1023-00002 · Ironside Capital Management LP · Legal Memoranda

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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

TO: Yuki Nakamura, Lead Associate, Litigation

FROM: Carlos Espinoza, Working Associate, Litigation

DATE: April 3, 2025

RE: Martin Act Preemption of Common-Law Fraud Claims — Applicability to Vantor's Reply-Brief Argument in Ironside Capital Management LP v. Vantor Holdings Corp., Index No. 650312/2025 (N.Y. Sup. Ct., Commercial Division, N.Y. County)

REVIEWED BY: Yuki Nakamura

STATUS: Expedited — Prepared in advance of April 14, 2025 oral argument before Hon. Richard Torrance, J.S.C.

I. EXECUTIVE SUMMARY

Vantor Holdings Corp. ("Vantor"), through its counsel Whitfield, Dane & Corcoran LLP ("WDC") — specifically Gregory Dane and Allison Breck — raised for the first time in its reply brief filed April 4, 2025, a new argument that the Martin Act (N.Y. Gen. Bus. Law Art. 23-A, §§ 352–359-h) preempts Ironside Capital Management LP's ("Ironside") common-law fraud, fraudulent concealment, and negligent misrepresentation claims (Counts I, II, and III of the Verified Complaint filed January 21, 2025). This argument was not contained in Vantor's initial Motion to Dismiss filed on February 28, 2025, and Ironside had no opportunity to address it in its opposition brief filed March 21, 2025.

Conclusion: The Martin Act preemption argument is inapplicable to this dispute. The Martin Act regulates the offer, sale, and distribution of securities and commodities and does not govern the conduct of a fund administrator performing NAV calculation and valuation services under a Master Fund Administration Agreement. Vantor is not a securities dealer, broker, or issuer; Ironside's claims arise from Vantor's contractual duty to independently price 47 illiquid credit and structured-product positions under FAA §§ 3.1 and 4.2, not from any securities transaction. The weight of Commercial Division and appellate authority confirms that Martin Act preemption does not extend to arm's-length commercial disputes between sophisticated parties outside the securities-offering context. The claims at issue rest on independent common-law duties — including the duty not to make knowing misrepresentations of material fact, the duty not to conceal material information, and the duty to exercise reasonable care in making representations upon which a counterparty foreseeably relies — as well as the express contractual warranties in the FAA. These duties exist wholly independent of the Martin Act, and the claims predicated upon them are therefore not subject to preemption under the doctrine articulated by the Court of Appeals and the First Department.

Recommendation: This argument should be addressed in the proposed sur-reply letter brief (draft dated April 9, 2025, pending court approval) and at oral argument on April 14, 2025. As a threshold matter, the argument should be treated as waived because it was raised improperly for the first time on reply, depriving Ironside of any opportunity to brief the issue. If the court nonetheless elects to consider the argument on the merits, the analysis set forth in this memorandum provides a comprehensive basis for defeating it. Samuel Eklund, as lead argument counsel, should be prepared to address both the procedural and substantive deficiencies of Vantor's position.

II. QUESTION PRESENTED

Whether the Martin Act (N.Y. Gen. Bus. Law §§ 352–359-h) preempts the common-law fraud (Count I), fraudulent concealment (Count II), and negligent misrepresentation (Count III) claims asserted by Ironside Capital Management LP against Vantor Holdings Corp. in connection with Vantor's systematic misvaluation of illiquid credit and structured-product positions in its capacity as fund administrator under the Master Fund Administration Agreement dated June 15, 2017 (Ref: VHC-ICM-2017-0615), where Vantor is not a broker-dealer, issuer, underwriter, or securities distributor, and Ironside's claims rest on independent common-law tort duties and express contractual obligations rather than on any duty created by the Martin Act.

III. SHORT ANSWER

No. The Martin Act preemption doctrine, as articulated by the New York Court of Appeals and refined by the Appellate Division, First Department, applies only to private claims that are "entirely predicated on" violations of the Martin Act — that is, claims arising from deceptive practices in connection with the issuance, exchange, purchase, sale, promotion, or distribution of securities, and that do not state a viable common-law cause of action independent of the statute. Here, Ironside's claims arise from a fund administration and valuation services relationship governed by a commercial contract, not from any securities offering or transaction. Vantor is a fund administrator, not a broker-dealer, issuer, or securities professional regulated under the Martin Act. The misvaluation scheme — including the use of stale broker quotes dating six to twelve months prior to application, unauthorized internal model adjustments that inflated marks by an average of 14.3% above observable inputs, the systematic failure to follow contractually required waterfall valuation procedures, and the concealment of internal email communications documenting awareness of inflated marks — constitutes fraud in the performance of a service agreement, not securities fraud. Ironside's claims rest on the independent common-law duty not to make knowing misrepresentations, the duty not to fraudulently conceal material information, the duty of reasonable care in making professional representations, and the express contractual warranties of FAA § 4.2. These duties exist wholly independent of the Martin Act. The preemption argument fails both on the merits and on procedural grounds.

IV. FACTUAL BACKGROUND RELEVANT TO THE ANALYSIS

A. The Parties and the Contractual Relationship

Ironside Capital Management LP. Ironside is a Delaware limited partnership with its principal office at 680 Park Avenue, 34th Floor, New York, NY 10065. It was co-founded in 2009 by Elliot Brennan and Marguerite Dao and operates as a New York–based hedge fund manager with approximately $4.2 billion in assets under management as of December 31, 2024. Ironside manages a multi-strategy credit platform focusing on distressed debt, structured products, and illiquid credit instruments. It is registered as an investment adviser with the U.S. Securities and Exchange Commission.

Three feeder funds are at issue in this litigation:

• Ironside Credit Opportunities Fund LP ("Fund I"), with an approximate NAV of $1.8 billion;

• Ironside Structured Alpha Fund LP ("Fund II"), with an approximate NAV of $1.1 billion; and

• Ironside Special Situations Fund LP ("Fund III"), with an approximate NAV of $680 million.

The aggregate administered NAV across these three funds was approximately $3.58 billion during the relevant period. The funds' limited partners include institutional investors, endowments, pension funds, family offices, and high-net-worth individuals, including Ashford Endowment Partners LP, which committed $340 million across the three funds.

Vantor Holdings Corp. Vantor is a Delaware corporation headquartered at 1400 Brickell Avenue, Suite 2200, Miami, Florida 33131. It is a fund administration firm providing NAV calculation, investor accounting, regulatory reporting support, and valuation services to approximately 140 hedge-fund clients, with roughly $62 billion in administered assets as of 2023. Vantor's Chief Executive Officer is Raymond Kettler. The key valuation personnel relevant to this dispute are Nathan Orris, Senior Vice President of Valuation Services, and Deepa Rajaram, Vice President of Client Valuation Operations. Vantor is not registered as a broker-dealer, investment adviser, or securities issuer. It does not offer, sell, distribute, or promote securities. Its business is the provision of back-office fund administration services on a contractual, fee-for-service basis.

The Master Fund Administration Agreement. Ironside and Vantor executed the Master Fund Administration Agreement ("FAA") on June 15, 2017, bearing reference number VHC-ICM-2017-0615. The FAA had a five-year initial term and provided for automatic annual renewal thereafter unless terminated by either party upon ninety days' written notice. The FAA was amended twice during the relevant period:

• First Amendment (March 1, 2019): Added Fund III to the scope of administered funds.

• Second Amendment (June 10, 2022): Adjusted Vantor's administration fee from 4.0 basis points to 4.5 basis points of NAV, reflecting the increased complexity of Ironside's portfolio and the addition of certain enhanced reporting obligations.

The scope of services under the FAA is set forth in Section 3.1, which obligated Vantor to perform the following core functions: (i) NAV calculation for each fund on a monthly basis; (ii) investor accounting, including capital account maintenance, allocation of profits and losses, and preparation of investor capital account statements; (iii) regulatory reporting support; and (iv) independent pricing and valuation of portfolio positions, including Level 2 and Level 3 assets as classified under ASC 820 (Fair Value Measurement).

The valuation standard governing Vantor's performance is set forth in FAA § 4.2, which provides, in relevant part:

"Vantor shall perform all valuation services in accordance with generally accepted accounting principles ('GAAP'), the applicable Fund's valuation policy as provided by the Manager from time to time, and the standard of care of a reasonably prudent professional fund administrator experienced in the administration and valuation of investment funds holding comparable assets."

This contractual standard of care is central to Ironside's claims, as it establishes an independent, contractually defined duty against which Vantor's conduct must be measured — a duty that exists entirely apart from any obligation imposed by the Martin Act.

B. The Misvaluation Scheme

The fraudulent misvaluation scheme at issue spans eleven quarters, from Q1 2021 (March 31, 2021) through Q3 2023 (September 30, 2023). During this period, Vantor systematically misvalued 47 positions across the three funds. The affected positions consisted of CLO equity tranches, bespoke CDO mezzanine notes, and distressed loan participations — all Level 3 assets requiring significant judgment and the application of the contractually specified waterfall valuation procedures.

The misconduct, as alleged in the Verified Complaint and supported by documentary evidence obtained through pre-litigation informal discovery and CPLR 3102(c) proceedings, consisted of four principal categories:

(a) Use of Stale Broker Quotes. Vantor's valuation team, led by Nathan Orris and Deepa Rajaram, routinely applied broker-dealer indicative quotes that were six to twelve months old without disclosing the staleness of the pricing inputs to Ironside. In several instances, the broker quotes had been obtained in connection with prior quarter-end valuations and were simply carried forward without re-solicitation or verification.

(b) Unauthorized Model Adjustments. Vantor's valuation personnel applied internally generated "model adjustments" to certain positions that had the effect of inflating marks by an average of 14.3% above the values that would have been derived from contemporaneous observable inputs. These adjustments were not disclosed to Ironside in the monthly valuation packages and were not consistent with the funds' valuation policies.

(c) Failure to Apply Contractual Waterfall Valuation Procedures. The FAA and the funds' valuation policies specified a hierarchical waterfall of pricing sources — beginning with binding dealer quotes, then indicative dealer quotes, then third-party pricing service outputs, then model-based valuations subject to specified input parameters. Vantor routinely bypassed higher-priority pricing sources in favor of internally generated marks, without documenting the reasons for the deviation as required.

(d) Concealment of Internal Communications. Internal email communications among Vantor personnel — including between Nathan Orris and Deepa Rajaram and between Orris and CEO Raymond Kettler — documented Vantor's awareness that certain marks were inflated. One email chain dated November 14, 2022, from Orris to Kettler, stated: "The CLO book is running hot relative to Street. If they [Ironside] bring in a third-party to shadow, we'll have a problem." Despite this awareness, Vantor continued to report inflated NAV figures and did not disclose the internal concerns to Ironside.

The aggregate overvaluation across the three funds during the eleven-quarter period was $287.0 million, broken down as follows: $156.4 million attributable to Fund I, $88.7 million attributable to Fund II, and $41.9 million attributable to Fund III. The peak single-quarter overvaluation occurred in Q4 2022, when aggregate overvaluation reached $52.3 million. NAV per unit was overstated by between 3.8% (Q1 2021) and 8.6% (Q4 2022) across the relevant funds.

C. The Litigation

Ironside filed its Verified Complaint on January 21, 2025, in New York Supreme Court, Commercial Division, New York County, and the action was assigned to Hon. Richard Torrance, J.S.C., under Index No. 650312/2025. The Verified Complaint asserts seven causes of action:

1. Count I — Fraud: Vantor knowingly made material misrepresentations of fact (the inflated NAV figures) upon which Ironside relied to its detriment.

2. Count II — Fraudulent Concealment: Vantor concealed material facts (the staleness of broker quotes, the unauthorized model adjustments, and the internal communications reflecting awareness of inflated marks) that it had a duty to disclose.

3. Count III — Negligent Misrepresentation: Vantor, as a professional fund administrator upon whose expertise and representations Ironside foreseeably relied, failed to exercise reasonable care in preparing and delivering valuations.

4. Count IV — Breach of Contract: Vantor materially breached FAA §§ 3.1 and 4.2 by failing to perform valuation services in accordance with GAAP, the funds' valuation policies, and the contractual standard of care.

5. Count V — Breach of Fiduciary Duty.

6. Count VI — Aiding and Abetting Fraud.

7. Count VII — Unjust Enrichment.

Ironside is represented by Calderwood & Harkness LLP. The lead litigation partner is Samuel Eklund, with Yuki Nakamura serving as lead associate.

Vantor filed its Motion to Dismiss on February 28, 2025, pursuant to CPLR § 3211(a)(1) (defense founded on documentary evidence) and CPLR § 3211(a)(7) (failure to state a cause of action). The motion raised five grounds for dismissal, none of which included Martin Act preemption. The five grounds addressed in the initial motion were: (i) failure to plead fraud with requisite particularity under CPLR § 3016(b); (ii) the economic loss doctrine barring fraud claims duplicative of the contract claim; (iii) failure to allege justifiable reliance; (iv) contractual limitation-of-liability provisions; and (v) failure to state a fiduciary-duty claim.

Ironside filed its opposition brief on March 21, 2025, consisting of a forty-five-page memorandum of law prepared by Calderwood & Harkness LLP, with supporting declarations and documentary exhibits.

Vantor's reply brief was filed on April 4, 2025, by WDC partner Gregory Dane. It is in this reply brief that Martin Act preemption was raised for the first time as a ground for dismissal of Counts I, II, and III.

Oral argument on the Motion to Dismiss is scheduled for April 14, 2025, before Justice Torrance.

D. Nature of Vantor's New Argument

In its reply brief, WDC argues that because the alleged misvaluations affected the reported NAV of investment fund securities (i.e., the limited partnership interests held by investors in Funds I, II, and III), Ironside's fraud-based claims are "in substance" Martin Act claims and are therefore preempted under the doctrine precluding private enforcement of the Martin Act. Specifically, Vantor contends that the inflated NAV figures functioned as misrepresentations "in connection with" the purchase, sale, and redemption of securities — namely, the LP interests — because investors relied on reported NAV in making subscription and redemption decisions. Vantor's reply brief cites to the Court of Appeals' holdings restricting private causes of action under the Martin Act, principally CPC International Inc. v. Westmark Holdings., 70 N.Y.2d 268 (1987), and to the First Department's preemption analysis in Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. P'ship, 12 A.D.3d 236 (1st Dep't 2004).

The argument is presented in approximately four pages of Vantor's eighteen-page reply brief, at pages 12 through 15. It is not developed with any specificity regarding the fund administration context, and it does not address the contractual basis for Ironside's claims or the independent common-law duties upon which Counts I, II, and III rest.

V. LEGAL FRAMEWORK: THE MARTIN ACT AND PREEMPTION DOCTRINE

A. Overview of the Martin Act

The Martin Act, codified at N.Y. General Business Law Article 23-A, §§ 352–359-h, is New York's principal anti-fraud statute governing securities and commodities. Enacted in 1921, the statute was originally designed to address the fraudulent promotion of securities to unsuspecting investors during the speculative boom of the early twentieth century. Over the ensuing century, it has been amended and expanded to encompass a broad range of fraudulent practices in the securities markets, including fraud in the issuance, exchange, purchase, sale, promotion, negotiation, advertisement, investment advice, and distribution of securities and commodities.

The Martin Act grants the New York Attorney General extraordinarily broad enforcement authority. Notably, the Attorney General need not prove scienter — i.e., fraudulent intent — to establish a violation of the statute. Negligent or even innocent misrepresentations may suffice for enforcement proceedings brought by the AG. See People v. Federated Radio Corp., 244 N.Y. 33, 38–39 (1926); State v. Rachmani Corp., 71 N.Y.2d 718, 726 (1988). This broad enforcement power reflects the legislature's intent to vest primary responsibility for policing securities fraud in the office of the Attorney General.

Critically, however, the Martin Act does not create a private right of action. Private plaintiffs cannot bring claims "under" the Martin Act. This principle was definitively established by the Court of Appeals in CPC International Inc. v. Westmark Holdings., 70 N.Y.2d 268 (1987), and has been consistently reaffirmed. The legislative history and structure of the statute make clear that enforcement was intended to be exclusively the province of the Attorney General, and the courts have declined to imply a private right of action from the statutory text.

The scope of the Martin Act's substantive coverage is defined by its focus on securities and commodities transactions. Section 352 of the General Business Law authorizes the Attorney General to investigate and enjoin "all fraudulent practices" in the "issuance, exchange, purchase, sale, promotion, negotiation, advertisement, investment advice or distribution within or from this state of any ... securities." Section 352-c prohibits, inter alia, any "fraud, deception, concealment, suppression, [or] false pretense" in connection with the sale or purchase of securities. Section 352-e governs the offering of securities through offering documents and prospectuses. The statute's operative terms are thus consistently tethered to the concept of securities transactions — the marketing, offering, sale, and distribution of securities to the investing public.

B. The Preemption Doctrine — Key Precedent

The Martin Act preemption doctrine arises from the intersection of the statute's broad scope and its exclusive enforcement mechanism. Because the Martin Act does not create a private right of action, courts have confronted the question of whether and when common-law fraud claims — which private plaintiffs indisputably may bring — are "preempted" by the Martin Act. The doctrine has been shaped by a series of Court of Appeals and First Department decisions that have progressively refined the scope of preemption.

CPC International Inc. v. Westmark Holdings., 70 N.Y.2d 268 (1987). The Court of Appeals confirmed that the Martin Act does not create a private right of action, reasoning that the legislature intended enforcement to rest exclusively with the Attorney General. The Court noted that the breadth of the statute — including the absence of a scienter requirement — reflected a deliberate legislative choice to centralize enforcement in a public officer with the resources and authority to police the securities markets effectively.

Assured Guaranty (UK) Ltd. v. Thackeray Asset Management, 18 N.Y.3d 341 (2011). The Court of Appeals addressed the preemption question directly and held that common-law fraud claims are not preempted by the Martin Act where the claims are based on independent common-law duties, rather than on duties created solely by the Martin Act. The Court reasoned that the Martin Act was not intended to "eliminate the common-law rights of defrauded investors" and that a private plaintiff may pursue common-law fraud claims so long as the claims "are not entirely dependent on the Martin Act for their viability." Id. at 352–53. This decision marked a critical clarification: the Martin Act preempts only those common-law claims that are "entirely predicated on" a violation of the Martin Act, meaning claims that would not exist but for the statutory duty. Claims resting on independent common-law duties — such as the duty not to make knowing misrepresentations of material fact — survive regardless of whether the same conduct might also violate the Martin Act.

Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. P'ship, 12 A.D.3d 236 (1st Dep't 2004). The First Department held that the Martin Act preempts common-law claims "only where the claims are entirely predicated on a violation of the Martin Act," meaning where "the allegations do not state a viable common-law cause of action independent of the statute." Id. at 243. The court emphasized that the relevant inquiry is whether the plaintiff's claims rest on duties and elements that exist at common law — such as scienter, materiality, reliance, and damages — or whether the claims are viable only because the Martin Act creates a broader duty (e.g., by dispensing with the scienter requirement). Where the common-law elements are independently satisfied, preemption does not apply.

Subsequent Narrowing of Preemption. Following Assured Guaranty and Kerusa, courts have increasingly confined Martin Act preemption to a narrow category of cases. The trend in the First Department and the Commercial Division has been to recognize that preemption applies only where the plaintiff's common-law claim is essentially a repackaged Martin Act claim — i.e., where the claim depends on the Martin Act's broader-than-common-law standard (such as the absence of a scienter requirement) to survive. Where the plaintiff can independently plead and prove the elements of a common-law cause of action, the Martin Act does not bar the claim.

Caboara v. Babylon Cove Development, LLC, 54 A.D.3d 79 (2d Dep't 2008). The Second Department narrowly applied preemption, holding that the Martin Act did not preempt common-law fraud claims arising from misrepresentations in connection with the sale of cooperative apartments where the claims were "not wholly dependent on the Martin Act" and rested on independent common-law fraud elements.

Scalp & Blade Inc. v. Advest Group, Inc., 309 A.D.2d 219 (4th Dep't 2003), and its progeny further distinguished between claims arising from arm's-length contractual relationships and claims arising in the securities-offering context. These decisions reinforce the principle that the Martin Act's preemptive reach does not extend to disputes grounded in the performance of contractual obligations between sophisticated commercial parties, even where the underlying subject matter involves securities.

C. Scope of the Martin Act's Subject Matter

The Martin Act applies to conduct "in connection with" the issuance, exchange, purchase, sale, promotion, or distribution of securities. The phrase "in connection with" has been interpreted broadly in the context of AG enforcement actions, consistent with the statute's prophylactic purpose. However, even under this broad interpretation, the conduct at issue must bear a meaningful nexus to a securities transaction or offering.

"Securities" as defined in the Martin Act encompass a wide range of instruments. N.Y. Gen. Bus. Law § 352-e defines securities to include stocks, bonds, notes, evidences of interest or indebtedness, and investment contracts, among other instruments. N.Y. Gen. Bus. Law § 359-e provides additional definitional guidance. Limited partnership interests, such as those held by investors in Ironside's funds, generally qualify as securities under both federal and state law.

However, the mere fact that a dispute involves assets that are securities, or that a defendant's conduct tangentially relates to securities held in a portfolio, does not bring the dispute within the Martin Act's scope. The statute regulates conduct directed at the transactional process — the offering, marketing, sale, purchase, and distribution of securities — not the entire universe of commercial activity that might bear some connection to a securities portfolio. Pure service-provider fraud in performing non-transactional contractual duties does not fall within the statute's ambit. A fund administrator that incorrectly or fraudulently values portfolio assets is not engaging in the "issuance, exchange, purchase, sale, promotion, or distribution" of securities; it is performing (or failing to perform) an administrative function under a services contract.

VI. ANALYSIS: MARTIN ACT PREEMPTION IS INAPPLICABLE HERE

A. Vantor Is Not a Securities Market Participant Regulated by the Martin Act

The threshold deficiency in Vantor's preemption argument is that Vantor itself is not a securities market participant of the type regulated by the Martin Act. Vantor is a fund administrator. Its business consists of providing NAV calculation, investor accounting, regulatory reporting support, and valuation services to hedge fund clients on a fee-for-service basis under commercial services agreements. Vantor is not registered as a broker-dealer, and it does not effect transactions in securities for the account of others or for its own account. It is not an issuer or underwriter of securities. It is not an investment adviser in the Martin Act sense — that is, it does not render advice as to the value of securities or the advisability of purchasing or selling securities for compensation. It does not distribute, promote, or market securities.

The FAA between Ironside and Vantor is a commercial services agreement — not a securities purchase or sale agreement, not a subscription agreement, not an offering document, and not any other instrument associated with a securities transaction. The FAA defines a scope of administrative services (§ 3.1), establishes a standard of care for the performance of valuation services (§ 4.2), specifies fee arrangements, and contains the typical provisions of a services contract, including representations and warranties, indemnification, limitation of liability, governing law, and dispute resolution provisions.

Vantor's role under the FAA was to independently price 47 illiquid credit positions — CLO equity tranches, bespoke CDO mezzanine notes, and distressed loan participations — using specified valuation methodologies. This is a back-office administrative function. It is not a securities-marketing or distribution function. The Martin Act targets fraud "in connection with" the offering, sale, or distribution of securities to investors. Vantor was not offering, selling, distributing, promoting, or marketing any securities. It was preparing spreadsheets, running valuation models, soliciting broker quotes, and reporting NAV figures to its contractual counterparty, Ironside. The notion that this activity falls within the Martin Act's regulatory scope finds no support in the statute's text, legislative history, or case law.

No court has held that a fund administrator's provision of valuation services constitutes conduct "in connection with" the issuance, exchange, purchase, sale, promotion, or distribution of securities for Martin Act purposes. The absence of any such authority is itself significant and reflects the commonsense distinction between securities-market activity and back-office service provision.

B. Ironside's Fraud Claims Are Not "Entirely Predicated On" Martin Act Violations

Under the governing standard established by Assured Guaranty and Kerusa, the Martin Act preempts common-law claims only where those claims are "entirely predicated on" a violation of the Martin Act — that is, where the claims would not be viable but for the duties and standards created by the statute itself. Ironside's common-law fraud (Count I), fraudulent concealment (Count II), and negligent misrepresentation (Count III) claims rest on independent common-law and contractual duties that exist wholly apart from the Martin Act.

Count I — Fraud. Ironside's fraud claim is predicated on the well-established common-law elements of fraud: (i) a material misrepresentation of fact; (ii) made with knowledge of its falsity (scienter); (iii) with intent to induce reliance; (iv) justifiable reliance by the plaintiff; and (v) resulting damages. See Eurycleia Partners, LP v. Padilla & Severin LLP, 12 N.Y.3d 553, 559 (2009). Each of these elements is independently satisfied by Ironside's allegations. Vantor delivered monthly NAV reports containing inflated valuations that it knew to be false (as evidenced by the internal email communications); Vantor knew Ironside relied on those valuations for fund operations, investor reporting, and regulatory compliance; Ironside did rely on those valuations; and Ironside suffered damages in the form of overpaid management fees, overpaid performance fees, exposure to investor claims, and reputational harm. None of these elements depends on the Martin Act. The common-law duty not to make knowing misrepresentations of material fact predates the Martin Act by centuries and exists independently of it.

Count II — Fraudulent Concealment. Ironside's fraudulent concealment claim rests on the common-law duty not to conceal material facts where a duty to disclose exists. The duty to disclose arises here from the parties' contractual relationship, Vantor's superior knowledge of the valuation inputs and methodologies it employed, and the reasonable expectations created by the FAA's valuation provisions. Vantor concealed the staleness of the broker quotes it used, the unauthorized nature of its model adjustments, and — most critically — the internal email communications reflecting its awareness that certain marks were inflated. This is a classic common-law concealment claim. It does not depend on any duty created by the Martin Act.

Count III — Negligent Misrepresentation. Ironside's negligent misrepresentation claim is predicated on Vantor's status as a professional service provider upon whose expertise and representations Ironside foreseeably and justifiably relied. The elements of negligent misrepresentation under New York law require: (i) an awareness by the defendant that the information would be used for a particular purpose; (ii) reliance by a known party on the information; and (iii) some conduct by the defendant linking it to the relying party that evinces the defendant's understanding of that reliance. See Kimmell v. Schaefer, 89 N.Y.2d 257, 263 (1996). Vantor, as Ironside's contractual fund administrator, was aware that its valuation outputs would be used by Ironside for NAV reporting, investor accounting, and fund operations. Ironside relied on Vantor's professional expertise and representations. Vantor's delivery of inflated valuations without exercising reasonable care constitutes negligent misrepresentation under well-established common-law principles, entirely apart from the Martin Act.

In addition to these common-law duties, Ironside's claims are buttressed by the express contractual standard of care in FAA § 4.2, which required Vantor to perform valuations "in accordance with GAAP, the applicable fund's valuation policy, and the standard of care of a reasonably prudent professional fund administrator." This contractual duty provides an independent, non-Martin Act basis for Ironside's claims. Even if the Martin Act had never been enacted, Ironside would have fully viable fraud, fraudulent concealment, and negligent misrepresentation claims based on Vantor's knowing or negligent delivery of inflated valuations in violation of its contractual and common-law duties. Under Assured Guaranty and Kerusa, preemption does not apply because the claims have an independent common-law and contractual foundation.

C. The Conduct at Issue Does Not Involve the "Purchase, Sale, or Distribution of Securities"

Vantor's argument that its misvaluations fall within the Martin Act because the inflated NAVs "affected" LP interests conflates the subject matter of the Martin Act with the subject matter of Vantor's contractual obligations. The conduct at issue — Vantor's misvaluation of Level 3 positions (CLO equity tranches, CDO mezzanine notes, distressed loan participations) within the funds' portfolios — is not conduct "in connection with" the offer, sale, or distribution of securities. It is conduct in connection with the performance of valuation services under the FAA.

Vantor's argument that inflated NAV indirectly affected LP redemptions and subscriptions conflates a downstream effect with the jurisdictional predicate of the Martin Act. The Martin Act requires that the fraudulent conduct be "in connection with" a securities transaction. The fraudulent conduct here was the misvaluation itself — a breach of an administrative service obligation. The fact that the downstream consequence of that misvaluation was the overstatement of NAV figures that in turn appeared in investor capital account statements and may have affected investors' subscription and redemption decisions does not transform the underlying conduct into securities-transaction fraud.

The relevant question is: what was the nature of the fraudulent act? The answer is clear: the fraudulent act was the delivery of inflated valuation figures by a fund administrator to its client, the investment manager. The fraud occurred at the valuation stage — in the back office, in the preparation and delivery of NAV reports. It did not occur at the point of sale, subscription, or redemption of LP interests. Vantor did not sell, market, or distribute LP interests. Vantor did not make representations to investors. Vantor's client was Ironside (the manager), not the limited partners.

The analogy is instructive: a faulty appraisal by a third-party appraiser does not become securities fraud merely because the appraisal relates to an asset held in a securities portfolio. If a real-estate appraiser fraudulently inflates the value of a property held by a REIT, the REIT's fraud claim against the appraiser is a common-law fraud claim arising from the performance of appraisal services — it is not a securities-fraud claim merely because the inflated appraisal may ultimately have affected the REIT's reported NAV or share price. The same logic applies here. Vantor's fraudulent valuations were delivered in the performance of its contractual duties as fund administrator. The fact that the assets valued happened to be securities (or securities-linked instruments) and the fund vehicles happened to issue LP interests that are themselves securities does not convert Vantor's service-provider fraud into conduct regulable under the Martin Act.

D. Policy Considerations Reinforce Non-Preemption

The Martin Act preemption doctrine exists for a specific and limited purpose: to prevent private plaintiffs from circumventing the legislature's decision to vest exclusive enforcement authority in the New York Attorney General. The concern is that private plaintiffs might repackage what are, in substance, Martin Act claims as common-law fraud claims in order to evade the statute's exclusive-enforcement mechanism and bring claims that depend on the Martin Act's broader-than-common-law standard (e.g., claims that dispense with the scienter requirement). The doctrine does not exist to immunize every person or entity whose work product touches securities portfolios from all common-law fraud claims.

Allowing Martin Act preemption in this context would produce absurd and unjust results. If Vantor's argument were accepted, every fund administrator, pricing service, accounting firm, auditing firm, and back-office service provider that performs services for an investment fund holding securities would be immune from common-law fraud claims — so long as it could show that its fraudulent conduct indirectly affected the value of securities held in the fund or the price at which investors subscribed to or redeemed from the fund. No court has endorsed such a sweeping application of the preemption doctrine, and for good reason: it would effectively eliminate common-law fraud remedies for an entire category of commercial misconduct, not because the legislature intended that result, but because the defendant happens to operate in a corner of the financial services industry that is adjacent to the securities markets.

Moreover, Ironside is not seeking to enforce the Martin Act privately. Ironside is not invoking the Martin Act's broader standard of liability (which does not require scienter). Ironside is not claiming that Vantor violated the Martin Act. Ironside is enforcing longstanding common-law tort duties and express contractual obligations. The Martin Act preemption doctrine has no role to play in this dispute.

E. The Argument Was Improperly Raised for the First Time on Reply

Wholly apart from the merits, Vantor waived the Martin Act preemption argument by failing to raise it in its initial Motion to Dismiss filed on February 28, 2025. The motion to dismiss raised five separate grounds for dismissal, none of which included Martin Act preemption. The argument first appeared in Vantor's reply brief filed April 4, 2025, by which time Ironside had already filed its opposition brief on March 21, 2025, and had no opportunity to address the issue.

It is well settled in the First Department and the Commercial Division that arguments raised for the first time in a reply brief are not properly before the court and should not be considered. See, e.g., Lumbermens Mut. Cas. Co. v. Morse Shoe Co., 218 A.D.2d 624, 626 (1st Dep't 1995) ("Arguments advanced for the first time in reply papers are entitled to no consideration by a court entertaining the underlying motion."); Ritt v. Lenox Hill Hosp., 182 A.D.2d 560, 562 (1st Dep't 1992) (same); see also Commercial Division Rule 18 (requiring that all grounds for relief be stated in the moving papers). The rationale for this rule is fundamental: the opposing party must have an opportunity to respond to every argument raised by the movant. To permit a movant to sandbag the opposing party by introducing new theories of dismissal in reply — after the opposition brief has been filed — would undermine the basic fairness of the briefing process and deprive the court of the benefit of full adversarial briefing.

Vantor made a strategic choice not to raise Martin Act preemption in its initial motion. It did so after deliberation — the motion was prepared by a sophisticated law firm (WDC) and raised five separate grounds for dismissal. The omission of Martin Act preemption was not an oversight; it reflects either a conscious litigation decision or, at best, a failure of diligence that should not be rewarded by permitting the argument to be raised on reply.

If the court is nonetheless inclined to consider the argument, Ironside should be afforded the opportunity to file a sur-reply letter brief addressing the issue. A draft of the proposed sur-reply letter brief has been prepared as of April 9, 2025, and is pending court permission to file. The sur-reply should incorporate the core analysis from Sections V and VI of this memorandum.

VII. COUNTER-ARGUMENTS AND RESPONSES

A. Vantor's Likely Response: The Misvaluations "Affected" Securities Transactions

Vantor may be expected to argue that the overstated NAVs directly caused economic harm in connection with securities transactions. Specifically, Vantor may point to the fact that during the relevant period, 217 investor redemptions were processed at inflated NAV-per-unit prices, resulting in approximately $43.2 million in aggregate overpayments to redeeming investors. Vantor may characterize these redemptions as "sales" of securities (LP interests) that were induced or affected by the fraudulent NAV figures, thereby bringing Ironside's claims within the Martin Act's "in connection with" requirement.

Response: This argument fails for several interconnected reasons.

First, the fraud occurred at the valuation stage, upstream of any redemption. Vantor's fraudulent conduct consisted of delivering inflated NAV figures to Ironside. The misvaluations were made to Ironside in its capacity as the investment manager, not to the redeeming limited partners. Vantor did not communicate NAV figures directly to the LPs. Vantor did not process redemptions. Vantor did not make representations to the LPs in connection with their redemption decisions. The chain of causation between Vantor's misvaluations and the investors' redemption decisions passes through Ironside as an intermediary. This attenuated causal chain does not satisfy the Martin Act's jurisdictional nexus requirement, which demands that the fraudulent conduct be "in connection with" the securities transaction itself.

Second, even if one accepts that the inflated NAVs indirectly affected redemption prices, the relevant inquiry under the preemption doctrine is not whether the fraud affected a securities transaction, but whether the plaintiff's claims are "entirely predicated on" a violation of the Martin Act. As demonstrated in Section VI.B above, Ironside's claims rest on independent common-law and contractual duties. The Martin Act preemption analysis does not turn on the downstream economic consequences of the fraud; it turns on the legal basis of the claims asserted.

Third, the redemptions at issue were processed by Ironside in reliance on Vantor's fraudulent marks. Ironside itself was a victim of the fraud — it relied on Vantor's valuations and, in good faith, processed redemptions at the reported NAV-per-unit figures. Vantor did not itself effect the redemptions or make representations to the LPs. Its role was limited to providing valuation inputs to Ironside. The fact that those inputs were ultimately incorporated into investor capital account statements does not transform Vantor's role from that of a service provider into that of a securities market participant.

Fourth, accepting Vantor's argument would collapse the distinction between direct fraud in the sale of securities and the provision of erroneous professional services that may have downstream effects on securities-related activity. Under Vantor's theory, any accountant, auditor, attorney, or consultant whose work product is incorporated into materials used in connection with securities transactions would be subject to Martin Act preemption. This result has no support in the case law and would effectively eliminate common-law fraud remedies for professional malpractice in the financial services industry.

B. Vantor's Likely Response: LP Interests Are "Securities"

Vantor may also emphasize that limited partnership interests in Funds I, II, and III are "securities" under both federal and state law, and that the Martin Act therefore applies to any fraudulent conduct that affects the value of those interests.

Response: The nature of the LP interests is not disputed. Ironside does not contest that limited partnership interests in hedge funds are securities within the meaning of both the Securities Act of 1933 and the Martin Act. The issue, however, is not whether the LP interests are securities. The issue is whether Vantor's conduct — specifically, the performance of valuation services under a commercial services contract — falls within the Martin Act's regulatory scope. The answer is no.

The Martin Act does not regulate every form of misconduct that tangentially relates to a security. It regulates specific categories of conduct: the offer, sale, purchase, exchange, promotion, advertisement, investment advice, and distribution of securities. Vantor engaged in none of these activities. It performed valuation services. The fact that the assets it valued were securities (or securities-linked instruments) and the fund vehicles whose NAVs it calculated issued securities (LP interests) does not bring its administrative service activities within the Martin Act any more than the fact that a plumber repairs pipes in a building that houses a broker-dealer's office brings the plumber's work within the SEC's jurisdiction.

The distinction is between the nature of the defendant's conduct and the nature of the assets involved. The Martin Act is concerned with the former — specifically, with fraudulent conduct in the marketing, offering, sale, and distribution of securities. It is not an omnibus statute governing all misconduct in the vicinity of securities.

VIII. IMPLICATIONS FOR ORAL ARGUMENT AND SUR-REPLY STRATEGY

In light of the foregoing analysis, the following strategic recommendations are submitted for consideration in connection with the April 14, 2025 oral argument before Justice Torrance and the proposed sur-reply letter brief.

Oral Argument. At oral argument, Samuel Eklund should be prepared to address the Martin Act preemption argument in two stages:

1. Procedural Objection (Threshold). Eklund should first object to the court's consideration of Martin Act preemption on the ground that it was raised for the first time in Vantor's reply brief and is therefore not properly before the court. The objection should cite Lumbermens Mut. Cas. Co. v. Morse Shoe Co., 218 A.D.2d 624, 626 (1st Dep't 1995), and Ritt v. Lenox Hill Hosp., 182 A.D.2d 560, 562 (1st Dep't 1992), as well as Commercial Division Rule 18. Eklund should emphasize that Ironside was deprived of any opportunity to brief this issue in its opposition papers and that permitting Vantor to raise new grounds for dismissal on reply would undermine the fairness and integrity of the briefing process. If the court is inclined to consider the argument, Eklund should request leave to file the sur-reply letter brief.

2. Substantive Response (Alternative). In the alternative, if the court elects to consider the argument on the merits, Eklund should address it briefly and decisively. The key points are:

(a) The Martin Act does not apply to non-securities service-provider disputes. Vantor is a fund administrator, not a broker-dealer, issuer, or securities distributor. Its conduct — performing valuation services under a commercial services contract — is not conduct "in connection with" the issuance, exchange, purchase, sale, promotion, or distribution of securities.

(b) Ironside's claims rest on independent common-law and contractual duties. The fraud, fraudulent concealment, and negligent misrepresentation claims are predicated on the common-law duty not to make knowing misrepresentations, the duty not to conceal material facts, the duty of reasonable care, and the express contractual warranties of FAA § 4.2. These duties exist wholly apart from the Martin Act. Under Assured Guaranty and Kerusa, preemption does not apply.

(c) The conduct at issue is valuation-services fraud, not securities-offering fraud. Vantor's misvaluation of 47 illiquid positions is a breach of its administrative service obligations, not a fraud "in connection with" the offering or sale of LP interests.

(d) No court has ever applied Martin Act preemption in the fund-administration context, and extending the doctrine to this context would produce untenable results, immunizing an entire class of professional service providers from common-law fraud claims.

Sur-Reply Letter Brief. The draft sur-reply letter brief dated April 9, 2025, should be finalized and submitted for court permission to file. The letter brief should be concise (no more than five pages, consistent with Commercial Division practice for letter applications) and should incorporate the core analysis from Sections V and VI of this memorandum. It should lead with the procedural waiver argument and then address the merits in the alternative, with pinpoint citations to the authorities discussed herein.

Bench Memo. The bench memo being prepared by Yuki Nakamura (target date: April 10, 2025) should include a dedicated section on the Martin Act preemption issue, with pinpoint citations from this memorandum and anticipated questions from the court on this topic. The bench memo should anticipate that Justice Torrance may ask: (i) whether the Martin Act has ever been applied to a fund administrator; (ii) how the "in connection with" requirement is to be applied when the fraudulent conduct has downstream effects on securities transactions; and (iii) whether the economic loss doctrine (one of Vantor's original MTD arguments) moots or overlaps with the preemption analysis.

IX. CONCLUSION

The Martin Act preemption argument raised by Vantor in its April 4, 2025 reply brief is meritless and was procedurally improper. It should not succeed.

On the merits: The Martin Act regulates fraud in connection with the offering, sale, purchase, exchange, promotion, and distribution of securities. It does not regulate the performance of back-office valuation services by a fund administrator under a commercial services contract. Vantor is a fund administrator, not a broker-dealer, issuer, or securities distributor. Its systematic misvaluation of 47 illiquid credit and structured-product positions across 11 quarters — causing $287 million in aggregate overvaluation, including a peak single-quarter overvaluation of $52.3 million in Q4 2022 — constitutes common-law fraud, fraudulent concealment, and negligent misrepresentation, as well as breach of the express contractual warranties in FAA § 4.2. It does not constitute conduct "in connection with" the issuance, exchange, purchase, sale, promotion, or distribution of securities within the meaning of the Martin Act. Ironside's fraud-based claims rest on independent common-law duties and contractual obligations that exist wholly apart from the Martin Act. Under the governing standard of Assured Guaranty (UK) Ltd. v. Thackeray Asset Management, 18 N.Y.3d 341 (2011), and Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. P'ship, 12 A.D.3d 236 (1st Dep't 2004), preemption does not apply.

On procedure: The argument was waived by its absence from Vantor's February 28, 2025 Motion to Dismiss. It was raised for the first time in Vantor's reply brief filed April 4, 2025, after Ironside had already filed its opposition brief on March 21, 2025. Arguments raised for the first time on reply are not properly before the court and should not be considered. If the court is inclined to consider the argument, Ironside should be afforded the opportunity to file a sur-reply letter brief.

Recommendation: Address the Martin Act preemption argument in both the sur-reply letter brief and at oral argument on April 14, 2025. There is a high degree of confidence that this argument will not succeed. The argument appears to be an afterthought — it was not raised in the initial motion, is unsupported by any authority in the fund-administration context, and is inconsistent with the clear direction of the appellate case law, which has progressively narrowed the scope of Martin Act preemption to claims that lack an independent common-law foundation.

Please advise if any additional research or analysis is needed in advance of the April 10, 2025 bench memo deadline.

APPENDIX: KEY AUTHORITIES

The following table organizes the key authorities by proposition for use in the sur-reply letter brief and bench memo. Pinpoint citations are provided where available.

1. Martin Act Does Not Create a Private Right of Action

2. Common-Law Fraud Claims Survive Martin Act Preemption When They Rest on Independent Duties

3. Martin Act Applies Only to Conduct "In Connection With" Securities Transactions

4. Arguments Raised for the First Time on Reply Are Waived

5. Fund Administrators Are Not Securities Market Participants for Martin Act Purposes

This memorandum was prepared on an expedited basis for use in connection with the pending Motion to Dismiss in Ironside Capital Management LP v. Vantor Holdings Corp., Index No. 650312/2025, and is subject to revision as additional authorities are identified or as the litigation develops. All opinions expressed herein are preliminary and based on the facts as presently understood.

Case / Authority	Citation	Key Holding / Relevance
CPC Int'l Inc. v. Westmark Holdings.	70 N.Y.2d 268, 276–77 (1987)	Court of Appeals definitively held that the Martin Act does not create a private right of action; enforcement rests exclusively with the Attorney General.
Assured Guaranty (UK) Ltd. v. Brightwater Trust Bank Inv. Mgmt. Inc.	18 N.Y.3d 341, 350 (2011)	Reaffirmed that there is no private right of action under the Martin Act; distinguished between private Martin Act claims (barred) and common-law claims resting on independent duties (not preempted).
Case / Authority	Citation	Key Holding / Relevance
Assured Guaranty (UK) Ltd. v. Brightwater Trust Bank Inv. Mgmt. Inc.	18 N.Y.3d 341, 352–53 (2011)	Common-law fraud claims are not preempted where they "are not entirely dependent on the Martin Act for their viability" and rest on independent common-law duties such as the duty not to make knowing misrepresentations of material fact.
Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. P'ship	12 A.D.3d 236, 243 (1st Dep't 2004)	Martin Act preempts common-law claims "only where the claims are entirely predicated on a violation of the Martin Act" and do not state a "viable common-law cause of action independent of the statute."
Caboara v. Babylon Cove Dev., LLC	54 A.D.3d 79, 85–87 (2d Dep't 2008)	Narrowly applied preemption; held that common-law fraud claims arising from misrepresentations in cooperative apartment sales were not preempted where they rested on independent common-law fraud elements.
Scalp & Blade Inc. v. Advest Grp., Inc.	309 A.D.2d 219, 224–25 (4th Dep't 2003)	Distinguished claims arising from arm's-length contractual relationships from securities-offering fraud; supports the principle that Martin Act preemption does not reach disputes grounded in contractual obligations between sophisticated parties.
Case / Authority	Citation	Key Holding / Relevance
N.Y. Gen. Bus. Law § 352	N.Y. Gen. Bus. Law § 352	Authorizes the AG to investigate "fraudulent practices" in the "issuance, exchange, purchase, sale, promotion, negotiation, advertisement, investment advice or distribution" of securities.
N.Y. Gen. Bus. Law § 352-c	N.Y. Gen. Bus. Law § 352-c	Prohibits fraud, deception, concealment, and false pretense "in connection with the sale or purchase of securities."
N.Y. Gen. Bus. Law § 352-e	N.Y. Gen. Bus. Law § 352-e	Governs securities offerings; defines "securities" for purposes of the statute.
State v. Rachmani Corp.	71 N.Y.2d 718, 726 (1988)	Discusses broad scope of the Martin Act in AG enforcement actions, but scope remains tethered to securities transactions.
People v. Federated Radio Corp.	244 N.Y. 33, 38–39 (1926)	Early Court of Appeals decision establishing the Martin Act's prophylactic purpose in connection with securities offerings.
Case / Authority	Citation	Key Holding / Relevance
Lumbermens Mut. Cas. Co. v. Morse Shoe Co.	218 A.D.2d 624, 626 (1st Dep't 1995)	"Arguments advanced for the first time in reply papers are entitled to no consideration by a court entertaining the underlying motion."
Ritt v. Lenox Hill Hosp.	182 A.D.2d 560, 562 (1st Dep't 1992)	Same principle; new arguments on reply are improperly raised and should not be considered.
Commercial Division Rule 18	22 NYCRR § 202.70, Rule 18	Requires that all grounds for relief be stated in the moving papers; supports the procedural objection to Vantor's new argument.
Azzopardi v. Am. Blower Corp.	192 A.D.2d 453, 454 (1st Dep't 1993)	Reaffirmed that issues not raised in the initial motion papers are not properly before the court on reply.
Case / Authority	Citation	Key Holding / Relevance
No directly on-point authority identified.	—	No reported New York decision has applied Martin Act preemption to a fund administrator's provision of valuation or NAV-calculation services.
Assured Guaranty (UK) Ltd. v. Brightwater Trust Bank Inv. Mgmt. Inc. (by analogy)	18 N.Y.3d 341 (2011)	Although the defendant in Assured Guaranty was an investment manager (not a fund administrator), the Court's reasoning — that common-law claims resting on independent duties are not preempted — supports the argument that service-provider fraud outside the securities-offering context is not within the Martin Act's scope.
Scalp & Blade Inc. v. Advest Grp., Inc. (by extension)	309 A.D.2d 219 (4th Dep't 2003)	Supports the distinction between securities-market participants and parties engaged in arm's-length contractual relationships; fund administrators providing back-office services fall squarely in the latter category.
General principle: The Martin Act targets fraud in the securities-distribution chain.	—	Fund administrators are not in the securities-distribution chain. They do not offer, sell, distribute, promote, or market securities. Their services are administrative and operational in nature. By analogy, third-party appraisers, auditors, and other professional service providers whose work product relates to securities-portfolio assets have not been subjected to Martin Act preemption where their claims arise from the performance of contractual duties rather than from securities transactions.

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
TO: Yuki Nakamura, Lead Associate, Litigation
FROM: Carlos Espinoza, Working Associate, Litigation
DATE: April 3, 2025
RE: Martin Act Preemption of Common-Law Fraud Claims — Applicability to Vantor's Reply-Brief Argument in Ironside Capital Management LP v. Vantor Holdings Corp., Index No. 650312/2025 (N.Y. Sup. Ct., Commercial Division, N.Y. County)
REVIEWED BY: Yuki Nakamura
STATUS: Expedited — Prepared in advance of April 14, 2025 oral argument before Hon. Richard Torrance, J.S.C.
I. EXECUTIVE SUMMARY
Vantor Holdings Corp. ("Vantor"), through its counsel Whitfield, Dane & Corcoran LLP ("WDC") — specifically Gregory Dane and Allison Breck — raised for the first time in its reply brief filed April 4, 2025, a new argument that the Martin Act (N.Y. Gen. Bus. Law Art. 23-A, §§ 352–359-h) preempts Ironside Capital Management LP's ("Ironside") common-law fraud, fraudulent concealment, and negligent misrepresentation claims (Counts I, II, and III of the Verified Complaint filed January 21, 2025). This argument was not contained in Vantor's initial Motion to Dismiss filed on February 28, 2025, and Ironside had no opportunity to address it in its opposition brief filed March 21, 2025.
Conclusion: The Martin Act preemption argument is inapplicable to this dispute. The Martin Act regulates the offer, sale, and distribution of securities and commodities and does not govern the conduct of a fund administrator performing NAV calculation and valuation services under a Master Fund Administration Agreement. Vantor is not a securities dealer, broker, or issuer; Ironside's claims arise from Vantor's contractual duty to independently price 47 illiquid credit and structured-product positions under FAA §§ 3.1 and 4.2, not from any securities transaction. The weight of Commercial Division and appellate authority confirms that Martin Act preemption does not extend to arm's-length commercial disputes between sophisticated parties outside the securities-offering context. The claims at issue rest on independent common-law duties — including the duty not to make knowing misrepresentations of material fact, the duty not to conceal material information, and the duty to exercise reasonable care in making representations upon which a counterparty foreseeably relies — as well as the express contractual warranties in the FAA. These duties exist wholly independent of the Martin Act, and the claims predicated upon them are therefore not subject to preemption under the doctrine articulated by the Court of Appeals and the First Department.
Recommendation: This argument should be addressed in the proposed sur-reply letter brief (draft dated April 9, 2025, pending court approval) and at oral argument on April 14, 2025. As a threshold matter, the argument should be treated as waived because it was raised improperly for the first time on reply, depriving Ironside of any opportunity to brief the issue. If the court nonetheless elects to consider the argument on the merits, the analysis set forth in this memorandum provides a comprehensive basis for defeating it. Samuel Eklund, as lead argument counsel, should be prepared to address both the procedural and substantive deficiencies of Vantor's position.
II. QUESTION PRESENTED
Whether the Martin Act (N.Y. Gen. Bus. Law §§ 352–359-h) preempts the common-law fraud (Count I), fraudulent concealment (Count II), and negligent misrepresentation (Count III) claims asserted by Ironside Capital Management LP against Vantor Holdings Corp. in connection with Vantor's systematic misvaluation of illiquid credit and structured-product positions in its capacity as fund administrator under the Master Fund Administration Agreement dated June 15, 2017 (Ref: VHC-ICM-2017-0615), where Vantor is not a broker-dealer, issuer, underwriter, or securities distributor, and Ironside's claims rest on independent common-law tort duties and express contractual obligations rather than on any duty created by the Martin Act.
III. SHORT ANSWER
No. The Martin Act preemption doctrine, as articulated by the New York Court of Appeals and refined by the Appellate Division, First Department, applies only to private claims that are "entirely predicated on" violations of the Martin Act — that is, claims arising from deceptive practices in connection with the issuance, exchange, purchase, sale, promotion, or distribution of securities, and that do not state a viable common-law cause of action independent of the statute. Here, Ironside's claims arise from a fund administration and valuation services relationship governed by a commercial contract, not from any securities offering or transaction. Vantor is a fund administrator, not a broker-dealer, issuer, or securities professional regulated under the Martin Act. The misvaluation scheme — including the use of stale broker quotes dating six to twelve months prior to application, unauthorized internal model adjustments that inflated marks by an average of 14.3% above observable inputs, the systematic failure to follow contractually required waterfall valuation procedures, and the concealment of internal email communications documenting awareness of inflated marks — constitutes fraud in the performance of a service agreement, not securities fraud. Ironside's claims rest on the independent common-law duty not to make knowing misrepresentations, the duty not to fraudulently conceal material information, the duty of reasonable care in making professional representations, and the express contractual warranties of FAA § 4.2. These duties exist wholly independent of the Martin Act. The preemption argument fails both on the merits and on procedural grounds.
IV. FACTUAL BACKGROUND RELEVANT TO THE ANALYSIS
A. The Parties and the Contractual Relationship
Ironside Capital Management LP. Ironside is a Delaware limited partnership with its principal office at 680 Park Avenue, 34th Floor, New York, NY 10065. It was co-founded in 2009 by Elliot Brennan and Marguerite Dao and operates as a New York–based hedge fund manager with approximately $4.2 billion in assets under management as of December 31, 2024. Ironside manages a multi-strategy credit platform focusing on distressed debt, structured products, and illiquid credit instruments. It is registered as an investment adviser with the U.S. Securities and Exchange Commission.
Three feeder funds are at issue in this litigation:
• Ironside Credit Opportunities Fund LP ("Fund I"), with an approximate NAV of $1.8 billion;
• Ironside Structured Alpha Fund LP ("Fund II"), with an approximate NAV of $1.1 billion; and
• Ironside Special Situations Fund LP ("Fund III"), with an approximate NAV of $680 million.
The aggregate administered NAV across these three funds was approximately $3.58 billion during the relevant period. The funds' limited partners include institutional investors, endowments, pension funds, family offices, and high-net-worth individuals, including Ashford Endowment Partners LP, which committed $340 million across the three funds.
Vantor Holdings Corp. Vantor is a Delaware corporation headquartered at 1400 Brickell Avenue, Suite 2200, Miami, Florida 33131. It is a fund administration firm providing NAV calculation, investor accounting, regulatory reporting support, and valuation services to approximately 140 hedge-fund clients, with roughly $62 billion in administered assets as of 2023. Vantor's Chief Executive Officer is Raymond Kettler. The key valuation personnel relevant to this dispute are Nathan Orris, Senior Vice President of Valuation Services, and Deepa Rajaram, Vice President of Client Valuation Operations. Vantor is not registered as a broker-dealer, investment adviser, or securities issuer. It does not offer, sell, distribute, or promote securities. Its business is the provision of back-office fund administration services on a contractual, fee-for-service basis.
The Master Fund Administration Agreement. Ironside and Vantor executed the Master Fund Administration Agreement ("FAA") on June 15, 2017, bearing reference number VHC-ICM-2017-0615. The FAA had a five-year initial term and provided for automatic annual renewal thereafter unless terminated by either party upon ninety days' written notice. The FAA was amended twice during the relevant period:
• First Amendment (March 1, 2019): Added Fund III to the scope of administered funds.
• Second Amendment (June 10, 2022): Adjusted Vantor's administration fee from 4.0 basis points to 4.5 basis points of NAV, reflecting the increased complexity of Ironside's portfolio and the addition of certain enhanced reporting obligations.
The scope of services under the FAA is set forth in Section 3.1, which obligated Vantor to perform the following core functions: (i) NAV calculation for each fund on a monthly basis; (ii) investor accounting, including capital account maintenance, allocation of profits and losses, and preparation of investor capital account statements; (iii) regulatory reporting support; and (iv) independent pricing and valuation of portfolio positions, including Level 2 and Level 3 assets as classified under ASC 820 (Fair Value Measurement).
The valuation standard governing Vantor's performance is set forth in FAA § 4.2, which provides, in relevant part:
"Vantor shall perform all valuation services in accordance with generally accepted accounting principles ('GAAP'), the applicable Fund's valuation policy as provided by the Manager from time to time, and the standard of care of a reasonably prudent professional fund administrator experienced in the administration and valuation of investment funds holding comparable assets."
This contractual standard of care is central to Ironside's claims, as it establishes an independent, contractually defined duty against which Vantor's conduct must be measured — a duty that exists entirely apart from any obligation imposed by the Martin Act.
B. The Misvaluation Scheme
The fraudulent misvaluation scheme at issue spans eleven quarters, from Q1 2021 (March 31, 2021) through Q3 2023 (September 30, 2023). During this period, Vantor systematically misvalued 47 positions across the three funds. The affected positions consisted of CLO equity tranches, bespoke CDO mezzanine notes, and distressed loan participations — all Level 3 assets requiring significant judgment and the application of the contractually specified waterfall valuation procedures.
The misconduct, as alleged in the Verified Complaint and supported by documentary evidence obtained through pre-litigation informal discovery and CPLR 3102(c) proceedings, consisted of four principal categories:
(a) Use of Stale Broker Quotes. Vantor's valuation team, led by Nathan Orris and Deepa Rajaram, routinely applied broker-dealer indicative quotes that were six to twelve months old without disclosing the staleness of the pricing inputs to Ironside. In several instances, the broker quotes had been obtained in connection with prior quarter-end valuations and were simply carried forward without re-solicitation or verification.
(b) Unauthorized Model Adjustments. Vantor's valuation personnel applied internally generated "model adjustments" to certain positions that had the effect of inflating marks by an average of 14.3% above the values that would have been derived from contemporaneous observable inputs. These adjustments were not disclosed to Ironside in the monthly valuation packages and were not consistent with the funds' valuation policies.
(c) Failure to Apply Contractual Waterfall Valuation Procedures. The FAA and the funds' valuation policies specified a hierarchical waterfall of pricing sources — beginning with binding dealer quotes, then indicative dealer quotes, then third-party pricing service outputs, then model-based valuations subject to specified input parameters. Vantor routinely bypassed higher-priority pricing sources in favor of internally generated marks, without documenting the reasons for the deviation as required.
(d) Concealment of Internal Communications. Internal email communications among Vantor personnel — including between Nathan Orris and Deepa Rajaram and between Orris and CEO Raymond Kettler — documented Vantor's awareness that certain marks were inflated. One email chain dated November 14, 2022, from Orris to Kettler, stated: "The CLO book is running hot relative to Street. If they [Ironside] bring in a third-party to shadow, we'll have a problem." Despite this awareness, Vantor continued to report inflated NAV figures and did not disclose the internal concerns to Ironside.
The aggregate overvaluation across the three funds during the eleven-quarter period was $287.0 million, broken down as follows: $156.4 million attributable to Fund I, $88.7 million attributable to Fund II, and $41.9 million attributable to Fund III. The peak single-quarter overvaluation occurred in Q4 2022, when aggregate overvaluation reached $52.3 million. NAV per unit was overstated by between 3.8% (Q1 2021) and 8.6% (Q4 2022) across the relevant funds.
C. The Litigation
Ironside filed its Verified Complaint on January 21, 2025, in New York Supreme Court, Commercial Division, New York County, and the action was assigned to Hon. Richard Torrance, J.S.C., under Index No. 650312/2025. The Verified Complaint asserts seven causes of action:
1. Count I — Fraud: Vantor knowingly made material misrepresentations of fact (the inflated NAV figures) upon which Ironside relied to its detriment.
2. Count II — Fraudulent Concealment: Vantor concealed material facts (the staleness of broker quotes, the unauthorized model adjustments, and the internal communications reflecting awareness of inflated marks) that it had a duty to disclose.
3. Count III — Negligent Misrepresentation: Vantor, as a professional fund administrator upon whose expertise and representations Ironside foreseeably relied, failed to exercise reasonable care in preparing and delivering valuations.
4. Count IV — Breach of Contract: Vantor materially breached FAA §§ 3.1 and 4.2 by failing to perform valuation services in accordance with GAAP, the funds' valuation policies, and the contractual standard of care.
5. Count V — Breach of Fiduciary Duty.
6. Count VI — Aiding and Abetting Fraud.
7. Count VII — Unjust Enrichment.
Ironside is represented by Calderwood & Harkness LLP. The lead litigation partner is Samuel Eklund, with Yuki Nakamura serving as lead associate.
Vantor filed its Motion to Dismiss on February 28, 2025, pursuant to CPLR § 3211(a)(1) (defense founded on documentary evidence) and CPLR § 3211(a)(7) (failure to state a cause of action). The motion raised five grounds for dismissal, none of which included Martin Act preemption. The five grounds addressed in the initial motion were: (i) failure to plead fraud with requisite particularity under CPLR § 3016(b); (ii) the economic loss doctrine barring fraud claims duplicative of the contract claim; (iii) failure to allege justifiable reliance; (iv) contractual limitation-of-liability provisions; and (v) failure to state a fiduciary-duty claim.
Ironside filed its opposition brief on March 21, 2025, consisting of a forty-five-page memorandum of law prepared by Calderwood & Harkness LLP, with supporting declarations and documentary exhibits.
Vantor's reply brief was filed on April 4, 2025, by WDC partner Gregory Dane. It is in this reply brief that Martin Act preemption was raised for the first time as a ground for dismissal of Counts I, II, and III.
Oral argument on the Motion to Dismiss is scheduled for April 14, 2025, before Justice Torrance.
D. Nature of Vantor's New Argument
In its reply brief, WDC argues that because the alleged misvaluations affected the reported NAV of investment fund securities (i.e., the limited partnership interests held by investors in Funds I, II, and III), Ironside's fraud-based claims are "in substance" Martin Act claims and are therefore preempted under the doctrine precluding private enforcement of the Martin Act. Specifically, Vantor contends that the inflated NAV figures functioned as misrepresentations "in connection with" the purchase, sale, and redemption of securities — namely, the LP interests — because investors relied on reported NAV in making subscription and redemption decisions. Vantor's reply brief cites to the Court of Appeals' holdings restricting private causes of action under the Martin Act, principally CPC International Inc. v. Westmark Holdings., 70 N.Y.2d 268 (1987), and to the First Department's preemption analysis in Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. P'ship, 12 A.D.3d 236 (1st Dep't 2004).
The argument is presented in approximately four pages of Vantor's eighteen-page reply brief, at pages 12 through 15. It is not developed with any specificity regarding the fund administration context, and it does not address the contractual basis for Ironside's claims or the independent common-law duties upon which Counts I, II, and III rest.
V. LEGAL FRAMEWORK: THE MARTIN ACT AND PREEMPTION DOCTRINE
A. Overview of the Martin Act
The Martin Act, codified at N.Y. General Business Law Article 23-A, §§ 352–359-h, is New York's principal anti-fraud statute governing securities and commodities. Enacted in 1921, the statute was originally designed to address the fraudulent promotion of securities to unsuspecting investors during the speculative boom of the early twentieth century. Over the ensuing century, it has been amended and expanded to encompass a broad range of fraudulent practices in the securities markets, including fraud in the issuance, exchange, purchase, sale, promotion, negotiation, advertisement, investment advice, and distribution of securities and commodities.
The Martin Act grants the New York Attorney General extraordinarily broad enforcement authority. Notably, the Attorney General need not prove scienter — i.e., fraudulent intent — to establish a violation of the statute. Negligent or even innocent misrepresentations may suffice for enforcement proceedings brought by the AG. See People v. Federated Radio Corp., 244 N.Y. 33, 38–39 (1926); State v. Rachmani Corp., 71 N.Y.2d 718, 726 (1988). This broad enforcement power reflects the legislature's intent to vest primary responsibility for policing securities fraud in the office of the Attorney General.
Critically, however, the Martin Act does not create a private right of action. Private plaintiffs cannot bring claims "under" the Martin Act. This principle was definitively established by the Court of Appeals in CPC International Inc. v. Westmark Holdings., 70 N.Y.2d 268 (1987), and has been consistently reaffirmed. The legislative history and structure of the statute make clear that enforcement was intended to be exclusively the province of the Attorney General, and the courts have declined to imply a private right of action from the statutory text.
The scope of the Martin Act's substantive coverage is defined by its focus on securities and commodities transactions. Section 352 of the General Business Law authorizes the Attorney General to investigate and enjoin "all fraudulent practices" in the "issuance, exchange, purchase, sale, promotion, negotiation, advertisement, investment advice or distribution within or from this state of any ... securities." Section 352-c prohibits, inter alia, any "fraud, deception, concealment, suppression, [or] false pretense" in connection with the sale or purchase of securities. Section 352-e governs the offering of securities through offering documents and prospectuses. The statute's operative terms are thus consistently tethered to the concept of securities transactions — the marketing, offering, sale, and distribution of securities to the investing public.
B. The Preemption Doctrine — Key Precedent
The Martin Act preemption doctrine arises from the intersection of the statute's broad scope and its exclusive enforcement mechanism. Because the Martin Act does not create a private right of action, courts have confronted the question of whether and when common-law fraud claims — which private plaintiffs indisputably may bring — are "preempted" by the Martin Act. The doctrine has been shaped by a series of Court of Appeals and First Department decisions that have progressively refined the scope of preemption.
CPC International Inc. v. Westmark Holdings., 70 N.Y.2d 268 (1987). The Court of Appeals confirmed that the Martin Act does not create a private right of action, reasoning that the legislature intended enforcement to rest exclusively with the Attorney General. The Court noted that the breadth of the statute — including the absence of a scienter requirement — reflected a deliberate legislative choice to centralize enforcement in a public officer with the resources and authority to police the securities markets effectively.
Assured Guaranty (UK) Ltd. v. Thackeray Asset Management, 18 N.Y.3d 341 (2011). The Court of Appeals addressed the preemption question directly and held that common-law fraud claims are not preempted by the Martin Act where the claims are based on independent common-law duties, rather than on duties created solely by the Martin Act. The Court reasoned that the Martin Act was not intended to "eliminate the common-law rights of defrauded investors" and that a private plaintiff may pursue common-law fraud claims so long as the claims "are not entirely dependent on the Martin Act for their viability." Id. at 352–53. This decision marked a critical clarification: the Martin Act preempts only those common-law claims that are "entirely predicated on" a violation of the Martin Act, meaning claims that would not exist but for the statutory duty. Claims resting on independent common-law duties — such as the duty not to make knowing misrepresentations of material fact — survive regardless of whether the same conduct might also violate the Martin Act.
Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. P'ship, 12 A.D.3d 236 (1st Dep't 2004). The First Department held that the Martin Act preempts common-law claims "only where the claims are entirely predicated on a violation of the Martin Act," meaning where "the allegations do not state a viable common-law cause of action independent of the statute." Id. at 243. The court emphasized that the relevant inquiry is whether the plaintiff's claims rest on duties and elements that exist at common law — such as scienter, materiality, reliance, and damages — or whether the claims are viable only because the Martin Act creates a broader duty (e.g., by dispensing with the scienter requirement). Where the common-law elements are independently satisfied, preemption does not apply.
Subsequent Narrowing of Preemption. Following Assured Guaranty and Kerusa, courts have increasingly confined Martin Act preemption to a narrow category of cases. The trend in the First Department and the Commercial Division has been to recognize that preemption applies only where the plaintiff's common-law claim is essentially a repackaged Martin Act claim — i.e., where the claim depends on the Martin Act's broader-than-common-law standard (such as the absence of a scienter requirement) to survive. Where the plaintiff can independently plead and prove the elements of a common-law cause of action, the Martin Act does not bar the claim.
Caboara v. Babylon Cove Development, LLC, 54 A.D.3d 79 (2d Dep't 2008). The Second Department narrowly applied preemption, holding that the Martin Act did not preempt common-law fraud claims arising from misrepresentations in connection with the sale of cooperative apartments where the claims were "not wholly dependent on the Martin Act" and rested on independent common-law fraud elements.
Scalp & Blade Inc. v. Advest Group, Inc., 309 A.D.2d 219 (4th Dep't 2003), and its progeny further distinguished between claims arising from arm's-length contractual relationships and claims arising in the securities-offering context. These decisions reinforce the principle that the Martin Act's preemptive reach does not extend to disputes grounded in the performance of contractual obligations between sophisticated commercial parties, even where the underlying subject matter involves securities.
C. Scope of the Martin Act's Subject Matter
The Martin Act applies to conduct "in connection with" the issuance, exchange, purchase, sale, promotion, or distribution of securities. The phrase "in connection with" has been interpreted broadly in the context of AG enforcement actions, consistent with the statute's prophylactic purpose. However, even under this broad interpretation, the conduct at issue must bear a meaningful nexus to a securities transaction or offering.
"Securities" as defined in the Martin Act encompass a wide range of instruments. N.Y. Gen. Bus. Law § 352-e defines securities to include stocks, bonds, notes, evidences of interest or indebtedness, and investment contracts, among other instruments. N.Y. Gen. Bus. Law § 359-e provides additional definitional guidance. Limited partnership interests, such as those held by investors in Ironside's funds, generally qualify as securities under both federal and state law.
However, the mere fact that a dispute involves assets that are securities, or that a defendant's conduct tangentially relates to securities held in a portfolio, does not bring the dispute within the Martin Act's scope. The statute regulates conduct directed at the transactional process — the offering, marketing, sale, purchase, and distribution of securities — not the entire universe of commercial activity that might bear some connection to a securities portfolio. Pure service-provider fraud in performing non-transactional contractual duties does not fall within the statute's ambit. A fund administrator that incorrectly or fraudulently values portfolio assets is not engaging in the "issuance, exchange, purchase, sale, promotion, or distribution" of securities; it is performing (or failing to perform) an administrative function under a services contract.
VI. ANALYSIS: MARTIN ACT PREEMPTION IS INAPPLICABLE HERE
A. Vantor Is Not a Securities Market Participant Regulated by the Martin Act
The threshold deficiency in Vantor's preemption argument is that Vantor itself is not a securities market participant of the type regulated by the Martin Act. Vantor is a fund administrator. Its business consists of providing NAV calculation, investor accounting, regulatory reporting support, and valuation services to hedge fund clients on a fee-for-service basis under commercial services agreements. Vantor is not registered as a broker-dealer, and it does not effect transactions in securities for the account of others or for its own account. It is not an issuer or underwriter of securities. It is not an investment adviser in the Martin Act sense — that is, it does not render advice as to the value of securities or the advisability of purchasing or selling securities for compensation. It does not distribute, promote, or market securities.
The FAA between Ironside and Vantor is a commercial services agreement — not a securities purchase or sale agreement, not a subscription agreement, not an offering document, and not any other instrument associated with a securities transaction. The FAA defines a scope of administrative services (§ 3.1), establishes a standard of care for the performance of valuation services (§ 4.2), specifies fee arrangements, and contains the typical provisions of a services contract, including representations and warranties, indemnification, limitation of liability, governing law, and dispute resolution provisions.
Vantor's role under the FAA was to independently price 47 illiquid credit positions — CLO equity tranches, bespoke CDO mezzanine notes, and distressed loan participations — using specified valuation methodologies. This is a back-office administrative function. It is not a securities-marketing or distribution function. The Martin Act targets fraud "in connection with" the offering, sale, or distribution of securities to investors. Vantor was not offering, selling, distributing, promoting, or marketing any securities. It was preparing spreadsheets, running valuation models, soliciting broker quotes, and reporting NAV figures to its contractual counterparty, Ironside. The notion that this activity falls within the Martin Act's regulatory scope finds no support in the statute's text, legislative history, or case law.
No court has held that a fund administrator's provision of valuation services constitutes conduct "in connection with" the issuance, exchange, purchase, sale, promotion, or distribution of securities for Martin Act purposes. The absence of any such authority is itself significant and reflects the commonsense distinction between securities-market activity and back-office service provision.
B. Ironside's Fraud Claims Are Not "Entirely Predicated On" Martin Act Violations
Under the governing standard established by Assured Guaranty and Kerusa, the Martin Act preempts common-law claims only where those claims are "entirely predicated on" a violation of the Martin Act — that is, where the claims would not be viable but for the duties and standards created by the statute itself. Ironside's common-law fraud (Count I), fraudulent concealment (Count II), and negligent misrepresentation (Count III) claims rest on independent common-law and contractual duties that exist wholly apart from the Martin Act.
Count I — Fraud. Ironside's fraud claim is predicated on the well-established common-law elements of fraud: (i) a material misrepresentation of fact; (ii) made with knowledge of its falsity (scienter); (iii) with intent to induce reliance; (iv) justifiable reliance by the plaintiff; and (v) resulting damages. See Eurycleia Partners, LP v. Padilla & Severin LLP, 12 N.Y.3d 553, 559 (2009). Each of these elements is independently satisfied by Ironside's allegations. Vantor delivered monthly NAV reports containing inflated valuations that it knew to be false (as evidenced by the internal email communications); Vantor knew Ironside relied on those valuations for fund operations, investor reporting, and regulatory compliance; Ironside did rely on those valuations; and Ironside suffered damages in the form of overpaid management fees, overpaid performance fees, exposure to investor claims, and reputational harm. None of these elements depends on the Martin Act. The common-law duty not to make knowing misrepresentations of material fact predates the Martin Act by centuries and exists independently of it.
Count II — Fraudulent Concealment. Ironside's fraudulent concealment claim rests on the common-law duty not to conceal material facts where a duty to disclose exists. The duty to disclose arises here from the parties' contractual relationship, Vantor's superior knowledge of the valuation inputs and methodologies it employed, and the reasonable expectations created by the FAA's valuation provisions. Vantor concealed the staleness of the broker quotes it used, the unauthorized nature of its model adjustments, and — most critically — the internal email communications reflecting its awareness that certain marks were inflated. This is a classic common-law concealment claim. It does not depend on any duty created by the Martin Act.
Count III — Negligent Misrepresentation. Ironside's negligent misrepresentation claim is predicated on Vantor's status as a professional service provider upon whose expertise and representations Ironside foreseeably and justifiably relied. The elements of negligent misrepresentation under New York law require: (i) an awareness by the defendant that the information would be used for a particular purpose; (ii) reliance by a known party on the information; and (iii) some conduct by the defendant linking it to the relying party that evinces the defendant's understanding of that reliance. See Kimmell v. Schaefer, 89 N.Y.2d 257, 263 (1996). Vantor, as Ironside's contractual fund administrator, was aware that its valuation outputs would be used by Ironside for NAV reporting, investor accounting, and fund operations. Ironside relied on Vantor's professional expertise and representations. Vantor's delivery of inflated valuations without exercising reasonable care constitutes negligent misrepresentation under well-established common-law principles, entirely apart from the Martin Act.
In addition to these common-law duties, Ironside's claims are buttressed by the express contractual standard of care in FAA § 4.2, which required Vantor to perform valuations "in accordance with GAAP, the applicable fund's valuation policy, and the standard of care of a reasonably prudent professional fund administrator." This contractual duty provides an independent, non-Martin Act basis for Ironside's claims. Even if the Martin Act had never been enacted, Ironside would have fully viable fraud, fraudulent concealment, and negligent misrepresentation claims based on Vantor's knowing or negligent delivery of inflated valuations in violation of its contractual and common-law duties. Under Assured Guaranty and Kerusa, preemption does not apply because the claims have an independent common-law and contractual foundation.
C. The Conduct at Issue Does Not Involve the "Purchase, Sale, or Distribution of Securities"
Vantor's argument that its misvaluations fall within the Martin Act because the inflated NAVs "affected" LP interests conflates the subject matter of the Martin Act with the subject matter of Vantor's contractual obligations. The conduct at issue — Vantor's misvaluation of Level 3 positions (CLO equity tranches, CDO mezzanine notes, distressed loan participations) within the funds' portfolios — is not conduct "in connection with" the offer, sale, or distribution of securities. It is conduct in connection with the performance of valuation services under the FAA.
Vantor's argument that inflated NAV indirectly affected LP redemptions and subscriptions conflates a downstream effect with the jurisdictional predicate of the Martin Act. The Martin Act requires that the fraudulent conduct be "in connection with" a securities transaction. The fraudulent conduct here was the misvaluation itself — a breach of an administrative service obligation. The fact that the downstream consequence of that misvaluation was the overstatement of NAV figures that in turn appeared in investor capital account statements and may have affected investors' subscription and redemption decisions does not transform the underlying conduct into securities-transaction fraud.
The relevant question is: what was the nature of the fraudulent act? The answer is clear: the fraudulent act was the delivery of inflated valuation figures by a fund administrator to its client, the investment manager. The fraud occurred at the valuation stage — in the back office, in the preparation and delivery of NAV reports. It did not occur at the point of sale, subscription, or redemption of LP interests. Vantor did not sell, market, or distribute LP interests. Vantor did not make representations to investors. Vantor's client was Ironside (the manager), not the limited partners.
The analogy is instructive: a faulty appraisal by a third-party appraiser does not become securities fraud merely because the appraisal relates to an asset held in a securities portfolio. If a real-estate appraiser fraudulently inflates the value of a property held by a REIT, the REIT's fraud claim against the appraiser is a common-law fraud claim arising from the performance of appraisal services — it is not a securities-fraud claim merely because the inflated appraisal may ultimately have affected the REIT's reported NAV or share price. The same logic applies here. Vantor's fraudulent valuations were delivered in the performance of its contractual duties as fund administrator. The fact that the assets valued happened to be securities (or securities-linked instruments) and the fund vehicles happened to issue LP interests that are themselves securities does not convert Vantor's service-provider fraud into conduct regulable under the Martin Act.
D. Policy Considerations Reinforce Non-Preemption
The Martin Act preemption doctrine exists for a specific and limited purpose: to prevent private plaintiffs from circumventing the legislature's decision to vest exclusive enforcement authority in the New York Attorney General. The concern is that private plaintiffs might repackage what are, in substance, Martin Act claims as common-law fraud claims in order to evade the statute's exclusive-enforcement mechanism and bring claims that depend on the Martin Act's broader-than-common-law standard (e.g., claims that dispense with the scienter requirement). The doctrine does not exist to immunize every person or entity whose work product touches securities portfolios from all common-law fraud claims.
Allowing Martin Act preemption in this context would produce absurd and unjust results. If Vantor's argument were accepted, every fund administrator, pricing service, accounting firm, auditing firm, and back-office service provider that performs services for an investment fund holding securities would be immune from common-law fraud claims — so long as it could show that its fraudulent conduct indirectly affected the value of securities held in the fund or the price at which investors subscribed to or redeemed from the fund. No court has endorsed such a sweeping application of the preemption doctrine, and for good reason: it would effectively eliminate common-law fraud remedies for an entire category of commercial misconduct, not because the legislature intended that result, but because the defendant happens to operate in a corner of the financial services industry that is adjacent to the securities markets.
Moreover, Ironside is not seeking to enforce the Martin Act privately. Ironside is not invoking the Martin Act's broader standard of liability (which does not require scienter). Ironside is not claiming that Vantor violated the Martin Act. Ironside is enforcing longstanding common-law tort duties and express contractual obligations. The Martin Act preemption doctrine has no role to play in this dispute.
E. The Argument Was Improperly Raised for the First Time on Reply
Wholly apart from the merits, Vantor waived the Martin Act preemption argument by failing to raise it in its initial Motion to Dismiss filed on February 28, 2025. The motion to dismiss raised five separate grounds for dismissal, none of which included Martin Act preemption. The argument first appeared in Vantor's reply brief filed April 4, 2025, by which time Ironside had already filed its opposition brief on March 21, 2025, and had no opportunity to address the issue.
It is well settled in the First Department and the Commercial Division that arguments raised for the first time in a reply brief are not properly before the court and should not be considered. See, e.g., Lumbermens Mut. Cas. Co. v. Morse Shoe Co., 218 A.D.2d 624, 626 (1st Dep't 1995) ("Arguments advanced for the first time in reply papers are entitled to no consideration by a court entertaining the underlying motion."); Ritt v. Lenox Hill Hosp., 182 A.D.2d 560, 562 (1st Dep't 1992) (same); see also Commercial Division Rule 18 (requiring that all grounds for relief be stated in the moving papers). The rationale for this rule is fundamental: the opposing party must have an opportunity to respond to every argument raised by the movant. To permit a movant to sandbag the opposing party by introducing new theories of dismissal in reply — after the opposition brief has been filed — would undermine the basic fairness of the briefing process and deprive the court of the benefit of full adversarial briefing.
Vantor made a strategic choice not to raise Martin Act preemption in its initial motion. It did so after deliberation — the motion was prepared by a sophisticated law firm (WDC) and raised five separate grounds for dismissal. The omission of Martin Act preemption was not an oversight; it reflects either a conscious litigation decision or, at best, a failure of diligence that should not be rewarded by permitting the argument to be raised on reply.
If the court is nonetheless inclined to consider the argument, Ironside should be afforded the opportunity to file a sur-reply letter brief addressing the issue. A draft of the proposed sur-reply letter brief has been prepared as of April 9, 2025, and is pending court permission to file. The sur-reply should incorporate the core analysis from Sections V and VI of this memorandum.
VII. COUNTER-ARGUMENTS AND RESPONSES
A. Vantor's Likely Response: The Misvaluations "Affected" Securities Transactions
Vantor may be expected to argue that the overstated NAVs directly caused economic harm in connection with securities transactions. Specifically, Vantor may point to the fact that during the relevant period, 217 investor redemptions were processed at inflated NAV-per-unit prices, resulting in approximately $43.2 million in aggregate overpayments to redeeming investors. Vantor may characterize these redemptions as "sales" of securities (LP interests) that were induced or affected by the fraudulent NAV figures, thereby bringing Ironside's claims within the Martin Act's "in connection with" requirement.
Response: This argument fails for several interconnected reasons.
First, the fraud occurred at the valuation stage, upstream of any redemption. Vantor's fraudulent conduct consisted of delivering inflated NAV figures to Ironside. The misvaluations were made to Ironside in its capacity as the investment manager, not to the redeeming limited partners. Vantor did not communicate NAV figures directly to the LPs. Vantor did not process redemptions. Vantor did not make representations to the LPs in connection with their redemption decisions. The chain of causation between Vantor's misvaluations and the investors' redemption decisions passes through Ironside as an intermediary. This attenuated causal chain does not satisfy the Martin Act's jurisdictional nexus requirement, which demands that the fraudulent conduct be "in connection with" the securities transaction itself.
Second, even if one accepts that the inflated NAVs indirectly affected redemption prices, the relevant inquiry under the preemption doctrine is not whether the fraud affected a securities transaction, but whether the plaintiff's claims are "entirely predicated on" a violation of the Martin Act. As demonstrated in Section VI.B above, Ironside's claims rest on independent common-law and contractual duties. The Martin Act preemption analysis does not turn on the downstream economic consequences of the fraud; it turns on the legal basis of the claims asserted.
Third, the redemptions at issue were processed by Ironside in reliance on Vantor's fraudulent marks. Ironside itself was a victim of the fraud — it relied on Vantor's valuations and, in good faith, processed redemptions at the reported NAV-per-unit figures. Vantor did not itself effect the redemptions or make representations to the LPs. Its role was limited to providing valuation inputs to Ironside. The fact that those inputs were ultimately incorporated into investor capital account statements does not transform Vantor's role from that of a service provider into that of a securities market participant.
Fourth, accepting Vantor's argument would collapse the distinction between direct fraud in the sale of securities and the provision of erroneous professional services that may have downstream effects on securities-related activity. Under Vantor's theory, any accountant, auditor, attorney, or consultant whose work product is incorporated into materials used in connection with securities transactions would be subject to Martin Act preemption. This result has no support in the case law and would effectively eliminate common-law fraud remedies for professional malpractice in the financial services industry.
B. Vantor's Likely Response: LP Interests Are "Securities"
Vantor may also emphasize that limited partnership interests in Funds I, II, and III are "securities" under both federal and state law, and that the Martin Act therefore applies to any fraudulent conduct that affects the value of those interests.
Response: The nature of the LP interests is not disputed. Ironside does not contest that limited partnership interests in hedge funds are securities within the meaning of both the Securities Act of 1933 and the Martin Act. The issue, however, is not whether the LP interests are securities. The issue is whether Vantor's conduct — specifically, the performance of valuation services under a commercial services contract — falls within the Martin Act's regulatory scope. The answer is no.
The Martin Act does not regulate every form of misconduct that tangentially relates to a security. It regulates specific categories of conduct: the offer, sale, purchase, exchange, promotion, advertisement, investment advice, and distribution of securities. Vantor engaged in none of these activities. It performed valuation services. The fact that the assets it valued were securities (or securities-linked instruments) and the fund vehicles whose NAVs it calculated issued securities (LP interests) does not bring its administrative service activities within the Martin Act any more than the fact that a plumber repairs pipes in a building that houses a broker-dealer's office brings the plumber's work within the SEC's jurisdiction.
The distinction is between the nature of the defendant's conduct and the nature of the assets involved. The Martin Act is concerned with the former — specifically, with fraudulent conduct in the marketing, offering, sale, and distribution of securities. It is not an omnibus statute governing all misconduct in the vicinity of securities.
VIII. IMPLICATIONS FOR ORAL ARGUMENT AND SUR-REPLY STRATEGY
In light of the foregoing analysis, the following strategic recommendations are submitted for consideration in connection with the April 14, 2025 oral argument before Justice Torrance and the proposed sur-reply letter brief.
Oral Argument. At oral argument, Samuel Eklund should be prepared to address the Martin Act preemption argument in two stages:
1. Procedural Objection (Threshold). Eklund should first object to the court's consideration of Martin Act preemption on the ground that it was raised for the first time in Vantor's reply brief and is therefore not properly before the court. The objection should cite Lumbermens Mut. Cas. Co. v. Morse Shoe Co., 218 A.D.2d 624, 626 (1st Dep't 1995), and Ritt v. Lenox Hill Hosp., 182 A.D.2d 560, 562 (1st Dep't 1992), as well as Commercial Division Rule 18. Eklund should emphasize that Ironside was deprived of any opportunity to brief this issue in its opposition papers and that permitting Vantor to raise new grounds for dismissal on reply would undermine the fairness and integrity of the briefing process. If the court is inclined to consider the argument, Eklund should request leave to file the sur-reply letter brief.
2. Substantive Response (Alternative). In the alternative, if the court elects to consider the argument on the merits, Eklund should address it briefly and decisively. The key points are:
(a) The Martin Act does not apply to non-securities service-provider disputes. Vantor is a fund administrator, not a broker-dealer, issuer, or securities distributor. Its conduct — performing valuation services under a commercial services contract — is not conduct "in connection with" the issuance, exchange, purchase, sale, promotion, or distribution of securities.
(b) Ironside's claims rest on independent common-law and contractual duties. The fraud, fraudulent concealment, and negligent misrepresentation claims are predicated on the common-law duty not to make knowing misrepresentations, the duty not to conceal material facts, the duty of reasonable care, and the express contractual warranties of FAA § 4.2. These duties exist wholly apart from the Martin Act. Under Assured Guaranty and Kerusa, preemption does not apply.
(c) The conduct at issue is valuation-services fraud, not securities-offering fraud. Vantor's misvaluation of 47 illiquid positions is a breach of its administrative service obligations, not a fraud "in connection with" the offering or sale of LP interests.
(d) No court has ever applied Martin Act preemption in the fund-administration context, and extending the doctrine to this context would produce untenable results, immunizing an entire class of professional service providers from common-law fraud claims.
Sur-Reply Letter Brief. The draft sur-reply letter brief dated April 9, 2025, should be finalized and submitted for court permission to file. The letter brief should be concise (no more than five pages, consistent with Commercial Division practice for letter applications) and should incorporate the core analysis from Sections V and VI of this memorandum. It should lead with the procedural waiver argument and then address the merits in the alternative, with pinpoint citations to the authorities discussed herein.
Bench Memo. The bench memo being prepared by Yuki Nakamura (target date: April 10, 2025) should include a dedicated section on the Martin Act preemption issue, with pinpoint citations from this memorandum and anticipated questions from the court on this topic. The bench memo should anticipate that Justice Torrance may ask: (i) whether the Martin Act has ever been applied to a fund administrator; (ii) how the "in connection with" requirement is to be applied when the fraudulent conduct has downstream effects on securities transactions; and (iii) whether the economic loss doctrine (one of Vantor's original MTD arguments) moots or overlaps with the preemption analysis.
IX. CONCLUSION
The Martin Act preemption argument raised by Vantor in its April 4, 2025 reply brief is meritless and was procedurally improper. It should not succeed.
On the merits: The Martin Act regulates fraud in connection with the offering, sale, purchase, exchange, promotion, and distribution of securities. It does not regulate the performance of back-office valuation services by a fund administrator under a commercial services contract. Vantor is a fund administrator, not a broker-dealer, issuer, or securities distributor. Its systematic misvaluation of 47 illiquid credit and structured-product positions across 11 quarters — causing $287 million in aggregate overvaluation, including a peak single-quarter overvaluation of $52.3 million in Q4 2022 — constitutes common-law fraud, fraudulent concealment, and negligent misrepresentation, as well as breach of the express contractual warranties in FAA § 4.2. It does not constitute conduct "in connection with" the issuance, exchange, purchase, sale, promotion, or distribution of securities within the meaning of the Martin Act. Ironside's fraud-based claims rest on independent common-law duties and contractual obligations that exist wholly apart from the Martin Act. Under the governing standard of Assured Guaranty (UK) Ltd. v. Thackeray Asset Management, 18 N.Y.3d 341 (2011), and Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. P'ship, 12 A.D.3d 236 (1st Dep't 2004), preemption does not apply.
On procedure: The argument was waived by its absence from Vantor's February 28, 2025 Motion to Dismiss. It was raised for the first time in Vantor's reply brief filed April 4, 2025, after Ironside had already filed its opposition brief on March 21, 2025. Arguments raised for the first time on reply are not properly before the court and should not be considered. If the court is inclined to consider the argument, Ironside should be afforded the opportunity to file a sur-reply letter brief.
Recommendation: Address the Martin Act preemption argument in both the sur-reply letter brief and at oral argument on April 14, 2025. There is a high degree of confidence that this argument will not succeed. The argument appears to be an afterthought — it was not raised in the initial motion, is unsupported by any authority in the fund-administration context, and is inconsistent with the clear direction of the appellate case law, which has progressively narrowed the scope of Martin Act preemption to claims that lack an independent common-law foundation.
Please advise if any additional research or analysis is needed in advance of the April 10, 2025 bench memo deadline.
APPENDIX: KEY AUTHORITIES
The following table organizes the key authorities by proposition for use in the sur-reply letter brief and bench memo. Pinpoint citations are provided where available.
1. Martin Act Does Not Create a Private Right of Action
2. Common-Law Fraud Claims Survive Martin Act Preemption When They Rest on Independent Duties
3. Martin Act Applies Only to Conduct "In Connection With" Securities Transactions
4. Arguments Raised for the First Time on Reply Are Waived
5. Fund Administrators Are Not Securities Market Participants for Martin Act Purposes
This memorandum was prepared on an expedited basis for use in connection with the pending Motion to Dismiss in Ironside Capital Management LP v. Vantor Holdings Corp., Index No. 650312/2025, and is subject to revision as additional authorities are identified or as the litigation develops. All opinions expressed herein are preliminary and based on the facts as presently understood.
Case / Authority | Citation | Key Holding / Relevance
CPC Int'l Inc. v. Westmark Holdings. | 70 N.Y.2d 268, 276–77 (1987) | Court of Appeals definitively held that the Martin Act does not create a private right of action; enforcement rests exclusively with the Attorney General.
Assured Guaranty (UK) Ltd. v. Brightwater Trust Bank Inv. Mgmt. Inc. | 18 N.Y.3d 341, 350 (2011) | Reaffirmed that there is no private right of action under the Martin Act; distinguished between private Martin Act claims (barred) and common-law claims resting on independent duties (not preempted).
Case / Authority | Citation | Key Holding / Relevance
Assured Guaranty (UK) Ltd. v. Brightwater Trust Bank Inv. Mgmt. Inc. | 18 N.Y.3d 341, 352–53 (2011) | Common-law fraud claims are not preempted where they "are not entirely dependent on the Martin Act for their viability" and rest on independent common-law duties such as the duty not to make knowing misrepresentations of material fact.
Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. P'ship | 12 A.D.3d 236, 243 (1st Dep't 2004) | Martin Act preempts common-law claims "only where the claims are entirely predicated on a violation of the Martin Act" and do not state a "viable common-law cause of action independent of the statute."
Caboara v. Babylon Cove Dev., LLC | 54 A.D.3d 79, 85–87 (2d Dep't 2008) | Narrowly applied preemption; held that common-law fraud claims arising from misrepresentations in cooperative apartment sales were not preempted where they rested on independent common-law fraud elements.
Scalp & Blade Inc. v. Advest Grp., Inc. | 309 A.D.2d 219, 224–25 (4th Dep't 2003) | Distinguished claims arising from arm's-length contractual relationships from securities-offering fraud; supports the principle that Martin Act preemption does not reach disputes grounded in contractual obligations between sophisticated parties.
Case / Authority | Citation | Key Holding / Relevance
N.Y. Gen. Bus. Law § 352 | N.Y. Gen. Bus. Law § 352 | Authorizes the AG to investigate "fraudulent practices" in the "issuance, exchange, purchase, sale, promotion, negotiation, advertisement, investment advice or distribution" of securities.
N.Y. Gen. Bus. Law § 352-c | N.Y. Gen. Bus. Law § 352-c | Prohibits fraud, deception, concealment, and false pretense "in connection with the sale or purchase of securities."
N.Y. Gen. Bus. Law § 352-e | N.Y. Gen. Bus. Law § 352-e | Governs securities offerings; defines "securities" for purposes of the statute.
State v. Rachmani Corp. | 71 N.Y.2d 718, 726 (1988) | Discusses broad scope of the Martin Act in AG enforcement actions, but scope remains tethered to securities transactions.
People v. Federated Radio Corp. | 244 N.Y. 33, 38–39 (1926) | Early Court of Appeals decision establishing the Martin Act's prophylactic purpose in connection with securities offerings.
Case / Authority | Citation | Key Holding / Relevance
Lumbermens Mut. Cas. Co. v. Morse Shoe Co. | 218 A.D.2d 624, 626 (1st Dep't 1995) | "Arguments advanced for the first time in reply papers are entitled to no consideration by a court entertaining the underlying motion."
Ritt v. Lenox Hill Hosp. | 182 A.D.2d 560, 562 (1st Dep't 1992) | Same principle; new arguments on reply are improperly raised and should not be considered.
Commercial Division Rule 18 | 22 NYCRR § 202.70, Rule 18 | Requires that all grounds for relief be stated in the moving papers; supports the procedural objection to Vantor's new argument.
Azzopardi v. Am. Blower Corp. | 192 A.D.2d 453, 454 (1st Dep't 1993) | Reaffirmed that issues not raised in the initial motion papers are not properly before the court on reply.
Case / Authority | Citation | Key Holding / Relevance
No directly on-point authority identified. | — | No reported New York decision has applied Martin Act preemption to a fund administrator's provision of valuation or NAV-calculation services.
Assured Guaranty (UK) Ltd. v. Brightwater Trust Bank Inv. Mgmt. Inc. (by analogy) | 18 N.Y.3d 341 (2011) | Although the defendant in Assured Guaranty was an investment manager (not a fund administrator), the Court's reasoning — that common-law claims resting on independent duties are not preempted — supports the argument that service-provider fraud outside the securities-offering context is not within the Martin Act's scope.
Scalp & Blade Inc. v. Advest Grp., Inc. (by extension) | 309 A.D.2d 219 (4th Dep't 2003) | Supports the distinction between securities-market participants and parties engaged in arm's-length contractual relationships; fund administrators providing back-office services fall squarely in the latter category.
General principle: The Martin Act targets fraud in the securities-distribution chain. | — | Fund administrators are not in the securities-distribution chain. They do not offer, sell, distribute, promote, or market securities. Their services are administrative and operational in nature. By analogy, third-party appraisers, auditors, and other professional service providers whose work product relates to securities-portfolio assets have not been subjected to Martin Act preemption where their claims arise from the performance of contractual duties rather than from securities transactions.