Pre-trial conference in US case targeting AFX Capital Markets gets adjourned

Maria Nikolova

The pre-trial conference in the case brought by the Chapter 11 Trustee of Gallant Capital Markets is set to get adjourned to September 6, 2019.

The lawsuit against AFX Capital Markets Ltd., AFX Capital U.S. Corp. and STO Super Trading Online continues at the New York Eastern Bankruptcy Court. The action has been brought by Esther DuVal, the Chapter 11 Trustee of the jointly administered estates of Avenica, Inc. and Gallant Capital Markets, Ltd.

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.

Earlier today, the Counsel for the Trustee filed a letter with the Court. The document, seen by FinanceFeeds, confirms the adjournment of the pre-trial conference in the proceeding and the motion to approve the Trustee’s Stipulation with the defendants from Thursday, August 1, 2019 at 11:00 a.m. to Friday, September 6, 2019 at 10:30 a.m.

In May 2019, the Trustee and the AFX Defendants entered into a Stipulation of Settlement resolving the Adversary Proceeding. Under the terms of the settlement, the defendants agreed to pay the sum of $830,000 in full and final satisfaction of any and all claims the Trustee and the Debtors’ estates have or may have.

In accordance with paragraph 1(a) of the Stipulation, the Deposit in the amount of $230,000 was due to be paid into the attorney escrow account of the AFX Defendants by May 30, 2019, which, at the request of the AFX Defendants, was later extended to June 20, 2019 by the Trustee.

When the deposit was not paid by the extended date, on June 25, 2019, the Trustee sent another demand to the AFX Defendants and asserted that the AFX Defendants were in default of the Stipulation. Despite the default, the Trustee allowed the AFX Defendants until June 26, 2019 at 4:00 pm to provide to Deposit to their attorney’s escrow account. In fact, days before that, counsel for the AFX Defendants provided a written email representing that the “We were told by the client the money was coming and we are waiting for confirmation.”

In the latest status update, the Trustee said the AFX Defendants have been in default under the Stipulation and remain in default.

“Despite continued assurances in writing and even on the record at the most recent hearing on July 2, 2019, the AFX Defendants have failed to pay the Deposit under the Stipulation”, the Trustee noted.

In response, AFX said the allegations of the Trustee’s Counsel were insulting. However, on the next day, the Cypriot regulator suspended the license of AFX Capital Markets. Several days later, the website of AFX went black.

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