Gallant Capital Markets Chapter 11 trustee aims to prove AFX’s US presence and contacts

Maria Nikolova

Esther DuVal, the Chapter 11 Trustee of Gallant Capital Markets, insists that AFX Capital Markets misused AFX Capital U.S., the purpose of which was to hinder, delay and defraud its creditors.

The adversary proceedings against AFX Capital Markets Ltd., STO Super Trading Online (STO) and AFX Capital U.S. Corp. continue at the New York Eastern Bankruptcy Court, with the defendants accused of wiping out the remaining balance of the account of Gallant Capital Markets, Ltd, on the date when the broker filed for Chapter 11 bankruptcy.

On Friday, September 7, 2018, Esther DuVal, the Chapter 11 Trustee of the jointly-administered estates of Avenica, Inc. and Gallant Capital Markets, Ltd, filed an amended complaint against the AFX entities. As indicated in previous documents submitted with the Court, the focus of the amendments in the complaint is the relationship between the Cypriot entity – AFX Capital Markets, and the New York-based entity – AFX Capital U.S.

In the amended complaint, the trustee notes that the AFX defendants expanded their operations in the United States and hired Thomas O’Reilly.

In or about 2015, AFX Capital Markets sought to further expand business operations in the United States. This expansion occurred through, among other things, the deliberate hiring of a senior vice president, updating its New York office location, updating its website and marketing its telephone number. To aid with the above further expansion into the United States, AFX Capital Markets opened a new entity called AFX Capital U.S. The latter is a New York corporation established in 2015 authorized to do business in the United States and, at all times relevant, had an office location in New York City.

AFX Capital U.S. is owned in part by Manuela Mazzacco (50%) and, upon information and belief, by AFX Capital Markets (50%), the trustee notes.

At all times relevant, Thomas O’Reilly was the former Senior Vice President of Sales for AFX Capital U.S. In the course of his work for AFX, O’Reilly typically referred to the company as AFX, but AFX also used “STO” and “SuperTradingOnline” as trade names.

Upon information and belief, AFX Capital US operations were entirely funded by AFX Capital Markets. AFX Capital US did not have any separate source of revenue to fund business operations including payroll, lease obligations and insurance needs. Instead, it was funded entirely from AFX Capital Markets overseas, the trustee argues.

Upon starting his work with AFX Defendants, O’Reilly was responsible for managing AFX’s relationship with Gallant since its Chief Executive Officer, Salvatore Buccellato, and personnel were also located in New York.

The trustee argues that AFX Capital U.S., AFX Capital Markets and STO are alter egos of each other.

On top of the claims made in the initial complaint, the amended complaint adds at least one new: a claim for declaratory judgement.

The claim says that, by virtue of the domination and control over AFX Capital U.S., AFX Capital Markets misused AFX Capital U.S., the purpose of which was to hinder, delay and defraud its creditors. The plaintiff is, hence, entitled to a judicial declaration that:

  • (a) AFX Capital U.S. is the alter ago of AFX Capital Markets; and
  • (b) that AFX Capital Markets dominated AFX Capital U.S. and used its property, whether real and personal, wherever situated, as if it were its own and asserted a legal and equitable interest in the AFX Capital U.S. Property.

Let’s recall that, 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, avoidance and recovery of assets of the Gallant estate, and enforcement of the automatic stay.

The case is captioned Duval v. AFX Capital Markets Ltd. et al (1:18-ap-01038).

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