US lawsuit against AFX Capital set for further protraction

Maria Nikolova

The hearing on the motion for sanctions against AFX has been postponed again.

The adversary proceedings brought by the Chapter 11 Trustee of Avenica, Inc. and Gallant Capital Markets, Ltd. against AFX Capital Markets LTD., AFX Capital U.S. Corp., and STO Super Trading Online are delayed again, as indicated by the latest filings with the New York Eastern Bankruptcy Court seen by FinanceFeeds.

The hearing on the motion for sanctions against AFX has been rescheduled for April 14, 2020. This marks yet another adjournment in the lawsuit brought by Esther DuVal, the Chapter 11 Trustee of the jointly administered estates of Avenica and Gallant Capital Markets, Ltd. There is no information about the reasons for the delay.

Let’s recall that, according to the Complaint against AFX, throughout 2015 and 2016, Gallant Capital Markets 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.

Documents submitted in September 2019 show the Chapter 11 Trustee is seeking sanctions and fees against AFX for engaging in bad faith and injunctive relief. 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.

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