Armstrong v. Collins, 2010 BL 63670 (S.D.N.Y. Mar. 24, 2010)

[Tax Man]

This is a really fun case* to read. It's got everything from Ponzi scheme to pornography. It's not as exciting as Sholam Weiss, but still, a fun case.


* actually this citation is to a memo opinion and order on a motion for summary judgment.

[Tax Man]

Link?

A. History of the Yagalla Scheme
While most other children were dreaming of becoming firemen, doctors and baseball
players, at the age of thirteen Yagalla knew he wanted to be a Wall Street investor.
Yagalla made his first investment through an account opened with his mother when he
was still a minor, but the stock he purchased lost money. (December, 2002,
Deposition of Mark Yagalla ("Yagalla Dep. II"), at 133.) In the fall of 1994, when he
was a high school student in Weatherly, Pennsylvania, Yagalla decided that he wanted
to invest money for other people and believed he needed a "name" to trade under. (
Id. at 135.)[fn2] Yagalla filed a fictitious name certificate for the name Apex
Investments ("Apex") with the Commonwealth of Pennsylvania and began soliciting
funds. (Id. at 215.)
Carl and Pat Dias, the owners of a business near Weatherly, had the misfortune of
being Yagalla's first clients, and in 1995, they invested approximately $15,000 with
Yagalla. (Yagalla Dep. I at 39-40.) Responding to a Canadian telemarketer's pitch,
Yagalla used the money to purchase what he believed were rubies. (Id.; Yagalla Dep.
II at 135.) But the purported rubies turned out to be nearly worthless and Yagalla lost
[*4] virtually all of the Dias' money. (Yagalla Dep. I at 40.) Yagalla, however, told
the Diases that they had made a profit and sent them a false statement. (Id.; Yagalla
Dep. II at 139.) Despite the loss, after raising money from additional investors,
Yagalla made a distribution to the Diases in excess of their investment. (Yagalla Dep.
I at 41.)
In 1995, Yagalla also solicited a $15,000 investment from his cousin, Francis Dolinsky.
(Id.) Yagalla deposited the money in his deposit account, and then used it to
purchase baseball memorabilia and more purported rubies. (Id.) While the "rubies"
turned out to be worth pennies on the dollar, and the baseball memorabilia was
worthless, Yagalla told Dolinsky that he had made a profit. (Id. at 41-42.) As with the
Diases, Yagalla ultimately made a distribution to Dolinsky funded by money he raised
from other investors. (Id. at 42.)
Later in 1995 and in 1996, Yagalla raised more funds from other investors. (Id.) His
next investment, $50,000 in Kentucky oil and gas leases, was a complete failure. (Id.
Armstrong v. Collins, 2010 BL 63670 (S.D.N.Y. Mar. 24, 2010), Court Opinion (03/24/2010)

Yagalla then invested $23,000 in stock purchased through a broker at Kensington
Wells; this investment turned a profit of approximately $9,000. (Id. at 42-43.) Shortly
thereafter, however, Yagalla made a $150,000 stock investment and suffered a loss of
$120,000. (Id.) During this time, Yagalla sent his investors statements falsely
indicating that they had earned handsome profits and made distributions "[w]ith
money from other investors." (Yagalla Dep. I at 26-27, 43, 223.)
Since "the perception of Apex was so different [from reality]," Yagalla formed a
hedge fund to raise money from additional investors in 1998. (Yagalla Dep. II at 192;
Yagalla Dep. I at 13.) With the assistance of counsel, Yagalla organized the limited
partnership Ashbury Capital Partners, L.P. ("Ashbury"), with Ashbury Capital [*5]
Management, L.L.C. ("ACM") as its general partner. (Yagalla Dep. I. at 13, 35-36.)
Yagalla owned 99% of ACM, and the other 1% was first owned by his secretary,
Kimberly Lawrence, and later by his "business partner," Robert Smith. (Id. at 13.)
Yagalla explained that he initially intended to run Ashbury legitimately and to
separate it from Apex. (Yagalla Dep. II at 192, 224.) But despite Yagalla's professed
intention to run Ashbury as a legitimate hedge fund, Yagalla explained that because
he needed money to perpetuate the fraud at Apex, he instead "used it for unlawful
purposes." (Yagalla Dep. I at 36; Yagalla Dep. II at 224-25.) After he created
Ashbury, most of the new investors Yagalla solicited became limited partners in
Ashbury, though some invested in Apex. Yagalla, however, made no effort to
segregate the investors' funds. (Yagalla Dep. I at 15.) Instead, he commingled the
funds invested in Apex and Ashbury together and with his personal funds. (Id.)
At some point, Yagalla learned that the brokerage firm Kensington Wells was
manipulating stocks. (Yagalla Dep. I at 44-45; Yagalla Dep. II at 157-58.) Yagalla
decided to use the funds he had raised to make a profit on manipulated stock.
(Yagalla Dep. I at 44-45.) After meeting the individuals he was told were
manipulating stock, and until his arrest in October, 2000, other than some sporadic
and minor day trading, Yagalla traded exclusively in stocks that he testified were
manipulated. (Yagalla Dep. I at 44-54, 57-58.) The manipulated stocks included:
United Energy Group, Franklin Opthalmic, Delsoft Consulting, Logpoint Technologies,
Page International, Hydrogiene, Intelliworxx and TravelNow.com. (Id.) Yagalla
explained that in each case he and his criminal partners would identify new private
companies, merge them with public shells, and by controlling the float and paying off
brokers, manipulate the price of the securities. (Id. at 47-48[*6].) According to
Yagalla, he broke even on the United Energy Group and Franklin Opthalmic
manipulations; made $500,000 on the Delsoft Consulting manipulation; made $250,000
on the Logpoint Technologies manipulation; lost $750,000 on the Page International
manipulation; made $450,000 on the Hydrogiene manipulation; and lost a "substantial
amount" of the $500,000 to $750,000 he invested in the Interlliworxx manipulation. (
Id. at 45-54.) On his most profitable manipulation, TravelNow.com ("TravelNow"),
Yagalla made over $6 million between August, 1999, and January, 2000. (Id. at 55.)
Yagalla, however, spent the money "[o]n airplane travel, . . . [his] former girlfriend
Sandra Bently, jewelry, cars, houses, [and] gambling." (Id.)
Between 1998 and his arrest in October, 2000, Yagalla made direct investments in
Armstrong v. Collins, 2010 BL 63670 (S.D.N.Y. Mar. 24, 2010), Court Opinion (03/24/2010)
various business ventures, including a retirement home, a limousine service and other
private companies. (Affidavit of Eugene R. Licker dated Sept. 29, 2004 ("Licker Aff.
9/29/2004") 8.) All of these investments lost money. (Id.) Throughout this time,
however, Yagalla made distributions to investors "from the profits of th[e]
manipulated [stock] deals and from raising money from additional investors or
existing investors." (Yagalla Dep. I at 56.)
Yagalla subsidized his profligate lifestyle with his investors' money. He spent millions
of dollars gambling at casinos, traveling on private jets, and on clothes, luxury cars
and houses. (Id. at 65-103.) He leased, but never used, offices on New York's Park
Avenue and in Boston. (Id. at 110-11.) He put a $1 million deposit on a $10 million
Manhattan condominium. (Id. at 94-95.) Yagalla also spent untold sums of investors'
money on high-priced prostitutes and women he met at strip clubs. (Id. at 65.)
Yagalla testified that he placed some of the women he met through escort services
and at strip [*7] clubs on, what he called, "the program." (Id.) Women on "the
program" would receive monthly allowances (sometimes over $20,000) use of a
credit card, and extravagant gifts. (Id. at 65-103.) Yagalla also gave some of the
women expensive cars and a luxury home to live in. (Id.)
B. Criminal and Enforcement Actions and Appointment of the Receiver
On October 13, 2000, Yagalla confided in a co-worker that he was operating a Ponzi
scheme. (Yagalla Dep. I. at 638.) The co-worker went to the authorities. (Id. at 639.)
Shortly after the authorities were notified, the United State's Attorney's Office filed
an information (the "Information") against Yagalla charging him with one count of
securities fraud and one count of fraud under the Investment Advisers Act.
(Information, Licker Aff. 9/29/04, Ex. 32.)
On October 17, 2000, the SEC brought an enforcement action against Yagalla, Ashbury
and ACM. (SEC Action Complaint, Licker Aff. 4/29/2004, Ex. 35.) The SEC alleged,
among other things, that Yagalla and the entities he controlled engaged in an ongoing
fraud in which they misappropriated investors' funds and disseminated false
accounting statements and newsletters. (Id.) On October 18, 2000, a day after the SEC
filed its enforcement action, Yagalla was arrested. (Licker Aff. 4/3/2009 13.)
On October 27, 2000, the Court granted the SEC's request for a preliminary injunction
freezing Yagalla's, Ashbury's and ACM's assets. (Preliminary Injunction and Order
Freezing Assets and Granting Other Relief, Licker Aff. 4/3/2009, Ex. 36.) Yagalla, and
the entities he controlled, consented to the imposition of a preliminary injunction and
have not responded to the SEC's complaint or denied the SEC's allegations. (Id.;
Licker Aff. 4/25/2003 3.) On November 9, 2000, the Court appointed [*8] Armstrong
as the Receiver charged with identifying, marshalling and preserving the assets of
Ashbury, ACM, Apex and Yagalla. (Restated and Amended Order Appointing Receiver
and Granting Other Relief, Licker Aff. 9/29/2004, Ex. 37.)
On November 12, 2001, Yagalla pled guilty to count one of the Information charging
fraud in connection with the purchase and sale of securities. (Yagalla Plea Hearing
Armstrong v. Collins, 2010 BL 63670 (S.D.N.Y. Mar. 24, 2010), Court Opinion (03/24/2010)
Tr., Licker Aff. 4/25/2003, Ex. N.) On February 14, 2002, Judge Stein sentenced
Yagalla to 65 months' imprisonment and ordered Yagalla to make restitution of
approximately $32,000,000 to the investors he defrauded. (Yagalla Sentencing Tr.,
Licker Aff. 9/25//2004, Ex. 34.)
From 1995 through his arrest in October, 2000, Yagalla solicited approximately $50
million from investors. (Yagalla Dep. II at 238.) By the time of his arrest Yagalla had,
for all practical purposes, dissipated all of the investor's funds. (Licker Aff.
9/29/2004 7.)
Set forth below is an overview of the facts and transactions relevant to the motions
pending in the Braun, Romano and Collins Actions. The Receiver's primary claims are
based on various transfers Yagalla made to the Defendants. He contends that the
transfers were fraudulent and should therefore be voided.
C. Braun
In 1998, Yagalla visited a website operated by Michelle Braun ("Braun") called Nici's
Girls. (Yagalla Dep. II. at 11.) According to Braun, Nici's Girls is an escort service
that generates revenue by introducing "female companions to male clients."
(Deposition of Michelle Braun ("Braun Dep.") at 10.) The female companions "escort
[*9] [men] to functions or travel." (Id.)[fn3] While the Receiver requested that
Braun produce printouts of the website as it existed in 1998, Braun explained that
there are no records of the website's content prior to 2002. (Braun Dep. at 275.) As
of 2003, however, the website contained the following statement:
An evening consultation is a minimum of five hours and rates begin at $8,000. There
are no geographical limitations . . . Travel rates begin at $10,000 per day. All
inclusive travel packages can be arranged through Luxury Concierge, rates begin at
$12,000 per day. Hourly consultations begin at $2,500 . . . Supermodel package rates
range from $15,000 to more than $50,000 for an evening of undiluted pleasure, where
your ultimate dreams become the ultimate reality!
(Printout of http://www.nicisgirls.com, as of April 23, 2003, Licker Aff. 4/25/2003, Ex. B.)
Braun testified that the standard rate for dates arranged through Nici's Girls ranges
from $8,000 to $15,000. (Braun Dep. at 16-17.)
After visiting the Nici's Girls website, Yagalla sent an email to Braun stating that he
was "interested in seeing one of her girls." (Yagalla Dep. II at 13.) Yagalla believed
that he would be hiring a prostitute from Braun, but when Yagalla called Braun shortly
after sending the email, he claims the two discussed "fun," not sex. (Id. at 14-15.)
In early 1999, Yagalla began employing Braun's services; and over the next seven to
eight months, he hired at least seven different escorts from Braun, each time paying
Braun a substantial fee. (Braun Dep. at 129-131; Braun Admissions 11.) Though there
is some dispute as to the exact figure, Yagalla paid Braun approximately $126,000 for
the time he spent with the seven women. (Braun Admissions 11-13, 16-17, 19-20;
Braun Dep. at 146-47, 151-52, 171-72; Yagalla Dep. II at 16-18, 53-58, 60-69.)
Armstrong v. Collins, 2010 BL 63670 (S.D.N.Y. Mar. 24, 2010), Court Opinion (03/24/2010)
Yagalla claims that he [*10] had sex with most, but not all, of the women he paid
Braun to meet. (Yagalla Dep. II at 58, 66, 71). Yagalla testified that during the course
of his relationship with Braun, he told Braun that he had sex with two of the women
she arranged for him to meet. (Yagalla Dep. II at 26-27.) But Yagalla never spoke
with Braun about whether he would have sex with an escort prior to the date;
according to Yagalla, the discussions regarding sex were "reporting after the fact." (
Id. at 27.) Braun denies that she ever spoke with any customer of Nici's Girls about
sexual services. (Braun Dep. at 22.)
Faith Jones Maxwell ("Maxwell"), a women who worked for Braun and who Braun
introduced to Yagalla for $16,000, testified that she had sex with Yagalla on one of
their dates. (Deposition of Faith Jones Maxwell ("Maxwell Dep.") at 35.) Maxwell
stated that it was in her discretion whether to have sex with the men she met through
Braun, (Maxwell Dep. at 35), but also that "sometimes" her "duties" included having
sex. (Id.) Maxwell testified that she had sex with "most" of the "men that Michelle
Braun arranged escorts" and that she spoke with Braun about having sex with at least
some of the men. (Id. at 36.) Notwithstanding the obvious nature of the enterprise,
Braun claims that the escorts who work for Nici's Girls do not provide sexual
services. She insists that she does not "ask that of them. I don't tell them to."
(Braun Dep. at 21.) Further, according to Braun, if a customer asks about sexual
relations with an escort, Braun asserts that "[w]e don't provide sexual services." (
Id. at 22-23.)
Braun testified that Yagalla agreed to pay the standard introduction fee for each
escort he hired through Nici's Girls. There was another "service" that Braun offered
to the very rich, lonely heart:
if he met somebody he liked and wanted to see her again rather than to pay me
which was standard practice in my business he would pay me a one [*11] time fee
and that girl would no longer work through me or be available to my other clients,
that she would be his girlfriend exclusively and I would no longer have any contact
with her and he would pay me a lump sum fee.
(Braun Dep. at 133-34.) According to Braun, the "lump sum fee" Yagalla agreed to
pay for a "girlfriend" was $500,000. (Id. at 134.)
In August, 1999, Braun introduced Yagalla to Tishira Cousino ("Cousino"). (Yagalla
Dep. II at 70-71.) According to Braun, this introduction lead to Cousino becoming
Yagalla's "girlfriend,"[fn4] and because Braun stopped making arrangements — at
least temporarily — for Cousino to see other customers, Braun became entitled to the
$500,000 Yagalla had agreed to pay. (Braun Dep. at 138-44, 148.) Yagalla admitted
during his deposition that Braun told him that she expected to be paid $250,000 to
$500,000 if she found him a "girlfriend." (Yagalla Dep. at 80.) Yagalla, however,
testified that he did not intend to pay Braun because he felt that "he didn't owe her
anything." (Id. at 77, 79.) Nevertheless, according to Yagalla, when Braun "basically
blackmailed" him for the money by harassing Cousino, he paid Braun a total of
$250,000 through two transfers in August and September, 1999. (Braun Admissions
Armstrong v. Collins, 2010 BL 63670 (S.D.N.Y. Mar. 24, 2010), Court Opinion (03/24/2010)
27-28.) While Braun maintains that the $250,000 was in consideration for her
agreement not to schedule dates for Cousino with other men, and for finding Yagalla a
"girlfriend," Yagalla sent Braun a letter (the "Gift Letter") on September 30, 1999,
confirming that he had given Braun a gift of $250,000. (Braun Admissions 32-33.)
And rather than treating the $250,000 as income, Braun claimed the $250,000 as a gift
for federal income tax purposes. (Id. at 31.)
[*12]
Yagalla testified that in addition to the $126,000 he paid for escorts, and the $250,000
he paid "for" Cousino, between March, 1999 and April, 2000, he sent Braun between
$180,000 and $360,000 in cash, cashiers checks and bank checks through nine Federal
Express shipments. (Yagalla Dep. II at 116, 121-23; Federal Express Documents,
Affidavit of Eugene R. Licker dated May 23, 2003 ("Licker Aff. 5/23/2003"), Ex. R.)
Yagalla also says that at some point in 1999, he transferred 10,000 shares of
Intelliworxx stock to Braun. (Yagalla Dep. II. at 77.) And there is evidence that on
June 10, 1999, Yagalla faxed his brokers with instructions to transfer 10,000 shares of
Intelliworxx to Braun. (Fax Cover Sheet, Licker Aff. 5/23/03, Ex. P.) According to
Yagalla, the stock was worth $100,000 at the time of the transfer, but he admits that
he was manipulating the stock's price. (Yagalla Dep. I at 54.)
In the spring of 1999, Yagalla and Braun discussed going into the internet
pornography business together. (Yagalla Dep. II at 91-92; Braun Dep. at 177-78.) The
two reached an oral agreement to operate an adult membership website called "Nici's
World," where subscribers would be able to view adult photos and videos for a $29.95
monthly fee. (Yagalla Dep. II at 93-95; Braun Dep. at 179-82.) Yagalla and Braun
were to be equal partners in the venture, with Yagalla providing the capital and Braun
providing the "sweat equity." (Yagalla Dep. II at 93-95; Braun Dep. at 184.) Braun
was to "run the operation" and "provided the know how and the expertise on . . .
[the internet pornography] industry." (Yagalla Dep. II. at 93-94.) According to
Yagalla, he and Braun intended to use a domain name Braun owned,
http://www.nicisworld.com, to run the website. (Id. at 94-95.) Yagalla testified that Braun
told him that the venture would require about $250,000 and that he "agreed to put up
the first [$]50,000 to get some [*13] content, to get it up and running and then take
it from there." (Yagalla Dep. II at 94-95.) Braun, however, testified that Yagalla
agreed to invest $150,000. (Braun Dep. at 183, 186.)
In order to run the pornographic website, in May, 1999, Yagalla had his accountant
form a Delaware limited liability company, Nici Entertainment Group, LLC ("NEG").
(NEG Certificate of Formation, Affirmation of Howard I. Elman dated April 25, 2003
("Elman Aff."), Ex. V.) Braun was named as the managing member, and she and
Yagalla each held 50% interests in the company. (Braun Dep. at 184; Yagalla Dep. II
at 95; NEG Certificate of Cancellation, Elman Aff., Ex. Z.) On May 5, 1999, NEG entered
into an Exclusive Operating Agreement (the "Operating Agreement") with IEG, LLC
("IEG"), the company which was to provide programming, technical expertise and
other services for the Nici's World website. (Operating Agreement, Elman Aff., Ex. W.)
Armstrong v. Collins, 2010 BL 63670 (S.D.N.Y. Mar. 24, 2010), Court Opinion (03/24/2010)
While the Operating Agreement, which both Yagalla and Braun signed, states that the
nicisworld.com and nicisgirls.com websites are owned by Braun and would be used to
drive traffic to the website formed by NEG, (id. 2.2), Yagalla testified that part of his
oral agreement with Braun was that he would "be a partner in owning"
nicisworld.com. (Yagalla Dep. II. at 105.) Yagalla also testified that he asked Braun to
transfer ownership of nicisworld.com to NEG, but that he didn't know whether Braun
did so. (Id.)
On June 1, 1999, Yagalla sent a $50,000 check made out to NEG to Braun, which she
deposited in the NEG bank account. (Check from Yagalla to NEG, Elman Aff., Ex. X;
Braun Dep. at 203.) Braun claims that shortly after receiving the $50,000 check, she
told Yagalla that $50,000 "was not going to be enough to fulfill our obligations to
build a website with IEG." (Braun Dep. at 203.) Braun also testified that she spent
[*14] approximately $42,300 of the $50,000 purchasing content for the Nici's World
website. (Braun Dep. at 192-193.) According to Yagalla, when he asked Braun whether
she had purchased content for the website, Braun stated that "she was working on
it." (Yagalla Dep. II at 101.) Yagalla explained that after he paid Braun $250,000
through the transfers in August and September, 1999, he told his accountant that he
"didn't want anything to do with her [Braun]," and that he would "get around to
dealing with [his interest in NEG] later on." (Id. at 102.) Though it is not clear when,
Yagalla says that he asked Braun for an accounting of the funds he invested in NEG,
but Braun never complied with his request. (Id. at 105-06.)
Ultimately, NEG never did any business from which it received revenue, and Yagalla
never received a return on his $50,000 investment. (Yagalla Dep. I at 61; Braun Dep.
at 193.) Braun testified that while she thought that Yagalla's accountant had dissolved
NEG in 1999, Yagalla called her in late 2000 and told her to dissolve NEG because he
had been arrested and did not want the authorities to link them together. (Id. at 209.)
And on March 29, 2001, Braun filed a certificate of cancellation for NEG. (NEG
Certificate of Cancellation, Elman Aff., Ex. Z.) According to Braun, Yagalla told her to
keep the approximately $8,000 left of the $50,000 investment he made in NEG. (Braun
Dep. at 193.)
At some point in 2000 or 2001, Braun launched an adult content website using the
domain name http://www.nicisworld.com. (Braun Dep. at 100-01.) The website's patrons are
charged a $29.95 monthly subscription fee, which allows them to view the website's
pornographic materials. (Id. at 101.) [*15]
D. Romano
In the spring of 2000, Yagalla's cohorts in his various stock manipulation schemes
introduced him to Mario Romano ("Romano"), the owner of Romano Enterprises
Limited, Ltd. ("Romano Enterprises"), a New Jersey corporation. (Yagalla Dep. I. at
856-66; Yagalla Dep. II at 266-73.) Yagalla was told that Romano is "a bull. That he
knows how to buy stock. He is a very aggressive broker. And if you're looking
someone to help in my deals, that Mario would be a great guy to have on my team."
(Yagalla Dep. II at 266.) Yagalla testified that he and Romano reached an agreement
Armstrong v. Collins, 2010 BL 63670 (S.D.N.Y. Mar. 24, 2010), Court Opinion (03/24/2010)
whereby Yagalla would pay Romano Enterprises $180,000 in exchange for Romano
finding buyers for $1 million worth of TravelNow stock. (Yagalla Dep. II at 270-72,
291, 313.) At the time of the agreement, Yagalla says he told Romano that he
controlled the market for TravelNow stock and that he "was close to the company."
(Yagalla Dep. II at 287-90, 312-13.) Yagalla also offered the following testimony:
Q. With regard to Mario Romano, is there anything, to the best of your knowledge, that
would lead you to believe that Mr. Romano knew that you were engaged in the illegal
manipulation of securities?
A. Yes.
Q. And what was that?
A. I had told Mr. Romano that what did he need from me to continue our share of the
deal. And he said it's much easier to buy a stock that is going up than it is a stock
that's going down. In other words, if he got a client to buy 1000 shares at eight, and
the stock went to nine, he can get the client to double up and buy another 1000
shares. So it was a much easier sale for him.
Q. And why did that — why does that make you believe that he was aware that you
were engaged in manipulating securities?
A. Because I told him that since I controlled the market, I could take it from eight to
nine for him. [*16]
Q. Meaning that you would take —
A. The stock.
Q. When you referred to our deal, what were your referring to?
A. The deal whereby he would purchase a million dollars worth of Travelnow.
Q. And did you mean that he would personally purchase a million dollars?
A. Get his clients to purchase Travelnow.
(Yagalla Dep. II at 312-13.)
On June 5, 2000, Romano Enterprises sent ACM an $180,000 invoice for
"[p]rofessional [s]ervices rendered for the month of May 2000." (Romano Invoice to
ACM, Licker Aff. 9/29/04, Ex. 28.) On June 6, 2000, Yagalla had his secretary send a
check from ACM to Romano Enterprises for $180,000. (Yagalla Dep. II at 222-94;
Check from ACM to Romano Enterprises, Licker Aff. 9/29/04, Ex. 29.) Yagalla testified
that Romano told him to indicate on the check that it was for consulting fees and the
check stub states that the $180,000 was for "CONSULTING FEES." (Check Stub,
Armstrong v. Collins, 2010 BL 63670 (S.D.N.Y. Mar. 24, 2010), Court Opinion (03/24/2010)
Declaration of Brian D. Graifman, Ex. A.; Yagalla Dep. II at 294.) Yagalla explained,
however, that the $180,000 was for Romano's participation in Yagalla's scheme to
manipulate the price of TravelNow stock. (Yagalla Dep. II at 270-72, 291, 313.) The
check bounced and Yagalla wired Romano the $180,000. (Id. at 292-94.)
Romano invoked his Fifth Amendment privilege against self-incrimination in response
to every substantive question put to him during his two depositions. (Deposition of
Mario A. Romano dated February 6, 2003 ("Romano Dep. I") at 4-15; Deposition of
Mario A. Romano dated March 28, 2003 ("Romano Dep. II") at 22-37.) [*17] This
includes questions about his receiving the $180,000 and participating in the TravelNow
stock manipulation. (Romano Dep. I. at 6-9; Romano Dep. II at 23-27.)
Yagalla testified that Romano also helped negotiate a deal between Yagalla and
Joseph Quattrochi ("Quattrochi"). (Yagalla Dep. II at 269.) According to Yagalla,
Romano explained that he could "only buy so much stock," and recommended that
Yagalla "do the deal with" Quattrochi and Romano's brother so that Yagalla could
"have a whole firm behind [him]." (Id.) The deal, as Yagalla described it, "was to be
a deal for payment of purchasing stock. I was to loan them [Quattrochi and Romano's
brother] one million dollars, in exchange, they were to do five million dollars worth
of buying [TravelNow stock] at the end of a 60-day period." (Id.) While Yagalla never
testified that he in fact loaned Quattrochi the $1 million, on July 31, 2000, Quattrochi
executed a $1 million promissory note in favor of ACM. (Promissory Note, Licker Aff.
9/29/04, Ex. 30.) Records for a bank account in Quattrochi's name show a $1 million
deposit on August 1, 2000, but the source of the funds is not set forth. (Quattrochi
Bank Records, Licker Aff. 9/24/2004, Ex. 40.) Prior to the $1 million dollar deposit,
Quattrochi's account had a negative balance, and the Receiver has submitted two
checks drawn on Quattrochi's account, one for $555,000 and the other for $267,000,
made payable to LPC Capital Corporation ("LPC Capital"), Quattrochi's company.
(Checks from Quattrochi to LPC Capital, Licker Aff. 9/24/04, Ex. 40.) The checks were
paid from Quattrochi's account on August 2, 2000, but the statement for LPC Capital's
bank account submitted by the Receiver does not show a deposit in a corresponding
amount. (Quattrochi and LPC Capital Bank Records, Licker Aff. 9/24/04, Ex. 40.) The
Receiver has also submitted a barely legible copy of a check drawn on the LPC Capital
account made out to [*18] Romano for $91,963.34. (Check from LPC Capital to
Romano, Licker Aff. 9/24/04, Ex. 31.) And the bank records for LPC Capital's account
show that the check was paid on August 8, 2004. (LPC Capital Bank Records, Licker
Aff. 9/24/04, Ex. 40.)
Invoking his rights under the Fifth Amendment, during his deposition Quattrochi
refused to answer any questions about his dealings with, and monies received from,
Yagalla. (Deposition of Joseph Quattrochi dated January 1, 2003 at 4-24.) During his
depositions, Romano was asked about his relationship with Quattrochi, and the
$91,963.34 check from LPC Capital, but like Quattrochi, he asserted his Fifth
Amendment rights and refused to answer. (Romano Dep. I at 14-15; Romano Dep. II
at 31-36.)

[fortinbras]

I am inclined to think that the citation is wrong. Not "2010 BL" but "2010 WL", for the WestLaw system. This is a stock swindle case that has been puttering around the Manhattan court for quite a while (it was mentioned in a law review article as far back as 2003). And I am sure this is not the end of the litigation either.

[Tax Man]

I am inclined to think that the citation is wrong. Not "2010 BL" but "2010 WL", for the WestLaw system. This is a stock swindle case that has been puttering around the Manhattan court for quite a while (it was mentioned in a law review article as far back as 2003). And I am sure this is not the end of the litigation either.

I noticed there was a history but this latest order was an interesting read. I obtained it through Bloomberg Law.

02 Civ. 2796 (PAC).

[fortinbras]

I had been unaware of Bloomberg Law and appreciate having it brought to my attention. So, yes the citation is 2010 BL .... and now I'll have to be more careful about CALR (Computer Assisted Legal Research) citations.

[Tax Man]

I had been unaware of Bloomberg Law and appreciate having it brought to my attention. So, yes the citation is 2010 BL .... and now I'll have to be more careful about CALR (Computer Assisted Legal Research) citations.

It's a relatively new research tool and still a work in progress. The securities and bankruptcy side of Bloomberg Law is comprehensive as it is, especially with respect to breaking news. You can probably get a month of free research since they're aggressively marketing BL right now.

If you PM me I can give you the contact information for a nice lady who can probably get you a month of free research.

[fortinbras]

I checked with Bloomberg Law. Their rates run around $400 a month. I cannot afford it at the moment since I have used all my money to help a widow lady in Nigeria smuggle out ten billion dollars that she will soon share with me.