---
type: court_doc
id: "court_ctb_2273_1"
court: "CTB"
case_no: "22-50073"
doc_number: 2273
doc_type: "MOTION"
filed_date: "2023-10-22"
lang: "zh"
url: "https://mubeitech.com/court/court_ctb_2273_1"
json_url: "https://mubeitech.com/api/court/court_ctb_2273_1"
---
# Exhibit 1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
> 原始法庭文件为英文；下方为英文全文，顶部为中文摘要。
#### **Exhibit 1**
#### UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA,
v.
HO WAN KWOK, a/k/a "Miles Guo," a/k/a "Miles Kwok," a/k/a "Guo Wengui," a/k/a "Brother Seven," a/k/a "The Principal,"
KIN MING JE, a/k/a "William Je," and
YANPING WANG, a/k/a "Yvette,"
Defendants.
**S1 23 Cr. 118 (AT)**
#### **THE GOVERNMENT'S MEMORANDUM OF LAW IN OPPOSITION TO MOTION TO COMPEL**
DAMIAN WILLIAMS United States Attorney for the Southern District of New York One St. Andrew's Plaza New York, New York 10007
Micah F. Fergenson Ryan B. Finkel Juliana N. Murray Assistant United States Attorneys *Of Counsel*
| BACKGROUND 1 | |
|-----------------------------------------------------------------------------|--|
| I. The Mahwah Mansion 1 | |
| II. Kwok's Bankruptcy Stay Motion 5 | |
| III. The Instant Motion 7 | |
| ARGUMENT 7 | |
| I. Kwok Has Failed to Establish a Valid Basis For His Discovery Requests 7 | |
| A. Applicable Law 7 | |
| B. Discussion 13 | |
| 1. Kwok's Request for SEC Communications Should Be Denied 14 | |
| 2. Kwok's Request for Trustee Communications Should Be Denied 19 | |
| CONCLUSION 25 | |
#### **PRELIMINARY STATEMENT**
Kwok's motion seeking beyond-Rule-16 discovery—the Government's communications with the Securities and Exchange Commission ("SEC") and with Kwok's bankruptcy trustee ("Trustee")—is wholly unfounded. At best, Kwok's extraordinary discovery request is based on facts that are decidedly ordinary. The Government and the SEC conducted parallel investigations, and Kwok identifies nothing unusual about the Government's interactions with the SEC whatsoever, much less the substantial showing of bad faith required to receive the sort of discovery that Kwok seeks. So too with the Trustee. It is common—indeed, it is a best practice—for criminal prosecutors to coordinate and reach agreements with trustees where, as here, there are forfeitable assets that may also fall within the trustee's estate. Kwok's claims of spoliation with respect to the property located at 675 Ramapo Valley Road, Mahwah, New Jersey 07430 (the "Mahwah Mansion") are borderline frivolous. That is particularly true in view of the undisputed fact that Kwok's co-conspirators and associates, following Kwok's arrest and the unsealing of the Indictment's allegations regarding the Mahwah Mansion, tampered with the condition of the Mahwah Mansion to bolster Kwok's defense in this case—that is, they have fabricated evidence to obstruct justice in this very case. Kwok's other claims, regarding invasion of privilege (which has not happened, and simply would not happen) and a purported joint prosecution with the Trustee (for which there is no basis at all), are equally unfounded. There is simply nothing in the record indicative of any bad faith on the part of the Government. Kwok's motion should be denied without a hearing.
#### **BACKGROUND**
#### **I. The Mahwah Mansion**
The Mahwah Mansion was purchased, renovated, and furnished with proceeds of the fraud
charged in the Indictment—specifically, G|CLUBS membership funds that were funneled through bank accounts in other entities' names. (Dkt. 19 ("Indictment") ¶¶ 4, 16(b)-(c)). As alleged in the Indictment, Kwok and his conspirators used G|CLUBS to defraud victims by falsely promising them purportedly highly valuable stock in GTV (*i.e.*, using G|CLUBS as a vehicle to continue the unlawful private placement offering after the SEC intervened to stop the GTV offering) and falsely promising them "a full spectrum of services" once they became G|CLUBS "members." (*Id*. ¶ 15). The Mahwah Mansion and furnishings that were purchased with misappropriated G|CLUBS membership funds were identified as specific property subject to forfeiture in the Indictment. (*Id.* ¶ 55(v)).
As previously described (*see* Dkt. 148, at 2-4), on March 15, 2023, agents of the Federal Bureau of Investigation ("FBI") executed a search warrant at the Mahwah Mansion. Multiple FBI photographers meticulously documented the premises and its contents, taking over 2,000 photographs during the search, which photographs have been produced to the defendants in discovery. The FBI also conducted aerial surveillance of the Mahwah Mansion prior to the search, which photographs and videos have been produced to the defendants. The Government also seized voluminous physical evidence from the Mahwah Mansion, including, for example, electronic devices, Kwok's personal items (*e.g.*, custom-designed Brioni suits embroidered with Kwok's name), and certain of the extravagant furnishings purchased with misappropriated G|CLUBS membership funds.
Subsequent to the Government's public filing of the Indictment, which associated Kwok with the Mahwah Mansion, the defendants' associates and co-conspirators began to occupy the Mahwah Mansion. For example, on April 9, 2023, dozens of the defendants' associates went to the Mahwah Mansion to protest the defendants' detention, and on May 5, 2023, the defendants'
associates hosted another large gathering at the Mahwah Mansion. These activities threatened to diminish the value of the Mahwah Mansion.
On or about June 28, 2023, the Trustee advised the Government that he had concluded that the Mahwah Mansion is property of Kwok's chapter 11 estate; accordingly, the Trustee and the Government conferred regarding the possible disposition of the Mahwah Mansion. Unlike chattel or funds in a bank account, the Government generally cannot seize real property with a forfeiturebased seizure warrant prior to a final order of forfeiture—which order would come only after a criminal conviction, at the conclusion of the subsequent ancillary forfeiture proceeding. Given that the defendants' associates were actively using the Mahwah Mansion (itself purchased with fraud proceeds), and that their occupation of the Mahwah Mansion threatened to dissipate the property's substantial value to both the Bankruptcy creditors and the victims of Kwok's fraud in the Government's criminal case, on July 6, 2023, the Government provided the Trustee with 12 photographs taken during the Government's March 15, 2023 search, illustrating that Kwok used the Mahwah Mansion as a *personal* residence.
On July 13, 2023, the Government and the Trustee executed a stipulation that would permit the Trustee to secure the value of the Mahwah Mansion during the pendency of the criminal case. *In re Ho Wan Kwok, et al.*, Case No. 23-05017 (D. Conn. Bankr.) (JAM), Dkt. 24, Ex. 1; *see also id.* at Dkt. 53, 56. The stipulation further provided that the net proceeds from any sale of the Mahwah Mansion (less certain fees and administrative costs and a deemed expense of \$1 million to be used to satisfy claims of allowed Bankruptcy creditors who are also victims in the criminal case) would serve as substitute *res* for the Mahwah Mansion.
On July 11, 2023, the Trustee filed an *ex parte* motion for a temporary restraining order and preliminary injunction regarding Kwok's associates' access to the Mahwah Mansion. *In re*
*Ho Wan Kwok, et al.*, Case No. 23-05017, Dkt. 4 (D. Conn. Bankr.) (JAM). On August 1, 2023, Judge Manning granted the order in part. *See id.*, Dkt. 17. On August 31, 2023, following additional briefing and hearings, Judge Manning granted the Trustee's motion and issued a modified preliminary injunction to restrict access to the Mahwah Mansion to: (a) the Security Services (as defined in the Preliminary Injunction); (b) the Trustee and his representatives and/or professionals; (c) the United States Department of Justice and its employees and representatives; (d) the FBI and its employees and representatives; (e) other federal, New Jersey state, or Mahwah municipal law enforcement agencies and their employees and representatives; (f) any other persons expressly authorized by the Trustee in writing (which can include email); and (g) any other person expressly authorized by the United States District Court for the Southern District for New York or the bankruptcy court. *In re Ho Wan Kwok, et al.*, Case. No. 23-05017, Dkt. 58 (D. Conn. Bankr.) (JAM).
On September 1, 2023, the Trustee conducted a walkthrough of the Mahwah Mansion, which was video-recorded and photographed. Following an August 30, 2023 motion filed by Kwok that sought to "preserv[e] the status quo" of the Mahwah Mansion (Kwok Br. 3), on September 12, 2023, the Trustee provided the Government with six photographs from the Trustee's September 1, 2023 walkthrough. Significantly, those photographs illustrate that the defendants' associates and co-conspirators have been tampering with the interior of the property in an apparent effort to obstruct this criminal case by modifying the Mahwah Mansion to suit a defense narrative. Specifically, the defendants' co-conspirators posted placards at room entrances that appear to suggest that the rooms of Kwok's Mahwah Mansion are, in fact, NFSC and/or G|CLUBS offices or rooms, as shown in the photographs below:
These after-the-fact placards were not present as of March 15, 2023, when the Government searched the Mahwah Mansion pursuant to a search warrant issued in this case.
#### **II. Kwok's Bankruptcy Stay Motion**
Prior to the filing of the instant motion, on August 30, 2023, Kwok filed a motion in this Court to stay the bankruptcy proceedings that Kwok voluntarily initiated in February 2022 (the "Bankruptcy Stay Motion"). (Dkt. 131 ("Bankr. Stay Mot.)). In the event the Court denied his request for a stay, the Bankruptcy Stay Motion also sought alternative relief. (Bankr. Stay Mot. 1, 28-30). The alternative relief sought by Kwok included requests related to the Mahwah Mansion. In particular, Kwok requested that his "defense team" have continued, unchaperoned access to the Mahwah Mansion and sought to prevent the sale of the property in bankruptcy proceedings. The alternative relief also included a request for an order that the Government not solicit or receive Kwok's privileged information or records from the Trustee.
On September 21, 2023, the Government filed its response. (Dkt. 148). Whereas the Trustee filed a brief opposing a stay of the bankruptcy, the Government took no position. (Dkt. 148, at 1). With respect to Kwok's alternative requests, the Government explained first that
"Kwok's request regarding potentially privileged materials should be denied as moot," because the Government "has neither solicited nor received Kwok's potentially privileged information or records from the Trustee." (Dkt. 148, at 2). Further, the Government advised that it did not "presently intend to do so, and will not do so absent agreement from Kwok's counsel (or the appropriate holder) or an order of this Court finding that such materials are not privileged and/or subject to the crime-fraud exception." (Dkt. 148, at 2). Regarding Kwok's request for unfettered access to the Mahwah Mansion, the Government set forth the background also described above relating to the condition of the Mahwah Mansion. (Dkt. 148, at 2-4). In light of that, the Government explained, it was "*Kwok* and his associates who appear to have been doing what Kwok claims to seek to prevent, by materially altering the Mahwah Mansion to serve a defense narrative." (Dkt. 148, at 4). Moreover, Kwok already had "voluminous documentation—comprising *thousands* of photographs, as well as videos—of the Mahwah Mansion." (Dkt. 148 at 5). In that regard, "Kwok's attempt to analogize the circumstances" of the Mahwah Mansion "to thwarting access to a material witness is baseless." (Dkt. 148 at 5). Nevertheless, the Government stated it would not object to Kwok's or Wang's criminal defense attorneys conducting a site visit to the Mahwah Mansion. (Dkt. 148 at 5).
On October 5, 2023, Kwok filed a reply to the Government's response. (Dkt. 152). Kwok made several arguments in reply, none of which have merit. Most significant, however, was what Kwok did *not* argue about or dispute. Specifically, Kwok did *not* dispute that, since his arrest and the unsealing of the Indictment's allegations regarding the misappropriation of G|CLUBS funds to purchase, renovate, and furnish the Mahwah Mansion, Kwok's followers had materially altered the Mahwah Mansion by creating and posting placards suggesting that the Mahwah Mansion was a G|CLUBS facility. That is, nowhere did Kwok deny that the evidence he was purportedly
seeking to maintain had, in reality, already been tampered with by his co-conspirators to suit a defense narrative.
#### **III. The Instant Motion**
Before the Government filed its opposition to Kwok's Bankruptcy Stay Motion, Kwok filed the instant motion seeking discovery—beyond the discovery provided for in criminal law or procedure—of communications between the Government and the Trustee, and between the Government and the SEC. (Dkt. 143 ("Br.")).
#### **ARGUMENT**
#### **I. Kwok Has Failed to Establish a Valid Basis For His Discovery Requests**
#### **A. Applicable Law**
#### **1.** *Brady* **and Joint Prosecutions**
"Under *Brady* and its progeny, the government has an affirmative duty to disclose favorable evidence known to it." *United States v. Payne*, 63 F.3d 1200, 1208 (2d Cir. 1995). This duty extends to the prosecution team. In other words, a prosecutor "is presumed . . . to have knowledge of all information gathered in connection with his office's investigation of the case and indeed 'has a duty to learn of any favorable evidence known to others acting on the government's behalf in the case, including the police.'" *United States v. Avellino*, 136 F.3d 249, 255 (2d Cir. 1998) (quoting *Kyles v. Whitley*, 514 U.S. 419, 437 (1995)); *accord United States v. Hunter*, 32 F.4th 22, 36 (2d Cir. 2022).
The Government's duty to obtain and produce Rule 16 and *Brady* material is limited to material in the possession of the prosecution team. *Hunter*, 32 F.4th at 36 ("We have long rejected the notion that 'knowledge of any part of the government is equivalent to knowledge on the part of th[e] prosecutor.'" (quoting *United States v. Quinn*, 445 F.2d 940, 944 (2d Cir. 1971))); *Avellino*,
136 F.3d. at 255 ("[T]he imposition of an unlimited duty on a prosecutor to inquire of other offices not working with the prosecutor's office would inappropriately require us to adopt a monolithic view of government that would condemn the prosecution of criminal cases to a state of paralysis."); *United States v. Bonventre*, No. 10 Cr. 228 (LTS), 2014 WL 3673550, at \*22 (S.D.N.Y. July 24, 2014), *aff'd in part*, 646 F. App'x 73 (2d Cir. 2016) (*Brady* is "not a discovery doctrine that c[an] be used to compel the Government to gather information for the defense.").
Although "[t]he Second Circuit has not yet articulated a test to decide when knowledge of *Brady* material may be imputed from one agency to another," *United States v. Velissaris*, No. 22 Cr. 105 (DLC), 2022 WL 2392360, at \*2 (S.D.N.Y. July 3, 2022), the Circuit has provided guidance, and courts within this District have articulated a number of factors for determining the scope of the prosecution team and whether a joint investigation occurred. The Circuit counsels that "the relevant inquiry [for determining whether a person is a member of the prosecution team] is what the person did, not who the person is." *United States v. Stewart*, 433 F.3d 273, 298 (2d Cir. 2006). "Individuals who perform investigative duties or make strategic decisions about the prosecution of the case are considered members of the prosecution team, as are police officers and federal agents who submit to the direction of the prosecutor and participate in the investigation." *United States v. Barcelo*, 628 F. App'x 36, 38 (2d Cir. 2015) (summary order). "At bottom," the determination of who constitutes the prosecution team, "involves a question of agency law: should a prosecutor be held responsible for someone else's actions?" *United States v. Meregildo*, 920 F. Supp. 2d 434, 443-44 (S.D.N.Y. 2013), *aff'd sub nom. United States v. Pierce*, 785 F.3d 832 (2d Cir. 2015). "Generally, a principal is responsible for the knowledge of an agent when that agent has a duty to give the principal information or when the agent acts on his knowledge regarding a matter that is within his power to bind the principal. An agent's duty to disclose is thus linked to
his power to bind the principal." *Id.* In the context of a criminal investigation and prosecution, the individuals empowered to bind the prosecutor consist generally of those who "actively investigate[] the case, act[] under the direction of the prosecutor, or aid[] the prosecution in crafting trial strategy." *Meregildo*, 920 F. Supp. 2d at 442; *see also United States v. Barcelo*, No. 13 Cr. 38 (RJS), 2014 WL 4058066, at \*9 (S.D.N.Y. Aug. 15, 2014) ("To determine whether someone is a member of the prosecution team—in other words, whether the prosecution can be deemed to have constructive knowledge of information held by that individual—the Court considers the totality of the circumstances, including whether the individual actively investigates the case, acts under the direction of the prosecutor, or aids the prosecution in crafting trial strategy."), *aff'd*, 628 F. App'x 36 (2d Cir. 2015).
Applying these principles, the Second Circuit and courts in this District have consistently rejected efforts to impose discovery obligations on the Government related to information held by entities that do not act as agents of the prosecution, including cooperating witnesses, expert witnesses for the Government, other government agencies, and even separate components of the Justice Department. *See, e.g.*, *Barcelo*, 628 F. App'x at 38 (holding that a cooperating witness was not a part of the prosecution team where he "played no role in the investigation or in determining investigation or trial strategy," and "did no more than provide information to the government and testify at trial"); *Stewart*, 433 F.3d at 299 (holding that a civilian employee of the Secret Service who testified as an expert witness for the Government was not a member of the "prosecution team" for Giglio purposes); *United States v. Hutcher*, 622 F.2d 1083, 1088 (2d Cir. 1980) (holding that for Giglio and Jencks Act purposes, the Government had no discovery obligation related to information filed in an unrelated bankruptcy proceeding); *United States v. Locascio*, 6 F.3d 924, 949 (2d Cir. 1993) (holding that the reports made by FBI agents in the course
of investigations unrelated to the defendants' prosecutions were not possessed by the prosecution team); *Pina v. Henderson*, 752 F.2d 47, 49 (2d Cir. 1985) (holding that a prosecutor's constructive knowledge did not extend to a parole officer who "did not work in conjunction with either the police or the prosecutor"); *United States v. Quinn*, 445 F.2d 940, 944 (2d Cir. 1971) (rejecting "completely untenable position that 'knowledge of any part of the government is equivalent to knowledge on the part of this prosecutor'"); *United States v. Morgan*, 302 F.R.D. 300, 304 (S.D.N.Y. 2014) ("[T]he prosecution team does not include federal agents, prosecutors, or parole officers who are not involved in the investigation."); *Meregildo*, 920 F. Supp. 2d at 444 ("[I]n most cases, cooperating witnesses should not be considered part of the prosecution team."); *United States v. Merlino*, 349 F.3d 144, 154-55 (3d Cir. 2003) (holding that Government not required to obtain prison calls of cooperating witness to satisfy disclosure obligations).
Courts in this Circuit have held that the prosecutor's duty extends to reviewing the materials in the possession, custody or control of another agency for *Brady* evidence only where the Government conducts a "joint investigation" with another state or federal agency. *United States v. Rigas*, 583 F.3d 108 (2d Cir. 2009) (affirming district court opinion holding that there was "no joint investigation with the SEC" and therefore the Government did not need to produce documents in the custody of the SEC); *SEC v. Stanard,* No. 06 Civ. 7736 (GEL), 2007 WL 1834709, at \*3 (S.D.N.Y. June 26, 2007) (finding it was "clear that the investigations, while they may have overlapped, were not conducted jointly" in denying the defendant's request for the Court to require the SEC to access and review FBI interview notes that were not in the SEC's possession, custody, or control); *United States v. Finnerty*, 411 F. Supp. 2d 428, 433 (S.D.N.Y. 2006) (holding that the Government and the NYSE, even if it were a state actor, did not conduct a joint investigation related to the policies of the NYSE); *Ferreira v. United States*, 350 F. Supp. 2d 550,
556-57 (S.D.N.Y. 2004) (holding that cooperation between the Government and NYPD was "not sufficient to make the Government and the state prosecutor members of the same prosecutorial team"); *United States v. Upton*, 856 F. Supp. 727, 749-50 (E.D.N.Y. 1994) (holding that the Government and FAA did not conduct a "joint investigation" even though the FAA provided two inspectors to assist the criminal investigation); *United States v. Guerrerio*, 670 F. Supp. 1215, 1219 (S.D.N.Y. 1987) (denying Rule 16 discovery request for grand jury minutes at the Bronx District Attorney's Office where there was no joint investigation with the Government and the Government had no control over the material).
To determine whether the criminal prosecution conducted a "joint investigation" with another agency, such that the other agency should be considered part of the prosecution team, courts consider a number of factors, including whether the other agency "(1) participated in the prosecution's witness interviews, (2) was involved in presenting the case to the grand jury, (3) reviewed documents gathered by or shared documents with the prosecution, (4) played a role in the development of prosecutorial strategy, or (5) accompanied the prosecution to court proceedings." *United States v. Middendorf*, 18 Cr. 36 (JPO), 2018 WL 3956494, at \*4 (S.D.N.Y. Aug. 17, 2018) (citing *United States v. Blaszczak*, 308 F.Supp.3d 736, 741-42 (S.D.N.Y. 2018)); *see also United States v. Collins*, 409 F. Supp. 3d 228, 241 (S.D.N.Y. 2019) (finding no joint investigation where SEC and Government participated in some joint interviews); *United States v. Chow*, No. 17 Cr. 667 (GHW), ECF No. 69, at 87 (S.D.N.Y. Feb. 9, 2018) (finding no joint investigation where agencies shared information but made their own determinations regarding what documents to obtain and what facts to ask a witness); *Stanard*, 2007 WL 1834709, at \*3 (FBI and SEC did not conduct a joint investigation despite participating in joint interviews during which only FBI took notes); *United States v. Rigas*, No. 02 Cr. 1236 (LBS), 2008 WL 144824, at \*2 (S.D.N.Y. Jan. 15, 2008) (finding that parallel civil and criminal investigations were not "joint").
#### **2. Discovery Beyond** *Brady* **or Rule 16**
It has never been the case that any and all records or information in the Government's possession fall within the scope of its discovery obligations. Rather, "[t]he prosecution has a constitutional duty to disclose evidence favorable to an accused when such evidence is material to guilt or punishment." *United States v. Coppa*, 267 F.3d 132, 135 (2d Cir. 2001) (citing *Brady v. Maryland*, 373 U.S. 83, 87 (1963)). Similarly, Federal Rule of Criminal Procedure Rule 16(a)(1)(E)(i) requires the Government to produce, upon defense request, items "within the government's possession, custody, or control" that are "material to preparing the defense." An item is "material to preparing the defense" under Rule 16 "if it could be used to counter the Government's case or bolster a defense." *United States v. Stevens*, 985 F.2d 1175, 1180–81 (2d Cir. 1993). In other words, as the Supreme Court has said, Rule 16(a)(1)(E)(i), authorizes production only of items that tend to "refute the Government's arguments that the defendant committed the crime charged." *United States v. Armstrong*, 517 U.S. 456, 462 (1996); *see also United States v. Rigas*, 258 F. Supp. 2d 299, 306 (S.D.N.Y. 2003) ("Rule 16(a)(1)(E)(i) entitles a defendant to documents or other items that are material to preparing arguments in response to the prosecution's case-in-chief."); *United States v. Allen*, No. 14 Cr. 272 (JSR), 2016 WL 315928, at \*3 (S.D.N.Y. Jan. 8, 2016) (relying in part on *Armstrong* to deny a request for discovery to support a *Kastigar* claim).
Moreover, the mere fact that an item may be "useful" to the defense does not render it "material" under Rule 16. *Rigas*, 258 F. Supp. 2d at 307; *see also United States v. Parnas*, No. 19-CR-725 (JPO), 2021 WL 2981567, at \*8 (S.D.N.Y. July 14, 2021) (denying motion under Rule 16(a)(1)(E)(i) for documents that "may contain evidence relevant to [defendant's] selective
prosecution claim" because defendant had "failed to make the requisite showing for such a claim"). "There must be some indication that the pretrial disclosure of the disputed evidence would . . . enable[ ] the defendant significantly to alter the quantum of proof in his favor." *United States v. Maniktala*, 934 F.2d 25, 28 (2d Cir. 1991) (citation omitted). The defendant must make a prima facie showing of materiality, *United States v. Finnerty*, 411 F.Supp.2d 428, 431 (S.D.N.Y. 2006), and must "offer more than the conclusory allegation that the requested evidence is material," *Rigas*, 258 F. Supp. 2d at 307.
While Rule 16 does not authorize the production of materials that the defense seeks to "challenge the prosecution's conduct of the case," *Armstrong*, 517 U.S. at 462, courts sometimes authorize discovery on those issues. Before doing so, however, they require that the defendant make a substantial threshold showing that improper Government conduct in fact occurred. *See Wade v. United States*, 504 U.S. 181, 186 (1992) (defendant claiming that Government's refusal to file a 5K motion was based on an unconstitutional motive must make a "substantial threshold showing" before he can obtain discovery); *United States v. Berrios*, 501 F.2d 1207, 1211 (2d Cir. 1974) (defendant seeking discovery on a claim of selective prosecution must provide "some evidence tending to show the existence of the essential elements of the defense" before discovery authorized); *United States v. Sanders*, 211 F.3d 711, 717 (2d Cir. 2000) (same in the context of a claim of vindictive prosecution).
#### **B. Discussion**
Kwok's requests are baseless. To obtain discovery beyond what the criminal law provides, Kwok must make a substantial showing of bad faith. Kwok has merely identified commonplace, routine interactions between the Government and a regulatory agency with a parallel investigation or a trustee administering assets that are also criminally forfeitable, and has come nowhere close to satisfying his burden. Kwok's motion should be denied without a hearing.
#### **1. Kwok's Request for SEC Communications Should Be Denied**
Kwok's request for the Government's communications with the SEC is unfounded, and his
motion to compel such discovery should be denied.
#### **a. The Government and the SEC Conducted Parallel Investigations**
As an initial matter, while Kwok has not formally moved for a finding that the Government and the SEC conducted a joint investigation, that contention undergirds his discovery request and is equally meritless. The SEC is not part of the Government's prosecution team. Although the Government and the SEC at times conducted joint interviews for the convenience of witnesses, most aspects of the Government's investigation were conducted without any involvement of the SEC:
- the SEC played no role in the Government's charging decisions or the development of the Government's prosecutorial strategy;
- likewise, the Government played no role in the SEC's charging decisions or the development of the SEC's litigation strategy;
- no one from the SEC was designated a special Assistant U.S. Attorney to work on the criminal investigation;
- at jointly conducted interviews, the SEC did not take notes during the interviews and does not have any notes from joint interviews;
- at jointly conducted interviews, witnesses were told that the agencies' investigations were separate, that the interviews were conducted together only as a matter of convenience, and that, if there were to be a proffer agreement, the witness would enter into a separate agreement with each agency;
- the SEC was not involved in presenting this case to the grand jury and did not receive grand jury transcripts;
- the SEC did not participate in the execution of search warrants or the responsiveness reviews of materials obtained pursuant to search warrants;
- the SEC did not obtain materials produced to the Government pursuant to grand jury subpoenas; and
- the SEC has not accompanied the Government to Court.
(*See* Ex. A ("Murray Decl.") ¶ 2). *See Collins*, 409 F. Supp. 3d at 242 (citing many of these factors in support of a finding that the SEC and the Government did not conduct a joint investigation); *United States v. Alexandre*, No. 22 CR. 326 (JPC), 2023 WL 416405, at \*6-8 (S.D.N.Y. Jan. 26, 2023) (same). These factors, considered together, weigh heavily in support of a finding that the Government and the SEC engaged in separate investigations, notwithstanding their focus on overlapping subject material.
Even though the SEC is not part of the prosecution team, the Government has voluntarily requested from the SEC all documents that the SEC obtained from third parties, and has already turned over these documents to the defense. In the event the SEC produces additional documents to the Government that it received from third parties, the Government will promptly produce those documents to defense counsel.
None of the facts cited by Kwok establish the existence of a joint investigation in this case. Rather, Kwok seeks to paint as unusual or suspect facts that are routine in the parallel investigation context, such as the Government and the SEC bringing charges on the same date (Br. 21). *See, e.g.*, *SEC v. Shkreli*, No. 15 Civ. 7175 (KAM), 2016 WL 1122029, at \*7 n.6 (E.D.N.Y. Mar. 22, 2016) ("The court finds no fault in the SEC's commencement of the civil action at or around the time the criminal indictment was unsealed, given the SEC's independent mandate to enforce the securities laws and the need to commence an action before expiration of the statute of limitations."). Kwok also points to the fact that the Government obtained documents and information from the SEC that was cited in the Government's affidavits supporting search warrants (Br. 20), but that is entirely normal and appropriate. The Government routinely obtains documents
and information from any number of individuals and entities in its investigations, and the Government is aware of no authority for the proposition that that bare fact transforms those sources of information into members of the prosecution team. To the contrary, courts have specifically rejected that proposition. *See, e.g.*, *Meregildo*, 920 F. Supp. 2d at 445-46 (holding that cooperating witness was not a member of the prosecution team); *United States v. Barcelo*, 628 F. App'x 36, 38-39 (2d Cir. 2015) (same); *Stewart*, 433 F.3d at 298-99 (holding that an expert witness who analyzed evidence, assisted the prosecution in preparing cross-examination questions, participated in a mock examination, and testified at trial was not a member of the prosecution team). Indeed, it would be highly unusual if the SEC refused to provide information to the Government in connection with an ongoing criminal inquiry into a massive fraud, such as the one perpetrated by Kwok. "Moreover, 'there is no general rule' prohibiting a civil enforcement agency such as the SEC from 'sharing . . . evidence acquired through civil discovery with criminal prosecutors.'" *United States v. Rhodes*, No. 18 Cr. 887 (JMF), 2019 WL 3162221, at \*3 (S.D.N.Y. July 16, 2019) (quoting *United States v. Fiore*, 381 F.3d 89, 94 (2d Cir. 2004)). "Indeed, because '[s]ecurities fraud is a proper subject of both administrative and criminal investigations . . . SEC enforcement officials and prosecutors all expect coordination at some investigative level and perceive the various proceedings as integral to each other." *Rhodes*, 2019 WL 3162221, at \*3 (quoting *Fiore*, 381 F.3d at 94). Kwok fails to cite any authority for the proposition that an independent agency becomes part of the prosecution team simply by complying with a voluntary information request.
Likewise, the fact that the Government and the SEC—both tasked with enforcing antifraud laws and protecting victims, and both investigating the same conduct perpetrated by the same individuals against the same victims—may have shared certain evidence and informed each other of anticipated investigative or enforcement steps is wholly unremarkable and routine. Such
"coordination and sharing between the lawyers and agents on the criminal prosecution team, on the one hand, and [a civil enforcement authority], on the other, is, in itself, unexceptional and unproblematic." *Rhodes*, 2019 WL 3162221, at \*3.
In short, applying these facts and circumstances to well-settled legal standards makes plain that the SEC conducted a parallel investigation and was not part of the Government's prosecution team.
#### **b. Kwok's Discovery Request Is Meritless**
In light of the foregoing, Kwok's request for internal communications between the Government and the SEC is baseless. No rule of criminal discovery mandates the production of materials simply because the defense speculates that the materials may be useful in making a defense motion. To the contrary, courts in this District have specifically rejected such requests. *See, e.g.*, *Parnas*, 2021 WL 2981567, at \*8 (denying motion under Rule 16(a)(1)(E)(i) for documents that "may contain evidence relevant to [defendant's] selective prosecution claim" because defendant had "failed to make the requisite showing for such a claim").
Kwok's reliance on *Rhodes* is particularly misplaced. *Rhodes* directly rejected the defense suggestion made here that it is unusual or problematic for criminal and civil authorities to share information, instead holding that such "coordination and sharing between the lawyers and agents on the criminal prosecution team, on the one hand, and [a civil enforcement authority], on the other, is, in itself, unexceptional and unproblematic." 2019 WL 3162221, at \*3. Judge Furman explained that such coordination is only problematic if it is done in "bad faith," such as where a government authority "made affirmative misrepresentations or conducted a civil investigation solely for purposes of advancing a criminal case." *Id.* (quoting *United States v. Stringer*, 535 F.3d 929, 937 (9th Cir. 2008), and also citing *United States v. Kordel*, 397 U.S. 1, 11-12 (1970) and
*United States v. LaSalle National Bank*, 437 U.S. 298 (1978)).
In light of the "unexceptional and unproblematic" nature of coordination in parallel proceedings, *Rhodes* held that a criminal defendant is not entitled as a matter of course to internal communications between criminal and civil authorities. Rather, in order to obtain "even limited discovery" regarding a claim of improper coordination between civil and criminal authorities, a defendant must "make a substantial preliminary showing of bad faith." *Rhodes*, 2019 WL 3162221, at \*4 (quoting *United States v. Gel Spice Co*., 773 F.2d 427, 434 (2d Cir. 1985)). Judge Furman determined that the defendant in *Rhodes* had failed to make that showing, and therefore denied his discovery request, a fact that Kwok omits from his brief. S*ee Rhodes*, 2019 WL 3162221, at \*5.
Kwok falls far short of satisfying his burden of making "a substantial preliminary showing of bad faith." Indeed, Kwok has failed to point to *any* facts tending to show that the coordination between criminal and civil authorities was exceptional or problematic. As discussed above, the coordination in this case was wholly routine. Kwok notes that Judge Furman required the Government in *Rhodes* to submit an affidavit concerning coordination with civil authorities, but that stemmed from an unusual fact uniquely present in the *Rhodes* case: the SEC did not bring parallel charges against the defendant in *Rhodes* despite issuing him a subpoena for documents (to which the defendant responded), and the fruits of that subpoena were used in the parallel criminal case. In other words, it was the *absence* of a simultaneous and parallel civil enforcement action that Judge Furman found unusual, and which led him to require an affidavit from the Government. By contrast, this case involves the standard fact pattern of parallel criminal and civil actions being filed at the same time, which undermines any assertion that the SEC action was brought solely for purposes of advancing a criminal case. In any event, this opposition is an accompanied by an
affidavit from a member of the prosecution team. (*See* Murral Decl.).
In sum, Kwok has failed to articulate even a facially plausible theory of bad faith under the relevant legal standards. That is unsurprising given that any coordination between the SEC and the Government in this case was, at all times, "unexceptional and unproblematic." *Rhodes*, 2019 WL 3162221, at \*3. Accordingly, and for the reasons set forth above, Kwok's motion for discovery concerning the Government's communications with the SEC should be denied.
#### **2. Kwok's Request for Trustee Communications Should Be Denied**
Kwok's arguments with respect to the Trustee are equally meritless. Kwok's strained attempts to discern Government misconduct through unexceptional interactions with a bankruptcy trustee are contrary to the record and the law. Kwok comes nowhere close to meeting his burden to establish a "substantial preliminary showing of bad faith." *Rhodes*, 2019 WL 3162221, at \*4.
*First*, Kwok has failed to show any basis for a claim of spoliation. Simply put, there is absolutely no risk of spoliation of evidence due to the Settlement Agreement between the Government and the Trustee concerning the Mahwah Mansion. Far from spoliating evidence of the Mahwah Mansion's condition, the Government has produced thousands of photographs of the Mahwah Mansion, from March 2023 and September 2023, as well as voluminous video surveillance recorded at various times between August 2022 and September 2023, as well as voluminous video of the Mahwah Mansion's interior from September 2023. Kwok does not explain how that voluminous documentary record of the Mahwah Mansion's condition on multiple dates—which is in Kwok's possession—has been, or would be, somehow spoliated; nor does Kwok explain why a site visit by his criminal defense attorneys of record would be somehow
insufficient to satisfy any further defense needs. [1](#page-31-0) Instead, Kwok simply asserts here, as in the Bankruptcy Stay Motion, that "the existing state of the Mahwah [Mansion] must be maintained." (Br. 16). But two problems with that assertion remain. The first is that, in reality, Kwok's coconspirators are altering the state of Mahwah Mansion. They are attempting to obstruct justice in this case by tampering with the property's condition—following Kwok's arrest and the unsealing of the Indictment's allegations regarding the Mahwah Mansion—to make Mahwah Mansion look like a G|CLUBS facility. Indeed, Kwok could not and did not even dispute, in connection with the Bankruptcy Stay Motion, that his followers had tampered with the state of the Mahwah after the Government's allegations about the Mahwah Mansion became known. (*See* Dkt. 152). The second problem is that, as noted, Kwok does not explain why the voluminous evidence in his possession (including photographs and videos) documenting the Mahwah Mansion on particular dates has not "maintained" the state of the Mahwah Mansion. Kwok fails to address these points because this motion, like the Bankruptcy Stay Motion, is in fact an attempt for Kwok to obtain control over the Mahwah Mansion for the conspiracy's *continued* use. (*See* Br. 17-18 ("evidence showing how the property was configured and used prior to Mr. Kwok's arrest *and how it continues to be used*—*barring the Trustee's interference*—in service to the Chinese prodemocracy dissident movement constitutes exculpatory evidence that Mr. Kwok is entitled to present to the jury." (emphasis added))). This Court should reject Kwok's attempts, reflected in
1 In his reply to Bankruptcy Stay Motion, Kwok asserts that having supervision for such a site visit is "tantamount to condoning a government spy in the defense camp." (Dkt. 152 at 8). Rhetoric aside, the Government is willing to meet and confer with Kwok regarding the appropriate safeguards to ensure that there is no further tampering with the Mahwah Mansion by Kwok's associates and co-conspirators. As already noted in the Government's response to the Bankruptcy Stay Motion, Kwok's attorneys did not contact the Government regarding a site visit to the Mahwah Mansion prior to filing either of his motions. They still have not done so.
this motion and in the Bankruptcy Stay Motion, to have this Court greenlight the tampering of evidence—tampering that is being done to obstruct justice in this criminal case and to further a global conspiracy that already stole over a billion dollars from Kwok's followers.
Relatedly, there is nothing exceptional or improper about the Government's settlement agreement with the Trustee regarding the Mahwah Mansion. The Government has worked with the Trustee to try to efficiently allocate resources to secure and recover some of the more than a billion dollars that Kwok and his co-conspirators stole or misappropriated. The Government intends to return the hundreds of millions of dollars of cash and property that it has seized to victims of the defendants' crimes—an action that necessarily implicates the Trustee's responsibilities regarding claims to those assets by Kwok's bankruptcy creditors. With respect to the Mahwah Mansion in particular, the Government and the Trustee maintain potentially competing claims to that property, and the agreement will allow the value of that property to be preserved—ceasing, among other things, the modifications made to the property by the defendant's co-conspirators and associates in an effort to impede justice—pending resolution of issues related to forfeiture, restitution, and the bankruptcy estate.[2](#page-31-0) There is absolutely nothing unusual about the Government working with a trustee regarding forfeitable assets in which the trustee also has an interest. The many precedents for such coordination—which the Trustee referenced during the bankruptcy court hearing that Kwok quotes repeatedly in his motion, albeit in a portion of the transcript that Kwok omits from his exhibit [3](#page-31-0)—go back years in multiple
2 In his reply to the Bankruptcy Stay Motion, Kwok states the Government sought improperly to "circumvent this Court" by entering the agreement with the Trustee. (*See* Dkt. 152 at 7-8). That is not just hyperbolic. It is false. The agreement merely preserves the value of this forfeitable asset, and this Court will address forfeiture issues, including with respect to the Mahwah Mansion, following trial and conviction, as in every case.
3 See pages 28-29 of the complete transcript, attached as Exhibit B.
jurisdictions. [4](#page-31-0) For example, in the criminal case against Marc Dreier, Judge Rakoff approved of various settlement agreements involving the Government and bankruptcy trustees, including a "Coordination Agreement" between the Government and the Chapter 11 Trustee in that case. *United States v. Dreir*, 09 Cr. 86 (JSR), Dkt. 141 (S.D.N.Y. Feb. 5, 2010). As another example, in the massive Bernie Madoff fraud, the Government worked *extensively* with the court-appointed trustee who oversaw the liquidation of Madoff's company under the Securities Investor Protection Act ("SIPA").[5](#page-31-0) In fact, that same trustee—who has also overseen Madoff's personal bankruptcy
4 *See, e.g.*, *In re Maresca*, No. 20-11483 (KHK), Dkt. 244 (E.D. Va. Bankr. Sept. 9, 2021) (bankruptcy trustee's motion for approval of a Coordination and Settlement Agreement with the Government, which had forfeiture and restitution claims, regarding a property that was "the only significant asset of th[e] estate"); *United States v. Merrill*, No. 14-40028 (TSH), Dkt. 367 (D. Mass. July 11, 2017) (restitution order "provid[ing] for administration and payment of restitution to victims by the Trustee in the related Chapter 11 cases"); *In re Rothstein*, No. 09-34791 (RBR), Dkt. 5704 (S.D. Fla. Bankr. July 14, 2014) (motion to approve settlement between Government and bankruptcy trustee regarding forfeiture and restitution); *In re Goldberg*, No. 09-23370 (ASD), Dkt. 424 (D. Conn. Bankr. May 31, 2011) (motion for bankruptcy trustee to administer restitution in criminal case); *id.* at Dkt. 462 (order granting motion); *United States v. Brandau*, No. 99-8215 (DMM), Dkt. 734 (S.D. Fla. Apr. 25, 2000) (agreement between Government and bankruptcy trustee regarding the sale and maintenance of assets identified for forfeiture); *id.* at Dkt. 759 (order approving agreement).
5 In Wang's letter supporting the Bankruptcy Stay Motion, she cites a letter filed by the Government in an SEC action against Madoff. (*See* Dkt. 135 at 4). While it is true that the DOJ opposed the initiation of bankruptcy proceedings for Madoff's estate in that case, Wang's letter omits a critical point. Specifically, Wang omits the fact that the Government's letter concluded by noting that "[t]his Office also continues to work with the SIP[A] Trustee to maximize recovery for victims," and that "[g]iven this ongoing effort," the initiation of bankruptcy proceedings "is particularly inapt." *SEC v. Madoff*, No. 08 Civ. 10791, Dkt. 50 at 5 (S.D.N.Y. Apr. 10, 2009). Indeed, two months after the Government's letter, the personal bankruptcy estate of Madoff was consolidated into the SIPA proceeding being administered by the SIPA trustee who has coordinated so closely and effectively with the Government regarding forfeiture and restitution. *See Sec. Investor Protection Corp. v. Bernard L. Madoff Investment Sec. LLC*, No. 09-11893 (BRL) (S.D.N.Y. Bankr. June 9, 2009), available at [http](http)
estate since June 9, 2009[6](#page-31-0) —was even simultaneously appointed as a Special Master in the criminal case "to oversee the process of remission or mitigation under the forfeiture laws." DOJ, *Manhattan U.S. Attorney Announces Agreement to Recover \$7.2 Billion for Victims of Bernard L. Madoff's Ponzi Scheme from Estate of Jeffry M. Picower* (Dec. 17, 2010).[7](#page-31-0) In connection with "the largest single forfeiture in U.S. history," of approximately \$7.2 billion, to take one example, relevant settlement agreements stipulated that the trustee would administer approximately \$5 billion of the funds "through the SIPA liquidation proceedings," while administering approximately \$2.2 billion through DOJ's remission or mitigation process. *Id.* Precedent also refutes Kwok's suggestion here, and in the Bankruptcy Stay Motion, that there is something untoward about the Trustee's receipt of fees for his work recovering assets on behalf of Kwok's creditors.Like a bankruptcy trustee, a SIPA trustee's fees are compensated and, to date, the SIPA trustee in *Madoff* has received over \$2.2 billion in fees (while recovering over \$14.6 billion in assets). *See* The Madoff Recovery Initiative, *Recoveries to Report Fees Ratio: December 11, 2008 to September 20, 2023*. [8](#page-31-0) Far from being improper or unusual, the Government coordinating with trustees, like the Trustee in Kwok's bankruptcy, is a best practice that prevents needless fighting over assets and results in maximal recovery in the aftermath of rampant frauds. [9](#page-31-0)
6 *See Sec. Investor Protection Corp. v. Bernard L. Madoff Investment Sec. LLC*, No. 09-11893 (BRL) (S.D.N.Y. Bankr. June 9, 2009), available at [http](http)
7 Available at http
8 Available at http
9 Nor is there anything improper about the Government providing a set of photographs to the courtappointed Trustee here. In his Bankruptcy Stay Motion, Kwok attempted to suggest that the Government violated the protective order in doing so (Kwok Br. 3, 21), but, as already explained in the Government's response (Dkt. 148, at 3 n.2), Kwok is wrong. Moreover, the photographs were responsive to the Government's search warrant executed at the Mahwah Mansion. As an
*Second*, Kwok's argument regarding a supposed need to protect his privileged information residing with the Trustee is meritless. The Government has already explained that it has neither sought or received such information, and would do so only under appropriate circumstances. (Dkt. 148, at 2).[10](#page-31-0)
*Third*, the interactions between the Government and the Trustee are unexceptional. Kwok's suggestion that the Trustee could be a member of the prosecution team is baseless based
on the circumstances:
- the Government initiated its investigation independent of the Trustee, years before Kwok voluntarily filed for bankruptcy and the Trustee was even appointed;
- the Trustee played no role in the Government's charging decisions or the development of the Government's prosecutorial strategy;
- the Trustee has not participated in any of the Government's interviews;
- the Trustee was not involved in presenting this case to the grand jury and did not receive grand jury transcripts;
- the Trustee did not participate in the execution of search warrants or the responsiveness reviews of materials obtained pursuant to search warrants;
- the Trustee did not obtain materials produced to the Government pursuant to grand jury subpoenas; and
- the Trustee has not accompanied the Government to Court.
(Murray Decl. ¶ 3).
analogy, materials responsive to search warrants are regularly shared with regulatory agencies engaged in parallel investigations, and such sharing is entirely proper and, indeed, commonplace.
10 Kwok's reply in connection with the Bankruptcy Stay Motion argues that the Government's inclusion, in its description of appropriate circumstances where it could obtain the privileged information of Kwok, of agreement from Kwok "or the appropriate holder [of the privilege]" had created some kind of "loophole." (Dkt. 152 at 8). Kwok is wrong. The Government included that parenthetical addition merely to encompass circumstances in which Kwok is not, in fact, the appropriate holder of the privilege, such as when a corporate entity, rather than an individual, actually holds the privilege.
To be clear, Kwok does not actually claim that the Trustee is part of the prosecution team. He seeks communications to "fully investigate whether the Trustee" is part of the prosecution team. (Br. 19). But, as set forth above, that is not a basis for obtaining discovery beyond what criminal law and procedure provides. Kwok identifies "coordination" and "information sharing" between the Government and the Trustee, but such coordination between the Government and another party is wholly "unexceptional and unproblematic" and provides no basis for the extraordinary discovery that Kwok seeks. *Rhodes*, 2019 WL 3162221, at \*3; *see also Meregildo*, 920 F. Supp. 2d at 441-42 ("Interacting with the prosecution team, without more, does not make someone a team member.").
#### **CONCLUSION**
It is plain that neither the SEC nor the Trustee are members of the prosecution team in this case. And in order to obtain discovery beyond what the criminal rules provide, a defendant must make a substantial showing of bad faith on the part of the Government. Kwok has not made that showing, because he cannot make that showing. The Government's interactions with the SEC and the Trustee have not only been in good faith, but such interactions are routine and unexceptional. To the extent there is anything exceptional about the circumstances presented here, it is that Kwok has filed two motions at least partly in pursuit of allowing his co-conspirators and associates to further obstruct justice and perpetuate his massive fraud by retaking possession of the Mahwah Mansion. Kwok's motion should be denied.
Respectfully submitted,
DAMIAN WILLIAMS United States Attorney
By: */s/*
Micah F. Fergenson Ryan B. Finkel Juliana N. Murray Assistant United States Attorneys 212-637-2190/-6612 /-2314
# **EXHIBIT A**
#### UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA
v.
HO WAN KWOK, a/k/a "Miles Guo," a/k/a "Miles Kwok," a/k/a "Guo Wengui," a/k/a "Brother Seven," a/k/a "The Principal,"
KIN MING JE, a/k/a "William Je," and
YANPING WANG, a/k/a "Yvette,"
*Defendants*.
### **AUSA AFFIRMATION**
**S1 23 Cr. 118 (AT)**
STATE OF NEW YORK ) COUNTY OF NEW YORK : ss.: SOUTHERN DISTRICT OF NEW YORK )
JULIANA N. MURRAY, pursuant to 28 U.S.C. § 1746, hereby affirms under penalty of perjury:
1. I am an Assistant United States Attorney in the Office of Damian Williams, United States Attorney for the Southern District of New York. I submit this affirmation to provide the Court with information concerning the nature and extent of the Government's[1](#page-31-0) relationship with the Securities and Exchange Commission ("SEC") during the Government's investigation of Ho
1 References to the Government throughout this Affirmation refer to the United States Attorney's Office for the Southern District of New York.
Wan Kwok, Kin Ming Je, and Yanping Wang (the "Kwok Investigation"). I am one of the Assistant United States Attorneys currently responsible for this matter, and I have been involved with the investigation since 2021.
2. Based on my participation in this investigation, my review of emails and text messages, my review of call notes, my conversations with attorneys for the SEC Enforcement Division team who conducted the parallel investigation of Kwok, Je, and Wang, and my conversations with other Assistant United States Attorneys who also participated in the Kwok Investigation, I have learned the following, among other things, about the Kwok Investigation:
a. The SEC played no role in the Government's charging decisions or the development of the Government's prosecutorial strategy.
b. Likewise, based on my discussions with attorneys at the SEC, I understand that the Government played no role in the SEC's charging decisions or the developments of the SEC's litigation strategy.
c. No one from the SEC was designated as a special Assistant U.S. Attorney to work on the criminal investigation.
d. The SEC participated in certain of the interviews conducted by the Government in the course of the Kwok Investigation. The SEC did not take notes during those interviews.
e. At interviews in which both the Government and the SEC participated, witnesses were told, in sum and substance, that the agencies' investigations were separate, that the interviews were conducted together only as a matter of convenience, and that, if there were to be a proffer agreement, the witness would enter into a separate agreement with each agency.[2](#page-31-0)
2 Where a witness was interviewed on multiple occasions, these statements were made at the initial proffer but were not necessarily repeated at each subsequent proffer.
f. The SEC was not involved in presenting the criminal case to the grand jury and did not receive grand jury transcripts.
g. The SEC did not participate in the execution of search warrants, or the responsiveness reviews of materials obtained pursuant to search warrants.
h. The Government did not produce to the SEC any materials that the Government obtained pursuant to grand jury subpoenas.
i. The SEC has not accompanied the Government to Court in the criminal case.
3. Based on my participation in this investigation, my review of the docket in Kwok's chapter 11 bankruptcy case, my review of emails and text messages, my review of call notes, my conversations with the Trustee and his associates, and my conversations with other Assistant United States Attorneys who also participated in the Kwok Investigation, I have learned the following, among other things, about the Kwok Investigation:
a. The Government initiated the Kwok Investigation in or about May 2020.
b. Kwok filed a voluntary petition for chapter 11 bankruptcy on or about February 15, 2022. The Trustee was appointed on or about July 7, 2022.
c. The Trustee played no role in the Government's charging decisions or the development of the Government's prosecutorial strategy.
d. The Trustee was not involved in presenting the Kwok Investigation to the grand jury and did not receive grand jury transcripts.
e. The Trustee did not participate in the execution of search warrants, or the responsiveness reviews of materials obtained pursuant to search warrants.
f. The Trustee has not participated in any of the Government's interviews.
3
g. The Trustee did not obtain materials produced to the Government pursuant to grand
jury subpoenas.
h. The Trustee has not accompanied the Government to Court in the criminal case.
Dated: New York, New York October 19, 2023
Juliana N. Murray Assistant United States Attorney (212) 637-2314
# **EXHIBIT B**
| 120 | |
|-----|--|
| | |
| In Re | | * | Case No. 22-50073 (JAM) |
|---------------------------|-------------------------------------------------------------------------|--------|--------------------------------------------------------------|
| | HO WAN KWOK and GENEVER | *
* | |
| HOLDINGS CORPORATION, | | * | |
| | Debtor. | *
* | |
| LUC A. DESPINS, | | * | Adv. Proc. No. 22-05027 |
| | Plaintiff, | *
* | |
| | | * | |
| v. | | * | |
| | BRAVO LUCK, LIMITED, et al., | *
* | |
| | | * | |
| | Defendant. | * | |
| LUC A. DESPINS, | | *
* | Adv. Proc. No. 23-05017 |
| | | * | Bridgeport, Connecticut |
| | Plaintiff, | * | August 29, 2023 |
| v. | | *
* | |
| | | * | |
| TAURUS FUND, LLC, et al., | | * | |
| | Defendants. | *
* | |
| | | * | |
| | * * * * * * * * * * * * * * * * | | |
| | TRANSCRIPT OF PROCEEDINGS | | |
| | BEFORE THE HONORABLE JULIE A. MANNING
UNITED STATES BANKRUPTCY JUDGE | | |
| APPEARANCES: | | | |
| Chapter 11 Trustee: | | | LUC A. DESPINS, ESQ.
Paul Hastings LLP
200 Park Avenue |
| | | | New York, NY
10166 |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------|------------|
| | | |
| | 120 | |
2
APPEARANCES: (Cont'd) For the Chapter 11 Trustee: PATRICK R. LINSEY, ESQ. Neubert Pepe and Monteith 195 Church Street,13th Floor New Haven, CT 06510 For U.S. Trustee: HOLLEY L. CLAIBORN, ESQ. Office of U.S. Trustee The Giaimo Federal Building 150 Court Street, Room 302 New Haven, CT 06510 For the Creditors Committee: IRVE J. GOLDMAN, ESQ. Pullman & Comley 850 Main Street Bridgeport, CT 06601 For Bravo Luck: FRANCIS J. LAWALL, ESQ. Troutman Pepper Hamilton Sanders, LLP 3000 Two Logan Square 18th and Arch Street Philadelphia, PA 19103 For Hing Chi Ngok and CHRISTOPHER J. MAJOR, ESQ. Greenwich Land, LLC: Meister Seelig & Fein LLP 125 Park Avenue New York, NY 10017 For Taurus Fund, LLC: MICHAEL T. CONWAY, ESQ. Lazare Potter Giacovas & Moyle, LLP 747 Third Avenue New York, NY 10017
| | 3 |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| #2049 | MOTION TO COMPROMISE CONTROVERSY W/BRAVO
LUCK LTD AND MILESON GUO a/k/a QIANG GUO AND/OR
GUO QIANG, P.O. BOX 957 OFFSHORE INC CENTRE, ROAD
TOWN, TORTOLA, BVI (BRAVO LUCK LTD); 5 PRINCESS |
| | GATE, G3, LONDON, UK (Qiang Guo) |
| # 111 | MOTION TO COMPROMISE CONTROVERSY WITH BRAVO LUCK |
| | AND MILESON GUO a/k/a QIANG GUO AND/OR |
| | GUO QIANG, P.O. BOX 957 OFFSHORE INC CENTRE, ROAD |
| | TOWN, TORTOLA, BVI (BRAVO LUCK LTD); 5 PRINCESS |
| | GATE, G3, LONDON, UK (Qiang Guo) |
| #2083 | MOTION OF CHAPTER 11 TRUSTEE, PURSUANT TO BANKR. |
| | RULE 9019 FOR APPROVAL OF SETTLEMENT WITH USA |
| #
24 | MOTION OF CHAPTER 11 TRUSTEE, PURSUANT TO BANKR. |
| | RULE 9019 FOR APPROVAL OF SETTLEMENT WITH USA |
| #2079 | MOTION FOR 2004 EXAM OF ADDITIONAL ENTITIES AND |
| | INDIVIDUALS AFFILIATED WITH DEBTOR AND RELEVANT |
| | BANKS (SIXTH OMNIBUS) |
| #2127 | ORDER SCHEDULING STATUS CONFERENCE |
| | |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
4 |
| 1 | (Proceedings commenced at 2:01 p.m.) |
| 2 | THE COURTROOM DEPUTY:
Case No. 22-50073, Ho Wan |
| 3 | Kwok and Genever Holdings, LLC, 22-5027, Despins, et al, |
| 4 | versus Bravo Luck Limited, et al, and 23-5017, Despins, et |
| 5 | al, versus Taurus Fund, LLC, et al. |
| 6 | THE COURT:
Okay.
Good afternoon.
If we could |
| 7 | have appearances for the record starting with the Chapter 11 |
| 8 | Trustee, please. |
| 9 | MR. DESPINS:
Good afternoon, Your Honor.
Luc |
| 10 | Despins, Chapter 11 Trustee. |
| 11 | THE COURT:
Good afternoon. |
| 12 | MR. LINSEY:
Good afternoon, Your Honor.
Patrick |
| 13 | Linsey of Neubert, Pepe and Monteith for the Trustee. |
| 14 | THE COURT:
Good afternoon. |
| 15 | MR. GOLDMAN:
Good afternoon, Your Honor.
Irve |
| 16 | Goldman, Pullman & Comley, for the creditors committee. |
| 17 | THE COURT:
Good afternoon. |
| 18 | MS. CLAIBORN:
Good afternoon.
Holley Claiborn |
| 19 | for the U.S. Trustee. |
| 20 | THE COURT:
Good afternoon. |
| 21 | MR. LAWALL:
Good afternoon, Your Honor.
Fran |
| 22 | Lawall, Bravo Luck. |
| 23 | THE COURT:
Good afternoon. |
| 24 | MR. MAJOR:
Good afternoon, Your Honor.
Chris |
| 25 | Major, Meister Seelig & Fein.
We represent Hing Chi Ngok |
| | 120 |
|----|--------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
5 |
| 1 | and Greenwich Land, LLC. |
| 2 | THE COURT:
Good afternoon. |
| 3 | MR. CONWAY:
Good afternoon, Your Honor.
Michael |
| 4 | Conway here for Taurus Fund, LLC |
| 5 | THE COURT:
Good afternoon. |
| 6 | All right.
We have, as I mentioned, several |
| 7 | matters on the calendar this afternoon. |
| 8 | Trustee Despins, I've look at the matters insofar |
| 9 | as whether objections have been filed and things of that |
| 10 | nature.
And with regard to the Bravo Luck motion to |
| 11 | compromise, I see that no objections have been filed to |
| 12 | that.
Am I correct on that? |
| 13 | MR. DESPINS:
That's correct, Your Honor. |
| 14 | THE COURT:
All right.
So does it make sense to |
| 15 | proceed with the Bravo Luck matter first? |
| 16 | MR. DESPINS:
Yes, Your Honor. |
| 17 | THE COURT:
Okay.
Please proceed.
Thank you. |
| 18 | MR. DESPINS:
Thank you.
Good afternoon, Your |
| 19 | Honor.
Luc Despins, Chapter 11 Trustee. |
| 20 | This is actually a pretty straightforward motion |
| 21 | to settle the controversy between the various debtor's |
| 22 | estates and Bravo Luck and the debtor's son with respect to |
| 23 | the Sherry-Netherland. |
| 24 | And basically you'll recall that we had brought, |
| 25 | you know, three separate adversary proceedings against Bravo |
| | |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
6 |
| 1 | Luck.
And also had objected to the claims of the son.
And |
| 2 | there had been no answer to that or no response to that. |
| 3 | And there was a lot of litigation and motions to dismiss, |
| 4 | amendments, et cetera, et cetera. |
| 5 | So to make a long story short, the parties have |
| 6 | reached an agreement to settle this.
And I believe it's |
| 7 | pretty straightforward in the sense that what I would call |
| 8 | the Bravo Luck parties, Bravo Luck and the son, are |
| 9 | abandoning any arguments that they have an interest in the |
| 10 | Sherry-Netherland apartment, directly or indirectly. |
| 11 | They're waiving claims, et cetera, et cetera. |
| 12 | We are withdrawing the litigation that was |
| 13 | commenced against them.
I mean everything I'm saying is |
| 14 | subject to the settlement agreement, which is much more |
| 15 | detailed, but that's, in a nutshell that's what's happening. |
| 16 | So it's pretty straightforward. |
| 17 | I would just point out that the releases are not |
| 18 | symmetric, so that's important in the sense that they are |
| 19 | releasing claims.
We're not releasing all our claims in the |
| 20 | world against them.
So that we are releasing the claims |
| 21 | asserted in the complaint. |
| 22 | And again, what I'm saying is subject to the terms |
| 23 | of settlement agreement, which is in much more detail, but |
| 24 | conceptually I wanted to make sure the Court understood this |
| 25 | is not a global release of claims. |
| | |
Ho Wan Kwok - August 29, 2023 7 THE COURT: I think I -- that was my thought, that it is not a global release of claims. MR. DESPINS: So unless the Court has questions, and Mr. Lawall wants to be heard, but I have nothing else at this time. THE COURT: I do want to hear from you, Counsel, Mr. Lawall, when you have a moment. I just -- there are many pending matters related to a pending objection to claim and the adversary proceedings that we haven't acted on because you've been talking, right? MR. DESPINS: Right. THE COURT: And you've made representations to the Court, even in pleadings or in court, that the parties have been working together toward resolution of these issues. So obviously you've worked hard. And you've come to a resolution, which is appreciated. That will mean, I think, assuming this is approved, that you may see, because the clerk's office has to do certain things, you know, motions terminated, or you're going to withdraw adversary proceedings, right? You're going to dismiss? Or what are you do -- what is the actual -- MR. DESPINS: Yeah. Frankly, I'm not sure of the plumbing, but there is plumbing that remains to be done in
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
8 |
| 1 | terms of probably withdrawing the adversary proceeding, or |
| 2 | perhaps the settlement (indiscernible).
I'll look at that. |
| 3 | But -- |
| 4 | THE COURT:
Well, I've got it here. |
| 5 | MR. DESPINS:
Yeah. |
| 6 | THE COURT:
I don't recall exactly. |
| 7 | But what I'm saying is if you both see some |
| 8 | entries made because it appears that certain matters that |
| 9 | have been pending are resolved pursuant to an approval of |
| 10 | the settlement, then that will be ministerial. |
| 11 | MR. DESPINS:
Yes. |
| 12 | THE COURT:
I just want you to understand that. |
| 13 | Okay? |
| 14 | MR. DESPINS:
Yes. |
| 15 | The order provides that the plaintiff's authorized |
| 16 | to execute, deliver, implement all sorts of documents or |
| 17 | instruments necessary to implement this. |
| 18 | THE COURT:
Right. |
| 19 | MR. DESPINS:
I think that Mr. Lawall -- that |
| 20 | there were signatures provided.
There were signatures to |
| 21 | the settlement agreement provided by Bravo Luck.
There was |
| 22 | no signature provided by the son because that's held in |
| 23 | trust by Mr. Lawall.
They didn't want to provide the |
| 24 | signature -- |
| 25 | THE COURT:
But you have it? |
| | 120 |
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| | Ho Wan Kwok - August 29, 2023
9 |
| 1 | MR. DESPINS:
Yeah. |
| 2 | THE COURT:
I mean, you have the actual signature? |
| 3 | MR. DESPINS:
That's what we've been told. |
| 4 | THE COURT:
Okay. |
| 5 | MR. DESPINS:
So that when -- if the Court |
| 6 | approves the settlement, then the signature will be added. |
| 7 | But to the extent there are ministerial things that need to |
| 8 | happen, we will make those happen, Your Honor. |
| 9 | THE COURT:
Yeah.
I don't know that there's a lot |
| 10 | of things you need to do other than what you've just |
| 11 | discussed.
I just want you to be aware that when I looked |
| 12 | at this, and again, I'm looking at it again now to refresh |
| 13 | my recollection, but there are matters that are outstanding |
| 14 | in the adversary proceedings in the main case that I believe |
| 15 | now are resolved by this settlement. |
| 16 | MR. DESPINS:
Yes, they're all resolved.
Yes. |
| 17 | THE COURT:
So that's the way I view it.
And I |
| 18 | want to make sure that neither one of you view it |
| 19 | differently, because I don't want to make a mistake in my |
| 20 | view. |
| 21 | MR. DESPINS:
That's correct, Your Honor.
The |
| 22 | settlement agreement is pretty detailed in terms of -- |
| 23 | THE COURT:
Yes, it is. |
| 24 | MR. DESPINS:
-- this claim is waived, that claim |
| 25 | is waived, so it's very precise.
I think these are self- |
| | |
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| | Ho Wan Kwok - August 29, 2023
11 |
| 1 | afternoon.
Fran Lawall, Troutman Pepper, on behalf of Bravo |
| 2 | Luck. |
| 3 | To answer, I guess, some of your procedural |
| 4 | questions, I think the way the settlement agreement is |
| 5 | structured is that the three adversaries will be dismissed |
| 6 | with prejudice. |
| 7 | THE COURT:
Right. |
| 8 | MR. LAWALL:
The proofs of claim that were filed |
| 9 | are deemed withdrawn. |
| 10 | By having the complaints withdrawn with prejudice, |
| 11 | that will obviously take off your calendar the motions to |
| 12 | dismiss.
This is in the form of a typical settlement.
None |
| 13 | of the defendants are admitting any of the -- any of the |
| 14 | assertions within the complaints.
And in fact, there are |
| 15 | specific denials.
But again, this is a settlement. |
| 16 | THE COURT:
Yes. |
| 17 | MR. LAWALL:
There are some things that will |
| 18 | happen in the Virgin Islands with litigation that was |
| 19 | ancillary to this, which will go away as well. |
| 20 | But again, I agree with Mr. Despins.
The |
| 21 | settlement agreement is sufficiently complex that we would |
| 22 | rely upon the four corners of that settlement agreement. |
| 23 | But generally I think your understanding of the essence of |
| 24 | it is largely correct. |
| 25 | THE COURT:
And I -- and again, I only raise the |
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| | Ho Wan Kwok - August 29, 2023
12 |
| 1 | issue about what you may see coming across dockets to let |
| 2 | you know that that would be ministerial from the clerk's |
| 3 | office point of view. |
| 4 | So for example, as you said, the adversaries will |
| 5 | be withdrawn -- dismissed, I'm sorry, dismissed.
So I don't |
| 6 | know, are you going to file a separate Rule 7041 dismissal |
| 7 | or is this document the stipulation of dismissal? |
| 8 | MR. LAWALL:
I think I can work that out with Mr. |
| 9 | Despins' team. |
| 10 | THE COURT:
Fine. |
| 11 | MR. LAWALL:
And we'll -- I think we can take that |
| 12 | off Your Honor.
And we'll -- if the clerk's office doesn't |
| 13 | automatically take care of that, we can sign whatever is |
| 14 | necessary to effectuate the settlement agreement. |
| 15 | THE COURT:
Okay.
That's helpful. |
| 16 | MR. LAWALL:
Okay. |
| 17 | THE COURT:
Thank you. |
| 18 | MR. LAWALL:
Okay. |
| 19 | THE COURT:
It may be unfortunately.
But you |
| 20 | know, it can be as simple as a stipulation, a two-line |
| 21 | stipulation, that under Rule 7041(a)(1), (a)(2), or whatever |
| 22 | it is the parties stipulate to dismissal of the adversary |
| 23 | proceeding with prejudice and then it's self-effectuating |
| 24 | and the clerk's office doesn't have to do anything other |
| 25 | than close that adversary proceeding in the ordinary course |
Ho Wan Kwok - August 29, 2023 13 of business. MR. LAWALL: Understood, Your Honor. Whatever the clerk's office needs, we'll get it. THE COURT: Okay. Thank you. I appreciate that. MR. LAWALL: Thank you, Your Honor. THE COURT: And then with regard to the motions to dismiss, I don't even -- I think we've just continued the hearings on those, right? MR. LAWALL: Yes. Yes. THE COURT: Okay. MR. LAWALL: They've all been pushed. I forget whether there were any ancillary motion practice. But again, my expectation is because they were all under the consolidated adversary everything effectively falls off the docket. THE COURT: I agree with you. Okay. I just wanted to make sure. That's how I view it. If there's any issues from the clerk's office perspective, someone will reach out and let you both know. How's that? MR. LAWALL: Not a problem. THE COURT: Okay. All right. So again, I do appreciate the efforts. We've been talking about this for some time. And I do find that under the bankruptcy rule and the standard that's been applied by courts in connection with a settlement or compromise under Rule 9019, that the
| | 120 |
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| | Ho Wan Kwok - August 29, 2023
14 |
| 1 | settlement falls within the range of reasonableness.
I |
| 2 | think it's a -- it is a positive step.
Although I |
| 3 | understand, you know, no one's -- you're all doing what you |
| 4 | can under the circumstances to move things forward and I |
| 5 | think that's very positive. |
| 6 | No one has filed any written objections to the |
| 7 | motion to compromise.
And under our local rules the reason |
| 8 | it has to be -- the motion has to be filed not just in the |
| 9 | adversary proceedings, but in the main case, is so that all |
| 10 | parties are served.
And they were served and no one has |
| 11 | filed any written objections. |
| 12 | So for all those reasons, the motion to compromise |
| 13 | filed both in the main case and the adversary proceedings |
| 14 | are granted. |
| 15 | I have the proposed order here and it looks fine |
| 16 | to me.
It does attach the settlement agreement as Exhibit 1 |
| 17 | to the order, which is absolutely fine.
I think that's |
| 18 | actually preferable to have it there so someone can look at |
| 19 | it if they need to. |
| 20 | And I think that I don't need to do anything else |
| 21 | at the moment unless you think otherwise, Attorney Lawall? |
| 22 | MR. LAWALL:
I think we're good, Judge. |
| 23 | THE COURT:
Okay.
Thank you very much.
I |
| 24 | appreciate that. |
| 25 | MR. LAWALL:
Your Honor, my business with the |
| | |
| | 120 |
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| | Ho Wan Kwok - August 29, 2023
15 |
| 1 | Court is done today.
May I be excused? |
| 2 | THE COURT:
Absolutely.
Thank you very much. |
| 3 | MR. LAWALL:
Thank you, Your Honor. |
| 4 | THE COURT:
All right.
So the first two matters |
| 5 | on the calendar, ECF 2049 in the main case, and ECF 111 in |
| 6 | the adversary, 22-5027, are granted for the reasons stated |
| 7 | on the record.
And the proposed orders will enter. |
| 8 | Now, the other settlement agreement has an |
| 9 | objection, Trustee Despins.
And then there's also the |
| 10 | motion for 2004 examination, I think there's an objection. |
| 11 | I don't know if that's been resolved. |
| 12 | MR. DESPINS:
That's correct, Your Honor. |
| 13 | THE COURT:
That has an objection as well? |
| 14 | MR. DESPINS:
Yes. |
| 15 | THE COURT:
Okay.
And then the order scheduling |
| 16 | the status conference in connection with the motion to |
| 17 | remediate areas of the Sherry-Netherland, do you want to |
| 18 | talk about that now or do you want to -- |
| 19 | MR. DESPINS:
Sure, we can. |
| 20 | THE COURT:
Okay.
That's ECF 2127 in the main |
| 21 | case.
The only reason that was set for a status conference |
| 22 | was because someone had brought to my attention that there |
| 23 | was -- there were two things, well, actually I guess three |
| 24 | things. |
| 25 | The motion was filed under Section 363, so I |
| | |
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| | Ho Wan Kwok - August 29, 2023
16 |
| 1 | assume it was filed under, but I could be wrong, that it was |
| 2 | filed under 363 because you're talking about use of estate |
| 3 | property? |
| 4 | MR. DESPINS:
Correct, Your Honor. |
| 5 | THE COURT:
Okay.
Under our local rules, and it's |
| 6 | not as clear as it could be, but normally, any motion |
| 7 | seeking relief under 363 is automatically set for a hearing. |
| 8 | And this was filed under the contested matter |
| 9 | procedure.
So I don't know how you want to -- if you want |
| 10 | to wait for a response period to go by, that's fine.
Or it |
| 11 | can be automatically set for a hearing in which there will |
| 12 | be an objection deadline, but that -- that is one of the |
| 13 | reasons it was brought to my attention. |
| 14 | MR. DESPINS:
Thank you, Your Honor.
You're |
| 15 | correct. |
| 16 | And we had -- pursuant to that contested matter |
| 17 | rule, we had set forth as an exhibit an objection deadline |
| 18 | of September 13th.
And we're content with that -- |
| 19 | THE COURT:
Okay. |
| 20 | MR. DESPINS:
-- as long as the hearing, if |
| 21 | there's no objection, takes place soonish thereafter. |
| 22 | THE COURT:
Well, we can -- we can do one of two |
| 23 | things.
We can issue a notice of hearing right now setting |
| 24 | an objection -- I don't mean right now, but today or |
| 25 | tomorrow -- setting an objection deadline of September 13 |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
17 |
| 1 | and then a hearing a few days after that.
Or we can wait |
| 2 | until the objection deadline and set a hearing.
But there's |
| 3 | going to be a hearing regardless, so to me it seems to make |
| 4 | sense to issue a notice of hearing with the objection |
| 5 | deadline of September 13. |
| 6 | MR. DESPINS:
That's right, Your Honor. |
| 7 | THE COURT:
Okay. |
| 8 | MR. DESPINS:
Better to do that.
Yes. |
| 9 | THE COURT:
Okay.
So we'll do that.
And let me |
| 10 | just look at the calendar as far as when the actual hearing |
| 11 | would be held. |
| 12 | I mean, we have matters on the calendar in the |
| 13 | afternoon of September 19th, but -- and I don't know how |
| 14 | long they would last, but it could last at least an hour or |
| 15 | more in the afternoon.
We could either do it later that |
| 16 | afternoon or we could do it on Wednesday the 20th, whatever |
| 17 | you prefer. |
| 18 | MR. DESPINS:
If we could do it on the 19th, that |
| 19 | would be preferable, Your Honor. |
| 20 | THE COURT:
Okay.
So I would schedule that.
I |
| 21 | probably wouldn't schedule it before 3:30 because the matter |
| 22 | on at 2:00 is either going to be contested or it's going to |
| 23 | last for two minutes.
I don't know. |
| 24 | So how -- or you can -- we can schedule it for |
| 25 | 3:00.
Or we can schedule it for 2:00 and you just have to |
Ho Wan Kwok - August 29, 2023 18 wait. MR. DESPINS: That's fine, Your Honor. THE COURT: So what time? Would you like 2:00 then? MR. DESPINS: Two o'clock is fine, Your Honor. THE COURT: All right. So we'll schedule it at 2:00, but there is another matter that would go forward first if it -- if it is not resolved. Okay? MR. DESPINS: That other matter is not in this case. THE COURT: No. MR. DESPINS: Okay. THE COURT: No, it's not in this case. That's what I'm saying. MR. DESPINS: Okay. THE COURT: It's another case. So I can either schedule yours at 2:00 as well -- MR. DESPINS: That's fine. THE COURT: -- and then you'll just have to wait. Okay. All right. So let's do that. We're going to schedule what -- the underlying motion is ECF 2113. We're going to issue a notice of hearing on that motion for September 19th at 2 p.m. with an objection deadline of September 13. That's all we need to do with that. Then that -- then our status conference, we've
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
19 |
| 1 | held the status conference with regard to that matter. |
| 2 | The only other thing the U.S. Trustee's Office may |
| 3 | want, I have no idea, Attorney Claiborn, but that motion |
| 4 | that's seeking to remediate different issues at the Sherry |
| 5 | Netherland apartment also seeks the employment.
So I don't |
| 6 | know if you want the order to refer to Section 327 or |
| 7 | something too.
I have no idea.
But maybe you can all work |
| 8 | that out before we have a hearing. |
| 9 | And maybe if you all come in and there's no |
| 10 | problem, you'll go first at 2 p.m.
Okay? |
| 11 | MR. DESPINS:
That's a good incentive. |
| 12 | THE COURT:
All right.
So with regard to the |
| 13 | status conference that was held today that -- the status |
| 14 | conference has been held.
There's no need for any -- no |
| 15 | further status conferences will be scheduled and a notice of |
| 16 | hearing will issue on ECF No. 2113.
Okay? |
| 17 | So then how would you like to proceed next? |
| 18 | MR. DESPINS:
We'll go to Mahwah at this point. |
| 19 | THE COURT:
Go right ahead. |
| 20 | MR. DESPINS:
Thank you, Your Honor. |
| 21 | So Your Honor, this is a motion to approve a |
| 22 | settlement with the Department of Justice.
That's under |
| 23 | document 24 in the adversary proceeding.
And I have already |
| 24 | testified as to this, but I think it's important that we set |
| 25 | the stage again on this because last time that was not the |
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| | Ho Wan Kwok - August 29, 2023
20 |
| 1 | main focus.
I wanted the Court to know about it, but |
| 2 | clearly that was not the purpose of that hearing. |
| 3 | So the first question is why enter into a |
| 4 | settlement with the DOJ?
Second question is what does the |
| 5 | settlement do or not do?
And so let me try to address that. |
| 6 | The first question is why? |
| 7 | As we state in the motion, the DOJ has expressly |
| 8 | targeted the Mahwah mansion as a -- that's not a verb -- |
| 9 | forfeitable asset and they've actually identified that |
| 10 | asset.
We did not know about it.
So we have to be candid |
| 11 | with the Court.
We did not know about that asset until the |
| 12 | indictment was released. |
| 13 | And, however, the Department of Justice, their |
| 14 | tools are sort of limited in the pre-conviction phase in the |
| 15 | sense that they cannot obtain title to this property now or |
| 16 | do much with it before there's a conviction, which is a |
| 17 | final conviction.
Given that the trial is not going to last |
| 18 | -- not going to start until April I think, at least until |
| 19 | April of next year, obviously, the DOJ and we were aware of |
| 20 | what was going there and we're really concerned about this |
| 21 | very valuable asset being left in limbo for lack of a better |
| 22 | term. |
| 23 | So, however, because they identified this asset as |
| 24 | a potentially forfeitable asset, we did not want to begin |
| 25 | any adversary proceeding which could be perceived as hostile |
| | |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
21 |
| 1 | towards the DOJ because obviously it's important we believe |
| 2 | to work with them as cooperatively as possible.
Why? |
| 3 | Because they have all sorts of tools that we don't |
| 4 | have.
We don't want them to be fighting us and us being at |
| 5 | cross purposes with them with respect to this asset, and |
| 6 | this is where we came up with this idea of -- first of all, |
| 7 | we did our homework.
We believe that this asset through the |
| 8 | relief we're seeking in the adversary proceeding is an |
| 9 | estate asset.
We're convinced of that.
The Court will have |
| 10 | to determine if that's the case or not.
That's for another |
| 11 | day. |
| 12 | But we approached the DOJ and said we want to go |
| 13 | forward with this adversary proceeding to try to establish |
| 14 | that this is an asset of the estate.
And eventually, if the |
| 15 | Court rules in our favor, to sell this asset to liquidate it |
| 16 | for the benefit of holders of allowed claims. |
| 17 | And so we had this discussion about, okay, how is |
| 18 | that going to play out, because their view is that they have |
| 19 | superior claims.
And I'm not going to go into all the |
| 20 | details on this, but we pointed out and we cited in the |
| 21 | motion some case law, because there's a lot of cases on this |
| 22 | where Chapter 11 trustees or Chapter 7 trustees are battling |
| 23 | against the DOJ over issues like that as to who has first |
| 24 | dibs on an asset of the -- and I'm saying in those cases the |
| 25 | alleged wrongdoer -- and, you know, obviously we want to |
Ho Wan Kwok - August 29, 2023 22 avoid that. And we also wanted to avoid the following, which is we filed this adversary proceeding. In my dreams, we prevail. We sell the assets and the DOJ comes in and says thank you very much, we will take that money, and thank you for your work, and that's the end of it. We could not have that. This estate cannot be in a position where it's financing any other activity. It has to net neutral. And I believe move than net neutral, and I'll get to that piece in a second. So that we negotiated the fact that if we prevail, that's very important, only if we prevail. This settlement agreement does not dictate the sale of the property because it provides that certain things will happen if we prevail. So if we prevail and we sell the asset, we can use the net proceeds to pay all the expenses that the estate will have incurred. At that time, we thought we would incur not only legal fees, but security fees, a broker to sell the property, a mortgage if -- there's no mortgage on the property, but if there are people that have mechanics liens that need to be paid, that of course comes off the top. So that creates a concept of net proceeds. And the net proceeds under that stipulation, we're kicking down -- that down the road, which is to be determined. And I'll
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
23 |
| 1 | come back to why there's not more progress on that.
So the |
| 2 | net proceeds are very important. |
| 3 | And what I said is, okay, that's great.
We're |
| 4 | going to get all our expenses back.
That's good.
But this |
| 5 | case is not being run for the professionals for the case. |
| 6 | There has to be a benefit to the estate.
That's where we |
| 7 | came in with the deemed expense of a million dollars. |
| 8 | So that assuming for a second that we prevail, the |
| 9 | mansion is sold, we get all the expenses paid, and the DOJ |
| 10 | and us cannot agree on the distribution of the net proceeds, |
| 11 | we're getting a million dollars to the estate guaranteed. |
| 12 | And it says in there to be paid to the holders of allowed |
| 13 | claims, so an allowed claim in your court, so it has to be |
| 14 | an allowed claim, allowed claims of victims.
And, you know, |
| 15 | people pointed out, well, victims is not defined. |
| 16 | That's not an accident.
Meaning, I want to have a |
| 17 | shot at convincing the DOJ that the victims -- first of all, |
| 18 | you have to have an allowed claim.
You cannot receive a |
| 19 | penny of this unless you have an allowed claim as determined |
| 20 | by Your Honor.
But if you have an allowed claim, the issue |
| 21 | of who's a victim or not, that's -- I would like that to be |
| 22 | subject to further discussion. |
| 23 | But the bottom line is this estate will end up |
| 24 | with a million positive, if we're right that this property |
| 25 | is part of the estate.
And we feel pretty strongly that is |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
24 |
| 1 | the case, but of course Your Honor will have to rule on |
| 2 | that. |
| 3 | So the estate is not worse off because the fees |
| 4 | and expenses are covered.
It's better off by a million |
| 5 | dollars.
And it can be better off by a lot more than that |
| 6 | if we are successful in convincing the DOJ that the |
| 7 | distribution of proceeds from this property -- and by the |
| 8 | way, we're going to try that with other -- you know, for |
| 9 | example, I've mentioned the cash that's being frozen right |
| 10 | now, \$630 million we -- that's not today's issue, but the |
| 11 | game plan here, based on other cases where the DOJ has |
| 12 | sought and obtained forfeiture of assets, is for the Chapter |
| 13 | 11 Trustee to wear two hats, Chapter 11 Trustee and |
| 14 | forfeiture receiver.
And it all comes back to this court |
| 15 | for distribution. |
| 16 | And I know there are issues there.
And they know |
| 17 | that too, meaning the DOJ.
They're not naive.
They know |
| 18 | that. |
| 19 | The question is, okay, who's a victim?
In their |
| 20 | book, a victim might be only the victim of certain alleged |
| 21 | schemes.
But, you know, I can see that there are other |
| 22 | people in this case that Mr. Goldman represents that also |
| 23 | are victims. |
| 24 | For example, Bru Ma(ph), you don't know her, but |
| 25 | I'm using her as an example, because if you ever read her |
| | |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
25 |
| 1 | proof of claim, you'll see that there's really bad -- that |
| 2 | bad things are being alleged there.
Clearly she would say |
| 3 | I'm a victim. |
| 4 | So the point is, we're not asking the Court to |
| 5 | determine who's a victim today.
The only point is that this |
| 6 | would go to the victims of the debtor, TBD as to what that |
| 7 | means, but that's going to be a clear benefit to the estate |
| 8 | as long as they have an allowed claim, which Your Honor will |
| 9 | need to determine. |
| 10 | So you might say, well, if you're able to get the |
| 11 | million, why didn't you negotiate the full package?
And the |
| 12 | reason is very clear, and that's stated in the motion.
The |
| 13 | DOJ cannot have -- there's a very strict procedure for the |
| 14 | DOJ to do that.
There's a forfeiture team under the DOJ, |
| 15 | and they need to get the approval of the Attorney General to |
| 16 | agree to things like that have been done. |
| 17 | And I believe one of them was done before Your |
| 18 | Honor or a case that you may have inherited from another |
| 19 | judge, but this has happened before. |
| 20 | In that case, they went all the way to the |
| 21 | Attorney General and got the approval.
They're not going to |
| 22 | do that and cannot do that now until they have a finding of |
| 23 | guilt that is final against the debtor or the other |
| 24 | defendants.
So that is why we could not go further than |
| 25 | that. |
| | 120 |
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| | Ho Wan Kwok - August 29, 2023
26 |
| 1 | but I would -- and I don't want to, you know, |
| 2 | oversell, but I think that this is a blueprint for future |
| 3 | discussions.
Of course there are no agreements as to that. |
| 4 | They have not given us any indication they would consider |
| 5 | that.
The point though is that I think it's very good for |
| 6 | the estate to have that in place, to have this as the first |
| 7 | step, to make sure that we are no worse off, and plus we're |
| 8 | better off by a million dollars.
Again, if we prevail.
If |
| 9 | we don't prevail, it's like any case that we bring.
If we |
| 10 | don't prevail, we don't prevail.
And so that's the risk we |
| 11 | take. |
| 12 | Now, this settlement agreement, when it says that |
| 13 | the extra million dollars, the deemed expense, will be |
| 14 | distributed to the holders of allowed claims that are |
| 15 | victims, you're not, I want to be clear about this, you're |
| 16 | not approving that distribution today, meaning that the |
| 17 | bankruptcy code needs to be complied with. |
| 18 | The objection by Taurus, which was kind of |
| 19 | confusing, said, oh, what about secured creditors?
If there |
| 20 | are secured creditors, one, if there are secured creditors |
| 21 | on the property, they will be paid off the top of that |
| 22 | property, meaning out of the proceeds. |
| 23 | Second, if there are secured creditors in the |
| 24 | case, and we know of none, I'm pretty sure of that, I mean, |
at least none have been alleged to date, then, you know, you
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
27 |
| 1 | cannot confirm a plan that provides that secured creditors |
| 2 | get paid after unsecured. |
| 3 | So we want to be clear that approval of the |
| 4 | settlement agreement is just approval of a way forward. |
| 5 | You're not signing off on any plan, any future plan, and all |
| 6 | that. |
| 7 | So if you want to put in that section subject to |
| 8 | applicable law, including the bankruptcy code, that's fine |
| 9 | with us.
We're not trying to prejudge that.
What we're |
| 10 | trying to prejudge is that this estate is going to get a |
| 11 | million dollars on top of the expenses so that it cannot be |
| 12 | said that we just did this, you know, to spin our wheels. |
| 13 | You know, there's a net benefit to the estate and that was |
| 14 | critical here. |
| 15 | So that's a long description, but I think that |
| 16 | covers the entire settlements. |
| 17 | I want to leave, you know, Your Honor, with the |
| 18 | following thought, right? |
| 19 | This is not an approval of any distribution to |
| 20 | anyone.
This is not the approval of a sale of the property. |
| 21 | That will happen only if we prevail on the alter ego or |
| 22 | inequitable ownership claims.
And, therefore, any objection |
| 23 | on that is premature, because if we lose on that, none of |
| 24 | this matters. |
| 25 | And also there's another benefit here, which is |
| | |
| | 120 |
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| | Ho Wan Kwok - August 29, 2023
28 |
| 1 | that it's possible that the DOJ will not gain -- get a |
| 2 | conviction against Mr. Kwok.
That's not our -- it's not in |
| 3 | my domain.
I have no views on that.
I know nothing of it. |
| 4 | I'm not a criminal lawyer, so I'm not going to opine on |
| 5 | that, but that happens every day.
And, therefore, this |
| 6 | settlement, it says, you know, if they don't obtain a final |
| 7 | conviction and forfeiture, all this settlement goes away, |
| 8 | meaning it's all our money again if we prevail. |
| | |
So that sets that into motion today and it allows us to do what we did through the preliminary injunction, which Your Honor granted, which is to protect the property in the meantime, which is critical.
So I believe that for all these reasons this is clearly to the benefit of the estate. It's a blueprint for future collaboration with the DOJ. This has been done before in other cases.
And by the way, the other cases where this has been done, there's a clear order that says the bankruptcy -- when the DOJ's agreed to this, and they have not yet, to be clear, agreed to any of this -- but there's a clear procedure that says the bankruptcy court shall determine holders of allowed claims. Sometimes there's an allocation, X dollars can only go to the following types of creditors, that's a settlement with the DOJ.
We're not anywhere near that here, but I want to
|------------------------------------------------------|----------------------------------|---------------------------------------------|---------------|------------|
| | | | | |
Ho Wan Kwok - August 29, 2023 29 make sure Your Honor knows that this is not the first time that these types of agreements have been done, except that I think this is the first time that it's been done prior to a conviction and where they actually have obtained forfeiture. In the other cases, generally, they won, they got a conviction, they got a forfeiture order, and then there's either a battle with the trustee or a negotiation with the trustee and the estate to try to resolve things on a consensual basis. So unless Your Honor has questions, that would be really my presentation on this. I'm happy to answer any questions. Obviously, I want to cover any issues raised by Taurus here. THE COURT: The only question I have at the moment is, if, if this settlement is approved, does it -- does it get filed in the criminal action? I mean, how does this work as far as people? Does the judge in the criminal action know? I mean, I don't know if the judge in the criminal action cares. MR. DESPINS: Yeah. THE COURT: I'm just asking a question. MR. DESPINS: Yeah. That's a good question. I'm not sure I know the answer other than to say that my understanding is the DOJ was not going to seek approval of this in the criminal court, so I'm not sure if they would
| 120 |
|---------------------------------------------------------------|
| Ho Wan Kwok - August 29, 2023
30 |
| file something there or not. |
| THE COURT:
Okay. |
| MR. DESPINS:
They understood that we needed to do |
| that with Your Honor, but more than that, no. |
| THE COURT:
Okay.
Thank you. |
| MR. DESPINS:
Thank you, Your Honor. |
| THE COURT:
Attorney Conway, would you like to be |
| heard? |
| MR. CONWAY:
Thank you, Your Honor.
Michael |
| Conway, Lazare Potter Giacovas & Moyle, for Taurus Fund, |
| LLC. |
| Obviously you've read the papers, but I want to |
| just address the gaping hole that Mr. Despins just referred |
| to, and that is there has been no identification of the |
| victims here. |
| What the settlement calls for is creating a res |
| that certain creditors of the bankruptcy estate can claim |
| against, others cannot.
We don't know who can and who |
| can't. |
| And the fundamental question on any motion like |
| this is how is it fair and equitable?
We can't answer that |
| question now for the simple reason that we don't know which |
| creditors can or can't claim against it.
The obvious |
| solution would have been for them to come to an agreement on |
| who can claim against the res, who is a victim as they put |
| |
| | 120 | | | | |
|----|----------------------------------------------------------------|--|--|--|--|
| | Ho Wan Kwok - August 29, 2023
31 | | | | |
| 1 | it? | | | | |
| 2 | You know, we obviously take the position that it's | | | | |
| 3 | premature to start divvying up our property, our client's | | | | |
| 4 | property, before there's been any finding, but that's not | | | | |
| 5 | really relevant here. | | | | |
| 6 | But the fundamental concept is that there are | | | | |
| 7 | people who put their money into this property and none of | | | | |
| 8 | them had any idea and still don't really think they have a | | | | |
| 9 | claim in the bankruptcy estate. | | | | |
| 10 | If Your Honor were to find at the end of this case | | | | |
| 11 | that the bankruptcy estate gets the house, then they'd have | | | | |
| 12 | a claim to file.
And there's no protocol which says, okay, | | | | |
| 13 | well, if that's the case, then people who invested their | | | | |
| 14 | money into this house can file a late-filed claim, what have | | | | |
| 15 | you. | | | | |
| 16 | There's no identification of whether somebody with | | | | |
| 17 | a personal injury claim -- I think I saw something on the | | | | |
| 18 | claims registration, I didn't read all the claims -- but I | | | | |
| 19 | saw something described as a personal injury claim.
Is that | | | | |
| 20 | person going to have a claim against this res?
We don't | | | | |
| 21 | know.
There's no protocol here in this settlement motion. | | | | |
| 22 | And there needs to be in order to determine whether it's | | | | |
| 23 | fair and reasonable to the creditors of this estate, whether | | | | |
| 24 | it's fair and reasonable to the Taurus Fund, for one. | | | | |
| 25 | But the Taurus Fund obviously is made up of the | | | | |
| | Ho Wan Kwok - August 29, 2023
32 |
|---|-----------------------------------------------------------------|
| 1 | people who funded the Taurus Fund.
Those people are going |
| 2 | to come in here in this case and they're going to tell you |
| 3 | don't take away my house.
You know, this is my money.
You |
| 4 | know.
I know that the Trustee and the Government want to |
| 5 | say, you know, you were defrauded by Mr. Kwok, but I don't |
| 6 | believe I was defrauded.
I don't think you should take away |
| 7 | my property.
And if you do take the property away, then how |
| 8 | are they going to be able to get their money back, because |
| 9 | they're then going to need a process. |
So I guess the general conclusion, and again, we rest on the papers that were filed, which point out that there's a distinct prejudice against the loss of rights in the forfeiture proceeding that Taurus Fund is suffering. Because we no longer will have the right, if, as Mr. Despins points out, there's no finding there against Mr. Kwok, and the forfeiture doesn't go forward, they won't get their house back, which they would be able to get if this process played the normal course.
THE COURT: I almost followed you until the end there. I'm sorry. So you're saying your client's prejudiced because if the Government doesn't succeed in its charges it won't get their house back because Mr. Despins will have -- the Trustee of the estate will have an interest in the property? But don't I have to make that determination, which I haven't made yet?
|------------------------------------------------------|----------------------------------|--------------------------------------------------------------|------------|
| | | | |
| | 120 |
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| | Ho Wan Kwok - August 29, 2023
33 |
| 1 | MR. CONWAY:
Yes.
And it's -- it is -- this is |
| 2 | all -- we're all -- everybody's putting the cart before the |
| 3 | horse here in that the hypothetical is this, Your Honor. |
| 4 | This case gets finished first.
Mr. Despins sells |
| 5 | the house.
There's a fund of money that's sitting there. |
| 6 | Okay.
That sounds great to everybody but the people who |
| 7 | bought the house. |
| 8 | Now there's a finding in the criminal proceeding |
| 9 | that, you know what?
There was no fraud here.
That house |
| 10 | never should have been listed in the indictment.
Those |
| 11 | people who bought the house should get the house back. |
| 12 | There's no more house.
Now there's a fund of money. |
| 13 | THE COURT:
But you'd have the ability -- I |
| 14 | understand what you're saying, but you have the ability to |
| 15 | object to any -- what you're saying, and I -- you're saying |
| 16 | you're putting the cart before the horse, but I don't know |
| 17 | if that's accurate yet.
Because unless and until Mr. |
| 18 | Despins is successful in his claims, the house isn't an |
| 19 | asset of the estate. |
| 20 | What he appears to be doing, to me, and you can |
| 21 | disagree and I'm happy to hear you on it, is he's attempting |
| 22 | to have a mechanism in place to resolve what would be, what |
| 23 | could be, could be, competing interests between the |
| 24 | Government and this bankruptcy estate. |
| 25 | My understanding of the reading of the papers is |
| | |
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| | Ho Wan Kwok - August 29, 2023
34 |
| 1 | that this is really a settlement that -- whose provisions |
| 2 | won't go into effect unless and until certain things happen. |
| 3 | And if Mr. Despins loses, right, and he doesn't -- |
| 4 | and he doesn't prevail, then the estate has no interest. |
| 5 | If the Government loses and they can't seek the |
| 6 | property in forfeiture, then the Government loses, and then |
| 7 | your clients haven't lost anything. |
| 8 | So while I understand your argument, I'm having a |
| 9 | little trouble with it insofar as I think your rights are |
| 10 | still being protected.
You still will have a right. |
| 11 | First of all, you're going to have a right to -- |
| 12 | the preliminary injunction is issued, right?
You're going |
| 13 | to have a right to file a pleading.
You're going to have a |
| 14 | right to do discovery, do whatever you want to do in the |
| 15 | adversary proceeding, and then we still have to have a |
| 16 | trial, at which point you're going to represent the |
| 17 | defendants.
And you're going to, you know, argue that |
| 18 | Trustee Despins is wrong.
And you're to be able to present |
| 19 | all your evidence and do all that.
And then the Court's |
| 20 | going to have to rule. |
| 21 | You also have a right -- you'd also have a right |
| 22 | at some point, it seems to me -- right now, the Trustee's |
| 23 | claims are alter ego and beneficial equitable ownership, |
| 24 | right? |
| 25 | You're saying today that there's people that put |
| | 120 |
|----|-----------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
35 |
| 1 | money into the house that have a right to recover |
| 2 | essentially that money.
You might be right.
I don't know. |
| 3 | But you'd have to put that information forward, right?
We |
| 4 | don't have any of that information at this point.
And the |
| 5 | only information that we have is the information that was |
| 6 | found in the preliminary injunction, right, those findings |
| 7 | that were in the preliminary injunction. |
| 8 | So I'm not sure how this is negatively impacting |
| 9 | your clients at this moment. |
| 10 | MR. CONWAY:
If I may, Your Honor? |
| 11 | THE COURT:
Yes. |
| 12 | MR. CONWAY:
And I -- the point where you said |
| 13 | that you were confused, when we draft briefs, you know, we |
| 14 | put our best arguments first and our lesser important |
| 15 | arguments last, that was our last argument because we felt |
| 16 | there was a hypothetical problem. |
| 17 | The more important one was the one I started with, |
| 18 | was the fact that the victims have, you know, have not been |
| 19 | identified. |
| 20 | What the Trustee is attempting to do here is |
| 21 | identify a res and saying that allowed claims will be |
| 22 | allowed to recover from that res. |
| 23 | What we're suggesting here is that in order to |
| 24 | satisfy the fair and reasonable requirement, they're going |
| 25 | to have to say what would you have to do to bring an allowed |
| | |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
36 |
| 1 | claim in this situation? |
| 2 | And if you did that, I think you'd also, in |
| 3 | whatever order you would issue, have to include a procedure |
| 4 | which allows for the people who determine they have a claim |
| 5 | at the end of our case, would have a right, for instance, to |
| 6 | file a proof of claim of that -- |
| 7 | THE COURT:
Well, that's easy.
That part is easy. |
| 8 | MR. CONWAY:
It certainly is, if it was in the |
| 9 | order. |
| 10 | THE COURT:
But the part of setting a deadline for |
| 11 | filing claims with regard to an asset that was not deemed to |
| 12 | be an asset of the estate, that's easy.
I mean, that part, |
| 13 | when you talked about that initially, I said, okay, well, |
| 14 | that's a -- that's a valid point, but that's easy.
I mean, |
| 15 | that can be done. |
| 16 | MR. CONWAY:
That's the easiest part of what I'm |
| 17 | suggesting. |
| 18 | The second part is not hard.
I think the Trustee |
| 19 | has indicated that they haven't reached an agreement because |
| 20 | it's difficult.
It's not difficult to identify who would |
| 21 | have an allowed claim.
I think it's a simple matter of |
| 22 | saying anybody who is claimed to have given money to the |
| 23 | debtor that was used for the purpose of buying this house |
| 24 | would have an allowed claim.
But the other claimants in the |
| 25 | bankruptcy who may have a personal injury claim against the |
|------------------------------------------------------|----------------------------------|----------------|--------------------------------------------|------------|
| | | | | |
| | 120 |
|----|----------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
37 |
| 1 | debtor do not. |
| 2 | THE COURT:
I hear what you're saying.
But again, |
| 3 | why would I need to do that now?
Why would I need to do |
| 4 | that before the, before and if, because there may not be a |
| 5 | determination that this property is property of the estate. |
| 6 | So why would I need to go through that process now? |
| 7 | MR. CONWAY:
Because I don't think that the code |
| 8 | allows for this motion to be granted until it's shown that |
| 9 | it's fair and reasonable, and -- |
| 10 | THE COURT:
Well, it's -- I'm not sure -- the |
| 11 | standard is does it fall below the range of reasonableness, |
| 12 | that's the compromise standard that the courts all talk |
| 13 | about.
And what I -- why I'm not hearing from you why your |
| 14 | client is being harmed at the moment is because nothing's |
| 15 | really happening right now. |
| 16 | What's happening is this settlement agreement is |
| 17 | conditioned upon events happening in the future which may or |
| 18 | may not happen.
So if Mr. -- if Trustee Despins loses, then |
| 19 | there's no settlement agreement.
Nothing's going to happen. |
| 20 | There isn't going to be a million dollars in the estate. |
| 21 | There aren't going to be repayment of fees.
There isn't |
| 22 | going to be a res from which certain creditors could assert |
| 23 | a claim that this court would have to determine is an |
| 24 | allowed claim.
I wouldn't have to go through all that, |
| 25 | right, if he loses? |
| | |
Ho Wan Kwok - August 29, 2023 38 So I'm still -- I'm struggling a little bit with how is this harmful to you at the moment? When I say you, I'm talking about your clients obviously. MR. CONWAY: Understood. I've done the same thing today myself. Your Honor, I guess maybe the easiest way to do this would be for me to suggest my objection is a limited objection then, that's nothing in any order that's issued from this motion that would prejudice the rights of the various parties who may have an allowed claim relating to that property, and nothing that would allow -- nothing in the order that would allow people that don't have a claim relating to that property to claim against any res that's created, and nothing that would prevent a late claim from being filed. Those protections, if they -- if they were in place -- THE COURT: Well, it wouldn't be a late claim, right, because we'd set up a process for the claims to be filed, number one. Number two, the claims will have to be filed. And so like any proof of claim in a bankruptcy case, they'll have to be supported by evidence saying that it would establish it to be a claim, to which the Trustee or any other party could file an objection, and then there still
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
40 |
| 1 | no matter when it happens, it has issues. |
| 2 | However, this process is saying, look, we don't |
| 3 | know if it's going to happen.
But if it is, this is how it |
| 4 | will play out.
And these are what these two parties have |
| 5 | agreed to.
I think that fits within the range of |
| 6 | reasonableness at this point in time. |
| 7 | I don't think that you, your clients lose any |
| 8 | rights to contest -- well, I know they don't.
Your clients |
| 9 | don't lose any rights to contest the claims that Trustee |
| 10 | Despins has to prove to this court and get a judgment in |
| 11 | order for that asset to be an asset of the estate.
He has |
| 12 | to do that. |
| 13 | There is a preliminary injunction in effect, but |
| 14 | there still hasn't been a trial on the merits.
So we still |
| 15 | have to have that happen, number one. |
| 16 | Number two, with regard to the claims issues, |
| 17 | there is -- I don't see an issue from a bankruptcy court |
| 18 | perspective of setting up a process for claimants to file |
| 19 | claims in this, you know, in the -- in the case, in the -- |
| 20 | against the estate with regard to an asset that was never an |
| 21 | asset but now is.
Okay? |
| 22 | But it still flows through the same process, just |
| 23 | like all the other claims that's already -- that are already |
| 24 | filed in this case, which is -- which are the process is as |
| 25 | follows. |
| | |
| | 120 |
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| | Ho Wan Kwok - August 29, 2023
41 |
| 1 | Just because someone files a, and I think you know |
| 2 | this, just because they file a proof of claim doesn't mean |
| 3 | that that claim is an allowed claim.
It still has to go |
| 4 | through the process.
And if someone objects to it, then the |
| 5 | Court has to make a determination as to whether that claim |
| 6 | is a claim that's allowed under Section 502 of the code or |
| 7 | disallowed under Section 502 of the code.
So that comes |
| 8 | down to the distribution issues, not -- because you have to |
| 9 | have an allowed claim to receive a distribution. |
| 10 | So I understand what you're saying, but I'm not |
| 11 | convinced right now that your client is being harmed at this |
| 12 | point in time.
So I don't know if there's anything else |
| 13 | that you want to say. |
| 14 | But if you want to take a moment to talk to |
| 15 | Trustee Despins about it? |
| 16 | I mean, you know, the preliminary injunction had |
| 17 | some requirements associated with it.
And I saw the |
| 18 | document I think that you filed last night -- |
| 19 | MR. CONWAY:
Yes. |
| 20 | THE COURT:
-- about there's no insurance on the |
| 21 | property.
Well, in a bankruptcy case, you know, the United |
| 22 | States Trustee's Office would immediately move to dismiss a |
| 23 | case where there's no insurance over estate assets. |
| 24 | Now, there hasn't been a determination that this |
| 25 | is an estate asset yet, but, but, the preliminary injunction |
| | 120 |
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| | Ho Wan Kwok - August 29, 2023
42 |
| 1 | in connection with your -- the arguments that you made that, |
| 2 | you know, the Taurus Fund shouldn't be -- should be able to |
| 3 | use the property in the manner in which the Taurus Fund |
| 4 | believes it is allowed to, it doesn't seem to me in the |
| 5 | context of the preliminary injunction that the Taurus Fund |
| 6 | can have a property worth -- I don't know what it's worth, |
| 7 | right?
People have thrown around numbers.
I didn't have to |
| 8 | make a finding of a value, but somebody did and said it's, |
| 9 | you know, I don't know -- |
| 10 | MR. DESPINS:
Twenty-nine. |
| 11 | THE COURT:
-- how many millions? |
| 12 | MR. DESPINS:
Twenty-nine. |
| 13 | MR. CONWAY:
They paid high 20s, but we're trying |
| 14 | -- the insurance policy that we've asked for is 40, covers |
| 15 | 40. |
| 16 | THE COURT:
Okay.
So, you know, I think you need |
| 17 | to have insurance. |
| 18 | MR. CONWAY:
Oh, yeah.
And, Your Honor, you'll be |
| 19 | -- |
| 20 | THE COURT:
And I think that is, you know, with |
| 21 | regard to the property and its contents.
I mean, that -- |
| 22 | there are issues there. |
| 23 | MR. CONWAY:
And, Your Honor, this obviously |
| 24 | doesn't directly affect the motion, but just for your own |
| 25 | benefit, the holdup was that your injunction order is being |
| | |
| | 120 |
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| | Ho Wan Kwok - August 29, 2023
43 |
| 1 | incorporated into this so that anybody who uses the property |
| 2 | has to agree that they'll do it pursuant to your injunction |
| 3 | order.
The insurance carrier wants that, and proof that |
| 4 | anybody managing the property has separate liability |
| 5 | insurance, which is all apparently being provided to the |
| 6 | carrier today, so that they can write the property.
Forty |
| 7 | million dollars -- |
| 8 | THE COURT:
Good. |
| 9 | MR. CONWAY:
-- I understand for the liability and |
| 10 | then \$10 million for property.
So I think we're -- I think |
| 11 | everything will happen and be satisfactory to Your Honor and |
| 12 | to the Trustee. |
| 13 | THE COURT:
And when you say satisfactory, I just |
| 14 | want to be clear about that, it's not my satisfaction.
It's |
| 15 | the satisfaction of the bankruptcy code and the rules and |
| 16 | the need to protect assets, right? |
| 17 | I mean, one of the reasons the Trustee was |
| 18 | appointed in this case was because of allegations that have |
| 19 | been made by many parties that there were all these assets |
| 20 | out there that were never disclosed. |
| 21 | And that's why trustees are appointed in a Chapter |
| 22 | 11 case to investigate those affairs and see whether or not |
| 23 | those assets can be brought into an estate for the benefit |
| 24 | of creditors. |
| 25 | Trustee Despins filed this adversary proceeding, |
| | |
| | 120 |
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| | Ho Wan Kwok - August 29, 2023
44 |
| 1 | sought a temporary restraining order and preliminary |
| 2 | injunction, which were granted in part.
Not every form of |
| 3 | relief that was requested was granted, but a substantial |
| 4 | part of the relief requested was granted. |
| 5 | The reason that the insurance was part of that |
| 6 | injunction is I don't know how you can protect the status |
| 7 | quo if there isn't insurance.
You could say, well, there |
| 8 | wasn't insurance.
That's not protecting the status quo. |
| 9 | Well, then somebody could go burn down the house tomorrow, |
| 10 | right, and that's not protecting the status quo. |
| 11 | So in any event -- |
| 12 | MR. CONWAY:
We're on the same page. |
| 13 | THE COURT:
-- that sounds like you've made great |
| 14 | progress on that. |
| 15 | MR. CONWAY:
We're on the same page. |
| 16 | THE COURT:
And hopefully you've been talking with |
| 17 | the Trustee about security services and things of that |
| 18 | nature as well. |
| 19 | MR. CONWAY:
We did have a conversation about that |
| 20 | and, you know, there's been a security service team on site |
| 21 | since before the hearing.
And, you know, security protocol |
| 22 | is in place, so I'm not overly concerned about that either. |
| 23 | We're discussing that now. |
| 24 | THE COURT:
Well, from your filing, it -- not |
| 25 | yesterday, but the previous filing, where you did comply by |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
45 |
| 1 | filing what was in the contents of the house, the mansion, I |
| 2 | mean, there's obviously substantial sophisticated security |
| 3 | equipment throughout the whole place.
I mean -- |
| 4 | MR. CONWAY:
Yes. |
| 5 | THE COURT:
-- I don't even know what it is, but I |
| 6 | think I said 59 cameras or something.
I mean, there was |
| 7 | substantial security equipment at the property, so it didn't |
| 8 | seem to be burdensome for -- and I'm not saying you said it |
| 9 | was burdensome -- |
| 10 | MR. CONWAY:
No. |
| 11 | THE COURT:
-- I'm just saying it doesn't seem to |
| 12 | be burdensome for the Taurus Fund to make sure -- |
| 13 | MR. CONWAY:
We wanted it and still want it. |
| 14 | THE COURT:
-- that this property is secure. |
| 15 | MR. CONWAY:
We wanted it before and we still want |
| 16 | it now, Your Honor.
So, yeah, it's not burdensome.
It's |
| 17 | what we want. |
| 18 | THE COURT:
Okay. |
| 19 | MR. CONWAY:
So, you know, I think we're all on |
| 20 | the same page. |
| 21 | Again, I don't have anything more to say about the |
| 22 | motion that's on right now other than to say that I'm happy |
| 23 | to try and talk to the Trustee about the form of an order. |
| 24 | But if he's not willing to talk to me, as long as |
| 25 | it does not prejudice the rights down the road as |
|------------------------------------------------------|----------------------------------|---------------------------------------------|---------------|------------|
| | | | | |
Ho Wan Kwok - August 29, 2023 46 articulated by me today, I want to make sure that anybody who claims through the Taurus Fund to have an interest here can make it, file a proof of claim, and say that person with a personal injury claim should not take from this res. So as long as those issues are not prejudiced, those rights are not prejudiced, I have nothing more to say, Your Honor. THE COURT: Okay. Thank you. Trustee Despins? MR. DESPINS: Yes, Your Honor. So conceptually you're absolutely right, Your Honor, that if we prevail there should be a bar date. And we have not done that yet, but we will have to do that for various pockets that we're finding. For example, HCHK. If we prevail on that, these folks, without prejudging whether they have claims or equity or not, they should have a right to try to file a claim. So they will be -- unfortunately, there's going to be, there's going to be a lot of work, but we'll need to have a new bar date for -- and that's why I'm putting that to the side for now -- but if we prevail on this, people should be able to file a claim if they have a claim and their claim be processed by the Court. But if we prevail on this, people are not going to have a claim against the res. The finding by the Court
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
48 |
| 1 | being the owner is just, we'll prove that. |
| 2 | But the point is there should be no one on that |
| 3 | property right now other than security guards when there's |
| 4 | no insurance, zero.
These Kwok people who are going there |
| 5 | to have, to do whatever, they should not be in there when |
| 6 | there's no insurance. |
| 7 | Because remember the Lady May, Your Honor, we |
| 8 | forget sometimes the parts of the case, but remember that |
| 9 | they tried to get insurance and nobody would -- yeah, they |
| 10 | had very good conversations with insurance companies, but at |
| 11 | the end insurance companies said, Kwok, no insurance.
This |
| 12 | happened after March 15th. |
| 13 | So god bless Mr. Conway if he's able to get |
| 14 | insurance with full disclosure of what's going on, but I'm |
| 15 | not comforted by the fact he's having good conversation, |
| 16 | that's great, but until there's -- until there's insurance, |
| 17 | no one should be in that house.
No one.
And I'm sorry to |
| 18 | be strident about this, Your Honor, but this was part of the |
| 19 | relief we sought.
You said you did not deny it.
You would |
| 20 | -- but this is a critical issue. |
| 21 | If he gets insurance tomorrow, god bless him, then |
| 22 | they can go back.
But in the meantime, there should be no |
| 23 | one on that property when there's no insurance in place. |
| 24 | And also the fact there's no insurance tells you everything |
| 25 | you need to know about the case.
It's just this is |
Ho Wan Kwok - August 29, 2023 49 insanity. And so, Your Honor, this is part of our preliminary injunction. I know that's not before you, but you did reserve the right under your preliminary injunction order to order the relief that you did not grant. This relief should be granted today. If he gets insurance tomorrow, fine, they can all -- not all by the way. We're having a dispute over the way your order should be read. You know, Mr. Conway is of the view that all these friends can come in 20 at a time only and then they can come out and another 20 can come in an hour later, and then another 20 an hour later as long as there's no more than 20 at a particular time. This is exactly what we were concerned about, the college dorm syndrome. If they can pick the 20 people that they want to have access, god bless those people. Again, that's if they have insurance. But it's the 20 and that we're going to stick to that. We cannot have a rotation where people come in, 20 come in one day, leave, another 20 come in the next day. The owner has no interest in that. This is all to protect the Kwok regime and that should not be happening, Your Honor. I want to make sure this point is clear. I thought it was clear in the order that there was a 20
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| | Ho Wan Kwok - August 29, 2023
50 | | | |
| 1 | person, not on a rotating 20, because then it becomes like | | | |
| 2 | uncontrollable.
Who are all these people? | | | |
| 3 | But certainly today, when there's no insurance in | | | |
| 4 | place, there should be no one on the premises.
I would | | | |
| 5 | really urge Your Honor to order that relief immediately. | | | |
| 6 | Thank you. | | | |
| 7 | THE COURT:
Thank you. | | | |
| 8 | Any response, Attorney Conway? | | | |
| 9 | MR. CONWAY:
Yeah.
A couple of points there. | | | |
| 10 | Both offensive. | | | |
| 11 | The property was purchased and then went through a | | | |
| 12 | major rehabilitation.
It hasn't been finished yet.
It | | | |
| 13 | stopped because of all this.
Every contractor that's gone, | | | |
| 14 | set foot there, has had to provide insurance.
There's been | | | |
| 15 | insurance for every person that's done work at that | | | |
| 16 | property.
I don't know if the security company has its own | | | |
| 17 | certificate of insurance.
I haven't seen that, but I would | | | |
| 18 | imagine they probably do. | | | |
| 19 | You know, it's not a matter of, oh, well, there's | | | |
| 20 | no consideration of insurance.
The property is not ready | | | |
| 21 | yet for its intended purposes.
It's intended purpose, and | | | |
| 22 | this goes to the second point, was to be used by the | | | |
| 23 | putative owners of Taurus Fund. | | | |
| 24 | THE COURT:
Then why are people coming and going? | | | |
| 25 | MR. CONWAY:
They're not coming and going.
That's | | | |
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| | Ho Wan Kwok - August 29, 2023
51 | |
| 1 | just coming out of his mouth.
That's not what's -- | |
| 2 | THE COURT:
Well, no.
We saw some evidence about | |
| 3 | that during the hearing.
I mean, we saw people coming in | |
| 4 | and out of the, which wasn't controverted, coming in and out | |
| 5 | of the house in numbers.
And we saw two people talking | |
| 6 | about the fact that it's -- well, we saw more than two | |
| 7 | people. | |
| 8 | We saw several video clips where different people | |
| 9 | from different parts of the country talked about using the | |
| 10 | house, the mansion, as their base, and that they were | |
| 11 | thanking the debtor for making that available to them.
And | |
| 12 | there were people coming and going. | |
| 13 | And if there are people -- if there are people | |
| 14 | coming and going who are not these people that are working | |
| 15 | that you say are insured, then that is a problem. | |
| 16 | And I understand everything you're saying, but | |
| 17 | there's no evidence in the record right now to support | |
| 18 | anything you're saying. | |
| 19 | The only evidence in the record supports the fact | |
| 20 | that people are coming and going from this house.
That they | |
| 21 | -- that the evidence established that the individuals who | |
| 22 | started talking about using the mansion for a clubhouse or a | |
| 23 | base didn't even know about the mansion until April 9th. | |
| 24 | That was -- that was their words.
And no one else came in | |
| 25 | here and said anything to the contrary.
No one. | |
| | | |
Ho Wan Kwok - August 29, 2023 52 You didn't -- I mean, I understand you appeared the morning of and you -- MR. CONWAY: I tried. THE COURT: Yeah. But you didn't bring any witnesses. You didn't -- where's your people? MR. CONWAY: I tried to -- THE COURT: Where's anybody from Taurus Fund that has filed any kind of things that say I am the so-and-so of Taurus Fund. These are my responsibilities. I make sure that I have insurance, do not have insurance. That I'm only allowing this. I mean, you've had time now. You've had a little bit of time. And by the way, if you -- if you watched the timing in this adversary proceeding, it was filed on July 11th. It's August 29th. And the temporary restraining order didn't go in effect until August 1st, so there's been time. And we had a trial. And as I said, you know, your clients, whoever they are, made a determination not to pen the mail I guess when they got served with these things. And Mr. Bennett, now that you represent him, I mean, his wife was served. I haven't seen anything that he's filed. He's not here. I don't see anybody else in the courtroom. Mr. Bennett, is Mr. Bennett here?
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| | Ho Wan Kwok - August 29, 2023
53 |
| 1 | (No audible response) |
| 2 | THE COURT:
Your entity has to work through a |
| 3 | human being, at least one.
And so that human being has to |
| 4 | do something or not do something. |
| 5 | But to say there aren't people coming and going, |
| 6 | the evidence that's in the record right now does not support |
| 7 | that statement.
The evidence in the record supports the |
| 8 | statement that there are people coming and going and that |
| 9 | there's no insurance at the property. |
| 10 | MR. CONWAY:
Well, the evidence in the record was |
| 11 | about four events that took place long before the hearing. |
| 12 | The Trustee just said to you that this is a college dorm |
| 13 | with 20 people going in every hour.
That's not -- there's |
| 14 | no evidence to support that.
You've got to grant me that, |
| 15 | Your Honor. |
| 16 | THE COURT:
Well, he didn't say there were 20 |
| 17 | people going in every hour.
He said he doesn't want 20 |
| 18 | people going in every hour.
He doesn't want a group of 20 |
| 19 | coming in, then leaving, and another group of 20 coming in, |
| 20 | then leaving.
That's what he was saying. |
| 21 | MR. CONWAY:
Nor does anybody else. |
| 22 | THE COURT:
He wasn't talking about the |
| 23 | interpretation of that provision of the preliminary |
| 24 | injunction. |
| 25 | MR. CONWAY:
Right. |
| | |
Ho Wan Kwok - August 29, 2023 54 THE COURT: But all I'm saying to you is we need to have someone responsible be responsible, right? MR. CONWAY: Absolutely, Your Honor. THE COURT: And -- MR. CONWAY: And Your Honor issued an order saying that nothing further should be filed with respect to the injunction hearing the day after -- the night of the hearing or the day after the hearing, so -- THE COURT: Well, I also said that you could move for -- you could file a motion if you wanted more than 20 people there. You could. It says that. It says in the order somewhere. I can pull it up. MR. CONWAY: And if we do, I'm sure we will. We have so far, right now, we're trying to get everything settled. We're not trying to have people there at all right now. We're trying to get this -- all the administrative issues resolved here. You know, to my knowledge, there are not movement people going in and out right now. We're trying to make sure that everything gets squared away. The issue is not one where, you know, I've been told, oh, my god, they want to have this event there. You've got to get the judge's permission to do it. There's nobody that said that. There's no reason to come to Your Honor and make a motion to have more than 20 people there
Ho Wan Kwok - August 29, 2023 55 right now. But the fact of the matter is that if Your Honor were to say, well, it has to be the same 20 people throughout this case, what you've done is you've said I'm giving the property to the Trustee in advance of the decision in this case, because the people who invested in this property are not 20 people. There may be two people who want to use it next month. There might be ten people who want to use it the following month. But it's not going to be used as a base of operations for a hundred people. THE COURT: What do you mean the people that invested in this entity? I mean, you're an entity. So you have -- you're out there -- your clients are out there fund- raising or raising money for the operations of the LLC? MR. CONWAY: Your Honor, it shouldn't be that difficult to visualize why the Taurus Fund, LLC was created as a special purpose vehicle to buy a property by the fund that was subscribed to by its investors. The people who -- THE COURT: But who are its investors? MR. CONWAY: The people who took the money and put it into the fund. THE COURT: I understand. But they have names I would assume and identifies. MR. CONWAY: They certainly do, Your Honor. THE COURT: Okay.
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| | Ho Wan Kwok - August 29, 2023
56 |
| 1 | MR. CONWAY:
And so they're the ones who want to |
| 2 | -- |
| 3 | THE COURT:
So they need to come here and make |
| 4 | their case. |
| 5 | MR. CONWAY:
Well, they don't have to come here. |
| 6 | The fund can come here and say here's what we offered them. |
| 7 | We said if you -- if you want a -- us to go out and buy this |
| 8 | house so that you can use it, here's what we'll do.
We'll |
| 9 | buy the house with your money. |
| 10 | THE COURT:
But the evidence to the -- the |
| 11 | evidence that was submitted at the preliminary injunction |
| 12 | doesn't support what you just said, because the two people |
| 13 | that talked about and did the tour of the land, the lands, |
| 14 | the grounds, said they didn't even know about the mansion |
| 15 | until August, April 9th, excuse me, so how would they have |
| 16 | invested in something to use it as a clubhouse or a base? |
| 17 | MR. CONWAY:
Those people weren't members of G |
| 18 | Clubs.
Those people were members of the movement that were |
| 19 | making a video for the purpose -- |
| 20 | THE COURT:
So you're saying G Club is the |
| 21 | investors? |
| 22 | MR. CONWAY:
G Club Internationals is the one that |
| 23 | invested money. |
| 24 | THE COURT:
In the Mahwah -- you mean it funded |
| 25 | the purchase of the Mahwah mansion? |
| | |
| | 120 |
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| | Ho Wan Kwok - August 29, 2023
57 |
| 1 | MR. CONWAY:
Absolutely. |
| 2 | THE COURT:
Okay. |
| 3 | MR. CONWAY:
Specific people, specific |
| 4 | investments, it will all come out in this case. |
| 5 | THE COURT:
Okay. |
| 6 | MR. CONWAY:
I can't prove my case without being |
| 7 | specific. |
| 8 | THE COURT:
I agree. |
| 9 | MR. CONWAY:
To a point. |
| 10 | THE COURT:
I agree. |
| 11 | MR. CONWAY:
The Trustee should be held to the |
| 12 | same standard, but I certainly will be. |
| 13 | THE COURT:
Well, he put forth substantial |
| 14 | evidence that no one controverted. |
| 15 | MR. CONWAY:
Well, I asked him specifically where |
| 16 | did Mr. Kwok get the money to do this?
He said, well, Mr. |
| 17 | Kwok doesn't do it that way.
He just gets money from other |
| 18 | people and, therefore, it's his.
That's not evidence. |
| 19 | That's just speculation. |
| 20 | THE COURT:
That's not -- that wasn't -- |
| 21 | MR. CONWAY:
That's exactly what he said. |
| 22 | THE COURT:
It may be your conversation, but |
| 23 | that's not what happened in the courtroom. |
| 24 | MR. CONWAY:
That's exactly what happened when he |
| 25 | was on the stand.
When I asked him where the money came |
| | |
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| | Ho Wan Kwok - August 29, 2023
58 |
| 1 | from, he said, I don't know.
That's just not the way Mr. |
| 2 | Kwok does business.
And I don't know where the money came |
| 3 | from.
He speculates. |
| 4 | I will put forth the actual evidence in this case. |
| 5 | We're not here to debate what the evidence will be.
We're |
| 6 | not here to try the case today, Your Honor. |
| 7 | The point is that the people who, when they put |
| 8 | the money in, thought that they would have the right to go |
| 9 | and sleep at the house shouldn't be prevented from going and |
| 10 | sleeping at the house.
And that's just the same as if -- |
| 11 | THE COURT:
Then you'll have to file a motion and |
| 12 | they'll have to come to tell me why they should be able to |
| 13 | sleep at the house. |
| 14 | MR. CONWAY:
Well, then you might as well just |
| 15 | grant the motion in its entirety, because you're taking the |
| 16 | house away. |
| 17 | THE COURT:
No, I don't agree with you.
I don't |
| 18 | agree.
I gave that -- I don't agree with you. |
| 19 | What we -- what happened was the preliminary |
| 20 | injunction issued to attempt to preserve the status quo. |
| 21 | And according to the testimony and the evidence submitted, |
| 22 | none of these people that have been going in and out of the |
| 23 | mansion even knew about the mansion before April 9th. |
| 24 | MR. CONWAY:
It wasn't in use.
Why would they |
| 25 | know about it?
Everybody agrees and should agree because |
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| | Ho Wan Kwok - August 29, 2023
59 |
| 1 | the evidence is absolutely crystal clear that they bought |
| 2 | the house and started rehabbing it.
And that the house was |
| 3 | not ready. |
| 4 | THE COURT:
Who's they?
Who's they?
You keep |
| 5 | saying they.
I don't know who they is. |
| 6 | MR. CONWAY:
Well, Taurus Fund bought the house. |
| 7 | THE COURT:
Okay. |
| 8 | MR. CONWAY:
Taurus Fund hired contractor after |
| 9 | contractor after contractor.
I've seen the invoices.
I've |
| 10 | seen the work.
They were doing this work.
They haven't |
| 11 | even finished the work yet. |
| 12 | THE COURT:
Then why are people going in and out |
| 13 | if the work isn't finished? |
| 14 | MR. CONWAY:
Because the work that needs to be |
| 15 | done doesn't prevent people from going in and out.
They're |
| 16 | not having people in and out like we saw on the screen from |
| 17 | months ago.
They're having people right now going in and |
| 18 | out that are security, people staying there who are |
| 19 | security.
People who are going in and out now are people |
| 20 | trying to make sure that the house is secure and run |
| 21 | properly.
But right now -- |
| 22 | THE COURT:
Are those people employees of the |
| 23 | Taurus Fund? |
| 24 | MR. DESPINS:
No. |
| 25 | MR. CONWAY:
Those people are employees of a |
| | 120 |
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| | Ho Wan Kwok - August 29, 2023
60 |
| 1 | management company. |
| 2 | THE COURT:
And is the management -- |
| 3 | MR. CONWAY:
The Taurus Fund is an LLC. |
| 4 | THE COURT:
I understand what the Taurus Fund is. |
| 5 | But they have obligations as an LLC.
They can't just -- |
| 6 | MR. CONWAY:
To hire a management company. |
| 7 | THE COURT:
All right.
So who's the managing |
| 8 | company? |
| 9 | MR. CONWAY:
I'm going to give the Trustee by |
| 10 | September 1 all the information about the security company |
| 11 | and the management company.
We're trying to make sure now |
| 12 | that there is absolutely nothing that the Trustee or this |
| 13 | court can take issue with.
That everybody agrees to |
| 14 | everything that's in the preliminary injunction order. |
| 15 | It's all -- you know, Your Honor, we're trying our |
| 16 | best to do exactly what we were ordered to do and what -- |
| 17 | exactly what the Trustee says he wants. |
| 18 | THE COURT:
I understand.
I understand that.
All |
| 19 | I'm saying is I raised -- you filed a document.
And I |
| 20 | appreciate you filed the document because it was required by |
| 21 | the preliminary injunction order, but it says there's no |
| 22 | insurance.
That's concerning.
Okay?
That's very |
| 23 | concerning. |
| 24 | As I said, the United States Trustee's Office, if, |
| 25 | if there had been a determination, which there is not at |
| | |
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| | | | | | | |
| | 120 |
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| | Ho Wan Kwok - August 29, 2023
61 |
| 1 | this point, that this asset was an asset of the estate, the |
| 2 | United States Trustee's Office would run into this courtroom |
| 3 | and say you have to dismiss this case immediately.
There is |
| 4 | no insurance.
The rights of the estate aren't being |
| 5 | protected and this case cannot continue. |
| 6 | And we have that happen a lot.
I mean, that's one |
| 7 | of the requirements is that there has to be insurance. |
| 8 | Okay? |
| 9 | So you're now telling me you're going to get |
| 10 | insurance and you have to -- but Trustee Despins is saying, |
| 11 | well, until you get insurance, nobody should be able to come |
| 12 | in and out of the building.
You say, well, the only people |
| 13 | coming in and out of the building are people who are |
| 14 | insured.
Well, I don't know that. |
| 15 | MR. CONWAY:
No.
I'm saying that that's what has |
| 16 | been the case.
I don't think any of the contractors are |
| 17 | doing work right now.
I think right now the people who are |
| 18 | at the premises are security. |
| 19 | THE COURT:
Okay. |
| 20 | MR. DESPINS:
No. |
| 21 | THE COURT:
Well, that would be good.
And |
| 22 | hopefully they're keeping a log on all the things that the |
| 23 | preliminary injunction has asked them to do. |
| 24 | MR. CONWAY:
And I've asked whether that was being |
| 25 | kept before.
I was told it was.
I'm going to make sure |
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| | Ho Wan Kwok - August 29, 2023
62 |
| 1 | that the log is as detailed as possible going forward. |
| 2 | But, Your Honor, as Mr. Despins also said, this |
| 3 | case and all the stigma around it makes getting insurance |
| 4 | more difficult.
So asking for us to get a \$40 million |
| 5 | policy in 24 hours, which is what would have happened |
| 6 | essentially, is difficult.
I think everybody can see that. |
| 7 | I think we're going to have that policy either |
| 8 | today, they may have it now, I've been here in court, but |
| 9 | the only -- the only stumbling blocks were that they wanted |
| 10 | the confirmation that this -- that the preliminary |
| 11 | injunction requirements were agreed to by the people who are |
| 12 | going to be on that premises.
They signed that.
I think |
| 13 | that that's something that both Your Honor and the Trustee |
| 14 | should welcome.
They also wanted the evidence of other |
| 15 | business insurance by the management company. |
| 16 | So I don't see how anything that has happened |
| 17 | here, this, you know, a matter of a couple of days since the |
| 18 | order issued, should be a concern.
We're doing our best. |
| 19 | And I think we're going to succeed.
If we can't, Your |
| 20 | Honor, I'm an officer of the court, I'll the Trustee, look, |
| 21 | I tried, I can't get it.
Let's go back to the judge and see |
| 22 | what we need to do. |
| 23 | THE COURT:
All right.
With regard to the |
| 24 | settlement with the United States, what I'd like you both to |
| 25 | do is I'd like you to confer on the form of a proposed |
| | |
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| | | | |
| | 120 |
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| | Ho Wan Kwok - August 29, 2023
63 |
| 1 | order.
And if you can't agree, then I'd like you to both |
| 2 | submit your proposed orders by 5 p.m. tomorrow.
And I'll |
| 3 | take a look at them.
And I'll decide which one, if either, |
| 4 | I'll enter.
Or I'll make, you know, comments to them and |
| 5 | tell you that's what the order is going to say. |
| 6 | As I stated already, the test is does this |
| 7 | settlement fall below the range of reasonableness? |
| 8 | And because I am not convinced or I'm not |
| 9 | persuaded at this point that there's any harm to your client |
| 10 | if this settlement agreement is approved under the terms and |
| 11 | conditions that exist right now, which is nothing's going to |
| 12 | happen unless and until Mr. Despins is successful on a trial |
| 13 | on the merits, and, you know, I guess I don't recall what it |
| 14 | says about that, but, you know, final, non-appealable order, |
| 15 | whatever the situation may be, then I don't see how your |
| 16 | client's being harmed. |
| 17 | So I do think that this settlement is within the |
| 18 | range of reasonableness. |
| 19 | I'm going to give you an opportunity -- and you |
| 20 | stated and I appreciate that maybe your objection is more |
| 21 | limited than you thought originally, because if the order |
| 22 | can provide for language that works for your clients, then |
| 23 | you might be okay with it, but you might not.
So I'm going |
| 24 | to let you both take the opportunity to figure that out. |
| 25 | And then you file on the docket of the case by 5 p.m. |
| | |
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| | Ho Wan Kwok - August 29, 2023
64 |
| 1 | tomorrow whether there's an agreed order or there's two |
| 2 | separate orders and we'll go from there.
Okay? |
| 3 | MR. CONWAY:
I think that's very fair, Your Honor. |
| 4 | Thank you very much. |
| 5 | THE COURT:
All right.
Thank you. |
| 6 | MR. DESPINS:
Your Honor? |
| 7 | THE COURT:
Yes. |
| 8 | MR. DESPINS:
This argument that somehow they're |
| 9 | working really fast in getting insurance, that's |
| 10 | interesting, but anybody that owns a \$29 million house |
| 11 | should have insurance long before Your Honor told them to |
| 12 | show that they had insurance. |
| 13 | So, Your Honor, I renew my request until -- and if |
| 14 | he wants a 24-hour, you know, standstill on that, that's |
| 15 | fine, but there should be a very short fuse where there |
| 16 | should be a complete prohibition on anyone other than |
| 17 | security people and the Trustee representative to go to this |
| 18 | house until they have insurance.
It's just a fundamental |
| 19 | issue.
Thank you, Your Honor. |
| 20 | THE COURT:
Yes.
And I understand your concern |
| 21 | and I'm going to give him until 5 p.m. tomorrow to show you |
| 22 | and the United States Trustee's Office that the property is |
| 23 | insured. |
| 24 | And then if not, you'll have to file something, |
| 25 | Mr. Despins, after that time frame saying you want an |
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| | Ho Wan Kwok - August 29, 2023
65 |
| 1 | immediate order prohibiting people from going on the |
| 2 | property or in the property other than security until and |
| 3 | unless insurance is obtained.
Okay? |
| 4 | MR. DESPINS:
Thank you, Your Honor. |
| 5 | THE COURT:
All right.
Thank you. |
| 6 | MR. CONWAY:
Your Honor, may I be excused? |
| 7 | THE COURT:
Yes.
Thank you. |
| 8 | All right.
So then the only other matter on the |
| 9 | calendar is the Rule 2004 examination motion. |
| 10 | And I think, Attorney Major, you're here on that |
| 11 | as well, is that correct? |
| 12 | MR. MAJOR:
Yes, Your Honor. |
| 13 | THE COURT:
Okay.
All right. |
| 14 | Mr. Linsey, are you going to start? |
| 15 | MR. LINSEY:
Yes.
May I approach, Your Honor? |
| 16 | THE COURT:
Yes, you may. |
| 17 | MR. LINSEY:
Thank you. |
| 18 | The Trustee's sixth omnibus 2004 exam motion seeks |
| 19 | to extend the Trustee's Rule 2004 investigation to |
| 20 | additional relevant banks where the Trustee's investigation |
| 21 | suggests that relevant transactions have occurred and to |
| 22 | additional entities and individuals who were employed or |
| 23 | otherwise involved with the debtor's financial affairs via |
| 24 | certain associated entities. |
| 25 | To date, Rule 2004 has been one of the most |
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| | Ho Wan Kwok - August 29, 2023
66 | |
| 1 | effective tools for the Trustee to investigate the debtor's | |
| 2 | finances. | |
| 3 | As the Court is aware, the debtor has pursued his | |
| 4 | business activities through a complicated and convoluted web | |
| 5 | of dozens, if not hundreds, of associated entities and | |
| 6 | individuals.
Money and property have flowed through that | |
| 7 | web to the point that there are tens of thousands, if not | |
| 8 | hundreds of thousands, of individual transfers that are | |
| 9 | reflected in financial records. | |
| 10 | As such, it is imperative that the Trustee's Rule | |
| 11 | 2004 examination be able to undertake a holistic review of | |
| 12 | the debtor's financial affairs. | |
| 13 | The only objection to the sixth 2004 exam motion | |
| 14 | is the objection that was filed by Greenwich Land and Hing | |
| 15 | Chi Ngok, who I'll refer to as the Greenwich Land parties. | |
| 16 | The basis for their objection is that the Trustee's Rule | |
| 17 | 2004 examination relates to issues relevant to the pending | |
| 18 | adversary proceeding that Trustee has brought against the | |
| 19 | Greenwich Land parties. | |
| 20 | The Court has already considered Greenwich Land's | |
| 21 | position and twice decided it against the position in favor | |
| 22 | of the Trustee. | |
| 23 | In the first instance, Mei Guo and HK USA made a | |
| 24 | substantively and nearly identical objection to the | |
| 25 | Trustee's second omnibus 2004 exam motion.
That was back in | |
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| | Ho Wan Kwok - August 29, 2023
67 | | |
| 1 | December.
And the Court ruled that while the Trustee may | | |
| 2 | not seek Rule 2004 discovery from parties to pending | | |
| 3 | adversary proceedings, the Trustee is free to continue his | | |
| 4 | investigation with respect to non-parties, even to the | | |
| 5 | extent that matters may relate to pending adversary | | |
| 6 | proceedings. | | |
| 7 | That decision is at docket no. 1184 in the main | | |
| 8 | case.
So that means that this issue was decided almost ten | | |
| 9 | months ago. | | |
| 10 | Then several months ago, in May, Greenwich Land | | |
| 11 | and Hing Chi Ngok again objected on this identical basis | | |
| 12 | citing their own pending adversary proceeding. | | |
| 13 | At that time, Trustee's counsel explained to the | | |
| 14 | Greenwich Land parties that the Court has already ruled on | | |
| 15 | this issue, but the parties insisted on objecting anyway. | | |
| 16 | And so the Court decided that same issue again. | | |
| 17 | Unsurprisingly, the Court decided it the same way. | | |
| 18 | The Trustee may continue his 2004 investigation as | | |
| 19 | to non-parties even if some of the subject matter may bear | | |
| 20 | on a pending adversary proceeding. | | |
| 21 | The first point that the Trustee made in response | | |
| 22 | to Greenwich Land's last objection is the first point that | | |
| 23 | we make here, which is that this issue is law of the case. | | |
| 24 | The complexities of this Chapter 11 case are manifest.
The | | |
| 25 | number of docket entries exceeds many other Chapter 11 cases | | |
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68 |
| 1 | in this district by an order of magnitude. |
| 2 | If this case is to proceed in an orderly manner, |
| 3 | parties should not be free to relitigate decided issues at |
| 4 | will, much less on multiple occasions.
Beyond that, the |
| 5 | Court was right the first time it ruled.
And the Court for |
| 6 | that matter was right the second time it ruled. |
| 7 | I hesitate to go too far down the rabbit hole here |
| 8 | because I don't want to take the Greenwich Land parties' |
| 9 | bait, but they have selectively quoted and cited authority |
| 10 | in their objection to stand for a proposition that simply |
| 11 | doesn't exist, that continuing a Rule 2004 investigation |
| 12 | with respect to non-parties that may have some subject |
| 13 | matter overlap with pending adversary proceedings is not |
| 14 | allowed. |
| 15 | The case law does not stand for that proposition. |
| 16 | In fact, the case law contradicts it and that's why Your |
| 17 | Honor has twice ruled what Your Honor ruled. |
| 18 | There's one more concerning feature of the |
| 19 | objection that was filed by the Greenwich Land parties and |
| 20 | that is the way that it discusses the investigation that is |
| 21 | sought to be continued by the sixth Rule 2004 motion. |
| 22 | Just looking at the summary of that investigation |
| 23 | as it's described, as it excerpts from the subpoenas and |
| 24 | requests for production, one would think that the Rule 2004 |
| 25 | motion is being conducted solely to investigate Greenwich |
| | |
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| Land parties' alleged assets.
In fact, looking at the RFPs |
| themselves, one finds that they implicate a range of assets |
| that go well beyond the Greenwich Land parties' claimed |
| assets.
For example, and these are just examples, the RFPs |
| also implicate the property at the Sherry-Netherland Hotel. |
| We just settled the Bravo Luck adversary proceedings today. |
| If this 2004 exam is really a substitute for |
| adversary proceeding discovery, why would we possibly be |
| seeking discovery, an investigation that implicates those |
| matters? |
| The same thing with the Lady May.
The Lady May is |
| listed in their RFPs.
The Lady May has already been sold. |
| We're not -- we're not listing things for fun. |
| We're not listing things as a substitute for Part 7 |
| discovery under the Federal Rules of Bankruptcy Procedure. |
| The reality here is, and this court has lived with |
| this case long enough to know, the Trustee's finances or |
| rather the debtor's finances are an intricate, supremely |
| complicated spider web.
And to unravel his business and his |
| assets you can't hack chunks out of the web and expect |
| everything to fit together.
There has to be a holistic |
| review.
I think that the Court's two prior rulings have |
| recognized that. |
| Beyond that, the Greenwich Land parties argue |
| |
| |
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| 1 | adversary proceeding.
And while I want to be very clear, |
| 2 | the Trustee disagrees with the Greenwich Land parties' |
| 3 | position as to what they're entitled to and what they're not |
| 4 | entitled to in the adversary proceeding, the proper way to |
| | |
| 5 | litigate a discovery dispute in an adversary proceeding is |
| 6 | not to object to a 2004 exam motion. |
| 7 | Finally, I will just briefly note that even if the |
| 8 | Court overrules the Greenwich Land parties' objection, |
| 9 | there's already prejudice to the estate here.
The objection |
| 10 | will delay the granting of the 2004 exam motion and thus the |
| 11 | issuance of subpoenas by several weeks. |
| 12 | And this reminds me of being in high school when |
| 13 | my parents would say you've got to do your math homework |
| 14 | every week because what you learn next week builds on what |
| 15 | you do this week, the Trustee's investigation is the same |
| 16 | way.
The subject matter, the people that we're issuing |
| 17 | subpoenas to under this motion, the terms of the RFPs, the |
| 18 | subject matter, that's all -- a large portion of it is |
| 19 | subject matter that the Trustee has learned through his |
| 20 | existing 2004 exam investigation.
And to the extent that |
| 21 | that 2004 exam investigation is delayed, the delay builds on |
| 22 | itself, everything takes longer, everything's more |
| 23 | expensive, the docket entries continue to click, the |
| 24 | administrative expenses continue to build. |
| 25 | So we would ask that Your Honor grant the sixth |
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| | Ho Wan Kwok - August 29, 2023
71 |
| 1 | 2004 exam motion, overrule the objection, and make clear |
| 2 | that this time Your Honor's ruling should be respected and |
| 3 | further objections in this -- in this respect should not be |
| 4 | -- should not be filed. |
| 5 | And I'm happy to answer any questions the Court |
| 6 | may have. |
| 7 | THE COURT:
Thank you.
I do not have any |
| 8 | questions at this time. |
| 9 | MR. MAJOR:
Thank you, Your Honor.
Chris Major, |
| 10 | Meister Seelig & Fein representing Hing Chi Ngok and |
| 11 | Greenwich Land, LLC. |
| 12 | I want to address the point that counsel for the |
| 13 | Trustee led and closed with, with the idea that we should be |
| 14 | prohibited from objecting to the motions. |
| 15 | And we didn't cost the Trustee weeks.
We filed |
| 16 | our objection on August 18th.
It's August 29th and the |
| 17 | matter is being heard. |
| 18 | We have not just the right, but the obligation to |
| 19 | make a record in the case.
Also I want to protect our |
| 20 | clients' rights to make future objections, for example, |
| 21 | evidentiary objections at trial. |
| 22 | If the Trustee tries to spring evidence that he's |
| 23 | collected in the 2004 about the issues in the adversary |
| 24 | proceeding, and he doesn't turn them over to us and then |
| 25 | tries to put them in at trial, I don't want the Trustee, |
| | |
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| | Ho Wan Kwok - August 29, 2023
72 | | | | |
| 1 | when I object to say, well, you didn't object to our sixth | | | | |
| 2 | omnibus motion.
So I think it's entirely appropriate that | | | | |
| 3 | we asserted our objection. | | | | |
| 4 | The issues are similar, not identical, but, and | | | | |
| 5 | for that reason I will be brief.
I'm mindful of what the | | | | |
| 6 | Court's prior orders are, but I have to make the record.
I | | | | |
| 7 | can't just say, well, the Court did this and, therefore, | | | | |
| 8 | we'll just acquiesce with it.
Because if we're in front of | | | | |
| 9 | an appellate tribunal or in front of any trial court and I | | | | |
| 10 | make an objection I don't want to hear a waiver argument. | | | | |
| 11 | So it's an objection that I felt we were obligated to make | | | | |
| 12 | and I think it's entirely appropriate. | | | | |
| 13 | As I said, I'll be particularly brief on the legal | | | | |
| 14 | issue.
I'm mindful of the Court's prior rulings.
There's | | | | |
| 15 | no dispute about the existence of the pending procedures | | | | |
| 16 | rule, which is this rule against taking discovery under 2004 | | | | |
| 17 | for use in an adversary proceeding.
There's no dispute that | | | | |
| 18 | the discovery that is sought in this sixth omnibus motion | | | | |
| 19 | for 2004 discovery addresses issues in the Greenwich Land | | | | |
| 20 | adversary proceeding. | | | | |
| 21 | And counsel for the Trustee took exception to the | | | | |
| 22 | fact that our objection focuses on all of the discovery | | | | |
| 23 | requests relating to Greenwich Land and doesn't mention the | | | | |
| 24 | others, well, Your Honor, the filing, I believe, the omnibus | | | | |
| 25 | motion, when you include the subpoenas, it's like over 300 | | | | |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------|--|--|--|
| | Ho Wan Kwok - August 29, 2023
73 | | | |
| 1 | pages I believe.
It's at least over 200 pages. | | | |
| 2 | So certainly we weren't going to spend a lot of | | | |
| 3 | time talking about issues that are outside our very narrow | | | |
| 4 | in this bankruptcy proceeding, which is the Greenwich Land | | | |
| 5 | adversary proceeding. | | | |
| 6 | So we were of course, and appropriately so, | | | |
| 7 | focused on the request to the extent they mentioned | | | |
| 8 | Greenwich Land.
And even in the body of the Trustee's sixth | | | |
| 9 | omnibus motion, Greenwich Land is mentioned as the reason | | | |
| 10 | for seeking discovery from one of the targets. | | | |
| 11 | So I think that the key legal issue, and I'll be | | | |
| 12 | very brief here, is, again, not the existence of the prior | | | |
| 13 | pending proceeding rule, or that these subpoenas are seeking | | | |
| 14 | information concerning the issues in the Greenwich Land | | | |
| 15 | adversary proceeding, those are undisputed, but what the | | | |
| 16 | Trustee says is, well, we can get discovery relating to the | | | |
| 17 | adversary proceeding as long as we're not getting it from | | | |
| 18 | you. | | | |
| 19 | And I just want to put into the record two | | | |
| 20 | quotations from cases that we cite. | | | |
| 21 | Number one is In re Bennett Funding Group, Inc., | | | |
| 22 | which is 203 B.R. 24.
It's from the Northern Bankruptcy | | | |
| 23 | Court in the Northern District of New York.
It's a 1996. | | | |
| 24 | At page 29 of that decision the Court wrote, "Thus, a | | | |
| 25 | Trustee like a creditor must look to Federal Rules of | | | |
| | | | | |
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| | Ho Wan Kwok - August 29, 2023
74 |
| 1 | Bankruptcy Procedure 7026 et seq. after an adversary |
| 2 | proceeding is commenced for discovery as to both entities |
| 3 | affected by the proceeding and issues addressed in this |
| 4 | proceeding." |
| 5 | The second case, In re Southeastern Materials, |
| 6 | Inc., 2010 Westlaw 5128608, from the Middle District of |
| 7 | North Carolina.
It's a 2010 case.
At page 3 of that |
| 8 | decision, the Court wrote, "In order to prevent injustice |
| 9 | and to ensure the parties in bankruptcy adversary |
| 10 | proceedings have the same rights as parties to a federal law |
| 11 | suit in a non-bankruptcy context, it is important to ensure |
| 12 | the procedural safeguards of the discovery process provided |
| 13 | in Federal Rules of Civil Procedure 26 through 37, |
| 14 | incorporated by reference in Federal Rules of Bankruptcy |
| 15 | Procedure 7026 through 7037, are not avoided by permitting a |
| 16 | Rule 2004 examination while an adversary proceeding is |
| 17 | pending." |
| 18 | Your Honor, we also, with respect to that legal |
| 19 | argument, rest on the other case law that we cite and |
| 20 | discuss in our objection. |
| 21 | I want to touch on -- I mentioned at the top that |
| 22 | this situation is similar, but not identical, to where we |
| 23 | were back in June when we objected to the fifth omnibus |
| 24 | motion for Rule 2004 discovery. |
| 25 | There's another inequity here with what the |
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| | Ho Wan Kwok - August 29, 2023 | 75 | | | | | |
| 1 | Trustee is proposing to do, which is discovery -- the | | | | | | |
| 2 | Trustee advocated for and achieved an extremely quick | | | | | | |
| 3 | discovery schedule in our adversary proceeding.
That's | | | | | | |
| 4 | coming to a close.
He's come into court now and said he | | | | | | |
| 5 | wants to take 2004 discovery relevant to the issues in the | | | | | | |
| 6 | Greenwich Land proceeding, adversary proceeding. | | | | | | |
| | | | | | | | |
We're going to be cut off from being able to take any discovery. We're not -- we're not allowed to participate in the discovery he's taking concerning the issues in the adversary proceeding that we're defending, and he'll be able to continue to do that. I guess his position is he can do that right up to the time through trial. And if he finds something he can try to use it, we will of course object to that.
But what he's calling an investigation as it relates to Greenwich Land is discovery for claims he's already made and preliminary relief he's already obtained, and so I think that the appropriate way to do this would be discovery that the parties can participate in.
So, Your Honor, those are our arguments. I'm happy to answer any questions the Court has.
THE COURT: Thank you. No. I don't have any questions at the moment, but thank you.
MR. MAJOR: Thank you, Your Honor. MR. LINSEY: Very quickly, Your Honor?
Ho Wan Kwok - August 29, 2023 76 THE COURT: Yes. MR. LINSEY: First of all, again, the adversary proceeding discovery disputes are an issue for the adversary proceeding. We disagree with the characterization of discovery on negotiations in the adversary proceeding, but if there are disputes, then I expect either party has the -- any party has the ability to bring them there. But with respect to the brief discussion of the case law, Your Honor substantively considered this issue. To the extent the *Bennett* case sounds familiar, it's because it's one of the cases that Your Honor cited in Your Honor's last decision, and Your Honor noted in the parenthetical after that cite that that was a prohibition on 2004 discovery as to a party to the pending proceeding, not as to a non-party. With respect to the *Southeastern Materials* case of 120
that was cited, it's easy to take a snippet from a case without a context. I'll take a snippet from the *Southeastern Materials* case. "A handful of decisions have considered the allowable scope of a Rule 2004 examination where it related civil or criminal proceedings are taking place or are likely to occur in another court, the general rule in these cases is that the existence of or a potential for collateral litigation is insufficient reason to deny an examination." That's from that case, Your Honor.
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| 1 | Your Honor looked at these cases.
This is not a |
| 2 | -- there's not a Second Circuit ruling that's directly on |
| 3 | point here.
What the cases boil down to is the purpose of |
| 4 | the discovery examination to substitute for discovery -- |
| 5 | rather the 2004 examination is to substitute for discovery |
| 6 | in an adversary proceeding under Part 7 of the rules to gain |
| 7 | some strategic advantage or are they a proper examination, |
| 8 | holistic examination, of a debtor's finances. |
| 9 | And I believe in this case, given the record that |
| 10 | has built up to date, it's exceptionally clear that what |
| 11 | we're undertaking is the latter. |
| 12 | THE COURT:
Thank you. |
| 13 | MR. LINSEY:
Thank you. |
| 14 | THE COURT:
Attorney Major, any response? |
| 15 | MR. MAJOR:
Your Honor, with respect to the case |
| 16 | law, we've accurately described what the courts have held. |
| 17 | And the two that I read are not the only cases.
We've cited |
| 18 | several cases in the brief that support our argument. |
| 19 | THE COURT:
And I understand that.
Thank you. |
| 20 | And I have seen that you've cited other cases, so I |
| 21 | understand that. |
| 22 | Okay.
With regard to this motion, the Court is |
| 23 | going to take the matter under advisement.
But I think the |
| 24 | ruling will not -- I mean, I'm not going to take a |
| 25 | substantial amount of time to rule, but I will rule after |
| | |
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| | Ho Wan Kwok - August 29, 2023
78 |
| 1 | going back and reviewing your arguments and looking at the |
| 2 | documents and the cases one more time.
Okay? |
| 3 | Is there anything further we need to address this |
| 4 | afternoon?
I think that's the last matter on the calendar. |
| 5 | MR. DESPINS:
That's correct, Your Honor. |
| 6 | THE COURT:
Nothing else from any party? |
| 7 | MR. DESPINS:
Actually, Your Honor, let me take a |
| 8 | chance at this.
And the question is, is there a procedure |
| 9 | before Your Honor to seek relief in the middle of a |
| 10 | deposition where there are issues that arise?
Because in |
| 11 | some courts -- |
| 12 | THE COURT:
There's no -- we don't have a, you |
| 13 | know, a procedure that I could point to that says this is |
| 14 | what you do, but what has happened in the past is the |
| 15 | parties contact the courtroom deputy and ask the Court to |
| 16 | have an emergency hearing. |
| 17 | MR. DESPINS:
Okay. |
| 18 | THE COURT:
And if the Court's available, the |
| 19 | Court can do that.
Then if not, then what the Court has |
| 20 | said to parties is continue with as much of the deposition |
| 21 | as you can.
Hold whatever questions or issues there are |
| 22 | until the Court can actually conduct that hearing. |
| 23 | Now, that's not I know ideal because that means |
| 24 | you'd have to reconvene for a deposition or an examination, |
| 25 | but -- |
Ho Wan Kwok - August 29, 2023 79 MR. DESPINS: Okay. THE COURT: -- there is no time -- you know, the Court isn't always available unfortunately. MR. DESPINS: Understood. That's helpful. Thank you. THE COURT: So I don't know how you'd want to proceed, but there have been occasions where both of things has happened. Parties have called, court was available, able to have an emergency hearing. But there's also been occasions where the parties have called, the Court has not been available, and then we'd have to have scheduled a specific hearing to address that issue as soon as possible. I think that's all I can tell you. We don't have a process in place in our local rules or anything like that. MR. DESPINS: Okay. Thank you. Very helpful. Thank you. THE COURT: Okay. Thank you. There are some matters that are -- that are not on the calendar today that are what I would say somewhat ministerial. Like, there's a motion to redact that's been filed. Redactions are usually granted, so that probably will be addressed in the next few days. Otherwise, I think that the majority of matters in the main case and in the adversary proceeding are either set for hearing or there are response dates coming up. of 120
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| 1 | Oh, that was the other thing I was going to say. |
| 2 | Mr. Major, you may not know this either. |
| 3 | But the district court in Connecticut, when a |
| 4 | motion is filed in what you would call a civil action, |
| 5 | plaintiff and defendant, has an automatic 21-day response |
| 6 | period that just gets set.
And so we follow that rule.
So |
| 7 | immediately upon a pleading in an adversary, the CM/ECF |
| 8 | system populates this language that says, I don't remember |
| 9 | what it says, but it says something like response due 21 |
| 10 | days and then it calculates the date I think. |
| 11 | What I have said to people, and our local rules |
| 12 | don't address it, but we're in the process of looking at our |
| 13 | local rules again, is if someone believes that there should |
| 14 | be some other date for a response, or there's some emergency |
| 15 | issue, or an extension of that response date, then that |
| 16 | doesn't preclude anyone from filing something asking for |
| 17 | that relief.
Okay? |
| 18 | It's a -- I think, you know, in the bankruptcy |
| 19 | context it often is the 21 days cannot always apply as |
| 20 | neatly as it does in a district court action.
And I'm not |
| 21 | saying it applies neatly in a district court action all the |
| 22 | time either because I'm sure there are circumstances where |
| 23 | someone would want something either before that. |
| 24 | But I wanted to make that clear to the parties, is |
| 25 | that that 21-day period is automatically populated.
The |
| | |
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| | Ho Wan Kwok - August 29, 2023
81 |
| 1 | Court has nothing to do with that.
It's just it's there. |
| 2 | It's part of the program, and following the district court |
| 3 | rules, which we follow. |
| 4 | So there may be a circumstance where any party |
| 5 | could seek to change that date or get some form of a status |
| 6 | conference or something prior to that.
You're not -- no |
| 7 | party is precluded from seeking that.
Whether it's going to |
| 8 | be granted or not is a wholly different issue. |
| 9 | But I've noticed recently that there have been |
| 10 | some motions filed where, you know, I could understand why a |
| 11 | party would want some other form of relief and not have to |
| 12 | wait for the 21 days, but nothing's necessarily been filed, |
| 13 | so I just wanted parties to understand that.
Okay? |
| 14 | MR. LINSEY:
Your Honor, that reminded me of an |
| 15 | issue.
In the HCHK adversary proceeding, there is -- |
| 16 | without getting in to the substance of it, there's a |
| 17 | recently filed motion for extension of time for a pleading |
| 18 | deadline.
It indicates that the Trustee has no objection. |
| 19 | We are planning to file a response.
That response should be |
| 20 | filed this week.
I say that only because I'm aware that, |
| 21 | you know, that has the same 21-day thing in the docket text |
| 22 | as Your Honor noted typically occurs, but also it is, you |
| 23 | know, typically or oftentimes we see motions for extension |
| 24 | granted in advance of the 21-day deadline.
So I just wanted |
| 25 | to mention to Your Honor there is going to be a response |
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| | Ho Wan Kwok - August 29, 2023
82 |
| 1 | forthcoming this week for the Trust -- |
| 2 | THE COURT:
I thought there already was an |
| 3 | objection to that extension of time. |
| 4 | MR. LINSEY:
There's an objection that's indicated |
| 5 | in the motion, but we will be filing a substantive -- |
| 6 | THE COURT:
Oh.
Okay.
I understand. |
| 7 | MR. LINSEY:
-- objection explaining the grounds. |
| 8 | THE COURT:
I understand. |
| 9 | MR. LINSEY:
And I just -- |
| 10 | THE COURT:
I understand what you're saying. |
| 11 | MR. LINSEY:
We're not going to hold -- we're not |
| 12 | going to -- we're not going to string them out 21 days to do |
| 13 | that.
We're going to get that on file. |
| 14 | THE COURT:
I understand.
Okay.
I appreciate |
| 15 | that. |
| 16 | MR. LINSEY:
Thank you. |
| 17 | MR. DESPINS:
And, Your Honor, the issue you |
| 18 | raised in the leave to appeal context is kind of dangerous |
| 19 | in the sense that the docket will say you have 21 days, and |
| 20 | it gives you the date as you indicated, but the Bankruptcy |
| 21 | Rule, 8004, says you have ten days. |
| 22 | THE COURT:
I know. |
| 23 | MR. DESPINS:
So that's like -- |
| 24 | THE COURT:
That's part of the problem. |
| 25 | MR. DESPINS:
Yeah. |
| | |
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| 1 | THE COURT:
The box, everything doesn't fit into |
| 2 | the box. |
| 3 | MR. DESPINS:
Yeah. |
| 4 | THE COURT:
Right?
So that's part of the problem. |
| 5 | MR. DESPINS:
But we didn't take any chance.
We |
| 6 | applied that 10-day rule. |
| 7 | THE COURT:
No.
That is part of the problem.
And |
| 8 | we're going to review that.
And I've said that to the bar |
| 9 | -- not I, everyone that -- all the judges who are involved |
| 10 | with the standing committee on local rules have raised |
| 11 | issues saying, you know, a lot of times -- there isn't a |
| 12 | local rule that says anything about the 21 days because it's |
| 13 | a district court rule.
It just says the district court |
| 14 | rule's adopted.
But we might need to say something that |
| 15 | says unless provided by applicable statute or rule or order |
| 16 | or otherwise ordered by the Court, blah, blah, blah.
You |
| 17 | know. |
| 18 | I think that -- so you all think about that, make |
| 19 | your -- tell us what the rules should say and we'll try to |
| 20 | do that.
Okay?
But we are thinking about it is the point. |
| 21 | And I just wanted, you know, someone who, you're |
| 22 | not here all the time, you're not worrying about the |
| 23 | district court rules necessarily.
It doesn't preclude any |
| 24 | party from seeking something prior to that 21 days.
Whether |
| 25 | they'll get it or not is a wholly different question.
Okay? |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| | Ho Wan Kwok - August 29, 2023
85 |
| 1 | same box.
And, you know, we could probably spend weeks |
| 2 | going through the local rules figuring out all the things |
| 3 | that don't fit into the box. |
| 4 | But in any event, I just say that so parties are |
| 5 | aware that it -- I don't want anyone to think that that |
| 6 | means they couldn't seek relief in some way, shape or form |
| 7 | prior to the 21 days.
Whether or not you get it is a wholly |
| 8 | different issue.
Okay? |
| 9 | All right.
Well, that concludes the hearings |
| 10 | today, so -- |
| 11 | (Proceedings concluded at 3:47 p.m.) |
| 12 | I, CHRISTINE FIORE, Certified Electronic Court |
| 13 | Reporter and Transcriber, certify that the foregoing is a |
| 14 | correct transcript from the official electronic sound |
| 15 | recording of the proceedings in the above-entitled matter. |
| 16 | |
| 17 | |
| 18 | |
| 19 | September 6, 2023 |
| 20 | Christine Fiore, CERT |
| 21 | Transcriber |
| 22 | |
| 23 | |
| 24 | |
| 25 | |
| | |