In re Platinum Partners Value Arbitrage Fund L.P.
| Decision Date | 17 April 2018 |
| Docket Number | Case No. 16–12925 (SCC) (Jointly Administered) |
| Citation | 583 B.R. 803 |
| Parties | IN RE PLATINUM PARTNERS VALUE ARBITRAGE FUND L.P. (In Official Liquidation), et al., Debtors in Foreign Proceedings. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
LEWIS BAACH KAUFMANN MIDDLEMISS PLLC, 1899 Pennsylvania Ave., NW, Suite 600, Washington, DC 20006, By: Jack B. Gordon, Esq., Counsel for the Liquidators of Platinum Partners Value Arbitrage Fund (International) Limited (in Official Liquidation)
HOLLAND & KNIGHT LLP, 31 West 52nd Street, New York, NY 10019, By: Warren E. Gluck, Esq., Counsel for the Liquidators of the Platinum Partners Value Arbitrage Fund L.P. (in Official Liquidation)
STROOCK & STROOCK & LAVAN LLP, 180 Maiden Lane, New York, NY 10038, By: David M. Cheifetz, Esq. Counsel for CohnReznick LLP
TABLE OF CONTENTS
Before the Court is the motion (the "Motion") of Margot MacInnis and Nilani Perera (the "International Fund Liquidators"), the foreign representatives of Platinum Partners Venture Arbitrage Fund (International) Limited (in Official Liquidation) (the "International Fund"), for an order pursuant to 11 U.S.C. §§ 105(a), 542(e), and 1521(a) and Rule 2004 of the Federal Rules of Bankruptcy Procedure, directing CohnReznick LLP ("CohnReznick") to comply with a subpoena to produce documents served on August 31, 2017 (the "Subpoena"). Martin Nicholas John Trott and Christopher Barnett Kennedy (the "Master Fund Liquidators," and together with the International Fund Liquidators, the "Liquidators"), the duly appointed joint official liquidators and foreign representatives of Platinum Partners Value Arbitrage Fund L.P. (in Official Liquidation) (the "Master Fund") filed a Joinder to the Motion (the "Joinder"). CohnReznick filed a Memorandum of Law in Opposition to the Motion (the "Objection").
The International Fund Liquidators bring the Motion in order to obtain records concerning the International Fund, the Master Fund, and Platinum Partners Value Arbitrage Intermediate Fund Ltd. (the "Intermediate Fund" and collectively with the International Fund and the Master Fund, the "Funds") that are within the possession of CohnReznick, which provided audit services to the Funds for calendar years 2014 and 2015. CohnReznick objects to the Motion and argues that it need not comply with the Subpoena on the grounds that (i) the Subpoena seeks documents that the Liquidators would be unable to obtain under applicable Cayman law and (ii) the Subpoena impermissibly seeks "pre-suit discovery" concerning potential claims that would fall within the scope of the arbitration provisions in the engagement letters between CohnReznick and the Funds. Alternatively, if the Motion were granted, CohnReznick argues that the Subpoena is overly broad and should be narrowed substantially.
For the reasons set forth below, the Court will grant the Motion and require CohnReznick to comply with the Subpoena.
The Master Fund, a multi-strategy hedge fund that invests and trades in U.S. and non-U.S. financial instruments and other funds, assets, and holding companies, is a Cayman Islands exempted limited partnership. The Master Fund was established in or about 2003. By 2012, most of its assets were highly illiquid and it was unable to honor numerous redemption requests from its investors in a timely manner. In August 2016, following its failure to honor numerous such requests, the Master Fund and its offshore feeder fund, the International Fund, were placed into liquidation by order of the Grand Court of the Cayman Islands (the "Grand Court").2
The relationships between the Funds are as follows. The Intermediate Fund, an exempted limited liability company incorporated in the Cayman Islands and a limited partner in the Master Fund, was to invest all of its investable capital in the Master Fund. The International Fund, an exempted limited company under the laws of the Cayman Islands, was to invest all of its capital in the Intermediate Fund. The International Fund offered participating shares to prospective investors; its stated investment objective was to achieve superior capital appreciation through its indirect investment in the Master Fund. As such, the financial position of the International Fund was dependent upon the performance of the Master Fund and, in turn, the value of the assets in which the Master Fund held interests.3
Prior to the appointment of the Liquidators, the Funds were managed by Platinum Management (NY) LLC ("Platinum Management"), which is headquartered in New York. Platinum Management administered the Funds' operations and was responsible for managing, trading, investing, and allocating the Funds' assets. Platinum Management maintained records, correspondence, and other information pertaining to the Funds' operations and investments.
On December 14, 2016, shortly after the initiation of the Master Fund Liquidation and the International Fund Liquidation, a federal grand jury in the United States District Court for the Eastern District of New York indicted certain senior executives of Platinum Management on charges of conspiracy, securities fraud, investment advisor fraud, and wire fraud in connection with the operation of the Funds. See United States v. Nordlicht, et al. , Cr. No. 16–640 (E.D.N.Y. Dec. 14, 2016). Five days later, the Securities and Exchange Commission (the "SEC") filed a civil complaint against Platinum Management and the indicted individuals seeking various forms of relief in connection with the alleged "multi-pronged fraudulent scheme." See Sec. & Exch. Comm'n v. Platinum Mgmt. (NY) LLC, et. al. , Civ. No. 16–06848 (E.D.N.Y. Dec. 19, 2016) (the "SEC Action"). According to the complaint filed in the SEC Action, Mark Nordlicht and David Levy, the co-chief investment officers of Platinum Management, have asserted their Fifth Amendment rights against self-incrimination when questioned by the Litigation Trustee for Black Elk (a Master Fund investment) concerning Platinum related matters.4
On October 18, 2016, Christopher Barnett Kennedy and Matthew James Wright,5 in their capacity as duly appointed joint liquidators, filed petitions in this Court for the recognition of the Master Fund Liquidation and the International Fund Liquidation in the Cayman Islands as foreign main proceedings under chapter 15 of title 11 of the United States Code (the "Bankruptcy Code"). Pursuant to the Order Directing Joint Administration of Debtors' Chapter 15 Cases entered by this Court on October 25, 2016, the chapter 15 cases of the Master Fund and the International Fund were consolidated for procedural purposes. There were no objections filed to the request for recognition. On November 22, 2016, this Court entered an order (the "Recognition Order") recognizing the Master Fund Liquidation and the International Fund Liquidation as foreign main proceedings under chapter 15 of the Bankruptcy Code.
The Liquidators are officers of the Grand Court who are obligated under Cayman law to "collect, realise, and distribute" the Funds' assets, and they are empowered to investigate the "promotion, business, dealings and affairs" of the Funds, including the causes of their failure.6 In furtherance of this objective, the Recognition Order expressly authorizes the Liquidators to "examine witnesses, take evidence, and seek the production of documents within the territorial jurisdiction of the United States concerning the assets, affairs, rights, obligations or liabilities of the Funds, the Funds affiliates and the Funds' subsidiaries," including "upon written request, obtaining turnover of any and all documents ... that are property of, concern or were made or issued on behalf of the Funds ...."7
In August 2017, the International Fund Liquidators, in their capacity as the joint official liquidators of the Intermediate Fund, filed a chapter 15 petition in this Court with respect to the Intermediate Fund Liquidation.8 On September 7, 2017, this Court entered the Order Directing Joint Administration of Debtors' Chapter 15 Cases and, on October 12, 2017, this Court entered an order recognizing the Intermediate Fund Liquidation.
CohnReznick is a limited liability partnership engaged in the provision of accounting, assurance, tax, and business advisory services. The Funds engaged CohnReznick to provide audit services to the Funds for calendar years 2014 and 2015, the two years preceding the collapse of the Master Fund and the initiation of the Cayman Proceedings. The engagement letters between each Fund and CohnReznick (the "Engagement Letters") contain an arbitration clause which states, in relevant part, that:
Any dispute, controversy, or claim arising out of or relating to the services or the performance or breach of the Agreements (including disputes...
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