10-04335-smb Doc 57 Filed 11/08/17 Entered 11/08/17 16:47 ... · Bernard L. Madoff Investment...

BAKER & HOSTETLER LLP Hearing Date: November 29, 2017 45 Rockefeller Plaza Time: 10:00am New York, NY 10111 Telephone: (212) 589-4200 Facsimile: (212) 589-4201 David J. Sheehan Email: [email protected] Nicholas J. Cremona Email: [email protected] Dean D. Hunt Email: [email protected] Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and the Estate of Bernard L. Madoff UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK SECURITIES INVESTOR PROTECTION CORPORATION, No. 08-01789 (SMB)

Plaintiff, SIPA LIQUIDATION

v. (Substantively Consolidated) BERNARD L. MADOFF INVESTMENT SECURITIES LLC,

Defendant. In re: BERNARD L. MADOFF, Debtor. IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC,

Adv. Pro. No. 10-04335 (SMB)

Plaintiff,

v.

ASPEN FINE ARTS, CO., Defendant.

10-04335-smb Doc 57 Filed 11/08/17 Entered 11/08/17 16:47:26 Main Document Pg 1 of 18

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I. BACKGROUND INFORMATION ................................................................................... 1

II. APPLICABLE STANDARDS OF LAW ........................................................................... 6

III. THIS COURT SHOULD GRANT THE TRUSTEE LEAVE TO FILE A SECOND AMENDED COMPLAINT TO AVOID AND RECOVER ALL TRANSFERS MADE FOR THE BENEFIT OF MELVIN KNYPER ................................................................... 8

A. There Has Been No Undue Delay or Bad Faith by the Trustee .......................................... 8

B. The Amendment Will Not Prejudice Aspen or Knyper .................................................... 10

C. The Amendments Will Not Be Futile ............................................................................... 11

IV. CONCLUSION ................................................................................................................. 13

TABLE OF CONTENTS

Page


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TABLE OF AUTHORITIES

Page(s)

Cases

AEP Energy Servs. Gas Holding Co. v. Bank of Am., N.A., 626 F.3d 699 (2d Cir. 2010).....................................................................................................10

In re AMR Corp., 506 B.R. 368 (Bankr. S.D.N.Y. 2014) ...................................................................................7, 8

In re Bernard L. Madoff Inv. Sec. LLC, 445 B.R. 206 (Bankr. S.D.N.Y. 2011) .......................................................................................4

BNP Paribas Mortg. Corp. v. Bank of Am., N.A., 866 F.Supp.2d 257 (S.D.N.Y. 2012) ..........................................................................................7

Burgee v. Patrick, No. 91-CIV-3023 (MJL), 1996 WL 227819 (S.D.N.Y. May 3, 1996) ....................................10

In re Colonial Chesire I Ltd. P’ship, 167 B.R. 748 (Bankr. D. Conn. 1994) .....................................................................................10

In re Facebook, Inc., IPO Sec. & Derivative Litig., 986 F.Supp.2d 428 (S.D.N.Y. 2013) ......................................................................................7, 9

Fed. Nat. Mortg. Ass’n v. I.R.S., No. CV-98-5174 (JM), 2001 WL 260076 (E.D.N.Y. Jan. 17, 2001) ......................................10

Foman v. Davis, 371 U.S. 178 (1962) ...................................................................................................................7

IBEW Local Union No. 58 Pension Trust Fund & Annuity Fund v. Royal Bank of Scotland Grp., PLC, 783 F.3d 383 (2d Cir. 2015).....................................................................................................11

In re M. Fabrikant & Sons, Inc., 394 B.R. 721 (Bankr. S.D.N.Y. 2008) .......................................................................................6

Margel v. E.G.L. Gem Lab Ltd., No. 04 Civ. 1514, 2010 WL 445192 (S.D.N.Y. Feb. 8, 2010) ................................................11

Mason Tenders Dist. Council of Greater New York v. Phase Constr. Servs., Inc., 318 F.R.D. 28 (S.D.N.Y. 2016) .................................................................................................8

Ohio Cas. Ins. Co. v. Transcontinental Ins. Co., No. 05–6432, 2006 WL 1540540 (S.D.N.Y. May 31, 2006).....................................................7


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Panzella v. Skou, 471 F.Supp. 303 (S.D.N.Y. 1979)............................................................................................10

Phillips v. Kidder, Peabody & Co., No. 87 Civ. 4936 (DLC), 1994 WL 570072 (S.D.N.Y. Oct. 13, 1994) .....................................9

Picard v. Estate of Steven Mendelow, 560 B.R. 208 (Bankr. S.D.N.Y. 2016) .......................................................................................7

Picard v. Ida Fishman Revocable Trust, 14-1129 ......................................................................................................................................6

In re Randall’s Island Family Golf Ctrs., 2002 WL 31496229 .........................................................................................................7, 8, 12

Siegel v. Converters Transp., Inc., 714 F.2d 213 (2d Cir. 1983).......................................................................................................7

State Teachers Ret. Bd. v. Fluor Corp., 654 F.2d 843 (2d Cir. 1981).....................................................................................................10

Town of New Windsor v. Tesa Tuck, Inc., 919 F.Supp. 662 (S.D.N.Y. 1996)..............................................................................................8

VKK Corp., 244 F.3d at 128–29 ....................................................................................................12

Statutes

Bankruptcy Code section 546(a) ..............................................................................................11, 12

Bankruptcy Code section 546(e) ..................................................................................................2, 6

Rules

Fed. R. Civ. P. 4(m) .........................................................................................................................8

Fed. R. Civ. P. 15(c) ........................................................................................................................7

Fed. R. Civ. P. 15(c)(1)(B) ........................................................................................................7, 11

Fed. R. Civ. P. 15(c)(1)(C) ..................................................................................................8, 12, 13

Federal Rules of Civil Procedure Rule 12(b)(6) ............................................................................11

FRCP 15 .....................................................................................................................................7, 11

FRCP 15(a)(1)(A) ............................................................................................................................2

FRCP 15(a)(2) ..............................................................................................................................2, 6


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Rule 45 .............................................................................................................................3, 4, 5, 6, 9

Other Authorities

6 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FED. PRAC. AND PROC. § 1471 (3d ed. 1971) ..............................................................................................................................7

6 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FED. PRAC. AND PROC. § 1484 (3d ed. 1971) ............................................................................................................................10


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MEMORANDUM OF LAW IN SUPPORT OF THE TRUSTEE’S MOTION FOR LEAVE TO FILE A SECOND AMENDED COMPLAINT AND FOR RELATED RELIEF

Irving H. Picard (the “Trustee”), as trustee for the substantively consolidated liquidation

of the business of Bernard L. Madoff Investment Securities LLC (“BLMIS”), under the Securities

Investor Protection Act, 15 U.S.C. §§ 78aaa, et seq. (“SIPA”),1 and the substantively consolidated

chapter 7 estate of Bernard L. Madoff, by and through his undersigned counsel, files this

Memorandum of Law in support of the Trustee’s motion for leave (“Motion”) under Rule 7015 of

the Federal Rules of Bankruptcy Procedures (“FRBP”) and Rule 15 of the Federal Rules of Civil

Procedure (“FRCP”) to file a Second Amended Complaint to (1) amend the complaint to reflect

that Melvin Knyper is liable under Bankruptcy Code sections 548(a)(1)(A), 550(a)(1) and 551 as

an initial transferee because the BLMIS transfers were made for his own benefit, and (2) amend the

complaint to conform with certain other allegations and prior Court orders.

A copy of the proposed Second Amended Complaint is attached as Exhibit A. Counsel for

the Defendants would not consent to the proposed amendments.

I. BACKGROUND INFORMATION

The Trustee filed his original complaint against Aspen Fine Arts Co. (“Aspen”) on

November 30, 2010 [ECF 1]. Aspen is a corporation formed under Colorado law on February 20,

1998. Exhibit A at ¶ 7. In April 1998, Aspen’s President, Melvin Knyper (“Knyper”), opened

BLMIS account 1EM381 (“the Account”) in the name “Aspen Fine Arts Co. c/o Knyper.” Exhibit

A at ¶ 7. Aspen does not dispute that it withdrew $1,600,000 from the Account between December

11, 2006 and December 11, 2008 (the “Transfers”). Exhibit B at 17.

1 For convenience, future reference to SIPA will not include “15 U.S.C.”


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Under FRCP 15(a)(1)(A), made applicable here by FRBP 7015, the Trustee filed his First

Amended Complaint on December 14, 2011, which added allegations against Knyper for recovery

of subsequent transfers made by Aspen to him. [ECF 15; see also Exhibit A at ¶ 8.]

On June 22, 2015, the Supreme Court of the United States denied certiorari with respect to

the Trustee’s appeal of SIPC v. Ida Fishman Revocable Trust, 14-1128 and Picard v. Ida Fishman

Revocable Trust, 14-1129 (the “Supreme Court Decision”), in which the Trustee contested

application of section 546(e) of the Bankruptcy Code to this and other adversary proceedings.

On July 16, 2015, this Court entered an order consistent with the Supreme Court Decision

and this Court’s July 2, 2015 Memorandum Decision Regarding Omnibus Motions to Dismiss

(ECF No. 10089 in Adv. Pro. No. 08-01789 (SMB)) granting in part and denying in part Motions

to Dismiss brought in this and certain other good faith adversary proceedings that (1) dismissed

Counts II through VI of the First Amended Complaint and (2) dismissed Count VII of the First

Amended Complaint, which sought to recover subsequent transfers from Knyper. [ECF 47] The

dismissal of Count VII was without prejudice to the Trustee’s right to seek to amend in accordance

with FRCP 15(a)(2).

Aspen answered the First Amended Complaint on September 18, 2015 [“Answer”, ECF

48], after which the parties held an Initial Case Conference, entered into a Case Management

Notice [ECF 49], and exchanged Initial Disclosures.

In April 2016, the Trustee served his first set of Requests for Admission (the “Requests”)

on Aspen, and Aspen served its responses in June 2016. See Exhibit B. The Requests sought

admissions that Knyper was the only person to receive distributions or earnings from Aspen, but

Aspen objected and refused to answer on the basis that there were currently no claims asserted for

the recovery of subsequent transfers. See Exhibit B at 5. The Requests also sought admissions


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that Aspen received all of the Transfers. In response, Aspen admitted to receiving all of the

withdrawals listed on Exhibit B to the Trustee’s First Amended Complaint with the exception of

one $350,000 withdrawal dated July 11, 2007. See Exhibit B at 11. Aspen admitted that it received

the Transfer but alleged the check was “erroneously deposited into Melvin Knyper’s bank account

due to a banking error, and it appears that some or all of these funds were subsequently transferred

by Melvin Knyper back to [Aspen’s] bank account.” See Exhibit B at 11.

Also in April 2016, the Trustee served a Rule 45 Subpoena on Wells Fargo Bank, N.A.

(“Wells Fargo”), where both Aspen and Knyper held bank accounts. Aspen objected to the

Subpoena on the basis that Knyper was dismissed as a defendant. Counsel for the Trustee explained

that Aspen’s admission that Knyper received BLMIS funds into his personal account put Knyper’s

bank account directly at issue, and the Trustee was entitled to discovery concerning the flow of

transfers of BLMIS funds and the purported return of the funds back to Aspen’s bank account by

Knyper. See Exhibit C, June 22, 2016 Letter to Counsel. Wells Fargo responded to the Subpoena

and produced documents in July 2016.

The Trustee also served a Rule 45 Subpoena on Aspen’s accountant, Larry Neu, who

produced documents to the Trustee establishing that Knyper used Aspen as a source of funds for

him to pay his and his family’s personal expenses, including:

a. transfers to Knyper’s personal bank account;

b. cash withdrawals;

c. a monthly allowance to Gregory Knyper, the son of Melvin and Marlene Knyper, and transfers to Gregory Knyper’s San Diego, CA scuba diving business;

d. transfers or payments to relatives of Melvin and Marlene Knyper;

e. personal home mortgage expenses;

f. health care expenses;


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g. life insurance;

h. homeowners, art, and umbrella insurance;

i. personal credit card bills;

j. New York luxury hotel (Bristol Plaza) expenses;

k. attorneys’ fees, including a California family law attorney and a Colorado personal injury attorney;

l. Pitkin County, Colorado property tax;

m. country club membership for the Knypers;

n. home maintenance and upgrades;

o. home utilities;

p. charitable contributions; and

q. federal and state taxes.2

Upon information and belief, Aspen conducted no business other than investing and

managing Knyper’s personal funds at Knyper’s direction. Exhibit A at ¶¶ 66, 69. Aspen had no

employees and no payroll. Exhibit A at ¶ 61. It did not have an independent office—its business

address was Knyper’s personal residence. Exhibit A at ¶ 63. Aspen did not hold any corporate

meetings after its first meeting in February 1998, and Aspen’s corporate records do not indicate it

conducted any business apart from passive investments. Exhibit A at ¶ 70. Aspen and Knyper

ignored corporate formalities that are part and parcel of a corporate existence. Exhibit A at ¶ 70.

Knyper used Aspen as a “mere instrument to facilitate his personal interests and those of his family

members.” See In re Bernard L. Madoff Inv. Sec. LLC, 445 B.R. 206, 236, n.16 (Bankr. S.D.N.Y.

2011).

2 The documents produced by Aspen’s accountant, Larry Neu, pursuant to the Trustee’s Federal Rule 45 subpoena were marked confidential.


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In January 2017, the Trustee propounded additional discovery on Aspen, including

Interrogatories and a Request for Production of Documents. Based on Aspen’s admissions and the

documents produced pursuant to the Rule 45 Subpoenas, the Trustee sought to discover the identity

of persons or entities that received funds withdrawn from the Account or who benefitted from

transfers from the Account, how Aspen used the money it received from the Account, and

information regarding the specific personal expenses from the document production of Aspen’s

accountant. Aspen objected and refused to answer each Interrogatory on the basis that it sought

information concerning subsequent transfers. See Exhibit D, Answers to Interrogatories.

The Trustee also propounded a Second Set of Requests for Admission, seeking admissions

that Knyper received subsequent transfers, distributions and/or funds from Aspen, and that

personal expenses such as life and health insurance, credit card and home repair, as well as property

taxes, incurred by Knyper were paid from Aspen’s bank account. Again, Aspen refused to answer

each and every Request, objecting that information concerning subsequent transfers was not

relevant to the Trustee’s claims. See Exhibit E, Responses to Second Set of Requests for Admission.

The Trustee noticed the deposition of a corporate representative of Aspen for June 9, 2017.

The subject areas of inquiry included Aspen’s purpose and nature of operations, financial records,

resolutions, procedures, protocols, employees, compensation and distribution structures, the

conduct of meetings, and meeting agenda, notes and minutes. Aspen objected to the notice,

claiming that the topics were irrelevant to the Trustee’s claims and Aspen’s defenses. See Exhibit

F, May 31, 2017, Letter from Counsel.

Despite Aspen’s refusal to produce a corporate representative to testify regarding its

corporate structure, the Trustee’s investigation has revealed that Knyper exercised complete

dominion and control over the Account and ignored corporate formalities that are part and parcel


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of a corporate existence. According to its Articles of Reinstatement, Aspen was dissolved on

December 1, 2002, and remained dissolved until July 14, 2008, when it filed Articles of

Reinstatement with the Colorado Secretary of State. Knyper co-mingled his personal funds in

Aspen’s bank account (e.g., Aspen received deposits of Social Security funds from Knyper and

his wife), and co-mingled Aspen’s funds in his personal bank account3.

As documented above, Aspen used funds and property for Knyper and his family’s

personal purposes and obligations. Upon information and belief, Aspen’s starting capital was

largely personal funds provided by Knyper, including a February 2000 inter-account transfer made

to “consolidate” Knyper’s personal BLMIS account into Aspen’s Account. Simply put, Knyper

used Aspen as an investment vehicle for Knyper’s personal finances.

The Trustee should be permitted leave to file the proposed Second Amended Complaint to

add initial transfer allegations against Knyper, and certain other changes, including to the

Jurisdiction and Venue, Background, Ponzi Scheme and Transfer sections. These changes were

made for consistency with background and other allegations relevant to, and alleged in, all of the

Trustee’s cases and to address the Supreme Court Decision regarding section 546(e).

II. APPLICABLE STANDARDS OF LAW

Under FRCP 15(a)(2), a party may amend its pleading upon leave of the court, which shall

be “freely give[n] . . . when justice so requires.” Fed. R. Civ. P. 15(a)(2); In re M. Fabrikant &

Sons, Inc., 394 B.R. 721 (Bankr. S.D.N.Y. 2008).

The mandate that leave to amend be freely given when justice requires ‘is to be heeded’ in the absence of a substantial reason ‘such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.’

3 See supra, fn 2. The documents produced by Aspen’s accountant, Larry Neu, pursuant to the Trustee’s Federal Rule 45 subpoena were marked confidential.


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Picard v. Estate of Steven Mendelow, 560 B.R. 208, 221 (Bankr. S.D.N.Y. 2016) (quoting Foman

v. Davis, 371 U.S. 178, 182 (1962)). “Generally, amendments are favored because they ‘tend

to facilitate a proper decision on the merits.’” Id. (quoting In re Facebook, Inc., IPO Sec. &

Derivative Litig., 986 F.Supp.2d 428, 472 (S.D.N.Y. 2013)).

This is consistent with the Second Circuit’s oft-repeated holding that FRCP 15 is to be

liberally construed. See BNP Paribas Mortg. Corp. v. Bank of Am., N.A., 866 F.Supp.2d 257, 272

(S.D.N.Y. 2012) (“the rule is ‘interpreted liberally, and an amendment is normally permitted’”)

(quoting Ohio Cas. Ins. Co. v. Transcontinental Ins. Co., No. 05–6432, 2006 WL 1540540, at *1

(S.D.N.Y. May 31, 2006)); Siegel v. Converters Transp., Inc., 714 F.2d 213, 216 (2d Cir. 1983)

(the rule reflects Congress’s intention “to provide maximum opportunity for each claim to be

decided on its merits rather than on procedural technicalities”) (quoting 6 CHARLES ALAN

WRIGHT & ARTHUR R. MILLER, FED. PRAC. AND PROC. § 1471, at 359 (3d ed. 1971)). In the Second

Circuit, a party may amend its pleadings in the absence of a showing of prejudice or bad faith. In

re AMR Corp., 506 B.R. 368, 383 (Bankr. S.D.N.Y. 2014). Further, defendants “must show actual

prejudice, not the possibility of prejudice” when opposing a proposed amendment. Mendelow,

560 B.R. at 224 (citations omitted).

Indeed, even when the proposed amendment is for a claim against a newly added party

that would be barred by the applicable statute of limitations, such amendment is permitted if it

“relates back” to the date of the original pleading. Fed. R. Civ. P. 15(c); In re Randall’s Island

Family Golf Ctrs., Adv. Pro. No. 02-2278, 2002 WL 31496229, at *2–5 (Bankr. S.D.N.Y. Nov.

8, 2002). An amendment relates back to the original pleading when “the amendment asserts a

claim or defense that arose out of the conduct, transaction, or occurrence set out—or attempted

to be set out—in the original pleading.” Fed. R. Civ. P. 15(c)(1)(B). Additionally, an amendment


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can change the party or the naming of the party against whom a claim is asserted if “(1) both

claims arose out of the same transaction or occurrence, (2) the new party received adequate

notice of the plaintiff’s claims, within the time limits specified in Fed. R. Civ. P. 4(m), and will

not be prejudiced, and (3) the new party knew or should have known that but for a mistake

concerning its identity, the new party would have been named in the earlier, timely pleading.”

In re Randall’s Island Family Golf Ctrs., 2002 WL 31496229, at *2; Fed. R. Civ. P. 15(c)(1)(C).

III. THIS COURT SHOULD GRANT THE TRUSTEE LEAVE TO FILE A SECOND AMENDED COMPLAINT TO AVOID AND RECOVER ALL TRANSFERS MADE FOR THE BENEFIT OF MELVIN KNYPER

A. There Has Been No Undue Delay or Bad Faith by the Trustee

It is well-settled that the mere passage of time, in the absence of bad faith, does not

warrant a denial of leave to amend. In re AMR Corp., 506 B.R. at 383 (“Absent a showing of

bad faith or undue prejudice, mere delay does not provide a basis for a district court to deny the

right to amend.”). A court will deny leave to amend only where a party delayed in bad faith. See

Town of New Windsor v. Tesa Tuck, Inc., 919 F.Supp. 662, 676–77 (S.D.N.Y. 1996) (granting

leave to amend after plaintiff waited two years to file amendments, noting that “[t]he federal

rules of pleading are not intended unreasonably to lock counsel into a litigation strategy”).

Furthermore, discovery disputes that delay obtaining the information necessary to amend should be

taken into account when determining the diligence of the party seeking leave to amend. See Mason

Tenders Dist. Council of Greater New York v. Phase Constr. Servs., Inc., 318 F.R.D. 28, 37-8

(S.D.N.Y. 2016) (finding it was proper for a party to wait to seek leave to amend until after receiving

information through discovery).

The Trustee did not unduly delay or act in bad faith in bringing this Motion. To the contrary,

the Trustee has diligently pursued his claims since the commencement of this action. After Aspen

filed its Answer, the Trustee propounded a request for admission regarding Knyper’s receipt of


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distributions from Aspen, which Aspen refused to answer. Exhibit B at 3. However, Aspen did

admit that a July 11, 2007 withdrawal of $350,000 was “erroneously” deposited in Knyper’s bank

account. Exhibit B at 11. The Trustee also served Rule 45 Subpoenas on Wells Fargo and Aspen’s

accountant, which yielded records establishing that Aspen was used as a source of funds for

Knyper to pay his and his family’s personal expenses. Based on these documents, the Trustee

served a second set of requests for admission, interrogatories, and requests for production. Exhibits

D, E. Still, Aspen objected to responding to any discovery concerning Knyper. Exhibit E. Aspen

also objected to the Trustee’s Deposition Notice requiring a corporate representative to testify

about topics, including Aspen’s business, financial records, employees and compensation, on the

basis that those topics were “irrelevant to the Trustee’s claims and Aspen’s defenses.” Exhibit F.

Despite Aspen’s attempt to block the Trustee’s discovery efforts into Knyper’s relationship

with Aspen, the records produced by Aspen’s accountant reveal that Knyper was the person who

benefitted from each of the Transfers from BLMIS. In instances where plaintiffs discover new

facts relating to and supporting claims asserted in an earlier pleading, “courts routinely permit

amendment on the basis of this new information.” In re Facebook, Inc., 986 F.Supp.2d at 472

(citing Phillips v. Kidder, Peabody & Co., No. 87 Civ. 4936 (DLC), 1994 WL 570072, at *4

(S.D.N.Y. Oct. 13, 1994) (stating “courts consistently grant motions to amend where it appears

that the new facts and allegations are developed during discovery and are closely related to the

original claim”). The Trustee has obtained additional evidence to support his allegations against

Knyper that was not available when he filed his Original and First Amended Complaints.

The Trustee has diligently pursued his claims against Knyper in good faith, and as a result,

leave to amend should be granted.


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B. The Amendment Will Not Prejudice Aspen or Knyper

The party opposing an amendment has the burden of proving that leave to amend would

be prejudicial. Fed. Nat. Mortg. Ass’n v. I.R.S., No. CV-98-5174 (JM), 2001 WL 260076, at *2

(E.D.N.Y. Jan. 17, 2001) (citing Panzella v. Skou, 471 F.Supp. 303, 305 (S.D.N.Y. 1979)).

Courts consider whether amendment “would require the opponent to expend significant

additional resources to conduct discovery and prepare for trial or significantly delay the

resolution of the dispute.” AEP Energy Servs. Gas Holding Co. v. Bank of Am., N.A., 626 F.3d

699, 725–26 (2d Cir. 2010) (internal quotation marks omitted) (quoting State Teachers Ret. Bd.

v. Fluor Corp., 654 F.2d 843, 856 (2d Cir. 1981)). “If no prejudice is found, then leave normally

will be granted.” 6 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FED. PRAC. AND PROC. § 1484

(3d ed. 1971). Here, Aspen and Knyper cannot meet this burden because the amendments will

not result in prejudice.

The proposed Second Amended Complaint will not require Aspen and Knyper to expend

“significant additional resources” and it will not “significantly delay” the resolution of this action.

In fact, Aspen has delayed the case by objecting to each of the Trustee’s discovery requests seeking

information about Aspen and Knyper. With Knyper added as an initial transferee defendant,

Aspen will be forced to finally respond to relevant discovery.4 Knyper has known for years that

he freely exchanged funds between his and Aspen’s bank accounts and ignored corporate

formalities, and then attempted to stall the Trustee from discovering that information to delay this

case. Aspen cannot demonstrate it will be prejudiced in terms of resources or time.

4 The Second Circuit has held that “the adverse party’s burden of undertaking discovery, standing alone, does not suffice to warrant denial of a motion to amend a pleading.” Burgee v. Patrick, No. 91-CIV-3023 (MJL), 1996 WL 227819, at *4 (S.D.N.Y. May 3, 1996) (citations omitted); In re Colonial Chesire I Ltd. P’ship, 167 B.R. 748, 751 (Bankr. D. Conn. 1994) (“Defendant’s assertion that the elements of the [amended claim] will require it to investigate and defend against some additional details or circumstances does not rise to the level of undue prejudice.”)


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C. The Amendments Will Not Be Futile

The party opposing an amendment has the burden of proving that leave to amend would

be futile. Margel v. E.G.L. Gem Lab Ltd., No. 04 Civ. 1514, 2010 WL 445192, at *3 (S.D.N.Y.

Feb. 8, 2010) (citations omitted). “Proposed amendments are futile if they would fail to cure

prior deficiencies or to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure.”

IBEW Local Union No. 58 Pension Trust Fund & Annuity Fund v. Royal Bank of Scotland Grp.,

PLC, 783 F.3d 383, 389 (2d Cir. 2015) (quotation omitted).

Under section 546(a) of the Bankruptcy Code, a proceeding to avoid a fraudulent transfer

under section 548 must be brought within two years of the entry of the order for relief. Aspen may

attempt to argue that the relevant two-year period ended on December 11, 2010, and the claim

against Knyper as an initial transferee is thus time-barred and futile. Any such argument must fail,

however, because the amendments relate back to November 30, 2010, the date the Trustee’s

Original Complaint was filed.

Under FRCP 15, the proposed Second Amended Complaint relates back to the Original

Complaint because it “asserts a claim . . . that arose out of the conduct, transaction, or occurrence

set out—or attempted to be set out—in the original pleading.” Fed. R. Civ. P. 15(c)(1)(B). Further,

the First Amended Complaint specifically sought to avoid and recover subsequent transfers made

from Aspen to Knyper. The proposed Second Amended Complaint now includes Knyper as an

initial transferee because the Trustee has learned that the Transfers were made for Knyper’s

benefit. Thus, the Second Amended Complaint asserts closely related claims set forth in the

Original and First Amended Complaints, and the claims arise from the same conduct, transaction

or occurrence.

To the extent the Court considers Knyper a new party because he was named only as a

subsequent transferee in the First Amended Complaint, the Second Amended Complaint


12

nevertheless relates back under FRCP 15(c)(1)(C). Knyper received adequate notice of the claims

against him, given that he was a named defendant in the First Amended Complaint and received

service of the Original Complaint and summons as Aspen’s registered agent. Knyper knew he was

the one to benefit from the Transfers.

This Court’s reasoning in an analogous case, Randall’s Island, is particularly instructive.

In Randall’s Island, the plaintiff-debtors failed to sue Crum, an insurance company, in the original

complaint because they believed other parties named in the original complaint actually received

the payments at issue. In re Randall’s Island Family Golf Ctrs., 2002 WL 31496229, at*4–5. As

the Court explained, “the debtors failed to name Crum as a result of a mistake in identifying the

transferee of the payments, and not because of a strategic decision.” Id. at *4. Similarly, as here,

the debtors originally sued other parties because those parties appeared to be the initial transferees.

Id. The debtors in Randall’s Island did not learn that Crum might be an initial transferee until

after the original complaint was filed and after section 546(a)’s two-year statute of limitations had

expired. Id. at *1. The debtors attempted to amend the complaint to add Crum when they

discovered the misidentification, and Crum argued the claims in the amended complaint were

barred by the statute of limitations. Id. Because the debtors intended in the original complaint to

sue the initial transferee, and added Crum when they discovered the misidentification, this Court

held that the amendment related back and was not barred by the statute of limitations. Id. at *4–5;

see also VKK Corp., 244 F.3d at 128–29 (affirming that the proposed amendment related back to

the original complaint where the newly named party “should have known that some of the

allegations [in the original complaint] were meant to be directed at [them].”).

As in Randall’s Island, the Trustee seeks to amend the First Amended Complaint to name

Knyper as an initial transferee, because the Trustee has learned that the avoidable Transfers were


13

made for his benefit. Knyper knew or should have known that, once the Trustee learned the

Transfers had been made for Knyper’s benefit, the Trustee would add initial transfer allegations

against Knyper, especially given that the Order on the Motion to Dismiss dismissed Knyper

without prejudice to the Trustee’s ability to replead once he conducted additional discovery.

Knyper cannot be surprised by the Trustee’s effort to add him as an initial transferee and recover

the Transfers he received from BLMIS.

Accordingly, the amendments will not be futile, even if the Court considers Knyper a new

party, because the Second Amended Complaint relates back under FRCP 15(c)(1)(C) and is not

barred by the statute of limitations.

IV. CONCLUSION

For the foregoing reasons, the Trustee’s Motion for Leave to Amend to File a Second

Amended Complaint and Related Relief should be granted in its entirety.

Date: November 8, 2017 New York, New York

Of Counsel:

BAKER & HOSTETLER LLP 811 Main Street, Suite 1100 Houston, Texas 77002-5018 Telephone: (713) 751-1600 Facsimile: (713) 751-1717 Dean D. Hunt Email: [email protected] Farrell A. Hochmuth Email: [email protected]

By: /s/ Nicholas J. Cremona BAKER & HOSTETLER LLP 45 Rockefeller Plaza New York, New York 10111 Telephone: (212) 589-4200 Facsimile: (212) 589-4201 David J. Sheehan Email: [email protected] Nicholas J. Cremona Email: [email protected] Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff


BAKER & HOSTETLER LLP45 Rockefeller PlazaNew York, NY 10111Telephone: (212) 589-4200Facsimile: (212) 589-4201 David J. Sheehan Email: [email protected] Nicholas J. CremonaEmail: [email protected] D. HuntEmail: [email protected]

Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLCand the Estate of Bernard L. Madoff

UNITED STATES BANKRUPTCY COURTSOUTHERN DISTRICT OF NEW YORKSECURITIES INVESTOR PROTECTION CORPORATION, No. 08-01789 (SMB)

Plaintiff-Applicant, SIPA LIQUIDATION

v. (Substantively Consolidated)

BERNARD L. MADOFF INVESTMENT SECURITIES LLC,

Defendant.In re:

BERNARD L. MADOFF,

Debtor.IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC,

Adv. Pro. No. 10-04335 (SMB)

Plaintiff,

v.

ASPEN FINE ARTS, CO. and MELVIN W.KNYPER,

Defendants.

10-04335-smb Doc 57-1 Filed 11/08/17 Entered 11/08/17 16:47:26 Exhibit A Pg 1 of 20

2

SECOND AMENDED COMPLAINT

Irving H. Picard (the “Trustee”), as trustee for the substantively consolidated liquidation

of the business of Bernard L. Madoff Investment Securities LLC (“BLMIS”), under the Securities

Investor Protection Act, 15 U.S.C. §§ 78aaa, et seq. (“SIPA”),1 and the substantively consolidated

estate of Bernard L. Madoff individually (“Madoff”), by and through his undersigned counsel, for

his Second Amended Complaint (the “Second Amended Complaint”), states as follows:

I. NATURE OF PROCEEDING

1. This adversary proceeding arises from the massive Ponzi scheme perpetrated by

Madoff. Over the course of the scheme, there were more than 8,000 client accounts at BLMIS. In

early December 2008, BLMIS generated client account statements for its approximately 4,900

open client accounts. When added together, these statements purport that clients of BLMIS had

approximately $65 billion invested with BLMIS. In reality, BLMIS had assets on hand worth a

small fraction of that amount. On March 12, 2009, Madoff admitted to the Ponzi scheme and pled

guilty to 11 felony counts, and was sentenced on June 29, 2009 to 150 years in prison.

2. Aspen Fine Arts, Co. (“Aspen”), and its President, Melvin Knyper (“Kyper” and

collectively “Defendants”) received avoidable transfers from BLMIS. Knyper was the person for

whose benefit the transfers were made. Between December 11, 2006 and December 11, 2008,

Defendants received $1,600,000 in fictitious profits from the Ponzi scheme, meaning that

Defendants withdrew more than they invested in the BLMIS account held in the name of “Aspen

Fine Arts Co c/o Knyper.”

1 For convenience, future reference to SIPA will not include “15 U.S.C.”


3

II. JURISDICTION AND VENUE

3. This is an adversary proceeding commenced in this Court, in which the main

underlying SIPA proceeding, No. 08-01789 (SMB) (the “SIPA Proceeding”), is pending. The

SIPA Proceeding was originally brought in the United States District Court for the Southern

District of New York as Securities Exchange Commission v. Bernard L. Madoff Investment

Securities LLC et al., No. 08 CV 10791 (the “District Court Proceeding”) and has been referred

to this Court. This Court has jurisdiction over this adversary proceeding under 28 U.S.C.

§ 1334(b) and (e)(1), and 15 U.S.C. § 78eee(b)(2)(A) and (b)(4).

4. This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), (B), (F), (H) and (O).

The Trustee consents to the entry of final orders or judgment by this Court if it is determined that

consent of the parties is required for this Court to enter final orders or judgment consistent with

Article III of the U.S. Constitution.

5. Venue in this district is proper under 28 U.S.C. § 1409.

6. This adversary proceeding is brought under 15 U.S.C. §§ 78fff(b) and 78fff-2(c)(3),

11 U.S.C. §§ 105(a), 548(a), 550(a) and 551, and other applicable law.

III. DEFENDANTS

7. Defendant Aspen is a corporation formed under the laws of the state of Colorado

on February 20, 1998. In April 1998, Knyper, through Aspen, opened BLMIS account 1EM381

(“the Account”) held in the name “Aspen Fine Arts Co. c/o Knyper,” with the account address

reported at 150 White Horse Springs Lane, Aspen, Colorado. Aspen has appeared through counsel

and answered the Trustee’s First Amended Complaint dated December 14, 2011 [Doc. No. 15].

8. Defendant Knyper maintained his residence at the same address as Aspen, 150

White Horse Springs Lane, Aspen, Colorado, until it was sold on or about October 19, 2016. Upon


4

information and belief, Knyper still resides in Colorado. Knyper was included as a subsequent

transferee defendant in the Trustee’s First Amended Complaint, but was dismissed without

prejudice pursuant to the Order Granting in Part and Denying in Party Defendants’ Motions to

Dismiss. [Doc. No. 47] The Trustee’s ongoing investigation has revealed that Knyper exercised

complete dominion and control over the Account and that the transfers from BLMIS were made

for Knyper’s benefit.

IV. BACKGROUND, THE TRUSTEE AND STANDING

9. On December 11, 2008 (the “Filing Date”), Madoff was arrested by federal agents

for criminal violations of federal securities laws, including securities fraud, investment adviser

fraud, and mail and wire fraud. Contemporaneously, the Securities and Exchange Commission

(“SEC”) commenced the District Court Proceeding.

10. On December 15, 2008, under SIPA § 78eee(a)(4)(A), the SEC consented to

combining its action with an application by the Securities Investor Protection Corporation

(“SIPC”). Thereafter, under SIPA § 78eee(a)(4)(B), SIPC filed an application in the District Court

alleging, among other things, that BLMIS could not meet its obligations to securities customers as

they came due and its customers needed the protections afforded by SIPA.

11. Also on December 15, 2008, Judge Stanton granted SIPC’s application and entered

an order pursuant to SIPA, which, in pertinent part:

(a) appointed the Trustee for the liquidation of the business of BLMIS pursuant to SIPA § 78eee(b)(3);

(b) appointed Baker & Hostetler LLP as counsel to the Trustee pursuant to SIPA § 78eee(b)(3); and

(c) removed the case to this Court pursuant to SIPA § 78eee(b)(4).


5

12. By orders dated December 23, 2008 and February 4, 2009, respectively, this Court

approved the Trustee’s bond and found that the Trustee was a disinterested person. Accordingly,

the Trustee is duly qualified to serve and act on behalf of the estate.

13. On April 13, 2009, an involuntary bankruptcy petition was filed against Madoff,

and on June 9, 2009, this Court substantively consolidated the chapter 7 estate of Madoff into the

SIPA Proceeding.

14. At a plea hearing on March 12, 2009, in the case captioned United States v. Madoff,

Case No. 09-CR-213(DC), Madoff pleaded guilty to an 11-count criminal information filed against

him by the United States Attorney for the Southern District of New York. At the plea hearing,

Madoff admitted he “operated a Ponzi scheme through the investment advisory side of [BLMIS].”

15. At a plea hearing on August 11, 2009, in the case captioned United States v.

DiPascali, Case No. 09-CR-764 (RJS), Frank DiPascali, a former BLMIS employee, pleaded

guilty to a ten-count criminal information charging him with participating in and conspiring to

perpetuate the Ponzi scheme. DiPascali admitted that no purchases or sales of securities took place

in connection with BLMIS customer accounts and that the Ponzi scheme had been ongoing at

BLMIS since at least the 1980s.

16. At a plea hearing on November 21, 2011, in the case captioned United States v.

Kugel, Case No. 10-CR-228 (LTS), David Kugel, a former BLMIS trader and manager, pleaded

guilty to a six-count criminal information charging him with securities fraud, falsifying the records

of BLMIS, conspiracy, and bank fraud. Kugel admitted to helping create false, backdated trades

in BLMIS customer accounts beginning in the early 1970s.

17. On March 24, 2014, Daniel Bonventre, Annette Bongiorno, Jo Ann Crupi, George

Perez, and Jerome O’Hara were convicted of fraud and other crimes in connection with their


6

participation in the Ponzi scheme as employees of BLMIS’s investment advisory business (“IA

Business”).

18. As the Trustee appointed under SIPA, the Trustee is charged with assessing claims,

recovering and distributing customer property to BLMIS’s customers holding allowed customer

claims, and liquidating any remaining BLMIS assets for the benefit of the estate and its creditors.

The Trustee is using his authority under SIPA and the Bankruptcy Code to avoid and recover

payouts of fictitious profits and/or other transfers made by the Debtors to customers and others to

the detriment of defrauded, innocent customers whose money was consumed by the Ponzi scheme.

Absent this and other recovery actions, the Trustee will be unable to satisfy the claims described

in subparagraphs (A) through (D) of SIPA § 78fff-2(c)(1).

19. Pursuant to SIPA § 78fff-1(a), the Trustee has the general powers of a bankruptcy

trustee in a case under the Bankruptcy Code in addition to the powers granted by SIPA pursuant

to SIPA § 78fff(b). Chapters 1, 3, 5 and subchapters I and II of chapter 7 of the Bankruptcy Code

apply to this proceeding to the extent consistent with SIPA pursuant to SIPA § 78fff(b).

20. The Trustee has standing to bring the avoidance and recovery claims under SIPA

§ 78fff-1(a) and applicable provisions of the Bankruptcy Code, including 11 U.S.C. §§ 323(b),

544, and 704(a)(1), because the Trustee has the power and authority to avoid and recover transfers

under Bankruptcy Code sections 548, 550(a), and 551, and SIPA §§ 78fff-1(a) and 78fff-2(c)(3).

V. BLMIS, THE PONZI SCHEME, AND MADOFF’S INVESTMENT STRATEGY

1. BLMIS

22. Madoff founded BLMIS in 1960 as a sole proprietorship. In 2001, Madoff

registered BLMIS as a New York limited liability company. At all relevant times, Madoff

controlled BLMIS first as its sole member, and thereafter as its chairman and chief executive.

23. In compliance with 15 U.S.C. § 78o(b)(1) and SEC Rule 15b1-3, and regardless of


7

its business form, BLMIS operated as a single broker-dealer from 1960 through 2008. Public

records obtained from the Central Registration Depository of the Financial Industry Regulatory

Authority Inc. reflect BLMIS’s continuous registration as a securities broker-dealer from January

19, 1960 through December 31, 2008. At all times, BLMIS was assigned CRD No. 2625. SIPC’s

Membership Management System database (“MMS”) also reflects BLMIS’s registration with the

Securities and Exchange Commission (“SEC”) as a securities broker-dealer from January 19, 1960

through December 31, 2008. On December 30, 1970, BLMIS became a member of SIPC and

continued its membership without any change in status until the Filing Date. SIPC membership is

contingent on registration of the broker-dealer with the SEC.

24. For most of its existence, BLMIS’s principal place of business was 885 Third

Avenue in New York City, where Madoff operated three principal business units: a proprietary

trading desk, a broker dealer operation, and an investment advisory business (the “IA Business”).

25. BLMIS’s website publicly boasted about the sophistication and success of its

proprietary trading desk and broker-dealer operations, which were well known in the financial

industry. BLMIS’s website omitted the IA Business entirely. BLMIS did not register as an

investment adviser with the SEC until 2006, following an investigation by the SEC, which forced

Madoff to register.

26. For more than 20 years preceding that registration, the financial reports BLMIS

filed with the SEC fraudulently omitted the existence of billions of dollars of customer funds

BLMIS managed through its IA Business.

27. In 2006, BLMIS filed its first Form ADV (Uniform Application for Investment

Adviser Registration) with the SEC, reporting that BLMIS had 23 customer accounts with total

assets under management of $11.7 billion. BLMIS filed its last Form ADV in January 2008,


8

reporting that its IA Business still had only 23 customer accounts with total assets under

management of $17.1 billion. In reality, Madoff grossly understated these numbers. In 2008,

BLMIS had over 4,900 active customer accounts with a purported value of approximately $68

billion in assets under management. At all times, BLMIS’s Form ADVs were publicly available.

2. THE PONZI SCHEME

28. At all relevant times, Madoff operated the IA Business as a Ponzi scheme using

money deposited by customers that BLMIS claimed to invest in securities. The IA Business had

no legitimate business operations and produced no profits or earnings. Madoff was assisted by

several family members and a few employees, including Frank DiPascali, Irwin Lipkin, David

Kugel, Annette Bongiorno, Joanne Crupi, and others, who pleaded to, or were found guilty of,

assisting Madoff in carrying out the fraud.

29. BLMIS’s proprietary trading desk was also engaged in pervasive fraudulent

activity. It was funded, in part, by money taken from the IA Business customer deposits, but

fraudulently reported that funding as trading revenues and/or commissions on BLMIS’s financial

statements and other regulatory reports filed by BLMIS. The proprietary trading business was

incurring significant net losses beginning in at least mid-2002 and thereafter, and thus required

fraudulent infusions of cash from the IA Business to continue operating.

30. To provide cover for BLMIS’s fraudulent IA Business, BLMIS employed Friehling

& Horowitz, CPA, P.C. (“Friehling & Horowitz”) as its auditor, which accepted BLMIS’s

fraudulently reported trading revenues and/or commissions on its financial statements and other

regulatory reports that BLMIS filed. Friehling & Horowitz was a three-person accounting firm

based out of a strip mall in Rockland County, New York. Of the three employees at the firm, one

was a licensed CPA, one employee was an administrative assistant, and one was a semi-retired

accountant living in Florida.


9

31. On or about November 3, 2009, David Friehling, the sole proprietor of Friehling &

Horowitz, pleaded guilty to filing false audit reports for BLMIS and filing false tax returns for

Madoff and others. BLMIS’s publicly available SEC Form X-17A-5 included copies of these

fictitious annual audited financial statements prepared by Friehling & Horowitz.

Madoff’s Investment Strategy

32. BLMIS purported to execute two primary investment strategies for IA Business

customers: the convertible arbitrage strategy and the split strike conversion strategy (“SSC

strategy”). For a limited group of IA Business customers, primarily consisting of Madoff’s close

friends and their families, Madoff also purportedly purchased securities that were held for a certain

time and then purportedly sold for a profit. At all relevant times, Madoff conducted no legitimate

business operations using any of these strategies.

33. The convertible arbitrage investment strategy was supposed to generate profits by

taking advantage of the pricing mismatches that can occur between the equity and bond/preferred

equity markets. Investors were told they would gain profits from a change in the expectations for

the stock or convertible security over time. In the 1970s this strategy represented a significant

portion of the total IA Business accounts, but by the early 1990s the strategy was purportedly used

in only a small percentage of IA Business accounts.

34. From 1992 forward, Madoff began telling IA Business customers that he employed

the SSC strategy for their accounts, even though in reality BLMIS never traded any securities for

its IA Business customers. All funds received from IA Business customers were commingled in

a single BLMIS account maintained at JPMorgan Chase Bank. These commingled funds were not

used to trade securities, but rather to make distributions to, or payments for, other customers, to

benefit Madoff and his family personally, and to prop up Madoff’s proprietary trading business.


10

35. BLMIS reported falsified trades using backdated trade data on monthly account

statements sent to IA Business customers that typically reflected substantial gains on the

customers’ principal investments.

36. The SSC strategy purported to involve: (i) the purchase of a group or basket of

equities (the “Basket”) intended to highly correlate to the Standard & Poor’s 100 Index (the “S&P

100 Index”), (ii) the purchase of out-of-the-money S&P 100 Index put options, and (iii) the sale

of out-of-the-money S&P Index call options.

37. The put options were to control the downside risk of price changes in the Basket.

The exercise of put options could not turn losses into gains, but rather could only put a floor on

losses. By definition, the exercise of a put option would entail a loss for BLMIS.

38. The sale of call options would partially offset the costs associated with acquiring

puts, but would have the detrimental effect of putting a ceiling on gains. The call options would

make it difficult, if not impossible, for BLMIS to outperform the market, because in a rising

market, calls would be exercised by the counterparty.

39. The simultaneous purchase of puts and calls to hedge a securities position is

commonly referred to as a “collar.” The purpose of the collar is to limit exposure to volatility in

the stock market and flatten out returns on investment.

40. For the SSC strategy to be deployed as Madoff claimed, the total value of each of

the puts and calls purchased for the Basket had to equal the notional value of the Basket. For

example, to properly implement a collar to hedge the $11.7 billion of assets under management

that Madoff publicly reported in 2006 would have required the purchase of call and put options

with a notional value (for each) of $11.7 billion. There are no records to substantiate Madoff’s

purchase of call and put options in any amount, much less in billions of dollars.


11

41. Moreover, at all times that BLMIS reported its total assets under management,

publicly available information about the volume of exchange-traded options showed that the

volume of options contracts necessary to form the collar and implement the SSC strategy exceeded

the available options.

BLMIS’s Fee Structure

42. BLMIS charged commissions on purportedly executed trades rather than

management and performance fees based on the value of assets under management, but by using

a commission-based structure, Madoff inexplicably walked away from hundreds of millions of

dollars in fees.

BLMIS’s Market Timing

43. Madoff also lied to customers when he told them that he carefully timed securities

purchases and sales to maximize value. Madoff explained that he achieved market timing by

intermittently taking customer funds out of the market. During those times, Madoff purported to

invest BLMIS customer funds in U.S. Treasury securities (“Treasury Bills”) or mutual funds

invested in Treasury Bills.

44. BLMIS’s market timing, as reported on its customer statements, showed an

uncanny ability to buy low and sell high, an ability so uncanny, that any sophisticated or

professional investor, including the Defendant[s], could see it was statistically impossible.

BLMIS’s customer statements also showed, without fail, a total withdrawal from the market at

every quarter and year end.

45. As a registered broker-dealer, BLMIS was required, pursuant to section 240.17a-5

of the Securities Exchange Act of 1934, to file quarterly and annual reports with the SEC that

showed, among other things, financial information on customer activity, cash on hand, and assets


12

and liabilities at the time of reporting. BLMIS’s reported quarterly and year-end exits were

undertaken to avoid these SEC requirements. But these exits also meant that BLMIS was stuck

with the then-prevailing market conditions. It would be impossible to automatically sell all

positions at fixed times, independent of market conditions, and win every time. Yet this is

precisely what BLMIS’s customer statements reported.

46. BLMIS’s practice of exiting the market at fixed times, regardless of market

conditions, was completely at odds with the SSC strategy, which relied on holding long positions

rather than on short-term speculative trading.

47. There is no record of BLMIS clearing a single purchase or sale of securities in

connection with the SSC strategy at The Depository Trust & Clearing Corporation, the clearing

house for such transactions, its predecessors, or any other trading platform on which BLMIS could

have traded securities. There are no other BLMIS records that demonstrate that BLMIS traded

securities using the SSC strategy.

48. All exchange-listed options relating to the companies within the S&P 100 Index,

including options based upon the S&P 100 Index itself, clear through the Options Clearing

Corporation (“OCC”). The OCC has no records showing that BLMIS’s IA Business cleared any

trades in any exchange-listed options.

The Collapse of the Ponzi Scheme

49. The Ponzi scheme collapsed in December 2008, when BLMIS customers’ requests

for redemptions overwhelmed the flow of new investments.

50. At their plea hearings, Madoff and DiPascali admitted that BLMIS purchased none

of the securities listed on the IA Business customers’ fraudulent statements, and that the IA

Business operated as a Ponzi scheme.


13

51. At all relevant times, BLMIS was insolvent because (i) its assets were worth less

than the value of its liabilities; (ii) it could not meet its obligations as they came due; and (iii) at

the time of the transfers alleged herein, BLMIS was left with insufficient capital.

VI. THE TRANSFERS TO DEFENDANTS

52. On April 2, 1998, a $1,500,000 wire transfer was made by Aspen to BLMIS to open

Account 1EM381 held in the name “Aspen Fine Arts Co c/o Knyper.” Knyper executed, as

President of Aspen, a Customer Agreement, an Option Agreement, and a Trading Authorization

Limited to Purchases and Sales of Securities and Options (collectively, the “Account

Agreements”). Knyper and his wife, Marlene (together referred to as the “Knypers”), also entered

into a Corporate Resolution dated March 17, 1998 on BLMIS stationery, certifying that Aspen was

permitted to deal in stocks, bonds, and other securities, and resolving that Knyper and Marlene

had the power to (1) give orders for the Account, (2) deliver to and receive from BLMIS securities,

(3) sign for correctness of all statements for the Account, and (4) make any necessary written

endorsements to effectuate authority.

53. The Account Agreements were performed in New York, New York through

securities trading activities that took place in New York, New York. The Account was held in New

York, New York, and Defendants sent funds to BLMIS and/or to BLMIS’s account at JPMorgan

Chase & Co., Account #xxxxxxxxxxx1703 (the “BLMIS Bank Account”) in New York, New York

for application to the Account and the purported conducting of trading activities.

54. Defendants made deposits to BLMIS through checks and wire transfers from

“Aspen Fine Arts Co c/o Knyper” into the BLMIS Bank Account. In February, March and August

2000, Knyper transferred the balance of $3,096,8122 from his personal BLMIS Account 1EM322

2 As shown on Exhibit B annexed hereto, only $475,868 of the $3,096,812 was principal.


14

held in the name “Melvin Knyper W” to Account 1EM381 with instructions to “consolidate my

personal account…into my corporate account…”

55. Over the life of the Account, Defendants withdrew $7,460,000 from the Account,

$4,543,132 of which was more than was deposited into the Account.

56. During the two years prior to the Filing Date (“Two Year Transfer Period”), BLMIS

made transfers from the Account to Defendants (the “Transfers”) totaling $1,600,000 in fictitious

profit from the Ponzi scheme.

57. The Transfers received by Defendants constitute non-existent profits supposedly

earned in the Account, but in reality, they were other people’s money. The Transfers, as discussed

in detail below, were made to Aspen for for the benefit of Knyper and are set forth in in Column

10 on Exhibit B annexed hereto.

58. The Transfers are avoidable and recoverable under sections 548(a) and 550(a) of

the Bankruptcy Code, applicable provisions of SIPA, particularly SIPA section 78fff-2(c)(3). See

Exhibit B, Column 10.

59. To the extent that any of the avoidance and/or recovery counts may be inconsistent

with each other, they are to be treated as being pled in the alternative.

VIII. THE TRANSFERS WERE MADE FOR THE BENEFIT OF KNYPER

60. Aspen was formed on February 20, 1998, and opened its BLMIS Account soon

after on April 2, 1998.

61. On February 1, 1998, Knyper appointed himself President and his wife Marlene

Secretary/Treasurer of Aspen. Upon information and belief, no other person has held an executive

role with Aspen and it has never had any employees.


15

62. That same day, the Knypers issued 1000 shares of Aspen’s common stock to

Knyper, who was the sole shareholder of Aspen until December 1, 2007. Between December 1,

2007 and December 1, 2008, Knyper allegedly transferred his shares of Aspen to the Melvin

Knyper Revocable Trust and the Marlene E. Knyper Revocable Trust.

63. Aspen’s office address was 150 Whitehorse Springs Lane, Aspen, CO 81611. This

was also the Knypers’ personal residence until it was sold on or about October 19, 2016. Upon

information and belief, Aspen had no other business address at any point in time.

64. In its Application for a Federal Employer Identification, Knyper indicated that the

purpose of Aspen and its principal activity was the sale of fine arts. Upon information and belief,

Aspen has never engaged in the sale of fine arts.

65. According to its Articles of Reinstatement, Aspen was dissolved on December 1,

2002. It remained dissolved until July 14, 2008, when it filed Articles of Reinstatement with the

Colorado Secretary of State.

66. Upon information and belief, Aspen’s capital was largely personal funds provided

by Knyper, including the inter-account transfer made to “consolidate” Knyper’s personal BLMIS

account into the Account. Aspen was used, not for the purpose of engaging in the sale of fine arts,

but rather as an investment vehicle for Knyper’s personal finances.

67. Aspen was also used as a source of funds for Knyper to pay his and his family’s

personal expenses. During the Two Year Transfer Period, Defendants withdrew $1,600,000 from

the Account. According to documents produced in discovery by Aspen and Aspen’s Certified

Public Accountant, those Transfers were made for the benefit of Knyper because the funds were

used to make:


16

a. transfers to Knyper’s personal bank account;

b. cash withdrawals;

c. a monthly allowance to the Knypers’ son Gregory, and transfers to Gregory

Knyper’s San Diego, CA scuba diving business;

d. transfers or payments to relatives of the Knypers;

e. personal home mortgage expenses;

f. health care expenses;

g. life insurance;

h. homeowners, art, and umbrella insurance;

i. personal credit card bills;

j. New York luxury hotel (Bristol Plaza) expenses;

k. attorneys’ fees, including a California family law attorney and a Colorado

personal injury attorney;

l. Pitkin County, Colorado property tax;

m. country club membership for the Knypers;

n. home maintenance and upgrades;

o. home utilities;

p. charitable contributions; and

q. federal and state taxes.

68. During the Two Year Transfer Period, Aspen received deposits of Social Security

funds from Knyper and Marlene.

69. Upon information and belief, Aspen conducted no business apart from investing

and managing Knyper’s personal funds at Knyper’s direction.


17

70. Aspen and Knyper ignored corporate formalities and no corporate veil can be

maintained between them. Aspen did not have any employees or a payroll. It did not have an

independent office—its business address was Knyper’s personal residence. Upon information and

belief, Aspen did not hold corporate meetings after its first meeting in February 1998, and Aspen’s

corporate records do not indicate it conducted any business apart from passive investments.

71. Knyper exercised complete dominion and control over Aspen, co-mingled his

personal funds in Aspen’s bank account, and co-mingled Aspen’s funds in his personal bank

account. Knyper used Aspen as a mere instrument to facilitate his personal interests and those of

his family members.

72. Knyper was the person who benefitted from the Transfers, and as such, Knyper is

personally liable for each of Aspen’s debts and obligations, including the Two Year Transfers

received from BLMIS.

IX. CUSTOMER CLAIM

73. On or about June 8, 2009, “Aspen Fine Arts c/o Knyper” filed a customer claim

with the Trustee which the Trustee has designated as Claim # 9406 (the “Customer Claim”).

74. On or about October 19, 2009, the Trustee issued a Notice of Trustee’s

Determination of Claim to Defendant (the “Determination”) with respect to the Customer Claim.

A copy of the Determination is attached hereto as Exhibit C.

75. On or about November 10, 2009, Aspen filed an objection to the Determination

with the Court (the “Claims Objection”).


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X. COUNT ONEFRAUDULENT TRANSFERS—11 U.S.C. § 105(a), 548(a)(1)(A), 550(a) AND 551

76. To the extent applicable, the Trustee incorporates by reference the allegations

contained in the previous paragraphs of this Second Amended Complaint as if fully rewritten

herein.

77. Each of the Two Year Transfers was made on or within two years before the

Filing Date.

78. Each of the Two Year Transfers constituted a transfer of an interest of BLMIS in

property within the meaning of section 101(54) of the Bankruptcy Code and pursuant to section

78fff-2(c)(3) of SIPA.

79. Each of the Two Year Transfers was made or incurred by BLMIS with the actual

intent to hinder, delay, or defraud some or all of BLMIS’s then existing and/or future creditors.

80. Each of the Two Year Transfers was made to or for the benefit of the Defendants.

81. Each of the Two Year Transfers constitutes a fraudulent transfer avoidable by the

Trustee recoverable from Defendants pursuant to section 550(a) of the Bankruptcy Code and

section 78fff-2(c)(3) of SIPA.

82. As a result of the foregoing, pursuant to section 550(a)of the Bankruptcy Code and

section 78fff-2(c)(3) of SIPA, as applicable, the Trustee is entitled to a judgment against

Defendants: (a) avoiding and preserving the Two Year Transfers, (b) directing that the Two Year

Transfers be set aside, (c) recovering the Two Year Transfers, or the value thereof, from

Defendants, for the benefit of the estate of BLMIS, and (d) awarding any other relief the Court

deems just and appropriate.


19

WHEREFORE, the Trustee respectfully requests that this Court enter judgment in favor

of the Trustee and against Defendant as follows:

i. Pursuant to sections 105(a), 548(a)(1)(A), 550(a) and 551 of the Bankruptcy Code,

and 15 U.S.C. § 78fff-2(c)(3) of SIPA: (a) avoiding and preserving the Two Year Transfers; (b)

directing that the Two Year Transfers be set aside, (c) recovering the Two Year Transfers, or the

value thereof, from Defendants, for the benefit of the estate of BLMIS; and (d) awarding any other

relief the Court deems just and appropriate.

ii. Awarding the Trustee prejudgment interest from the date on which the Transfers

were received;

iii. Establishing a constructive trust over the proceeds of the Transfers in favor of the

Trustee for the benefit of BLMIS’s estate;

iv. Awarding the Trustee all applicable interest, costs, and disbursements of this

action; and

v. Granting the Trustee such other, further, and different relief as the Court deems

just, proper and equitable.


20

Date: November 8, 2017New York, New York

Of Counsel:

BAKER & HOSTETLER LLP811 Main St., Suite 1100Houston, Texas 77002Telephone: (713) 751-1600Facsimile: (713) 751-1717Dean D. HuntEmail: [email protected] A. HochmuthEmail: [email protected]

By: /s/ Nicholas J. Cremona

BAKER & HOSTETLER LLP45 Rockefeller PlazaNew York, New York 10111Telephone: (212) 589-4200Facsimile: (212) 589-4201David J. SheehanEmail: [email protected] J. CremonaEmail: [email protected]

Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff


10-04335-brl Doc 15-2 Filed 12/14/11 Entered 12/14/11 15:38:44 Exhibit B Pg 1 of 1

10-04335-smb Doc 57-2 Filed 11/08/17 Entered 11/08/17 16:47:26 Exhibit B Pg 1 of 1

10-04335-smb Doc 57-3 Filed 11/08/17 Entered 11/08/17 16:47:26 Exhibit C Pg 1 of 2

10-04335-smb Doc 57-3 Filed 11/08/17 Entered 11/08/17 16:47:26 Exhibit C Pg 2 of 2

MILBERG LLP Matthew A. Kupillas One Pennsylvania Plaza New York, NY 10119 Tel: (212) 594-5300 Fax: (212) 868-1229 Attorneys for Aspen Fine Arts Co. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff-Applicant, v. BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Defendant.

No. 08-01789 (SMB) SIPA LIQUIDATION (Substantively Consolidated)

In re: BERNARD L. MADOFF, Debtor.

IRVING H. PICARD, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff, Plaintiff, v. ASPEN FINE ARTS CO., Defendant.

Adv. Pro. No. 10-04335 (SMB)

DEFENDANT ASPEN FINE ARTS CO.’S RESPONSES AND OBJECTIONS TO

PLAINTIFF’S FIRST SET OF INTERROGATORIES

10-04335-smb Doc 57-4 Filed 11/08/17 Entered 11/08/17 16:47:26 Exhibit D Pg 1 of 21

2

Defendant Aspen Fine Arts Co. (“Defendant”), for its responses to Plaintiff Irving H.

Picard’s First Set of Interrogatories the (“Interrogatories”), states as follows:

PRELIMINARY STATEMENT

Defendant’s responses and objections are based on information presently available.

Discovery in this action is still ongoing. As discovery proceeds, documents may be discovered

that are not set forth below, but which may be responsive. Facts and evidence now known may

be imperfectly understood, or the relevance or consequences of such facts and evidence may be

imperfectly understood. Defendant continues to investigate and reserves the right to supplement,

amend, or correct these responses as appropriate.

By responding to Plaintiff’s Interrogatories, Defendant does not waive any objection that

may be applicable to: (a) the use, for any purpose, by Plaintiff of any information or documents

provided in response; or (b) the admissibility, relevance, or materiality of any of the information

or documents to any issue in this case.

GENERAL OBJECTIONS

The following General Objections are incorporated in each specific response below as if

fully repeated in each response. Defendant’s responses to any Interrogatory shall be without

prejudice to any objections it may have to the relevance or admissibility of any response at any

hearing or trial in this action.

1. Defendant objects to the Interrogatories, including without limitation the

Definitions and Instructions contained therein, to the extent they seek to impose duties or

obligations beyond those set forth in the Federal Rules of Civil Procedure or the Federal Rules of

Bankruptcy Procedure.

2. Defendant objects to the Interrogatories to the extent they are duplicative or each

other or any other discovery requests and reserves the right to incorporate answers by reference.


3

3. Defendant objects to the Interrogatories to the extent they seek information that is

neither relevant to any party’s claim or defense nor reasonably calculated to lead to the discovery

of admissible evidence.

4. Defendant objects to the Interrogatories to the extent they seek information

protected from discovery by applicable doctrines of privilege or immunity, including, without

limitation, information developed or gathered for or in anticipation of litigation that constitute or

reflect attorney work product or trial preparation materials, or attorney-client communications or

communications protected by the marital communication, common interest and/or joint defense

privileges. Defendant will not provide any information subject to such privileges.

5. Defendant objects to the Interrogatories on the grounds that they seek the legal

conclusions of counsel and/or the substance of attorney-client communications between

Defendant and counsel rather than facts known to Defendant. Legal conclusions are beyond the

scope of discovery of Fed. R. Civ. P. 26.

6. Defendant objects to the Interrogatories to the extent they seek information that

may be determined by expert opinion or testimony, on the grounds that they are premature under

Fed. R. Civ. P. 26(a)(2).


not in the knowledge, possession, custody, or control of Defendant. Defendant has made or will

make a reasonably diligent inquiry concerning the subject matter of the Interrogatories.


already in the possession of Plaintiff or that Plaintiff is in equal position to obtain.


4


publicly available or that Plaintiff can obtain from another source that is more convenient, less

burdensome, or less expensive or with a burden equal to that imposed on Defendant.

10. Defendant objects to the Interrogatories to the extent that they seek information

related to transfers that Defendant received from or made to persons or entities other than

BLMIS. If this action proceeds to judgment, such receipts or uses of funds may become relevant

that the time of enforcement or collection of the judgment. Until such time, discovery directed to

Defendant’s finances is intrusive, harassing, unlikely to lead to the discovery of admissible

evidence, unduly burdensome and expenses, and outside the scope of proper discovery.

11. Defendant objects to the Interrogatories on the basis that they improperly include

more than 25 separate interrogatories in violation of the limit on interrogatories set forth in Fed.

R. Civ. P. 33(a)(1).

12. Defendant objects to Plaintiff’s definition of the term “Complaint” on the grounds

that that term is vague and ambiguous, as it purports to define a singular document by reference

to multiple, non-identical documents. Defendant further objects to Plaintiff’s definition of the

term “Complaint” to the extent that Plaintiff’s definition includes any complaints other than the

Amended Complaint filed in this adversary proceeding by Plaintiff on December 2, 2011, on the

grounds that Plaintiff’s definition calls for the disclosure of information that is not relevant to the

claims and defenses that are currently asserted in this adversary proceeding. All Responses

provided herein by Defendant are based on the Defendant’s interpretation of the word

“Complaint” to mean the Amended Complaint filed in this adversary proceeding by Plaintiff on

December 2, 2011.


5

13. Defendant objects to Plaintiff’s definition of the term “Account(s)” as vague,

ambiguous, overbroad and unduly burdensome. As defined, the term would include BLMIS

accounts that are not relevant to this action. In responding to these Interrogatories, Defendant

construes and understands the term to mean solely the BLMIS Account No. 1EM381.

14. Defendant objects to the Interrogatories to the extent that they seek information

relating to a time period that is not relevant to the existing claims in this case. Such discovery is

overbroad, unduly burdensome, and expensive. Unless otherwise noted, Defendant will confine

its responses to the period of December 11, 2006 to December 11, 2008.

NON-WAIVER OF OBJECTIONS AND RIGHTS

If Defendant provides information in response to an Interrogatory, which information is

or may be the subject of any of the foregoing objections, including, but not limited to, any

applicable privileges or doctrines, such a provision is not intended to be nor shall it be deemed a

waiver of objections with respect to such information or withheld information, nor shall it be

deemed a waiver with respect to admissibility of any such information into evidence at any trial

or hearing.

SPECIFIC RESPONSES AND SPECIFIC OBJECTIONS

PLAINTIFF’S INTERROGATORY NO. 1: Identify the reasons for each Transfer and

Subsequent Transfer.

DEFENDANT’S RESPONSE TO PLAINTIFF’S INTERROGATORY NO. 1:

Defendant incorporates all of its General Objections as if set forth fully herein.

Defendant specifically objects to this Interrogatory as vague and ambiguous because the

term “reasons” may be understood or interpreted differently by different persons; for

example, the interrogatory does not specify whose “reasons” Defendant is asked to


6

identify. Defendant further objects to this Interrogatory on the grounds that it is

overbroad, unduly burdensome and seeks information that is not material, relevant or

necessary to the prosecution or defense of this action. Based on the foregoing objections,

Defendant is not responding to this Interrogatory.

PLAINTIFF’S INTERROGATORY NO. 2: Identify each deposit into the Account.




term “identify”, as used in this Interrogatory, may be understood or interpreted differently

by different persons. Subject to and without waiving the foregoing objections, Defendant

responds as follows: The dates and dollar amounts of all deposits into the Account are

identified in Columns 1, 4 and 6 of Exhibit B to Plaintiff’s Amended Complaint.

PLAINTIFF’S INTERROGATORY NO. 3: Identify each person with knowledge of any

Transfer, the circumstances under which each Person obtained such knowledge, and the substance

of that Person’s knowledge.




phrases “knowledge of any Transfer” and “the circumstances under which each Person

obtained such knowledge” may be understood or interpreted differently by different

persons. Defendant further objects to this Interrogatory on the grounds that it overbroad,

unduly burdensome and seeks information that is not material, relevant or necessary to

the prosecution or defense of this action. Subject to and without waiving the foregoing


7

objections, Defendant responds as follows: Melvin Knyper has knowledge concerning

certain Transfers, which he obtained in connection with his position as President of

Aspen Fine Arts Co.

PLAINTIFF’S INTERROGATORY NO. 4: Identify: (a) each Person or entity that ever

received funds withdrawn from the Account, whether directly or indirectly including, but not

limited to, Melvin Knyper, Marlene Knyper, Aspen Fine Arts, Co.’s pension fund account or

accounts, Gregory Knyper, Melissa Ostrove, Danielle Ostrove, and Amanda Ostrove; (b) the

amount of money that each such Person or entity received; and (c) the date(s) on which each

Person or entity received such money.


Defendant incorporates all of its General Objections as if set forth fully herein. Defendant

specifically objects to this Interrogatory on the grounds that it is overbroad, unduly

burdensome and seeks information that is not material, relevant or necessary to the

prosecution or defense of this action. Defendant further objects to this Interrogatory to

the extent that it directly or indirectly seeks information concerning subsequent transfers;

there are currently no claims asserted in this action for the recovery of subsequent

transfers, and accordingly, information concerning potential subsequent transfers is not

relevant to Plaintiff’s claims. Subject to and without waiving the foregoing objections,

Defendant responds as follows: Defendant received the following funds that were

withdrawn from Defendant’s BLMIS Account: (a) $500,000 received on or around

December 26, 2006; (b) $250,000 received on or around July 25, 2008; and (c) $500,000

received on or around November 5, 2008. On or around July 11, 2007, Melvin Knyper

received $350,000 that was withdrawn from Defendant’s BLMIS Account, as that


8

withdrawal check was erroneously deposited into Melvin Knyper’s bank account due to a

banking error; however, as set forth in Defendant’s response to Interrogatory No. 14

below, the full amount ($350,000) of those funds was subsequently transferred by Melvin

Knyper back to Defendant’s bank account.

PLAINTIFF’S INTERROGATORY NO. 5: Identify all Persons who benefited from any

Transfer, including, but not limited to, Persons who received or enjoyed the benefit of anything

paid for with any funds that were part of any Transfer, and describe how these Persons benefited.









relevant to Plaintiff’s claims. Defendant further objects to this Interrogatory because it is

grounded in allegations of the Trustee that the Bankruptcy Court has determined in

related proceedings to be insufficient as a matter of law to support the characterization of

a purported subsequent transferee as a person “for whose benefit” the initial transfer was

made, and thereby to avoid the transfer under Section 550(a) of the Bankruptcy Code.

Based on the foregoing objections, Defendant is not responding to this Interrogatory.


9

PLAINTIFF’S INTERROGATORY NO. 6: To the extent not already provided in Aspen Fine

Arts, Co.’s responses to the preceding Interrogatories, state how Aspen Fine Arts, Co. used any

money received from the Transfers.









relevant to Plaintiff’s claims. Based on the foregoing objections, Defendant is not

responding to this Interrogatory.

PLAINTIFF’S INTERROGATORY NO. 7: Identify any and all banks and/or financial

institutions, including, but not limited to, Wells Fargo Bank, N.A., where Aspen Fine Arts Co. or

Melvin Knyper hold or have held accounts during the Applicable Period, and for each account,

give the account number, the date the account was opened, and the date the account was closed.



specifically objects to this Interrogatory on the grounds that it is harassing, vague,


necessary to the prosecution or defense of this action. Defendant further objects to this

Interrogatory on the ground that it seeks discovery concerning subsequent transfers; there


10

are currently no claims asserted in this action for the recovery of subsequent transfers,

and accordingly, information concerning potential subsequent transfers is not relevant to

Plaintiff’s claims. Based on the foregoing objections, Defendant is not responding to this

Interrogatory.

PLAINTIFF’S INTERROGATORY NO. 8: Identify any instance when Aspen Fine Arts, Co.

or anyone on Your behalf communicated to BLMIS any disagreement with respect to the accuracy

of the deposits or withdrawals reflected on the customer statements.


Defendant incorporates all of its General Objections as if set forth fully herein. Subject

to and without waiving the foregoing objections, Defendant responds as follows: Neither

Defendant, nor anyone acting on Defendant’s behalf, ever communicated to BLMIS any

disagreement with respect to the accuracy of the deposits or withdrawals reflected on the

customer statements.

PLAINTIFF’S INTERROGATORY NO. 9: For each denial of a material allegation and each

affirmative defense in Aspen Fine Arts, Co.’s answer to the Complaint:

a. state all facts upon which Aspen Fine Arts, Co. bases the denial or

affirmative defense;

b. state the names, addresses, and telephone numbers of all Persons who have

knowledge of those facts; and

c. Identify Documents and other tangible things that support Aspen Fine Arts,

Co.’s denial or affirmative defense, and state the name, address, and

telephone number of the Person who has each Document.


11



specifically objects to this Interrogatory on the grounds that it is harassing, vague,


necessary to the prosecution or defense of this action. Defendant further objects to this

Interrogatory because it seeks information that is protected by the attorney-client

privilege and the attorney work product doctrine, and purports to require Defendant to

disclose information that constitutes or contains the legal analysis of the allegations of the

Amended Complaint and the defenses. Moreover, this Interrogatory is compound and

purports to require Defendant to provide one answer encompassing facts, the identity of

knowledgeable persons, and documents that may be relevant to separate and discrete

denials of allegations and affirmative defenses under the guise of a single Interrogatory.

In that manner the Interrogatory violates the letter and spirit of Rule 33(a)(1) of the

Federal Rules of Civil Procedure.

Subject to the foregoing General and Specific Objections, Defendant requests that the

Trustee clarify the particular denials or affirmative defenses for which he seeks

information, subject to the restrictions imposed on interrogatories by Rule 33(a) of the

Federal Rules of Civil Procedure.

PLAINTIFF’S INTERROGATORY NO. 10: Identify the basis for Your contention, contained

within the twenty-seventh affirmative defense in Your answer to the Trustee’s Complaint, that

“[t]he claims are barred because they fail to sufficiently trace the funds that are the subject of the

alleged transfers from BLMIS to the Defendant.”


12



to and without waiving the foregoing objections, Defendant responds as follows:

Defendant does not possess any facts that support this contention.


within the twenty-eighth affirmative defense in Your answer to the Trustee’s Complaint, that “[t]he

claims are barred, in whole or part, for failure to properly credit inter-account transfers.”



to and without waiving the foregoing objections, Defendant responds as follows: As

reflected on Exhibit A to the Trustee’s Amended Complaint, (a) on or around February

24, 2000, $3,093,402 was transferred from BLMIS account no. 1EM332 to Defendant’s

BLMIS account no. 1EM381, but the Trustee has only credited the Defendant’s account

no. 1EM381 with a portion ($475,968) of that transferred amount; (b) on or around

March 14, 2000, $672 was transferred from BLMIS account no. 1EM332 to Defendant’s

BLMIS account no. 1EM381, but the Trustee has not credited the Defendant’s account

no. 1EM381 with any portion ($0) of that transferred amount; and (c) on or around

August 16, 2000, $2,738 was transferred from BLMIS account no. 1EM332 to

Defendant’s BLMIS account no. 1EM381, but the Trustee has not credited the

Defendant’s account no. 1EM381 with any portion ($0) of that transferred amount.


within the twenty-ninth affirmative defense in Your answer to the Trustee’s Complaint, that

“[t]ransfers are subject to setoff or equitable adjustment because the alleged transfers were made to


13

pay estate and/or income taxes based on the value of assets and statements of gains and income

reflected in the BLMIS account at issue. The Internal Revenue Code (“IRC”) requires payment of

estate taxes, IRC § 2001 et seq., and income taxes, IRC §§ 1 et seq. and 641 et seq., based on,

among other things, the amount of the funds and/or income generated in brokerage accounts.

Accordingly, the Internal Revenue Code requires that tax payments be made based upon the value

of the assets reflected in, and/or any gains or income reflected in, BLMIS brokerage statements.

Defendant relied upon these statements in making such payments in order to comply with, among

other federal and state statutes, IRC §§ 2001 et seq. and IRC §§ 1 et seq. and 641 et seq.”



to and without waiving the foregoing objections, Defendant responds as follows: as

reflected in Exhibit 4 to Plaintiff’s Second Set of Requests for Admission (NEU003193-

257), during the period between December 2003 and December 2008, Defendant used

funds withdrawn from its BLMIS account no. 1EM381 to pay certain amounts in federal

and state income tax, which tax payments were (at least in part) based on the assets

reflected in, and/or gains or income reflected in, the BLMIS brokerage statements for

Defendant’s BLMIS account no. 1EM381.

PLAINTIFF’S INTERROGATORY NO. 13: For each response other than an unqualified

admission to a Request for Admission included within the Trustee’s First Set of Requests for

Admission, served on April 8, 2016, and Second Set of Requests for Admission, served

contemporaneously herewith:

a. State all facts upon which You base the denial or qualified response;


14

b. State the names, addresses, and telephone numbers of all Persons who have

knowledge of those facts; and

c. Identify Documents and other tangible things that support Your denial or qualified

response, and state the name, address, and telephone number of the Person who has

each Document.




(i) With regard to Request for Admission Nos. 7, 8, 9 and 22 in Plaintiff’s First

Set of Requests for Admission, Defendant qualified its admission to those Requests

because, as reflected on Exhibit A to the Trustee’s Amended Complaint, (a) on or around

February 24, 2000, $3,093,402 was transferred from BLMIS account no. 1EM332 to

Defendant’s BLMIS account no. 1EM381, but the Trustee has only credited the

Defendant’s account no. 1EM381 with a portion ($475,968) of that transferred amount;

(b) on or around March 14, 2000, $672 was transferred from BLMIS account no.

1EM332 to Defendant’s BLMIS account no. 1EM381, but the Trustee has not credited

the Defendant’s account no. 1EM381 with any portion ($0) of that transferred amount;

and (c) on or around August 16, 2000, $2,738 was transferred from BLMIS account no.

1EM332 to Defendant’s BLMIS account no. 1EM381, but the Trustee has not credited

the Defendant’s account no. 1EM381 with any portion ($0) of that transferred amount.

(ii) With regard to Request for Admission Nos. 11, 17, 29, 30 and 31 in Plaintiff’s

First Set of Requests for Admission, Defendant qualified its admission to those Requests

because as reflected on Exhibit 4 to Plaintiff’s Second Set of Requests for Admission


15

(NEU003193-257) and on MADWAA00272721, on or around July 11, 2007, a check

dated July 11, 2007 in the amount of $350,000, which was withdrawn from Defendant’s

BLMIS Account, was not directly received by Defendant, but was erroneously deposited

into Melvin Knyper’s bank account due to a banking error; however, as reset forth in

Defendant’s response to Interrogatory No. 14 below, the full amount ($350,000) of those

funds were subsequently transferred by Melvin Knyper back to Defendant’s bank

account.

(iii) With regard to Request for Admission No. 12 in Plaintiff’s First Set of

Requests for Admission, Defendant denied that Request because $7,468,000 was not

withdrawn from Defendant’s BLMIS account no. 1EM381 over the life of the account.

Exhibit A to the Trustee’s Amended Complaint supports Defendant’s denial, as it reflects

that only $7,460,000 was withdrawn from Defendant’s BLMIS account no. 1EM381 over

the life of the account.

(iv) With regard to Request for Admission No. 12 in Plaintiff’s Second Set of

Requests for Admission, Defendant denied that Request because it contains a premise

(“Melvin Knyper transferred the $250,000 in BLMIS funds to Aspen Fine Arts,

Co.’s Wells Fargo Bank Account No. xxxxxx3082 in August 2008”) which is

factually incorrect, as Melvin Knyper did not transfer $250,000 in BLMIS funds to

Aspen Fine Arts Co.’s Wells Fargo bank account in August 2008. Exhibit 4 to

Plaintiff’s Second Set of Requests for Admission supports Defendant’s denial, as that

exhibit does not reflect any such purported transfer in August 2008.

PLAINTIFF’S INTERROGATORY NO. 14: Identify all BLMIS funds you purport were

“erroneously deposited” into Melvin Knyper’s bank account, and any funds subsequently


16

transferred by Melvin Knyper back to Defendant’s bank account, as described in Aspen Fine Arts,

Co.’s response to the Trustee’s Request for Admission Nos. 11, 17, 30 and 31. In so doing,

Identify all communications regarding such funds and the dates of such transfers back to

Defendant’s bank account.



to and without waiving the foregoing objections, Defendant responds as follows: As

reflected on the documents bearing the MADWAA00272721 and Bates numbers

NEU003193-257, on or around July 11, 2007, a check in the amount of $350,000 was

erroneously deposited into Melvin Knyper’s bank account. As reflected on NEU003209,

on or around August 21, 2007, $250,000 was returned by Melvin Knyper to Defendant’s

Wells Fargo bank account. Further, as reflected on NEU003252 (see line item “Bank

transfers in from personal acct”), $300,000 was transferred from Melvin Knyper to

Defendant’s Wells Fargo bank account in 2008, which would include the return of the

remaining $100,000; see also NEU003193-257, indicating that the following amounts

were transferred into Defendant’s Wells Fargo bank account: (a) $100,000 on or around

February 11, 2008, (b) $150,000 on or around March 4, 2008, (c) $30,000 on or around

October 31, 2008, and (d) $20,000 on or around November 4, 2008.

PLAINTIFF’S INTERROGATORY NO. 15: Identify all personal expenses of and transfers to

Melvin Knyper and/or Marlene Knyper during the period from December 11, 2006 to December

31, 2009, paid from Aspen Fine Arts, Co.’s Wells Fargo Bank Account No. ending in xxxxxx3082,

as reflected in Exhibit 1 (document beginning with the bates label NEU003193) attached hereto.


17











PLAINTIFF’S INTERROGATORY NO. 16: Identify all funds transferred from Aspen Fine

Arts, Co.’s Wells Fargo Bank Account No. ending in xxxxxx3082 to Aspen Fine Arts, Co.’s

Pension Account, Wells Fargo Bank Account No. ending in xxxxxx6855, during the period from

December 11, 2006 to December 31, 2009, including but not limited to those funds reflected in

Exhibit 2 (document beginning with bates label NEU000786) attached hereto.










18



PLAINTIFF’S INTERROGATORY NO. 17: Identify all funds transferred from Aspen Fine

Arts, Co.’s Wells Fargo Bank Account No. xxxxxx3082 to Melvin Knyper, Marlene Knyper,

Aspen Fine Arts Co.’s pension fund or accounts, Gregory Knyper, Melissa Ostrove, Danielle

Ostrove, Amanda Ostrove, and any other relative of Melvin Knyper and/or Marlene Knyper,

during the period from December 11, 2006 to December 31, 2009, including, but not limited to,

those transfers reflected in Exhibit 1.











PLAINTIFF’S INTERROGATORY NO. 18: Identify all account numbers for any financial

institution or investment institution that received funds or payments from Aspen Fine Arts, Co.’s

Wells Fargo Bank Account No. xxxxxx3082 during the period from December 11, 2006 to

December 31, 2009, identified in Exhibit 1, including, but not limited to: Wells Fargo


19

(specifically, the savings account referenced therein), JP Morgan Chase (including Chase Visa)

Jeffries and Co, and American Express.











PLAINTIFF’S INTERROGATORY NO. 19: Identify how Melvin Knyper used the

$1,032,750 in distributions from Aspen Fine Arts, Co. provided in Exhibits 3 and 4 (documents

beginning with the bates labels NEU002827 and NEU006063, respectively).










20



PLAINTIFF’S INTERROGATORY NO. 20: Describe in detail any business conducted by

Defendant, and any value Melvin Knyper and/or Marlene Knyper provided to Defendant in

furtherance of that business.





prosecution or defense of this action. Based on the foregoing objections, Defendant is

not responding to this Interrogatory.

PLAINTIFF’S INTERROGATORY NO. 21: For the period December 11, 2008 through the

present, Identify all actions that You and/or anyone acting on Your behalf, including counsel, took

to preserve Documents and records relevant to the claims and/or defenses in this Adversary

Proceeding, including any such materials in the physical possession of third parties, and Identify

the date such actions occurred.




Defendant has repeatedly instructed its accountant, Larry W. Neu, CPA, to preserve

documents in his possession relating to the claims and defenses in this Adversary

Proceeding.


21

Dated: March 27, 2017

By: /s/ Matthew A. Kupillas MILBERG LLP One Pennsylvania Plaza New York, NY 10119-0165 Telephone: (212) 594-5300 Fax: (212) 868-1229 Matthew A. Kupillas Email: [email protected] Attorneys for Aspen Fine Arts Co.

731448v1


MILBERG LLP Matthew A. Kupillas One Pennsylvania Plaza New York, NY 10119 Tel: (212) 594-5300 Fax: (212) 868-1229 Attorneys for Aspen Fine Arts Co. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff-Applicant, v. BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Defendant.

No. 08-01789 (SMB) SIPA LIQUIDATION (Substantively Consolidated)

In re: BERNARD L. MADOFF, Debtor.

IRVING H. PICARD, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff, Plaintiff, v. ASPEN FINE ARTS CO., Defendant.

Adv. Pro. No. 10-04335 (SMB)

DEFENDANT ASPEN FINE ARTS CO.’S RESPONSES AND OBJECTIONS TO

PLAINTIFF’S SECOND SET OF REQUESTS FOR ADMISSION

10-04335-smb Doc 57-5 Filed 11/08/17 Entered 11/08/17 16:47:26 Exhibit E Pg 1 of 34

2

Defendant Aspen Fine Arts Co. (“Defendant”), for its responses to Plaintiff Irving H.

Picard’s Second Set of Requests for Admission (the “Requests”), states as follows:

PRELIMINARY STATEMENT

Defendant’s responses and objections are based on information presently available.

Discovery in this action is still ongoing. As discovery proceeds, documents may be discovered

that are not set forth below, but which may be responsive. Facts and evidence now known may

be imperfectly understood, or the relevance or consequences of such facts and evidence may be

imperfectly understood. Defendant continues to investigate and reserves the right to supplement,

amend, or correct these responses as appropriate.

By responding to Plaintiff’s Requests, Defendant does not waive any objection that may

be applicable to: (a) the use, for any purpose, by Plaintiff of any information or documents

provided in response; or (b) the admissibility, relevance, or materiality of any of the information

or documents to any issue in this case.

GENERAL OBJECTIONS

The following General Objections are incorporated in each specific response below as if

fully repeated in each response. Defendant’s responses to any Request shall be without prejudice

to any objections it may have to the relevance or admissibility of any response at any hearing or

trial in this action.

1. Defendant objects to the Requests, including without limitation the Definitions and

Instructions contained therein, to the extent they seek to impose duties or obligations beyond

those set forth in the Federal Rules of Civil Procedure or the Federal Rules of Bankruptcy

Procedure.

2. Defendant objects to the Requests to the extent they call for a legal conclusion.

Any response by Defendant should not be construed as providing a legal conclusion regarding the


3

meaning or application of any terms or phrases used in Plaintiff’s requests, definitions or

instructions.

3. Defendant objects to the Requests to the extent they call for Defendant to form and

then render an expert opinion.

4. Defendant objects to the Requests to the extent they seek the disclosure of

information or the production of documents not within Defendant’s knowledge, possession,

custody or control. Defendant has made or will make a reasonably diligent inquiry concerning

the subject matter of the Requests.

5. Defendant objects to the Requests to the extent that they seek information related

to transfers that Defendant received from or made to persons or entities other than BLMIS. If this

action proceeds to judgment, such receipts or uses of funds may become relevant at the time of

enforcement or collection of the judgment. Until such time, discovery directed to Defendant’s

finances is intrusive, harassing, unlikely to lead to the discovery of admissible evidence, unduly

burdensome and expenses, and outside the scope of proper discovery.

6. Defendant objects to the Requests to the extent they may be construed as limiting

or restricting Defendant’s rights to rely upon any document or information for any purpose

whatsoever, including, but not limited to, the use of responsive information as evidence at any

subsequent hearing, trial or other proceeding.

7. Defendant objects to the Requests to the extent they seek information protected

from discovery by applicable doctrines of privilege or immunity, including, without limitation,

information developed or gathered for or in anticipation of litigation that constitute or reflect

attorney work product or trial preparation materials, or attorney-client communications or


4

communications protected by the marital communication, common interest and/or joint defense

privileges.

8. Defendant objects to Plaintiff’s definition of the term “Complaint” on the grounds

that that term is vague and ambiguous, as it purports to define a singular document by reference to

multiple, non-identical documents. Defendant further objects to Plaintiff’s definition of the term

“Complaint” to the extent that Plaintiff’s definition includes any complaints other than the

Amended Complaint filed in this adversary proceeding by Plaintiff on December 2, 2011, on the

grounds that Plaintiff’s definition calls for the disclosure of information that is not relevant to the

claims and defenses that are currently asserted in this adversary proceeding. All Responses

provided herein by Defendant are based on the Defendant’s interpretation of the word

“Complaint” to mean the Amended Complaint filed on December 2, 2011.

9. Defendant objects to Plaintiff’s definition of the term “You” on the grounds that it

is overbroad, insofar as it purports to include Melvin Knyper with the definition of the term

“You”.

10. Defendant objects to Plaintiff’s definitions of the terms “Applicable Period” and

“Initial Transfer” on the grounds that the definitions of those terms are superfluous and

unnecessary, as those terms are not used anywhere in the Requests.

11. Defendant objects to the Requests to the extent that they seek the production of

documents relating to a time period that is not relevant to the existing claims in this case. Such

discovery is overbroad, unduly burdensome, and expensive. Unless otherwise noted, Defendant

will confine its responses to the period of December 11, 2006 to December 11, 2008.

NON-WAIVER OF OBJECTIONS AND RIGHTS

If Defendant provides information in response to the Requests, which information is or

may be the subject of any of the foregoing objections, including, but not limited to, any


5

applicable privileges or doctrines, such a provision is not intended to be nor shall it be deemed a

waiver of objections with respect to such information or withheld information, nor shall it be

deemed a waiver with respect to admissibility of any such information into evidence at any trial

or hearing.

SPECIFIC RESPONSES AND SPECIFIC OBJECTIONS

PLAINTIFF’S REQUEST FOR ADMISSION NO. 1: Admit that if full credit was given for

interaccount transfers from Account No. 1EM322 to 1EM381, Account No. 1EM381 would still

have negative net equity by December 26, 2006.

DEFENDANT’S RESPONSE TO REQUEST FOR ADMISSION NO. 1: Admitted.

PLAINTIFF’S REQUEST FOR ADMISSION NO. 2: Admit that even if $3,096,812 from

Account No. 1EM322 was transferred into Account No. 1EM381, as of June 2006, Account No.

1EM381 would still have negative net equity of $313,188.

DEFENDANT’S RESPONSE TO REQUEST FOR ADMISSION NO. 2: Defendant

specifically objects to this Request on the grounds that the date “June 2006” is vague and

ambiguous. Subject to and without waiving the foregoing objection, Defendant admits

that even if the Trustee had given full credit to the interaccount transfers from Account

No. 1EM322 into Account No. 1EM381, in the amount of $3,096,812, Account No.

1EM381 would still have negative net equity of $313,188 as of June 26, 2006.

PLAINTIFF’S REQUEST FOR ADMISSION NO. 3: Admit that Melvin Knyper received

Subsequent Transfers from Aspen Fine Arts, Co.


specifically objects to this Request on the grounds that it is overbroad and unduly

burdensome, and seeks information which is not relevant to the claims or defenses of any

party and is not likely to lead to the discovery of information relevant to the claims or


6

defenses of any party; there are currently no claims asserted in this action for the

recovery of subsequent transfers, and accordingly, information concerning potential

subsequent transfers is not relevant to Plaintiff’s claims.

PLAINTIFF’S REQUEST FOR ADMISSION NO. 4: Admit that, as reflected in Exhibit 1

(document beginning with bates label NEU002827) attached hereto, Melvin Knyper

received distributions from Aspen Fine Arts, Co. of at least $1,000,000 in 2007.










received distributions from Aspen Fine Arts, Co. of at least $32,750 in 2008.









7



received at least $350,000 in BLMIS funds from Aspen Fine Arts, Co. in 2007.


admits that a check dated July 11, 2007 in the amount of $350,000, which was withdrawn

from Defendant’s BLMIS Account, was erroneously deposited into Melvin Knyper’s

bank account due to a banking error; however, as set forth in Defendant’s response to

Request No. 7 below, the full amount ($350,000) of those funds were subsequently

transferred by Melvin Knyper back to Defendant’s bank account.

PLAINTIFF’S REQUEST FOR ADMISSION NO. 7: Admit that only $250,000 of the

$350,000 in BLMIS funds Melvin Knyper received from the Account in July 2007 was returned

by Melvin Knyper to Aspen Fine Arts, Co.’s Wells Fargo Bank Account No. xxxxxx3082 in

August 2008.


admits that, as reflected on NEU0003209, on or around August 21, 2007, $250,000 was

returned by Melvin Knyper to Defendant’s Wells Fargo bank account. Defendant further

states that, as reflected on NEU003252 (see line item “Bank transfers in from personal

acct”), $300,000 was transferred from Melvin Knyper to Defendant’s Wells Fargo bank

account in 2008, which would include the return of the remaining $100,000; see also

Exhibit 4 (documents bearing the Bates numbers NEU003193-257), indicating that the

following amounts were transferred into Defendant’s Wells Fargo bank account: (a)

$100,000 on or around February 11, 2008, (b) $150,000 on or around March 4, 2008, (c)


8

$30,000 on or around October 31, 2008, and (d) $20,000 on or around November 4,

2008.

PLAINTIFF’S REQUEST FOR ADMISSION NO. 8: Admit that Marlene Knyper received

funds from Aspen Fine Arts, Co.








PLAINTIFF’S REQUEST FOR ADMISSION NO. 9: Admit that Gregory Knyper received

funds from Aspen Fine Arts, Co.








PLAINTIFF’S REQUEST FOR ADMISSION NO. 10: Admit that as reflected in Exhibit 4

(document beginning with bates label NEU003193) attached hereto, personal expenses incurred


9

by Melvin Knyper and/or Marlene Knyper were paid out of Aspen Fine Arts, Co.’s Wells Fargo

Bank Account No. xxxxxx3082.

DEFENDANT’S RESPONSE TO REQUEST FOR ADMISSION NO. 10:

Defendant specifically objects to this Request on the grounds that it is overbroad and

unduly burdensome, and seeks information which is not relevant to the claims or defenses

of any party and is not likely to lead to the discovery of information relevant to the claims

or defenses of any party; there are currently no claims asserted in this action for the



PLAINTIFF’S REQUEST FOR ADMISSION NO. 11: Admit that as reflected in Exhibit 4,

at the time Aspen Fine Arts, Co. deposited $500,000 in funds from the Account into its Wells

Fargo Bank Account No. xxxxxx3082 in December 2006, Aspen Fine Arts, Co. had $134,780.71

in its Wells Fargo Account.


Defendant specifically objects to this Request on the grounds that it seeks information

which is not relevant to the claims or defenses of any party and is not likely to lead to the

discovery of information relevant to the claims or defenses of any party. Subject to and

without waiving the foregoing objections, Defendant responds as follows: Defendant

admits that immediately following Aspen Fine Arts, Co.’s deposit of $500,000 in funds

from its BLMIS Account into its Wells Fargo Account No. xxxxxx3082 in December

2006, Aspen Fine Arts, Co. had $134,780.71 in its Wells Fargo Account.

PLAINTIFF’S REQUEST FOR ADMISSION NO. 12: Admit that as reflected in Exhibit

4, at the time Melvin Knyper transferred the $250,000 in BLMIS funds to Aspen Fine Arts,


10

Co.’s Wells Fargo Bank Account No. xxxxxx3082 in August 2008, Aspen Fine Arts, Co.

had $23,600.86 in its Wells Fargo Account.




discovery of information relevant to the claims or defenses of any party. Defendant

further objects to this Request on the grounds that it contains an incorrect factual premise,

as Melvin Knyper did not transfer $250,000 in BLMIS funds to Aspen Fine Arts, Co.’s

Wells Fargo Bank Account No. xxxxxx3082 in August 2008, and Exhibit 4 does not

reflect any such purported transfer. To the extent that a response is required, subject to

and without waiving the foregoing objections, Defendant responds as follows: Denied.


at the time Aspen Fine Arts, Co. deposited $250,000 in funds from its BLMIS Account into its

Wells Fargo Bank Account No. xxxxxx3082 in July 2008, Aspen Fine Arts, Co. has $54,303.42

in its Wells Fargo Account.






admits that immediately prior to Aspen Fine Arts, Co.’s deposit of $250,000 in funds

from its BLMIS Account into its Wells Fargo Account No. xxxxxx3082 in July 2008,

Aspen Fine Arts, Co. had $54,303.42 in its Wells Fargo Account.


11


at the time Aspen Fine Arts, Co. deposited $500,000 in funds from its BLMIS Account into its

Wells Fargo Bank Account No. xxxxxx3082 in November 2008, Aspen Fine Arts, Co. had

$97,409.37 in its Wells Fargo Account.






admits that immediately prior to Aspen Fine Arts, Co.’s deposit of $500,000 in funds

from its BLMIS Account into its Wells Fargo Account No. xxxxxx3082 in December

2008, Aspen Fine Arts, Co. had $97,409.37 in its Wells Fargo Account.


Melvin Knyper and/or Marlene Knyper paid health insurance expenses that they incurred out of

Aspen Fine Arts, Co.’s Wells Fargo Bank Account No. xxxxxx3082.










12

Melvin Knyper and/or Marlene Knyper paid life insurance expenses that they incurred out of

Aspen Fine Arts, Co.’s Wells Fargo Bank Account No. xxxxxx3082.









Melvin Knyper and/or Marlene Knyper paid credit card expenses that they incurred out of Aspen

Fine Arts, Co.’s Wells Fargo Bank Account No. xxxxxx3082.









Maroon Creek Club Melvin Knyper and/or Marlene Knyper paid membership dues that they

incurred out of Aspen Fine Arts, Co.’s Wells Fargo Bank Account No. xxxxxx3082.


13









Melvin Knyper and/or Marlene Knyper paid home repair costs that they incurred out of Aspen










Melvin Knyper and/or Marlene Knyper paid plumbing costs that they incurred out of Aspen Fine

Arts, Co.’s Wells Fargo Bank Account No. xxxxxx3082.





14






Melvin Knyper and/or Marlene Knyper paid property taxes that they incurred out of Aspen Fine










Melvin Knyper and/or Marlene Knyper paid home repair costs that they incurred out of Aspen








15




Melvin Knyper and/or Marlene Knyper paid utility costs that they incurred out of Aspen Fine










Melvin Knyper and/or Marlene Knyper paid automobile costs that they incurred out of Aspen











16

Melvin Knyper and/or Marlene Knyper paid roofing expenses that they incurred out of Aspen

Fine Arts, Co.’s Wells Fargo Bank Account No. xxxxx3082.









payments to North County Scuba (owned by Gregory Knyper) were made from Aspen Fine Arts,

Co.’s Wells Fargo Bank Account No. xxxxx3082.









college costs were paid by Aspen Fine Arts, Co.’s Wells Fargo Bank Account No. xxxxxx3082.




17







Bristol Plaza costs incurred by Melvin Knyper and/or Marlene Knyper were paid by Aspen Fine










Melissa Ostrove received funds from Aspen Fine Arts, Co.’s bank account at Wells Fargo Bank

(Account No. xxxxxx3082).







18




Danielle Ostrove received funds from Aspen Fine Arts, Co.’s bank account at Wells Fargo Bank










Amanda Ostrove received funds from Aspen Fine Arts, Co.’s bank account at Wells Fargo Bank











19

Gregory Knyper received funds from Aspen Fine Arts, Co.’s bank account at Wells Fargo Bank










$129,658.46 from Aspen Fine Arts, Co.’s bank account at Wells Fargo Bank (Account No.

xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s credit card expenses in

2007.










xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s health insurance


20

expenses in 2007.










xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s home insurance in 2007.










xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s home utility expenses in

2007.


21










xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s personal interest

expenses in 2007.










xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s home mortgage interest

expenses in 2007.


22










xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s personal line of credit

interest expenses in 2007.











and home mortgage interest expenses in 2007.


23










xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s medical expenses in

2007.










xxxxxx3082) was used o pay Melvin Knyper and/or Marlene Knyper’s property taxes in 2007.




24








xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s home repair expenses in

2007.










xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s travel expenses in 2007.






25






xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s credit card expenses in

2008.










xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s health insurance

expenses in 2008.







26





xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s home insurance in 2008.










xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s home utility expenses in

2008.









27



xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s personal interest

expenses in 2008.










xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s home mortgage interest

expenses in 2008.










28



interest expenses in 2008.











and home mortgage interest expenses in 2008.











29

xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s medical expenses in

2008.










xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s property taxes in 2008.










xxxxxx3082) was used to pay Melvin Knyper and/or Marlene Knyper’s home repair expenses in

2008.


30









$76,027.23 from Aspen Fine Arts, Co.’s Wells Fargo Bank (Account No. xxxxxx3082) was used

to pay Melvin Knyper and/or Marlene Knyper’s travel expenses in 2008.









(document beginning with bates label NEU001703) attached hereto, Gregory Knyper received at

least $27,000 from Aspen Fine Arts, Co. during the period from December 11, 2006 to August

31, 2007.




31







(document beginning with bates label NEU000786) attached hereto, $350,000.00 from the

Account was transferred to Aspen Fine Arts, Co.’s Pension Account, Wells Fargo Bank Account

No. xxxxxx6855 in July 2007.








PLAINTIFF’S REQUEST FOR ADMISSION NO. 59: Admit that Aspen Fine Arts, Co.

conducted no business.




discovery of information relevant to the claims or defenses of any party; the business


32

activities of Aspen Fine Arts Co. have no relevance to Plaintiff’s claims or Defendant’s

defenses.

PLAINTIFF’S REQUEST FOR ADMISSION NO. 60: Admit that Aspen Fine Arts, Co.’s

sole function was to hold investment accounts for Melvin Knyper and Marlene Knyper.






defenses.

PLAINTIFF’S REQUEST FOR ADMISSION NO. 61: Defendant specifically objects to this

Request on the grounds that it seeks information which is not relevant to the claims or defenses

of any party and is not likely to lead to the discovery of information relevant to the claims or

defenses of any party; the business activities of Aspen Fine Arts Co. have no relevance to

Plaintiff’s claims or Defendant’s defenses.

PLAINTIFF’S REQUEST FOR ADMISSION NO. 62: Admit that during the period Aspen

Fine Arts, Co. was dissolved, it conducted no business.







33

defenses. Defendant further objects to this Request on the grounds that the phrase “the

period Aspen Fine Arts, Co. was dissolved” is vague, ambiguous and confusing.

PLAINTIFF’S REQUEST FOR ADMISSION NO. 63: Admit that Melvin Knyper provided

no value to Aspen Fine Arts Co. in furtherance of its business.





activities of Aspen Fine Arts Co., and Melvin Knyper’s contributions to those business

activities, have no relevance to Plaintiff’s claims or Defendant’s defenses.

PLAINTIFF’S REQUEST FOR ADMISSION NO. 64: Admit that Marlene Knyper

provided no value to Aspen Fine Arts Co. in furtherance of its business.





activities of Aspen Fine Arts Co., and Marlene Knyper’s contributions to those business

activities, have no relevance to Plaintiff’s claims or Defendant’s defenses.


34

Dated: March 27, 2017

By: /s/ Matthew A. Kupillas MILBERG LLP One Pennsylvania Plaza New York, NY 10119-0165 Telephone: (212) 594-5300 Fax: (212) 868-1229 Matthew A. Kupillas Email: [email protected] Attorneys for Aspen Fine Arts Co.

731369v1


NEW YORK LOS ANGELES

Matthew A. Kupillas Direct Dial: 212-613-5697 [email protected]

D'- '" 'FtVEf' r1 ..-v . ·

. I ' '1 017 • "J .. u . {.'

BAKCH & HU3TETLER LLP

Dean D. Hunt. Esq. Baker & Hostetler LLP 811 Main Street, Suite 1100 Houston, TX 77002-6111

May 31, 2017

Re: Picard v. Aspen Fine Arts Co. , Adv. Pro. No. I 0-04335 (Bankr. S. D.N. Y.) Defendant 's Objections to the Trustee's Notice of Deposition

Dear Mr. Hunt:

I am writing on behalf of Aspen Fine Arts Co. (the defendant in the above-referenced adversary proceeding), to set forth Defendant's objections to the Trustee 's Notice of Deposition of Defendant's corporate representative dated May 22, 20 17 ("Notice"). Exhibit A to the Notice sets forth a li st of topics about which the Trustee seeks to question Defendant's corporate representative.

Defendant objects to topic no. I on the ground that it is irrelevant, because the Trustee's "Original Complaint" in this adversary proceeding is no longer the operati ve complaint. Defendant further objects on the ground that this topic is vague, ambiguous and overbroad, insofar as it states that " [t]he Trustee intends to inquire about the factual allegations in the Complaint", because the Trustee's Complaint includes many factual allegations that are completely outside the knowledge or responsibility of Defendant (for example, allegations concerning the Trustee's appointment in this liquidation proceeding) about which Defendant' s corporate representative should not be required to prepare to testify. Accordingly, Defendant will produce a corporate representative to testify concerning the factual allegations of the Trustee's Amended Complaint which pertain specifically to Defendant and which do not solely relate to causes of action that have been dismissed by the Court.

Defendant objects to topic no. 7 to the extent that it requires Defendant 's corporate representative to prepare to testify concerning Defendant' s '"purpose and nature of operations", ·'financial records'', " resolutions", "procedures", "protocols", "employees", "compensation and distribution structures", " the conduct of meetings", and "meeting agendas, notes and minutes". Aside from being vague and ambiguous, those topics are entirely irrelevant to the Trustee's claims and Defendant's defenses, and requiring Defendant's corporate representative to prepare to testify about those vague and ambiguous topics would be unduly burdensome and harassing.

One Pennsylvania Plaza• New York, NY 10119 • T 212.594.5300 • F 212.868.1229 • mi lberg.com --<" - ~

10-04335-smb Doc 57-6 Filed 11/08/17 Entered 11/08/17 16:47:26 Exhibit F Pg 1 of 3

Dean D. Hunt, Esq. May 31, 2017 Page 2

Accordingly. Defendant will not prepare its corporate representative to testify concerning those topics.

Please feel free to contact me to discuss these objections further.

Best regards,

'j)/a#~ Matt Kupillas _,Ji)

cc: Kody Kleber, Esq. (via e-mail only) Baker & Hostetler LLP

734905vl

MILBERG LLP


:~::~; MI LB ERG LLP •• One Pennsylvania Plaza New York, New York 10119

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Dc~m D. Hunt. Esq. Baker & Hostetler LLP 811 Main Street, Suite 1100 Houston. TX 77002-611 1

$0.46Q US POSTAGE FIRST-CLASS

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