Vyas v. Polsinelli, PC

• Docket Number: 8:22-cv-71-VMC-CPT
• Decision Date: 30 June 2023
• Parties: SANKET VYAS, as liquidating agent for and on behalf of Q3 I, L.P., Plaintiff, v. POLSINELLI PC, a Missouri professional corporation, Defendant.
• Court: U.S. District Court — Middle District of Florida

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SANKET VYAS, as liquidating agent for and on behalf of Q3 I, L.P., Plaintiff, v. POLSINELLI PC, a Missouri professional corporation, Defendant.

No. 8:22-cv-71-VMC-CPT

United States District Court, M.D. Florida, Tampa Division

June 30, 2023

ORDER

VIRGINIA M. HERNANDEZ COVINGTON UNITED STATES DISTRICT JUDGE

This matter is before the Court on consideration of Defendant Polsinelli PC's Motion for Summary Judgment (Doc. # 92) filed on February 16, 2023, its Daubert Motions to exclude the testimony of Plaintiff Sanket Vyas's experts (Doc. ## 98, 99), and Vyas's Daubert Motion to exclude Defendant's expert (Doc. # 100), all filed on March 31, 2023. Vyas responded to Polsinelli's Motions on March 31, 2023, and April 21, 2023, respectively. (Doc. ## 97, 112, 113). Polsinelli replied in support of its Motion for Summary Judgment (Doc. # 111), and responded to Vyas's Daubert Motion on April 21, 2023. (Doc. # 110). For the reasons that follow, Polsinelli's Daubert Motion as to Mr. Alfieri is granted in part and denied in part, its Daubert Motion as to Mr. Spencer is denied, its Motion for Summary Judgment is granted in part and denied in part, and Vyas's Daubert Motion is granted in part and denied in part.

I. Background

A. Q3 Entities

In 2017, Michael Ackerman, James Seijas, and Quan Tran started a cryptocurrency trading club. (Doc. # 78-2 at 15:720). Mr. Ackerman claimed to have developed a trading algorithm that could generate large, reliable returns. (Doc. # 78-12 at 15). In 2018, Mr. Ackerman, Mr. Seijas, and Mr. Tran formed Q3 I, L.P. (“Q3I”), and Q3 Holdings, LLC (“Q3H”), to formalize their cryptocurrency trading club. (Id. at 6, 8). Additionally, Q3H was the general partner of Q3I. (Id. at 8). Mr. Ackerman, Mr. Seijas, and Mr. Tran were members of Q3H and limited partners of Q3I. (Id. at 15-16).

According to Q3I's Private Placement Memorandum (“PPM”), Q3I was responsible for paying “for all ordinary and reasonable operating and other expenses, including, but not limited to, . . . licensing fees” related to the cryptocurrency club. (Id. at 12). Q3H was entitled to “fifty percent (50%) of the net capital appreciation allocated to each Limited Partner [of Q3I] during each calendar month[.]” (Id. at 9).

From the start of the cryptocurrency trading club until around August 2018, investors sent their new investments to Mr. Tran's personal bank account. (Doc. # 78-4 at 23:20 25:11). After Q3I opened an account with Signature Bank in August 2018, the Q3I Signature account received deposits from investors. (Doc. # 78-2 at 92:23-93:15). Funds from the Q3I Signature account were used to pay Q3H directly. (Id. at 135:22-136:12).

The parties dispute the character of the funds transferred from Q3I to Q3H. Vyas contends, based on Mr. Seijas's testimony, that the funds represented in part the 50 percent profit to which Q3H was entitled. (Doc. # 97 at 7-8) (citing Doc. # 78-2 at 94:10-21, 135:22-136:12). Vyas cites the following exchange:

Q. Did you discuss with Mr. McEvoy that in order to pay yourselves your 50% profit you preferred not to liquidate cryptocurrency in the Bitfinex account, but rather wanted to take it from the Signature Bank account with new investor funds?

A. We did discuss that, sir[.]” . . .

Q. [S]o my question to you is, why not just liquidate part of the coins to take your profit from the Bitfinex account?

A. Because the advice we got, as long as the ledgers matched, dollars are fungible, so it doesn't matter whether I take a dollar out of a Signature account or a dollar out of Bitfinex account and go through all of those steps and market risk and fees and commissions and, you know, labor to essentially accomplish the same thing.

(Doc. # 78-2 at 133:6-15, 135:22-136:12). Polsinelli alternatively asserts that there is no record evidence that the transferred funds were profit. (Doc. # 78 at 7-8). During his deposition, Mr. Seijas gave the following answer when asked whether the Q3I Signature account paid profits to Q3H:

A. Yes, but I don't think it's - I don't know if I'd classify it as profits. That's where I'm struggling with the answer.

Q. Okay. What would you call it then?

A. Maybe it was either licensing fees or, you know, I'm not sure how I would classify that, but was Signature Bank used to pay some of the GPs? Yes.

(Id. at 94:10-21). Mr. Tran also stated that some of the funds transferred to Q3H were licensing fees and some were profits. See (Doc. # 78-4 at 103:2-13) (“Q. Was Q3 Holdings ever paid any profits from the investments? A. [T]he 50 percent of profits that were allegedly gotten every month was paid out to Q3 Holdings, which the principals split. And then the licensing fee . . . Q. Q3 Holdings, LLC was paid both licensing fees and profits; is that correct? A. Right[.]”).

In or around October 2018, Q3I consulted with Greenberg Traurig LLP. (Doc. # 78-56). Greenberg advised that Q3I should treat cryptocurrencies as securities “given the uncertainty surrounding cryptos” and advised that the firm's “fund [attorneys] . . . and . . . CFTC [attorneys] won't get on board” and would not represent Q3I unless it agreed to “approach the product from the standpoint that the fund owns securities[.]” (Id.). Q3I did not retain Greenberg and did not register as an investment advisor. (Doc. # 78-38).

On April 19, 2019, Mr. Seijas signed an engagement letter with Polsinelli. (Doc. # 78-13). The parties dispute whether Mr. Seijas signed on behalf of Q3H or Q3I, but agree that the dispute is not relevant to Vyas's claims. Polsinelli relies on the text of the engagement letter, which is addressed to Q3H and refers to Q3H by name. (Id.). Vyas relies on the title, “GP,” that Mr. Seijas wrote next to his signature, arguing that “GP” suggests that he was signing as a general partner on behalf of Q3I. (Id.). According to the terms of the engagement letter, Polsinelli was retained to “represent the company in connection with securities and regulatory matters and such other matters as the company may direct [it] from time to time and [Polsinelli] agree[d] in writing to undertake[.]” (Id.).

Polsinelli sent several memoranda to Q3, addressing issues including (1) whether Q3H was required to register as an investment advisor and Q3I was required to register as an investment company, (2) whether certain regulatory exceptions could apply, (3) the steps required to register and the potential consequences of failing to register, and (4) potential business options to come into regulatory compliance. (Doc. ## 78-22, 78-25, 78-26, 78-59). Despite Polsinelli's advice, the Q3 entities still did not register. (Doc. # 78-35).

B. Flow of Funds

On July 9, 2019, David D'Amico, a group director Vice President of Signature Bank, emailed Mr. Tran with a “few easy questions for [the bank's] compliance team:”

(a) What is the purpose of the incoming funds from various individuals and entities?

(b) What is the purpose of the majority of the funds being sent to benefit the three account signors?

(c) Will this activity continue in the same manner?

(Doc. # 78-14). Mr. Tran forwarded Mr. D'Amico's email to Mr. Seijas along with the following message:

Hey so the basic issue is that it looks like funds deposited from investors are just being transferred to our Q3 holding account to pay us out. The reality is that we are sending investor money to the exchange (algo) and buying crypto and then liquidating crypto to USD from the algo to send to Q3 holdings. Instead of losing fees on both sides of those trades, we are registering it in our accounting spreadsheets as such and just pushing funds from Q3 I account to q3 Holdings account. I have spoken with our accountant GARY Chadee and he said that was acceptable to do in this manner as well.

(Id.). Mr. Seijas responded to Mr. D'Amico on July 11, 2019. (Doc. # 78-15). After reiterating Mr. Tran's explanation of the flow of funds, he stated the following:

Prior to implementing this strategy change, we cleared it with our accountant Gary Chadee and he stated that was acceptable to do in this matter. We also cleared it with our fund administrator Mr. McEvoy. It is both of their stances that as long as the records are exactly accurate and the funds accounted for then this does serve to save fees and steps and is acceptable.

(Id.). Polsinelli was not a recipient on this email chain.

C. McEvoy Calls

Denis McEvoy served as the fund administrator for Q3I. (Doc. # 78-2 at 113:7-114:6). Mr. McEvoy was a friend of Mr. Seijas, and Q3I hired him in Spring 2018. (Id. at 83:21 84:13). Mr. Seijas recalled that Q3I endeavored to hire a fund administrator because “probably legal counsel” advised them to do so. (Id. at 84:16-85:6). Mr. McEvoy was functionally a consultant, helping Mr. Seijas “oversee[] the way the fund was structured.” (Id. at 84:21-24).

Mr Seijas discussed the issue of the flow of funds with Mr. McEvoy in June 2019. (Doc. # 78-3 at 148:21-25). Mr. McEvoy stated that the flow of funds directly from Q3I to Q3H was allowable, but that Q3I needed supporting documentation. (Id.). On October 9, 2019, Mr. Seijas called Mr. McEvoy, again seeking advice on whether the flow of funds directly from Q3I to Q3H without first purchasing cryptocurrency was a “valid way to continue to run the fund.” (Doc. # 78-2 at 157:17-24). He raised the issue a second time because Mr. Ackerman disagreed with the way Mr. Tran had chosen to handle the flow of funds. (Doc. # 78-3 at 145:12-25). Mr. McEvoy testified that Mr. Tran sent him a flow of funds chart, that he attempted to read on his phone. (Id. at 156:18-157:12). Mr. McEvoy relied on Mr. Tran “walking [him] through” the chart. (Id. at 160:16-21). After listening to Mr. Tran describe the flow of funds, Mr. McEvoy reiterated that it “seemed reasonable . . ....