Contract analysis

I. EXECUTIVE SUMMARY Calderwood & Harkness LLP ("Calderwood & Harkness" or the "Firm") was retained on July 25, 2023, by Driftwood Absolute Return Fund Ltd. ("Driftwood" or "DARF"), a Cayman Islands exempted company (Registration No. MC-349217), managed by Driftwood Capital Management LP ("DCM"), a Delaware limited partnership (File No. 7831294), to investigate and prosecute claims arising from a large-scale fraud pe

II. BACKGROUND: THE PARTIES A. Driftwood Absolute Return Fund Ltd. (Client / Prospective Plaintiff) Driftwood Absolute Return Fund Ltd. is a Cayman Islands exempted company, incorporated and registered under the Companies Act (As Revised) of the Cayman Islands, with Registration No. MC-349217. Its registered address is c/o Hargrove Corporate Services Ltd., 4th Floor, Windward House, 94 Elgin Avenue, George Town, Gran

III. THE CONTRACTUAL RELATIONSHIP A. ISDA Master Agreement and Credit Support Annex The trading relationship between Driftwood and Meridian Prime was governed by an ISDA Master Agreement (2002 form) executed on December 15, 2021, between Driftwood Absolute Return Fund Ltd. (as counterparty) and Meridian Prime Capital LLC (as counterparty and purported dealer) (the "ISDA Agreement"). Simultaneously with the execution

IV. DISCOVERY OF THE FRAUD A. Sandra Hu's Margin Reconciliation (July 18, 2023) On July 18, 2023, Sandra Hu, Chief Operating Officer and Chief Compliance Officer of DCM, initiated a routine margin reconciliation as part of DCM's periodic operational review procedures. In the ordinary course, DCM reconciles its margin balances with its counterparties on a quarterly basis, cross-referencing the counterparties' reported

V. THE FRAUD SCHEME: FACTUAL FINDINGS A. Overview of the Scheme The fraud perpetrated by Meridian Prime and its principals was a coordinated and sustained scheme spanning approximately eighteen months, from January 2022 through July 2023. The scheme operated through three principal mechanisms, each essential to the overall fraud: First, Meridian Prime fabricated trade confirmations purporting to document profitable F

VI. PRELIMINARY FUND TRACING ANALYSIS Preliminary Note: The fund tracing analysis presented in this section is based on the documentary evidence and banking records available to the Calderwood & Harkness team as of July 31, 2023. These records were obtained through informal channels, including records produced by DCM and records obtained directly from Bridgemont Bank NA in response to Hu's inquiry. The Firm has engag

1. Offshore Diversion: Palmetto International Bank Ltd. / Stellaris Trading Ltd. ($18.6 Million) The largest single tranche of diverted funds — $18.6 million, representing approximately 39.3% of the total misappropriation — was transferred to accounts at Palmetto International Bank Ltd. (302 Bay Street, Nassau, Bahamas) in the name of Stellaris Trading Ltd. Stellaris Trading Ltd. is a British Virgin Islands business

2. Zelenko Family Irrevocable Trust ($12.4 Million) The second largest diversion channel is the Zelenko Family Irrevocable Trust, which received approximately $12.4 million in transfers from Meridian Prime's accounts during the fraud period. The trust was established by Viktor Zelenko on April 8, 2021 (Tax ID 86-6092411), and is administered by Marlowe Asset Management Trust Company of Delaware (1201 North Market Str

3. Real Estate Purchases via Castellan Realty Holdings LLC ($8.0 Million) Castellan Realty Holdings LLC is a Delaware limited liability company (EIN 87-1548203) that was used to purchase two New York City real properties with misappropriated funds. Castellan Realty is registered to Zelenko's personal residence at 425 East 58th Street, Apt. 32F, New York, New York 10022, making its status as a Zelenko alter ego entity

4. Personal Expenditures ($5.1 Million) Preliminary review of bank records has identified approximately $5.1 million in cash withdrawals, wire transfers to personal accounts, and high-value personal purchases attributable to Zelenko, Carvallo, and Sobchak. This category includes ATM and cash withdrawals, wire transfers to personal checking and savings accounts, payments for luxury goods (including, based on available

5. Retained Funds at Bridgemont Bank NA ($3.2 Million) As confirmed directly by Bridgemont Bank NA in response to Sandra Hu's July 18, 2023 inquiry, Meridian Prime maintained a total balance of $3.2 million across its accounts at Bridgemont as of that date. This amount represents the most readily recoverable portion of the misappropriated funds and should be the primary target of the ex parte TRO and order of attachm

VII. IDENTIFICATION OF DEFENDANTS AND BASIS FOR INDIVIDUAL LIABILITY A. Meridian Prime Capital LLC — Primary Defendant Meridian Prime Capital LLC is the entity through which the entire fraud was conceived, organized, and executed. It is the counterparty to the ISDA Master Agreement and CSA under which Driftwood's funds were deposited, the entity that issued the fabricated trade confirmations and falsified account sta

VIII. LEGAL ANALYSIS: CAUSES OF ACTION Based on the factual findings set forth above, the following causes of action are available to Driftwood against the Defendants. We recommend asserting all of them in the verified complaint. A. Fraud (Common Law) Under New York law, a claim for common law fraud requires proof of five elements: (1) a material misrepresentation of fact; (2) knowledge of its falsity (scienter); (3)

IX. DAMAGES ANALYSIS A. Compensatory Damages Driftwood's compensatory damages are the total amount of funds misappropriated by the Defendants: • Margin deposits misappropriated: $38,500,000 • Legitimate FX settlement proceeds intercepted and diverted: $8,800,000 • Total compensatory damages: $47,300,000 These damages are directly traceable to the Defendants' fraud, conversion, and breach of fiduciary duty. Each indiv