united states district court district of...

UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

)

SECURITIES AND EXCHANGE COMMISSION, )

)

Plaintiff, )

)

v. ) Civil Action No.

) 3:17-cv-00155-KAD

MARK J. VARACCHI and )

SENTINEL GROWTH FUND )

MANAGEMENT, LLC, )

)

Defendants, )

and )

)

RADAR ALTERNATIVE FUND LP and )

RADAR ALTERNATIVE MASTER FUND SPC, )

)

Relief Defendants. )

)

RECEIVER’S SIXTH QUARTERLY STATUS REPORT

Case 3:17-cv-00155-KAD Document 74 Filed 10/31/18 of 39

2

I. NATURE OF THE PROCEEDINGS ..................................................................................... 3

II. REPORT FOR THE PERIOD OF JULY 1ST TO SEPTEMBER 30TH, 2018 ..................... 6

A. Summary of the Operations of the Receiver ....................................................................... 7

B. Cash on Hand and Administrative Expenses ...................................................................... 7

C. Schedule of Receiver’s Receipts and Disbursements ......................................................... 8

D. Status of the Receivership Estate’s Investment Interests in Private Companies ................ 9

E. Litigation of Causes of Action Held by the Receivership Estate...................................... 19

F. List of All Known Creditors ............................................................................................. 30

G. Status of the Creditor Claims Proceedings and Plan of Distribution ................................ 30

H. Anticipated Disbursement and Establishment of Reserve Account ................................. 36

I. Receiver’s Recommendation ............................................................................................ 37

III. CONCLUSION ..................................................................................................................... 37


3

RECEIVER’S SIXTH QUARTERLY STATUS REPORT

Jed Horwitt, Esq., the Court-appointed receiver in this action (the “Receiver”), by and

through his counsel, Zeisler & Zeisler, P.C. (“Z&Z”), submits his Sixth Quarterly Status Report

(the “Report”) for the period from July 1, 2018, through and including September 30, 2018 (the

“Report Period”), pursuant to this Court’s Order Appointing Receiver entered May 1, 2017 (ECF

No. 12, the “Receivership Order”) and Order Reappointing Receiver entered February 14, 2018

(ECF No. 47, the “Reappointment Order”, and together with the Receivership Order, the

“Receivership Orders”).

I. NATURE OF THE PROCEEDINGS

1. On February 2, 2017, the plaintiff, the Securities and Exchange Commission (the

“Commission”) commenced this action by filing its Complaint against the defendants, Mark J.

Varacchi (“Varacchi”) and Sentinel Growth Fund Management, LLC (“Sentinel,” and together

with Varacchi, the “Defendants”), and the relief defendants, Radar Alternative Fund LP (“Radar

LP”) and Radar Alternative Master Fund SPC (“Radar SPC,” and together with Radar LP, the

“Relief Defendants,” and together with Sentinel, the “Receivership Defendants”).

2. The Commission’s Complaint alleged that the Defendants engaged in a fraudulent

scheme to misappropriate the assets of certain individuals and businesses who sought to invest in

the Relief Defendants (collectively, the “Investors”), and that in the course of their scheme, the

Defendants commingled their assets with the Investors’ funds. According to the Complaint,

between at least December, 2015, and November, 2016, the Defendants misappropriated at least

$3.95 million of investor assets intended for or held by the Relief Defendants, which were two

private funds that the Defendants advised. The Defendants commingled their assets with

Investors’ assets and made withdrawals from the Relief Defendants that Investors did not


4

authorize, which the Defendants used for personal and business expenses and to pay prior

Investors. Sentinel’s bank account included funds that Sentinel and Varacchi had obtained from

their Investors or the Relief Defendants’ Investors for purposes of investment as well as deposits

from the Relief Defendants. Withdrawals from Sentinel’s bank account included payments to

Investors and payments for Varacchi’s personal expenses.

3. While the Complaint specifically alleged a narrower fraud of at least $3.95

million, the Complaint further alleged that Sentinel received $42.6 million in third-party deposits

between August, 2013, and December, 2016, and transferred only $24.8 million to the Relief

Defendants, and that the Relief Defendants received another $21.1 million directly from third

parties. Based upon this and the Receiver’s independent investigation, it appears to the Receiver

that a more far-reaching scheme had been perpetrated.

4. Early in this receivership proceeding, it appeared to the Receiver that, upon

information and belief, approximately 25 Investors who deposited funds with Sentinel or the

Relief Defendants had unredeemed principal investments totaling over $19.6 million. Six

Investors who deposited funds with Sentinel or the Relief Defendants received redemptions of

their original investment amount or more. The Defendants also commingled the proceeds of

purported “loans” with investor funds, by depositing such “loan” proceeds into Sentinel’s

account or the Relief Defendants’ accounts.

5. The Commission moved to freeze all of the Receivership Defendants’ assets, and

on February 3, 2017, the Court entered such an order (the “Asset Freeze Order”). The Asset

Freeze Order provided that all funds and assets of the Receivership Defendants were frozen,

including the Receivership Defendants’ equity or fixed income interests in Entourage Funding,

LLC (“Entourage”), Green Lantern Industries, Inc. (“Green Lantern Industries”), Greenhouse


5

Solutions, Inc. (“Greenhouse Solutions”), Kizzang, LLC (“Kizzang”), Roots Athletics, LLC

(“Roots Athletics”), StereoCast, Inc. (“StereoCast”), and Zipway, LLC (“Zipway”), as well as

funds held with Bank of America, N.A., Weeden Prime Services, LLC (“Weeden”), and

Industrial and Commercial Bank of China Financial Services, LLC (“ICBC”). (ECF No. 7, ¶ VI.

A., the “Asset Freeze Order”)

6. The Court also ordered “[a]ll banks, brokerage and other financial institutions…,

the companies in which Defendants hold an equity or fixed income interest…, and all other

persons or entities that receive actual notice of [the Asset Freeze Order]” to “hold and retain

within their control” and prohibit” the “transfer” of “any such funds or other assets,” and ordered

further that “such funds and assets are hereby frozen.” (Id., § VI. B.)

7. On April 18, 2017, the Commission filed its Assented to Motion for Appointment

of a Receiver seeking the appointment of Jed Horwitt, Esq. (ECF No. 10). On May 1, 2017, this

Court entered its Order appointing Jed Horwitt, Esq. to serve as receiver over the Receivership

Defendants and the Receivership Assets, as defined herein. (ECF No. 12, the “Receivership

Order”). On February 14, 2018, as discussed more fully in Section II.E. below, this Court entered

its Order Reappointing Jed Horwitt, Esq. to serve as receiver over the Receivership Defendants

and the Receivership Assets. (ECF No. 47, the “Reappointment Order”, and together with the

Receivership Order, the “Receivership Orders”). The terms of the Receivership Orders are, in

relevant part, identical.

8. “Receivership Assets” and the “Receivership Estate” are defined in the

Receivership Orders as “all property of whatever kind of Sentinel and the Relief

Defendants…including the Radar Funds’ remaining assets, the Private Investments, and any

additional assets of the Receivership Defendants that may be recovered….” (Id., ¶ 1).


6

9. The Receivership Orders define “Private Investments” as the investments made in

companies (the “Private Companies”) that “were made in the name of Sentinel or Varacchi with

funds from Sentinel or the Radar Funds.” The aggregate amount expended to make such Private

Investments appears to exceed $4.4 million.

10. Pursuant to the Receivership Orders, the Receiver is authorized to assume control

of, marshal, pursue, and preserve the Receivership Assets with the objective of maximizing the

recovery of assets, and, to the extent that assets recovered are inadequate to make defrauded

Investors whole, ensuring that the distribution of those assets is as just and equitable as

practicable (id., ¶ 2.), to take custody, control, and possession of all Receivership Assets and

relevant records from the Receivership Defendants (id., ¶ 5. A.), to engage and employ persons

in his discretion to asset him in carrying out his duties and responsibilities, including

accountants, attorneys, securities traders, registered representatives, financial or business

advisers, liquidating agents, real estate agents, forensic experts, brokers, traders, or auctioneers

(id., ¶ 5. B.), to take necessary and appropriate actions for the preservation of Receivership

Assets or to prevent the dissipation or concealment of those Assets (id., ¶ 5. C.), and to issue

subpoenas, bring legal actions, and pursue, resist, and defend all suits and legal proceedings

concerning the Receivership Assets (id., ¶ 5. D.-G.).

II. REPORT FOR THE PERIOD OF JULY 1ST TO SEPTEMBER 30TH, 2018

11. In accordance with the Paragraph 31 of the Receivership Orders, the Receiver

submits this Report and account of the Receivership Assets reflecting, to the best of the

Receiver’s knowledge and for the Report Period, the existence, value, and location of all

Receivership Assets, and the extent of liabilities. The facts presented in this Report may be


7

amended and changed as the Receiver’s investigation continues. This Report further includes the

various assessments of the Receiver’s counsel, as well as the advisers retained by the Receiver.

A. Summary of the Operations of the Receiver

12. During the Report Period, the Receiver diligently exercised his duties pursuant to

the terms of the Receivership Orders and made significant progress in marshalling and

liquidating Receivership Assets for distribution to the holders of Claims against the Receivership

Estate.

13. Items requiring significant work by the Receiver and his professionals, as

discussed in more detail below, were finalizing the plan of distribution and the motion seeking its

approval and related relief, investigating and analyzing additional causes of action, and

continuing to litigate previously commenced civil actions.

14. At all times during the Report Period, the Receiver has maintained a website –

www.jedhorwittreceiver.com–that has provided information to the public concerning the

Receivership Proceeding, in addition to the more particular notices provided to parties-in-

interest. The website identifies the Receiver and describes his role, provides access to filings in

the Receivership Proceeding, and contains contact information such that interested parties may

contact the Receiver’s attorneys at Z&Z by e-mail or telephone with questions, concerns or

information that will hopefully lead to meaningful distributions to investors in this Receivership

Proceeding.

B. Cash on Hand and Administrative Expenses

15. Shortly after his appointment, pursuant to the Receivership Order, the Receiver

opened an account at a financial institution experienced in servicing court-appointed receivers


http://www.jedhorwittreceiver.com/

8

(and like fiduciaries), which account (the “Receivership Account”) holds funds marshaled by the

Receiver and constitutes a Receivership Asset.

16. Pursuant to the Court’s orders, the Receiver and Z&Z previously undertook to

assume control and possession over the funds held in certain frozen accounts and to transfer

them to the Receivership Account.

17. During the Report Period, the Receivership Account accrued interest at a rate of

0.33% monthly, amounting to total interest payments of $2,674.06 for the Report Period.

18. On July 26, 2018, the Receiver accepted payment of $1,442,082 from Shay

Kostiner in satisfaction of the Receivership Estate’s claims against him.

19. After receipt of the $1,442,082 in accordance with the terms of the Kostiner

Settlement Agreement (as defined in Section E(iv) below), the Receiver held $3,608,618.39 in

the Receivership Account as of September 30, 2018, the end of the Report Period.

20. Upon information and belief based in part upon a search of UCC Financing

Statements and Federal Tax Lien filings, this cash on hand is not encumbered by any security

interest.

C. Schedule of Receiver’s Receipts and Disbursements

21. In accordance with Paragraph 32C of the Receivership Order, the Receiver’s

schedule of all his receipts and disbursements is appended hereto as Exhibit A. In summary, the

Receiver received $1,444,756.06 and made disbursements of $0 during the Report Period. As of


9

September 30, 2018, the Receiver held a balance of $3,608,618.39 in the Receivership Account.1

D. Status of the Receivership Estate’s Investment Interests in Private

Companies

22. The Receiver continues to investigate the above Private Investments, including

whether Varacchi and/or the Receivership Entities acquired equity interests, made loans, or

engaged in some other transaction, and whether and to what extent the Receiver can recover

value for the benefit of the Receivership Estate on account of these Private Investments. To the

extent some of these investments constitute loans made to entities with some ability to repay

them, the Receiver seeks to recover such amounts due for the benefit of the Receivership Estate

for distribution to Investors and creditors. Some of these transfers may also constitute avoidable

fraudulent transfers or otherwise give rise to causes of action that may lead to monetary

recoveries. The Receiver intends to move expeditiously to maximize the value realized from

these Private Investments for the benefit of the Receivership Estate.

23. The Receiver has identified stock ownership interests acquired by Varacchi in the

following entities: Kizzang, Greenhouse, and StereoCast. Varacchi and/or the Receivership

Entities also engaged in various transactions with the following entities: Zipway, STRV, LLC

(“STRV”), Gravy, Inc. (“Gravy”), Roots Athletics, Invigilio, LLC (“Invigilio”), Entourage

1 After the Report Period but before the filing of this Report, in accordance with the Court’s Order

Approving the Receiver’s Fifth Interim Application for Professional Fees and Expenses (ECF No. 68),

the Receiver made the following distribution to his attorneys, Z&Z:

Date Recipient Amount Reason Authority

October 5, 2018 Zeisler & Zeisler

P.C.

$145,216.60 80% of Fees and

100% of Expenses

from April 1,

2018 to June 30,

2018

Order Approving

Fifth Interim Fee

Application (ECF

No. 68)

Because this distribution occurred after the Report Period, it is not reflected in the $3,608,618.39 balance

of the Receivership Account as of September 30, 2018.


10

Funding, Live Music Sales, LLC (“Live Music Sales”), Satin Bros. Entertainment, Green

Lantern Industries, StereoCast, and Adam Jacobs Music (“AJM”).

24. After reviewing the records of the Receivership Estate, as well as the documents

produced pursuant to the Receiver’s requests, the Receiver has preliminarily determined that the

investments in Zipway LLC, Gravy, Inc., Invigilio, LLC, and Greenhouse Solutions, Inc. are

unlikely to provide any value to the Estate. Comparatively, the Receiver has not yet determined

if the value realized by liquidating the Receivership Estate’s interests in Kizzang, Entourage,

Roots, and StereoCast would justify the costs of doing so.

25. The Receiver has engaged in the process of determining how to liquidate the

Receivership Estate’s interest in Kizzang, Entourage, Roots, and StereoCast in such a way as to

maximize the value available for distribution to Claimants.

26. At the same time, the Receiver and Z&Z attorneys are evaluating potential

fraudulent transfer and other causes of action against the companies underlying the Private

Investments.

27. The following is the status of the Receiver’s investigation with respect to the

corresponding Private Investments:

i. Entourage

28. During the Report Period, the Receiver and Z&Z attorneys continued their

investigation into potential causes of action related to the $500,000 in transfers from Sentinel to

Entourage.

29. Based on Z&Z’s investigation, it appears that Entourage was an investment

vehicle for various recreational marijuana companies based out of Colorado. Varacchi’s contacts

at Entourage were Jeffery Koslosky and Scott Gebard. Koslosky and Gebard represented


11

Entourage as an investment vehicle for purchasing the minority membership interest that a

certain Igbal Saran held in a marijuana retailer “Doctor’s Orders, LLC” (“Doctor’s Orders”) with

the assistance of the majority owner, Joshua David Bartch (“Bartch”). Koslosky, Gebard, and

Bartch pitched Varacchi together, and flew him out to tour the Doctor’s Orders facilities to entice

his investment.

30. Prior to the Report Period, the Receiver, through Z&Z, subpoenaed documents

and records from Doctor’s Orders.

31. During the Report Period, counsel for Doctor’s Orders contacted Z&Z attorneys

to open up discussions regarding the scope of the subpoena. Counsel for Doctor’s Orders

informed Z&Z attorneys that Igbal Saran was never a minority owner of Doctor’s Orders, and

that Bartch was no longer the majority owner. According to counsel for Doctor’s Orders, Bartch

has been ordered by a Federal District Court to divest himself of his interest in Doctor’s Orders

as a condition of his probation. Bartch had transferred his interest in Doctor’s Orders to the

current owners for $1.

32. Counsel for Doctor’s Order provided responsive documents regarding all transfers

from Entourage to Doctor’s Orders, as well as information on transfers from Entourage to other

third-parties.

33. Shortly after Z&Z attorneys began their investigation into Entourage, Entourage

and Bartch sent a demand letter to Doctor’s Orders regarding claims related to Bartch’s $1

transfer of ownership and an alleged default of $600,000 on a line of credit extended to Doctor’s

Order from Entourage. Doctor’s Orders responded by denying any liability but offered to sell

Doctor’s Order back to Bartch for $3.5 million – the amount of back taxes Doctor’s Orders

incurred during Bartch’s control.


12

34. Z&Z attorneys reviewed and analyzed Entourage’s bank records to discover

payments made to a separate marijuana company - Mesa Greens, LLC. Upon further

investigation, Z&Z attorneys discovered that this company was also owned by Bartch and is

doing business as Doctor’s Orders – Pueblo West. Z&Z attorneys subpoenaed documents and

records from Mesa Greens, LLC, but, as of the filing of this Report, have not received a

response.

35. During the Report Period, Z&Z attorneys actively monitored the situation to

evaluate the best strategy for maximizing the value of the transfers to Entourage for the benefit

of the Receivership Estate.

36. The Receiver’s investigation of these and other claims against Entourage and

related parties is ongoing. The Receiver is not in a position at this time to report on such claims

or predict the likelihood or extent of any recovery. The Receiver will not only have to assess the

legal merits of any such claims but will also have to make a practical evaluation of the potential

benefit to the Receivership Estate weighed against the cost of pursuing each claim.

37. In the event that the Receiver determines that it is in the best interest of the

Receivership Estate to initiate a lawsuit against Entourage and related parties, the Receiver will

move to for leave to sue prior to commencing litigation against them.

ii. Kizzang

38. During the Report Period, the Receiver, through Z&Z, continued its investigation

into Kizzang. Kizzang is a “Private Investment” as that term is defined in the Receivership

Order. Accordingly, since his appointment, the Receiver has taken action to determine the value

of the investment, to marshal the investment, and ultimately to liquidate it.


13

39. While it was operating, Kizzang provided internet-based sweepstakes, lottery,

poker, slots, bingo, and fantasy sports entertainment services online in the United States. Upon

information and belief, Kizzang ceased operating sometime in 2017.

40. During the time Kizzang was operating, Varacchi used investor funds deposited

with Sentinel to become one of Kizzang’s chief investors. Together with Steve Simmons

(“Simmons”)2, the other primary investor in Kizzang, Varacchi pitched Kizzang to potential

investors and consulted with Kizzang’s principal, Robert Alexander, on the day to day operations

of Kizzang.

41. In total, from September 15, 2014, through November 1, 2016, Varacchi, in

furtherance of his Ponzi scheme, caused Sentinel to make a series of transfers to Kizzang in the

aggregate amount of $2,278,000 (collectively, the “Kizzang Transfers”).

42. In exchange for the Kizzang Transfers, Kizzang issued Varacchi 3,600,000 Class

C Kizzang shares, 5,400,000 Class D Kizzang shares, and, upon information and belief,

1,152,666 Class E Kizzang shares (together, the “Kizzang Shares”). Upon information and

belief, the Kizzang Shares issued in Varacchi’s name totaled approximately 10% of Kizzang’s

ownership interests.

43. Sentinel and its investors received nothing in exchange for the Kizzang Transfers.

2 On January 26, 2017, the United States filed a criminal complaint against Simmons alleging that

between 2013 and January 2017, Simmons solicited investments by falsely representing to investors that

their funds would be used by the hedge fund for legitimate, specified investment purposes, that they

would receive specific rates of return, and that their investments would not be placed at risk or

commingled with other funds. See United States v. Simmons and Meli, Crim. No. 1:17-cr-00127-KMW

(S.D.N.Y.). In fact, Simmons failed to invest the investor monies as promised, but, instead, diverted

investor funds for his own use and also, together with others, used the money in a Ponzi-like fashion to

fund the repayment of earlier investors in the hedge fund whose redemption requests could not be

forestalled. On October 30, 2017, Simmons plead guilty to one count of conspiracy to commit securities

fraud and wire fraud.


14

44. By virtue of the Receivership Orders, the Receivership Estate now holds the

rights of an equity holder established by the Kizzang Shares or, alternatively, the rights of a

creditor to assert causes of action to avoid the Kizzang Transfers as intentional and constructive

fraudulent transfers pursuant to pursuant to the Connecticut Uniform Fraudulent Transfer Act,

Conn. Gen. Stat. §§ 52-552 et seq. (“CUFTA”), or otherwise recover the harm done by the

Kizzang Transfers.

45. Through his team’s investigation, the Receiver has learned that Kizzang was a

defendant in a federal lawsuit, Time, Inc. v. Kizzang LLC and Robert Alexander, in the United

States District Court, Southern District of New York. Time, Inc., publisher of Sports Illustrated,

partnered with Kizzang on the 2016 Sports Illustrated Swimsuit Launch Week. Under the terms

of their contract, Kizzang agreed to pay Sports Illustrated fees in three separate installments of

$500,000.

46. Kizzang never defended the lawsuit, and on March 15, 2016, the Hon. Alvin K.

Heelerstein entered a default judgment in the amount of $1,025,348.62 against Kizzang and

Robert Alexander. Upon information and belief, this judgment debt remains unpaid.

47. National Collegiate Athletic Association (“NCAA”) also sued Kizzang in the

United States District Court for the Southern District of Indiana, in March 2017 for allegedly

infringing NCAA’s trademarks. This litigation remains pending.

48. The Receiver continues to evaluate what impact the default judgment and still-

pending litigation by the NCAA will have on his ability to recover from Kizzang.

49. Z&Z attorneys have endeavored to determine the value of the Kizzang’s

remaining assets in order to decide which avenue of recovery would be most beneficial to the

Receivership Estate.


15

50. Prior to the Report Period, on March 26, 2018, Z&Z attorneys subpoenaed

Kizzang’s books and records. In response to the March 26th

subpoena, counsel for Kizzang

represented to Z&Z attorneys that Kizzang had been evicted from its leased headquarters in Las

Vegas and that Kizzang’s former landlord was in possession of Kizzang’s personal property –

including the books and records requested in the Receiver’s subpoena.

51. On April 7, 2018, counsel for Kizzang represented to Z&Z attorneys that Kizzang

had negotiated a settlement with its former landlord, and that responsive documents would be

forthcoming.

52. On April 27, 2018, after multiple failed attempts to follow up with Kizzang’s

counsel, Z&Z attorneys threatened to seek judicial relief if Kizzang did not produce the

subpoenaed documents. In response, Kizzang’s counsel represented to Z&Z attorneys that

Kizzang’s books and records were in storage in Las Vegas, and that Kizzang could not bear the

cost of production. Z&Z attorneys agreed to extend the subpoena deadline under the

circumstances if Kizzang would begin to produce its financial records. On May 1, 2018, Kizzang

provided its bank records.

53. On May 11, 2018, Z&Z attorneys requested Kizzang produce all documents

appraising or estimating the value of Kizzang’s patent portfolio and Kizzang’s counsel agreed to

provide responsive documents.

54. On May 22, 2018, Kizzang’s counsel contacted Z&Z attorneys and represented

that all of Kizzang’s books and records had been lost in transit from Las Vegas to New York.

Kizzang’s counsel further represented that Kizzang had no documents appraising or estimating

the value of Kizzang’s patent portfolio.


16

55. On June 1, 2018, Kizzang’s attorney informed Z&Z attorneys that Kizzang’s

books and records had, in fact, been delivered on May 27, 2018. Kizzang refused the Receiver’s

request for authorization to file a UCC-1. In response, Z&Z attorneys drafted a motion for leave

to sue Kizzang and an accompanying complaint asserting causes of action to avoid the Kizzang

Transfers under CUFTA.

56. On June 13, 2018, Kizzang’s attorney informed Z&Z attorneys that the Federal

Bureau of Investigation had seized Kizzang’s records as part of a criminal investigation.

57. On June 29, 2018, the principal of Kizzang contacted Z&Z attorneys directly to

engage in further discussions with the Receiver and Receivership Estate.

58. During the Report Period, Z&Z attorneys contacted multiple potential brokers and

strategic buyers to market Kizzang’s patent portfolio. Based on these conversations, the Receiver

believes that liquidating the Estate’s interest in and claims against Kizzang may be beneficial to

the Estate, although further investigation and analysis as to the best method to accomplish this is

required.

iii. Roots Athletics

59. Roots Athletics was a mixed martial arts and Brazilian Jiu Jitsu studio based out

of Philadelphia that Varacchi invested in using $110,000 of funds from Sentinel’s account.

60. Prior to the Report Period, Z&Z attorneys had served multiple subpoenas on

Roots to no avail.

61. Based on conversations with Roots Athletics’ staff and its website, Roots

Athletics appears to be currently operating.

62. However, it appears that the principal of the Roots Athletics – who was

Varacchi’s point of contact in making the investment – is no longer involved with the company.


17

63. During the Report Period, Z&Z attorneys determined that Varacchi’s co-investor,

Brian Rabinowitz (“Rabinowitz”), had sold substantially all the assets of Roots to another Jiu

Jitsu company at some point in 2017 without providing notice to Varacchi or the Receiver.

64. Z&Z attorneys have made multiple attempts to discuss the Root Athletics

transaction with Rabinowitz and his counsel with no response. The Receiver is currently

evaluating the costs and benefits of an action against Rabinowitz, Roots, and related parties.

iv. StereoCast and Related Entities

65. Varacchi caused $31,500 of funds in Sentinel’s account to be transferred to

StereoCast. StereoCast is a private company that has developed an application that permits a

concertgoer to download live recordings of a musician’s performance shortly after the concert

ends.

66. Varacchi held 150,000 shares of StereoCast in his name.

67. Upon information and belief, StereoCast has valuable assets in the form of

intellectual property. The Receiver continues to collect information to determine the value of

Varacchi’s StereoCast shares.

68. Z&Z has had several calls and exchanged numerous emails with Adam and

Randall Satin, brothers who owned, among others, and managed StereoCast and its related

entities, Green Lantern Industries, Live Music Sales and Satin Bros. Entertainment. Through

these efforts, the Receiver has determined that Green Lantern Industries was the development

company for StereoCast and Varacchi provided it funds, allegedly to pay for some of

StereoCast’s operational costs. In total, Varacchi caused Sentinel to pay Green Lantern Industries

approximately $272,000.


18

69. Varacchi also caused Sentinel to pay Adam Satin approximately $75,000, which

Adam Satin has stated was Report for services he rendered to StereoCast. Live Music Sales was

the initial name of the business that eventually became StereoCast and, according to the Satins,

the money that Varacchi paid to this company--$10,000 from Sentinel’s account—went to

operations.

70. Satin Bros. Entertainment was the Satin brothers’ entity that paid Varacchi

$21,000 as a reimbursement for expenses that Varacchi claimed he or Sentinel paid on behalf of

StereoCast.

71. Varacchi also caused Sentinel to transfer $63,000 to AJM. Based on

conversations with Adam and Randall Satin, the Receiver understands that AJM was a vendor

that provided proof of concept services to StereoCast for the StereoCast app.

72. Prior to the Report Period, Z&Z attorneys received a call from counsel for STRV

informing them that StereoCast has requested that StereoCast’s access to its mobile application

be reestablished. STRV sought the Receiver’s consent to grant StereoCast such access.

73. Given that the value of the Estate’s equity interest in StereoCast depends almost

entirely on StereoCast’s continued operation, and in the exercise of his reasonable business

judgment, the Receiver gave his consent.

74. The significance of this development remains unclear, but the Receiver intends to

aggressively pursue outstanding document production to determine the appropriate course of

action during the next quarter.


19

E. Litigation of Causes of Action Held by the Receivership Estate

75. The Receiver believes that the Receivership Assets include causes of action

against certain third parties. The status of these claims in summary is as follows:

i. TAM Litigation

76. During the Report Period, the Receiver and Z&Z continued to prosecute their

lawsuit, Jed Horwitt Esq., Receiver v. Taran Asset Management, LLC et al., (Civil Action No.:

3:17-cv-01840-KAD) (the “TAM Action”), against Taran Asset Management, LLC (“TAM”),

Christopher Gleason (“Gleason” and, together with TAM, the “Appearing TAM Defendants”),

and Baseline Advisors, LLC (“Baseline” and, together with the Appearing TAM Defendants, the

“TAM Defendants”) in the United States District Court for the District of Connecticut.

77. The TAM Action originally sought to recover pursuant to the Connecticut

Uniform Fraudulent Transfer Act, Conn. Gen. Stat. §§ 52-552 et seq. (“CUFTA”), approximately

$1.2 million that Varacchi caused Sentinel to pay allegedly to or for the benefit of the TAM

Defendants.

78. Prior to the Report Period, Z&Z attorneys uncovered evidence that appeared to

show that Varacchi had caused Sentinel to pay certain debts incurred by TAM prior to Sentinel’s

existence and at a time when Varacchi was TAM’s Chief Operating Officer. In total, from

October 15, 2013, through November 30, 2016, Varacchi, in furtherance of his Ponzi scheme,

apparently used assets of the Receivership Entities or caused Sentinel to make a series of

transfers to such creditors of TAM for the benefit of the Appearing TAM Defendants in the

aggregate amount of $390,279.88 (the “TAM Debt Transfers”).

79. In the course of settlement negotiations, the Appearing TAM Defendants

produced substantial financial records to Z&Z attorneys. This production included bank records


20

which demonstrated how the proceeds of the settlement payment Varacchi had caused Sentinel

to pay to TAM were disbursed. Z&Z attorneys traced approximately $730,000 of the settlement

payment proceeds (the “Subsequent Transfers”) to just three parties – Edmond Tschan, Robin

Taxman, and Myron Taxman (together, the “Subsequent Transferee Defendants”) – each of

whom the Receiver has reason to believe did not receive the Subsequent Transfers in good faith.

80. Accordingly, prior to the Report Period, on June 15, 2018, Z&Z attorneys filed a

motion to amend the complaint to (i) to add allegations to existing causes of action to recover an

additional $390,279.88 in TAM Debt Transfers, and (ii) to assert a new cause of action against

and to join the Subsequent Transferee Defendants as defendants based on their status as

subsequent transferees (ECF No. 40, the “Motion to Amend”).

81. In total, the Motion to Amend and the attached third amended complaint (“Third

Amended Complaint”) increased the total amount claimed in the TAM Action to $1,860,029.

82. As a result of the filing of the Motion to Amend, counsel for the Appearing TAM

Defendants informed the Court that the settlement conference previously scheduled for July 17,

2018 would not be productive, and the Court cancelled the settlement conference. Shortly

thereafter, on July 19, 2018, primary counsel for the Appearing TAM Defendants filed a motion

to withdraw as counsel of record (ECF No. 42), which the Court granted on July 20, 2018 (ECF

No. 43).

83. On July 26, 2018, the Court entered its order granting the relief requested in the

Motion to Amend (ECF No. 45).

84. On August 1, 2018, Z&Z attorneys filed the Third Amended Complaint (ECF No.

47), and on August 2, 2018, the Court issued its summons on the Subsequent Transferee

Defendants.


21

85. On September 7, 2018, Z&Z attorneys met with Gleason and local counsel for the

Appearing TAM Defendants to discuss the possibility of a global settlement. At the September 7

meeting, Gleason informed Z&Z attorneys that the Third Amended Complaint misidentified

Gleason’s wife (one of the Subsequent Transferee Defendants) as Rachael Taxman, instead of

using her correct name, Robin Taxman.

86. Gleason also denied that any of the TAM Debt Transfers corresponded to goods

and/or services actually provided to TAM, and that the transfers had not been made for TAM’s

benefit. Rather, Gleason stated that the TAM Debt Transfers constituted additional frauds

perpetrated upon Sentinel (and its investors) by Varacchi, and that Gleason and TAM had no role

whatsoever in such fraudulent conduct.

87. On September 12, 2018, Z&Z attorneys amended the Third Amended Complaint

solely to correct the name of the defendant, as Robin Taxman. (ECF No. 52, the “Fourth

Amended Complaint”). On September 13, 2018, the Court issued an updated summons on the

Subsequent Transferee Defendants (ECF No. 53) which Z&Z attorneys successfully served on

Robin Taxman and Edmond Tschan later that day.

88. Despite numerous attempts, Z&Z attorneys had been unsuccessful in serving the

remaining Subsequent Transferee Defendant, Myron Taxman. Z&Z attorney’s investigation

revealed that Myron Taxman sold his Illinois residence in August 2018 and is now living in

Florida. On October 13, 2018, the Plaintiff’s process server posted a copy of the Fourth

Amended Complaint on the front door of Myron Taxman’s Florida residence. Since such service

does not satisfy the Federal Rules of Civil Procedure, the Plaintiff also arranged for Myron

Taxman to be served pursuant to Conn. Gen. Stat. § 52-59b and Fed. R. Civ. P. 4(e)(1) on


22

October 26, 2018. The Plaintiff anticipates filing proof of such service immediately upon its

receipt from the state marshal.

ii. Sarroff Litigation

89. During the Report Period, the Receiver and Z&Z continued to prosecute their

lawsuit, Jed Horwitt Esq., Receiver v. Alan Sarroff et al., (Civil Action No.: 3:17-cv-01902-

VAB) (the “Sarroff Action”) against Alan L. Sarroff (“Sarroff”) and A.L. Sarroff Management,

LLC (“Sarroff, LLC”, and collectively, the “Sarroff Defendants”), in the United States District

Court for the District of Connecticut. The Sarroff Action seeks to recover pursuant to CUFTA

over $14 million that Varacchi caused Sentinel to pay to or for the benefit of the Sarroff

Defendants (the “Sarroff Transfers”).

90. The Sarroff Transfers sought to be avoided as fraudulent transfers consist in: (i)

the $7.3 million three-day loan repayment on a loan originally made to cover a day trading

margin call; (ii) the recovery of the $125,000 “fee” for that loan and the additional $25,000

“kicker”; and (iii) the recovery of the “investment” related transfers totaling in excess of $7.7

million.

91. Prior to the Report Period, the Receiver engaged in significant motion practice

relating to the Sarroff Defendants’ challenge to the legal sufficiency of the Receiver’s Complaint

filed in the Sarroff Action. (See ECF Nos. 25, 31, 41, and 45). Generally speaking, the issues

briefed in the Motion to Dismiss and related filings fall into two categories: (i) whether a

plaintiff seeking to avoid a fraudulent transfer under § 52-552e(a)(1) of CUFTA must plead that

the transferee received the voidable transfer with fraudulent intent, and (ii) whether, in the

context of a Ponzi scheme, the return of a transferee’s principal is unavoidable as a matter of


23

law. As of the date of this Application, the District Court (Bolden, J.) has not ruled on the

Motion to Dismiss.

92. Prior to the Report Period, on May 11, 2018, the Receiver served the Sarroff

Defendants with his first set of Interrogatories and Requests for Production (the “Receiver’s

Discovery Requests”).

93. During the Report Period, Z&Z attorneys negotiated with counsel to the Sarroff

Defendants to resolve any objections they may have to the Receiver’s Discovery Requests and to

ensure the Sarroff Defendants’ timely compliance with their obligations under the Federal Rules

of Civil Procedure.

94. As a result of Z&Z’s efforts, on July 13, 2018, the Sarroff Defendants partially

complied with the Receiver’s Discovery Requests and produced over 18,000 pages of responsive

documents and communications (the “July 13 Documents”).

95. Z&Z attorneys engaged in an extensive review of the July 13 Documents in order

to develop further the documentary record necessary to satisfy the Receiver’s burden of proof in

the Sarroff Action and rebut the Sarroff Defendants’ affirmative defenses. For example, and

without limitation, Z&Z attorneys reviewed the July 13 Documents to determine the extent to

which the Sarroff Defendants lacked “good faith” under CUFTA at the time they received the

Sarroff Transfers.

96. Z&Z’s investigation of the July 13 Documents uncovered significant evidence in

favor of the Receiver’s claims against the Sarroff Defendants; it also opened up new avenues of

investigation, which Z&Z attorneys have pursued by issuing third-party subpoenas against

relevant third-parties in both the Sarroff Action and this Receivership Proceeding.


24

97. On a parallel track to litigating the Sarroff Action, Z&Z attorneys also diligently

pursued the prospect of settling the claims asserted in the Sarroff Action with the Sarroff

Defendants. To that end, the parties agreed to participate in a confidential settlement conference

(the “Settlement Conference”) with United States’ Magistrate Judge Robert Richardson.

98. In anticipation of the Settlement Conference, Z&Z attorneys voluntarily produced

a curated selection of the documentary evidence establishing, in the Receiver’s opinion, the

Sarroff Defendants’ lack of “good faith”. Together with V&L, Z&Z attorneys responded to

various objections and questions posed by counsel to the Sarroff Defendants. Z&Z attorneys also

prepared a confidential settlement conference memorandum articulating the factual and legal

predicates supporting the Receiver’s causes of action against the Sarroff Defendants for Judge

Richardson’s review.

99. The Settlement Conference was held on September 27, 2018. The parties did not

reach a settlement at the Settlement Conference. However, the parties have agreed to participate

in a second settlement conference to be held at some point in January, 2019.

100. After the Report Period but prior to the filing of this Report, on October 26, 2018,

Z&Z attorneys filed a motion to amend the complaint against the Sarroff Defendants, and to join

A.L. Sarroff Fund, LLC (“Sarroff Fund”) as a defendant in the Sarroff Action. (ECF No. 52, the

“Sarroff Motion to Amend”.) The proposed amended complaint alleges, inter alia, in the

alternative, that Sarroff, LLC received the alleged fraudulent transfers as agent for Sarroff Fund

and, therefore, Sarroff Fund is in fact the initial transferee liable to return the fraudulent transfers

or pay their value to the Receivership Estate. The deadline to respond to the Sarroff Motion to

Amend is November 16, 2018.


25

iii. Rajo Litigation

101. During the Report Period, the Receiver and Z&Z continued its lawsuit, Jed

Horwitt Esq., Receiver v. Rajo Corp. d/b/a Rajo Capital Management et al., (Civil Action No.:

3:17-cv-02077-JCH) (the “Rajo Action) against Rajo Corp. d/b/a Rajo Capital Management

(“Rajo”), Victor J. Danilevics (“Danilevics”), and Tobyn Ingebrigtson (“Ingebrigtson”, and

collectively, the “Rajo Defendants”) in the United States District Court for the District of

Connecticut. The Rajo Action seeks to recover approximately $204,000 that Varacchi caused

Sentinel to pay to or for the benefit of the Rajo Defendants pursuant to CUFTA.

102. Prior to the Report Period, counsel for the Rajo Defendants informed Z&Z

attorneys that the Rajo Defendants did not intend to settle the Rajo Action nor would they file an

appearance and respond to the Receiver’s complaint. On May 18, 2018, the Receiver filed his

Motion for Default Judgment, seeking judgment against the Rajo Defendants in the amount of

$204,000. (ECF No. 18.)

103. On July 24, 2018, the Court entered a ruling conditionally granting the Motion for

Default Judgment subject to the Receiver withdrawing counts two, three, and four of the

complaint. (ECF No. 19.) The following day, on July 25, 2018, Z&Z attorneys filed notice with

the Court of the Receiver’s withdrawal of counts two, three, and four of the complaint without

prejudice. (ECF No. 20.)

104. On July 26, 2018, the Court entered default judgment in favor of the Receiver and

against Rajo Corp in the amount of $176,127.16, against Danilevics in the amount of $3,000, and

against Ingebrigtson in the amount of $25,500. (ECF No. 22.)

105. During the Report Period, Z&Z attorneys contacted several collections attorneys

in Arizona, where the Rajo Defendants reside, in order to determine the most cost-effective


26

method of liquidating the default judgment against the Rajo Defendants for the benefit of the

Receivership Estate, and they continue to pursue this possible avenue of recovery.

iv. Kostiner Settlement

106. Prior to the Report Period, Z&Z attorneys negotiated the settlement of causes of

action that the Receiver believes he may hold against Shay Kostiner (“Kostiner”). In 2013,

Kostiner was the largest initial participant in the multi-manager trading platform then offered by

Varacchi through Sentinel and Radar LP. From September 24, 2013, through November 7, 2013,

Kostiner deposited a total of $5.7 million onto the platform. From November 18, 2013, through

April 1, 2014, Varacchi caused Sentinel to make a series of transfers to Kostiner in the aggregate

amount of $7,142,082 (collectively, the “Kostiner Transfers”). The amount received by Kostiner

in excess of his original principal deposits, specifically, $1,442,082, represents the “net profits”

realized by Kostiner through the trading platform.

107. Prior to the Report Period, Kostiner, his counsel and Z&Z attorneys met in person

to discuss the possibility of settlement. Kostiner presented various facts and circumstances in his

effort to establish his good faith in his participation in the Sentinel platform and receipt of the

Kostiner Transfers from Sentinel. Based upon this and the Receiver’s independent investigation,

the Receiver and Kostiner agreed, subject to this Court’s approval, to settle the Receiver’s claims

in exchange for Kostiner’s return to the Receivership Estate of the full amount of net profits

Kostiner received in the total amount of $1,442,082. The parties negotiated and drafted the terms

and conditions of their settlement into a written agreement (the “Kostiner Settlement

Agreement”) which does not include any admission of wrongdoing by Kostiner.

108. On April 30, 2018, both parties executed the Kostiner Settlement Agreement.


27

109. Prior to the Report Period, Z&Z attorneys drafted the motion to approve the

Kostiner Settlement Agreement (ECF No. 57, the “Motion to Approve”), and filed it with the

Court on May 3, 2018. On May 22, 2018, the Court granted the Motion to Approve and entered

an order approving the Kostiner Settlement Agreement. (ECF No. 61, the “Order Approving

Kostiner Settlement”.)

110. According to the terms of the Kostiner Settlement Agreement, Kostiner was

obligated to make payment of $1,442,082 to the Receiver within ten (10) days of the Order

Approving Kostiner Settlement becoming a “Final Order” as that term is defined in the Kostiner

Settlement Agreement. (See ECF No. 57-1 at ⁋ 5.)

111. On July 22, 2018, during the Report Period, the Order Approving Kostiner

Settlement became a Final Order.

112. On July 26, 2018, in compliance with the Kostiner Settlement Agreement and the

Order Approving Kostiner Settlement, Kostiner wired $1,442,082 to the Receivership Account.

v. Investigation into Weeden Prime Services, LLC

113. During the Report Period, the Receiver and Z&Z attorneys continued their

investigation into potential causes of action against Weeden Prime Services, LLC (“Weeden

Prime”).

114. From the inception of Sentinel and Radar, L.P., in approximately September,

2013, through the collapse of Varacchi’s Ponzi scheme in or about December, 2016, Weeden

Prime was the Receivership Entities’ introducing prime broker-dealer.

115. The Receiver’s investigation of claims against Weeden Prime is ongoing. The

Receiver is not in a position at this time to report on such claims or predict the likelihood or

extent of any recovery. The Receiver will not only have to assess the legal merits of any such


28

claims but will also have to make a practical evaluation of the potential benefit to the

Receivership Estate weighed against the cost of pursuing each claim.


Receivership Estate to initiate a lawsuit against Weeden Prime, the Receiver will move to for

leave to sue Weeden Prime prior to commencing litigation against it.

vi. Investigation into and Demand upon Ralph Giorgio

117. During the Report Period, Z&Z attorneys continued their investigation into

potential causes of action against Ralph Giorgio (“Giorgio”).

118. Giorgio became a manager on the Sentinel platform and was added to Sentinel’s

payroll in December 2015. From December 2015 to May 2016, Giorgio received a gross monthly

salary of $2,058.34 from Sentinel. In June 2016, at Giorgio’s request, Varacchi caused Sentinel

to increase Giorgio’s gross monthly salary to $20,000. From June 2016 until the collapse of

Varacchi’s Ponzi scheme, Giorgio received more than $120,000 from Sentinel (the “Giorgio

Transfers”).

119. Upon information and belief, Sentinel did not receive any value in exchange for

the Giorgio Transfers. The Giorgio Transfers were not a draw upon incentive-based payments as

Giorgio did not manage sufficient assets on the Sentinel platform to justify the amount received.

Rather, upon information and belief, the Giorgio Transfers were made with the expectation that

the money would be repaid either to Sentinel or Varacchi.

120. Prior to the Report Period, Z&Z attorneys served Giorgio with a settlement offer.

Giorgio allowed the offer to lapse by failing to respond within the provided time period.

However, after the offer lapsed, Z&Z attorneys were contacted by an attorney for Giorgio.

121. Z&Z attorneys met with Giorgio’s attorney to discuss settlement of the Receiver’s

claims against Giorgio. Although the parties have not reached a settlement as of the date of this


29

Application, the parties believe a mutually beneficial resolution is possible, and have agreed to

meet in person in October or November 2018 to discuss the possible terms of such an agreement.

122. The Receiver’s investigation of these and other claims against Giorgio is ongoing.

The Receiver is not in a position at this time to report on such claims or predict the likelihood or

extent of any recovery. The Receiver will not only have to assess the legal merits of any such

claims but will also have to make a practical evaluation of the potential benefit to the

Receivership Estate weighed against the cost of pursuing each claim.


Receivership Estate, the Receiver will move to for leave to sue Giorgio prior to commencing

litigation against it or take such other action as the Receiver determines appropriate and in the

best interest of the Receivership Estate under the circumstances.


30

F. List of All Known Creditors

124. In compliance with Paragraph 32F of the Receivership Orders, appended hereto as

Exhibit B is a list of all known creditors with their addresses and the amounts they assert. As

more fully explained in the following section herein, each claim with an amount designated as an

“Allowed Claim” in the attached Exhibit B has been determined and allowed by this Court’s

Plan Approval Order (defined below) in the corresponding amount, and each claim designated as

“disputed” in Exhibit B has yet to be determined or adjudicated.

G. Status of the Creditor Claims Proceedings and Plan of Distribution

125. Prior to the Report Period, the Receiver and Z&Z drafted a comprehensive set of

procedures to permit parties with claims against the Receivership Estate to submit them for an

orderly evaluation and processing. To this end, the Receiver filed the Claims Procedure Motion

on July 27, 2017, which included, inter alia, (i) the establishment of a deadline for submitting

such claims to the Receiver, (ii) the form and manner of notice of the claims procedures (the

“Claims Notice”), (iii) the form and manner for the submission of such claims by investors and

other creditors, and (iv) the procedure for the adjudication of disputed claims (ECF No, 23, the

“Claims Procedure Motion”).

126. On July 31, 2017, the Court entered its Order Approving Claims Procedure (ECF

No. 24, the “Claims Procedure Order”) granting the relief requested in the Claims Procedure

Motion and approving the Claims Notice in the form requested by the Receiver.

127. Following the entry of the Court’s Reappointment Order, on February 21, 2018,

this Court entered an order on the docket providing:

There is a pending motion to supplement claims procedure on the docket. ECF

No. 35. Since the filing of that motion, the Receiver has been reappointed. ECF

No. 47. To the extent that the Receiver continues to seek relief, the Receiver is

directed to renew its motion to supplement claims procedure in light of the more


31

recent ruling.

(ECF No. 49.)

128. In compliance with this Court’s direction, the Receiver drafted and, on March 12,

2018, filed his Renewed Supplemental Claims Procedure Motion, renewing his request for the

relief initially outlined in the Supplemental Claims Procedure Motion. (ECF No. 52.)

129. On April 2, 2018, the Court entered its Order Approving the Renewed

Supplemental Claims Procedure (ECF No. 53, the “Supplemental Claims Procedure Order” and,

together with the Claims Procedure Order, the “Claims Procedure Orders”).

130. The Supplemental Claims Procedure Order affirmed the original bar date of

September 27, 2017 and set June 1, 2018 at 5:00 p.m. as the second bar date applicable to New

Creditors.

131. During the Report Period, Z&Z attorneys contacted the New Creditors to provide

them with notice of their potential Claims and the procedure for asserting such Claims against

the Receivership Estate.

132. Despite having provided such notice, the Receiver did not receive any additional

proofs of Claim prior to the expiration of the second bar date.

133. Both bar dates for the submission of Claims have now passed. In total, the

Receiver received thirty-three (33) Claims aggregating in excess of $32 million.

134. During the Report Period, and in consultation with the Commission, the Receiver

and Z&Z attorneys finalized the proposed procedure through which the Proposed Allowed

Claims would be allowed, an initial distribution could be made, and other related issues could be

addressed by this Court.

135. In developing this proposed procedure, the Receiver considered and applied the

legal and equitable principles articulated in various precedent established by other recent


32

Commission receiverships appointed for the benefit of victims of Ponzi schemes as well as

analogous judicial decisions in this Second Circuit.

136. On July 12, 2018, the Receiver filed his Motion for Entry of an Order Approving

and Authorizing the Receiver’s Proposed (i) Pooling Assets and Liabilities of Receivership

Entities (ii) Allowance of Certain Claims, (iii) Plan of Distribution, and (iv) Related Relief (ECF

No. 62, the “Motion for Plan Approval”), which requested that the Court approve the following:

i. The pooling of assets of the Receivership Entities and the pro rata

distribution to the holders of Allowed Claims, as discussed in greater

detail in Section IV of the Motion for Plan Approval;

ii. The application of the legal and equitable principles and “Claims

Calculation Methodology” applied by the Receiver in evaluating and

determining the timely filed Claims, as described in Section V of the

Motion for Plan Approval;

iii. The allowance of certain Claims in the amounts proposed by the Receiver

as set forth in Exhibit A submitted with the Motion for Plan Approval;

iv. The classification and treatment of Allowed Claims as set forth in Section

VI. A. of the Motion for Plan Approval;

v. An interim distribution of in Receivership Assets to holders of Allowed

Claims in accordance with Rising Tide Method (defined and described

below) to the Creditors and in the amounts as set forth in Exhibit C or

such other gross amount as determined by the Receiver to be appropriate

under the circumstances (the “Proposed Interim Distribution”) and Section

VI. B-C. of the Motion for Plan Approval;


33

vi. The distribution procedures governing the Proposed Interim Distribution

and future interim distributions, as set forth in Section VI. D. of the

Motion for Plan Approval; and,

vii. The establishment of a Reserve Account as provided for in Section VI. E.

of the Motion for Plan Approval.

137. In response to filing the Motion for Plan Approval, the Receiver received: (i) a

limited objection to the Receiver’s calculation of the pre-receivership recovery percentage of

Flatiron Partners, LP (“Flatiron’s Limited Objection”), and (ii) a Claim asserted by a Takashi

Hashimoto who had been timely served with the Notice of Claims Procedure for Asserting

Claims, Bar Date and Proof of Claim Instructions (see ECF No. 24, the “Claims Procedure

Order”) and failed to timely submit a Proof of Claim (the “Late Claim”).

138. Flatiron’s Limited Objection asserts that the Receiver overstated the amount of

Flatiron’s capital contributions and the amount of its pre-receivership distributions. Specifically,

Flatiron contends that the Receiver overstated both amounts by $2 million because the

Receiver’s calculations included $2 million that Flatiron sent to Radar on January 15, 2015, and

$2 million that Flatiron withdrew on February 26, 2015. In his calculation of Flatiron’s recovery

percentage, the Receiver included the initial $2 million deposit and $2 million withdrawal,

concluding that Flatiron recovered 43.1% of its investment pre-receivership ($3,057,931

received on account of $7,100,921 invested). If the initial $2 million deposit and withdrawal are

excluded, however, Flatiron recovered only 20.74% of its investment pre-receivership

($1,057,931 received on account of $5,100,921 invested).

139. During the Report Period, Z&Z attorneys investigated the legal basis and factual

assertions related to Flatiron’s Limited Objection and, to date, have not reached any conclusion.


34

Fortunately, even assuming Flatiron’s Limited Objection correctly calculates Flatiron’s pre-

receivership recovery percentage, Flatiron would not be entitled to receive an initial distribution.

As discussed in greater detail in the Motion for Plan Approval, only Claimants who recovered

pre-receivership less than 20.1% of their pre-receivership investment would be entitled to an

initial distribution under the Rising Tide Method (assuming the Receiver determined to distribute

$3,100,000 in the Initial Distribution), and Flatiron’s own proposed calculation puts its pre-

receivership recovery at 20.7%.

140. In order to avoid any further delay in making distributions to the other Claimants,

Flatiron and the Receiver agreed that Flatiron’s right to dispute its pre-receivership recovery

percentage calculation would be preserved as timely, and that the Receiver will hold any

amounts to which Flatiron might be entitled from subsequent distributions, based upon a pre-

receivership recovery percentage of 20.74%, until the Limited Objection is determined by

agreement or adjudication.

141. During the Report Period, Z&Z attorneys similarly reviewed the Late Claim

asserted by Hashimoto. Pursuant to the Claims Procedure Order, the applicable bar date for the

Late Claim was set for 5:00 p.m. on September 27, 2018. Paragraph 5 of the Claims Procedure

Order provides:

Any Creditor who fails to deliver a Proof of Claim to the Receiver fully in

accordance with this Claims Procedure Order and the Notice of Claims Procedure,

including, but not limited to, on or before the Bar Date, shall be barred and

precluded from receiving any distribution from the Receiver in this receivership

proceeding unless and until all timely filed and allowed Claims and all expenses

of administering the receivership estate have been paid in full.

142. In compliance with the Claims Procedure Order, Z&Z attorneys served

Hashimoto with Notice of Claims Procedure for Asset Claims, Bar Date, Proof of Claim

Instruction, and the form of the Proof of Claim by first class U.S. mail on August 3, 2017. (See


35

ECF No. 36, Cert. of Serv. re: Claims Procedure Order). Despite receiving such service,

Hashimoto has not since submitted the completed Proof of Claim form or sought from the Court

any relief from the Claims Procedure Order.

143. Accordingly, the Receiver has determined that Hashimoto’s Claim is barred

pursuant to the Claims Procedure Order.

144. On September 21, 2018, Judge Bolden transferred this proceeding to this Court.

145. On October 4, 2018, after the Report Period, the Court entered its order

authorizing and approving the relief sought in the Motion for Plan Approval. (ECF No. 69, the

“Plan Approval Order”).

146. On October 5, 2018, Z&Z attorneys filed a supplement to the Motion for Plan

Approval in order to inform the Court of the issues related to Flatiron’s Limited Objection and

the Late Claim. (ECF No. 70, the “Supplement”). The Supplement represented to the Court that

neither of these developments required a modification to the relief granted by the Plan Approval

Order other than the substitution of the Exhibit C (the “Proposed Interim Distribution”) of the

Plan Approval Order with Exhibit A of the Supplement (the “Amended Proposed Interim

Distribution”) to reflect the reservation of rights pertaining to Flatiron.

147. On October 9, 2018, the Court approved the requested substitution of the

Proposed Interim Distribution with the Amended Proposed Interim Distribution without

otherwise modifying the relief granted by the Plan Approval Order. As set forth in Section H

below, the Receiver anticipates making a distribution in accordance with the Amended Proposed

Interim Distribution before the end of the 2018 calendar year.


36

H. Anticipated Disbursement and Establishment of Reserve Account

148. After receipt of the $1,442,082 in accordance with the terms of the Kostiner

Settlement Agreement, the Receiver held approximately $3,605,358 in the Receivership Account

as of the end of the Report Period.

149. As set forth in the Court’s Plan Approval Order, the Receiver is authorized to

distribute up to $3,100,000 of the cash available in the Receivership Account to the holders of

Allowed Claims in accordance with the Rising Tide Method as set forth in Exhibit C of the Plan

Approval Order (the “Initial Distribution”). As contemplated in paragraph 8(xi) of the Plan

Approval Order, the actual amount to be distributed will depend upon the reserves necessary to

fund the continued administration of the Receivership Estate, including the ongoing litigation of

its causes of action and liquidation of its other assets.

150. The Receiver fully anticipates making an Initial Distribution to the holders of

Allowed Claims no later than the end of the 2018 calendar year.

151. Before making the Initial Distribution, ⁋ 8(xi) of the Plan Approval Order

requires the Receiver to fund an account with adequate reserves to ensure that if a Remaining

Disputed Claim (as that term is used in the Motion for Plan Approval) is Allowed, the Receiver

shall have funds left to pay such Allowed Claim in the amount provided for in the Plan of

Distribution for such category of Claimant (the “Reserve Account”). To that end, consistent with

the treatment of “Remaining Disputed Claims” set forth in Exhibit B to the Plan Approval

Order, the Receiver shall deposit the appropriate amounts into the Reserve Account on account

of ICBC’s potentially secured claim, the potential Initial Distributions due Advanced

Entertainment and N. Fortino, and possible Tax Claims.


37

152. After establishing the Reserve Account, the Receiver will include updates on the

status of the Reserve Account and the Remaining Disputed Claims in the Receiver’s Quarterly

Reports.

153. Pursuant ⁋ 8(vii) of the Plan Approval Order, in order to receive a distribution,

holders of Allowed Claims:

[M]ust submit to the Receiver either a completed W-9 form, if the holder is

treated as a United States entity or citizen by the Internal Revenue Service, or W-

8 form, if the holder is treated as a non-U.S. entity or citizen by the Internal

Revenue Service. The holder of an Allowed Claim that fails to provide either a

W-9 or W-8 form (as applicable) within 180 days of the entry of the Order

Approving Plan of Distribution becoming final and no longer appealable shall be

deemed to have forfeited any distribution to which they would otherwise be

entitled (a "Forfeited Distribution").

154. Accordingly, after the Report Period but prior to the filing of this Report, the

Receiver contacted each holder of an Allowed Claim who is entitled to a distribution from the

Initial Distribution to inform them of the terms of the Plan Approval Order and to collect the

required documentation. After these prerequisites are satisfied, the Receiver will be authorized to

make the Initial Distribution.

I. Receiver’s Recommendation

155. The Receiver recommends the continuation of the receivership for the same

reasons he was appointed by this Court: primarily, substantial Receivership Assets exist that may

be recovered, liquidated, and distributed for the benefit of the victims of the Defendants.

III. CONCLUSION

156. During the Report Period, the Receiver diligently exercised his duties pursuant to

the terms of the Receivership Orders and made significant progress in investigating, marshalling

and liquidating Receivership Assets for distribution to the holders of Claims against the

Receivership Estate. Items requiring significant work by the Receiver and his professionals, as


38

discussed in more detail below, were finalizing the plan of distribution and the motion seeking its

approval and related relief, investigating and analyzing additional causes of action, and

continuing to litigate previously commenced civil actions.

157. Thus, the Receiver respectfully submits that through this process of marshalling

and liquidating the Receivership Assets, determining claims, and making distributions—subject

to further orders of this Court as required by the Receivership Orders or otherwise—a fair,

reasonable and efficient resolution to the Receivership Estate will be accomplished.

Dated at Bridgeport, Connecticut, this 31st day of October, 2018.

Respectfully submitted,

JED HORWITT, ESQ., RECEIVER

By: /s/Stephen M. Kindseth

Stephen M. Kindseth (ct14640)

Rion M. Vaughan (ct30440)

Zeisler & Zeisler, P.C.

10 Middle Street, 15th

Floor

Bridgeport, CT 06604

Telephone: 203-368-4234 X 245

Facsimile: 203-549-0903

Email: [email protected]

[email protected]

His Attorneys


mailto:[email protected]

mailto:[email protected]

39

CERTIFICATE OF SERVICE

I, Stephen M. Kindseth, hereby certify that a copy of foregoing was filed electronically

and served by mail on anyone unable to accept electronic filing. Notice of this filing will be sent

by e-mail to all parties by operation of the Court’s electronic filing system or by mail to anyone

unable to accept electronic filing as indicated on the Notice of Electronic Filing. Parties may

access this filing through the Court’s CM/ECF System.

/s/Stephen M. Kindseth

Stephen M. Kindseth (ct14640)


EXHIBIT A

SCHEDULE OF RECEIPTS AND DISBURSEMENTS

For Quarterly Period July 1, 2018 to September 30, 2018

This Quarter Duration of Receivership

Receipts $1,444,756.06 $2,565,021.85

Disbursements $0.00 (401,159.52)$

Net $1,444,756.06 $2,163,862.33

Case 3:17-cv-00155-KAD Document 74-1 Filed 10/31/18 Page 1 of 2

Name Known Address Date Submitted Submitted Claim Allowed Claim

Abacus Group Attn: Jonathan Bohrer 8/30/2017 49,091.74$ 49,091.74$

655 3rd Avenue

8th Floor

New York, NY 10017

Advanced Entertainment, LLC c/o Jeffrey R. Alexander, Esq. 9/28/2017 3,550,000.00$ Disputed

Kasowitz, Benson, Torres LLP

1633 Broadway

20th Floor

New York, NY 10019

A.L. Sarroff Management LLC c/o Brian J. Neville, Esq. 9/29/2017 1,200,000.00$ Disputed

Lax & Neville LLP

1450 Broadway

35th Floor

New York, NY 10018

Anchor Associates Attn: Val Schultz, President 10/3/2017 144,067.59$ $71,800.00

950 Third Ave.

25th Floor

New York, NY 10022

Anthony Sanfilippo 911 West Village Court 9/22/2017 500,000.00$ $349,154.24 Chicago, IL 60608

Brian J. McLaughlin 337 Engle Street Prior to 9/18/2017 100,000.00$ $100,000.00

Tenafly, NJ 07670

Carol Ferrante 2001 Hamilton St. 9/20/2017 500,000.00$ $500,000.00

Apt. 1415

Philadelphia, PA 19130

Cogent Communications, Inc. Attn: Bobby Barse 9/5/2017 4,887.62$ $4,887.62

2450 N. Street, NW

Washington, DC 20037

Constantine (Dean) Generalis c/o Adam S. Miller, Esq. 9/25/2017 400,000.00$ $400,000.00

Kauff Laton Miller LLP

950 Third Avenue

New York, NY 10022

Dartley Grandchildren, LLC c/o Matthew Carroll 10/4/2017 950,000.00$ $920,000.00

77 Bedford Road

Katonah, NY 10536

Donald E. Foley and Barbara Long 12 Mead Mews 9/27/2017 300,000.00$ $300,000.00

Cos Cob, CT 06807

Flatiron Partners c/o Teresa Trzaskoma, Esq. 9/28/2017 4,496,205.28$ $4,014,992.62

Sher Tremonte LLP

90 Broad St.

23rd Floor

New York, NY 10004

EXHIBIT B



Greybox Creative Attn: Stephen Ruisi-Boccone 8/25/2017 40,750.00$ $40,750.00

50 Court Street

Suite 700

Brooklyn, NY 11201GRTD, LLC c/o Gary Rosenbach 9/7/2017 6,606,598.22$ $5,000,000.00

103 Rockledge RoadVail, CO 81657

Attn: Oleh Wlasenko 9/29/2017 34,730.00$ Disputed

1633 Broadway

New York, NY 10019

c/o Kelly Koscuiszka, Esq.

Schutle Roth & Zabel LLP

919 Third Avenue

New York, NY 10022

Edwin John Glatzel/Oak Bluff Capital, LLC 21 Ridgeway Road Prior to 9/18/2017 72,710.00$ -$

Easton, CT 06612

Joseph Conetta 70 West 93rd Street 9/26/2017 75,000.00$ -$

Apt. 25G

New York, NY 10025

Kristian and Yolanda Agoglia c/o Paul F. Millus, Esq. 9/29/2017 2,940,000.00$ $2,850,000.00

Meyer, Suozzi, English & Klein, P.C.

990 Stewart Avenue

Suite 300

P.O. Box 9194

Garden City, NY 11530

Masotti Managed Investments, LLC c/o Joshua Cohen, Esq. 9/25/2017 1,103,663.45$ $1,103,663.45

Day Pitney LLP

One Audubon Street

New Haven, CT 06511

Attn: John W. Masotti, Manager

1100 Summer Street

Suite 401

Stamford, CT 06905

Melva Construction Company Attn: Christos Batalias, President 9/22/2017 256,000.00$ $115,000.00

36-23 23rd Street

Long Island City, NY 11106

Neila Fortino c/o Jonathan Cannavino, Esq. 9/15/2017 4,038,000.00$ Disputed

c/o David Martin, Esq.

Cummings & Lockwood LLC

Six Landmark Square

Stamford, CT 06901

Nevena Vatachka 24 Paragon Lane 9/29/2017 10,720.00$ -$

Stamford, CT 06905

Powerplay* c/o Nicholas Adamucci, Esq. 9/29/2017 100,000.00$ $93,283.36

Law Offices of Nicholas Adamucci

270 Greenwich Ave.

Greenwich, CT 06830

Quadrant Plus Partners, LP Attn: Andrew Lydon 8/16/2017 465,430.27$ Disputed

1015 Riverwalk Dr.

Phoenixville, PA 19460

Rajo Capital Management Attn: Richard Calta 9/25/2017 133,181.00$ Disputed

9901 N. 50th St.

Paradise Valley, AZ 85253

Recovery Fund I LLC c/o Adam Witkov, Esq. 8/29/2017 33,003.14$ -$

Michael Best & Friedrich LLP

100 East Wisconsin Ave.

Suite 3300

Milwaukee, WI 53202

Industrial and Commercial Bank of China

Financial Services, LLC

2 of 3



Recovery Fund I LLC c/o Adam Witkov, Esq. 8/29/2017 518,603.11$ 500,000.00$

Michael Best & Friedrich LLP

100 East Wisconsin Ave.

Suite 3300

Milwaukee, WI 53202

Scott K. Banerjee 60 E. 8th Street 9/29/2017 100,000.00$ $100,000.00

Apt. 20E

New York, NY 10003

Shuhei Sato 1010 Prospect Ave. 9/26/2017 151,554.92$ $151,554.92

Pelham Manor, NY 10803

TAM Industries LLC Attn: Thomas Milana, Jr. 9/5/2017 138,499.50$ $121,809.50

11 Black Rock Road

Muttontown, NY 11545

Terry Gargano* c/o Nicholas Adamucci, Esq. 9/28/2017 85,000.00$ See Powerplay

Law Offices of Nicholas Adamucci

270 Greenwich Ave.

Greenwich, CT 06830

Thomas Milana, Jr. 11 Black Rock Road 9/5/2017 321,915.47$ $321,915.47

Muttontown, NY 11545

Todd Deutsch 2 Bridle Court 9/28/2017 3,013,383.88$ $1,000,000.00

Oyster Bay Cove, NY 11771

TOTAL 32,432,995.19$ $18,107,902.92

*For the reasons stated in the Motion for Plan Approval, the Claims of Powerplay and Terry Gargano have been consolidated.

3 of 3
