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UNITED STATES BANKRUPTCY COURTSOUTHERN DISTRICT OF NEW YORK

---------------------------------------XIn Re: : 02-16212 : ACTRADE FINANCIAL TECHNOLOGIES LTD. : One Bowling Green : New York, New York : Debtor. : December 16, 2008---------------------------------------X

TRANSCRIPT OF MOTION FOR SETTLEMENTBEFORE THE HONORABLE ALLAN L. GROPPER

UNITED STATES BANKRUPTCY JUDGE

APPEARANCES:

For the Trustee: PHILIP ANKER, ESQ.Jonah Meer JAMES H. MILLAR, ESQ.

Wilmer Cutler Pickering Hale and Dorr LLP399 Park AvenueNew York, New York 10022

PATRICK SALISBURY, ESQ.Salisbury & Ryan LLP1325 Avenue of the Americas7th FloorNew York, New York 10019

For National Fire: DAVID BOYAR, ESQ.Insurance Company D’Amato & Lynch LLP

70 Pine StreetNew York, New York 10270

For the Chapter 7: EDWARD FLINT, ESQ.Trustee SILVERMAN ACAMPORA LLP

100 Jericho QuadrangleSuite 300Jericho, New York 11753

(Additional appearances next page)

Proceedings recorded by electronic sound recording,transcript produced by transcription service

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UNITED STATES BANKRUPTCY COURTSOUTHERN DISTRICT OF NEW YORK

2

APPEARANCES: (cont’d)

For Amos Aharoni: SIGMUND S. WISSNER-GROSS, ESQ.Brown RudnickSeven Times SquareNew York, New York 10036

For Alexander Stonkus: LANCE GOTKO, ESQ.Friedman Kaplan Seiler & Adelman LLP1633 BroadwayNew York, New York 10019

For Kellogg Capital: PAUL RUBIN, ESQ.Group Herrick, Feinstein LLP

2 Park AvenueNew York, New York 10016

For Securities Class: CLIFFORD GOODSTEIN, ESQ.Plaintiffs: Milberg LLP

One Pennsylvania PlaceNew York, New York 10119

For Party to Settlement: KATHERINE ASH, ESQ.Agreement, Joseph Troutman Sanders LLPD’Allesandris The Chrysler Building

405 Lexington AvenueNew York, New York 10174

For Deloitte Touche: EDWARD J. YODOWITZ, ESQ.Skadden, Arps, Slate, Meagher & Flom LLPFour Times SquareNew York, New York 10036

For Eric Resenberg,: ERIC RESENBERGShareholder (Telephonically)

Court Transcriber: SALLY REIDYTypeWrite Word Processing Service211 N. Milton Road Saratoga Springs, New 12866

3

THE COURT: All right. We’ll then go on to Actrade1

Financial Technologies. We need to get somebody on the2

telephone.3

[Pause in proceedings.]4

THE COURT: I’ll take appearances from those in the5

courtroom on the Actrade case and then from anyone on the6

telephone.7

MR. ROSENBERG: (Telephonically). Hello. This is8

Eric Resenberg.9

THE COURT: You’ll have to wait. I’ll take10

appearances from those in the courtroom first. 11

Go ahead. Go ahead. 12

MR. ANKER: Good morning, Your --13

THE COURT: Yes? Go ahead, state your appearance.14

MR. ANKER: Good morning, Your Honor. Philip Anker,15

Wilmer Cutler Pickering Hale and Dorr for the trustee --16

THE COURT: All right. 17

MR. ANKER: -- Jonah Meer, joined at table by Patrick18

Salisbury of Salisbury Ryan, Mr. Meer, the trustee, and, to Mr.19

Meer’s right, James Millar of my office. Good morning, Your20

Honor. 21

THE COURT: All right. Anybody else appearing today?22

MR. BOYAR: Yes. David Boyar of D’Amato Lynch for23

National Union Fire Insurance Company.24

MR. FLINT: Edward Flint, Silverman Acampora, counsel25

4

for Kenneth Silverman, the Chapter 7 trustee of Allou1

Distributors.2

MR. WISSNER-GROSS: Sigmund Wissner-Gross from Brown3

Rudnick on behalf of Amos Aharoni.4

MR. GOTKO: Lance Gotko of Friedman Kaplan Seiler &5

Adelman on behalf of Alexander Stonkus.6

MR. RUBIN: Paul Rubin, Herrick Feinstein, Kellogg7

Capital Group, which I believe is the largest shareholder8

[inaudible].9

MR. GOODSTEIN: Clifford Goodstein from Milberg,10

securities class plaintiffs.11

MS. ASH: Katherine Ash, Troutman Sanders, Joseph12

D’Allesandris.13

THE COURT: For whom?14

MS. ASH: For Joseph D’Allesandris.15

THE COURT: Who is he?16

MS. ASH: He is one of the parties to the settlement17

agreement.18

THE COURT: One of the?19

MS. ASH: Parties to the settlement agreement.20

THE COURT: And what is his position in the21

settlement agreement? How does he get interested in the22

settlement agreement?23

MS. ASH: Because he was a party to the underlying24

class action, and he had signed --25

5

THE COURT: He was a defendant in the class action.1

MS. ASH: Yes.2

THE COURT: All right. That makes it clear.3

MR. YODOWITZ: Edward Yodowitz, Skadden Arps, for4

Deloitte, also a defendant in the class action and a party to5

the settlement.6

THE COURT: Right. Okay. Anyone else in the7

courtroom? Then on the telephone.8

MR. RESENBERG: This is Eric Resenberg representing9

myself and other investors. We have --10

THE COURT: Well, you’re representing yourself, Mr.11

Resenberg, I don’t know about other investors. You’ll have to12

file something to represent others. And you have, you claim to13

have shares of stock in Actrade; is that right?14

MR. RESENBERG: Yes, that’s correct.15

THE COURT: How much?16

MR. RESENBERG: About a half million shares.17

THE COURT: All right. Thank you.18

All right. We have I believe a motion by the trustee19

for approval of a settlement agreement, and I’ve had a number20

of pleadings. Yesterday I signed an order that terminated the21

filing under seal and opened that up. But I don’t think there22

seems to be much dispute. The parties here have available to23

them the basic information necessary to argue this motion. I24

have received papers from a large number of parties and I’ve25

6

read them. 1

So I guess you’re up first, Mr. Anker.2

MR. ANKER: Good morning, Your Honor. And again for3

the record, Philip Anker, Wilmer Cutler Pickering Hale and4

Dorr. We did file yesterday afternoon, and I apologize, Your5

Honor, for the lateness of the hour, a reply memorandum.6

THE COURT: I have that, I read that too.7

MR. ANKER: Good. Your Honor, I will try to be8

brief. Obviously happy to answer any questions the Court had. 9

It seems to me it makes sense to try to put the matter in a10

framework in terms of what the law is and what the law requires11

and then apply that law. I want to start -- and I normally12

wouldn’t start on a point that is somewhat defensive but I13

think it goes to the trustee’s bona fides, and I think it’s14

important to start with. 15

There is a suggestion in the papers certainly filed16

by National Union and a little bit by Mr. Aharoni that somehow17

the trustee shouldn’t come to this Court and provide the18

information he has and be candid and direct with the Court19

about what has transpired. I submit that the Martin case and20

numerous cases that have filed it, and no case has rejected it,21

hold directly to the contrary. This trustee is like every22

trustee, both a case trustee and a liquidating trustee, a23

fiduciary. He not only may but I submit he must be candid with24

the Court and look for the best opportunity for this estate and25

7

represent it diligently. I would like to think the case law1

cited puts that issue to rest. 2

The second question, it seemed to me, in terms of3

legal standard is what is Your Honor supposed to decide. Is4

Your Honor supposed to decide, as Mr. Aharoni seems to be5

submitting in his brief, whether at the time the prior trustee6

entered into the settlement agreement that was a settlement7

agreement at the time that was above the lowest range of8

reasonableness. I submit that isn’t the question. It isn’t9

the question for two reasons. One, there is a different10

trustee today, a trustee who -- and the motion is before Your11

Honor today, not three years ago. And that trustee is12

supported by the official committee here -- sorry, Your Honor 13

-- believe --14

THE COURT: Go ahead.15

MR. ANKER: -- believes this agreement is not in the16

best interest of the estate based in large measure on events17

that have transpired since.18

THE COURT: All right. If I understand your papers19

and your position correctly, your position is, in substance,20

that Mr. Aharoni has breached the agreement, has failed to21

cooperate, and that, in connection with that failure,22

information has come to your attention that he has23

misappropriated over $30 million of property of these debtors.24

MR. ANKER: Your Honor, yes in part. I want to be25

8

clear on what I’m suggesting the legal standard is here. If1

nothing had happened, nothing had happened since the trustee2

entered into that original agreement, it would still be within3

the province of the trustee today to say that deal isn’t in the4

best interest of the estate for the following reasons. 5

Whenever someone enters into an agreement with --6

THE COURT: Now, that’s your position. I think I can7

say that there is conflicting authority on that proposition.8

MR. ANKER: I don’t believe so, Your Honor, and I9

want to be clear on this. I think there is conflicting10

authority on the following question. May a trustee simply11

unilaterally walk away from an agreement. May he simply say12

I’m not going to bring it to the Court’s attention. And I will13

be candid with Your Honor, there is conflicting authority. I14

think the better answer to that question is no, he may not, and15

I don’t argue to the contrary. I think there is uniform16

authority, however, that if a trustee enters into an agreement,17

while he is duty bound then to bring it to the Court for18

approval, he may, if he concludes thereafter that the19

settlement is not in the best interest of the estate, so inform20

the Court of his views. Indeed he is duty bound and I would21

submit in breach of his duty not to. Case after case says that22

when you are a party and you enter into an agreement with a23

trustee you know that trustee always has a fiduciary out. He24

has an obligation to benefit the estate and look for the best25

9

proposal. And indeed, Your Honor, if you look at some of the1

cases we cited, the Lane case says the trustee, it doesn’t2

matter even if there has been simply, by the trustee, a3

reassessment of his legal position.4

Having said that, I submit Your Honor doesn’t have to5

reach that question. Because there have been new events that6

have occurred. There are several. First, Your Honor, when the7

prior trustee entered into the agreement he did not have8

records, which we now have, that unequivocally, and Mr. Meer9

has put in an affidavit confirming, unequivocally attest that10

the $30 million went to bank accounts controlled by Mr.11

Aharoni. This was $31 million taken out of this estate after a12

whistle blower email came, after securities litigation was13

filed, after, Your Honor, cooperation was sought by the board14

and denied by Mr. Aharoni. 15

Second, Your Honor, Mr. Aharoni signed a separate16

agreement in which he agreed that the estate would dismiss17

without prejudice, without prejudice its lawsuit against him in18

Delaware, and in exchange he would cooperate in helping resolve19

the Allou claim but in addition to that it expressly provides20

in seeking the recovery of that $31.6 million. Your Honor, not21

one penny has been recovered. And these are loan agreements,22

simple negotiable instruments and documents as to which there23

should be no dispute. Cooperation here meant payment of $31.624

million plus interest. Every one of those parties has denied25

10

liability, in many cases saying in pleadings filed in Israel we1

did not receive the money. 2

Third, Your Honor, the trustee, when he entered into3

the original agreement, believed, and he attested to this both4

in his original memorandum -- indeed when you look at the5

section of the memorandum justifying the original settlement6

and why to give a release to Mr. Aharoni it is the only7

rationale, and he provided an affidavit yesterday confirming8

that he understood at the time that that was the price one had9

to pay, if you were the estate, to get -- to obtain collateral10

benefits, those collateral benefits being the settlement with11

the securities plaintiffs. 12

Your Honor, there are no signed papers. And I’m not13

going to mislead the Court, there’s always risk. But I’ve had14

-- and I represent to this Court as an officer of the court --15

discussions with Mr. Boyar, discussions with Mr. Yodowitz,16

discussion with Mr. Shapiro who is the, as I understand it, the17

primary counsel for the securities plaintiffs, and based on18

those discussions -- and I’m a reasonably experienced lawyer19

that’s been around the block a few times -- confident that if20

this Court disapproves this settlement, we are going to be able21

to negotiate a modified settlement. And let me be clear on22

what that modified settlement will provide.23

THE COURT: I don’t think you should. I don’t think24

I am going to decide the case on the basis of --25

11

MR. ANKER: Okay.1

THE COURT: -- what you might be able to do. You’ve2

stated the trustee’s view that this is not an all or nothing3

proposition. But we don’t have any other certain course of4

action here, and I think that’s where the record stands today.5

MR. ANKER: Your Honor, we don’t. And it’s6

understandable, it seems to me, that parties will not want to7

enter into modified agreements until and unless they know8

whether the existing agreement will or will not be approved. 9

And it’s understandable in that regard that parties such as the10

securities plaintiffs, National Union, if they had their11

druthers, would prefer approval of the existing --12

THE COURT: I’ve read their papers. I think I13

understand their position.14

MR. ANKER: Okay. Your Honor, the other fact -- I15

read Mr. Aharoni’s papers in particular to be internally16

inconsistent. On the one hand I hear him to say Your Honor17

should look back in time with blinders on recent events and ask18

the question whether the trustee, when he entered into the19

original settlement, was acting above the lowest range of20

reasonableness. On the other hand I read him to say the only21

way Martin applies is if there’s been something new and a22

change in circumstances. And I would argue that the right23

answer is neither of the above. The right answer is you24

consider the motion today and you do base it on today’s record,25

12

but even if that record hasn’t changed the trustee can come in1

and take the position he has taken.2

THE COURT: Well, are you saying the record has or3

hasn’t changed --4

MR. ANKER: It has, Your Honor.5

THE COURT: -- in the last several years?6

MR. ANKER: It has. It absolutely has. It has7

because, a, we’ve not obtained any cooperation; b, it’s8

indisputable not one penny of that 31.6 million has been9

recovered; point three, we do believe and the trustee has made10

a representation to this Court that it has engaged in, and no11

one has denied it, substantial negotiations with other parties12

and believes it can obtain new agreements. And for all of13

those reasons the record has changed significantly.14

What is the argument. Let’s step back a second and15

look at this as if -- from the trustee’s standpoint, from the16

estate’s standpoint. Why is it that this settlement doesn’t17

make sense. First, the trustee under this settlement would be18

giving a release to Mr. Aharoni in exchange for no payment19

whatsoever from Mr. Aharoni to the estate. Not one penny. 20

Number two, there’s no dispute, no dispute whatsoever that21

$31.6 million left the estate’s bank accounts. There’s no22

dispute at all that Mr. Aharoni caused those transfers. He may23

take the position that they were legitimate loans and24

legitimate transfers to third parties. We believe we have25

13

unequivocal evidence demonstrating on the contrary. And I note1

he did not submit an affidavit to this Court --2

THE COURT: That --3

MR. ANKER: -- and he is not here.4

THE COURT: That is noted.5

MR. ANKER: So from the estate’s standpoint it6

believes it has claims for breach of fiduciary duty, claims for7

theft, for conversion and the like that are extraordinarily8

strong and for real dollars. Put aside for a moment all the9

other action, the options and the like that add to it tens of10

millions of dollars, we’re talking about directly 31.6 million11

plus interest. Second, we have -- Your Honor may ask the12

question but isn’t this an Israeli and aren’t there issues13

about pursuing him.14

THE COURT: Well, we’re not trying that case today.15

MR. ANKER: I --16

THE COURT: We’ll see if we will need to try to case17

some day but we’re not trying that case today, so I don’t think18

you need to get too deeply into it. I hear the number, and I19

hear particularly that you tell me that he’s not cooperated. 20

And if I read the settlement agreement, both of them, both21

versions properly, he’s got to cooperate.22

MR. ANKER: That’s right, Your Honor.23

THE COURT: All right. 24

MR. ANKER: My point on this --25

14

THE COURT: So I think it’s time for you to move on1

to another point.2

MR. ANKER: Your Honor, let me answer the question3

you just said. We will not be, if we includes Your Honor,4

trying this case. If Your Honor disapproves this settlement,5

our intent is to refile this case in Delaware and proceed6

there. And there is no reason, Your Honor, once the Allou7

claim is resolved, we cannot close this estate. There is no8

reason the securities litigation cannot be ended. We will be9

litigating in another courtroom in front of the Delaware Court10

of Chancery.11

My only point, Your Honor, was there -- in terms of12

your assessing the trustee’s judgment here, it is worth noting13

that we have an opinion of the Delaware Chancery Court denying14

Mr. Aharoni’s prior motion to dismiss for want of personal15

jurisdiction, denying his motion to dismiss for want of subject16

matter jurisdiction, denying his motion to dismiss for want of17

improper service of process. And in the agreement he expressly18

agrees, a, to a contractual tolling of any limitations period19

and, b, he agrees that service of process may occur and he20

won’t raise any defense. Those issues inform the trustee’s21

judgment. 22

THE COURT: All right. I understand that.23

MR. ANKER: Let me address one last point, and I will24

let others speak and then I’ll respond. There -- one of the25

15

responses that I think we take most seriously is that of DMI1

Capital. Because unlike Mr. Aharoni, unlike National Union,2

they are a beneficiary of the trust. The only other3

beneficiary of the trust that has filed papers is the Allou4

trustee, who has supported our position. 5

I will say, Your Honor, the trustee -- and I want to6

be both candid but careful in what I say. The trustee has been7

concerned for some time of indications that he believes Mr.8

Aharoni is trying through third parties to sabotage this9

process. We do note that DMI Capital, notwithstanding that it10

says it’s terribly concerned about delay here, has in a week11

told us it has increased apparently its position in shares, a12

seemingly difficult to reconcile action if you’re really13

concerned. But the bottom line is who is a member of the14

trustee is a matter for another day and a matter, frankly, not15

within the trustee’s control. We are fiduciaries and we care16

about what our --17

THE COURT: Well, anyone with any involvement in this18

case, and my involvement goes back I think probably five years19

before yours --20

MR. ANKER: It does, Your Honor.21

THE COURT: -- Mr. Anker, is concerned about the22

length of time that has elapsed. 23

MR. ANKER: There is no doubt --24

THE COURT: So there’s no reason for anyone25

16

interested in this case not to be very seriously concerned1

about the length of time that has elapsed. But that’s only one2

issue to take into account. So let me hear from some of the3

other parties.4

MR. ANKER: Thank you, Your Honor. 5

THE COURT: Thank you. 6

Anyone -- I’ll first hear from anyone else who wishes7

to support the trustee’s position wishes to be heard. Then8

perhaps it is time for me to hear from Mr. Aharoni then. All9

right. 10

MR. WISSNER-GROSS: Thank you, Your Honor. Sigmund11

Wissner-Gross from Brown Rudnick. Taking into account that12

Your Honor has read all the papers, I think it might be just13

helpful for me to focus on a couple of points. It isn’t our14

position that Mr. Anker shouldn’t have the ability to alert15

Your Honor to more current developments; we’re not suggesting16

that. Rather having carefully read his papers, it’s clear to17

me, as indicated in my affidavits, Your Honor, that the18

supposed new developments that he’s identified are really19

nothing more than a re-articulation of what I had known all too20

well in terms of the trustee’s position before I entered into,21

on behalf of Mr. Aharoni, the initial stipulation of settlement22

in March 2004, which was a -- it’s not a stipulation that’s23

before the Court, it’s the side stipulation that we entered24

into pursuant to which the Delaware action was dismissed25

17

without prejudice. And in particular, Your Honor --1

THE COURT: Stipulation of settlement in the Delaware2

action --3

MR. WISSNER-GROSS: Yes. That was a --4

THE COURT: -- is that right? That’s Exhibit G and5

then --6

MR. WISSNER-GROSS: Correct. And then there’s an --7

THE COURT: -- Exhibit H and Exhibit --8

MR. WISSNER-GROSS: Well, the initial stipulation -- 9

THE COURT: -- M to your --10

MR. WISSNER-GROSS: Yeah, the initial --11

THE COURT: -- your papers. 12

MR. WISSNER-GROSS: Yes.13

THE COURT: You’ve got it right here.14

MR. WISSNER-GROSS: Yes. They were submitted to Your15

Honor.16

THE COURT: All right. 17

MR. WISSNER-GROSS: And while I didn’t like --18

THE COURT: And as I read those stipulations, they19

say that Mr. Aharoni commits to cooperate --20

MR. WISSNER-GROSS: Yes.21

THE COURT: -- with the trustee.22

MR. WISSNER-GROSS: Yes, and --23

THE COURT: That’s --24

MR. WISSNER-GROSS: -- there’s a --25

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THE COURT: And you know as a practicing lawyer that1

that’s not unusual.2

MR. WISSNER-GROSS: That’s not unusual. And I --3

THE COURT: And --4

MR. WISSNER-GROSS: -- attempted to Your Honor --5

THE COURT: -- are you able to testify today from6

firsthand knowledge as to whether Mr. Aharoni has or has not7

cooperated?8

MR. WISSNER-GROSS: Well let me tell you what I can9

testify to as an officer of the court.10

THE COURT: Why don’t you answer my question --11

MR. WISSNER-GROSS: Well, I --12

THE COURT: -- then you can tell me what you want to13

tell me. Answer my question.14

MR. WISSNER-GROSS: Well, I was involved for certain15

periods of time, so my involvement was from the time I was16

retained in --17

THE COURT: So the answer is pretty obvious. You18

can’t testify --19

MR. WISSNER-GROSS: No, but --20

THE COURT: -- firsthand as to your client’s21

cooperation or lack of corporation in Israel, can you?22

MR. WISSNER-GROSS: No, no, I can’t testify as to23

that, Your Honor. But I can speak to what I did at his24

direction in connection with the Allou proceeding --25

19

THE COURT: That’s fine.1

MR. WISSNER-GROSS: -- what I did in connection with2

the mediation, which, while I’m subject to constraints given3

the fact that that was -- for example, the mediation was4

subject to a confidentiality agreement --5

THE COURT: I don’t -- is that the mediation with the6

Allou --7

MR. WISSNER-GROSS: No, no. That was the mediation8

that in May 2004, pursuant to which an agreement in principle9

was reached to settle the class action --10

THE COURT: Okay.11

MR. WISSNER-GROSS: -- which is the subject that is12

before Your Honor. 13

THE COURT: Let me ask you one other question. Does14

your client desire an evidentiary hearing in connection with15

these proceedings, and in particular does your client desire an16

evidentiary hearing at which I could take evidence as to17

whether he has or he hasn’t cooperated with the trustee?18

MR. WISSNER-GROSS: No, Your Honor, and for two19

reasons. One, the cooperation agreement is in the Delaware20

stipulation that if the issues are litigated as to the claims21

that Mr. Anker seeks to pursue, those will have to be litigated22

in Delaware. Whether or not he has cooperated, his position --23

as indicated in my papers is that he has -- will have be24

decided by a Delaware judge. Because the threshold matter, if25

20

the Delaware Chancery Court decides that Mr. Anker in his1

conduct in attempting to not seek the approval of settlement2

has in fact breached that agreement, he will not have the3

ability to get the benefit of his contractual tolling. But4

that issue is not before Your Honor. That issue, as Mr. Anker5

has indicated, will have to be litigated in the Delaware6

Chancery Court. But the short answer is we’re not seeking an7

evidentiary hearing. We’re happy to rest on the papers and the8

presentation today.9

THE COURT: All right. And that’s true for this10

hearing in general. Because I really asked you a double11

question.12

MR. WISSNER-GROSS: Right. But, Your Honor, I want13

to make clear that if all the other parties who are here today,14

who are the interested parties in the mediation, would consent,15

I’d be delighted to tell Your Honor what I know from firsthand16

knowledge as to the mediation, which I -- Mr. Aharoni was not17

present at the mediation. I as his counsel was present and the18

events leading up to it, the negotiation of that settlement,19

and I would be able to -- I would proffer to Your Honor that if20

permitted to disclose what happened, there was a substantial21

economic benefit to the estate that Mr. Aharoni through my22

representation conferred at the mediation so that the23

settlement that they’ve agreed to in the class settlement is24

much less than perhaps they would have actually entered into. 25

21

So that, number one, that when -- the statement was made that1

there isn’t one penny of benefit. I happen to know personally2

-- I was there, Mr. Anker was not there, this was before his3

retention -- that there was substantial benefit to the estate4

conferred through Mr. Aharoni’s efforts.5

THE COURT: But the more direct question to the6

proceedings today is whether he has cooperated, and I think the7

trustee points to the $31 million. Did you receive any of the8

$31 million, sir?9

MR. WISSNER-GROSS: No. No, Your Honor. And I don’t10

--11

THE COURT: Did any of the $31 million pass through12

your hands?13

MR. WISSNER-GROSS: No. No, Your Honor. And I’m not14

-- I’m --15

THE COURT: So you can’t testify --16

MR. WISSNER-GROSS: I’m not testifying to that. I’m17

not --18

THE COURT: -- as to the $31 million --19

MR. WISSNER-GROSS: No. All --20

THE COURT: -- and his --21

MR. WISSNER-GROSS: All I can say are two things,22

Your Honor. One is that Mr. -- I have been present at meetings23

before -- you know, this issue was addressed before, two years24

before Mr. Anker was involved. I was personally at a meeting25

22

in London that -- it’s discussed in my papers. And, by the1

way, Your Honor, Mr. Bronstein [Ph.], who is the former2

trustee, submitted a new affidavit. I noted, which I saw it3

last night, that he doesn’t dispute in any regard anything4

that’s in my affidavit as to my discussions with him. And I5

did attend a meeting in London in which the representative --6

the former trustee, his representative, his counsel was --7

actually his counsel Mr. Vann [Ph.] was present as well as the8

then chairman of the equity committee, at which Mr. Aharoni9

gave an explanation as to what had happened with respect to the10

funds. It wasn’t my explanation, but there was a very detailed11

explanation. And as I indicated in my papers, Mr. Vann didn’t12

believe or buy into the explanation. I had extensive13

communications with Mr. Bronstein. He may -- he didn’t seem to14

buy into the explanation either before we signed the March 200415

settlement. 16

And as I indicate in my papers, there were business17

reasons that was very clear that the trust had decided at the18

time that we had the May 2004 mediation, the class settlement,19

that from a macro picture it was far better for the estate to20

reach a settlement of the class claims, to get a final closure21

on the class claims and be able to have a distribution to22

ultimately -- primarily equity holders, post-class action23

equity holders in May of 2004 with full understanding of what24

the facts were. And, Your Honor, while I didn’t like the25

23

ruling by the Chancery Court, because I lost on a motion to1

dismiss, I do think it’s instructive that -- it’s attached as2

Exhibit C to my affidavit -- that on page 2 of Vice Chancellor3

Lamb’s [Ph.] ruling he specifically notes exactly, as a4

contention of Actrade, what Mr. Anker is saying today. 5

Supposedly his new development is that, well, we have these6

records from BCP Bank that demonstrate that Mr. Aharoni was in7

control of the accounts. 8

Well, that was the position that Paul Weiss, a9

reputable law firm, had advanced when I was litigating against10

them in the Chancery Court, and the Vice Chancellor noted on11

page 2, in language I didn’t like but it’s language that was12

known to the trustee at the time, “Actrade further alleges that13

Aharoni controls ICC [indiscernible] and that he fabricated the14

loan agreements after the disputed transfers to conceal his15

theft of $31.6 million from Actrade Commerce.” Their complaint16

--17

THE COURT: So what you’re telling me then is that18

the issue was known.19

MR. WISSNER-GROSS: Correct.20

THE COURT: And the prior trustee in the settlement21

agreements in Delaware got Aharoni’s commitment to cooperate in22

terms of tracing those funds and attempting to recover them for23

the benefit of the estate. And I assume that Aharoni at the24

time did not take the position that he had misappropriated the25

24

funds.1

MR. WISSNER-GROSS: He didn’t. He vigorously2

disputed that, he disputed that at the meeting in London that I3

recite in my papers, and he today disputes that. And as I4

understand it, there is litigation going on by the trustee, Mr.5

Meer in Israel, I guess against these third parties. I’m not6

involved with that but I understand he’s pursuing claims with7

respect to trying to recover those loans, and parties that are8

counter parties to those loan agreements have taken, you know,9

I gather, the position that they didn’t get the benefit of that10

money. 11

But the point, Your Honor, I’m trying to make is that12

this is a case where I think the evidence -- frankly it’s13

undisputed that all of the facts that were known then before14

the trustee for a host of reasons, the smallest portion of15

which, I would submit, was that he hoped that as a result of16

Mr. Aharoni’s cooperation that he would be able to recover the17

$31 million. But the trustee at the time made an informed18

business judgment that in a very complex, multi-factor, multi-19

party litigation situation the best interest of the estate was20

to reach a settlement that he knew, and I say this in my papers21

and there’s no dispute, the trustee at the time knew that there22

would be no class action settlement signed unless Aharoni got a23

general release. I submitted to Your Honor emails that I24

received from the then trustee in which he had recognized that25

25

that was the price that they had to get, give Aharoni a1

release. 2

And if you look -- I tried to reconstruct the3

timeline for Your Honor. The first stipulation of settlement4

was entered into in March 2004. The Delaware Chancery case was5

dismissed without prejudice in April, April 5th, 2004. The6

mediation took place a month later. And over the course of the7

next few months, after reaching an agreement in principal, as8

the documents in connection with the class action settlement9

were negotiated, even though Judge Berman had been told by Mr.10

Shapiro that he hoped to have all the documents before the11

judge in June of 2004, it took well into October to have those12

documents finalized. And all the other parties who were13

parties to those settlement agreements are here. But it was14

just before when we had reached a finalized settlement15

agreement, before they were to be executed, Mr. Bronstein came16

back to me and said, well, I recognize that I need to give17

Aharoni a release but I’d like at least to amend the class18

action settlement agreement to provide -- excuse me, amend the19

Delaware side agreement to provide that if it’s not approved --20

and at the time the papers as drafted imposed a burden on Mr.21

Bronstein to affirmatively seek the approval of this Court and22

for this Court’s portion of the settlement. It was the last23

thing in the world that Mr. Aharoni or, for that matter, Mr.24

Bronstein thought was that the trustee in fact would be able to25

26

benefit by an additional tolling provision in the October 20041

amended stipulation of settlement by seeking to undermine the2

settlement. I recognize that Mr. Anker -- and I don’t dispute3

that he has a duty as a fiduciary to bring information to the4

attention of the Court. That’s a duty that’s independent of5

what the trustee’s contractual obligations are under a6

settlement where the trustee represented to Mr. Aharoni that he7

had all requisite authority to enter into the Delaware8

stipulation, that it was not conditioned on seeking the9

approval of this Court.10

So, Your Honor, I think contextually my point is that11

the circumstances haven’t changed. The information that it12

appears that Mr. Anker has obtained in the last year, I would13

characterize it more as probably further confirmatory of the14

view that was strongly held by the trustee and by Paul Weiss15

and Mr. Vann long before we entered into the settlement16

agreement, either the Delaware settlement agreement or the17

class action settlement agreement. And in addition, as I18

noted, because this I can say with firsthand experience, there19

was a tangible concrete benefit that was conferred on the20

estate -- I go further -- with respect to the mediation. I go21

further to say that if I was not instructing Mr. Aharoni to co-22

actively try to help get the mediation going, proact -- I23

played a very proactive role in that mediation in entirety as24

well as, I believe, saving the estate money. If Mr. Aharoni25

27

had not wanted to participate in that process, there would not1

have been a class action settlement, and Mr. Anker would not be2

in a position today to say, although I appreciate Your Honor3

doesn’t want to hear where this is going with respect to any4

reconstructed class action settlement, he wouldn’t have the5

benefit of the deal that he’s trying to now redo just simply to6

cut Mr. Aharoni out of the picture.7

So that’s one large piece of it, Your Honor. I think8

the other points can be addressed briefly. The Martin case9

from the Third Circuit, the interesting thing about that case10

is that the changed circumstances were that the trustee was not11

aware that there had been a settlement of or a resolution12

underlying state court action that conferred another $100,00013

of benefit to the estate. The trustee came back to the court,14

and the Third Circuit ultimately recognized the trustee15

certainly had a duty to report to the court recent16

developments. But those were recent positive developments. 17

There was more money coming into the estate, making the prior18

deal, which was not as good for the estate, less preferable19

than the current deal. 20

Here we actually have, I think, the opposite21

paradigm. There was a very complicated settlement that was22

reached that I again would submit resulted in a deal for the23

estate, that saved the estate money in May of 2004. It was24

finally executed in December 2004. That was when these class25

28

action settlement documents were executed, dated as of October.1

Which Mr. Anker I think is putting the estate at risk of2

blowing that whole settlement. I can’t speak to what anybody3

else here in the room or parties to the settlement will or will4

not do. They’ll have to -- they can speak to that themselves. 5

But I will say that if this class action settlement that was --6

has been waiting for approval for four years -- although the7

application was made in March of 2003 so call it three and a8

half years since Mr. Bronstein has made application -- is not9

approved by the Court, I do think that, number one, Mr.10

Aharoni, who has rights under a National policies agreement,11

particularly, as I view it, that if an action is brought by the12

trustee, that it would be a covered claim, Mr. Aharoni will13

seek indemnification and coverage from National Union. Mr.14

Aharoni’s position will be, as I’ve advised all counsel, is15

that there can’t be a new class action settlement agreement16

with National Union signing off unless he is included within17

that. 18

The trust exposes, in my view, the risk that National19

Union may well say that, you know what, we wanted to arbitrate20

the issue of whether an additional $9 million of coverage21

properly came within the policy, and we settled by paying a22

portion of that. I’m not allowed to say what amount, but a23

portion of that. National Union may say we don’t want to pay24

anything. And Mr. Anker then is left with blowing an estate --25

29

blowing a settlement that confers a significant benefit to the1

estate by liquidating or resolving a claim that is hundreds of2

millions of dollars for an amount that allows still for a3

significant distribution to creditors and others of the estate. 4

And then what he has in exchange is claims against my client,5

which I’ve been doing this for a while and I appreciate Mr.6

Anker has been doing this for a while and I’ve had a lot of7

experience before the Delaware Chancery Courts including before8

Vice Chancellor Lamb yesterday in a complete unrelated hearing.9

As I see it, the claims that were asserted against Mr. Aharoni10

were asserted based on conduct that occurred at the latest in11

August of 2002, maybe July or August 2002. The statute of12

limitations in Delaware for a breach of fiduciary duty claim13

and the other claims is three years. The original dismissal14

without prejudice was filed on April 5, 2004. Those claims are15

all clearly time barred. 16

Mr. Anker, his argument would be, well, I have17

contractual tolling. I would submit, Your Honor -- and this is18

not an issue for you to decide, it will be for the Delaware19

Chancery Court to decide, but I do think it’s important to put20

this before Your Honor so you at least appreciate the context. 21

I think in a case where it will be solely Mr. Anker’s conduct,22

whether he’s an officer of the court or otherwise, that results23

in the possible disapproval of the settlement, that he will24

under no circumstances be able now to come back to Delaware and25

30

say Mr. Aharoni agreed to toll the statute of limitations.1

And as to equitable tolling, which is his only other2

identified basis to get around the clear statute of limitations3

problem, we’ve cited cases to Your Honor in Delaware. There4

are no cases cited by Mr. Anker. But I think this couldn’t be5

a more clear case that he knew everything that he seeks to6

assert now he asserted -- not only did he know previously, he7

alleged previously. So he will pursue claims against Mr.8

Aharoni if allowed to. I think those will be time barred. And9

when I say that the problem and lack of benefit to the estate10

to going his way on this is that a very good fair settlement11

that was negotiated and resolved in May of 2004 and executed at12

the end of 2004 will be blown up and claims will be pursued13

against Mr. Aharoni that, if I’m successful in defending them,14

will all be dismissed as time barred. And I guess what the15

estate will have is we’ll be back having to now spend the next16

several years litigating the issue of the proof of claim filed17

by the class action attorneys before this Court for hundreds of18

millions of dollars. Because it’s clear that with the other19

parties in the case that they’re not going to -- if the class20

action plaintiffs are successful there, they’re not going to21

stop with the individual defendants as well as the Deloitte,22

and they’ll have no choice but to prosecute aggressively, I23

assume, the proof of claim before this Court.24

Your Honor, finally, I don’t think it really matters25

31

whether the standard is the lowest range of reasonableness or1

whether it’s a fair and reasonable outcome. I think that Mr.2

Anker’s views are a piece of what Your Honor should consider3

but they aren’t controlling, they aren’t dispositive. I think4

that whether it’s a lowest range of reasonableness or fair and5

reasonable, that if Your Honor applies the seven factors under6

9019, that this is a compelling case. While we understand Mr.7

Anker’s concerns of what he thinks he would like to do, that at8

bottom, Your Honor, this really amounts to nothing more than,9

armed with all the same information as Mr. Bronstein, he has a10

different business judgment of what he would have liked to have11

done. And that stripped of his identification of new12

developments, there are no new developments. This case has13

been going on far too long. Judge Berman repeatedly in the14

last year has been pressing the lawyers in the case when is15

this thing going to come before me for final resolution. I16

would submit to Your Honor that if Your Honor is to approve the17

motion made by Mr. Bronstein, which Mr. Bronstein hasn’t backed18

off any with respect as to why he’s still -- you know, his19

original application, that no one would be more delighted than20

Judge Berman at the Southern District, who we would then21

promptly go before to get final approval of the class action.22

THE COURT: All right. Thank you.23

MR. WISSNER-GROSS: Thank you, Your Honor. 24

THE COURT: Anyone else?25

32

MR. BOYAR: Your Honor, David Boyar, D’Amato Lynch1

for National Union. Just very briefly, the alleged fraud at2

Actrade through Mr. Aharoni has been the subject of litigation3

for over ten years. The allegations of a massive fraud and the4

numbers in excess of $31 million has been bandied about for ten5

years. The sort of alleged involvement of Mr. Aharoni with6

respect to his manipulation of bank accounts and transfer7

directions has been public knowledge for in excess of ten8

years. These are precisely the allegations that were made in9

the class complaint. This is old news at this point. National10

Union --11

THE COURT: I gather he denies having misappropriated12

the $31 million?13

MR. BOYAR: Absolutely, Your Honor. I guess --14

THE COURT: And I gather your client didn’t receive15

any of that?16

MR. BOYAR: That’s correct, Your Honor.17

THE COURT: Did any of it pass through your client’s18

hands?19

MR. BOYAR: Certainly not, Your Honor.20

THE COURT: All right. 21

MR. BOYAR: All right. The point is that this, in22

effect, is old news. These were the original allegations made23

in excess of ten years ago. These were the allegations that24

were the subject matter of the class litigation. This was the25

33

subject matter of the mediation that transpired in 2004. This1

was the subject matter of the agreements that constitute the2

global settlement arrangements as the subject matter of the3

motion for approval.4

National Union would sustain massive prejudice if the5

trustee, the successor trustee is permitted in effect to walk6

away from the agreements his predecessor agreed to in 2004. In7

the policy release agreement the predecessor trustee8

represented and warranted they performed a necessary and9

prudent investigation of the subject matter of this agreement. 10

That subject matter included, obviously, the subject matter of11

the class litigation, which again, Your Honor, made reference12

to this alleged massive fraud by Mr. Aharoni. 13

THE COURT: All right. Now, what’s the prejudice to14

your client?15

MR. BOYAR: The prejudice to National Union is that16

we filed an application with this Court in 2003 to lift the17

automatic stay, to the extent the stay was applicable, so 18

National Union could arbitrate pursuant to the alternative19

dispute provision in the National Union policy whether or not20

there in fact is or is not coverage under the National Union21

policy for the claims that had been made in the class22

litigation against the National Union insureds, including Mr.23

Aharoni. After that application was made National Union agreed24

to withdraw that application in the context of an agreement by25

34

all the participants to engage in a global mediation. It took1

approximately a year to schedule that mediation. The mediation2

lasted for two days of significant negotiations and thereafter3

three or four months time was spent by all the parties,4

including National Union, to finalize the tentative agreements5

that were reached at that mediation. The coverage issues would6

have been resolved at this point but for the fact that7

agreements were entered into, signed off on a global basis by8

all the participants in that mediation. The approval9

application was filed in March of 2005. The best that the10

present trustee can assert is that his predecessor had not seen11

and did not have available to him the new bank records. Once12

again, in the policy release agreement that the predecessor13

trustee signed he represented and warranted that he had14

performed a necessary and prudent investigation of the subject15

matter of the agreement. Your Honor, I respectfully assert if16

there’s been any failures here, it was the failure of the17

predecessor trustee to conduct an investigation, and now, in18

effect, the other participants in the global mediation which19

resulted in a global settlement are left, in effect, holding20

the bag. That’s all I have, Your Honor.21

THE COURT: Thank you. Anyone else?22

MR. FLINT: Yes, Your Honor. Your Honor, Edward23

Flint for Kenneth Silverman, the Allou trustee. We’ve stated24

our position concerning the trustee’s exercise of his business25

35

judgment in our papers, and I won’t address that. I’ll simply1

point out, Your Honor, that if the Court is inclined to approve2

the original settlement, that any new order should not provide3

for the payment of funds by the estate. The confirmed plan4

provided for a certain priority of payments, and until the new5

trustee’s claim has been resolved we believe that no payment is6

appropriate from the estate funds. Thank you.7

MR. GOTKO: Good morning, Your Honor. Lance Gotko of8

Friedman Kaplan. We represent Alexander Stonkus, the former9

president and COO of Actrade in the securities litigation. 10

Just very briefly, Your Honor, we support the trustee’s11

original motion to approve the global settlement. We think it12

should be approved as submitted. Mr. Stonkus entered into a13

global settlement for the same reason that everyone, including14

Actrade, entered into a global settlement, so that everybody15

can know and be assured that you’re not going to settle today16

and then the next day someone’s going to pop out of the17

woodwork and sue you. It’s very unlikely that if a global18

settlement is not able to be reached in this matter that19

there’s going to be any settlement. And let me just give you a20

hypothetical situation, which I’m afraid is not altogether21

hypothetical. 22

First of all, the insurance company wants to know23

that there aren’t going to be any further claims against its24

policy if it enters into a partial settlement in this case, and25

36

I don’t think it’s going to be able to have that assurance. If1

Mr. Aharoni is not included in the settlement, one can easily2

envision a situation where the trustee, as it has said, sues3

Mr. Aharoni, Mr. Aharoni in turn sues Deloitte, Deloitte in4

turn sues the former officers and directors, and then the5

officers and directors have to turn to the insurance company6

again for coverage. So we’re right back in the soup in a7

situation we were trying to provide against by entering into8

the global settlement. And as Mr. Wissner-Gross pointed out,9

Actrade also is going to be back in the soup. Because without10

a global settlement the plaintiffs are going to be duty bound11

to pursue their proof of claim in this court, so there’s going12

to be a full-fledged massive securities fraud that has to be13

litigated and tried in this court.14

For a number of years now every party to the global15

settlement, including Judge Berman who’s been waiting to16

approve the global settlement, has been assured by the trustee17

that the only thing left before approval by the Court is the18

resolution of the Allou claim. So we have all been waiting,19

doing nothing, obviously, in connection with the litigation,20

with the probability that, with the trustee’s support, the21

Court would review the settlement agreement and approve it. 22

Now we’re stuck with the spectra that the litigation could come23

roaring back to life some ten years after some of the24

underlying events of these highly complicated financial frauds. 25

37

Memories have faded, witnesses have dispersed, documents of1

third parties have gone away. It’s going to visit real2

prejudice against the parties that were a party to the3

settlement agreement if the settlement falls apart and we’re4

forced to litigate this case again due to the dilatoriness of5

the trustee. 6

It seems to me that if the trustee felt at any point7

that Mr. Aharoni was not fulfilling his obligations under the8

cooperation agreement, it should have acted upon that promptly9

instead of just maybe three, four months ago starting to alert10

the other parties to the settlement agreement that they11

intended to try to pull Mr. Aharoni out of the settlement12

agreement’s terms. In fact, the cooperation that Mr. Aharoni13

was supposed to offer under that agreement was so special and14

unique I suppose that they could even have tried to seek15

specific performance of that cooperation. They didn’t do that. 16

They didn’t bring the lack of Mr. Aharoni’s cooperation to this17

Court’s attention or Judge Berman’s attention or the Chancery18

Court’s attention, and I think the trustee should have to live19

with the consequences of that. There would be massive20

prejudice to the parties here if the litigation comes back to21

life. There will be massive prejudice to the judicial system22

if this settlement falls apart and the litigation has to come23

back to life. Because courts, obviously, traditionally favor24

resolution and settlements of matters, we respectfully submit25

38

that the Court should approve the global settlement as1

originally motioned by the original trustee in this matter. 2

Thank you.3

THE COURT: All right. Anything further?4

MR. RUBIN: Good morning, Your Honor. Paul Rubin5

from Herrick, Feinstein for Kellogg Capital. Your Honor was6

presented yesterday with a declaration from one Samir Salin7

[Ph.] which surprised us. I represent that he is someone whose8

firm represents the Committee. My client, we are the largest9

shareholder, and we’ve been trying for several months to find10

out information with regard to the status of the trust and11

what’s been going on. Because if you look at the docket, for12

example, Your Honor, in all of ‘07 there was hardly a filing in13

the case, and from March until November again there was hardly14

a filing in the case. And my client actually negotiated a15

confidentiality agreement so that he could be in contact with16

different parties to get information with regard to the trust. 17

There were two letters, Your Honor, that were sent18

out by the liquidating, the new liquidating trustee to19

shareholders, one in ‘06 and on in ‘07, that talked about the20

status of where things stood, saying there are two major issues21

that need to be resolved, the Allou litigation and the22

potential SEC claim, and in addition it was mentioned that the23

trust is interested in pursuing litigation in a foreign24

jurisdiction against a foreign party. So this motion really25

39

took us by surprise. We did not realize that there was a1

motion pending since 2005 with regard to approval of a proposed2

settlement and that the letters that were sent out to3

shareholders in ‘06 and ‘07 did not disclose, oh, by the way,4

we may need to blow up an existing settlement and get court5

approval in order to proceed with those claims. And without6

getting into confidential information, we understand a lot of7

money has been spent in pursuing these claims in foreign8

jurisdictions. We don’t even know who serves on this trust9

committee. We are very, very troubled --10

THE COURT: I think you’re raising a different issue11

but a timely one. 12

MR. RUBIN: If I may --13

THE COURT: And -- but it’s not for today. 14

MR. RUBIN: Well --15

THE COURT: However, I’m going to direct the trustee,16

in any event, by within 30 days to file a report as to who the17

committee is, who’s on the committee, when and under what18

circumstances the committee meets, what the committee has done19

over the last many years, and what it believes still needs to20

be done in these cases. Obviously I’m not asking them to21

breach any confidences or provide any confidential information,22

but I think you’re right, we should have a report on where23

things stand. But that’s not an issue for today.24

MR. RUBIN: Understood. If I may speak to that point25

40

you just addressed?1

THE COURT: No. I think if you don’t like the2

report, then you certainly may speak to it but I’m not sure3

that this is an issue for today.4

MR. RUBIN: Okay. With regard to today, we would5

like to know -- and we do want to see the trust recover as much6

as possible. And if pursuing Mr. Aharoni is beneficial -- I’m7

torn, quite honestly, Your Honor, as to what’s in the best8

interest of the estate here. But we would like to know, since9

the motion says that there’s new evidence and Mr. Bronstein10

points out in his affirmation of yesterday it was discovered11

this year, we’d like to understand why this evidence was not12

pursued previously in ‘06 and ‘07 while apparently millions of13

dollars of this estate have been spent. We were told there’s14

$21 million that [indiscernible] claims in a letter in ‘06. 15

And, again, we signed the confidentiality agreement so I can’t16

go into numbers, but we understand an awful lot has been spent17

and we --18

THE COURT: Well, I think that the report should19

disclose what’s been spent and on whom and who’s received any20

funds, and where the funds are today and the protection of21

those funds. Those who may have come to this hearing a few22

minutes early may have listened to a tragic motion in another23

case where the escrow funds in excess of I believe $30 million24

were put in an escrow at the account of Dreier LLP. Some of25

41

you may have read in the newspaper of some issues relating to1

funds on deposit with Dreier LLP. We don’t know what the2

situation is. But, yes, I think that’s a very timely issue,3

and we’ll need a full accounting of where the money is, how4

much it is, and where it is and what protection it has.5

MR. RUBIN: Thank you, Your Honor. With regard to6

this motion that’s on before Your Honor today, we think it’s7

important for the trustee to disclose why this motion wasn’t8

brought sooner only because, as I said, it did take us by9

surprise. We didn’t realize that there was a need to get court10

approval in order to pursue these claims that they are. We11

think it goes to the motion. I don’t want to say anything at12

all that would hurt the interest of the estate, as I said13

before. But because there is this lack of accountability, and14

I won’t go into it further, but because there is this lack of15

accountability we think it’s important to know what new16

evidence -- Mr. Bronstein referenced bank records that he did17

not have. But the question I think is when did the new trustee18

obtain this information and what efforts were made to obtain it19

before 2008. I think that goes to this motion that’s before20

Your Honor.21

THE COURT: All right. 22

MR. RUBIN: Thank you.23

THE COURT: Thank you. Anyone else? On the --24

MR. RESENBERG: Your Honor?25

42

THE COURT: Yes? 1

MR. RESENBERG: I’m sorry.2

THE COURT: Yes, go ahead. State your name and3

affiliation again.4

MR. RESENBERG: This is Eric Resenberg. I’m a5

registered investment adviser with DMI Capital. 6

THE COURT: All right. You want to make a brief7

statement?8

MR. RESENBERG: Yes. I basically want to reiterate9

what Mr. Rubin had said regarding the desire to maximize and10

recover for the estate. We have obviously concerns about the11

make-up of the committee and how the decision was reached to12

attempt to reopen the claim after such a period of time, and13

that was my, that’s my concern. I’d also like to address there14

was an inference about the number of shares that I may or may15

not control. I submitted, like every other shareholder, back16

in ‘05 proof of ownership. In my case I have multiple17

accounts. I think we submitted over a hundred pages of proof18

of purchase and ownership of shares. And it is -- and as an19

adviser I own or control in excess of 500,000 shares. I’ve had20

no relationship with Mr. Aharoni, never met the person, never21

spoke with him, no financial or contractual interaction between22

us at all. I just want to make that clear.23

THE COURT: All right. Thank you.24

All right, a brief response, Mr. Anker.25

43

MR. ANKER: Yes, Your Honor. Philip Anker. Your1

Honor, let me just say on the last point Your Honor raised we2

will of course provide a full report, an accounting to the3

Court on the issues you raised. I fully appreciate from the4

last hearing the issues that are so much in today’s papers5

about that matter and others, and we take those6

responsibilities seriously. I also appreciate Mr. Resenberg’s7

representation, and we take that seriously and, you know, at8

face value. We will be happy to cooperate with the creditors9

and interest holders of this estate.10

Your Honor, contrary to Mister -- let me get back to11

the motion at hand. Contrary to Mr. Wissner-Gross’s12

assertions, there absolutely have been new developments here. 13

I won’t repeat all of them but let me start with the most14

fundamental. We have bank records that show where the money15

went, and it went to Mr. Aharoni. In answer to Mr. Rubin, they16

were obtained earlier this year in early ‘08. We promptly17

informed both this Court and we informed Judge Berman. We have18

written to Judge Berman and provided him with a copy of the19

memorandum that we filed a few months ago on this matter. He20

is well-aware of what is going on. Your Honor, new facts21

matter. If Your Honor has doubt about it, take a look at what22

happened in Martin. In Martin the trustee entered into a23

settlement on the understanding that the underlying litigation24

would take a long time. It wasn’t trial ready. In fact, he25

44

was mistaken. I think it’s a she actually. There was a1

pending trial --2

THE COURT: I read the Martin case.3

MR. ANKER: But here’s the most important part of4

Martin, Your Honor. The Bankruptcy Court didn’t get around to5

deciding the settlement motion until the trial had occurred,6

had occurred, and the debtor had won. And in denying approval7

of the settlement the Bankruptcy Court took account of that8

fact, a fact that plainly was unknown to the trustee when the9

trustee had originally entered in this settlement. What’s10

different here is we have proof, proof positive of where the11

money went.12

THE COURT: Yes, but the answer of your opponents13

would be you may or may not have proof but your ability to14

recover on that proof under the circumstances of these15

litigations is highly uncertain. There’s no judgment in favor16

of your client. Aharoni’s lawyer says that they’ll raise17

statute of limitations and other defenses. And I’m sure that18

if you get a judgment in Delaware, you’ll have a question as to19

whether or not you can collect it. Now, I’m not asking you to20

try that case today, and I gather that the trustee has made21

some very careful business judgments as to his course of action22

and his ability to benefit the interested stakeholders in this23

estate. However, the differences with the Martin case are not24

all in your client’s favor.25

45

MR. ANKER: I grant you, Your Honor, that in Martin1

that was a fait accompli, and I agree with that, and I was not2

arguing to the contrary. I was arguing simply that Martin3

establishes that you ask the question, Your Honor needs to ask4

the question does the settlement make sense today in light of5

today’s facts, not did it make sense when Mr. Bronstein6

answered it. But Your Honor just, I think, put your thumb on7

exactly the right issue, and that is how do you decide today8

when you’re in Your Honor’s shoes whether to approve this9

settlement or not. And I submit the right question to ask is10

is the trustee’s, that is Mr. Meer’s judgment not to support11

this settlement reasonable. Because what case after case after12

case says is Your Honor can’t hold a trial today, you can’t13

resolve the statute of limitations question. I think I’ve got14

a slam dunk winner, but I appreciate that Mr. Wissner-Gross is15

going to take a different view. I think I’ve got a clear16

answer given the prior Delaware decisions on jurisdiction. But17

the answer is at the end of the day my firm, Mr. Salisbury, Mr.18

Meer and counsel in Israel have spent enormous time on this,19

and what case after case says is you defer in the absence of20

showings of extraordinary unreasonableness to the trustee’s21

judgment. 22

One last point there, and this will be my last point. 23

It is also appropriate, Your Honor, to accept the trustee’s24

judgment, and we’ve been very careful in how we’ve worded this,25

46

that we are confident that we will be able to do a modified1

settlement. And the modified settlement will not leave the2

securities litigation alive. Mr. Boyar pointed out how he3

would be prejudiced because he would have denied coverage for4

the securities claimants’ claims against Mr. Aharoni. The5

modified settlement agreement we contemplate will provide for a6

dismissal with prejudice of those claims. The claims that will7

be left will be the estate’s, not the securities clients’8

claims. And we can deal with issues like the ones that have9

been raised through judgment reduction or other provisions, but10

we would not have taken the action we did if we didn’t have11

discussions, and no one has denied those discussions have12

occurred. I said one last point but now I’m going to -- I told13

a falsehood. Not because --14

THE COURT: Well, I don’t think you have to elevate15

it to that level.16

MR. ANKER: I didn’t have mens rea because I didn’t17

think of it before.18

THE COURT: If everyone has told me this is the last19

point and has gone on to two or three more has been telling me20

a falsehood, then we have a real issue in court.21

MR. ANKER: Your Honor, this will, unless something22

else occurs to me, I’ll give myself an out, this will be my23

last point. You asked, and I thought it was perhaps the most24

telling part of this hearing, Mr. Wissner-Gross do you want an25

47

evidentiary hearing. It’s something I thought about going in,1

would he answer that. And his answer was no, and you were left2

--3

THE COURT: Do you want an -- does your client want4

an evidentiary hearing?5

MR. ANKER: I’ve put in an affidavit. I don’t6

believe we need one. We have put --7

THE COURT: Right.8

MR. ANKER: -- in an affidavit from Mr. Meer that9

attests to the fact that there has been no cooperation. 10

Cooperation doesn’t mean, Your Honor, showing up at a meeting. 11

It means telling the truth. And when you’re asked the question12

do you control ICC, did the money go into your pocket, and the13

answer is no and that is -- and I’m going to use a direct word14

-- a lie, that is not cooperation, and that’s what happened15

here. And the answer to why this wasn’t pursued earlier is we16

were misled. It’s not that it wasn’t pursued, it was pursued,17

and people lied to us. That’s what happened here. And you18

have unequivocal testimony on that and no contradictory19

testimony. And that informs this trustee’s judgment that as a20

fiduciary the proposed settlement is not in the best interest21

of the estate. A modified settlement that preserves the22

estate’s claims for more than $30 million will be in the best23

interest of the estate, and we believe we can get there24

rapidly. 25

48

THE COURT: All right. Thank you.1

MR. ANKER: Unless Your Honor has questions, thank2

you.3

THE COURT: No, I’m going to take a brief recess and4

then I’ll give you a decision. But I do think in the meantime5

in fairness to my last case of the day, is Steve & Barry’s6

going to be very brief, do you believe?7

MS. VRON: Yes, Your Honor.8

THE COURT: I think you’re just adjourning things and9

--10

MS. VRON: Yes, we have a lot of stipulations.11

THE COURT: And have some stipulations. 12

Why don’t I take a break in this case of five or ten13

minutes, and then I’ll give you a decision. But in the14

meantime let’s go on to Steve & Barry’s.15

[Pause in proceedings.]16

THE COURT: Is DMI -- are you still on the phone? 17

Hello? No. All right. 18

[Recess from 11:51 a.m. to 12:34 p.m.]19

THE COURT: I’m going to give you a decision. This20

case has languished too long. It’s time that it proceeded to21

completion. I gather we have a trial date in the Allou case,22

and these matters before me today should not be delayed any23

longer. So here is my decision.24

The post-confirmation trustee responsible for the25

49

debtors has moved for approval of a securities class action1

settlement. The trustee has also informed the Court that the2

settlement has as an integral part a release of Amos Aharoni, a3

former principal of the debtor. Prior to and as a closely4

related matter, the estates entered into a settlement of5

litigation brought against Aharoni in Delaware, which6

litigation was suspended or dismissed on condition that Aharoni7

cooperate with the estates in providing information in8

connection with efforts to collect certain funds. The Delaware9

stipulation was amended to take into account the class action10

settlement and to continue and reiterate Aharoni’s obligations. 11

The trustee has informed the Court that Aharoni has not12

cooperated with the estates as required but that evidence has13

been uncovered in recent months that Aharoni lied to the14

trustee or his predecessor, and that Aharoni misappropriated up15

to $31 million of funds belonging to these estates.16

Under these circumstances, the trustee has put before17

the Court the question whether the settlement, including a18

release of Aharoni, should be approved. Aharoni has asked the19

Court to approve the settlement but has not submitted any20

declaration or affidavit denying the allegations and has not21

asked for an evidentiary hearing. No party has asked for an22

opportunity to put further evidence before the Court. Under23

these circumstances the record establishes, although for24

purposes of this hearing only, that Aharoni breached the25

50

Delaware stipulations of settlement with the trustee that the1

Court can find were directly related to the settlement before2

the Court for approval. Aharoni’s counsel states that all the3

facts as to Aharoni were known to the prior trustee, were on4

the table, and were taken into account when the trustee made a5

business judgment to go forward with the class action6

settlement and give Aharoni his release. That is not the7

record I have before me today. The trustee now says it is now8

known that Aharoni lied, that the so-called recipients of the9

various loan agreements that are referred to in the Delaware10

settlements are either nonexistent or did not receive the11

funds, and that the trustee did not receive cooperation but12

indeed received a pack of lies. 13

We thus have a situation much like that in In Re14

Martin, 91 F.3d 389 (3d Cir. 1996) in which there were15

significant developments between a trustee’s entering into a16

stipulation of settlement and the court’s hearing on approval17

of the stipulation. After careful consideration, the court in18

Martin stated as follows: “We object to the proposition that a19

trustee is required to champion a motion to approve a20

stipulation that is no longer in the best interests of the21

estate. The trustee did not flout or breach any term of the22

stipulation nor did she withdraw the motion to approve the23

stipulation, rather at the hearing the trustee simply elected24

not to argue in favor of her motion. Thus the very nice25

51

question before us is the proper conduct of the trustee in her1

responsibility to all creditors, the debtor, and the court. 2

This appeal raises a very narrow issue, and we will not expand3

the matter beyond its perimeters. Accordingly, we will not4

constrain a bankruptcy trustee from fulfilling her statutory5

duty to the estate and the creditor body as a whole by6

preventing her from informing the court and the parties of7

changed circumstances.” 8

The Court in the Martin case avoided the question9

whether a trustee was bound by a signed stipulation pending10

approval by the Bankruptcy Court, an issue that I also do not11

have to decide today. As the Martin case also indicates, the12

bankruptcy judge must assess and balance the value of the claim13

that would be compromised in the settlement as against the14

value of the compromise itself. As in the Martin case there15

are four criteria that courts consider in a Rule 9019 motion,16

striking a balance among them. Probability of success in the17

litigation, likely difficulty in collection and complexity of18

the litigation, and the paramount interests of the creditors.19

Looking at these issues and particularly issue one,20

it appears that the estate receives nothing from the class21

action settlement except a form of peace from the class22

plaintiffs. The trustee has concluded that peace was23

worthwhile in terms of giving up his claims against Aharoni on24

the assumption that Aharoni was telling the truth and would25

52

cooperate but not under present circumstances. This Court has1

been given no cogent reason why that issue must be decided2

differently by this Court. Similarly, there may be3

complexities and uncertainties relating to the ongoing4

litigation, but the Court cannot find that these are so clearly5

adverse to the Actrade estates that the settlement must be6

approved. As to the paramount interests of the creditors of7

this estate or, more correctly, the stakeholders, that is the8

principal issue. The trustee represents these stakeholders. 9

They are certainly not represented by Aharoni or the insurance10

company or any of the co-defendants in the litigation. 11

This Court cannot find that the settlement reaches12

the level of reasonableness required under Rule 9019,13

considering the paramount interests of the stakeholders of this14

estate and the reasons given by the trustee. The settlement,15

accordingly, will not be approved today. The trustee should16

settle an order on ten days notice, and the trustee should17

also, I think, within 30 days make the further filing that was18

discussed earlier on the record. And the Court can hold a19

status conference thereafter at which all interested parties20

can appear.21

Do we have a further date in the Actrade litigation22

for a pretrial? Because that’s the issue, that’s the matter23

that’s been coming before the Court.24

MR. FLINT: Your Honor, may I have just one moment,25

53

please?1

THE COURT: Yes.2

[Pause in proceedings.]3

MR. FLINT: Your Honor, to make a long story short,4

no, we --5

THE COURT: You should state your name for the6

record.7

MR. FLINT: I’m sorry. Edward Flint of Silverman8

Acampora, counsel for Kenneth Silverman, the Allou trustee. We9

don’t have a date, Your Honor. We had been in discussions10

pretty constantly for the last couple of weeks to try and reach11

settlement of this, and we are very, very close. I’m happy to12

report that before the Court goes away for the holidays. I13

think there’s some confidence on both sides that we’ll reach14

that settlement. Perhaps a date, a holding date sometime in15

the second week or third week of January where we can report to16

the Court one way or another.17

THE COURT: All right. Well, you --18

MR. FLINT: But we’re getting there, Judge.19

THE COURT: You obviously don’t have to use that20

date, but let’s pick a date so we don’t lose control of the21

case and we can pick any date in that week.22

MR. FLINT: If I --23

THE COURT: If you want to move it on, you can. If24

you want to use it as a status conference with regard to the25

54

other matters that I have alluded to today, that’s fine.1

MR. FLINT: With Mr. Salisbury’s permission, I think2

we’re back here on the 6th for the Wachovia motion?3

MR. SALISBURY: That’s correct.4

MR. FLINT: How about January 6th since we’re going5

to be before the Court that day anyway.6

THE COURT: That’s on the discovery issue?7

MR. FLINT: Yes.8

MR. SALISBURY: That’s correct.9

THE COURT: Assuming that we need to hear it. Okay,10

let’s leave it at January 6th. At what time?11

MR. FLINT: Say 10 o’clock?12

THE COURT: 10:00.13

MR. FLINT: 10 o’clock.14

THE COURT: All right. We’ll leave it at January 6th15

at 10:00 for the time being, but obviously it can be put over16

for a week or two if that makes sense. There’s certainly no17

reason to go forward with discovery disputes if you really are18

close. I think -- that’s one thing I think the parties will19

agree on. All right. Very good. Thank you very much.20

MR. FLINT: Thank you, Your Honor. 21

* * * * *22

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I certify that the foregoing is a court transcript from an1

electronic sound recording of the proceedings in the above-2

entitled matter.3

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Sally Reidy6

Dated: December 18, 20087

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