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MARC J. FAGEL (Admitted to Cal. bar) TRACY F. DAVIS (Admitted to Cal. bar) davistl@sec.gov SUSAN F. LAMARCA (Admitted to Cal. bar) lamarcas@sec.gov DAVID A. BERMAN (Admitted to N.Y. bar) bermand@sec.gov Attorneys for Plaintiff SECURITIES AND EXCHANGE COMMISSION 44 Montgomery Street, 26th Floor San Francisco, California 94104 Telephone: (415) 705-2500 Facsimile: (415) 705-2501 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF IDAHO SOUTHERN DIVISION SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. ALTERNATE ENERGY HOLDINGS, INC., DONALD L. GILLISPIE, and JENNIFER RANSOM, Defendants, and BOSCO FINANCIAL, LLC, and ENERGY EXECUTIVE CONSULTING, LLC, Relief Defendants. Case No. 1:10-cv-621-EJL-REB MEMORANDUM IN SUPPORT OF SECURITIES AND EXCHANGE COMMISSIONS MOTION TO COMPEL

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The Securities and Exchange Commission (the Commission) is moving the Court for an order requiring Defendant Alternate Energy Holdings, Inc. (AEHI) to produce documents and information in its possession or under its control, which are relevant and responsive to discovery requests served more than seven months ago. That AEHI has failed to make an adequate production is not mere speculation. Through discovery from third parties, the Commission has obtained thousands of pages of AEHI documents that are highly-relevant, and yet have never been produced by AEHI. AEHI has offered no substantive explanation for its failure to produce these documents or other similar documents, nor any promise to do so. Among those documents are e-mails from defendant Donald L. Gillispie to promoters, offering documents used by AEHI to raise money from investors, press releases and board minutes. AEHI has also failed to produce responsive documents from two Asian offices on the purported grounds that AEHI does not control them. AEHI has admitted that it has made no effort to preserve those documents. AEHIs claim that it does not control these Asian offices is inconsistent with its other discovery responses, as well as its defense on the merits of the Commissions allegations. Accordingly, the Commission respectfully requests that the Court order AEHI to make a complete production of documents responsive to the Commissions requests, and to provide information about steps it has taken to preserve and collect such materials, within 20 days, as described in the Commissions Proposed Order. The Commissions Document Requests and AEHIs Production The Commission served its First Request for Production of Documents to Alternate Energy Holdings, Inc. (the First Request) on December 27, 2010. Declaration of David A. Berman in Support of the Commissions Motion to Compel (Berman Decl.) 2, Ex. A. In its First Request, the Commission sought documents and electronically stored information (ESI) 1

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related to the allegations in the Complaint, including those relevant to the Commissions charge in its proposed Amended Complaint arising under Section 5 of the Securities Act of 1933. These included the following requests: REQUEST NO. 3. All DOCUMENTS relating to meetings of the AEHI Board of Directors, including but not limited to agendas, board packets, minutes, presentations, reports, memoranda, and notes. REQUEST NO. 4. All DOCUMENTS relating to meetings of the AEHI Audit Committee, including but not limited to agendas, minutes, presentations, reports, memoranda, and notes. REQUEST NO. 10. All DOCUMENTS constituting or reflecting COMMUNICATIONS between YOU and any PROMOTERS, BANKS or FUNDS. REQUEST NO. 12. All DOCUMENTS constituting or relating to drafts or final versions of promotional materials, newsletters, reports, tout sheets, marketing, advertising, press releases, public statements, investor kits, investor relations packages, or similar DOCUMENTS, including but not limited to e-mails, facsimiles, and internet postings, relating to AEHI. REQUEST NO. 13. All DOCUMENTS constituting or relating to drafts or final versions of private placement memoranda relating to AEHI. REQUEST NO. 16. All DOCUMENTS reflecting or relating to issuances, cancellations, repurchases, grants, sales, transfers, or any other transactions in the securities of AEHI, including but not limited to stock, stock options, notes, and warrants. REQUEST NO. 18. All DOCUMENTS relating to the sale of AEHI securities pursuant to an exemption from registration under the federal securities laws. REQUEST NO. 19. All DOCUMENTS relating to any plan to restrict or control sales of AEHI securities. Id. Ex. A. The First Request was not only directed to AEHI, but also to those acting on AEHIs behalf and under its control, including officers, employees, agents, independent contractors, affiliates, subsidiaries and divisions. Id., Ex. A. As described in the attached Declaration of David A. Berman, 5-10, AEHIs production has been deficient in a number of critical respects. As a result, the Commission has been forced to seek discovery of AEHI documents from third parties, including from AEHI 2

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consultants, stock promoters and former employees. The Commissions third-party discovery has confirmed the deficiency of AEHIs production, as the Commission has obtained thousands of pages of clearly responsive, highly relevant AEHI documents from third parties, even though those documents were never produced by AEHI. Id. These documents span the full time period covered by the First Request late 2006 to 2010 and relate to a number, if not all, of the allegations in the Commissions Complaint. A selected sample of AEHI documents produced by third parties, but missing from AEHIs own production, including a summary of their relevance, is attached to the Berman Declaration at Exhibit B. As just one of many examples, AEHI failed to produce a single copy of its private placement memorandum in which it told investors that its nuclear project is funded. Id. 7, Ex.B. Private placement memoranda were clearly sought by the First Request, which called for production of all documents constituting or relating to drafts or final versions of private placement memoranda relating to AEHI. Id. 2, Ex. A. Instead, AEHI produced only various copies its private placement memoranda that omitted the false and misleading statement. Id. 11. In a sworn affidavit to this Court, Defendant Gillispie conceded that the statement about funding was nonsensical and claimed that the document was altered without AEHIs knowledge or permission and was never disseminated by AEHI. Docket No. 29-1 at 59, 62. But through third party discovery, the Commission has obtained at least six distinct versions of AEHIs false and misleading private placement memorandum, coming from at least seven different sources, including AEHIs independent auditors. Berman Decl. 8-9. Moreover, the documents obtained include emails from Gillispie, himself, who distributed the false and misleading private placement memoranda and asked that the recipients, in turn, forward it to others. Id. 10. 3

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Defendants Should Be Ordered to Collect and Produce Responsive Documents from AEHI China and AEHI Korea AEHI has failed and affirmatively refused to produce a single document from the entities called AEHI China, Ltd. (AEHI China) and AEHI Korea. Moreover, Defendant Gillispie testified that AEHI has not taken any steps to preserve or collect documents maintained by those entities. Berman Decl. 18-19, Ex.G. Documents maintained by AEHI China and AEHI Korea are clearly relevant and responsive to the Commissions First Request, which explicitly sought discovery from AEHIs affiliates, subsidiaries and divisions. Those two entities in particular have been identified by AEHI in public press releases as its own foreign office[s] and in this litigation as AEHI subsidiaries. Moreover, documents and other information about those offices are relevant to the Commissions claims, as among other things, they will assist in discovering who made investments in AEHI or its subsidiaries and why, and who was enriched by such investments. For example, documents obtained from third parties show that Nancy Shi, the President of AEHI China, was paid commissions by AEHI for selling its stock to Chinese and American investors in unregistered transactions, in some instances through use of AEHIs false and misleading private placement memorandum. Id. 6, Ex. B at No. 12. After the Commission repeatedly requested an explanation for AEHIs failure to produce documents from such Asian offices, AEHI responded that it would not make the production because, it claimed, neither AEHI China nor Ms. Shi is under the control of AEHI. Id. 1225.1 But this claim is directly inconsistent with statements AEHI has made to the investing 1 In addition, Defendant Gillispie testified that, like AEHI China, AEHI Korea was a separate legal entity beyond AEHIs control. Berman Decl. 18, Exhibit G at 48:12-49:14. Accordingly, the Commission is moving to compel AEHI to produce documents from AEHI Korea and its officers and employees for all the same reasons that are discussed with respect to AEHI China. 4

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public. For example, AEHI stated in a June 18, 2009 press release that: AEHI will open an office in the Chaoyang District, central business district, of Beijing in July to facilitate institutional investors for AEHI projects and joint ventures Nancy Shi will be the President of AEHI China reporting to AEHI Chairman and CEO, Don Gillispie, in the US. Id. 27, Ex. K. In solicitations to potential investors, AEHI identified AEHI China as a holding[] of AEHI and listed it among its subsidiaries. Berman Decl. 28, Ex. L. And in a May 2010 AEHI newsletter, Gillispie began his message to investors with Greetings from our China office. Id. 28, Ex. M. AEHIs claim that it does not control Ms. Shi is not only inconsistent with its public statements, but also with those it has made in this very litigation. As described in the Commissions Proposed Amended Complaint, AEHI misled investors when it stated in its 2009 10-K that: The Company and its subsidiaries have 15 full-time employees. Docket No. 81-1. When the Commission served an interrogatory asking AEHI to identify the purported 15 fulltime employees of it and its subsidiaries, AEHIs sworn response included Ms. Shi of AEHI China and three individuals identified as working for AEHI Korea. Id. 29, Ex. N. In other words, AEHI could not defend the accuracy of its public statement without claiming that those four individuals were full time or full time equivalent employees of either AEHI or one of its subsidiaries. AEHI cannot deny that it has control over AEHI China and Ms. Shi for purposes of evading discovery, while at the same time denying that its statements to the public about opening foreign offices and holding subsidiaries were false and misleading. Even aside from these inconsistencies, AEHI still has the duty to produce the documents and information requested; it cannot legally escape its discovery obligations by arguing that AEHI China and AEHI Korea are technically separate entities, as Gillispie has asserted. Id. 18, Ex. G at 30:11-25. Gillispie testified that AEHI China was set up using AEHI money in order to 5

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negotiate on AEHIs behalf and has no other clients or purpose. Id. at 87:7-89:1, 25:3-6. Gillispie also testified that he is the CEO of AEHI China. Id. at 21:16. Under any interpretation the story AEHI told investors, or the story its CEO is telling now AEHI has control over its agents in China and Korea and so is obligated to make the requested production. [A] party who does not have actual possession of documents will be required to produce them if the party has the practical ability to obtain the documents from another, irrespective of legal entitlements to the documents. Hayles v. Wheatherford, 2010 WL 4739484, at *6 (E.D. Cal. Nov. 16, 2010) (internal citation omitted). Cf. U.S. v. Intl Union of Petroleum & Indus. Workers, 870 F.2d 1450, 1452 (9th Cir. 1989) (A corporation must produce documents possessed by a subsidiary that the parent company owns or wholly controls.).2 AEHI Should Be Ordered to Make a Corrective Production and Provide Information on Its Process for Preserving and Collecting Responsive Documents Over the past seven months, in letters, calls, and through the meet-and-confer process, the Commission has worked in good faith to obtain from AEHI discovery that is necessary to prosecute its claims. The Commission has identified for AEHI the deficiencies in its document production, including specific examples of documents that it obtained from third parties but not from AEHI, and has attempted to gain an understanding about the process that led to these deficiencies. Berman Decl. 12-25. These efforts have been fruitless. AEHI has not denied 2 In correspondence with the Commission, counsel for AEHI appears to have relied on the legal control test for the assertion that his client need not produce documents from AEHI China or its President, Ms. Shi. That test limits the obligations of entities to produce documents from affiliates when they have no legal mechanism for obtaining them. See In re Citric Acid Litigation, 191 F.3d 1090, 1107-8 (9th Cir. 1999). The legal control test does not limit AEHIs obligations in this case because AEHI does have the ability to compel AEHI China and AEHI Korea to produce documents. AEHI has publicly referred to these entities as its Asian offices, Berman Decl. 2829, and Gillispie testified that he is the CEO of AEHI China. Id. 19, Ex. G at 21:16. In any case, AEHI has conceded that it has not asked AEHI China or AEHI Korea to produce documents let alone that it asked and was rebuffed. Id. at 102:20-103:13. A party may not escape the discovery rules simply by making unsupported claims in mid-litigation about its ability to control its own agents. 6

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that the documents identified by the Commission originated in its own files, nor that its production of whole categories of documents remains incomplete. And yet AEHI has refused to share any information about the status of its collection and production, including what remains to be collected and produced, and when such collections and productions will be made, if ever. Instead, AEHI has responded to the Commissions requests with incredible claims and excuses, and has caused undue delay in the discovery process. For example, when the Commission identified certain categories of documents for which AEHIs production appeared incomplete, AEHI responded by claiming that those documents were not sought by the Commissions First Request. Id. 14, Ex. E. The categories of documents included AEHIs own correspondence with its auditors, press releases, shareholder letters, public filings and related correspondence, Board minutes, private placement memoranda, and documents related to AEHI China. Id. 13, Ex. D. These materials were all clearly sought by the First Request, sometimes applicable to more than one request. Id. 2, Ex. A. When the Commission identified specific examples of AEHI documents it obtained from third parties, but which were absent from AEHIs production, AEHI claimed that the problem was that it was having trouble searching the thirdparties productions. Id. 14, Ex. E. AEHI ignored the fact that these documents originated from AEHIs own files. And, in any case, there was no problem certain materials were simply produced by third parties, and thus re-produced by the Commission, in a non-textsearchable format. Id. 17. The documents sought by the Commissions First Request, including all those that the Commission has specifically identified as missing from AEHIs production, are properly the subject of discovery under Federal Rules of Civil Procedure 26 and 34. AEHI has not and cannot claim that any of the discovery sought by the Commission is privileged or otherwise 7

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subject to the limitations in Federal Rule of Civil Procedure 26(b)(2)(C). Id. 16. In fact, despite the Commissions request, AEHI has never produced a privilege log showing which documents it may have collected but withheld. Id. Without any information about the status and details of AEHIs collection and production, other than those gaps that it has identified through its review of documents from third parties, the Commission is left to guess about the discovery that remains to be obtained. For example, AEHI has not disclosed whether it has collected and/or produced all responsive email from its own CEO. AEHI has also not disclosed whether it has completed its collection of responsive files that are stored at the companys main office on Winding Creek Drive, let alone those files that may be maintained at its additional office space in Eagle. Id. 30, Ex. O. And AEHI has refused to provide any information about its collection and production of documents in several substantive categories that the Commission has specifically identified. AEHIs discovery failures, along with its refusal to provide information about the details and status of its collection and production, also raise the question of whether relevant documents have been adequately preserved. If AEHI denies that its own press releases, private placement memoranda, and shareholder correspondence are responsive to the First Request which it has, despite the straightforward language of those requests than the Commission has cause to be concerned that AEHI has allowed those materials to be destroyed. This concern is exaggerated by the fact that AEHI has taken contradictory positions as to the most basic aspects of its business, including the locations of its offices and the identities of its employees. The Commission has requested information about documents that may have been destroyed during the pendency of this litigation, but AEHI has not responded. Id. 12-14, Exs. D, E. The Commission has already been prejudiced by defendants failure to produce the 8

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requested documents, and will be further prejudiced if AEHI does not remedy its failure. The most obvious and immediate harm to the Commission results from its lack of access to unknown files, and the inability to determine what evidence may be lost. Even with respect to the AEHI documents that the Commission has been able to recover from third parties, the Commission will be prejudiced at trial if AEHI does not produce these documents, as the Commission will have to call additional (and unnecessary) witnesses to authenticate them, wasting the Courts and the jurys time. Given the sheer number of documents and the number of different persons who have produced those documents, AEHIs discovery tactics threaten to turn this case into an inquiry into the provenance of documents rather than focusing on the true issues.3 Accordingly, the Commission seeks an Order from this Court that will both compel AEHI to produce all documents in its possession, custody or control that are responsive to the First Request, and also to disclose the steps that it has taken to do so. Both components are necessary to ensure that AEHI complies with its discovery obligations. First, as described above, the record is clear that AEHI has not produced all responsive documents, notwithstanding the passage of more than seven months and the repeated urging of the Commission. Second, a mere corrective production, without disclosure, would leave important unanswered questions about the adequacy of that production. It would also leave open the question of whether AEHI has allowed relevant documents to be destroyed. Such disclosure is appropriate in light of the 3 Indeed, this is no idle threat. Defendants claimed in their Opposition to the Commissions Motion for Temporary Restraining Order, filed Jan. 14, 2011 (Dkt No. 29), that the Commission had no good faith basis for claiming that AEHI had disseminated the PPM that included the false and misleading statements about funding of AEHI, because, the defendants argued, the origin of the PPM was the internet and the PPM therefore must have been altered by persons outside of AEHI. Id. at 9. From their quibble with the source of the PPM defendants argued vociferously that the Commissions allegation in its complaint is False. Id. at 9-10. Unbeknownst to the Commission (and to the Court) was the fact that AEHI had, in fact, disseminated the false and misleading PPM, regardless of the origin of the particular document that the Commission had then obtained. 9