Drenis v. Haligiannis
| Decision Date | 25 September 2006 |
| Docket Number | No. 04 Civ. 9263(RJH).,04 Civ. 9263(RJH). |
| Citation | 452 F.Supp.2d 418 |
| Parties | Athanasios DRENIS, et al., Plaintiffs, v. Angelo HALIGIANNIS, et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Jay Kevin Musoff, Michael T. Stolper, Orrick, Herrington & Sutcliffe LLP, Jonathan David Abraham, Abraham & Lerner, LLP, New York, NY, for Plaintiffs.
Maranda E. Fritz, Maranda E. Fritz, P.C., Matthew C. Rueter, Engel & McCarney, David Blasband, Jon Paul Robbins, McLaughlin and Stern, LLP, Bernard Anthony
Williams, Dickstein Shapiro Morin & Oshinsky LLP, Fred H. Perkins, Morrison Cohen Singer & Weinstein, LLP, New York, NY, Allen R. Morganstern, Morganstern & Quatela, Garden City, NY, Gary M. Kushner, Forchelli, Curto, Schwartz, Mineo, Carlino & Cohn, LLP, Mineola, NY, Leonard E. Lombardi, Law Office of Leonard E. Lombardi, P.C., White Plains, NY, Raymond Scott Lafazia, R. Scott Lafazia, P.C., Little Falls, NJ, for Defendants.
Marilyn Biasucci, Atlantic Beach, NY, pro se.
This action, and a related action brought by the Securities Exchange Commission, relate to the operation a hedge fund through which defendant Angelo Haligiannis allegedly perpetrated a "Ponzi scheme," a species of fraud whereby an investment fund that is unprofitable uses money from new investors to pay "false profits" to old investors in order to encourage further investment and sustain the scheme. Plaintiffs, certain limited partners in the hedge fund, have sued Angelo Haligiannis, the hedge fund, Sterling Watters Group Limited Partnership ("Sterling Watters Partnership" or the "Partnership"), and its general partners, Sterling Watters Capital Management, Inc, Sterling Watters, Inc., and Sterling Watters Capital Advisors, LLC (collectively, the "defrauding defendants") alleging securities fraud in violation of section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, fraud by an investment adviser, in violation of sections 206(1)-(2) and 217 of the Investment Advisers Act, 15 U.S.C. §§ 80b-6(1)(2), 80b-17, and state law causes of action for breach of contract, breach of fiduciary duty, common law fraud, conversion, unjust enrichment, and for an accounting.
Haligiannis was indicted, fled the jurisdiction and remains a fugitive; in addition Sterling Capital, Sterling Watters, Inc., and Sterling Watters Partnership are all now defunct entities. Faced with this situation, plaintiffs have also sued certain other limited partners in the Partnership, Evanthia Tsagoulis, Michael Capul, Maria Haligiannis, Alex Sklias, Chris P. Pavlatos, Chris B. Pavlatos, Dominique Pavlatos, Marilyn Biasucci, Sloan Bruan, Walter Scott Bruan, Corina Buruiana, Charles Darwish, Peter Derby, Jonathan Gatti, Linda Gatti, Peter Georgatos, Isabella Griffin, Dennis Kirincich, Charles Kyriacou, Anthony Marano, Robert Marini, Frank Michel, Howard Moore, Helene Moore, Stuart Adler, Joseph Ferri, Jr., Robert Schneiner, Linon Home Décor Products, Inc., and Ardantz Associates, LP (collectively, the "false profits defendants") alleging causes of action for fraudulent conveyance, in violation of sections 273 to 276 of New York's Debtor and Creditor law, N.Y. Debt. & Cred. Law §§ 273-76 (McKinney 2001), and seeking relief under section 278 of the same chapter. Specifically, plaintiffs seek to recover transfers of partnership assets to the extent the transfers exceeded each false profit defendant's capital contribution. (See Pls.' Opp'n Mem. 9.)
Certain of the false profits defendants have now moved to dismiss [68][98]1 the claims for fraudulent conveyance against them pursuant to Rules 12(b)(6) and 9(b). Fed.R.Civ.P. 12(b)(6), 9(b). These defendants are Marilyn Biasucci, Michael Capul, Christopher Pavlatos, Christopher B. Pavlatos, Dominique Pavlatos, Corina Buruiana, Peter Derby, Jonathan Gatti, Linda Gatti, Peter Georgatos, Isabella Griffin, Dennis Kirincich, Charles Kyriacou, Anthony Marano, Robert Marini, Howard Moore, Helene Moore, Stuart Adler, Joseph Ferri, Jr., Linon Home Decor Products, Inc., and Ardantz Associates, LP (collectively, the "moving defendants"). For the reasons set forth below, the motion to dismiss is GRANTED.
The following facts relevant to this motion are derived from the First Amended Complaint ("FAC") and are taken as true for the purposes of this motion. Sterling Watters Partnership was created in or about 1995 for the stated purpose of seeking above average economic returns on investments primarily through investing in publicly traded securities. Instead, the entire arrangement was a Ponzi scheme,2 whereby subsequent capital contributions were used to make distributions to prior limited partners.
The facts and circumstances of the alleged fraud perpetrated by the defrauding defendants is more fully described in the FAC, but a brief recounting of the alleged Ponzi scheme perpetrated by Haligiannis is appropriate, and follows here.
Investment in the Partnership was limited to ninety-nine limited partners, each of whom was required to be qualified as an "accredited investor" as defined by the rules promulgated by the Securities and Exchange Commission. (FAC ¶ 51.) Plaintiffs and the False Profits Defendants were among those who invested in the Partnership. In March 2000, plaintiffs received an "investor kit" from the defrauding defendants, including a "Private Placement Memorandum" that included the partnership agreement. (FAC ¶ 56.) The investor kit contained documents representing, inter alia, that the Partnership had obtained an annual return of over eighty-six percent in 1999 and a return of over eighty-six percent during the first two quarters of 2000. The investor kit also represented that investments in Sterling Watters had cumulative returns in excess of 1073% between the first quarter of 1996 and the second quarter of 2000. (Id.) Ignoring the old saw that "anything too good to be true usually is," plaintiffs and the false profits defendants all entered into Partnership Agreements. (Id. ¶¶ 157-63.) Between August 2000 and February 2004, plaintiffs invested, in aggregate, a total of $7,782,910 in the Partnership. (Id. ¶ 64.) During this same period, plaintiffs received distributions from the defrauding defendants totaling $732,500, representing roughly ten percent of plaintiffs' total investments in the partnership, and falling far short of the amounts specified in the defrauding defendants' distribution schedule. (Id. ¶ 65.) Plaintiffs' remaining investment in the Sterling Watters Partnership, after subtracting these distributions is $7,050,410. As of June 30, 2004 the capital account balance of Plaintiffs as set forth in their statements was $9,012,685.63. (Id. 66; FAC Ex. D.)
While reporting to investors that its assets had grown by approximately 41.45% for the year, the Partnership in fact suffered over $17 million in trading losses in 2000 alone. Plaintiffs allege that by January 2003, and as a result of mounting trading losses and payments made mainly to the false profit defendants, Sterling Watters had virtually no assets and did virtually no trading whatsoever. (Id. ¶ 67.) By the third quarter of 2003, when Sterling Watters's promotional material reported that it had approximately $180 million in assets, the Partnerships' assets allegedly totaled less than $150,000. (Id. ¶ 68)
By early 2000, the defrauding defendants allegedly used new contributions almost exclusively to: (i) make distributions to (or to liquidate the interests of) existing limited partners; or (ii) fund withdrawals made by Angelo Haligiannis for personal expenses. By 2003, the Partnership was only able to make distributions or liquidate its limited partners' interests if it had received corresponding contributions. Beginning in or about 2003, the defrauding defendants began to refuse to make distributions or liquidate plaintiffs' Partnership interests. (Id. ¶ 70.)
Most of the various entities named as defrauding defendants in this action are no longer viable corporate entities. Sterling Capital is no longer in existence and is not in good standing under the laws of the State of Delaware as of March 1, 2003; Sterling Watters, Inc. was dissolved by proclamation by the Secretary of State of New York on December 31, 2003; and the Sterling Watters Partnership is no longer in existence and is not in good standing under the laws of the State of Delaware, having been cancelled by the Secretary of State of Delaware on June 1, 1998 for neglect, refusal, or failure to pay its annual taxes. (Id. ¶ 77; FAC Ex. H.)
Not all limited partners lost their shirts in Haligiannis's scheme. Indeed, according to plaintiffs each of the false profits defendants received "distributions" that exceeded each of their respective contributions. (FAC ¶ 80.) These payments were not a return on legitimate investment activity, and the conveyance of these payments to the false profits defendants was not predicated on fair consideration. (Id. ¶ 81.) In the aggregate, these payments allegedly exceeded the false profits defendants' contributions by $10,449,176.94, representing a seventy-three percent return above their aggregate contribution. By contrast, plaintiffs have lost nearly ninety percent of their contributions to the Sterling Watters partnership. (Id. ¶ 82.)
In a motion to dismiss under Rule 12(b)(6), the Court "must accept as true the factual allegations in the complaint, and draw all reasonable inferences in favor of the plaintiff." Bolt Elec., Inc. v. City of New York, 53 F.3d 465, 469 (2d Cir.1995) (citations omitted). "The district court should grant such a motion only if, after viewing plaintiff's allegations in this...
To continue reading
Request your trial
-
Doubleline Capital LP v. Construtora Norberto Odebrecht, S.A.
...at the time of the transfer is a creditor, and that relationship arises the moment the cause of action accrues." Drenis v. Haligiannis , 452 F. Supp. 2d 418, 428 (S.D.N.Y. 2006). In the third amended complaint, Plaintiffs stated that "[a]s a result of the Odebrecht Finance Conveyances, ther......
-
Geron v. Robinson & Cole LLP
...choice-of-law-provision governs only a cause of action sounding in contract, not one sounding in tort[.]” Drenis v. Haligiannis, 452 F.Supp.2d 418, 425–26 (S.D.N.Y.2006). Fraudulent transfer claims sound in tort. See Drenis, 452 F.Supp.2d at 418. Accordingly, Seyfarth Shaw is not bound by t......
-
Friedman v. Wahrsager
...creditors of NYMP, and confers standing on the Receiver to bring fraudulent conveyance claims on their behalf. See Drenis v. Haligiannis, 452 F.Supp.2d 418, 428 (S.D.N.Y.2006) (“Under New York's broad definition of ‘creditor,’ one who has a right to maintain a tort action but has not recove......
-
Weisfelner v. Blavatnik (In re Lyondell Chem. Co.)
...see also Manhattan Inv. Fund , 397 B.R. at 8 (applying a presumption of fraud where there is a Ponzi scheme); Drenis v. Haligiannis , 452 F.Supp.2d 418, 428 (S.D.N.Y. 2006) (same).This is not the first bankruptcy case where missed projections played a role. In Irving Tanning Co. , a trustee......
-
An Unworkable Result: Examining the Application of the Unfinished Business Doctrine to Law Firm Bankruptcies
...supra note 15, at 845 n.115 (citing Thelen, 476 B.R. at 737-38).333. Thelen, 476 B.R. at 737-38 (quoting Drenis v. Haligiannis, 452 F. Supp. 2d 418, 425-26 (S.D.N.Y. 2006)).334. See Thelen, 20 N.E.3d 264 (N.Y. 2014).335. See id. (citing Drenis, 452 F. Supp. 2d at 425-26).336. See Greenspan ......