Case 3:19-cv-04248-MMC Document 1 Filed 07/24/19 Page 1 of 55
`Case 3:19-cv-O4248-MMC Document 1 Filed 07/24/19 Page 1 of 55
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`Bridget B. Hirsch, Esq.
`Jeremy E. Deutsch, Esq.
`(Pro Hac Vic Admission to be Sought)
`Christian V. Cangiano, Esq.
`(Pro Hac Vic Admission to be Sought)
`ANDERSON KILL L.L.P.
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`Wells Fargo Building
`355 South Grand Avenue, Suite 2450
`Los Angeles, CA 90071
`Tel:
`(213) 943—1444
`Fax: (212) 278-1733
`
`Attorneys for Plaintiflfs
`
`UNITED STATES DISTRICT COURT FOR
`THE NORTHERN DISTRICT OF CALIFORNIA
`'——I
`
`STEVEN A. SUGARMAN, COR CAPITAL,
`LLC, COR ADVISORS, LLC
`
`Plaintiffs,
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`-against—
`
`MUDDY WATERS CAPITAL, LLC, JASON
`GALANIS, CASTALIAN PARTNERS, LLC,
`CARSON BLOCK, JAMES GIBSON, DAVID
`Q. MATTHEWS, GARY ROBERT
`
`MATTHEWS, KALYN MATTHEWS
`
`DENNO, ADAM J. DENNO, KEITH ALLEN
`DILLING, ROSEMARY NORRIS HALL,
`RYAN KEALY, NIKOLAI BJORKEDAL,
`CASTALIAN PARTNERS VALUE FUND,
`LP, QKM, LLC, MUDDY WATERS
`RESEARCH LLC, MLAF LP, MWCP LLC,
`JOHN DOES 1—30
`
`Defendants.
`
`
`
`Civil Action No.
`
`COMPLAINT FOR:
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`(1) VIOLATION OF CALIFORNIA
`CODE 17200 FOR UNFAIR
`
`COMPETITION;
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`(2) CONSPIRACY TO VIOLATE
`CALIFORNIA CODE 17200 FOR
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`UNFAIR COMPETITION;
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`(3) DEFAMATION;
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`(4) VIOLATION OF THE RACKETEER
`INFLUENCE CORRUPT
`
`ORGANIZATIONS ACT - 18 U.S.C.
`
`§ 1962(0); and
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`(5) CONSPIRACY TO VIOLATE 18
`U.S.C. § 1962(c) OF THE RACKETEER
`INFLUENCE CORRUPT
`
`ORGANIZATIONS ACT IN
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`VIOLATION OF 18 U.S.C. § 1962(d)
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`DEMAND FOR JURY TRIAL
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`4;
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`Case 3:19-cv-04248-MMC Document 1 Filed 07/24/19 Page 2 of 55
`Case 3:19-cv-O4248-MMC Document 1 Filed 07/24/19 Page 2 of 55
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`TABLE OF CONTENTS
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`Page
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`OVERVIEW OF THE ACTION ..................................................................................................... 1
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`PARTIES AND RELATED NON-PARTIES ................................................................................. 1
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`JURISDICTION AND VENUE ...................................................................................................... 6
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`FACTS WITHIN THE EXCLUSIVE CUSTODY AND CONTROL OF DEFENDANTS .......... 8
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`AGENCY AND CIVIL CONSPIRACY ALLEGATIONS ............................................................ 8
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`OPERATIVE FACTS COMMON TO ALL COUNTS .................................................................. 9
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`BACKGROUND ............................................................................................................................. 9
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`OVERVIEW OF CONSPIRACY AND PLAYERS ..................... Error! Bookmark not defined.
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`The Galanis Motivation for Attacking Sugarman and the Plaintiffs ......................................... 10
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`Overview of the Enterprise and the Scheme .............................................................................. 13
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`The Defendants Conceal Their Roles and Identities ................................................................. 15
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`Effect of the Scheme on the Plaintiffs ....................................................................................... 17
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`The Scheme ............................................................................................................................... 18
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`The Implementation of the Scheme ........................................................................................... 26
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`DISTORT AND ATTACK LEADING TO DAMAGES .............................................................. 29
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`TO COVER THE SHORT ............................................................................................................. 34
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`On-Going Scheme Against Plaintiffs — To Cover Their Tracks ................................................ 37
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`CAUSES OF ACTION .................................................................................................................. 42
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`FIRST CAUSE OF ACTION: UNFAIR COMPETITION (CA Civil Code § 17200 — Against
`All Defendants) .............................................................................................................................. 42
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`SECOND CAUSE OF ACTION: CONSPIRACY TO ENGAGE IN UNFAIR COMPETITION
`
`(Against All Defendants) ...............................................................................................................44
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`THIRD CAUSE OF ACTION: DEFAMATION (Against All Defendants) ............................... 45
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`FOURTH CAUSE OF ACTION: VIOLATIONS OF THE RACKEETER INFLUENCED
`
`CORRUPT ORGANIZATIONS ACT — l8 U.S.C. § 1962(c) (Against All Defendants) ............ 45
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`Enterprise ................................................................................................................................... 45
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`The Racketeering Violation ....................................................................................................... 48
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`Pattern of Racketeering Activities ............................................................................................. 48
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`The Predicate Acts constituting Wire Fraud .............................................................................. 49
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`Damages and Standing .............................................................................................................. 50
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`FIFTH CAUSE OF ACTION: VIOLATIONS OF THE RACKEETER INF LUENCED
`
`CORRUPT ORGANIZATIONS ACT — 18 U.S.C. § 1962(d) (Against All Defendants) ........... 51
`
`JURY TRIAL DEMAND .............................................................................................................. 52
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`i
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`COMPLAINT
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`Case 3:19-cv-04248-MMC Document 1 Filed 07/24/19 Page 3 of 55
`Case 3:19-cv-O4248—MMC Document 1 Filed 07/24/19 Page 3 of 55
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`Plaintiffs, Steven A. Sugarman, COR Capital, LLC, and COR Advisors, LLC, as and for
`
`their complaint against all defendants set forth above in the caption, respectfully allege upon
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`personal knowledge or upon information and belief where indicated, as follows:
`
`OVERVIEW OF THE ACTION
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`1.
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`This action is brought against defendants who, individually and collectively,
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`engaged and continue to engage in a pattern of racketeering activity and unfair competition by
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`means of unlawful, unfair and/or fraudulent business acts and practices.
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`2.
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`Defendants’ conduct was a collective undertaking and conspiracy to destroy the
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`reputation and business prospects of Steven Sugarman and his limited liability companies and
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`simultaneously to profit from the destruction of Mr. Sugarman’s and the other plaintiffs’
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`professional reputations. As a result of the serial, coordinated attacks on Mr. Sugarman and his
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`associated entities, plaintiffs were damaged, the defendants profited, and other unrelated parties
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`were also defrauded.
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`3.
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`The plaintiffs seek recovery under claims of violation of the Racketeer Influenced
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`and Corrupt Organizations statutes, the California Unfair Competition statutes, and under
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`common law claims.
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`PARTIES AND RELATED NON-PARTIES
`
`4.
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`Plaintiff Steven A. Sugarman (“Sugarman”) is the former Chairman of the Board,
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`President, and Chief Executive Officer of Banc of California and a prominent California
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`businessman. He is also the Managing Member of COR Plaintiffs. He is now and at all times
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`relevant was a resident of the County of Los Angeles and the State of California. Plaintiff
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`Sugarman has suffered an injury—in—fact for which he is entitled to seek monetary damages
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`and/or equitable relief.
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`5.
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`COR Capital, LLC is a Delaware limited liability company, headquartered and
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`registered to do business in California that is managed by Steven Sugarman and owned by Mr.
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`Sugarman and his wife.
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`6.
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`COR Advisors, LLC is a Delaware limited liability company headquartered and
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`registered to do business in California that is managed by Steven Sugarman and owned by Mr.
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`1 C
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`OMPLAINT
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`Case 3:19-cv-04248-MMC Document 1 Filed 07/24/19 Page 4 of 55
`Case 3:19-cv-O4248—MMC Document 1 Filed 07/24/19 Page 4 of 55
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`Sugarman and his wife.
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`7.
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`Mr. Sugarman was also at all relevant times the managing member of COR
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`Capital LLC, a Southern California-based investment firm (“COR Capital”) and COR Advisors
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`LLC (“COR Advisors”) (collectively, the “COR Plaintiffs”).
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`8.
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`Banc of California, a non-party, is a federally chartered financial holding
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`company under the laws of the United States with its principal place of business in Santa Ana,
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`CA. It is a publicly traded company under the ticker symbol “BANC” on the New York Stock
`
`Exchange. Banc of California has a national bank subsidiary Banc of California, NA (Bane NA).
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`Banc of California was incorporated in March 2002 and formerly known as “First PacTrust
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`Bancorp, Inc.” It changed its name to Banc of California in July 2013. Mr. Sugarman and the
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`COR Plaintiffs led the recapitalization of Banc of California (then called First PacTrust Bancorp)
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`in November 2010 and Mr. Sugarman became a member of Bane of California’s Board of
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`Directors following the closing of the transaction. In 2012, Mr. Sugarman became the Chief
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`Executive Officer of Banc of California and in 2013 Mr. Sugarman became the Chairman,
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`President, and Chief Executive Officer of both Banc of California and Bane NA.
`
`9.
`
`Defendant Jason Galanis (“Galanis”) is a convicted felon who presented himself
`
`as an investor and businessman until he pled guilty to participating in two separate financial
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`frauds, one of which involved the manipulation through a “pump and dump” scheme of the stock
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`of the now—defunct reinsurer, Gerova Financial Group, Ltd, and the other of which involved a
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`scheme to defraud a Native American tribe and multiple pension funds through the issuance of
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`$60 million worth of tribal bonds. Mr. Galanis is currently a resident of the FCI Terminal Island
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`Correctional Facility located in San Pedro, California where he is serving out a sentence for
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`those crimes with a release date of July 9, 2030. Galanis” brother, Derek Galanis, in a book he
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`published in 2019, states that Galanis is an expert at forging and lifting signatures, manipulating
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`documents. and creating fraudulent documents. He also states that Galanis, who was dubbed
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`“Porn’s New King” by Forbes Magazine in 2004, and was charged by the SEC in 2005 for his
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`role in a fraud relating to Penthouse Magazine, has long-term connections with the Gambino
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`organized crime family and often threatens people (including his own family) with extortion,
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`Case 3:19-cv-04248-MMC Document 1 Filed 07/24/19 Page 5 of 55
`Case 3:19-cv-O4248—MMC Document 1 Filed 07/24/19 Page 5 of 55
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`including by threatening to make false regulatory reports in order to pressure them into
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`facilitating his wrongdoing or to punish them for not facilitating his wrongdoing.
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`lO.
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`Defendant Muddy Waters Capital, LLC (Muddy Waters Capital) is affiliated with
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`Defendants Muddy Waters Research LLC, MLAF LP, and MWCP LLC (collectively “Muddy”
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`or “Muddy Waters”) which all hold themselves out as specializing in research, investment, and
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`trading in short sales of publicly traded equities]. Muddy Waters Capital and MWCP are limited
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`liability companies formed under the laws of the State of Delaware with their principal places of
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`business in San Francisco, CA. MLAF is a limited partnership formed under the laws of the
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`State of Delaware with its principal place of business in San Francisco, CA. Upon information
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`and belief, Muddy Waters Research is a limited liability company formed under the laws of the
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`State of Delaware with its principal place of business in San Francisco, CA. Muddy Waters has
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`admitted to using pseudonyms and anonymous blogs and sham “research” organizations to
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`publish allegations of wrongdoing to support its short positions in the past (and Muddy Waters
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`has been sued for such conduct by parties who allege its allegations were false, defamatory and
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`violated the law). Upon information and belief, Muddy Waters’ members and/or partners are all
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`residents and domiciliaries of the State of California.
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`11.
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`Defendant Carson Block (“Block”) is the managing member and founder of
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`Muddy Waters and is also a resident of the State of California.
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`12.
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`Defendant Castalian Partners Value Fund, LP (“Value Fund”) is a limited
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`partnership organized under the laws of Delaware with the principal place of business in
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`Excelsior, Minnesota. Upon information and belief, Value Fund’s partners are all residents and
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`domiciliaries of the State of Minnesota.
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`13.
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`Defendant Castalian Partners, LLC (“Castalian Partners”), the general partner of
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`Value Fund, is a Minnesota limited liability company with its principal place of business at, upon
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`‘ A short sale of common stock is a trading strategy which speculates on the decline in the price ofthe stock. Under
`a short trade, a trader borrows a security which is trading for $X and pledges to return the security by a date
`specified. The trader then sells the security for that same $X with the expectation that the price ofthe security will
`drop such that the trader can repurchase the security from another party at the lower price ($X-l) prior to the date on
`which the security must be returned to the party from whom the trader borrowed it. The trader intends to profit from
`the difference between the price at which she sold the security and the price for which she had to repurchase prior to
`returning it.
`,,
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`J
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`COMPLAINT
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`Case 3:19-cv-04248-MMC Document 1 Filed 07/24/19 Page 6 of 55
`Case 3:19-cv-O4248—MMC Document 1 Filed 07/24/19 Page 6 of 55
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`information and belief, the same address as the Value Fund (Castalian Partners together with
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`Value Fund are referred to herein as “‘Castalian”). Upon information and belief, Castalian’s
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`members all residents and domiciliares of the State of Minnesota.
`
`14.
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`Defendant James Gibson (“Gibson”) is a resident of the State of Minnesota and is
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`the manager of Castalian Partners and the executive officer of the Castilian Value Fund.
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`Defendants Value Fund, Castalian Partners and Gibson are referred to collectively as the
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`“Castalian Defendants”.
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`15.
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`The Aurelius Enterprise (“Aurelius Enterprise” or “Aurelius”), a non-party, is an
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`association-in-fact operated and directed by the Aurelius Defendants to engage in the publication
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`of information, research and communications over the internet. On information and belief, the
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`Aurelius Enterprise is controlled by an incarcerated convict, hedge fund managers, stock traders,
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`and market participants who use social and traditional media in conjunction with stock trading to
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`impact stock prices for profit. The Aurelius Enterprise is operated as an enterprise under 18
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`U.S.C. Sec. 1961(4) in that it is, among other things, a group of individuals associated in fact
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`although not itself a legal entity. While the identity of the co-conspirators who direct and
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`operate the Aurelius Enterprise is currently not publicly disclosed, on information and belief the
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`Aurelius Defendants direct, manage, operate, coordinate, and/or contribute to the Aurelius
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`Enterprise. Additionally, the Windfall Defendants (some of whom are also Aurelius Defendants)
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`profit from the Aurelius Enterprise through stock trading, and knowingly facilitate the Aurelius
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`Enterprise’s schemes, including financially and operationally to further their mutual goals.
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`Defendants and other co-conspirators participated as set forth herein in the operation,
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`management, and control of the enterprise but all defendants, upon information and belief, did
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`actively participate. Aurelius’ disclosures on Seeking Alpha state that “I am/we are short
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`BANC” implying that an association of persons control the blog. The Aurelius Enterprise’s blog
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`on Seeking Alpha has at all relevant times been free for public viewing and was not subject to
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`verification by Seeking Alpha as to its content.
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`16.
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`Seeking Alpha (“Seeking Alpha”), non—party, is an online platform on which
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`users can submit articles covering news and analysis about various aspects of the financial
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`Case 3:19-cv-04248-MMC Document 1 Filed 07/24/19 Page 7 of 55
`Case 3:19-cv-O4248-MMC Document 1 Filed 07/24/19 Page 7 of 55
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`markets. There is no limit to who can contribute to Seeking Alpha and Seeking Alpha permits
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`pseudonymous publication. Seeking Alpha has an editorial team of 56 who purport to curate
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`content from a network of stock analysts, traders, economists, academics, financial advisors and
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`industry experts. Seeking Alpha has reported that as of February 2019 it received more than 41
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`million visits per month from more than 13.5 million unique visitors. Blog posts submitted to
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`Seeking Alpha are not subject to Seeking Alpha’s editorial guidelines or screened by Seeking
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`Alpha’s editorial team. Additionally, blog posts on Seeking Alpha are not subject to Seeking
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`Alpha’s “dispute resolution process” and as such the Seeking Alpha dispute team will not request
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`an author correct any “material factual inaccuracies” in the blog post and will not request the
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`author withdraw the blog post due to potential errors which could impair a blog post’s thesis.
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`The SEC has fined over one—hundred traders for using Seeking Alpha’s publication platform to
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`pursue market manipulation tactics including pump and dump and short and distort schemes.
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`17.
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`Defendant Gary Robert Matthews is, upon information and belief, a resident of
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`the State of Texas and/or the State of Kansas and is a co-conspirator
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`18.
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`Defendant David Q. Matthews (“Matthews”) is a resident of the State of Texas
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`and a co—conspirator and short seller who also manages a registered investment advisor,
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`Defendant QKM, LLC, whose clients include Kalyn Matthews Denno, Adam J. Denno, Keith
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`Allen Dilling, Rosemary Norris Hall, and David Matthews, amongst others.
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`19.
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`Defendants Kalyn Matthews Denno, Adam J. Denno are, upon information and
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`belief, residents of the State of Kansas and/or the State of Colorado and are co-conspirators
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`20.
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`Defendants Keith Allen Dilling and Rosemary Norris Hall are residents of the
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`State of Texas and are co—conspirators.
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`21.
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`Defendant QKM, LLC (“QKM”) is a registered investment advisor located in
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`Texas that is managed by Matthews and was responsible for recommending and/or placing the
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`trades made by Defendants Matthews, Gary Robert Matthews, Kalyn Matthews Denno. Adam J.
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`Denno, Rosemary Norris Hall, Keith Allen Dilling and QKM who are referred to collectively as
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`the “Matthews Defendants”. Upon information and belief, QKM’s members are all residents and
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`domiciliaries ofthe State of Texas.
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`Case 3:19-cv-04248-MMC Document 1 Filed 07/24/19 Page 8 of 55
`Case 3:19-cv-O4248-MMC Document 1 Filed 07/24/19 Page 8 of 55
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`22.
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`Defendant Ryan Kealy is, upon information and belief, a resident of the State of
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`New York and was an institutional trader at Keefe, Bruyette and Woods (“KBW”) who
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`coordinated and conspired with the other Windfall Defendants by coordinating with John Does,
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`Windfall Defendants and other institutional traders at other investment banks (many of whom
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`were former employees of KBW) prior to and concurrent with the publication of Aurelius” blogs
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`to enable Defendants to profit from their scheme to distort Sugarman’s good name and
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`reputation. Upon information and belief, he was a participant in the enterprise and engaged in
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`racketeering activity as set forth below.
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`23.
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`Defendant Nikolai Bjorkedal is, upon information and belief, a resident of the
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`State of New Jersey and was an institutional trader at FIG Partners, LLC, and on information and
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`belief a former KBW employee, who coordinated and conspired with the Windfall Defendants
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`by coordinating with John Does and other institutional traders at other investment banks prior to
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`and concurrent with the publication of Aurelius’ blogs to enable Defendants to profit from their
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`scheme to distort Sugarman’s good name and reputation. Upon information and belief, he was a
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`participant in the enterprise and engaged in racketeering activity as set forth below.
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`24.
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`Rota Fortunae, a non—party, is a pseudonym used by a group of one or more short
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`sellers to engage in anonymous blogging on the Seeking Alpha website often in coordination
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`with the Aurelius Enterprise. While the identity of Rota Fortunae currently is not publicly
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`disclosed, the author resides in Houston, Texas and has published posts, comments and other
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`social media communications, including on seekingalphacom and on Twitter, relating to Mr.
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`Sugarman and Sugarman Entities.
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`25.
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`All Defendants, as more fully set forth below, participated in the unfair practices,
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`illegal conduct, management or affairs of the Aurelius Enterprise, or agreed to facilitate the
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`scheme including the racketeering activities of the Aurelius Enterprise.
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`JURISDICTION AND VENUE
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`26.
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`The subject matter jurisdiction of this Court over the instant action is based upon
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`federal question jurisdiction pursuant to 28 U.S.C. § 1331 because the claims asserted in it arise
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`out ofthe laws of the United States. As is more fully shown below, this action asserts claims that
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`COMPLAINT
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`docs-1001627141
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`(213)943—1444FAX:(212)278—1733
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`TEL:
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`ANDERSONKILLL.L.P.
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`WELLSFARGO
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`BUILDING355SOUTHGRANDAVENUE,SUITE2450Los
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`Case 3:19-cv-04248-MMC Document 1 Filed 07/24/19 Page 9 of 55
`Case 3:19-cv-O4248-MMC Document 1 Filed 07/24/19 Page 9 of 55
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`Defendants violated and conspired to violated the Racketeer Influenced Corrupt Organizations
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`Act — l8 U.S.C. § 1962(c)—(d) and, therefore, the action arises under federal statute.
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`27.
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`This Court has personal jurisdiction over Defendants Galanis, Block and Muddy
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`Waters because, upon information and belief, the individual defendants are both citizens,
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`residents and/or domiciliaries of the State of California, and as the entity defendants, upon
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`information and belief, have members that are residents of the State of California, and their
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`principal place of business is within the Northern District of California and they regularly and
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`systematically conduct business from that location.
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`28.
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`As to the remaining Defendants, this Court has personal jurisdictions over them
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`pursuant to 18 U.S.C. § 1965(b) as: (1) this Court has personal jurisdiction over at least one
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`participant in the alleged multidistrict conspiracy as set forth in the preceding paragraph; and (2)
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`there is no other district in which a court will have personal jurisdiction over all alleged co-
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`conspirators. Indeed, the enterprise alleged herein was nationwide and accomplished primarily
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`through anonymous and pseudonymous postings published as part of a joint scheme by
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`defendants domiciled in California (Defendants Galanis, Block, and Muddy Waters as previously
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`stated), defendants domiciled and residing in Minnesota (the Castalian Defendants), Texas,
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`Kansas and/or Colorado (the Matthews Defendants), New York (Defendant Kealy), and New
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`Jersey (Defendant Bj orkedal). Upon information and belief, none of the Defendants had
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`minimum contacts with any of the states of residence in which the others are residents and but
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`for their participation in this scheme could not be hailed into a single State or Federal Court in on
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`action.
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`29.
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`The Court has supplemental jurisdiction over Plaintiffs’ related state law claims
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`for unfair competition and defamation pursuant to 28 U.S.C. 1367.
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`30.
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`Venue is properly placed in the Northern District of California under 28 U.S.C.
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`1391 (b)(1), as, upon information and belief, at least two of the entity Defendants’ principal
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`places of business are in the Northern District of California, and at least one of the individual
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`defendants maintains his residence there.
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`COMPLAINT
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`docs-1001627141
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`ANDERSONKILLL.L.P.
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`WELLSFARGO
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`2450LOSANGELES,CA90071TEL:(213)943-1444FAX:(212)278-1733
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`Case 3:19-cv-04248-MMC Document 1 Filed 07/24/19 Page 10 of 55
`Case 3:19-cv-O4248-MMC Document 1 Filed 07/24/19 Page 10 of 55
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`INTRADISTRICT ASSIGNMENT
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`31.
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`Upon information and belief, this case arose in San Francisco County, California
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`and, pursuant to Rule 3—2(d) of the Local Rules of the Northern District of California, should be
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`assigned to either the San Francisco or Oakland Division of the Northern District.
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`FACTS WITHIN THE EXCLUSIVE CUSTODY AND CONTROL OF DEFENDANTS
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`32.
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`The facts as set forth below are alleged with particularity and specificity where
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`possible and where such information is known to Plaintiffs.
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`33.
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`However, as alleged herein, Defendants actively have taken steps to hide their
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`identities and their activities and have acted, as set forth herein, to frustrate Plaintiffs’ ability to
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`34.
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`Thus, many of the details about the specifics of the fraudulent activity taken by
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`the Defendants are within the sole and exclusive possession, control, or custody of the
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`Defendants, or subject to protective orders in other proceedings and cannot be stated herein
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`without the benefit of discovery. However, Plaintiffs have pleaded with sufficient particularity
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`from the results of the good faith investigation and inquiry they have made in order to put
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`Defendants on notice of the specifics of the allegations and causes of action asserted against
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`them.
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`AGENCY AND CIVIL CONSPIRACY ALLEGATIONS
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`35.
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`At all times herein mentioned, Defendants were the agents, principals, employees,
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`servants, partners, joint venturers, and representatives of each other. In doing the acts hereinafter
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`alleged, they each were acting within the scope and course of their authority as such agents,
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`principals, employees, servants, partners, joint venturers, and representatives, and were acting
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`with the permission and consent of the other Defendant. All Defendants had knowledge of and
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`agreed to the misconduct alleged herein.
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`36.
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`All Defendants conspired with each other to engage in the common course of
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`misconduct alleged herein, or aided and abetted that common course of misconduct, for the
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`purpose of enriching themselves at the public’s and Plaintiffs’ expense, resulting in damage to
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`Plaintiff and all others similarly situated.
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`COMPLAINT
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`docs-1001627141
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`SUITE2450LOSANGELES,CA90071TEL:(213)943—1444FAX:(212)278-1733
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`Case 3:19-cv-04248-MMC Document 1 Filed 07/24/19 Page 11 of 55
`Case 3:19-cv-O4248-MMC Document 1 Filed 07/24/19 Page 11 of 55
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`OPERATIVE FACTS COMMON TO ALL COUNTS
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`37.
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`The following operative facts are common to each cause of action alleged herein
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`and as such are brought in this section together.
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`BACKGROUND
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`Overview of Conspiracy and Players
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`38.
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`At the time of the defendants’ scheme, Mr. Sugarman was the Managing Member
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`of COR Capital, LLC and COR Advisors, LLC (“COR Plaintiffs”) and until January 2017 Mr.
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`Sugarman was the Chairman, President and Chief Executive Officer of Banc of California, Inc.
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`(“Banc” or “Banc of California”). Mr. Sugarman, COR Plaintiffs, and other businesses affiliated
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`with Mr. Sugarman — including Banc of California, COR Securities Holdings, Inc. (“COR
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`Securities” or “‘CORSHI”) and COR Clearing, LLC (collectively the “Sugarman Entities”) — all
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`were harmed by defendants’ wrongdoing.
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`39.
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`Defendant Jason Galanis (“Galanis”) is a recidivist convicted criminal who was
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`imprisoned in 2016 and sentenced to serve approximately fourteen years for stealing millions of
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`dollars from vulnerable investors, including a Native American tribe. Galanis secretly joined
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`and conspired with the other defendants from prison, and the other defendants intentionally
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`concealed his involvement in their collective enterprise.
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`40.
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`In 2016, Plaintiff Steven Sugarman provided information to the government in
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`connection with their investigation of Galanis. Through the government’s court filings, Galanis
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`became aware of Mr. Sugarman’s cooperation with law enforcement. While in prison, Galanis
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`determined to retaliate against and disparage Mr. Sugarman. He used interstate communications
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`from prison ~ including his limited access to the internet, telephone, and US. mail — to direct his
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`proxies outside of prison to communicate with and to provide documents (many of which were
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`fraudulent) and other information to other Defendants for use in their common enterprise.
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`41.
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`On information and belief, Defendants Muddy Waters Capital, LLC, Muddy
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`Waters Research LLC, Carson Block, Castalian Partners, LLC, James Gibson, David Q.
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`Matthews, QKM, LLC, Galanis, and John Does 1—10 (collectively, the “Aurelius Defendants”)
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`formed, or later joined, an association-in-fact called Aurelius (the “Aurelius Enterprise”) on or
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`docs-1001632714.]
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`COMPLAINT
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`BUILDING355SOUTHGRANDAVENUE,
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`WELLSFARGO
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`SUITE2450LOSANGELES,CA90071TEL:(213)943—1444FAX:(212)278-1733
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`Case 3:19-cv-04248-MMC Document 1 Filed 07/24/19 Page 12 of 55
`Case 3:19-cv-O4248—MMC Document 1 Filed 07/24/19 Page 12 of 55
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`about December 2015 or early 2016. The Aurelius Enterprise registered social media accounts
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`on various websites including: Aurelius’ Blog on seekingalpha.com, and AureliusValue on
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`Twitter which they used in furtherance of their common enterprise.
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`42.
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`The Aurelius Defendants acted through the Aurelius Enterprise to issue online
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`blogs, tweets, messages and other public and private communications through the internet while
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`concealing their identities, relationships, methods, coordination and/0r business practices and
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`affirmatively electing an internet platform that enabled publication of information without
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`controls for the accuracy or authenticity of the content.
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`43.
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`Defendants Muddy Waters Capital, LLC, MLAF LP, MWCP LLC, Carson Block,
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`Castalian Partners, LLC, Castalian Partners Value Fund, LP, James Gibson, Gary Robert
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`Matthews, David Q. Matthews, Kalyn Matthews Denno, Adam J Denno, Keith Allen Dilling,
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`Rosemary Norris Hall, Ryan Kealy, Nik Bj orkedal, and John Does 11-20 (collectively, the
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`“Windfall Defendants”) are a group of individuals or entities who joined together and conspired
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`to profit from the false statements and misrepresentations of the Aurelius Defendants by selling
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`short particular securities or facilitating short sales for others.
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`44.
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`In the conduct of his legitimate business affairs, Mr. Sugarman was introduced to
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`Galanis and had interactions with him prior to 2015. However, at no time was Galanis ever an
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`owner, officer, control person or employee of any of Mr. Sugarrnan’s businesses.
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`The Galanis Motivation for Attacking Sugarman and the Plaintiffs
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`45.
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`Galanis was one of the key participants in this conspiracy and was motivated by a
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`desire to retaliate against Mr. Sugarman because Mr. Sugarman provided information to the
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`Department of Justice (DOJ), Federal Bureau of Investigation (FBI) and the Securities and
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`Exchange Commission (SEC) in their investigation of Galanis for his