1024-00003 · Driftwood Absolute Return Fund Ltd · Pleadings

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

Index No. 654321/2023

DRIFTWOOD ABSOLUTE RETURN FUND LTD.,

Plaintiff,

— against —

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

Defendants.

VERIFIED COMPLAINT

Filed: August 7, 2023

Attorneys for Plaintiff:

Calderwood & Harkness LLP Priya Anand Hannah Brinkley 200 Park Avenue, 42nd Floor New York, NY 10166 Telephone: (212) 506-7800

PRELIMINARY STATEMENT

1. Plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or "DARF"), a Cayman Islands exempted company, brings this action against Meridian Prime Capital LLC ("Meridian Prime" or "MPC"), its Managing Member and Chief Executive Officer Viktor Andreyevich Zelenko ("Zelenko"), its Chief Financial Officer Irene Maria Carvallo ("Carvallo"), and its Head of FX Trading Dmitri Pavlovich Sobchak ("Sobchak") (collectively, "Defendants"), to recover losses arising from a brazen and carefully orchestrated fraud scheme perpetrated over a period of approximately eighteen months, from January 2022 through July 2023.

2. Meridian Prime, operating as a purported foreign exchange ("FX") prime brokerage, induced Driftwood to enter into an ISDA Master Agreement (2002 form) and an associated Credit Support Annex (the "CSA"), under which Driftwood deposited substantial margin collateral and traded FX forwards and vanilla FX options in major currency pairs. Rather than executing and settling legitimate trades on Driftwood's behalf, Defendants fabricated trade confirmations, falsified monthly account statements to show nonexistent profitable positions, and systematically misappropriated approximately $47.3 million in Driftwood's margin deposits and legitimate FX settlement proceeds. In doing so, Defendants operated what was, in substance, a fraudulent scheme designed to enrich themselves at Driftwood's expense.

3. The fraud was discovered on July 18, 2023, when Driftwood's Chief Operating Officer and Chief Compliance Officer, Sandra Hu, initiated a routine margin reconciliation as part of Driftwood's ongoing risk management procedures and confirmed directly with Bridgemont Bank NA — the financial institution at which Meridian Prime maintained its operating and client accounts — that Meridian Prime's client accounts held only approximately $3.2 million. This figure stood in stark and irreconcilable contrast to the $52.1 million reflected on Meridian Prime's most recent fabricated account statement, dated June 30, 2023, representing a discrepancy of approximately $48.9 million. The gap between what Defendants claimed to hold and what actually existed was staggering, and revealed the full scope of the fraud that Defendants had perpetrated.

4. Through this Complaint and the investigation conducted by Driftwood's counsel, Calderwood & Harkness LLP, it has been determined that the misappropriated funds were diverted to offshore bank accounts held by a sham British Virgin Islands entity controlled by Zelenko, an irrevocable trust established by Zelenko for the benefit of his family, real estate purchased through a Zelenko-controlled Delaware limited liability company, and personal expenditures by the individual Defendants, including luxury goods and travel. The diversion was methodical and multi-layered, evidencing a deliberate effort to place the stolen funds beyond the reach of Driftwood and other potential creditors.

5. By this action, Driftwood seeks compensatory damages of at least $47.3 million, prejudgment interest at the statutory rate of nine percent (9%) per annum pursuant to CPLR § 5004, attorneys' fees and costs pursuant to the contractual fee-shifting provision in the ISDA Master Agreement, punitive damages on account of Defendants' willful, wanton, and malicious conduct, the imposition of a constructive trust on all assets traceable to the misappropriated funds, and a declaration piercing the corporate veils of the entities that Zelenko used as instrumentalities of fraud. Driftwood further seeks such other and further relief as this Court deems just and proper.

THE PARTIES

A. Plaintiff.

6. Plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or "DARF") is an exempted company incorporated and registered under the laws of the Cayman Islands. Its registered address is c/o Hargrove Corporate Services Ltd., 4th Floor, Windward House, 94 Elgin Avenue, George Town, Grand Cayman KY1-1104, Cayman Islands. Its Cayman Islands Registration Number is MC-349217.

7. Driftwood is managed by Driftwood Capital Management LP ("DCM"), a Delaware limited partnership with its principal offices at 590 Madison Avenue, 28th Floor, New York, New York 10022 (Delaware File No. 7831294). The general partner of DCM is Driftwood Capital Management GP LLC, a Delaware limited liability company. DCM serves as the investment manager of Driftwood and is responsible for all investment decisions, including the selection of counterparties, the deployment of capital, and the negotiation of trading agreements.

8. Driftwood is a multi-strategy absolute return hedge fund with significant allocations to global macro and FX volatility strategies. As of June 30, 2023, Driftwood's approximate assets under management ("AUM") were $1.82 billion. Driftwood's Chief Investment Officer is Marcus Ellison. Its Chief Operating Officer and Chief Compliance Officer is Sandra Hu.

9. Driftwood's fund administrator is Pinnacle Fund Services (Cayman) Ltd. Its independent auditor is Graystone & Whitfield LLP. Its prime broker for equities and interest rates products is Halcyon Securities Inc. For its FX forward and FX options trading, Driftwood entered into the ISDA Agreement with Meridian Prime, as further described herein.

B. Defendants.

1. Meridian Prime Capital LLC.

10. Defendant Meridian Prime Capital LLC ("Meridian Prime" or "MPC") is a New York limited liability company, with a registered address at 140 Broadway, Suite 3510, New York, New York 10005, and Employer Identification Number 84-3217659. Meridian Prime was formed on or about March 14, 2019, pursuant to the New York Limited Liability Company Law.

11. Meridian Prime purportedly engaged in FX prime brokerage services, including the execution and clearing of institutional FX forward transactions, FX options, and FX spot transactions. Meridian Prime held itself out to institutional counterparties, including Driftwood, as a registered and regulated market participant capable of providing institutional-grade FX execution and custody services.

12. Meridian Prime represented to Driftwood that it was registered with the National Futures Association ("NFA") as a swap dealer, a representation that was material to Driftwood's decision to enter into the ISDA Agreement and to entrust substantial margin collateral to Meridian Prime. Upon investigation conducted after the discovery of the fraud, it was determined that Meridian Prime's claimed NFA registration was either fraudulent or had lapsed, and that Meridian Prime was not at any relevant time properly registered as a swap dealer with the NFA.

13. The Managing Member and CEO of Meridian Prime is Defendant Viktor Andreyevich Zelenko. The CFO of Meridian Prime is Defendant Irene Maria Carvallo. The Head of FX Trading at Meridian Prime is Defendant Dmitri Pavlovich Sobchak.

14. Meridian Prime maintained its primary operating and client accounts at Bridgemont Bank NA, located at 383 Madison Avenue, New York, New York 10179.

2. Viktor Andreyevich Zelenko.

15. Defendant Viktor Andreyevich Zelenko ("Zelenko") is an individual, born June 3, 1978, a naturalized citizen of the United States, residing at 425 East 58th Street, Apt. 32F, New York, New York 10022. Zelenko is the founder, Managing Member, and CEO of Meridian Prime. He founded Meridian Prime in 2019.

16. Prior to founding Meridian Prime, Zelenko was employed as an FX trader at Bridgemont Bank NA from approximately 2006 through 2015, and thereafter at Clarendon Markets LLC from approximately 2015 through 2018. While at Clarendon Markets, Zelenko was the subject of a disciplinary action by the Financial Industry Regulatory Authority ("FINRA") in 2017, resulting in a censure and monetary fine for unauthorized trading. This disciplinary history was not disclosed to Driftwood at any time prior to or during the contractual relationship between Driftwood and Meridian Prime.

17. Zelenko is the sole beneficial owner and controller of Stellaris Trading Ltd., a British Virgin Islands ("BVI") business company (BVI Registration No. 2043871), which, as set forth below, served as a conduit for the receipt and concealment of misappropriated Driftwood funds. Zelenko is also the sole member and controller of Castellan Realty Holdings LLC, a Delaware limited liability company (EIN: 87-1548203), which was used to purchase real estate with misappropriated Driftwood funds.

18. Zelenko is the settlor of the Zelenko Family Irrevocable Trust, dated April 8, 2021 (Tax ID: 86-6092411), held by Marlowe Asset Management Trust Company of Delaware. The trust was used as a vehicle to shield assets derived from the misappropriation of Driftwood's funds from creditors.

19. As set forth in greater detail below, Zelenko exercised complete dominion and control over Meridian Prime, commingling the entity's funds with his personal accounts and those of entities he controlled. Zelenko is the alter ego of Meridian Prime and is jointly and severally liable for all damages sustained by Driftwood.

3. Irene Maria Carvallo.

20. Defendant Irene Maria Carvallo ("Carvallo") is an individual, born November 17, 1982, a citizen of the United States, residing at 88 Greenwich Street, Apt. 2704, New York, New York 10006.

21. Carvallo is a Certified Public Accountant ("CPA"). Prior to joining Meridian Prime, Carvallo was employed as a senior accountant at Ledgerfield & Associates PC. Carvallo served as the CFO of Meridian Prime from its inception in 2019. In that capacity, she was responsible for the preparation and dissemination of financial records, including the monthly account statements provided to counterparties such as Driftwood.

22. As described in detail below, Carvallo directly participated in the fabrication of account statements sent to Driftwood and assisted in the concealment of the misappropriation and diversion of Driftwood's funds. Her CPA credentials and prior professional accounting experience were instrumental in giving the falsified statements an appearance of legitimacy and authenticity.

4. Dmitri Pavlovich Sobchak.

23. Defendant Dmitri Pavlovich Sobchak ("Sobchak") is an individual, born February 22, 1985, a Ukrainian national and lawful permanent resident of the United States, residing at 301 West 57th Street, Apt. 18B, New York, New York 10019.

24. Prior to joining Meridian Prime, Sobchak was employed as an FX desk analyst at Bridgemont Bank NA, where he worked with Zelenko. Zelenko recruited Sobchak to Meridian Prime in 2019, where Sobchak assumed the position of Head of FX Trading.

25. As described in detail below, Sobchak was directly involved in fabricating trade confirmations purporting to show executed FX forward and option transactions that had never occurred, and in executing unauthorized transfers of Driftwood's funds at the direction of Zelenko.

JURISDICTION AND VENUE

26. This Court has subject matter jurisdiction over this action pursuant to the Constitution of the State of New York and the New York Civil Practice Law and Rules.

27. This Court has personal jurisdiction over Defendant Meridian Prime Capital LLC because it is a New York limited liability company with its principal place of business located at 140 Broadway, Suite 3510, New York, New York 10005, within New York County.

28. This Court has personal jurisdiction over Defendant Viktor Andreyevich Zelenko because he is a resident of the State of New York, domiciled at 425 East 58th Street, Apt. 32F, New York, New York 10022, within New York County, and because he transacted substantial business in New York County giving rise to Driftwood's claims.

29. This Court has personal jurisdiction over Defendant Irene Maria Carvallo because she is a resident of the State of New York, domiciled at 88 Greenwich Street, Apt. 2704, New York, New York 10006, within New York County, and because she transacted substantial business in New York County giving rise to Driftwood's claims.

30. This Court has personal jurisdiction over Defendant Dmitri Pavlovich Sobchak because he is a resident of the State of New York, domiciled at 301 West 57th Street, Apt. 18B, New York, New York 10019, within New York County, and because he transacted substantial business in New York County giving rise to Driftwood's claims.

31. Venue is proper in New York County pursuant to CPLR § 503 because a substantial part of the events and omissions giving rise to the claims asserted herein occurred in New York County, and the principal offices of Meridian Prime are located in New York County. Each of the individual Defendants resides in New York County.

32. This action is appropriate for assignment to the Commercial Division of this Court because it involves commercial disputes exceeding the monetary threshold for such assignment as established by Rule 202.70 of the Uniform Civil Rules for the Supreme Court and the County Court, and concerns complex financial transactions, the construction and enforcement of commercial agreements, and claims of commercial fraud.

FACTUAL ALLEGATIONS

A. The ISDA Master Agreement and Credit Support Annex

33. On or about December 15, 2021, Driftwood and Meridian Prime entered into an ISDA Master Agreement (2002 form) (the "ISDA Agreement"), a true and correct copy of which is annexed hereto as Exhibit A. The ISDA Agreement governed the terms under which Driftwood and Meridian Prime would enter into FX forward and vanilla FX options transactions, primarily in the EUR/USD, GBP/USD, and USD/JPY currency pairs.

34. Contemporaneously with the execution of the ISDA Agreement, the parties entered into a Credit Support Annex (the "CSA"), a true and correct copy of which is annexed hereto as Exhibit B. The CSA established the margin and collateral requirements applicable to the transactions between Driftwood and Meridian Prime.

35. Under the CSA, Driftwood was required to post initial margin of $12.0 million in cash to Meridian Prime. In addition, the CSA provided that Meridian Prime could issue variation margin calls based on mark-to-market valuations of Driftwood's outstanding positions. These mark-to-market valuations were calculated and provided to Driftwood exclusively by Meridian Prime, and Driftwood relied upon them in assessing its margin obligations and the performance of its FX portfolio.

36. The ISDA Agreement contained, among other provisions, a fee-shifting clause entitling the prevailing party in any dispute arising under the agreement to recover its reasonable attorneys' fees and costs incurred in connection with such dispute. Driftwood specifically relies on this provision in seeking recovery of its attorneys' fees and litigation costs in this action.

37. The ISDA Agreement also contained representations and warranties by Meridian Prime, including that it was duly organized and in good standing, that it possessed all necessary registrations and authorizations to conduct its business as an FX counterparty and prime broker, and that it would perform its obligations under the agreement in accordance with applicable laws and regulations. These representations were false and misleading at the time they were made and remained false and misleading throughout the relevant period.

38. In entering into the ISDA Agreement and CSA, and in depositing initial and variation margin with Meridian Prime, Driftwood relied upon Meridian Prime's representations regarding its registration status with the NFA as a swap dealer, its trading capabilities and infrastructure, and its financial standing and capacity to serve as a creditworthy counterparty. Each of these representations was false or misleading, and was made by Defendants with the intent to deceive Driftwood and to induce Driftwood to entrust its funds to Meridian Prime.

B. Driftwood's Margin Deposits and Trading Activity

39. Beginning in January 2022 and continuing through July 2023, a period of approximately eighteen months, Driftwood deposited a cumulative total of $38.5 million in margin collateral with Meridian Prime pursuant to the CSA. This total included the initial margin of $12.0 million and subsequent variation margin payments made in response to margin calls issued by Meridian Prime based on purported mark-to-market valuations. Wire transfer records documenting these margin deposits are annexed hereto as Exhibit F.

40. The variation margin calls issued by Meridian Prime were based on fabricated mark-to-market valuations that had no basis in actual market conditions or actual trading positions. Defendants used these fraudulent margin calls as a mechanism to extract additional funds from Driftwood, which Defendants then misappropriated and diverted for their own benefit.

41. In addition to the $38.5 million in margin deposits, during the period of the fraud, legitimate FX settlement proceeds in the amount of approximately $8.8 million that were owed to Driftwood from executed trades — including settlement amounts due on FX forward contracts that had genuinely been entered into the market — were intercepted and diverted by Defendants rather than being remitted to Driftwood or credited to Driftwood's account.

42. The total amount of funds misappropriated by Defendants is therefore $47.3 million, consisting of $38.5 million in margin deposits and $8.8 million in intercepted FX settlement proceeds.

C. The Fraud Scheme: Fabricated Trade Confirmations and Falsified Account Statements

43. From January 2022 through July 2023, Defendants carried out a systematic and carefully orchestrated scheme to defraud Driftwood. The scheme had two primary components: first, the fabrication of trade confirmations showing purportedly executed FX forward and option transactions that had never been placed in the market; and second, the issuance of falsified monthly account statements that inflated the value of Driftwood's purported portfolio and concealed the ongoing misappropriation of Driftwood's funds.

44. The fabricated trade confirmations were generated by Defendant Sobchak, in his capacity as Head of FX Trading at Meridian Prime. These confirmations purported to document the execution of FX forward contracts and vanilla FX option transactions on Driftwood's behalf in the EUR/USD, GBP/USD, and USD/JPY currency pairs. The confirmations included fictitious transaction details, including trade dates, settlement dates, notional amounts, strike prices, and counterparty information. Representative fabricated trade confirmations are annexed hereto as Exhibit E. In reality, many of the trades reflected in these confirmations were never executed, and the confirmation documents were fabricated to create the illusion of legitimate trading activity and to justify the margin deposits that Defendants were extracting from Driftwood.

45. The falsified monthly account statements were prepared and disseminated by Defendant Carvallo, in her capacity as CFO of Meridian Prime. Carvallo employed her training and expertise as a CPA to ensure that the statements appeared authentic and internally consistent, reflecting realistic-seeming portfolio performance, mark-to-market valuations, realized and unrealized profit and loss figures, and margin balances. The statements were designed to reassure Driftwood that its funds were being properly managed and that its portfolio was performing profitably.

46. The fabricated account statements reflected purported trading profits of approximately $14.8 million over the eighteen-month period of the fraud — none of which were real. These fictitious profits were used to justify the inflated account balances shown on the statements and to discourage Driftwood from seeking to withdraw a significant portion of its margin or to terminate the relationship.

47. The most recent fabricated account statement, dated June 30, 2023, a true and correct copy of which is annexed hereto as Exhibit C, reflected a total account balance of $52.1 million. This figure included the cumulative margin deposits of $38.5 million, the $8.8 million in intercepted settlement proceeds, and the $14.8 million in purported (but nonexistent) trading profits, less certain amounts purportedly allocated to fees and other deductions. In fact, as was subsequently confirmed by Bridgemont Bank NA, the actual funds held by Meridian Prime in its client accounts at that time totaled only approximately $3.2 million — a shortfall of approximately $48.9 million.

48. Defendant Zelenko, as Managing Member and CEO of Meridian Prime, directed and oversaw the entire fraud scheme. Zelenko approved the fabrication of trade confirmations by Sobchak, reviewed and authorized the falsified account statements prepared by Carvallo, and personally controlled the disposition of the misappropriated funds. Zelenko was the architect and principal beneficiary of the scheme.

D. Diversion of Misappropriated Funds

49. Defendants diverted the $47.3 million in misappropriated funds through multiple channels, as detailed in the following subparagraphs.

(i) $18.6 Million Transferred to Offshore Accounts at Palmetto International Bank Ltd.

50. Defendants caused approximately $18.6 million to be transferred from Meridian Prime's accounts at Bridgemont Bank NA to accounts at Palmetto International Bank Ltd., located at 302 Bay Street, Nassau, Bahamas. The receiving accounts at Palmetto International Bank were held in the name of Stellaris Trading Ltd., a BVI business company (BVI Registration No. 2043871). A copy of the BVI corporate registry extract for Stellaris Trading Ltd. is annexed hereto as Exhibit J.

51. Stellaris Trading Ltd. was controlled by Zelenko, who was its sole beneficial owner and director. Stellaris had no legitimate business operations, no employees other than a registered agent, no clients, and no revenue from any lawful commercial activity. It was a sham entity, created and maintained solely for the purpose of receiving and concealing funds misappropriated from Driftwood and, upon information and belief, potentially from other victims. The transfers to Stellaris were structured to obscure the origin of the funds and to place them beyond the immediate reach of Driftwood and United States regulators.

(ii) $12.4 Million Transferred to the Zelenko Family Irrevocable Trust.

52. Defendants caused approximately $12.4 million to be transferred to the Zelenko Family Irrevocable Trust (dated April 8, 2021; Tax ID: 86-6092411), held at Marlowe Asset Management Trust Company of Delaware, located at 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801. A copy of the trust instrument is annexed hereto as Exhibit H.

53. The Zelenko Family Irrevocable Trust was established by Zelenko as settlor on April 8, 2021 — approximately eight months before Driftwood entered into the ISDA Agreement with Meridian Prime. Upon information and belief, the trust was created as part of a premeditated plan to establish a vehicle that could be used to shield assets from creditors, including victims of any future fraud perpetrated by Zelenko through Meridian Prime.

54. At the time of the discovery of the fraud and the commencement of Driftwood's investigation, approximately $6.2 million in securities and cash remained in the trust. The remainder of the $12.4 million transferred to the trust had been disbursed or invested in a manner that is the subject of ongoing investigation by Driftwood's counsel.

(iii) $8.0 Million in Real Estate Purchases Through Castellan Realty Holdings LLC.

55. Defendants caused approximately $8.0 million in misappropriated funds to be used by Castellan Realty Holdings LLC (EIN: 87-1548203), a Delaware limited liability company controlled by Zelenko, to purchase two properties in New York City. Corporate records and property purchase documents relating to Castellan Realty Holdings LLC and these acquisitions are annexed hereto as Exhibit G.

56. The first property acquired was a luxury condominium located at 425 East 58th Street, Apt. 32F, New York, New York 10022, purchased in or about June 2022 for a price of $4.85 million. This is the same address at which Zelenko personally resides. The purchase was funded entirely with misappropriated Driftwood funds routed through Castellan Realty Holdings LLC.

57. The second property acquired was a commercial unit located at 17 Wooster Street, Unit 3, New York, New York 10013, purchased in or about September 2022 for a price of $3.15 million. This purchase was likewise funded entirely with misappropriated Driftwood funds routed through Castellan Realty Holdings LLC.

58. The total real estate acquisitions funded with misappropriated Driftwood funds amounted to $8.0 million ($4.85 million + $3.15 million = $8.0 million).

(iv) $5.1 Million in Cash Withdrawals and Personal Expenditures.

59. Defendants withdrew approximately $5.1 million in cash from Meridian Prime's accounts and used the proceeds for personal expenditures, including luxury goods, international travel, dining, entertainment, and other personal uses. Upon information and belief, these withdrawals were made by or at the direction of Zelenko, Carvallo, and Sobchak, each of whom personally benefited from the diversion of Driftwood's funds.

(v) $3.2 Million Retained in Meridian Prime's Operating Accounts.

60. Approximately $3.2 million remained in Meridian Prime's operating and client accounts at Bridgemont Bank NA as of the date the fraud was discovered. This was the entirety of the funds that Bridgemont Bank NA confirmed were held in Meridian Prime's accounts when Driftwood's COO, Sandra Hu, conducted the reconciliation that uncovered the fraud.

61. The total diversion of misappropriated funds is as follows:

E. Discovery of the Fraud

62. On July 18, 2023, Driftwood's Chief Operating Officer and Chief Compliance Officer, Sandra Hu, initiated a routine margin reconciliation in connection with Driftwood's ongoing risk management and compliance procedures. The reconciliation was conducted as part of Driftwood's periodic review of counterparty exposures and margin balances across all trading relationships.

63. As part of this reconciliation, Ms. Hu requested a direct confirmation from Bridgemont Bank NA of the account balances held in Meridian Prime's client accounts. This request was made independently of Meridian Prime and without advance notice to Defendants.

64. On or about July 18, 2023, Bridgemont Bank NA responded to Ms. Hu's inquiry and confirmed that the total balances held in Meridian Prime's client accounts were approximately $3.2 million. A true and correct copy of this confirmation is annexed hereto as Exhibit D.

65. The $3.2 million figure confirmed by Bridgemont Bank NA stood in stark and irreconcilable contrast to the $52.1 million total account balance reflected on Meridian Prime's most recent fabricated account statement dated June 30, 2023. The discrepancy was approximately $48.9 million. This massive shortfall immediately indicated that the account statements provided by Meridian Prime were fabricated and that Driftwood's funds had been misappropriated on a massive scale.

66. Upon discovery of this discrepancy, Ms. Hu promptly reported the matter to Marcus Ellison, Driftwood's Chief Investment Officer, and to the board of directors of Driftwood. An emergency meeting of the board of directors of Driftwood was convened on July 21, 2023, at which the board was briefed on the apparent fraud and authorized the immediate engagement of litigation counsel to investigate and pursue all available legal remedies against Defendants.

67. On July 25, 2023, Driftwood retained Calderwood & Harkness LLP to investigate the fraud and to prosecute all claims arising from Defendants' conduct. Calderwood & Harkness LLP has since conducted an extensive investigation, including the review of bank records, wire transfer documentation, corporate filings, property records, trust instruments, and other relevant materials, the results of which form the basis for the allegations set forth in this Complaint.

F. Defendants' Fraudulent NFA Registration

68. Meridian Prime represented to Driftwood, both orally and in writing, including in connection with the negotiation and execution of the ISDA Agreement and the CSA, that it was registered with the National Futures Association ("NFA") as a swap dealer. This representation was material to Driftwood's decision to enter into the ISDA Agreement and to deposit substantial margin collateral with Meridian Prime. As a regulated institutional investor, Driftwood's internal compliance policies required that any counterparty with which it entered into swap or FX forward agreements be properly registered with the NFA or otherwise exempt from such registration under applicable law.

69. Upon investigation conducted after the discovery of the fraud, it was determined that Meridian Prime's claimed NFA registration was either entirely fraudulent — i.e., no valid registration had ever been obtained — or had lapsed prior to the commencement of the parties' trading relationship. At no relevant time was Meridian Prime properly registered as a swap dealer with the NFA or otherwise authorized to act in the capacity in which it held itself out to Driftwood.

70. Defendants' misrepresentation of Meridian Prime's registration status was a material inducement to Driftwood's entry into the ISDA Agreement and was part of the broader scheme to defraud Driftwood by creating the false impression that Meridian Prime was a legitimate, regulated FX counterparty.

G. Zelenko's Prior Regulatory History

71. Zelenko was the subject of a FINRA disciplinary action in 2017, while employed at Clarendon Markets LLC, resulting in a censure and monetary fine for unauthorized trading in client accounts. Records relating to this disciplinary action are annexed hereto as Exhibit I.

72. This disciplinary history was directly relevant to Driftwood's assessment of the integrity and trustworthiness of Meridian Prime and its principals. Had Driftwood been aware of Zelenko's disciplinary history, Driftwood would not have entered into the ISDA Agreement with Meridian Prime or deposited any margin collateral with the firm.

73. Defendants deliberately concealed Zelenko's prior disciplinary history from Driftwood at all times prior to and during the contractual relationship. This concealment was part of the broader pattern of fraud and misrepresentation engaged in by Defendants.

H. Zelenko as Alter Ego of Meridian Prime

74. Zelenko exercised complete dominion and control over Meridian Prime at all relevant times. As the sole Managing Member and CEO, Zelenko made all material decisions regarding the operations, finances, and trading activities of the firm. No other individual had meaningful authority independent of Zelenko.

75. Zelenko systematically commingled the funds of Meridian Prime with his personal accounts and with the accounts of entities he solely controlled, including Stellaris Trading Ltd. and Castellan Realty Holdings LLC. There was no meaningful separation between the assets of Meridian Prime and Zelenko's personal assets. Funds flowed freely between Meridian Prime's accounts and Zelenko's personal and controlled-entity accounts without regard to any corporate formality or governance procedure.

76. Meridian Prime was undercapitalized relative to the scope of its purported business activities and the magnitude of the obligations it assumed under the ISDA Agreement and CSA. Upon information and belief, at no time during the relevant period did Meridian Prime maintain capital reserves sufficient to satisfy its obligations to Driftwood or to conduct a legitimate FX prime brokerage business.

77. Meridian Prime failed to maintain adequate corporate formalities. Upon information and belief, Meridian Prime did not hold regular meetings of its members, did not maintain adequate books and records separate from those of Zelenko and his other entities, and did not observe the distinctions between its own operations and the personal financial affairs of Zelenko.

78. Zelenko used Meridian Prime as a mere instrumentality to perpetrate the fraud described herein and to enrich himself personally at Driftwood's expense. Under the circumstances, Meridian Prime's separate corporate existence should be disregarded, and Zelenko should be held personally liable for all damages sustained by Driftwood as the alter ego of Meridian Prime.

I. Carvallo and Sobchak as Active Participants in the Fraud

79. Defendant Carvallo, leveraging her CPA credentials and her prior experience as a senior accountant at Ledgerfield & Associates PC, personally created and disseminated the falsified monthly account statements that were provided to Driftwood throughout the period of the fraud. Carvallo used her professional expertise to make the fabricated statements appear legitimate, internally consistent, and in conformity with industry standards for account reporting. In addition, Carvallo assisted in concealing the diversion of Driftwood's funds by structuring and documenting transfers to obscure their true nature and destination.

80. Defendant Sobchak personally fabricated trade confirmations purporting to show the execution of FX forward and option transactions that had never been placed in the market or settled. These fabricated confirmations were provided to Driftwood as if they were genuine records of completed transactions. In addition, Sobchak executed unauthorized wire transfers of Driftwood's funds at the direction of Zelenko, facilitating the diversion of funds to offshore accounts, the Zelenko Family Irrevocable Trust, Castellan Realty Holdings LLC, and other destinations.

81. Both Carvallo and Sobchak acted in concert with Zelenko and with full knowledge that their actions were fraudulent and were causing harm to Driftwood. Neither Carvallo nor Sobchak took any steps to alert Driftwood, regulators, or any other party to the fraud being perpetrated. To the contrary, each actively participated in and furthered the scheme at every stage.

CAUSES OF ACTION

FIRST CAUSE OF ACTION

Fraud (Against All Defendants)

82. Driftwood repeats and realleges each and every allegation set forth in paragraphs 1 through 81 above, as if fully set forth herein.

83. Defendants knowingly and intentionally made material misrepresentations and omissions to Driftwood over the period from December 2021 through July 2023. These misrepresentations and omissions included, but were not limited to: (a) fabricated trade confirmations purporting to document the execution of FX forward and option transactions that had never been placed in the market; (b) falsified monthly account statements reflecting inflated account balances and fictitious trading profits; (c) misrepresentations regarding Meridian Prime's registration status with the NFA as a swap dealer; (d) misrepresentations regarding the safety and segregation of Driftwood's margin collateral; and (e) concealment of Zelenko's prior FINRA disciplinary history.

84. At the time these misrepresentations were made, Defendants knew them to be false, or made them with reckless disregard for their truth or falsity. The misrepresentations were made with the specific intent to deceive Driftwood and to induce Driftwood to continue depositing margin collateral and to refrain from withdrawing funds or terminating the trading relationship with Meridian Prime.

85. Driftwood justifiably relied on Defendants' misrepresentations to its detriment. In reliance on the fabricated trade confirmations, falsified account statements, and Defendants' representations regarding Meridian Prime's regulatory status and financial integrity, Driftwood deposited a cumulative total of $38.5 million in margin collateral and failed to retrieve $8.8 million in legitimate FX settlement proceeds that were intercepted and diverted by Defendants. Had Driftwood known the truth regarding Defendants' fraud, it would not have entered into the ISDA Agreement, would not have deposited any margin collateral, and would have immediately sought the return of all funds.

86. As a direct and proximate result of Defendants' fraud, Driftwood has suffered damages in an amount not less than $47,300,000.

87. Defendants' conduct was willful, wanton, malicious, and demonstrated a high degree of moral turpitude. The fraud was not an isolated or impulsive act but rather a sustained, deliberate, and carefully orchestrated scheme carried out over eighteen months. Defendants' conduct warrants the imposition of punitive damages in an amount to be determined at trial, as necessary to punish Defendants and deter similar conduct in the future.

SECOND CAUSE OF ACTION

Conversion (Against All Defendants)

88. Driftwood repeats and realleges each and every allegation set forth in paragraphs 1 through 87 above, as if fully set forth herein.

89. Driftwood had a superior possessory right to the margin deposits and FX settlement proceeds totaling $47.3 million that were entrusted to Meridian Prime pursuant to the ISDA Agreement and the CSA. These funds were Driftwood's property, held by Meridian Prime in a fiduciary or custodial capacity, and were required to be maintained, segregated, and returned to Driftwood in accordance with the terms of the governing agreements.

90. Defendants wrongfully exercised dominion and control over Driftwood's funds, converting them to their own use and benefit. Specifically, Defendants diverted Driftwood's funds to offshore accounts in the name of Stellaris Trading Ltd., the Zelenko Family Irrevocable Trust, real estate purchases through Castellan Realty Holdings LLC, and personal expenditures by the individual Defendants.

91. Defendants' conversion of Driftwood's funds was intentional, unauthorized, and in derogation of Driftwood's rights. At no time did Driftwood consent to, authorize, or acquiesce in the diversion of its funds to any of the purposes or recipients to which Defendants directed them.

92. As a direct and proximate result of Defendants' conversion, Driftwood has suffered damages in an amount not less than $47,300,000.

THIRD CAUSE OF ACTION

Breach of Fiduciary Duty (Against All Defendants)

93. Driftwood repeats and realleges each and every allegation set forth in paragraphs 1 through 92 above, as if fully set forth herein.

94. By virtue of the ISDA Agreement and the CSA, and Meridian Prime's role as Driftwood's FX counterparty and custodian of margin collateral, Meridian Prime owed Driftwood fiduciary duties, including duties of loyalty, good faith, and fair dealing. Meridian Prime held Driftwood's margin collateral in trust and was obligated to safeguard those funds, to apply them only in accordance with the terms of the CSA, and to account for them accurately and honestly. The relationship between Driftwood and Meridian Prime was one of trust and confidence, in which Driftwood reposed confidence in Meridian Prime's integrity and relied upon Meridian Prime to act in Driftwood's interest with respect to the custody and management of Driftwood's funds.

95. Defendant Zelenko, as the Managing Member and CEO of Meridian Prime, owed fiduciary duties to Driftwood as the individual who directed and controlled the activities of Meridian Prime and who was personally responsible for ensuring that the firm met its obligations to its counterparties.

96. Defendant Carvallo, as the CFO of Meridian Prime, owed fiduciary duties to Driftwood arising from her role in preparing and disseminating financial statements and account records upon which Driftwood relied.

97. Defendant Sobchak, as the Head of FX Trading at Meridian Prime, owed fiduciary duties to Driftwood arising from his role in executing trades on Driftwood's behalf and handling Driftwood's funds.

98. Each Defendant breached the fiduciary duties owed to Driftwood by misappropriating Driftwood's funds, fabricating trade confirmations and account statements, concealing the true state of affairs, and engaging in a sustained course of conduct designed to defraud Driftwood.

99. As a direct and proximate result of Defendants' breaches of fiduciary duty, Driftwood has been damaged in an amount not less than $47,300,000.

FOURTH CAUSE OF ACTION

Unjust Enrichment (Against All Defendants)

100. Driftwood repeats and realleges each and every allegation set forth in paragraphs 1 through 99 above, as if fully set forth herein.

101. Defendants received and retained benefits, in the form of Driftwood's margin deposits and FX settlement proceeds, totaling $47.3 million. These funds were received by Defendants under circumstances in which it would be inequitable and unconscionable to permit Defendants to retain them.

102. Defendants' receipt and retention of Driftwood's funds was unjust and unconscionable, as the funds were obtained through fraud, misrepresentation, and breaches of fiduciary duty. Defendants had no legitimate entitlement to the funds they misappropriated and diverted.

103. Driftwood conferred these benefits upon Defendants under the mistaken belief, induced by Defendants' fraud, that the funds were being properly managed, invested, and safeguarded in accordance with the ISDA Agreement and the CSA.

104. Equity and good conscience require that Defendants disgorge and return to Driftwood all funds wrongfully obtained and retained. Driftwood is entitled to restitution of at least $47,300,000.

FIFTH CAUSE OF ACTION

Alter Ego / Veil-Piercing (Against Zelenko, and Derivatively Against Meridian Prime Capital LLC, Stellaris Trading Ltd., and Castellan Realty Holdings LLC)

105. Driftwood repeats and realleges each and every allegation set forth in paragraphs 1 through 104 above, as if fully set forth herein.

106. Zelenko exercised complete dominion and control over Meridian Prime Capital LLC, Stellaris Trading Ltd. (BVI Registration No. 2043871), and Castellan Realty Holdings LLC (EIN: 87-1548203). Each of these entities was wholly owned, managed, and directed by Zelenko, who used them interchangeably as vehicles for the receipt, transfer, and concealment of misappropriated funds.

107. Each entity was used as a mere instrumentality or alter ego of Zelenko to perpetrate the fraud described herein and to shield misappropriated assets from Driftwood and other creditors. None of the entities maintained a corporate identity separate from Zelenko or from one another in any meaningful sense.

108. Meridian Prime was undercapitalized at all relevant times and lacked the financial resources to conduct a legitimate FX prime brokerage business or to satisfy its obligations to Driftwood under the ISDA Agreement and CSA. Meridian Prime failed to maintain corporate formalities, and its assets were freely commingled with Zelenko's personal assets and with the assets of Stellaris Trading Ltd. and Castellan Realty Holdings LLC.

109. Stellaris Trading Ltd. was a sham entity with no legitimate business purpose, created solely to serve as a conduit for the receipt and concealment of funds misappropriated from Driftwood. Castellan Realty Holdings LLC was similarly used by Zelenko as a vehicle to acquire real estate with stolen funds, for his personal benefit.

110. Adherence to the fiction of separate corporate identity for Meridian Prime, Stellaris Trading Ltd., and Castellan Realty Holdings LLC would sanction the fraud perpetrated by Zelenko and would promote injustice by permitting Zelenko to shield assets behind nominally independent entities that he wholly controlled and that were used as instruments of his fraud.

111. The corporate veils of Meridian Prime Capital LLC, Stellaris Trading Ltd., and Castellan Realty Holdings LLC should be pierced, and Zelenko should be held personally and jointly and severally liable for all damages sustained by Driftwood, including but not limited to the $47.3 million in misappropriated funds, prejudgment interest, attorneys' fees, costs, and punitive damages.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff Driftwood Absolute Return Fund Ltd. respectfully requests that this Court enter judgment in its favor and against Defendants Meridian Prime Capital LLC, Viktor Andreyevich Zelenko, Irene Maria Carvallo, and Dmitri Pavlovich Sobchak, jointly and severally, as follows:

1. Awarding Driftwood compensatory damages in an amount not less than Forty-Seven Million Three Hundred Thousand Dollars ($47,300,000), representing the total funds misappropriated by Defendants;

2. Awarding Driftwood prejudgment interest at the statutory rate of nine percent (9%) per annum pursuant to CPLR § 5004, from the date of each misappropriation through the date of judgment;

3. Awarding Driftwood its reasonable attorneys' fees and costs incurred in this action pursuant to the fee-shifting provision contained in the ISDA Master Agreement dated December 15, 2021;

4. Awarding Driftwood punitive damages in an amount to be determined at trial, on account of Defendants' willful, wanton, and malicious conduct;

5. Declaring that the corporate veils of Meridian Prime Capital LLC, Stellaris Trading Ltd., and Castellan Realty Holdings LLC be pierced, and that Defendant Viktor Andreyevich Zelenko is personally and jointly and severally liable for all damages;

6. Imposing a constructive trust on all funds and assets traceable to the misappropriated $47.3 million, wherever located, including but not limited to funds held at Palmetto International Bank Ltd. in the accounts of Stellaris Trading Ltd., assets held in the Zelenko Family Irrevocable Trust, the real properties at 425 East 58th Street, Apt. 32F, New York, New York 10022 and 17 Wooster Street, Unit 3, New York, New York 10013, and any other assets in the possession or control of Defendants or their affiliates that are traceable to the misappropriated funds; and

7. Granting such other and further relief as this Court deems just and proper.

VERIFICATION

STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK )

Sandra Hu, being duly sworn, deposes and says:

I am the Chief Operating Officer and Chief Compliance Officer of Driftwood Capital Management LP, the investment manager of the Plaintiff herein, Driftwood Absolute Return Fund Ltd. I am authorized to execute this Verification on behalf of the Plaintiff.

I have read the foregoing Verified Complaint and know the contents thereof. The statements contained therein are true to my knowledge, except as to those matters stated upon information and belief, and as to those matters, I believe them to be true. The basis for my knowledge includes my personal involvement in the discovery of the fraud described herein, my review of the books, records, and documents of Driftwood and Driftwood Capital Management LP, communications with Bridgemont Bank NA, and information provided to me by Driftwood's counsel, Calderwood & Harkness LLP, in the course of their investigation.

________________________________________

Sandra Hu Chief Operating Officer and Chief Compliance Officer Driftwood Capital Management LP

Dated: August 7, 2023

Sworn to before me this 7th day of August, 2023.

________________________________________

Notary Public, State of New York

Name: Jennifer L. Okafor

Commission No.: 01OF6348217 Commission Expires: March 14, 2025

ATTORNEY SIGNATURE

Calderwood & Harkness LLP Attorneys for Plaintiff Driftwood Absolute Return Fund Ltd.

By: ________

Priya Anand Hannah Brinkley 200 Park Avenue, 42nd Floor New York, New York 10166 Telephone: (212) 506-7800 Facsimile: (212) 506-7801

Dated: August 7, 2023

EXHIBIT LIST

The following Exhibits are referenced in this Verified Complaint and are incorporated herein by reference:

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, between Driftwood Absolute Return Fund Ltd. and Meridian Prime Capital LLC.

Exhibit C: Representative fabricated monthly account statement from Meridian Prime Capital LLC dated June 30, 2023 (reflecting account balance of $52.1 million).

Exhibit D: Bridgemont Bank NA confirmation of Meridian Prime Capital LLC client account balances (approximately $3.2 million), dated on or about July 18, 2023.

Exhibit E: Representative fabricated trade confirmations issued by Meridian Prime Capital LLC to Driftwood Absolute Return Fund Ltd.

Exhibit F: Wire transfer records showing margin deposits from Driftwood Absolute Return Fund Ltd. to Meridian Prime Capital LLC (cumulative total of $38.5 million).

Exhibit G: Corporate records of Castellan Realty Holdings LLC and property purchase documents for (a) 425 East 58th Street, Apt. 32F, New York, New York 10022 ($4.85 million, June 2022) and (b) 17 Wooster Street, Unit 3, New York, New York 10013 ($3.15 million, September 2022).

Exhibit H: Zelenko Family Irrevocable Trust instrument, dated April 8, 2021.

Exhibit I: FINRA disciplinary records for Viktor Andreyevich Zelenko (2017 censure and fine at Clarendon Markets LLC for unauthorized trading).

Exhibit J: Stellaris Trading Ltd. BVI corporate registry extract (BVI Registration No. 2043871).

Category	Amount
Offshore accounts at Palmetto International Bank (Stellaris Trading Ltd.)	$18,600,000
Zelenko Family Irrevocable Trust	$12,400,000
Real estate purchases through Castellan Realty Holdings LLC	$8,000,000
Cash withdrawals and personal expenditures	$5,100,000
Retained in Meridian Prime operating accounts	$3,200,000
Total	$47,300,000

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK — COMMERCIAL DIVISION
Index No. 654321/2023
DRIFTWOOD ABSOLUTE RETURN FUND LTD.,
Plaintiff,
— against —
MERIDIAN PRIME CAPITAL LLC, VIKTOR ANDREYEVICH ZELENKO, IRENE MARIA CARVALLO, and DMITRI PAVLOVICH SOBCHAK,
Defendants.
VERIFIED COMPLAINT
Filed: August 7, 2023
Attorneys for Plaintiff:
Calderwood & Harkness LLP Priya Anand Hannah Brinkley 200 Park Avenue, 42nd Floor New York, NY 10166 Telephone: (212) 506-7800
PRELIMINARY STATEMENT
1. Plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or "DARF"), a Cayman Islands exempted company, brings this action against Meridian Prime Capital LLC ("Meridian Prime" or "MPC"), its Managing Member and Chief Executive Officer Viktor Andreyevich Zelenko ("Zelenko"), its Chief Financial Officer Irene Maria Carvallo ("Carvallo"), and its Head of FX Trading Dmitri Pavlovich Sobchak ("Sobchak") (collectively, "Defendants"), to recover losses arising from a brazen and carefully orchestrated fraud scheme perpetrated over a period of approximately eighteen months, from January 2022 through July 2023.
2. Meridian Prime, operating as a purported foreign exchange ("FX") prime brokerage, induced Driftwood to enter into an ISDA Master Agreement (2002 form) and an associated Credit Support Annex (the "CSA"), under which Driftwood deposited substantial margin collateral and traded FX forwards and vanilla FX options in major currency pairs. Rather than executing and settling legitimate trades on Driftwood's behalf, Defendants fabricated trade confirmations, falsified monthly account statements to show nonexistent profitable positions, and systematically misappropriated approximately $47.3 million in Driftwood's margin deposits and legitimate FX settlement proceeds. In doing so, Defendants operated what was, in substance, a fraudulent scheme designed to enrich themselves at Driftwood's expense.
3. The fraud was discovered on July 18, 2023, when Driftwood's Chief Operating Officer and Chief Compliance Officer, Sandra Hu, initiated a routine margin reconciliation as part of Driftwood's ongoing risk management procedures and confirmed directly with Bridgemont Bank NA — the financial institution at which Meridian Prime maintained its operating and client accounts — that Meridian Prime's client accounts held only approximately $3.2 million. This figure stood in stark and irreconcilable contrast to the $52.1 million reflected on Meridian Prime's most recent fabricated account statement, dated June 30, 2023, representing a discrepancy of approximately $48.9 million. The gap between what Defendants claimed to hold and what actually existed was staggering, and revealed the full scope of the fraud that Defendants had perpetrated.
4. Through this Complaint and the investigation conducted by Driftwood's counsel, Calderwood & Harkness LLP, it has been determined that the misappropriated funds were diverted to offshore bank accounts held by a sham British Virgin Islands entity controlled by Zelenko, an irrevocable trust established by Zelenko for the benefit of his family, real estate purchased through a Zelenko-controlled Delaware limited liability company, and personal expenditures by the individual Defendants, including luxury goods and travel. The diversion was methodical and multi-layered, evidencing a deliberate effort to place the stolen funds beyond the reach of Driftwood and other potential creditors.
5. By this action, Driftwood seeks compensatory damages of at least $47.3 million, prejudgment interest at the statutory rate of nine percent (9%) per annum pursuant to CPLR § 5004, attorneys' fees and costs pursuant to the contractual fee-shifting provision in the ISDA Master Agreement, punitive damages on account of Defendants' willful, wanton, and malicious conduct, the imposition of a constructive trust on all assets traceable to the misappropriated funds, and a declaration piercing the corporate veils of the entities that Zelenko used as instrumentalities of fraud. Driftwood further seeks such other and further relief as this Court deems just and proper.
THE PARTIES
A. Plaintiff.
6. Plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or "DARF") is an exempted company incorporated and registered under the laws of the Cayman Islands. Its registered address is c/o Hargrove Corporate Services Ltd., 4th Floor, Windward House, 94 Elgin Avenue, George Town, Grand Cayman KY1-1104, Cayman Islands. Its Cayman Islands Registration Number is MC-349217.
7. Driftwood is managed by Driftwood Capital Management LP ("DCM"), a Delaware limited partnership with its principal offices at 590 Madison Avenue, 28th Floor, New York, New York 10022 (Delaware File No. 7831294). The general partner of DCM is Driftwood Capital Management GP LLC, a Delaware limited liability company. DCM serves as the investment manager of Driftwood and is responsible for all investment decisions, including the selection of counterparties, the deployment of capital, and the negotiation of trading agreements.
8. Driftwood is a multi-strategy absolute return hedge fund with significant allocations to global macro and FX volatility strategies. As of June 30, 2023, Driftwood's approximate assets under management ("AUM") were $1.82 billion. Driftwood's Chief Investment Officer is Marcus Ellison. Its Chief Operating Officer and Chief Compliance Officer is Sandra Hu.
9. Driftwood's fund administrator is Pinnacle Fund Services (Cayman) Ltd. Its independent auditor is Graystone & Whitfield LLP. Its prime broker for equities and interest rates products is Halcyon Securities Inc. For its FX forward and FX options trading, Driftwood entered into the ISDA Agreement with Meridian Prime, as further described herein.
B. Defendants.
1. Meridian Prime Capital LLC.
10. Defendant Meridian Prime Capital LLC ("Meridian Prime" or "MPC") is a New York limited liability company, with a registered address at 140 Broadway, Suite 3510, New York, New York 10005, and Employer Identification Number 84-3217659. Meridian Prime was formed on or about March 14, 2019, pursuant to the New York Limited Liability Company Law.
11. Meridian Prime purportedly engaged in FX prime brokerage services, including the execution and clearing of institutional FX forward transactions, FX options, and FX spot transactions. Meridian Prime held itself out to institutional counterparties, including Driftwood, as a registered and regulated market participant capable of providing institutional-grade FX execution and custody services.
12. Meridian Prime represented to Driftwood that it was registered with the National Futures Association ("NFA") as a swap dealer, a representation that was material to Driftwood's decision to enter into the ISDA Agreement and to entrust substantial margin collateral to Meridian Prime. Upon investigation conducted after the discovery of the fraud, it was determined that Meridian Prime's claimed NFA registration was either fraudulent or had lapsed, and that Meridian Prime was not at any relevant time properly registered as a swap dealer with the NFA.
13. The Managing Member and CEO of Meridian Prime is Defendant Viktor Andreyevich Zelenko. The CFO of Meridian Prime is Defendant Irene Maria Carvallo. The Head of FX Trading at Meridian Prime is Defendant Dmitri Pavlovich Sobchak.
14. Meridian Prime maintained its primary operating and client accounts at Bridgemont Bank NA, located at 383 Madison Avenue, New York, New York 10179.
2. Viktor Andreyevich Zelenko.
15. Defendant Viktor Andreyevich Zelenko ("Zelenko") is an individual, born June 3, 1978, a naturalized citizen of the United States, residing at 425 East 58th Street, Apt. 32F, New York, New York 10022. Zelenko is the founder, Managing Member, and CEO of Meridian Prime. He founded Meridian Prime in 2019.
16. Prior to founding Meridian Prime, Zelenko was employed as an FX trader at Bridgemont Bank NA from approximately 2006 through 2015, and thereafter at Clarendon Markets LLC from approximately 2015 through 2018. While at Clarendon Markets, Zelenko was the subject of a disciplinary action by the Financial Industry Regulatory Authority ("FINRA") in 2017, resulting in a censure and monetary fine for unauthorized trading. This disciplinary history was not disclosed to Driftwood at any time prior to or during the contractual relationship between Driftwood and Meridian Prime.
17. Zelenko is the sole beneficial owner and controller of Stellaris Trading Ltd., a British Virgin Islands ("BVI") business company (BVI Registration No. 2043871), which, as set forth below, served as a conduit for the receipt and concealment of misappropriated Driftwood funds. Zelenko is also the sole member and controller of Castellan Realty Holdings LLC, a Delaware limited liability company (EIN: 87-1548203), which was used to purchase real estate with misappropriated Driftwood funds.
18. Zelenko is the settlor of the Zelenko Family Irrevocable Trust, dated April 8, 2021 (Tax ID: 86-6092411), held by Marlowe Asset Management Trust Company of Delaware. The trust was used as a vehicle to shield assets derived from the misappropriation of Driftwood's funds from creditors.
19. As set forth in greater detail below, Zelenko exercised complete dominion and control over Meridian Prime, commingling the entity's funds with his personal accounts and those of entities he controlled. Zelenko is the alter ego of Meridian Prime and is jointly and severally liable for all damages sustained by Driftwood.
3. Irene Maria Carvallo.
20. Defendant Irene Maria Carvallo ("Carvallo") is an individual, born November 17, 1982, a citizen of the United States, residing at 88 Greenwich Street, Apt. 2704, New York, New York 10006.
21. Carvallo is a Certified Public Accountant ("CPA"). Prior to joining Meridian Prime, Carvallo was employed as a senior accountant at Ledgerfield & Associates PC. Carvallo served as the CFO of Meridian Prime from its inception in 2019. In that capacity, she was responsible for the preparation and dissemination of financial records, including the monthly account statements provided to counterparties such as Driftwood.
22. As described in detail below, Carvallo directly participated in the fabrication of account statements sent to Driftwood and assisted in the concealment of the misappropriation and diversion of Driftwood's funds. Her CPA credentials and prior professional accounting experience were instrumental in giving the falsified statements an appearance of legitimacy and authenticity.
4. Dmitri Pavlovich Sobchak.
23. Defendant Dmitri Pavlovich Sobchak ("Sobchak") is an individual, born February 22, 1985, a Ukrainian national and lawful permanent resident of the United States, residing at 301 West 57th Street, Apt. 18B, New York, New York 10019.
24. Prior to joining Meridian Prime, Sobchak was employed as an FX desk analyst at Bridgemont Bank NA, where he worked with Zelenko. Zelenko recruited Sobchak to Meridian Prime in 2019, where Sobchak assumed the position of Head of FX Trading.
25. As described in detail below, Sobchak was directly involved in fabricating trade confirmations purporting to show executed FX forward and option transactions that had never occurred, and in executing unauthorized transfers of Driftwood's funds at the direction of Zelenko.
JURISDICTION AND VENUE
26. This Court has subject matter jurisdiction over this action pursuant to the Constitution of the State of New York and the New York Civil Practice Law and Rules.
27. This Court has personal jurisdiction over Defendant Meridian Prime Capital LLC because it is a New York limited liability company with its principal place of business located at 140 Broadway, Suite 3510, New York, New York 10005, within New York County.
28. This Court has personal jurisdiction over Defendant Viktor Andreyevich Zelenko because he is a resident of the State of New York, domiciled at 425 East 58th Street, Apt. 32F, New York, New York 10022, within New York County, and because he transacted substantial business in New York County giving rise to Driftwood's claims.
29. This Court has personal jurisdiction over Defendant Irene Maria Carvallo because she is a resident of the State of New York, domiciled at 88 Greenwich Street, Apt. 2704, New York, New York 10006, within New York County, and because she transacted substantial business in New York County giving rise to Driftwood's claims.
30. This Court has personal jurisdiction over Defendant Dmitri Pavlovich Sobchak because he is a resident of the State of New York, domiciled at 301 West 57th Street, Apt. 18B, New York, New York 10019, within New York County, and because he transacted substantial business in New York County giving rise to Driftwood's claims.
31. Venue is proper in New York County pursuant to CPLR § 503 because a substantial part of the events and omissions giving rise to the claims asserted herein occurred in New York County, and the principal offices of Meridian Prime are located in New York County. Each of the individual Defendants resides in New York County.
32. This action is appropriate for assignment to the Commercial Division of this Court because it involves commercial disputes exceeding the monetary threshold for such assignment as established by Rule 202.70 of the Uniform Civil Rules for the Supreme Court and the County Court, and concerns complex financial transactions, the construction and enforcement of commercial agreements, and claims of commercial fraud.
FACTUAL ALLEGATIONS
A. The ISDA Master Agreement and Credit Support Annex
33. On or about December 15, 2021, Driftwood and Meridian Prime entered into an ISDA Master Agreement (2002 form) (the "ISDA Agreement"), a true and correct copy of which is annexed hereto as Exhibit A. The ISDA Agreement governed the terms under which Driftwood and Meridian Prime would enter into FX forward and vanilla FX options transactions, primarily in the EUR/USD, GBP/USD, and USD/JPY currency pairs.
34. Contemporaneously with the execution of the ISDA Agreement, the parties entered into a Credit Support Annex (the "CSA"), a true and correct copy of which is annexed hereto as Exhibit B. The CSA established the margin and collateral requirements applicable to the transactions between Driftwood and Meridian Prime.
35. Under the CSA, Driftwood was required to post initial margin of $12.0 million in cash to Meridian Prime. In addition, the CSA provided that Meridian Prime could issue variation margin calls based on mark-to-market valuations of Driftwood's outstanding positions. These mark-to-market valuations were calculated and provided to Driftwood exclusively by Meridian Prime, and Driftwood relied upon them in assessing its margin obligations and the performance of its FX portfolio.
36. The ISDA Agreement contained, among other provisions, a fee-shifting clause entitling the prevailing party in any dispute arising under the agreement to recover its reasonable attorneys' fees and costs incurred in connection with such dispute. Driftwood specifically relies on this provision in seeking recovery of its attorneys' fees and litigation costs in this action.
37. The ISDA Agreement also contained representations and warranties by Meridian Prime, including that it was duly organized and in good standing, that it possessed all necessary registrations and authorizations to conduct its business as an FX counterparty and prime broker, and that it would perform its obligations under the agreement in accordance with applicable laws and regulations. These representations were false and misleading at the time they were made and remained false and misleading throughout the relevant period.
38. In entering into the ISDA Agreement and CSA, and in depositing initial and variation margin with Meridian Prime, Driftwood relied upon Meridian Prime's representations regarding its registration status with the NFA as a swap dealer, its trading capabilities and infrastructure, and its financial standing and capacity to serve as a creditworthy counterparty. Each of these representations was false or misleading, and was made by Defendants with the intent to deceive Driftwood and to induce Driftwood to entrust its funds to Meridian Prime.
B. Driftwood's Margin Deposits and Trading Activity
39. Beginning in January 2022 and continuing through July 2023, a period of approximately eighteen months, Driftwood deposited a cumulative total of $38.5 million in margin collateral with Meridian Prime pursuant to the CSA. This total included the initial margin of $12.0 million and subsequent variation margin payments made in response to margin calls issued by Meridian Prime based on purported mark-to-market valuations. Wire transfer records documenting these margin deposits are annexed hereto as Exhibit F.
40. The variation margin calls issued by Meridian Prime were based on fabricated mark-to-market valuations that had no basis in actual market conditions or actual trading positions. Defendants used these fraudulent margin calls as a mechanism to extract additional funds from Driftwood, which Defendants then misappropriated and diverted for their own benefit.
41. In addition to the $38.5 million in margin deposits, during the period of the fraud, legitimate FX settlement proceeds in the amount of approximately $8.8 million that were owed to Driftwood from executed trades — including settlement amounts due on FX forward contracts that had genuinely been entered into the market — were intercepted and diverted by Defendants rather than being remitted to Driftwood or credited to Driftwood's account.
42. The total amount of funds misappropriated by Defendants is therefore $47.3 million, consisting of $38.5 million in margin deposits and $8.8 million in intercepted FX settlement proceeds.
C. The Fraud Scheme: Fabricated Trade Confirmations and Falsified Account Statements
43. From January 2022 through July 2023, Defendants carried out a systematic and carefully orchestrated scheme to defraud Driftwood. The scheme had two primary components: first, the fabrication of trade confirmations showing purportedly executed FX forward and option transactions that had never been placed in the market; and second, the issuance of falsified monthly account statements that inflated the value of Driftwood's purported portfolio and concealed the ongoing misappropriation of Driftwood's funds.
44. The fabricated trade confirmations were generated by Defendant Sobchak, in his capacity as Head of FX Trading at Meridian Prime. These confirmations purported to document the execution of FX forward contracts and vanilla FX option transactions on Driftwood's behalf in the EUR/USD, GBP/USD, and USD/JPY currency pairs. The confirmations included fictitious transaction details, including trade dates, settlement dates, notional amounts, strike prices, and counterparty information. Representative fabricated trade confirmations are annexed hereto as Exhibit E. In reality, many of the trades reflected in these confirmations were never executed, and the confirmation documents were fabricated to create the illusion of legitimate trading activity and to justify the margin deposits that Defendants were extracting from Driftwood.
45. The falsified monthly account statements were prepared and disseminated by Defendant Carvallo, in her capacity as CFO of Meridian Prime. Carvallo employed her training and expertise as a CPA to ensure that the statements appeared authentic and internally consistent, reflecting realistic-seeming portfolio performance, mark-to-market valuations, realized and unrealized profit and loss figures, and margin balances. The statements were designed to reassure Driftwood that its funds were being properly managed and that its portfolio was performing profitably.
46. The fabricated account statements reflected purported trading profits of approximately $14.8 million over the eighteen-month period of the fraud — none of which were real. These fictitious profits were used to justify the inflated account balances shown on the statements and to discourage Driftwood from seeking to withdraw a significant portion of its margin or to terminate the relationship.
47. The most recent fabricated account statement, dated June 30, 2023, a true and correct copy of which is annexed hereto as Exhibit C, reflected a total account balance of $52.1 million. This figure included the cumulative margin deposits of $38.5 million, the $8.8 million in intercepted settlement proceeds, and the $14.8 million in purported (but nonexistent) trading profits, less certain amounts purportedly allocated to fees and other deductions. In fact, as was subsequently confirmed by Bridgemont Bank NA, the actual funds held by Meridian Prime in its client accounts at that time totaled only approximately $3.2 million — a shortfall of approximately $48.9 million.
48. Defendant Zelenko, as Managing Member and CEO of Meridian Prime, directed and oversaw the entire fraud scheme. Zelenko approved the fabrication of trade confirmations by Sobchak, reviewed and authorized the falsified account statements prepared by Carvallo, and personally controlled the disposition of the misappropriated funds. Zelenko was the architect and principal beneficiary of the scheme.
D. Diversion of Misappropriated Funds
49. Defendants diverted the $47.3 million in misappropriated funds through multiple channels, as detailed in the following subparagraphs.
(i) $18.6 Million Transferred to Offshore Accounts at Palmetto International Bank Ltd.
50. Defendants caused approximately $18.6 million to be transferred from Meridian Prime's accounts at Bridgemont Bank NA to accounts at Palmetto International Bank Ltd., located at 302 Bay Street, Nassau, Bahamas. The receiving accounts at Palmetto International Bank were held in the name of Stellaris Trading Ltd., a BVI business company (BVI Registration No. 2043871). A copy of the BVI corporate registry extract for Stellaris Trading Ltd. is annexed hereto as Exhibit J.
51. Stellaris Trading Ltd. was controlled by Zelenko, who was its sole beneficial owner and director. Stellaris had no legitimate business operations, no employees other than a registered agent, no clients, and no revenue from any lawful commercial activity. It was a sham entity, created and maintained solely for the purpose of receiving and concealing funds misappropriated from Driftwood and, upon information and belief, potentially from other victims. The transfers to Stellaris were structured to obscure the origin of the funds and to place them beyond the immediate reach of Driftwood and United States regulators.
(ii) $12.4 Million Transferred to the Zelenko Family Irrevocable Trust.
52. Defendants caused approximately $12.4 million to be transferred to the Zelenko Family Irrevocable Trust (dated April 8, 2021; Tax ID: 86-6092411), held at Marlowe Asset Management Trust Company of Delaware, located at 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801. A copy of the trust instrument is annexed hereto as Exhibit H.
53. The Zelenko Family Irrevocable Trust was established by Zelenko as settlor on April 8, 2021 — approximately eight months before Driftwood entered into the ISDA Agreement with Meridian Prime. Upon information and belief, the trust was created as part of a premeditated plan to establish a vehicle that could be used to shield assets from creditors, including victims of any future fraud perpetrated by Zelenko through Meridian Prime.
54. At the time of the discovery of the fraud and the commencement of Driftwood's investigation, approximately $6.2 million in securities and cash remained in the trust. The remainder of the $12.4 million transferred to the trust had been disbursed or invested in a manner that is the subject of ongoing investigation by Driftwood's counsel.
(iii) $8.0 Million in Real Estate Purchases Through Castellan Realty Holdings LLC.
55. Defendants caused approximately $8.0 million in misappropriated funds to be used by Castellan Realty Holdings LLC (EIN: 87-1548203), a Delaware limited liability company controlled by Zelenko, to purchase two properties in New York City. Corporate records and property purchase documents relating to Castellan Realty Holdings LLC and these acquisitions are annexed hereto as Exhibit G.
56. The first property acquired was a luxury condominium located at 425 East 58th Street, Apt. 32F, New York, New York 10022, purchased in or about June 2022 for a price of $4.85 million. This is the same address at which Zelenko personally resides. The purchase was funded entirely with misappropriated Driftwood funds routed through Castellan Realty Holdings LLC.
57. The second property acquired was a commercial unit located at 17 Wooster Street, Unit 3, New York, New York 10013, purchased in or about September 2022 for a price of $3.15 million. This purchase was likewise funded entirely with misappropriated Driftwood funds routed through Castellan Realty Holdings LLC.
58. The total real estate acquisitions funded with misappropriated Driftwood funds amounted to $8.0 million ($4.85 million + $3.15 million = $8.0 million).
(iv) $5.1 Million in Cash Withdrawals and Personal Expenditures.
59. Defendants withdrew approximately $5.1 million in cash from Meridian Prime's accounts and used the proceeds for personal expenditures, including luxury goods, international travel, dining, entertainment, and other personal uses. Upon information and belief, these withdrawals were made by or at the direction of Zelenko, Carvallo, and Sobchak, each of whom personally benefited from the diversion of Driftwood's funds.
(v) $3.2 Million Retained in Meridian Prime's Operating Accounts.
60. Approximately $3.2 million remained in Meridian Prime's operating and client accounts at Bridgemont Bank NA as of the date the fraud was discovered. This was the entirety of the funds that Bridgemont Bank NA confirmed were held in Meridian Prime's accounts when Driftwood's COO, Sandra Hu, conducted the reconciliation that uncovered the fraud.
61. The total diversion of misappropriated funds is as follows:
E. Discovery of the Fraud
62. On July 18, 2023, Driftwood's Chief Operating Officer and Chief Compliance Officer, Sandra Hu, initiated a routine margin reconciliation in connection with Driftwood's ongoing risk management and compliance procedures. The reconciliation was conducted as part of Driftwood's periodic review of counterparty exposures and margin balances across all trading relationships.
63. As part of this reconciliation, Ms. Hu requested a direct confirmation from Bridgemont Bank NA of the account balances held in Meridian Prime's client accounts. This request was made independently of Meridian Prime and without advance notice to Defendants.
64. On or about July 18, 2023, Bridgemont Bank NA responded to Ms. Hu's inquiry and confirmed that the total balances held in Meridian Prime's client accounts were approximately $3.2 million. A true and correct copy of this confirmation is annexed hereto as Exhibit D.
65. The $3.2 million figure confirmed by Bridgemont Bank NA stood in stark and irreconcilable contrast to the $52.1 million total account balance reflected on Meridian Prime's most recent fabricated account statement dated June 30, 2023. The discrepancy was approximately $48.9 million. This massive shortfall immediately indicated that the account statements provided by Meridian Prime were fabricated and that Driftwood's funds had been misappropriated on a massive scale.
66. Upon discovery of this discrepancy, Ms. Hu promptly reported the matter to Marcus Ellison, Driftwood's Chief Investment Officer, and to the board of directors of Driftwood. An emergency meeting of the board of directors of Driftwood was convened on July 21, 2023, at which the board was briefed on the apparent fraud and authorized the immediate engagement of litigation counsel to investigate and pursue all available legal remedies against Defendants.
67. On July 25, 2023, Driftwood retained Calderwood & Harkness LLP to investigate the fraud and to prosecute all claims arising from Defendants' conduct. Calderwood & Harkness LLP has since conducted an extensive investigation, including the review of bank records, wire transfer documentation, corporate filings, property records, trust instruments, and other relevant materials, the results of which form the basis for the allegations set forth in this Complaint.
F. Defendants' Fraudulent NFA Registration
68. Meridian Prime represented to Driftwood, both orally and in writing, including in connection with the negotiation and execution of the ISDA Agreement and the CSA, that it was registered with the National Futures Association ("NFA") as a swap dealer. This representation was material to Driftwood's decision to enter into the ISDA Agreement and to deposit substantial margin collateral with Meridian Prime. As a regulated institutional investor, Driftwood's internal compliance policies required that any counterparty with which it entered into swap or FX forward agreements be properly registered with the NFA or otherwise exempt from such registration under applicable law.
69. Upon investigation conducted after the discovery of the fraud, it was determined that Meridian Prime's claimed NFA registration was either entirely fraudulent — i.e., no valid registration had ever been obtained — or had lapsed prior to the commencement of the parties' trading relationship. At no relevant time was Meridian Prime properly registered as a swap dealer with the NFA or otherwise authorized to act in the capacity in which it held itself out to Driftwood.
70. Defendants' misrepresentation of Meridian Prime's registration status was a material inducement to Driftwood's entry into the ISDA Agreement and was part of the broader scheme to defraud Driftwood by creating the false impression that Meridian Prime was a legitimate, regulated FX counterparty.
G. Zelenko's Prior Regulatory History
71. Zelenko was the subject of a FINRA disciplinary action in 2017, while employed at Clarendon Markets LLC, resulting in a censure and monetary fine for unauthorized trading in client accounts. Records relating to this disciplinary action are annexed hereto as Exhibit I.
72. This disciplinary history was directly relevant to Driftwood's assessment of the integrity and trustworthiness of Meridian Prime and its principals. Had Driftwood been aware of Zelenko's disciplinary history, Driftwood would not have entered into the ISDA Agreement with Meridian Prime or deposited any margin collateral with the firm.
73. Defendants deliberately concealed Zelenko's prior disciplinary history from Driftwood at all times prior to and during the contractual relationship. This concealment was part of the broader pattern of fraud and misrepresentation engaged in by Defendants.
H. Zelenko as Alter Ego of Meridian Prime
74. Zelenko exercised complete dominion and control over Meridian Prime at all relevant times. As the sole Managing Member and CEO, Zelenko made all material decisions regarding the operations, finances, and trading activities of the firm. No other individual had meaningful authority independent of Zelenko.
75. Zelenko systematically commingled the funds of Meridian Prime with his personal accounts and with the accounts of entities he solely controlled, including Stellaris Trading Ltd. and Castellan Realty Holdings LLC. There was no meaningful separation between the assets of Meridian Prime and Zelenko's personal assets. Funds flowed freely between Meridian Prime's accounts and Zelenko's personal and controlled-entity accounts without regard to any corporate formality or governance procedure.
76. Meridian Prime was undercapitalized relative to the scope of its purported business activities and the magnitude of the obligations it assumed under the ISDA Agreement and CSA. Upon information and belief, at no time during the relevant period did Meridian Prime maintain capital reserves sufficient to satisfy its obligations to Driftwood or to conduct a legitimate FX prime brokerage business.
77. Meridian Prime failed to maintain adequate corporate formalities. Upon information and belief, Meridian Prime did not hold regular meetings of its members, did not maintain adequate books and records separate from those of Zelenko and his other entities, and did not observe the distinctions between its own operations and the personal financial affairs of Zelenko.
78. Zelenko used Meridian Prime as a mere instrumentality to perpetrate the fraud described herein and to enrich himself personally at Driftwood's expense. Under the circumstances, Meridian Prime's separate corporate existence should be disregarded, and Zelenko should be held personally liable for all damages sustained by Driftwood as the alter ego of Meridian Prime.
I. Carvallo and Sobchak as Active Participants in the Fraud
79. Defendant Carvallo, leveraging her CPA credentials and her prior experience as a senior accountant at Ledgerfield & Associates PC, personally created and disseminated the falsified monthly account statements that were provided to Driftwood throughout the period of the fraud. Carvallo used her professional expertise to make the fabricated statements appear legitimate, internally consistent, and in conformity with industry standards for account reporting. In addition, Carvallo assisted in concealing the diversion of Driftwood's funds by structuring and documenting transfers to obscure their true nature and destination.
80. Defendant Sobchak personally fabricated trade confirmations purporting to show the execution of FX forward and option transactions that had never been placed in the market or settled. These fabricated confirmations were provided to Driftwood as if they were genuine records of completed transactions. In addition, Sobchak executed unauthorized wire transfers of Driftwood's funds at the direction of Zelenko, facilitating the diversion of funds to offshore accounts, the Zelenko Family Irrevocable Trust, Castellan Realty Holdings LLC, and other destinations.
81. Both Carvallo and Sobchak acted in concert with Zelenko and with full knowledge that their actions were fraudulent and were causing harm to Driftwood. Neither Carvallo nor Sobchak took any steps to alert Driftwood, regulators, or any other party to the fraud being perpetrated. To the contrary, each actively participated in and furthered the scheme at every stage.
CAUSES OF ACTION
FIRST CAUSE OF ACTION
Fraud (Against All Defendants)
82. Driftwood repeats and realleges each and every allegation set forth in paragraphs 1 through 81 above, as if fully set forth herein.
83. Defendants knowingly and intentionally made material misrepresentations and omissions to Driftwood over the period from December 2021 through July 2023. These misrepresentations and omissions included, but were not limited to: (a) fabricated trade confirmations purporting to document the execution of FX forward and option transactions that had never been placed in the market; (b) falsified monthly account statements reflecting inflated account balances and fictitious trading profits; (c) misrepresentations regarding Meridian Prime's registration status with the NFA as a swap dealer; (d) misrepresentations regarding the safety and segregation of Driftwood's margin collateral; and (e) concealment of Zelenko's prior FINRA disciplinary history.
84. At the time these misrepresentations were made, Defendants knew them to be false, or made them with reckless disregard for their truth or falsity. The misrepresentations were made with the specific intent to deceive Driftwood and to induce Driftwood to continue depositing margin collateral and to refrain from withdrawing funds or terminating the trading relationship with Meridian Prime.
85. Driftwood justifiably relied on Defendants' misrepresentations to its detriment. In reliance on the fabricated trade confirmations, falsified account statements, and Defendants' representations regarding Meridian Prime's regulatory status and financial integrity, Driftwood deposited a cumulative total of $38.5 million in margin collateral and failed to retrieve $8.8 million in legitimate FX settlement proceeds that were intercepted and diverted by Defendants. Had Driftwood known the truth regarding Defendants' fraud, it would not have entered into the ISDA Agreement, would not have deposited any margin collateral, and would have immediately sought the return of all funds.
86. As a direct and proximate result of Defendants' fraud, Driftwood has suffered damages in an amount not less than $47,300,000.
87. Defendants' conduct was willful, wanton, malicious, and demonstrated a high degree of moral turpitude. The fraud was not an isolated or impulsive act but rather a sustained, deliberate, and carefully orchestrated scheme carried out over eighteen months. Defendants' conduct warrants the imposition of punitive damages in an amount to be determined at trial, as necessary to punish Defendants and deter similar conduct in the future.
SECOND CAUSE OF ACTION
Conversion (Against All Defendants)
88. Driftwood repeats and realleges each and every allegation set forth in paragraphs 1 through 87 above, as if fully set forth herein.
89. Driftwood had a superior possessory right to the margin deposits and FX settlement proceeds totaling $47.3 million that were entrusted to Meridian Prime pursuant to the ISDA Agreement and the CSA. These funds were Driftwood's property, held by Meridian Prime in a fiduciary or custodial capacity, and were required to be maintained, segregated, and returned to Driftwood in accordance with the terms of the governing agreements.
90. Defendants wrongfully exercised dominion and control over Driftwood's funds, converting them to their own use and benefit. Specifically, Defendants diverted Driftwood's funds to offshore accounts in the name of Stellaris Trading Ltd., the Zelenko Family Irrevocable Trust, real estate purchases through Castellan Realty Holdings LLC, and personal expenditures by the individual Defendants.
91. Defendants' conversion of Driftwood's funds was intentional, unauthorized, and in derogation of Driftwood's rights. At no time did Driftwood consent to, authorize, or acquiesce in the diversion of its funds to any of the purposes or recipients to which Defendants directed them.
92. As a direct and proximate result of Defendants' conversion, Driftwood has suffered damages in an amount not less than $47,300,000.
THIRD CAUSE OF ACTION
Breach of Fiduciary Duty (Against All Defendants)
93. Driftwood repeats and realleges each and every allegation set forth in paragraphs 1 through 92 above, as if fully set forth herein.
94. By virtue of the ISDA Agreement and the CSA, and Meridian Prime's role as Driftwood's FX counterparty and custodian of margin collateral, Meridian Prime owed Driftwood fiduciary duties, including duties of loyalty, good faith, and fair dealing. Meridian Prime held Driftwood's margin collateral in trust and was obligated to safeguard those funds, to apply them only in accordance with the terms of the CSA, and to account for them accurately and honestly. The relationship between Driftwood and Meridian Prime was one of trust and confidence, in which Driftwood reposed confidence in Meridian Prime's integrity and relied upon Meridian Prime to act in Driftwood's interest with respect to the custody and management of Driftwood's funds.
95. Defendant Zelenko, as the Managing Member and CEO of Meridian Prime, owed fiduciary duties to Driftwood as the individual who directed and controlled the activities of Meridian Prime and who was personally responsible for ensuring that the firm met its obligations to its counterparties.
96. Defendant Carvallo, as the CFO of Meridian Prime, owed fiduciary duties to Driftwood arising from her role in preparing and disseminating financial statements and account records upon which Driftwood relied.
97. Defendant Sobchak, as the Head of FX Trading at Meridian Prime, owed fiduciary duties to Driftwood arising from his role in executing trades on Driftwood's behalf and handling Driftwood's funds.
98. Each Defendant breached the fiduciary duties owed to Driftwood by misappropriating Driftwood's funds, fabricating trade confirmations and account statements, concealing the true state of affairs, and engaging in a sustained course of conduct designed to defraud Driftwood.
99. As a direct and proximate result of Defendants' breaches of fiduciary duty, Driftwood has been damaged in an amount not less than $47,300,000.
FOURTH CAUSE OF ACTION
Unjust Enrichment (Against All Defendants)
100. Driftwood repeats and realleges each and every allegation set forth in paragraphs 1 through 99 above, as if fully set forth herein.
101. Defendants received and retained benefits, in the form of Driftwood's margin deposits and FX settlement proceeds, totaling $47.3 million. These funds were received by Defendants under circumstances in which it would be inequitable and unconscionable to permit Defendants to retain them.
102. Defendants' receipt and retention of Driftwood's funds was unjust and unconscionable, as the funds were obtained through fraud, misrepresentation, and breaches of fiduciary duty. Defendants had no legitimate entitlement to the funds they misappropriated and diverted.
103. Driftwood conferred these benefits upon Defendants under the mistaken belief, induced by Defendants' fraud, that the funds were being properly managed, invested, and safeguarded in accordance with the ISDA Agreement and the CSA.
104. Equity and good conscience require that Defendants disgorge and return to Driftwood all funds wrongfully obtained and retained. Driftwood is entitled to restitution of at least $47,300,000.
FIFTH CAUSE OF ACTION
Alter Ego / Veil-Piercing (Against Zelenko, and Derivatively Against Meridian Prime Capital LLC, Stellaris Trading Ltd., and Castellan Realty Holdings LLC)
105. Driftwood repeats and realleges each and every allegation set forth in paragraphs 1 through 104 above, as if fully set forth herein.
106. Zelenko exercised complete dominion and control over Meridian Prime Capital LLC, Stellaris Trading Ltd. (BVI Registration No. 2043871), and Castellan Realty Holdings LLC (EIN: 87-1548203). Each of these entities was wholly owned, managed, and directed by Zelenko, who used them interchangeably as vehicles for the receipt, transfer, and concealment of misappropriated funds.
107. Each entity was used as a mere instrumentality or alter ego of Zelenko to perpetrate the fraud described herein and to shield misappropriated assets from Driftwood and other creditors. None of the entities maintained a corporate identity separate from Zelenko or from one another in any meaningful sense.
108. Meridian Prime was undercapitalized at all relevant times and lacked the financial resources to conduct a legitimate FX prime brokerage business or to satisfy its obligations to Driftwood under the ISDA Agreement and CSA. Meridian Prime failed to maintain corporate formalities, and its assets were freely commingled with Zelenko's personal assets and with the assets of Stellaris Trading Ltd. and Castellan Realty Holdings LLC.
109. Stellaris Trading Ltd. was a sham entity with no legitimate business purpose, created solely to serve as a conduit for the receipt and concealment of funds misappropriated from Driftwood. Castellan Realty Holdings LLC was similarly used by Zelenko as a vehicle to acquire real estate with stolen funds, for his personal benefit.
110. Adherence to the fiction of separate corporate identity for Meridian Prime, Stellaris Trading Ltd., and Castellan Realty Holdings LLC would sanction the fraud perpetrated by Zelenko and would promote injustice by permitting Zelenko to shield assets behind nominally independent entities that he wholly controlled and that were used as instruments of his fraud.
111. The corporate veils of Meridian Prime Capital LLC, Stellaris Trading Ltd., and Castellan Realty Holdings LLC should be pierced, and Zelenko should be held personally and jointly and severally liable for all damages sustained by Driftwood, including but not limited to the $47.3 million in misappropriated funds, prejudgment interest, attorneys' fees, costs, and punitive damages.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff Driftwood Absolute Return Fund Ltd. respectfully requests that this Court enter judgment in its favor and against Defendants Meridian Prime Capital LLC, Viktor Andreyevich Zelenko, Irene Maria Carvallo, and Dmitri Pavlovich Sobchak, jointly and severally, as follows:
1. Awarding Driftwood compensatory damages in an amount not less than Forty-Seven Million Three Hundred Thousand Dollars ($47,300,000), representing the total funds misappropriated by Defendants;
2. Awarding Driftwood prejudgment interest at the statutory rate of nine percent (9%) per annum pursuant to CPLR § 5004, from the date of each misappropriation through the date of judgment;
3. Awarding Driftwood its reasonable attorneys' fees and costs incurred in this action pursuant to the fee-shifting provision contained in the ISDA Master Agreement dated December 15, 2021;
4. Awarding Driftwood punitive damages in an amount to be determined at trial, on account of Defendants' willful, wanton, and malicious conduct;
5. Declaring that the corporate veils of Meridian Prime Capital LLC, Stellaris Trading Ltd., and Castellan Realty Holdings LLC be pierced, and that Defendant Viktor Andreyevich Zelenko is personally and jointly and severally liable for all damages;
6. Imposing a constructive trust on all funds and assets traceable to the misappropriated $47.3 million, wherever located, including but not limited to funds held at Palmetto International Bank Ltd. in the accounts of Stellaris Trading Ltd., assets held in the Zelenko Family Irrevocable Trust, the real properties at 425 East 58th Street, Apt. 32F, New York, New York 10022 and 17 Wooster Street, Unit 3, New York, New York 10013, and any other assets in the possession or control of Defendants or their affiliates that are traceable to the misappropriated funds; and
7. Granting such other and further relief as this Court deems just and proper.
VERIFICATION
STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK )
Sandra Hu, being duly sworn, deposes and says:
I am the Chief Operating Officer and Chief Compliance Officer of Driftwood Capital Management LP, the investment manager of the Plaintiff herein, Driftwood Absolute Return Fund Ltd. I am authorized to execute this Verification on behalf of the Plaintiff.
I have read the foregoing Verified Complaint and know the contents thereof. The statements contained therein are true to my knowledge, except as to those matters stated upon information and belief, and as to those matters, I believe them to be true. The basis for my knowledge includes my personal involvement in the discovery of the fraud described herein, my review of the books, records, and documents of Driftwood and Driftwood Capital Management LP, communications with Bridgemont Bank NA, and information provided to me by Driftwood's counsel, Calderwood & Harkness LLP, in the course of their investigation.
________________________________________
Sandra Hu Chief Operating Officer and Chief Compliance Officer Driftwood Capital Management LP
Dated: August 7, 2023
Sworn to before me this 7th day of August, 2023.
________________________________________
Notary Public, State of New York
Name: Jennifer L. Okafor
Commission No.: 01OF6348217 Commission Expires: March 14, 2025
ATTORNEY SIGNATURE
Calderwood & Harkness LLP Attorneys for Plaintiff Driftwood Absolute Return Fund Ltd.
By: ________
Priya Anand Hannah Brinkley 200 Park Avenue, 42nd Floor New York, New York 10166 Telephone: (212) 506-7800 Facsimile: (212) 506-7801
Dated: August 7, 2023
EXHIBIT LIST
The following Exhibits are referenced in this Verified Complaint and are incorporated herein by reference:
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, between Driftwood Absolute Return Fund Ltd. and Meridian Prime Capital LLC.
Exhibit C: Representative fabricated monthly account statement from Meridian Prime Capital LLC dated June 30, 2023 (reflecting account balance of $52.1 million).
Exhibit D: Bridgemont Bank NA confirmation of Meridian Prime Capital LLC client account balances (approximately $3.2 million), dated on or about July 18, 2023.
Exhibit E: Representative fabricated trade confirmations issued by Meridian Prime Capital LLC to Driftwood Absolute Return Fund Ltd.
Exhibit F: Wire transfer records showing margin deposits from Driftwood Absolute Return Fund Ltd. to Meridian Prime Capital LLC (cumulative total of $38.5 million).
Exhibit G: Corporate records of Castellan Realty Holdings LLC and property purchase documents for (a) 425 East 58th Street, Apt. 32F, New York, New York 10022 ($4.85 million, June 2022) and (b) 17 Wooster Street, Unit 3, New York, New York 10013 ($3.15 million, September 2022).
Exhibit H: Zelenko Family Irrevocable Trust instrument, dated April 8, 2021.
Exhibit I: FINRA disciplinary records for Viktor Andreyevich Zelenko (2017 censure and fine at Clarendon Markets LLC for unauthorized trading).
Exhibit J: Stellaris Trading Ltd. BVI corporate registry extract (BVI Registration No. 2043871).
Category | Amount
Offshore accounts at Palmetto International Bank (Stellaris Trading Ltd.) | $18,600,000
Zelenko Family Irrevocable Trust | $12,400,000
Real estate purchases through Castellan Realty Holdings LLC | $8,000,000
Cash withdrawals and personal expenditures | $5,100,000
Retained in Meridian Prime operating accounts | $3,200,000
Total | $47,300,000