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

turnover-motion-trust.docx DOCUMENT Litigation

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

NOTICE OF MOTION FOR TURNOVER ORDER PURSUANT TO CPLR § 5227 AGAINST NON-PARTY Marlowe Asset Management TRUST COMPANY OF DELAWARE

PLEASE TAKE NOTICE that upon the annexed Memorandum of Law in Support of Plaintiff's Motion for Turnover Order Pursuant to CPLR § 5227 Against Non-Party Marlowe Asset Management Trust Company of Delaware, the Affirmation of Hannah Brinkley, Esq., dated March 1, 2024, together with Exhibits A through G annexed thereto, and upon all prior proceedings had herein, plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or "Plaintiff"), by its attorneys, Calderwood & Harkness LLP, will move this Court, at the Courthouse located at 60 Centre Street, New York, New York 10007, on a date and at a time to be set by the Court, for an order:

(a) Pursuant to CPLR § 5227, directing Marlowe Asset Management Trust Company of Delaware, as trustee of the Zelenko Family Irrevocable Trust dated April 8, 2021 (Tax ID: 86-6092411), located at 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801, to turn over to Plaintiff all assets of the Zelenko Family Irrevocable Trust, consisting of approximately $6,200,000 in securities and cash, in partial satisfaction of the judgment entered by this Court on January 10, 2024 in the total amount of $58,900,000 against defendants Meridian Prime Capital LLC, Viktor Andreyevich Zelenko, Irene Maria Carvallo, and Dmitri Pavlovich Sobchak, jointly and severally;

(b) In the alternative, or in addition, for a declaration that the transfers of approximately $12,400,000 from Meridian Prime Capital LLC to the Zelenko Family Irrevocable Trust constitute fraudulent conveyances under New York Debtor and Creditor Law §§ 273, 274, 275, and 276, and that the remaining assets of the Zelenko Family Irrevocable Trust, consisting of approximately $6,200,000 in securities and cash, are subject to execution in satisfaction of the judgment entered January 10, 2024;

(c) Directing Marlowe Asset Management Trust Company of Delaware, to the extent the trust holds securities or other non-cash assets, to liquidate such assets and deliver the cash proceeds to Plaintiff;

(d) Directing that the funds turned over be applied in partial satisfaction of the judgment entered January 10, 2024 in the amount of $58,900,000;

(e) Directing that, pending compliance with this Order, Marlowe Asset Management Trust Company of Delaware continue to restrain all trust assets and refrain from making any distributions or transfers from the trust; and

(f) Granting such other and further relief as the Court deems just and proper, together with the costs and disbursements of this motion.

PLEASE TAKE FURTHER NOTICE that answering affidavits, if any, must be served upon the undersigned at least seven (7) days before the return date of this motion, and that reply affidavits, if any, must be served at least one (1) day before the return date.

Dated: New York, New York March 1, 2024

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Priya Anand (Bar No. 4587123) Hannah Brinkley (Bar No. 5412890)

200 Park Avenue, 42nd Floor New York, New York 10166 Telephone: (212) 558-4000 Facsimile: (212) 558-3588 panand@calderwoodharkness.com hbrinkley@calderwoodharkness.com

Attorneys for Plaintiff Driftwood Absolute Return Fund Ltd.

TO:

Aaron Kessler, Esq. Kessler Brandt & Roe LLP 900 Third Avenue, Suite 1700 New York, New York 10022 Attorneys for Defendant Viktor Andreyevich Zelenko

Marlowe Asset Management Trust Company of Delaware 1201 North Market Street, Suite 1600 Wilmington, Delaware 19801

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

MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFF'S MOTION FOR TURNOVER ORDER PURSUANT TO CPLR § 5227 AGAINST NON-PARTY Marlowe Asset Management TRUST COMPANY OF DELAWARE

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

Priya Anand, Responsible Partner Hannah Brinkley, Lead Associate

Attorneys for Plaintiff Driftwood Absolute Return Fund Ltd.

Dated: March 1, 2024

TABLE OF AUTHORITIES

Cases:

Statutes and Rules:

Other Authorities:

PRELIMINARY STATEMENT

Plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or "Plaintiff") respectfully submits this memorandum of law in support of its motion for a turnover order pursuant to CPLR § 5227 against non-party Marlowe Asset Management Trust Company of Delaware ("Marlowe Asset Management Trust"), as trustee of the Zelenko Family Irrevocable Trust dated April 8, 2021 (the "Trust").

On January 10, 2024, this Court entered judgment in favor of Driftwood and against defendants Meridian Prime Capital LLC ("Meridian Prime"), Viktor Andreyevich Zelenko ("Zelenko"), Irene Maria Carvallo ("Carvallo"), and Dmitri Pavlovich Sobchak ("Sobchak") (collectively, "Defendants"), jointly and severally, in the total amount of $58,900,000. The judgment reflects compensatory damages in the amount of $47,300,000, arising from Defendants' orchestration of a massive fraud scheme in which they fabricated trade confirmations and monthly account statements to conceal the systematic misappropriation of Driftwood's margin deposits and FX settlement proceeds over an eighteen-month period. The judgment further includes $9,460,000 in prejudgment interest, calculated at the statutory rate of 9% per annum under CPLR § 5004, and $2,140,000 in attorneys' fees and costs awarded pursuant to the fee-shifting provision of the ISDA Master Agreement dated December 15, 2021 between Driftwood and Meridian Prime. Despite vigorous enforcement efforts since entry of judgment, a substantial portion of the $58,900,000 judgment remains unsatisfied.

This motion targets a principal repository of Defendants' ill-gotten gains: the Zelenko Family Irrevocable Trust. The record demonstrates — and the evidence submitted herewith conclusively establishes — that defendant Zelenko, the managing member and CEO of Meridian Prime, established the Trust on April 8, 2021, approximately eight months before the ISDA Master Agreement was executed and the fraud scheme commenced. Zelenko then funneled approximately $12,400,000 in funds misappropriated from Driftwood into the Trust through a series of wire transfers from Meridian Prime's accounts at Bridgemont Bank NA to the Trust's account at Marlowe Asset Management Trust, over the period from January 2022 through approximately mid-2023. These transfers were made without any fair consideration, at a time when Meridian Prime and Zelenko were insolvent or were being rendered insolvent, and with the actual intent to hinder, delay, and defraud creditors — particularly Driftwood, the very entity from which the funds had been stolen.

As of the date of this Court's asset freeze order, entered August 8, 2023, approximately $6,200,000 in securities and cash remained in the Trust. The remaining approximately $6,200,000 of the $12,400,000 originally transferred had already been dissipated prior to the freeze. Marlowe Asset Management Trust continues to hold the remaining $6,200,000 pursuant to the restraining provisions of this Court's orders.

Plaintiff now seeks a turnover order directing Marlowe Asset Management Trust to deliver all remaining Trust assets — approximately $6,200,000 — to Driftwood in partial satisfaction of the judgment. Alternatively, Plaintiff seeks a declaration that the transfers to the Trust were fraudulent conveyances under New York Debtor and Creditor Law ("NYDCL") §§ 273, 274, 275, and 276, and that the Trust assets are subject to execution. The law, the facts, and basic principles of equity all compel the relief sought. A wrongdoer who steals nearly $50 million from his counterparty and then launders a portion of the proceeds through a self-settled family trust cannot invoke the trust form to place those funds beyond the reach of the victim. The Court should grant this motion in its entirety.

STATEMENT OF FACTS

A. The Underlying Fraud and Judgment

Driftwood Absolute Return Fund Ltd. is a Cayman Islands exempted company (Registration No. MC-349217) managed by Driftwood Capital Management LP, a Delaware limited partnership (Delaware File No. 7831294). Driftwood operates as a multi-strategy hedge fund with approximately $1.82 billion in assets under management as of June 30, 2023. (Brinkley Aff. ¶ 5.) Driftwood's investment strategies include, among others, macro-directional foreign exchange trading, and in the ordinary course of its business, Driftwood engages prime brokers and counterparties for the execution, clearing, and settlement of FX transactions.

Meridian Prime Capital LLC (EIN: 84-3217659) is a New York limited liability company formed on March 14, 2019, which purported to operate as a foreign exchange prime brokerage from offices located at 140 Broadway, Suite 3510, New York, New York 10005. (Brinkley Aff. ¶ 6.) Viktor Andreyevich Zelenko was the managing member and Chief Executive Officer of Meridian Prime. Irene Maria Carvallo served as Chief Financial Officer, and Dmitri Pavlovich Sobchak served as Head of FX Trading. Together, Zelenko, Carvallo, and Sobchak exercised complete operational and financial control over Meridian Prime's business operations and bank accounts.

On December 15, 2021, Driftwood and Meridian Prime executed an ISDA Master Agreement (2002 form) together with a Credit Support Annex (the "CSA"). (Brinkley Aff. ¶ 8.) Under the CSA, Driftwood was required to post $12,000,000 in initial cash margin with Meridian Prime, with variation margin obligations arising from mark-to-market valuations of Driftwood's open positions. Driftwood posted the requisite initial margin, and over the ensuing months made additional margin deposits and received credits from FX settlement proceeds, all of which were reflected on monthly account statements provided by Meridian Prime.

From January 2022 through July 2023 — a period of approximately eighteen months — Meridian Prime, acting through and at the direction of Zelenko, Carvallo, and Sobchak, fabricated trade confirmations and monthly account statements, while systematically misappropriating Driftwood's funds. (Brinkley Aff. ¶ 9.) The total amount misappropriated was $47,300,000, consisting of $38,500,000 in margin deposits and $8,800,000 in diverted FX settlement proceeds that should have been credited to Driftwood's account but were instead siphoned off by Defendants for their own use and benefit.

The fraud was sophisticated and deliberate. The fabricated monthly account statements purported to show a healthy and growing portfolio. The last such statement, dated June 30, 2023, reflected a purported portfolio balance of $52,100,000. (Brinkley Aff. ¶ 10.) In reality, the actual balances in Meridian Prime's accounts at Bridgemont Bank NA, located at 383 Madison Avenue, New York, New York 10179, totaled a mere $3,200,000 — a figure confirmed directly by Sandra Hu, the Chief Operating Officer and Chief Compliance Officer of Driftwood Capital Management LP, following her independent verification with Bridgemont Bank NA on July 18, 2023. (Brinkley Aff. ¶ 10.) The staggering $48,900,000 discrepancy between the stated portfolio balance and the actual account balance triggered Driftwood's immediate investigation and the commencement of this action.

Driftwood filed its verified complaint in this Court on August 7, 2023, asserting claims for fraud, conversion, breach of contract, breach of fiduciary duty, and unjust enrichment, among others. (Brinkley Aff. ¶ 11.) On August 8, 2023, the Honorable Eleanor Vasquez, J.S.C., granted Driftwood's application for a temporary restraining order and an order of attachment in the amount of $50,000,000. (Brinkley Aff. ¶ 11; Ex. F.) A preliminary injunction was granted on August 22, 2023, continuing the restraints and directing Defendants to disclose all assets. (Brinkley Aff. ¶ 12.)

During the course of the litigation, Defendants' counsel, Whitmore & Gaines LLP, located at 60 East 42nd Street, 20th Floor, New York, New York 10165, with Jonathan Whitmore, Esq. serving as lead attorney, sought and was granted leave to withdraw as counsel, effective November 13, 2023. (Brinkley Aff. ¶ 13.) The stated bases for the withdrawal were non-payment of legal fees and an irreparable breakdown in the attorney-client relationship. From November 13, 2023 through January 22, 2024, Defendants were unrepresented and failed to retain successor counsel within the time fixed by the Court.

On January 10, 2024, this Court entered a default judgment against Meridian Prime and, upon Driftwood's motion for summary judgment on its fraud and alter ego claims, entered judgment against all individual defendants — Zelenko, Carvallo, and Sobchak — jointly and severally, in the total amount of $58,900,000, broken down as follows: (i) $47,300,000 in compensatory damages; (ii) $9,460,000 in prejudgment interest at the statutory rate of 9% per annum under CPLR § 5004; and (iii) $2,140,000 in attorneys' fees and costs awarded under the fee-shifting provision contained in Section 11 of the ISDA Master Agreement. (Brinkley Aff. ¶ 14; Ex. E.)

Subsequent to entry of judgment, on January 22, 2024, Kessler Brandt & Roe LLP, located at 900 Third Avenue, Suite 1700, New York, New York 10022, with Aaron Kessler, Esq. as lead attorney, entered an appearance on behalf of defendant Zelenko. (Brinkley Aff. ¶ 15.) On February 5, 2024, this Court appointed Barrow & Fitch Realty Inc., with Thomas Barrow serving as receiver, over the assets and operations of Meridian Prime Capital LLC and Castellan Realty Holdings LLC. (Brinkley Aff. ¶ 16; Ex. G.)

B. The Zelenko Family Irrevocable Trust

Central to this motion is the Zelenko Family Irrevocable Trust, which was established by Viktor Zelenko as settlor on April 8, 2021. (Brinkley Aff. ¶ 18; Ex. D.) The Trust was created approximately eight months before Driftwood and Meridian Prime entered into the ISDA Master Agreement on December 15, 2021, and approximately nine months before the fraud scheme commenced in January 2022. Marlowe Asset Management Trust Company of Delaware, a Delaware-chartered trust company located at 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801, was designated as the corporate trustee of the Trust. The Trust was established purportedly for the benefit of Zelenko's family members.

The Trust was funded through a series of wire transfers originating from Meridian Prime Capital LLC's accounts at Bridgemont Bank NA and directed to the Trust's account at Marlowe Asset Management Trust Company of Delaware. (Brinkley Aff. ¶ 19.) Calderwood & Harkness LLP retained Kelvantis Forensic Advisors LLC, a forensic accounting firm located at 101 Hudson Street, Suite 2500, Jersey City, New Jersey 07302, to trace the disposition of the misappropriated funds. (Brinkley Aff. ¶ 19.) Natasha Everett, CPA, CFF, the lead engagement partner at Kelvantis Forensic Advisors, conducted a comprehensive fund tracing analysis and determined that approximately $12,400,000 was transferred from Meridian Prime's accounts at Bridgemont Bank NA to the Trust's account at Marlowe Asset Management Trust Company of Delaware over the period from January 2022 through approximately mid-2023. (Brinkley Aff. ¶ 19; Ex. A.)

The Kelvantis fund tracing report details each wire transfer, including dates, amounts, originating account numbers, and receiving account numbers. The transfers were made in multiple installments during the same period in which Meridian Prime was actively misappropriating Driftwood's margin deposits and FX settlement proceeds. The funds transferred to the Trust originated directly from Driftwood's deposits and proceeds, as traced through Meridian Prime's bank records at Bridgemont Bank NA. (Brinkley Aff. ¶ 20; Ex. A.)

The $12,400,000 transferred to the Trust constituted approximately 26.2% of the total $47,300,000 in misappropriated funds. The Kelvantis forensic analysis further revealed that the remaining misappropriated funds were disbursed as follows:

• Approximately $18,600,000 was transferred to Stellaris Trading Ltd. (BVI Registration No. 2043871), a British Virgin Islands entity, at Palmetto International Bank Ltd., located at 302 Bay Street, Nassau, Bahamas;

• Approximately $8,000,000 was used to fund real estate purchases through Castellan Realty Holdings LLC (EIN: 87-1548203), a New York LLC controlled by Zelenko;

• Approximately $5,100,000 was withdrawn in cash or expended on personal expenditures by the individual defendants; and

• Approximately $3,200,000 remained in Meridian Prime's accounts at Bridgemont Bank NA as of July 2023.

(Brinkley Aff. ¶ 21; Ex. A.)

Of the $12,400,000 transferred into the Trust, approximately $6,200,000 in securities and cash remained in the Trust as of the date of this Court's asset freeze order on August 8, 2023. (Brinkley Aff. ¶ 22.) The remaining approximately $6,200,000 had been dissipated — through trust distributions, investment losses, or other disbursements — prior to the imposition of the freeze. The $6,200,000 currently held by Marlowe Asset Management Trust on behalf of the Trust has remained frozen and intact pursuant to this Court's restraining orders.

The existence and composition of the Trust's assets have been confirmed through two independent sources. First, on February 12, 2024, Plaintiff served information subpoenas on Marlowe Asset Management Trust Company of Delaware pursuant to CPLR § 5223. Marlowe Asset Management Trust responded, confirming the Trust's holdings of approximately $6,200,000 in securities and cash. (Brinkley Aff. ¶ 23; Ex. B.) Second, on February 28, 2024, Plaintiff conducted a post-judgment asset disclosure examination of Zelenko pursuant to CPLR § 5223. (Brinkley Aff. ¶ 24; Ex. C.) Zelenko appeared for the examination with his counsel, Aaron Kessler of Kessler Brandt & Roe LLP, and confirmed under oath the Trust's holdings, the source of the funds used to capitalize the Trust, and the identity of the Trust's beneficiaries. (Brinkley Aff. ¶ 24; Ex. C.) Zelenko also produced, under subpoena duces tecum, a copy of the Trust instrument dated April 8, 2021. (Brinkley Aff. ¶ 25; Ex. D.)

C. Badges of Fraud

The circumstances surrounding the creation and funding of the Zelenko Family Irrevocable Trust bear every hallmark of a fraudulent scheme to place misappropriated assets beyond the reach of creditors. The "badges of fraud" recognized by New York courts as probative of actual fraudulent intent are present in overwhelming measure here.

First, the timing of the Trust's creation is deeply suspicious. The Trust was established on April 8, 2021. Meridian Prime had been formed on March 14, 2019. The ISDA Master Agreement with Driftwood was executed on December 15, 2021, and the misappropriation scheme commenced in January 2022. The temporal proximity between the Trust's creation and the inception of the fraud — separated by only approximately eight to nine months — strongly supports an inference that Zelenko established the Trust as a vehicle for sheltering the anticipated proceeds of his fraudulent scheme. (Brinkley Aff. ¶ 27.)

Second, Zelenko was the settlor of the Trust, and the transfers were to an insider. Zelenko created the Trust and designated himself and his family members as beneficiaries. Every dollar transferred to the Trust originated from funds that Zelenko controlled through his position as managing member of Meridian Prime. The transfer of assets to a trust settled by the debtor for the benefit of the debtor's own family is a classic badge of fraud. (Brinkley Aff. ¶ 28.)

Third, the transfers were made without any fair consideration. The Trust provided nothing of value to Meridian Prime or to Zelenko in exchange for the $12,400,000 in transfers. The transfers were entirely gratuitous — a one-way flow of funds from Meridian Prime's accounts to the Trust. No goods, services, property, or other consideration of any kind flowed back to Meridian Prime or to its creditors. (Brinkley Aff. ¶ 29.)

Fourth, the transferred funds were stolen property. The monies transferred to the Trust were not Zelenko's to give. The funds belonged to Driftwood and were misappropriated through the fabrication of trade confirmations and account statements. The transfer of stolen property to an entity controlled by the thief is, by its very nature, fraudulent. (Brinkley Aff. ¶ 30.)

Fifth, Zelenko retained effective control over the transferred assets. Although the Trust is nominally irrevocable and administered by a corporate trustee, Zelenko structured the Trust for the benefit of himself and his family. As the settlor and a beneficiary of the Trust, Zelenko retained a beneficial interest in the very assets he transferred. (Brinkley Aff. ¶ 31.)

Sixth, the transfers were made while Meridian Prime was insolvent or was rendered insolvent thereby. Throughout the period of the transfers (January 2022 through mid-2023), Meridian Prime's liabilities to Driftwood — ultimately totaling $47,300,000 — far exceeded its legitimate assets. Each successive transfer to the Trust further depleted the assets available to satisfy Meridian Prime's mounting obligations. (Brinkley Aff. ¶ 32.)

Seventh, the transfers were concealed from Driftwood. Driftwood had no knowledge of the existence of the Zelenko Family Irrevocable Trust until after the fraud was uncovered in July 2023. The existence of the Trust and the transfers to it were never disclosed to Driftwood, and Meridian Prime's fabricated account statements concealed the true disposition of Driftwood's funds. (Brinkley Aff. ¶ 33.)

Eighth, the transfers occurred in the course of an ongoing fraudulent scheme. The transfers to the Trust were not isolated transactions; they were a component of a sustained, eighteen-month pattern of misappropriation and concealment. Each wire transfer from Meridian Prime to the Trust was accompanied by the simultaneous fabrication of account statements designed to prevent Driftwood from discovering the theft. (Brinkley Aff. ¶ 34.)

Ninth, Zelenko has a documented history of financial misconduct. Zelenko received a censure and monetary fine from the Financial Industry Regulatory Authority ("FINRA") in 2017 for unauthorized trading while employed at Clarendon Markets LLC. (Brinkley Aff. ¶ 35.) This prior disciplinary action demonstrates a pattern of dishonest conduct and disregard for fiduciary obligations — a history that makes it all the more plausible that Zelenko created the Trust with the intent to defraud future creditors.

The confluence of these badges of fraud is overwhelming. No single badge standing alone would be dispositive, but taken together, they establish both the constructive and actual fraudulent character of the transfers beyond any reasonable dispute.

ARGUMENT

I. CPLR § 5227 Authorizes Turnover of Trust Assets Held by a Third Party

CPLR § 5227 provides the mechanism by which a judgment creditor may reach property of the judgment debtor that is in the hands of a third party. The statute provides, in relevant part:

"[U]pon a special proceeding commenced by the judgment creditor, against any person who it is shown is or will become indebted to the judgment debtor, the court shall require such person to pay to the judgment creditor the debt upon maturity, or so much of it as is sufficient to satisfy the judgment, and to execute and deliver any document necessary to effect payment; or it shall direct that a judgment be entered against such person in favor of the judgment creditor."

CPLR § 5227. The statute is to be "liberally construed to secure the just, speedy, and inexpensive determination of every action." See Capitol Fed. Sav. Bank v. Eastern N.Y. Sav. Bank, 173 A.D.2d 413, 414 (1st Dep't 1991). It is a powerful collection tool that allows judgment creditors to reach beyond the judgment debtor and compel third parties who hold the debtor's assets to deliver those assets in satisfaction of the judgment. See David D. Siegel, New York Practice § 509 (6th ed. 2018) (describing CPLR § 5227 as the judgment creditor's "turnover weapon" against third parties); Bankers Trust Co. v. Cerrato, Sweeney, Cohn, Stahl & Vaccaro, 187 A.D.2d 384, 385 (1st Dep't 1992) (affirming turnover order against third party holding debtor's assets).

The companion provision, CPLR § 5225, authorizes turnover of property in the debtor's own possession. Together, CPLR §§ 5225 and 5227 "provide complementary enforcement mechanisms that enable the judgment creditor to reach property wherever it may be found." PineBridge Invs. LLC v. Geron, 2015 WL 1439862, at *3 (Sup. Ct. N.Y. Cnty. 2015). The key distinction is that § 5227 reaches property held by third parties — precisely the situation presented here, where Marlowe Asset Management Trust holds assets traceable to Zelenko's misappropriation of Driftwood's funds.

The standard for obtaining a turnover order under CPLR § 5227 is well established. The movant must demonstrate: (1) a valid, enforceable judgment; (2) that the third-party respondent possesses or has custody of property in which the judgment debtor has an interest; and (3) that the property is not exempt from execution. See Global Indus., Ltd. v. Harris, 2012 WL 12894993, at 4 (Sup. Ct. N.Y. Cnty. 2012); see also Centro Empresarial Cempresa S.A. v. Am. Móvil S.A.B. de C.V., 17 N.Y.3d 269, 276 (2011) (discussing the scope of post-judgment enforcement proceedings). The court has "broad discretion" in fashioning turnover relief and may "impose any terms and conditions it deems just." See* 18 Carmody-Wait 2d § 114:47. The breadth of the court's discretionary authority is commensurate with the importance of the policy objective served: ensuring that prevailing parties are able to collect on their judgments and that wrongdoers are not permitted to frustrate the enforcement process.

Each element of the standard is satisfied here.

A valid, enforceable judgment exists. On January 10, 2024, this Court entered judgment in favor of Driftwood and against all Defendants, jointly and severally, in the total amount of $58,900,000. (Brinkley Aff. ¶ 14; Ex. E.) The judgment is final and enforceable. A substantial portion of the judgment remains unsatisfied despite ongoing enforcement efforts.

Marlowe Asset Management Trust possesses property in which the judgment debtor has an interest. Marlowe Asset Management Trust Company of Delaware is a "person" within the meaning of CPLR § 5227 that possesses, controls, and has custody of the assets of the Zelenko Family Irrevocable Trust, consisting of approximately $6,200,000 in securities and cash. (Brinkley Aff. ¶¶ 22–23; Exs. B, C.) The trust assets constitute property in which judgment debtor Viktor Zelenko has a direct interest, inasmuch as Zelenko is the settlor of the Trust and the funds held therein are the direct product of monies misappropriated from Driftwood by Zelenko, acting through Meridian Prime. See Ridgeway Capital Markets v. Conticommodity Servs., Inc., 140 Misc. 2d 322, 326 (Sup. Ct. N.Y. Cnty. 1988) (finding that turnover was appropriate where third party held assets traceable to the judgment debtor's wrongful conduct); see also Cohen v. Spence, 2019 WL 4738844, at 5 (Sup. Ct. N.Y. Cnty. 2019) (ordering turnover of assets held in trust where trust was funded with debtor's property). To the extent the irrevocable trust structure is asserted as a barrier to turnover, that argument fails for the reasons set forth in Point III, infra*, given that the Trust was funded entirely with stolen money and constitutes a fraudulent conveyance.

Moreover, regardless of whether the Trust is nominally irrevocable, the assets therein remain subject to the claims of the grantor's creditors where, as here, the transfers into the trust were fraudulent conveyances. See JSC Foreign Econ. Ass'n Technostroyexport v. Int'l Dev. & Trade Servs., Inc., 295 F. Supp. 2d 366, 389–90 (S.D.N.Y. 2003) (holding that assets in trust were subject to turnover where funded through fraudulent transfers). A judgment debtor cannot defeat the enforcement mechanisms of the CPLR by parking stolen funds with a corporate trustee and then claiming that the trust structure places those funds beyond the judgment creditor's reach. To permit such a result would be to convert the trust form into a fraud-enablement device, which is precisely the outcome that the turnover statute, the fraudulent conveyance laws, and fundamental principles of equity are designed to prevent.

The property is not exempt from execution. There is no statutory or common-law exemption applicable to the Trust assets. The trust is not a pension fund, retirement account, or other type of asset shielded from execution by statute. The assets consist of securities and cash held by a corporate trustee, and they are fully subject to turnover in satisfaction of the judgment.

Accordingly, all three requirements for a CPLR § 5227 turnover order are met, and the Court should direct Marlowe Asset Management Trust to deliver the Trust's assets to Driftwood.

II. The Transfers to the Trust Were Fraudulent Conveyances Under NYDCL §§ 273–276

The New York Debtor and Creditor Law provides multiple, independent bases for avoiding the transfers from Meridian Prime to the Zelenko Family Irrevocable Trust. The NYDCL establishes both constructive fraud (§§ 273–275) and actual fraud (§ 276) as grounds for avoidance. The transfers here satisfy all four provisions, and the Court should declare them fraudulent conveyances and direct turnover of the remaining trust assets.

As a threshold matter, the NYDCL defines "conveyance" to include "every payment of money, assignment, release, transfer, lease, mortgage or pledge of tangible or intangible property, and also the creation of any lien or incumbrance." NYDCL § 270. The wire transfers from Meridian Prime's accounts at Bridgemont Bank NA to the Trust's account at Marlowe Asset Management Trust plainly constitute "conveyances" within this broad definition. The NYDCL further defines "fair consideration" as consideration given in good faith in exchange for property or to secure an antecedent debt, in an amount not disproportionately small compared to the value of the property conveyed. NYDCL §§ 271, 272. As established below, no fair consideration of any kind was given for the transfers at issue.

A. Constructive Fraud Under NYDCL § 273 (Conveyance by Insolvent). NYDCL § 273 provides that "[e]very conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration." Under this provision, the movant need not prove actual fraudulent intent; it is sufficient to demonstrate (1) a conveyance, (2) made without fair consideration, (3) by a person who was insolvent at the time of the conveyance or who was rendered insolvent thereby. See Morgenthau v. Avion Res. Ltd., 11 N.Y.3d 383, 390 (2008); Adriatic Specialty Insurance v. LFO Constr. Corp., 207 A.D.2d 274, 275 (1st Dep't 1994).

All three elements are established beyond dispute.

Conveyance. As detailed above, Zelenko, through Meridian Prime, caused approximately $12,400,000 to be transferred by wire to the Trust's account at Marlowe Asset Management Trust over the period from January 2022 through approximately mid-2023. Each of these wire transfers constituted a "conveyance" within the meaning of NYDCL § 270.

Without Fair Consideration. The transfers were entirely gratuitous. The Trust gave nothing of value to Meridian Prime or to Zelenko in exchange for the $12,400,000. No goods, services, or other property were exchanged. No antecedent debt was secured or satisfied. The Trust instrument contains no provision requiring the Trust to furnish consideration to the settlor or to Meridian Prime. (Brinkley Aff. ¶ 29; Ex. D.) Moreover, the transferor acted in bad faith — the funds were stolen from Driftwood, and the transfers were made to conceal the misappropriation. "Fair consideration" under the NYDCL requires not only a fair equivalent in value but also good faith. NYDCL §§ 271, 272. Neither condition is satisfied here. See Debary v. Harrah's Operating Co., 465 F. Supp. 2d 250, 258 (S.D.N.Y. 2006) (holding that transfers made with knowledge of their fraudulent character cannot be deemed made for "fair consideration").

Insolvency. Meridian Prime and Zelenko were insolvent at the time of the transfers and were further rendered insolvent by the transfers. Throughout the January 2022 to mid-2023 period, Meridian Prime was accruing massive liabilities to Driftwood through its ongoing misappropriation of Driftwood's margin deposits and FX settlement proceeds. By the time the fraud was uncovered in July 2023, Meridian Prime owed Driftwood $47,300,000, while its total legitimate assets amounted to only $3,200,000 in its Bridgemont Bank accounts. (Brinkley Aff. ¶ 10.) Zelenko, as the managing member and alter ego of Meridian Prime (as found by this Court in its January 10, 2024 judgment), was personally liable for those obligations. The diversion of $12,400,000 to the Trust left Meridian Prime — and, by extension, Zelenko — with assets far short of their obligations. See In re Kaiser, 722 F.2d 1574, 1582 (2d Cir. 1983) (debtor is insolvent when the sum of debts exceeds the fair valuation of assets).

Accordingly, the transfers to the Trust are voidable as constructively fraudulent under NYDCL § 273.

B. Constructive Fraud Under NYDCL § 274 (Conveyance Without Fair Consideration). NYDCL § 274 provides that "[e]very conveyance made without fair consideration when the person making it is engaged or is about to engage in a business or transaction for which the property remaining in his hands after the conveyance is an unreasonably small capital, is fraudulent as to creditors . . . ." This provision is designed to prevent transferors from stripping assets from an operating business, leaving it undercapitalized and unable to meet its obligations to existing or prospective creditors.

Meridian Prime purported to operate an FX prime brokerage — a business that required substantial capital to meet its obligations to counterparties, including the obligation to return margin deposits and deliver FX settlement proceeds. See Kramer v. Danalis, 49 A.D.3d 263, 264 (1st Dep't 2008) (applying § 274 where transferor's business required capital to meet known obligations). The diversion of $12,400,000 to the Trust left Meridian Prime with wholly inadequate capital to conduct its purported business or to meet its obligations to Driftwood. Indeed, when the fraud was uncovered, Meridian Prime's accounts held only $3,200,000 against liabilities of $47,300,000 — a capital deficiency of catastrophic proportions. See Wall St. Assocs. v. Brodsky, 257 A.D.2d 526, 529 (1st Dep't 1999) (holding that conveyances that left transferor with "unreasonably small capital" were fraudulent under § 274).

Because the transfers to the Trust were made without fair consideration at a time when Meridian Prime was engaged in a business for which its remaining property was unreasonably small capital, the transfers are independently voidable under NYDCL § 274.

C. Constructive Fraud Under NYDCL § 275 (Conveyance by Person About to Incur Debts). NYDCL § 275 provides that "[e]very conveyance made and every obligation incurred without fair consideration when the person making the conveyance or entering into the obligation intends or believes that he will incur debts beyond his ability to pay as they mature, is fraudulent as to both present and future creditors." This provision reaches transfers made in anticipation of debts, and is particularly suited to the circumstances of this case.

Zelenko established the Trust on April 8, 2021, at a time when he was actively planning the fraudulent scheme that would be launched approximately nine months later. Meridian Prime had been formed in March 2019, and the ISDA Master Agreement with Driftwood was executed in December 2021. The Trust was created in the interval between Meridian Prime's formation and the commencement of the fraud. The inference is inescapable: Zelenko created the Trust as a vehicle for sheltering the anticipated proceeds of the fraud from the creditors he knew he would defraud.

The transfers themselves, totaling $12,400,000, were made during the period of January 2022 through mid-2023 — the very period during which Meridian Prime was actively misappropriating Driftwood's funds and fabricating account statements. At the time of each transfer, Zelenko knew that Meridian Prime was incurring massive, undisclosed liabilities to Driftwood and that Meridian Prime would be unable to pay those liabilities as they matured. The transfers were made without fair consideration, as discussed above.

Zelenko's subjective intent and belief are established by the overwhelming circumstantial evidence: (i) he was orchestrating the fraud; (ii) he knew the stolen funds were being diverted; (iii) he knew the fabricated statements concealed the true state of affairs; and (iv) he knew that if and when the fraud was uncovered, Meridian Prime would be unable to meet its obligations to Driftwood. Under these circumstances, the Court should find that Zelenko intended and believed he would incur debts beyond his ability to pay, and that the transfers to the Trust were fraudulent conveyances under NYDCL § 275.

D. Actual Fraud Under NYDCL § 276 (Conveyance Made with Intent to Defraud). NYDCL § 276 provides that "[e]very conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors." Unlike the constructive fraud provisions of §§ 273–275, Section 276 requires a showing of actual intent to defraud. However, because a debtor rarely announces his fraudulent intent, courts have long recognized that actual intent may be inferred from the circumstances surrounding the transfer — the so-called "badges of fraud." See Sardis v. Frankel, 113 A.D.3d 135, 141 (1st Dep't 2014); Arfa v. Zamir, 76 A.D.3d 56, 61 (1st Dep't 2010); Cobalt Partners, L.P. v. GSC Capital Corp., 97 A.D.3d 444, 446 (1st Dep't 2012); Wall St. Assocs. v. Brodsky, 257 A.D.2d at 529.

The recognized badges of fraud include: (i) the close relationship between the transferor and transferee; (ii) inadequacy of consideration; (iii) the transferor's knowledge of the creditor's claim and inability to pay it; (iv) the retention of benefits in the transferred property by the transferor; (v) the fact that the transfer rendered the transferor insolvent; (vi) the timing of the transfer in relation to the incurrence of the debt; (vii) the secrecy or concealment of the transfer; and (viii) the general chronology and pattern of the transferor's conduct. See Sardis, 113 A.D.3d at 141; Strom v. Pinnacle National Bank, 202 F.3d 138, 149 (2d Cir. 1999) (applying New York law).

Here, the badges of fraud are not merely present — they are present in extraordinary concentration. Each recognized badge is established by the uncontroverted record:

Transfer to an insider/family trust settled by the debtor. Zelenko created the Trust and named himself and his family as beneficiaries. The transfers were made from Meridian Prime — an entity wholly controlled by Zelenko — to a trust of Zelenko's own creation. This is the quintessential insider transfer. See Sardis, 113 A.D.3d at 141 (transfer to family member is a significant badge of fraud).

Transfer of stolen property. The $12,400,000 transferred to the Trust was not Zelenko's money. It was Driftwood's money, stolen through the fabrication of trade confirmations and account statements. When a thief transfers stolen property to a vehicle of his own creation, the fraudulent intent is self-evident.

Concealment. Driftwood was completely unaware of the existence of the Trust until after the fraud was uncovered in July 2023. The Trust was not disclosed in any of Meridian Prime's communications with Driftwood, and the fabricated account statements concealed the true disposition of Driftwood's funds. The concealment of the transfers is a powerful badge of fraud.

No fair consideration. As discussed at length above, the Trust provided nothing of value in exchange for the $12,400,000 in transfers. The transfers were entirely gratuitous.

Timing. The Trust was established on April 8, 2021, in the period between Meridian Prime's formation and the commencement of the fraud. The transfers occurred from January 2022 through mid-2023, during the active fraud period. This temporal pattern demonstrates that the Trust was established and funded as part of the broader fraudulent scheme.

Insolvency. At the time of the transfers, and by reason of the transfers, Meridian Prime and Zelenko were insolvent. Their liabilities to Driftwood dwarfed their legitimate assets.

Retention of beneficial interest. Zelenko's family members are the named beneficiaries of the Trust. Zelenko effectively retained the benefit of the stolen funds by placing them in a trust for his own family — a structure that allowed him to enjoy the fruits of his misappropriation while nominally placing the assets beyond the reach of creditors.

Pattern of misconduct. Zelenko's prior FINRA censure and fine in 2017 for unauthorized trading at Clarendon Markets LLC demonstrates a pattern of financial misconduct, lending further support to the inference that his transfer of $12,400,000 to a family trust was motivated by fraudulent intent.

The presence of even a few badges of fraud is typically sufficient to sustain a finding of actual intent under NYDCL § 276. See Arfa, 76 A.D.3d at 61 (finding actual fraudulent intent based on presence of multiple badges). Here, every recognized badge is present, and the evidence of actual fraudulent intent is overwhelming. The transfers to the Trust were made with the actual intent to hinder, delay, and defraud Driftwood and other creditors, and should be avoided under NYDCL § 276.

Moreover, under NYDCL § 276-a, where a conveyance is found to have been made with actual intent to defraud, the judgment creditor is entitled to recover attorneys' fees incurred in connection with the fraudulent conveyance action. Plaintiff reserves the right to seek such fees in a subsequent application.

III. The Trust Assets Are Not Shielded From Turnover

Defendants may attempt to argue that the irrevocable trust structure insulates the Trust's assets from the claims of Zelenko's creditors. That argument fails for two independent reasons.

A. Self-Settled Trust Doctrine. Under longstanding New York law, a settlor who creates a trust for his own benefit cannot invoke the trust form to shield assets from creditors. New York Estates, Powers and Trusts Law ("EPTL") § 7-3.1(a) provides:

"A disposition in trust for the use of the creator is void as against the existing or subsequent creditors of the creator."

This provision codifies the common-sense principle that a debtor cannot place his assets in a trust of his own making and then claim that those assets are immune from the claims of his creditors. See Goldberg v. Goldberg, 262 A.D.2d 115, 116 (1st Dep't 1999) (applying EPTL § 7-3.1 to avoid self-settled trust as against creditors); Matter of Boesky, 165 Misc. 2d 410, 413–14 (Sup. Ct. N.Y. Cnty. 1995) (holding that self-settled trust was subject to creditors' claims notwithstanding irrevocable designation).

The Zelenko Family Irrevocable Trust is a textbook self-settled trust. Zelenko is the settlor. The Trust was funded exclusively with Zelenko's transfers — transfers that, as detailed above, consisted entirely of funds misappropriated from Driftwood. The Trust was created for the benefit of Zelenko and his family. Under EPTL § 7-3.1, the Trust is void as against Driftwood and other creditors of Zelenko, and its assets are fully subject to execution.

Even under Delaware law — which might arguably apply given that the trustee is a Delaware trust company — the result is the same. Although the Delaware Qualified Dispositions in Trust Act, Del. Code Ann. tit. 12, § 3570 et seq., permits certain self-settled asset protection trusts, that statute does not protect trusts funded with assets transferred in violation of fraudulent conveyance laws. See Del. Code Ann. tit. 12, § 3572(b) (providing that the Act does not apply to transfers that constitute fraudulent conveyances). Here, the transfers to the Trust are fraudulent conveyances under both New York and Delaware law. Accordingly, even if Delaware law were to apply to the Trust, the Delaware asset protection trust statute would provide no shelter.

The Restatement (Second) of Trusts § 156 (1959) and the Restatement (Third) of Trusts § 58(2) (2003) both confirm the principle that where a person creates a trust for his own benefit, his creditors may reach his interest in the trust to satisfy their claims. This is precisely the situation presented here. See Epstein v. Epstein, 193 A.D.2d 551, 552 (2d Dep't 1993) (creditors may reach self-settled trust assets); Schoenberg v. Schoenberg, 113 A.D.3d 531, 532 (1st Dep't 2014) (same); Cole v. Nolley, 165 A.D.3d 413, 414 (1st Dep't 2018) (affirming turnover order against self-settled trust); In re Huber, 493 B.R. 798, 809–13 (Bankr. W.D. Wash. 2013) (applying self-settled trust doctrine to reach assets in trust); Fidelity Nat'l Title Ins. Co. v. Howard Sav. Bank, 436 F.3d 206, 217 (3d Cir. 2006) (trust funded with fraudulently conveyed assets subject to creditors' claims).

The "irrevocable" designation is immaterial. The trust may be irrevocable as between the settlor and the trustee, but it cannot be irrevocable as against the settlor's creditors when it was funded with the proceeds of fraud. To hold otherwise would be to create a mechanism by which any fraudster could launder stolen funds through an irrevocable trust and thereby permanently deprive the victim of any recovery. The law does not countenance such a result.

Furthermore, trust assets that are traceable to fraud are subject to the full range of equitable remedies available to a court of equity, including turnover and the imposition of a constructive trust. See Matter of Boesky, 165 Misc. 2d at 414 (court may impose constructive trust on assets traceable to fraud). The $6,200,000 remaining in the Trust has been conclusively traced by Kelvantis Forensic Advisors to Driftwood's misappropriated funds. Driftwood is the true equitable owner of these assets, and the Court should direct their turnover.

B. No Legitimate Third-Party Interests. Marlowe Asset Management Trust Company of Delaware is a corporate trustee. It has no personal stake in the Trust corpus beyond its fiduciary duties as trustee and its entitlement to reasonable trustee's fees. Marlowe Asset Management Trust did not contribute any funds to the Trust and will suffer no prejudice from a turnover order, beyond the loss of ongoing trustee compensation. Indeed, the proposed order provides for Marlowe Asset Management Trust's reasonable costs and expenses of compliance to be deducted from the trust assets prior to turnover — a customary and appropriate accommodation.

Nor do the Trust beneficiaries — Zelenko's family members — hold any interest superior to that of Driftwood. Zelenko's family members are volunteers who received the benefit of stolen money. A volunteer who receives the proceeds of fraud holds no equitable interest that can defeat the claims of the defrauded party. See United States v. Skowron, 839 F. Supp. 2d 740, 748 (S.D.N.Y. 2012) (holding that beneficiaries of trust funded with ill-gotten gains hold no interest superior to the victim's). Driftwood is the true owner of the misappropriated funds, and its equitable interest as the defrauded party is paramount.

Public policy strongly supports this result. The laws of New York — and indeed of every American jurisdiction — prohibit a wrongdoer from using a trust vehicle to insulate the proceeds of fraud from creditors. To permit the Trust to serve as a shield for stolen assets would undermine the integrity of the judgment enforcement process, reward criminal conduct, and deprive the victim of recourse. The Court should not allow the trust form to be perverted into an instrument of fraud.

IV. The Court Should Enter a Turnover Order Directing Immediate Payment

For all of the foregoing reasons, the Court should exercise its broad equitable powers and enter a turnover order directing Marlowe Asset Management Trust Company of Delaware, as trustee of the Zelenko Family Irrevocable Trust, to deliver the full $6,200,000 in trust assets — consisting of securities and cash — to Plaintiff Driftwood Absolute Return Fund Ltd. in partial satisfaction of the $58,900,000 judgment entered January 10, 2024.

The Court has ample authority to fashion the turnover relief in a manner that ensures prompt and effective compliance. Specifically, Plaintiff requests that the Court:

(a) Direct Marlowe Asset Management Trust to turn over all trust assets, including all securities, cash, and other property, to Plaintiff, in an aggregate amount not to exceed $6,200,000;

(b) Authorize and direct Marlowe Asset Management Trust, to the extent the Trust holds securities or other non-cash assets, to liquidate such assets at the best price reasonably obtainable and deliver the cash proceeds to Plaintiff;

(c) Set a deadline of ten (10) business days from service of the order with notice of entry for compliance, to prevent further dissipation or delay;

(d) Direct that the funds turned over be applied in partial satisfaction of the judgment;

(e) Continue the restraint on all trust assets pending compliance; and

(f) Provide that Marlowe Asset Management Trust's reasonable costs and expenses of compliance, if any, be deducted from the trust assets prior to turnover.

The requested relief is tailored, specific, and supported by the record. The $6,200,000 in trust assets represents a significant but partial recovery on the $58,900,000 judgment. The order would impose no burden on any innocent party: Marlowe Asset Management Trust is merely a fiduciary that holds stolen money, and the Trust beneficiaries have no legitimate equitable interest in the proceeds of fraud. The order preserves Plaintiff's right to pursue additional enforcement proceedings for the balance of the judgment.

The urgency of the relief should not be overlooked. Although the asset freeze has restrained the Trust's assets since August 8, 2023, delays in enforcement create risks — of further litigation, of changed circumstances, and of continued non-recovery by the victim of a massive fraud. The Court should act promptly to direct the turnover and thereby advance the fundamental purpose of the enforcement statutes: the satisfaction of valid judgments.

CONCLUSION

For all of the foregoing reasons, Plaintiff Driftwood Absolute Return Fund Ltd. respectfully requests that the Court:

1. Grant this motion in its entirety;

2. Enter an order pursuant to CPLR § 5227 directing Marlowe Asset Management Trust Company of Delaware, as trustee of the Zelenko Family Irrevocable Trust dated April 8, 2021, to turn over all assets of the Trust, consisting of approximately $6,200,000 in securities and cash, to Plaintiff in partial satisfaction of the judgment entered January 10, 2024 in the amount of $58,900,000;

3. Declare that the transfers of approximately $12,400,000 from Meridian Prime Capital LLC to the Zelenko Family Irrevocable Trust constituted fraudulent conveyances under New York Debtor and Creditor Law §§ 273, 274, 275, and 276, and that the remaining trust assets are subject to execution in satisfaction of the judgment;

4. Award Plaintiff such other and further relief as the Court deems just and proper, including the costs and disbursements of this motion.

Dated: New York, New York March 1, 2024

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Priya Anand (Bar No. 4587123) Hannah Brinkley (Bar No. 5412890)

200 Park Avenue, 42nd Floor New York, New York 10166 Telephone: (212) 558-4000 Facsimile: (212) 558-3588 panand@calderwoodharkness.com hbrinkley@calderwoodharkness.com

Attorneys for Plaintiff Driftwood Absolute Return Fund Ltd.

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

AFFIRMATION OF HANNAH BRINKLEY IN SUPPORT OF PLAINTIFF'S MOTION FOR TURNOVER ORDER PURSUANT TO CPLR § 5227 AGAINST NON-PARTY Marlowe Asset Management TRUST COMPANY OF DELAWARE

Hannah Brinkley, Esq., an attorney duly admitted to practice law in the State of New York, hereby affirms the following under penalties of perjury pursuant to CPLR § 2106:

Background and Qualifications

1. I am an associate at Calderwood & Harkness LLP, counsel of record for Plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or "Plaintiff") in the above-captioned action. I submit this affirmation in support of Plaintiff's motion for a turnover order pursuant to CPLR § 5227 against non-party Marlowe Asset Management Trust Company of Delaware ("Marlowe Asset Management Trust"), as trustee of the Zelenko Family Irrevocable Trust dated April 8, 2021 (the "Trust").

2. I am admitted to the Bar of the State of New York and to the United States District Courts for the Southern and Eastern Districts of New York. I have been involved in this matter since its inception, when the complaint was filed on August 7, 2023. This matter has been assigned Calderwood & Harkness internal matter number 1024-00003. I am personally familiar with the facts and circumstances set forth herein based on my direct participation in the investigation, litigation, and post-judgment enforcement proceedings in this case.

3. I make this affirmation based upon my personal knowledge and upon information contained in the files and records of Calderwood & Harkness LLP maintained in the ordinary course of business. Where statements are made on information and belief, the sources of that information and the grounds for that belief are identified.

Procedural History

4. The Parties. Plaintiff Driftwood Absolute Return Fund Ltd. is a Cayman Islands exempted company (Registration No. MC-349217) managed by Driftwood Capital Management LP (Delaware File No. 7831294), a multi-strategy hedge fund with approximately $1.82 billion in assets under management as of June 30, 2023.

5. Defendant Meridian Prime Capital LLC (EIN: 84-3217659) is a New York limited liability company formed on March 14, 2019, which purported to operate as an FX prime brokerage at 140 Broadway, Suite 3510, New York, New York 10005. Defendant Viktor Andreyevich Zelenko ("Zelenko") is the managing member and CEO of Meridian Prime. Defendant Irene Maria Carvallo ("Carvallo") served as CFO, and Defendant Dmitri Pavlovich Sobchak ("Sobchak") served as Head of FX Trading.

6. On December 15, 2021, Driftwood and Meridian Prime executed an ISDA Master Agreement (2002 form) and Credit Support Annex, under which Driftwood posted $12,000,000 in initial cash margin, with additional variation margin obligations arising from mark-to-market valuations.

7. From January 2022 through July 2023, Meridian Prime, acting through and at the direction of Zelenko, Carvallo, and Sobchak, fabricated trade confirmations and monthly account statements and systematically misappropriated a total of $47,300,000 from Driftwood, consisting of $38,500,000 in margin deposits and $8,800,000 in diverted FX settlement proceeds.

8. The last fabricated monthly account statement, dated June 30, 2023, showed a purported portfolio balance of $52,100,000. Actual balances in Meridian Prime's accounts at Bridgemont Bank NA, located at 383 Madison Avenue, New York, New York 10179, totaled only $3,200,000, as confirmed by Sandra Hu, COO/CCO of Driftwood Capital Management LP, in direct communications with Bridgemont Bank NA on July 18, 2023.

9. On August 7, 2023, Driftwood filed a verified complaint in this Court, asserting claims including fraud, conversion, breach of contract, breach of fiduciary duty, and unjust enrichment.

10. On August 8, 2023, the Honorable Eleanor Vasquez, J.S.C., granted Driftwood's application for a temporary restraining order and an order of attachment in the amount of $50,000,000, freezing the assets of all Defendants and of entities under their control. A true and correct copy of the Order of Attachment dated August 8, 2023 is annexed hereto as Exhibit F.

11. On August 22, 2023, the Court granted Driftwood's motion for a preliminary injunction, continuing the asset restraints and directing Defendants to provide sworn asset disclosures.

12. Defendants' prior counsel, Whitmore & Gaines LLP (60 East 42nd Street, 20th Floor, New York, New York 10165; lead attorney Jonathan Whitmore, Esq.), was granted leave to withdraw as counsel, effective November 13, 2023, on grounds of non-payment of legal fees and an irreparable breakdown in the attorney-client relationship.

13. On January 10, 2024, this Court entered a default judgment against Meridian Prime Capital LLC and summary judgment on Driftwood's fraud and alter ego claims against all individual defendants — Zelenko, Carvallo, and Sobchak — jointly and severally, in the total amount of $58,900,000. The judgment comprises: (i) $47,300,000 in compensatory damages; (ii) $9,460,000 in prejudgment interest at 9% per annum under CPLR § 5004; and (iii) $2,140,000 in attorneys' fees and costs awarded under the fee-shifting provision of the ISDA Master Agreement. A true and correct copy of the Judgment dated January 10, 2024 is annexed hereto as Exhibit E.

14. On January 22, 2024, Kessler Brandt & Roe LLP (900 Third Avenue, Suite 1700, New York, New York 10022; lead attorney Aaron Kessler, Esq.) entered an appearance on behalf of defendant Zelenko.

15. On February 5, 2024, this Court appointed Barrow & Fitch Realty Inc. (Thomas Barrow, receiver) as receiver over the assets and operations of Meridian Prime Capital LLC and Castellan Realty Holdings LLC (EIN: 87-1548203). A true and correct copy of the Order Appointing Receiver dated February 5, 2024 is annexed hereto as Exhibit G.

Fund Tracing — Transfers to the Zelenko Family Irrevocable Trust

16. Calderwood & Harkness LLP retained Kelvantis Forensic Advisors LLC, a forensic accounting firm located at 101 Hudson Street, Suite 2500, Jersey City, New Jersey 07302, to trace the disposition of the $47,300,000 in funds misappropriated from Driftwood. Natasha Everett, CPA, CFF, serves as the lead engagement partner on the Kelvantis engagement.

17. Kelvantis's forensic fund tracing analysis determined that approximately $12,400,000 was transferred from Meridian Prime Capital LLC's accounts at Bridgemont Bank NA to the Zelenko Family Irrevocable Trust's account at Marlowe Asset Management Trust Company of Delaware over the period from January 2022 through approximately mid-2023. The transfers were made in multiple installments via wire transfer. The funds originated from Driftwood's margin deposits and diverted FX settlement proceeds.

18. Kelvantis's analysis further determined that the remaining misappropriated funds were disbursed as follows: (a) approximately $18,600,000 to Stellaris Trading Ltd. (BVI Registration No. 2043871) at Palmetto International Bank Ltd. (302 Bay Street, Nassau, Bahamas); (b) approximately $8,000,000 to real estate purchases through Castellan Realty Holdings LLC; (c) approximately $5,100,000 in cash withdrawals and personal expenditures; and (d) approximately $3,200,000 retained in Meridian Prime's accounts at Bridgemont Bank NA.

19. Excerpts from the Kelvantis Forensic Advisors LLC fund tracing report, including detailed schedules showing wire

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION
NOTICE OF MOTION FOR TURNOVER ORDER PURSUANT TO CPLR § 5227 AGAINST NON-PARTY Marlowe Asset Management TRUST COMPANY OF DELAWARE
PLEASE TAKE NOTICE that upon the annexed Memorandum of Law in Support of Plaintiff's Motion for Turnover Order Pursuant to CPLR § 5227 Against Non-Party Marlowe Asset Management Trust Company of Delaware, the Affirmation of Hannah Brinkley, Esq., dated March 1, 2024, together with Exhibits A through G annexed thereto, and upon all prior proceedings had herein, plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or "Plaintiff"), by its attorneys, Calderwood & Harkness LLP, will move this Court, at the Courthouse located at 60 Centre Street, New York, New York 10007, on a date and at a time to be set by the Court, for an order:
(a) Pursuant to CPLR § 5227, directing Marlowe Asset Management Trust Company of Delaware, as trustee of the Zelenko Family Irrevocable Trust dated April 8, 2021 (Tax ID: 86-6092411), located at 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801, to turn over to Plaintiff all assets of the Zelenko Family Irrevocable Trust, consisting of approximately $6,200,000 in securities and cash, in partial satisfaction of the judgment entered by this Court on January 10, 2024 in the total amount of $58,900,000 against defendants Meridian Prime Capital LLC, Viktor Andreyevich Zelenko, Irene Maria Carvallo, and Dmitri Pavlovich Sobchak, jointly and severally;
(b) In the alternative, or in addition, for a declaration that the transfers of approximately $12,400,000 from Meridian Prime Capital LLC to the Zelenko Family Irrevocable Trust constitute fraudulent conveyances under New York Debtor and Creditor Law §§ 273, 274, 275, and 276, and that the remaining assets of the Zelenko Family Irrevocable Trust, consisting of approximately $6,200,000 in securities and cash, are subject to execution in satisfaction of the judgment entered January 10, 2024;
(c) Directing Marlowe Asset Management Trust Company of Delaware, to the extent the trust holds securities or other non-cash assets, to liquidate such assets and deliver the cash proceeds to Plaintiff;
(d) Directing that the funds turned over be applied in partial satisfaction of the judgment entered January 10, 2024 in the amount of $58,900,000;
(e) Directing that, pending compliance with this Order, Marlowe Asset Management Trust Company of Delaware continue to restrain all trust assets and refrain from making any distributions or transfers from the trust; and
(f) Granting such other and further relief as the Court deems just and proper, together with the costs and disbursements of this motion.
PLEASE TAKE FURTHER NOTICE that answering affidavits, if any, must be served upon the undersigned at least seven (7) days before the return date of this motion, and that reply affidavits, if any, must be served at least one (1) day before the return date.
Dated: New York, New York March 1, 2024
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
CALDERWOOD & HARKNESS LLP
By: ________
Priya Anand (Bar No. 4587123) Hannah Brinkley (Bar No. 5412890)
200 Park Avenue, 42nd Floor New York, New York 10166 Telephone: (212) 558-4000 Facsimile: (212) 558-3588 panand@calderwoodharkness.com hbrinkley@calderwoodharkness.com
Attorneys for Plaintiff Driftwood Absolute Return Fund Ltd.
TO:
Aaron Kessler, Esq. Kessler Brandt & Roe LLP 900 Third Avenue, Suite 1700 New York, New York 10022 Attorneys for Defendant Viktor Andreyevich Zelenko
Marlowe Asset Management Trust Company of Delaware 1201 North Market Street, Suite 1600 Wilmington, Delaware 19801
SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION
MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFF'S MOTION FOR TURNOVER ORDER PURSUANT TO CPLR § 5227 AGAINST NON-PARTY Marlowe Asset Management TRUST COMPANY OF DELAWARE
CALDERWOOD & HARKNESS LLP 200 Park Avenue, 42nd Floor New York, New York 10166 Telephone: (212) 558-4000 Facsimile: (212) 558-3588
Priya Anand, Responsible Partner Hannah Brinkley, Lead Associate
Attorneys for Plaintiff Driftwood Absolute Return Fund Ltd.
Dated: March 1, 2024
TABLE OF CONTENTS
TABLE OF AUTHORITIES
Cases:
Statutes and Rules:
Other Authorities:
PRELIMINARY STATEMENT
Plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or "Plaintiff") respectfully submits this memorandum of law in support of its motion for a turnover order pursuant to CPLR § 5227 against non-party Marlowe Asset Management Trust Company of Delaware ("Marlowe Asset Management Trust"), as trustee of the Zelenko Family Irrevocable Trust dated April 8, 2021 (the "Trust").
On January 10, 2024, this Court entered judgment in favor of Driftwood and against defendants Meridian Prime Capital LLC ("Meridian Prime"), Viktor Andreyevich Zelenko ("Zelenko"), Irene Maria Carvallo ("Carvallo"), and Dmitri Pavlovich Sobchak ("Sobchak") (collectively, "Defendants"), jointly and severally, in the total amount of $58,900,000. The judgment reflects compensatory damages in the amount of $47,300,000, arising from Defendants' orchestration of a massive fraud scheme in which they fabricated trade confirmations and monthly account statements to conceal the systematic misappropriation of Driftwood's margin deposits and FX settlement proceeds over an eighteen-month period. The judgment further includes $9,460,000 in prejudgment interest, calculated at the statutory rate of 9% per annum under CPLR § 5004, and $2,140,000 in attorneys' fees and costs awarded pursuant to the fee-shifting provision of the ISDA Master Agreement dated December 15, 2021 between Driftwood and Meridian Prime. Despite vigorous enforcement efforts since entry of judgment, a substantial portion of the $58,900,000 judgment remains unsatisfied.
This motion targets a principal repository of Defendants' ill-gotten gains: the Zelenko Family Irrevocable Trust. The record demonstrates — and the evidence submitted herewith conclusively establishes — that defendant Zelenko, the managing member and CEO of Meridian Prime, established the Trust on April 8, 2021, approximately eight months before the ISDA Master Agreement was executed and the fraud scheme commenced. Zelenko then funneled approximately $12,400,000 in funds misappropriated from Driftwood into the Trust through a series of wire transfers from Meridian Prime's accounts at Bridgemont Bank NA to the Trust's account at Marlowe Asset Management Trust, over the period from January 2022 through approximately mid-2023. These transfers were made without any fair consideration, at a time when Meridian Prime and Zelenko were insolvent or were being rendered insolvent, and with the actual intent to hinder, delay, and defraud creditors — particularly Driftwood, the very entity from which the funds had been stolen.
As of the date of this Court's asset freeze order, entered August 8, 2023, approximately $6,200,000 in securities and cash remained in the Trust. The remaining approximately $6,200,000 of the $12,400,000 originally transferred had already been dissipated prior to the freeze. Marlowe Asset Management Trust continues to hold the remaining $6,200,000 pursuant to the restraining provisions of this Court's orders.
Plaintiff now seeks a turnover order directing Marlowe Asset Management Trust to deliver all remaining Trust assets — approximately $6,200,000 — to Driftwood in partial satisfaction of the judgment. Alternatively, Plaintiff seeks a declaration that the transfers to the Trust were fraudulent conveyances under New York Debtor and Creditor Law ("NYDCL") §§ 273, 274, 275, and 276, and that the Trust assets are subject to execution. The law, the facts, and basic principles of equity all compel the relief sought. A wrongdoer who steals nearly $50 million from his counterparty and then launders a portion of the proceeds through a self-settled family trust cannot invoke the trust form to place those funds beyond the reach of the victim. The Court should grant this motion in its entirety.
STATEMENT OF FACTS
A. The Underlying Fraud and Judgment
Driftwood Absolute Return Fund Ltd. is a Cayman Islands exempted company (Registration No. MC-349217) managed by Driftwood Capital Management LP, a Delaware limited partnership (Delaware File No. 7831294). Driftwood operates as a multi-strategy hedge fund with approximately $1.82 billion in assets under management as of June 30, 2023. (Brinkley Aff. ¶ 5.) Driftwood's investment strategies include, among others, macro-directional foreign exchange trading, and in the ordinary course of its business, Driftwood engages prime brokers and counterparties for the execution, clearing, and settlement of FX transactions.
Meridian Prime Capital LLC (EIN: 84-3217659) is a New York limited liability company formed on March 14, 2019, which purported to operate as a foreign exchange prime brokerage from offices located at 140 Broadway, Suite 3510, New York, New York 10005. (Brinkley Aff. ¶ 6.) Viktor Andreyevich Zelenko was the managing member and Chief Executive Officer of Meridian Prime. Irene Maria Carvallo served as Chief Financial Officer, and Dmitri Pavlovich Sobchak served as Head of FX Trading. Together, Zelenko, Carvallo, and Sobchak exercised complete operational and financial control over Meridian Prime's business operations and bank accounts.
On December 15, 2021, Driftwood and Meridian Prime executed an ISDA Master Agreement (2002 form) together with a Credit Support Annex (the "CSA"). (Brinkley Aff. ¶ 8.) Under the CSA, Driftwood was required to post $12,000,000 in initial cash margin with Meridian Prime, with variation margin obligations arising from mark-to-market valuations of Driftwood's open positions. Driftwood posted the requisite initial margin, and over the ensuing months made additional margin deposits and received credits from FX settlement proceeds, all of which were reflected on monthly account statements provided by Meridian Prime.
From January 2022 through July 2023 — a period of approximately eighteen months — Meridian Prime, acting through and at the direction of Zelenko, Carvallo, and Sobchak, fabricated trade confirmations and monthly account statements, while systematically misappropriating Driftwood's funds. (Brinkley Aff. ¶ 9.) The total amount misappropriated was $47,300,000, consisting of $38,500,000 in margin deposits and $8,800,000 in diverted FX settlement proceeds that should have been credited to Driftwood's account but were instead siphoned off by Defendants for their own use and benefit.
The fraud was sophisticated and deliberate. The fabricated monthly account statements purported to show a healthy and growing portfolio. The last such statement, dated June 30, 2023, reflected a purported portfolio balance of $52,100,000. (Brinkley Aff. ¶ 10.) In reality, the actual balances in Meridian Prime's accounts at Bridgemont Bank NA, located at 383 Madison Avenue, New York, New York 10179, totaled a mere $3,200,000 — a figure confirmed directly by Sandra Hu, the Chief Operating Officer and Chief Compliance Officer of Driftwood Capital Management LP, following her independent verification with Bridgemont Bank NA on July 18, 2023. (Brinkley Aff. ¶ 10.) The staggering $48,900,000 discrepancy between the stated portfolio balance and the actual account balance triggered Driftwood's immediate investigation and the commencement of this action.
Driftwood filed its verified complaint in this Court on August 7, 2023, asserting claims for fraud, conversion, breach of contract, breach of fiduciary duty, and unjust enrichment, among others. (Brinkley Aff. ¶ 11.) On August 8, 2023, the Honorable Eleanor Vasquez, J.S.C., granted Driftwood's application for a temporary restraining order and an order of attachment in the amount of $50,000,000. (Brinkley Aff. ¶ 11; Ex. F.) A preliminary injunction was granted on August 22, 2023, continuing the restraints and directing Defendants to disclose all assets. (Brinkley Aff. ¶ 12.)
During the course of the litigation, Defendants' counsel, Whitmore & Gaines LLP, located at 60 East 42nd Street, 20th Floor, New York, New York 10165, with Jonathan Whitmore, Esq. serving as lead attorney, sought and was granted leave to withdraw as counsel, effective November 13, 2023. (Brinkley Aff. ¶ 13.) The stated bases for the withdrawal were non-payment of legal fees and an irreparable breakdown in the attorney-client relationship. From November 13, 2023 through January 22, 2024, Defendants were unrepresented and failed to retain successor counsel within the time fixed by the Court.
On January 10, 2024, this Court entered a default judgment against Meridian Prime and, upon Driftwood's motion for summary judgment on its fraud and alter ego claims, entered judgment against all individual defendants — Zelenko, Carvallo, and Sobchak — jointly and severally, in the total amount of $58,900,000, broken down as follows: (i) $47,300,000 in compensatory damages; (ii) $9,460,000 in prejudgment interest at the statutory rate of 9% per annum under CPLR § 5004; and (iii) $2,140,000 in attorneys' fees and costs awarded under the fee-shifting provision contained in Section 11 of the ISDA Master Agreement. (Brinkley Aff. ¶ 14; Ex. E.)
Subsequent to entry of judgment, on January 22, 2024, Kessler Brandt & Roe LLP, located at 900 Third Avenue, Suite 1700, New York, New York 10022, with Aaron Kessler, Esq. as lead attorney, entered an appearance on behalf of defendant Zelenko. (Brinkley Aff. ¶ 15.) On February 5, 2024, this Court appointed Barrow & Fitch Realty Inc., with Thomas Barrow serving as receiver, over the assets and operations of Meridian Prime Capital LLC and Castellan Realty Holdings LLC. (Brinkley Aff. ¶ 16; Ex. G.)
B. The Zelenko Family Irrevocable Trust
Central to this motion is the Zelenko Family Irrevocable Trust, which was established by Viktor Zelenko as settlor on April 8, 2021. (Brinkley Aff. ¶ 18; Ex. D.) The Trust was created approximately eight months before Driftwood and Meridian Prime entered into the ISDA Master Agreement on December 15, 2021, and approximately nine months before the fraud scheme commenced in January 2022. Marlowe Asset Management Trust Company of Delaware, a Delaware-chartered trust company located at 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801, was designated as the corporate trustee of the Trust. The Trust was established purportedly for the benefit of Zelenko's family members.
The Trust was funded through a series of wire transfers originating from Meridian Prime Capital LLC's accounts at Bridgemont Bank NA and directed to the Trust's account at Marlowe Asset Management Trust Company of Delaware. (Brinkley Aff. ¶ 19.) Calderwood & Harkness LLP retained Kelvantis Forensic Advisors LLC, a forensic accounting firm located at 101 Hudson Street, Suite 2500, Jersey City, New Jersey 07302, to trace the disposition of the misappropriated funds. (Brinkley Aff. ¶ 19.) Natasha Everett, CPA, CFF, the lead engagement partner at Kelvantis Forensic Advisors, conducted a comprehensive fund tracing analysis and determined that approximately $12,400,000 was transferred from Meridian Prime's accounts at Bridgemont Bank NA to the Trust's account at Marlowe Asset Management Trust Company of Delaware over the period from January 2022 through approximately mid-2023. (Brinkley Aff. ¶ 19; Ex. A.)
The Kelvantis fund tracing report details each wire transfer, including dates, amounts, originating account numbers, and receiving account numbers. The transfers were made in multiple installments during the same period in which Meridian Prime was actively misappropriating Driftwood's margin deposits and FX settlement proceeds. The funds transferred to the Trust originated directly from Driftwood's deposits and proceeds, as traced through Meridian Prime's bank records at Bridgemont Bank NA. (Brinkley Aff. ¶ 20; Ex. A.)
The $12,400,000 transferred to the Trust constituted approximately 26.2% of the total $47,300,000 in misappropriated funds. The Kelvantis forensic analysis further revealed that the remaining misappropriated funds were disbursed as follows:
• Approximately $18,600,000 was transferred to Stellaris Trading Ltd. (BVI Registration No. 2043871), a British Virgin Islands entity, at Palmetto International Bank Ltd., located at 302 Bay Street, Nassau, Bahamas;
• Approximately $8,000,000 was used to fund real estate purchases through Castellan Realty Holdings LLC (EIN: 87-1548203), a New York LLC controlled by Zelenko;
• Approximately $5,100,000 was withdrawn in cash or expended on personal expenditures by the individual defendants; and
• Approximately $3,200,000 remained in Meridian Prime's accounts at Bridgemont Bank NA as of July 2023.
(Brinkley Aff. ¶ 21; Ex. A.)
Of the $12,400,000 transferred into the Trust, approximately $6,200,000 in securities and cash remained in the Trust as of the date of this Court's asset freeze order on August 8, 2023. (Brinkley Aff. ¶ 22.) The remaining approximately $6,200,000 had been dissipated — through trust distributions, investment losses, or other disbursements — prior to the imposition of the freeze. The $6,200,000 currently held by Marlowe Asset Management Trust on behalf of the Trust has remained frozen and intact pursuant to this Court's restraining orders.
The existence and composition of the Trust's assets have been confirmed through two independent sources. First, on February 12, 2024, Plaintiff served information subpoenas on Marlowe Asset Management Trust Company of Delaware pursuant to CPLR § 5223. Marlowe Asset Management Trust responded, confirming the Trust's holdings of approximately $6,200,000 in securities and cash. (Brinkley Aff. ¶ 23; Ex. B.) Second, on February 28, 2024, Plaintiff conducted a post-judgment asset disclosure examination of Zelenko pursuant to CPLR § 5223. (Brinkley Aff. ¶ 24; Ex. C.) Zelenko appeared for the examination with his counsel, Aaron Kessler of Kessler Brandt & Roe LLP, and confirmed under oath the Trust's holdings, the source of the funds used to capitalize the Trust, and the identity of the Trust's beneficiaries. (Brinkley Aff. ¶ 24; Ex. C.) Zelenko also produced, under subpoena duces tecum, a copy of the Trust instrument dated April 8, 2021. (Brinkley Aff. ¶ 25; Ex. D.)
C. Badges of Fraud
The circumstances surrounding the creation and funding of the Zelenko Family Irrevocable Trust bear every hallmark of a fraudulent scheme to place misappropriated assets beyond the reach of creditors. The "badges of fraud" recognized by New York courts as probative of actual fraudulent intent are present in overwhelming measure here.
First, the timing of the Trust's creation is deeply suspicious. The Trust was established on April 8, 2021. Meridian Prime had been formed on March 14, 2019. The ISDA Master Agreement with Driftwood was executed on December 15, 2021, and the misappropriation scheme commenced in January 2022. The temporal proximity between the Trust's creation and the inception of the fraud — separated by only approximately eight to nine months — strongly supports an inference that Zelenko established the Trust as a vehicle for sheltering the anticipated proceeds of his fraudulent scheme. (Brinkley Aff. ¶ 27.)
Second, Zelenko was the settlor of the Trust, and the transfers were to an insider. Zelenko created the Trust and designated himself and his family members as beneficiaries. Every dollar transferred to the Trust originated from funds that Zelenko controlled through his position as managing member of Meridian Prime. The transfer of assets to a trust settled by the debtor for the benefit of the debtor's own family is a classic badge of fraud. (Brinkley Aff. ¶ 28.)
Third, the transfers were made without any fair consideration. The Trust provided nothing of value to Meridian Prime or to Zelenko in exchange for the $12,400,000 in transfers. The transfers were entirely gratuitous — a one-way flow of funds from Meridian Prime's accounts to the Trust. No goods, services, property, or other consideration of any kind flowed back to Meridian Prime or to its creditors. (Brinkley Aff. ¶ 29.)
Fourth, the transferred funds were stolen property. The monies transferred to the Trust were not Zelenko's to give. The funds belonged to Driftwood and were misappropriated through the fabrication of trade confirmations and account statements. The transfer of stolen property to an entity controlled by the thief is, by its very nature, fraudulent. (Brinkley Aff. ¶ 30.)
Fifth, Zelenko retained effective control over the transferred assets. Although the Trust is nominally irrevocable and administered by a corporate trustee, Zelenko structured the Trust for the benefit of himself and his family. As the settlor and a beneficiary of the Trust, Zelenko retained a beneficial interest in the very assets he transferred. (Brinkley Aff. ¶ 31.)
Sixth, the transfers were made while Meridian Prime was insolvent or was rendered insolvent thereby. Throughout the period of the transfers (January 2022 through mid-2023), Meridian Prime's liabilities to Driftwood — ultimately totaling $47,300,000 — far exceeded its legitimate assets. Each successive transfer to the Trust further depleted the assets available to satisfy Meridian Prime's mounting obligations. (Brinkley Aff. ¶ 32.)
Seventh, the transfers were concealed from Driftwood. Driftwood had no knowledge of the existence of the Zelenko Family Irrevocable Trust until after the fraud was uncovered in July 2023. The existence of the Trust and the transfers to it were never disclosed to Driftwood, and Meridian Prime's fabricated account statements concealed the true disposition of Driftwood's funds. (Brinkley Aff. ¶ 33.)
Eighth, the transfers occurred in the course of an ongoing fraudulent scheme. The transfers to the Trust were not isolated transactions; they were a component of a sustained, eighteen-month pattern of misappropriation and concealment. Each wire transfer from Meridian Prime to the Trust was accompanied by the simultaneous fabrication of account statements designed to prevent Driftwood from discovering the theft. (Brinkley Aff. ¶ 34.)
Ninth, Zelenko has a documented history of financial misconduct. Zelenko received a censure and monetary fine from the Financial Industry Regulatory Authority ("FINRA") in 2017 for unauthorized trading while employed at Clarendon Markets LLC. (Brinkley Aff. ¶ 35.) This prior disciplinary action demonstrates a pattern of dishonest conduct and disregard for fiduciary obligations — a history that makes it all the more plausible that Zelenko created the Trust with the intent to defraud future creditors.
The confluence of these badges of fraud is overwhelming. No single badge standing alone would be dispositive, but taken together, they establish both the constructive and actual fraudulent character of the transfers beyond any reasonable dispute.
ARGUMENT
I. CPLR § 5227 Authorizes Turnover of Trust Assets Held by a Third Party
CPLR § 5227 provides the mechanism by which a judgment creditor may reach property of the judgment debtor that is in the hands of a third party. The statute provides, in relevant part:
"[U]pon a special proceeding commenced by the judgment creditor, against any person who it is shown is or will become indebted to the judgment debtor, the court shall require such person to pay to the judgment creditor the debt upon maturity, or so much of it as is sufficient to satisfy the judgment, and to execute and deliver any document necessary to effect payment; or it shall direct that a judgment be entered against such person in favor of the judgment creditor."
CPLR § 5227. The statute is to be "liberally construed to secure the just, speedy, and inexpensive determination of every action." See Capitol Fed. Sav. Bank v. Eastern N.Y. Sav. Bank, 173 A.D.2d 413, 414 (1st Dep't 1991). It is a powerful collection tool that allows judgment creditors to reach beyond the judgment debtor and compel third parties who hold the debtor's assets to deliver those assets in satisfaction of the judgment. See David D. Siegel, New York Practice § 509 (6th ed. 2018) (describing CPLR § 5227 as the judgment creditor's "turnover weapon" against third parties); Bankers Trust Co. v. Cerrato, Sweeney, Cohn, Stahl & Vaccaro, 187 A.D.2d 384, 385 (1st Dep't 1992) (affirming turnover order against third party holding debtor's assets).
The companion provision, CPLR § 5225, authorizes turnover of property in the debtor's own possession. Together, CPLR §§ 5225 and 5227 "provide complementary enforcement mechanisms that enable the judgment creditor to reach property wherever it may be found." PineBridge Invs. LLC v. Geron, 2015 WL 1439862, at *3 (Sup. Ct. N.Y. Cnty. 2015). The key distinction is that § 5227 reaches property held by third parties — precisely the situation presented here, where Marlowe Asset Management Trust holds assets traceable to Zelenko's misappropriation of Driftwood's funds.
The standard for obtaining a turnover order under CPLR § 5227 is well established. The movant must demonstrate: (1) a valid, enforceable judgment; (2) that the third-party respondent possesses or has custody of property in which the judgment debtor has an interest; and (3) that the property is not exempt from execution. See Global Indus., Ltd. v. Harris, 2012 WL 12894993, at 4 (Sup. Ct. N.Y. Cnty. 2012); see also Centro Empresarial Cempresa S.A. v. Am. Móvil S.A.B. de C.V., 17 N.Y.3d 269, 276 (2011) (discussing the scope of post-judgment enforcement proceedings). The court has "broad discretion" in fashioning turnover relief and may "impose any terms and conditions it deems just." See* 18 Carmody-Wait 2d § 114:47. The breadth of the court's discretionary authority is commensurate with the importance of the policy objective served: ensuring that prevailing parties are able to collect on their judgments and that wrongdoers are not permitted to frustrate the enforcement process.
Each element of the standard is satisfied here.
A valid, enforceable judgment exists. On January 10, 2024, this Court entered judgment in favor of Driftwood and against all Defendants, jointly and severally, in the total amount of $58,900,000. (Brinkley Aff. ¶ 14; Ex. E.) The judgment is final and enforceable. A substantial portion of the judgment remains unsatisfied despite ongoing enforcement efforts.
Marlowe Asset Management Trust possesses property in which the judgment debtor has an interest. Marlowe Asset Management Trust Company of Delaware is a "person" within the meaning of CPLR § 5227 that possesses, controls, and has custody of the assets of the Zelenko Family Irrevocable Trust, consisting of approximately $6,200,000 in securities and cash. (Brinkley Aff. ¶¶ 22–23; Exs. B, C.) The trust assets constitute property in which judgment debtor Viktor Zelenko has a direct interest, inasmuch as Zelenko is the settlor of the Trust and the funds held therein are the direct product of monies misappropriated from Driftwood by Zelenko, acting through Meridian Prime. See Ridgeway Capital Markets v. Conticommodity Servs., Inc., 140 Misc. 2d 322, 326 (Sup. Ct. N.Y. Cnty. 1988) (finding that turnover was appropriate where third party held assets traceable to the judgment debtor's wrongful conduct); see also Cohen v. Spence, 2019 WL 4738844, at 5 (Sup. Ct. N.Y. Cnty. 2019) (ordering turnover of assets held in trust where trust was funded with debtor's property). To the extent the irrevocable trust structure is asserted as a barrier to turnover, that argument fails for the reasons set forth in Point III, infra*, given that the Trust was funded entirely with stolen money and constitutes a fraudulent conveyance.
Moreover, regardless of whether the Trust is nominally irrevocable, the assets therein remain subject to the claims of the grantor's creditors where, as here, the transfers into the trust were fraudulent conveyances. See JSC Foreign Econ. Ass'n Technostroyexport v. Int'l Dev. & Trade Servs., Inc., 295 F. Supp. 2d 366, 389–90 (S.D.N.Y. 2003) (holding that assets in trust were subject to turnover where funded through fraudulent transfers). A judgment debtor cannot defeat the enforcement mechanisms of the CPLR by parking stolen funds with a corporate trustee and then claiming that the trust structure places those funds beyond the judgment creditor's reach. To permit such a result would be to convert the trust form into a fraud-enablement device, which is precisely the outcome that the turnover statute, the fraudulent conveyance laws, and fundamental principles of equity are designed to prevent.
The property is not exempt from execution. There is no statutory or common-law exemption applicable to the Trust assets. The trust is not a pension fund, retirement account, or other type of asset shielded from execution by statute. The assets consist of securities and cash held by a corporate trustee, and they are fully subject to turnover in satisfaction of the judgment.
Accordingly, all three requirements for a CPLR § 5227 turnover order are met, and the Court should direct Marlowe Asset Management Trust to deliver the Trust's assets to Driftwood.
II. The Transfers to the Trust Were Fraudulent Conveyances Under NYDCL §§ 273–276
The New York Debtor and Creditor Law provides multiple, independent bases for avoiding the transfers from Meridian Prime to the Zelenko Family Irrevocable Trust. The NYDCL establishes both constructive fraud (§§ 273–275) and actual fraud (§ 276) as grounds for avoidance. The transfers here satisfy all four provisions, and the Court should declare them fraudulent conveyances and direct turnover of the remaining trust assets.
As a threshold matter, the NYDCL defines "conveyance" to include "every payment of money, assignment, release, transfer, lease, mortgage or pledge of tangible or intangible property, and also the creation of any lien or incumbrance." NYDCL § 270. The wire transfers from Meridian Prime's accounts at Bridgemont Bank NA to the Trust's account at Marlowe Asset Management Trust plainly constitute "conveyances" within this broad definition. The NYDCL further defines "fair consideration" as consideration given in good faith in exchange for property or to secure an antecedent debt, in an amount not disproportionately small compared to the value of the property conveyed. NYDCL §§ 271, 272. As established below, no fair consideration of any kind was given for the transfers at issue.
A. Constructive Fraud Under NYDCL § 273 (Conveyance by Insolvent). NYDCL § 273 provides that "[e]very conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration." Under this provision, the movant need not prove actual fraudulent intent; it is sufficient to demonstrate (1) a conveyance, (2) made without fair consideration, (3) by a person who was insolvent at the time of the conveyance or who was rendered insolvent thereby. See Morgenthau v. Avion Res. Ltd., 11 N.Y.3d 383, 390 (2008); Adriatic Specialty Insurance v. LFO Constr. Corp., 207 A.D.2d 274, 275 (1st Dep't 1994).
All three elements are established beyond dispute.
Conveyance. As detailed above, Zelenko, through Meridian Prime, caused approximately $12,400,000 to be transferred by wire to the Trust's account at Marlowe Asset Management Trust over the period from January 2022 through approximately mid-2023. Each of these wire transfers constituted a "conveyance" within the meaning of NYDCL § 270.
Without Fair Consideration. The transfers were entirely gratuitous. The Trust gave nothing of value to Meridian Prime or to Zelenko in exchange for the $12,400,000. No goods, services, or other property were exchanged. No antecedent debt was secured or satisfied. The Trust instrument contains no provision requiring the Trust to furnish consideration to the settlor or to Meridian Prime. (Brinkley Aff. ¶ 29; Ex. D.) Moreover, the transferor acted in bad faith — the funds were stolen from Driftwood, and the transfers were made to conceal the misappropriation. "Fair consideration" under the NYDCL requires not only a fair equivalent in value but also good faith. NYDCL §§ 271, 272. Neither condition is satisfied here. See Debary v. Harrah's Operating Co., 465 F. Supp. 2d 250, 258 (S.D.N.Y. 2006) (holding that transfers made with knowledge of their fraudulent character cannot be deemed made for "fair consideration").
Insolvency. Meridian Prime and Zelenko were insolvent at the time of the transfers and were further rendered insolvent by the transfers. Throughout the January 2022 to mid-2023 period, Meridian Prime was accruing massive liabilities to Driftwood through its ongoing misappropriation of Driftwood's margin deposits and FX settlement proceeds. By the time the fraud was uncovered in July 2023, Meridian Prime owed Driftwood $47,300,000, while its total legitimate assets amounted to only $3,200,000 in its Bridgemont Bank accounts. (Brinkley Aff. ¶ 10.) Zelenko, as the managing member and alter ego of Meridian Prime (as found by this Court in its January 10, 2024 judgment), was personally liable for those obligations. The diversion of $12,400,000 to the Trust left Meridian Prime — and, by extension, Zelenko — with assets far short of their obligations. See In re Kaiser, 722 F.2d 1574, 1582 (2d Cir. 1983) (debtor is insolvent when the sum of debts exceeds the fair valuation of assets).
Accordingly, the transfers to the Trust are voidable as constructively fraudulent under NYDCL § 273.
B. Constructive Fraud Under NYDCL § 274 (Conveyance Without Fair Consideration). NYDCL § 274 provides that "[e]very conveyance made without fair consideration when the person making it is engaged or is about to engage in a business or transaction for which the property remaining in his hands after the conveyance is an unreasonably small capital, is fraudulent as to creditors . . . ." This provision is designed to prevent transferors from stripping assets from an operating business, leaving it undercapitalized and unable to meet its obligations to existing or prospective creditors.
Meridian Prime purported to operate an FX prime brokerage — a business that required substantial capital to meet its obligations to counterparties, including the obligation to return margin deposits and deliver FX settlement proceeds. See Kramer v. Danalis, 49 A.D.3d 263, 264 (1st Dep't 2008) (applying § 274 where transferor's business required capital to meet known obligations). The diversion of $12,400,000 to the Trust left Meridian Prime with wholly inadequate capital to conduct its purported business or to meet its obligations to Driftwood. Indeed, when the fraud was uncovered, Meridian Prime's accounts held only $3,200,000 against liabilities of $47,300,000 — a capital deficiency of catastrophic proportions. See Wall St. Assocs. v. Brodsky, 257 A.D.2d 526, 529 (1st Dep't 1999) (holding that conveyances that left transferor with "unreasonably small capital" were fraudulent under § 274).
Because the transfers to the Trust were made without fair consideration at a time when Meridian Prime was engaged in a business for which its remaining property was unreasonably small capital, the transfers are independently voidable under NYDCL § 274.
C. Constructive Fraud Under NYDCL § 275 (Conveyance by Person About to Incur Debts). NYDCL § 275 provides that "[e]very conveyance made and every obligation incurred without fair consideration when the person making the conveyance or entering into the obligation intends or believes that he will incur debts beyond his ability to pay as they mature, is fraudulent as to both present and future creditors." This provision reaches transfers made in anticipation of debts, and is particularly suited to the circumstances of this case.
Zelenko established the Trust on April 8, 2021, at a time when he was actively planning the fraudulent scheme that would be launched approximately nine months later. Meridian Prime had been formed in March 2019, and the ISDA Master Agreement with Driftwood was executed in December 2021. The Trust was created in the interval between Meridian Prime's formation and the commencement of the fraud. The inference is inescapable: Zelenko created the Trust as a vehicle for sheltering the anticipated proceeds of the fraud from the creditors he knew he would defraud.
The transfers themselves, totaling $12,400,000, were made during the period of January 2022 through mid-2023 — the very period during which Meridian Prime was actively misappropriating Driftwood's funds and fabricating account statements. At the time of each transfer, Zelenko knew that Meridian Prime was incurring massive, undisclosed liabilities to Driftwood and that Meridian Prime would be unable to pay those liabilities as they matured. The transfers were made without fair consideration, as discussed above.
Zelenko's subjective intent and belief are established by the overwhelming circumstantial evidence: (i) he was orchestrating the fraud; (ii) he knew the stolen funds were being diverted; (iii) he knew the fabricated statements concealed the true state of affairs; and (iv) he knew that if and when the fraud was uncovered, Meridian Prime would be unable to meet its obligations to Driftwood. Under these circumstances, the Court should find that Zelenko intended and believed he would incur debts beyond his ability to pay, and that the transfers to the Trust were fraudulent conveyances under NYDCL § 275.
D. Actual Fraud Under NYDCL § 276 (Conveyance Made with Intent to Defraud). NYDCL § 276 provides that "[e]very conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors." Unlike the constructive fraud provisions of §§ 273–275, Section 276 requires a showing of actual intent to defraud. However, because a debtor rarely announces his fraudulent intent, courts have long recognized that actual intent may be inferred from the circumstances surrounding the transfer — the so-called "badges of fraud." See Sardis v. Frankel, 113 A.D.3d 135, 141 (1st Dep't 2014); Arfa v. Zamir, 76 A.D.3d 56, 61 (1st Dep't 2010); Cobalt Partners, L.P. v. GSC Capital Corp., 97 A.D.3d 444, 446 (1st Dep't 2012); Wall St. Assocs. v. Brodsky, 257 A.D.2d at 529.
The recognized badges of fraud include: (i) the close relationship between the transferor and transferee; (ii) inadequacy of consideration; (iii) the transferor's knowledge of the creditor's claim and inability to pay it; (iv) the retention of benefits in the transferred property by the transferor; (v) the fact that the transfer rendered the transferor insolvent; (vi) the timing of the transfer in relation to the incurrence of the debt; (vii) the secrecy or concealment of the transfer; and (viii) the general chronology and pattern of the transferor's conduct. See Sardis, 113 A.D.3d at 141; Strom v. Pinnacle National Bank, 202 F.3d 138, 149 (2d Cir. 1999) (applying New York law).
Here, the badges of fraud are not merely present — they are present in extraordinary concentration. Each recognized badge is established by the uncontroverted record:
Transfer to an insider/family trust settled by the debtor. Zelenko created the Trust and named himself and his family as beneficiaries. The transfers were made from Meridian Prime — an entity wholly controlled by Zelenko — to a trust of Zelenko's own creation. This is the quintessential insider transfer. See Sardis, 113 A.D.3d at 141 (transfer to family member is a significant badge of fraud).
Transfer of stolen property. The $12,400,000 transferred to the Trust was not Zelenko's money. It was Driftwood's money, stolen through the fabrication of trade confirmations and account statements. When a thief transfers stolen property to a vehicle of his own creation, the fraudulent intent is self-evident.
Concealment. Driftwood was completely unaware of the existence of the Trust until after the fraud was uncovered in July 2023. The Trust was not disclosed in any of Meridian Prime's communications with Driftwood, and the fabricated account statements concealed the true disposition of Driftwood's funds. The concealment of the transfers is a powerful badge of fraud.
No fair consideration. As discussed at length above, the Trust provided nothing of value in exchange for the $12,400,000 in transfers. The transfers were entirely gratuitous.
Timing. The Trust was established on April 8, 2021, in the period between Meridian Prime's formation and the commencement of the fraud. The transfers occurred from January 2022 through mid-2023, during the active fraud period. This temporal pattern demonstrates that the Trust was established and funded as part of the broader fraudulent scheme.
Insolvency. At the time of the transfers, and by reason of the transfers, Meridian Prime and Zelenko were insolvent. Their liabilities to Driftwood dwarfed their legitimate assets.
Retention of beneficial interest. Zelenko's family members are the named beneficiaries of the Trust. Zelenko effectively retained the benefit of the stolen funds by placing them in a trust for his own family — a structure that allowed him to enjoy the fruits of his misappropriation while nominally placing the assets beyond the reach of creditors.
Pattern of misconduct. Zelenko's prior FINRA censure and fine in 2017 for unauthorized trading at Clarendon Markets LLC demonstrates a pattern of financial misconduct, lending further support to the inference that his transfer of $12,400,000 to a family trust was motivated by fraudulent intent.
The presence of even a few badges of fraud is typically sufficient to sustain a finding of actual intent under NYDCL § 276. See Arfa, 76 A.D.3d at 61 (finding actual fraudulent intent based on presence of multiple badges). Here, every recognized badge is present, and the evidence of actual fraudulent intent is overwhelming. The transfers to the Trust were made with the actual intent to hinder, delay, and defraud Driftwood and other creditors, and should be avoided under NYDCL § 276.
Moreover, under NYDCL § 276-a, where a conveyance is found to have been made with actual intent to defraud, the judgment creditor is entitled to recover attorneys' fees incurred in connection with the fraudulent conveyance action. Plaintiff reserves the right to seek such fees in a subsequent application.
III. The Trust Assets Are Not Shielded From Turnover
Defendants may attempt to argue that the irrevocable trust structure insulates the Trust's assets from the claims of Zelenko's creditors. That argument fails for two independent reasons.
A. Self-Settled Trust Doctrine. Under longstanding New York law, a settlor who creates a trust for his own benefit cannot invoke the trust form to shield assets from creditors. New York Estates, Powers and Trusts Law ("EPTL") § 7-3.1(a) provides:
"A disposition in trust for the use of the creator is void as against the existing or subsequent creditors of the creator."
This provision codifies the common-sense principle that a debtor cannot place his assets in a trust of his own making and then claim that those assets are immune from the claims of his creditors. See Goldberg v. Goldberg, 262 A.D.2d 115, 116 (1st Dep't 1999) (applying EPTL § 7-3.1 to avoid self-settled trust as against creditors); Matter of Boesky, 165 Misc. 2d 410, 413–14 (Sup. Ct. N.Y. Cnty. 1995) (holding that self-settled trust was subject to creditors' claims notwithstanding irrevocable designation).
The Zelenko Family Irrevocable Trust is a textbook self-settled trust. Zelenko is the settlor. The Trust was funded exclusively with Zelenko's transfers — transfers that, as detailed above, consisted entirely of funds misappropriated from Driftwood. The Trust was created for the benefit of Zelenko and his family. Under EPTL § 7-3.1, the Trust is void as against Driftwood and other creditors of Zelenko, and its assets are fully subject to execution.
Even under Delaware law — which might arguably apply given that the trustee is a Delaware trust company — the result is the same. Although the Delaware Qualified Dispositions in Trust Act, Del. Code Ann. tit. 12, § 3570 et seq., permits certain self-settled asset protection trusts, that statute does not protect trusts funded with assets transferred in violation of fraudulent conveyance laws. See Del. Code Ann. tit. 12, § 3572(b) (providing that the Act does not apply to transfers that constitute fraudulent conveyances). Here, the transfers to the Trust are fraudulent conveyances under both New York and Delaware law. Accordingly, even if Delaware law were to apply to the Trust, the Delaware asset protection trust statute would provide no shelter.
The Restatement (Second) of Trusts § 156 (1959) and the Restatement (Third) of Trusts § 58(2) (2003) both confirm the principle that where a person creates a trust for his own benefit, his creditors may reach his interest in the trust to satisfy their claims. This is precisely the situation presented here. See Epstein v. Epstein, 193 A.D.2d 551, 552 (2d Dep't 1993) (creditors may reach self-settled trust assets); Schoenberg v. Schoenberg, 113 A.D.3d 531, 532 (1st Dep't 2014) (same); Cole v. Nolley, 165 A.D.3d 413, 414 (1st Dep't 2018) (affirming turnover order against self-settled trust); In re Huber, 493 B.R. 798, 809–13 (Bankr. W.D. Wash. 2013) (applying self-settled trust doctrine to reach assets in trust); Fidelity Nat'l Title Ins. Co. v. Howard Sav. Bank, 436 F.3d 206, 217 (3d Cir. 2006) (trust funded with fraudulently conveyed assets subject to creditors' claims).
The "irrevocable" designation is immaterial. The trust may be irrevocable as between the settlor and the trustee, but it cannot be irrevocable as against the settlor's creditors when it was funded with the proceeds of fraud. To hold otherwise would be to create a mechanism by which any fraudster could launder stolen funds through an irrevocable trust and thereby permanently deprive the victim of any recovery. The law does not countenance such a result.
Furthermore, trust assets that are traceable to fraud are subject to the full range of equitable remedies available to a court of equity, including turnover and the imposition of a constructive trust. See Matter of Boesky, 165 Misc. 2d at 414 (court may impose constructive trust on assets traceable to fraud). The $6,200,000 remaining in the Trust has been conclusively traced by Kelvantis Forensic Advisors to Driftwood's misappropriated funds. Driftwood is the true equitable owner of these assets, and the Court should direct their turnover.
B. No Legitimate Third-Party Interests. Marlowe Asset Management Trust Company of Delaware is a corporate trustee. It has no personal stake in the Trust corpus beyond its fiduciary duties as trustee and its entitlement to reasonable trustee's fees. Marlowe Asset Management Trust did not contribute any funds to the Trust and will suffer no prejudice from a turnover order, beyond the loss of ongoing trustee compensation. Indeed, the proposed order provides for Marlowe Asset Management Trust's reasonable costs and expenses of compliance to be deducted from the trust assets prior to turnover — a customary and appropriate accommodation.
Nor do the Trust beneficiaries — Zelenko's family members — hold any interest superior to that of Driftwood. Zelenko's family members are volunteers who received the benefit of stolen money. A volunteer who receives the proceeds of fraud holds no equitable interest that can defeat the claims of the defrauded party. See United States v. Skowron, 839 F. Supp. 2d 740, 748 (S.D.N.Y. 2012) (holding that beneficiaries of trust funded with ill-gotten gains hold no interest superior to the victim's). Driftwood is the true owner of the misappropriated funds, and its equitable interest as the defrauded party is paramount.
Public policy strongly supports this result. The laws of New York — and indeed of every American jurisdiction — prohibit a wrongdoer from using a trust vehicle to insulate the proceeds of fraud from creditors. To permit the Trust to serve as a shield for stolen assets would undermine the integrity of the judgment enforcement process, reward criminal conduct, and deprive the victim of recourse. The Court should not allow the trust form to be perverted into an instrument of fraud.
IV. The Court Should Enter a Turnover Order Directing Immediate Payment
For all of the foregoing reasons, the Court should exercise its broad equitable powers and enter a turnover order directing Marlowe Asset Management Trust Company of Delaware, as trustee of the Zelenko Family Irrevocable Trust, to deliver the full $6,200,000 in trust assets — consisting of securities and cash — to Plaintiff Driftwood Absolute Return Fund Ltd. in partial satisfaction of the $58,900,000 judgment entered January 10, 2024.
The Court has ample authority to fashion the turnover relief in a manner that ensures prompt and effective compliance. Specifically, Plaintiff requests that the Court:
(a) Direct Marlowe Asset Management Trust to turn over all trust assets, including all securities, cash, and other property, to Plaintiff, in an aggregate amount not to exceed $6,200,000;
(b) Authorize and direct Marlowe Asset Management Trust, to the extent the Trust holds securities or other non-cash assets, to liquidate such assets at the best price reasonably obtainable and deliver the cash proceeds to Plaintiff;
(c) Set a deadline of ten (10) business days from service of the order with notice of entry for compliance, to prevent further dissipation or delay;
(d) Direct that the funds turned over be applied in partial satisfaction of the judgment;
(e) Continue the restraint on all trust assets pending compliance; and
(f) Provide that Marlowe Asset Management Trust's reasonable costs and expenses of compliance, if any, be deducted from the trust assets prior to turnover.
The requested relief is tailored, specific, and supported by the record. The $6,200,000 in trust assets represents a significant but partial recovery on the $58,900,000 judgment. The order would impose no burden on any innocent party: Marlowe Asset Management Trust is merely a fiduciary that holds stolen money, and the Trust beneficiaries have no legitimate equitable interest in the proceeds of fraud. The order preserves Plaintiff's right to pursue additional enforcement proceedings for the balance of the judgment.
The urgency of the relief should not be overlooked. Although the asset freeze has restrained the Trust's assets since August 8, 2023, delays in enforcement create risks — of further litigation, of changed circumstances, and of continued non-recovery by the victim of a massive fraud. The Court should act promptly to direct the turnover and thereby advance the fundamental purpose of the enforcement statutes: the satisfaction of valid judgments.
CONCLUSION
For all of the foregoing reasons, Plaintiff Driftwood Absolute Return Fund Ltd. respectfully requests that the Court:
1. Grant this motion in its entirety;
2. Enter an order pursuant to CPLR § 5227 directing Marlowe Asset Management Trust Company of Delaware, as trustee of the Zelenko Family Irrevocable Trust dated April 8, 2021, to turn over all assets of the Trust, consisting of approximately $6,200,000 in securities and cash, to Plaintiff in partial satisfaction of the judgment entered January 10, 2024 in the amount of $58,900,000;
3. Declare that the transfers of approximately $12,400,000 from Meridian Prime Capital LLC to the Zelenko Family Irrevocable Trust constituted fraudulent conveyances under New York Debtor and Creditor Law §§ 273, 274, 275, and 276, and that the remaining trust assets are subject to execution in satisfaction of the judgment;
4. Award Plaintiff such other and further relief as the Court deems just and proper, including the costs and disbursements of this motion.
Dated: New York, New York March 1, 2024
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
CALDERWOOD & HARKNESS LLP
By: ________
Priya Anand (Bar No. 4587123) Hannah Brinkley (Bar No. 5412890)
200 Park Avenue, 42nd Floor New York, New York 10166 Telephone: (212) 558-4000 Facsimile: (212) 558-3588 panand@calderwoodharkness.com hbrinkley@calderwoodharkness.com
Attorneys for Plaintiff Driftwood Absolute Return Fund Ltd.
SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION
AFFIRMATION OF HANNAH BRINKLEY IN SUPPORT OF PLAINTIFF'S MOTION FOR TURNOVER ORDER PURSUANT TO CPLR § 5227 AGAINST NON-PARTY Marlowe Asset Management TRUST COMPANY OF DELAWARE
Hannah Brinkley, Esq., an attorney duly admitted to practice law in the State of New York, hereby affirms the following under penalties of perjury pursuant to CPLR § 2106:
Background and Qualifications
1. I am an associate at Calderwood & Harkness LLP, counsel of record for Plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or "Plaintiff") in the above-captioned action. I submit this affirmation in support of Plaintiff's motion for a turnover order pursuant to CPLR § 5227 against non-party Marlowe Asset Management Trust Company of Delaware ("Marlowe Asset Management Trust"), as trustee of the Zelenko Family Irrevocable Trust dated April 8, 2021 (the "Trust").
2. I am admitted to the Bar of the State of New York and to the United States District Courts for the Southern and Eastern Districts of New York. I have been involved in this matter since its inception, when the complaint was filed on August 7, 2023. This matter has been assigned Calderwood & Harkness internal matter number 1024-00003. I am personally familiar with the facts and circumstances set forth herein based on my direct participation in the investigation, litigation, and post-judgment enforcement proceedings in this case.
3. I make this affirmation based upon my personal knowledge and upon information contained in the files and records of Calderwood & Harkness LLP maintained in the ordinary course of business. Where statements are made on information and belief, the sources of that information and the grounds for that belief are identified.
Procedural History
4. The Parties. Plaintiff Driftwood Absolute Return Fund Ltd. is a Cayman Islands exempted company (Registration No. MC-349217) managed by Driftwood Capital Management LP (Delaware File No. 7831294), a multi-strategy hedge fund with approximately $1.82 billion in assets under management as of June 30, 2023.
5. Defendant Meridian Prime Capital LLC (EIN: 84-3217659) is a New York limited liability company formed on March 14, 2019, which purported to operate as an FX prime brokerage at 140 Broadway, Suite 3510, New York, New York 10005. Defendant Viktor Andreyevich Zelenko ("Zelenko") is the managing member and CEO of Meridian Prime. Defendant Irene Maria Carvallo ("Carvallo") served as CFO, and Defendant Dmitri Pavlovich Sobchak ("Sobchak") served as Head of FX Trading.
6. On December 15, 2021, Driftwood and Meridian Prime executed an ISDA Master Agreement (2002 form) and Credit Support Annex, under which Driftwood posted $12,000,000 in initial cash margin, with additional variation margin obligations arising from mark-to-market valuations.
7. From January 2022 through July 2023, Meridian Prime, acting through and at the direction of Zelenko, Carvallo, and Sobchak, fabricated trade confirmations and monthly account statements and systematically misappropriated a total of $47,300,000 from Driftwood, consisting of $38,500,000 in margin deposits and $8,800,000 in diverted FX settlement proceeds.
8. The last fabricated monthly account statement, dated June 30, 2023, showed a purported portfolio balance of $52,100,000. Actual balances in Meridian Prime's accounts at Bridgemont Bank NA, located at 383 Madison Avenue, New York, New York 10179, totaled only $3,200,000, as confirmed by Sandra Hu, COO/CCO of Driftwood Capital Management LP, in direct communications with Bridgemont Bank NA on July 18, 2023.
9. On August 7, 2023, Driftwood filed a verified complaint in this Court, asserting claims including fraud, conversion, breach of contract, breach of fiduciary duty, and unjust enrichment.
10. On August 8, 2023, the Honorable Eleanor Vasquez, J.S.C., granted Driftwood's application for a temporary restraining order and an order of attachment in the amount of $50,000,000, freezing the assets of all Defendants and of entities under their control. A true and correct copy of the Order of Attachment dated August 8, 2023 is annexed hereto as Exhibit F.
11. On August 22, 2023, the Court granted Driftwood's motion for a preliminary injunction, continuing the asset restraints and directing Defendants to provide sworn asset disclosures.
12. Defendants' prior counsel, Whitmore & Gaines LLP (60 East 42nd Street, 20th Floor, New York, New York 10165; lead attorney Jonathan Whitmore, Esq.), was granted leave to withdraw as counsel, effective November 13, 2023, on grounds of non-payment of legal fees and an irreparable breakdown in the attorney-client relationship.
13. On January 10, 2024, this Court entered a default judgment against Meridian Prime Capital LLC and summary judgment on Driftwood's fraud and alter ego claims against all individual defendants — Zelenko, Carvallo, and Sobchak — jointly and severally, in the total amount of $58,900,000. The judgment comprises: (i) $47,300,000 in compensatory damages; (ii) $9,460,000 in prejudgment interest at 9% per annum under CPLR § 5004; and (iii) $2,140,000 in attorneys' fees and costs awarded under the fee-shifting provision of the ISDA Master Agreement. A true and correct copy of the Judgment dated January 10, 2024 is annexed hereto as Exhibit E.
14. On January 22, 2024, Kessler Brandt & Roe LLP (900 Third Avenue, Suite 1700, New York, New York 10022; lead attorney Aaron Kessler, Esq.) entered an appearance on behalf of defendant Zelenko.
15. On February 5, 2024, this Court appointed Barrow & Fitch Realty Inc. (Thomas Barrow, receiver) as receiver over the assets and operations of Meridian Prime Capital LLC and Castellan Realty Holdings LLC (EIN: 87-1548203). A true and correct copy of the Order Appointing Receiver dated February 5, 2024 is annexed hereto as Exhibit G.
Fund Tracing — Transfers to the Zelenko Family Irrevocable Trust
16. Calderwood & Harkness LLP retained Kelvantis Forensic Advisors LLC, a forensic accounting firm located at 101 Hudson Street, Suite 2500, Jersey City, New Jersey 07302, to trace the disposition of the $47,300,000 in funds misappropriated from Driftwood. Natasha Everett, CPA, CFF, serves as the lead engagement partner on the Kelvantis engagement.
17. Kelvantis's forensic fund tracing analysis determined that approximately $12,400,000 was transferred from Meridian Prime Capital LLC's accounts at Bridgemont Bank NA to the Zelenko Family Irrevocable Trust's account at Marlowe Asset Management Trust Company of Delaware over the period from January 2022 through approximately mid-2023. The transfers were made in multiple installments via wire transfer. The funds originated from Driftwood's margin deposits and diverted FX settlement proceeds.
18. Kelvantis's analysis further determined that the remaining misappropriated funds were disbursed as follows: (a) approximately $18,600,000 to Stellaris Trading Ltd. (BVI Registration No. 2043871) at Palmetto International Bank Ltd. (302 Bay Street, Nassau, Bahamas); (b) approximately $8,000,000 to real estate purchases through Castellan Realty Holdings LLC; (c) approximately $5,100,000 in cash withdrawals and personal expenditures; and (d) approximately $3,200,000 retained in Meridian Prime's accounts at Bridgemont Bank NA.
19. Excerpts from the Kelvantis Forensic Advisors LLC fund tracing report, including detailed schedules showing wire

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

CALDERWOOD & HARKNESS LLP

CALDERWOOD & HARKNESS LLP

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

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CALDERWOOD & HARKNESS LLP

CALDERWOOD & HARKNESS LLP

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

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