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r1-T,77;0112,711,3,71-SAS

Document 1

Filed 04/21/11

Page

1 of 25

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

k;
JULIE RUSSO, on behalf of herself and all others similarly situated, Case No.: CLASS ACTION

C

iF. 7;'

'-:„n-IL, H

!I

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 T. HIRST, MICHAEL HLAVSA, KEITH LASLOP, JOSEPH BIANCO, JASON GALANIS, and NET FIVE HOLDINGS, LLC,

JURY TRIAL DEMANDED

Defendants.

Julie Russo

("Plaintiff'), by

her attorneys,

on

behalf of herself and all others

similarly
as

situated, alleges the following based upon the investigation of plaintiffs' counsel, except

to

allegations specifically pertaining investigation
Stillwater

to

plaintiff,

which

are

based

on

personal knowledge.
Capital Partners,

The

of counsel included, among other
Partners LLC's

things,

Stillwater

Inc. and
a

Capital

(together, "Stillwater")
Ltd.'s

communications with

Plaintiff,

review of Gerova Financial

Group,

("Gerova"

or

the

"Company") public filings

with the
news

United States Securities and

Exchange Coimnission ("SEC") and press releases,
matters and other

media and

reports, public documents in related
limited to,

publicly
the

available data,

including,

but not

publicly

available

trading

data

relating

to

price and trading

volume of Gerova

ordinary

shares.

Case 1:11-cv-02737-SAS

Document 1

Filed 04/21/11

Page

2 of 25

Introduction 1.

This is

a

class action

on

behalf of a class of all persons and entities who invested
was

in any of the Stillwater

Funds'

and whose interests in any of the Stillwater Funds
on

liquidated
2010

in the transactions between Stillwater and Gerova consummated

January 20,

(the
in

"Stillwater

Transactions"),

and who

(1) submitted

a

request for redemption of their

accounts

the Stillwater Funds before the Stillwater Transactions and have not been

paid

in full

on

those

redemption requests, and/or (2)

received Gerova Series A Preferred Stock, which converted into
to
recover

restricted, unregistered Gerova ordinary shares,
violations of certain state laws
2.

damages caused by Defendants'

(the "Class").

Plaintiff's claims of breaches of

fiduciary duties,

breach of contract and

unjust

enrichment arise from Defendants' execution of the Stillwater Transactions, and their
failure to

subsequent

register they

the Gerova shares received

by

the Class

leaving price

Class members with restricted
common

shares that

have been unable to trade while the

of Gerova
on

stock has the

plummeted

due to Defendants'

wrongful

conduct from $23.26
on

January 19, 2010,

day

before the Stillwater Transactions closed, to $5.25

February 24,

2011 when the NYSE halted

trading

in Gerova stock.

Additionally, Defendants engaged

in fraudulent conveyance

by

The "Stillwater Funds" include: (1) Stillwater Asset Backed Fund, LP, a Delaware limited partnership; (2) Stillwater Asset Backed Fund II, LP, a Delaware limited partnership; (3) Stillwater WPB Venture Partners I LP, a Delaware limited partnership; (4) Stillwater WPB Venture Partners II LP, a Delaware limited partnership; (5) Stillwater Market Neutral Fund, LP, a Delaware limited partnership; (6) Stillwater Market Neutral 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 Backed Offshore Fund, Ltd., a Cayman Islands exempted company; (10) Stillwater Asset Backed Fund SPV, Cayman Islands exempted company; (11) SABF II Onshore SPV, a Cayman Islands exempted company; (12) Stillwater Market Neutral 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 Market Neutral Fund III SPC, a Cayman Islands exempted company registered as a segregated portfolio company, and its sub fund, the Stillwater Matrix Segregated Portfolio.

1

a

2

(2) acquiring Group Holdings. Gerova an exchange supposed liquidation of their were to have been an registered. 4.5% controlling equity Amalphis Group. and Northstar Reinsurance Ireland. Ltd. However. The Stillwater Funds could not pay out on redemptions requested by receive their money. or registration requires audit/appraisal appraisal in has not yet occurred. Ltd.. wholly-owned and subsidiaries Northstar Reinsurance.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 3 of 25 transferring substantial value out of the Company to a related entity while failing to pay out Class members' unsatisfied 3. were Because the Stillwater Funds ran invested in overvalued troubled assets. Inc." Pursuant to this plan. their investors and the dates which investors were supposed to In mid-December 2009. the assets and investments held LLC are (3) purchasing Management by two funds managed by Weston Capital Asset (the the "Wimbledon Funds") (these transactions. liquidity for our funds. 3 . for and investors in the Stillwater Funds received restricted shares of Gerova in interests in the Stillwater Funds. "Acquisitions"). Stillwater sent an email to the Class offering "a plan to provide better 5. (the "Amalphis Group"). of the freely audit tradable. These restricted shares which would make them Stillwater assets. the an Stillwater Funds withdrawal from into a liquidity problem as increasing number of investors sought or redemption of their accounts. redemptions. Stillwater entered into a deal with Gerova whereby Gerova acquired all assets. and its wholly-owned subsidiary Northstar Allied Provident Insurance and its Company Ltd. Ltd. Such 6. Stillwater Transactions an engaged the as part of a series of contemporaneous transactions which included: (1) purchasing interest in 81. liabilities and equity interests of the Stillwater Funds. together with the Stillwater Transactions.

used the means and instrumentalities of interstate commerce. Defendants. on 2010. except for the purpose of winding up the Company's affairs and liquidation. directly including. the mails. Jurisdiction is conferTed by 28 U. but not limited to. interstate securities markets. Further. 2010 (and amended June 16. no Prior to the Acquisitions. a the New York Stock Exchange ("NYSE") substantial part of the events giving rise to the claims asserted herein occurred in In connection with the facts alleged in this complaint. Gerova was a special purpose acquisition company with assets and no meaningful operations. and the facilities of the national 4 . 2010) ("2009 Annual Report"). and this District.S.C. they cannot trade and effectively have unsatisfied redemption Jurisdiction and Venue 11. on According to Gerova's 2009 annual report filed on Form 20-F with the SEC 2. 8. or indirectly.C. As of the date of this Complaint.S. 1391(a) and (c) as Stillwater and the operations on of the Stillwater Funds located in this in this District.25 million. telephone communications.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 4 of 25 7. June if no business combination was completed by January 23. Gerova ordinary shares trade District. 10. 9. because this is a a class action in which the matter in controversy exceeds $5 million and Plaintiff is York and Defendant Gerova is a citizen of the State of New citizen of a foreign state. 1332(d). Stillwater valued the assets of the Stillwater Funds at $541. 12. the Company's corporate existence would have ceased. according to Gerova's articles of incorporation. Venue is proper pursuant are to 28 U. are Plaintiff and the Class hold valueless or only restricted shares of Gerova which claims.

Stillwater Inc. 5 . shareholders formed on March 22. and affairs. Stillwater LLC is and responsible for all management the decision-making matters with respect to the Delaware Funds." 2 name on The ASSAC/Gerova entity will be referred to as "Gerova" throughout this Complaint. and Stillwater LLC together are referred to herein as "Stillwater. including overseeing day- to-day operations 17. without regard to the official change from ASSAC to Gerova which occurred in connection with the closing of the Stillwater Transactions a January 20. Inc. Defendant Gerova was a blank check company. Defendant Stillwater and Capital Partners. on September 8. 5th on 1 Victoria Street. 2007 under as an Cayman Islands law. 14.3 The NYSE trading in 15. 2 formerly known as Asia Special Situation Acquisition Corporation ("ASSAC"). On November 22. Gerova announced which was approved by Gerova shareholders by one-for-five reverse share consolidation of Gerova's written consent. Bermuda. 2010. limited Defendant Stillwater Capital Partners LLC ("Stillwater LLC") is a Delaware liability company which is the general partner in the Delaware Funds and manages the business and affairs of the Stillwater Funds. HM 11. 2010. law. ordinary shares.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 5 of 25 Parties 13. 16. Plaintiff maintained interests in the Stillwater Funds at the time of the Stillwater Transactions. Plaintiff is on a resident of the state of New York and invested in several of the Stillwater Funds November 1. Gerova stock on February 24.") is as a New York corporation registered investment adviser which acts the investment manager for the Stillwater Funds. Hamilton. 2010. Gerova's principal executive offices are located at Cumberland House. August 30. 2006 and March 1. 2007. Gerova's ordinary shares traded under the halted the American Stock Exchange symbol "GFC" and were transferred to the NYSE 2011. ("Stillwater Inc. On approved Gerova's continuance exempted company under the laws of Bermuda and its de-registration under Cayman Islands Floor. 2010.

Hirst signing Gerova's SEC 23. Defendant Michael Hlavsa has been Chief Financial Officer is ("CFO") as and a director of Gerova since March 2007. Doueck and Rudy are referred to herein as the "Stillwater Defendants. 20. resigned from his positions with was involved in negotiating filings as the Stillwater Transactions.'s engagement investment manager for the Stillwater Funds under Gerova's control. 19. The Company being managed by Hlavsa. and the board of directors pending appointment of a new Chairman. 29th Floor. Defendant Richard has Rudy ("Rudy") over is a principal of Stillwater Inc. New Stillwater and the Stillwater Funds are located at 41 Madison Avenue. Las lop was a 6 . on Hirst was appointed President in October 2007 and Hirst was appointed Chairman of the Board Gerova." 22. and Stillwater on a LLC. Stillwater LLC. Stillwater Inc. and Stillwater LLC. 2010. Hirst was April 8. and Stillwater LLC.'s engagement investment manager for the Stillwater Funds under Gerova's control. Rudy as sits on a three-person investment committee as part of Stillwater Inc. the the principal executive officer. 21. Doueck sits as three-person investment committee as part of Stillwater Inc. On February 10. York. Defendant Jack Doueck ("Doueck") over is a principal of Stillwater Inc.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 6 of 25 18. 2011. 24. President and Up through June 1. Defendant Gary T.. Rudy authority and control Stillwater Inc. Hirst ("Hirst") was a director of Gerova since its inception. and Stillwater LLC. principal executive ("Hlavsa") officer. New York 10010. Defendant Keith Las lop Gerova's Chief ("Las lop") has been Officer a director of Gerova since May 2008 and was appointed Operating ("COO") in June 2010. President and CEO. 2010. Doueck has authority and control Stillwater Inc.

Defendant Joseph Bianco ("Bianco") was a was appointed as Gerova's Chief Executive Gerova Real Estate 2011. Laslop resigned 25. February 10. wholly owned subsidiary on of Gerova. Planet Five on Development Group. resigned on February 10. and filed with the State of Florida November 3. 2010. 2010. Gerova a 49% equity interest in Net Five. 7 . 2010. LLC. to Sarbanes-Oxley certification Holdings. Gerova announced termination of his that he will "continue to employment with the Gerova Advisors a February 10. a Laslop and Galanis. holds a ("Planet Five") and Robert V. public a company for five years based at accounting fraud and electronic forgery with respect 27. Officer ("CEO") in June 2010. Florida on limited liability company filed articles of organization with on the Florida Department of State March 25. 2011. Defendants Hlavsa and on an listed as members of the Managements Board of Net Five dated as amendment to the on articles of organization of October 25." Galanis Defendants member of the three-person was Gerova Real Estate Committee with Laslop and Bianco. Defendant Jason Galanis ("Galanis") the President of Gerova Advisors LLC. Florida limited venture Defendant Net Five was a liability company ("Net Five") which formed LLC as a real estate joint between Gerova. However. Inc. 2011. Galanis barred from on serving as an officer or director of any U. 2010.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 7 of 25 member of the three-person on Gerova Real Estate Committee with Defendants Bianco and Galanis. In 2007. but stated new serve Company as consultant and will assist was a management and the board in connection with acquisitions and financings. Willison May 26. the Gerova Real Estate Group.S. Bianco member of the Bianco was three-person Committee with Defendants 26. 2010. LLC is Penthouse International. and Bianco are changed its name to Net Five June 8.

Plaintiff and all members of the Class have sustained damages because and of defendants' unlawful activities in class and securities alleged herein.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 8 of 25 Class Action Allegations 28. unregistered Gerova ordinary shares. experienced vigorously. Plaintiff knows of difficulty as a to be encountered in the management of this action that would preclude its maintenance class action. which converted into to recover restricted. and who liquidated in the the (1) submitted a request for redemption of their accounts in Stillwater Funds before the Stillwater Transactions and have not been paid in full on those redemption requests. A class action is superior to all other available methods for the fair and efficient no adjudication of this controversy. Plaintiff believes throughout the United States. 31. are so The members of the Class numerous that joinder of all members is impracticable. time and can While the exact number of Class members is unknown to Plaintiff at the present be ascertained only through appropriate discovery. Plaintiff brings this action as a class action pursuant to Federal Rules of Civil Procedure 23(a) and 23(b)(3) on behalf of a class of all persons and entities who invested in any was of the Stillwater Funds and whose interests in any of the Stillwater Funds Stillwater Transactions. that there are hundreds of members of the Class located 30. Plaintiff has retained counsel competent litigation and and intends to pursue this action Plaintiff. violations of certain state laws 29. Plaintiff s claims are typical of the claims of the members of the Class. 8 . and/or (2) received Gerova Series A Preferred Stock. damages caused by Defendants' (the "Class"). The interests of the Class will be no fairly adequately protected by Plaintiff has interests which are contrary to or in conflict with those of the Class that Plaintiff seeks to represent.

Supreme Court of the State of New York. in case a conference call on or around April 2.4 Stillwater Sells Interests in the Stillwater Funds to Gerova 34. then was ("Eden Rock"). New York County. No.. whether defendants participated directly conduct complained of herein. acknowledged that those investors are creditors of the funds. 650613/2011 Eden Rock Finance Fund. requests of investors in the Stillwater Funds due the Stillwater Funds' v. LP et al. Common over questions of law and fact exist as to all members of the Class and of the Class. Unable to meet the redemption a and withdrawal requests of their investors. damages and the proper Wrongful Acts 33.) had at least $110 million in unpaid redemptions.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 9 of 25 32. 2009 that the funds at issue in that (the Stillwater Asset Backed Fund II. Gerova Financial al. LP. Group. 4 Gerova's 2009 Annual claims. LP and the Stillwater Asset Backed Offshore Fund and Ltd. et to the complaint in Eden Rock Finance Fund. The Stillwater Defendants were unable to meet the to redemption/withdrawal liquidity problems. below. According Ltd. Report states that there are approximately $30 million in unsatisfied investor redemption 9 . predominate questions any questions solely affecting individual members common to Among the of law and fact the Class are: (a) (b) (c) whether defendants violated state laws by or their acts and omissions as alleged herein. Managing Director of Stillwater. told by Jonathan Kanterman. and indirectly in the course of whether the members of the Class have sustained measure of such damages. another investor in the Stillwater Funds. the Stillwater Defendants entered into transaction with Gerova assets or thereby selling at off the assets in the Stillwater Funds to a company with no meaningful operations that time.. See 41.

The Gerova Proxy stated general partner of the Delaware Funds and the have directors of the Stillwater Funds domiciled in the Cayman Islands already approved or are expected to approve the transaction. (the "Gerova Proxy"). Stillwater and the Stillwater Funds entered into a series of agreements pursuant to which Gerova of the Stillwater Funds. According 2010 to the proxy statement issued by Gerova to its shareholders. that the Gerova shareholders also voted the deal. responsible "spearheading approvals from investors in the Stillwater Funds.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 10 of 25 35. 2009." 40. 2009. Funds. 2009 to discuss a potential transaction between Gerova and Stillwater. Stillwater Plaintiff and the Class for our an email stating "[w]e have 37. liabilities and equity interests and the exchange for Gerova stock. and approval by majority of the directors of the on Cayman Islands. in addition to of a majority in interest of the limited partners of the Delaware Stillwater Funds domiciled in the 38. Defendant Hirst and other Gerova advisors terms term again met with Stillwater principals on at Stillwater's offices in New York City to discuss of the proposed transaction and December 18. Gerova and Stillwater entered into a sheet agreement 36. Defendants Doueck and Rudy. Gerova and its advisors met with Stillwater on principals at Stillwater's offices in New York City November 17. Stillwater 10 . regarding the transaction. 2009. and that there appear to be no appraisal rights for limited partners in the Delaware Funds who dissent from the merger transaction. Stillwater and its solicitation of principals. Gerova. Specifically." contemplated Stillwater Transactions required approval approval a of Stillwater LLC as the general partner of the Delaware Funds. On December 31. plan to potentially provide better liquidity The funds and investments. in acquired all assets. dated January 5. 39. sent On December a 17. According were to the Gerova for Proxy. On November 22. Gerova. 2009.

"former investors to whom such redemption affect the owed may take legal action to collect these debts which could adversely operations of our subsidiaries. of these debts and claims will be required to be repaid by our subsidiaries from the sale of or fund assets reinvested. pursuant to which Gerova became the parent of the Delaware Funds. In accordance with the terms of the Stillwater Transactions. liabilities of Gerova. Gerova's 2009 Annual Report owe that "The Stillwater Funds claims. 667 Gerova ordinary shares and a cash fee of 11 . Gerova. finalized. claims are Report states.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 11 of 25 Delaware Funds executed several Agreements and Plans of Merger. Stillwater and the Stillwater Funds executed Asset Purchase assets Cayman Islands-based Agreements. of the Stillwater Gerova Transactions On January 20. Stillwater's unsatisfied states redemptions are.5% interest in the Amalphis Group approximately $650 million of assets from the Stillwater Funds and the Wimbledon Funds. in fact. if all. were the terms of the agreements between Gerova. and completed its acquisitions of an 81. 2010. which are restricted shares. 250 Gerova Series A Fixed Price Mandatory Convertible Preferred Shares (the "Preferred Shares")." to 42.0 million in unsatisfied investor redemption Many." collection of accounts receivable before available funds the 2009 Annual can be redeployed or Additionally. pursuant to which Gerova received the and liabilities of the 41. Stillwater received 541. 44. According the Gerova Proxy. According to Gerova's 2009 Annual Report. on January 4. as payment for the interests in the Stillwater Funds. Cayman-based Stillwater Funds. 2010. plus additional consideration consisting of 266. currently not approximately $30. Stillwater and the Stillwater Funds Terms 43.

of Defendants Doueck and a third person to be 12 . Gerova received the assets and liabilities or equity interests of the 541. to be adjusted based on independently appraised number of values as of by appropriately adjusting the ordinary shares issuable upon conversion of the Preferred Shares into Gerova and ordinary shares. In as addition.25% of the aggregate net asset value of the funds. 250 Preferred Shares on were to be allocated among the Stillwater Funds. 46. the consideration attributed to each of net asset the Stillwater Funds December 31. of January 20. In exchange. Gerova and Stillwater Inc. The million. and therefore the Class. entered into Investment retained Management by Gerova to Agreement.. pursuant to which Stillwater Inc. was Following the closing. (2) additional incentive fee at the close of each quarter equal to 20% proceeds of any increase in net asset value from the or prior quarter. 2010. Gerova will pay the managers of the Stillwater Funds $24 million in 47. Stillwater Inc. was provide by investment management services with respect to the assets and Stillwater Funds obtained a Gerova for three year term. is Pursuant to the Investment unpaid management fees. The audited financial statements 2010. investment required Rudy and to form a three-person investment committee. manager. an appraised net asset value were to be delivered by March 31. Stillwater Inc. 45.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 12 of 25 approximately $12 Stillwater Funds. Additionally. with Stillwater has been such percentage to its accrued proceeds once repaid management and incentive fees owed by the Stillwater Funds. consisting designated by Gerova. is to be paid (1) a management fee an payable quarterly equal to 0. based Funds as unaudited estimated net asset values of each of the Stillwater of December 31. and (3) 44% of cash net from the sale liquidation of assets to be reinvested in asset backed loans and related secured be increased to 72% of cash net lending investments. as Management Agreement. 2009. 2009.

Further. Gerova at a modification of the conversion terms of the providing price that they as may be converted at any time into ordinary shares of conversion of $6. 2010. if the registration statement is not declared effective by July 31. the holders of more consented to a voting shares. Preferred Shares. than two-thirds of Gerova 49. 2010. Register the Shares the Class Received as Consideration the Stillwater Transactions. the Company is required 1933 to to file a registration statement under the Securities Act of register for resale the ordinary shares received upon conversion of the Preferred Shares.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 13 of 25 Gerova Failed to 48. Registration Rights Agreement was amended a and restated of April 23. 50. Gerova and dated as In connection with the a closing of Stillwater also entered into Registration Rights Agreement. 2010 and extend the effectiveness date of such December 31. at a rate Gerova is required to issue additional ordinary ordinary shares as partial liquidated damages a of 1% of the total number of unregistered shares up to maximum of 10%. 2010 to extend the time to file registration statement for the restricted shares from April 20. a registration statements from July 31. 2010. 2010. pursuant to which members of the Class entitled to registration of to the ordinary shares received upon conversion of the Preferred Shares. On April 23. are of January 20.50. the ordinary shares of the shall be audit distributed to the Stillwater investors and on the latest of (1) the completion post-closing adjustment of assets of the Stillwater Funds. including the Preferred Shares. However. (2) the effectiveness date of the registration 13 . 2010 to Moreover. the amended and restated Registration Rights agreement provides that upon conversion of the Preferred Shares into ordinary shares. According the Registration Rights Agreement. 2010 to July 31. opposed to the prior restrictions which allowed a only one- sixth of the Preferred Shares to be converted per month at the conversion as price of $7.

Then. 2011. Gerova filed a Form 6-K with the SEC. 833 shares prior consolidation. 14 . which stated: On January 20. the shares will continue to be restricted as set forth in the agreements and described above. 52. certain of the Counterparty Ftmds only delivered to us their financial statements in November 2010. with the record holders of substantially all of our Series A preferred shares issued in January 2010. 2009 net asset values of the funds that were our counterparties in a series of transactions that we completed on January 20. 708. 2010. Accordingly. which preferred shares were ordinary shares (123. 2010 (the "Counterparty Funds"). at the Gerova filed press release on Form 6-K with the SEC. however. 667 ordinary shares will be registered under the Securities Act and be available for resale on January 31. Under the terms of such agreement. it is highly unlikely that such Resale Registration Statement will be declared effective by the SEC prior to January 31. 2011. (a) we agreed to prepare and file a registration statement with the Securities and Exchange Commission ("SEC") registering such ordinary shares for resale under the Securities Act of 1933. 2010. Although we intend to file the Resale Registration Statement as soon as is reasonably practicable. 2010. or (iii) the effective date of the aforesaid Resale Registration Statement. 2010. 2010. or any other date approved of by Gerova's board of directors by written consent of the record 51. and or (3) January 31. 741. and (b) the holders of such ordinary shares agreed not to effect any resales or distributions of such shares until the latest to occur of (i) delivery of the subsequently converted into 24. This has resulted in a delay in the preparation of the Resale Registration Statement. which we have not yet filed with the SEC. These audited net asset values were originally due to be delivered to us by March 31. we entered into a registration rights agreement. as amended and restated on April 23.75% of our outstanding shares). 383. 2010. 2011. As a result. on December 3. 741. (ii) January 31. 667 to our recent share audits of the December 31. it is highly unlikely that our 24.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 14 of 25 statement. 2011. owners of the converted shares. Gerova had 133. As of the date of this report. 2011. As set forth below. announcing that. extraordinary general meeting of shareholders of Gerova on May 12. representing approximately 88. 310 ordinary shares issued and outstanding. the Resale Registration Statement has not been filed with the SEC. the shareholders approved the conversion of the Preferred Shares into ordinary shares. The audited net asset values of the assets of the Counterparty Funds are necessary in order for us to prepare the financial statements required to be included in the Resale Registration Statement. a On May 14. as amended (the "Resale Registration Statement") and undertook to cause such Resale Registration Statement to be declared effective on or before January 31.

is payable in kind by the delivery of additional 53. Hedge Alert. on 2011 stated. Stillwater founder Jack Doueck are acknowledged it could be another six months before investors permitted to sell their Gerova shares. LLC Gerova entered into a real estate joint venture with Planet Five Development Group. forming Net Five a Holdings. also calls for consultation with the Gerova Real Estate or The on Operating Agreement Committee Gerova matters requiring guarantees or financial commitments from Gerova Gerova's real estate or any subsidiary that directly indirectly owns portfolio. Willison. or part thereof.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 15 of 25 Pursuant to the registration rights agreement. LLC. Pursuant to the Operating Agreement of Net Five and the Contribution Agreement between Gerova and Planet Five. Gerova investors in the Stillwater Funds still hold restricted shares and cannot sell their are stock. appraisals and audits necessary to until an The register the shares have yet to take assets has place. The Gerova 15 . despite being liable for millions of dollars of outstanding 57. up to a maximum penalty of 10% of such ordinary shares." The Net Five Transaction 55.HFAlert. ordinary shares. The penalty. of which Gerova holds 49% interest. commencing February 2011 that the Resale Registration Statement is not declared effective. if any. a ("Planet Five") company and Robert V. Gerova contributed to Net Five all of the owned real estate properties and real estate loan assets acquired from the Stillwater Funds. "Neached this week. www.com. 54. An article on Approximately Fund 88% of Gerova shares outstanding are January 19. unpaid redemptions. restricted. Accordingly. we are subject to share penalties to the holders of our shares under the registration rights agreement in an amount equal to 1% of the number of ordinary shares owned by such holders for each month. 2010. and more effectively being held captive while the value of their Gerova shares has declined than 77 percent. On May 26. These shares cannot be registered appraisal of the been completed. 56. equity Florida limited liability ("Net Five").

S. was Additionally. On June 1. 59. recover sums Additionally. Court for the Southern District of Florida to 61. 2010. 000 a year job with 100% possible bonus. Las lop. Manley has sued Gerova in the United States District due to him under the contract. for in failure to make several payments due under Share Repurchase Agreement executed conjunction with Manley's resignation. Marshall Manley was appointed CEO of Gerova. The Truth Begins to Emerge 58. Marshall Manley resigned from his positions as as CEO and Chairman of the Board of Gerova and Tore Nag resigned from his position Chief Operating as Officer. and Tore Nag appointed as Chief Operating Officer. Michael and Hlavsa and Stuart Sundlum removed from their directors of the as Company. forgery Sarbanes-Oxley certification at Penthouse International. 2010. 62. 2010. he and Gerova contracted for nondisclosure in exchange for certain payments. On April 8. on 2007 from serving as an officer or director of any U. Chairman of the Board. Accordingly. Marshall Manley. Michael Kantor and Jack Doeuck appointed Gerova directors. and Galanis. In connection with the were closing of the Acquisitions positions were as on January 20. As part of Manley's resignation from his $650. Defendant Galanis was barred by Judge Sweet on April 24.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 16 of 25 Real Estate Committee consists of Defendants Bianco. less than three months later. 60. with respect to a public company for five years based accounting fraud and electronic Inc. Manley's company Marseilles a Capital LLC is also suing Gerova. which Gerova has failed to make. Gerova's President and board member. The Company appointed Defendant Hirst. Stillwater received a Wells Notice from the SEC stating that an individual at Stillwater may have violated Section 10(b) of the Exchange Act by disseminating 16 .

CEO of Gerova effective to become Chairman and January 1. The [Geroval shareholders. 2010. as 88% of Gerova shares outstanding 17 . later announced in late February news 2011 that the merger discussions with both companies had been called off. Gerova announced in a February 10. However. 2011. SEC closed the matter with recommendation of enforcement. Seymour Pierce called off the merger because of mounting 64. describing "NYSE-listed shell game" which is "operated for the benefit of insiders and affiliates. Keith Harris. On January 10. Feinstein LLP. and that this information is on hidden from investors to allow Stiliwater to collect fees based the Stillwater investors inflated asset Values." from the Stillwater Funds were Dalrymple Report alleged that assets acquired being likely impaired and overvalued. on uncertainty about Gerova's in a The Eden Rock plaintiffs alleged that conference call with Defendant Doueck December 30. It was 2011 press release that Harris had elected to defer his appointment to these positions. 2011. finances. an On December 7. and 100% of New York-based institutional broker-dealer Ticonderoga Securities. Seymour Pierce Chairman and CEO. to an attorney Herrick. Doueck admitted that he had not to performed due diligence on Gerova prior the deal. 2010. and to hold captive to prevent a stock sell-off. 65. rather than 66. to the detriment of investors. Stillwater no notified six months later in writing that the 63.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 17 of 25 materially misleading statements about the Stillwater asset backed funds' loan portfolio and performance According in the monthly at Executive Summary reports distributed by was Stillwater to investors. In connection with this was transaction. Gerova announced that it entered in agreement to acquire 100% of London-based investment bank Seymour Pierce Holdings Ltd. A Bermuda outlet reported that. according to The Financial Times. Dalrymple Finance Gerova as an LLC issued a research report on Gerova (the "Dalrymple Report").

7 million in The auditors of Stillwater concluded that since the evidence over the valuation of a significant portion of the option is unavailable and they were not able to apply other auditing procedures to satisfy themselves as to the valuation of the option. 5 million as of December 2009. the scope of their work was not sufficient to enable them to express an opinion on the financial statements of Stillwater at 31 December 2009. such as Net Five. shares held Additionally. importantly. to determine the recoverability of receivable balances due (from sub-fund managers that have suspended redemptions) of $20. assets as an The Dalrymple Report provided the following evaluation of one set of Stillwater's example: The Matrix Group. 68. a UK asset manager is a significant investor in Stillwater Matrix Fund. as is necessary to register the restricted it is easier for the Company to transfer assets to related entities. Pricewaterhousecoopers disclaimed their opinion on Stillwater. a lot of the assets of which were purchased by [Gerova]. by the Class. We consider the independent auditor's report to Matrix is a scathing indictment of Stillwater valuation practices and reported NAV. The Dalrymple Report from none stated that their "information regarding the dire state of acquired assets come other than Stillwater. Uncertainty leverage in relation to Stillwater's ability to repay $95. Stillwater still has unresolved disputes with auditors over valuation. The auditors of Stillwater issued an adverse opinion statements for the year ended 31 December 2008." 67. According a Dalrymple Report. on the financial This information tells us that the Stillwater assets were known to be impaired and extremely difficult to value. to the as it has done with the real estate assets "It appears as acquired from the Stillwater Funds. without an asset audit. So difficult is the process that Stillwater's auditors issued an adverse opinion on 2008 financial statements because of their inability to verify stated values. We paraphrase their reasoning as follows: Inability Inability to as fair value obtain sufficient audit evidence in relation to $136 million of of December 2009. if management traded 100% ownership in the assets for 18 .Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 18 of 25 are restricted.

70. Hirst was. In 2009. Mr. 19 . as part of the Acquisitions] for approximately $50-80 million depending on the share price used. alleged that the independent directors of the Stillwater Asset Backed Offshore reported Stillwater's conduct in connection with the Gerova deal to the Cayman Islands Monetary Authority. [Rineon] sold 81.PK) for $36 million. to serious confirming that the directors of that fund had over resigned earlier date due disagreements also with Stillwater the valuation of the fund's assets. NatProv (of which Mr. the firm in which Mr. email from Further. For example. but as a non- consolidated operational and financial management of the assets beyond shareholder view. the company purchased Amalphis with $36 million in cash. indeed. Not it puts the only does this dilute GFC shareholder interest.5% of the company to Rineon (RIGI. as far as we can result of the transaction. Hirst is still a shareholder. Hirst is a shareholder). A tangled web. approximately 1. The Eden Rock complaint Fund Ltd.5% of the Amalphis Group transaction: related-party of Amalphis. in essence. both the buyer and seller via different entities apparently using limited partners [sic] money to monetize an investment. NatProv. the Dalrymple Report provided examples of various red flags that should have alerted the Stillwater Defendants of shady dealings at Gerova. owns all the A year later in common shares of Amalphis.8 million shares of the Eden Rock As a [Gerova]. [Rineon] raised the cash to make the acquisition through the sale of preferred shares to Intigy Absolute Return Fund." 69.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 19 of 25 49% non-controlling entity. According to [Rineon] filings. Intigy is a company controlled by current [Gerova] President Gary Hirst.. Current [Gerova] CFO Michael Hvalsa was the CFO of [Rineon] at the time. was the a Dalrymple Report explained how the acquisition of 81. Further. [Rineon] around owns gather from regulatory filings. the owner 2010. 2011. directors of the plaintiffs received an of the independent Cayman-based Stillwater Asset Backed at an Offshore Fund Ltd. In this case. interest. sold 81.5% of Amalphis to [Gerova. one on or January 11.

Leonard de Waal and Arie van Roon. LP. press release.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 20 of 25 71. 2011. 8. Docket No. 2010. The results of this audit have not been 72." Gerova announced that is pending the appointment of a new Chairman board of directors. because Stillwater had not fund's applied GAAP to value the assets. Delaware limited partnership. as well as Arie Bos and Leonard de Waal. two of its three members resigned. Gerova issued a On February 10. Pelino appointed as President and Chairman of the board of directors. the funds would have been insolvent. also deviated from GAAP.Y. 74. 2011.. 3 (S. despite being required to do so by the private placement a memorandum. Gerova announced that it intends to reorganize 73. 6 As of January 26. Additionally. Similarly. Group. the Company being managed by Defendant Hlavsa and the Gerova's response to an order to show cause in Katten Muchin Rosenman LLP v. name the Company as issued a press release stating that Dennis L.N. the valuations for the Stillwater Asset Backed Fund II. 11-cv-0867.6 was Gerova also announced that Dennis L. to According the Eden Rock complaint. 2010 the audit committee consisted of Keith Laslop. On February 15. The Eden Rock plaintiffs obtained a copy of to an audit of the two funds' 2009 financial statements in late were not January as 2011. and Defendant Bianco resigned of acting CEO.). Defendant Hirst from the resigned position as Chairman and President of the Company. K with the publicly released. and president. Joseph Bianco resigned as CEO effective December 31. its audit committee. 5 According to 20 . the Pelino withdrew his because he and the from consideration the Chairman and on president of Company Company "were unable to reach agreement the terms of his appointment. Ltd. announcing that four members of the Board of Directors resigned: Defendants Bianco and Laslop. the auditors able to give an opinion the Stillwater Asset Backed Offshore Fund Ltd. No.5 In light as of these resignations. at p. The Eden Rock complaint alleged that had Stillwater utilized GAAP.D. which was filed on Form 6- SEC. Gerova Fin.

NYSE halted to $5. Defendants engaged in loss a course of conduct which resulted in Plaintiff and the Class accounts in the suffering economic at by depriving them of the value contained in their Stillwater Funds the time of the Stillwater Transactions. On February 24. 2010. the day before the Stillwater Transactions closed. 2011. for the benefit of Plaintiff and the Class. Doueck and fiduciaries to Plaintiff and the in the Stillwater Funds. Plaintiff repeats and realleges the allegations in In 1-77 as if set forth fully herein. the NYSE halted trading in Gerova's stock. Claims for Relief COUNT I Breach of Fiduciary Duties Against the Stillwater Defendants 78. who stock price has fallen from $23. 21 .25 on February 24. The stock has not traded since. Rudy were Defendants Stillwater. and leaving them on with untradeable restricted shares in Gerova. Plaintiff expressly excludes and disclaims any allegation that could be construed 79. except that for purposes of this claim. Loss Causation/Economic Loss 77.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 21 of 25 75. As detailed herein. it has no reason to believe that the above-mentioned event had any relationship to such market activity. 2011 when the trading in Gerova stock. the NYSE has contacted the company in accordance with its usual practice. 76.26 January 19. Class in that they managed investments made by Plaintiff and the Class on and Plaintiff and the Class reasonably relied Defendants Stillwater. as alleging or sounding in fraud. Although it is the Company's position not to comment on unusual market activities. Further. and it has not traded since. the press release stated: In view of the unusual market activity in the ordinary shares of Gerova Financial Group. manage and run the Stillwater Funds. Doueck and Rudy to maintain.

Doueck and Rudy breached their fiduciary duties to Plaintiff and the Class. at the expense of Plaintiff and Class. Hirst and Hlavsa. alleged above. Doueck and Rudy.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 22 of 25 80. therefore. Plaintiff repeats and realleges the allegations in IfIT 1-82 as if set forth fully herein. fiduciary duties by: Defendants Stillwater. entering into encouraging due inducing on the Class's as approval by of the Stillwater Transactions without performing diligence Gerova. admitted Defendant Doueck. who. COUNT II Aiding and Abetting Breach of Fiduciary Duties Against Defendants Gerova. Hirst and Hlavsa 83. receiving large into a fees in connection with completion of the Stillwater Transactions and entering lucrative investment management contract in connection with the Stillwater Transactions. aided and abetted such breaches of fiduciary duties. Doueck and Rudy have violated their failing and to pay redemptions requested by and Plaintiff and other members of the Class. 81. and to failing to cause the audit/appraisal necessary for the restricted shares be registered. by the acts and conduct alleged herein. Doueck and and candor owed to the Class Rudy have violated their fiduciary duties of loyalty. 82. except that for purposes of this claim. As as alleging or sounding in fraud. Such breaches of fiduciary duties could not and would not have occurred but for the conduct of Defendants Gerova. Plaintiff and the Class have been damaged. care. Due to the breaches of fiduciary duties by Defendants Stillwater. 85. Defendants Stillwater. Defendants Stillwater. 22 . Plaintiff expressly excludes and disclaims any allegation that could be construed 84.

COUNT III Unjust Enrichment Against Defendant Gerova 88. Defendants Gerova. are Members of the Class received untradeable restricted shares in Gerova. 90. Hirst and Hlavsa. liabilities at the equity interests of the Stillwater Funds. as alleging or sounding in fraud. Due to the unlawful acts of Defendants Gerova. described above. 23 . Plaintiff and the Class seek restitution. which in currently valueless. acquired all assets. Plaintiff expressly excludes and disclaims any allegation that could be construed as alleging or sounding in fraud. Plaintiff expressly excludes and disclaims any allegation that could be construed 89. 91. except that for purposes of this claim. Plaintiff and the Class have been damaged. and be failing to cause audit/appraisal necessary for the restricted shares to registered. paying the Stillwater Defendants large fees the expense of the Class. COUNT IV Breach of Contract Against Defendant Gerova 92. and exchange for their interests in the Stillwater Funds. Plaintiff repeats and realleges the allegations in 7 1-77 as if set forth fully herein. Hirst and Hlavsa aided and abetted these breaches of fiduciary and duties by engaging in the Stillwater Transactions and acquiring the assets. Plaintiff repeats and realleges the allegations in 7 1-77 as if set forth fully herein.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 23 of 25 86. 87. liabilities and as Defendant Gerova equity interests of the Stillwater Funds in the Stillwater Transactions. except that for purposes of this claim. which is inequitable unjust.

statement for the restricted shares from 2010 to extend the time to file registration April 20. "Many. for entitled to the benefit of investors in the Stillwater Funds pursuant to which the they are registration of ordinary shares received upon conversion of the Preferred Shares. Due to Gerova's breach of contract. 96.105. damaged. if not all. a registration statements of the from July 31. The Registration Rights a Agreement was amended and restated as of April 23. 2010 and extend the effectiveness date of such 94. 99. Bianco. members the Class have been COUNT V Fraudulent Conveyance Defendants Gerova. According required to Gerova's 2009 Annual be Report. 2010. registration of such shares has not occurred and breach of the Registration Rights Agreement. 2010 to July 31. Against 97. 726. of these or debts and claims will be to repaid by our subsidiaries from the sale of fund assets can collection of accounts receivable before available funds be redeployed or reinvested. Laslop. Net Five. Registration material ordinary shares received upon conversion of the Preferred and Shares is a provision of the Registration Rights Agreement by assigns some value to up their the otherwise valueless consideration received interests in the Stillwater Funds. 98. is thus a members of the Class for giving As of the date of this complaint.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 24 of 25 93. 2010 to December 31. 2010. brought under the Florida Uniform Fraudulent Transfer Act. and Galanis Plaintiff repeats and The claim is realleges the allegations in TT 1-77 as if set forth fully herein. 95. Gerova and of Stillwater entered into Registration Rights Agreement. In connection with the a closing of the Stillwater Transactions. dated as January 20." 24 . Section Plaintiff and Class members whose redemption claims remain unsatisfied are creditors of Gerova.

including and such attorneys' fees. Net Five. Hall Hae Sung Nam Irina Kobylevsky 850 Third Avenue New York. and Galanis transferred all of the owned real and real estate loan assets that Gerova properties acquired from the Stillwater Funds to Defendant Net Five. Las lop. estate Defendants Gerova. KAPLAN FOX & KILSHEIM R LLP April 21. 101. Fox Donald R. Five is a delay or defraud Plaintiff and the Class. NY 10022 Telephone: 212-687-1980 Facsimile: 212-687-7714 Counsel for Plaintiff 25 . awarding reasonable costs. and Galanis made this transfer with as actual intent to hinder. PRAYER FOR RELIEF WHEREFORE. awarding damages. equitable/injunctive relief as the Court may deem proper. 2011 By: Frederic S. JURY DEMAND Plaintiff demands DATED: a trial by jury. Laslop. principals and subsidiaries retain control of the property.Case 1:11-cv-02737-SAS Document 1 Filed 04/21/11 Page 25 of 25 100. Plaintiff prays for judgment proper class as follows: declaring this action to be a action. Defendants Gerova. including interest. its evidenced by the fact that Net related-party and Gerova. Bianco. Bianco.

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