actrade doc 481 (transcript of 121608 hearing)
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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
18
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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