Chapter 11 trustee seeks sanctions against AFX Capital, STO Super Trading Online

The US proceedings against AFX Capital Markets Ltd., AFX Capital U.S. Corp. and STO Super Trading Online continue at the New York Eastern Bankruptcy Court, with the defendants now facing a new set of accusations following their failure to meet the conditions of a proposed stipulation of settlement.

On October 24, 2019, a hearing is set to be held before the Honorable Elizbeth S. Stong, United States Bankruptcy Judge, Eastern District of New York, on the motion of Esther DuVal, solely in her capacity as the Chapter 11 Trustee of the jointly administered estates of Avenica Inc. and Gallant Capital Markets Ltd., seeking the entry of an Order for a judgment against the AFX defendants.

The Chapter 11 Trustee is seeking sanctions and fees against AFX for engaging in bad faith and injunctive relief.

The document, seen by FinanceFeeds, states that the Trustee seeks the entry of an Order against the AFX defendants for (inter alia):

• judgment against the AFX Defendants in the amount of $830,000, which is the amount that the AFX Defendants agreed to pay the Trustee in a settlement agreement executed and presented to the Court for approval;
• awarding all legal fees and costs incurred by the estate with respect to the mediation, settlement and default under the Stipulation since the AFX Defendants, with the assistance of counsel, have engaged in bad faith and intentional delay and fraud on the Court and the Trustee;
• directing the AFX Defendants to pay all mediation fees and costs to Honorable Allan Gropper.

According to Esther Duval, the AFX defendants have engaged in a manipulative strategy of delay, obfuscation, and indeed, fabrication in failing to comply with the stipulation of settlement.

“One comes to the inescapable conclusion that the AFX Defendants engaged in bad faith and an intentional fraud on the Court. This was done with malice and intent and for the sole purpose of hiding the $1.4 million, which the AFX Defendants stole from Gallant on the day of the bankruptcy filing”, the Chapter 11 Trustee says.

The AFX defendants are accused of having stolen the money and having hidden behind foreign jurisdiction protections by being domiciled in Cyprus.

“This pattern of conduct has occurred from the Petition Date to the present and it must stop. Once and for all, the AFX Defendants and their principals, Mario Persichino, must be responsible for their improper actions and behavior”, the Chapter 11 Trustee says.

Let’s recall that, on May 15, 2019, the parties entered into Stipulation whereby, among other things, the AFX defendants agreed to settle the Trustee’s claims in the litigation for $830,000. A key requirement for the settlement was a deposit payment of $230,000, which was to be made by May 30, 2019. Persichino assured the Trustee, through her counsel, that the money was available and would be paid in accordance with the Stipulation. The multiple representations by counsel about the deposit assured the Trustee to proceed. The balance of the settlement sum was to be paid in three installments every thirty days. AFX has failed to pay the money.

Under the Complaint against AFX, throughout 2015 and 2016, Gallant deposited approximately $2.35 million (for its benefit) into a Gallant account maintained at AFX. Within the two-week period prior to Gallant’s commencement of its bankruptcy case, there was a balance of approximately $2.4 million in the Gallant account at AFX. Around that time, Gallant made multiple demands upon Defendants for the turnover of Gallant’s funds—all of which were disregarded.

Nevertheless, AFX withdrew the remaining balance, without authorization and without basis, on the Filing Date—in violation of the automatic stay. This case involves core issues whereby the Trustee is seeking a turnover of Gallant property and recovery of assets of the Gallant estate, and enforcement of the automatic stay.