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`UNITED STATES BANKRUPTCY COURT
`SOUTHERN DISTRICT OF NEW YORK
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`In re
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`SOUNDVIEW ELITE LTD., et al.,
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`Debtors.
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`CORINNE BALL, as Chapter 11 Trustee of :
`SOUNDVIEW ELITE LTD.,
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`Plaintiff,
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`SOUNDVIEW COMPOSITE LTD.,
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`Defendant.
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`Chapter 11
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`Case No. 13-13098 (REG)
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`(Jointly Administered)
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`Adv. Proc. No. 14-01923 (REG)
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`DECISION ON MOTIONS FOR SUMMARY JUDGMENT
`AND ASSET FREEZING PRELIMINARY INJUNCTION
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`APPEARANCES:
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`JONES DAY
`Counsel for Plaintiff Corinne Ball, as Chapter 11
`Trustee of Debtor Soundview Elite Ltd.
`222 East 41st Street
`New York, New York 10017
`By: William J. Hine, Esq. (argued)
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`Veerle Roovers, Esq.
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`LAW OFFICE OF PETER M. LEVINE
`Former1 Counsel for Defendant Soundview Composite Ltd.
`99 Park Avenue, Suite 330
`New York, New York 10016
`By:
`Peter M. Levine, Esq. (argued)
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`1
`After the filing of his brief and oral argument on the summary judgment elements of this decision,
`Mr. Levine sought permission to withdraw from his representation of defendant Soundview
`Composite Ltd. His motion was granted.
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`SHER TREMONTE LLP
`Successor Counsel for Defendant Soundview Composite Ltd.
`80 Broad Street, Suite 1301
`New York, New York 10004
`By: Robert Knuts, Esq.2
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`2
`Mr. Knuts filed a brief on the asset-freezing injunction elements of this decision. The Court did
`not need, nor hold, oral argument as to these.
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`ROBERT E. GERBER
`UNITED STATES BANKRUPTCY JUDGE:
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`In the chapter 11 cases of debtors Soundview Elite Ltd. (“Elite”) and its affiliates
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`(collectively, and with Elite, the “Soundview Debtors”), plaintiff Corinne Ball (the
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`“Trustee”) was appointed chapter 11 trustee for the Soundview Debtors after this Court
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`removed Alphonse Fletcher (“Fletcher”) and others under Mr. Fletcher’s control from
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`possession.3 Until the Soundview Debtors needed to be liquidated (in the Cayman
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`Islands, under which they were organized, and the United States, where they were
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`headquartered), the Soundview Debtors were investment companies—“open ended
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`mutual funds”4—taking investor money and placing that money in other investments.
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`One such investment (in this case, by debtor Elite, one of the six companies that
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`are debtors in this chapter 11 case) was in another investment company, defendant
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`Soundview Composite Ltd. (“Composite”), which is not a debtor in this Court. As of the
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`time of the events relevant here, Composite was also under Mr. Fletcher’s control, and it
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`remains under Mr. Fletcher’s control.
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`In this adversary proceeding under the umbrella of the Soundview Debtors’
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`chapter 11 cases, the Trustee, on behalf of debtor Elite, sues to recover the “Owed
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`Amount,” i.e., the net asset value of Elite’s investment—which effectively is everything
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`See In re Soundview Elite, Ltd., 503 B.R. 571 (Bankr. S.D.N.Y. 2014) (Gerber, J.) (the “Trustee
`3
`Decision”) (addressing a number of issues in this case, including the appointment of a chapter 11
`trustee).
`Earlier, in a distinct, but related, chapter 11 case involving another investment fund controlled and
`managed by Mr. Fletcher, In re Fletcher Int’l Ltd of Bermuda., No. 12-12796 (Bankr. S.D.N.Y.
`case filed June 29, 2012), referred to by the parties, and eventually this Court, as “FILB,” the
`Court likewise appointed a trustee—in that case, Richard Davis, Esq. (the “FILB Trustee). For
`further background with respect to some of FILB matters, see In re Fletcher Int’l Ltd, 2014 Bankr.
`LEXIS 2558, 2014 WL 2619690 (Bankr. S.D.N.Y. June 11, 2014) (Gerber, J.).
`Decl. of Alphonse Fletcher, Jr. Pursuant to Local Rule 1007-2, filed 9/24/2013 (Main Case
`ECF No. 2) (“Fletcher Rule 1007-02 Decl.”), ¶ 4.
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`4
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`Composite would have after the payment of Composite’s creditor liabilities,5 since Elite
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`is the only shareholder with an economic interest in Composite6—after Elite made a
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`redemption request that Composite repeatedly acknowledged but now refuses to honor.
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`The Trustee also seeks a preliminary injunction (replacing a consensual hold on Elite’s
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`assets that was put into place when this controversy first came up) freezing Composite’s
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`assets to avoid their dissipation.
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`More specifically, the Trustee seeks (i) turnover, under sections 541 and 542 of
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`the Bankruptcy Code, of the net asset value of Elite’s holdings; (ii) an accounting;
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`(iii) attorneys’ fees, costs, and litigation expenses, and (iv) other relief that the Court
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`considers proper.
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`The Trustee now moves, pursuant to Fed.R.Bankr.P. 7056 and Fed.R.Civ.P. 56,
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`for summary judgment—though this might better be regarded as partial summary
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`judgment, because (as the Trustee readily acknowledges) the Debtor’s redemption
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`entitlement—while to the entirety of Composite’s remaining assets—is to those assets
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`after the payment of any senior third-party creditor claims, which are not yet known with
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`precision.
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`As discussed below, Elite’s contractual entitlement is to the net asset value (“NAV”) as of the
`5
`close of business on the relevant quarterly redemption date, not the time of any payment or of any
`judicial determination. And because the value of Composite’s assets has gone down since the
`redemption request was made, the amount Composite now could pay, net of its expenses, would
`be less than Elite’s entitlement at the earlier time. Obviously, Composite cannot pay more than it
`has. Thus the Trustee’s entitlement on behalf of Elite, Composite’s only shareholder, is
`effectively to everything Composite would still have left after Composite’s payment of any more
`senior creditor claims.
`Composite has shareholders of two types—those with voting rights (Mr. Fletcher, and/or people or
`entities Mr. Fletcher controls), and those who, like the average holder of shares in a mutual fund,
`might contribute money or property into Composite (e.g., Elite), but have no voting power. Only
`the shareholders in the latter category have the right to redeem their investments, and Elite is the
`only one of them. Hereafter, instead of accompanying “shareholder” with the qualifier “with an
`economic interest” every time, the Court will simply refer to Elite as Composite’s only
`shareholder.
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`6
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`Composite’s position—i.e., Mr. Fletcher’s position—is inexplicable, and
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`offensive to the Court. It is obvious that once any existing senior Composite liabilities
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`have been satisfied, the entire remaining balance of Composite’s assets rightfully belongs
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`to Elite. That Elite made a redemption request has been repeatedly acknowledged by
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`persons and entities acting for Mr. Fletcher, or entities under Mr. Fletcher’s control. Mr.
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`Fletcher, acting through companies he controlled, was on both sides of the redemption
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`request at the time it was made. But Mr. Fletcher (who, as noted, still controls
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`Composite) nevertheless refuses to return Elite’s investment—or what is left of it.
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`On behalf of Composite, Mr. Fletcher contends that almost all of the evidence
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`supporting the redemption request is inadmissible, and that what is admissible is
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`“ambiguous”; that he can find no record of the redemption request and (though he and his
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`staff were on both sides of the transaction at the time, and repeatedly acknowledged it
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`before) cannot remember it; and that he isn’t sure whether, assuming any redemption
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`request was made, the request complied with necessary formalities. Mr. Fletcher also
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`contends that Composite has the right, under “gating”7 provisions in the investment
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`documents, to “gate” Elite’s redemption request—even though there are no other
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`Composite shareholders to protect; gating here would serve no purpose; and he offers no
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`evidence to support the notion that Composite took any action to gate this redemption
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`request.
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`Sooner or later, the Trustee will win. But Mr. Fletcher’s resistance to meeting his
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`obligations to his investors, and constraints on the statutory and constitutional authority
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`7
`“Gating” or “gate” provisions authorize managers of investment funds to limit the amount of
`withdrawals on shareholders’ requested redemptions as a means of protecting the fund, to avoid a
`run on the bank and protect other shareholders.
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`of a bankruptcy judge to enter a final order bringing the resistance to an end, have tied
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`this case up in knots.
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`To minimize the delay Fletcher’s resistance has occasioned, and given how
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`obvious her entitlement (at least in overall terms) is, the Trustee has sought to recover her
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`entitlement by the Bankruptcy Code’s “Turnover” provision, section 542 of the Code.
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`But for reasons discussed below, the Trustee’s entitlement is not one that section 542 can
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`enforce, and her main entitlements are to declaratory relief, an accounting, and a related
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`judgment—as to which a bankruptcy judge cannot enter a final order. And the Court also
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`needs to quantify Composite’s creditor claims before it can fix the amount of the
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`inevitable judgment. The most the Court can grant at this point is partial summary
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`judgment (though this, because it is not a final order, is fully within the Court’s statutory
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`and constitutional authority) and an injunction freezing Composite’s assets until the
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`issues are fully determined and (as is certain) the Trustee ultimately wins.
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`The Court grants each, for the reasons described below.
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`Facts
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`Under familiar principles, the Court relies solely on undisputed facts.
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`A.
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`The Composite Articles of Association and
`Private Placement Memorandum
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`Composite was formed in May 2007 under the “Articles of Association of
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`Soundview Composite, Ltd.” (the “Composite Articles”).8 That same month, Composite
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`issued a Confidential Private Placement Memorandum (the “Placement Memorandum”)
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`Affidavit of Alphonse Fletcher, Jr. ¶ 4, dated June 16, 2014 (ECF No. 19) (“Fletcher Aff.”).
`8
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`setting forth the terms and conditions of a stock offering by which Composite would offer
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`six classes of non-voting shares.9
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`Among other things, the Placement Memorandum described shareholders’
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`entitlement to redeem their shares. As described in the Placement Memorandum, a
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`shareholder has the right to redeem some or all of its Composite shares on any quarterly
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`redemption date by sending a facsimile request for redemption to Composite’s
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`subadministrator.10 The Composite Articles prescribe that any redemption request:
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`“[(i)] shall be in writing,
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`[(ii)]shall specify the number and Class of Participating Shares to which it
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`relates or indicate the manner in which the number of Participating Shares to be
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`redeemed is to be determined and
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`[(iii)]shall be signed by the holder thereof…”11
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`The Placement Memorandum established that redemptions may only be made on
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`the last business day of each calendar quarter (each, a “Redemption Date”), and that a
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`redemption request must be received at least 45 days prior to a Redemption Date in order
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`for the redemption to be honored on that date.12 Unless waived by the directors of
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`9
`Trustee’s Statement of Undisputed Material Facts ¶ 1, dated May 19, 2014 (ECF No. 12)
`(“Trustee’s Undisputed Facts”); Response of Defendant to the Trustee’s Statement of
`Undisputed Material Facts ¶ 1, dated June 16, 2014 (ECF No. 20) (“Def. Response to Undisputed
`Facts”).
`Def. Response to Undisputed Facts ¶ 8; Private Placement Memorandum of Soundview
`Composite Ltd., dated May 14, 2007, at 30, attached as Exh. D to the Declaration of Michael J.
`Dailey, dated May 19, 2014 (ECF # 14) (“Dailey Decl.”).
`Composite Articles ¶ 29(c), attached to the Fletcher Aff. as Exh. 1.
`Placement Memorandum at 31-32, attached to the Dailey Decl. as Exh. D.
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`Composite, a redemption request received within 45 days of a Redemption Date would be
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`deferred until the subsequent Redemption Date.13
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`The Placement Memorandum also provided that redemption of shares is
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`“contingent upon the Fund having sufficient assets to discharge its liabilities on the
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`Redemption Date,” and that the “maximum Net Asset Value of Shares that may be
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`redeemed on any Redemption Date is 10% of the Net Asset Value of the Fund, unless
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`such limitation is waived by the Directors in their sole discretion.”14 The Composite
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`Articles also included a limitation of this kind as follows:
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`If one or more Redemptions Requests are received
`in respect of any one Redemption Day that would, if
`satisfied, result in the redemptions of an amount
`equal to more than 10% of the total net asset value
`of the Company or any Master Fund, the Directors
`may determine in their absolute discretion to reduce
`the amount of each Redemption Request so that
`Redemption Requests represent in aggregate an
`amount equal to no more than 10% of the total net
`asset value of the Company or any Master Fund.15
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`The Placement Memorandum also stated that Composite’s directors could suspend
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`redemptions and the determination of Net Asset Value under certain circumstances.16
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`Absent such restrictions on redemptions, the Placement Memorandum required
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`payment of “not less than 90% of the estimated value of the Shares requested to be
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`redeemed” to be made within 40 days following the Redemption Date of redeemed
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`Id.
`13
`Id. at 32.
`14
`15
`Composite Articles at ¶ 29(j).
`16
`Placement Memorandum at 34. While it has not been asserted that Composite ever suspended its
`redemptions, Fletcher has indicated that Composite suspended its determination of Net Asset
`Value in March 2011 without providing any evidence of that suspension. See Fletcher Aff. ¶ 24.
`As discussed below, see infra pages 56-57, the determination of the Net Asset Value of
`Composite’s shares by audit is not essential to determining the amount that must be returned to
`Elite, or any other issues decided by Court in this opinion.
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`shares, with “the remaining balance of the net redemption proceeds” being paid “within
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`ten Business Days after the official Net Asset value of the applicable Class is
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`published.”17 The Placement Memorandum granted Composite the right to make
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`redemptions “in kind”—i.e., by providing securities it owned instead of cash.18 And the
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`Placement Memorandum also provided that “[s]hares also may be redeemed at such other
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`times on such terms and conditions as the Directors, acting in their sole discretion, may
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`decide.”19
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`In August 2009, Elite subscribed to Composite shares issued under the Placement
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`Memorandum, purchasing 15,311 Class H Shares for approximately $12.87 million (the
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`“Composite Shares”).20 Since it purchased the Composite Shares, Elite has been the
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`only holder of Composite shares, holding 100% of the nonvoting interest in Composite--
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`or, putting it another way, the entirety of Composite’s net asset value.21
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`B.
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`Ownership and Control of Elite, Composite
`and Soundview Capital Management
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`As described in the Placement Memorandum, the investment manager of
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`Composite was (and so far as the record reflects, still is) Soundview Capital Management
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`(the “Management Company”).22 Until it was at least effectively displaced upon the
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`appointment of a chapter 11 trustee, the Management Company was also the investment
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`manager for Elite and the other Soundview Debtors. In addition to serving as investment
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`17
`Placement Memorandum at 31.
`Id. at 31.
`18
`Id. at 30.
`19
`20
`Trustee’s Undisputed Facts ¶¶ 2, 19; Fletcher Aff. ¶ 6.
`21
`Trustee’s Undisputed Facts ¶ 21; Def. Response to Undisputed Facts ¶ 21.
`22
`Placement Memorandum at 1.
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`manager for each of Elite and Composite, the Management Company also owned all the
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`voting shares (which it will be recalled were non-economic) of Composite.23
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`The Management Company is owned by Richcourt Holding, Inc. (“Richcourt”),
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`at least 85% of which has been owned since June 2008 (through several parent entities)
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`by Fletcher Asset Management, wholly owned by Mr. Fletcher.24 Since September 4,
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`2013, Mr. Fletcher has served as a director of the Management Company, Composite,
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`and (though this would have little meaning after the appointment of the Trustee) Elite.25
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`The Management Company—“Soundview Capital Management”—is a company
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`distinct from “Fletcher Asset Management,” whose activities were a focus of the FILB
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`chapter 11 case. But both are under the control of Mr. Fletcher, and on the first day of
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`the umbrella chapter 11 cases here, Mr. Fletcher made reference to the Soundview
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`Debtors’ ownership structure “following the acquisition of the [Soundview] Debtors by
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`Fletcher Asset Management and affiliates.”26 The organizational chart Mr. Fletcher
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`attached to his declaration showed Fletcher Asset Management at the top of the
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`ownership structure, owning (directly and through an entity of which it was general
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`23
`Def. Response to Undisputed Facts ¶¶ 4, 18.
`24
`Fletcher Aff. ¶ 4. On June 12, 2008, Fletcher Asset Management (the same entity that, until it was
`displaced by a trustee, managed FILB) and affiliates purchased 85% of the Management Shares of
`the “Limited Debtors” (three of the Soundview Debtors, of which one was Elite) and certain other
`entities. Fletcher Rule 1007-Decl. ¶ 9.
`Fletcher Aff. ¶ 1.
`Fletcher Rule 1007-2 Decl. ¶ 10 (“Attached hereto as Exhibit C, is a copy of an organizational
`chart as it exists today following the acquisition of the Debtors by Fletcher Asset Management and
`affiliates.”). A copy of that organizational chart is attached as Appendix A.
`Fletcher Asset Management was frequently referred to as “FAM”. Mr. Fletcher’s Rule 1007-2
`Declaration in the umbrella case here showed as assets of Elite and other debtors in the umbrella
`chapter 11 case approximately $5.2 million in “FAM Related Investments.” See id. Schedule 3,
`“Assets.”
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`partner) 100% (or in one case, 85%) of the entities below it, including the Management
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`Company, and (with “100% Voting Control of Each”) each of the Soundview Debtors.
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`In June 2008, two of Mr. Fletcher’s associates, Messrs. Denis Kiely (“Kiely”) and
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`Stewart Turner (“Turner”), were appointed directors of each of Composite and Elite.
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`Messrs. Kiely and Turner were also directors of the Management Company in July
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`2011,27 although their dates of appointment are not in the record. Mr. Kiely resigned as
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`director of each of Elite and Composite in November 2011, and Mr. Turner resigned as
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`director of each of Elite and Composite in June 2012. In June 2013, Mr. Kiely was
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`replaced by Floyd Saunders (“Saunders”), and Mr. Turner was replaced by George
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`Ladner (“Ladner”)—each also an associate of Mr. Fletcher’s.28 For a three-month
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`period from March 26, 2013 through June 12 (or 19), 2013, Deborah Hicks Midanek, of
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`the Solon Group Inc., served as a “non-management” director of Elite, Composite, and
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`the other Richcourt funds.29 As stated by Mr. Fletcher, Ms. Midanek “resigned from the
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`Debtors on June 19, 2013. Midanek’s resignation came after the Debtors’ Boards had
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`removed her as a Director on June 12, 2013.”30
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`C.
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`Requests for Redemption of Composite Shares
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`Composite has confirmed that it redeemed all shares owned by Composite’s
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`original shareholder on March 31, 2009 after that investor delivered a redemption request
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`on February 12, 2009.31 In July 2010, Elite delivered a redemption request for
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`27
`Fletcher Aff. ¶ 8.
`28
`Trustee’s Undisputed Facts ¶ 24; Fletcher Aff. ¶ 4; Def. Response to Undisputed Facts ¶¶ 23, 24,
`28
`Def. Response to Undisputed Facts ¶ 26.
`Fletcher Rule 1007-2 Decl. ¶ 14.
`Fletcher Aff. ¶ 6.
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`29
`30
`31
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`approximately half of its Composite holdings at the time. That request was honored, and
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`Elite thereby reduced its holdings in Composite to 7,191.06 shares.32
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`The Trustee asserts (and the Court ultimately finds, though with less precision as
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`to the exact date) that a redemption request (the “Redemption Request”) for Elite’s
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`remaining holdings was sent “[o]n or around July 2011” to HSBC Bank (Cayman)
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`Limited (“HSBC”), the fund administrator for Composite at the time.33 HSBC resigned
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`as Composite’s administrator on July 25, 2011.34 Pinnacle Fund Administration LLC
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`(“Pinnacle”) became the successor administrator for Composite and Elite as of January
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`1, 2013.35
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`The Trustee—who had not yet been appointed by 2011, and, once appointed,
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`needed to obtain the Soundview Debtors’ documents from Fletcher-controlled entities—
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`could not, and did not, present a copy of the Redemption Request to the Court. Mr.
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`Fletcher has stated in an affidavit on this motion that he searched the files of Composite
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`and the Management Company (though not those of HSBC) and his search did not yield a
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`copy of the Redemption Request.36 The Redemption Request has not been found in the
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`records of Pinnacle Fund Administration LLC, to whom all relevant files were said to
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`have been sent by HSBC.37 The record does not reflect whether or not HSBC—the entity
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`most likely to have been the recipient of the redemption request—now has a copy.
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`32
`Def. Response to Undisputed Facts ¶¶ 31-32.
`33
`Trustee’s Undisputed Facts ¶ 36.
`34
`Fletcher Aff. ¶ 5.
`Id. (and sic.). The Court notes the substantial gap period.
`35
`36
`Fletcher Aff. ¶ 10.
`37
`Fletcher Aff. ¶ 14.
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`To date, Composite has declined to honor, and has not honored, the Redemption
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`Request.38
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`D.
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`Asserted Admissions re
`Elite’s Redemption Request
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`In support of her motion for summary judgment, the Trustee relies on eight
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`separate communications (by letter, e-mail, affidavit, or statements in court on the record)
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`from 2012 to 2014 (all but one preceding the appointment of the Trustee) acknowledging
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`the Redemption Request, discussing the gating of redemptions of Composite shares, or
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`both. The Court’s review of exhibits submitted on this motion, but addressed less
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`extensively by either side, revealed three more. Composite argues that all but two of
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`them must be ignored by the Court, as inadmissible in evidence. The Court addresses the
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`evidentiary issues, and thus the extent to which they may be considered on the motions
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`here, in the Discussion to follow. For now, it sets forth the content of each of them.
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`1. May 2012 Loeb E-Mail
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`On May 10, 2012, Ann Loeb, an employee of Richcourt USA—which provided
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`administrative services for the Richcourt Funds, including Elite and Composite—sent an
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`e-mail (the “May 2012 Loeb E-Mail”) to Alan de Saram (Cayman Islands counsel for
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`Elite; for at least several other Soundview Debtors; and, most importantly, for
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`Composite), along with Messrs. Turner, Saunders, and other employees of the Richcourt
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`or Fletcher entities.39 E-mails and a letter surrounding it, also submitted to the Court,
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`confirm that the May 2012 Loeb E-Mail was transmitted incident to a group effort to
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`formulate responses to a May 2, 2012 request by the Cayman Islands Monetary Authority
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`38
`Trustee’s Undisputed Facts ¶¶ 66-67.
`39
`E-Mail Chain from de Saram to Loeb Discussing and Attaching Draft of Letter to Cayman Islands
`Monetary Authority, May 10, 2012, attached to the Dailey Decl. as Exh. F.
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`(often referred to in correspondence and elsewhere as “CIMA”) for information as to
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`several matters, including the Fletcher Funds’ processing of redemptions.40
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`The May 2012 Loeb E-Mail stated that
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`Soundview Composite was never suspended or
`gated. There was no reason to since it only has no
`[sic.] outside investor. It’s [sic.] only investor is
`Soundview Elite, which requested a full
`redemption.
`
`Mike can you please provide Alan with the date that
`Elite submitted its full redemption request to
`Soundview Composite.
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`2. May 2012 de Saram Letter
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`On the next day, May 11, 2012, Mr. de Saram sent a letter (the “May 2012
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`de Saram Letter”) to CIMA delivering the information that was the subject of the May
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`2012 Loeb E-Mail on the day before. Mr. de Saram stated:
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`This letter concerns Soundview Composite Ltd.
`
`We have been asked by the Board of Directors of
`the Fund [Composite] to respond on its behalf to
`your letter dated 2 May 2012.
`
`In the time available it has not been possible to deal
`with all of your queries in detail requested, but we
`have endeavoured to answer your questions
`(repeated below) to the best of our ability.
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`We will deal with your queries to each question
`with our answers in bold type below the question.41
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`In response to CIMA’s fourth inquiry,42 Mr. de Saram wrote:
`
`41
`42
`
`
`See the May 12 de Saram Letter, sent the next day, which quoted CIMA’s questions, and then,
`40
`following each, provided Composite’s response.
`See Dailey Decl. Exh. G. at 1.
`The fourth inquiry said:
`4. Please submit a copy of each redemption request that
`remains outstanding, including any subsequent or additional
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`The Fund is unable to submit a copy of each
`redemption request, as these redemption requests
`were made directly to the administrator in
`accordance with standard operating procedure.
`However note that the sole investor in the Fund
`[Composite] is Soundview Elite, which has put in a
`redemption request which is outstanding.43
`
`In response to CIMA’s fifth inquiry,44 Mr. de Saram wrote:
`
`With respect to the Fund [Composite], it has not
`been gated or suspended. It has one investor,
`Soundview Elite Ltd.45
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`3. May 2013 Midanek Letter
`
`Solon Group, Inc. (“Solon”) was appointed by each of the Richcourt Funds,
`
`including Composite, as a “non-management director” in March 2013 (about 10 months
`
`after the communications just quoted), and Ms. Deborah Midanek represented Solon in
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`its director role.46
`
`
`redemption requests by each redeeming investors [sic.] of the
`Funds.
`
`Id.
`Id.
`The fifth inquiry said:
`5. We refer to 2008 Audited Financial Statements for the
`Funds whereby it is noted that the respective Board of
`Directors suspended the calculation of Net Asset value,
`subscription and redemptions. We note further that certain
`redemptions were fulfilled by way of redemption in-kind
`through shares in special purpose vehicles, namely Elite
`Designated Ltd., Star Designated Ltd. and Premium
`Designated Ltd.
`Please confirm whether or not the suspensions for each Funds
`[sic.] have been terminated and if not, please confirm how the
`Directors intend to fulfill their obligations to redeeming
`investors.
`
`Id.
`Id. at 2.
`See Dailey Decl. Exh. H at 1; Fletcher Aff. ¶ 25.
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`43
`44
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`45
`46
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`On May 28, 2013 (now about a year after the communications just quoted, at a
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`time when she was still a director of Composite and had not yet either “resigned” or
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`“been removed”), Ms. Midanek sent an eight-page single-spaced letter (the “May 2013
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`Midanek Letter”) to CIMA, with respect to six investment funds, including Elite and
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`Composite,47 of which she and Mr. Fletcher were directors. Expressing concerns as to
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`“the condition of the Funds I serve,” Ms. Midanek asked CIMA to consider removing
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`Mr. Fletcher, to allow the funds “to perform their obligations to their shareholders and
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`redemption creditors.”48
`
`For the most part, Ms. Midanek’s statements as to Mr. Fletcher and his
`
`management of the six funds that were the subject of Ms. Midanek’s letter are not
`
`relevant to this controversy, and the Court makes no findings with respect to them. They
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`are relevant here only with respect to Ms. Midanek’s statements as to pending
`
`redemptions and gating. In that connection, Ms. Midanek stated, in a section captioned
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`“Funds’ Condition,” that:
`
`Following my appointment, as I then learned more
`about the status of the Funds, I learned that most of
`the Funds had not been able to calculate a net asset
`value report (“NAV”) since December 31, 2010 and
`none later than March 31, 2011; that many
`redemption requests received since then had not
`been honored, that redemptions had not been
`suspended even after it had been determined that
`NAVs had not or could not be calculated and
`redemption obligations continued to crystallize….49
`
`In the next section, “Current Situation,” Ms. Midanek stated that she had
`
`“attempted to compile, on a Fund by Fund basis, all available information on assets,
`
`47
`Dailey Decl. Exh. H at 1.
`Id.
`48
`Id. at 2.
`49
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`shareholders, directors, governing documents, valuation dates, most recent NAV and
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`minute books and registers,”50 and she followed that with a table providing some of that
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`information. For each of the six funds, she listed “Last NAV,” “Last Audited Accounts,”
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`and “Redemptions (Holders).” For Composite (the fourth fund she showed), she listed
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`dates in the boxes for “Last NAV” and “Last Audited Accounts,” respectively, of “31
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`March 2011” and “2008.” More importantly, in the box for “Redemptions (Holders),”
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`she entered:
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`100% shareholder placed a full redemption request
`for trade date September 30, 2011.51
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`4.
`
`June 2013 Siedlecki E-Mail
`
`The May 2013 Midanek Letter triggered a response from CIMA, dated June 6,
`
`2013, seeking more information. CIMA desired a response within a week.52 The same
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`day the CIMA letter was received, Michael Padarin, at the Walkers law firm in the
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`British Virgin Islands, sent CIMA’s letter to Ms. Midanek (who was still a director at the
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`time) and Mr. Fletcher with a view to compiling the information CIMA had requested.53
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`The CIMA letter then went from Mr. Fletcher to Mr. Saunders, who sent it on to Michael
`
`Siedleck