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Russo v. Gerova Financial

Russo v. Gerova Financial

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Published by: Who's in my Fund on Apr 25, 2011
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04/25/2011

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Clatrsjer1r:1v,
.r1-T,
77;0112,
711,
,
71-SAS
Document
1
Filed
04/21/11
Page
1
of
25
UNITED
STATES
DISTRICT
COURT
SOUTHERN
DISTRICT
OF
NEW
YORK
C
iF..7;'
k;
'-:„n-IL,
H
JULIE
RUSSO,
on
behalf
of
herself
and
all
Case
No.:
others
similarly
situated,
!I
CLASS
ACTION
Plaintiff,
vs.
CLASS
ACTION
COMPUAINT-Ve-----'
VIOLATIONS
OF
STATE
LAWS
GEROVA
FINANCIAL
GROUP,
LTD.,
STILLWATER
CAPITAL
PARTNERS,
INC.,
STILLWATER
CAPITAL
PARTNERS
LLC,
JACK
DOUECK,
RICHARD
RUDY,
GARY
JURY
TRIAL
DEMANDED
T.
HIRST,
MICHAEL
HLAVSA,
KEITH
LASLOP,
JOSEPH
BIANCO,
JASON
GALANIS,
and
NET
FIVE
HOLDINGS,
LLC,
Defendants.
Julie
Russo
("Plaintiff'),
by
her
attorneys,
on
behalf
of
herself
and
all
others
similarly
situated,
alleges
the
following
baseduponthe
investigation
of
plaintiffs'
counsel,
except
as
to
allegations
specifically
pertaining
to
plaintiff,
which
are
based
on
personal
knowledge.
The
investigation
of
counsel
included,
among
other
things,
Stillwater
Capital
Partners,
Inc.
and
Stillwater
Capital
Partners
LLC's
(together,
"Stillwater")
communications
with
Plaintiff,
a
review
of
Gerova
Financial
Group,
Ltd.'s
("Gerova"
or
the
"Company")public
filings
with
the
United
States
Securities
and
Exchange
Coimnission
("SEC")
and
press
releases,
mediaand
news
reports,
public
documents
inrelated
matters
and
other
publicly
available
data,
including,
but
not
limited
to,
publicly
available
trading
data
relating
to
the
price
and
trading
volume
of
Gerova
ordinary
shares.
 
Case1:11-cv-02737-SASDocument
1
Filed
04/21/11
Page
2
of
25
Introduction
1.
This
is
a
class
action
on
behalf
of
a
class
of
all
personsand
entities
who
invested
in
any
of
the
Stillwater
Funds'
and
whoseinterests
in
any
of
the
Stillwater
Funds
was
liquidated
in
the
transactionsbetween
Stillwater
and
Gerova
consummated
on
January
20,
2010
(the
"Stillwater
Transactions"),
and
who
(1)
submitted
a
request
for
redemption
of
their
accounts
in
the
Stillwater
Funds
before
the
Stillwater
Transactions
and
have
not
been
paid
in
full
on
those
redemption
requests,
and/or
(2)
receivedGerova
Series
A
Preferred
Stock,
which
convertedinto
restricted,
unregistered
Gerova
ordinary
shares,
to
recover
damages
caused
by
Defendants'
violations
of
certain
state
laws
(the
"Class").
2.
Plaintiff's
claims
of
breaches
of
fiduciary
duties,
breach
of
contract
and
unjust
enrichment
arise
fromDefendants'
execution
of
the
Stillwater
Transactions,
and
their
subsequent
failure
to
register
the
Gerova
shares
received
by
theClass
leaving
Class
members
with
restricted
shares
that
they
havebeenunable
to
trade
while
the
price
of
Gerova
common
stock
has
plummeted
due
to
Defendants'
wrongful
conduct
from
$23.26
on
January
19,
2010,
the
day
before
the
Stillwater
Transactions
closed,
to
$5.25
on
February
24,
2011
when
the
NYSE
halted
trading
in
Gerova
stock.
Additionally,
Defendants
engaged
infraudulent
conveyance
by
1
The
"Stillwater
Funds"include:
(1)
Stillwater
AssetBacked
Fund,LP,
a
Delaware
limited
partnership;
(2)
Stillwater
Asset
BackedFund
II,
LP,
a
Delaware
limited
partnership;
(3)
Stillwater
WPBVenture
Partners
I
LP,
a
Delaware
limited
partnership;(4)
Stillwater
WPB
Venture
Partners
II
LP,
a
Delaware
limited
partnership;
(5)
StillwaterMarket
Neutral
Fund,
LP,
a
Delaware
limited
partnership;
(6)
StillwaterMarketNeutral
Fund
II,
LP,
a
Delaware
limited
partnership;(7)
Stillwater
Matrix
Fund
LP,
a
Delaware
limited
partnership;
(8)
Stillwater
Real
Estate
Partners
Fund,
LP,
a
Delaware
limited
partnership(together,
these
are
the
"Delaware
Funds");
(9)
Stillwater
Asset
BackedOffshore
Fund,
Ltd.,
a
Cayman
Islands
exempted
company;
(10)
Stillwater
Asset
Backed
Fund
SPV,
a
Cayman
Islands
exempted
company;
(11)
SABF
II
Onshore
SPV,
a
Cayman
Islands
exempted
company;
(12)
Stillwater
MarketNeutral
Fund
Ltd.,
a
Cayman
Islands
exempted
company;
(13)
Stillwater
Loan
Opportunities
Fund,
LLC,
a
Delaware
limited
liability
company,
and
its
sub
fund,
the
Stillwater
Loan
Opportunities
Fund
(Series
A);
(14)
Stillwater
Loan
Opportunities
Fund,
SPC,
a
Cayman
Islands
exempted
company
registered
as
a
segregated
portfolio
company,
and
its
sub
fund,
the
Stillwater
Loan
Opportunities
Fund
Segregated
Portfolio
(Series
A);
and
(15)
Stillwater
MarketNeutralFund
III
SPC,
a
Cayman
Islands
exempted
company
registered
as
a
segregated
portfolio
company,
and
its
sub
fund,
the
Stillwater
Matrix
Segregated
Portfolio.
2
 
Case1:11-cv-02737-SASDocument
1
Filed
04/21/11
Page
3
of
25
transferring
substantialvalue
out
of
the
Company
to
a
related
entity
while
failing
to
pay
out
Class
members'
unsatisfied
redemptions.
3.
Because
the
Stillwater
Funds
were
invested
inovervaluedtroubled
assets,
the
Stillwater
Funds
ran
into
a
liquidity
problem
as
an
increasing
number
of
investors
sought
withdrawalfrom
or
redemption
of
their
accounts.
The
Stillwater
Funds
could
not
pay
out
redemptions
requested
by
their
investors
andthe
dates
on
which
investors
were
supposed
to
receive
their
money.
4.
In
mid-December
2009,
Stillwater
sent
an
email
to
theClass
offering
"a
plan
to
provide
better
liquidity
for
our
funds."
5.
Pursuant
to
this
plan,
Stillwater
entered
into
a
deal
with
Gerova
whereby
Gerova
acquired
all
assets,
liabilities
and
equity
interests
of
the
Stillwater
Funds,
and
investors
in
the
Stillwater
Funds
receivedrestricted
shares
of
Gerova
in
exchange
for
liquidation
of
their
interests
in
the
Stillwater
Funds.These
restricted
shares
were
supposed
to
have
been
registered,
which
would
makethem
freely
tradable.
However,
registration
requires
an
audit/appraisal
of
the
Stillwater
assets.
Such
an
audit
or
appraisal
has
not
yet
occurred.
6.
Gerova
engaged
in
the
Stillwater
Transactions
as
part
of
a
series
of
contemporaneous
transactions
which
included:
(1)
purchasing
an
81.5%
controllingequity
interest
in
Amalphis
Group,
Inc.
and
its
wholly-owned
subsidiary
Allied
Provident
Insurance
Company
Ltd.
(the
"Amalphis
Group"),
(2)
acquiring
Northstar
Group
Holdings,
Ltd.,
and
its
wholly-owned
subsidiaries
Northstar
Reinsurance,
Ltd.
and
Northstar
Reinsurance
Ireland,
Ltd,
and
(3)
purchasing
the
assets
and
investmentsheld
by
two
funds
managed
by
Weston
Capital
Asset
Management
LLC
(the
"Wimbledon
Funds")
(these
transactions,
together
with
the
Stillwater
Transactions,
are
the
"Acquisitions").
3

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