UNITED STATES DISTRICT COURT

for the WESTERN DISTRICT OF PENNSYLVANIA

UNITED STATES OF AMERICA )

)
) No. 99-CR-203
VS )
)
)
JOHN GARDNER BLACK )
)

MOTION TO SET ASIDE INDICTMENT

BECAUSE OF SUBSEQUENT CHANGE IN THE LAW

NOW COMES John Gardner Black and his motion to set aside his indictment because of
a subsequent change in the law. On April 2,2009, the Financial Accounting Standards Board
("FASB") and the Securities Exchange Commission ("SEC") issued regulations which detailed
procedures which must be followed for determining the fair value of securities.

Those methods and procedures are exactly the methods and procedures followed by
Black in determining the fair value of the securities owned by Black's company, Financial
Management Sciences ["FMS"] and used to value the investments, the Collateralized Investment
Agreement ["CIA"], owned by his customers. That computer model as well as the print outs
from that model have been in the possession of the government since August of 1997.

Since the method and procedures Black used are now sanctioned by federal regulation,
Mr. Black requests that this court set aside his indictment.

In support of his motion, Black states:

1. On or about June 30, 1999, the United States Attorney for the Western District of
Pennsylvania obtained from a grand jury an indictment of Black. That indictment alleged that
Black had breached a contract by not maintaining liquidation value of corporate assets equal to
the market value of his customers investments. Paragraph 53 of the indictment states that the
losses were caused by the Federal Reserve raising interest rates.
2. Paragraph 51 of the Indictment states that the value of the CIA outstanding in or around
September of 1997 was approximately $233,000,000.

3. Paragraph 52 of the Indictment states "Under the correct market valuation of the EEN7,
the assets held by FMS as collateral for the CIA's of Devon clients in or around September 1997
amounted only to approximately $164,000,000." The Indictment fails to state how the "correct
market valuation" was determined.

4. The government has stipulated in the Joint Stipulation of Facts ["JSF"], executed on
January 24, 2000, that the value of the CIAs outstanding was $233 million evidencing ownership
of an enterprise with assets of $164 million yielding 14%. [See JSF ¶ 53] This court approved
the Joint Stipulation of Facts on January 24, 2000. The difference between the value of the CIAs
and the value of the corporate assets was based upon a reasonable expectation of profits to be
derived from the managerial or entrepreneurial efforts of Black, as this court held on May 9,
2001.

THE FMS ASSETS

5. The Indictment states that in January of 1996, 1,088,000 shares of the CMO Inverse
Floater with CUSIP (Committee on Uniform Securities Identification Procedures) number
31359EEN7 ["EEN7"] was acquired by FMS.

6. 1,088,000 "shares" was the original notional amount of 100% of the issue. [See attached
page 43]

7. On September 26, 1997, the original amount was still owned by FMS, with no market
trading of the security between January of 1996 and September of 1997. The value of the EEN7,
determined by Black, was $96.50 per share. [Joint Stipulation of Facts ["JSF"] ¶ 51]

8. The government has stipulated and this court has found that the "EEN7" was acquired in
January of 1996 for approximately $14,130,000, "...representing 1,088,000 shares at an average
price of $14.37 per share." [JSF ¶ 47]

9. The government has stipulated and this court has found that the "...yield for the CIA
portfolio was approximately fourteen percent annually." [JSF ¶ 53]

10. The government has stipulated and this court has found that there existed approximately
$150,000,000 in assets exclusive of those represented by the "EEN7" and the FMS assets
($164,000,000-14,000,000=$150,000,000). Those assets were yielding "approximately fourteen
percent." Black had used this company specific information in determining the value of the
"EEN7" as well as the value of the CIA. Specifically, the reasonably expected cash flows from
the entire portfolio were amalgamated and discounted to present value at prevailing market rates.
Documents and the mark-to-model computer program verifying the valuation were in the
possession of the SEC and the US Attorney as well as the court appointed trustee Richard
Thornburg on September 26, 1997. The US Attorney had the documents proving the mark-to-
model valuation on January 24, 2000 in this court. Pursuant to Rule 11 of the Federal Rules of
Criminal Procedure, those documents must have been available to this court in order for this
court to determine the factual basis for the entry of a plea. Black has no knowledge whether they
were presented to the grand jury but they must have been made a part of this court's record.

ELEMENTS REQUIRED FOR VALUATION, JUDICIALLY DETERMINED PREVIOUSLY

11. On January 24, 2000, the government stipulated and this court held:

a. The value of the CIAs outstanding in or around September 1997 was

$233,000,000;

b. Using a valuation obtained from only one firm for a single security (the "EEN7"),
the liquidation value of the assets of FMS was approximately $164,000,000 and approximately
$7,000,000 in cash held by FMS in its own accounts;

c. The liquidation value of the "EEN7" was approximately $14,000,000 with

approximately $150,000,000 of other assets and $7,000,000 of FMS' cash;

d. The yield "for the CIA portfolio was approximately fourteen percent";

CURRENTLY SANCTIONED VALUATION METHODS

12. On December 30, 2008, the SEC supplied to the United States Congress a report in which
it held that “Company-specific information should be factored into fair value measurement when
relevant information is not observable in the market.”

13. On April 2, 2009 the FASB issued and approved revisions to FASB Rule 157. The
revisions are consistent with the Commission’s December 30, 2008 report to the US Congress.

14. The Securities Exchange Commission endorsed the method of security valuation
promulgated by the FASB on April 9, 2009. An inactively traded security such as the "EEN7"
must now be valued by:

a. obtaining bids from at least three firms;

b. disclosing all relevant company specific information to potential bidders;

 c. and, the fair value of the security is to be derived by discounting to present value
the expected cash flows on that security plus any company specific information such as surplus
valuation from other securities.

15. The government has stipulated and this court has held that there existed approximately
$150,000,000 of other securities held by FMS.

16. The government has stipulated and this court has held that the surplus valuation of those
securities, which Black contends amounted to approximately $61,000,000, was not:

a. divulged to the potential bidders for the EEN7 by the government on or about
September of 1997;

b. used to supplement the valuation of the EEN7 as now sanctioned by the

government's own regulations;

c. divulged by either the government or this court to the owners of the CIAs, despite
the government having in its possession since August of 1997 the mathematical model
supporting the valuation assigned to the EEN7 by Black and made a part of this court's records as
required by the Rules of Criminal Procedure.

The government, the US Attorney Mary Beth Buchanan, this court, Judges Ambrose,
Smith and Standish as well as the Third Circuit Court of Appeals, Alito, McKee, Rendell and
others, have known for over a decade that the valuation of the EEN7 was derived from a mark to
model analysis, incorporating the excess valuation derived from the remaining $150 million of
investments.

Mark to model accounting is now sanctioned by the same federal regulations the US
Attorney and this court are charged with enforcing. Therefore, Black's indictment fails to state a
crime over which this court has jurisdiction and must be set aside.

March ___, 2010 Submitted,

John G Black