The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge
MEMORANDUM OPINION & ORDER
From 1995 through 2000, Mark Yagalla ("Yagalla") defrauded investors out of tens of millions of dollars. The fraud was ultimately discovered in October, 2000, but by then Yagalla had dissipated essentially all of the money he stole. After his arrest, the Securities and Exchange Commission ("SEC") commenced an enforcement action against Yagalla and the companies he controlled. SEC v. Ashbury Capital Partners, L.P. et al., No. 00 Civ. 7898 (the "SEC Action"). The Court appointed Michael F. Armstrong as receiver (the "Receiver") for Yagalla's assets and the companies utilized in perpetrating the fraud. The Receiver commenced these three actions to recover funds transferred to various defendants by Yagalla during the course of his fraudulent scheme: Armstrong v. Ronald Collins, et al., No. 01 Civ. 2437 (the "Collins Action"); Armstrong v. Michelle Braun, et al., No. 02 Civ. 3620 (the "Braun Action"); and Armstrong v. Michael A. Romano, et al., No. 02 Civ. 2796 (the "Romano Action").*fn1
There are five motions for summary judgment pending. In the Collins Action, the Receiver and the Defendants both move for partial summary judgment. For the reasons that follow, the Receiver's motion is granted in part and denied in part and the Defendants' motion is denied. In the Braun action the Receiver moves for partial summary judgment and the Defendants move for summary judgment. For the reasons that follow, the Receiver's motion is granted in part and denied in part and the Defendants motion is denied. The Receiver moves for partial summary judgment in the Romano Action, and for the reasons that follow, the motion is granted in part and denied in part.
A. History of the Yagalla Scheme
While most other children were dreaming of becoming firemen, doctors and baseball players, at the age of thirteen Yagalla knew he wanted to be a Wall Street investor. Yagalla made his first investment through an account opened with his mother when he was still a minor, but the stock he purchased lost money. (December, 2002, Deposition of Mark Yagalla ("Yagalla Dep. II"), at 133.) In the fall of 1994, when he was a high school student in Weatherly, Pennsylvania, Yagalla decided that he wanted to invest money for other people and believed he needed a "name" to trade under. (Id. at 135.)*fn2 Yagalla filed a fictitious name certificate for the name Apex Investments ("Apex") with the Commonwealth of Pennsylvania and began soliciting funds. (Id. at 215.)
Carl and Pat Dias, the owners of a business near Weatherly, had the misfortune of being Yagalla's first clients, and in 1995, they invested approximately $15,000 with Yagalla. (Yagalla Dep. I at 39-40.) Responding to a Canadian telemarketer's pitch, Yagalla used the money to purchase what he believed were rubies. (Id.; Yagalla Dep. II at 135.) But the purported rubies turned out to be nearly worthless and Yagalla lost virtually all of the Dias' money. (Yagalla Dep. I at 40.) Yagalla, however, told the Diases that they had made a profit and sent them a false statement. (Id.; Yagalla Dep. II at 139.) Despite the loss, after raising money from additional investors, Yagalla made a distribution to the Diases in excess of their investment. (Yagalla Dep. I at 41.)
In 1995, Yagalla also solicited a $15,000 investment from his cousin, Francis Dolinsky. (Id.) Yagalla deposited the money in his deposit account, and then used it to purchase baseball memorabilia and more purported rubies. (Id.) While the "rubies" turned out to be worth pennies on the dollar, and the baseball memorabilia was worthless, Yagalla told Dolinsky that he had made a profit. (Id. at 41-42.) As with the Diases, Yagalla ultimately made a distribution to Dolinsky funded by money he raised from other investors. (Id. at 42.)
Later in 1995 and in 1996, Yagalla raised more funds from other investors. (Id.) His next investment, $50,000 in Kentucky oil and gas leases, was a complete failure. (Id.) Yagalla then invested $23,000 in stock purchased through a broker at Kensington Wells; this investment turned a profit of approximately $9,000. (Id. at 42-43.) Shortly thereafter, however, Yagalla made a $150,000 stock investment and suffered a loss of $120,000. (Id.) During this time, Yagalla sent his investors statements falsely indicating that they had earned handsome profits and made distributions "[w]ith money from other investors." (Yagalla Dep. I at 26-27, 43, 223.)
Since "the perception of Apex was so different [from reality]," Yagalla formed a hedge fund to raise money from additional investors in 1998. (Yagalla Dep. II at 192; Yagalla Dep. I at 13.) With the assistance of counsel, Yagalla organized the limited partnership Ashbury Capital Partners, L.P. ("Ashbury"), with Ashbury Capital Management, L.L.C. ("ACM") as its general partner. (Yagalla Dep. I. at 13, 35-36.) Yagalla owned 99% of ACM, and the other 1% was first owned by his secretary, Kimberly Lawrence, and later by his "business partner," Robert Smith. (Id. at 13.) Yagalla explained that he initially intended to run Ashbury legitimately and to separate it from Apex. (Yagalla Dep. II at 192, 224.) But despite Yagalla's professed intention to run Ashbury as a legitimate hedge fund, Yagalla explained that because he needed money to perpetuate the fraud at Apex, he instead "used it for unlawful purposes." (Yagalla Dep. I at 36; Yagalla Dep. II at 224-25.) After he created Ashbury, most of the new investors Yagalla solicited became limited partners in Ashbury, though some invested in Apex. Yagalla, however, made no effort to segregate the investors' funds. (Yagalla Dep. I at 15.) Instead, he commingled the funds invested in Apex and Ashbury together and with his personal funds. (Id.)
At some point, Yagalla learned that the brokerage firm Kensington Wells was manipulating stocks. (Yagalla Dep. I at 44-45; Yagalla Dep. II at 157-58.) Yagalla decided to use the funds he had raised to make a profit on manipulated stock. (Yagalla Dep. I at 44-45.) After meeting the individuals he was told were manipulating stock, and until his arrest in October, 2000, other than some sporadic and minor day trading, Yagalla traded exclusively in stocks that he testified were manipulated. (Yagalla Dep. I at 44-54, 57-58.) The manipulated stocks included: United Energy Group, Franklin Opthalmic, Delsoft Consulting, Logpoint Technologies, Page International, Hydrogiene, Intelliworxx and TravelNow.com. (Id.) Yagalla explained that in each case he and his criminal partners would identify new private companies, merge them with public shells, and by controlling the float and paying off brokers, manipulate the price of the securities. (Id. at 47-48.) According to Yagalla, he broke even on the United Energy Group and Franklin Opthalmic manipulations; made $500,000 on the Delsoft Consulting manipulation; made $250,000 on the Logpoint Technologies manipulation; lost $750,000 on the Page International manipulation; made $450,000 on the Hydrogiene manipulation; and lost a "substantial amount" of the $500,000 to $750,000 he invested in the Interlliworxx manipulation. (Id. at 45-54.) On his most profitable manipulation, TravelNow.com ("TravelNow"), Yagalla made over $6 million between August, 1999, and January, 2000. (Id. at 55.) Yagalla, however, spent the money "[o]n airplane travel, . . . [his] former girlfriend Sandra Bently, jewelry, cars, houses, [and] gambling." (Id.)
Between 1998 and his arrest in October, 2000, Yagalla made direct investments in various business ventures, including a retirement home, a limousine service and other private companies. (Affidavit of Eugene R. Licker dated Sept. 29, 2004 ("Licker Aff. 9/29/2004") ¶ 8.) All of these investments lost money. (Id.) Throughout this time, however, Yagalla made distributions to investors "from the profits of th[e] manipulated [stock] deals and from raising money from additional investors or existing investors." (Yagalla Dep. I at 56.)
Yagalla subsidized his profligate lifestyle with his investors' money. He spent millions of dollars gambling at casinos, traveling on private jets, and on clothes, luxury cars and houses. (Id. at 65-103.) He leased, but never used, offices on New York's Park Avenue and in Boston. (Id. at 110-11.) He put a $1 million deposit on a $10 million Manhattan condominium. (Id. at 94-95.) Yagalla also spent untold sums of investors' money on high-priced prostitutes and women he met at strip clubs. (Id. at 65.) Yagalla testified that he placed some of the women he met through escort services and at strip clubs on, what he called, "the program." (Id.) Women on "the program" would receive monthly allowances (sometimes over $20,000) use of a credit card, and extravagant gifts. (Id. at 65-103.) Yagalla also gave some of the women expensive cars and a luxury home to live in. (Id.)
B. Criminal and Enforcement Actions and Appointment of the Receiver
On October 13, 2000, Yagalla confided in a co-worker that he was operating a Ponzi scheme. (Yagalla Dep. I. at 638.) The co-worker went to the authorities. (Id. at 639.) Shortly after the authorities were notified, the United State's Attorney's Office filed an information (the "Information") against Yagalla charging him with one count of securities fraud and one count of fraud under the Investment Advisers Act. (Information, Licker Aff. 9/29/04, Ex. 32.)
On October 17, 2000, the SEC brought an enforcement action against Yagalla, Ashbury and ACM. (SEC Action Complaint, Licker Aff. 4/29/2004, Ex. 35.) The SEC alleged, among other things, that Yagalla and the entities he controlled engaged in an ongoing fraud in which they misappropriated investors' funds and disseminated false accounting statements and newsletters. (Id.) On October 18, 2000, a day after the SEC filed its enforcement action, Yagalla was arrested. (Licker Aff. 4/3/2009 ¶ 13.)
On October 27, 2000, the Court granted the SEC's request for a preliminary injunction freezing Yagalla's, Ashbury's and ACM's assets. (Preliminary Injunction and Order Freezing Assets and Granting Other Relief, Licker Aff. 4/3/2009, Ex. 36.) Yagalla, and the entities he controlled, consented to the imposition of a preliminary injunction and have not responded to the SEC's complaint or denied the SEC's allegations. (Id.; Licker Aff. 4/25/2003 ¶ 3.) On November 9, 2000, the Court appointed Armstrong as the Receiver charged with identifying, marshalling and preserving the assets of Ashbury, ACM, Apex and Yagalla. (Restated and Amended Order Appointing Receiver and Granting Other Relief, Licker Aff. 9/29/2004, Ex. 37.)
On November 12, 2001, Yagalla pled guilty to count one of the Information charging fraud in connection with the purchase and sale of securities. (Yagalla Plea Hearing Tr., Licker Aff. 4/25/2003, Ex. N.) On February 14, 2002, Judge Stein sentenced Yagalla to 65 months' imprisonment and ordered Yagalla to make restitution of approximately $32,000,000 to the investors he defrauded. (Yagalla Sentencing Tr., Licker Aff. 9/25//2004, Ex. 34.)
From 1995 through his arrest in October, 2000, Yagalla solicited approximately $50 million from investors. (Yagalla Dep. II at 238.) By the time of his arrest Yagalla had, for all practical purposes, dissipated all of the investor's funds. (Licker Aff. 9/29/2004 ¶ 7.)
Set forth below is an overview of the facts and transactions relevant to the motions pending in the Braun, Romano and Collins Actions. The Receiver's primary claims are based on various transfers Yagalla made to the Defendants. He contends that the transfers were fraudulent and should therefore be voided.
In 1998, Yagalla visited a website operated by Michelle Braun ("Braun") called Nici's Girls. (Yagalla Dep. II. at 11.) According to Braun, Nici's Girls is an escort service that generates revenue by introducing "female companions to male clients." (Deposition of Michelle Braun ("Braun Dep.") at 10.) The female companions "escort [men] to functions or travel." (Id.)*fn3 While the Receiver requested that Braun produce printouts of the website as it existed in 1998, Braun explained that there are no records of the website's content prior to 2002. (Braun Dep. at 275.) As of 2003, however, the website contained the following statement:
An evening consultation is a minimum of five hours and rates begin at $8,000. There are no geographical limitations . . . Travel rates begin at $10,000 per day. All inclusive travel packages can be arranged through Luxury Concierge, rates begin at $12,000 per day. Hourly consultations begin at $2,500 . . . Supermodel package rates range from $15,000 to more than $50,000 for an evening of undiluted pleasure, where your ultimate dreams become the ultimate reality! (Printout of www.nicisgirls.com, as of April 23, 2003, Licker Aff. 4/25/2003, Ex. B.) Braun testified that the standard rate for dates arranged through Nici's Girls ranges from $8,000 to $15,000. (Braun Dep. at 16-17.)
After visiting the Nici's Girls website, Yagalla sent an email to Braun stating that he was "interested in seeing one of her girls." (Yagalla Dep. II at 13.) Yagalla believed that he would be hiring a prostitute from Braun, but when Yagalla called Braun shortly after sending the email, he claims the two discussed "fun," not sex. (Id. at 14-15.) In early 1999, Yagalla began employing Braun's services; and over the next seven to eight months, he hired at least seven different escorts from Braun, each time paying Braun a substantial fee. (Braun Dep. at 129-131; Braun Admissions ¶ 11.) Though there is some dispute as to the exact figure, Yagalla paid Braun approximately $126,000 for the time he spent with the seven women. (Braun Admissions ¶¶ 11-13, 16-17, 19-20; Braun Dep. at 146-47, 151-52, 171-72; Yagalla Dep. II at 16-18, 53-58, 60-69.) Yagalla claims that he had sex with most, but not all, of the women he paid Braun to meet. (Yagalla Dep. II at 58, 66, 71). Yagalla testified that during the course of his relationship with Braun, he told Braun that he had sex with two of the women she arranged for him to meet. (Yagalla Dep. II at 26-27.) But Yagalla never spoke with Braun about whether he would have sex with an escort prior to the date; according to Yagalla, the discussions regarding sex were "reporting after the fact." (Id. at 27.) Braun denies that she ever spoke with any customer of Nici's Girls about sexual services. (Braun Dep. at 22.)
Faith Jones Maxwell ("Maxwell"), a women who worked for Braun and who Braun introduced to Yagalla for $16,000, testified that she had sex with Yagalla on one of their dates. (Deposition of Faith Jones Maxwell ("Maxwell Dep.") at 35.) Maxwell stated that it was in her discretion whether to have sex with the men she met through Braun, (Maxwell Dep. at 35), but also that "sometimes" her "duties" included having sex. (Id.) Maxwell testified that she had sex with "most" of the "men that Michelle Braun arranged escorts" and that she spoke with Braun about having sex with at least some of the men. (Id. at 36.) Notwithstanding the obvious nature of the enterprise, Braun claims that the escorts who work for Nici's Girls do not provide sexual services. She insists that she does not "ask that of them. I don't tell them to." (Braun Dep. at 21.) Further, according to Braun, if a customer asks about sexual relations with an escort, Braun asserts that "[w]e don't provide sexual services." (Id. at 22-23.)
Braun testified that Yagalla agreed to pay the standard introduction fee for each escort he hired through Nici's Girls. There was another "service" that Braun offered to the very rich, lonely heart: if he met somebody he liked and wanted to see her again rather than to pay me which was standard practice in my business he would pay me a one time fee and that girl would no longer work through me or be available to my other clients, that she would be his girlfriend exclusively and I would no longer have any contact with her and he would pay me a lump sum fee. (Braun Dep. at 133-34.) According to Braun, the "lump sum fee" Yagalla agreed to pay for a "girlfriend" was $500,000. (Id. at 134.)
In August, 1999, Braun introduced Yagalla to Tishira Cousino ("Cousino"). (Yagalla Dep. II at 70-71.) According to Braun, this introduction lead to Cousino becoming Yagalla's "girlfriend,"*fn4 and because Braun stopped making arrangements -- at least temporarily -- for Cousino to see other customers, Braun became entitled to the $500,000 Yagalla had agreed to pay. (Braun Dep. at 138-44, 148.) Yagalla admitted during his deposition that Braun told him that she expected to be paid $250,000 to $500,000 if she found him a "girlfriend." (Yagalla Dep. at 80.) Yagalla, however, testified that he did not intend to pay Braun because he felt that "he didn't owe her anything." (Id. at 77, 79.) Nevertheless, according to Yagalla, when Braun "basically blackmailed" him for the money by harassing Cousino, he paid Braun a total of $250,000 through two transfers in August and September, 1999. (Braun Admissions ¶¶ 27-28.) While Braun maintains that the $250,000 was in consideration for her agreement not to schedule dates for Cousino with other men, and for finding Yagalla a "girlfriend," Yagalla sent Braun a letter (the "Gift Letter") on September 30, 1999, confirming that he had given Braun a gift of $250,000. (Braun Admissions ¶¶ 32-33.) And rather than treating the $250,000 as income, Braun claimed the $250,000 as a gift for federal income tax purposes. (Id. at 31.)
Yagalla testified that in addition to the $126,000 he paid for escorts, and the $250,000 he paid "for" Cousino, between March, 1999 and April, 2000, he sent Braun between $180,000 and $360,000 in cash, cashiers checks and bank checks through nine Federal Express shipments. (Yagalla Dep. II at 116, 121-23; Federal Express Documents, Affidavit of Eugene R. Licker dated May 23, 2003 ("Licker Aff. 5/23/2003"), Ex. R.) Yagalla also says that at some point in 1999, he transferred 10,000 shares of Intelliworxx stock to Braun. (Yagalla Dep. II. at 77.) And there is evidence that on June 10, 1999, Yagalla faxed his brokers with instructions to transfer 10,000 shares of Intelliworxx to Braun. (Fax Cover Sheet, Licker Aff. 5/23/03, Ex. P.) According to Yagalla, the stock was worth $100,000 at the time of the transfer, but he admits that he was manipulating the stock's price. (Yagalla Dep. I at 54.)
In the spring of 1999, Yagalla and Braun discussed going into the internet pornography business together. (Yagalla Dep. II at 91-92; Braun Dep. at 177-78.) The two reached an oral agreement to operate an adult membership website called "Nici's World," where subscribers would be able to view adult photos and videos for a $29.95 monthly fee. (Yagalla Dep. II at 93-95; Braun Dep. at 179-82.) Yagalla and Braun were to be equal partners in the venture, with Yagalla providing the capital and Braun providing the "sweat equity." (Yagalla Dep. II at 93-95; Braun Dep. at 184.) Braun was to "run the operation" and "provided the know how and the expertise on . . . [the internet pornography] industry." (Yagalla Dep. II. at 93-94.) According to Yagalla, he and Braun intended to use a domain name Braun owned, www.nicisworld.com, to run the website. (Id. at 94-95.) Yagalla testified that Braun told him that the venture would require about $250,000 and that he "agreed to put up the first [$]50,000 to get some content, to get it up and running and then take it from there." (Yagalla Dep. II at 94-95.) Braun, however, testified that Yagalla agreed to invest $150,000. (Braun Dep. at 183, 186.)
In order to run the pornographic website, in May, 1999, Yagalla had his accountant form a Delaware limited liability company, Nici Entertainment Group, LLC ("NEG"). (NEG Certificate of Formation, Affirmation of Howard I. Elman dated April 25, 2003 ("Elman Aff."), Ex. V.) Braun was named as the managing member, and she and Yagalla each held 50% interests in the company. (Braun Dep. at 184; Yagalla Dep. II at 95; NEG Certificate of Cancellation, Elman Aff., Ex. Z.) On May 5, 1999, NEG entered into an Exclusive Operating Agreement (the "Operating Agreement") with IEG, LLC ("IEG"), the company which was to provide programming, technical expertise and other services for the Nici's World website. (Operating Agreement, Elman Aff., Ex. W.) While the Operating Agreement, which both Yagalla and Braun signed, states that the nicisworld.com and nicisgirls.com websites are owned by Braun and would be used to drive traffic to the website formed by NEG, (id. § 2.2), Yagalla testified that part of his oral agreement with Braun was that he would "be a partner in owning" nicisworld.com. (Yagalla Dep. II. at 105.) Yagalla also testified that he asked Braun to transfer ownership of nicisworld.com to NEG, but that he didn't know whether Braun did so. (Id.)
On June 1, 1999, Yagalla sent a $50,000 check made out to NEG to Braun, which she deposited in the NEG bank account. (Check from Yagalla to NEG, Elman Aff., Ex. X; Braun Dep. at 203.) Braun claims that shortly after receiving the $50,000 check, she told Yagalla that $50,000 "was not going to be enough to fulfill our obligations to build a website with IEG." (Braun Dep. at 203.) Braun also testified that she spent approximately $42,300 of the $50,000 purchasing content for the Nici's World website. (Braun Dep. at 192-193.) According to Yagalla, when he asked Braun whether she had purchased content for the website, Braun stated that "she was working on it." (Yagalla Dep. II at 101.) Yagalla explained that after he paid Braun $250,000 through the transfers in August and September, 1999, he told his accountant that he "didn't want anything to do with her [Braun]," and that he would "get around to dealing with [his interest in NEG] later on." (Id. at 102.) Though it is not clear when, Yagalla says that he asked Braun for an accounting of the funds he invested in NEG, but Braun never complied with his request. (Id. at 105-06.)
Ultimately, NEG never did any business from which it received revenue, and Yagalla never received a return on his $50,000 investment. (Yagalla Dep. I at 61; Braun Dep. at 193.) Braun testified that while she thought that Yagalla's accountant had dissolved NEG in 1999, Yagalla called her in late 2000 and told her to dissolve NEG because he had been arrested and did not want the authorities to link them together. (Id. at 209.) And on March 29, 2001, Braun filed a certificate of cancellation for NEG. (NEG Certificate of Cancellation, Elman Aff., Ex. Z.) According to Braun, Yagalla told her to keep the approximately $8,000 left of the $50,000 investment he made in NEG. (Braun Dep. at 193.)
At some point in 2000 or 2001, Braun launched an adult content website using the domain name www.nicisworld.com. (Braun Dep. at 100-01.) The website's patrons are charged a $29.95 monthly subscription fee, which allows them to view the website's pornographic materials. (Id. at 101.)
In the spring of 2000, Yagalla's cohorts in his various stock manipulation schemes introduced him to Mario Romano ("Romano"), the owner of Romano Enterprises Limited, Ltd. ("Romano Enterprises"), a New Jersey corporation. (Yagalla Dep. I. at 856-66; Yagalla Dep. II at 266-73.) Yagalla was told that Romano is "a bull. That he knows how to buy stock. He is a very aggressive broker. And if you're looking someone to help in my deals, that Mario would be a great guy to have on my team." (Yagalla Dep. II at 266.) Yagalla testified that he and Romano reached an agreement whereby Yagalla would pay Romano Enterprises $180,000 in exchange for Romano finding buyers for $1 million worth of TravelNow stock. (Yagalla Dep. II at 270-72, 291, 313.) At the time of the agreement, Yagalla says he told Romano that he controlled the market for TravelNow stock and that he "was close to the company." (Yagalla Dep. II at 287-90, 312-13.) Yagalla also offered the following testimony:
Q: With regard to Mario Romano, is there anything, to the best of your knowledge, that would lead you to believe that Mr. Romano knew that you were engaged in the illegal manipulation of securities?
A: I had told Mr. Romano that what did he need from me to continue our share of the deal. And he said it's much easier to buy a stock that is going up than it is a stock that's going down. In other words, if he got a client to buy 1000 shares at eight, and the stock went to nine, he can get the client to double up and buy another 1000 shares. So it was a much easier sale for him.
Q: And why did that -- why does that make you believe that he was aware that you were engaged in manipulating securities?
A: Because I told him that since I controlled the market, I could take it from eight to nine for him.
Q: Meaning that you would take --
Q: When you referred to our deal, what were your referring to?
A: The deal whereby he would purchase a million dollars worth of Travelnow.
Q: And did you mean that he would personally purchase a million dollars?
A: Get his clients to purchase Travelnow. (Yagalla Dep. II at 312-13.)
On June 5, 2000, Romano Enterprises sent ACM an $180,000 invoice for "[p]rofessional [s]ervices rendered for the month of May 2000." (Romano Invoice to ACM, Licker Aff. 9/29/04, Ex. 28.) On June 6, 2000, Yagalla had his secretary send a check from ACM to Romano Enterprises for $180,000. (Yagalla Dep. II at 222-94; Check from ACM to Romano Enterprises, Licker Aff. 9/29/04, Ex. 29.) Yagalla testified that Romano told him to indicate on the check that it was for consulting fees and the check stub states that the $180,000 was for "CONSULTING FEES." (Check Stub, Declaration of Brian D. Graifman, Ex. A.; Yagalla Dep. II at 294.) Yagalla explained, however, that the $180,000 was for Romano's participation in Yagalla's scheme to manipulate the price of TravelNow stock. (Yagalla Dep. II at 270-72, 291, 313.) The check bounced and Yagalla wired Romano the $180,000. (Id. at 292-94.)
Romano invoked his Fifth Amendment privilege against self-incrimination in response to every substantive question put to him during his two depositions. (Deposition of Mario A. Romano dated February 6, 2003 ("Romano Dep. I") at 4-15; Deposition of Mario A. Romano dated March 28, 2003 ("Romano Dep. II") at 22-37.) This includes questions about his receiving the $180,000 and participating in the TravelNow stock manipulation. (Romano Dep. I. at 6-9; Romano Dep. II at 23-27.)
Yagalla testified that Romano also helped negotiate a deal between Yagalla and Joseph Quattrochi ("Quattrochi"). (Yagalla Dep. II at 269.) According to Yagalla, Romano explained that he could "only buy so much stock," and recommended that Yagalla "do the deal with" Quattrochi and Romano's brother so that Yagalla could "have a whole firm behind [him]." (Id.) The deal, as Yagalla described it, "was to be a deal for payment of purchasing stock. I was to loan them [Quattrochi and Romano's brother] one million dollars, in exchange, they were to do five million dollars worth of buying [TravelNow stock] at the end of a 60-day period." (Id.) While Yagalla never testified that he in fact loaned Quattrochi the $1 million, on July 31, 2000, Quattrochi executed a $1 million promissory note in favor of ACM. (Promissory Note, Licker Aff. 9/29/04, Ex. 30.) Records for a bank account in Quattrochi's name show a $1 million deposit on August 1, 2000, but the source of the funds is not set forth. (Quattrochi Bank Records, Licker Aff. 9/24/2004, Ex. 40.) Prior to the $1 million dollar deposit, Quattrochi's account had a negative balance, and the Receiver has submitted two checks drawn on Quattrochi's account, one for $555,000 and the other for $267,000, made payable to LPC Capital Corporation ("LPC Capital"), Quattrochi's company. (Checks from Quattrochi to LPC Capital, Licker Aff. 9/24/04, Ex. 40.) The checks were paid from Quattrochi's account on August 2, 2000, but the statement for LPC Capital's bank account submitted by the Receiver does not show a deposit in a corresponding amount. (Quattrochi and LPC Capital Bank Records, Licker Aff. 9/24/04, Ex. 40.) The Receiver has also submitted a barely legible copy of a check drawn on the LPC Capital account made out to Romano for $91,963.34. (Check from LPC Capital to Romano, Licker Aff. 9/24/04, Ex. 31.) And the bank records for LPC Capital's account show that the check was paid on August 8, 2004. (LPC Capital Bank Records, Licker Aff. 9/24/04, Ex. 40.)
Invoking his rights under the Fifth Amendment, during his deposition Quattrochi refused to answer any questions about his dealings with, and monies received from, Yagalla. (Deposition of Joseph Quattrochi dated January 1, 2003 at 4-24.) During his depositions, Romano was asked about his relationship with Quattrochi, and the $91,963.34 check from LPC Capital, but like Quattrochi, he asserted his Fifth Amendment rights and refused to answer. (Romano Dep. I at 14-15; Romano Dep. II at 31-36.)
Dr. Ronald Collins and his wife Lorraine Collins (together, "the Collinses") first invested with Yagalla in the spring of 1997. (Deposition of Dr. Ronald Collins ("R. Collins Dep.") at 121-22, 193; Yagalla Dep. I at 119-20.) Between 1997 and 1999, the Collinses, and other members of their family, opened sixteen separate accounts with Apex. (Yagalla Dep. I. at 120.) Each account had a distinct name and beneficial owner; six of the accounts were for the benefit of Ronald or Lorraine Collins. (Id. at 120-21; Collins Defendants' Counter Statement in Opposition to Plaintiff's Statement of Undisputed Material Facts ("Collins Rule 56.1 Response") ¶ 45.) Yagalla testified that the Collinses made the decision to open separate accounts. (Yagalla Dep. I at 121.) It is undisputed that the Collinses or entities they controlled established, and funded, the following six accounts:
ACCOUNT DATE INITIAL FUNDING
COLLINS, Lorraine 4/02/1997 $15,000.00
COLLINS, Ronald E. 4/2/1997 $50,000.00
COLLINS, Catherine (CM Trust) 9/25/1997 $50,000.00
COLLINS, Dental EBP 10/1/1997 $50,000.00
COLLINS, R. Limited Partnership 3/4/1998 ...