united states district court district of...

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UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

SECURITIES AND EXCHANGE COMMISSION, )

)

Plaintiff, )

)

v. ) Civil Action No.

) 3:17-cv-00155-VAB

)

MARK J. VARACCHI and )

SENTINEL GROWTH FUND )

MANAGEMENT, LLC, )

)

Defendants, )

and )

)

RADAR ALTERNATIVE FUND LP and )

RADAR ALTERNATIVE MASTER FUND SPC, )

)

Relief Defendants. )

)

MOTION FOR ENTRY OF AN ORDER APPROVING SETTLEMENT

AGREEMENT BETWEEN JED HORWITT, RECEIVER, WEEDEN PRIME

SERVICES, LLC, SAXON PRIME HOLDINGS, LLC AND SYED MAHMOUD KHALID

By this motion (the “Motion”), Jed Horwitt, Esq., in his capacity as the Court-appointed

receiver (the “Receiver”) for Sentinel Growth Fund Management, LLC (“Sentinel”), Radar

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

together with Radar LP, collectively, the “Relief Defendants” or the “Radar Funds” and the Relief

Defendants together with Sentinel, collectively, the “Receivership Defendants”), respectfully

seeks an Order (i) authorizing the Receiver to enter into that certain settlement agreement (the

“Settlement Agreement”) with Weeden Prime Services, LLC (“WPS”), Saxon Prime Holdings,

LLC (“SPH”) and Syed Mahmoud Khalid (“Khalid” referred to collectively with WPS and SPH

as the “Settling Parties”), dated as of June 28, 2019, and attached hereto as Exhibit 1; and (ii)

approving the terms and conditions set forth therein (the “Settlement”).

Case 3:17-cv-00155-VAB Document 115 Filed 07/08/19 of 17

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The plaintiff, Securities and Exchange Commission (the “Commission”), and the

defendant, Mark J. Varacchi (“Varacchi”) (through counsel), have represented that they have no

objection to the relief requested by this Motion. In support of the requested relief, the Receiver

respectfully represents as follows:

FACTUAL BACKGROUND AND NATURE OF THE PROCEEDINGS

1. On February 2, 2017, the Commission commenced this civil action by filing its

complaint (the “Commission’s Complaint”) against the defendants, Varacchi and the Receivership

Defendants, in the United States District Court for the District of Connecticut.

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

of a Receiver (ECF No. 10, the “Motion to Appoint”) seeking the appointment of Jed Horwitt,

Esq. to serve as receiver for the Receivership Defendants.

3. On May 1, 2017, this Court entered the Receivership Order and appointed Jed

Horwitt, Esq. to serve as receiver over the Receivership Estate and the Receivership Assets as

defined therein. (ECF No. 12). “Receivership Assets” and the “Receivership Estate” are defined

interchangeably in the Receivership Order as “all property of whatever kind of Sentinel and the

Relief Defendants…including the Radar Funds’ remaining assets . . . and any additional assets of

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

4. On February 14, 2018, the District Court entered its Order Reappointing and

Reaffirming Jed Horwitt, Esq., as Receiver (“Reappointment Order”) over the Receivership Estate

and the Receivership Assets, on the identical terms as set forth in the original Receivership Order.

5. Under the terms of the Receivership Order and Reappointment Order, 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


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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 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).

6. The Receivership Order and Reappointment Order provide that although leave of

the District Court is required “to resume or commence certain litigation,” the Receiver “is

authorized, empowered, and directed to investigate, prosecute, defend, intervene in or otherwise

participate in, compromise, and/or adjust actions in any state, federal or foreign court or proceeding

of any kind as may in his discretion, and in consultation with the SEC counsel, be advisable or

proper to recover and/or conserve Receivership Assets.” (Id. ¶ 19.)

7. Thus, although the Receiver generally has the authority to enter into the Settlement

and the Settlement Agreement without any further order from this Court, in this particular instance,

considering the claims and amounts involved, the interests of disclosure to all parties-in-interest

in this Receivership Proceeding, and the desire for affirmation of the Settlement and Settlement

Agreement, the Receiver by this motion seeks this Court’s specific approval and authorization.

NATURE OF THE RECEIVER’S CLAIMS AGAINST THE SETTLING PARTIES

Background

8. Varacchi has admitted to operating a Ponzi scheme through the Receivership

Defendants. Varacchi consented to the entry of Judgment in favor of the SEC in the SEC Action

and, in a separate criminal proceeding pending before the Southern District of New York, pled

guilty to criminal charges. (See Doc. No. 11-1). More specifically, in United States v. Varacchi,


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Crim. No. 1:17-cr-00076-NRB (S.D.N.Y.), Varacchi pled guilty to a criminal information

charging him with counts of securities fraud, wire fraud, and conspiracy to commit securities and

wire fraud. “The criminal information charged Defendant Varacchi with misappropriating, for the

benefit of himself and others, funds that investors provided Sentinel for the purchase and sale of

securities, and then obtaining funds from other investors in order to make payments to investors

whose funds he had misappropriated.” (Id. ¶ 2.)

9. The Receiver has determined that Varacchi used more than $10 million of the

Receivership Defendants’ funds to acquire assets for himself and to pay for his own personal

expenses and other liabilities. The Receiver also determined that Varacchi’s victims were

collectively owed approximately $20 million at the time the Court appointed the Receiver.

10. From the inception of Sentinel and Radar LP in approximately September, 2013

(and from the inception of Radar SPC in or about 2015), through the collapse of Varacchi’s Ponzi

scheme in or about December, 2016, WPS was the Radar Funds’ introducing prime broker-dealer.1

11. In 2013, before the relationship between the Receivership Defendants and WPS

began, WPS’ sole member acquired the business that is now WPS from SPH. Khalid was a

member of SPH and functioned in different roles at WPS between 2013 and 2016, including as

CEO for some of that time period. He remained an “Associated Person” of WPS as that term is

defined by the Financial Industry Regulatory Authority (“FINRA”) during that time period.

12. In November, 2018, the Receiver notified the Settling Parties through counsel that

he intended to seek leave from this Court to commence a FINRA arbitration against some of the

Settling Parties and others asserting claims (i) to avoid and recover fraudulent transfers; and (ii)

1 An introducing broker is a broker-dealer who introduces customer accounts to a clearing broker-dealer.

Carrying customer accounts (i.e.., holding cash and securities on customers’ behalf) and settling customer

trades requires a large infrastructure and substantial capital. Most small and medium size broker-dealers,

including WPS, lack the requisite infrastructure and capital to perform these functions and instead contract

with one or more clearing brokers to provide these services for their customers.


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for aiding and abetting Varacchi’s tortious conduct.

13. The Settling Parties adamantly denied any and all liability to the Receiver and stated

their intention to vigorously defend all claims if the Receiver pursued them. Nonetheless, the

Settling Parties expressed an interest in resolving the Receiver’s claims in order to avoid the cost

and risk of binding arbitration. The Receiver agreed to participate in settlement discussions, during

which the parties voluntarily exchanged and disclosed information, and which lead to the

Settlement that the Receiver now requests the Court approve.

SUMMARY OF THE RECEIVER’S ALLEGATIONS COMMON TO ALL CLAIMS

14. WPS originally introduced the Receivership Defendants to Goldman Sachs

Execution & Clearing, L.P. (“GSEC”), which served as the clearing broker for Radar LP from

approximately September, 2013, to December, 2013. GSEC terminated its relationship with Radar

LP in or about December, 2013, at which point WPS introduced the Receivership Defendants to

the Industrial and Commercial Bank of China Financial Services, LLC (“ICBC”), which served as

the Radar Funds’ clearing broker from approximately January, 2014 through the collapse of

Varacchi’s scheme in late 2016.

15. The Receiver believes that certain compliance issues occurred in and related to the

Radar Funds’ account such that, from the Receiver’s perspective, a reasonable person in the

Settling Parties’ position should have known of sufficient indicia of fraud to investigate further,

and had they done so they should have uncovered Varacchi’s fraud. The Receiver further believes

there is a significant likelihood he could establish that by no later than November or December,

2015, the Settling Parties (or one or more of their agents) either knew or should have known

Varacchi was engaged in fraudulent conduct. The Settling Parties vigorously contest the

Receiver’s perception of the events that transpired and the conclusions and inferences that the

Receiver alleges therefrom and contend they did not know, and could not have known, about any


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of Varacchi’s improper acts. The factual allegations giving rise to the Receiver’s claims against

the Settling Parties and the Settling Parties’ responses are summarized as follows, but, to be clear,

the Receiver’s allegations are disputed by the Settling Parties:

• From the beginning of Radar LP’s relationship with WPS, Radar LP’s trading activities

constantly resulted in “trade breaks” (a term referring to an event where the information

being reported from the buy-side and the sell-side of a securities transaction do not match)

and a high frequency of day trading margin calls (which result when a day trader, as defined

by the FINRA Rules, exceeds its day trading buying power). The Settling Parties deny

that these activities indicated fraud and assert that these activities did not indicate anything

other than ordinary course activity between an introducing broker-dealer and a customer.

• The Receiver maintains that journaling activity (transfers) between sub-accounts within

the Radar Funds’ “master account” that WPS supervised provided notice to the Settling

Parties that Varacchi co-mingled funds belonging to different beneficial owners. The

Settling Parties assert that transfers between sub-accounts within a master-sub-account

structure occur often and for a variety of legitimate reasons. They further assert that

because the master-account holder (in this case Radar LP and Radar SPC, respectively) is

the only customer with which WPS was in privity, the transfers between sub-accounts did

not and should not have alarmed it.

• The Receiver maintains that the occurrence of third-party investor deposits directly into

Radar LP’s account followed by withdrawals by Sentinel placed the Settling Parties on

notice that Sentinel was misappropriating investors’ money. The Settling Parties assert

that the Receiver is mistaken in believing that the Settling Parties had access to incoming

deposits. The Settling Parties only saw withdrawals and therefore deny that these

transactions placed it on notice of any improprieties. The Settling Parties further assert a

number of innocent and ordinary explanations for these transactions.

• The Receiver has identified what it believes to be two instances in which a person known

by the Settling Parties to be an investor in Radar LP provided to the Settling Parties falsified

investment documents that the investor received from Varacchi and asked the Settling

Parties to verify them. The Settling Parties deny that they knew these documents were

fraudulent and assert that no individual who viewed the documents had access to Radar

LP’s account information. The Settling Parties further assert that the casual nature of the

investor inquiries was not of the type that would prompt a formal response or investigation

by WPS and that the investor intentionally provided false information during these

communications.


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THE RECEIVER’S CLAIMS AGAINST THE SETTLING PARTIES

The Fraudulent Transfer Claims Against WPS and an Affiliate

16. “Once it is determined that a Ponzi scheme exists, all transfers made in furtherance

of that Ponzi scheme are presumed to have been made with fraudulent intent.” Sec. Investor Prot.

Corp. v. Bernard L. Madoff Inv. Secs. LLC, 531 B.R. 439, 471 (Bankr. S.D.N.Y. 2015).

17. Based on his review of records received from WPS, the Receiver believes that WPS

received approximately $1.5 million in gross commissions, ticket charges, interest and other fees

during the course of its relationship with the Radar Funds, some of which it paid to the broker who

introduced Radar LP to WPS. An affiliate of WPS also received approximately $850,000 in

commissions and other charges, substantially all of which was directed to third-party service

providers.

18. Even though these commissions and other charges were paid in relation to actual

securities transactions and at ordinary and customary rates, the Receiver believes an arbitration

panel could find that Varacchi caused them to be made in furtherance of a Ponzi scheme, because

the Radar Funds’ legitimate trading activities were essential to Varacchi’s scheme, and without

them Varacchi could not have attracted investors. Moreover, courts within the Second Circuit

have applied the Ponzi scheme presumption to payments made by a Ponzi scheme to broker-

dealers on account of actual securities transactions. See e.g., Bear, Stearns Sec. Corp. v. Gredd

(In re Manhattan Inv. Fund Ltd.), 397 B.R. 1, 13 (S.D.N.Y. 2007) (payments to prime broker’s

margin account to pay for securities transactions “were essential to the continuation of the scheme.

. . . Because the Fund’s only strategy was to short-sell technology stocks, it had to keep it’s account

at Bear Stearns operational in order to survive.”).

19. Thus, the Receiver contends that the commission and other payments to WPS and

its affiliate constitute avoidable fraudulent transfers pursuant to Connecticut’s Uniform Fraudulent


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Transfer Act, Conn. Gen. Stat. § 52-552a et seq. (“CUFTA”). Under CUFTA, a transferee of an

otherwise avoidable fraudulent transfer may, nonetheless, retain the transfer if it can establish an

affirmative defense by a preponderance of the evidence that it received the transfer in good faith

and in exchange for reasonably equivalent value. See Conn. Gen. Stat. § 52-552i(a). The Receiver

does not dispute that WPS and its affiliate provided value to the Radar Funds. Thus, absent a

settlement, the Receiver believes that the outcome of his fraudulent transfer claims would turn on

whether WPS and its affiliate could establish a good-faith defense at the time of each transfer.

20. “The UFTA does not define the term good faith; however, Connecticut courts have

borrowed from bankruptcy law where, in order to prove good faith, the transfer must have occurred

in an arms-length bargain, and the transferee must have no intent to, or knowledge of the fact that

[the] transaction will, hinder, delay, or defraud others.” Quantam Sail Design Grp., LLC v. Liberty

Enters., No. 3:03cv281 (WWE), 2004 U.S. Dist. LEXIS 9679, at *6 (D. Conn. Mar. 26, 2004).

“[G]ood faith can be broken down into two parts: (1) whether [the transferee] was on inquiry notice

of the Fund’s fraud and (2) [if so] whether [the transferee] was diligent in its investigation of the

Fund. . . . An objective standard applies to both questions.” In re Manhattan Inv. Fund Ltd., 397

B.R. at 22-23. Said differently, the question is whether the facts that the transferee knew or

reasonably should have known should have triggered a reasonable investor to investigate (an

objective standard), and, if so, whether the transferee performed a reasonably diligent

investigation.

21. The Receiver questions whether WPS could establish a good-faith defense in light

of the red flags the Receiver claims existed that the Receiver believes were not diligently

investigated.

22. In response, WPS asserts that innocent third-party portfolio managers (not

Varacchi) directed a significant portion of the trades that generated the commissions, and,


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therefore, the Ponzi scheme presumption does not apply to those transfers. WPS further maintains

that it always acted in good faith (objectively and subjectively), and further pointed out that the

vast majority of the evidence on which the Receiver would rely to refute good faith applies only

to WPS (and not any of its affiliated entities). The Receiver acknowledges that the evidence he

presently has concerning WPS’ affiliate is considerably more tenuous and circumstantial than that

concerning WPS, which is why the Receiver ultimately did not require the affiliate to contribute

to the Settlement.

The Receiver’s Aiding and Abetting Claims Against the Settling Parties

23. Before reaching the substantive merits, certain courts have held in certain contexts

that as a threshold matter a trustee or receiver appointed to unwind the aftermath of a fraudulent

scheme lacks standing to assert aiding and abetting claims and/or is barred from asserting these

types of claims based on the doctrine of in pari delicto. See Picard v. JP Morgan Chase & Co.

(In re Madoff), 721 F.3d 54 (2d. Cir. 2013).

24. However, as Chief Judge Underhill succinctly stated in a similar context, “[the

Picard v. JP Morgan Chase & Co.] decision does not apply here, where the Receiver has been

appointed to bring claims on behalf of receivership entities that do not bear ‘substantially equal

responsibility for the injuries the Receiver seeks to redress.’” Carney v. Montes, 2014 U.S. Dist.

LEXIS 21769, at *23 n. 8 (D. Conn. 2014). “Whether [Varacchi] acted adversely to the interests

of the receivership entities, or whether he ‘totally abandoned’ the interests of the organizations or

acted alone in carrying out his bad acts, does not bar the Receiver’s claims; the Receiver has been

appointed to bring claims on behalf of the receivership entities, and [Varacchi], the wrongdoer,

will not benefit from the recovery of receivership property.” Id. at *33.

25. Furthermore, even if Connecticut law required the Receiver to establish the adverse

interest exception in order to avoid the application of in pari delicto due to imputation of


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Varacchi’s conduct to the Receiver, unlike in the Madoff case, which applied New York law,

Connecticut law construes the adverse interest exception more broadly and does “not consider an

extension of the corporation’s life as a result of fraud to be a material ‘benefit’ sufficient to

preclude it from coming within the adverse interest exception to the in pari delicto defense.’”

Montes, 2014 U.S. Dist. LEXIS 21769 at 32-33 n. 9 quoting Cobalt Multifamily Investors I, LLC

v. Shapiro, 857 F. Supp. 2d 419, 432 (S.D.N.Y. 2012). The Receiver believes that the adverse

interest exception would likely preclude the imputation of Varacchi’s conduct to the Receiver or

the Receivership Defendants. That said, the Receiver acknowledges that these issues, at minimum,

would add to the complexity, and likely the cost, of any litigation or arbitration with the Settling

Parties.

26. Beyond proving standing and overcoming an in pari delicto defense, to establish a

claim for aiding and abetting fraud, the Receiver must establish (i) the existence of a fraud; (ii) the

defendant’s knowledge of it; and (iii) the defendant’s substantial assistance or participation to

advance the fraud. See e.g. Lerner v. Fleet Bank, NA, 459 F.3d 273, 292 (2d. Cir. 2006). Similarly,

to establish a claim for aiding and abetting a breach of fiduciary duty, the Receiver must establish

(i) a breach of fiduciary duty; (ii) the defendant’s knowing participation; and (iii) damages. Id. at

294. Given that Mr. Varacchi admitted to perpetrating a Ponzi scheme through the Receivership

Defendants from mid-2013 through late 2016, the Receiver believes that, absent settlement, the

outcome of his aiding and abetting claims would largely turn on the Settling Parties’ knowledge

of and participation in Varacchi’s tortious conduct.

27. A defendant provides “substantial assistance” if it “affirmatively assists, helps

conceal, or by virtue of failing to act when required to do so enables [the fraud] to proceed.”

Chemtex, LLC v. St. Anthony Enters., 490 F. Supp. 2d 536, 547 (S.D.N.Y. 2007). While a financial

institution ordinarily may presume that a fiduciary of a customer will apply funds to their proper


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purpose, nevertheless, a financial institution “may be liable for participation in [a] diversion, either

by itself acquiring a benefit, or by notice or knowledge that a diversion is intended or being

executed. . . . Having such knowledge, [the firm is] under the duty to make reasonable inquiry and

endeavor to prevent a diversion." Lerner, 459 F.3d at 287-88. Said differently, “[w]hen put on

notice of a misappropriation of trust funds, [a financial institution is] obligated to take reasonable

steps to prevent the misappropriation that an investigation would uncover.” Id. at 295 citing

Bischoff ex rel. Schneider v. Yorkville Bank, 218 N.Y. 106, 111, 112 N.E. 759, 760 (1916); Home

Savings of America, FSB v. Amoros, 233 A.D.2d 35, 661 N.Y.S.2d 635 (1st Dep't 1997).2

28. While the Receiver believes for the reasons set forth above that the evidence would

support the conclusion that the Settling Parties were or should have been on notice that Varacchi

had engaged in at least some sort of fraudulent conduct, proving “actual knowledge” always

presents a very high hurdle and the Settling Parties adamantly deny the Receiver’s interpretation

of its evidence. The Settling Parties maintain that they did not learn, nor could have learned, of

Varacchi’s improper conduct from the facts relied on by the Receiver. Moreover, even if the

Receiver were to prove actual knowledge of fraud, the Receiver would also need to prove that the

Settling Parties “substantially assisted” Varacchi’s misconduct. Ultimately, the Receiver’s claims

would be highly fact-based and require a full-trial on the merits that would be hotly contested by

the Settling Parties.

SUMMARY OF THE MOST SIGNIFICANT SETTLEMENT TERMS

29. WPS has agreed to pay the Receiver $1,892,500 and SPH has agreed to pay the

2See also Yao-Yi v. Wilmington Tr. Co., 301 F. Supp. 3d 403, 425-26 (W.D.N.Y. 2017) (“Thus, where, as

here, a plaintiff alleges that a defendant bank was aware that investor funds were being chronically sapped

from fiduciary accounts and placed into other accounts for purposes that the defendant bank—allegedly—

knew were not what the investors intended, the bank acquires knowledge of a breach of a fiduciary duty,

and must attempt to prevent the diversion. The failure to act upon this duty represents inaction that rises to

the level of "substantial assistance" in the primary violator's fiduciary breach to the beneficiaries of the

fiduciary accounts.”).


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Receiver $232,500.00. These two payments amount to $2,125,000.

30. In connection with the Settlement, WPS has represented that the total consideration

received by it and its affiliates from the Receivership Defendants over the course of their

relationship does not exceed $2.5 million. In addition, Khalid represented that he never received,

directly or indirectly, compensation from the Receivership Defendants. Further, his compensation

from WPS was never directly increased as a result of trading revenues generated from the

Receivership Defendants. Khalid and SPH also represented that the financial disclosures they

provided to the Receiver through counsel were materially correct (as defined in the Settlement

Agreement) when made.

31. Finally, WPS and Khalid have agreed to cooperate with the Receiver’s ongoing

investigation and efforts to liquidate the Receivership Assets to the extent reasonably requested by

the Receiver.

32. In exchange for the foregoing and a general release of any claims that WPS, SPH

and Khalid may have against the Receivership Defendants and the Receivership Estate, the

Receiver will provide a general release to WPS and its affiliates, SPH and Khalid and their

affiliates.

33. The foregoing is only a summary of the most significant terms set forth in the

Settlement Agreement. The Settlement Agreement itself constitutes the sole and complete

articulation of the parties’ Settlement terms and conditions.

STANDARD FOR APPROVAL OF SETTLEMENTS IN EQUITY RECEIVERSHIPS

34. A district court has broad powers and wide discretion to determine relief in an

equity receivership. Official Comm. Of Unsecured Creditors of WorldCom, Inc. v. SEC, 467 F.3d

73, 81 (2nd Cir. 2006); SEC v. Byers, 637 F. Supp. 2d 166 (S.D.N.Y. 2009); SEC v. Credit

Bancorp, Ltd., 124 F. Supp. 2d 824 (S.D.N.Y. 2000); SEC v. Vescor Capital Corp., 599 F.3d 1189,


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1194 (10th Cir. 2010); SEC v. Elliott, 953 F.2d 1560, 1569-70 (11th Cir. 1992). This broad

discretion extends to this Court’s approval of the Settlement Agreement. Lemon v. Kurtzman, 411

U.S. 192, 200, 36 L. Ed. 2d 151, 93 S. Ct. 1463 (1973) ("[I]n shaping equity decrees, [a] trial court

is vested with broad discretionary power; appellate review is correspondingly narrow."); SEC v.

Certain Unknown Purchasers of the Common Stock of and Call Options for the Common Stock of

Santa Fe Int'l Corp., 817 F.2d 1018, 1020 (2nd Cir. 1987) (citing Lemon v. Kurtzman to determine

that approval of a settlement in an equity receivership is reviewed for abuse of discretion).

35. While there are no federal rules mandating a standard for approval of a settlement

in an equity receivership, (see Gordon v. Dadante, 336 Fed. App’x 540, 545 (6th Cir. 2009)),

courts overseeing such receiverships have approved settlements which affect the recovery and

distribution to creditors of Receivership Estates when the proposed settlement is found to be “fair

and reasonable” and when “such action is prudent in the administration of the assets of the estate.”

SEC v. Wang, 944 F.2d 80, 84 (2nd Cir. 1991); SEC v. Princeton Econ. Int'l Ltd., 99 Civ. 9667

(RO), 99 Civ. 9669 (RO), 2002 U.S. Dist. LEXIS 2059, at *2 (S.D.N.Y. Feb. 5, 2002). Similarly,

courts will approve settlements where the receiver has analyzed the fairness of the proposed

settlement, weighed the benefits and costs of the proposed settlement to the estate, and ultimately

found the proposed settlement to be in the best interests of the estate. SEC v. Credit Bancorp, Ltd.,

99 Civ. 11395 (RWS), 2002 U.S. Dist. LEXIS 14033, at *14 (S.D.N.Y. July 31, 2002).

36. Further, as a general matter, there is a “well-established policy of encouraging

settlements” in all contexts. United States v. Hooker Chem. & Plastics Corp., 776 F.2d 410, 411

(2nd Cir. 1985); see also Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 116-17 (public

policy favors settlement); accord Williams v. First Nat’l Bank, 216 U.S. 582, 595 (1910)

(“Compromises of disputed claims are favored by the courts ….”); TBK Partners, Ltd. v. W. Union


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Corp., 675 F.2d 456, 461 (2nd Cir. 1982) (noting “the paramount policy of encouraging

settlement”).

APPLICATION TO THE PRESENT CASE

37. The Receiver submits that the terms and conditions of the Settlement Agreement

are fair and reasonable and that the approval of the Settlement is in the best interest of the

Receivership Estate. Accordingly, this Court should approve the Settlement on the terms and

conditions set forth in the Settlement Agreement because it will bring about a speedy, just and

economical resolution of the Receivership Estate’s claims against the Settling Parties without the

need for engaging in costly and uncertain litigation or arbitration.

38. The Receiver has considered the value of the Settlement to the Receivership Estate

and weighed it against the release of the Receivership Estate’s claims against the Settling Parties.

The net benefit to the Receivership Estate will be substantial. Although the Receiver believes that

all of his claims against the Settling Parties have significant merit and could be successful if

arbitrated, the Settling Parties have colorable defenses and are postured to vigorously defend

against the Receiver’s claims in what would undoubtedly prove to be an extraordinarily expensive

and lengthy arbitration process. A dispute of this nature would require the staffing of multiple

attorneys and the engagement of multiple expert witnesses.

39. The Receiver believes that avoiding the cost of arbitration is particularly important

in this case, because even if the Receiver was successful on all of his claims, the Receiver likely

could not collect a large portion of the award. The measure of damages for aiding and abetting is

the damages caused by the primary actor. Vaughn v. Consumer Home Mortg. Co., 470 F. Supp.

2d 248, 269 (E.D.N.Y. 2007). The measure of damages incurred by a fund used by a Ponzi scheme

perpetrator to operate the scheme is the amount of monies improperly paid out from the fund. See

e.g., In re Bennett Funding Group, 1997 Bankr. LEXIS 2366, at *16-17 (Bankr. E.D.N.Y. Dec.


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19, 1997) citing Gordon v. Basroon (In re Plaza Mortgage & Fin. Corp.), 187 B.R 37, 44-45

(Bankr. N.D. Ga. 1995).

40. In this case, depending on when a fact finder determined one or more Settling

Parties became liable for aiding and abetting (assuming the fact finder made that finding), the

damages could theoretically be millions of dollars more than the settlement amount (although even

this calculation is disputed by the Settling Parties). However, WPS’ 2018 year-end publicly filed

FOCUS report (financials) reveals that WPS had approximately $4 million in relatively liquid net

capital and unsubstantial illiquid assets. Therefore, even if the Receiver won on all of his claims,

the Settling Parties’ resources would effectively cap the Receiver’s recovery. For that reason, the

Settling Parties’ legal fees and costs (in addition to the Receiver’s) would reduce the potential net

benefit to the Receivership Estate and its victims from an arbitration with the Settling Parties.3

41. For all of these reasons, the immediate recovery of $2,125,000 for the Receivership

Estate weighs heavily in favor of approving the Settlement. This amount exceeds all commissions

and compensation received by WPS from the Receivership Defendants over the course of their

entire relationship. The Settlement will increase the total assets available for distribution to victims

of the fraud and reduce legal expenses that would otherwise be necessary to pursue the Receiver’s

claims.

42. The Receivership Order and the Reappointment Order grant the Receiver broad

authority and discretion to negotiate settlements. In the exercise of this discretion, the Receiver

has determined that the Settlement is in the best interests of the Receivership Estate as compared

to the costs, risks and time-delay inherent to arbitration and litigation. Therefore, it is well within

3 The Receiver has reviewed Khalid’s and SPH’s financial information, subject to a confidentiality

agreement. That information does not alter the Receiver’s analysis on this issue.


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the wide discretion granted to this Court in overseeing an equity receivership to approve this

Settlement, which is fair, reasonable, and in the best interests of the Receivership Estate.

43. Accordingly, the Receiver respectfully requests that the Court approve the

Settlement and approve and authorize the Receiver to enter into the Settlement Agreement.

CONCLUSION

44. For the reasons set forth above, the Receiver respectfully requests that the Court

grant the Motion, approve the terms and conditions of the Settlement Agreement in the form

attached hereto as Exhibit 1 and authorize the Receiver to enter into the Settlement Agreement.

Dated this 8th day of July, 2019, at Bridgeport, Connecticut

Respectfully submitted,

JED HORWITT, ESQ., RECEIVER

/s/ Jed Horwitt

Jed Horwitt, Receiver

By: /s/ Aaron A. Romney

Stephen M. Kindseth (ct14640)

Aaron A. Romney (ct28144)

Zeisler & Zeisler, P.C.

10 Middle Street, 15th Floor

Bridgeport, CT 06604

Telephone: 203-368-4234

Facsimile: 203-549-0903

Email: [email protected]

[email protected]

His Attorneys


mailto:[email protected]

mailto:[email protected]

17

CERTIFICATE OF SERVICE

I hereby certify that on July 8th, 2019, a copy of the foregoing Motion for Entry of an

Order Approving Settlement Agreement was filed electronically and served on all appearing parties

through the Court’s CM/ECF System or by mail on any appearing party unable to accept electronic

filing. Notice of this filing will be sent by e-mail to all appearing parties by operation of the court’s

electronic filing system or by mail to any appearing party unable to accept electronic filing as

indicated on the Notice of Electronic Filing. Interested parties may access this filing through the

Court’s CM/ECF System or at the Receiver’s website: http://jedhorwittreceiver.com

/s/ Aaron A. Romney

Aaron A. Romney


http://jedhorwittreceiver.com/

UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

)

SECURITIES AND EXCHANGE COMMISSION, )

)

Plaintiff, )

)

v. ) Civil Action No.

) 3:17-cv-00155-VAB

MARK J. VARACCHI and )

SENTINEL GROWTH FUND )

MANAGEMENT, LLC, )

)

Defendants, )

and )

)

RADAR ALTERNATIVE FUND LP and )

RADAR ALTERNATIVE MASTER FUND SPC, )

)

Relief Defendants. )

)

SETTLEMENT AGREEMENT

This Settlement Agreement (“Settlement Agreement”) is made as of this 28th day of June

2019 by and between Jed Horwitt, Esq., in his capacity as the Court-appointed receiver (the

“Receiver”) for Sentinel Growth Fund Management, LLC (“Sentinel”), Radar Alternative Fund

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

LP, the “Relief Defendants,” and the Relief Defendants together with Sentinel, the “Receivership

Entities”), on the one hand, and Weeden Prime Services, LLC (“WPS”), Saxon Prime Holdings,

LLC (“SPH”), and Syed Mahmoud Khalid (“Khalid,” referred to collectively with SPH and WPS

as the “Settling Parties”), on the other hand, subject to the approval of the United States District

Court for the District of Connecticut (the “District Court”), the Honorable Victor A. Bolden

presiding.

Case 3:17-cv-00155-VAB Document 115-1 Filed 07/08/19 Page 1 of 15

2

WHEREAS, on February 2, 2017, the United States Securities and Exchange Commission

(the “Commission” or the “SEC”) commenced an action in the United States District Court for the

District of Connecticut captioned Securities and Exchange Commission v. Mark J. Varacchi, et

al., (Civil Action No.: 3:17-cv-00155-VAB) by filing a complaint against Mark J. Varacchi

(“Varacchi”) and the Receivership Entities; and

WHEREAS, on April 18, 2017, the Commission filed its Assent to Motion for

Appointment of a Receiver (ECF No. 10) seeking the appointment of Jed Horwitt, Esq., to serve

as receiver for the Receivership Entities; and

WHEREAS, on May 1, 2017, the District Court entered an Order appointing Jed Horwitt,

Esq., to serve as Receiver (the “Receivership Order”) over the Receivership Estate and the

Receivership Assets. (ECF No. 12). “Receivership Assets” and the “Receivership Estate” are

defined interchangeably in the Receivership Order as “all property of whatever kind of Sentinel

and the Relief Defendants…including the Radar Funds’ remaining assets . . . and any additional

assets of the Receivership [Entities] that may be recovered…” (id. ¶ 1); and

WHEREAS, on February 14, 2018, the District Court entered its Order Reappointing and

Reaffirming Jed Horwitt, Esq., as Receiver (the “Reappointment Order”) over the Receivership

Estate and the Receivership Assets, on the identical terms as set forth in the original Receivership

Order; and

WHEREAS, under the terms of the Receivership Order and the Reappointment Order, 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 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


3

Assets and relevant records from the Receivership Entities (id., ¶ 5. A.), 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); and

WHEREAS, the Receivership Order and the Reappointment Order provide that although

leave of the District Court is required “to resume or commence certain litigation,” the Receiver “is

authorized, empowered, and directed to investigate, prosecute, defend, intervene in or otherwise

participate in, compromise, and/or adjust actions in any state, federal or foreign court or proceeding

of any kind as may in his discretion, and in consultation with the SEC counsel, be advisable or

proper to recover and/or conserve Receivership Assets.” (Id. ¶ 19.); and

WHEREAS, in November 2018, the Receiver notified WPS’s counsel that the Receiver

intended to commence an arbitration proceeding before the Financial Industry Regulatory

Authority (“FINRA”) to assert claims against certain of the Settling Parties and others related to

brokerage services that WPS previously provided to the Relief Defendants (the “Proposed

Claims”); and

WHEREAS, the Settling Parties denied any wrongdoing or any basis for the Receiver to

assert claims against them and requested an opportunity to discuss the Proposed Claims with the

Receiver before the Receiver commenced an arbitration proceeding in order to explore an amicable

resolution of the Proposed Claims; and

WHEREAS, the Receiver agreed to discuss the Proposed Claims with the Settling Parties

and to explore an amicable resolution thereof in exchange for a temporary tolling agreement (the


4

“Tolling Agreement”), which the Receiver and the Settling Parties have since mutually agreed to

extend from time to time and which remains in place as of the date hereof; and

WHEREAS, the Settling Parties dispute the factual and legal bases of the Proposed Claims

and have vigorously presented to the Receiver during settlement negotiations reasons why, in the

Settling Parties’ view, the Proposed Claims and/or related allegations were inaccurate, erroneous,

or false; and

WHEREAS, the Receiver and the Settling Parties have considered the estimated costs,

risks, and delays associated with arbitrating the Proposed Claims, and after good faith, arm’s length

negotiations, and without collusion, the parties hereto have agreed to resolve any and all claims

and causes of action that could potentially have been asserted between them on the terms and

subject to the conditions set forth in this Settlement Agreement; and

WHEREAS, the Settling Parties assert that the Settling Parties had no direct or knowing

involvement in Varacchi’s tortious and fraudulent conduct,

NOW, THEREFORE, in consideration of and reliance on the mutual covenants and

agreements herein, subject to the terms and conditions herein, and with the intent to be legally

bound, it is hereby agreed by and between the Receiver and the Settling Parties in full and final

settlement of any and all potential claims and causes of action by and between the Receiver and

the Settling Parties as follows:

1. Settlement Payment

A. WPS shall pay to the Receiver, and the Receiver shall accept from WPS in

settlement of all potential claims against it, the sum of One Million Eight Hundred and Ninety

Two Thousand Five Hundred Dollars ($1,892,500.00) (the “WPS Settlement Payment”), made

payable in good and immediately available funds (bank or certified check or wire transfer) and


5

delivered to Jed Horwitt, Receiver, care of the Receiver’s counsel, Zeisler & Zeisler, P.C., 10

Middle St., 15th Fl., Bridgeport, CT 06604.

B. SPH shall pay to the Receiver, and the Receiver shall accept from SPH in settlement

of all potential claims against it and Khalid, the sum of Two Hundred Thirty-Two Thousand Five

Hundred Dollars ($232,500.00) (the “SPH Settlement Payment”), made payable in good and

immediately available funds (bank or certified check or wire transfer) and delivered to Jed Horwitt,

Receiver, care of the Receiver’s counsel, Zeisler & Zeisler, P.C., 10 Middle St., 15th Fl.,

Bridgeport, CT 06604.

C. The WPS Settlement Payment and the SPH Settlement Payment shall be delivered

to the Receiver’s counsel on or before the later of (i) five (5) business days after the Receiver

notifies WPS, SPH, and Khalid in writing of the entry of an order by the District Court approving

this Settlement Agreement (the “Approval Order”); (ii) July 31, 2019, if the sale of WPS’s affiliate

closes on or before July 12, 2019, the occurrence of which WPS shall promptly notify the Receiver

and Khalid in writing; or (iii) within ten (10) business days of the date the sale of WPS’s affiliate

closes if the closing occurs after July 12, 2019, the occurrence of which WPS shall promptly notify

the Receiver and Khalid in writing, but in no event shall payment be made later than September

30, 2019.

2. The Settling Parties’ Affirmative Representations

This Settlement Agreement is being entered into by the Receiver in reliance upon the

following representations (the “Representations”):

(i) WPS represents that on and after September 1, 2013, neither it nor its affiliate

(Weeden & Co. L.P.) received, directly or indirectly, any property from, or property

of, Varacchi or the Receivership Entities, of any nature whatsoever, other than


6

brokerage commissions and other ordinary charges incidental to brokerage services

actually performed by WPS or its affiliate on behalf of the Receivership Entities,

which commissions and compensation do not exceed $2.5 million;

(ii) Khalid represents that on and after September 1, 2013, he never received, directly

or indirectly, any property from, or property of, Varacchi or the Receivership

Entities, of any nature whatsoever. For the avoidance of doubt, the foregoing does

not include his compensation from WPS, which compensation was never directly

increased as a result of trading revenues generated from the Receivership Entities;

and

(iii) Khalid and SPH represent that the financial disclosures provided to the Receiver on

or about February 13, 2019, including the information and explanations related

thereto that their counsel communicated to the Receiver’s counsel via email on

February 13 and 14, 2019, were materially correct (as defined below) when made.

If, at any time, any of the Representations are determined, pursuant to a decision rendered by an

arbitrator or arbitrators appointed through FINRA’s dispute resolution process, to have been

materially false as of the date of this Settlement Agreement (or, in the case of Khalid’s financial

representations referenced in paragraph 2(iii), when they were made), WPS and/or Khalid, as

applicable, shall be deemed in breach of this Agreement and the Receivership Entities may seek

appropriate relief, including damages resulting from or related to the breach as determined by the

duly appointed arbitrator or arbitrators. Notwithstanding the foregoing, prior to the commencement

of any proceeding to obtain an order concerning the veracity of any Representation made by a

Settling Party, the Receiver must provide at least seven (7) days’ notice to the Settling Party or

Parties against whom the order will be sought (the “Notice”). The Notice must contain a reasonably


7

detailed description of the factual and legal basis of the alleged materially false representation(s).

The term “materially false” shall mean, with regard to monetary representations, a difference of

$75,000.00 or greater. The Receiver, SPH, and Khalid acknowledge that as to the financial

disclosures referenced in paragraph 2(iii), Khalid has since disclosed that a tax liability was

underestimated by approximately $60,000.00 and that SPH’s assets were underestimated by

approximately $46,000.00. The Receiver, SPH, and Khalid further acknowledge that neither of the

foregoing variances from the financial disclosures shall be counted towards or otherwise affect the

$75,000.00 materiality threshold described in this paragraph.

For the sake of clarity, Khalid’s prior representation that he has not engaged in any non-

ordinary course transfer since 2014 applies equally to SPH. For purposes of that representation,

“non-ordinary course” transfers include any material transfer (as defined herein) made by Khalid

or SPH for less than reasonably equivalent value (excluding payment of children’s education

expenses).

3. Cooperation. WPS and Khalid agree to cooperate with and make themselves (or their

agents in the case of WPS) reasonably available to the Receiver and the Receiver’s counsel if the

Receiver or the Receiver’s counsel reasonably requests that they do so in connection with any

matter concerning the administration of the Receivership Estate, including giving truthful

testimony in any litigation to which the Receiver is or may become a party.

4. Mutual Releases

A. WPS.

Provided (i) the District Court has entered the Approval Order fully in accordance with the

terms and conditions of ¶ 5 of this Settlement Agreement and (ii) WPS has delivered the WPS

Settlement Payment to the Receiver fully in accordance with the terms and conditions of ¶ 1(A) of


8

this Settlement Agreement, the Receiver and the Receivership Estate release and forever discharge

(1) WPS and its predesccessors, successors, and assigns, and (2) WPS’s affiliates (including

without limitation Weeden & Co. L.P. and Weeden Investors L.P.) and their predecessors,

successors, and assigns from any and all known and unknown claims, disputes, demands, debts,

liabilities, obligations, contracts, agreements, causes of action, suits, attorneys’ fees, and/or costs

that the Receiver or the Receivership Entities hold or ever held for any reason whatsoever from

the beginning of the world to the date of the entry of the Approval Order.

In addition, provided that all conditions to the release provided for above in this ¶ 4(A) are

satisfied, the Receiver and the Receivership Estate release and forever discharge any current or

former directors, officers, members, employees, agents (excluding Khalid and SPH, which are

covered by 4.B below, and excluding Alan L. Sarroff and Lawrence Smith, who no party to this

Settlement Agreement intends to release in any respect) or advisers (including any such person’s

heirs, agents, and assigns and anyone claiming by or through any of the foregoing) of WPS or its

affiliates and each of their respective predecessors, successors, and assigns but only from liability

for claims or conduct set forth in the draft Statement of Claim delivered by the Receiver to WPS

through counsel on or about December 11, 2018.

B. SPH and Khalid.

Provided (i) the District Court has entered the Approval Order fully in accordance with the

terms and conditions of ¶ 5 of this Settlement Agreement; and (ii) SPH has delivered the SPH

Settlement Payment to the Receiver fully in accordance with the terms and conditions of ¶ 1(B) of

this Settlement Agreement, then the Receiver and the Receivership Estate release and forever

discharge SPH, Khalid, and their respective predecessors, successors, affiliates, heirs, assigns,

agents, and attorneys from any and all known and unknown claims, disputes, demands, debts,


9

liabilities, obligations, contracts, agreements, causes of action, suits, attorneys’ fees and/or costs

that the Receiver or the Receivership Entities hold or ever held for any reason whatsoever from

the beginning of the world to the date of the entry of the Approval Order.

For the avoidance of doubt, the releases provided by the Receiver herein shall be self-

effectuating upon satisfaction of the conditions precedent set forth herein.

C. The Receiver.

Effective immediately upon District Court approval of this Settlement Agreement, the

Settling Parties shall release and forever discharge the Receiver, the Receivership Entities, the

Receivership Estates, and each of their respective members, limited and general partners, affiliates,

subsidiaries, heirs, predecessors, successors, assigns, agents, and attorneys from any and all known

and unknown claims, disputes, demands, debts, liabilities, obligations, contracts, agreements,

causes of action, suits, attorneys’ fees and/or costs for any reason whatsoever from the beginning

of the world to the date of the entry of the Approval Order.

D. Exclusions.

Notwithstanding anything herein to the contrary, nothing herein shall be construed under

any circumstances to effectuate a release of (i) any claim or right owned by the Receiver, the

Receivership Entities, or the Receivership Estate against Alan L. Sarroff, Lawrence Smith, A.L.

Sarroff LLC, A.L. Sarroff Management, LLC, A.L. Sarroff Fund, LLC, or any of their respective

members, affiliates, subsidiaries, heirs, predecessors, successors, assigns, or agents; or (ii) any

claim arising from or related to a material breach of this Settlement Agreement.

E. Effect of Clawback or Disgorgement

In the event that the Receiver is required to return or disgorge any portion of the WPS

Settlement Payment or the SPH Settlement for any reason, including, but not limited to, a claim


10

arising under Title Five of the United States Bankruptcy Code, similar state law, or equitable

doctrine (including pursuant to an arm’s length settlement of a claim related thereto), the release

provided under ¶ 4(A) shall be null and void (if the WPS Settlement Payment is the subject of

avoidance or disgorgement) and/or the release provided under ¶ 4(B) shall be null and void (if the

SPH Settlement Payment is the subject of avoidance or disgorgement). For the sake of clarity,

under no circumstances shall the validity of the release provided under 4(A) in any way relate to

the SPH Payment and under no circumstances shall the validity of the release provided under 4(B)

in any way relate to the WPS Payment.

5. Court Approval

The parties agree that this Settlement Agreement is conditioned upon and subject to the

entry of the Approval Order. The Receiver shall submit this Settlement Agreement for such

approval by motion filed within no more than fourteen (14) days of the execution of this Settlement

Agreement by all parties hereto. In the event the District Court does not enter the Approval Order:

(i) this Settlement Agreement and all provisions herein shall be null and void and of no further

force or effect whatsoever; (ii) the Settling Parties and the Receiver shall not be deemed to have

waived any right or to have settled any controversy between the parties that existed before the

execution of this Settlement Agreement; (iii) the Settling Parties and the Receiver shall be restored

to their respective positions as they existed immediately before execution of this Settlement

Agreement; and (iv) as between the Receiver and the Settling Parties, all time between the date on

which this Settlement Agreement is fully executed and five (5) business days after this Settlement

Agreement becomes null and void shall be excluded from the time otherwise applicable to the

assertion of claims and any/all time-based defenses, whether arising in law or equity.


11

6. Other Provisions

A. Governing Law. The validity, effect, and construction of this Settlement

Agreement and any obligations undertaken pursuant hereto, and any dispute relating or arising

from the negotiation and execution of this Settlement Agreement, shall be governed by the laws

of the State of Connecticut, without regard to the conflicts of law provisions. The Settling Parties

each agree that any dispute arising under or related to this Settlement Agreement, including, but

not limited to, specific enforcement of the Settlement Agreement to compel payment of the WPS

Settlement Payment and/or the SPH Settlement Payment, shall be submitted to arbitration before

FINRA Alternate Dispute Resolution.

B. Breach. In the event any party brings an action asserting a claim for breach of this

Settlement Agreement, the prevailing party in that action as determined by the arbitration panel

shall be entitled to all costs of collection including, but not limited to, reasonable attorney’s fees

and litigation costs up to a cap of Two Hundred Thousdand Dollars ($200,000.00).

C. Attorney’s Fees, Costs and Expenses. The parties shall each bear all of their own

attorney’s fees, costs, and expenses incurred to date in connection with the Proposed Claims and

the negotiation and execution of this Settlement Agreement.

D. Consultation with Counsel. Each of the Settling Parties and the Receiver hereby

acknowledges that he/it has had the opportunity to consult with counsel of his/its choice in

connection with this Settlement Agreement, and acknowledge further that he/it has not received or

relied upon any advice, legal or otherwise, of any other party’s counsel in entering into this

Settlement Agreement.


12

E. Counterparts. This Settlement Agreement may be executed in one or more

counterparts, each of which shall be deemed an original. Facsimile and .pdf copies shall have the

same force and effect as original signatures.

F. Titles. The titles of the paragraphs of this Settlement Agreement are inserted for

convenience only and shall not affect the meaning or construction of any of the terms of this


G. Entire Settlement Agreement and Amendment. The parties understand,

acknowledge, and agree (i) that this Settlement Agreement contains and constitutes the entire

Settlement Agreement and understanding among the parties, (ii) that no other representation,

promise or covenant of any kind has been made to induce or cause any of the parties to execute

the Settlement Agreement, and (iii) that all the understandings and agreements of the parties are

embodied and expressed herein. The parties also agree that this Settlement Agreement may not

be amended, except in a writing signed by each and every one of the parties to this Settlement

Agreement.

H. Waiver. The failure of any party to insist upon strict adherence to any term of this

Settlement Agreement on any occasion shall not be considered a waiver thereof or deprive that

party of the right thereafter to insist upon strict adherence to that term or any other term of this


I. Authority. Each person signing this Settlement Agreement represents and

warrants that he/she has been duly authorized and has the requisite authority to execute and deliver

this Settlement Agreement on behalf of such party and to bind such party to the terms and

conditions of this Settlement Agreement.


13

J. Jointly Drafted. This Settlement Agreement shall be deemed to have been jointly

drafted by the parties, and in construing and interpreting this Settlement Agreement, no provision

shall be construed and interpreted for or against any of the parties because such provision or any

other provision of the Settlement Agreement as a whole is purportedly prepared or requested by

such party.

K. Severability. The obligations under this Settlement Agreement are severable only

as between WPS, on the one hand, and SPH/Khalid, on the other. Notwithstanding the

foregoing, should any part of this Settlement Agreement be rendered or declared invalid by a court

of competent jurisdiction, such invalidation of such part or portion shall not invalidate the

remaining portions hereof, which shall remain in full force and effect.

L. No Admission of Liability. The parties acknowledge that this Settlement

Agreement, including but not limited to the payments to be made hereunder, was agreed upon as

a compromise and final settlement of disputed claims and that the entry into this Settlement

Agreement or the making of the payments called for hereunder may not be construed as an

admission of liability by any of the Settling Parties and is not to be construed as an admission that

any of the Settling Parties engaged in any wrongful, tortious, or unlawful activity. Each of the

Settling Parties specifically disclaim and deny (a) any liability to the Receiver and (b) engaging in

any wrongful, tortious, or unlawful activity.

M. Non-Responsibility. For the avoidance of doubt, all of the rights and obligations

under this Settlement Agreement of Khalid and SPH, on the one hand, and WPS, on the other,

shall be treated as separate and distinct. WPS shall not be responsible for any obligation of Khalid

or SPH under this Settlement Agreement or breach thereof, and Khalid and SPH shall not be

responsible for any obligation of WPS under this Settlement Agreement or breach thereof. Further,


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