with apparently competing interests.

Roger Frederickson of the Sinsheimer Juhnke Lebens & McIvor (SJL&M) firm was retained in March 2008 by nine investors who lost money in the collapse of Estate Financial Inc. (EFI). Frederickson was to probe aspects of the lenders’ allegedly fraudulent activities and practices.

At least two of the clients asked Frederickson to examine Heritage Oaks Bank as a possible third party and determine if bank officials had a too-cozy relationship with EFI, or failed to sufficiently scrutinize the hard money lender for any appearance of fraud.

(As the economy has slipped deeper into a recession, numerous lenders involved in frauds such as Ponzi schemes have been exposed, and an army of attorneys and investors are looking toward banks as a source of financial restitution.)

In mid April, the law firm began drafting a subpoena to request information from Heritage Oaks Bank, according to a billing notice from SJL&M.

Later that same month, state investigative agencies announced allegations of fraud against EFI and began sanctions. Meanwhile, EFI was assigning 13 property deeds to Heritage Oaks Bank.

In June, the SJL&M firm billed investors for searching San Luis Obispo County Clerk-Recorder files for trust deeds between Estate Financial and Heritage Oaks Bank.

Shortly thereafter, Frederickson told his small group of investors that another investor with deep pockets had agreed to join their action and cover the entire remaining cost. He also sent an e-mail informing them they were required to relinquish control of all legal actions to the big, new client.

“I wanted to let you know that Centennial Livestock has retained us to pursue a receiver action. However, it will only do so provided you are also named as plaintiffs and on the condition that it, not you, [will] control the litigation,” Frederickson wrote in the e-mail.

Than he added: “Please be aware that this information is highly confidential, constitutes an attorney-client communication, and must not be shared with anyone else.” Attorney-client privilege, in fact, applies only to the attorney. It protects clients’ information, but clients are free to discuss their issue with whomever they wish.

That new, well-endowed investor was Centennial Livestock LLC, of which John Lacey of Paso Robles is a principal owner. Centennial Livestock LLC is the single largest investor in EFI, with more than $3 million placed in EFI’s Mortgage Fund and now in significant jeopardy.

John Lacey’s wife, Dee Lacey, is a shareholder and sits on the board of directors of Heritage Oaks Bank.

“The nine of us hired Frederickson to do an investigation and to advise us,” said one of the original investors who asked to remain unnamed. “I asked Frederickson when he first brought the cattlemen in, if there was a conflict, because he knew Dee Lacey was on the [bank] board. He said, ‘We don’t think so.’ Frederickson told me if it did, Dee Lacey would resign from the board. Everyone’s always got a double agenda.”

A former federal bank examiner said that federal banking rules prohibit board members from voting to lend monies to companies in which they are invested in, or in some cases investing in companies in which the bank is involved.

Heritage Oaks Bank reportedly lent EFI principals $20 million unsecured. Following reports of possible fraud by EFI on this Web site, the bank placed liens on numerous properties, collateralizing their loans to Guth and Yaguda.

An ex-employee of EFI has now alleged that Guth and Yaguda used the bank loan to fund escrows, and to make interest payments to extend the life of what now appears to be a Ponzi scheme.

Some of the original investors report Frederickson knew of the Laceys’ involvement with Heritage Oaks Bank; others claim they were not informed.

Attorneys in California are required by rules of professional conduct to inform clients in writing, then receive from each a signed waiver before bringing in an entity that may pose a potential conflict of interest. An attorney found in breach of a fiduciary duty to his client faces not only disciplinary action from the California Bar, but also is subject to lawsuits for malpractice and may be forced to return fees, said Diane Karpman, a Beverly Hills-based legal ethics expert recommended to CalCoastNews by a state bar official.

Shortly before the October 2008 arrest and jailing of Guth and Yaguda on multiple fraud charges, Frederickson told a CalCoastNews reporter and another attorney, “I don’t know why the investors keep throwing their money away; I have not been able to find fraud.”

Investors claim, however, that during that same period, Frederickson was continuing to woo clients with assertions he was the only local attorney who had been able to uncover fraud perpetrated by the EFI mother-son duo.

In an interview just last month with a CalCoastNews reporter, Frederickson claimed he was unaware of his client’s ties to Heritage Oaks Bank, nor did he find Dee Lacey’s position on the bank board to be relevant. He went on to assert that he had been hired by the bankruptcy court to investigate fraud.

The bankruptcy trustees had in fact assigned Frederickson to handle foreclosures and litigation against borrowers, and to enforce personal guarantees for the bankruptcy court’s unsecured creditor committee. John Lacey is the chairman of the bankruptcy court’s trustee committee.

Neither Frederickson nor senior partner Warren A. Sinsheimer responded to telephone calls, e-mails, or detailed voice messages from CalCoastNews reporters. Frederickson recently was made a full partner in the law firm.

Meanwhile, attorneys worldwide are focusing on banks for Ponzi victim relief. Casualties of an Internet Ponzi scheme filed a lawsuit last month against Bank of America for not reporting signs of possible fraud. A group of Bernard Madoff investors filed a similar action in January against Spain’s largest bank alleging it failed to properly scrutinize investments made with the disgraced financier.

In Southern California, a bank paid investors 80 cents on the dollar due to the bank’s failure to report signs of fraud regarding an investment firm with which it dealt. A few years ago, Union Bank of California doled out $26.5 million in a court-approved settlement for “lending an aura of legitimacy” to Santa Barbara’s Reed Slatkin while he perpetrated a Ponzi scheme.


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6 Comments

  1. ccn_debate says:

    Member Opinions:
    By: Nameless on 2/12/09
    4Warn

    With extensive fundings from so many locals (much more than outside of the area) so many attorney involved, and CPA. We all must ask the question; How could this go on for so long without soemone in the iside raising the red flags? I strongly beleive that some of the legal advisors other professionals and HOB should have raise questions.

    How could they? They were all making a killing in the process.
    By: 4Warn on 2/11/09
    Thanks Nameless …

    Interesting and thought provoking post.

    Hopefully we will be seeing equally competant juries who can sort through the evidence and testimony in the Guth/EFI and Gearhart/Hurst fiascos.

    Do you think that these schemes were passed around between cronies or do they actually go to a class called "Dupe the Investor 101" to learn their trade?

    By: Nameless on 2/11/09
    The bogus world of a Brooklyn, N.Y., attorney who built a profitable business on title insurance while earning high fees on real estate closings came crashing down on Friday as a federal jury convicted him in a subprime mortgage scam.

    Alexander M. Kaplan, 34, of Lerner & Kaplan, sat stoically at the defense table while a jury of 10 women and two men pronounced him guilty on all 18 counts in an indictment charging him with conspiracy and bank, mail and wire fraud.

    Kaplan played a pivotal role in a wide-ranging conspiracy that ripped off lenders of millions of dollars.

    Kaplan's role, they proved, was to keep lenders in the dark by representing the bank, the buyer and the seller in transactions where mortgage brokers, particularly lead actor Alexander Lipkin, would use the identities of innocent straw buyers to obtain huge loans on properties. Sometimes, they would flip the properties within weeks using even more phony documents.

    Weitzman told the jury during summations in the two-week trial that Kaplan was "a liar and fraudster," who "engaged in a massive fraud that was perpetrated by all these people.

    "He did so by telling lies to banks over and over again. He lied about who the real purchasers were and he lied about the amount of money he disbursed from the loan proceeds," Weitzman said. "His lies were all intended to protect his criminal partners and to make sure the real estate transactions looked legitimate."

    Kaplan was one of 27 people indicted in the conspiracy. All of the other defendants except one have pleaded guilty, including Lipkin who admitted to guilt in two schemes in June 2008. He has yet to be sentenced.

    In the end, Lipkin and his cohorts, using the straw buyers, would take out millions of dollars in loans on the property. They would then default on those loans, leaving both the banks and the straw buyers damaged.

    Kaplan, the prosecutors said, was one of several dirty lawyers who helped facilitate these plots, including the signature scam in the indictment: the purchase of a block of apartments at 243 West 98th Street in Manhattan where Lipkin and several others, including Kaplan, never disclosed to the bank that the units were occupied and under rent control. Some tenants were paying as little as $393 a month.

    Kaplan made between $850 to $1,100 in fees per closing and much more in title fees, Weitzman said, and he made "tens of thousands" in fees on the West 98th Street deal.

    Kaplan faces a potential sentence of upwards of 30 years and a fine of $1 million.

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  2. ccn_debate says:

    By: Nameless on 2/11/09
    Securities
    Kramer Levin Files Motion on Behalf of Madoff Investors Who Cashed Out
    Much attention has been devoted to the victims of Bernie Madoff, a list that, includes the names of some high-profile attorneys. Less thought has been given to the investors who got their money out before Madoff allegedly confessed to creating a $50 billion Ponzi scheme in December.

    Presumably, those investors don't have to worry about filing claims against Bernard L. Madoff Investment Securities by March 4, which is the deadline that a Manhattan bankruptcy judge imposed for Madoff customers who want to avoid risk of nonpayment. But in a motion filed Tuesday, Philip Bentley of Kramer Levin Naftalis & Frankel–who represents a group of cashed-out investors–is asking the court to clarify that his clients don't have to file claims even though they may later face clawback actions by the Madoff trustee, Irving Picard of Baker & Hostetler.
    Down the road, if Bentley's clients lost clawback actions, they'd then have claims against the Madoff estate, like all the investors who didn't get out in time. We asked Bentley why his clients shouldn't simply fill out the claim forms just to be safe. He explained that if they did so, they might lose their right to a jury trial in a potential case brought against them by Picard. A hearing on the issue has been set for February 24.
    By: outsider on 2/10/09
    nameless…Im sure there were alot of folks that had the same feeling as you…and went ahead even tho they had that gut feeling..It happens..i just hope it wasnt too much…pass this lesson on to your grandkids and younger members of your family so it registers in a personal way..hopefully the shucksters will pay heavily for this but nothing will ever restore the damage it has done to people.
    By: Nameless on 2/10/09
    outsider

    In hindsight, I should have seen it. At the time, even I even ignored my gut feelings. The price is too high.
    By: outsider on 2/10/09
    Being stupid is almost as bad as being Greedy…put the two together and you get the investors…investors keep an eye on what their money is doing…wall street investors watch the DOW…investors in Real Estate projects should have been looking at the construction sites…and progress…I feel sorry for the innocent people who were sucked into this mess by their friends and relatives…Never follow a FOOL!!
    By: insider on 2/10/09
    Yes the rewards were high. Yes the risks were high. Unlike Madof these investors could of paid attention to the projects they were investing in. They didn't. They just took the monthly interest check as if that meant everything was OK. They could have easily driven by the project they were investing in every month or so and checked its progress. They didn't. Would that not have been an early warning sign. No construction on a construction loan. Hmmmmm.
    By: mccdave on 2/10/09
    "12% return is not exorbitant"

    Yes it is, and people need to get this through their heads.

    — Average real long-term returns on property in the U.S. are under 5% and perhaps as low as 2%.
    — Stocks are much riskier than property, but even the best fund managers can't average 12% over the long run.
    — U.S. GDP grows by 3-4% in a good year. Chinese GDP growth even in peak years has only been 12%, and not all those gains go to shareholders.

    Fraud is fraud, and investors mistakes are outweighed by fraud in this case, but we need to demolish the myth of high returns without high risk.
    By: Nameless on 2/10/09
    outsider

    12% return is not exhorbiant. Theft is inexcusable. This was a clear cut theft not only mismanagement. Although there is plenty blame for the investors, greed is not appropriate here.
    Investors shouldhave looked into their loans when they were not paid off on time. If they took some interest in thir investments, likely Karen's game would have come to an end years ago. The market was still strong and liquidation could have been profitable to both, investors and borrowers. For Karen, she would have been left out in the cold. But atleast now she has a warm place with room and board assured. Maybe not to their liking, but she gets what she paid for.
    By: outsider on 2/9/09
    Its amazing the pain and suffering people go thru because of basic greed..when someone starts talking 12-14% return on investment..RUN!

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  3. ccn_debate says:

    By: Nameless on 2/9/09
    Lawyers' Indictment in Huge Ponzi Scheme Shocks Legal Circles

    Two Fort Lauderdale, Fla., attorneys indicted in a nearly $1 billion Ponzi scheme known as Mutual Benefits are anything but fly-by-night hucksters known to be associated with the worn pyramid con.
    Michael McNerney and Anthony Livoti Jr. are well-respected advocates and have been fixtures in the legal community for decades.
    Livoti was a well-known litigator in Broward County courtrooms who earned the respect of a number of judges. He served on boards of directors of such causes as the officers. "When a lawyer is charged, the whole legal community gasps, I think they gasp, and they have a feeling of utter disbelief."
    "He did his job as an escrow agent and trustee and is innocent of any wrongdoing," he said
    Before Wall Street poseur Bernard Madoff set new standards for robbing Peter to pay Paul, Mutual Benefits set the gold standard for Ponzi schemes, according to the Securities and Exchange Commission, which shut down the Fort Lauderdale-based company in 2003 and placed it in receivership.
    McNerney handled almost all of Mutual Benefits' legal matters, and his firm Brinkley Morgan Solomon & Tatum served as closing agent on investment transactions, according to the 25-count indictment filed Dec. 23. Prosecutors say Livoti was "purportedly responsible for safeguarding investor monies set aside to pay policy premiums and for actually making premium payments."
    Both lawyers are charged with money laundering and wire fraud conspiracy. Also charged are executives of the defunct Mutual Benefits: brothers Joel Steinger and Steven Steiner. Another brother linked to the company, Leslie Steiner, died of pancreatic cancer.
    Nine other officials connected with Mutual Benefits have pleaded guilty and been sentenced to prison, including company president Peter Lombardi, who is serving a 20-year term.
    Joel Steinger, Leslie Steiner and Lombardi agreed to pay $25 million to settle the SEC charges. Steven Steiner agreed to pay $4 million.
    On the civil side, the Mutual Benefits case became a litigation engine as the receiver, Roberto Martinez of Colson Hicks Eidson, pushed to recoup investor losses. But it also spawned a lawsuit by Steven Steiner in December against the husband of Broward County Mayor Stacey Ritter, who has been unabashed about her desire to join the Obama administration.
    In other settlements, McNerney and the firm he founded agreed to pay $10 million to the receiver in 2005. His attorneys don't expect the settlement to be an issue at trial, saying civil settlements are done for a variety of reasons and usually are at the discretion of the malpractice insurance carrier.

    In the meantime, the Mutual Benefits indictment has been a hot potato in Miami.
    U.S. District Judges Paul Huck and Marcia Cooke recused themselves, as did U.S. Attorney Alex Acosta and his chief assistant, Jeff Sloman.
    Acosta's office won't comment on recusals as a matter of policy. Documents under seal in the case apparently hold the reason.
    All recused parties, though, can be linked in some way to Martinez, a former U.S. Attorney, as well as his Coral Gables firm.
    Cooke was Martinez's executive assistant when he was chief prosecutor, but that may not be enough to warrant a recusal.
    Huck sentenced other Mutual Benefit defendants. His son, Paul Huck Jr., is one of Martinez's law partners.
    By: mccdave on 2/7/09
    Sounds like the usual habit of lawyers serving only the most wealthy clients they can find. I've run into this (on smaller matters) even when I've made it clear I was willing to pay their hourly rate. We all know that the law often only serves those who can afford an attorney, but this is especially pernicious when lawyers seek only the deepest pockets and ditch other clients.

    In a small town especially, this is not very smart business, but I've found it's much worse here than in the big city. I've worked with patent and trademark lawyers in the Bay Area who were very helpful even to a garage start-up, but around here most attorneys won't bother unless they know you're a big fish.

    This article could be clearer, and the main point — that Fredrickson was ditching his original clients — could have been made sooner.
    By: Nameless on 2/6/09
    AuntMillie

    Roger Frederickson of the Sinsheimer Juhnke Lebens & McIvor (SJL&M) had the ethical and legal obligation to disclose all connection, relationship with HOB its directors and any other isues that might have influenced their clients approach at the time. Now, many questions arise as to why it wasn't disclosed. Even if there was nothing, but does it pass the smell test? For now, it really stinks.

    Centennial Livestock had all the right to pursue any and all remedies available to them to protect or recover their investment.
    However, if there was any conflict of interest by John Lacey’s wife, Dee Lacey, sitting on HOB's board i.e. forekowledge of EFI's financial situation, it is clearly a Federal Banking violation. HOB maybe liable for much more than we can understand now.

    There are many who feel deceived by attorneies whose allegance are questinable.

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  4. ccn_debate says:

    By: rogerfreberg on 2/6/09
    hmmm… I am sorry for the investors and I do hope they find some return of some of their money… however, there's a great saying about this sort of thing:

    "I am not looking so much on the return on my money… but the return of my money!" — Will Rogers

    So the next time you hear the words "12% return"… run!

    Roger
    By: AuntMillie on 2/6/09
    Doesn't sound to melike the original little clients thought they were ditched. Makes me wonder who's got it out for Frederickson. Maybe someone that hes forclosure on, borrower, or personal gurantee person or company? Sound like a hit piece.Just my= opinion.
    By: bluemule on 2/6/09
    Here are the stock transactions and holdings details of all the Heritage Oaks Bank directors and officers:

    http://www.secform4.com/insider-trading/921547.ht

    And here is the info for Dolores Lacey specifically:

    http://www.secform4.com/insider-trading/1220442.h
    By: Panicmanic on 2/6/09
    He is professional, intelligent and understanding.

    hahahahahahahahahah……………….sigh….
    By: George on 2/6/09
    kielper have you tried clicking any of the handy links to the right? there is even a 'more news' link sheesh.
    By: hotdog on 2/5/09
    To kielper and others sick of this type of news. Something like 5,000 people have lost something like
    $700,000,000 to these crooks. The news CCN publishes is of vital interest to us and a service to the community. These losses mean many others will not sell goods and services to those investors, homes will be foreclosed on and many other spin off disasters will occur. This is crucial news, the more the better. The entanglement of the various players in this sad saga, including the reluctance of local and state authorities to take action is yet to be revealed and should only amplify the magnitude of the situation.
    We are sick of all this too, but since the authorities have decided to sit on their hands instead of taking proactive and timely action the pain has been extended to many in our community. We are so glad for the interest CCN has taken in this and monitor this site many times per day looking for new info.
    If any reader is 'tired' of the reporting then their solution is obvious. Read something else.
    By: kielper on 2/5/09
    please, is there any news in slo county that dose not involve hurst or efi? I'm sick of it. you have beet this to death already, this is not a storey.

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  5. ccn_debate says:

    By: 4Warn on 2/5/09
    From the California State Bar Website:

    The Committee on Professional Responsibility and Conduct (COPRAC) is a standing committee of the State Bar Board of Governors. The Committee's primary charge is the development and issuance of advisory ethics opinions to assist attorneys in understanding their professional responsibilities under the California Rules of Professional Conduct.
    Although not binding, the opinions have been cited in decisions of the Supreme Court, the State Bar Court Review Department, and the Courts of Appeal.
    The Committee also assists the State Bar Board of Governors by studying and recommending amendments to the State Bar Rules of Professional Conduct and offering comment on proposed and amended statutes. COPRAC also comments and makes recommendations to the Board concerning proposed Conference of Delegates Resolutions which address matters of professional responsibility.
    For more information, contact Lauren McCurdy_

    __________________________________________

    All lawyers who practice in California must live up to ethical standards imposed by the California Supreme Court and the state legislature. As an arm of the California Supreme Court, the State Bar investigates and prosecutes complaints against lawyers.
    Depending on the seriousness of the offense, a lawyer can be given a warning, put on probation, suspended from practicing law for a period of time, or disbarred – prohibited from practicing law in California.

    http://calbar.ca.gov/state/calbar/calbar_generic….
    By: InTheKnow on 2/5/09
    SGB

    Attorney client privileged protects the client and only applies to the attorney. Good try though.

    Your unwavering support of your attorney reminds me of those who stuck up for Guth until she was in chains.
    By: sgb on 2/5/09
    A small group of investors retained Roger Frederickson to determine the extent of our claims against Estate Financial Inc, its officers, and related entities. We asked him to analyze options for recovery and to make recommendations regarding those options. The resulting work product led to our retaining him to represent us in seeking the appointment of a receiver for the Estate Financial Mortgage Fund.

    Unfortunately, whoever provided CalCoast with a copy of a privileged communication violated the attorney-client privilege of ALL other clients—including us, and without our permission.

    As to our dealings with Mr. Frederickson, we found him to be a man of integrity. He is professional, intelligent and understanding. All of us who are looking for recovery of losses through our dealings with EFI are fortunate indeed to have him working for the bankruptcy trustees on our behalf.

    Sherri Bell
    John Bell
    Patricia Cullinan
    Michael DeLembo
    Nancy DeLembo

    By: investless on 2/4/09
    Karen & Dan, thank you for the excellence in investigative reporting. Once again, you have caused the truth to be made known. Thank you.
    By: insider on 2/4/09
    Clearly there are many people involved in this and equally as many motives. Many who scream the loudest for the linching of Karen and Josh may have dirty hands of their own. What did people know and when did they know it and did they continue to collect their money will be the issue.

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  6. ccn_debate says:

    By: Nameless on 2/4/09
    hotdog

    Before you question X-Employee’s credibility, let’s see a few points.
    In a Ponzy Scheme, much of the money is paid back to investors in the form of interest.
    In the meantime, Karen did take her cut from each transaction that afforded her and the puppy’s lifestyle. Also, remember the Ranch had to be maintained because it could not support itself. Karen also took back some properties years back, but never paid the investors off. She raised additional new investor’s money for them and they are in foreclosure now.

    All that time, investors were paid every month that were happy and brought in new investors with new money. She also established number of entities where she was a partner or sole owner placing large loans on them. Most of those properties are in foreclosure over encumbered and in disarray. That money was paid for investor’s interest as well until doomsday arrived. Not to be too generous to Karen, she and Josh took out over $1,300,000 within one year of EFI’s BC filing. Presumably more funds were taken out through the different entities she controlled. Likely some of it was paid to attorneys in advance or hidden someplace that would be difficult to locate.

    She traveled to Italy and other parts of Europe (first Class on our money) and likely other parts of the world. Out of the $100,000,000 she borrowed for herself, some found its way in mysterious places she hopes to use when out of the slammer. Now, the question is will she be able to enjoy it?

    One of the attorney firms is located in Saint Louis Missouri and why should she need them for? I certainly would like to see the billing information on them!

    Of course, Roger Frederickson of the Sinsheimer Juhnke Lebens & McIvor (SJL&M) couldn’t find any fraud in his investigation until now that the BC is in place and he wants a piece of meat off of the bone.

    Interestingly, HOB was able to extend $20,000,000 unsecured credit line to EFI with a board member who was also the largest investor. Surely, there is more to this story!
    By: GrayGranny on 2/4/09
    It seems like Mr. Fredrickson has poured salt into the wounds of the nine EFI investors who hired him to represent THEM. If what you report is the actual dealings and actions of Mr. Fredrickson then he has re-victimized these nine individuals. Shame on you Mr. Fredrickson!
    By: hotdog on 2/4/09
    I think employee speaks too soon or perhaps of what is unknown. As is the case with Hurst, I am sure EFI could not have spent all the stolen money. I am sure they have lots of it stashed somewhere. If I were them I would not let any employee know the particulars of where the big bucks were going. All these crooks are pretty stupid (did they actually think they would get away with this massive fraud?) but not THAT stupid. Even spouses rat each other out, not to mention employees etc.
    Why 'employee' would think we would 'relax' by knowing all the money is gone certainly goes to his/her credibility/sanity. I'll relax when all investors are satisfied and the crooks are doing long hard time.
    By: employee on 2/4/09
    So now my statement has been made to the da's office and the truth has been told, Karen & Josh used the HOB money to fund loans for their LLC's and make interest payments, so for those of you who think they have money stashed overseas or buried on their ranch can relax, I would think that u now have reason to go after those properties that were funded. I rest my case
    By: investless on 2/4/09
    Fredrickson lies, cheats, and steals, he is a sexist, thief, and a liar, he has criminal instincts and characteristics, and can lie right to your face, hmmm, sounds like Karen Guth…
    By: 4Warn on 2/4/09
    This Frederickson sounds like a real peach.

    And the Laceys … How disappointing! … and I guess the beat goes on.

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