1024-00003 · Driftwood Absolute Return Fund Ltd · Post-Judgment Enforcement

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

Index No. 654321/2023

Before the Honorable Eleanor Vasquez, J.S.C.

PETITION FOR APPOINTMENT OF RECEIVER OVER MERIDIAN PRIME CAPITAL LLC AND CASTELLAN REALTY HOLDINGS LLC

Filed: January 29, 2024

CALDERWOOD & HARKNESS LLP 200 Park Avenue, 42nd Floor New York, NY 10166 Telephone: (212) 558-4000 Facsimile: (212) 558-3588 Priya Anand, Esq. Hannah Brinkley, Esq. Attorneys for Plaintiff Driftwood Absolute Return Fund Ltd.

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PRELIMINARY STATEMENT

Petitioner Driftwood Absolute Return Fund Ltd. ("Driftwood" or "Petitioner"), a Cayman Islands exempted company (Registration No. MC-349217) managed by Driftwood Capital Management LP ("DCM"), respectfully petitions this Court pursuant to CPLR § 5228 and the Court's inherent equitable powers for the appointment of a receiver over defendant Meridian Prime Capital LLC ("Meridian Prime") and non-party Castellan Realty Holdings LLC ("Castellan Realty"), a Delaware limited liability company (EIN 87-1548203) controlled by defendant Viktor Andreyevich Zelenko ("Zelenko").

On January 10, 2024, this Court entered a judgment in favor of Driftwood and against all defendants in the total amount of $58,900,000, comprising: (i) $47,300,000 in compensatory damages; (ii) $9,460,000 in prejudgment interest calculated at the statutory rate of 9% per annum under CPLR § 5004; and (iii) $2,140,000 in attorneys' fees and costs awarded pursuant to the fee-shifting provision of Section 11 of the ISDA Master Agreement (2002 form) dated December 15, 2021, between Driftwood and Meridian Prime (the "ISDA Agreement"). A true and correct copy of the judgment is attached hereto as Exhibit B.

Driftwood brings this petition because, despite the entry of this substantial judgment, despite the existence of a preliminary injunction and order of attachment, and despite months of post-judgment enforcement efforts, the judgment remains wholly unsatisfied. The judgment debtors — who orchestrated a systematic, 18-month fraud that resulted in the misappropriation of $47,300,000 from Driftwood — have shown no willingness or ability to satisfy the judgment. Their conduct throughout this litigation has been marked by fabrication of records, obstruction of discovery, abandonment by prior counsel, and a demonstrated pattern of asset concealment and dissipation.

Receivership is necessary and appropriate to marshal, protect, and liquidate the assets of Meridian Prime and Castellan Realty — entities that served as instrumentalities of the fraud and as vehicles through which judgment debtor Zelenko diverted and concealed misappropriated funds. Meridian Prime has no legitimate business operations and never did; it was a shell used to perpetrate fraud. Castellan Realty is a single-member LLC controlled entirely by Zelenko, formed and funded with proceeds traceable to funds stolen from Driftwood. Together, these entities hold assets — including two New York City real properties originally purchased for a combined $8,000,000 — that must be professionally managed, preserved, and ultimately liquidated for the benefit of the judgment creditor.

Driftwood proposes the appointment of Barrow & Fitch Realty Inc. ("Barrow & Fitch"), with offices at 1185 Avenue of the Americas, 15th Floor, New York, NY 10036, through its principal Thomas Barrow, as the court-appointed receiver. Mr. Barrow is an experienced court-appointed receiver with particular expertise in real property receiverships and fraud-related asset recovery. His qualifications are set forth in detail in Exhibit G, and his affirmation of willingness to serve, disclosure of potential conflicts, and proposed scope of initial actions is attached as Exhibit H.

I. STATEMENT OF FACTS

A. The Parties and Relevant Non-Parties

1. Petitioner Driftwood Absolute Return Fund Ltd. Driftwood Absolute Return Fund Ltd. is a Cayman Islands exempted company (Registration No. MC-349217), with its registered address c/o Hargrove Corporate Services Ltd., 4th Floor, Windward House, 94 Elgin Avenue, George Town, Grand Cayman KY1-1104. Driftwood is a private investment fund organized for the purpose of generating absolute returns for its investors through a multi-strategy approach with significant allocations to global macro and foreign exchange ("FX") volatility strategies.

Driftwood's investment manager is Driftwood Capital Management LP ("DCM"), a Delaware limited partnership with its principal office at 590 Madison Avenue, 28th Floor, New York, NY 10022. DCM is registered as an investment adviser with the United States Securities and Exchange Commission. Marcus Ellison serves as DCM's Chief Investment Officer and Sandra Hu serves as DCM's Chief Operating Officer and Chief Compliance Officer. As of June 30, 2023, DCM managed approximately $1.82 billion in assets under management on behalf of Driftwood and its related feeder funds. Driftwood's fund administrator is Pinnacle Fund Services (Cayman) Ltd. Its fund auditor is Graystone & Whitfield LLP, and its prime broker for equities and rates strategies is Halcyon Securities Inc.

2. Defendant Meridian Prime Capital LLC. Meridian Prime Capital LLC is a New York limited liability company (EIN 84-3217659), with a registered address at 140 Broadway, Suite 3510, New York, NY 10005. Meridian Prime was formed on March 14, 2019, and purported to operate as an FX prime brokerage, providing FX execution, clearing, and custody services to institutional clients. Viktor Zelenko served as Meridian Prime's Managing Member and Chief Executive Officer from its inception. Irene Maria Carvallo served as Meridian Prime's Chief Financial Officer, and Dmitri Pavlovich Sobchak served as Head of FX Trading.

Meridian Prime claimed to be registered with the National Futures Association ("NFA") as a swap dealer. Investigation during this litigation revealed that any such registration had either lapsed or was fraudulently represented to clients, including Driftwood. Meridian Prime is a judgment debtor in this action, against which this Court entered a default judgment on January 10, 2024.

3. Defendant Viktor Andreyevich Zelenko. Viktor Andreyevich Zelenko (date of birth: June 3, 1978) is a naturalized United States citizen who resides at 425 East 58th Street, Apt. 32F, New York, NY 10022. Prior to founding Meridian Prime, Zelenko was employed as a foreign exchange trader at Bridgemont Bank NA from 2006 to 2015, and thereafter at Clarendon Markets LLC from 2015 to 2018. Notably, Zelenko was the subject of a disciplinary action by the Financial Industry Regulatory Authority ("FINRA") in 2017, resulting in a censure and a monetary fine for unauthorized trading activity. Despite this disciplinary history, Zelenko founded Meridian Prime in 2019 and held himself out to institutional clients, including Driftwood, as the operator of a legitimate and registered FX prime brokerage.

As established by this Court's judgment of January 10, 2024, Zelenko was the mastermind and principal beneficiary of the fraud scheme that resulted in the misappropriation of $47,300,000 from Driftwood. The Court further found that Zelenko exercised complete dominion and control over Meridian Prime, disregarded the entity's separate existence, and used Meridian Prime as his alter ego and instrumentality to perpetrate the fraud.

4. Defendant Irene Maria Carvallo. Irene Maria Carvallo (date of birth: November 17, 1982) is a United States citizen who resides at 88 Greenwich Street, Apt. 2704, New York, NY 10006. Carvallo is a Certified Public Accountant who was previously employed as a senior accountant at Ledgerfield & Associates PC. She served as Chief Financial Officer of Meridian Prime from its inception and was responsible for, among other things, the preparation and dissemination of the fabricated monthly account statements sent to Driftwood. This Court's January 10, 2024 judgment found Carvallo jointly and severally liable for the fraud.

5. Defendant Dmitri Pavlovich Sobchak. Dmitri Pavlovich Sobchak (date of birth: February 22, 1985) is a United States permanent resident and Ukrainian national who resides at 301 West 57th Street, Apt. 18B, New York, NY 10019. Prior to joining Meridian Prime, Sobchak served as an FX desk analyst at Bridgemont Bank NA, where he worked alongside Zelenko. Zelenko recruited Sobchak to Meridian Prime in 2019. Sobchak was responsible for executing and fabricating trade confirmations as part of the fraud scheme. This Court's January 10, 2024 judgment found Sobchak jointly and severally liable.

6. Non-Party Castellan Realty Holdings LLC. Castellan Realty Holdings LLC is a Delaware limited liability company (EIN 87-1548203), with its address listed as c/o Viktor Zelenko, 425 East 58th Street, Apt. 32F, New York, NY 10022. Castellan Realty is wholly owned and controlled by Zelenko. It has no independent officers, directors, employees, or business operations apart from holding title to two New York City real properties purchased with misappropriated funds during the period of the fraud.

Castellan Realty's two properties are:

(a) 425 East 58th Street, Apt. 32F, New York, NY 10022 — a residential condominium unit purchased in June 2022 for $4,850,000. This unit also serves as Zelenko's personal residence. The deed reflecting Castellan Realty as the purchaser is attached hereto as Exhibit E.

(b) 17 Wooster Street, Unit 3, New York, NY 10013 — a commercial property purchased in September 2022 for $3,150,000. The deed reflecting Castellan Realty as the purchaser is attached hereto as Exhibit F.

The total original acquisition cost of these two properties was $8,000,000. As established by the Kelvantis Forensic Advisors LLC preliminary fund tracing report (excerpts attached as Exhibit C), the entire $8,000,000 used to acquire these properties is directly traceable to funds misappropriated from Driftwood. The formation documents and operating records of Castellan Realty are attached hereto as Exhibit D.

B. The Fraud Scheme

The fraud perpetrated by defendants was systematic, deliberate, and sustained over a period of approximately eighteen months. It began with the establishment of a facially legitimate business relationship between Driftwood and Meridian Prime, and was carried out through the fabrication of trade confirmations, the falsification of account statements, and the diversion of Driftwood's margin deposits and trading proceeds through multiple layers of entities and accounts controlled by the defendants.

On December 15, 2021, Meridian Prime entered into an ISDA Master Agreement (2002 form) with Driftwood, together with a Credit Support Annex ("CSA") governing the posting of collateral. Under the terms of the CSA, Driftwood was required to post initial margin in the amount of $12,000,000 in cash, with additional variation margin to be posted or returned based on the mark-to-market valuation of outstanding transactions. The ISDA Agreement and CSA contemplated that Driftwood would enter into FX forward and vanilla FX option transactions through Meridian Prime, primarily in the EUR/USD, GBP/USD, and USD/JPY currency pairs, consistent with Driftwood's global macro and FX volatility investment strategy.

From January 2022 through July 2023 — a period of approximately eighteen months — defendants carried out a scheme to defraud Driftwood that involved the following core elements:

First, Meridian Prime fabricated trade confirmations purporting to show that Driftwood's FX forward and vanilla FX option transactions were being executed and settling in the ordinary course. In fact, many of these transactions were never executed, and the confirmations were fabricated by Sobchak and transmitted to Driftwood under the guise of routine trade documentation.

Second, Carvallo prepared and disseminated falsified monthly account statements that materially inflated the value of Driftwood's portfolio, showing purported trading profits of $14,800,000 that did not exist. These fabricated statements were designed to induce Driftwood to continue posting margin deposits and to prevent Driftwood from discovering that its funds had been diverted.

Third, Meridian Prime diverted Driftwood's margin deposits and intercepted legitimate FX settlement proceeds, transferring these funds to accounts controlled by Zelenko, Carvallo, and Sobchak, and to entities established by Zelenko for the specific purpose of concealing the stolen funds.

The total cumulative margin deposits made by Driftwood to Meridian Prime during the period from January 2022 through July 2023 was $38,500,000. In addition, legitimate FX settlement proceeds in the amount of $8,800,000 that should have been credited to Driftwood's account were intercepted and diverted by Meridian Prime. The total funds misappropriated from Driftwood therefore amount to $47,300,000 ($38,500,000 in margin deposits plus $8,800,000 in intercepted settlement proceeds).

The last fabricated account statement sent to Driftwood, dated June 30, 2023, reflected a purported account balance of $52,100,000 — a figure that bore no relation to reality. The actual balance in Meridian Prime's client accounts at Bridgemont Bank NA at that time was approximately $3,200,000.

C. Breakdown of Fund Diversions

The investigation conducted by Kelvantis Forensic Advisors LLC ("Kelvantis"), retained by Driftwood's counsel as forensic accountants, has traced the $47,300,000 in misappropriated funds to the following channels of diversion:

(a) $18,600,000 was transferred to offshore accounts at Palmetto International Bank Ltd. (302 Bay Street, Nassau, Bahamas) in the name of Stellaris Trading Ltd. (BVI business company, Registration No. 2043871), a British Virgin Islands entity controlled by Zelenko. These transfers were made in a series of wire transactions between March 2022 and June 2023, structured in amounts designed to avoid triggering enhanced reporting thresholds.

(b) $12,400,000 was transferred to the Zelenko Family Irrevocable Trust (established April 8, 2021, Tax ID 86-6092411), held at Marlowe Asset Management Trust Company of Delaware (1201 North Market Street, Suite 1600, Wilmington, DE 19801). These transfers were made between February 2022 and May 2023, and were characterized in Meridian Prime's internal records as "management fee distributions" — a designation that was entirely fictitious.

(c) $8,000,000 was used to purchase real estate through Castellan Realty Holdings LLC: specifically, $4,850,000 for the purchase of 425 East 58th Street, Apt. 32F, New York, NY 10022 (closed in June 2022), and $3,150,000 for the purchase of 17 Wooster Street, Unit 3, New York, NY 10013 (closed in September 2022).

(d) $5,100,000 was withdrawn in cash or expended on personal expenditures by the defendants, including luxury goods, travel, and other personal consumption.

(e) $3,200,000 was retained in Meridian Prime's operating accounts at Bridgemont Bank NA (383 Madison Avenue, New York, NY 10179), where it remains frozen pursuant to this Court's preliminary injunction and order of attachment.

The total of these diversions — $18,600,000 + $12,400,000 + $8,000,000 + $5,100,000 + $3,200,000 — equals $47,300,000, accounting for the full amount of misappropriated funds. These findings are set forth in detail in the Kelvantis Forensic Advisors LLC preliminary fund tracing report dated November 20, 2023, excerpts of which are attached as Exhibit C.

D. Discovery of the Fraud

The fraud was discovered on July 18, 2023, when Sandra Hu, Driftwood's Chief Operating Officer and Chief Compliance Officer, initiated a routine margin reconciliation as part of DCM's quarterly risk management and compliance procedures. As part of this reconciliation, Ms. Hu requested direct confirmation from Bridgemont Bank NA — the bank at which Meridian Prime maintained its client accounts — of the balances in Meridian Prime's accounts.

Bridgemont Bank's response, received on approximately July 19, 2023, disclosed that the total balance across all of Meridian Prime's client accounts was only approximately $3,200,000. This figure stood in stark and irreconcilable contrast to the $52,100,000 balance reflected on Meridian Prime's most recent fabricated account statement dated June 30, 2023 — a discrepancy of approximately $48,900,000.

Upon receiving this information, Ms. Hu immediately escalated the matter to DCM's senior management and board of directors. An emergency board meeting of Driftwood was convened on July 21, 2023. At that meeting, the board authorized the engagement of litigation counsel to investigate the matter and pursue all available legal remedies. Calderwood & Harkness LLP was retained as Driftwood's litigation counsel on July 25, 2023.

E. Prior Proceedings in This Action

The procedural history of this action provides important context for the present petition and further demonstrates the necessity of receivership. A summary of the key events is as follows:

August 7, 2023: Driftwood filed its complaint in this Court, asserting claims for fraud, conversion, breach of fiduciary duty, unjust enrichment, and alter ego/veil-piercing against Meridian Prime, Zelenko, Carvallo, and Sobchak. Simultaneously, Driftwood filed an ex parte application for a temporary restraining order ("TRO") and an order of attachment pursuant to CPLR Article 62.

August 8, 2023: This Court (Vasquez, J.S.C.) granted the TRO, freezing Meridian Prime's accounts at Bridgemont Bank NA and restraining the individual defendants from transferring, encumbering, or dissipating any assets. The Court also granted Driftwood's application for an order of attachment in the amount of $50,000,000, finding a probability that defendants had engaged in fraudulent conduct and that there was a risk of dissipation of assets absent provisional relief.

August 14, 2023: The law firm of Whitmore & Gaines LLP (60 East 42nd Street, 20th Floor, New York, NY 10165), through its lead attorney Jonathan Whitmore and associate Chloe Redmond, filed a notice of appearance on behalf of all four defendants.

August 22, 2023: Following a contested hearing on Driftwood's motion for a preliminary injunction, this Court converted the TRO into a preliminary injunction, finding that Driftwood had demonstrated a likelihood of success on the merits, that irreparable harm would result absent injunctive relief, and that the balance of equities tipped decidedly in Driftwood's favor.

September 5, 2023: Defendants, through Whitmore & Gaines, filed an answer with affirmative defenses. Notably, defendants did not assert any counterclaim.

September 18, 2023: Driftwood served expedited discovery demands, including document requests and interrogatories, targeting the full scope of the defendants' assets, transactions, and business records.

October 6, 2023: Defendants made a partial document production of approximately 1,200 pages. Calderwood & Harkness's review of the production identified significant gaps, including the absence of critical bank records, wire transfer confirmations, and accounting records. Moreover, a number of the documents produced were identified as fabricated — bearing formatting, date, and content inconsistencies that indicated post hoc creation — further evidencing the defendants' continuing pattern of fraud and obstruction.

October 20, 2023: Driftwood filed a motion to compel complete discovery responses and for sanctions based on the defendants' deficient and fraudulent production.

October 30, 2023: Whitmore & Gaines LLP moved to withdraw as counsel for all defendants, citing non-payment of legal fees and an irreparable breakdown in the attorney-client relationship. In its motion papers, Whitmore & Gaines indicated that repeated efforts to communicate with the defendants regarding the necessity of compliance with discovery obligations had been unsuccessful.

November 13, 2023: This Court granted Whitmore & Gaines's motion to withdraw, effective immediately, and afforded the defendants thirty days to retain substitute counsel.

November 20, 2023: Kelvantis Forensic Advisors LLC delivered its preliminary fund tracing report. The report, prepared under the direction of lead engagement partner Natasha Everett, CPA, CFF (Kelvantis's offices are located at 101 Hudson Street, Suite 2500, Jersey City, NJ 07302), traced the $47,300,000 in misappropriated funds through the diversion channels described above. The report noted that while the major channels of diversion had been identified, additional undiscovered accounts and transfers likely existed and would require further investigation, including the issuance of subpoenas to additional financial institutions and an examination of records maintained by the defendants' entities.

December 4, 2023: Driftwood filed a motion for default judgment against Meridian Prime (which had failed to retain substitute counsel or otherwise respond to discovery) and for summary judgment on the fraud and alter ego claims against Zelenko, Carvallo, and Sobchak (all of whom likewise failed to retain substitute counsel or oppose the motion).

December 15, 2023: The deadline set by the Court for defendants to retain new counsel lapsed without any defendant having filed a notice of appearance of substitute counsel.

January 10, 2024: This Court entered default judgment against Meridian Prime Capital LLC and granted summary judgment on the fraud and alter ego claims against Zelenko, Carvallo, and Sobchak. The Court awarded total damages of $58,900,000, comprised of $47,300,000 in compensatory damages, $9,460,000 in prejudgment interest (at 9% per annum under CPLR § 5004), and $2,140,000 in attorneys' fees and costs pursuant to Section 11 of the ISDA Agreement.

January 22, 2024: The law firm of Kessler Brandt & Roe LLP (900 Third Avenue, Suite 1700, New York, NY 10022), through its lead attorney Aaron Kessler, entered an appearance on behalf of Zelenko individually. To date, neither Carvallo nor Sobchak has retained substitute counsel, and no defendant has voluntarily satisfied any portion of the $58,900,000 judgment.

II. THE ENTITIES OVER WHICH RECEIVERSHIP IS SOUGHT

A. Meridian Prime Capital LLC

Meridian Prime Capital LLC is a New York limited liability company (EIN 84-3217659), formed on March 14, 2019, with a registered address at 140 Broadway, Suite 3510, New York, NY 10005. Meridian Prime is a judgment debtor in this action, against which a default judgment in the amount of $58,900,000 was entered on January 10, 2024.

Meridian Prime has no active legitimate business operations. It has no customers, no employees (other than the individual defendants who are themselves judgment debtors), no ongoing contracts, and no revenue-producing activities. The evidence adduced during this litigation, and the findings made by this Court in its January 10, 2024 decision, establish that Meridian Prime's sole function in recent years was as the vehicle through which Zelenko, Carvallo, and Sobchak perpetrated the fraud against Driftwood. The entity never operated a bona fide FX prime brokerage; rather, it was a front used to solicit and receive margin deposits from Driftwood, which were then systematically diverted.

The known assets of Meridian Prime include approximately $3,200,000 in accounts at Bridgemont Bank NA (383 Madison Avenue, New York, NY 10179), which remain frozen pursuant to this Court's preliminary injunction and order of attachment. In addition, Meridian Prime may hold other assets — including books and records, potential claims or rights of action (including potential claims against third parties who may have aided the fraud or received misappropriated funds), intellectual property (such as it is), and undiscovered accounts — that require professional investigation and custodianship.

The entity's managing member, Zelenko, is a judgment debtor who has demonstrated a sustained and sophisticated willingness and ability to dissipate and conceal assets. Over the eighteen-month course of the fraud, Zelenko directed the diversion of $47,300,000 through multiple channels, including offshore accounts, irrevocable trusts, shell entities, and real estate purchases. The fact that Zelenko continued to exercise control over Meridian Prime's books and records — and that fabricated documents were produced during discovery — further demonstrates the urgent need for independent custodianship.

Without the appointment of a receiver, Meridian Prime's residual assets are at substantial risk of further dissipation, concealment, or destruction. The existing preliminary injunction and order of attachment, while effective in freezing the known bank accounts, do not provide for the active management, investigation, or liquidation of the entity's assets. A receiver is necessary to take possession of all assets and records, to conduct a thorough investigation of the entity's financial affairs, and to pursue recovery of additional assets for the benefit of the judgment creditor.

B. Castellan Realty Holdings LLC

Castellan Realty Holdings LLC is a Delaware limited liability company (EIN 87-1548203), controlled entirely by judgment debtor Viktor Zelenko. Its address is listed as c/o Viktor Zelenko, 425 East 58th Street, Apt. 32F, New York, NY 10022 — the same address as one of the two properties it holds. Castellan Realty has no independent officers, directors, or employees. It has no independent business operations. It was formed and exists solely as a vehicle for Zelenko to hold title to real property purchased with misappropriated funds.

Although Castellan Realty is not a named defendant in this action, it is the alter ego and fraudulent conveyance vehicle of judgment debtor Zelenko. Driftwood intends to file — and indeed has already commenced preparation of — a separate fraudulent conveyance action against Castellan Realty under Sections 273 through 276 of the New York Debtor and Creditor Law ("NYDCL") to establish that the transfers of $8,000,000 from Meridian Prime (through Zelenko) to Castellan Realty were made without fair consideration, while Meridian Prime was insolvent or was rendered insolvent by such transfers, and with actual intent to hinder, delay, and defraud creditors. That action was subsequently filed on March 8, 2024.

Castellan Realty holds two New York City real properties that were purchased entirely with funds traceable to Driftwood's misappropriated margin deposits:

(a) 425 East 58th Street, Apt. 32F, New York, NY 10022. This is a luxury residential condominium unit in a full-service building on Manhattan's Upper East Side. Castellan Realty purchased this unit in June 2022 for $4,850,000. The unit also serves as Zelenko's personal residence. The deed reflecting Castellan Realty as the purchaser, along with the closing statement reflecting the $4,850,000 purchase price, is attached as Exhibit E.

(b) 17 Wooster Street, Unit 3, New York, NY 10013. This is a commercial property located in the SoHo neighborhood of Manhattan. Castellan Realty purchased this unit in September 2022 for $3,150,000. The deed reflecting Castellan Realty as the purchaser, along with the closing statement reflecting the $3,150,000 purchase price, is attached as Exhibit F.

The total original acquisition cost of these two properties was $8,000,000. As established by the Kelvantis Forensic Advisors fund tracing analysis, the entire $8,000,000 used to acquire these properties is directly traceable to funds diverted from Driftwood's margin deposits at Meridian Prime. The Kelvantis report traces the flow of funds from Driftwood's deposits into Meridian Prime's accounts, and then from Meridian Prime's accounts (or through intermediary accounts controlled by Zelenko) to the closing accounts used to fund these real estate acquisitions.

These properties represent significant recoverable assets. Depending on current market conditions, the properties may have appreciated or maintained their value since acquisition, potentially yielding recovery of $8,000,000 or more for Driftwood. However, without a receiver, these properties are at serious risk of encumbrance, damage, neglect, or diminution in value. Zelenko, who has no legitimate income stream (his sole occupation was operating the fraudulent Meridian Prime), cannot be relied upon to maintain the properties in marketable condition, to pay real estate taxes and common charges, or to refrain from attempting to mortgage, transfer, or otherwise encumber the properties. Given Zelenko's demonstrated pattern of asset concealment — including the creation of offshore shell entities, irrevocable trusts, and the very entity at issue, Castellan Realty — the risk that he will attempt to place these assets beyond the reach of Driftwood is substantial and immediate.

III. LEGAL STANDARD FOR APPOINTMENT OF A RECEIVER

Under New York law, courts possess broad equitable power to appoint a receiver to marshal and protect assets, particularly in cases involving fraud, asset dissipation, and the need for orderly liquidation of a judgment debtor's property. CPLR § 5228(a) provides in pertinent part that "upon motion of the judgment creditor... the court may appoint a receiver of the property of any person against whom a money judgment has been entered." This statutory authority is supplemented by the Court's inherent equitable jurisdiction, which has been exercised by New York courts for well over a century to protect the interests of judgment creditors and other aggrieved parties. See Gryphon Domestic VI, LLC v. APP Int'l Fin. Co., B.V., 41 A.D.3d 25, 31 (1st Dep't 2007) (recognizing broad equitable discretion in appointment of receivers).

The appointment of a receiver is appropriate where:

(a) There is a danger that assets will be dissipated, lost, concealed, or materially injured absent the appointment of a receiver;

(b) The judgment debtor has demonstrated a pattern of misconduct, bad faith, or concealment of assets;

(d) Less drastic remedies — including existing injunctions, orders of attachment, and post-judgment disclosure — would be inadequate to protect the judgment creditor's interests.

See, e.g., Vardaris Tech Inc. v. Paleros Inc., 2017 N.Y. Misc. Calderon Systems 3482 (Sup. Ct. N.Y. Cty. 2017); Republic of Haiti v. Duvalier, 211 A.D.2d 379, 386 (1st Dep't 1995) (affirming appointment of receiver over assets of former head of state who engaged in looting of public treasury); Hahn v. Kali Limousine Corp., 2016 N.Y. Misc. Calderon Systems 1257 (Sup. Ct. N.Y. Cty. 2016).

New York courts routinely appoint receivers in fraud cases to ensure the orderly liquidation and distribution of assets for the benefit of defrauded parties. The appointment of a receiver is especially warranted in cases where, as here:

(i) The judgment debtor perpetrated a systematic fraud involving the fabrication of financial documents, trade confirmations, and account statements;

(ii) The judgment debtor diverted misappropriated funds through multiple layers of entities, trusts, and jurisdictions — including offshore accounts and domestic trusts — specifically designed to place assets beyond the reach of creditors;

(iii) The judgment debtor has demonstrated an unwillingness or inability to comply with court orders and discovery obligations, as evidenced by the production of fabricated documents, the withdrawal of counsel for non-payment, and the failure to retain substitute counsel within the time permitted by the Court; and

(iv) The judgment remains wholly unsatisfied, and the judgment debtor has not made any voluntary payment toward satisfaction of the judgment.

With respect to non-party entities such as Castellan Realty, receivership is proper where the entity is the alter ego of a judgment debtor, holds assets that are the proceeds of fraud, or holds assets subject to fraudulent conveyance claims. See CPLR § 5225(b) (authorizing proceedings against persons in possession of property of the judgment debtor or against persons who are transferees of such property); see also Matter of Dental Health Mgmt. Inc., 2012 N.Y. Misc. Calderon Systems 5630 (Sup. Ct. Nassau Cty. 2012) (appointing receiver over entities controlled by judgment debtor). This Court's January 10, 2024 judgment already established that Zelenko exercised complete dominion and control over Meridian Prime and used it as his alter ego. Castellan Realty, which is wholly owned and controlled by Zelenko, which has no independent existence or operations, and which was funded entirely with funds misappropriated from Driftwood, is similarly subject to this Court's equitable jurisdiction. The appointment of a receiver over Castellan Realty is necessary to preserve the properties held by that entity and to prevent further dissipation or concealment pending resolution of Driftwood's fraudulent conveyance claims.

IV. ARGUMENT

A. Receivership Over Meridian Prime Is Warranted

The appointment of a receiver over Meridian Prime Capital LLC is warranted by the overwhelming evidence of fraud, the entity's lack of legitimate business operations, the demonstrated risk of asset dissipation, and the inability of less drastic remedies to adequately protect Driftwood's interests. Each of these factors is addressed in turn.

1. Meridian Prime Has No Legitimate Business Operations.

The evidence adduced during this litigation, including the Kelvantis Forensic Advisors fund tracing report, the fabricated trade confirmations and account statements, and the findings of this Court in its January 10, 2024 decision, conclusively establishes that Meridian Prime had no legitimate business operations. It was not a bona fide FX prime brokerage. It did not execute legitimate trades on behalf of its clients. It did not maintain proper customer accounts or segregate customer funds. Its sole function was to serve as the vehicle through which Zelenko, Carvallo, and Sobchak perpetrated a $47,300,000 fraud upon Driftwood.

Meridian Prime fabricated trade confirmations purporting to show profitable positions in FX forwards and vanilla FX options over an eighteen-month period. It sent falsified monthly account statements to Driftwood that inflated portfolio value by tens of millions of dollars. The last such statement, dated June 30, 2023, reflected a purported balance of $52,100,000, when the actual balance in Meridian Prime's accounts was approximately $3,200,000. The entity has no customers, no employees (other than the individual defendants who are themselves judgment debtors), and no ongoing business of any kind. There is no business to disrupt and no innocent parties whose interests would be harmed by the appointment of a receiver.

2. Meridian Prime's Assets Are at Risk of Dissipation.

Despite the preliminary injunction and order of attachment entered by this Court, Meridian Prime's residual assets remain at risk. The approximately $3,200,000 in frozen accounts at Bridgemont Bank NA represents only a fraction of the funds that passed through Meridian Prime. Other assets — including books and records, electronic data, potential claims against third parties (including aiders and abettors of the fraud, recipients of fraudulent transfers, and financial institutions that may have facilitated the diversion of funds), and any undiscovered accounts — are not subject to active custodianship or management under the existing injunction. These assets require professional oversight to prevent their destruction, concealment, or deterioration.

Critically, the Kelvantis Forensic Advisors report identified the major channels of diversion but expressly noted that additional undiscovered accounts and transfers likely exist and require further investigation. A receiver, armed with the Court's authority and equipped with the professional resources to conduct a comprehensive investigation, is uniquely positioned to identify and recover these additional assets.

3. Meridian Prime's Principals Cannot Be Trusted to Preserve Assets.

Zelenko, Carvallo, and Sobchak orchestrated a $47,300,000 fraud over eighteen months. Their conduct was not a single act of misappropriation, but a sustained and deliberate scheme involving the fabrication of documents, the creation of shell entities, the use of offshore accounts, and the systematic diversion of funds through multiple channels. These are not individuals who can be trusted to preserve assets for the benefit of a judgment creditor.

Their conduct during this litigation has been equally troubling. Despite being represented by counsel, they produced only approximately 1,200 pages of documents in response to Driftwood's comprehensive discovery demands — and many of those documents were themselves fabricated. Their counsel, Whitmore & Gaines LLP, was compelled to withdraw due to non-payment of fees and a breakdown in the attorney-client relationship. After counsel's withdrawal, no defendant (with the belated exception of Zelenko, who retained Kessler Brandt & Roe LLP on January 22, 2024) made any effort to retain substitute counsel, to comply with outstanding discovery obligations, or to oppose Driftwood's motion for judgment. Carvallo and Sobchak remain unrepresented to this day.

This pattern of conduct — fraud, fabrication, obstruction, abandonment, and non-cooperation — demonstrates conclusively that the judgment debtors cannot and will not preserve Meridian Prime's assets for the benefit of the judgment creditor. A receiver is essential to ensure that such assets are identified, preserved, and ultimately liquidated in an orderly manner.

4. A Receiver Will Facilitate Comprehensive Asset Identification and Recovery.

A court-appointed receiver will be empowered to take immediate possession and control of all of Meridian Prime's assets, books, records, and accounts. The receiver will have authority to conduct a comprehensive investigation of the entity's financial affairs, to issue subpoenas and conduct examinations as necessary, and to pursue claims against third parties on behalf of the receivership estate. The appointment of a receiver will enable the kind of thorough, independent, and professionally managed investigation and recovery effort that is necessary in a case of this magnitude and complexity.

The Kelvantis Forensic Advisors preliminary fund tracing report, while comprehensive in many respects, expressly acknowledged that the investigation was incomplete and that additional diversion channels likely remain to be discovered. A receiver, working with forensic accountants and other professionals, will be positioned to complete this work and to maximize the recovery of assets for the benefit of the judgment creditor.

5. The Appointment Will Aid in the Orderly Winding Down of Meridian Prime's Affairs.

Meridian Prime has no ongoing business, no customers to serve, and no legitimate purposes to fulfill. It is, for all practical purposes, a defunct entity whose sole remaining function is to serve as a repository of assets (and potential assets) that may be applied toward satisfaction of the $58,900,000 judgment. A receiver will ensure that the winding down of Meridian Prime's affairs is conducted in an orderly, transparent, and judicially supervised manner, with regular reporting to the Court and accountability to the judgment creditor.

B. Receivership Over Castellan Realty Is Warranted

The appointment of a receiver over Castellan Realty Holdings LLC is equally warranted by the evidence, the law, and the practical necessities of this case. The following considerations support the appointment.

1. Castellan Realty Is the Alter Ego of Judgment Debtor Zelenko.

Castellan Realty is a Delaware LLC wholly owned and controlled by Zelenko. It has no independent officers, directors, employees, or business operations. Its registered address is Zelenko's personal residence at 425 East 58th Street, Apt. 32F, New York, NY 10022. It was formed by Zelenko and exists solely for the purpose of holding title to real property that Zelenko caused to be purchased with misappropriated funds. There is a complete unity of interest and ownership between Zelenko and Castellan Realty, and the entity form has been used to perpetrate a wrong — namely, the concealment of assets acquired with funds stolen from Driftwood.

This Court's January 10, 2024 judgment already pierced the corporate veil between Zelenko and Meridian Prime, finding that Zelenko exercised complete dominion and control over Meridian Prime and used it as his personal instrumentality. The same analysis applies with equal or greater force to Castellan Realty. Indeed, while Meridian Prime at least maintained the outward trappings of a business entity (an office, purported employees, a claimed regulatory registration), Castellan Realty has never had even these superficial indicia of separateness. It is nothing more than a holding entity through which Zelenko concealed stolen funds in the form of real property.

2. Castellan Realty's Real Properties Were Purchased Entirely with Misappropriated Funds.

The Kelvantis Forensic Advisors fund tracing analysis traces, with specificity, the flow of $8,000,000 in misappropriated funds from Driftwood's margin deposits through Meridian Prime's accounts and ultimately to the closing accounts used to fund the purchase of the two Castellan Realty properties. The $4,850,000 used to purchase 425 East 58th Street, Apt. 32F in June 2022, and the $3,150,000 used to purchase 17 Wooster Street, Unit 3 in September 2022, are both directly traceable to funds stolen from Driftwood.

Specifically, the Kelvantis report identifies a series of wire transfers from Meridian Prime's accounts at Bridgemont Bank NA to an intermediary account controlled by Zelenko, and from that account to the title company accounts used to fund each closing. The timing, amounts, and account identifiers of these transfers are set forth in the Kelvantis report and leave no doubt that the properties were acquired with the proceeds of fraud. Excerpts of the Kelvantis report documenting these tracings are attached as Exhibit C.

Because the properties were purchased with funds that belong equitably to Driftwood, they represent assets that are directly recoverable by the judgment creditor, whether through the imposition of a constructive trust, through the fraudulent conveyance action that Driftwood intends to file (and has since filed), or through other appropriate equitable relief. A receiver is necessary to preserve these assets and to ensure their orderly liquidation for the benefit of Driftwood.

3. The Properties Must Be Professionally Managed and Marketed for Sale.

The two properties held by Castellan Realty are substantial real estate assets located in prime Manhattan neighborhoods. They require ongoing maintenance, including payment of real estate taxes, common charges, insurance premiums, and ordinary upkeep. The commercial property at 17 Wooster Street may also require management of tenant relationships and lease obligations.

A court-appointed receiver is necessary to take possession of these properties, to maintain them in marketable condition, to manage any existing tenancies, and ultimately to market and sell the properties in an orderly manner designed to maximize recovery. The proposed receiver, Barrow & Fitch Realty Inc., has particular expertise in the management and sale of New York City real property and is well-suited to perform these functions. All sales would be subject to Court approval, ensuring that the process is conducted transparently and in the best interests of the judgment creditor.

4. There Is a Risk of Encumbrance or Waste.

Without the appointment of a receiver, there is a substantial and immediate risk that Zelenko will attempt to mortgage, encumber, transfer, or otherwise diminish the value of the Castellan Realty properties. Zelenko has no legitimate income stream to maintain the properties or to pay the taxes, insurance, and common charges associated with their ownership. Moreover, Zelenko has demonstrated throughout this litigation a willingness and ability to conceal and dissipate assets. He created offshore shell entities (Stellaris Trading Ltd.), established irrevocable trusts (the Zelenko Family Irrevocable Trust), and formed Castellan Realty itself — all for the purpose of placing misappropriated funds beyond the reach of Driftwood and other creditors.

Given this pattern of conduct, there is every reason to believe that, absent the appointment of a receiver, Zelenko will attempt to further encumber or dissipate these assets. The preliminary injunction currently in effect restrains Zelenko from transferring his personal assets, but it does not directly restrain Castellan Realty (which is not a party to this action and is not bound by the injunction). The appointment of a receiver would close this gap and ensure that the properties are preserved and protected.

5. Driftwood Intends to Commence a Fraudulent Conveyance Action Under NYDCL §§ 273–276.

Driftwood intends to file — and has since filed on March 8, 2024 — a separate fraudulent conveyance action against Castellan Realty Holdings LLC and Viktor Zelenko under Sections 273 through 276 of the New York Debtor and Creditor Law. That action will seek to establish that:

(a) The transfers of $8,000,000 from Meridian Prime (through Zelenko) to Castellan Realty were constructively fraudulent under NYDCL § 273, in that they were made without fair consideration at a time when Meridian Prime was insolvent or was rendered insolvent by such transfers;

(b) The transfers were constructively fraudulent under NYDCL § 274, in that they were made without fair consideration at a time when the persons making them were engaged in a business or transaction for which their remaining property was unreasonably small capital;

(c) The transfers were constructively fraudulent under NYDCL § 275, in that they were made without fair consideration at a time when the persons making them intended or believed that they would incur debts beyond their ability to pay as they matured; and

(d) The transfers were actually fraudulent under NYDCL § 276, in that they were made with actual intent to hinder, delay, and defraud creditors, including Driftwood.

The appointment of a receiver over Castellan Realty will preserve the status quo and the properties' value pending the resolution of that action. It will prevent Zelenko from taking any action with respect to the properties during the pendency of the fraudulent conveyance litigation and will ensure that, when the fraudulent conveyance claims are resolved, the properties will be available for liquidation and distribution to the judgment creditor.

C. The Proposed Receiver Is Qualified and Disinterested

Driftwood proposes the appointment of Barrow & Fitch Realty Inc., through its principal Thomas Barrow, as receiver over Meridian Prime Capital LLC and Castellan Realty Holdings LLC. Barrow & Fitch is located at 1185 Avenue of the Americas, 15th Floor, New York, NY 10036.

Thomas Barrow is an experienced professional with an extensive track record of service as a court-appointed receiver in both New York state courts and federal courts. His experience includes receiverships involving real property assets, fraud-related asset recovery, corporate wind-downs, and the management of complex, multi-asset receivership estates. Mr. Barrow's detailed professional biography and a summary of his prior court-appointed receiverships are set forth in Exhibit G.

Barrow & Fitch Realty Inc. is independent and disinterested. Neither Mr. Barrow nor Barrow & Fitch has any prior personal, professional, or financial relationship with any of the parties to this action, their counsel, or any of the relevant non-parties. Mr. Barrow's affirmation to this effect, including a disclosure of potential conflicts (of which there are none), is attached as Exhibit H.

Driftwood respectfully requests that the receiver be vested with the following powers, which are customary for receiverships of this nature and are reasonably necessary to accomplish the purposes of the appointment:

(a) Possession and Control. The receiver shall take immediate possession and control of all assets, property (real and personal, tangible and intangible), books, records, accounts, and other property of Meridian Prime Capital LLC and Castellan Realty Holdings LLC, wherever located.

(b) Property Management. The receiver shall manage, preserve, and maintain the two real properties held by Castellan Realty (425 East 58th Street, Apt. 32F, New York, NY 10022, and 17 Wooster Street, Unit 3, New York, NY 10013), including but not limited to the payment of real estate taxes, insurance premiums, common charges, and ordinary maintenance expenses.

(c) Marketing and Sale. The receiver shall be authorized to market and sell the real properties at commercially reasonable prices, through such methods as the receiver deems appropriate (including public auction, private sale, or listing with a licensed real estate broker), subject in each case to Court approval of the terms and conditions of sale.

(d) Asset Investigation and Recovery. The receiver shall investigate, identify, and recover additional assets of Meridian Prime and Castellan Realty, including undiscovered accounts, transfers, claims, and other property, wherever located. The receiver shall be authorized to issue subpoenas, conduct examinations, and take such other investigative steps as may be necessary or appropriate.

(e) Litigation Authority. The receiver shall be authorized to commence, continue, or settle legal proceedings in the name of the receivership entities as necessary to carry out the purposes of the receivership, subject to Court approval for the settlement of any claim in excess of $50,000.

(f) Retention of Professionals. The receiver shall be authorized to retain such professionals as may be reasonably necessary to carry out the receiver's duties, including but not limited to accountants, appraisers, real estate brokers, forensic consultants, and legal counsel. The fees and expenses of such professionals shall be subject to Court approval.

(g) Reporting. The receiver shall report periodically to the Court on the status of the receivership, including a detailed accounting of all assets identified, recovered, and disbursed, and a summary of all actions taken. Reports shall be filed no less frequently than quarterly, with the first report due ninety (90) days after the date of the receiver's appointment.

Driftwood proposes that the receiver's bond and compensation terms be set by the Court in the order of appointment, in accordance with the Court's customary practices and in such amounts as the Court deems appropriate. Driftwood respectfully submits that compensation at customary hourly rates for receivers in the Commercial Division, plus reimbursement of reasonable out-of-pocket expenses, would be appropriate.

D. Less Drastic Remedies Are Inadequate

The appointment of a receiver is a significant remedy, and Driftwood recognizes that it should be granted only where less drastic remedies are inadequate. Here, that standard is readily satisfied.

1. The Preliminary Injunction and Order of Attachment Do Not Provide for Active Management or Liquidation.

The preliminary injunction and order of attachment entered by this Court on August 8 and August 22, 2023, respectively, remain in effect. They have been effective in freezing the approximately $3,200,000 in Meridian Prime's accounts at Bridgemont Bank NA and in restraining the individual defendants from dissipating their personal assets. However, these remedies are purely defensive and static. They do not provide for the active management, investigation, or liquidation of the entities' assets. They do not empower anyone to take possession of real property, to maintain buildings, to pay taxes, to market assets for sale, or to conduct the kind of comprehensive forensic investigation that is necessary to identify and recover additional assets.

2. Post-Judgment Disclosure Proceedings Are Insufficient.

Information subpoenas and post-judgment disclosure proceedings under CPLR § 5223 are underway, and Driftwood intends to vigorously pursue all available post-judgment discovery remedies. However, these proceedings are inherently limited in scope and effect. They can compel the production of information, but they cannot compel the active management or preservation of assets. They cannot substitute for a receiver's ability to take actual possession of property, to manage real estate, to conduct sales, or to exercise business judgment in the preservation and liquidation of assets. Moreover, the judgment debtors' demonstrated pattern of non-cooperation and fabrication during pre-judgment discovery suggests that post-judgment disclosure, standing alone, will be similarly frustrated.

3. Turnover Proceedings Cannot Substitute for Receivership.

Turnover proceedings under CPLR §§ 5225 and 5227 are being pursued against third-party custodians, including financial institutions that may hold assets of the judgment debtors or their controlled entities. While these proceedings may yield some recovery, they cannot address the assets held directly by Meridian Prime and Castellan Realty — particularly the two real properties — which require active management and professional liquidation that only a receiver can provide. A turnover order can direct a third party to deliver a specific asset to the judgment creditor; it cannot provide for the ongoing management, maintenance, and orderly marketing and sale of real property.

4. The Judgment Debtors Have Demonstrated That They Will Not Cooperate.

The judgment debtors' conduct throughout this litigation provides no basis for confidence that they will cooperate in post-judgment enforcement efforts. Zelenko has only recently retained counsel (Kessler Brandt & Roe LLP, as of January 22, 2024), and that engagement relates solely to Zelenko's individual defense, not to any effort to satisfy the judgment. Carvallo and Sobchak remain unrepresented. No defendant has voluntarily satisfied any portion of the $58,900,000 judgment, nor has any defendant offered to cooperate in the identification or marshaling of assets for the benefit of the judgment creditor. In these circumstances, the appointment of an independent, court-supervised receiver is the only adequate remedy to ensure that the judgment debtors' assets — including assets held through controlled entities — are identified, preserved, and applied toward satisfaction of the judgment.

V. PROPOSED ORDER

In connection with this Petition, Driftwood respectfully submits a proposed order (attached hereto as Exhibit A) for the Court's consideration. The proposed order provides for:

1. The appointment of Barrow & Fitch Realty Inc. (Thomas Barrow, principal), 1185 Avenue of the Americas, 15th Floor, New York, NY 10036, as receiver over Meridian Prime Capital LLC (140 Broadway, Suite 3510, New York, NY 10005) and Castellan Realty Holdings LLC (c/o Viktor Zelenko, 425 East 58th Street, Apt. 32F, New York, NY 10022).

2. The vesting in the receiver of all powers described in Section IV.C above, including the power to take possession and control of all assets, manage and maintain the real properties, market and sell the real properties subject to Court approval, investigate and recover additional assets, commence and settle litigation, retain professionals, and report periodically to the Court.

3. A directive requiring all persons and entities in possession of property, assets, books, records, or accounts of Meridian Prime Capital LLC or Castellan Realty Holdings LLC to turn over such property, assets, books, records, or accounts to the receiver forthwith upon presentation of the order.

4. A prohibition on any person, entity, or agent from interfering with, obstructing, or impeding the receiver in the discharge of the receiver's duties under the order.

5. A provision setting the receiver's bond in an amount to be determined by the Court and authorizing reasonable compensation and reimbursement of expenses, subject to Court approval.

6. A requirement that the receiver file periodic accountings with the Court, no less frequently than quarterly, detailing all assets identified, recovered, and disbursed, and all actions taken in furtherance of the receivership.

7. A provision setting a return date for hearing on the Petition, or alternatively, granting the Petition on submission if no opposition is filed within such time as the Court may set.

Driftwood respectfully requests that the Court schedule this matter for hearing at the earliest available date, or alternatively, grant the Petition on submission if no timely opposition is filed.

VI. CONCLUSION

For all of the foregoing reasons, Petitioner Driftwood Absolute Return Fund Ltd. respectfully requests that this Court enter an order appointing Barrow & Fitch Realty Inc. (Thomas Barrow, principal) as receiver over Meridian Prime Capital LLC and Castellan Realty Holdings LLC, with the powers described herein and in the proposed order attached as Exhibit A.

This relief is essential to marshal and preserve assets valued at millions of dollars, to facilitate the orderly liquidation of the two real properties at 425 East 58th Street, Apt. 32F, New York, NY 10022, and 17 Wooster Street, Unit 3, New York, NY 10013 (originally purchased for a combined $8,000,000 with funds misappropriated from Driftwood), and to maximize recovery on the $58,900,000 judgment entered by this Court on January 10, 2024, for the benefit of Driftwood and its investors.

The appointment of a receiver is warranted by the overwhelming evidence of a systematic, multi-year fraud; by the demonstrated pattern of asset concealment and dissipation; by the judgment debtors' refusal to cooperate in enforcement efforts; by the inadequacy of less drastic remedies; and by the need for professional, court-supervised management of the receivership entities' assets. The proposed receiver, Thomas Barrow of Barrow & Fitch Realty Inc., is eminently qualified, independent, and disinterested, and has expressed his willingness to serve in this capacity.

Driftwood respectfully urges the Court to grant this Petition in its entirety.

SIGNATURE

Dated: New York, New York January 29, 2024

CALDERWOOD & HARKNESS LLP

By: ________

Priya Anand, Esq.

By: ________

Hannah Brinkley, Esq.

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

Attorneys for Plaintiff Driftwood Absolute Return Fund Ltd.

VERIFICATION

STATE OF NEW YORK COUNTY OF NEW YORK

Sandra Hu, being duly sworn, deposes and states as follows:

1. I am the Chief Operating Officer and Chief Compliance Officer of Driftwood Capital Management LP ("DCM"), the investment manager of Driftwood Absolute Return Fund Ltd. ("Driftwood"), the Plaintiff and Petitioner in the above-captioned action. I make this verification on behalf of Driftwood because Driftwood is a Cayman Islands exempted company and this verification is made by an officer of its investment manager who is authorized to act on Driftwood's behalf and who has personal knowledge of the facts set forth herein.

2. I have read the foregoing Petition for Appointment of Receiver Over Meridian Prime Capital LLC and Castellan Realty Holdings LLC. The statements contained therein are true and correct to the best of my knowledge, information, and belief. The sources of my knowledge and information are the books and records of DCM and Driftwood, the documents produced or obtained during this litigation, the analyses and reports prepared by Kelvantis Forensic Advisors LLC, my personal involvement in the discovery of the fraud (including the margin reconciliation initiated on July 18, 2023, and the subsequent investigation), and consultations with counsel.

3. This verification is not made by the Plaintiff directly because Dr

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK — COMMERCIAL DIVISION
Index No. 654321/2023
Before the Honorable Eleanor Vasquez, J.S.C.
PETITION FOR APPOINTMENT OF RECEIVER OVER MERIDIAN PRIME CAPITAL LLC AND CASTELLAN REALTY HOLDINGS LLC
Filed: January 29, 2024
CALDERWOOD & HARKNESS LLP 200 Park Avenue, 42nd Floor New York, NY 10166 Telephone: (212) 558-4000 Facsimile: (212) 558-3588 Priya Anand, Esq. Hannah Brinkley, Esq. Attorneys for Plaintiff Driftwood Absolute Return Fund Ltd.
TABLE OF CONTENTS
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PRELIMINARY STATEMENT
Petitioner Driftwood Absolute Return Fund Ltd. ("Driftwood" or "Petitioner"), a Cayman Islands exempted company (Registration No. MC-349217) managed by Driftwood Capital Management LP ("DCM"), respectfully petitions this Court pursuant to CPLR § 5228 and the Court's inherent equitable powers for the appointment of a receiver over defendant Meridian Prime Capital LLC ("Meridian Prime") and non-party Castellan Realty Holdings LLC ("Castellan Realty"), a Delaware limited liability company (EIN 87-1548203) controlled by defendant Viktor Andreyevich Zelenko ("Zelenko").
On January 10, 2024, this Court entered a judgment in favor of Driftwood and against all defendants in the total amount of $58,900,000, comprising: (i) $47,300,000 in compensatory damages; (ii) $9,460,000 in prejudgment interest calculated at the statutory rate of 9% per annum under CPLR § 5004; and (iii) $2,140,000 in attorneys' fees and costs awarded pursuant to the fee-shifting provision of Section 11 of the ISDA Master Agreement (2002 form) dated December 15, 2021, between Driftwood and Meridian Prime (the "ISDA Agreement"). A true and correct copy of the judgment is attached hereto as Exhibit B.
Driftwood brings this petition because, despite the entry of this substantial judgment, despite the existence of a preliminary injunction and order of attachment, and despite months of post-judgment enforcement efforts, the judgment remains wholly unsatisfied. The judgment debtors — who orchestrated a systematic, 18-month fraud that resulted in the misappropriation of $47,300,000 from Driftwood — have shown no willingness or ability to satisfy the judgment. Their conduct throughout this litigation has been marked by fabrication of records, obstruction of discovery, abandonment by prior counsel, and a demonstrated pattern of asset concealment and dissipation.
Receivership is necessary and appropriate to marshal, protect, and liquidate the assets of Meridian Prime and Castellan Realty — entities that served as instrumentalities of the fraud and as vehicles through which judgment debtor Zelenko diverted and concealed misappropriated funds. Meridian Prime has no legitimate business operations and never did; it was a shell used to perpetrate fraud. Castellan Realty is a single-member LLC controlled entirely by Zelenko, formed and funded with proceeds traceable to funds stolen from Driftwood. Together, these entities hold assets — including two New York City real properties originally purchased for a combined $8,000,000 — that must be professionally managed, preserved, and ultimately liquidated for the benefit of the judgment creditor.
Driftwood proposes the appointment of Barrow & Fitch Realty Inc. ("Barrow & Fitch"), with offices at 1185 Avenue of the Americas, 15th Floor, New York, NY 10036, through its principal Thomas Barrow, as the court-appointed receiver. Mr. Barrow is an experienced court-appointed receiver with particular expertise in real property receiverships and fraud-related asset recovery. His qualifications are set forth in detail in Exhibit G, and his affirmation of willingness to serve, disclosure of potential conflicts, and proposed scope of initial actions is attached as Exhibit H.
I. STATEMENT OF FACTS
A. The Parties and Relevant Non-Parties
1. Petitioner Driftwood Absolute Return Fund Ltd. Driftwood Absolute Return Fund Ltd. is a Cayman Islands exempted company (Registration No. MC-349217), with its registered address c/o Hargrove Corporate Services Ltd., 4th Floor, Windward House, 94 Elgin Avenue, George Town, Grand Cayman KY1-1104. Driftwood is a private investment fund organized for the purpose of generating absolute returns for its investors through a multi-strategy approach with significant allocations to global macro and foreign exchange ("FX") volatility strategies.
Driftwood's investment manager is Driftwood Capital Management LP ("DCM"), a Delaware limited partnership with its principal office at 590 Madison Avenue, 28th Floor, New York, NY 10022. DCM is registered as an investment adviser with the United States Securities and Exchange Commission. Marcus Ellison serves as DCM's Chief Investment Officer and Sandra Hu serves as DCM's Chief Operating Officer and Chief Compliance Officer. As of June 30, 2023, DCM managed approximately $1.82 billion in assets under management on behalf of Driftwood and its related feeder funds. Driftwood's fund administrator is Pinnacle Fund Services (Cayman) Ltd. Its fund auditor is Graystone & Whitfield LLP, and its prime broker for equities and rates strategies is Halcyon Securities Inc.
2. Defendant Meridian Prime Capital LLC. Meridian Prime Capital LLC is a New York limited liability company (EIN 84-3217659), with a registered address at 140 Broadway, Suite 3510, New York, NY 10005. Meridian Prime was formed on March 14, 2019, and purported to operate as an FX prime brokerage, providing FX execution, clearing, and custody services to institutional clients. Viktor Zelenko served as Meridian Prime's Managing Member and Chief Executive Officer from its inception. Irene Maria Carvallo served as Meridian Prime's Chief Financial Officer, and Dmitri Pavlovich Sobchak served as Head of FX Trading.
Meridian Prime claimed to be registered with the National Futures Association ("NFA") as a swap dealer. Investigation during this litigation revealed that any such registration had either lapsed or was fraudulently represented to clients, including Driftwood. Meridian Prime is a judgment debtor in this action, against which this Court entered a default judgment on January 10, 2024.
3. Defendant Viktor Andreyevich Zelenko. Viktor Andreyevich Zelenko (date of birth: June 3, 1978) is a naturalized United States citizen who resides at 425 East 58th Street, Apt. 32F, New York, NY 10022. Prior to founding Meridian Prime, Zelenko was employed as a foreign exchange trader at Bridgemont Bank NA from 2006 to 2015, and thereafter at Clarendon Markets LLC from 2015 to 2018. Notably, Zelenko was the subject of a disciplinary action by the Financial Industry Regulatory Authority ("FINRA") in 2017, resulting in a censure and a monetary fine for unauthorized trading activity. Despite this disciplinary history, Zelenko founded Meridian Prime in 2019 and held himself out to institutional clients, including Driftwood, as the operator of a legitimate and registered FX prime brokerage.
As established by this Court's judgment of January 10, 2024, Zelenko was the mastermind and principal beneficiary of the fraud scheme that resulted in the misappropriation of $47,300,000 from Driftwood. The Court further found that Zelenko exercised complete dominion and control over Meridian Prime, disregarded the entity's separate existence, and used Meridian Prime as his alter ego and instrumentality to perpetrate the fraud.
4. Defendant Irene Maria Carvallo. Irene Maria Carvallo (date of birth: November 17, 1982) is a United States citizen who resides at 88 Greenwich Street, Apt. 2704, New York, NY 10006. Carvallo is a Certified Public Accountant who was previously employed as a senior accountant at Ledgerfield & Associates PC. She served as Chief Financial Officer of Meridian Prime from its inception and was responsible for, among other things, the preparation and dissemination of the fabricated monthly account statements sent to Driftwood. This Court's January 10, 2024 judgment found Carvallo jointly and severally liable for the fraud.
5. Defendant Dmitri Pavlovich Sobchak. Dmitri Pavlovich Sobchak (date of birth: February 22, 1985) is a United States permanent resident and Ukrainian national who resides at 301 West 57th Street, Apt. 18B, New York, NY 10019. Prior to joining Meridian Prime, Sobchak served as an FX desk analyst at Bridgemont Bank NA, where he worked alongside Zelenko. Zelenko recruited Sobchak to Meridian Prime in 2019. Sobchak was responsible for executing and fabricating trade confirmations as part of the fraud scheme. This Court's January 10, 2024 judgment found Sobchak jointly and severally liable.
6. Non-Party Castellan Realty Holdings LLC. Castellan Realty Holdings LLC is a Delaware limited liability company (EIN 87-1548203), with its address listed as c/o Viktor Zelenko, 425 East 58th Street, Apt. 32F, New York, NY 10022. Castellan Realty is wholly owned and controlled by Zelenko. It has no independent officers, directors, employees, or business operations apart from holding title to two New York City real properties purchased with misappropriated funds during the period of the fraud.
Castellan Realty's two properties are:
(a) 425 East 58th Street, Apt. 32F, New York, NY 10022 — a residential condominium unit purchased in June 2022 for $4,850,000. This unit also serves as Zelenko's personal residence. The deed reflecting Castellan Realty as the purchaser is attached hereto as Exhibit E.
(b) 17 Wooster Street, Unit 3, New York, NY 10013 — a commercial property purchased in September 2022 for $3,150,000. The deed reflecting Castellan Realty as the purchaser is attached hereto as Exhibit F.
The total original acquisition cost of these two properties was $8,000,000. As established by the Kelvantis Forensic Advisors LLC preliminary fund tracing report (excerpts attached as Exhibit C), the entire $8,000,000 used to acquire these properties is directly traceable to funds misappropriated from Driftwood. The formation documents and operating records of Castellan Realty are attached hereto as Exhibit D.
B. The Fraud Scheme
The fraud perpetrated by defendants was systematic, deliberate, and sustained over a period of approximately eighteen months. It began with the establishment of a facially legitimate business relationship between Driftwood and Meridian Prime, and was carried out through the fabrication of trade confirmations, the falsification of account statements, and the diversion of Driftwood's margin deposits and trading proceeds through multiple layers of entities and accounts controlled by the defendants.
On December 15, 2021, Meridian Prime entered into an ISDA Master Agreement (2002 form) with Driftwood, together with a Credit Support Annex ("CSA") governing the posting of collateral. Under the terms of the CSA, Driftwood was required to post initial margin in the amount of $12,000,000 in cash, with additional variation margin to be posted or returned based on the mark-to-market valuation of outstanding transactions. The ISDA Agreement and CSA contemplated that Driftwood would enter into FX forward and vanilla FX option transactions through Meridian Prime, primarily in the EUR/USD, GBP/USD, and USD/JPY currency pairs, consistent with Driftwood's global macro and FX volatility investment strategy.
From January 2022 through July 2023 — a period of approximately eighteen months — defendants carried out a scheme to defraud Driftwood that involved the following core elements:
First, Meridian Prime fabricated trade confirmations purporting to show that Driftwood's FX forward and vanilla FX option transactions were being executed and settling in the ordinary course. In fact, many of these transactions were never executed, and the confirmations were fabricated by Sobchak and transmitted to Driftwood under the guise of routine trade documentation.
Second, Carvallo prepared and disseminated falsified monthly account statements that materially inflated the value of Driftwood's portfolio, showing purported trading profits of $14,800,000 that did not exist. These fabricated statements were designed to induce Driftwood to continue posting margin deposits and to prevent Driftwood from discovering that its funds had been diverted.
Third, Meridian Prime diverted Driftwood's margin deposits and intercepted legitimate FX settlement proceeds, transferring these funds to accounts controlled by Zelenko, Carvallo, and Sobchak, and to entities established by Zelenko for the specific purpose of concealing the stolen funds.
The total cumulative margin deposits made by Driftwood to Meridian Prime during the period from January 2022 through July 2023 was $38,500,000. In addition, legitimate FX settlement proceeds in the amount of $8,800,000 that should have been credited to Driftwood's account were intercepted and diverted by Meridian Prime. The total funds misappropriated from Driftwood therefore amount to $47,300,000 ($38,500,000 in margin deposits plus $8,800,000 in intercepted settlement proceeds).
The last fabricated account statement sent to Driftwood, dated June 30, 2023, reflected a purported account balance of $52,100,000 — a figure that bore no relation to reality. The actual balance in Meridian Prime's client accounts at Bridgemont Bank NA at that time was approximately $3,200,000.
C. Breakdown of Fund Diversions
The investigation conducted by Kelvantis Forensic Advisors LLC ("Kelvantis"), retained by Driftwood's counsel as forensic accountants, has traced the $47,300,000 in misappropriated funds to the following channels of diversion:
(a) $18,600,000 was transferred to offshore accounts at Palmetto International Bank Ltd. (302 Bay Street, Nassau, Bahamas) in the name of Stellaris Trading Ltd. (BVI business company, Registration No. 2043871), a British Virgin Islands entity controlled by Zelenko. These transfers were made in a series of wire transactions between March 2022 and June 2023, structured in amounts designed to avoid triggering enhanced reporting thresholds.
(b) $12,400,000 was transferred to the Zelenko Family Irrevocable Trust (established April 8, 2021, Tax ID 86-6092411), held at Marlowe Asset Management Trust Company of Delaware (1201 North Market Street, Suite 1600, Wilmington, DE 19801). These transfers were made between February 2022 and May 2023, and were characterized in Meridian Prime's internal records as "management fee distributions" — a designation that was entirely fictitious.
(c) $8,000,000 was used to purchase real estate through Castellan Realty Holdings LLC: specifically, $4,850,000 for the purchase of 425 East 58th Street, Apt. 32F, New York, NY 10022 (closed in June 2022), and $3,150,000 for the purchase of 17 Wooster Street, Unit 3, New York, NY 10013 (closed in September 2022).
(d) $5,100,000 was withdrawn in cash or expended on personal expenditures by the defendants, including luxury goods, travel, and other personal consumption.
(e) $3,200,000 was retained in Meridian Prime's operating accounts at Bridgemont Bank NA (383 Madison Avenue, New York, NY 10179), where it remains frozen pursuant to this Court's preliminary injunction and order of attachment.
The total of these diversions — $18,600,000 + $12,400,000 + $8,000,000 + $5,100,000 + $3,200,000 — equals $47,300,000, accounting for the full amount of misappropriated funds. These findings are set forth in detail in the Kelvantis Forensic Advisors LLC preliminary fund tracing report dated November 20, 2023, excerpts of which are attached as Exhibit C.
D. Discovery of the Fraud
The fraud was discovered on July 18, 2023, when Sandra Hu, Driftwood's Chief Operating Officer and Chief Compliance Officer, initiated a routine margin reconciliation as part of DCM's quarterly risk management and compliance procedures. As part of this reconciliation, Ms. Hu requested direct confirmation from Bridgemont Bank NA — the bank at which Meridian Prime maintained its client accounts — of the balances in Meridian Prime's accounts.
Bridgemont Bank's response, received on approximately July 19, 2023, disclosed that the total balance across all of Meridian Prime's client accounts was only approximately $3,200,000. This figure stood in stark and irreconcilable contrast to the $52,100,000 balance reflected on Meridian Prime's most recent fabricated account statement dated June 30, 2023 — a discrepancy of approximately $48,900,000.
Upon receiving this information, Ms. Hu immediately escalated the matter to DCM's senior management and board of directors. An emergency board meeting of Driftwood was convened on July 21, 2023. At that meeting, the board authorized the engagement of litigation counsel to investigate the matter and pursue all available legal remedies. Calderwood & Harkness LLP was retained as Driftwood's litigation counsel on July 25, 2023.
E. Prior Proceedings in This Action
The procedural history of this action provides important context for the present petition and further demonstrates the necessity of receivership. A summary of the key events is as follows:
August 7, 2023: Driftwood filed its complaint in this Court, asserting claims for fraud, conversion, breach of fiduciary duty, unjust enrichment, and alter ego/veil-piercing against Meridian Prime, Zelenko, Carvallo, and Sobchak. Simultaneously, Driftwood filed an ex parte application for a temporary restraining order ("TRO") and an order of attachment pursuant to CPLR Article 62.
August 8, 2023: This Court (Vasquez, J.S.C.) granted the TRO, freezing Meridian Prime's accounts at Bridgemont Bank NA and restraining the individual defendants from transferring, encumbering, or dissipating any assets. The Court also granted Driftwood's application for an order of attachment in the amount of $50,000,000, finding a probability that defendants had engaged in fraudulent conduct and that there was a risk of dissipation of assets absent provisional relief.
August 14, 2023: The law firm of Whitmore & Gaines LLP (60 East 42nd Street, 20th Floor, New York, NY 10165), through its lead attorney Jonathan Whitmore and associate Chloe Redmond, filed a notice of appearance on behalf of all four defendants.
August 22, 2023: Following a contested hearing on Driftwood's motion for a preliminary injunction, this Court converted the TRO into a preliminary injunction, finding that Driftwood had demonstrated a likelihood of success on the merits, that irreparable harm would result absent injunctive relief, and that the balance of equities tipped decidedly in Driftwood's favor.
September 5, 2023: Defendants, through Whitmore & Gaines, filed an answer with affirmative defenses. Notably, defendants did not assert any counterclaim.
September 18, 2023: Driftwood served expedited discovery demands, including document requests and interrogatories, targeting the full scope of the defendants' assets, transactions, and business records.
October 6, 2023: Defendants made a partial document production of approximately 1,200 pages. Calderwood & Harkness's review of the production identified significant gaps, including the absence of critical bank records, wire transfer confirmations, and accounting records. Moreover, a number of the documents produced were identified as fabricated — bearing formatting, date, and content inconsistencies that indicated post hoc creation — further evidencing the defendants' continuing pattern of fraud and obstruction.
October 20, 2023: Driftwood filed a motion to compel complete discovery responses and for sanctions based on the defendants' deficient and fraudulent production.
October 30, 2023: Whitmore & Gaines LLP moved to withdraw as counsel for all defendants, citing non-payment of legal fees and an irreparable breakdown in the attorney-client relationship. In its motion papers, Whitmore & Gaines indicated that repeated efforts to communicate with the defendants regarding the necessity of compliance with discovery obligations had been unsuccessful.
November 13, 2023: This Court granted Whitmore & Gaines's motion to withdraw, effective immediately, and afforded the defendants thirty days to retain substitute counsel.
November 20, 2023: Kelvantis Forensic Advisors LLC delivered its preliminary fund tracing report. The report, prepared under the direction of lead engagement partner Natasha Everett, CPA, CFF (Kelvantis's offices are located at 101 Hudson Street, Suite 2500, Jersey City, NJ 07302), traced the $47,300,000 in misappropriated funds through the diversion channels described above. The report noted that while the major channels of diversion had been identified, additional undiscovered accounts and transfers likely existed and would require further investigation, including the issuance of subpoenas to additional financial institutions and an examination of records maintained by the defendants' entities.
December 4, 2023: Driftwood filed a motion for default judgment against Meridian Prime (which had failed to retain substitute counsel or otherwise respond to discovery) and for summary judgment on the fraud and alter ego claims against Zelenko, Carvallo, and Sobchak (all of whom likewise failed to retain substitute counsel or oppose the motion).
December 15, 2023: The deadline set by the Court for defendants to retain new counsel lapsed without any defendant having filed a notice of appearance of substitute counsel.
January 10, 2024: This Court entered default judgment against Meridian Prime Capital LLC and granted summary judgment on the fraud and alter ego claims against Zelenko, Carvallo, and Sobchak. The Court awarded total damages of $58,900,000, comprised of $47,300,000 in compensatory damages, $9,460,000 in prejudgment interest (at 9% per annum under CPLR § 5004), and $2,140,000 in attorneys' fees and costs pursuant to Section 11 of the ISDA Agreement.
January 22, 2024: The law firm of Kessler Brandt & Roe LLP (900 Third Avenue, Suite 1700, New York, NY 10022), through its lead attorney Aaron Kessler, entered an appearance on behalf of Zelenko individually. To date, neither Carvallo nor Sobchak has retained substitute counsel, and no defendant has voluntarily satisfied any portion of the $58,900,000 judgment.
II. THE ENTITIES OVER WHICH RECEIVERSHIP IS SOUGHT
A. Meridian Prime Capital LLC
Meridian Prime Capital LLC is a New York limited liability company (EIN 84-3217659), formed on March 14, 2019, with a registered address at 140 Broadway, Suite 3510, New York, NY 10005. Meridian Prime is a judgment debtor in this action, against which a default judgment in the amount of $58,900,000 was entered on January 10, 2024.
Meridian Prime has no active legitimate business operations. It has no customers, no employees (other than the individual defendants who are themselves judgment debtors), no ongoing contracts, and no revenue-producing activities. The evidence adduced during this litigation, and the findings made by this Court in its January 10, 2024 decision, establish that Meridian Prime's sole function in recent years was as the vehicle through which Zelenko, Carvallo, and Sobchak perpetrated the fraud against Driftwood. The entity never operated a bona fide FX prime brokerage; rather, it was a front used to solicit and receive margin deposits from Driftwood, which were then systematically diverted.
The known assets of Meridian Prime include approximately $3,200,000 in accounts at Bridgemont Bank NA (383 Madison Avenue, New York, NY 10179), which remain frozen pursuant to this Court's preliminary injunction and order of attachment. In addition, Meridian Prime may hold other assets — including books and records, potential claims or rights of action (including potential claims against third parties who may have aided the fraud or received misappropriated funds), intellectual property (such as it is), and undiscovered accounts — that require professional investigation and custodianship.
The entity's managing member, Zelenko, is a judgment debtor who has demonstrated a sustained and sophisticated willingness and ability to dissipate and conceal assets. Over the eighteen-month course of the fraud, Zelenko directed the diversion of $47,300,000 through multiple channels, including offshore accounts, irrevocable trusts, shell entities, and real estate purchases. The fact that Zelenko continued to exercise control over Meridian Prime's books and records — and that fabricated documents were produced during discovery — further demonstrates the urgent need for independent custodianship.
Without the appointment of a receiver, Meridian Prime's residual assets are at substantial risk of further dissipation, concealment, or destruction. The existing preliminary injunction and order of attachment, while effective in freezing the known bank accounts, do not provide for the active management, investigation, or liquidation of the entity's assets. A receiver is necessary to take possession of all assets and records, to conduct a thorough investigation of the entity's financial affairs, and to pursue recovery of additional assets for the benefit of the judgment creditor.
B. Castellan Realty Holdings LLC
Castellan Realty Holdings LLC is a Delaware limited liability company (EIN 87-1548203), controlled entirely by judgment debtor Viktor Zelenko. Its address is listed as c/o Viktor Zelenko, 425 East 58th Street, Apt. 32F, New York, NY 10022 — the same address as one of the two properties it holds. Castellan Realty has no independent officers, directors, or employees. It has no independent business operations. It was formed and exists solely as a vehicle for Zelenko to hold title to real property purchased with misappropriated funds.
Although Castellan Realty is not a named defendant in this action, it is the alter ego and fraudulent conveyance vehicle of judgment debtor Zelenko. Driftwood intends to file — and indeed has already commenced preparation of — a separate fraudulent conveyance action against Castellan Realty under Sections 273 through 276 of the New York Debtor and Creditor Law ("NYDCL") to establish that the transfers of $8,000,000 from Meridian Prime (through Zelenko) to Castellan Realty were made without fair consideration, while Meridian Prime was insolvent or was rendered insolvent by such transfers, and with actual intent to hinder, delay, and defraud creditors. That action was subsequently filed on March 8, 2024.
Castellan Realty holds two New York City real properties that were purchased entirely with funds traceable to Driftwood's misappropriated margin deposits:
(a) 425 East 58th Street, Apt. 32F, New York, NY 10022. This is a luxury residential condominium unit in a full-service building on Manhattan's Upper East Side. Castellan Realty purchased this unit in June 2022 for $4,850,000. The unit also serves as Zelenko's personal residence. The deed reflecting Castellan Realty as the purchaser, along with the closing statement reflecting the $4,850,000 purchase price, is attached as Exhibit E.
(b) 17 Wooster Street, Unit 3, New York, NY 10013. This is a commercial property located in the SoHo neighborhood of Manhattan. Castellan Realty purchased this unit in September 2022 for $3,150,000. The deed reflecting Castellan Realty as the purchaser, along with the closing statement reflecting the $3,150,000 purchase price, is attached as Exhibit F.
The total original acquisition cost of these two properties was $8,000,000. As established by the Kelvantis Forensic Advisors fund tracing analysis, the entire $8,000,000 used to acquire these properties is directly traceable to funds diverted from Driftwood's margin deposits at Meridian Prime. The Kelvantis report traces the flow of funds from Driftwood's deposits into Meridian Prime's accounts, and then from Meridian Prime's accounts (or through intermediary accounts controlled by Zelenko) to the closing accounts used to fund these real estate acquisitions.
These properties represent significant recoverable assets. Depending on current market conditions, the properties may have appreciated or maintained their value since acquisition, potentially yielding recovery of $8,000,000 or more for Driftwood. However, without a receiver, these properties are at serious risk of encumbrance, damage, neglect, or diminution in value. Zelenko, who has no legitimate income stream (his sole occupation was operating the fraudulent Meridian Prime), cannot be relied upon to maintain the properties in marketable condition, to pay real estate taxes and common charges, or to refrain from attempting to mortgage, transfer, or otherwise encumber the properties. Given Zelenko's demonstrated pattern of asset concealment — including the creation of offshore shell entities, irrevocable trusts, and the very entity at issue, Castellan Realty — the risk that he will attempt to place these assets beyond the reach of Driftwood is substantial and immediate.
III. LEGAL STANDARD FOR APPOINTMENT OF A RECEIVER
Under New York law, courts possess broad equitable power to appoint a receiver to marshal and protect assets, particularly in cases involving fraud, asset dissipation, and the need for orderly liquidation of a judgment debtor's property. CPLR § 5228(a) provides in pertinent part that "upon motion of the judgment creditor... the court may appoint a receiver of the property of any person against whom a money judgment has been entered." This statutory authority is supplemented by the Court's inherent equitable jurisdiction, which has been exercised by New York courts for well over a century to protect the interests of judgment creditors and other aggrieved parties. See Gryphon Domestic VI, LLC v. APP Int'l Fin. Co., B.V., 41 A.D.3d 25, 31 (1st Dep't 2007) (recognizing broad equitable discretion in appointment of receivers).
The appointment of a receiver is appropriate where:
(a) There is a danger that assets will be dissipated, lost, concealed, or materially injured absent the appointment of a receiver;
(b) The judgment debtor has demonstrated a pattern of misconduct, bad faith, or concealment of assets;
(c) Receivership is reasonably necessary to effectuate recovery on the judgment; and
(d) Less drastic remedies — including existing injunctions, orders of attachment, and post-judgment disclosure — would be inadequate to protect the judgment creditor's interests.
See, e.g., Vardaris Tech Inc. v. Paleros Inc., 2017 N.Y. Misc. Calderon Systems 3482 (Sup. Ct. N.Y. Cty. 2017); Republic of Haiti v. Duvalier, 211 A.D.2d 379, 386 (1st Dep't 1995) (affirming appointment of receiver over assets of former head of state who engaged in looting of public treasury); Hahn v. Kali Limousine Corp., 2016 N.Y. Misc. Calderon Systems 1257 (Sup. Ct. N.Y. Cty. 2016).
New York courts routinely appoint receivers in fraud cases to ensure the orderly liquidation and distribution of assets for the benefit of defrauded parties. The appointment of a receiver is especially warranted in cases where, as here:
(i) The judgment debtor perpetrated a systematic fraud involving the fabrication of financial documents, trade confirmations, and account statements;
(ii) The judgment debtor diverted misappropriated funds through multiple layers of entities, trusts, and jurisdictions — including offshore accounts and domestic trusts — specifically designed to place assets beyond the reach of creditors;
(iii) The judgment debtor has demonstrated an unwillingness or inability to comply with court orders and discovery obligations, as evidenced by the production of fabricated documents, the withdrawal of counsel for non-payment, and the failure to retain substitute counsel within the time permitted by the Court; and
(iv) The judgment remains wholly unsatisfied, and the judgment debtor has not made any voluntary payment toward satisfaction of the judgment.
With respect to non-party entities such as Castellan Realty, receivership is proper where the entity is the alter ego of a judgment debtor, holds assets that are the proceeds of fraud, or holds assets subject to fraudulent conveyance claims. See CPLR § 5225(b) (authorizing proceedings against persons in possession of property of the judgment debtor or against persons who are transferees of such property); see also Matter of Dental Health Mgmt. Inc., 2012 N.Y. Misc. Calderon Systems 5630 (Sup. Ct. Nassau Cty. 2012) (appointing receiver over entities controlled by judgment debtor). This Court's January 10, 2024 judgment already established that Zelenko exercised complete dominion and control over Meridian Prime and used it as his alter ego. Castellan Realty, which is wholly owned and controlled by Zelenko, which has no independent existence or operations, and which was funded entirely with funds misappropriated from Driftwood, is similarly subject to this Court's equitable jurisdiction. The appointment of a receiver over Castellan Realty is necessary to preserve the properties held by that entity and to prevent further dissipation or concealment pending resolution of Driftwood's fraudulent conveyance claims.
IV. ARGUMENT
A. Receivership Over Meridian Prime Is Warranted
The appointment of a receiver over Meridian Prime Capital LLC is warranted by the overwhelming evidence of fraud, the entity's lack of legitimate business operations, the demonstrated risk of asset dissipation, and the inability of less drastic remedies to adequately protect Driftwood's interests. Each of these factors is addressed in turn.
1. Meridian Prime Has No Legitimate Business Operations.
The evidence adduced during this litigation, including the Kelvantis Forensic Advisors fund tracing report, the fabricated trade confirmations and account statements, and the findings of this Court in its January 10, 2024 decision, conclusively establishes that Meridian Prime had no legitimate business operations. It was not a bona fide FX prime brokerage. It did not execute legitimate trades on behalf of its clients. It did not maintain proper customer accounts or segregate customer funds. Its sole function was to serve as the vehicle through which Zelenko, Carvallo, and Sobchak perpetrated a $47,300,000 fraud upon Driftwood.
Meridian Prime fabricated trade confirmations purporting to show profitable positions in FX forwards and vanilla FX options over an eighteen-month period. It sent falsified monthly account statements to Driftwood that inflated portfolio value by tens of millions of dollars. The last such statement, dated June 30, 2023, reflected a purported balance of $52,100,000, when the actual balance in Meridian Prime's accounts was approximately $3,200,000. The entity has no customers, no employees (other than the individual defendants who are themselves judgment debtors), and no ongoing business of any kind. There is no business to disrupt and no innocent parties whose interests would be harmed by the appointment of a receiver.
2. Meridian Prime's Assets Are at Risk of Dissipation.
Despite the preliminary injunction and order of attachment entered by this Court, Meridian Prime's residual assets remain at risk. The approximately $3,200,000 in frozen accounts at Bridgemont Bank NA represents only a fraction of the funds that passed through Meridian Prime. Other assets — including books and records, electronic data, potential claims against third parties (including aiders and abettors of the fraud, recipients of fraudulent transfers, and financial institutions that may have facilitated the diversion of funds), and any undiscovered accounts — are not subject to active custodianship or management under the existing injunction. These assets require professional oversight to prevent their destruction, concealment, or deterioration.
Critically, the Kelvantis Forensic Advisors report identified the major channels of diversion but expressly noted that additional undiscovered accounts and transfers likely exist and require further investigation. A receiver, armed with the Court's authority and equipped with the professional resources to conduct a comprehensive investigation, is uniquely positioned to identify and recover these additional assets.
3. Meridian Prime's Principals Cannot Be Trusted to Preserve Assets.
Zelenko, Carvallo, and Sobchak orchestrated a $47,300,000 fraud over eighteen months. Their conduct was not a single act of misappropriation, but a sustained and deliberate scheme involving the fabrication of documents, the creation of shell entities, the use of offshore accounts, and the systematic diversion of funds through multiple channels. These are not individuals who can be trusted to preserve assets for the benefit of a judgment creditor.
Their conduct during this litigation has been equally troubling. Despite being represented by counsel, they produced only approximately 1,200 pages of documents in response to Driftwood's comprehensive discovery demands — and many of those documents were themselves fabricated. Their counsel, Whitmore & Gaines LLP, was compelled to withdraw due to non-payment of fees and a breakdown in the attorney-client relationship. After counsel's withdrawal, no defendant (with the belated exception of Zelenko, who retained Kessler Brandt & Roe LLP on January 22, 2024) made any effort to retain substitute counsel, to comply with outstanding discovery obligations, or to oppose Driftwood's motion for judgment. Carvallo and Sobchak remain unrepresented to this day.
This pattern of conduct — fraud, fabrication, obstruction, abandonment, and non-cooperation — demonstrates conclusively that the judgment debtors cannot and will not preserve Meridian Prime's assets for the benefit of the judgment creditor. A receiver is essential to ensure that such assets are identified, preserved, and ultimately liquidated in an orderly manner.
4. A Receiver Will Facilitate Comprehensive Asset Identification and Recovery.
A court-appointed receiver will be empowered to take immediate possession and control of all of Meridian Prime's assets, books, records, and accounts. The receiver will have authority to conduct a comprehensive investigation of the entity's financial affairs, to issue subpoenas and conduct examinations as necessary, and to pursue claims against third parties on behalf of the receivership estate. The appointment of a receiver will enable the kind of thorough, independent, and professionally managed investigation and recovery effort that is necessary in a case of this magnitude and complexity.
The Kelvantis Forensic Advisors preliminary fund tracing report, while comprehensive in many respects, expressly acknowledged that the investigation was incomplete and that additional diversion channels likely remain to be discovered. A receiver, working with forensic accountants and other professionals, will be positioned to complete this work and to maximize the recovery of assets for the benefit of the judgment creditor.
5. The Appointment Will Aid in the Orderly Winding Down of Meridian Prime's Affairs.
Meridian Prime has no ongoing business, no customers to serve, and no legitimate purposes to fulfill. It is, for all practical purposes, a defunct entity whose sole remaining function is to serve as a repository of assets (and potential assets) that may be applied toward satisfaction of the $58,900,000 judgment. A receiver will ensure that the winding down of Meridian Prime's affairs is conducted in an orderly, transparent, and judicially supervised manner, with regular reporting to the Court and accountability to the judgment creditor.
B. Receivership Over Castellan Realty Is Warranted
The appointment of a receiver over Castellan Realty Holdings LLC is equally warranted by the evidence, the law, and the practical necessities of this case. The following considerations support the appointment.
1. Castellan Realty Is the Alter Ego of Judgment Debtor Zelenko.
Castellan Realty is a Delaware LLC wholly owned and controlled by Zelenko. It has no independent officers, directors, employees, or business operations. Its registered address is Zelenko's personal residence at 425 East 58th Street, Apt. 32F, New York, NY 10022. It was formed by Zelenko and exists solely for the purpose of holding title to real property that Zelenko caused to be purchased with misappropriated funds. There is a complete unity of interest and ownership between Zelenko and Castellan Realty, and the entity form has been used to perpetrate a wrong — namely, the concealment of assets acquired with funds stolen from Driftwood.
This Court's January 10, 2024 judgment already pierced the corporate veil between Zelenko and Meridian Prime, finding that Zelenko exercised complete dominion and control over Meridian Prime and used it as his personal instrumentality. The same analysis applies with equal or greater force to Castellan Realty. Indeed, while Meridian Prime at least maintained the outward trappings of a business entity (an office, purported employees, a claimed regulatory registration), Castellan Realty has never had even these superficial indicia of separateness. It is nothing more than a holding entity through which Zelenko concealed stolen funds in the form of real property.
2. Castellan Realty's Real Properties Were Purchased Entirely with Misappropriated Funds.
The Kelvantis Forensic Advisors fund tracing analysis traces, with specificity, the flow of $8,000,000 in misappropriated funds from Driftwood's margin deposits through Meridian Prime's accounts and ultimately to the closing accounts used to fund the purchase of the two Castellan Realty properties. The $4,850,000 used to purchase 425 East 58th Street, Apt. 32F in June 2022, and the $3,150,000 used to purchase 17 Wooster Street, Unit 3 in September 2022, are both directly traceable to funds stolen from Driftwood.
Specifically, the Kelvantis report identifies a series of wire transfers from Meridian Prime's accounts at Bridgemont Bank NA to an intermediary account controlled by Zelenko, and from that account to the title company accounts used to fund each closing. The timing, amounts, and account identifiers of these transfers are set forth in the Kelvantis report and leave no doubt that the properties were acquired with the proceeds of fraud. Excerpts of the Kelvantis report documenting these tracings are attached as Exhibit C.
Because the properties were purchased with funds that belong equitably to Driftwood, they represent assets that are directly recoverable by the judgment creditor, whether through the imposition of a constructive trust, through the fraudulent conveyance action that Driftwood intends to file (and has since filed), or through other appropriate equitable relief. A receiver is necessary to preserve these assets and to ensure their orderly liquidation for the benefit of Driftwood.
3. The Properties Must Be Professionally Managed and Marketed for Sale.
The two properties held by Castellan Realty are substantial real estate assets located in prime Manhattan neighborhoods. They require ongoing maintenance, including payment of real estate taxes, common charges, insurance premiums, and ordinary upkeep. The commercial property at 17 Wooster Street may also require management of tenant relationships and lease obligations.
A court-appointed receiver is necessary to take possession of these properties, to maintain them in marketable condition, to manage any existing tenancies, and ultimately to market and sell the properties in an orderly manner designed to maximize recovery. The proposed receiver, Barrow & Fitch Realty Inc., has particular expertise in the management and sale of New York City real property and is well-suited to perform these functions. All sales would be subject to Court approval, ensuring that the process is conducted transparently and in the best interests of the judgment creditor.
4. There Is a Risk of Encumbrance or Waste.
Without the appointment of a receiver, there is a substantial and immediate risk that Zelenko will attempt to mortgage, encumber, transfer, or otherwise diminish the value of the Castellan Realty properties. Zelenko has no legitimate income stream to maintain the properties or to pay the taxes, insurance, and common charges associated with their ownership. Moreover, Zelenko has demonstrated throughout this litigation a willingness and ability to conceal and dissipate assets. He created offshore shell entities (Stellaris Trading Ltd.), established irrevocable trusts (the Zelenko Family Irrevocable Trust), and formed Castellan Realty itself — all for the purpose of placing misappropriated funds beyond the reach of Driftwood and other creditors.
Given this pattern of conduct, there is every reason to believe that, absent the appointment of a receiver, Zelenko will attempt to further encumber or dissipate these assets. The preliminary injunction currently in effect restrains Zelenko from transferring his personal assets, but it does not directly restrain Castellan Realty (which is not a party to this action and is not bound by the injunction). The appointment of a receiver would close this gap and ensure that the properties are preserved and protected.
5. Driftwood Intends to Commence a Fraudulent Conveyance Action Under NYDCL §§ 273–276.
Driftwood intends to file — and has since filed on March 8, 2024 — a separate fraudulent conveyance action against Castellan Realty Holdings LLC and Viktor Zelenko under Sections 273 through 276 of the New York Debtor and Creditor Law. That action will seek to establish that:
(a) The transfers of $8,000,000 from Meridian Prime (through Zelenko) to Castellan Realty were constructively fraudulent under NYDCL § 273, in that they were made without fair consideration at a time when Meridian Prime was insolvent or was rendered insolvent by such transfers;
(b) The transfers were constructively fraudulent under NYDCL § 274, in that they were made without fair consideration at a time when the persons making them were engaged in a business or transaction for which their remaining property was unreasonably small capital;
(c) The transfers were constructively fraudulent under NYDCL § 275, in that they were made without fair consideration at a time when the persons making them intended or believed that they would incur debts beyond their ability to pay as they matured; and
(d) The transfers were actually fraudulent under NYDCL § 276, in that they were made with actual intent to hinder, delay, and defraud creditors, including Driftwood.
The appointment of a receiver over Castellan Realty will preserve the status quo and the properties' value pending the resolution of that action. It will prevent Zelenko from taking any action with respect to the properties during the pendency of the fraudulent conveyance litigation and will ensure that, when the fraudulent conveyance claims are resolved, the properties will be available for liquidation and distribution to the judgment creditor.
C. The Proposed Receiver Is Qualified and Disinterested
Driftwood proposes the appointment of Barrow & Fitch Realty Inc., through its principal Thomas Barrow, as receiver over Meridian Prime Capital LLC and Castellan Realty Holdings LLC. Barrow & Fitch is located at 1185 Avenue of the Americas, 15th Floor, New York, NY 10036.
Thomas Barrow is an experienced professional with an extensive track record of service as a court-appointed receiver in both New York state courts and federal courts. His experience includes receiverships involving real property assets, fraud-related asset recovery, corporate wind-downs, and the management of complex, multi-asset receivership estates. Mr. Barrow's detailed professional biography and a summary of his prior court-appointed receiverships are set forth in Exhibit G.
Barrow & Fitch Realty Inc. is independent and disinterested. Neither Mr. Barrow nor Barrow & Fitch has any prior personal, professional, or financial relationship with any of the parties to this action, their counsel, or any of the relevant non-parties. Mr. Barrow's affirmation to this effect, including a disclosure of potential conflicts (of which there are none), is attached as Exhibit H.
Driftwood respectfully requests that the receiver be vested with the following powers, which are customary for receiverships of this nature and are reasonably necessary to accomplish the purposes of the appointment:
(a) Possession and Control. The receiver shall take immediate possession and control of all assets, property (real and personal, tangible and intangible), books, records, accounts, and other property of Meridian Prime Capital LLC and Castellan Realty Holdings LLC, wherever located.
(b) Property Management. The receiver shall manage, preserve, and maintain the two real properties held by Castellan Realty (425 East 58th Street, Apt. 32F, New York, NY 10022, and 17 Wooster Street, Unit 3, New York, NY 10013), including but not limited to the payment of real estate taxes, insurance premiums, common charges, and ordinary maintenance expenses.
(c) Marketing and Sale. The receiver shall be authorized to market and sell the real properties at commercially reasonable prices, through such methods as the receiver deems appropriate (including public auction, private sale, or listing with a licensed real estate broker), subject in each case to Court approval of the terms and conditions of sale.
(d) Asset Investigation and Recovery. The receiver shall investigate, identify, and recover additional assets of Meridian Prime and Castellan Realty, including undiscovered accounts, transfers, claims, and other property, wherever located. The receiver shall be authorized to issue subpoenas, conduct examinations, and take such other investigative steps as may be necessary or appropriate.
(e) Litigation Authority. The receiver shall be authorized to commence, continue, or settle legal proceedings in the name of the receivership entities as necessary to carry out the purposes of the receivership, subject to Court approval for the settlement of any claim in excess of $50,000.
(f) Retention of Professionals. The receiver shall be authorized to retain such professionals as may be reasonably necessary to carry out the receiver's duties, including but not limited to accountants, appraisers, real estate brokers, forensic consultants, and legal counsel. The fees and expenses of such professionals shall be subject to Court approval.
(g) Reporting. The receiver shall report periodically to the Court on the status of the receivership, including a detailed accounting of all assets identified, recovered, and disbursed, and a summary of all actions taken. Reports shall be filed no less frequently than quarterly, with the first report due ninety (90) days after the date of the receiver's appointment.
Driftwood proposes that the receiver's bond and compensation terms be set by the Court in the order of appointment, in accordance with the Court's customary practices and in such amounts as the Court deems appropriate. Driftwood respectfully submits that compensation at customary hourly rates for receivers in the Commercial Division, plus reimbursement of reasonable out-of-pocket expenses, would be appropriate.
D. Less Drastic Remedies Are Inadequate
The appointment of a receiver is a significant remedy, and Driftwood recognizes that it should be granted only where less drastic remedies are inadequate. Here, that standard is readily satisfied.
1. The Preliminary Injunction and Order of Attachment Do Not Provide for Active Management or Liquidation.
The preliminary injunction and order of attachment entered by this Court on August 8 and August 22, 2023, respectively, remain in effect. They have been effective in freezing the approximately $3,200,000 in Meridian Prime's accounts at Bridgemont Bank NA and in restraining the individual defendants from dissipating their personal assets. However, these remedies are purely defensive and static. They do not provide for the active management, investigation, or liquidation of the entities' assets. They do not empower anyone to take possession of real property, to maintain buildings, to pay taxes, to market assets for sale, or to conduct the kind of comprehensive forensic investigation that is necessary to identify and recover additional assets.
2. Post-Judgment Disclosure Proceedings Are Insufficient.
Information subpoenas and post-judgment disclosure proceedings under CPLR § 5223 are underway, and Driftwood intends to vigorously pursue all available post-judgment discovery remedies. However, these proceedings are inherently limited in scope and effect. They can compel the production of information, but they cannot compel the active management or preservation of assets. They cannot substitute for a receiver's ability to take actual possession of property, to manage real estate, to conduct sales, or to exercise business judgment in the preservation and liquidation of assets. Moreover, the judgment debtors' demonstrated pattern of non-cooperation and fabrication during pre-judgment discovery suggests that post-judgment disclosure, standing alone, will be similarly frustrated.
3. Turnover Proceedings Cannot Substitute for Receivership.
Turnover proceedings under CPLR §§ 5225 and 5227 are being pursued against third-party custodians, including financial institutions that may hold assets of the judgment debtors or their controlled entities. While these proceedings may yield some recovery, they cannot address the assets held directly by Meridian Prime and Castellan Realty — particularly the two real properties — which require active management and professional liquidation that only a receiver can provide. A turnover order can direct a third party to deliver a specific asset to the judgment creditor; it cannot provide for the ongoing management, maintenance, and orderly marketing and sale of real property.
4. The Judgment Debtors Have Demonstrated That They Will Not Cooperate.
The judgment debtors' conduct throughout this litigation provides no basis for confidence that they will cooperate in post-judgment enforcement efforts. Zelenko has only recently retained counsel (Kessler Brandt & Roe LLP, as of January 22, 2024), and that engagement relates solely to Zelenko's individual defense, not to any effort to satisfy the judgment. Carvallo and Sobchak remain unrepresented. No defendant has voluntarily satisfied any portion of the $58,900,000 judgment, nor has any defendant offered to cooperate in the identification or marshaling of assets for the benefit of the judgment creditor. In these circumstances, the appointment of an independent, court-supervised receiver is the only adequate remedy to ensure that the judgment debtors' assets — including assets held through controlled entities — are identified, preserved, and applied toward satisfaction of the judgment.
V. PROPOSED ORDER
In connection with this Petition, Driftwood respectfully submits a proposed order (attached hereto as Exhibit A) for the Court's consideration. The proposed order provides for:
1. The appointment of Barrow & Fitch Realty Inc. (Thomas Barrow, principal), 1185 Avenue of the Americas, 15th Floor, New York, NY 10036, as receiver over Meridian Prime Capital LLC (140 Broadway, Suite 3510, New York, NY 10005) and Castellan Realty Holdings LLC (c/o Viktor Zelenko, 425 East 58th Street, Apt. 32F, New York, NY 10022).
2. The vesting in the receiver of all powers described in Section IV.C above, including the power to take possession and control of all assets, manage and maintain the real properties, market and sell the real properties subject to Court approval, investigate and recover additional assets, commence and settle litigation, retain professionals, and report periodically to the Court.
3. A directive requiring all persons and entities in possession of property, assets, books, records, or accounts of Meridian Prime Capital LLC or Castellan Realty Holdings LLC to turn over such property, assets, books, records, or accounts to the receiver forthwith upon presentation of the order.
4. A prohibition on any person, entity, or agent from interfering with, obstructing, or impeding the receiver in the discharge of the receiver's duties under the order.
5. A provision setting the receiver's bond in an amount to be determined by the Court and authorizing reasonable compensation and reimbursement of expenses, subject to Court approval.
6. A requirement that the receiver file periodic accountings with the Court, no less frequently than quarterly, detailing all assets identified, recovered, and disbursed, and all actions taken in furtherance of the receivership.
7. A provision setting a return date for hearing on the Petition, or alternatively, granting the Petition on submission if no opposition is filed within such time as the Court may set.
Driftwood respectfully requests that the Court schedule this matter for hearing at the earliest available date, or alternatively, grant the Petition on submission if no timely opposition is filed.
VI. CONCLUSION
For all of the foregoing reasons, Petitioner Driftwood Absolute Return Fund Ltd. respectfully requests that this Court enter an order appointing Barrow & Fitch Realty Inc. (Thomas Barrow, principal) as receiver over Meridian Prime Capital LLC and Castellan Realty Holdings LLC, with the powers described herein and in the proposed order attached as Exhibit A.
This relief is essential to marshal and preserve assets valued at millions of dollars, to facilitate the orderly liquidation of the two real properties at 425 East 58th Street, Apt. 32F, New York, NY 10022, and 17 Wooster Street, Unit 3, New York, NY 10013 (originally purchased for a combined $8,000,000 with funds misappropriated from Driftwood), and to maximize recovery on the $58,900,000 judgment entered by this Court on January 10, 2024, for the benefit of Driftwood and its investors.
The appointment of a receiver is warranted by the overwhelming evidence of a systematic, multi-year fraud; by the demonstrated pattern of asset concealment and dissipation; by the judgment debtors' refusal to cooperate in enforcement efforts; by the inadequacy of less drastic remedies; and by the need for professional, court-supervised management of the receivership entities' assets. The proposed receiver, Thomas Barrow of Barrow & Fitch Realty Inc., is eminently qualified, independent, and disinterested, and has expressed his willingness to serve in this capacity.
Driftwood respectfully urges the Court to grant this Petition in its entirety.
SIGNATURE
Dated: New York, New York January 29, 2024
CALDERWOOD & HARKNESS LLP
By: ________
Priya Anand, Esq.
By: ________
Hannah Brinkley, Esq.
200 Park Avenue, 42nd Floor New York, NY 10166 Telephone: (212) 558-4000 Facsimile: (212) 558-3588
Attorneys for Plaintiff Driftwood Absolute Return Fund Ltd.
VERIFICATION
STATE OF NEW YORK COUNTY OF NEW YORK
Sandra Hu, being duly sworn, deposes and states as follows:
1. I am the Chief Operating Officer and Chief Compliance Officer of Driftwood Capital Management LP ("DCM"), the investment manager of Driftwood Absolute Return Fund Ltd. ("Driftwood"), the Plaintiff and Petitioner in the above-captioned action. I make this verification on behalf of Driftwood because Driftwood is a Cayman Islands exempted company and this verification is made by an officer of its investment manager who is authorized to act on Driftwood's behalf and who has personal knowledge of the facts set forth herein.
2. I have read the foregoing Petition for Appointment of Receiver Over Meridian Prime Capital LLC and Castellan Realty Holdings LLC. The statements contained therein are true and correct to the best of my knowledge, information, and belief. The sources of my knowledge and information are the books and records of DCM and Driftwood, the documents produced or obtained during this litigation, the analyses and reports prepared by Kelvantis Forensic Advisors LLC, my personal involvement in the discovery of the fraud (including the margin reconciliation initiated on July 18, 2023, and the subsequent investigation), and consultations with counsel.
3. This verification is not made by the Plaintiff directly because Dr