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In re Soundview Elite Ltd.

United States District Court, S.D. New York

July 3, 2014

In re SOUNDVIEW ELITE LTD., et al., Debtors.

Veerle Roovers, Esq., Stephen Pearson, Esq., Amy Edgy Ferber, Esq., JONES DAY, New York, New York, for Plaintiff.

Peter M. Levine, Esq., New York, New York, for Defendant.


SHIRA A. SCHEINDLIN, District Judge.

Defendant Soundview Composite Ltd. moves to withdraw the reference to the Bankruptcy Court of an adversary proceeding brought by Corinne Ball, as Chapter 11 Trustee of Soundview Elite Ltd., seeking turnover and an accounting pursuant to section 542 of Title 11 of the United States Code ("section 542"). For the reasons set forth below, defendant's motion to withdraw the reference is DENIED without prejudice.


A. The Parties

In September 2013, Soundview Elite Ltd. (the "debtor"), a mutual fund registered under the laws of the Cayman Islands, and five related entities (the "related debtors") filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code.[1] These cases are being jointly administered and have been assigned to Judge Robert E. Gerber, who is also presiding over a related chapter 11 case filed by Fletcher International Ltd. A significant link between these cases is Alphonse Fletcher, Jr., who is a director of the debtor, defendant, and non-debtor Soundview Capital Management Ltd., the investment manager of both the debtor and defendant.[2] Defendant, a non-debtor, is also a fund organized under the laws of the Cayman Islands.[3] The debtor is defendant's sole non-voting shareholder.[4]

B. The Adversary Proceeding

The Complaint purports to assert a straightforward turnover claim pursuant to section 542.[5] The Complaint alleges that the debtor purchased certain class H shares from defendant under a Private Placement Memorandum, [6] and later "forwarded a[] request for redemption of its [ ] holdings of shares... with a requested Redemption Date of August 31, 2011 (the "2011 Redemption Request")."[7] The Complaint states that there is no question as to the validity of the 2011 Redemption Request, which was confirmed by defendant in letters to the Cayman Islands Monetary Authority in 2012 and 2013 (the "Cayman Letters").[8] The Complaint further alleges that the two exceptions to honoring a redemption request under the Private Placement Memorandum - "gating"[9] and "suspen[sion]"[10] - do not apply to the 2011 Redemption Request, a fact which is also confirmed by the Cayman Letters.[11] Notwithstanding the 2011 Redemption Request, defendant has not made any payments to the debtor.[12]

The Complaint acknowledges that "it is difficult to assemble records showing the exact Net Asset Value of Debtor['s] holding of [the] H Shares at the time the 2011 Redemption Request was issued, " and defines this sum as the "Owed Amount."[13] However, the Complaint alleges that $3.875 million of the Owed Amount is liquidated, because in December 2013, prior to the appointment of the trustee, Bernard A. Katz, an expert appearing on behalf of the debtor, reported to the bankruptcy court that as of July 31, 2013, "the value of Soundview Elite's redemption receivables owed to it by Soundview Composite was approximately $3.875 million, with an additional $469, 000 owed as an investment receivable."[14] But "[p]laintiff expects that a more accurate valuation of Debtor Soundview Elite's holdings and investment in Soundview Composite will have to be conducted, with the assistance of expert analysis and testimony, at trial."[15]

In addition, plaintiff argues that there is no genuine dispute that the debt is matured and payable because on January 21, 2014, Warren Martin ("Martin"), appearing as counsel for the then debtor-in-possession at a status conference, acknowledged the debt, stating that:

I mean, without subjecting myself to a motion to be disqualified as representing parties that I shouldn't be representing and I don't represent, the managers of the Soundview debtors, who are my clients, are the identical managers of the Soundview Composite, which is the entity that owns these funds. And we all recognize the debt - it's in our papers, as I pointed out in my letter - that runs from Soundview Composite to Soundview Elite. I have the representation from those people who do stand as my clients, with respect to the Soundview debtors, that Soundview Composite will do nothing to move those funds absent the presentation of an acceptable consent order to the Court. I take that representation at face value. I accept it. I think the - particularly given the long road that we have all traveled on in these cases, that it would be an exercise that would make no sense to do something other - something else with these funds, other than protect them and to make sure that to the extent that Soundview Elite has the primary claim, that Soundview Elite's claim is satisfied.[16]

In addition, at a conference after the appointment of plaintiff as trustee, Martin stated that "there's a 3.8-million-dollar receivable from a related entity [ i.e., Soundview Composite], " which has "consent[ed]... to freeze that 3.8 ...

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