Actrade Doc 481 (Transcript of 121608 Hearing)

1 UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK

2
3 ---------------------------------------X
In Re: : 02-16212
4 :
ACTRADE FINANCIAL TECHNOLOGIES LTD. : One Bowling Green
5 : New York, New York
:
6 Debtor. : December 16, 2008
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7
8 TRANSCRIPT OF MOTION FOR SETTLEMENT

BEFORE THE HONORABLE ALLAN L. GROPPER
9 UNITED STATES BANKRUPTCY JUDGE
10
APPEARANCES:
11
For the Trustee: PHILIP ANKER, ESQ.
12 Jonah Meer JAMES H. MILLAR, ESQ.
Wilmer Cutler Pickering Hale and
13 Dorr LLP
399 Park Avenue
14 New York, New York 10022
15 PATRICK SALISBURY, ESQ.

Salisbury & Ryan LLP
16 1325 Avenue of the Americas
7th Floor
18 For National Fire: DAVID BOYAR, ESQ.

Insurance Company D’Amato & Lynch LLP
19 70 Pine Street
New York, New York 10270
20
For the Chapter 7: EDWARD FLINT, ESQ.
21 Trustee SILVERMAN ACAMPORA LLP
100 Jericho Quadrangle
22 Suite 300
Jericho, New York 11753
23
24 (Additional appearances next page)
25
Proceedings recorded by electronic sound recording,

transcript produced by transcription service
1 UNITED STATES BANKRUPTCY COURT 2
SOUTHERN DISTRICT OF NEW YORK
2
3 APPEARANCES: (cont’d)
4 For Amos Aharoni: SIGMUND S. WISSNER-GROSS, ESQ.

Brown Rudnick
5 Seven Times Square
6
For Alexander Stonkus: LANCE GOTKO, ESQ.
7 Friedman Kaplan Seiler & Adelman LLP
1633 Broadway
9 For Kellogg Capital: PAUL RUBIN, ESQ.

Group Herrick, Feinstein LLP
10 2 Park Avenue
11
For Securities Class: CLIFFORD GOODSTEIN, ESQ.
12 Plaintiffs: Milberg LLP
One Pennsylvania Place
14 For Party to Settlement: KATHERINE ASH, ESQ.

Agreement, Joseph Troutman Sanders LLP
15 D’Allesandris The Chrysler Building
405 Lexington Avenue
17 For Deloitte Touche: EDWARD J. YODOWITZ, ESQ.

Skadden, Arps, Slate, Meagher &
18 Flom LLP
Four Times Square
20 For Eric Resenberg,: ERIC RESENBERG

Shareholder (Telephonically)
21
22 Court Transcriber: SALLY REIDY

TypeWrite Word Processing Service
23 211 N. Milton Road
Saratoga Springs, New 12866
24
25
3
1 THE COURT: All right. We’ll then go on to Actrade
2 Financial Technologies. We need to get somebody on the
3 telephone.
4 [Pause in proceedings.]
5 THE COURT: I’ll take appearances from those in the
6 courtroom on the Actrade case and then from anyone on the
7 telephone.
8 MR. ROSENBERG: (Telephonically). Hello. This is
9 Eric Resenberg.
10 THE COURT: You’ll have to wait. I’ll take
11 appearances from those in the courtroom first.
12 Go ahead. Go ahead.
13 MR. ANKER: Good morning, Your --
14 THE COURT: Yes? Go ahead, state your appearance.
15 MR. ANKER: Good morning, Your Honor. Philip Anker,
16 Wilmer Cutler Pickering Hale and Dorr for the trustee --
17 THE COURT: All right.
18 MR. ANKER: -- Jonah Meer, joined at table by Patrick
19 Salisbury of Salisbury Ryan, Mr. Meer, the trustee, and, to Mr.
20 Meer’s right, James Millar of my office. Good morning, Your
21 Honor.
22 THE COURT: All right. Anybody else appearing today?
23 MR. BOYAR: Yes. David Boyar of D’Amato Lynch for
24 National Union Fire Insurance Company.
25 MR. FLINT: Edward Flint, Silverman Acampora, counsel

4
1 for Kenneth Silverman, the Chapter 7 trustee of Allou
2 Distributors.
3 MR. WISSNER-GROSS: Sigmund Wissner-Gross from Brown
4 Rudnick on behalf of Amos Aharoni.
5 MR. GOTKO: Lance Gotko of Friedman Kaplan Seiler &
6 Adelman on behalf of Alexander Stonkus.
7 MR. RUBIN: Paul Rubin, Herrick Feinstein, Kellogg
8 Capital Group, which I believe is the largest shareholder
9 [inaudible].
10 MR. GOODSTEIN: Clifford Goodstein from Milberg,
11 securities class plaintiffs.
12 MS. ASH: Katherine Ash, Troutman Sanders, Joseph
13 D’Allesandris.
14 THE COURT: For whom?
15 MS. ASH: For Joseph D’Allesandris.
16 THE COURT: Who is he?
17 MS. ASH: He is one of the parties to the settlement
18 agreement.
19 THE COURT: One of the?
20 MS. ASH: Parties to the settlement agreement.
21 THE COURT: And what is his position in the
22 settlement agreement? How does he get interested in the
23 settlement agreement?
24 MS. ASH: Because he was a party to the underlying
25 class action, and he had signed --

5
1 THE COURT: He was a defendant in the class action.
2 MS. ASH: Yes.
3 THE COURT: All right. That makes it clear.
4 MR. YODOWITZ: Edward Yodowitz, Skadden Arps, for
5 Deloitte, also a defendant in the class action and a party to
6 the settlement.
7 THE COURT: Right. Okay. Anyone else in the
8 courtroom? Then on the telephone.
9 MR. RESENBERG: This is Eric Resenberg representing
10 myself and other investors. We have --
11 THE COURT: Well, you’re representing yourself, Mr.
12 Resenberg, I don’t know about other investors. You’ll have to
13 file something to represent others. And you have, you claim to
14 have shares of stock in Actrade; is that right?
15 MR. RESENBERG: Yes, that’s correct.
16 THE COURT: How much?
17 MR. RESENBERG: About a half million shares.
18 THE COURT: All right. Thank you.
19 All right. We have I believe a motion by the trustee
20 for approval of a settlement agreement, and I’ve had a number
21 of pleadings. Yesterday I signed an order that terminated the
22 filing under seal and opened that up. But I don’t think there
23 seems to be much dispute. The parties here have available to
24 them the basic information necessary to argue this motion. I
25 have received papers from a large number of parties and I’ve

6
1 read them.
2 So I guess you’re up first, Mr. Anker.
3 MR. ANKER: Good morning, Your Honor. And again for
4 the record, Philip Anker, Wilmer Cutler Pickering Hale and
5 Dorr. We did file yesterday afternoon, and I apologize, Your
6 Honor, for the lateness of the hour, a reply memorandum.
7 THE COURT: I have that, I read that too.
8 MR. ANKER: Good. Your Honor, I will try to be
9 brief. Obviously happy to answer any questions the Court had.
10 It seems to me it makes sense to try to put the matter in a
11 framework in terms of what the law is and what the law requires
12 and then apply that law. I want to start -- and I normally
13 wouldn’t start on a point that is somewhat defensive but I
14 think it goes to the trustee’s bona fides, and I think it’s
15 important to start with.
16 There is a suggestion in the papers certainly filed
17 by National Union and a little bit by Mr. Aharoni that somehow
18 the trustee shouldn’t come to this Court and provide the
19 information he has and be candid and direct with the Court
20 about what has transpired. I submit that the Martin case and
21 numerous cases that have filed it, and no case has rejected it,
22 hold directly to the contrary. This trustee is like every
23 trustee, both a case trustee and a liquidating trustee, a
24 fiduciary. He not only may but I submit he must be candid with
25 the Court and look for the best opportunity for this estate and
7
1 represent it diligently. I would like to think the case law
2 cited puts that issue to rest.
3 The second question, it seemed to me, in terms of
4 legal standard is what is Your Honor supposed to decide. Is
5 Your Honor supposed to decide, as Mr. Aharoni seems to be
6 submitting in his brief, whether at the time the prior trustee
7 entered into the settlement agreement that was a settlement
8 agreement at the time that was above the lowest range of
9 reasonableness. I submit that isn’t the question. It isn’t
10 the question for two reasons. One, there is a different
11 trustee today, a trustee who -- and the motion is before Your
12 Honor today, not three years ago. And that trustee is
13 supported by the official committee here -- sorry, Your Honor
14 -- believe --
15 THE COURT: Go ahead.
16 MR. ANKER: -- believes this agreement is not in the
17 best interest of the estate based in large measure on events
18 that have transpired since.
19 THE COURT: All right. If I understand your papers
20 and your position correctly, your position is, in substance,
21 that Mr. Aharoni has breached the agreement, has failed to
22 cooperate, and that, in connection with that failure,
23 information has come to your attention that he has
24 misappropriated over $30 million of property of these debtors.
25 MR. ANKER: Your Honor, yes in part. I want to be

8
1 clear on what I’m suggesting the legal standard is here. If
2 nothing had happened, nothing had happened since the trustee
3 entered into that original agreement, it would still be within
4 the province of the trustee today to say that deal isn’t in the
5 best interest of the estate for the following reasons.
6 Whenever someone enters into an agreement with --
7 THE COURT: Now, that’s your position. I think I can
8 say that there is conflicting authority on that proposition.
9 MR. ANKER: I don’t believe so, Your Honor, and I
10 want to be clear on this. I think there is conflicting
11 authority on the following question. May a trustee simply
12 unilaterally walk away from an agreement. May he simply say
13 I’m not going to bring it to the Court’s attention. And I will
14 be candid with Your Honor, there is conflicting authority. I
15 think the better answer to that question is no, he may not, and
16 I don’t argue to the contrary. I think there is uniform
17 authority, however, that if a trustee enters into an agreement,
18 while he is duty bound then to bring it to the Court for
19 approval, he may, if he concludes thereafter that the
20 settlement is not in the best interest of the estate, so inform
21 the Court of his views. Indeed he is duty bound and I would
22 submit in breach of his duty not to. Case after case says that
23 when you are a party and you enter into an agreement with a
24 trustee you know that trustee always has a fiduciary out. He
25 has an obligation to benefit the estate and look for the best
9
1 proposal. And indeed, Your Honor, if you look at some of the

2 cases we cited, the Lane case says the trustee, it doesn’t
3 matter even if there has been simply, by the trustee, a
4 reassessment of his legal position.
5 Having said that, I submit Your Honor doesn’t have to
6 reach that question. Because there have been new events that
7 have occurred. There are several. First, Your Honor, when the
8 prior trustee entered into the agreement he did not have
9 records, which we now have, that unequivocally, and Mr. Meer
10 has put in an affidavit confirming, unequivocally attest that
11 the $30 million went to bank accounts controlled by Mr.
12 Aharoni. This was $31 million taken out of this estate after a
13 whistle blower email came, after securities litigation was
14 filed, after, Your Honor, cooperation was sought by the board
15 and denied by Mr. Aharoni.
16 Second, Your Honor, Mr. Aharoni signed a separate
17 agreement in which he agreed that the estate would dismiss
18 without prejudice, without prejudice its lawsuit against him in
19 Delaware, and in exchange he would cooperate in helping resolve
20 the Allou claim but in addition to that it expressly provides
21 in seeking the recovery of that $31.6 million. Your Honor, not
22 one penny has been recovered. And these are loan agreements,
23 simple negotiable instruments and documents as to which there
24 should be no dispute. Cooperation here meant payment of $31.6
25 million plus interest. Every one of those parties has denied

10
1 liability, in many cases saying in pleadings filed in Israel we
2 did not receive the money.
3 Third, Your Honor, the trustee, when he entered into
4 the original agreement, believed, and he attested to this both
5 in his original memorandum -- indeed when you look at the
6 section of the memorandum justifying the original settlement
7 and why to give a release to Mr. Aharoni it is the only
8 rationale, and he provided an affidavit yesterday confirming
9 that he understood at the time that that was the price one had
10 to pay, if you were the estate, to get -- to obtain collateral
11 benefits, those collateral benefits being the settlement with
12 the securities plaintiffs.
13 Your Honor, there are no signed papers. And I’m not
14 going to mislead the Court, there’s always risk. But I’ve had
15 -- and I represent to this Court as an officer of the court --
16 discussions with Mr. Boyar, discussions with Mr. Yodowitz,
17 discussion with Mr. Shapiro who is the, as I understand it, the
18 primary counsel for the securities plaintiffs, and based on
19 those discussions -- and I’m a reasonably experienced lawyer
20 that’s been around the block a few times -- confident that if
21 this Court disapproves this settlement, we are going to be able
22 to negotiate a modified settlement. And let me be clear on
23 what that modified settlement will provide.
24 THE COURT: I don’t think you should. I don’t think
25 I am going to decide the case on the basis of --

11
1 MR. ANKER: Okay.
2 THE COURT: -- what you might be able to do. You’ve
3 stated the trustee’s view that this is not an all or nothing
4 proposition. But we don’t have any other certain course of
5 action here, and I think that’s where the record stands today.
6 MR. ANKER: Your Honor, we don’t. And it’s
7 understandable, it seems to me, that parties will not want to
8 enter into modified agreements until and unless they know
9 whether the existing agreement will or will not be approved.
10 And it’s understandable in that regard that parties such as the
11 securities plaintiffs, National Union, if they had their
12 druthers, would prefer approval of the existing --
13 THE COURT: I’ve read their papers. I think I
14 understand their position.
15 MR. ANKER: Okay. Your Honor, the other fact -- I
16 read Mr. Aharoni’s papers in particular to be internally
17 inconsistent. On the one hand I hear him to say Your Honor
18 should look back in time with blinders on recent events and ask
19 the question whether the trustee, when he entered into the
20 original settlement, was acting above the lowest range of
21 reasonableness. On the other hand I read him to say the only
22 way Martin applies is if there’s been something new and a
23 change in circumstances. And I would argue that the right
24 answer is neither of the above. The right answer is you
25 consider the motion today and you do base it on today’s record,

12
1 but even if that record hasn’t changed the trustee can come in
2 and take the position he has taken.
3 THE COURT: Well, are you saying the record has or
4 hasn’t changed --
5 MR. ANKER: It has, Your Honor.
6 THE COURT: -- in the last several years?
7 MR. ANKER: It has. It absolutely has. It has
8 because, a, we’ve not obtained any cooperation; b, it’s
9 indisputable not one penny of that 31.6 million has been
10 recovered; point three, we do believe and the trustee has made
11 a representation to this Court that it has engaged in, and no
12 one has denied it, substantial negotiations with other parties
13 and believes it can obtain new agreements. And for all of
14 those reasons the record has changed significantly.
15 What is the argument. Let’s step back a second and
16 look at this as if -- from the trustee’s standpoint, from the
17 estate’s standpoint. Why is it that this settlement doesn’t
18 make sense. First, the trustee under this settlement would be
19 giving a release to Mr. Aharoni in exchange for no payment
20 whatsoever from Mr. Aharoni to the estate. Not one penny.
21 Number two, there’s no dispute, no dispute whatsoever that
22 $31.6 million left the estate’s bank accounts. There’s no
23 dispute at all that Mr. Aharoni caused those transfers. He may
24 take the position that they were legitimate loans and
25 legitimate transfers to third parties. We believe we have

13
1 unequivocal evidence demonstrating on the contrary. And I note
2 he did not submit an affidavit to this Court --
3 THE COURT: That --
4 MR. ANKER: -- and he is not here.
5 THE COURT: That is noted.
6 MR. ANKER: So from the estate’s standpoint it
7 believes it has claims for breach of fiduciary duty, claims for
8 theft, for conversion and the like that are extraordinarily
9 strong and for real dollars. Put aside for a moment all the
10 other action, the options and the like that add to it tens of
11 millions of dollars, we’re talking about directly 31.6 million
12 plus interest. Second, we have -- Your Honor may ask the
13 question but isn’t this an Israeli and aren’t there issues
14 about pursuing him.
15 THE COURT: Well, we’re not trying that case today.
16 MR. ANKER: I --
17 THE COURT: We’ll see if we will need to try to case
18 some day but we’re not trying that case today, so I don’t think
19 you need to get too deeply into it. I hear the number, and I
20 hear particularly that you tell me that he’s not cooperated.
21 And if I read the settlement agreement, both of them, both
22 versions properly, he’s got to cooperate.
23 MR. ANKER: That’s right, Your Honor.
25 MR. ANKER: My point on this --

14
1 THE COURT: So I think it’s time for you to move on
2 to another point.
3 MR. ANKER: Your Honor, let me answer the question
4 you just said. We will not be, if we includes Your Honor,
5 trying this case. If Your Honor disapproves this settlement,
6 our intent is to refile this case in Delaware and proceed
7 there. And there is no reason, Your Honor, once the Allou
8 claim is resolved, we cannot close this estate. There is no
9 reason the securities litigation cannot be ended. We will be
10 litigating in another courtroom in front of the Delaware Court
11 of Chancery.
12 My only point, Your Honor, was there -- in terms of
13 your assessing the trustee’s judgment here, it is worth noting
14 that we have an opinion of the Delaware Chancery Court denying
15 Mr. Aharoni’s prior motion to dismiss for want of personal
16 jurisdiction, denying his motion to dismiss for want of subject
17 matter jurisdiction, denying his motion to dismiss for want of
18 improper service of process. And in the agreement he expressly
19 agrees, a, to a contractual tolling of any limitations period
20 and, b, he agrees that service of process may occur and he
21 won’t raise any defense. Those issues inform the trustee’s
22 judgment.
23 THE COURT: All right. I understand that.
24 MR. ANKER: Let me address one last point, and I will
25 let others speak and then I’ll respond. There -- one of the
15
1 responses that I think we take most seriously is that of DMI
2 Capital. Because unlike Mr. Aharoni, unlike National Union,
3 they are a beneficiary of the trust. The only other
4 beneficiary of the trust that has filed papers is the Allou
5 trustee, who has supported our position.
6 I will say, Your Honor, the trustee -- and I want to
7 be both candid but careful in what I say. The trustee has been
8 concerned for some time of indications that he believes Mr.
9 Aharoni is trying through third parties to sabotage this
10 process. We do note that DMI Capital, notwithstanding that it
11 says it’s terribly concerned about delay here, has in a week
12 told us it has increased apparently its position in shares, a
13 seemingly difficult to reconcile action if you’re really
14 concerned. But the bottom line is who is a member of the
15 trustee is a matter for another day and a matter, frankly, not
16 within the trustee’s control. We are fiduciaries and we care
17 about what our --
18 THE COURT: Well, anyone with any involvement in this
19 case, and my involvement goes back I think probably five years
20 before yours --
21 MR. ANKER: It does, Your Honor.
22 THE COURT: -- Mr. Anker, is concerned about the
23 length of time that has elapsed.
24 MR. ANKER: There is no doubt --
25 THE COURT: So there’s no reason for anyone

16
1 interested in this case not to be very seriously concerned
2 about the length of time that has elapsed. But that’s only one
3 issue to take into account. So let me hear from some of the
4 other parties.
5 MR. ANKER: Thank you, Your Honor.
6 THE COURT: Thank you.
7 Anyone -- I’ll first hear from anyone else who wishes
8 to support the trustee’s position wishes to be heard. Then
9 perhaps it is time for me to hear from Mr. Aharoni then. All
10 right.
11 MR. WISSNER-GROSS: Thank you, Your Honor. Sigmund
12 Wissner-Gross from Brown Rudnick. Taking into account that
13 Your Honor has read all the papers, I think it might be just
14 helpful for me to focus on a couple of points. It isn’t our
15 position that Mr. Anker shouldn’t have the ability to alert
16 Your Honor to more current developments; we’re not suggesting
17 that. Rather having carefully read his papers, it’s clear to
18 me, as indicated in my affidavits, Your Honor, that the
19 supposed new developments that he’s identified are really
20 nothing more than a re-articulation of what I had known all too
21 well in terms of the trustee’s position before I entered into,
22 on behalf of Mr. Aharoni, the initial stipulation of settlement
23 in March 2004, which was a -- it’s not a stipulation that’s
24 before the Court, it’s the side stipulation that we entered
25 into pursuant to which the Delaware action was dismissed

17
1 without prejudice. And in particular, Your Honor --
2 THE COURT: Stipulation of settlement in the Delaware
3 action --
4 MR. WISSNER-GROSS: Yes. That was a --
5 THE COURT: -- is that right? That’s Exhibit G and
6 then --
7 MR. WISSNER-GROSS: Correct. And then there’s an --
8 THE COURT: -- Exhibit H and Exhibit --
9 MR. WISSNER-GROSS: Well, the initial stipulation --
10 THE COURT: -- M to your --
11 MR. WISSNER-GROSS: Yeah, the initial --
12 THE COURT: -- your papers.
13 MR. WISSNER-GROSS: Yes.
14 THE COURT: You’ve got it right here.
15 MR. WISSNER-GROSS: Yes. They were submitted to Your
16 Honor.
18 MR. WISSNER-GROSS: And while I didn’t like --
19 THE COURT: And as I read those stipulations, they
20 say that Mr. Aharoni commits to cooperate --
21 MR. WISSNER-GROSS: Yes.
22 THE COURT: -- with the trustee.
23 MR. WISSNER-GROSS: Yes, and --
24 THE COURT: That’s --
25 MR. WISSNER-GROSS: -- there’s a --

18
1 THE COURT: And you know as a practicing lawyer that
2 that’s not unusual.
3 MR. WISSNER-GROSS: That’s not unusual. And I --
4 THE COURT: And --
5 MR. WISSNER-GROSS: -- attempted to Your Honor --
6 THE COURT: -- are you able to testify today from
7 firsthand knowledge as to whether Mr. Aharoni has or has not
8 cooperated?
9 MR. WISSNER-GROSS: Well let me tell you what I can
10 testify to as an officer of the court.
11 THE COURT: Why don’t you answer my question --
12 MR. WISSNER-GROSS: Well, I --
13 THE COURT: -- then you can tell me what you want to
14 tell me. Answer my question.
15 MR. WISSNER-GROSS: Well, I was involved for certain
16 periods of time, so my involvement was from the time I was
17 retained in --
18 THE COURT: So the answer is pretty obvious. You
19 can’t testify --
20 MR. WISSNER-GROSS: No, but --
21 THE COURT: -- firsthand as to your client’s
22 cooperation or lack of corporation in Israel, can you?
23 MR. WISSNER-GROSS: No, no, I can’t testify as to
24 that, Your Honor. But I can speak to what I did at his
25 direction in connection with the Allou proceeding --

19
1 THE COURT: That’s fine.
2 MR. WISSNER-GROSS: -- what I did in connection with
3 the mediation, which, while I’m subject to constraints given
4 the fact that that was -- for example, the mediation was
5 subject to a confidentiality agreement --
6 THE COURT: I don’t -- is that the mediation with the
7 Allou --
8 MR. WISSNER-GROSS: No, no. That was the mediation
9 that in May 2004, pursuant to which an agreement in principle
10 was reached to settle the class action --
11 THE COURT: Okay.
12 MR. WISSNER-GROSS: -- which is the subject that is
13 before Your Honor.
14 THE COURT: Let me ask you one other question. Does
15 your client desire an evidentiary hearing in connection with
16 these proceedings, and in particular does your client desire an
17 evidentiary hearing at which I could take evidence as to
18 whether he has or he hasn’t cooperated with the trustee?
19 MR. WISSNER-GROSS: No, Your Honor, and for two
20 reasons. One, the cooperation agreement is in the Delaware
21 stipulation that if the issues are litigated as to the claims
22 that Mr. Anker seeks to pursue, those will have to be litigated
23 in Delaware. Whether or not he has cooperated, his position --
24 as indicated in my papers is that he has -- will have be
25 decided by a Delaware judge. Because the threshold matter, if

20
1 the Delaware Chancery Court decides that Mr. Anker in his
2 conduct in attempting to not seek the approval of settlement
3 has in fact breached that agreement, he will not have the
4 ability to get the benefit of his contractual tolling. But
5 that issue is not before Your Honor. That issue, as Mr. Anker
6 has indicated, will have to be litigated in the Delaware
7 Chancery Court. But the short answer is we’re not seeking an
8 evidentiary hearing. We’re happy to rest on the papers and the
9 presentation today.
10 THE COURT: All right. And that’s true for this
11 hearing in general. Because I really asked you a double
12 question.
13 MR. WISSNER-GROSS: Right. But, Your Honor, I want
14 to make clear that if all the other parties who are here today,
15 who are the interested parties in the mediation, would consent,
16 I’d be delighted to tell Your Honor what I know from firsthand
17 knowledge as to the mediation, which I -- Mr. Aharoni was not
18 present at the mediation. I as his counsel was present and the
19 events leading up to it, the negotiation of that settlement,
20 and I would be able to -- I would proffer to Your Honor that if
21 permitted to disclose what happened, there was a substantial
22 economic benefit to the estate that Mr. Aharoni through my
23 representation conferred at the mediation so that the
24 settlement that they’ve agreed to in the class settlement is
25 much less than perhaps they would have actually entered into.
21
1 So that, number one, that when -- the statement was made that
2 there isn’t one penny of benefit. I happen to know personally
3 -- I was there, Mr. Anker was not there, this was before his
4 retention -- that there was substantial benefit to the estate
5 conferred through Mr. Aharoni’s efforts.
6 THE COURT: But the more direct question to the
7 proceedings today is whether he has cooperated, and I think the
8 trustee points to the $31 million. Did you receive any of the
9 $31 million, sir?
10 MR. WISSNER-GROSS: No. No, Your Honor. And I don’t
11 --
12 THE COURT: Did any of the $31 million pass through
13 your hands?
14 MR. WISSNER-GROSS: No. No, Your Honor. And I’m not
15 -- I’m --
16 THE COURT: So you can’t testify --
17 MR. WISSNER-GROSS: I’m not testifying to that. I’m
18 not --
19 THE COURT: -- as to the $31 million --
20 MR. WISSNER-GROSS: No. All --
21 THE COURT: -- and his --
22 MR. WISSNER-GROSS: All I can say are two things,
23 Your Honor. One is that Mr. -- I have been present at meetings
24 before -- you know, this issue was addressed before, two years
25 before Mr. Anker was involved. I was personally at a meeting

22
1 in London that -- it’s discussed in my papers. And, by the
2 way, Your Honor, Mr. Bronstein [Ph.], who is the former
3 trustee, submitted a new affidavit. I noted, which I saw it
4 last night, that he doesn’t dispute in any regard anything
5 that’s in my affidavit as to my discussions with him. And I
6 did attend a meeting in London in which the representative --
7 the former trustee, his representative, his counsel was --
8 actually his counsel Mr. Vann [Ph.] was present as well as the
9 then chairman of the equity committee, at which Mr. Aharoni
10 gave an explanation as to what had happened with respect to the
11 funds. It wasn’t my explanation, but there was a very detailed
12 explanation. And as I indicated in my papers, Mr. Vann didn’t
13 believe or buy into the explanation. I had extensive
14 communications with Mr. Bronstein. He may -- he didn’t seem to
15 buy into the explanation either before we signed the March 2004
16 settlement.
17 And as I indicate in my papers, there were business
18 reasons that was very clear that the trust had decided at the
19 time that we had the May 2004 mediation, the class settlement,
20 that from a macro picture it was far better for the estate to
21 reach a settlement of the class claims, to get a final closure
22 on the class claims and be able to have a distribution to
23 ultimately -- primarily equity holders, post-class action
24 equity holders in May of 2004 with full understanding of what
25 the facts were. And, Your Honor, while I didn’t like the
23
1 ruling by the Chancery Court, because I lost on a motion to
2 dismiss, I do think it’s instructive that -- it’s attached as
3 Exhibit C to my affidavit -- that on page 2 of Vice Chancellor
4 Lamb’s [Ph.] ruling he specifically notes exactly, as a
5 contention of Actrade, what Mr. Anker is saying today.
6 Supposedly his new development is that, well, we have these
7 records from BCP Bank that demonstrate that Mr. Aharoni was in
8 control of the accounts.
9 Well, that was the position that Paul Weiss, a
10 reputable law firm, had advanced when I was litigating against
11 them in the Chancery Court, and the Vice Chancellor noted on
12 page 2, in language I didn’t like but it’s language that was
13 known to the trustee at the time, “Actrade further alleges that
14 Aharoni controls ICC [indiscernible] and that he fabricated the
15 loan agreements after the disputed transfers to conceal his
16 theft of $31.6 million from Actrade Commerce.” Their complaint
17 --
18 THE COURT: So what you’re telling me then is that
19 the issue was known.
20 MR. WISSNER-GROSS: Correct.
21 THE COURT: And the prior trustee in the settlement
22 agreements in Delaware got Aharoni’s commitment to cooperate in
23 terms of tracing those funds and attempting to recover them for
24 the benefit of the estate. And I assume that Aharoni at the
25 time did not take the position that he had misappropriated the
24
1 funds.
2 MR. WISSNER-GROSS: He didn’t. He vigorously
3 disputed that, he disputed that at the meeting in London that I
4 recite in my papers, and he today disputes that. And as I
5 understand it, there is litigation going on by the trustee, Mr.
6 Meer in Israel, I guess against these third parties. I’m not
7 involved with that but I understand he’s pursuing claims with
8 respect to trying to recover those loans, and parties that are
9 counter parties to those loan agreements have taken, you know,
10 I gather, the position that they didn’t get the benefit of that
11 money.
12 But the point, Your Honor, I’m trying to make is that
13 this is a case where I think the evidence -- frankly it’s
14 undisputed that all of the facts that were known then before
15 the trustee for a host of reasons, the smallest portion of
16 which, I would submit, was that he hoped that as a result of
17 Mr. Aharoni’s cooperation that he would be able to recover the
18 $31 million. But the trustee at the time made an informed
19 business judgment that in a very complex, multi-factor, multi-
20 party litigation situation the best interest of the estate was
21 to reach a settlement that he knew, and I say this in my papers
22 and there’s no dispute, the trustee at the time knew that there
23 would be no class action settlement signed unless Aharoni got a
24 general release. I submitted to Your Honor emails that I
25 received from the then trustee in which he had recognized that

25
1 that was the price that they had to get, give Aharoni a
2 release.
3 And if you look -- I tried to reconstruct the
4 timeline for Your Honor. The first stipulation of settlement
5 was entered into in March 2004. The Delaware Chancery case was
6 dismissed without prejudice in April, April 5th, 2004. The
7 mediation took place a month later. And over the course of the
8 next few months, after reaching an agreement in principal, as
9 the documents in connection with the class action settlement
10 were negotiated, even though Judge Berman had been told by Mr.
11 Shapiro that he hoped to have all the documents before the
12 judge in June of 2004, it took well into October to have those
13 documents finalized. And all the other parties who were
14 parties to those settlement agreements are here. But it was
15 just before when we had reached a finalized settlement
16 agreement, before they were to be executed, Mr. Bronstein came
17 back to me and said, well, I recognize that I need to give
18 Aharoni a release but I’d like at least to amend the class
19 action settlement agreement to provide -- excuse me, amend the
20 Delaware side agreement to provide that if it’s not approved --
21 and at the time the papers as drafted imposed a burden on Mr.
22 Bronstein to affirmatively seek the approval of this Court and
23 for this Court’s portion of the settlement. It was the last
24 thing in the world that Mr. Aharoni or, for that matter, Mr.
25 Bronstein thought was that the trustee in fact would be able to

26
1 benefit by an additional tolling provision in the October 2004
2 amended stipulation of settlement by seeking to undermine the
3 settlement. I recognize that Mr. Anker -- and I don’t dispute
4 that he has a duty as a fiduciary to bring information to the
5 attention of the Court. That’s a duty that’s independent of
6 what the trustee’s contractual obligations are under a
7 settlement where the trustee represented to Mr. Aharoni that he
8 had all requisite authority to enter into the Delaware
9 stipulation, that it was not conditioned on seeking the
10 approval of this Court.
11 So, Your Honor, I think contextually my point is that
12 the circumstances haven’t changed. The information that it
13 appears that Mr. Anker has obtained in the last year, I would
14 characterize it more as probably further confirmatory of the
15 view that was strongly held by the trustee and by Paul Weiss
16 and Mr. Vann long before we entered into the settlement
17 agreement, either the Delaware settlement agreement or the
18 class action settlement agreement. And in addition, as I
19 noted, because this I can say with firsthand experience, there
20 was a tangible concrete benefit that was conferred on the
21 estate -- I go further -- with respect to the mediation. I go
22 further to say that if I was not instructing Mr. Aharoni to co-
23 actively try to help get the mediation going, proact -- I
24 played a very proactive role in that mediation in entirety as
25 well as, I believe, saving the estate money. If Mr. Aharoni

27
1 had not wanted to participate in that process, there would not
2 have been a class action settlement, and Mr. Anker would not be
3 in a position today to say, although I appreciate Your Honor
4 doesn’t want to hear where this is going with respect to any
5 reconstructed class action settlement, he wouldn’t have the
6 benefit of the deal that he’s trying to now redo just simply to
7 cut Mr. Aharoni out of the picture.
8 So that’s one large piece of it, Your Honor. I think
9 the other points can be addressed briefly. The Martin case
10 from the Third Circuit, the interesting thing about that case
11 is that the changed circumstances were that the trustee was not
12 aware that there had been a settlement of or a resolution
13 underlying state court action that conferred another $100,000
14 of benefit to the estate. The trustee came back to the court,
15 and the Third Circuit ultimately recognized the trustee
16 certainly had a duty to report to the court recent
17 developments. But those were recent positive developments.
18 There was more money coming into the estate, making the prior
19 deal, which was not as good for the estate, less preferable
20 than the current deal.
21 Here we actually have, I think, the opposite
22 paradigm. There was a very complicated settlement that was
23 reached that I again would submit resulted in a deal for the
24 estate, that saved the estate money in May of 2004. It was
25 finally executed in December 2004. That was when these class

28
1 action settlement documents were executed, dated as of October.
2 Which Mr. Anker I think is putting the estate at risk of
3 blowing that whole settlement. I can’t speak to what anybody
4 else here in the room or parties to the settlement will or will
5 not do. They’ll have to -- they can speak to that themselves.
6 But I will say that if this class action settlement that was --
7 has been waiting for approval for four years -- although the
8 application was made in March of 2003 so call it three and a
9 half years since Mr. Bronstein has made application -- is not
10 approved by the Court, I do think that, number one, Mr.
11 Aharoni, who has rights under a National policies agreement,
12 particularly, as I view it, that if an action is brought by the
13 trustee, that it would be a covered claim, Mr. Aharoni will
14 seek indemnification and coverage from National Union. Mr.
15 Aharoni’s position will be, as I’ve advised all counsel, is
16 that there can’t be a new class action settlement agreement
17 with National Union signing off unless he is included within
18 that.
19 The trust exposes, in my view, the risk that National
20 Union may well say that, you know what, we wanted to arbitrate
21 the issue of whether an additional $9 million of coverage
22 properly came within the policy, and we settled by paying a
23 portion of that. I’m not allowed to say what amount, but a
24 portion of that. National Union may say we don’t want to pay
25 anything. And Mr. Anker then is left with blowing an estate --

29
1 blowing a settlement that confers a significant benefit to the
2 estate by liquidating or resolving a claim that is hundreds of
3 millions of dollars for an amount that allows still for a
4 significant distribution to creditors and others of the estate.
5 And then what he has in exchange is claims against my client,
6 which I’ve been doing this for a while and I appreciate Mr.
7 Anker has been doing this for a while and I’ve had a lot of
8 experience before the Delaware Chancery Courts including before
9 Vice Chancellor Lamb yesterday in a complete unrelated hearing.
10 As I see it, the claims that were asserted against Mr. Aharoni
11 were asserted based on conduct that occurred at the latest in
12 August of 2002, maybe July or August 2002. The statute of
13 limitations in Delaware for a breach of fiduciary duty claim
14 and the other claims is three years. The original dismissal
15 without prejudice was filed on April 5, 2004. Those claims are
16 all clearly time barred.
17 Mr. Anker, his argument would be, well, I have
18 contractual tolling. I would submit, Your Honor -- and this is
19 not an issue for you to decide, it will be for the Delaware
20 Chancery Court to decide, but I do think it’s important to put
21 this before Your Honor so you at least appreciate the context.
22 I think in a case where it will be solely Mr. Anker’s conduct,
23 whether he’s an officer of the court or otherwise, that results
24 in the possible disapproval of the settlement, that he will
25 under no circumstances be able now to come back to Delaware and

30
1 say Mr. Aharoni agreed to toll the statute of limitations.
2 And as to equitable tolling, which is his only other
3 identified basis to get around the clear statute of limitations
4 problem, we’ve cited cases to Your Honor in Delaware. There
5 are no cases cited by Mr. Anker. But I think this couldn’t be
6 a more clear case that he knew everything that he seeks to
7 assert now he asserted -- not only did he know previously, he
8 alleged previously. So he will pursue claims against Mr.
9 Aharoni if allowed to. I think those will be time barred. And
10 when I say that the problem and lack of benefit to the estate
11 to going his way on this is that a very good fair settlement
12 that was negotiated and resolved in May of 2004 and executed at
13 the end of 2004 will be blown up and claims will be pursued
14 against Mr. Aharoni that, if I’m successful in defending them,
15 will all be dismissed as time barred. And I guess what the
16 estate will have is we’ll be back having to now spend the next
17 several years litigating the issue of the proof of claim filed
18 by the class action attorneys before this Court for hundreds of
19 millions of dollars. Because it’s clear that with the other
20 parties in the case that they’re not going to -- if the class
21 action plaintiffs are successful there, they’re not going to
22 stop with the individual defendants as well as the Deloitte,
23 and they’ll have no choice but to prosecute aggressively, I
24 assume, the proof of claim before this Court.
25 Your Honor, finally, I don’t think it really matters

31
1 whether the standard is the lowest range of reasonableness or
2 whether it’s a fair and reasonable outcome. I think that Mr.
3 Anker’s views are a piece of what Your Honor should consider
4 but they aren’t controlling, they aren’t dispositive. I think
5 that whether it’s a lowest range of reasonableness or fair and
6 reasonable, that if Your Honor applies the seven factors under
7 9019, that this is a compelling case. While we understand Mr.
8 Anker’s concerns of what he thinks he would like to do, that at
9 bottom, Your Honor, this really amounts to nothing more than,
10 armed with all the same information as Mr. Bronstein, he has a
11 different business judgment of what he would have liked to have
12 done. And that stripped of his identification of new
13 developments, there are no new developments. This case has
14 been going on far too long. Judge Berman repeatedly in the
15 last year has been pressing the lawyers in the case when is
16 this thing going to come before me for final resolution. I
17 would submit to Your Honor that if Your Honor is to approve the
18 motion made by Mr. Bronstein, which Mr. Bronstein hasn’t backed
19 off any with respect as to why he’s still -- you know, his
20 original application, that no one would be more delighted than
21 Judge Berman at the Southern District, who we would then
22 promptly go before to get final approval of the class action.
24 MR. WISSNER-GROSS: Thank you, Your Honor.
25 THE COURT: Anyone else?

32
1 MR. BOYAR: Your Honor, David Boyar, D’Amato Lynch
2 for National Union. Just very briefly, the alleged fraud at
3 Actrade through Mr. Aharoni has been the subject of litigation
4 for over ten years. The allegations of a massive fraud and the
5 numbers in excess of $31 million has been bandied about for ten
6 years. The sort of alleged involvement of Mr. Aharoni with
7 respect to his manipulation of bank accounts and transfer
8 directions has been public knowledge for in excess of ten
9 years. These are precisely the allegations that were made in
10 the class complaint. This is old news at this point. National
11 Union --
12 THE COURT: I gather he denies having misappropriated
13 the $31 million?
14 MR. BOYAR: Absolutely, Your Honor. I guess --
15 THE COURT: And I gather your client didn’t receive
16 any of that?
17 MR. BOYAR: That’s correct, Your Honor.
18 THE COURT: Did any of it pass through your client’s
19 hands?
20 MR. BOYAR: Certainly not, Your Honor.
22 MR. BOYAR: All right. The point is that this, in
23 effect, is old news. These were the original allegations made
24 in excess of ten years ago. These were the allegations that
25 were the subject matter of the class litigation. This was the
33
1 subject matter of the mediation that transpired in 2004. This
2 was the subject matter of the agreements that constitute the
3 global settlement arrangements as the subject matter of the
4 motion for approval.
5 National Union would sustain massive prejudice if the
6 trustee, the successor trustee is permitted in effect to walk
7 away from the agreements his predecessor agreed to in 2004. In
8 the policy release agreement the predecessor trustee
9 represented and warranted they performed a necessary and
10 prudent investigation of the subject matter of this agreement.
11 That subject matter included, obviously, the subject matter of
12 the class litigation, which again, Your Honor, made reference
13 to this alleged massive fraud by Mr. Aharoni.
14 THE COURT: All right. Now, what’s the prejudice to
15 your client?
16 MR. BOYAR: The prejudice to National Union is that
17 we filed an application with this Court in 2003 to lift the
18 automatic stay, to the extent the stay was applicable, so
19 National Union could arbitrate pursuant to the alternative
20 dispute provision in the National Union policy whether or not
21 there in fact is or is not coverage under the National Union
22 policy for the claims that had been made in the class
23 litigation against the National Union insureds, including Mr.
24 Aharoni. After that application was made National Union agreed
25 to withdraw that application in the context of an agreement by

34
1 all the participants to engage in a global mediation. It took
2 approximately a year to schedule that mediation. The mediation
3 lasted for two days of significant negotiations and thereafter
4 three or four months time was spent by all the parties,
5 including National Union, to finalize the tentative agreements
6 that were reached at that mediation. The coverage issues would
7 have been resolved at this point but for the fact that
8 agreements were entered into, signed off on a global basis by
9 all the participants in that mediation. The approval
10 application was filed in March of 2005. The best that the
11 present trustee can assert is that his predecessor had not seen
12 and did not have available to him the new bank records. Once
13 again, in the policy release agreement that the predecessor
14 trustee signed he represented and warranted that he had
15 performed a necessary and prudent investigation of the subject
16 matter of the agreement. Your Honor, I respectfully assert if
17 there’s been any failures here, it was the failure of the
18 predecessor trustee to conduct an investigation, and now, in
19 effect, the other participants in the global mediation which
20 resulted in a global settlement are left, in effect, holding
21 the bag. That’s all I have, Your Honor.
22 THE COURT: Thank you. Anyone else?
23 MR. FLINT: Yes, Your Honor. Your Honor, Edward
24 Flint for Kenneth Silverman, the Allou trustee. We’ve stated
25 our position concerning the trustee’s exercise of his business

35
1 judgment in our papers, and I won’t address that. I’ll simply
2 point out, Your Honor, that if the Court is inclined to approve
3 the original settlement, that any new order should not provide
4 for the payment of funds by the estate. The confirmed plan
5 provided for a certain priority of payments, and until the new
6 trustee’s claim has been resolved we believe that no payment is
7 appropriate from the estate funds. Thank you.
8 MR. GOTKO: Good morning, Your Honor. Lance Gotko of
9 Friedman Kaplan. We represent Alexander Stonkus, the former
10 president and COO of Actrade in the securities litigation.
11 Just very briefly, Your Honor, we support the trustee’s
12 original motion to approve the global settlement. We think it
13 should be approved as submitted. Mr. Stonkus entered into a
14 global settlement for the same reason that everyone, including
15 Actrade, entered into a global settlement, so that everybody
16 can know and be assured that you’re not going to settle today
17 and then the next day someone’s going to pop out of the
18 woodwork and sue you. It’s very unlikely that if a global
19 settlement is not able to be reached in this matter that
20 there’s going to be any settlement. And let me just give you a
21 hypothetical situation, which I’m afraid is not altogether
22 hypothetical.
23 First of all, the insurance company wants to know
24 that there aren’t going to be any further claims against its
25 policy if it enters into a partial settlement in this case, and

36
1 I don’t think it’s going to be able to have that assurance. If
2 Mr. Aharoni is not included in the settlement, one can easily
3 envision a situation where the trustee, as it has said, sues
4 Mr. Aharoni, Mr. Aharoni in turn sues Deloitte, Deloitte in
5 turn sues the former officers and directors, and then the
6 officers and directors have to turn to the insurance company
7 again for coverage. So we’re right back in the soup in a
8 situation we were trying to provide against by entering into
9 the global settlement. And as Mr. Wissner-Gross pointed out,
10 Actrade also is going to be back in the soup. Because without
11 a global settlement the plaintiffs are going to be duty bound
12 to pursue their proof of claim in this court, so there’s going
13 to be a full-fledged massive securities fraud that has to be
14 litigated and tried in this court.
15 For a number of years now every party to the global
16 settlement, including Judge Berman who’s been waiting to
17 approve the global settlement, has been assured by the trustee
18 that the only thing left before approval by the Court is the
19 resolution of the Allou claim. So we have all been waiting,
20 doing nothing, obviously, in connection with the litigation,
21 with the probability that, with the trustee’s support, the
22 Court would review the settlement agreement and approve it.
23 Now we’re stuck with the spectra that the litigation could come
24 roaring back to life some ten years after some of the
25 underlying events of these highly complicated financial frauds.

37
1 Memories have faded, witnesses have dispersed, documents of
2 third parties have gone away. It’s going to visit real
3 prejudice against the parties that were a party to the
4 settlement agreement if the settlement falls apart and we’re
5 forced to litigate this case again due to the dilatoriness of
6 the trustee.
7 It seems to me that if the trustee felt at any point
8 that Mr. Aharoni was not fulfilling his obligations under the
9 cooperation agreement, it should have acted upon that promptly
10 instead of just maybe three, four months ago starting to alert
11 the other parties to the settlement agreement that they
12 intended to try to pull Mr. Aharoni out of the settlement
13 agreement’s terms. In fact, the cooperation that Mr. Aharoni
14 was supposed to offer under that agreement was so special and
15 unique I suppose that they could even have tried to seek
16 specific performance of that cooperation. They didn’t do that.
17 They didn’t bring the lack of Mr. Aharoni’s cooperation to this
18 Court’s attention or Judge Berman’s attention or the Chancery
19 Court’s attention, and I think the trustee should have to live
20 with the consequences of that. There would be massive
21 prejudice to the parties here if the litigation comes back to
22 life. There will be massive prejudice to the judicial system
23 if this settlement falls apart and the litigation has to come
24 back to life. Because courts, obviously, traditionally favor
25 resolution and settlements of matters, we respectfully submit

38
1 that the Court should approve the global settlement as
2 originally motioned by the original trustee in this matter.
3 Thank you.
4 THE COURT: All right. Anything further?
5 MR. RUBIN: Good morning, Your Honor. Paul Rubin
6 from Herrick, Feinstein for Kellogg Capital. Your Honor was
7 presented yesterday with a declaration from one Samir Salin
8 [Ph.] which surprised us. I represent that he is someone whose
9 firm represents the Committee. My client, we are the largest
10 shareholder, and we’ve been trying for several months to find
11 out information with regard to the status of the trust and
12 what’s been going on. Because if you look at the docket, for
13 example, Your Honor, in all of ‘07 there was hardly a filing in
14 the case, and from March until November again there was hardly
15 a filing in the case. And my client actually negotiated a
16 confidentiality agreement so that he could be in contact with
17 different parties to get information with regard to the trust.
18 There were two letters, Your Honor, that were sent
19 out by the liquidating, the new liquidating trustee to
20 shareholders, one in ‘06 and on in ‘07, that talked about the
21 status of where things stood, saying there are two major issues
22 that need to be resolved, the Allou litigation and the
23 potential SEC claim, and in addition it was mentioned that the
24 trust is interested in pursuing litigation in a foreign
25 jurisdiction against a foreign party. So this motion really

39
1 took us by surprise. We did not realize that there was a
2 motion pending since 2005 with regard to approval of a proposed
3 settlement and that the letters that were sent out to
4 shareholders in ‘06 and ‘07 did not disclose, oh, by the way,
5 we may need to blow up an existing settlement and get court
6 approval in order to proceed with those claims. And without
7 getting into confidential information, we understand a lot of
8 money has been spent in pursuing these claims in foreign
9 jurisdictions. We don’t even know who serves on this trust
10 committee. We are very, very troubled --
11 THE COURT: I think you’re raising a different issue
12 but a timely one.
13 MR. RUBIN: If I may --
14 THE COURT: And -- but it’s not for today.
15 MR. RUBIN: Well --
16 THE COURT: However, I’m going to direct the trustee,
17 in any event, by within 30 days to file a report as to who the
18 committee is, who’s on the committee, when and under what
19 circumstances the committee meets, what the committee has done
20 over the last many years, and what it believes still needs to
21 be done in these cases. Obviously I’m not asking them to
22 breach any confidences or provide any confidential information,
23 but I think you’re right, we should have a report on where
24 things stand. But that’s not an issue for today.
25 MR. RUBIN: Understood. If I may speak to that point

40
1 you just addressed?
2 THE COURT: No. I think if you don’t like the
3 report, then you certainly may speak to it but I’m not sure
4 that this is an issue for today.
5 MR. RUBIN: Okay. With regard to today, we would
6 like to know -- and we do want to see the trust recover as much
7 as possible. And if pursuing Mr. Aharoni is beneficial -- I’m
8 torn, quite honestly, Your Honor, as to what’s in the best
9 interest of the estate here. But we would like to know, since
10 the motion says that there’s new evidence and Mr. Bronstein
11 points out in his affirmation of yesterday it was discovered
12 this year, we’d like to understand why this evidence was not
13 pursued previously in ‘06 and ‘07 while apparently millions of
14 dollars of this estate have been spent. We were told there’s
15 $21 million that [indiscernible] claims in a letter in ‘06.
16 And, again, we signed the confidentiality agreement so I can’t
17 go into numbers, but we understand an awful lot has been spent
18 and we --
19 THE COURT: Well, I think that the report should
20 disclose what’s been spent and on whom and who’s received any
21 funds, and where the funds are today and the protection of
22 those funds. Those who may have come to this hearing a few
23 minutes early may have listened to a tragic motion in another
24 case where the escrow funds in excess of I believe $30 million
25 were put in an escrow at the account of Dreier LLP. Some of

41
1 you may have read in the newspaper of some issues relating to
2 funds on deposit with Dreier LLP. We don’t know what the
3 situation is. But, yes, I think that’s a very timely issue,
4 and we’ll need a full accounting of where the money is, how
5 much it is, and where it is and what protection it has.
6 MR. RUBIN: Thank you, Your Honor. With regard to
7 this motion that’s on before Your Honor today, we think it’s
8 important for the trustee to disclose why this motion wasn’t
9 brought sooner only because, as I said, it did take us by
10 surprise. We didn’t realize that there was a need to get court
11 approval in order to pursue these claims that they are. We
12 think it goes to the motion. I don’t want to say anything at
13 all that would hurt the interest of the estate, as I said
14 before. But because there is this lack of accountability, and
15 I won’t go into it further, but because there is this lack of
16 accountability we think it’s important to know what new
17 evidence -- Mr. Bronstein referenced bank records that he did
18 not have. But the question I think is when did the new trustee
19 obtain this information and what efforts were made to obtain it
20 before 2008. I think that goes to this motion that’s before
21 Your Honor.
23 MR. RUBIN: Thank you.
24 THE COURT: Thank you. Anyone else? On the --
25 MR. RESENBERG: Your Honor?

42
1 THE COURT: Yes?
2 MR. RESENBERG: I’m sorry.
3 THE COURT: Yes, go ahead. State your name and
4 affiliation again.
5 MR. RESENBERG: This is Eric Resenberg. I’m a
6 registered investment adviser with DMI Capital.
7 THE COURT: All right. You want to make a brief
8 statement?
9 MR. RESENBERG: Yes. I basically want to reiterate
10 what Mr. Rubin had said regarding the desire to maximize and
11 recover for the estate. We have obviously concerns about the
12 make-up of the committee and how the decision was reached to
13 attempt to reopen the claim after such a period of time, and
14 that was my, that’s my concern. I’d also like to address there
15 was an inference about the number of shares that I may or may
16 not control. I submitted, like every other shareholder, back
17 in ‘05 proof of ownership. In my case I have multiple
18 accounts. I think we submitted over a hundred pages of proof
19 of purchase and ownership of shares. And it is -- and as an
20 adviser I own or control in excess of 500,000 shares. I’ve had
21 no relationship with Mr. Aharoni, never met the person, never
22 spoke with him, no financial or contractual interaction between
23 us at all. I just want to make that clear.
25 All right, a brief response, Mr. Anker.

43
1 MR. ANKER: Yes, Your Honor. Philip Anker. Your
2 Honor, let me just say on the last point Your Honor raised we
3 will of course provide a full report, an accounting to the
4 Court on the issues you raised. I fully appreciate from the
5 last hearing the issues that are so much in today’s papers
6 about that matter and others, and we take those
7 responsibilities seriously. I also appreciate Mr. Resenberg’s
8 representation, and we take that seriously and, you know, at
9 face value. We will be happy to cooperate with the creditors
10 and interest holders of this estate.
11 Your Honor, contrary to Mister -- let me get back to
12 the motion at hand. Contrary to Mr. Wissner-Gross’s
13 assertions, there absolutely have been new developments here.
14 I won’t repeat all of them but let me start with the most
15 fundamental. We have bank records that show where the money
16 went, and it went to Mr. Aharoni. In answer to Mr. Rubin, they
17 were obtained earlier this year in early ‘08. We promptly
18 informed both this Court and we informed Judge Berman. We have
19 written to Judge Berman and provided him with a copy of the
20 memorandum that we filed a few months ago on this matter. He
21 is well-aware of what is going on. Your Honor, new facts
22 matter. If Your Honor has doubt about it, take a look at what
23 happened in Martin. In Martin the trustee entered into a
24 settlement on the understanding that the underlying litigation
25 would take a long time. It wasn’t trial ready. In fact, he

44
1 was mistaken. I think it’s a she actually. There was a
2 pending trial --
3 THE COURT: I read the Martin case.
4 MR. ANKER: But here’s the most important part of
5 Martin, Your Honor. The Bankruptcy Court didn’t get around to
6 deciding the settlement motion until the trial had occurred,
7 had occurred, and the debtor had won. And in denying approval
8 of the settlement the Bankruptcy Court took account of that
9 fact, a fact that plainly was unknown to the trustee when the
10 trustee had originally entered in this settlement. What’s
11 different here is we have proof, proof positive of where the
12 money went.
13 THE COURT: Yes, but the answer of your opponents
14 would be you may or may not have proof but your ability to
15 recover on that proof under the circumstances of these
16 litigations is highly uncertain. There’s no judgment in favor
17 of your client. Aharoni’s lawyer says that they’ll raise
18 statute of limitations and other defenses. And I’m sure that
19 if you get a judgment in Delaware, you’ll have a question as to
20 whether or not you can collect it. Now, I’m not asking you to
21 try that case today, and I gather that the trustee has made
22 some very careful business judgments as to his course of action
23 and his ability to benefit the interested stakeholders in this
24 estate. However, the differences with the Martin case are not
25 all in your client’s favor.

45
1 MR. ANKER: I grant you, Your Honor, that in Martin
2 that was a fait accompli, and I agree with that, and I was not
3 arguing to the contrary. I was arguing simply that Martin
4 establishes that you ask the question, Your Honor needs to ask
5 the question does the settlement make sense today in light of
6 today’s facts, not did it make sense when Mr. Bronstein
7 answered it. But Your Honor just, I think, put your thumb on
8 exactly the right issue, and that is how do you decide today
9 when you’re in Your Honor’s shoes whether to approve this
10 settlement or not. And I submit the right question to ask is
11 is the trustee’s, that is Mr. Meer’s judgment not to support
12 this settlement reasonable. Because what case after case after
13 case says is Your Honor can’t hold a trial today, you can’t
14 resolve the statute of limitations question. I think I’ve got
15 a slam dunk winner, but I appreciate that Mr. Wissner-Gross is
16 going to take a different view. I think I’ve got a clear
17 answer given the prior Delaware decisions on jurisdiction. But
18 the answer is at the end of the day my firm, Mr. Salisbury, Mr.
19 Meer and counsel in Israel have spent enormous time on this,
20 and what case after case says is you defer in the absence of
21 showings of extraordinary unreasonableness to the trustee’s
22 judgment.
23 One last point there, and this will be my last point.
24 It is also appropriate, Your Honor, to accept the trustee’s
25 judgment, and we’ve been very careful in how we’ve worded this,
46
1 that we are confident that we will be able to do a modified
2 settlement. And the modified settlement will not leave the
3 securities litigation alive. Mr. Boyar pointed out how he
4 would be prejudiced because he would have denied coverage for
5 the securities claimants’ claims against Mr. Aharoni. The
6 modified settlement agreement we contemplate will provide for a
7 dismissal with prejudice of those claims. The claims that will
8 be left will be the estate’s, not the securities clients’
9 claims. And we can deal with issues like the ones that have
10 been raised through judgment reduction or other provisions, but
11 we would not have taken the action we did if we didn’t have
12 discussions, and no one has denied those discussions have
13 occurred. I said one last point but now I’m going to -- I told
14 a falsehood. Not because --
15 THE COURT: Well, I don’t think you have to elevate
16 it to that level.
17 MR. ANKER: I didn’t have mens rea because I didn’t
18 think of it before.
19 THE COURT: If everyone has told me this is the last
20 point and has gone on to two or three more has been telling me
21 a falsehood, then we have a real issue in court.
22 MR. ANKER: Your Honor, this will, unless something
23 else occurs to me, I’ll give myself an out, this will be my
24 last point. You asked, and I thought it was perhaps the most
25 telling part of this hearing, Mr. Wissner-Gross do you want an

47
1 evidentiary hearing. It’s something I thought about going in,
2 would he answer that. And his answer was no, and you were left
3 --
4 THE COURT: Do you want an -- does your client want
5 an evidentiary hearing?
6 MR. ANKER: I’ve put in an affidavit. I don’t
7 believe we need one. We have put --
8 THE COURT: Right.
9 MR. ANKER: -- in an affidavit from Mr. Meer that
10 attests to the fact that there has been no cooperation.
11 Cooperation doesn’t mean, Your Honor, showing up at a meeting.
12 It means telling the truth. And when you’re asked the question
13 do you control ICC, did the money go into your pocket, and the
14 answer is no and that is -- and I’m going to use a direct word
15 -- a lie, that is not cooperation, and that’s what happened
16 here. And the answer to why this wasn’t pursued earlier is we
17 were misled. It’s not that it wasn’t pursued, it was pursued,
18 and people lied to us. That’s what happened here. And you
19 have unequivocal testimony on that and no contradictory
20 testimony. And that informs this trustee’s judgment that as a
21 fiduciary the proposed settlement is not in the best interest
22 of the estate. A modified settlement that preserves the
23 estate’s claims for more than $30 million will be in the best
24 interest of the estate, and we believe we can get there
25 rapidly.
48
2 MR. ANKER: Unless Your Honor has questions, thank
3 you.
4 THE COURT: No, I’m going to take a brief recess and
5 then I’ll give you a decision. But I do think in the meantime
6 in fairness to my last case of the day, is Steve & Barry’s
7 going to be very brief, do you believe?
8 MS. VRON: Yes, Your Honor.
9 THE COURT: I think you’re just adjourning things and
10 --
11 MS. VRON: Yes, we have a lot of stipulations.
12 THE COURT: And have some stipulations.
13 Why don’t I take a break in this case of five or ten
14 minutes, and then I’ll give you a decision. But in the
15 meantime let’s go on to Steve & Barry’s.
17 THE COURT: Is DMI -- are you still on the phone?
18 Hello? No. All right.
19 [Recess from 11:51 a.m. to 12:34 p.m.]
20 THE COURT: I’m going to give you a decision. This
21 case has languished too long. It’s time that it proceeded to
22 completion. I gather we have a trial date in the Allou case,
23 and these matters before me today should not be delayed any
24 longer. So here is my decision.
25 The post-confirmation trustee responsible for the

49
1 debtors has moved for approval of a securities class action
2 settlement. The trustee has also informed the Court that the
3 settlement has as an integral part a release of Amos Aharoni, a
4 former principal of the debtor. Prior to and as a closely
5 related matter, the estates entered into a settlement of
6 litigation brought against Aharoni in Delaware, which
7 litigation was suspended or dismissed on condition that Aharoni
8 cooperate with the estates in providing information in
9 connection with efforts to collect certain funds. The Delaware
10 stipulation was amended to take into account the class action
11 settlement and to continue and reiterate Aharoni’s obligations.
12 The trustee has informed the Court that Aharoni has not
13 cooperated with the estates as required but that evidence has
14 been uncovered in recent months that Aharoni lied to the
15 trustee or his predecessor, and that Aharoni misappropriated up
16 to $31 million of funds belonging to these estates.
17 Under these circumstances, the trustee has put before
18 the Court the question whether the settlement, including a
19 release of Aharoni, should be approved. Aharoni has asked the
20 Court to approve the settlement but has not submitted any
21 declaration or affidavit denying the allegations and has not
22 asked for an evidentiary hearing. No party has asked for an
23 opportunity to put further evidence before the Court. Under
24 these circumstances the record establishes, although for
25 purposes of this hearing only, that Aharoni breached the

50
1 Delaware stipulations of settlement with the trustee that the
2 Court can find were directly related to the settlement before
3 the Court for approval. Aharoni’s counsel states that all the
4 facts as to Aharoni were known to the prior trustee, were on
5 the table, and were taken into account when the trustee made a
6 business judgment to go forward with the class action
7 settlement and give Aharoni his release. That is not the
8 record I have before me today. The trustee now says it is now
9 known that Aharoni lied, that the so-called recipients of the
10 various loan agreements that are referred to in the Delaware
11 settlements are either nonexistent or did not receive the
12 funds, and that the trustee did not receive cooperation but
13 indeed received a pack of lies.
14 We thus have a situation much like that in In Re
15 Martin, 91 F.3d 389 (3d Cir. 1996) in which there were
16 significant developments between a trustee’s entering into a
17 stipulation of settlement and the court’s hearing on approval
18 of the stipulation. After careful consideration, the court in
19 Martin stated as follows: “We object to the proposition that a
20 trustee is required to champion a motion to approve a
21 stipulation that is no longer in the best interests of the
22 estate. The trustee did not flout or breach any term of the
23 stipulation nor did she withdraw the motion to approve the
24 stipulation, rather at the hearing the trustee simply elected
25 not to argue in favor of her motion. Thus the very nice

51
1 question before us is the proper conduct of the trustee in her
2 responsibility to all creditors, the debtor, and the court.
3 This appeal raises a very narrow issue, and we will not expand
4 the matter beyond its perimeters. Accordingly, we will not
5 constrain a bankruptcy trustee from fulfilling her statutory
6 duty to the estate and the creditor body as a whole by
7 preventing her from informing the court and the parties of
8 changed circumstances.”
9 The Court in the Martin case avoided the question
10 whether a trustee was bound by a signed stipulation pending
11 approval by the Bankruptcy Court, an issue that I also do not
12 have to decide today. As the Martin case also indicates, the
13 bankruptcy judge must assess and balance the value of the claim
14 that would be compromised in the settlement as against the
15 value of the compromise itself. As in the Martin case there
16 are four criteria that courts consider in a Rule 9019 motion,
17 striking a balance among them. Probability of success in the
18 litigation, likely difficulty in collection and complexity of
19 the litigation, and the paramount interests of the creditors.
20 Looking at these issues and particularly issue one,
21 it appears that the estate receives nothing from the class
22 action settlement except a form of peace from the class
23 plaintiffs. The trustee has concluded that peace was
24 worthwhile in terms of giving up his claims against Aharoni on
25 the assumption that Aharoni was telling the truth and would
52
1 cooperate but not under present circumstances. This Court has
2 been given no cogent reason why that issue must be decided
3 differently by this Court. Similarly, there may be
4 complexities and uncertainties relating to the ongoing
5 litigation, but the Court cannot find that these are so clearly
6 adverse to the Actrade estates that the settlement must be
7 approved. As to the paramount interests of the creditors of
8 this estate or, more correctly, the stakeholders, that is the
9 principal issue. The trustee represents these stakeholders.
10 They are certainly not represented by Aharoni or the insurance
11 company or any of the co-defendants in the litigation.
12 This Court cannot find that the settlement reaches
13 the level of reasonableness required under Rule 9019,
14 considering the paramount interests of the stakeholders of this
15 estate and the reasons given by the trustee. The settlement,
16 accordingly, will not be approved today. The trustee should
17 settle an order on ten days notice, and the trustee should
18 also, I think, within 30 days make the further filing that was
19 discussed earlier on the record. And the Court can hold a
20 status conference thereafter at which all interested parties
21 can appear.
22 Do we have a further date in the Actrade litigation
23 for a pretrial? Because that’s the issue, that’s the matter
24 that’s been coming before the Court.
25 MR. FLINT: Your Honor, may I have just one moment,

53
1 please?
2 THE COURT: Yes.
4 MR. FLINT: Your Honor, to make a long story short,
5 no, we --
6 THE COURT: You should state your name for the
7 record.
8 MR. FLINT: I’m sorry. Edward Flint of Silverman
9 Acampora, counsel for Kenneth Silverman, the Allou trustee. We
10 don’t have a date, Your Honor. We had been in discussions
11 pretty constantly for the last couple of weeks to try and reach
12 settlement of this, and we are very, very close. I’m happy to
13 report that before the Court goes away for the holidays. I
14 think there’s some confidence on both sides that we’ll reach
15 that settlement. Perhaps a date, a holding date sometime in
16 the second week or third week of January where we can report to
17 the Court one way or another.
18 THE COURT: All right. Well, you --
19 MR. FLINT: But we’re getting there, Judge.
20 THE COURT: You obviously don’t have to use that
21 date, but let’s pick a date so we don’t lose control of the
22 case and we can pick any date in that week.
23 MR. FLINT: If I --
24 THE COURT: If you want to move it on, you can. If
25 you want to use it as a status conference with regard to the

54
1 other matters that I have alluded to today, that’s fine.
2 MR. FLINT: With Mr. Salisbury’s permission, I think
3 we’re back here on the 6th for the Wachovia motion?
4 MR. SALISBURY: That’s correct.
5 MR. FLINT: How about January 6th since we’re going
6 to be before the Court that day anyway.
7 THE COURT: That’s on the discovery issue?
8 MR. FLINT: Yes.
9 MR. SALISBURY: That’s correct.
10 THE COURT: Assuming that we need to hear it. Okay,
11 let’s leave it at January 6th. At what time?
12 MR. FLINT: Say 10 o’clock?
13 THE COURT: 10:00.
14 MR. FLINT: 10 o’clock.
15 THE COURT: All right. We’ll leave it at January 6th
16 at 10:00 for the time being, but obviously it can be put over
17 for a week or two if that makes sense. There’s certainly no
18 reason to go forward with discovery disputes if you really are
19 close. I think -- that’s one thing I think the parties will
20 agree on. All right. Very good. Thank you very much.
21 MR. FLINT: Thank you, Your Honor.
22 * * * * *
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1 I certify that the foregoing is a court transcript from an
2 electronic sound recording of the proceedings in the above-
3 entitled matter.
6 Sally Reidy
7 Dated: December 18, 2008
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Actrade Doc 481 (Transcript of 121608 Hearing)

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Actrade Doc 481 (Transcript of 121608 Hearing)

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1 UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

8 TRANSCRIPT OF MOTION FOR SETTLEMENT

15 PATRICK SALISBURY, ESQ.

18 For National Fire: DAVID BOYAR, ESQ.

24 (Additional appearances next page)

Proceedings recorded by electronic sound recording,

4 For Amos Aharoni: SIGMUND S. WISSNER-GROSS, ESQ.

9 For Kellogg Capital: PAUL RUBIN, ESQ.

14 For Party to Settlement: KATHERINE ASH, ESQ.

17 For Deloitte Touche: EDWARD J. YODOWITZ, ESQ.

20 For Eric Resenberg,: ERIC RESENBERG

22 Court Transcriber: SALLY REIDY

1 THE COURT: All right. We’ll then go on to Actrade

2 Financial Technologies. We need to get somebody on the

5 THE COURT: I’ll take appearances from those in the

6 courtroom on the Actrade case and then from anyone on the

8 MR. ROSENBERG: (Telephonically). Hello. This is

10 THE COURT: You’ll have to wait. I’ll take

11 appearances from those in the courtroom first.

13 MR. ANKER: Good morning, Your --

14 THE COURT: Yes? Go ahead, state your appearance.

15 MR. ANKER: Good morning, Your Honor. Philip Anker,

16 Wilmer Cutler Pickering Hale and Dorr for the trustee --

17 THE COURT: All right.

18 MR. ANKER: -- Jonah Meer, joined at table by Patrick

19 Salisbury of Salisbury Ryan, Mr. Meer, the trustee, and, to Mr.

20 Meer’s right, James Millar of my office. Good morning, Your

22 THE COURT: All right. Anybody else appearing today?

23 MR. BOYAR: Yes. David Boyar of D’Amato Lynch for

24 National Union Fire Insurance Company.

25 MR. FLINT: Edward Flint, Silverman Acampora, counsel

1 for Kenneth Silverman, the Chapter 7 trustee of Allou

3 MR. WISSNER-GROSS: Sigmund Wissner-Gross from Brown

4 Rudnick on behalf of Amos Aharoni.

5 MR. GOTKO: Lance Gotko of Friedman Kaplan Seiler &

6 Adelman on behalf of Alexander Stonkus.

7 MR. RUBIN: Paul Rubin, Herrick Feinstein, Kellogg

8 Capital Group, which I believe is the largest shareholder

10 MR. GOODSTEIN: Clifford Goodstein from Milberg,

11 securities class plaintiffs.

12 MS. ASH: Katherine Ash, Troutman Sanders, Joseph

14 THE COURT: For whom?

15 MS. ASH: For Joseph D’Allesandris.

16 THE COURT: Who is he?

17 MS. ASH: He is one of the parties to the settlement

19 THE COURT: One of the?

20 MS. ASH: Parties to the settlement agreement.

21 THE COURT: And what is his position in the

22 settlement agreement? How does he get interested in the

24 MS. ASH: Because he was a party to the underlying

25 class action, and he had signed --

1 THE COURT: He was a defendant in the class action.

2 MS. ASH: Yes.

3 THE COURT: All right. That makes it clear.

4 MR. YODOWITZ: Edward Yodowitz, Skadden Arps, for

5 Deloitte, also a defendant in the class action and a party to

7 THE COURT: Right. Okay. Anyone else in the

8 courtroom? Then on the telephone.

9 MR. RESENBERG: This is Eric Resenberg representing

10 myself and other investors. We have --

11 THE COURT: Well, you’re representing yourself, Mr.

12 Resenberg, I don’t know about other investors. You’ll have to

13 file something to represent others. And you have, you claim to