In response to the legal issue, I am quite familiar with securities laws and what they mean. The order was a DRO and not a CDO, and I regret mis-characterizing that. I did not intend to insinuate the CGP was prevented from selling any securities, only the ones referenced.

However, my statement that your company misrepresented the securities is an adequate characterization of the DRO. The DRO stated (page 2, lines 15-18): “Respondents represented to investors that these note units would earn ‘10% simple interest backed by US Treasury Bonds’ and that the ‘note is due and payable in 24 months.’ California investors did not receive 10% interest on their investments, and their investments did not become payable in 24 months as promised.” The company promised one thing and investors did not receive that. That sounds like misrepresentation to me.

I understand you are short on MaxLife Fund Corp Common Stock and you certainly have that right. I also understand the First Amendment of the Bill of Rights and your right to free speech. However, your right to free speech is not unfettered and it does not give you the right to make disparaging false statements and misrepresentations in a commercial/business context, especially where such false and statements lead to your personal financial gain.

I am the CEO of Capital Growth Planning, Inc. Upon reading your April 09, 2008 posting about MaxLife Fund Corp. and its joint venture with Capital Growth Planning, Inc., it was obvious to me that you are not a sophisticated investor and do not have much of a legal background or a background in the life settlement industry. Consequently, I’ve decided to educate you and your readers as to who Capital Growth Planning, Inc. is and what we do, and thereby set the record straight as to your erroneous statements about us.

First, the Desist and Refrain Order (“DRO” and not a “cease and desist order”) issued by the State of California, DOES NOT PREVENT Capital Growth Planning, Inc. (“CGP”) from “issuing securities in California,” contrary to your blog statement and your article published on http://www.seekingalpha.com. The order clearly provides: “Capital Growth Planning, Inc. . . . [is] hereby ordered to desist and refrain from the further offer or sale of securities in California unless and until qualification has been made under the law or unless exempt.” (Emphasis added.) Upon receiving the DRO, CGP inquired, through outside counsel, as to the factual basis and importance of the DRO. It appears the DRO was issued in relation to Capital Growth Planning, Inc.’s 2003 Series B 10% Note Offering and in particular regarding an investor(s), who was telephonically contacted by a CGP representative who qualified the investor as being accredited, then sent the investor offering materials, with the investor thereafter making an investment in the Note Offering. The subject offering was intended to be a Regulation D private offering exempt from Securities and Exchange Commission (”SEC”) registration and State of California qualification. Regulation D provides: “Limitation on manner of Offering. Except as provided in section 230.504 (b)(1), neither the issuer nor any person acting on its behalf shall offer or sell securities by any form of general solicitation or general advertising. . . .” “No Action Letters” issued by the SEC provide clarification as to what makes a “general solicitation.” These “No Action Letters” establish that an issuer or broker-dealer acting as a placement agent must have a “substantive pre-existing relationship” with all prospective investors. It appears the Department of Corporations determined that since CGP did not have a “substantive pre-existing relationship” with the investor, the telephone solicitation resulted in a “general solicitation” and, therefore, the offering was not exempt under Regulation D and needed to be qualified with the State of California. To reiterate, the DRO does not preclude CGP from “issuing securities in California.” It only requires that CGP comply with all rules and regulations with respect to any such issuance, including the “know your investor” rule for exempt and non-qualified offerings.

Second, you state that CGP “misled investors about the collateral and returns available to investors on the debt securities it had issued” and imply that this was an explicit finding by the Department of Corporations. This is patently false and probably actionable at law as defamatory. I defy you to quote anything in the DRO that states CGP misled prospective (or actual) investors about “the collateral and returns available to investors.” Apparently you simply made this one up to further your goal of profiting from shorting MXFD stock. On this topic, the DRO does state the Commissioner’s opinion that: “the securities were offered and sold in the state by means of written or oral communications which included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, in violation of section 25401 of the Corporations Code.” From inquiring with the Department of Corporations, it appears the subject opinion regarding “an untrue statement or omission to state a material fact…” arose from representations that the Note Offering was exempt from registration and qualification, when, for the reasons noted above, it was not. In fact, from the original principal balance of $2,526,500, CGP has retired all but $763,560 of the note principal. The pledged collateral was and is exactly as described and the obligation to pay interest was and is valid and enforceable.

Third, you draw conclusions about the lack of experience CGP and its management team have with respect to the Life Settlement business. While the number of policies and amount of settled policies may not be large by industry standards, management has been very active over the last two years in designing proprietary financial programs and instruments involving niche segments of the Life Settlement, life insurance, and securities industries. In fact, on February 1, 2008, it filed a provisional business process patent for its program known as LIBACSM. I question how you would know what experience we have, as a company or personally, in the life settlement business, or any other business for that matter? Furthermore, the 55 cases to which you refer were life settlements and were specifically stated as being life settlements and not “viatical settlements,” per the erroneous reference in your blog and in your seekingalpha.com article. Perhaps if you had read the Wikipedia article on Viatical Settlements you reference and then bothered to read the Wikipedia article on Life Settlements, you would have understood the difference and would not have appeared as such a rube.

Fourth, regarding the MaxLife – CGP Partners, LLC Joint Venture, we never stated anywhere that we were forecasting “$1 billion of Sales.” We stated it was our goal to “develop life settlement policy transactions “exceeding $1 billion in TOTAL FACE VALUE.” (Emphasis added.)

Lastly, in your opening paragraph you accuse MaxLife Fund Corp., and implicitly CGP, of providing “press releases . . . [that have] strayed so far from reality as to be not just misleading but fraudulent.” Falsely accusing a publicly reporting company of providing fraudulent press releases is defamatory, and you have painted CGP with the same defamatory brush. Perhaps you will heed my advice to print a retraction to correct the record on your self-serving defamatory statements. At the very least, I strongly recommend you properly research all the facts before making such blatantly false and misleading statements about companies for whom you have a vested interest in seeing fail, like a piranha hoping to draw first blood.

Douglas Miller, Chief Executive Officer of Capital Growth Planning, Inc.

E*TRADE and BofA don’t support shorting OTC shares. Even though shorting is anathema to Vanguard’s buy and hold model, Vanguard Brokerage Services (run by Pershing) ironically has provided the best locates for me. It’s recently allowed me to increase my positions on PRKR, SUF, and REFR, each of which have at times been very hard to find. They also support OTC shorting, but can’t locate MXFD.

Also, IB let’s me keep a GTC order open to short MXFD, but VBS and thinkorswim only support day orders. Any advice, as re-entering the order every day is tedious?

As far as stops, I don’t use them. Sometimes I don’t even use mental stops and I resolve to hold on as long as I believe I am right. In one previous case, RMDX, I saw a 100% loss before covering. The stock then went up some more and I shorted a whole lot more, and then it finally cratered to below my initial short price.