SUPREME COURT OF THE STATE OF NEW YORKCOUNTY OF NASSAU-----------------------------------xPALMETTO PARTNERS, L.P. and :STEVEN MIZEL ROTH IRA, :

: Index No. 600394/2009Plaintiffs, :

:-against- :

:AJW QUALIFIED PARTNERS, LLC, :AJW MANAGER, LLC, and COREY S. :RIBOTSKY, :

:Defendants. :

-----------------------------------x

MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFFS’ MOTIONFOR A PRELIMINARY INJUNCTION

Harwood Feffer LLPJoel C. Feffer488 Madison AvenueNew York, New York 10022212) 935-7400

Attorneys for Plaintiffs

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Table of Contents

Page

Table of Authorities . . . . . . . . . . . . . . . . . . . . ii

Factual Background . . . . . . . . . . . . . . . . . . . . . . 2

A. The Pleadings . . . . . . . . . . . . . . . . . . . . 2

B. Subsequent Events . . . . . . . . . . . . . . . . . . 6

Argument . . . . . . . . . . . . . . . . . . . . . . . . . . 13

1. Plaintiffs Have Demonstrated A SubstantialLikelihood Of Success On The Merits. . . . . . . . 14

2. Plaintiffs Will Suffer Irreparable HarmAbsent A Preliminary Injunction. . . . . . . . . . 16

3. A Balance Of Equities FavorsA Preliminary Injunction. . . . . . . . . . . . . 20

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . 21

ii

Table of Authorities

Cases Page

AOM 1703 Lexington Ave. LLC v. Malik,Index No. 115718/2005, 13 Misc. 3d 1212A, 2006 NY Slip Op 51788U (Sup. Ct. N.Y. County Aug. 16, 2006) . . . . . . . 17, 18

Aetna Ins. Co. v. Capasso,75 N.Y.2d. 860 (1990) . . . . . . . . . . . . . . . . . 13

Amity Loans, Inc. v. Sterling Nat'l Bank & Trust Co.,177 A.D.2d 277, 575 N.Y.S.2d 854 (App. Div. 1st Dep't 1991) . . . . . . . . . . . . 17, 18-19

Barouh v. Barouh,Index No. 02154/2009, 2009 N.Y. Misc. LEXIS 4707, 2009 NY Slip Op 30952U (Sup. Ct. Nassau County Apr. 23, 2009) . . . . . . . . . 14

Dixon v. Malouf,61 A.D.3d 630, 875 N.Y.S.2d 918 (App. Div. 2d Dep't 2009) . . . . . . . . . . . . . . . 14

Marcus v. Jewish Nat'l Fund,158 A.D.2d 101, 557 N.Y.S.2d 886 (App. Div. 1st Dep't 1990) . . . . . . . . . . . . . . . 19

Martin Serota, D.D.S., P.C. v. Middle Village Dental Assoc. LLP,Index No. 009357/2009, 2010 N.Y. Misc. LEXIS 2187,2010 NY Slip Op 31389U (Sup. Ct. Nassau County May 25, 2010) . . . . . . . . . 14

Merscorp, Inc. v. Romaine,295 A.D.2d 431, 743 N.Y.S.2d 562 (App. Div. 2d Dep't 2002) . . . . . . . . . . . . . . 13-14

Pando v. Fernandez,124 A.D.2d 495, 508 N.Y.S.2d 8 (App. Div. 1st Dep't Nov. 13, 1986) . . . . . . . . . . 20

Parker v. Parker,196 Misc. 2d 672, 766 N.Y.S.2d 315(Sup. Ct. Nassau County Sept. 3, 2003) . . . . . . . . 17-18

iii

Ruiz v. Meloney,26 A.D.3d 485, 810 N.Y.S.2d 216 (N.Y. App. Div. 2d Dep't Feb. 28, 2006) . . . . . . 13, 15

Thompson v. 76 Corp.,Index No. 50106/1999, 2005 N.Y. Misc. LEXIS 3299 (Sup. Ct. Kings County Apr. 8, 2005) . . . . . . . . . . 19

Zhiye Int'l, Inc. v. Park,Index No. 116877/2009, 2010 N.Y. Misc. LEXIS 2657 (Sup. Ct. N.Y. County Mar. 22, 2010) . . . . . . . . . . 18

Statutes & Regulations

Civil Practice Law & Rules

CPLR 6301 . . . . . . . . . . . . . . . . . . . . . . 1, 13

Plaintiffs Palmetto Partners, L.P. and Steven Mizel Roth IRA

respectfully submit this brief in support of their motion,

pursuant to CPLR 6301, seeking a preliminary injunction

restraining defendants AJW Qualified Partners, LLC (the “Fund”),

AJW Manager, LLC (the “Manager”), and Corey S. Ribotsky

(“Ribotsky”), or any of their affiliates, from withdrawing or

otherwise using for any of their benefit, directly or indirectly,

any of the assets belonging to the Fund, and that any funds to

which any of the defendants claim to be entitled be maintained by

the Fund in a separate account at a banking institution located

in Nassau County.

Injunctive relief is necessary as, contrary to the operative

agreement, defendants have suspended, indefinitely, withdrawals

from the Fund. At the same time, the Manager is receiving

enormous fees from the Fund which is also covering defendants’

litigation expenses and the expenses of a looming criminal

indictment. The inequities of the present situation are

compounded by defendants’ continuing failure to provide

plaintiffs and other investors with financial information for the

Fund covering any period subsequent to December 31, 2007. If

defendants are not restrained from using the Fund’s assets

exclusively for their own benefit, it is likely that plaintiffs

and the other Fund investors will never be able to recoup their

investments.

2

Factual Background

A. The Pleadings

The complaint was filed in March 2009. The following is a

summary of its allegations, as well as defendants’ responses

thereto.

Plaintiffs are investors in defendant Fund. Complaint, ¶ 1;

Answer, ¶ 1. The Fund is a New York limited liability company

headquartered in Nassau County. Complaint, ¶ 4; Answer, ¶ 4.

Defendants, in addition to the Fund, are the Manager, the Fund’s

investment manager, which is also a New York limited liability

company headquartered at the same Nassau County location as the

Fund, and Ribotsky, who controls both the Fund and the Manager.

Complaint, ¶¶ 5 and 6; Answer, ¶¶ 5 and 6 (defendants deny,

however, that defendant Ribotsky controls defendants Manager and

Fund, a position that can most charitably be described as

manifestly incorrect).

The Fund, a “hedge fund,” was formed to pool assets for the

purpose of investing, trading, and dealing in public and private

securities. Complaint, ¶ 7; Answer, ¶ 7 (the answer refers “to

the Offering Documents for the Fund for a full and complete

statement of their terms,” notwithstanding that paragraph 7 of

the complaint quotes verbatim from the Offering Documents). The

contractual relationship between investors (called “members”) and

the Fund is governed by the Operating Agreement. Complaint,

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¶ 8; Answer, ¶ 8 (the answer contains the same quibble as the

prior sentence).

On September 22, 2008, and in accordance with Section 5.1 of

the Operating Agreement, plaintiffs requested that the Fund

redeem all of their interests. Complaint, Exhibit A at

Section 5.1 and ¶¶ 9 and 10; Answer, ¶¶ 9 and 10 (the answer sets

forth the usual obfuscation). Section 5.2 of the Operating

Agreement’s timing provisions requires, in effect, that the

redemption monies had to have been paid to plaintiffs on or

before April 30, 2009, or more than seven months after

plaintiffs’ requests for redemption. Complaint, Exhibit A at

Section 5.2 and ¶ 9; Answer, ¶ 9. Rather than redeem plaintiffs’

interests in the Fund, however, by letter dated October 16, 2008,

defendant Ribotsky notified plaintiffs that the Fund would be

“restructured” and was suspending redemptions. Complaint,

Exhibit B and ¶ 11; Answer, ¶ 11 (the answer admits that Fund

sent a letter and nothing else – evidently each of Ribotsky’s

words is sacrosanct and, thus, incapable of being summarized).

The gist of this action concerns the propriety of

defendants’ refusal to redeem plaintiffs’ interests in the Fund.

Defendants now allege that they suspended redemptions pursuant to

their contractual right to do so. Yet nowhere is there any

evidence they relied on any specific provision of the Operating

Agreement contemporaneous with their announcement of the

As far as plaintiffs are aware, the Manager never made1

reference to Section 5.3 or any other provision of the OperatingAgreement, contemporaneously with its suspension of redemptions. Rather, it referred to “obsolete liquidity structure,” and othergibberish.

4

suspension of redemptions. The likely reason for this is that1

any reference to a liquidity crises or valuation difficulties

would raise questions about the propriety of the Manager’s

compensation. See, e.g., Complaint, ¶¶ 11-13; Answer, ¶¶ 11-13

(all allegations denied except defendants admit that the Fund

sent a letter to plaintiffs).

Plaintiffs allege that not only is defendants’ reliance on

Section 5.3 of the Operating Agreement a litigation-driven after-

thought, but even if defendants had claimed to have relied on the

terms of Section 5.3 of the Operating Agreement in October 2008,

when they first announced the suspension of redemptions, there

was no good faith reason for the suspension of redemptions. For

example, there was no “run on the bank” “as at least 169 members

[of the Fund] out of 183 members (or more than 92%) have ‘agreed’

to defendants’ scheme and are no longer members of the Fund.”

Complaint, ¶ 14 (the answer characterizes this allegation as

“vague”). Moreover, during the nine months preceding the

announcement of the suspension of redemptions, defendants

announced that the Fund, which is not leveraged and which “has

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never encountered forced liquidations,” had a positive return of

8.27%. Complaint, ¶ 15; Answer, ¶ 15 (the answer contends that

these allegations are also “vague”).

Rather, plaintiffs allege that the suspension of redemptions

was a result of:

(a) defendants’ desire to maintain the Manager’s

income which is based, in part, on the size of the Fund’s assets

(Complaint, ¶ 16(a));

(b) defendants’ fear that redemptions would anger the

managements of the Fund’s portfolio companies, which, in turn,

would jeopardize the separate consulting fees earned by

defendants, i.e., the suspension of redemptions was triggered, at

least in part, by a conflict of interest between defendants and

the Fund’s members (Complaint, ¶ 16(b)); and

(c) defendants’ fear that redemptions would expose the

inflated valuations of the Fund’s assets.

In support of (c), supra, the complaint alleges that

defendant Ribotsky offered plaintiffs either a “redemption in

kind” or a third-party purchase (at a substantial discount) of

plaintiffs’ interests in the Fund, neither of which, of course,

necessarily would have triggered a revaluation of Fund assets.

Complaint, ¶ 17. Defendants denied all of the allegations of

paragraphs 16 and 17 of the complaint, except they admitted “that

the parties discussed ways to provide Plaintiffs with liquidity

To date, plaintiffs have only received a one-time de2

minimus payment: Palmetto Partners, L.P. received $3,723.28 andSteven Mizel Roth IRA received $5,849.55. Affidavit of StevenMizel In Support of Plaintiffs’ Motion For Injunctive Relief,sworn to July 30, 2010 (the “Moving Aff’t”), ¶ 2.

6

by means permissible under the Operating Agreement.” Answer,

¶¶ 16 and 17. In addition, and among other things, defendants

refused to permit plaintiffs access to documents which would

enable plaintiffs to value, independently, the assets of the

Fund. Complaint, ¶¶ 18-21 and Exhibits C, D, E, and G; Answer,

¶¶ 18-21 (the answer denies everything except for the existence

of the correspondence which would have been difficult even for

defendants to deny as copies of the correspondence were annexed

to the complaint). Finally, defendants hastily settled an action

brought by other members of the Fund (the “Tucci Action”). Among

the allegations of fraud in the Tucci Action is that defendants

attempted to redeem the Tucci Action plaintiffs’ interests in the

Fund by delivering a note which defendants valued at $1,538,160,

but which turned out to be worthless. Complaint, ¶¶ 21-23 and

Exhibit F at ¶¶ 24-34; Answer, ¶¶ 21-23 (the usual

pettifoggery).

B. Subsequent Events

Sixteen months have elapsed since the complaint was filed.

Defendants are still refusing to return plaintiffs’ investments. 2

Nor have plaintiffs received audited financial statements

covering any period subsequent to December 31, 2007, which is

The President’s Working Group on Financial Markets was3

formed by Executive Order 12631 on March 18, 1988.

7

more than two and one-half years ago. The lack of financial

statements is a matter of grave concern to any investor,

especially an investor in a hedge fund which is obstinately

refusing to return the investor’s funds. According to the

April 15, 2008 Report of the Investors’ Committee of the

President’s Working Group on Financial Markets entitled3

“Principles and Best Practices For Hedge Fund Investors” (at page

38 thereof):

Investors should consider the lack of auditedfinancial statements to present an extremedegree of risk and uncertainty with respectto a hedge fund investment.

There appears no end in sight either to defendants’ refusal to

return plaintiffs’ investments or the completion and distribution

of the Fund’s financial statements.

From the inception of this action, defendants have resorted

to an “economic tsunami” mantra in an attempt to explain

defendants’ recalcitrance. However, that rationalization is

belied by defendants’ reports to plaintiffs. According to

defendants, at June 30, 2008, presumably before the “economic

tsunami” struck, defendants reported that Palmetto Partners,

L.P.’s capital in the Fund was $653,513 and Steven Mizel Roth

IRA’s capital was $1,026,719. Complaint, ¶¶ 2 and 3; Answer,

¶¶ 2 and 3.

The numbers defendants reported for Steven Mizel Roth4

IRA are larger but merely repeat the same proportional increasesand decreases as those of Palmetto Partners, L.P.

8

Using only the figures reported by defendants to Palmetto

Partners, L.P. for the sake of simplicity, defendants reported4

that during the second half of 2008, Palmetto Partners, L.P.’s

capital – after deduction of all the Fund’s expenses, including

the Manager’s compensation – increased to $675,577, or by 3.38%.

Moving Aff’t, Exhibit A, Part II, item L. According to

defendants, the capital of Palmetto Partners, L.P. in the Fund at

the end of each succeeding calendar quarter through March 31,

2010, as well as the investment income for each such quarter

(plaintiffs have not yet received a Schedule K-1 for calendar

year 2009 or the report for the quarter ended June 30, 2010), is

as follows:

Calendar Quarter Ended Investment Income (Loss) Capital Account

March 31, 2009 $10,136 $683,866

June 30, 2009 $ 8,653 $684,309

September 30, 2009 ($11,356) $672,522

December 31, 2009 $ 4,447 $673,380

March 31, 2010 $ 7,951 $677,029

Id., Exhibits B, C, D, E, and F.

As is evident from the foregoing, the “economic tsunami”

repeatedly referred to by defendants seems to have bypassed the

Fund, as the Fund’s reported value, net of expenses, increased by

9

3.6% between July 1, 2008 and March 31, 2010. Extrapolating from

Palmetto Partners, L.P.’s .250434% interest in the Fund’s profits

and losses at December 31, 2008 (id., Exhibit A, Part II, item

J), and the aggregate compensation received by the Manager for

2009 (both fees and carried interest) in respect of Palmetto

Partners, L.P.’s share ($13,266 for the privilege of having its

money held hostage by defendants – Moving Aff’t, Exhibits B, C,

D, and E) leads to the conclusion that the Manager’s (and, hence,

Ribotsky’s) annual take from the Fund is approximately

$5,300,000. This provides more than ample incentive for

defendants to cling to investors’ funds for as long as possible.

During only part of this period, i.e., “between mid-2008 and

mid-2009,” “[t]he roughly $1.5 trillion hedge fund industry” saw

investor withdrawals of “well over $200 billion.” Hugo Dixon and

Richard Beales, Hedge Funds Shunned, N.Y. Times, July 21, 2010,

at B2. Thus, during 57% of the period under consideration

(July 1, 2008 through March 31, 2010), the hedge fund industry at

large redeemed approximately 13.3% of assets while defendants,

during 100% of the period, managed to redeem only a little over

one-half percent of the Fund’s assets. Moving Aff’t, Exhibit C.

The defendants want to eat their cake and have it too.

While bemoaning the “economic tsunami,” on the one hand, they are

reporting to the investors that the Fund was profitable, on the

other hand. Yet they refused, and continue to refuse, to redeem

plaintiffs’ interests in the Fund notwithstanding that the rest

At this Court’s compliance conference held on July 14,5

2010, defendants’ counsel advised this Court that Mr. Dworkinpleaded guilty to only one count and that count did not involveRibotsky. However, as both the minutes of the plea hearing(Moving Aff’t, Exhibit H) and the transcript of the plea hearing(id., Exhibit I), conclusively demonstrate, Mr. Dworkin pleadedguilty to all three counts.

10

of the hedge fund industry, which largely admits horrendous

investment losses, is willing to redeem investor interests.

Adding insult to injury, defendants continue to extract fees and

other forms of compensation based on the valuations they report

to investors.

Defendants’ chicanery has not gone unnoticed by the criminal

justice and regulatory authorities. The financial media has been

reporting for some time that Ribotsky is under investigation by

the United States Attorney for the Eastern District of New York,

the Federal Bureau of Investigation, and the Securities and

Exchange Commission.

Very recently, Daryl Dworkin, a former employee of Ribotsky,

waived indictment and pleaded guilty to a criminal information.

A copy of the criminal information is annexed to the Moving Aff’t

as Exhibit G. The criminal information has three counts:

conspiracy to commit securities fraud, securities fraud, and

conspiracy relating to taking kickbacks. Mr. Dworkin pleaded

guilty to all three counts.5

Paragraph 6 of the criminal information states as follows:

The defendant DARYL DWORKIN, acting atthe direction of NIR’s senior management,

“NIR” is the name of one of Ribotsky’s companies. A6

“PIPE fund” is an investment vehicle which makes private (i.e.,not pursuant to a public offering) investments in publicequities.

11

engaged in a scheme to defraud the Investorsby making materially false statements andmaterial omissions regarding, among otherthings, the assets held in NIR’s PIPE funds.

Id., Exhibit G at 2. That “NIR’s senior management” prominently6

includes defendant Ribotsky is evident from what transpired at

Mr. Dworkin’s plea hearing:

THE COURT: All right. Returningbriefly to the charges, and finally, CountOne alleges a conspiracy to commit securitiesfraud. You were involved in such aconspiracy between [2]007 and 2009?

THE DEFENDANT: Yes.

THE COURT: With others?

THE DEFENDANT: Yes.

THE COURT: Tell me about it.

THE DEFENDANT: Between 2007 and2008 while working as an analyst at NIR inRoslyn, New York I agreed with Corey Ribotskyand others, that I and others would makematerial false statements and omissions toNIR’s investors and their representatives. Material false statements and omissionsconcerned, among other things, theperformance of NIR’s PIPE. The PIPE Fundswere involved in the purchase and sale ofsecurities trade[d] on national exchanges.

In or about 2007 in a meeting at NIRoffices in Roslyn, New York I and other NIRemployees made materially false statementsand omissions to the representative of NIRinvestors.

12

THE COURT: All right. For thepurpose of inducing their investment?

THE DEFENDANT: Inducing?

THE COURT: Getting them to invest?

THE DEFENDANT: I believe they werealready invested and it was more of acalming, everything is okay kind of thing.

THE COURT: So they’d keep the moneyin the fund?

THE DEFENDANT: Correct.

THE COURT: So you not onlyconspired to engage in securities fraud basedupon what you’ve said, you actually engagedin securities fraud during that meeting andat other times; fair to say?

THE DEFENDANT: Yes, Your Honor.

Id., Exhibit I at 20-21. The Court should be aware that

Mr. Dworkin is cooperating with the prosecutors as is evident

from the AUSA “ask[ing] that the preparation of the presentence

investigation report be held in abeyance and the Court set a

control date six months from today.” Id., Exhibit I at 29.

It is evident that once it became impossible to induce

investors to keep their money in the Fund through, in Mr.

Dworkin’s words, “a calming, everything is okay kind of thing,”

defendants switched to their current strategy of refusing to let

investors out because of an “economic tsunami” which does not

seem to have effected the value of the Fund’s investments.

13

Ribotsky may soon face serious charges. As Judge Dearie

told Mr. Dworkin, the penalties for conspiracy to commit

securities fraud and securities fraud are severe. Imprisonment

of up to five years and twenty years, respectively, in addition

to “supervised release, fine of up to five million dollars or

twice the gross gain or loss. Restitution is mandatory. Special

assessment and criminal forfeiture.” Id., Exhibit I at 25. The

costs of defending an inevitable criminal proceeding, together

with the costs of defending civil litigation, should not be a

drain on the Fund’s assets.

Argument

It is well-settled that a preliminary injunction should be

granted when a party demonstrates: (1) a likelihood of success

on the merits; (2) irreparable injury absent granting the

preliminary injunction; and (3) a balancing of the equities in

the movant’s favor. Aetna Ins. Co. v. Capasso, 75 N.Y.2d. 860,

862 (1990); Merscorp, Inc. v. Romaine, 295 A.D.2d 431, 432, 743

N.Y.S.2d 562, 564 (App. Div. 2d Dep’t 2002) (citing CPLR § 6301).

The purpose of a preliminary injunction is “to maintain the

status quo and prevent the dissipation of property that could

render a judgment ineffectual.” Ruiz v. Meloney, 26 A.D.3d 485,

486, 810 N.Y.S.2d 216, 217-18 (N.Y. App. Div. 2d Dep’t Feb. 28,

2006); see also Merscorp, 295 A.D.2d at 434 (preliminary

injunction should be granted “to maintain the status quo while

14

the legal issues are determined in a deliberate and judicious

manner”). The decision to grant or deny a preliminary injunction

rests in the sound discretion of the Supreme Court. Barouh v.

Barouh, Index No. 02154/2009, 2009 N.Y. Misc. LEXIS 4707, at **8-

9, 2009 NY Slip Op 30952U, at *6 (Sup. Ct. Nassau County Apr. 23,

2009); Dixon v. Malouf, 61 A.D.3d 630, 630, 875 N.Y.S.2d 918, 919

(App. Div. 2d Dep’t 2009).

Here, the plaintiffs have met their burden of establishing

the need for preliminary injunctive relief.

1. Plaintiffs Have Demonstrated A Substantial LikelihoodOf Success On The Merits.

The “[l]ikelihood of ultimate success on the merits does not

import a predetermination of the issues, and does not constitute

a certainty of success.” Rather, the requirement is simply a

protection against granting preliminary injunctive relief in

cases where the moving party’s position is “without legal

foundation.” Martin Serota, D.D.S., P.C. v. Middle Village Dental

Assoc. LLP, Index No. 009357/2009, 2010 N.Y. Misc. LEXIS 2187, at

**6-7, 2010 NY Slip Op 31389U, at **5-6 (Sup. Ct. Nassau County

May 25, 2010). Thus, to satisfy this requirement, the movant

must show a “probability” of success. Id.

The passage of time since the complaint was filed eliminates

any serious dispute as to whether defendants breached the terms

of the Operating Agreement and breached their fiduciary duties

Even assuming arguendo that defendants dispute that7

they have acted in breach of the Operating Agreement and theirfiduciary duties, “when the facts are in dispute, a court mayfind a likelihood of success on the merits; conclusive proof isnot required.” Ruiz, 26 A.D.3d at 486, 810 N.Y.S.2d at 218(citations omitted).

15

owed to the plaintiffs. There have been no redemptions. There7

have been no audited or unaudited financial statements. And, as

far as defendants’ valuation of Fund assets is concerned, no

“economic tsunami.”

As plaintiffs allege, they provided defendants with the

requisite 120-day written notice for redemption on their capital

accounts in the Fund. However, defendants have refused, and

continue to refuse, to redeem plaintiffs’ interests, instead

suspending redemptions for impermissible reasons under Section

5.3 of the Operating Agreement. There is thus no serious dispute

that defendants’ refusal to redeem plaintiffs’ assets in the Fund

violated the terms of Operating Agreement. There can also be no

serious dispute that defendants’ refusal to redeem plaintiffs’

assets in breach of the Operating Agreement was undertaken in bad

faith, and thus in breach of defendants’ fiduciary duties owed to

the plaintiffs.

Further demonstrating the reasonable likelihood that

plaintiffs will be successful on the merits of their claims that

defendants have improperly managed the assets held in the Fund,

is the travails of Daryl Dworkin, the former investment analyst

16

employed by Ribotsky’s NIR Group LLC. As discussed above, Mr.

Dworkin pleaded guilty to securities fraud and two other charges

earlier this month. The criminal information, to which

Mr. Dworkin pleaded guilty, stated that, among other things, he

made false statements and material omissions to NIR investors,

including about the assets held in NIR’s funds. According to The

Wall Street Journal, “[f]ederal authorities have been

investigating the Roslyn-based NIR Group and founder Corey

Ribotsky since at least 2009” and the “criminal investigation

has focused on whether NIR managers, including Mr. Ribotsky,

mislead clients about investment returns tied to stakes NIR owned

in small companies . . . .” Joseph Checkler, NIR Ex-Analyst

Guilty in Hedge Case, Wall St. J., July 10-11, 2010, at B3.

Accordingly, plaintiffs have demonstrated a reasonable

probability of success on the merits of their breach of contract

and breach of fiduciary duty claims.

2. Plaintiffs Will Suffer Irreparable Harm Absent APreliminary Injunction.

At the same time that defendants have improperly suspended

plaintiffs’ redemptions in the Fund, defendants have been

withdrawing Fund assets to cover their compensation and their

personal litigation expenses. Thus, a preliminary injunction

enjoining defendants from withdrawing assets from or belonging to

the Fund for defendants’ use is vital to prevent irreparable

injury to plaintiffs.

The “‘[s]ubject of the action’ typically involves a8

specific property in which the plaintiff claims to have apreexisting interest.” AOM 1703, 2006 NY Slip Op 51788U, at *3.

17

A preliminary injunction is necessary to prevent irreparable

monetary harm, where, as here, a plaintiff seeks to restrain

defendant from dissipating or converting plaintiff’s assets held

in a specific fund that is the subject of plaintiff’s claims.

See AOM 1703 Lexington Ave. LLC v. Malik, Index No. 115718/2005,

13 Misc. 3d 1212A, at *1212A, 2006 NY Slip Op 51788U, at *2 (Sup.

Ct. N.Y. County Aug. 16, 2006) (noting that cases have “expressly

recognized that a plaintiff may obtain a preliminary injunction

where the assets sought to be restrained are specific funds which

can rightly be regarded as ‘the subject of the action’”) (citing8

cases); Amity Loans, Inc. v. Sterling Nat’l Bank & Trust Co., 177

A.D.2d 277, 279, 575 N.Y.S.2d 854 (App. Div. 1st Dep’t 1991)

(holding that injunctive relief is appropriate to remedy the

conversion of identifiable proceeds where there is “‘a specific,

identifiable fund and an obligation to return or otherwise treat

in a particular manner the specific fund in question’”); Parker

v. Parker, 196 Misc. 2d 672, 676, 766 N.Y.S.2d 315, 319 (Sup. Ct.

Nassau County Sept. 3, 2003) (“in actions where the subject

matter is a specific fund of money . . ., preliminary injunctive

relief may lie upon the requisite showing of the likelihood of

Compare with Zhiye Int’l, Inc. v. Park, Index No.9

116877/2009, 2010 N.Y. Misc. LEXIS 2657, at **5-6 (Sup. Ct. N.Y.County Mar.22, 2010) (“Since plaintiffs have not shown aspecific, identifiable fund that defendants or anyone else isobligated to return or treat in a particular manner on theirbehalf, a preliminary injunction with respect to the subjectfunds is an inappropriate remedy and plaintiffs are relegated tomoney damages.”).

18

success on the merits and that the balance of the equities lies

in the movant’s favor”).9

In AOM 1703, for example, defendant withheld the payment of

insurance proceeds to plaintiffs in breach of the parties’

written lease agreements. 2006 NY Slip Op 51788U, at *1. The

plaintiffs sought monetary relief for breach of the leases, as

well as a preliminary injunction enjoining defendant from

dissipating any of the insurance proceeds and directing defendant

to comply with the terms of the lease agreements regarding

payment of insurance proceeds. Id. In granting the preliminary

injunction, the court held that, because the insurance proceeds

which defendant withheld from plaintiff are clearly specific

funds which are a subject of that action, plaintiff will suffer

irreparable harm if those funds are dissipated by the defendant

during the pendency of the litigation. Id. at *3.

Similarly, in Amity Loans, a finance company held a bank’s

accounts receivable and proceeds thereof in trust but refused to

transfer the bank’s account proceeds from the trust to the bank.

The court granted the bank’s motion for a preliminary injunction

19

to enjoin the finance company from converting the assets being

withheld from the bank. 177 A.D.2d at 279. See also Thompson v.

76 Corp., Index No. 50106/1999, 2005 N.Y. Misc. LEXIS 3299, at *3

(Sup. Ct. Kings County Apr. 8, 2005) (granting preliminary

injunction enjoining defendant from “distributing, disbursing,

encumbering, transferring or assigning” any funds paid by

plaintiffs to defendant under their contract until resolution of

their underlying action); Marcus v. Jewish Nat’l Fund, 158 A.D.2d

101, 105-06, 557 N.Y.S.2d 886, 889 (App. Div. 1st Dep’t 1990)

(collection of money from people under mistaken or misleading

circumstances constitutes irreparable harm).

Here, plaintiffs allege that defendants have improperly

suspended redemptions in breach of the Operating Agreement. At

the same time, defendants are dissipating those assets by

withdrawing them for improper uses. Under these circumstances, a

preliminary injunction is necessary to preserve the assets held

in the Fund until plaintiffs’ claims over the defendants’

management of those same assets is resolved. If a preliminary

junction is not granted, defendants will dissipate all of

plaintiffs’ assets from the Fund, thereby rendering any judgment

that the plaintiffs may ultimately recover ineffectual. See,

e.g., Thompson, 2005 N.Y. Misc. LEXIS 3299, at *3 (finding that

plaintiffs “demonstrated that they may suffer irreparable injury

if the injunction is not granted as there is evidence that much

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of the money already received by [defendant] pursuant to the

contract has been dissipated, raising the real possibility that

he will be unable to pay any judgment obtained by plaintiffs in

their civil actions”); Pando v. Fernandez, 124 A.D.2d 495, 496,

508 N.Y.S.2d 8, 9 (App. Div. 1st Dep’t Nov. 13, 1986) (in

contract dispute over plaintiff’s entitlement to defendant’s

lottery winnings, granting preliminary injunction because “only

if the requested relief is granted will any prize money remain to

ensure payment to the plaintiff if he is successful”).

Plaintiffs have therefore demonstrated irreparable injury

absent a preliminary injunction.

3. A Balance Of Equities Favors A Preliminary Injunction.

A balancing of harm clearly favors issuance of a preliminary

injunction. If the relief requested is not granted, the harm to

plaintiffs will be substantial and irreparable. As detailed

above, the subject of this action, plaintiffs’ assets held in the

Fund, will continue to be dissipated by defendants’ improper

withdrawal of those assets. Consequently, should plaintiffs

succeed in their claims that their Fund investments were

impermissibly withheld from them, there will not be any assets

left in the Fund to satisfy that judgment. However, on the other

hand, if a preliminary injunction is granted, there will be no

harm to defendants, as the assets held in the Fund will simply be

maintained during the pendency of this litigation.

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As discussed above, Ribotsky’s activities may subject him to

severe criminal penalties, including both incarceration and

financial liabilities. It would be ironic if Ribotsky were able

to use his victims’ assets both to fend off claims arising out of

his improper treatment of his victims as well as to satisfy part

of any financial penalties levied upon him as a result of a

criminal prosecution.

Conclusion

For the foregoing reasons, plaintiffs’ motion for a

preliminary injunction should be granted.

Dated: August 2, 2010

Harwood Feffer LLP

By: S/ Joel C. Feffer Joel C. Feffer488 Madison AvenueNew York, New York 10022212) 935-7400

Attorneys for Plaintiffs