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SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK — COMMERCIAL DIVISION

DRIFTWOOD ABSOLUTE RETURN FUND LTD.,

Plaintiff,

— against —

MERIDIAN PRIME CAPITAL LLC, VIKTOR ANDREYEVICH ZELENKO, IRENE MARIA CARVALLO, and DMITRI PAVLOVICH SOBCHAK,

Defendants.

Index No. 654321/2023

Hon. Eleanor Vasquez, J.S.C.

NOTICE OF MOTION FOR DEFAULT JUDGMENT AGAINST DEFENDANT MERIDIAN PRIME CAPITAL LLC AND FOR SUMMARY JUDGMENT AGAINST DEFENDANTS VIKTOR ANDREYEVICH ZELENKO, IRENE MARIA CARVALLO, AND DMITRI PAVLOVICH SOBCHAK, WITH SUPPORTING MEMORANDUM OF LAW

December 4, 2023

Calderwood & Harkness LLP 200 Park Avenue, 42nd Floor New York, New York 10166 Telephone: (212) 558-4000 Facsimile: (212) 558-3588

Priya Anand, Esq. Hannah Brinkley, Esq.

Attorneys for Plaintiff Driftwood Absolute Return Fund Ltd.

PART ONE: NOTICE OF MOTION

PLEASE TAKE NOTICE that upon the accompanying Memorandum of Law in Support; the Affirmation of Priya Anand, Esq., with Exhibits A through R annexed thereto; the Affidavit of Sandra Hu, Chief Operating Officer and Chief Compliance Officer of Driftwood Capital Management LP; the Expert Report of Natasha Everett, CPA, CFF, of Kelvantis Forensic Advisors LLC, dated November 20, 2023 (the "Fund Tracing Report"); and all prior proceedings and papers in this action, Plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or "Plaintiff") will move this Court at the Courthouse located at 60 Centre Street, New York, New York, in the courtroom of the Honorable Eleanor Vasquez, J.S.C., or as otherwise directed by the Court, on a date to be set by the Court following the lapse of the Court's December 15, 2023 deadline for the appearance of substitute counsel on behalf of the Defendants, for the following relief:

1. Default Judgment Against Defendant Meridian Prime Capital LLC. Pursuant to CPLR § 3215, entry of default judgment against Defendant Meridian Prime Capital LLC ("Meridian Prime") for failure to appear through counsel or otherwise defend this action following the effective withdrawal of Whitmore & Gaines LLP on November 13, 2023, and the expiration of the Court's order setting December 15, 2023 as the deadline for Meridian Prime to retain and appear through substitute counsel. This motion is filed on December 4, 2023, in advance of the December 15, 2023 deadline, but Plaintiff respectfully requests that the Court consider and decide this motion on or after the lapse of that deadline, by which time, absent the appearance of new counsel, Meridian Prime's default will be complete. As a New York limited liability company, Meridian Prime cannot appear pro se in this Court, and in the absence of counsel, has no capacity to defend this action.

2. Summary Judgment Against Individual Defendants. Pursuant to CPLR § 3212, entry of summary judgment against Defendants Viktor Andreyevich Zelenko ("Zelenko"), Irene Maria Carvallo ("Carvallo"), and Dmitri Pavlovich Sobchak ("Sobchak") on Plaintiff's claims for common-law fraud, conversion, and alter ego/veil-piercing liability, on the ground that there is no genuine issue of material fact and Plaintiff is entitled to judgment as a matter of law on the basis of the overwhelming and undisputed documentary and forensic evidence in the record.

3. Entry of Judgment in the Total Amount of $58,900,000. Entry of a judgment in favor of Plaintiff and against all Defendants, jointly and severally, in the total amount of Fifty-Eight Million Nine Hundred Thousand Dollars ($58,900,000), comprising:

(a) Compensatory damages in the amount of $47,300,000, representing the total funds misappropriated by Defendants from January 2022 through July 2023;

(b) Prejudgment interest in the amount of $9,460,000, calculated at the statutory rate of 9% per annum under CPLR § 5004 on a weighted-average basis from January 1, 2022 through the anticipated date of judgment;

(c) Attorneys' fees and costs in the amount of $2,140,000, recoverable pursuant to the contractual fee-shifting provision contained in Section 11 of the Schedule to the ISDA Master Agreement (2002 form) dated December 15, 2021 between Plaintiff and Meridian Prime; and

4. Other and Further Relief. Such other and further relief as this Court deems just and proper.

Supporting Papers

The following papers are submitted in support of this motion:

(i) Memorandum of Law in Support of Plaintiff's Motion for Default Judgment and Summary Judgment (annexed hereto as Part Two);

(ii) Affirmation of Priya Anand, Esq., with Exhibits A through R (annexed hereto as Part Three);

(iii) Affidavit of Sandra Hu, COO/CCO of Driftwood Capital Management LP (annexed hereto as Part Four);

(iv) Expert Report of Natasha Everett, CPA, CFF, of Kelvantis Forensic Advisors LLC, entitled "Fund Tracing Report: Driftwood Absolute Return Fund Ltd. — Meridian Prime Capital LLC," dated November 20, 2023 (submitted as Exhibit K to the Anand Affirmation); and

(v) Proposed Judgment (annexed hereto as Part Five).

The Exhibits to the Affirmation of Priya Anand, Esq. include, without limitation, the following:

• Exhibit A: ISDA Master Agreement (2002 form) dated December 15, 2021 between Driftwood Absolute Return Fund Ltd. and Meridian Prime Capital LLC

• Exhibit B: Credit Support Annex dated December 15, 2021

• Exhibit C: Sample fabricated trade confirmations

• Exhibit D: Monthly account statements issued by Meridian Prime (January 2022 – June 2023)

• Exhibit E: Bridgemont Bank NA balance confirmation letter dated July 2023, showing client account balances of $3.2 million

• Exhibit F: Wire transfer records documenting diversions to Palmetto International Bank Ltd. in the name of Stellaris Trading Ltd.

• Exhibit G: Wire transfer records documenting transfers to the Zelenko Family Irrevocable Trust via Marlowe Asset Management Trust Company of Delaware

• Exhibit H: Property records for 425 East 58th Street, Apt. 32F, New York, NY 10022 and 17 Wooster Street, Unit 3, New York, NY 10013 (Castellan Realty Holdings LLC)

• Exhibit I: Castellan Realty Holdings LLC formation documents (Delaware)

• Exhibit J: Stellaris Trading Ltd. BVI registration documents (Registration No. 2043871)

• Exhibit K: Kelvantis Forensic Advisors LLC Fund Tracing Report dated November 20, 2023

• Exhibit L: Calderwood & Harkness LLP billing records (submitted under seal)

• Exhibit M: Meridian Prime's purported NFA registration documentation (shown to be fraudulent/lapsed)

• Exhibit N: FINRA disciplinary record for Viktor Zelenko (2017 censure and fine at Clarendon Markets LLC)

• Exhibit O: Defendants' answer dated September 5, 2023

• Exhibit P: Defendants' deficient document production (October 6, 2023)

• Exhibit Q: Order granting withdrawal of Whitmore & Gaines LLP dated November 13, 2023

• Exhibit R: Court order setting December 15, 2023 deadline for appearance of new counsel

CALDERWOOD & HARKNESS LLP

By: ________

Priya Anand, Esq. Hannah Brinkley, Esq. 200 Park Avenue, 42nd Floor New York, New York 10166 Telephone: (212) 558-4000 Facsimile: (212) 558-3588

Attorneys for Plaintiff Driftwood Absolute Return Fund Ltd.

PART TWO: MEMORANDUM OF LAW IN SUPPORT

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK — COMMERCIAL DIVISION

DRIFTWOOD ABSOLUTE RETURN FUND LTD.,

Plaintiff,

— against —

MERIDIAN PRIME CAPITAL LLC, VIKTOR ANDREYEVICH ZELENKO, IRENE MARIA CARVALLO, and DMITRI PAVLOVICH SOBCHAK,

Defendants.

Index No. 654321/2023

Hon. Eleanor Vasquez, J.S.C.

MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT AGAINST DEFENDANT MERIDIAN PRIME CAPITAL LLC AND FOR SUMMARY JUDGMENT AGAINST DEFENDANTS VIKTOR ANDREYEVICH ZELENKO, IRENE MARIA CARVALLO, AND DMITRI PAVLOVICH SOBCHAK

I. PRELIMINARY STATEMENT

Plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or "Plaintiff"), a Cayman Islands-domiciled hedge fund managed by Driftwood Capital Management LP ("Driftwood Management"), respectfully submits this Memorandum of Law in support of its motion for entry of default judgment against Defendant Meridian Prime Capital LLC ("Meridian Prime") pursuant to CPLR § 3215, and for summary judgment against the individual Defendants Viktor Andreyevich Zelenko ("Zelenko"), Irene Maria Carvallo ("Carvallo"), and Dmitri Pavlovich Sobchak ("Sobchak") pursuant to CPLR § 3212, on Plaintiff's claims for common-law fraud, conversion, and alter ego/veil-piercing liability.

This case involves a brazen and systematic fraud scheme perpetrated by Meridian Prime and its principals over a period of approximately eighteen months, from January 2022 through July 2023. Meridian Prime, a purported New York-based foreign exchange prime brokerage, held itself out as a legitimate institutional FX counterparty. In that capacity, it entered into an ISDA Master Agreement (2002 form) and Credit Support Annex with Driftwood, pursuant to which Driftwood posted substantial margin deposits and entrusted Meridian Prime with the execution and settlement of FX forwards and vanilla FX options trades in major currency pairs, primarily EUR/USD, GBP/USD, and USD/JPY.

From the outset of trading in January 2022, Defendants embarked on a coordinated scheme to defraud Driftwood. They fabricated trade confirmations purporting to show the execution of FX transactions that were never placed. They generated falsified monthly account statements that inflated the portfolio's value, reflecting fictitious trading profits of $14.8 million and culminating in a fabricated account balance of $52.1 million as of June 30, 2023. While issuing these fraudulent documents to maintain the illusion of a functioning trading relationship, Defendants systematically misappropriated approximately $47.3 million — comprising $38.5 million in cumulative margin deposits and $8.8 million in legitimate FX settlement proceeds that Meridian Prime intercepted and diverted — funneling the stolen funds to offshore shell companies, personal trusts, real estate investments, and personal expenditures.

The fraud was uncovered on July 18, 2023, when Driftwood's Chief Operating Officer and Chief Compliance Officer, Sandra Hu, initiated a routine margin reconciliation and sought direct confirmation of Meridian Prime's account balances from Bridgemont Bank NA, the custodian bank. Bridgemont's response revealed that the total client account balances held in Meridian Prime's name were a mere $3.2 million — a $48.9 million discrepancy from the $52.1 million balance reported on Meridian Prime's most recent fabricated statement. The magnitude of the shortfall left no doubt that Defendants had been operating a sham enterprise and systematically looting investor funds.

Following the filing of the Verified Complaint on August 7, 2023, and the granting of a temporary restraining order and order of attachment on August 8, 2023, Defendants initially appeared through the law firm of Whitmore & Gaines LLP. That representation was short-lived. On October 30, 2023, Whitmore & Gaines moved to withdraw, citing non-payment of legal fees and a complete breakdown in the attorney-client relationship. The Court granted the withdrawal effective November 13, 2023, and set a deadline of December 15, 2023 for Defendants to retain substitute counsel.

As of the date of this filing, December 4, 2023, no counsel has appeared on behalf of Meridian Prime or any individual Defendant. No substitute counsel has entered a notice of appearance. No opposition papers have been filed in response to Plaintiff's pending motion to compel and for sanctions, filed on October 20, 2023. No Defendant has engaged in any defense of this action since the withdrawal of Whitmore & Gaines. Meridian Prime, as a New York limited liability company, cannot appear pro se in this Court and is therefore in complete default. The individual Defendants, while theoretically capable of proceeding pro se, have made no effort whatsoever to do so.

The record before this Court is overwhelming and undisputed. The fund tracing report prepared by Natasha Everett, CPA, CFF, of Kelvantis Forensic Advisors LLC, dated November 20, 2023, meticulously traces the $47.3 million in misappropriated funds and confirms the full scope of the diversion: $18.6 million was transferred to offshore accounts at Palmetto International Bank Ltd. in Nassau, Bahamas, held in the name of Stellaris Trading Ltd., a British Virgin Islands shell entity controlled by Zelenko; $12.4 million was transferred to the Zelenko Family Irrevocable Trust through Marlowe Asset Management Trust Company of Delaware; $8.0 million was used to purchase luxury real estate in Manhattan through Castellan Realty Holdings LLC, another Zelenko-controlled entity; $5.1 million was dissipated through cash withdrawals and personal expenditures by the individual Defendants; and $3.2 million remained in Meridian Prime's operating accounts at Bridgemont Bank NA at the time of the fraud's discovery. The total — $18.6 million plus $12.4 million plus $8.0 million plus $5.1 million plus $3.2 million — equals $47.3 million, accounting for the full amount of Driftwood's losses.

For the reasons set forth below, default judgment against Meridian Prime and summary judgment against the individual Defendants are warranted, and this Court should enter judgment in favor of Plaintiff in the total amount of $58,900,000, comprising $47,300,000 in compensatory damages, $9,460,000 in prejudgment interest at 9% per annum under CPLR § 5004, and $2,140,000 in attorneys' fees and costs recoverable under the contractual fee-shifting provision of the ISDA Master Agreement.

II. STATEMENT OF FACTS

The following facts are drawn from the Verified Complaint, the Affirmation of Priya Anand, Esq., and attached exhibits, the Affidavit of Sandra Hu, and the Expert Report of Natasha Everett, CPA, CFF. As set forth below, these facts are undisputed on the present record, as Defendants have failed to offer any controverting evidence.

A. The Parties

1. Plaintiff Driftwood Absolute Return Fund Ltd. Plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or the "Fund") is an exempted company incorporated under the laws of the Cayman Islands, registered with the Cayman Islands Monetary Authority under Registration Number MC-349217. Driftwood's registered address is c/o Hargrove Corporate Services Ltd., 4th Floor, Windward House, 94 Elgin Avenue, George Town, Grand Cayman KY1-1104, Cayman Islands. (Hu Aff. ¶ 3.)

Driftwood is managed by Driftwood Capital Management LP ("Driftwood Management"), a Delaware limited partnership (Delaware File No. 7831294), with its principal offices at 590 Madison Avenue, 28th Floor, New York, New York 10022. The general partner of Driftwood Management is Driftwood Capital Management GP LLC, a Delaware limited liability company. (Hu Aff. ¶ 4.)

As of June 30, 2023, Driftwood had approximately $1.82 billion in assets under management. The Fund employs a multi-strategy absolute return approach, with significant allocations to global macro and FX volatility strategies. The Fund's Chief Investment Officer is Marcus Ellison, and its Chief Operating Officer and Chief Compliance Officer is Sandra Hu, who has served in those capacities since the Fund's inception. (Hu Aff. ¶¶ 5–6.)

Driftwood's operational infrastructure includes the following key service providers: the Fund's administrator is Pinnacle Fund Services (Cayman) Ltd.; the Fund's auditor is Graystone & Whitfield LLP; and the Fund's prime broker for equities and rates products is Halcyon Securities Inc. The FX component of the Fund's investment strategy was, during the relevant period, executed through the trading relationship with Meridian Prime that is the subject of this action. (Hu Aff. ¶¶ 7–8.)

2. Defendant Meridian Prime Capital LLC. Defendant Meridian Prime Capital LLC ("Meridian Prime") is a New York limited liability company formed on March 14, 2019, with Employer Identification Number 84-3217659. Meridian Prime's registered address is 140 Broadway, Suite 3510, New York, New York 10005. (Anand Aff. ¶ 12; Ex. I.)

Meridian Prime purported to operate as an FX prime brokerage, offering institutional foreign exchange forwards, options, and spot execution services to hedge funds and other institutional counterparties. In connection with its solicitation of Driftwood's business, Meridian Prime represented that it was registered with the National Futures Association ("NFA") as a swap dealer. As detailed below, this registration was subsequently determined to be either fraudulent or lapsed, and in either event, Meridian Prime was not lawfully authorized to conduct the business it purported to conduct. (Anand Aff. ¶ 13; Ex. M.)

The Managing Member and Chief Executive Officer of Meridian Prime was Defendant Zelenko. Defendant Carvallo served as Chief Financial Officer, and Defendant Sobchak served as Head of FX Trading. Zelenko, Carvallo, and Sobchak were the only officers and principals of Meridian Prime and collectively exercised complete control over the entity's operations, finances, and communications. (Anand Aff. ¶ 14.)

3. Individual Defendant Viktor Andreyevich Zelenko. Defendant Viktor Andreyevich Zelenko is a United States citizen (naturalized), born on June 3, 1978. His residence is located at 425 East 58th Street, Apt. 32F, New York, New York 10022 — a luxury condominium unit that, as detailed below, was purchased with $4.85 million in funds misappropriated from Driftwood through the entity Castellan Realty Holdings LLC. (Anand Aff. ¶ 15; Ex. H.)

Before founding Meridian Prime, Zelenko was employed as a foreign exchange trader at Bridgemont Bank NA from 2006 to 2015, and subsequently at Clarendon Markets LLC from 2015 to 2018. In 2017, while at Clarendon Markets, Zelenko was the subject of a disciplinary action by the Financial Industry Regulatory Authority ("FINRA"), resulting in a censure and monetary fine for unauthorized trading. (Anand Aff. ¶ 16; Ex. N.) This prior disciplinary history is relevant to the question of scienter and reflects a pattern of disregard for fiduciary obligations and regulatory requirements that persisted and escalated into the wholesale fraud at issue in this action.

Zelenko was the sole Managing Member and control person of Meridian Prime. As set forth below, he used the entity as his personal instrumentality, freely commingling Meridian Prime's funds with his personal accounts, family trust, and shell entities, and operating the LLC without regard to any corporate formalities, capitalization requirements, or legal separateness. (Anand Aff. ¶¶ 17–18.)

4. Individual Defendant Irene Maria Carvallo. Defendant Irene Maria Carvallo is a United States citizen, born on November 17, 1982. Her residence is located at 88 Greenwich Street, Apt. 2704, New York, New York 10006. (Anand Aff. ¶ 19.)

Carvallo is a Certified Public Accountant. Before joining Meridian Prime, she was employed as a senior accountant at Ledgerfield & Associates PC, a New York accounting firm. She served as Chief Financial Officer of Meridian Prime from the entity's inception in 2019. In that capacity, she had direct responsibility for and involvement in the preparation and distribution of the fabricated monthly account statements that were the primary vehicle through which Defendants concealed the ongoing misappropriation of Driftwood's funds. Carvallo's professional training and credentials as a CPA make her participation in the fabrication of financial records all the more egregious, as she possessed the expertise necessary to construct statements that bore the appearance of legitimacy and thereby sustained the fraud over an extended period. (Anand Aff. ¶¶ 20–21; Hu Aff. ¶ 22.)

5. Individual Defendant Dmitri Pavlovich Sobchak. Defendant Dmitri Pavlovich Sobchak is a Ukrainian national and United States permanent resident, born on February 22, 1985. His residence is located at 301 West 57th Street, Apt. 18B, New York, New York 10019. (Anand Aff. ¶ 22.)

Before joining Meridian Prime, Sobchak was employed as an FX desk analyst at Bridgemont Bank NA, where he had been recruited by and worked under Zelenko. In 2019, Zelenko brought Sobchak with him to Meridian Prime, where Sobchak served as Head of FX Trading. In that role, Sobchak was directly responsible for fabricating trade confirmations purporting to show the execution of FX forwards and options transactions that were never actually placed. Sobchak was also directly involved in executing the unauthorized wire transfers through which Driftwood's funds were diverted to accounts controlled by Zelenko and other Defendants. (Anand Aff. ¶¶ 23–24.)

B. The ISDA Master Agreement and Credit Support Annex

On December 15, 2021, Driftwood and Meridian Prime executed an ISDA Master Agreement, utilizing the 2002 form, to govern the parties' FX forward and vanilla FX options trading relationship. The ISDA Master Agreement established the contractual framework for the execution, confirmation, and settlement of transactions in the major currency pairs EUR/USD, GBP/USD, and USD/JPY. A true and correct copy of the ISDA Master Agreement is annexed to the Anand Affirmation as Exhibit A. (Anand Aff. ¶ 26; Ex. A.)

Simultaneously with the execution of the ISDA Master Agreement, the parties entered into a Credit Support Annex ("CSA"), which required Driftwood to post an initial margin of $12.0 million in cash. The CSA further provided for variation margin calls based on mark-to-market valuations of the outstanding positions, which Meridian Prime was obligated to calculate and communicate to Driftwood on a periodic basis. A true and correct copy of the CSA is annexed to the Anand Affirmation as Exhibit B. (Anand Aff. ¶ 27; Ex. B.)

Of particular significance to this motion, Section 11 of the Schedule to the ISDA Master Agreement contains a fee-shifting provision that entitles the prevailing party in any action arising out of or relating to the Agreement to recover its reasonable attorneys' fees and costs from the non-prevailing party. (Anand Aff. ¶ 28; Ex. A, Schedule, § 11.) This provision is the contractual basis for Plaintiff's claim for attorneys' fees and costs of $2,140,000, as described more fully in Section III.D below.

C. The Fraud Scheme (January 2022 – July 2023)

Beginning in or about January 2022, shortly after the commencement of the trading relationship, Meridian Prime and its principals embarked upon a systematic and premeditated scheme to defraud Driftwood. The fraud operated along several interconnected tracks, each designed to sustain the illusion of a legitimate trading relationship while Defendants siphoned funds for their own benefit.

Fabricated Trade Confirmations. Defendant Sobchak, acting at the direction of Defendant Zelenko, generated fabricated trade confirmations that purported to reflect the execution of FX forwards and options transactions in the name of Driftwood. These confirmations were formatted to resemble legitimate trade documentation and contained fictitious trade details, including notional amounts, execution prices, settlement dates, and counterparty information. In reality, the trades reflected in these confirmations were never placed, never executed, and never existed. The fabricated confirmations were transmitted to Driftwood's operations team, which processed them in the ordinary course of business. (Anand Aff. ¶¶ 30–32; Ex. C; Hu Aff. ¶¶ 17–18.)

Falsified Monthly Account Statements. Defendant Carvallo, utilizing her accounting expertise in her capacity as CFO of Meridian Prime, personally prepared and distributed falsified monthly account statements to Driftwood. These statements purported to show the positions, mark-to-market valuations, and trading activity of Driftwood's account at Meridian Prime. Over the course of the fraud period, the fabricated statements reflected purported trading profits of approximately $14.8 million in addition to the margin deposits actually made by Driftwood. The last fabricated statement, dated June 30, 2023, reflected a purported total account balance of $52.1 million. (Anand Aff. ¶¶ 33–35; Ex. D; Hu Aff. ¶¶ 19–21.)

Systematic Misappropriation. While maintaining the fiction of profitable trading, Defendants diverted Driftwood's margin deposits and FX settlement proceeds to accounts controlled by Defendants for personal enrichment. During the period from January 2022 through July 2023, Driftwood deposited cumulative margin of $38.5 million into accounts at Bridgemont Bank NA designated for Meridian Prime's custody. In addition, $8.8 million in legitimate FX settlement proceeds — funds that were due and payable to Driftwood in connection with actual FX transactions settled through the banking system — were intercepted and diverted by Meridian Prime before reaching Driftwood's account. The total funds misappropriated by Defendants amounted to $47.3 million ($38.5 million in margin deposits plus $8.8 million in diverted settlement proceeds). (Anand Aff. ¶¶ 36–38; Hu Aff. ¶¶ 12–15; Ex. K, Kelvantis Report at 8–12.)

D. Breakdown of Fund Diversion

The Kelvantis Forensic Advisors fund tracing report provides a comprehensive accounting of the disposition of the $47.3 million in misappropriated funds. The tracing analysis, which is based on a review of wire transfer records, bank statements, property records, corporate formation documents, and other documentary evidence, identifies the following five categories of diversion:

1. Offshore Transfers to Stellaris Trading Ltd.: $18.6 million. Approximately $18.6 million was transferred from Meridian Prime's accounts at Bridgemont Bank NA to accounts at Palmetto International Bank Ltd., located at 302 Bay Street, Nassau, Bahamas, held in the name of Stellaris Trading Ltd. Stellaris Trading Ltd. is a British Virgin Islands business company, Registration No. 2043871, which the fund tracing report identifies as a shell entity controlled by Zelenko. Stellaris has no operations, no employees, no legitimate business purpose, and no apparent activity other than the receipt of funds diverted from Meridian Prime. The transfer records documenting these diversions are annexed to the Anand Affirmation as Exhibit F. (Anand Aff. ¶ 40; Exs. F, J; Ex. K, Kelvantis Report at 13–18.)

2. Transfers to the Zelenko Family Irrevocable Trust: $12.4 million. Approximately $12.4 million was transferred from Meridian Prime to the Zelenko Family Irrevocable Trust, Tax Identification Number 86-6092411, established on April 8, 2021. The transfers were routed through Marlowe Asset Management Trust Company of Delaware, located at 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801, which serves as corporate trustee. The timing of the trust's formation — predating the execution of the ISDA Master Agreement by approximately eight months — suggests that the trust was created in anticipation of the fraud scheme, providing Zelenko with a vehicle to shelter misappropriated funds from creditors. The wire transfer records documenting these transfers are annexed to the Anand Affirmation as Exhibit G. (Anand Aff. ¶ 41; Ex. G; Ex. K, Kelvantis Report at 19–22.)

3. Real Estate Purchases Through Castellan Realty Holdings LLC: $8.0 million. Approximately $8.0 million was used to purchase two Manhattan real estate properties through Castellan Realty Holdings LLC, a Delaware limited liability company (EIN 87-1548203) that the fund tracing report identifies as controlled by Zelenko. Castellan Realty's registered agent address corresponds to Zelenko's residential address. The two properties are:

(a) A luxury condominium located at 425 East 58th Street, Apt. 32F, New York, New York 10022, purchased in June 2022 for $4.85 million. This is the unit that Zelenko currently occupies as his primary residence. (Anand Aff. ¶ 42(a); Ex. H.)

(b) A commercial property located at 17 Wooster Street, Unit 3, New York, New York 10013, purchased in September 2022 for $3.15 million. (Anand Aff. ¶ 42(b); Ex. H.)

The property records and Castellan Realty's formation documents are annexed to the Anand Affirmation as Exhibits H and I, respectively. (Ex. K, Kelvantis Report at 23–26.)

4. Cash Withdrawals and Personal Expenditures: $5.1 million. Approximately $5.1 million was dissipated through cash withdrawals and personal expenditures made by Zelenko, Carvallo, and Sobchak. The fund tracing report documents these expenditures, which include luxury goods, travel, vehicle purchases, and other personal consumption. (Anand Aff. ¶ 43; Ex. K, Kelvantis Report at 27–30.)

5. Funds Retained in Meridian Prime's Accounts: $3.2 million. Approximately $3.2 million remained in Meridian Prime's operating accounts at Bridgemont Bank NA (383 Madison Avenue, New York, New York 10179) at the time the fraud was discovered and is currently subject to the Court's preliminary injunction and order of attachment. (Anand Aff. ¶ 44; Ex. E; Ex. K, Kelvantis Report at 31.)

Total. The five categories of diversion sum to the total misappropriation: $18.6 million + $12.4 million + $8.0 million + $5.1 million + $3.2 million = $47.3 million. This figure is consistent across the Kelvantis Forensic Advisors fund tracing report, the Bridgemont Bank NA account records, the wire transfer documentation, and the Affidavit of Sandra Hu. (Ex. K, Kelvantis Report at 32.)

E. Discovery of the Fraud

On July 18, 2023, Driftwood's COO Sandra Hu initiated what she describes as a routine margin reconciliation — a periodic operational review conducted as part of Driftwood's internal controls. In connection with this reconciliation, Hu contacted Bridgemont Bank NA directly to request confirmation of Meridian Prime's account balances. (Hu Aff. ¶¶ 23–25.)

The response from Bridgemont Bank NA revealed that the total client account balances held in Meridian Prime's name at Bridgemont were $3.2 million. This figure stood in stark contrast to the $52.1 million purported account balance reflected on Meridian Prime's most recent monthly account statement dated June 30, 2023 — a discrepancy of $48.9 million. (Hu Aff. ¶¶ 26–27; Anand Aff. ¶ 46; Ex. E.)

Upon discovering this discrepancy, Hu immediately notified CIO Marcus Ellison and the Board of Directors of Driftwood. An emergency board meeting was convened on July 21, 2023, at which the board authorized the engagement of litigation counsel and the pursuit of all available legal remedies. (Hu Aff. ¶¶ 28–30.) On July 25, 2023, Driftwood retained Calderwood & Harkness LLP to investigate the fraud and pursue recovery of the misappropriated funds. (Anand Aff. ¶ 48.)

Simultaneously, Driftwood took steps to disclose the impact of the fraud to its investors. In coordination with Cayman Islands counsel Overton & Locke LLP (lead partner Catherine Overton) and the Fund's administrator Pinnacle Fund Services (Cayman) Ltd., Driftwood issued an investor communication disclosing the impact of the fraud on the Fund's net asset value and the steps being taken to pursue recovery. (Hu Aff. ¶¶ 31–33.)

F. Procedural History

The procedural history of this action is set forth in detail in the Affirmation of Priya Anand, Esq. The significant events are as follows:

• July 21, 2023: Emergency board meeting of Driftwood; board authorizes engagement of litigation counsel and pursuit of all available remedies.

• July 25, 2023: Driftwood retains Calderwood & Harkness LLP.

• August 7, 2023: Driftwood files its Verified Complaint against all Defendants, asserting causes of action for common-law fraud, conversion, breach of fiduciary duty, unjust enrichment, and alter ego/veil-piercing liability. Simultaneously, Driftwood files an ex parte application for a temporary restraining order and order of attachment.

• August 8, 2023: The Honorable Eleanor Vasquez, J.S.C., grants the TRO, freezing Meridian Prime's accounts at Bridgemont Bank NA and restraining the individual Defendants' known assets. The Court also grants the order of attachment in the amount of $50.0 million.

• August 14, 2023: The law firm of Whitmore & Gaines LLP (Jonathan Whitmore, Chloe Redmond) files a notice of appearance on behalf of all Defendants.

• August 22, 2023: Following a hearing on the preliminary injunction, the Court converts the TRO to a preliminary injunction continuing the asset freeze and restraints pending the outcome of the litigation.

• September 5, 2023: Defendants, through Whitmore & Gaines, file an answer with affirmative defenses. The answer contains general denials and asserts a number of boilerplate affirmative defenses but does not include a counterclaim. The affirmative defenses include, among others, failure to state a claim, statute of limitations, comparative fault, and lack of standing — none of which are supported by any factual allegations in the answer.

• September 18, 2023: Calderwood & Harkness serves expedited discovery demands, including document requests and interrogatories, on all Defendants.

• October 6, 2023: Defendants, through Whitmore & Gaines, produce approximately 1,200 pages of documents in response to the discovery demands. Calderwood & Harkness's review of the production identifies significant gaps and, notably, fabricated records within the production itself — further evidence of Defendants' willingness to perpetuate their fraud even within the context of court-supervised litigation.

• October 20, 2023: Calderwood & Harkness files a motion to compel full compliance with the outstanding discovery demands and for sanctions against Defendants for the deficient and misleading production.

• October 30, 2023: Whitmore & Gaines LLP moves to withdraw as counsel for all Defendants, citing non-payment of legal fees and a complete breakdown in the attorney-client relationship.

• November 13, 2023: The Court grants the withdrawal of Whitmore & Gaines LLP effective as of this date. In the same order, the Court sets a deadline of December 15, 2023 for Defendants to retain substitute counsel and file a notice of appearance, failing which Defendants shall be deemed to be proceeding without representation. The Court expressly notes that Meridian Prime, as a limited liability company, must be represented by counsel and cannot appear pro se.

• November 20, 2023: Kelvantis Forensic Advisors LLC delivers its preliminary fund tracing report, prepared under the direction of engagement partner Natasha Everett, CPA, CFF, confirming the $47.3 million diversion and providing a detailed accounting of the disposition of the misappropriated funds.

• December 4, 2023: This motion is filed.

As of the date of this filing, no counsel has entered an appearance on behalf of Meridian Prime or any individual Defendant since the withdrawal of Whitmore & Gaines on November 13, 2023. No Defendant has filed any opposition to the pending motion to compel and for sanctions. No Defendant has filed any papers of any kind since the answer dated September 5, 2023. (Anand Aff. ¶¶ 56–58.)

III. ARGUMENT

A. Default Judgment Is Warranted Against Meridian Prime Capital LLC

1. Legal Standard for Default Judgment Under CPLR § 3215. CPLR § 3215(a) provides that "[w]hen a defendant has failed to appear, plead or otherwise defend, the plaintiff may seek a default judgment against him." A default judgment may be entered upon proof of service of the summons and complaint, proof of the facts constituting the claim, and proof of the default. See CPLR § 3215(f); Woodson v. Mendon Leasing Corp., 100 N.Y.2d 62, 70 (2003).

It is well settled in New York that a limited liability company, like a corporation, is an artificial entity that "cannot appear in a legal proceeding without the assistance of an attorney." Pridgen v. Andresen, 113 A.D.3d 175, 177 (2d Dep't 2013); see also CPLR § 321(a) (requiring corporations and other artificial entities to appear by attorney); Grace v. Corbis-Sygma, 487 F.3d 113, 119 (2d Cir. 2007) (applying same principle to LLCs). When counsel for an LLC withdraws and no substitute counsel appears within the time set by the court, the LLC is properly deemed in default. See Abrams, Fensterman, Fensterman, Eisman, Formato, Ferrara & Wolf, LLP v. Kaschmann, 193 A.D.3d 801 (2d Dep't 2021); Clarkstown Cent. Sch. Dist. v. M&H Metals, Inc., 174 A.D.3d 836 (2d Dep't 2019).

Upon default, the well-pleaded allegations of the complaint are deemed admitted, except as to the amount of damages, which must be established through competent proof. Rokina Optical Co. v. Camera King, Inc., 63 N.Y.2d 728, 730 (1984); Silberstein v. Presbyterian Hosp., 96 A.D.2d 1096, 1097 (2d Dep't 1983). The movant must submit sufficient evidence to establish a prima facie case and to permit the court to determine damages to a reasonable certainty. Reynolds Sec., Inc. v. Underwriters Bank & Trust Co., 44 N.Y.2d 568, 572 (1978); Stonefield Securities Indosuez v. Rossiyskiy Kredit Bank, 94 N.Y.2d 541, 547 (2000).

2. Meridian Prime's Default. Application of these principles to the undisputed facts leaves no doubt that default judgment is warranted against Meridian Prime.

Withdrawal of Counsel. On October 30, 2023, Whitmore & Gaines LLP moved to withdraw as counsel for all Defendants, citing non-payment of legal fees and a complete breakdown in the attorney-client relationship. The Court granted that motion effective November 13, 2023. (Anand Aff. ¶ 52; Ex. Q.) In its order granting the withdrawal, the Court set a deadline of December 15, 2023 for Defendants to retain substitute counsel and appear through new counsel. (Anand Aff. ¶ 53; Ex. R.) The Court's order expressly admonished that Meridian Prime, as a limited liability company, cannot appear pro se and must be represented by an attorney.

Failure to Retain Substitute Counsel. As of the date of this filing, no substitute counsel has filed a notice of appearance on behalf of Meridian Prime. While this motion is filed on December 4, 2023 — eleven days before the December 15, 2023 deadline — Plaintiff respectfully requests that the Court consider and decide the motion on or after the lapse of that deadline. The present filing is intended to apprise the Court and Defendants of the relief sought and to ensure that the motion is ready for consideration as soon as the default is fully ripe. In the event that substitute counsel appears on behalf of Meridian Prime before December 15, 2023, Plaintiff reserves its rights to address the status of the motion at that time.

Inability to Appear Pro Se. As an LLC, Meridian Prime cannot represent itself in this Court. See CPLR § 321(a); Pridgen, 113 A.D.3d at 177. Without counsel, Meridian Prime has no capacity to oppose motions, respond to discovery, participate in hearings, or otherwise defend this action. The entity is, and upon the lapse of the December 15, 2023 deadline will be, in complete default.

Failure to Participate in discovery or Defense. Even before the withdrawal of Whitmore & Gaines, Meridian Prime's participation in this litigation was minimal and obstructive. The document production on October 6, 2023 was deficient and contained fabricated records. (Anand Aff. ¶¶ 49–50.) The motion to compel, filed on October 20, 2023, remains unopposed. Since November 13, 2023, no Defendant has filed any paper, attended any conference, or otherwise engaged in the defense of this action.

Allegations Deemed Admitted. Upon Meridian Prime's default, the well-pleaded allegations of the Verified Complaint are deemed admitted. Rokina Optical, 63 N.Y.2d at 730. Those allegations establish that Meridian Prime engaged in a systematic scheme to defraud Driftwood through fabricated trade confirmations and falsified account statements; that Meridian Prime misappropriated $47.3 million in Driftwood's margin deposits and FX settlement proceeds; and that Meridian Prime's actions constitute common-law fraud, conversion, breach of fiduciary duty, and unjust enrichment. These admitted allegations are more than sufficient to establish Driftwood's entitlement to judgment against Meridian Prime as a matter of law.

3. Proof of Damages. Even on a default, a plaintiff must establish damages with reasonable certainty. Stonefield Securities Indosuez, 94 N.Y.2d at 547. Driftwood has amply satisfied this requirement through multiple independent and mutually corroborating sources of proof:

The Kelvantis Forensic Advisors Fund Tracing Report. The report of Natasha Everett, CPA, CFF, of Kelvantis Forensic Advisors LLC, dated November 20, 2023, provides a comprehensive forensic analysis tracing the $47.3 million in misappropriated funds from Driftwood's margin deposits and settlement accounts through the various channels of diversion. The report is based on a review of bank records, wire transfer logs, property records, corporate formation documents, and other documentary evidence, and it accounts for the full $47.3 million in losses. (Anand Aff. ¶ 54; Ex. K.)

Bridgemont Bank NA Account Confirmations. The balance confirmation obtained directly from Bridgemont Bank NA, Meridian Prime's custodian bank, establishes that the actual client account balance at the time of the fraud's discovery was $3.2 million — a $48.9 million discrepancy from the $52.1 million reflected on Meridian Prime's fabricated June 30, 2023 statement. (Anand Aff. ¶ 46; Ex. E.)

Wire Transfer Records. The wire transfer records obtained from Bridgemont Bank NA and other financial institutions document the specific transfers of funds from Meridian Prime's accounts to the offshore accounts at Palmetto International Bank Ltd., the Zelenko Family Irrevocable Trust, Castellan Realty Holdings LLC, and various personal accounts. (Anand Aff. ¶¶ 40–44; Exs. F, G.)

Affidavit of Sandra Hu. The Affidavit of Sandra Hu confirms, based on Driftwood's own records, the total margin deposits of $38.5 million and the $8.8 million in diverted FX settlement proceeds. Hu further confirms that Driftwood has received no voluntary return of any funds from any Defendant. (Hu Aff. ¶¶ 12–16, 36–38.)

The convergence of these independent sources of evidence establishes the $47.3 million loss to a reasonable certainty and indeed beyond any reasonable dispute. Default judgment against Meridian Prime in the amount of $47.3 million in compensatory damages, plus prejudgment interest and attorneys' fees, is therefore warranted.

B. Summary Judgment Is Warranted Against the Individual Defendants

1. Legal Standard for Summary Judgment Under CPLR § 3212. Under CPLR § 3212(b), summary judgment "shall be granted if, upon all the papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment in favor of any party." The movant bears the initial burden of establishing entitlement to judgment as a matter of law by tendering sufficient evidence to demonstrate the absence of any material issues of fact. Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324 (1986); Zuckerman v. City of New York, 49 N.Y.2d 557, 562 (1980).

Once the movant has satisfied this burden, the burden shifts to the opposing party to raise a triable issue of fact through the submission of evidence in admissible form. Id. Conclusory assertions, speculation, and "bald" allegations unsupported by competent evidence are insufficient to defeat a motion for summary judgment. Zuckerman, 49 N.Y.2d at 562; Gilbert Frank Corp. v. Fed. Ins. Co., 70 N.Y.2d 966, 967 (1988).

Where, as here, the non-movant has failed to appear, submit opposition papers, or raise any factual dispute, the court must still assess the sufficiency of the movant's showing. See Silberstein, 96 A.D.2d at 1097. However, the failure to oppose a properly supported motion for summary judgment, standing alone, is a "proper basis for the granting of summary judgment." Rector v. City of New York, 259 A.D.2d 319 (1st Dep't 1999); see also Argent Mortgage Co., LLC v. Mentesana, 79 A.D.3d 1079, 1080 (2d Dep't 2010).

As set forth below, Driftwood has established prima facie entitlement to judgment as a matter of law on its claims for fraud, conversion, and alter ego/veil-piercing liability against each of the individual Defendants, and no Defendant has offered — or could offer — any evidence raising a triable issue of fact.

2. The Individual Defendants Are Liable for Fraud. ##### a. Elements of Common-Law Fraud Under New York Law

To establish a claim for common-law fraud under New York law, a plaintiff must prove: (1) a material misrepresentation of fact; (2) that the misrepresentation was false; (3) that the defendant made the misrepresentation knowingly or with reckless disregard for its truth or falsity (i.e., scienter); (4) that the plaintiff justifiably relied on the misrepresentation; and (5) that the plaintiff suffered damages as a result. Eurycleia Partners, LP v. Padilla & Severin LLP, 12 N.Y.3d 553, 559 (2009); Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421 (1996). Each of these elements is established by the undisputed evidence in the record.

##### b. Application to the Undisputed Facts

Misrepresentation of Material Fact. Over the eighteen-month fraud period from January 2022 through July 2023, Defendants generated and transmitted to Driftwood fabricated trade confirmations and monthly account statements that purported to reflect the execution of FX transactions, the status of open positions, and the total value of Driftwood's account at Meridian Prime. These documents were material in the extreme: they were the primary means by which Driftwood monitored its trading activity and exposure, calculated its net asset value, and made ongoing investment decisions — including the decision to continue depositing margin and maintain its trading relationship with Meridian Prime. The fabricated statements showed purported trading profits of $14.8 million and culminated in a reported account balance of $52.1 million as of June 30, 2023. In truth, the trades reflected on the confirmations had never been executed, the profits were entirely fictitious, and the actual account balance was $3.2 million. (Anand Aff. ¶¶ 30–35; Exs. C, D; Hu Aff. ¶¶ 17–21.)

Falsity. The falsity of Defendants' representations is conclusively established by the Bridgemont Bank NA balance confirmation, which reveals the $48.9 million discrepancy between the fabricated balance and the actual balance. (Anand Aff. ¶ 46; Ex. E.) The falsity is further corroborated by the Kelvantis Forensic Advisors fund tracing report, which traces the $47.3 million in misappropriated funds through the various channels of diversion, demonstrating that the funds represented on the fabricated statements were not held in Driftwood's account but had been diverted to Defendants' personal use. (Ex. K, Kelvantis Report at 8–32.) No Defendant has offered any explanation, defense, or contrary evidence.

Scienter. Each individual Defendant knowingly participated in the fraud, and the evidence of scienter is overwhelming.

Defendant Zelenko, as Managing Member and CEO of Meridian Prime, directed and orchestrated the entire scheme. He controlled every aspect of the entity's operations, authorized the diversions of funds, and was the ultimate beneficiary of the misappropriated assets — receiving $18.6 million through Stellaris Trading Ltd. (his BVI shell company), $12.4 million through the Zelenko Family Irrevocable Trust, and $8.0 million through Castellan Realty Holdings LLC (which purchased his luxury residence). Zelenko's scienter is further evidenced by his prior FINRA disciplinary history, which reflects a pattern of disregard for the obligations attendant to handling client funds. (Anand Aff. ¶¶ 15–18, 40–42; Exs. F, G, H, J, N.)

Defendant Carvallo, as CFO and a licensed CPA, personally prepared and distributed the fabricated monthly account statements. Her role was not ministerial or peripheral; she was the architect of the documentary fraud that sustained the scheme month after month. A professional accountant who prepares and distributes financial statements that she knows to be false acts with the requisite scienter as a matter of law. (Anand Aff. ¶¶ 20–21, 33–35; Ex. D.)

Defendant Sobchak, as Head of FX Trading, fabricated the trade confirmations that purported to show FX transactions that were never executed. He also directly participated in executing the unauthorized wire transfers through which funds were diverted from Meridian Prime's accounts. Like Carvallo, Sobchak's involvement was direct, hands-on, and central to the operation of the fraud. (Anand Aff. ¶¶ 23–24, 30–32; Exs. C, F.)

Justifiable Reliance. Driftwood justifiably relied on the fabricated trade confirmations and account statements in continuing to deposit margin, maintain its trading relationship with Meridian Prime, and report the value of its FX positions to investors. The reliance was reasonable under the circumstances. The fabricated documents were professionally prepared and bore the appearance of legitimacy. The ISDA Master Agreement and Credit Support Annex established a contractual framework that a sophisticated institutional counterparty would reasonably expect to be honored. Meridian Prime represented that it was NFA-registered — a representation that, while false, would reasonably induce a counterparty to trust its statements and operations. And Driftwood's own internal controls, including the very margin reconciliation that ultimately uncovered the fraud, were consistent with the standard of care employed by similarly situated institutional investors. See Channel v. Lumber Mutual Cas. Ins. Co. of New York, 50 N.Y.2d 784, 786 (1980) (reliance is justifiable where the plaintiff reasonably relied on the defendant's representations and did not have the means discover their falsity through the exercise of ordinary diligence). (Hu Aff. ¶¶ 9–11, 23–27.)

Damages. Driftwood suffered damages of $47.3 million — the total amount of margin deposits and FX settlement proceeds misappropriated by Defendants. This amount is established by the Kelvantis fund tracing report, the Bridgemont Bank NA confirmations, the wire transfer records, and the Affidavit of Sandra Hu. (Ex. K; Exs. E, F, G; Hu Aff. ¶¶ 12–16, 36–38.)

All five elements of common-law fraud are established as a matter of law. There is no triable issue of fact, and summary judgment on the fraud claim is warranted against all three individual Defendants.

3. The Individual Defendants Are Liable for Conversion. Under New York law, conversion is the "unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner's rights." Colavito v. N.Y. Organ Donor Network, Inc., 8 N.Y.3d 43, 49–50 (2006). A conversion claim may be based on the misappropriation of specifically identifiable funds. Republic of Hait v. Duvalier, 211 A.D.2d 379, 384 (1st Dep't 1995); Manufacturers Hanover Trust Co. v. Granite Harbor Securities, 160 A.D.2d 618, 621 (1st Dep't 1990).

Here, the individual Defendants exercised unauthorized dominion and control over Driftwood's funds — specifically, the margin deposits and FX settlement proceeds that Meridian Prime held as custodian and counterparty under the ISDA Master Agreement and CSA. Rather than maintaining these funds in Driftwood's account or applying them to the settlement of legitimate FX transactions, Defendants diverted the funds to offshore accounts, personal trusts, real estate purchases, and personal expenditures. The funds are specifically identifiable through the wire transfer records and the Kelvantis fund tracing report.

Each individual Defendant participated directly in the conversion. Zelenko directed the diversions and was the primary beneficiary. Carvallo facilitated the conversion by concealing it through fabricated financial statements. Sobchak executed unauthorized wire transfers that effectuated the diversions. There is no triable issue of fact as to any Defendant's liability for conversion.

4. Alter Ego / Veil-Piercing Against Zelenko. Under New York law, the corporate veil of a limited liability company may be pierced where a member has exercised such domination and control over the entity as to render it a mere instrumentality of the member, and the member has used that control to commit a fraud or wrong against the plaintiff, resulting in the plaintiff's injury. Morris v. N.Y. State Dep't of Taxation & Fin., 82 N.Y.2d 135, 141 (1993); Millennium Constr., LLC v. Loupolover, 44 A.D.3d 1016, 1017 (2d Dep't 2007).

Factors relevant to the veil-piercing analysis include: (i) whether the entity was adequately capitalized; (ii) whether the entity operated as a distinct entity or was a mere alter ego of its principal; (iii) whether corporate formalities were observed; (iv) whether the principal used the entity for personal, rather than business, purposes; and (v) whether the principal commingled personal and entity funds. East Hampton Union Free Sch. Dist. v. Sandpebble Builders, Inc., 16 N.Y.3d 775, 776 (2011); Tap Holdings, LLC v. Orix Fin. Corp., 109 A.D.3d 167, 174 (1st Dep't 2013).

Every factor weighs decisively in favor of piercing the veil here:

Domination and Control. Zelenko was the sole Managing Member and control person of Meridian Prime. He exercised complete and unfettered control over every aspect of the entity's operations, including its finances, banking relationships, hiring decisions, and communications with counterparties.

Alter Ego. Meridian Prime was formed by Zelenko in 2019 and operated at all times as Zelenko's personal instrumentality. The entity had no independent existence apart from Zelenko. Its sole purpose — as revealed by the evidence — was to serve as a vehicle for soliciting counterparty relationships, collecting margin deposits, and diverting the proceeds to Zelenko's personal benefit.

Commingling of Funds. Zelenko freely commingled Meridian Prime's funds with his own. He transferred $18.6 million from Meridian Prime to Stellaris Trading Ltd., a BVI shell entity he controlled. He transferred $12.4 million to his personal family trust. He used $8.0 million of Meridian Prime's funds to purchase real estate through Castellan Realty Holdings LLC, another entity he controlled — including the $4.85 million luxury condominium that serves as his personal residence. These transfers demonstrate a complete disregard for any distinction between the entity's assets and Zelenko's personal wealth.

Undercapitalization. Meridian Prime was woefully undercapitalized for the business it purported to conduct. It claimed to operate as an FX prime brokerage serving institutional counterparties, yet it lacked the capital base necessary to support such operations. Its purported NFA registration was either fraudulent or lapsed, further demonstrating that the entity was not a legitimate business but rather a fraudulent shell.

Fraud. Zelenko used Meridian Prime as the vehicle through which he perpetrated the fraud against Driftwood. The fraud was not incidental to the entity's operations; it was the entity's sole raison d'être.

Under these circumstances, the corporate veil of Meridian Prime should be pierced, and Zelenko should be held personally liable for the full judgment entered against Meridian Prime. See Morris, 82 N.Y.2d at 141; Millennium Constr., 44 A.D.3d at 1017.

5. Individual Liability of Carvallo and Sobchak. Even absent veil-piercing — which is primarily applicable to Zelenko as the sole member and control person of Meridian Prime — Carvallo and Sobchak are individually liable as direct tortfeasors who personally participated in the fraud and conversion.

Carvallo. As CFO and a licensed CPA, Carvallo personally prepared and distributed the fabricated monthly account statements that concealed the ongoing misappropriation of Driftwood's funds. Her participation was not passive, peripheral, or ministerial. She was a central participant in the scheme, and her professional expertise was essential to maintaining its credibility over an extended period. Under New York law, a corporate officer or agent who personally participates in the commission of a tort is individually liable for the consequences, irrespective of whether the officer acted on behalf of the entity. Peguero v. 601 Realty Corp., 58 A.D.3d 556, 558 (1st Dep't 2009); Fletcher v. Dakota, Inc., 99 A.D.3d 43, 49 (1st Dep't 2012).

Sobchak. As Head of FX Trading, Sobchak fabricated the trade confirmations that formed the documentary backbone of the fraud. He also personally executed unauthorized wire transfers through which Driftwood's funds were diverted. Like Carvallo, Sobchak's involvement was direct, knowing, and central.

In addition to their direct tort liability, both Carvallo and Sobchak are liable under an aiding and abetting fraud theory. To establish aiding and abetting fraud under New York law, a plaintiff must demonstrate: (1) the existence of an underlying fraud; (2) actual knowledge of the fraud on the part of the aider and abettor; and (3) substantial assistance by the aider and abettor in the achievement of the fraud. Lerner v. Fleet Bank, N.A., 459 F.3d 273, 292 (2d Cir. 2006) (applying New York law); Stanfield Offshore Leveraged Assets, Ltd. v. Ridgeway Insurance, 64 A.D.3d 472, 476 (1st Dep't 2009). Each element is satisfied here. The underlying fraud is established. Carvallo and Sobchak had actual knowledge of the fraud — indeed, they were active participants. And their assistance was not merely "substantial" but indispensable: Carvallo created the false statements that sustained the fraud, and Sobchak created the false confirmations and executed the wire transfers that effectuated it.

There is no triable issue of fact as to the individual liability of Carvallo or Sobchak.

6. The Individual Defendants Have Failed to Oppose. The individual Defendants have failed to submit any opposition to this motion. No substitute counsel has appeared on their behalf since the withdrawal of Whitmore & Gaines on November 13, 2023. No individual Defendant has filed any papers of any kind — whether pro se or through counsel — since the answer dated September 5, 2023.

The answer itself, filed by Whitmore & Gaines, asserts only generalized and boilerplate affirmative defenses, including failure to state a claim, statute of limitations, comparative fault, and lack of standing. None of these defenses is supported by factual allegations in the answer, and none is sufficient to create a triable issue of fact in the face of the overwhelming documentary and forensic evidence submitted in support of this motion. A conclusory affirmative defense, unsupported by factual allegations, is insufficient to defeat summary judgment. Kronick v. L.P. Thebault Co., 70 A.D.3d 648, 649 (2d Dep't 2010); Feinberg v. Boros, 99 A.D.3d 219, 226 (1st Dep't 2012).

Moreover, the Defendants' discovery responses were themselves deficient and obstructive. The October 6, 2023 production consisted of approximately 1,200 pages of documents, many of which contained significant gaps. Worse still, Calderwood & Harkness's review identified fabricated records within the production itself — records that appear to have been manufactured by Defendants in an effort to perpetuate their fraud even within the litigation process. (Anand Aff. ¶¶ 49–50; Ex. P.) The motion to compel and for sanctions, filed on October 20, 2023, remains unopposed. The Defendants' litigation conduct, far from raising any triable issue of fact, further corroborates the strength of Plaintiff's case.

Summary judgment against Zelenko, Carvallo, and Sobchak on all claims is warranted.

C. Prejudgment Interest Under CPLR § 5004

Driftwood is entitled to an award of prejudgment interest at the statutory rate of 9% per annum under CPLR § 5004. Under New York law, prejudgment interest is recoverable as of right on claims for the "taking, withholding or converting" of property or funds. See CPLR § 5001(a); Brushton-Moira Cent. Sch. Dist. v. Fred H. Thomas Assocs., P.C., 91 N.Y.2d 256, 263 (1998). The purpose of prejudgment interest is to compensate the plaintiff for the time value of money and to ensure that the plaintiff is made

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK — COMMERCIAL DIVISION
DRIFTWOOD ABSOLUTE RETURN FUND LTD.,
Plaintiff,
— against —
MERIDIAN PRIME CAPITAL LLC, VIKTOR ANDREYEVICH ZELENKO, IRENE MARIA CARVALLO, and DMITRI PAVLOVICH SOBCHAK,
Defendants.
Index No. 654321/2023
Hon. Eleanor Vasquez, J.S.C.
NOTICE OF MOTION FOR DEFAULT JUDGMENT AGAINST DEFENDANT MERIDIAN PRIME CAPITAL LLC AND FOR SUMMARY JUDGMENT AGAINST DEFENDANTS VIKTOR ANDREYEVICH ZELENKO, IRENE MARIA CARVALLO, AND DMITRI PAVLOVICH SOBCHAK, WITH SUPPORTING MEMORANDUM OF LAW
December 4, 2023
Calderwood & Harkness LLP 200 Park Avenue, 42nd Floor New York, New York 10166 Telephone: (212) 558-4000 Facsimile: (212) 558-3588
Priya Anand, Esq. Hannah Brinkley, Esq.
Attorneys for Plaintiff Driftwood Absolute Return Fund Ltd.
PART ONE: NOTICE OF MOTION
PLEASE TAKE NOTICE that upon the accompanying Memorandum of Law in Support; the Affirmation of Priya Anand, Esq., with Exhibits A through R annexed thereto; the Affidavit of Sandra Hu, Chief Operating Officer and Chief Compliance Officer of Driftwood Capital Management LP; the Expert Report of Natasha Everett, CPA, CFF, of Kelvantis Forensic Advisors LLC, dated November 20, 2023 (the "Fund Tracing Report"); and all prior proceedings and papers in this action, Plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or "Plaintiff") will move this Court at the Courthouse located at 60 Centre Street, New York, New York, in the courtroom of the Honorable Eleanor Vasquez, J.S.C., or as otherwise directed by the Court, on a date to be set by the Court following the lapse of the Court's December 15, 2023 deadline for the appearance of substitute counsel on behalf of the Defendants, for the following relief:
1. Default Judgment Against Defendant Meridian Prime Capital LLC. Pursuant to CPLR § 3215, entry of default judgment against Defendant Meridian Prime Capital LLC ("Meridian Prime") for failure to appear through counsel or otherwise defend this action following the effective withdrawal of Whitmore & Gaines LLP on November 13, 2023, and the expiration of the Court's order setting December 15, 2023 as the deadline for Meridian Prime to retain and appear through substitute counsel. This motion is filed on December 4, 2023, in advance of the December 15, 2023 deadline, but Plaintiff respectfully requests that the Court consider and decide this motion on or after the lapse of that deadline, by which time, absent the appearance of new counsel, Meridian Prime's default will be complete. As a New York limited liability company, Meridian Prime cannot appear pro se in this Court, and in the absence of counsel, has no capacity to defend this action.
2. Summary Judgment Against Individual Defendants. Pursuant to CPLR § 3212, entry of summary judgment against Defendants Viktor Andreyevich Zelenko ("Zelenko"), Irene Maria Carvallo ("Carvallo"), and Dmitri Pavlovich Sobchak ("Sobchak") on Plaintiff's claims for common-law fraud, conversion, and alter ego/veil-piercing liability, on the ground that there is no genuine issue of material fact and Plaintiff is entitled to judgment as a matter of law on the basis of the overwhelming and undisputed documentary and forensic evidence in the record.
3. Entry of Judgment in the Total Amount of $58,900,000. Entry of a judgment in favor of Plaintiff and against all Defendants, jointly and severally, in the total amount of Fifty-Eight Million Nine Hundred Thousand Dollars ($58,900,000), comprising:
(a) Compensatory damages in the amount of $47,300,000, representing the total funds misappropriated by Defendants from January 2022 through July 2023;
(b) Prejudgment interest in the amount of $9,460,000, calculated at the statutory rate of 9% per annum under CPLR § 5004 on a weighted-average basis from January 1, 2022 through the anticipated date of judgment;
(c) Attorneys' fees and costs in the amount of $2,140,000, recoverable pursuant to the contractual fee-shifting provision contained in Section 11 of the Schedule to the ISDA Master Agreement (2002 form) dated December 15, 2021 between Plaintiff and Meridian Prime; and
4. Other and Further Relief. Such other and further relief as this Court deems just and proper.
Supporting Papers
The following papers are submitted in support of this motion:
(i) Memorandum of Law in Support of Plaintiff's Motion for Default Judgment and Summary Judgment (annexed hereto as Part Two);
(ii) Affirmation of Priya Anand, Esq., with Exhibits A through R (annexed hereto as Part Three);
(iii) Affidavit of Sandra Hu, COO/CCO of Driftwood Capital Management LP (annexed hereto as Part Four);
(iv) Expert Report of Natasha Everett, CPA, CFF, of Kelvantis Forensic Advisors LLC, entitled "Fund Tracing Report: Driftwood Absolute Return Fund Ltd. — Meridian Prime Capital LLC," dated November 20, 2023 (submitted as Exhibit K to the Anand Affirmation); and
(v) Proposed Judgment (annexed hereto as Part Five).
The Exhibits to the Affirmation of Priya Anand, Esq. include, without limitation, the following:
• Exhibit A: ISDA Master Agreement (2002 form) dated December 15, 2021 between Driftwood Absolute Return Fund Ltd. and Meridian Prime Capital LLC
• Exhibit B: Credit Support Annex dated December 15, 2021
• Exhibit C: Sample fabricated trade confirmations
• Exhibit D: Monthly account statements issued by Meridian Prime (January 2022 – June 2023)
• Exhibit E: Bridgemont Bank NA balance confirmation letter dated July 2023, showing client account balances of $3.2 million
• Exhibit F: Wire transfer records documenting diversions to Palmetto International Bank Ltd. in the name of Stellaris Trading Ltd.
• Exhibit G: Wire transfer records documenting transfers to the Zelenko Family Irrevocable Trust via Marlowe Asset Management Trust Company of Delaware
• Exhibit H: Property records for 425 East 58th Street, Apt. 32F, New York, NY 10022 and 17 Wooster Street, Unit 3, New York, NY 10013 (Castellan Realty Holdings LLC)
• Exhibit I: Castellan Realty Holdings LLC formation documents (Delaware)
• Exhibit J: Stellaris Trading Ltd. BVI registration documents (Registration No. 2043871)
• Exhibit K: Kelvantis Forensic Advisors LLC Fund Tracing Report dated November 20, 2023
• Exhibit L: Calderwood & Harkness LLP billing records (submitted under seal)
• Exhibit M: Meridian Prime's purported NFA registration documentation (shown to be fraudulent/lapsed)
• Exhibit N: FINRA disciplinary record for Viktor Zelenko (2017 censure and fine at Clarendon Markets LLC)
• Exhibit O: Defendants' answer dated September 5, 2023
• Exhibit P: Defendants' deficient document production (October 6, 2023)
• Exhibit Q: Order granting withdrawal of Whitmore & Gaines LLP dated November 13, 2023
• Exhibit R: Court order setting December 15, 2023 deadline for appearance of new counsel
CALDERWOOD & HARKNESS LLP
By: ________
Priya Anand, Esq. Hannah Brinkley, Esq. 200 Park Avenue, 42nd Floor New York, New York 10166 Telephone: (212) 558-4000 Facsimile: (212) 558-3588
Attorneys for Plaintiff Driftwood Absolute Return Fund Ltd.
PART TWO: MEMORANDUM OF LAW IN SUPPORT
SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK — COMMERCIAL DIVISION
DRIFTWOOD ABSOLUTE RETURN FUND LTD.,
Plaintiff,
— against —
MERIDIAN PRIME CAPITAL LLC, VIKTOR ANDREYEVICH ZELENKO, IRENE MARIA CARVALLO, and DMITRI PAVLOVICH SOBCHAK,
Defendants.
Index No. 654321/2023
Hon. Eleanor Vasquez, J.S.C.
MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT AGAINST DEFENDANT MERIDIAN PRIME CAPITAL LLC AND FOR SUMMARY JUDGMENT AGAINST DEFENDANTS VIKTOR ANDREYEVICH ZELENKO, IRENE MARIA CARVALLO, AND DMITRI PAVLOVICH SOBCHAK
I. PRELIMINARY STATEMENT
Plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or "Plaintiff"), a Cayman Islands-domiciled hedge fund managed by Driftwood Capital Management LP ("Driftwood Management"), respectfully submits this Memorandum of Law in support of its motion for entry of default judgment against Defendant Meridian Prime Capital LLC ("Meridian Prime") pursuant to CPLR § 3215, and for summary judgment against the individual Defendants Viktor Andreyevich Zelenko ("Zelenko"), Irene Maria Carvallo ("Carvallo"), and Dmitri Pavlovich Sobchak ("Sobchak") pursuant to CPLR § 3212, on Plaintiff's claims for common-law fraud, conversion, and alter ego/veil-piercing liability.
This case involves a brazen and systematic fraud scheme perpetrated by Meridian Prime and its principals over a period of approximately eighteen months, from January 2022 through July 2023. Meridian Prime, a purported New York-based foreign exchange prime brokerage, held itself out as a legitimate institutional FX counterparty. In that capacity, it entered into an ISDA Master Agreement (2002 form) and Credit Support Annex with Driftwood, pursuant to which Driftwood posted substantial margin deposits and entrusted Meridian Prime with the execution and settlement of FX forwards and vanilla FX options trades in major currency pairs, primarily EUR/USD, GBP/USD, and USD/JPY.
From the outset of trading in January 2022, Defendants embarked on a coordinated scheme to defraud Driftwood. They fabricated trade confirmations purporting to show the execution of FX transactions that were never placed. They generated falsified monthly account statements that inflated the portfolio's value, reflecting fictitious trading profits of $14.8 million and culminating in a fabricated account balance of $52.1 million as of June 30, 2023. While issuing these fraudulent documents to maintain the illusion of a functioning trading relationship, Defendants systematically misappropriated approximately $47.3 million — comprising $38.5 million in cumulative margin deposits and $8.8 million in legitimate FX settlement proceeds that Meridian Prime intercepted and diverted — funneling the stolen funds to offshore shell companies, personal trusts, real estate investments, and personal expenditures.
The fraud was uncovered on July 18, 2023, when Driftwood's Chief Operating Officer and Chief Compliance Officer, Sandra Hu, initiated a routine margin reconciliation and sought direct confirmation of Meridian Prime's account balances from Bridgemont Bank NA, the custodian bank. Bridgemont's response revealed that the total client account balances held in Meridian Prime's name were a mere $3.2 million — a $48.9 million discrepancy from the $52.1 million balance reported on Meridian Prime's most recent fabricated statement. The magnitude of the shortfall left no doubt that Defendants had been operating a sham enterprise and systematically looting investor funds.
Following the filing of the Verified Complaint on August 7, 2023, and the granting of a temporary restraining order and order of attachment on August 8, 2023, Defendants initially appeared through the law firm of Whitmore & Gaines LLP. That representation was short-lived. On October 30, 2023, Whitmore & Gaines moved to withdraw, citing non-payment of legal fees and a complete breakdown in the attorney-client relationship. The Court granted the withdrawal effective November 13, 2023, and set a deadline of December 15, 2023 for Defendants to retain substitute counsel.
As of the date of this filing, December 4, 2023, no counsel has appeared on behalf of Meridian Prime or any individual Defendant. No substitute counsel has entered a notice of appearance. No opposition papers have been filed in response to Plaintiff's pending motion to compel and for sanctions, filed on October 20, 2023. No Defendant has engaged in any defense of this action since the withdrawal of Whitmore & Gaines. Meridian Prime, as a New York limited liability company, cannot appear pro se in this Court and is therefore in complete default. The individual Defendants, while theoretically capable of proceeding pro se, have made no effort whatsoever to do so.
The record before this Court is overwhelming and undisputed. The fund tracing report prepared by Natasha Everett, CPA, CFF, of Kelvantis Forensic Advisors LLC, dated November 20, 2023, meticulously traces the $47.3 million in misappropriated funds and confirms the full scope of the diversion: $18.6 million was transferred to offshore accounts at Palmetto International Bank Ltd. in Nassau, Bahamas, held in the name of Stellaris Trading Ltd., a British Virgin Islands shell entity controlled by Zelenko; $12.4 million was transferred to the Zelenko Family Irrevocable Trust through Marlowe Asset Management Trust Company of Delaware; $8.0 million was used to purchase luxury real estate in Manhattan through Castellan Realty Holdings LLC, another Zelenko-controlled entity; $5.1 million was dissipated through cash withdrawals and personal expenditures by the individual Defendants; and $3.2 million remained in Meridian Prime's operating accounts at Bridgemont Bank NA at the time of the fraud's discovery. The total — $18.6 million plus $12.4 million plus $8.0 million plus $5.1 million plus $3.2 million — equals $47.3 million, accounting for the full amount of Driftwood's losses.
For the reasons set forth below, default judgment against Meridian Prime and summary judgment against the individual Defendants are warranted, and this Court should enter judgment in favor of Plaintiff in the total amount of $58,900,000, comprising $47,300,000 in compensatory damages, $9,460,000 in prejudgment interest at 9% per annum under CPLR § 5004, and $2,140,000 in attorneys' fees and costs recoverable under the contractual fee-shifting provision of the ISDA Master Agreement.
II. STATEMENT OF FACTS
The following facts are drawn from the Verified Complaint, the Affirmation of Priya Anand, Esq., and attached exhibits, the Affidavit of Sandra Hu, and the Expert Report of Natasha Everett, CPA, CFF. As set forth below, these facts are undisputed on the present record, as Defendants have failed to offer any controverting evidence.
A. The Parties
1. Plaintiff Driftwood Absolute Return Fund Ltd. Plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or the "Fund") is an exempted company incorporated under the laws of the Cayman Islands, registered with the Cayman Islands Monetary Authority under Registration Number MC-349217. Driftwood's registered address is c/o Hargrove Corporate Services Ltd., 4th Floor, Windward House, 94 Elgin Avenue, George Town, Grand Cayman KY1-1104, Cayman Islands. (Hu Aff. ¶ 3.)
Driftwood is managed by Driftwood Capital Management LP ("Driftwood Management"), a Delaware limited partnership (Delaware File No. 7831294), with its principal offices at 590 Madison Avenue, 28th Floor, New York, New York 10022. The general partner of Driftwood Management is Driftwood Capital Management GP LLC, a Delaware limited liability company. (Hu Aff. ¶ 4.)
As of June 30, 2023, Driftwood had approximately $1.82 billion in assets under management. The Fund employs a multi-strategy absolute return approach, with significant allocations to global macro and FX volatility strategies. The Fund's Chief Investment Officer is Marcus Ellison, and its Chief Operating Officer and Chief Compliance Officer is Sandra Hu, who has served in those capacities since the Fund's inception. (Hu Aff. ¶¶ 5–6.)
Driftwood's operational infrastructure includes the following key service providers: the Fund's administrator is Pinnacle Fund Services (Cayman) Ltd.; the Fund's auditor is Graystone & Whitfield LLP; and the Fund's prime broker for equities and rates products is Halcyon Securities Inc. The FX component of the Fund's investment strategy was, during the relevant period, executed through the trading relationship with Meridian Prime that is the subject of this action. (Hu Aff. ¶¶ 7–8.)
2. Defendant Meridian Prime Capital LLC. Defendant Meridian Prime Capital LLC ("Meridian Prime") is a New York limited liability company formed on March 14, 2019, with Employer Identification Number 84-3217659. Meridian Prime's registered address is 140 Broadway, Suite 3510, New York, New York 10005. (Anand Aff. ¶ 12; Ex. I.)
Meridian Prime purported to operate as an FX prime brokerage, offering institutional foreign exchange forwards, options, and spot execution services to hedge funds and other institutional counterparties. In connection with its solicitation of Driftwood's business, Meridian Prime represented that it was registered with the National Futures Association ("NFA") as a swap dealer. As detailed below, this registration was subsequently determined to be either fraudulent or lapsed, and in either event, Meridian Prime was not lawfully authorized to conduct the business it purported to conduct. (Anand Aff. ¶ 13; Ex. M.)
The Managing Member and Chief Executive Officer of Meridian Prime was Defendant Zelenko. Defendant Carvallo served as Chief Financial Officer, and Defendant Sobchak served as Head of FX Trading. Zelenko, Carvallo, and Sobchak were the only officers and principals of Meridian Prime and collectively exercised complete control over the entity's operations, finances, and communications. (Anand Aff. ¶ 14.)
3. Individual Defendant Viktor Andreyevich Zelenko. Defendant Viktor Andreyevich Zelenko is a United States citizen (naturalized), born on June 3, 1978. His residence is located at 425 East 58th Street, Apt. 32F, New York, New York 10022 — a luxury condominium unit that, as detailed below, was purchased with $4.85 million in funds misappropriated from Driftwood through the entity Castellan Realty Holdings LLC. (Anand Aff. ¶ 15; Ex. H.)
Before founding Meridian Prime, Zelenko was employed as a foreign exchange trader at Bridgemont Bank NA from 2006 to 2015, and subsequently at Clarendon Markets LLC from 2015 to 2018. In 2017, while at Clarendon Markets, Zelenko was the subject of a disciplinary action by the Financial Industry Regulatory Authority ("FINRA"), resulting in a censure and monetary fine for unauthorized trading. (Anand Aff. ¶ 16; Ex. N.) This prior disciplinary history is relevant to the question of scienter and reflects a pattern of disregard for fiduciary obligations and regulatory requirements that persisted and escalated into the wholesale fraud at issue in this action.
Zelenko was the sole Managing Member and control person of Meridian Prime. As set forth below, he used the entity as his personal instrumentality, freely commingling Meridian Prime's funds with his personal accounts, family trust, and shell entities, and operating the LLC without regard to any corporate formalities, capitalization requirements, or legal separateness. (Anand Aff. ¶¶ 17–18.)
4. Individual Defendant Irene Maria Carvallo. Defendant Irene Maria Carvallo is a United States citizen, born on November 17, 1982. Her residence is located at 88 Greenwich Street, Apt. 2704, New York, New York 10006. (Anand Aff. ¶ 19.)
Carvallo is a Certified Public Accountant. Before joining Meridian Prime, she was employed as a senior accountant at Ledgerfield & Associates PC, a New York accounting firm. She served as Chief Financial Officer of Meridian Prime from the entity's inception in 2019. In that capacity, she had direct responsibility for and involvement in the preparation and distribution of the fabricated monthly account statements that were the primary vehicle through which Defendants concealed the ongoing misappropriation of Driftwood's funds. Carvallo's professional training and credentials as a CPA make her participation in the fabrication of financial records all the more egregious, as she possessed the expertise necessary to construct statements that bore the appearance of legitimacy and thereby sustained the fraud over an extended period. (Anand Aff. ¶¶ 20–21; Hu Aff. ¶ 22.)
5. Individual Defendant Dmitri Pavlovich Sobchak. Defendant Dmitri Pavlovich Sobchak is a Ukrainian national and United States permanent resident, born on February 22, 1985. His residence is located at 301 West 57th Street, Apt. 18B, New York, New York 10019. (Anand Aff. ¶ 22.)
Before joining Meridian Prime, Sobchak was employed as an FX desk analyst at Bridgemont Bank NA, where he had been recruited by and worked under Zelenko. In 2019, Zelenko brought Sobchak with him to Meridian Prime, where Sobchak served as Head of FX Trading. In that role, Sobchak was directly responsible for fabricating trade confirmations purporting to show the execution of FX forwards and options transactions that were never actually placed. Sobchak was also directly involved in executing the unauthorized wire transfers through which Driftwood's funds were diverted to accounts controlled by Zelenko and other Defendants. (Anand Aff. ¶¶ 23–24.)
B. The ISDA Master Agreement and Credit Support Annex
On December 15, 2021, Driftwood and Meridian Prime executed an ISDA Master Agreement, utilizing the 2002 form, to govern the parties' FX forward and vanilla FX options trading relationship. The ISDA Master Agreement established the contractual framework for the execution, confirmation, and settlement of transactions in the major currency pairs EUR/USD, GBP/USD, and USD/JPY. A true and correct copy of the ISDA Master Agreement is annexed to the Anand Affirmation as Exhibit A. (Anand Aff. ¶ 26; Ex. A.)
Simultaneously with the execution of the ISDA Master Agreement, the parties entered into a Credit Support Annex ("CSA"), which required Driftwood to post an initial margin of $12.0 million in cash. The CSA further provided for variation margin calls based on mark-to-market valuations of the outstanding positions, which Meridian Prime was obligated to calculate and communicate to Driftwood on a periodic basis. A true and correct copy of the CSA is annexed to the Anand Affirmation as Exhibit B. (Anand Aff. ¶ 27; Ex. B.)
Of particular significance to this motion, Section 11 of the Schedule to the ISDA Master Agreement contains a fee-shifting provision that entitles the prevailing party in any action arising out of or relating to the Agreement to recover its reasonable attorneys' fees and costs from the non-prevailing party. (Anand Aff. ¶ 28; Ex. A, Schedule, § 11.) This provision is the contractual basis for Plaintiff's claim for attorneys' fees and costs of $2,140,000, as described more fully in Section III.D below.
C. The Fraud Scheme (January 2022 – July 2023)
Beginning in or about January 2022, shortly after the commencement of the trading relationship, Meridian Prime and its principals embarked upon a systematic and premeditated scheme to defraud Driftwood. The fraud operated along several interconnected tracks, each designed to sustain the illusion of a legitimate trading relationship while Defendants siphoned funds for their own benefit.
Fabricated Trade Confirmations. Defendant Sobchak, acting at the direction of Defendant Zelenko, generated fabricated trade confirmations that purported to reflect the execution of FX forwards and options transactions in the name of Driftwood. These confirmations were formatted to resemble legitimate trade documentation and contained fictitious trade details, including notional amounts, execution prices, settlement dates, and counterparty information. In reality, the trades reflected in these confirmations were never placed, never executed, and never existed. The fabricated confirmations were transmitted to Driftwood's operations team, which processed them in the ordinary course of business. (Anand Aff. ¶¶ 30–32; Ex. C; Hu Aff. ¶¶ 17–18.)
Falsified Monthly Account Statements. Defendant Carvallo, utilizing her accounting expertise in her capacity as CFO of Meridian Prime, personally prepared and distributed falsified monthly account statements to Driftwood. These statements purported to show the positions, mark-to-market valuations, and trading activity of Driftwood's account at Meridian Prime. Over the course of the fraud period, the fabricated statements reflected purported trading profits of approximately $14.8 million in addition to the margin deposits actually made by Driftwood. The last fabricated statement, dated June 30, 2023, reflected a purported total account balance of $52.1 million. (Anand Aff. ¶¶ 33–35; Ex. D; Hu Aff. ¶¶ 19–21.)
Systematic Misappropriation. While maintaining the fiction of profitable trading, Defendants diverted Driftwood's margin deposits and FX settlement proceeds to accounts controlled by Defendants for personal enrichment. During the period from January 2022 through July 2023, Driftwood deposited cumulative margin of $38.5 million into accounts at Bridgemont Bank NA designated for Meridian Prime's custody. In addition, $8.8 million in legitimate FX settlement proceeds — funds that were due and payable to Driftwood in connection with actual FX transactions settled through the banking system — were intercepted and diverted by Meridian Prime before reaching Driftwood's account. The total funds misappropriated by Defendants amounted to $47.3 million ($38.5 million in margin deposits plus $8.8 million in diverted settlement proceeds). (Anand Aff. ¶¶ 36–38; Hu Aff. ¶¶ 12–15; Ex. K, Kelvantis Report at 8–12.)
D. Breakdown of Fund Diversion
The Kelvantis Forensic Advisors fund tracing report provides a comprehensive accounting of the disposition of the $47.3 million in misappropriated funds. The tracing analysis, which is based on a review of wire transfer records, bank statements, property records, corporate formation documents, and other documentary evidence, identifies the following five categories of diversion:
1. Offshore Transfers to Stellaris Trading Ltd.: $18.6 million. Approximately $18.6 million was transferred from Meridian Prime's accounts at Bridgemont Bank NA to accounts at Palmetto International Bank Ltd., located at 302 Bay Street, Nassau, Bahamas, held in the name of Stellaris Trading Ltd. Stellaris Trading Ltd. is a British Virgin Islands business company, Registration No. 2043871, which the fund tracing report identifies as a shell entity controlled by Zelenko. Stellaris has no operations, no employees, no legitimate business purpose, and no apparent activity other than the receipt of funds diverted from Meridian Prime. The transfer records documenting these diversions are annexed to the Anand Affirmation as Exhibit F. (Anand Aff. ¶ 40; Exs. F, J; Ex. K, Kelvantis Report at 13–18.)
2. Transfers to the Zelenko Family Irrevocable Trust: $12.4 million. Approximately $12.4 million was transferred from Meridian Prime to the Zelenko Family Irrevocable Trust, Tax Identification Number 86-6092411, established on April 8, 2021. The transfers were routed through Marlowe Asset Management Trust Company of Delaware, located at 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801, which serves as corporate trustee. The timing of the trust's formation — predating the execution of the ISDA Master Agreement by approximately eight months — suggests that the trust was created in anticipation of the fraud scheme, providing Zelenko with a vehicle to shelter misappropriated funds from creditors. The wire transfer records documenting these transfers are annexed to the Anand Affirmation as Exhibit G. (Anand Aff. ¶ 41; Ex. G; Ex. K, Kelvantis Report at 19–22.)
3. Real Estate Purchases Through Castellan Realty Holdings LLC: $8.0 million. Approximately $8.0 million was used to purchase two Manhattan real estate properties through Castellan Realty Holdings LLC, a Delaware limited liability company (EIN 87-1548203) that the fund tracing report identifies as controlled by Zelenko. Castellan Realty's registered agent address corresponds to Zelenko's residential address. The two properties are:
(a) A luxury condominium located at 425 East 58th Street, Apt. 32F, New York, New York 10022, purchased in June 2022 for $4.85 million. This is the unit that Zelenko currently occupies as his primary residence. (Anand Aff. ¶ 42(a); Ex. H.)
(b) A commercial property located at 17 Wooster Street, Unit 3, New York, New York 10013, purchased in September 2022 for $3.15 million. (Anand Aff. ¶ 42(b); Ex. H.)
The property records and Castellan Realty's formation documents are annexed to the Anand Affirmation as Exhibits H and I, respectively. (Ex. K, Kelvantis Report at 23–26.)
4. Cash Withdrawals and Personal Expenditures: $5.1 million. Approximately $5.1 million was dissipated through cash withdrawals and personal expenditures made by Zelenko, Carvallo, and Sobchak. The fund tracing report documents these expenditures, which include luxury goods, travel, vehicle purchases, and other personal consumption. (Anand Aff. ¶ 43; Ex. K, Kelvantis Report at 27–30.)
5. Funds Retained in Meridian Prime's Accounts: $3.2 million. Approximately $3.2 million remained in Meridian Prime's operating accounts at Bridgemont Bank NA (383 Madison Avenue, New York, New York 10179) at the time the fraud was discovered and is currently subject to the Court's preliminary injunction and order of attachment. (Anand Aff. ¶ 44; Ex. E; Ex. K, Kelvantis Report at 31.)
Total. The five categories of diversion sum to the total misappropriation: $18.6 million + $12.4 million + $8.0 million + $5.1 million + $3.2 million = $47.3 million. This figure is consistent across the Kelvantis Forensic Advisors fund tracing report, the Bridgemont Bank NA account records, the wire transfer documentation, and the Affidavit of Sandra Hu. (Ex. K, Kelvantis Report at 32.)
E. Discovery of the Fraud
On July 18, 2023, Driftwood's COO Sandra Hu initiated what she describes as a routine margin reconciliation — a periodic operational review conducted as part of Driftwood's internal controls. In connection with this reconciliation, Hu contacted Bridgemont Bank NA directly to request confirmation of Meridian Prime's account balances. (Hu Aff. ¶¶ 23–25.)
The response from Bridgemont Bank NA revealed that the total client account balances held in Meridian Prime's name at Bridgemont were $3.2 million. This figure stood in stark contrast to the $52.1 million purported account balance reflected on Meridian Prime's most recent monthly account statement dated June 30, 2023 — a discrepancy of $48.9 million. (Hu Aff. ¶¶ 26–27; Anand Aff. ¶ 46; Ex. E.)
Upon discovering this discrepancy, Hu immediately notified CIO Marcus Ellison and the Board of Directors of Driftwood. An emergency board meeting was convened on July 21, 2023, at which the board authorized the engagement of litigation counsel and the pursuit of all available legal remedies. (Hu Aff. ¶¶ 28–30.) On July 25, 2023, Driftwood retained Calderwood & Harkness LLP to investigate the fraud and pursue recovery of the misappropriated funds. (Anand Aff. ¶ 48.)
Simultaneously, Driftwood took steps to disclose the impact of the fraud to its investors. In coordination with Cayman Islands counsel Overton & Locke LLP (lead partner Catherine Overton) and the Fund's administrator Pinnacle Fund Services (Cayman) Ltd., Driftwood issued an investor communication disclosing the impact of the fraud on the Fund's net asset value and the steps being taken to pursue recovery. (Hu Aff. ¶¶ 31–33.)
F. Procedural History
The procedural history of this action is set forth in detail in the Affirmation of Priya Anand, Esq. The significant events are as follows:
• July 21, 2023: Emergency board meeting of Driftwood; board authorizes engagement of litigation counsel and pursuit of all available remedies.
• July 25, 2023: Driftwood retains Calderwood & Harkness LLP.
• August 7, 2023: Driftwood files its Verified Complaint against all Defendants, asserting causes of action for common-law fraud, conversion, breach of fiduciary duty, unjust enrichment, and alter ego/veil-piercing liability. Simultaneously, Driftwood files an ex parte application for a temporary restraining order and order of attachment.
• August 8, 2023: The Honorable Eleanor Vasquez, J.S.C., grants the TRO, freezing Meridian Prime's accounts at Bridgemont Bank NA and restraining the individual Defendants' known assets. The Court also grants the order of attachment in the amount of $50.0 million.
• August 14, 2023: The law firm of Whitmore & Gaines LLP (Jonathan Whitmore, Chloe Redmond) files a notice of appearance on behalf of all Defendants.
• August 22, 2023: Following a hearing on the preliminary injunction, the Court converts the TRO to a preliminary injunction continuing the asset freeze and restraints pending the outcome of the litigation.
• September 5, 2023: Defendants, through Whitmore & Gaines, file an answer with affirmative defenses. The answer contains general denials and asserts a number of boilerplate affirmative defenses but does not include a counterclaim. The affirmative defenses include, among others, failure to state a claim, statute of limitations, comparative fault, and lack of standing — none of which are supported by any factual allegations in the answer.
• September 18, 2023: Calderwood & Harkness serves expedited discovery demands, including document requests and interrogatories, on all Defendants.
• October 6, 2023: Defendants, through Whitmore & Gaines, produce approximately 1,200 pages of documents in response to the discovery demands. Calderwood & Harkness's review of the production identifies significant gaps and, notably, fabricated records within the production itself — further evidence of Defendants' willingness to perpetuate their fraud even within the context of court-supervised litigation.
• October 20, 2023: Calderwood & Harkness files a motion to compel full compliance with the outstanding discovery demands and for sanctions against Defendants for the deficient and misleading production.
• October 30, 2023: Whitmore & Gaines LLP moves to withdraw as counsel for all Defendants, citing non-payment of legal fees and a complete breakdown in the attorney-client relationship.
• November 13, 2023: The Court grants the withdrawal of Whitmore & Gaines LLP effective as of this date. In the same order, the Court sets a deadline of December 15, 2023 for Defendants to retain substitute counsel and file a notice of appearance, failing which Defendants shall be deemed to be proceeding without representation. The Court expressly notes that Meridian Prime, as a limited liability company, must be represented by counsel and cannot appear pro se.
• November 20, 2023: Kelvantis Forensic Advisors LLC delivers its preliminary fund tracing report, prepared under the direction of engagement partner Natasha Everett, CPA, CFF, confirming the $47.3 million diversion and providing a detailed accounting of the disposition of the misappropriated funds.
• December 4, 2023: This motion is filed.
As of the date of this filing, no counsel has entered an appearance on behalf of Meridian Prime or any individual Defendant since the withdrawal of Whitmore & Gaines on November 13, 2023. No Defendant has filed any opposition to the pending motion to compel and for sanctions. No Defendant has filed any papers of any kind since the answer dated September 5, 2023. (Anand Aff. ¶¶ 56–58.)
III. ARGUMENT
A. Default Judgment Is Warranted Against Meridian Prime Capital LLC
1. Legal Standard for Default Judgment Under CPLR § 3215. CPLR § 3215(a) provides that "[w]hen a defendant has failed to appear, plead or otherwise defend, the plaintiff may seek a default judgment against him." A default judgment may be entered upon proof of service of the summons and complaint, proof of the facts constituting the claim, and proof of the default. See CPLR § 3215(f); Woodson v. Mendon Leasing Corp., 100 N.Y.2d 62, 70 (2003).
It is well settled in New York that a limited liability company, like a corporation, is an artificial entity that "cannot appear in a legal proceeding without the assistance of an attorney." Pridgen v. Andresen, 113 A.D.3d 175, 177 (2d Dep't 2013); see also CPLR § 321(a) (requiring corporations and other artificial entities to appear by attorney); Grace v. Corbis-Sygma, 487 F.3d 113, 119 (2d Cir. 2007) (applying same principle to LLCs). When counsel for an LLC withdraws and no substitute counsel appears within the time set by the court, the LLC is properly deemed in default. See Abrams, Fensterman, Fensterman, Eisman, Formato, Ferrara & Wolf, LLP v. Kaschmann, 193 A.D.3d 801 (2d Dep't 2021); Clarkstown Cent. Sch. Dist. v. M&H Metals, Inc., 174 A.D.3d 836 (2d Dep't 2019).
Upon default, the well-pleaded allegations of the complaint are deemed admitted, except as to the amount of damages, which must be established through competent proof. Rokina Optical Co. v. Camera King, Inc., 63 N.Y.2d 728, 730 (1984); Silberstein v. Presbyterian Hosp., 96 A.D.2d 1096, 1097 (2d Dep't 1983). The movant must submit sufficient evidence to establish a prima facie case and to permit the court to determine damages to a reasonable certainty. Reynolds Sec., Inc. v. Underwriters Bank & Trust Co., 44 N.Y.2d 568, 572 (1978); Stonefield Securities Indosuez v. Rossiyskiy Kredit Bank, 94 N.Y.2d 541, 547 (2000).
2. Meridian Prime's Default. Application of these principles to the undisputed facts leaves no doubt that default judgment is warranted against Meridian Prime.
Withdrawal of Counsel. On October 30, 2023, Whitmore & Gaines LLP moved to withdraw as counsel for all Defendants, citing non-payment of legal fees and a complete breakdown in the attorney-client relationship. The Court granted that motion effective November 13, 2023. (Anand Aff. ¶ 52; Ex. Q.) In its order granting the withdrawal, the Court set a deadline of December 15, 2023 for Defendants to retain substitute counsel and appear through new counsel. (Anand Aff. ¶ 53; Ex. R.) The Court's order expressly admonished that Meridian Prime, as a limited liability company, cannot appear pro se and must be represented by an attorney.
Failure to Retain Substitute Counsel. As of the date of this filing, no substitute counsel has filed a notice of appearance on behalf of Meridian Prime. While this motion is filed on December 4, 2023 — eleven days before the December 15, 2023 deadline — Plaintiff respectfully requests that the Court consider and decide the motion on or after the lapse of that deadline. The present filing is intended to apprise the Court and Defendants of the relief sought and to ensure that the motion is ready for consideration as soon as the default is fully ripe. In the event that substitute counsel appears on behalf of Meridian Prime before December 15, 2023, Plaintiff reserves its rights to address the status of the motion at that time.
Inability to Appear Pro Se. As an LLC, Meridian Prime cannot represent itself in this Court. See CPLR § 321(a); Pridgen, 113 A.D.3d at 177. Without counsel, Meridian Prime has no capacity to oppose motions, respond to discovery, participate in hearings, or otherwise defend this action. The entity is, and upon the lapse of the December 15, 2023 deadline will be, in complete default.
Failure to Participate in discovery or Defense. Even before the withdrawal of Whitmore & Gaines, Meridian Prime's participation in this litigation was minimal and obstructive. The document production on October 6, 2023 was deficient and contained fabricated records. (Anand Aff. ¶¶ 49–50.) The motion to compel, filed on October 20, 2023, remains unopposed. Since November 13, 2023, no Defendant has filed any paper, attended any conference, or otherwise engaged in the defense of this action.
Allegations Deemed Admitted. Upon Meridian Prime's default, the well-pleaded allegations of the Verified Complaint are deemed admitted. Rokina Optical, 63 N.Y.2d at 730. Those allegations establish that Meridian Prime engaged in a systematic scheme to defraud Driftwood through fabricated trade confirmations and falsified account statements; that Meridian Prime misappropriated $47.3 million in Driftwood's margin deposits and FX settlement proceeds; and that Meridian Prime's actions constitute common-law fraud, conversion, breach of fiduciary duty, and unjust enrichment. These admitted allegations are more than sufficient to establish Driftwood's entitlement to judgment against Meridian Prime as a matter of law.
3. Proof of Damages. Even on a default, a plaintiff must establish damages with reasonable certainty. Stonefield Securities Indosuez, 94 N.Y.2d at 547. Driftwood has amply satisfied this requirement through multiple independent and mutually corroborating sources of proof:
The Kelvantis Forensic Advisors Fund Tracing Report. The report of Natasha Everett, CPA, CFF, of Kelvantis Forensic Advisors LLC, dated November 20, 2023, provides a comprehensive forensic analysis tracing the $47.3 million in misappropriated funds from Driftwood's margin deposits and settlement accounts through the various channels of diversion. The report is based on a review of bank records, wire transfer logs, property records, corporate formation documents, and other documentary evidence, and it accounts for the full $47.3 million in losses. (Anand Aff. ¶ 54; Ex. K.)
Bridgemont Bank NA Account Confirmations. The balance confirmation obtained directly from Bridgemont Bank NA, Meridian Prime's custodian bank, establishes that the actual client account balance at the time of the fraud's discovery was $3.2 million — a $48.9 million discrepancy from the $52.1 million reflected on Meridian Prime's fabricated June 30, 2023 statement. (Anand Aff. ¶ 46; Ex. E.)
Wire Transfer Records. The wire transfer records obtained from Bridgemont Bank NA and other financial institutions document the specific transfers of funds from Meridian Prime's accounts to the offshore accounts at Palmetto International Bank Ltd., the Zelenko Family Irrevocable Trust, Castellan Realty Holdings LLC, and various personal accounts. (Anand Aff. ¶¶ 40–44; Exs. F, G.)
Affidavit of Sandra Hu. The Affidavit of Sandra Hu confirms, based on Driftwood's own records, the total margin deposits of $38.5 million and the $8.8 million in diverted FX settlement proceeds. Hu further confirms that Driftwood has received no voluntary return of any funds from any Defendant. (Hu Aff. ¶¶ 12–16, 36–38.)
The convergence of these independent sources of evidence establishes the $47.3 million loss to a reasonable certainty and indeed beyond any reasonable dispute. Default judgment against Meridian Prime in the amount of $47.3 million in compensatory damages, plus prejudgment interest and attorneys' fees, is therefore warranted.
B. Summary Judgment Is Warranted Against the Individual Defendants
1. Legal Standard for Summary Judgment Under CPLR § 3212. Under CPLR § 3212(b), summary judgment "shall be granted if, upon all the papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment in favor of any party." The movant bears the initial burden of establishing entitlement to judgment as a matter of law by tendering sufficient evidence to demonstrate the absence of any material issues of fact. Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324 (1986); Zuckerman v. City of New York, 49 N.Y.2d 557, 562 (1980).
Once the movant has satisfied this burden, the burden shifts to the opposing party to raise a triable issue of fact through the submission of evidence in admissible form. Id. Conclusory assertions, speculation, and "bald" allegations unsupported by competent evidence are insufficient to defeat a motion for summary judgment. Zuckerman, 49 N.Y.2d at 562; Gilbert Frank Corp. v. Fed. Ins. Co., 70 N.Y.2d 966, 967 (1988).
Where, as here, the non-movant has failed to appear, submit opposition papers, or raise any factual dispute, the court must still assess the sufficiency of the movant's showing. See Silberstein, 96 A.D.2d at 1097. However, the failure to oppose a properly supported motion for summary judgment, standing alone, is a "proper basis for the granting of summary judgment." Rector v. City of New York, 259 A.D.2d 319 (1st Dep't 1999); see also Argent Mortgage Co., LLC v. Mentesana, 79 A.D.3d 1079, 1080 (2d Dep't 2010).
As set forth below, Driftwood has established prima facie entitlement to judgment as a matter of law on its claims for fraud, conversion, and alter ego/veil-piercing liability against each of the individual Defendants, and no Defendant has offered — or could offer — any evidence raising a triable issue of fact.
2. The Individual Defendants Are Liable for Fraud. ##### a. Elements of Common-Law Fraud Under New York Law
To establish a claim for common-law fraud under New York law, a plaintiff must prove: (1) a material misrepresentation of fact; (2) that the misrepresentation was false; (3) that the defendant made the misrepresentation knowingly or with reckless disregard for its truth or falsity (i.e., scienter); (4) that the plaintiff justifiably relied on the misrepresentation; and (5) that the plaintiff suffered damages as a result. Eurycleia Partners, LP v. Padilla & Severin LLP, 12 N.Y.3d 553, 559 (2009); Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421 (1996). Each of these elements is established by the undisputed evidence in the record.
##### b. Application to the Undisputed Facts
Misrepresentation of Material Fact. Over the eighteen-month fraud period from January 2022 through July 2023, Defendants generated and transmitted to Driftwood fabricated trade confirmations and monthly account statements that purported to reflect the execution of FX transactions, the status of open positions, and the total value of Driftwood's account at Meridian Prime. These documents were material in the extreme: they were the primary means by which Driftwood monitored its trading activity and exposure, calculated its net asset value, and made ongoing investment decisions — including the decision to continue depositing margin and maintain its trading relationship with Meridian Prime. The fabricated statements showed purported trading profits of $14.8 million and culminated in a reported account balance of $52.1 million as of June 30, 2023. In truth, the trades reflected on the confirmations had never been executed, the profits were entirely fictitious, and the actual account balance was $3.2 million. (Anand Aff. ¶¶ 30–35; Exs. C, D; Hu Aff. ¶¶ 17–21.)
Falsity. The falsity of Defendants' representations is conclusively established by the Bridgemont Bank NA balance confirmation, which reveals the $48.9 million discrepancy between the fabricated balance and the actual balance. (Anand Aff. ¶ 46; Ex. E.) The falsity is further corroborated by the Kelvantis Forensic Advisors fund tracing report, which traces the $47.3 million in misappropriated funds through the various channels of diversion, demonstrating that the funds represented on the fabricated statements were not held in Driftwood's account but had been diverted to Defendants' personal use. (Ex. K, Kelvantis Report at 8–32.) No Defendant has offered any explanation, defense, or contrary evidence.
Scienter. Each individual Defendant knowingly participated in the fraud, and the evidence of scienter is overwhelming.
Defendant Zelenko, as Managing Member and CEO of Meridian Prime, directed and orchestrated the entire scheme. He controlled every aspect of the entity's operations, authorized the diversions of funds, and was the ultimate beneficiary of the misappropriated assets — receiving $18.6 million through Stellaris Trading Ltd. (his BVI shell company), $12.4 million through the Zelenko Family Irrevocable Trust, and $8.0 million through Castellan Realty Holdings LLC (which purchased his luxury residence). Zelenko's scienter is further evidenced by his prior FINRA disciplinary history, which reflects a pattern of disregard for the obligations attendant to handling client funds. (Anand Aff. ¶¶ 15–18, 40–42; Exs. F, G, H, J, N.)
Defendant Carvallo, as CFO and a licensed CPA, personally prepared and distributed the fabricated monthly account statements. Her role was not ministerial or peripheral; she was the architect of the documentary fraud that sustained the scheme month after month. A professional accountant who prepares and distributes financial statements that she knows to be false acts with the requisite scienter as a matter of law. (Anand Aff. ¶¶ 20–21, 33–35; Ex. D.)
Defendant Sobchak, as Head of FX Trading, fabricated the trade confirmations that purported to show FX transactions that were never executed. He also directly participated in executing the unauthorized wire transfers through which funds were diverted from Meridian Prime's accounts. Like Carvallo, Sobchak's involvement was direct, hands-on, and central to the operation of the fraud. (Anand Aff. ¶¶ 23–24, 30–32; Exs. C, F.)
Justifiable Reliance. Driftwood justifiably relied on the fabricated trade confirmations and account statements in continuing to deposit margin, maintain its trading relationship with Meridian Prime, and report the value of its FX positions to investors. The reliance was reasonable under the circumstances. The fabricated documents were professionally prepared and bore the appearance of legitimacy. The ISDA Master Agreement and Credit Support Annex established a contractual framework that a sophisticated institutional counterparty would reasonably expect to be honored. Meridian Prime represented that it was NFA-registered — a representation that, while false, would reasonably induce a counterparty to trust its statements and operations. And Driftwood's own internal controls, including the very margin reconciliation that ultimately uncovered the fraud, were consistent with the standard of care employed by similarly situated institutional investors. See Channel v. Lumber Mutual Cas. Ins. Co. of New York, 50 N.Y.2d 784, 786 (1980) (reliance is justifiable where the plaintiff reasonably relied on the defendant's representations and did not have the means discover their falsity through the exercise of ordinary diligence). (Hu Aff. ¶¶ 9–11, 23–27.)
Damages. Driftwood suffered damages of $47.3 million — the total amount of margin deposits and FX settlement proceeds misappropriated by Defendants. This amount is established by the Kelvantis fund tracing report, the Bridgemont Bank NA confirmations, the wire transfer records, and the Affidavit of Sandra Hu. (Ex. K; Exs. E, F, G; Hu Aff. ¶¶ 12–16, 36–38.)
All five elements of common-law fraud are established as a matter of law. There is no triable issue of fact, and summary judgment on the fraud claim is warranted against all three individual Defendants.
3. The Individual Defendants Are Liable for Conversion. Under New York law, conversion is the "unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner's rights." Colavito v. N.Y. Organ Donor Network, Inc., 8 N.Y.3d 43, 49–50 (2006). A conversion claim may be based on the misappropriation of specifically identifiable funds. Republic of Hait v. Duvalier, 211 A.D.2d 379, 384 (1st Dep't 1995); Manufacturers Hanover Trust Co. v. Granite Harbor Securities, 160 A.D.2d 618, 621 (1st Dep't 1990).
Here, the individual Defendants exercised unauthorized dominion and control over Driftwood's funds — specifically, the margin deposits and FX settlement proceeds that Meridian Prime held as custodian and counterparty under the ISDA Master Agreement and CSA. Rather than maintaining these funds in Driftwood's account or applying them to the settlement of legitimate FX transactions, Defendants diverted the funds to offshore accounts, personal trusts, real estate purchases, and personal expenditures. The funds are specifically identifiable through the wire transfer records and the Kelvantis fund tracing report.
Each individual Defendant participated directly in the conversion. Zelenko directed the diversions and was the primary beneficiary. Carvallo facilitated the conversion by concealing it through fabricated financial statements. Sobchak executed unauthorized wire transfers that effectuated the diversions. There is no triable issue of fact as to any Defendant's liability for conversion.
4. Alter Ego / Veil-Piercing Against Zelenko. Under New York law, the corporate veil of a limited liability company may be pierced where a member has exercised such domination and control over the entity as to render it a mere instrumentality of the member, and the member has used that control to commit a fraud or wrong against the plaintiff, resulting in the plaintiff's injury. Morris v. N.Y. State Dep't of Taxation & Fin., 82 N.Y.2d 135, 141 (1993); Millennium Constr., LLC v. Loupolover, 44 A.D.3d 1016, 1017 (2d Dep't 2007).
Factors relevant to the veil-piercing analysis include: (i) whether the entity was adequately capitalized; (ii) whether the entity operated as a distinct entity or was a mere alter ego of its principal; (iii) whether corporate formalities were observed; (iv) whether the principal used the entity for personal, rather than business, purposes; and (v) whether the principal commingled personal and entity funds. East Hampton Union Free Sch. Dist. v. Sandpebble Builders, Inc., 16 N.Y.3d 775, 776 (2011); Tap Holdings, LLC v. Orix Fin. Corp., 109 A.D.3d 167, 174 (1st Dep't 2013).
Every factor weighs decisively in favor of piercing the veil here:
Domination and Control. Zelenko was the sole Managing Member and control person of Meridian Prime. He exercised complete and unfettered control over every aspect of the entity's operations, including its finances, banking relationships, hiring decisions, and communications with counterparties.
Alter Ego. Meridian Prime was formed by Zelenko in 2019 and operated at all times as Zelenko's personal instrumentality. The entity had no independent existence apart from Zelenko. Its sole purpose — as revealed by the evidence — was to serve as a vehicle for soliciting counterparty relationships, collecting margin deposits, and diverting the proceeds to Zelenko's personal benefit.
Commingling of Funds. Zelenko freely commingled Meridian Prime's funds with his own. He transferred $18.6 million from Meridian Prime to Stellaris Trading Ltd., a BVI shell entity he controlled. He transferred $12.4 million to his personal family trust. He used $8.0 million of Meridian Prime's funds to purchase real estate through Castellan Realty Holdings LLC, another entity he controlled — including the $4.85 million luxury condominium that serves as his personal residence. These transfers demonstrate a complete disregard for any distinction between the entity's assets and Zelenko's personal wealth.
Undercapitalization. Meridian Prime was woefully undercapitalized for the business it purported to conduct. It claimed to operate as an FX prime brokerage serving institutional counterparties, yet it lacked the capital base necessary to support such operations. Its purported NFA registration was either fraudulent or lapsed, further demonstrating that the entity was not a legitimate business but rather a fraudulent shell.
Fraud. Zelenko used Meridian Prime as the vehicle through which he perpetrated the fraud against Driftwood. The fraud was not incidental to the entity's operations; it was the entity's sole raison d'être.
Under these circumstances, the corporate veil of Meridian Prime should be pierced, and Zelenko should be held personally liable for the full judgment entered against Meridian Prime. See Morris, 82 N.Y.2d at 141; Millennium Constr., 44 A.D.3d at 1017.
5. Individual Liability of Carvallo and Sobchak. Even absent veil-piercing — which is primarily applicable to Zelenko as the sole member and control person of Meridian Prime — Carvallo and Sobchak are individually liable as direct tortfeasors who personally participated in the fraud and conversion.
Carvallo. As CFO and a licensed CPA, Carvallo personally prepared and distributed the fabricated monthly account statements that concealed the ongoing misappropriation of Driftwood's funds. Her participation was not passive, peripheral, or ministerial. She was a central participant in the scheme, and her professional expertise was essential to maintaining its credibility over an extended period. Under New York law, a corporate officer or agent who personally participates in the commission of a tort is individually liable for the consequences, irrespective of whether the officer acted on behalf of the entity. Peguero v. 601 Realty Corp., 58 A.D.3d 556, 558 (1st Dep't 2009); Fletcher v. Dakota, Inc., 99 A.D.3d 43, 49 (1st Dep't 2012).
Sobchak. As Head of FX Trading, Sobchak fabricated the trade confirmations that formed the documentary backbone of the fraud. He also personally executed unauthorized wire transfers through which Driftwood's funds were diverted. Like Carvallo, Sobchak's involvement was direct, knowing, and central.
In addition to their direct tort liability, both Carvallo and Sobchak are liable under an aiding and abetting fraud theory. To establish aiding and abetting fraud under New York law, a plaintiff must demonstrate: (1) the existence of an underlying fraud; (2) actual knowledge of the fraud on the part of the aider and abettor; and (3) substantial assistance by the aider and abettor in the achievement of the fraud. Lerner v. Fleet Bank, N.A., 459 F.3d 273, 292 (2d Cir. 2006) (applying New York law); Stanfield Offshore Leveraged Assets, Ltd. v. Ridgeway Insurance, 64 A.D.3d 472, 476 (1st Dep't 2009). Each element is satisfied here. The underlying fraud is established. Carvallo and Sobchak had actual knowledge of the fraud — indeed, they were active participants. And their assistance was not merely "substantial" but indispensable: Carvallo created the false statements that sustained the fraud, and Sobchak created the false confirmations and executed the wire transfers that effectuated it.
There is no triable issue of fact as to the individual liability of Carvallo or Sobchak.
6. The Individual Defendants Have Failed to Oppose. The individual Defendants have failed to submit any opposition to this motion. No substitute counsel has appeared on their behalf since the withdrawal of Whitmore & Gaines on November 13, 2023. No individual Defendant has filed any papers of any kind — whether pro se or through counsel — since the answer dated September 5, 2023.
The answer itself, filed by Whitmore & Gaines, asserts only generalized and boilerplate affirmative defenses, including failure to state a claim, statute of limitations, comparative fault, and lack of standing. None of these defenses is supported by factual allegations in the answer, and none is sufficient to create a triable issue of fact in the face of the overwhelming documentary and forensic evidence submitted in support of this motion. A conclusory affirmative defense, unsupported by factual allegations, is insufficient to defeat summary judgment. Kronick v. L.P. Thebault Co., 70 A.D.3d 648, 649 (2d Dep't 2010); Feinberg v. Boros, 99 A.D.3d 219, 226 (1st Dep't 2012).
Moreover, the Defendants' discovery responses were themselves deficient and obstructive. The October 6, 2023 production consisted of approximately 1,200 pages of documents, many of which contained significant gaps. Worse still, Calderwood & Harkness's review identified fabricated records within the production itself — records that appear to have been manufactured by Defendants in an effort to perpetuate their fraud even within the litigation process. (Anand Aff. ¶¶ 49–50; Ex. P.) The motion to compel and for sanctions, filed on October 20, 2023, remains unopposed. The Defendants' litigation conduct, far from raising any triable issue of fact, further corroborates the strength of Plaintiff's case.
Summary judgment against Zelenko, Carvallo, and Sobchak on all claims is warranted.
C. Prejudgment Interest Under CPLR § 5004
Driftwood is entitled to an award of prejudgment interest at the statutory rate of 9% per annum under CPLR § 5004. Under New York law, prejudgment interest is recoverable as of right on claims for the "taking, withholding or converting" of property or funds. See CPLR § 5001(a); Brushton-Moira Cent. Sch. Dist. v. Fred H. Thomas Assocs., P.C., 91 N.Y.2d 256, 263 (1998). The purpose of prejudgment interest is to compensate the plaintiff for the time value of money and to ensure that the plaintiff is made

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK — COMMERCIAL DIVISION

DRIFTWOOD ABSOLUTE RETURN FUND LTD.,

PART ONE: NOTICE OF MOTION

CALDERWOOD & HARKNESS LLP

PART TWO: MEMORANDUM OF LAW IN SUPPORT

DRIFTWOOD ABSOLUTE RETURN FUND LTD.,

I. PRELIMINARY STATEMENT

II. STATEMENT OF FACTS

III. ARGUMENT

Record

Parties

Dates

Amounts