FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 2014 WL 12461308 (Ill.Cir.Ct.) (Trial Pleading) Circuit Court of Illinois. County Department, Law Division Cook County FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL MANAGEMENT, LLC (f/k/a InsCap Management, LLC), Concord Partners, LLC (f/ k/a InsCap Partners, LLC), Concord Capital Funding, LLC, Concord Capital Funding, Inc., Concord Capital Insurance Services, LLC (f/k/a InsCap Insurance Services, LLC); Renova U.S. Management, LLC (d/b/a Columbus Nova), Columbus Nova Investments IV, Ltd., Nina Investments, LLC, Santa Maria Overseas, Ltd.; Ira Brody, Edward Netherland, Harish Raghavan, and Matthew Ross, Defendants. No. 2010 L 006868. September 18, 2014. Second Amended Complaint Stephen Novack, Richard G. Douglass, Rebekah H. Parker, Novack and Macey LLP, Firm ID No. 91731, 100 North Riverside Plaza, Chicago, Illinois 60606, (312) 419-6900, (312) 419-6928, snovack@novackmacey.com, rdouglass@novackmacey.com, rparker@novackmacey.com. Peter E. Calamari, Kevin S. Reed, Cleland B. Welton II, Heather M. Martone, Quinn Emanuel Urquhart & Sullivan, LLP, 51 Madison Avenue, 22nd Floor, New York, New York 10010-1601, Telephone: (212) 849-7000, Fax: (212) 849-7100, Of Counsel. Hon. Brigid M. McGrath. Plaintiff Fifth Third Bank (“Fifth Third”), by and through its undersigned attorneys, as and for its Second Amended Complaint against Defendants Concord Capital Management, LLC (f/k/a InsCap Management, LLC), Concord Partners, LLC (f/k/a InsCap Partners, LLC), Concord Capital Funding, LLC, Concord Capital Funding, Inc., Concord Capital Insurance Services, LLC (f/k/a InsCap Insurance Services, LLC), Renova U.S. Management, LLC (d/b/a Columbus Nova), Columbus Nova Investments IV, Ltd., Nina Investments, LLC, Santa Maria Overseas, Ltd., Ira Brody, Edward Netherland, Harish Raghavan, and Matthew Ross, alleges as follows: 1 NATURE OF THE ACTION 1. This is an action for damages arising out of a multi-year scheme to defraud Fifth Third into lending over $100 million into a life-insurance premium-financing program (the “Ultra Program”) that was permeated from its inception by fraud and embezzlement. 2. In 2007, Fifth Third established a credit facility from which the Defendants collectively known as “Concord” 2 were to borrow funds for the purpose of extending loans to high-net-worth individuals for the purchase of life insurance policies. Concord—in collaboration with a rogue Fifth Third employee, Defendant Matthew Ross—caused over $100 million to be drawn from Fifth Third's credit facility, on the basis of what Concord has now admitted to be a “criminal campaign” of fraud—comprising (among other illegal and/or tortious behavior) forged documents, false policy valuations, false © 2018 Thomson Reuters. No claim to original U.S. Government Works. 1 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... funding requests, and misappropriation of trust assets via unauthorized fees. As a result of Concord's admitted fraud, Fifth Third is left with tens of millions of dollars in losses. 3. Defendant Renova U.S. Management (d/b/a Columbus Nova) (“RUSM”) and its affiliates, including Defendants Nina Investments, LLC (“Nina”), Columbus Nova Investments IV, Ltd. (“CN Investments”), and Santa Maria Overseas, Ltd. (“Santa Maria”) (collectively, “Columbus Nova”), were deeply involved in Concord's business, pressuring it to make loans to generate fees—paid from funds drawn from Fifth Third's credit facility—from which Columbus Nova sought to recoup its multi-million dollar investment in Concord. 4. In early 2009, when the fraudulent scheme began to unravel, Columbus Nova did not disclose it to Fifth Third. Instead, Columbus Nova, together with Concord and Ross, sought to cover up the fraud by convincing Fifth Third that it faced a “shortfall” of only $19.5 million— far less than they knew Fifth Third had already lost—and that the “situation” would be resolved if Fifth Third would accept a “clean-up loan” agreement whereby Concord would assume liability for that amount, with guaranties from CN Investments and several other Defendants. 5. Columbus Nova never had any intention of making good on Concord's debt. Instead, Columbus Nova continued to fund and encourage Concord's fraud, with the goal of, as Columbus Nova employee Jason Epstein put it in a June 6, 2009 e-mail, “mak[ing] more money off 5th 3rd” for as long it could keep Concord's fraudulent business up and running. True to this scheme, neither Concord nor any of its guarantors has attempted to pay Concord's debts. 6. Through this action, Fifth Third seeks damages from Concord, Columbus Nova, and their co-conspirators for losses directly attributable to this fraudulent scheme, as well as payment of the unambiguous contractual debts to which Concord and its guarantors unconditionally agreed. JURISDICTION AND VENUE 7. This Court has jurisdiction under 735 ILCS 5/2-209(a)(2) and (a)(7). This action arises from contracts substantially connected with the State of Illinois, and many of the fraudulent and otherwise tortious activities alleged herein took place within Cook County, Illinois. Most specifically, at all relevant times Ross worked in Fifth Third's Chicago, Illinois office. Ross thus carried out his role in Concord's fraudulent scheme from Chicago, and his co-conspirators frequently directed communications and instructions to him in Chicago. Certain other Defendants have submitted to this Court's jurisdiction via certain loan and guaranty agreements. 8. Venue is proper in Cook County pursuant to 735 ILCS 5/2-101. Ross resides in Cook County, and is joined as a defendant in good faith and for the purpose of obtaining judgment against him. Further, certain other Defendants have submitted to venue in this Court via certain loan and guaranty agreements. PARTIES 9. Fifth Third is an Ohio banking corporation with its principal place of business in the State of Ohio. A. The Individual Defendants 10. On information and belief, Defendant Ira Brody is an individual who resides in the State of Tennessee. 11. On information and belief, Defendant Edward Netherland is an individual who resides in the State of Tennessee. 12. On information and belief, Defendant Harish Raghavan is an individual who resides in the State of New York. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 2 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 13. On information and belief, Ross is an individual who resides in Cook County, Illinois. B. The Concord Defendants 14. Defendant Concord Capital Management, LLC (f/k/a InsCap Management, LLC) (“Concord Management”) is a Delaware limited liability company whose principal place of business is in the State of New York. 15. Defendant Concord Partners, LLC (f/k/a InsCap Partners, LLC) (“Concord Partners”) is a Delaware limited liability company whose principal place of business is in the State of New York. 16. Defendant Concord Capital Funding, LLC is a Delaware limited liability company whose principal place of business is in the State of New York. 17. Defendant Concord Capital Funding, Inc. is a California corporation whose principal place of business is in the State of New York. (Concord Capital Funding, LLC and Concord Capital Funding, Inc. are referred to collectively as “Concord Funding.”) 18. Defendant Concord Capital Insurance Services, LLC (f/k/a InsCap Insurance Services, LLC) (“Concord Insurance”) is a Delaware limited liability company whose principal place of business is in the State of New York. C. The Columbus Nova Defendants 19. On information and belief, RUSM is a Delaware limited liability corporation with offices (under the trade name Columbus Nova) in New York, New York. 20. CN Investments is a Bahamian corporation. 21. Nina is a Delaware limited liability corporation. 22. Santa Maria is a Bahamian corporation. 23. RUSM, CN Investments, Nina, and Santa Maria are known collectively (and together with their several affiliates) as “Columbus Nova,” and are referred to herein as such. As explained in detail below (see infra ¶¶ 168-87), the four Columbus Nova defendants are properly treated as a single entity for purposes of tort liability: They are members of a single interconnected group of entities sharing common ownership and control, and to treat their nominal corporate forms as anything more than shams designed to defeat liability would be to work a serious injustice against Fifth Third —the victim of a fraud in which the four Columbus Nova entities were active participants. 24. Moreover, the tortious conduct alleged herein was committed by agents of each of the four Columbus Nova defendants—including without limitation RUSM officers and employees Andrew Intrater, Michael Sloan, Jason Epstein, and Gregory Prata—acting within the scope of their actual authority. (See infra ¶¶ 187-95.) Each of the Columbus Nova defendants is directly liable for the wrongdoing alleged herein, which was committed on their joint and collective behalf. BACKGROUND © 2018 Thomson Reuters. No claim to original U.S. Government Works. 3 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... I. CONCORD'S SCHEME TO DEFRAUD FIFTH THIRD 25. Concord's scheme to defraud Fifth Third grew out of long-term social and business relationships between certain of the Defendants and a single Fifth Third employee, Matthew Ross. By corrupting Ross and using him as their doubleagent within Fifth Third, Concord, Columbus Nova, and their co-conspirators defrauded Fifth Third into making over $100 million in loans that it would not otherwise have made. Those loans have no reasonable probability of repayment, and Fifth Third is thus left with tens of millions of dollars in losses as a direct result of its unwitting participation in the fraudulent Ultra Program. A. The Formation And Funding Of Concord 26. Fifth Third hired Ross in November 2002. Over time, he became a Vice President in Fifth Third's Structured Finance Group. Ross brought his social and business acquaintance, Defendant Edward Netherland, to Fifth Third as a customer. Ross and Netherland had previously been partners and sole members in Shareholder Liquidity Group, LLC. Ross did not disclose his prior relationship with Netherland to Fifth Third. 27. Netherland formed Concord in early 2005, and took the roles of co-CEO and Chairman of Concord's Board of Directors. A number of other individuals and entities obtained ownership interests in Concord, including Defendants Harish Raghavan and Ira Brody. 28. Columbus Nova was another early investor in Concord, providing millions of dollars in capital between April 2005 and December 2006. Columbus Nova continued to fund and support Concord's activities throughout the relevant period. 29. On May 23, 2005, on Ross's recommendation, Fifth Third extended a $5 million line of credit to Concord. Ross represented to his superiors at Fifth Third that the credit facility would assist Concord with operating expenses pending receipt of quarterly distributions from its revenue-generating subsidiaries. Concord's line of credit was guarantied by, inter alia, Defendants Netherland, Raghavan, and Brody. Concord drew $4.7 million from the line of credit within 65 days of its approval and exhausted the entire $5 million before the end of 2005. 30. In December 2005, Ross recommended that Concord's line of credit be increased by $1 million. Then, in April 2006, Ross recommended that Fifth Third increase Concord's line of credit by an additional $1.5 million. Fifth Third approved both of these increases in reliance on Ross's recommendations, raising Concord's credit line to $7.5 million. Concord drew down the entire amount within 10 days of Fifth Third extending the additional credit. 31. Unbeknownst to Fifth Third, Concord drew funds from its line of credit for purposes having nothing to do with its life-insurance premium-financing business. Various payments out of Concord's operating account, which was funded through draws on its Fifth Third line of credit, had no legitimate purpose at all. 32. For example, between 2005 and 2009, Concord drew from its line of credit to make payments of approximately $3.1 million to Lone Star Volunteers (“Lone Star”), a slush fund established for the personal benefit of Netherland, Brody, and others. In September 2006, Concord transferred $1.3 million to Lone Star and another $700,000 to Brody's personal account at Fifth Third. Brody, in turn, immediately transferred $700,000 to Netherland, who used the funds to pay off a personal debt to Fifth Third. 33. Similarly, Brody drew on Concord's line of credit at Fifth Third to make at least $200,000 in payments to Agents Insurance Association (“AIA”) between 2005 and 2009. AIA shared a common address with Concord, and on information and belief was another vehicle for funneling money to Brody and his co-conspirators. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 4 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... B. Concord Devises The Ultra Program 34. Concord created the Ultra Program in September 2007, on the basis of a plan that it had shared with Columbus Nova. 35. Under the terms of the Ultra Program, Concord would make “premium-finance” loans to irrevocable life insurance trusts (“ILITs”) established by high-net-worth individuals, pursuant to Loan and Security Agreements. The ILIT would use the borrowed funds to purchase insurance on the life of the individual trust settlor, and to pay Concord substantial fees associated with the loan. 36. Concord funded each loan under the Ultra Program by selling a 100% participation interest in the loan to LIPF Funding Program II, LLC (“LIPF II”), a special-purpose vehicle established to facilitate these transactions. To purchase these participation interests, LIPF II borrowed funds from Fifth Third pursuant to a $100 million credit facility that Fifth Third established for the Ultra Program. Fifth Third's loans were secured by LIPF II's participation interests in the Ultra Program loans. 37. Fifth Third received “fees” on each loan to LIPF II. As with the fees to Concord, Fifth Third's “fees” were paid out of the amount advanced on the loan. Thus, the “fees” that Fifth Third “collected” were really a small portion of its own money being returned to it. 38. Fifth Third was the ultimate source of all funds loaned out through the Ultra Program, including the funds used to pay fees to Concord and to Fifth Third itself. C. The Ultra Program Agreements 39. The Ultra Program was formalized by two contracts: A Participation and Servicing Agreement (“PSA”), entered into by Concord Funding, LIPF II, and LaSalle Bank, N.A.; and a Master Funding Agreement (“MFA”), entered into by LIPF II, LaSalle Bank, N.A., and Fifth Third. True and correct copies of the PSA and MFA, as executed on September 27, 2007, are attached hereto as Exhibits 1 and 2, respectively. (LaSalle Bank, N.A.'s role in and obligations under the Ultra Program later passed to Bank of America, N.A., and then to Wilmington Trust, N.A.) 40. Concord's duties to the other members of the Ultra Program are primarily set forth in the PSA. Fifth Third, as the funding source for the loans that are the subject of the PSA, is explicitly named as a third-party beneficiary of the PSA. (PSA § 10.12.) 41. In order to qualify for an Ultra Program loan, the agreements' terms required a potential insured to meet a number of underwriting criteria, including with regard to age, life expectancy, net worth, liquidity, credit, and medical condition. Each loan also required a model funding analysis and a life-settlement valuation, which were used to ensure that the facility's collateral requirements were satisfied. 42. The life-settlement valuations were especially critical to the Ultra Program and to Fifth Third's participation therein. Unlike traditional premium-finance loans, in which the loan is secured by the life insurance policy's cash surrender value —that is, the stipulated amount the insurance provider is required to pay to reclaim the policy—Ultra Program loans were secured by the amount for which the policies could be sold on the secondary market. Accurate, properly supported policy valuations were thus essential to ensuring that Fifth Third obtained adequate security for its loans. 43. Concord initially chose Life Assist Group (“LAG”), a settlement services provider, to provide the policy valuations for the Ultra Program loans. LAG was headed by Gary Brecka, another of Netherland's business associates. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 5 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 44. Under the PSA, Concord made several warranties and representations to LIPF II and to Fifth Third. Among other things, Concord warranted: a. That all “certificates, reports, statements, documents and other information” it provided or would provide pursuant to the PSA were and would be “complete, accurate and correct in all material respects on the date the [information is] furnished and shall not contain any untrue statement of material fact or omit any material fact necessary in order to prevent the statements contained therein, in the circumstances under which such statements were or are made from being misleading in any material respect.” (PSA § 6.01(w).) b. That each loan sold to LIPF II would be “an Eligible Premium Loan” (PSA § 6.01(p)(v)), secured by “Acceptable Collateral in an amount equal to the Minimum Collateral Requirement for such Designated Loan Agreement.” (PSA § 6.01(p)(vi).) c. That Concord would act in the best interests of LIPF II. (PSA § 7.01(r).) 45. The PSA states, as a condition precedent to LIPF II's obligation to purchase participation interests from Concord, that all of Concord's representations and warranties were correct as if made on the day of purchase, including that all loans were eligible under the Ultra Program's terms. (PSA § 3.03(c)(i).) 46. In short, Concord was contractually obliged, among other things, to confirm that each insured under the Ultra Program was, in fact, a high-net-worth individual, in the proper age range, who met all other criteria for receiving an Ultra Program loan. 47. Fifth Third relied on the adequacy of its security, and thus on Concord's representations as to the accuracy of the loan applications and policy valuations, in extending loans under the Ultra Program lending facility. 48. Ross permitted Concord and its executives to design and structure the Ultra Program for their own benefit, and in complete abandonment of Fifth Third's interests. Specifically, but without limitation, Ross misrepresented to Fifth Third's management that Fifth Third's interests would be protected by “market” valuations of the policies by Brecka and LAG, and that the servicing agent (which Ross described as a fiduciary) would be liable for losses stemming from “unacceptable” fundings under the Ultra Program. Ross knew that these representations as to the “protections” provided to Fifth Third under the Ultra Program were not part of the program's design or structure, which was compelled by Concord and to which Ross agreed. 49. As detailed below, Concord—directly and through its double-agent Ross— repeatedly and knowingly provided false information under the above-described PSA provisions, with the intention to defraud Fifth Third into extending loans under the Ultra Program that did not qualify under the program's terms and which would not have been extended absent such fraud. D. Concord Causes Fifth Third To Fund Trusts On The Basis Of Fraudulent Documentation 50. The Ultra Program did not attract high-net-worth insureds, and was a failure from the outset. After the Ultra Program was initiated in September 2007, Concord funded only four loans in the fourth quarter of 2007. All four loans were made to either the husband or the wife of one married couple. In the first two months of 2008, Concord funded six additional policies, but three of those loans were made to the wife of the same couple who had taken out the 2007 loans. The other three loans were issued to a single individual. Thus, as of the end of February 2008, the Ultra Program had issued only ten loans to just three individuals. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 6 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 51. Columbus Nova has admitted, in a related action it filed in Nina's name, that not even these ten loans were legitimate, and that Concord “fail[ed] to close a single legitimate Ultra loan.” (Second Amended Complaint at 23, Nina Investments, LLC v. Fifth Third Bank, No. 2012 L 7547 (Ill. Cir. Ct., Cook Cnty.) (the “Nina Action”).) 52. If Concord and Columbus Nova had acknowledged that the Ultra Program was a failure, they could have agreed with Fifth Third to terminate the program without drawing further funds. 53. Instead, in response to pressure from Columbus Nova to complete new deals and thus to generate fees and a return on Columbus Nova's investment, Concord's executives corrupted the Ultra Program through what Concord admits to have been “a criminal campaign to secure for Concord bogus business from unqualified insureds and to charge and generate excessively high fees,” by forging documents and using LAG to generate fraudulent valuations of the life insurance policies that collateralized Fifth Third's loans. (See Complaint, Concord Capital Mgmt., LLC v. Fifth Third Bank, No. 650478/2010 (N.Y. Sup. Ct., N.Y. Cnty.) (the “New York Action”)). 54. Specifically, from October 2007 through August 2009, Concord purported to sell 78 life insurance policies to 54 individuals through the Ultra Program. Fifth Third supplied the funds for each of these transactions in reliance on Concord's representations that it had provided accurate policy valuations, that the funds were to be used to purchase a qualifying insurance policy, and that the policies thereby purchased would serve as adequate collateral for Fifth Third's loans. 55. Part and parcel of this scheme was Concord's decision, with Columbus Nova's participation, to acquire LAG in or around May 2008. Columbus Nova approved the acquisition, believing that bringing Brecka in-house would allow Concord to complete more Ultra Program deals. Specifically, LAG and Brecka had contacts that Columbus Nova believed would allow Concord to locate more customers and thus to generate more loans and fees than Concord had managed previously. 56. Concord financed this acquisition with a portion of the proceeds of an additional $4.5 million it borrowed from Fifth Third, on the basis of Ross's sole approval. Fifth Third extended this credit by a Demand Loan and Security Agreement, dated April 25, 2008, a true and correct copy of which is attached hereto as Exhibit 3. Ross did not seek or obtain a guaranty of this loan from Netherland. 57. Columbus Nova reviewed due diligence materials on Concord's purchase of LAG. This due diligence revealed (among other things) that LAG was a “very risky investment,” but Columbus Nova approved Concord's decision to borrow $4.5 million from Fifth Third to complete the transaction. 58. Columbus Nova specifically approved Concord's efforts to conceal the true nature of the LAG acquisition from Fifth Third. Prata personally approved Concord's efforts to conceal the acquisition from Ross's superiors at Fifth Third, explaining in an April 14, 2008 e-mail to Sloan that the $4.5 million figure had been chosen in order to prevent a careful investigation by Fifth Third: While a round, $5 million loan “would have to go to a separate committee within Fifth Third[,] [a]nything under $5.0 million can be fund[ed] with the signature of Matt Ross.” Thus, Columbus Nova encouraged and approved Concord's concealment of the details of the LAG acquisition from Ross's superiors at Fifth Third. On information and belief, Columbus Nova's intent was to conceal from Fifth Third that the Ultra Program itself was fraudulent. 59. Following its acquisition of LAG, Concord hired Brecka as head of distribution, tasking him with originating new deals for Concord and reorganizing its operations to allow for expansion of the Ultra Program. 60. Following the LAG acquisition, Concord (together with Brody, Netherland, Brecka, and LAG) began completing more Ultra deals—but only by intentionally and falsely inflating the valuations of the policies issued under the Ultra © 2018 Thomson Reuters. No claim to original U.S. Government Works. 7 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... Program. They did this to induce Fifth Third to issue loans that it would not otherwise have issued, to increase the size of the Ultra Program loans, and thus to increase the fees that Concord drew from each transaction (which, again, were drawn from the funds borrowed from Fifth Third). 61. Concord has admitted manipulating and falsifying policy valuations in coordination with LAG, through a stunning array of methods, including without limitation: • Using an unreasonable discount rate; • Falsely understating expected mortality rates; • Using life expectancies from providers not approved under the PSA; • Intentionally relying on stale and inaccurate life expectancy data; • Falsifying the outputs in the valuation model to fit the loan qualification requirements; and • Forging signatures on LAG valuations. Concord did not disclose these fraudulent, false, and misleading manipulations to Fifth Third. 62. Concord used the easily-manipulated LAG policy valuations as the basis for the large majority of the loans funded under the Ultra Program. 63. Because these policies' value on the secondary market provided the only collateral for Fifth Third's loans, Fifth Third relied on Concord and its valuation provider, LAG, to value the policies as accurately as possible. Fifth Third would not have approved Concord's funding requests had it known of the manipulated policy valuations. 64. LAG's and Concord's fraudulent overvaluation of the policies' secondary-market value thus induced Fifth Third to make risky loans it would not otherwise have made, while simultaneously allowing Concord to make more and larger loans, and to reap more and larger fees, than the Ultra Program would have permitted had Concord furnished accurate documentation. 65. In September 2008, Fifth Third raised questions about the propriety of using LAG to provide policy valuations, given that it was owned by Concord and was thus burdened by a conflict of interest between providing valuations that were accurate and valuations that were favorable to Concord because they would support larger loans. In response, Ross stated that Concord was “in the process of switching over to Maple Life to do the appraisals going forward (we started this process weeks ago).” Ross's statement was false, and Concord continued to use LAG to provide policy valuations as the basis for all of the loans that Fifth Third continued to fund through March 2009. 66. Concord received in excess of $41 million in fees from the fraudulent scheme. On information and belief, these fees were used in part to fund lavish gifts that Concord and its executives “showered” upon Ross, as described below (see infra ¶ 98). 67. In addition to the fraudulent overvaluations of Ultra Program policies, Concord has admitted that Brody forged numerous documents on Concord's behalf—including by “Photoshopping” insureds' signatures—to allow Concord to charge credit and service fees that were not allowed under the terms of the Ultra Program. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 8 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 68. Concord kept two sets of loan documents, and admits sending one set to insurance carriers and the forged set to Fifth Third. 69. To highlight a single example of obvious fraud, Concord issued three policy loans to a single insured in December 2008, January 2009, and May 2009. (This insured was himself another early investor in Concord.) In requesting that these loans be funded through Fifth Third's Ultra Program credit facility, Concord provided varying statements of the insured's net worth: The first two funding requests list the insured's net worth as approximately $17 million, but the third request (dated just four months after the second) claimed that the insured was worth approximately $30 million. The application submitted to the insurer in connection with the third loan listed the insured's net worth at $38 million. 70. Since discovering the full extent of Concord's systemic fraud, Fifth Third has contacted numerous purported insureds who have stated that they did not sign many of the documents submitted on their behalves. 71. Silverman Linden LLP, the accounting firm whose name appears on twenty-eight of the financial statements that Concord used to obtain Ultra loans, has informed Fifth Third that at least twenty of these statements were fabricated by Concord. Concord admits that Brody fabricated these statements as well. 72. Even after Concord's fraud had been partially disclosed to Fifth Third, as further described below, the final loans funded under the Ultra Program were based on fraudulent documentation submitted by Concord. 73. If Fifth Third had known of the rampant manipulation and falsification of the documentation that Concord submitted in support of its funding requests under the Ultra Program, it never would have funded the loans. 74. Fifth Third has sustained tens of millions of dollars of losses on these loans, which are unlikely ever to be repaid. E. Concord Defrauds Fifth Third Into Funding “Empty Trusts” 75. Concord also defrauded Fifth Third into making loans to fund trusts for purported insureds who had not even agreed to participate in the Ultra Program. In these cases of blatant fraud, Concord created “empty trusts” with no genuine prospective insured, drew funds from Fifth Third's Ultra Program lending facility, and paid itself fees—but never purchased life-insurance policies. 76. For example, on March 12, 2008, Concord funded a trust on behalf of a purported insured. Unbeknownst to Fifth Third, the purported insured had declined to participate in the Ultra Program. Bank of America (at that time the Ultra Program's trustee and collateral agent) advised Ross in an e-mail that no insurance policy had been acquired by the ILIT. Ross did not disclose this information to others at Fifth Third. Instead, Ross personally approved Concord's request to fund the trust, enabling Concord to draw $6,472,150.22 from the Ultra Program lending facility and to pay itself fees. As Ross knew, this funding was not authorized under the Ultra Program; Fifth Third would not have advanced the funds if others at the bank had known that the insured had declined to participate in the program and that the funding request was fraudulent. Fifth Third's loan was never secured by an insurance policy. 77. Concord and Ross repeated this pattern. On June 2, 2008, Concord drew funds from Fifth Third's Ultra Program facility to fund two new loans. Again, there was no insured associated with either trust, and no insurance policies were ever purchased. 78. On July 1, 2008, Concord induced Fifth Third to fund another empty trust, drawing a total of $562,000 from Fifth Third's Ultra Program facility. Again, the purported insured had not agreed to participate in the program, and the funds borrowed from Fifth Third were never used to acquire a life-insurance policy. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 9 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 79. Fifth Third never would have permitted these draws if it had known that the purported insureds had not agreed to participate and that Fifth Third's funds would not be used for qualifying Ultra Program loans. 80. Because there are no insureds and no insurance policies, Fifth Third's loans will never be repaid. F. Concord Loots Ultra Program Trusts 81. Starting in May 2008, Concord began withdrawing funds from the Ultra Program trusts on fraudulent pretenses— looting the very same funds that it had caused Fifth Third to lend on the basis of fraudulent documentation. 82. In the most obvious instance, funds that Concord fraudulently withdrew from an empty trust were used as “collateral” for a loan that Fifth Third extended to Concord. 83. On August 29, 2008, Ross requested that Concord's $2 million line of credit be extended to $4 million, allegedly for working capital purposes. Ross's superiors agreed that Fifth Third would extend this credit only if it were matched by a pledge of equivalent cash collateral. 84. Ross represented to Fifth Third that this required security would be provided by Defendant Raghavan, an officer and part-owner of Concord. 85. Raghavan did not personally post his own funds as collateral. Instead, Concord purported to meet Fifth Third's requirement through a series of fraudulent transactions: a. On October 1, 2008, at Concord's direction, Bank of America transferred $2 million from one of the “empty trusts” to Isthmus Capital, one of Netherland's pre-Concord businesses. b. Isthmus Capital then transferred the funds to the collateral account established by Raghavan in support of Concord's increased line of credit. Ross personally approved these transactions in an October 1, 2008 e-mail, without consulting his superiors at Fifth Third or advising them of the transactions' purpose. 86. Fifth Third thus believed that Raghavan had posted the necessary security. In reliance on this belief—created by Concord, Raghavan, and Ross—Fifth Third granted the requested $2 million extension of Concord's line of credit on September 25, 2008. This extension of credit is memorialized in a First Amendment to Demand Loan and Security Agreement and an Amended And Restated Demand Revolving Loan Note, true and correct copies of which are attached hereto as Exhibits 4 and 5, respectively. 87. Fifth Third would not have extended this credit had it known that its only security would be money that Concord had stolen twice—first from Fifth Third and then again from the empty trust itself. 88. Meanwhile, Concord made numerous other fraudulent draws from Ultra Program trusts, including: a. On May 12, 2008, Concord requested draws totaling $2,595,000 from two of the Ultra Program's first trusts. Although Concord claimed that the requests were based on “updated loan model valuations,” Concord had no legitimate reason for requesting these funds, and they were not authorized by the Ultra Program's documentation. b. On June 27, 2008, Concord similarly requested $2.4 million from existing trusts based on “updated loan valuation models.” © 2018 Thomson Reuters. No claim to original U.S. Government Works. 10 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... c. On July 22, 2008, Concord drew a total of $2,050,000 from existing trusts. d. In August 2008, Concord drew another $730,000 from an existing trust. None of these draws was authorized under the Ultra Program; each was made on the basis of misrepresentations made by Brody and Netherland about the draws' purposes. 89. Although Ross knew that Concord's withdrawals of trust assets were invalid and indeed fraudulent, he nevertheless participated in Concord's fraud by approving the draws on Fifth Third's behalf, without presenting the requests to his superiors. 90. Fifth Third would not have approved these transactions if Concord and Ross had accurately represented that the draws had no legitimate basis or purpose. 91. None of these draws benefitted Fifth Third. To the contrary, they dissipated Ultra Program trust assets, diminishing the likelihood that Fifth Third would recover on its loans. II. ROSS'S ROLE IN CONCORD'S FRAUDULENT SCHEME 92. In addition to the wrongdoing discussed above, Ross worked together with the other defendants to further Concord's fraud against Fifth Third. A. Ross Aids, Abets, And Conceals The Fraud 93. On information and belief, Ross personally advanced some $20,000 to Netherland in May 2007, with the expectation that he would receive illicit personal benefits derived from the Ultra program, including through improper payments and kickbacks. 94. Ross was at all relevant times aware of the fraud being committed by Concord and its executives and financiers. In addition to his personal approval of the first empty trust transaction in March 2008 (see supra ¶ 76), Ross's knowledge is confirmed by his receipt of a September 11, 2008, e-mail from Robert Donaldson at Bank of America, stating: “It is our understanding that you have been kept informed by Concord of the situation we have with several of the advances taken under the LIPF II facility that have not yet been used to purchase policies.” Donaldson's e-mail to Ross further stated: In our servicing capacity, we should be reflecting on our collateral reports the fact that there is effectively a policy valuation of zero and therefore the Minimum Collateral Requirement is not satisfied for these loans. I'm not sure what the fallout on your end will be when we start reporting in this manner—maybe an alternative could be to use the guarantee as “Other Collateral” for the loan? I would need your approval to do this. Even if Ross was not already aware (he was), Donaldson's e-mail explicitly put Ross on notice of the fact that Fifth Third's funds had been diverted to empty trusts and had never been used to purchase insurance policies. Ross did not share this information with others at Fifth Third. 95. Ross knew but intentionally failed to disclose numerous material facts to his superiors at Fifth Third, including without limitation: a. Ross's prior partnership with Netherland; © 2018 Thomson Reuters. No claim to original U.S. Government Works. 11 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... b. Ross's continued relationship with Netherland, including the $20,000 advance Ross made to Netherland in May 2007 (see supra ¶ 93); c. The myriad monetary and non-monetary compensation Ross received from Concord as a result of his role in the Ultra Program (see infra ¶¶ 98); d. Concord's failure to attract eligible clients to the Ultra Program; e. Concord's rampant use of fraudulent documentation to secure Ultra loans; f. Concord's close relationship with Brecka and LAG; g. Concord's creation of and requests to fund empty trusts; h. Concord's looting of funds from various trusts, including the empty trusts; i. Concord executives' misappropriation of funds obtained through Concord's lines of credit with Fifth Third; and j. That the design and structure of the Ultra Program, as developed by Concord and approved and recommended to Fifth Third by Ross, would inevitably require Concord and Ross to fraudulently overstate the valuations of the policies issued under the program, aided by a conflicted valuation provider (LAG) who would develop inflated valuations based on unreasonable discount rates, improper mortality rates and tables, and false valuation models. 96. Ross also made false representations that have caused injury to Fifth Third, including without limitation: a. Falsely representing to his colleagues in September 2008 that Concord was in the process of switching from LAG to Maple Life as its policy valuation provider; and b. Falsely representing to his colleagues in September 2008 that Concord had overdrawn its line of credit due to “payroll hitting the account,” when in fact the overdraft had been caused by a payment on Concord's corporate credit card, which had been used to (among other things) purchase entertainment and travel for Ross's benefit. 97. Had others in Fifth Third's organization known the truth, Fifth Third would not have created the Ultra Program lending facility, would not have continued to fund loans under the facility, and would have refused to extend credit to Concord. 98. As Ross had expected following his $20,000 advance to Netherland in May 2007 (see supra ¶ 93), Ross received direct benefits from his participation in the scheme to defraud Fifth Third, including without limitation: a. As Concord has admitted in its New York Action, Concord's executives “showered” Ross “with gifts of travel, sports, concert and theater tickets, and political access, among other things.” b. Netherland's associate Rita Hill has confirmed in interviews that Netherland and his companies provided Ross with additional in-kind and personal-entertainment benefits. c. On September 12, 2008, Legacy Life, LLC—a company owned by Hill, and which has ties to Concord, Netherland, and Brody—wired $75,100 to Ross's personal account at Charles Schwab. Although Hill has described this wire as a repayment of a loan, Legacy Life accounted for it as a “commission expense” relating to the Ultra Program. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 12 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 99. Ross also received bonuses that Fifth Third, unaware of the fraud, awarded for his role in generating what falsely appeared to be genuine fees and profits from the Ultra Program. 100. On information and belief, prior to his resignation from Fifth Third in 2010, Ross sought to handicap Fifth Third's investigation into his fraudulent activities by selectively deleting relevant e-mails from his computer and Fifth Third's system. B. Fifth Third Did Not Benefit From The Fraudulent Ultra Program Or Ross's Role Therein 101. On paper, Fifth Third received approximately $7.7 million in “fees” from bankrolling the Ultra Program. That $7.7 million, however, came out of the very funds that Fifth Third had lent into the Ultra Program and was thus of no benefit to Fifth Third. 102. Indeed, the “fees” received by Fifth Third were a central element of the fraud against Fifth Third. Fifth Third's personnel (other than Ross) would not have approved the Ultra Program, the $100 million lending facility, or the loans extended thereunder in the absence of some form of apparent compensation. 103. Nor would Fifth Third have made its Ultra Program loans if it had known that funds would be looted from its facility for uses having nothing to do with the program, and would not have made over $100 million in loans through the Ultra Program had it known of the fraudulent documentation and the absence of adequate security. 104. Had Fifth Third known of the fraud that pervaded the Ultra Program, the prospect of $7.7 million in “fees” paid from its own loan disbursements would not have led it to participate in the program. 105. The “fees” thus allowed Concord, Columbus Nova, and Ross to perpetrate their fraud while concealing it from Fifth Third. III. COLUMBUS NOVA'S ROLE IN CONCORD'S FRAUDULENT SCHEME 106. Columbus Nova made its substantial investments in Concord after reviewing detailed presentations about the Ultra Program. Columbus Nova was thus well aware of the Ultra Program's economics, including that Fifth Third would be the source of all loaned funds, the fees Concord proposed to charge on its loans, and the fact that few (if any) individuals qualified to participate in the program would be interested in doing so. 107. A number of persons formerly affiliated with Concord subsequently took roles at Columbus Nova. For instance, Eric Kosta worked for Concord before joining Columbus Nova. Similarly, Raghavan became a consultant to Columbus Nova after resigning as CEO of Concord Management. 108. In connection with its investments in Concord, Columbus Nova appointed its employees Sloan and Epstein to Concord Management's board of directors. Other Columbus Nova executives and employees—including Intrater and Prata—also regularly attended Concord board meetings. 109. Thus, in addition to financing the Ultra Program, Columbus Nova oversaw Concord's operations through audits and participation in board meetings throughout the relevant period. 110. Columbus Nova personnel, including Sloan and Epstein, were regularly present in Concord's New York offices. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 13 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 111. Columbus Nova was closely monitoring Concord's business and finances at least as early as a January 30, 2007 meeting of Concord's board of directors, at which Sloan was already inquiring about Concord's lavish travel, entertainment, and compensation expenses. Intrater and Epstein were also present at this meeting. 112. Columbus Nova participated in Concord's hiring decisions, including its hiring of Zoran Fotak as Senior Officer on or about March 6, 2008. 113. At a March 14, 2008 meeting attended by Intrater, Epstein, Sloan, and Prata, Concord's board of directors formed an Audit Committee to review Concord's business and financial results. Brody, Prata, and another Columbus Nova representative (Howard Kohos) were named to the Audit Committee. Thus, on information and belief, two Columbus Nova representatives—who were not already members of Concord's board—worked intimately with Brody and Concord's auditors to prepare audits of Concord's business. 114. In or around July 2008, Brecka advised Concord and Columbus Nova that the valuations performed by LAG to that point had been invalid. 115. In or about August 2008, Brecka met with Epstein at Concord's office. The two discussed Concord's practice of keeping two sets of loan models—one fraudulent, and one accurate. (See supra ¶ 68.) 116. Brecka advised Epstein that Concord had charged excessive credit fees on every loan prior to July 16, 2008, which Concord had not disclosed to the insurance carriers on which the Ultra Program depended. When Brecka warned Epstein that the excessive fees would destroy Concord's relationship with the insurance carriers, Epstein suggested that Columbus Nova was aware of the issue and was going to “clean that up.” 117. Columbus Nova did not disclose the fraudulent documentation, the fact that insurance policies had been systematically overvalued, or the excessive fees to Fifth Third. Nor did it “clean up” or repay the excessive fees. Instead, it continued to fund and oversee Concord's fraudulent operations. 118. Indeed, Columbus Nova's role at Concord only grew over time. In November 2008, after Brody announced that he would resign from Concord effective December 31, 2008, Columbus Nova hired Mark Leiman to take over as Concord's CFO. Leiman remained in this role throughout 2009, during which time he uncovered numerous instances of fraud in Concord's operations, which he disclosed to Columbus Nova. (Through its investments and involvement in Concord, Columbus Nova had long been aware of the fraud.) Neither Concord nor Columbus Nova disclosed this information to Fifth Third. 119. Also in November 2008—well after Brecka had ensured they were aware of Concord's fraud—Intrater, Sloan, and Epstein extended personal loans amounting to hundreds of thousands of dollars to cover Concord's debts, providing them yet additional incentive to understand the details of Concord's business and operations—which were at that point riddled with fraud. On information and belief, Intrater, Sloan, and Epstein expected that these loans would be repaid through Concord's business operations, which were virtually exclusively reliant on income generated from the fraudulent Ultra Program. 120. As a result of this involvement in Concord's funding and operations, Columbus Nova, and Epstein in particular, were well aware that Concord had funded Ultra Program loans only by making “exceptions” to the program's requirements, and that the insurance policies (where they were purchased at all) had little or no value. 121. Although Columbus Nova knew or should have known that the loans would not perform, it continually pressured Concord to complete new deals and to generate new fees so that Columbus Nova could reap a return on its investment. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 14 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 122. Columbus Nova continued to play an active role in the fraudulent Ultra Program itself. For instance, in a December 23, 2008 e-mail—by which time Columbus Nova had long been aware that Concord had been misleading Fifth Third about the bona fides of both the insureds and Concord's credit fees—Sloan pressed Brody to quickly close Ultra Program loans in order to generate end-of-year cash flow and thus to cover Concord's mounting expenses. Brody reassured Sloan that he was “[t]rying for the big whale,” but Sloan remained nervous— directing Brody to “[k]eep it up and see what magic you can do.” Sloan, on Columbus Nova's behalf, and with Columbus Nova's apparent knowledge of or blind eye towards Brody's forgeries and fabrications, thus encouraged Brody to work his “magic”—forging documents and making undersecured loans to unqualified insureds—and succeeded in causing Concord to issue several such loans in late 2008 and early 2009. IV. ROSS AND COLUMBUS NOVA CONTINUE THE FRAUD AND CONSPIRE TO CONCEAL IT FROM FIFTH THIRD A. Ross And Columbus Nova Conceal The Unraveling Fraud From Fifth Third 123. By February 11, 2009, Prata had learned of the transaction in which Brody and Concord had wrongfully drawn $2 million from an empty trust and used it as “collateral” for Fifth Third's extension of credit to Concord. (See supra ¶¶ 82-87.) 124. On February 12, 2009, Prata forwarded to Leiman an October 1, 2008 e-mail in which Ross confirmed this $2 million draw. Contemporaneous communications show that Columbus Nova personnel held a meeting later that day, at which (on information and belief) this fraudulent transaction was discussed. 125. As Sloan explained in a subsequent e-mail, Columbus Nova's “overall goal” did not change with the revelation of the fraudulent $2 million draw: Columbus Nova would not move to clean up Concord's business and repay the fraudulently obtained loans, but would instead seek “to preserve value in the company” by “keep[ing] the business a going concern.” 126. Among the “[r]isks” identified in Sloan's e-mail were potential “required disclos[ures]” of the fraud to auditors, Fifth Third, insurance regulators, and insurance companies. Columbus Nova did not make any such disclosures to Fifth Third. 127. Instead, Epstein (together with Raghavan) personally met with Ross. 128. On March 4, 2009, after meeting with Epstein, Ross e-mailed various of his Fifth Third colleagues, stating that he had been informed by Raghavan in January 2009 that certain “ineligible fundings” had occurred in the Ultra Program during the fourth quarter of 2008. Ross was referring to four empty trusts that had been funded between March and July 2008. Ross had long been aware that Fifth Third had funded these empty trusts (he had approved the fundings), but he had never before disclosed them to others at Fifth Third. 129. In the same e-mail, Ross informed his colleagues that Concord had acknowledged its obligation for these “ineligible fundings.” Ross also wrote that Concord had charged “excess fees … on a couple of loans.” According to Ross, the total “shortfall” was around $17.34 million. 130. After further purported investigation, Ross convinced his superiors at Fifth Third that the total “shortfall” was approximately $19.5 million. 131. Ross further represented that Brody and Netherland had been “severed” from Concord as a result of the ineligible loans and unauthorized draws. In truth, Brody had left Concord on his own initiative, and Netherland continued working with Concord and Columbus Nova through the end of 2009 and beyond. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 15 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 132. By this time, Columbus Nova had taken over full operational control of Concord. In May 2009, Leiman (the new CFO that Concord had hand-picked to take charge at Concord) e-mailed Raghavan, copying Epstein, to inform him that “[i]n recognition of significant time spent at [Concord] in 2009 by [Columbus Nova] personnel including but not limited to Jason Epstein, … Greg Prata, and Michael Sloan,” Concord would pay to RUSM a $1 million “management fee.” Raghavan (who, like Leiman, owed his continued employment at Concord to Columbus Nova) agreed that the fee “Look[ed] reasonable.” 133. Columbus Nova used its operational control of Concord to continue pushing to fund additional Ultra Program loans. For instance, in e-mails dated May 11, 2009, Sloan attempted to push through new deals that would require exceptions to the Ultra Program's funding requirements, with the aim of using Concord's fees to cover up the emptytrust fraud by repaying fees that Concord had previously drawn from those trusts. 134. Epstein remained on personally close terms with Ross well into 2009—for months after his fraudulent collaboration with Concord had been exposed—and met with him and Netherland on or about May 13 to discuss the Ultra Program. 135. In Concord's May 2009 requests for funding through Fifth Third's lending facility, the insured's net worth was listed at approximately $30 million, despite the fact that the insured had been listed as worth $17 million in January 2009. (See supra, ¶ 69.) Given Sloan's and Epstein's longstanding involvement in Concord's operations, and their roles in pressing to have these loans approved, Columbus Nova must have known that this net-worth statement was fabricated. 136. Epstein and Intrater continued working with Ross into 2010. B. The Skadden Investigation 137. In the first quarter of 2009, Columbus Nova caused Concord to form a Special Investigation Committee, to which it appointed Epstein as a member. 138. The Special Investigation Committee commissioned the law firm of Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”) to conduct an investigation of the fraud in the Ultra Program. 139. Concord and Columbus Nova provided copies of a PowerPoint presentation summarizing some of the results of Skadden's investigation to state insurance regulators, and (upon information and belief based on review of e-mail correspondence produced in discovery) shared the contents of that presentation with a prospective third-party lender to Concord, at the lender's request. 140. On information and belief, Skadden produced one or more documents or reports detailing aspects of the Ultra Program fraud that are not disclosed in the PowerPoint summary provided to insurance regulators and prospective lenders. 141. Based upon a review of a copy of the PowerPoint summary that was produced in discovery, Skadden identified Brody (Concord's former CFO) as the principal individual responsible for the Ultra Program's pervasive documentation fraud. Skadden also identified Raghavan (Concord's then-CEO) and Netherland (Concord's then-Chairman) as persons having knowledge of the fraud, but who had failed to prevent it. 142. Notwithstanding that Skadden had identified Raghavan as an individual who knew of the Ultra Program fraud, and who may have participated in the fraud, Columbus Nova allowed Raghavan to retain his seat on Concord's board of directors—with the caveat that he was “not to have any operational functions … nor supervise anyone else.” © 2018 Thomson Reuters. No claim to original U.S. Government Works. 16 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 143. Concord and Columbus Nova did not inform Fifth Third of Raghavan's apparent role in the fraud or of the fact that he had retained his title only while being stripped of authority. 144. Notwithstanding that the Skadden Report identified Netherland as an individual who knew of the Ultra Program fraud, Columbus Nova allowed him to retain his role at Concord until November 2009. 145. Even after Netherland's severance from Concord, Columbus Nova continued doing business with Netherland and his new business Lifecorp. 146. As Epstein swore in a December 2009 affidavit: “Nina continue[d] to do business with Mr. Netherland, anticipate[d] seeking his advice in insurance maters, and [took] a financial interest in the success of his new venture.” 147. Although Fifth Third has obtained in discovery a version of the PowerPoint summary, Columbus Nova has refused to furnish a full report of Skadden's findings—even though those findings concern a massive fraud committed against Fifth Third. C. The Clean-Up Transactions 148. Following Ross's partial disclosure of Concord's wrongdoing in his March 4, 2009 e-mail, it was clear to both sides (Concord and Columbus Nova on the one hand, and Fifth Third on the other) that Concord should bear responsibility for making Fifth Third whole for losses caused by the fraud that had pervaded the Ultra Program. 149. Relying on Ross's incomplete and misleading disclosure of the Ultra Program fraud (which, on information and belief, Columbus Nova had encouraged in meetings between Epstein and Ross in January and February 2009), Fifth Third incorrectly understood that it faced only about $19.5 million in losses associated with the empty trusts and unauthorized draws. 150. Columbus Nova, meanwhile, had far greater knowledge of the fraud's true extent: It had been involved in Concord's operations for years, had hired Leiman to investigate, and had retained Skadden. Columbus Nova did not disclose the fraud to Fifth Third, but instead proceeded to negotiate an agreement with Fifth Third, on terms highly favorable to Concord and Columbus Nova. By willfully choosing not to disclose the full extent of the fraud in order to mitigate its own risk, Columbus Nova aided Ross's and Concord's scheme to conceal the Ultra Program fraud from Fifth Third. 151. Columbus Nova and Fifth Third agreed that Concord would assume direct liability to Fifth Third for $19.5 million. Due to Ross's misrepresentations and Columbus Nova's nondisclosures, Fifth Third incorrectly understood that this amount would be sufficient to fully mitigate the damage caused by Concord's fraud. 152. This indebtedness, referred to as the “clean-up loan,” is evidenced in an Amended and Restated Demand Loan and Security Agreement (the “Restated Demand Loan”), dated as of June 4, 2009, among Concord Management, Concord Partners, and Fifth Third. A true and correct copy of the Restated Demand Loan is attached hereto as Exhibit 6. This debt is further evidenced by a $19.5 million Term Loan Note (the “Term Note,” and together with the Revolving Note, the “Notes”) executed by Concord Management and Concord Partners and dated as of June 4, 2009. A true and correct copy of the Term Note is attached hereto as Exhibit 7. In these documents, Concord Management and Concord Partners agreed to repay the $19.5 million on or before June 10, 2010. 153. Around the same time, acceding to Fifth Third's insistence that an entity with meaningful assets guaranty Concord's debt, Columbus Nova agreed that CN Investments would guaranty $25 million of Concord's debt to Fifth Third—less than a quarter of the amount Fifth Third ultimately lost through its dealings with Concord. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 17 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 154. Although CN Investments consummated its guaranty (the “CNI Guaranty”) agreement in mid-2009, Columbus Nova succeeded in having the documents back-dated to February 12, 2009—the same date on which Columbus Nova had held a meeting to discuss the Ultra fraud. A true and correct copy of the CNI Guaranty is attached hereto as Exhibit 8. On information and belief, this back-dating was an attempt to cover up the fact that Columbus Nova had been a knowing participant in Concord's fraud long before the guaranties were executed. D. Columbus Nova Carried On Concord's Business And Its Concealment Of The Ultra Program Fraud 155. Even as the guaranty agreements were being finalized, Sloan and Epstein were directing Concord to fund yet more fraudulent Ultra loans, and they continued working afterwards to—as Epstein put it in a June 6, 2009 email—“make more money off 5th 3rd.” 156. After Leiman insisted on making public his findings of wrongdoing at Concord, Columbus Nova relieved him of his position as Concord's CFO as of October 31, 2009. 157. In January 2010, Leiman threatened to file suit against Concord and Columbus Nova to recover compensation that he claimed to be owed for his work at Concord, and suggested that “every counterparty (and regulator) of Concord/ Inscap, the fund, CN and Renova will find [Leiman's threatened] lawsuit interesting for their own reasons”—implying that his suit would bring to light damning information that would damage not only Concord, but Columbus Nova as well. 158. On February 19, 2010, Leiman and Columbus Nova entered a release agreement pursuant to which Santa Maria would pay Leiman a total of $1.3 million. All of Concord's and Santa Maria's successors, subsidiaries, and affiliates were expressly named as third-party beneficiaries of this agreement. 159. In exchange for Santa Maria's payment, Leiman agreed to release all of his claims against Concord and Columbus Nova (including their subsidiaries and affiliates), to cooperate with Concord and Columbus Nova in litigation, and not to disclose any information he had learned about Concord—except where such disclosure would be for Concord's and Columbus Nova's benefit. V. CONCORD AND ITS GUARANTORS DEFAULT ON THEIR REPAYMENT OBLIGATIONS AND BREACH THE EXCLUSIVE FORUM-SELECTION PROVISIONS 160. Concord's loan agreements with Fifth Third contain exclusive forum-selection clauses requiring that “all disputes … arising out of, connected with, related to or incidental to the relationship established between them in connection” with the loan agreements be adjudicated only in a state or federal court located in Cook County, Illinois. 161. Concord Funding executed a guaranty of Concord's debts, which likewise contains an exclusive forum-selection clauses requiring that disputes related to the guaranty be adjudicated only in a state or federal court located in Cook County, Illinois. 162. In addition, CN Investments executed a Reaffirmation and Amendment of the CNI Guaranty, dated as of June 4, 2009. CN Investments executed a second Reaffirmation of its Guaranty on or about December 9, 2009. True and correct copies of these agreements (collectively, the “CNI Reaffirmations”) are attached hereto as Exhibits 9 and 10. 163. Concord's indebtedness was also guaranteed in whole or in part by (inter alia) Concord Insurance, Santa Maria, Raghavan, and Brody. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 18 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 164. On May 28, 2010, and again on June 3, 2010, Fifth Third notified Concord and its guarantors of numerous defaults under the operative loan and guaranty agreements. Among other defaults, Concord's loans have matured, and are immediately due and payable in full and with interest. 165. Fifth Third demanded payment from Concord and its guarantors. A true and correct copy of Fifth Third's May 28, 2010 letter is attached hereto as Exhibit 11. A true and correct copy of the June 3, 2010 notice letter is attached hereto as Exhibit 12. 166. Defendants did not respond to Fifth Third's notice and demands for payment. The Notes have not been repaid by Concord or by any of its guarantors. 167. Instead, Columbus Nova caused Concord Management, Concord Partners, and Concord Funding to breach the exclusive Illinois forum-selection clauses contained in their respective agreements with Fifth Third by filing the New York Action, in which they asserted claims “arising out of, connected with, related to or incidental to” the Ultra Program fraud and the relationship between Concord and Fifth Third. VI. THE COLUMBUS NOVA DEFENDANTS ARE JOINTLY LIABLE FOR ONE ANOTHER'S TORTS 168. The four Columbus Nova defendants (RUSM, CN Investments, Nina, and Santa Maria) are all liable for the tortious conduct described above. They are properly treated as a single entity under the doctrine of “alter ego” or “piercing the corporate veil,” and each of them is directly liable for the tortious conduct of Intrater, Epstein, Sloan, and Prata, who acted at all relevant times within the scope of their actual authority as agents of all four Columbus Nova entities. A. The Columbus Nova Defendants Are Alter Egos 169. The Columbus Nova defendants are all part of a single, interconnected web of investment vehicles under common ownership and control. 170. The following diagram depicts the corporate organization of the Columbus Nova entities (among other, related entities) shortly prior to Nina's investment in Concord (then known as InsCap). The ultimate beneficial owner of CN Investments, Nina, and Santa Maria is Victor Vekselberg (“VV”), chairman of the Russian conglomerate Renova Group. Corporate Structure for the Inscap Investment TABULAR OR GRAPHIC MATERIAL SET FORTH AT THIS POINT IS NOT DISPLAYABLE 171. CN Investments, Santa Maria, and Nina were thus all part of the “investment structure” through which Vekselberg's money was routed to Concord (then known as InsCap). 172. CN Investments holds an indirect stake in Santa Maria. 173. Santa Maria is majority owner of Nina. 174. Nina and Santa Maria were created for the specific purpose of facilitating this transfer of funds to Concord. 175. Although RUSM is not depicted on the above chart, it provided “investment management” services to Nina and CN Investments. On information and belief, RUSM also provides “investment management” services to Santa Maria. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 19 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 176. On information and belief, RUSM's role as “investment manager” constitutes total domination of each of the funds it manages. 177. For example, RUSM (through its officers and employees, including Intrater, and Sloan) directed and controlled Columbus Nova's investment in Concord, as described in a chart of wire transfers prepared by Sloan in April 2005: TABULAR OR GRAPHIC MATERIAL SET FORTH AT THIS POINT IS NOT DISPLAYABLE The entirety of Columbus Nova's investment thus passed through Nina and Santa Maria, with the majority ($68 million) passing through CN Investments first. These transfers occurred at the direction of Sloan and Intrater. Indeed, as Sloan put it in the e-mail transmitting his chart, the transactions were “in our [Sloan's and Intrater's] control.” 178. Columbus Nova has alleged in the Counterclaims filed in this action that Fifth Third committed fraud against.both CN Investments and Nina by inducing RUSM to “cause” its “investment vehicles” to act to their detriment. Counterclaims ¶ 136 (Nina), ¶ 185 (CN Investments). On information and belief based on these allegations, no employee, officer, or director of CN Investments or Nina was required to act before those entities could commit to tens of millions of dollars in investments and guaranties, once RUSM gave its command; nor were there employees at either CN Investments or Nina who could have prevented the transactions. 179. On information and belief, CN Investments, Santa Maria, and Nina exist only on paper, comprising only bank accounts whose transactions were at all relevant times dictated by RUSM for its own purposes—one of which was to shield the assets under its management from liability for fraud. 180. Nina's own pleadings equate Nina with Columbus Nova, alleging that when Ross referred to “CN” or “Columbus Nova” in messages to Concord and Fifth Third, he meant to reference Nina. E.g., Nina Action Second Amended Complaint ¶¶ 47, 50. 181. CN Investments and Santa Maria joined each other (and Concord) in submitting a single Answer and identical Counterclaims in response to Fifth Third's initial Complaint in this case. CN Investments and Santa Maria are represented by the same law firms, which also represent Nina in the Nina Action. 182. On information and belief, neither CN Investments, nor Nina, nor Santa Maria has offices separate from RUSM: a. CN Investments has denied having offices in New York (see Counterclaims ¶ 8; CN Investments Ans. ¶ 15), but its Counterclaims do not allege a place of business (see Counterclaims ¶ 130), and documents (including an SEC filing) list CN Investments' address as “C/O Columbus Nova.” b. Nina's pleadings in the Nina Action do not allege a place of business, and documents (including documents on file with the Delaware Secretary of State) list Nina's address as “C/O Columbus Nova.” c. Santa Maria has denied having offices in New York (see Counterclaims ¶ 13; Santa Maria Answer ¶ 16), but its Counterclaims do not allege a place of business (see Counterclaims ¶ 131) and documents (including an SEC database) list Santa Maria's address as “C/O Renova U.S. Management LLC” or “c/o Columbus Nova.” 183. On information and belief, neither CN Investments nor Santa Maria nor Nina has its own employees: Each conducts its business and operations solely through RUSM officers and employees, including Intrater, Epstein, Sloan, and Prata. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 20 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 184. RUSM officers and employees, including Intrater, Epstein, Sloan, and Prata, held themselves out at all relevant times as employees and agents of “Columbus Nova,” rarely or never specifying that they acted on behalf of only one or some of the related Columbus Nova entities. 185. Intrater signed Nina's incorporation papers on behalf of both Santa Maria and Pinta Holdings, LLC (another vehicle created for the purpose of facilitating Columbus Nova's investment in Concord). Intrater has also executed pleadings and other legal documents on behalf of CN Investments, Nina, and Santa Maria. 186. Nina lacks assets with which to satisfy a judgment rendered against it, and was undercapitalized from its inception. Nina was incorporated with only $500 in capital, despite the fact that it existed for the sole purpose of making investments that led to tens of millions of dollars in liability. As Ross recognized, Nina is a “relatively empty shell with little to no assets other than” its now-worthless investment in Concord. 187. RUSM, Nina, CN Investments, and Santa Maria are each obligated to pay one another's tort liabilities to Fifth Third. To give effect to the Defendants' corporate forms so as to deny Fifth Third recovery would be to sanction Columbus Nova's wrongdoing. 3 B. Intrater, Epstein, Sloan, And Prata Acted As Agents For All Columbus Nova Entities 188. Throughout the relevant period, Intrater, Epstein, Sloan, and Prata were employees of RUSM. 189. On information and belief, at all relevant times, Intrater, Sloan, Epstein and/or Prata, among others, had actual authority to act on behalf of each of the Columbus Nova entities. 190. Intrater, for instance, acted for CN Investments pursuant to a Power of Attorney broadly authorizing him to do practically anything he considered to be in the fund's economic interests: “To transact, manage, carry on and do all and every business matters and things requisite and necessary or in any manner connected with or having reference to the business and affairs of [CN Investments],” “[t]o establish economic partnerships and companies with the Company's participation,” “[t]o delegate this Power of Attorney in part or in whole,” and “[g]enerally to do all such acts and things not herein specifically authorized as [Intrater] may deem proper or expedient for or in relation to all or any of the purposes of matters aforesaid.” 191. On information and belief, Sloan, Epstein, and Prata had similar authority to act for CN Investments. 192. On information and belief, Intrater, Sloan, Epstein, and Prata, among others, all had similar authority to act for Santa Maria and Nina. 193. At all relevant times, the interests of RUSM, CN Investments, Nina, and Santa Maria have been aligned in all relevant respects. In particular, all four entities shared an interest in Concord: Nina was Concord's major direct investor; Santa Maria was a member of Concord and majority owner of Nina; CN Investments holds an indirect stake in Concord; and RUSM was responsible for managing the funds and controlling their activities and investments. At RUSM's direction, CN Investments and Santa Maria guarantied certain of Concord's debts. 194. Because all four Columbus Nova entities shared an interest in Concord, any fact that Intrater, Epstein, Sloan, and/ or Prata may have learned in relation to Concord was material to their duties as agents of each of the four entities. Each of the four entities is therefore deemed to have shared in all knowledge that Intrater, Epstein, Sloan, and/or Prata, may have acquired in relation to Concord during the time period relevant to this case. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 21 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 195. The conduct of Intrater, Epstein, Sloan, and Prata is also attributed to all four Columbus Nova entities. On information and belief, each had actual authority to act on behalf of all four entities, and each undertook the tortious conduct described herein for the collective benefit of Columbus Nova as a whole, including by providing funding to Concord's fraudulent business; helping to conceal LAG's role in the fraud; encouraging and facilitating fraudulent loans and transactions; and covering up the fraud once it began to come to light in hopes of preserving Concord's value as a business (and thus to preserve Columbus Nova's investment). CAUSES OF ACTION COUNT I Fraud (Concord Management, Concord Funding, Concord Partners, and Concord Insurance) 196. Fifth Third repeats and realleges paragraphs 1-195 as if fully stated herein. 197. Throughout the life of the Ultra Program, by its own admission, Concord made false and material representations to Fifth Third. Empty Trusts 198. Concord made material misrepresentations that damaged Fifth Third each time it drew funds from Fifth Third's Ultra Program facility in connection with a trust for which no life insurance policy had been purchased. These misrepresentations included, at a minimum, funding applications for the empty trusts that were funded on March 12, 2008, June 2, 2008, and July 1, 2008. Fraudulent Documentation 199. Each intentionally inflated policy valuation that Concord submitted in connection with a funding request constitutes an actionable fraudulent misrepresentation to Fifth Third. Concord has admitted that its policy valuations were permeated by fraudulent overvaluations, as Concord constructed them by using unreasonable discount rates, understated mortality rates, inaccurate life expectancy data, falsified policy valuation-model outputs, and forged signatures. 200. Each forged document that Concord submitted in connection with a funding request is similarly actionable as fraud. Concord's fraudulent misrepresentations include, at a minimum, the “Photoshopped” signatures Concord admits using to charge credit fees and service fees not allowed under the Ultra Program; the forged sets of loan documents it sent to Fifth Third; and the forged Silverman Linden LLP financial statements. 201. Concord made the false and material representations described above with the intent to defraud Fifth Third. Where Concord acted in concert with Ross, it did so with the knowledge and intention that Ross would forward its fraudulent statements to others at Fifth Third, and that Fifth Third would act in reliance thereon. 202. Fifth Third reasonably relied on Concord's false representations in lending funds sufficient to purchase 78 policies, for a total exceeding $100 million, secured only by LIPF II's participation interests in loans to individual participants in the Ultra Program. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 22 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 203. Given that several of these loans were issued to empty trusts, and that others were issued to plainly unqualified applicants on the basis of fraudulent documentation, Fifth Third has been left with a substantial unpaid balance on its loans of over $100 million. Looted Trusts 204. Concord made additional material misrepresentations that damaged Fifth Third when it looted trusts by withdrawing funds on fraudulent pretenses. These misrepresentations included, at a minimum: Concord's May 12, 2008 request to withdraw $2,595,000 from trusts in light of purported “updated loan model valuations”; Concord's June 27, 2008 request to withdraw $2.4 million from trusts in light of purported “updated loan valuation models”; Concord's July 22, 2008 request to withdraw $2,050,000 from two trusts; and Concord's August 2008 request to withdraw $730,000 from an existing trust. There was no truth to Concord's stated explanations for these draws. 205. Fifth Third has suffered injuries as a direct and proximate result of Concord's material misrepresentations and omissions, and will likely suffer additional damages in the future. WHEREFORE, Fifth Third respectfully requests judgment in favor of Fifth Third and damages in an amount to be determined at trial plus all interest, penalties, and accruing amounts through the date of judgment and thereafter at the maximum rate provided by applicable law, plus all costs of enforcement, including reasonable attorneys' fees and legal expenses, and for such other and further relief as may be just and proper under the circumstances. COUNT II Aiding and Abetting Fraud (Netherland, Brody, Raghavan, and Ross) 206. Fifth Third repeats and realleges paragraphs 1 -205 as if fully stated herein. 207. Concord could only have carried out its fraudulent scheme with the knowing participation of Edward Netherland, Ira Brody, Harish Raghavan, and Matthew Ross. 208. Concord itself has admitted the wrongdoing of at least Netherland, Brody, and Raghavan, whom it has identified in the New York Action as the officers and executives that carried out its fraudulent scheme. Defendant Ira Brody 209. Brody aided and abetted Concord's fraudulent scheme by forging documents, including by Photoshopping signatures onto documents to allow Concord to charge unauthorized credit and service fees, and by forging Silverman Linden LLP financial statements. 210. Brody further aided and abetted Concord's fraudulent scheme by causing Fifth Third to lend funds to empty trusts. 211. Brody further aided and abetted Concord's fraudulent scheme by requesting funds from Ultra Program trusts, including empty trusts, on fraudulent pretenses. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 23 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 212. Brody further aided and abetted Concord's fraudulent scheme by drawing on Concord's line of credit with Fifth Third for reasons having nothing to do with Concord's operating expenses, such as funneling money to Lone Star and AIA. Defendant Edward Netherland 213. Netherland aided and abetted Concord's fraudulent scheme by helping to orchestrate, in exchange for fraudulent and unearned fees, sham transactions that defrauded Fifth Third into funding empty trusts, including at least the four empty trusts funded on March 12, 2008, June 2, 2008, and July 1, 2008. 214. Netherland further aided and abetted Concord's fraudulent scheme by submitting false net worth statements for loan applications, including the three different fraudulent statements submitted on behalf of a single insured in December 2008, January 2009, and May 2009. 215. Netherland further aided and abetted Concord's fraudulent scheme by using Lone Star as a slush fund for his personal benefit despite knowing that Lone Star had been funded, at least in part, by Concord's line of credit with Fifth Third. 216. Netherland further aided and abetted Concord's fraudulent scheme by accepting $700,000 from Brody's personal account and using it to pay off a pre-Concord loan, despite knowing that Brody had drawn the $700,000 from Concord's line of credit with Fifth Third. Defendant Harish Raghavan 217. Raghavan aided and abetted Concord's fraud through his role as Concord Management's CEO. Among other things, Raghavan participated in the scheme to deceive Fifth Third into believing that he had posted legitimate collateral in support of Fifth Third's $2 million extension of credit. In truth, the $2 million that Raghavan pledged had been converted from an empty trust account. 218. Raghavan further aided and abetted Concord's fraud by participating in Concord's and Columbus Nova's scheme to conceal the extent and scope of the fraud from Fifth Third. As Skadden's investigation revealed, Raghavan knew of the empty trusts and other wrongdoing associated with the Ultra Program (funds from one such trust had been used as “collateral” in place of his own funds), but he participated in Concord's operations without revealing the fraud to Fifth Third. Further, Raghavan attended a meeting with Ross and Epstein between Columbus Nova's discovery of the fraudulent-collateral transaction and Ross's March 4, 2009 e-mail falsely reporting to Fifth Third the existence and extent of the fraud. Defendant Matthew Ross 219. Ross aided and abetted Concord's fraudulent scheme in numerous ways, including by failing to disclose to Fifth Third: his prior partnership with Netherland; Concord's early failure to attract eligible clients to the Ultra Program; Concord's rampant use of fraudulent documentation to secure Ultra loans; Concord's creation of and requests to fund empty trusts; Concord's looting of funds from various trusts, including the empty trusts; and Concord executives' personal misappropriation of Concord's lines of credit with Fifth Third. 220. Ross further aided and abetted Concord's fraudulent scheme by misinforming his colleagues in September 2008 that Concord was in the process of switching from LAG to another valuation provider going forward. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 24 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 221. Ross further aided and abetted Concord's fraudulent scheme by recommending that Fifth Third increase Concord's line of credit without insisting on guaranties from Netherland, despite knowing that Concord used its credit for purposes having nothing to do with the Ultra Program. 222. Ross further aided and abetted Concord's fraudulent scheme by participating in the fraudulent transactions designed to give Fifth Third the false impression that Raghavan was personally securing $2 million of Concord's line of credit. 223. Ross further aided and abetted Concord's fraud by concealing the “fraud from his superiors at Fifth Third, including by causing Fifth Third to believe that the “shortfall” in the program would cost Fifth Third no more than $19.5 million. 224. Fifth Third has suffered injuries as a direct and proximate result of the aiding and abetting of Concord's fraud by Brody, Netherland, Raghavan, and Ross, and will likely suffer additional damages in the future. WHEREFORE, Fifth Third respectfully requests judgment in favor of Fifth Third and damages in an amount to be determined at trial plus all interest, penalties, and accruing amounts through the date of judgment and thereafter at the maximum rate provided by applicable law, plus all costs of enforcement, including reasonable attorneys' fees and legal expenses, and for such other and further relief as may be just and proper under the circumstances. COUNT III Aiding and Abetting Fraud (RUSM, CN Investments, Nina, and Santa Maria) 225. Fifth Third repeats and realleges paragraphs 1-224 as if fully stated herein. 226. At all relevant times, Columbus Nova was an active participant in the management of Concord. Concord board minutes from 2007 and 2008 show that meetings of the Concord Board of Directors were regularly attended by Intrater, Epstein, Sloan, and Prata. 227. In order to protect Columbus Nova's sizeable investment in Concord, Columbus Nova personnel monitored Concord's business operations, finances, and results. 228. Columbus Nova had access to Concord's financial statements and information regarding its business operations. 229. Through Intrater, Epstein, Sloan, and Prata, Columbus Nova was regularly aware of Concord's scheme to defraud Fifth Third and Columbus Nova's role therein. 230. Columbus Nova performed due diligence on Concord's purchase of LAG, and knew of LAG's role in Concord's fraudulent scheme. Columbus Nova nevertheless approved Concord's purchase, including its concealment of the details of the transaction from Ross's superiors at Fifth Third by requesting a loan of only $4.5 million loan, which Ross could approve on his own. 231. Columbus Nova repeatedly pressured Concord to generate loans and fees from which Columbus Nova could recoup its investment in Concord and the Ultra Program— including loans that Concord generated after it is clear that Columbus Nova was well aware that Concord and the Ultra Program were fraudulent. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 25 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 232. Columbus Nova further aided and abetted Concord's fraud by working with Ross to conceal the fraud from Ross's superiors at Fifth Third, including by causing Fifth Third to believe that the “shortfall” in the program would cost Fifth Third no more than $19.5 million. 233. By funding Concord's business, overseeing its activities, pushing it to close fraudulent Ultra transactions, and concealing the fraud from Fifth Third, Columbus Nova substantially assisted Concord's fraud against Fifth Third. 234. Fifth Third has suffered injuries as a direct and proximate result of Columbus Nova's aiding and abetting Concord's fraudulent scheme, and will likely suffer additional damages in the future. 235. As described in paragraphs 168-87 above, RUSM, CN Investments, Santa Maria, and Nina are all alter egos of one another. Their corporate forms must therefore be ignored, and liability imposed on each entity for the tortious and fraudulent wrongdoing of each of the other entities. 236. As described in paragraphs 188-95 above, Intrater, Epstein, and Sloan all acted as agents of and on behalf of RUSM, CN Investments, Santa Maria, and Nina. As such, their conduct is ascribed to each of the Columbus Nova entities. Each of the Columbus Nova entities is liable for the tortious and fraudulent wrongdoing committed on their collective behalf. WHEREFORE, Fifth Third respectfully requests judgment in favor of Fifth Third and damages in an amount to be determined at trial plus all interest, penalties, and accruing amounts through the date of judgment and thereafter at the maximum rate provided by applicable law, plus all costs of enforcement, including reasonable attorneys' fees and legal expenses, and for such other and further relief as may be just and proper under the circumstances. COUNT IV Conspiracy to Commit Fraud (Concord Management, Concord Funding, Concord Partners, Concord Insurance; RUSM, CN Investments, Nina, Santa Maria; Netherland, Brody, Raghavan, and Ross) 237. Fifth Third repeats and realleges paragraphs 1-236 as if fully stated herein. 238. When Columbus Nova made its investments in Concord with knowledge of the Ultra Program, it agreed with Concord and its executives (Netherland, Brody, and Raghavan) to participate in a fraudulent scheme that would result in Fifth Third making tens of millions of dollars in unsecured or undersecured premium-finance loans. 239. Columbus Nova further agreed to participate in Concord's scheme through its efforts to cause Concord to generate fraudulent loans, which benefited Concord and Columbus Nova while harming Fifth Third. 240. Ross likewise agreed to join this conspiracy in his various meetings and communications with Concord, Columbus Nova, and their executives, and through his approval (both tacit and explicit) of their fraudulent transactions. 241. As alleged above, each member of this conspiracy took numerous steps towards its completion. 242. Fifth Third has suffered injuries as a direct and proximate result of the conspiracy to defraud it, and will likely suffer additional damages in the future. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 26 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 243. As described in paragraphs 168-87 above, RUSM, CN Investments, Santa Maria, and Nina are all alter egos of one another. Their corporate forms must therefore be ignored, and liability imposed on each entity for the tortious and fraudulent wrongdoing of each of the other entities. 244. As described in paragraphs 188-95 above, Intrater, Epstein, Sloan, and Prata all acted as agents of and on behalf of RUSM, CN Investments, Santa Maria, and Nina. As such, their conduct is ascribed to each of the Columbus Nova entities. Each of the Columbus Nova entities is liable for the tortious and fraudulent wrongdoing committed on their collective behalf. WHEREFORE, Fifth Third respectfully requests judgment in favor of Fifth Third and damages in an amount to be determined at trial plus all interest, penalties, and accruing amounts through the date of judgment and thereafter at the maximum rate provided by applicable law, plus all costs of enforcement, including reasonable attorneys' fees and legal expenses, and for such other and further relief as may be just and proper under the circumstances. COUNT V Breach of Fiduciary Duty (Ross) 245. Fifth Third repeats and realleges paragraphs 1 -244 as if fully stated herein. 246. As a Vice President in Fifth Third's Structured Finance Group, Ross was entrusted with significant responsibility, autonomy, and discretion. He therefore owed Fifth Third fiduciary duties, including a duty of loyalty. 247. Ross breached his fiduciary duties by failing to prevent the fraud against Fifth Third, and indeed by undertaking a central role therein. 248. Ross further breached his fiduciary duties to Fifth Third by ignoring or overriding glaring deficiencies identified by Bank of America, as servicing agent, on requests for funding approval under the Ultra facility. Ross directed that the Ultra Program credit facility approve funding requests despite his subjective awareness that Concord had provided false information, inflated policy valuations, and forged documents in support of these requests. 249. Ross further breached his fiduciary duties to Fifth Third by recommending that Fifth Third extend large amounts of credit to Concord without disclosing relevant and material facts to Fifth Third, including the Ultra Program fraud, the empty trusts, the looted assets, the wrongful fees, and the fraudulent use of trust assets as collateral for new loans. 250. In taking the actions described above, Ross completely abandoned Fifth Third's interests and acted solely for his own benefit and the benefit of his joint tortfeasors. 251. Fifth Third believed that Ross was a loyal employee and expected him to safeguard Fifth Third's interests with regard to matters within the scope of his employment. Had Ross not breached his fiduciary duties to Fifth Third, Fifth Third would not have established the Ultra Program lending facility, nor would it have loaned out more than $100 million through the Ultra Program. Nor would Fifth Third have extended significant additional credit to Concord. Fifth Third has thus suffered injuries as a direct and proximate result of Ross's breaches of his fiduciary duties to Fifth Third. WHEREFORE, Fifth Third respectfully requests judgment in favor of Fifth Third and damages in an amount to be determined at trial plus all interest, penalties, and accruing amounts through the date of judgment and thereafter at the © 2018 Thomson Reuters. No claim to original U.S. Government Works. 27 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... maximum rate provided by applicable law, plus all costs of enforcement, including reasonable attorneys' fees and legal expenses, and for such other and further relief as may be just and proper under the circumstances. COUNT VI Aiding and Abetting Breach of Fiduciary Duty (RUSM, CN Investments, Nina, Santa Maria, Netherland, Brody, and Raghavan) 252. Fifth Third repeats and realleges paragraphs 1-251 as if fully stated herein. 253. Columbus Nova, Netherland, Brody, and Raghavan had actual or constructive knowledge of Ross's fiduciary duties to Fifth Third. Further, they knew or should have known that Ross's actions constituted a breach of these fiduciary duties. 254. Columbus Nova, Netherland, Brody, and Raghavan knowingly and substantially assisted Ross in his breaches of fiduciary duty to Fifth Third by, inter alia: • Funding and overseeing Concord's business; • Providing the inflated policy valuations and falsified documentation that formed the basis for Fifth Third's loans; • Misappropriating trust assets; • Showering Ross with gifts; and • Making payments to Ross, including, but not limited to, a $75,100 wire transfer on September 12, 2008. 255. This conduct was outrageous, willful, and wanton, and perpetrated with malice and a reckless indifference to the rights of Fifth Third. 256. Fifth Third has suffered injuries as a direct and proximate result of the aiding and abetting of Ross's breaches of his fiduciary duty to Fifth Third. 257. As described in paragraphs 168-87 above, RUSM, CN Investments, Santa Maria, and Nina are all alter egos of one another. Their corporate forms must therefore be ignored, and liability imposed on each entity for the tortious and fraudulent wrongdoing of each of the other entities. 258. As described in paragraphs 188-95 above, Intrater, Epstein, Sloan, and Prata all acted as agents of and on behalf of RUSM, CN Investments, Santa Maria, and Nina. As such, their conduct is ascribed to each of the Columbus Nova entities. Each of the Columbus Nova entities is liable for the tortious and fraudulent wrongdoing committed on their collective behalf. WHEREFORE, Fifth Third respectfully requests judgment in favor of Fifth Third and damages in an amount to be determined at trial plus all interest, penalties, and accruing amounts through the date of judgment and thereafter at the maximum rate provided by applicable law, plus all costs of enforcement, including reasonable attorneys' fees and legal expenses, and for such other and further relief as may be just and proper under the circumstances. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 28 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... COUNT VII Unjust Enrichment (RUSM, CN Investments, Nina, Netherland, Brody, Raghavan, and Ross) 259. Fifth Third repeats and realleges paragraphs 1 -258 as if fully stated herein. 260. The actions of RUSM, CN Investments, Nina, Netherland, Brody, Raghavan, and Ross have caused the transfer of assets to them from Fifth Third. 261. These transfers were unjust and without justification. 262. Defendants' retention of these benefits violates the fundamental principles of justice, equity, and good conscience. 263. As a result of these transfers, Fifth Third has suffered injuries. WHEREFORE, Fifth Third respectfully requests judgment in favor of Fifth Third and damages in an amount to be determined at trial plus all interest, penalties, and accruing amounts through the date of judgment and thereafter at the maximum rate provided by applicable law, plus all costs of enforcement, including reasonable attorneys' fees and legal expenses, and for such other and further relief as may be just and proper under the circumstances. COUNT VIII For Collection of Amounts Owed to Fifth Third Pursuant to the Revolving Note and the Term Note (Concord Management and Concord Partners) 264. Fifth Third repeats and realleges paragraphs 1-263 as if fully stated herein. 265. On September 25, 2008, Concord Management and Concord Partners (together, “Borrowers”) executed the Revolving Note, wherein they jointly and severally promised to pay to Fifth Third the principal sum of $4,000,000.00 plus interest. The debt that is evidenced by the Revolving Note was thereafter made subject to the terms of the Restated Demand Loan. 266. The Revolving Note came to maturity and all amounts were due on the earlier of demand by Fifth Third, or the Termination Date, as defined in the Restated Demand Loan. The Revolving Note's Termination Date was June 2, 2010. 267. Accordingly, all amounts outstanding under the Revolving Note are now past due and Borrowers are in default. Borrowers are obligated to immediately pay the $4,000,000.00 in unpaid principal, all accrued and unpaid interest, and all applicable late charges and other penalties. Per diem amounts have accrued and will continue to accrue at the Default Rate set forth in the Restated Demand Loan. 268. On June 4, 2009, Borrowers executed the Term Note, wherein they jointly and severally promised to pay to Fifth Third the principal sum of $19,500,000.00 plus interest in accordance with the terms of the Restated Demand Loan. 269. The Term Note came to maturity and all amounts were due on the earlier of demand by Fifth Third, or the Termination Date, as defined in the Restated Demand Loan. The Termination Date was June 2, 2010. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 29 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 270. Accordingly, all amounts outstanding under the Term Note are also now past due and Borrowers are in default. Borrowers are required to immediately pay the $19,500,000.00 in unpaid principal, all accrued and unpaid interest, and all late charges and other penalties. Per diem amounts have accrued and will continue to accrue at the Default Rate set forth in the -Restated Demand Loan. 271. Borrowers are also liable for all of Fifth Third's reasonable expenses, including attorneys' fees and legal expenses, incurred in attempting to collect all amounts payable pursuant to the Restated Demand Loan and the Notes. WHEREFORE, Fifth Third respectfully requests judgment in favor of Fifth Third in the amount of $23,500,000.00 plus all interest, penalties, and accruing amounts through the date of judgment and thereafter at the maximum rate provided by applicable law, plus all costs of enforcement, including reasonable attorneys' fees and legal expenses, and for such other and further relief as may be just and proper under the circumstances. COUNT IX For Collection of Amounts Owed to Fifth Third Pursuant to the CNI Guaranty and the CNI Reaffirmations (CN Investments) 272. Fifth Third repeats and realleges paragraphs 1-271 as if fully stated herein. 273. In connection with the Restated Demand Loan and the Notes, Defendant CN Investments executed and delivered the CNI Guaranty, effective as of February 12, 2009, to and for the benefit of Fifth Third. Through the CNI Guaranty, CN Investments “unconditionally and absolutely” guaranteed repayment at maturity, whether by acceleration or otherwise, of up to $25,000,000.00 of the principal owed by Borrowers on the Notes, and the payment in full of all interest accrued, and all costs, legal expenses, and attorneys' and paralegals' fees of every kind incurred by Fifth Third in endeavoring to enforce the CNI Guaranty or to collect any amounts owed by the Borrowers pursuant to the Restated Demand Loan and Notes. 274. CN Investments executed the CNI Reaffirmations (dated as of June 4, 2009 and December 2009) to and for the benefit of Fifth Third. The CNI Reaffirmations ratified, affirmed, and recognized that the CNI Guaranty continues in full force and effect, and unconditionally guarantees performance and repayment of all amounts due pursuant to the Restated Demand Loan and the Notes. 275. The Notes are past due and in default. All amounts owed are immediately due. CN Investments, pursuant to the CNI Guaranty and the CNI Reaffirmations, is required to satisfy Borrowers' payment obligations. 276. On or about June 3, 2010, Fifth Third sent CN Investments Notice of Borrowers' defaults and made a demand for full payment. Despite receiving the Notice, CN Investments has failed to pay the amounts it owes to Fifth Third. 277. Pursuant to the CNI Guaranty and the CNI Reaffirmations, CN Investments owes Fifth Third $23,500,000.00 plus all accrued and unpaid interest, all late charges, and all other penalties. In addition, per diem amounts have accrued and will continue to accrue on the Notes at the Default Rate set forth in the Restated Demand Loan. 278. Pursuant to the terms of the CNI Guaranty and the CNI Reaffirmations, CN Investments is also liable for all of Fifth Third's reasonable expenses in attempting to collect the amounts owed. These reasonable expenses include Fifth Third's attorneys' fees and legal expenses. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 30 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... WHEREFORE, Fifth Third respectfully requests judgment in favor of Fifth Third in the amount of $23,500,000.00 plus all interest, penalties, and accruing amounts through the date of judgment and thereafter at the maximum rate provided by applicable law, plus all costs of enforcement, including reasonable attorneys' fees and legal expenses, and for such other and further relief as may be just and proper under the circumstances. COUNT X For Collection of Amounts Owed to Fifth Third Pursuant to the Limited Recourse Guaranty and Collateral Pledge Agreement (Concord Funding) 279. Fifth Third repeats and realleges paragraphs 1 -278 as if fully stated herein. 280. In connection with the Restated Demand Loan and the Notes, Concord Funding executed and delivered that certain Limited Recourse Guaranty and Collateral Pledge Agreement, effective as of June 4, 2009 (hereinafter the “Concord Funding Guaranty”), to and for the benefit of Fifth Third. A true and correct copy of the Concord Funding Guaranty is attached hereto as Exhibit 13. Through the Concord Funding Guaranty, Concord Funding “unconditionally and absolutely” guaranteed repayment at maturity, whether by acceleration or otherwise, of all amounts due and owing under the Restated Demand Loan and the Notes. Upon default, Fifth Third is entitled to all collateral received in exchange for extending the loans to Borrowers and all other items pledged as collateral or security under the Concord Funding Guaranty. 281. The Notes are past due and in default. All amounts owed are immediately due. Concord Funding is required to satisfy Borrowers' payment obligations. 282. On or about June 3, 2010, Fifth Third sent Concord Funding a Notice of Borrowers' defaults and made a demand for full payment. Despite receiving the Notice, Concord Funding has failed to pay the amounts due and owing to Fifth Third. 283. Concord Funding owes Fifth Third $23,500,000.00 plus all accrued and unpaid interest, all late charges, and other penalties. In addition, per diem amounts have accrued and will continue to accrue on the Notes at the Default Rate set forth in the Restated Demand Loan. 284. Concord Funding is also liable for Fifth Third's reasonable expenses in attempting to collect the amounts owed from Borrowers and Concord Funding. These reasonable expenses include Fifth Thirds attorneys' fees and legal expenses. 285. Concord Funding is liable in the amounts set forth above, to the extent that such amounts can be recovered through the collateral and other items within which Fifth Third has a security interest, and as otherwise may be contemplated by the Concord Funding Guaranty. WHEREFORE, Fifth Third respectfully requests judgment in favor of Fifth Third in the amount of $23,500,000.00 plus all interest, penalties, and accruing amounts through the date of judgment and thereafter at the maximum rate provided by applicable law, plus all costs of enforcement, including reasonable attorneys' fees and legal expenses, and for such other and further relief as may be just and proper under the circumstances. COUNT XI Breach of Contract © 2018 Thomson Reuters. No claim to original U.S. Government Works. 31 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... (Concord Management, Concord Partners, and Concord Funding) 286. Fifth Third repeats and realleges paragraphs 1-285 as if fully stated herein. 287. Borrowers executed the Restated Demand Loan, which contains an exclusive forum-selection provision providing that any and all disputes arising out of, connected with, and related or incidental to their relationship with Fifth Third, whether arising in contract, tort, equity, or otherwise, shall be resolved only by state or federal courts located in Cook County, Illinois. 288. Concord Funding executed and delivered the Concord Funding Guaranty, which contains an exclusive forumselection provision providing that any and all disputes arising out of, connected with, and related or incidental to their relationship with Fifth Third, whether arising in contract, tort, equity, or otherwise, shall be resolved only by state or federal courts located in Cook County, Illinois. 289. On September 14, 2010, Borrowers and Concord Funding breached the forum-selection provisions of their respective agreements by filing a lawsuit related to their respective obligations in the Supreme Court of New York. 290. Fifth Third has suffered and will continue to suffer damages as a result of defendants' breaches of the forum selection provisions. In particular, Fifth Third has incurred and will continue to incur costs, legal expenses, and attorneys' fees in litigating the New York Action. 291. Pursuant to the Restated Demand Loan and the Concord Funding Guaranty, as well as applicable law, Borrowers and Concord Funding are liable for all costs, legal expenses, and attorneys' fees incurred by Fifth Third in connection with these breaches. WHEREFORE, Fifth Third respectfully requests judgment in favor of Fifth Third and damages in an amount to be determined at trial plus all interest, penalties, and accruing amounts through the date of judgment and thereafter at the maximum rate provided by applicable law, plus all costs of enforcement, including reasonable attorneys' fees and legal expenses, and for such other and further relief as may be just and proper under the circumstances. COUNT XII For Collection of Amounts Owed to Fifth Third Pursuant to the Unlimited Guaranty of Harish Raghavan 292. Fifth Third repeats and realleges paragraphs 1-291 as if fully stated herein. 293. In connection with the Restated Demand Loan and the Notes, on June 4, 2009, Raghavan executed and delivered a Second Amended and Restated Guaranty (Limited) to Fifth Third (hereinafter the “Raghavan Guaranty”). The Raghavan Guaranty supersedes the two prior guaranty agreements executed by Raghavan in connection with the Restated Demand Loan and Notes. A true and correct copy of the Raghavan Guaranty is attached hereto as Exhibit 14. 294. Through the Raghavan Guaranty, Raghavan “unconditionally and absolutely” guaranteed repayment at maturity, whether by acceleration or otherwise, of $10,000,000.00 of the principal owed by Borrowers on the Notes, as well as full payment of all interest accrued, and all costs, legal expenses, and attorneys' and paralegals' fees of every kind incurred by Fifth Third in endeavoring to enforce the Raghavan Guaranty or to collect any amounts owed by the Borrowers under the Restated Demand Loan or the Notes. 295. The Notes are past due and in default. All amounts owed are immediately due. Raghavan, subject to the limitations of the Raghavan Guaranty, is required to satisfy Borrowers' payment obligations. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 32 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... 296. On or about June 3, 2010, Fifth Third sent Raghavan Notice of Borrowers' defaults and made a demand for full payment. Despite receiving the Notice, Raghavan has failed to pay the amounts due and owing to Fifth Third. 297. Raghavan owes Fifth Third $10,000,000.00, representing the principal guaranteed on the Notes, plus all accrued and unpaid interest, applicable late charges, and penalties. In addition, per diem amounts have accrued and will continue to accrue on the Notes at the Default Rate set forth in the Restated Demand Loan. 298. Pursuant to the terms of the Raghavan Guaranty, Raghavan is also liable for all of Fifth Third's reasonable expenses in attempting to collect the amounts owed. These reasonable expenses include Fifth Third's attorneys' fees and legal expenses. WHEREFORE, Fifth Third respectfully requests judgment in favor of Fifth Third in the amount of $10,000,000.00 plus all interest, penalties, and accruing amounts through the date of judgment and thereafter at the maximum rate provided by applicable law, plus all costs of enforcement, including reasonable attorneys' fees and legal expenses, and for such other and further relief as may be just and proper under the circumstances. COUNT XIII For Collection of Amounts Owed to Fifth Third Pursuant to the Guaranty and Security Agreement (Concord Insurance) 299. Fifth Third repeats and realleges paragraphs 1-298 as if fully stated herein. 300. In connection with the Restated Demand Loan and the Notes, Concord Insurance executed and delivered that certain Guaranty and Security Agreement (hereinafter the “Concord Insurance Guaranty”), effective as of June 4, 2009, to and for the benefit of Fifth Third. A true and correct copy of the Concord Insurance Guaranty is attached as Exhibit 15. Through the Concord Insurance Guaranty, Concord Insurance “unconditionally and absolutely” guaranteed repayment at maturity, whether by acceleration or otherwise, of all amounts owing under the Restated Demand Loan and the Notes. 301. In the Concord Insurance Guaranty, Concord Insurance secured its obligations to Fifth Third with all of its property. 302. The Notes are past due and in default. All amounts owed are immediately due. Concord Insurance, pursuant to the Concord Insurance Guaranty, is required to satisfy Borrowers' payment obligations. 303. On or about June 3, 2010, Fifth Third sent Concord Insurance Notice of Borrowers' defaults and made a demand for full payment. Despite receiving the Notice, Concord Insurance has failed to pay the amounts due and owing to Fifth Third. 304. Concord Insurance owes Fifth Third $23,500,000.00 plus all accrued and unpaid interest, late charges, and penalties. In addition, per diem amounts have accrued and will continue to accrue on the Notes at the Default Rate set forth in the Restated Demand Loan. Concord Insurance is liable for these amounts, and Fifth Third has a security interest in all of Concord Insurance's property, as set forth in the Concord Insurance Guaranty. 305. Pursuant to the terms of the Concord Insurance Guaranty, Concord Insurance is also liable for all of Fifth Third's reasonable expenses in attempting to collect the amounts owed. These reasonable expenses include Fifth Third's attorneys' fees and legal expenses. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 33 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... WHEREFORE, Fifth Third respectfully requests judgment in favor of Fifth Third in the amount of $23,500,000.00 plus all interest, penalties, and accruing amounts through the date of judgment and thereafter at the maximum rate provided by applicable law, plus all costs of enforcement, including reasonable attorneys' fees and legal expenses, and for such other and further relief as may be just and proper under the circumstances. COUNT XIV For Collection of Amounts Owed to Fifth Third Pursuant to the Limited Guaranty (Santa Maria) 306. Fifth Third repeats and realleges paragraphs 1-305 as if fully stated herein. 307. In connection with the Notes, the Demand Loan, which was amended by the Amended Loan, and later amended and restated by the Restated Demand Loan, Defendant Santa Maria executed and delivered that certain Limited Guaranty, effective as of April 24, 2008, to and for the benefit of Fifth Third (hereinafter the “Santa Maria Guaranty”). A true and correct copy of the Santa Maria Guaranty is attached hereto as Exhibit 16. Through the Santa Maria Guaranty, Santa Maria “unconditionally and absolutely” guaranteed repayment at maturity, whether by acceleration or otherwise, of $800,000.00 of the principal owed by Borrowers on the Revolving Note, $1,000,000.00 of the principal owed by Borrowers on the Term Note, and the payment in full of all interest accrued, and all costs, legal expenses, and attorneys' and paralegals' fees of every kind incurred by Fifth Third in endeavoring to enforce the Santa Maria Guaranty or to collect any amounts owed by the Borrowers pursuant to the Revolving Note or the Term Note. 308. On September 25, 2008, Santa Maria executed that certain Affirmation of Limited Guaranty to and for the benefit of Fifth Third (hereinafter the “Santa Maria Affirmation”). A true and correct copy of the Santa Maria Affirmation is attached hereto as Exhibit 17. The Santa Maria Affirmation ratified, affirmed, and recognized that the Santa Maria Guaranty continues in full force and effect, and unconditionally guarantees performance by Borrowers and repayment as outlined by the Santa Maria Guaranty. 309. The Notes are past due and in default. All amounts owed are immediately due. Santa Maria, consistent with the terms of the Santa Maria Guaranty and the Santa Maria Affirmation, is required to satisfy Borrowers' payment obligations. 310. On or about June 3, 2010, Fifth Third sent Santa Maria Notice of Borrowers' defaults and made a demand for full payment. Despite receiving such Notice, Santa Maria has failed to pay the amounts due and owing to Fifth Third. 311. Santa Maria owes Fifth Third $1,800,000.00 of the principal outstanding on the Notes, plus all accrued and unpaid interest, all late charges, and all applicable penalties. In addition, per diem amounts have accrued and will continue to accrue. 312. Pursuant to the terms of the Santa Maria Guaranty, Santa Maria is also liable for all of Fifth Third's reasonable expenses in attempting to collect the amounts owed. These reasonable expenses include Fifth Thirds attorneys' fees and legal expenses. WHEREFORE, Fifth Third respectfully judgment in favor of Fifth Third in the amount of $1,800,000.00 plus all interest, penalties, and accruing amounts through the date of judgment and thereafter at the maximum rate provided by applicable law, plus all costs of enforcement, including reasonable attorneys' fees and legal expenses, and for such other and further relief as may be just and proper under the circumstances. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 34 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... COUNT XV For Collection of Amounts Owed to Fifth Third Pursuant to the Unlimited Guaranty (Ira Brody) 313. Fifth Third repeats and realleges paragraphs 1-312 as if fully stated herein. 314. In connection with the April 2008 Notes and the Demand Loan, which was amended by the Amended Loan, and later amended and restated by the Restated Demand Loan, Defendant Ira Brody executed and delivered that certain Unlimited Guaranty, effective as of April 24, 2008, to and for the benefit of Fifth Third (hereinafter the “Brody Guaranty”). A true and correct copy of the Brody Guaranty is attached hereto as Exhibit 18. Through the Brody Guaranty, Mr. Brody “unconditionally and absolutely” guaranteed repayment at maturity, whether by acceleration or otherwise, of all amounts owed by Borrowers pursuant to the Restated Demand Loan and the Notes, including payment of all principal, all interest accrued, and all costs, legal expenses, and attorneys' and paralegals' fees of every kind incurred by Fifth Third in endeavoring to enforce the Brody Guaranty or to collect any amounts owed by the Borrowers under the Restated Demand Loan and the Notes. 315. On September 25, 2008, Mr. Brody executed that certain Affirmation of Unlimited Guaranty to and for the benefit of Fifth Third (hereinafter the “Brody Affirmation”). A true and correct copy of the Brody Affirmation is attached hereto as Exhibit 19. The Brody Affirmation ratified, affirmed, and recognized that the Brody Guaranty continues in full force and effect. 316. The Notes are past due and in default. All amounts owed are immediately due. Mr. Brody, pursuant to the Brody Guaranty and the Brody Affirmation, is required to satisfy Borrowers' payment obligations. 317. On or about June 3, 2010, Fifth Third sent Mr. Brody Notice of Borrowers' defaults and made a demand for full payment. Despite receiving the Notice, Mr. Brody has failed to pay the amounts due and owing to Fifth Third. 318. Mr. Brody owes Fifth Third $23,500,000.00, representing the principal outstanding on the Notes, plus all accrued and unpaid interest, all late charges, and all applicable penalties. In addition, per diem amounts have accrued and will continue to accrue on the Notes at the Default Rate set forth in the Restated Demand Loan. 319. Pursuant to the terms of the Brody Guaranty and the Brody Affirmation, Mr. Brody is also liable for all of Fifth Third's reasonable expenses in attempting to collect the amounts owed. These reasonable expenses include Fifth Third's attorneys' fees and legal expenses. WHEREFORE, Fifth Third respectfully requests judgment in favor of Fifth Third in the amount of $23,500,000.00 plus all interest, penalties, and accruing amounts through the date of judgment and thereafter at the maximum rate provided by applicable law, plus all costs of enforcement, including reasonable attorneys' fees and legal expenses, and for such other and further relief as may be just and proper under the circumstances. COUNT XVI For Judicial Foreclosure of Security Interests 320. Fifth Third repeats and realleges paragraphs 1-319 as if fully stated herein. 321. Defendants executed the following agreements: © 2018 Thomson Reuters. No claim to original U.S. Government Works. 35 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... a. Borrowers executed the Restated Demand Loan; b. Columbus Nova executed the Columbus Guaranty and the Columbus Reaffirmations; c. Concord Funding executed the Concord Funding Guaranty; d. Concord Insurance executed the Concord Insurance Guaranty; e. Raghavan executed the Raghavan Guaranty; f. Santa Maria executed the Santa Maria Guaranty and the Santa Maria Affirmation; g. Brody executed the Brody Guaranty and the Brody Affirmation; h. Concord Partners executed that certain Pledge Agreement, dated May 1, 2009, in favor of Fifth Third (a true and correct copy of which is attached hereto as Exhibit 20); and i. Concord Partners executed that certain Account Control Agreement, dated June 4, 2009 in favor of Fifth Third (a true and correct copy of which is attached hereto as Exhibit 21). 322. Payment of the respective amounts owed by Defendants to Fifth Third pursuant to the agreements identified in paragraph 321 above (collectively, the “Security Agreements”) is secured by the collateral that has been pledged to Fifth Third by Defendants under those Security Agreements (hereinafter, the “Collateral”). 323. Fifth Third has perfected its security interest in and lien upon all such Collateral by, among other things, filing and maintaining UCC financing statements against all such Collateral. As set forth herein, clear defaults exist and are continuing under the Security Agreements as a result of, among other things, Borrowers' failure to pay the indebtedness due to Fifth Third following the maturity and termination of the Notes on June 2, 2010 and the Guarantors' failure to satisfy any of their obligations to Fifth Third under their respective guaranty agreements. Accordingly, Fifth Third is entitled to foreclose on all of the Collateral and to exercise all other rights and remedies it has under the terms of the Security Agreements and applicable law. 324. On information and belief, Fifth Third's rights in the Collateral are first, superior, and prior to any rights, liens, or security interests of any person or entity in the Collateral. 325. Fifth Third is entitled to: (i) possession of the Collateral, including immediate access to and inspection of all books and records and other financial information relating thereto; (ii) collect all monetary benefits derived from or generated by the Collateral or otherwise held by Defendants; (iii) foreclose any right, title, or interest that the Defendants or any other party holding any other right, claim, or interest junior to Fifth Third's interest; (iv) dispose of the Collateral through one or more private or public sales held in accordance with further judgment and order of this Court; and (v) apply the proceeds from any sale or disposition of the Collateral first against all expenses or costs relating to such sale, next against all amounts owed by Borrowers until paid in full, with the remaining proceeds, if any, deposited with this Court for distribution in accordance with further order of the Court. WHEREFORE, Fifth Third respectfully requests an order finding that Fifth Third has a first, superior, and prior security interest against and right to all Collateral; a judgment of foreclosure and sale entitling Fifth Third to a judicial sale of all Collateral; in the event that Fifth Third is the successful bidder at the sale of any of the Collateral, an order allowing Fifth Third to offset against the purchase price to be paid at such sale the amounts due Fifth Third under the judgment © 2018 Thomson Reuters. No claim to original U.S. Government Works. 36 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... of foreclosure and sale, including any and all additional fees, costs, and expenses that may be incurred after the date thereof; an order granting Fifth Third immediate possession and ownership of any of the Collateral as may be in the form of money; a judgment for all costs of enforcement, including reasonable attorneys' fees and legal expenses, incurred by Fifth Third in connection with the enforcement of its rights pursuant to the Security Agreements; and such other relief as may be just and proper under the circumstances. JURY DEMAND Fifth Third demands a trial by jury on all counts of this Complaint for which a trial by jury is available. Dated: September 18, 2014 Respectfully submitted, FIFTH THIRD BANK By: <> One of Its Attorneys Stephen Novack Richard G. Douglass Rebekah H. Parker NOVACK AND MACEY LLP 100 North Riverside Plaza Chicago, Illinois 60606 (312) 419-6900 (312) 419-6928 Firm ID No. 91731 snovack@novackmacey.com rdouglass@novackmacey.com rparker@novackmacey.com Of Counsel: Peter E. Calamari Kevin S. Reed © 2018 Thomson Reuters. No claim to original U.S. Government Works. 37 FIFTH THIRD BANK, Plaintiff, v. CONCORD CAPITAL..., 2014 WL 12461308... Cleland B. Welton II Heather M. Martone QUINN EMANUEL URQUHART & SULLIVAN, LLP 51 Madison Avenue, 22nd Floor New York, New York 10010-1601 Telephone: (212) 849-7000 Fax: (212) 849-7100 Footnotes Fifth Third incorporates by reference the allegations of its Amended Complaint, including (but without limitation) as 1 2 3 against Defendants Carl Meyer, Robert Thompson, Bank of America, N.A. (as successor-in-interest to LaSalle Bank, N.A.), Wilmington Trust, N.A., and M&T Bank Corporation, for purposes of appeal. See Tabora v. Gottlieb Mem. Hosp., 279 Ill. App. 3d 108, 114 (1st Dist. 1996). “Concord” refers collectively to Defendants Concord Capital Management, LLC, Concord Capital Funding, LLC, Concord Capital Funding, Inc., Concord Partners, LLC, and Concord Capital Insurance Services. LLC. In view of the number of other corporations that appear in the Columbus Nova organizational chart reproduced above, Fifth Third reserves its right to pursue recovery against other related entities and/or their common owner in the event that the named defendants lack assets sufficient to satisfy a judgment rendered in Fifth Third's favor. End of Document © 2018 Thomson Reuters. No claim to original U.S. Government Works. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 38 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... 2014 WL 12461312 (Ill.Cir.Ct.) (Trial Pleading) Circuit Court of Illinois. County Department, Law Division Cook County NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD BANK, Matthew P. Ross, and Ira L. Brody, Defendants. No. 2012 L 007547. April 15, 2014. Second Amended Complaint Marc E. Kasowitz, Andrew K. Glenn, Jed I. Bergman, Shalini Kisten Rajoo, Kasowitz, Benson, Torres & Friedman, LLP, 1633 Broadway, New York, New York 10019, (212) 506-1700, (212) 506-1800 (fax). Michael Rachlis, Kevin B. Duff, John E. Murray, Rachlis Duff Adler Peel & Kaplan, LLC, 542 South Dearborn, Suite 900, Chicago, Illinois 60605, (312) 733-3950, (312) 733-3952 (fax). Hon. Brigid M. McGrath. PRELIMINARY STATEMENT 1. By this action, Nina seeks to recover damages for: (i) a $56 million debt/equity investment in the group of companies known generally as “Concord” 2 – now entirely worthless -that was fraudulently induced through the misrepresentations and misconduct of Edward Netherland (“Netherland”) and his co-conspirators, Defendants Fifth Third, Ross, and Brody, and others, including but not limited to Q Capital Strategies, LLC (“Q Capital”); and (ii) Nina's subsequent expenditure of $16 million – in reliance on Fifth Third's fraudulent misrepresentations – spent in an attempt to resuscitate Concord, and recoup Nina's investment in the aftermath of Defendants' fraudulent activities. 2. The fraudulent scheme against Nina was spawned by the long-standing partnership between Netherland and Ross, who had been friends and business partners since at least 2001. Netherland was a successful insurance agent from Tennessee who had earned a lifetime seat at the “Million Dollar Round Table,” a recognition reserved for the biggest life insurance sales producers in the industry. Ross was an ambitious banker, known for being a “cowboy” with no qualms about cutting corners to make a deal. Together, Netherland and Ross forged the perfect alliance: Ross “worked” the banking system for Netherland, to ensure continued funding for Netherland's business, and the extravagant lifestyle to which he was accustomed. Netherland, in turn, provided Ross with substantial commercial and personal banking business – both his own and that of his acquaintances – to support Ross's rise as a successful banker. 3. Between 2003 and 2004, like many others at the time, Netherland went into the structured financial products market with hopes of striking it rich. While he enjoyed some success with insurance financing and the securitization of insurancerelated products (insurance-backed securities, or “IBS”), his extravagant lifestyle had far outpaced his income and Netherland soon found himself more than $18 million in debt, with $6.5 million owed to Fifth Third. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 1 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... 4. Netherland was under pressure to repay Fifth Third. At the same time, Ross was under pressure from senior Fifth Third executives to up the ante and start increasing his contribution to Fifth Third's bottom line. As Ross's senior manager, Joseph Gaffigan, put it, Ross needed to do “whatever it takes to get the deal done.” 5. The solution to Ross's and Netherland's respective problems was simple: con a “deep pocket” investor to invest in Netherland's fledgling business so that Netherland could use the infusion of cash to pay down his mountain of debt to Fifth Third. Because Netherland had assembled a group of executives with impressive resumes, hailing from leadership positions at prestigious investment banks, his overtures to new investors had a veneer of legitimacy that was reinforced by Fifth Third's financing of his insurance finance and securitization business. With this team of industry experts behind them, Netherland and Fifth Third set out to reel in a “deep pocket” based on false promises of the substantial profitability of the IBS industry. By that time, Netherland and Fifth Third were steeped in the inner workings of the IBS industry, and well aware that the window for successful IBS transactions was quickly closing, due to changes in industry practice and regulation. 6. By April 2005, Netherland and Fifth Third had found a deep pocket. Netherland, with the knowing and substantial assistance of each of the Defendants, induced Nina to establish a $75 million “warehouse” fund to finance new IBS transactions and to make a direct equity investment of $6.65 million in Concord Capital Management, which would manage the warehouse fund. 7. Immediately upon closing the April 2005 investment, the entirety of Nina's $6.65 million equity investment went to repay Netherlands debts to Fifth Third. With a clean balance sheet and a large credit line available to Concord, Netherland and Brody – who had joined Concord prior to Nina's investment – continued to rack up still more debt and, within a year, had amassed another mountain of debt, mostly to Fifth Third. Ross and other senior Fifth Third executives willfully ignored red flags that would have cut off the flow of funds at any other bank, and allowed Netherland and Brody to continue accumulating business and personal debts, so that Fifth Third could continue reaping substantial fees and interest. With the IBS business at a virtual standstill, however, Netherland and the Defendants were in a familiar predicament and again looked to Nina as the solution to their problems. 8. To induce Nina to make further investments and loans to repay Fifth Third, Netherland and the Defendants devised a new scheme. In September 2006 – drawing on an idea originally hatched by Netherland and Fifth Third in or about July 2004 – Netherland and the Defendants conspired to fraudulently induce Nina to release its money from the controlled warehouse fund by touting the prospects of a new structured financial product known as a “No-Collateral Premium Finance Product,” or “No-Collateral PFP.” Netherland and Brody forged ahead – with Fifth Third's knowledge and assistance – falsely representing the “substantial returns” this new product would generate for Nina. 9. As Netherland and the Defendants knew, however, the market for this new product could not legitimately generate the “substantial” returns they had promised to Nina. Fifth Third had worked directly with Netherland and Brody to develop this product and knew, or recklessly disregarded, the fact that the product was flawed. Netherland and the Defendants knew that the only way to earn their projected fees would be to manipulate the value of the collateral securing these premium financing loans, i.e., the underlying insurance policies (the “policy valuation fraud”). Fifth Third was not concerned that the scheme required it to make loans with bad collateral. Like other sub-prime lending schemes, Fifth Third would earn inflated fees upfront, then securitize and pawn off the bad loans long before any problems became apparent. 10. Ultimately, Netherland and Brody, with Fifth Third's knowledge and substantial assistance, fraudulently induced Nina to convert its controlled warehouse facility into a senior secured loan and a small equity investment. That transaction closed in December 2006, with millions of dollars flowing immediately to Netherland, Brody, and Fifth Third. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 2 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... 11. Fifth Third worked with Netherland and Brody to develop and market the promised No-Collateral PFP – known as the “Ultra” program – but did not close a single legitimate Ultra loan. Netherland and Brody only succeeded in closing Ultra transactions because they forged client signatures, ignored loan eligibility criteria, created willfully inaccurate valuations, and because of Fifth Third's willingness to waive loan criteria and sign off on inadequately collateralized loans. By creating the false impression that Ultra was a successful product, Netherland and the Defendants were able to conceal their fraudulent scheme and completely loot the remaining proceeds of Nina's loans and investments. 12. When the truth about illegitimate Ultra loans began to emerge in 2009, Netherland's and Brody's misconduct came under the spotlight, but Fifth Third successfully concealed its extensive role in the policy valuation fraud from Nina. Fifth Third had millions of dollars in Ultra loans outstanding, with little or no collateral to support them because of the policy valuation fraud. But playing the innocent dupe, Fifth Third, with the assistance of a supposedly independent valuation firm, Q Capital, actively concealed the policy valuation fraud from Nina, and fraudulently induced Nina to: (i) subordinate its debts to those of Fifth Third; (ii) make up to $15 million in additional investments to fund Concord's day-to-day operating expenses; and (iii) pay a $1 million fee to third-party Columbus Nova Investments IV, Ltd. (“CNI IV”) as consideration for CNI IV guarantying repayment of Concord's debt (on the illegitimate Ultra loans) to Fifth Third. In particular, Fifth Third misrepresented to Nina that a new No-Collateral PFP, to be marketed as “Ultra Plus,” would allow Concord to earn its way out of the financial troubles caused by Fifth Third's own fraud. It was not until roughly a year later, in 2010, that Nina discovered the truth about Fifth Third's role in the policy valuation fraud. 13. In the second quarter of 2010, shortly after Nina discovered the truth about Fifth Third's misconduct, Nina confronted Fifth Third regarding the policy valuation fraud. Even though Fifth Third acknowledged to Nina that the Ultra portfolio was substantially impaired, and despite various senior Fifth Third employees demanding that Ultra be marked as a charge-off, Fifth Third continued to hide the Ultra losses on its balance sheet from the bank's shareholders and regulators for over a year, before finally acknowledging the impairment. 14. It was not until early in 2012 that Nina uncovered the extent of Fifth Third's misconduct in conspiring with Netherland, Brody, and others to fraudulently induce Nina's release of its controls over the warehouse fund and Nina's subsequent expenditure of $16 million in a futile attempt to resuscitate Concord. 15. Accordingly, Nina brings this action seeking redress from the Defendants for fraud, fraudulent inducement, conspiracy, and aiding and abetting fraud and fraudulent inducement. Jury Demanded Plaintiff Nina Investments, LLC (“Plaintiff or “Nina”), by and through its undersigned attorneys, as and for its complaint against Defendants Fifth Third Bank (“Fifth Third”), Matthew P. Ross (“Ross”), and Ira L. Brody (“Brody”) (collectively, “Defendants”), 1 upon knowledge as to its own actions, and otherwise upon information and belief, hereby alleges as follows: PARTIES 16. Plaintiff Nina Investments, LLC is a limited liability company registered in Delaware. 17. Upon information and belief, Defendant Fifth Third Bank is an Ohio banking corporation with its principal place of business in the State of Ohio. 18. Upon information and belief, Defendant Matthew P. Ross is an individual who resides in the State of Illinois. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 3 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... 19. Upon information and belief, Defendant Ira L. Brody is an individual who resides in the State of New York. JURISDICTION AND VENUE 20. This Court has jurisdiction over this matter pursuant to 735 ILCS 5/2-209(a)(7) because this action arises from the making or performance of contracts substantially connected with the State of Illinois. This Court also has jurisdiction over this matter pursuant to 735 ILCS 5/2-209(a)(2) because many of the fraudulent and otherwise tortious activities alleged herein took place within Cook County and Defendant Ross resides in this County. 21. Venue is proper in Cook County pursuant to 735 ILCS 5/2-101 because Defendant Ross resides in this county and is joined as a defendant in this action in good faith and with probable cause for the purpose of obtaining judgment against him. Venue is also proper in Cook County pursuant to 735 ILCS 5/2-101 because the transactions out of which this action arises, or some part thereof, occurred in Cook County. FACTUAL BACKGROUND I. THE NETHERLAND-ROSS ALLIANCE. 22. Netherland and Ross, the principal architects of the fraud against Nina, have a long and well-established friendship and mutually beneficial business partnership that has proven extremely useful in helping them to achieve their respective goals. 23. The Netherland-Ross partnership started in or about 2001, when they set up a joint venture called Shareholder Liquidity Group. Netherland was a wealthy, top-flight insurance agent from Tennessee, whose success had earned him industry recognition and a lifetime seat at the “Million Dollar Round Table,” a recognition reserved for the biggest life insurance sales producers in the industry. Ross was an ambitious banker, known for being a “cowboy” with no qualms about cutting corners to make a deal. Together, Netherland and Ross forged the perfect financial alliance: Ross “worked” the banking system for Netherland, so that Netherland would enjoy preferential access to the financing he needed to maintain his businesses and extravagant lifestyle, and lax enforcement of loan terms to give him maximum flexibility to delay repayment. Netherland, in turn, guaranteed Ross a substantial commercial and personal banking portfolio – including the portfolios of his friends and connections – to support Ross's rise as a successful banker. 24. Netherland was one of Ross's customers during Ross's unsuccessful stint at the National Bank of Detroit, where Ross was terminated for “misidentif[ying] his role and authority at the bank” and “hiding/manipulating customer information which misled the Bank on the financial health (or lack thereof) of the borrower.” But Ross bounced back. In 2002, he moved on to Fifth Third's Employee Stock Ownership Program (“ESOP”) department. And, as expected, Netherland soon followed with his entire book of business. Netherland became one of Ross's first and most lucrative business accounts at Fifth Third. 25. Ross played an active role in helping Netherland to develop and manage his businesses. For instance, when Netherland used Fifth Third funding to invest in a spa in Tennessee, Ross worked directly with the owners to structure the investment and ensure that Netherland's interests were fully protected. Ross also worked with Netherland to develop a new structured insurance-finance product, which would become a cornerstone of the fraudulent scheme against Nina. Thus, in April 2005, Ross advised Netherland, through a mutual acquaintance, on how to make a success of a forthcoming meeting with senior Fifth Third executives, and assured Netherland that he would “immediately and strongly advocate and support” Netherland's request for financing. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 4 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... II. NETHERLAND NEEDS A BAILOUT. 26. At about the time that Ross joined Fifth Third, Netherland decided to make a foray into the lucrative structured finance market with his own line of insurance-backed securities (“IBS”). Like any other asset-backed security, the value of an IBS, and the source of investor payouts, is the pool of assets that serve as its collateral. In the case of IBS, the pool of assets that serve as the underlying collateral consists of life insurance policies and life annuity contracts. 27. Netherland's insurance finance and securitization business generated aggregate commissions and fees of approximately $60 million between 2003 and early 2004, but the second half of 2004 brought new financial challenges for Netherland. He was a man accustomed to living a lavish lifestyle, but lacked the cash to maintain his spending habits and desperately needed liquidity. It also became increasingly difficult for Netherland to sustain his new business venture. New competitors had entered the IBS market, and the sustainability of the IBS sector was tenuous as regulators scrutinized the propriety of IBS transactions, and called for greater regulation to limit them. 28. In or about June 2004, well aware that the window for IBS arbitrage was closing and desperate to maintain the cash flow necessary to support his extravagant lifestyle, Netherland formed InsCap Management, LLC, which later became Concord Capital Management, LLC (“Concord Management”), to lure an unsuspecting investor into bailing him out. Eventually, Concord Management grew into the multi-tiered family of entities generally known as “Concord.” 29. Netherland also assembled an impressive executive management team with a wide array of insurance, capital markets, and structured-finance experience. This team included: a. Ira L. Brody. Prior to joining Concord as the Managing Director for Government Affairs, Brody was an Executive Director of the New York State Olympic Games Commission. His previous experience included serving in the administration of Governor George Pataki and serving as an Acting Assistant Commissioner for Mayor Rudolph Giuliani. b. Jamshid Ehsani. Ehsani spent 10 years at the World Bank where he held various positions including a position as Principal Financial Officer responsible for the Bank's activities in the derivatives markets and its multi-billion dollar global borrowing programs. Ehsani was also Global Head, Strategic Solutions Group for Merrill Lynch responsible for more than $1 billion in revenue in North America, Europe and Japan, the President and CEO of Marsh McLennan Securities and MMC Enterprise Risk Management, managing a team of more than 200 brokers and financial representatives worldwide, and Head of the UBS Insurance Agency, responsible for UBS structural insurance business and its $1 billion premium finance program. c. Harish Raghavan. Raghavan was previously the Global Head of the Structured Products and Strategic Solutions Group for UBS's Investment Bank. d. Rene Stuifzand. Stuifzand had 15 years of experience at ING, originally as Head of Capital Markets, and later as CEO and President of ING Finance LLC while holding the post of Vice-Chairman of ING's International Private Bank. Rene also served as CEO of ING Furman Selz, a 650-employee investment bank. e. Robert Thompson. Thompson served as Vice President with UBS Financial Services, Group Head of the CIBC World Markets Special Transactions Group, and Vice President at Salomon Smith Barney. 30. By late 2004, Netherland's lavish lifestyle and grand business schemes resulted in him accumulating an insurmountable amount of personal debt, including $6.5 million owed to Fifth Third. Fifth Third had extended Netherland a line of credit for the insurance finance and securitization business and a personal loan secured by his real estate assets, but neither of these facilities was sufficient to keep Netherland's business afloat. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 5 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... 31. At the same time, Ross's superiors at Fifth Third pressured him to contribute more to Fifth Third's bottom line. As Ross's senior manager, Joseph Gaffigan, put it, Ross needed to do “whatever it takes to get the deal done,” and show that his team could “hit the numbers month in and month out.” 32. Ross wanted to establish and lead his own structured insurance-finance group at Fifth Third, but could not do so without demonstrating sufficient returns. To accomplish this, Ross needed more new business and better performance from his existing clients. But Netherland's portfolio was proving difficult to manage. Senior executives at Fifth Third, such as Neil Prendergast, Brett Mook, and Mike Spitler, often complained about the loans to Netherland and questioned why Netherland continually defaulted on his loans. Fortunately for Netherland, these executives were content to ignore any red flags as Fifth Third continued to earn interest and fees on Netherland's regularly-overdrawn accounts. Nevertheless, Ross was eager to find a solution to his friend's financial problems, and the solution was simple: Netherland needed a bailout. III. NINA'S INITIAL INVESTMENT IN NETHERLAND'S FLEDGLING BUSINESS. 33. Towards the end of 2004, Netherland and Fifth Third put out feelers to find a “deep pocket” private investor. Their efforts led to Netherland's meeting with Nina, and discussions about a possible investment in Netherland's IBS business. 34. Netherland and Brody made a very attractive pitch to Nina's representatives, Jason Epstein, Andrew Intrater, and Michael Sloan (“Nina's representatives”), for an investment in the IBS business. According to an April 2005 private placement memorandum Netherland and Brody submitted in connection with the proposed investment, the IBS business was expected to generate a “cash return on equity of at least 15% per year … generated primarily by fees and policy payments rather than by leverage.” 35. What Netherland and Brody knowingly concealed, however – and what Nina did not know – was that the profitability of the IBS business was dwindling rapidly. As described above, the IBS sector had come under increasing scrutiny. Earlier successes in the IBS industry had exploited an arbitrage opportunity arising from the under-pricing of insurance policies by insurers. However, as soon as insurers realized that investors were profiting from this pricing anomaly, they took action to close the gap. Regulatory changes also narrowed the profitability of the IBS sector, as regulators imposed more limits on the origination of life insurance policies by investors and third parties. 36. When Netherland and Nina started talking in late 2004, the profitability of the IBS sector was marginal and diminishing quickly, a fact that would only have been understood by someone with substantial expertise in structured insurance-finance products. Netherland, who had substantial background and experience in the insurance industry, knew that the IBS sector was all but dead, but persuaded Nina that it would gain a “first-mover” advantage and superior returns by investing in Concord's IBS business. 37. The impressive array of management, insurance industry, and capital markets expertise that Netherland had assembled at Concord gave Netherland's promises precisely the air of legitimacy needed to convince Nina to invest. Nina was also persuaded by the fact that Fifth Third stood side by side with Netherland, financing Netherland's insurance finance and securitization business, thereby giving Nina the false impression that the IBS business was an investment capable of generating the returns promised by Netherland. Fifth Third was privy to the negotiations with Nina and well aware that the window for successful IBS transactions was quickly closing. Just two months before the Nina investment closed, Ross traded emails with Netherland about the regulatory changes that would spell the demise of this business. Yet Fifth Third actively encouraged Netherland to pursue the deal with Nina based on the purported profitability of the IBS business. Nina was exactly the target that Netherland and Fifth Third needed. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 6 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... 38. By March 2005, Netherland and the Defendants had succeeded. Nina agreed to provide substantial financing for the IBS business, and also agreed to make a limited direct investment in Concord Management to facilitate the successful management of the IBS business. Nina conditioned its IBS investment on Concord establishing a separate “warehouse” fund that would be subject to specific stringent controls designed to limit Nina's financial risk. The most important of these controls – typical for warehouse fund transactions – ensured that funds from the warehouse could be used only for the business purposes specified by Nina. 39. Nina's initial investment closed in April 2005 and comprised two distinct parts. First. Nina agreed to set up a warehouse fund of $75 million for future IBS transactions (the “Warehouse Fund”) by investing in a separate entity, InsCap Partners, LLC, later renamed Concord Partners, LLC. Under the Subscription Agreement and an Amended and Restated LLC Agreement governing the Warehouse Fund, both dated as of April 7, 2005, Concord was only permitted to use the Warehouse Fund for specified purposes. The “Approved Activities” for the Warehouse Fund consisted solely of “insurance investment activities,” which were summarized in the Fund's Private Placement Memo as follows: “(i) Insurance Backed Securities, (ii) the Capital Markets functions attendant to Insurance Backed Securities, (iii) Premium Finance opportunities, (iv) Settlement opportunities, (v) Creation of New Financial Structures, and (vi) Geographical Market expansion.” The Warehouse Fund had other specific controls to limit use of the facility for these specified purposes. 40. Second, Nina agreed to invest $6.65 million as equity in Concord. As a result of this investment, Nina held an 11.67% non-voting interest in Concord with certain distribution preferences, but Nina did not undertake any day-today involvement in Concord's business activities. 41. With Nina's investment, Netherland was finally able to repay his personal debt to Fifth Third, and pay down the Concord line of credit, which gave Netherland and Brody some breathing room. IV. NETHERLAND AND THE DEFENDANTS SEEK ANOTHER BAILOUT FROM NINA. 42. Despite promising Nina “substantial returns” on its investment, attempts at expanding the IBS business failed. Netherland and Brody closed a handful of IBS deals, but came nowhere close to generating the kind of revenue promised to Nina. 43. In the meantime, Netherland and Brody continued to rack up millions of dollars in debt to fund their lavish lifestyles, including debts for private jets, spa vacations, box seats to sporting events, and private school tuition. According to a complaint filed by Fifth Third in this Court, captioned Fifth Third Bank v. Concord Capital Management, LLC, Case No. 2010 L 006868 (Circuit Court, Cook Cty., Illinois) (the “Illinois Complaint”), Fifth Third extended a $5 million line of credit for the IBS business in May 2005. Within approximately two months, Netherland and Brody caused this line to be drawn down by $4.7 million. (Illinois Complaint ¶ 71.) Fifth Third subsequently approved two increases in the line of credit – one in December 2005 and one in April 2006 – bringing the total line to $7.5 million. Netherland and Brody again caused the entire amount to be drawn within ten days of Fifth Third's extending this additional credit. (Illinois Complaint ¶ 72.) 44. Fifth Third executives frequently questioned Netherland's and Brody's cash flow and ability to repay their debts, but continued to bend over backwards to accommodate their requests, doing nothing to stop the flow of funds, because Fifth Third continued to earn substantial fees from the relationship. For instance, in a March 31, 2006 email, Mook stated that he was “still trying to get [his] arms around understanding why [Concord] needs more money.” On April 3, 2006, Spitler responded that he “[did] not understand why they need it” and that he was “not getting a strieght [sic] answer as to why.” Despite these concerns, Fifth Third continued to approve the extension of additional credit. In September 2006, Mook again expressed his concerns: “I know we are covered with collateral but why do we continue to need extensions here?” © 2018 Thomson Reuters. No claim to original U.S. Government Works. 7 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... 45. Fifth Third continued to knowingly and consciously disregard the red flags for years. In March 2008, Mook complained, “these guys all have to find a way to tighten up their controls and stay off these bad boy lists.” And in September 2008, Mook again voiced concern: “These guys have to find a way to stay off the ‘something is wrong’ lists.” In November 2008, Mook came closer to the truth when he wrote: “Having them serially on exception lists screams incompetence or indifference and it is beginning to look like ours more than theirs.” 46. Despite the warning signs, Ross, Mook, Spitler, and others continued to rubberstamp Netherland's and Brody's requests. As long as any shortfall could be covered by a third party like Nina, Fifth Third senior executives like Spitler and Mook, who were charged with managing Fifth Third's credit risks, knowingly turned a blind eye to every red flag – even ignoring Fifth Third's internal financial controls and procedures – to approve Netherland's and Brody's requests and maintain their revenue stream from fee income. 47. Thus, in a March 23, 2006 email, Ross articulated Fifth Third's expectation that Nina would ensure the repayment of any debts owed to Fifth Third: Just got out of my meeting with Mike [Spitler] and Neil [Prendergast]. I sold my soul for the following: 1. Increase the InsCap line to $7.5MM.... I will need a signed term sheet from CN [Nina] before I fund and a stipulation that when the money comes in, it will first go to paying me down to $0 and then to pay off shareholder notes. I am also going to need to get some sort of comfort that 5/3 is going to get some of the balances when the cash in InsCap Partners goes away and is transferred into the new Risk Fund (let's talk about this when you get back). 2. To get some breathing room from a timing perspective. [sic] I am going to move the expiry of the facility to June 30. This will give you guys some time to complete the Columbus Nova [Nina] … deal[] .... 48. By May 2006, Netherland's and Brody's financial misdeeds had created significant shortfalls in Concord's operating accounts. Netherland and Brody were under pressure – again – to pay down their debt, which was spiraling out of control. Ross was concerned too. On May 11, 2006, Ross communicated his concerns in an email to Netherland, Brody, and other Concord executives: Gentlemen: I want to schedule a meeting in NYC with my boss (Neil) and our chief credit officer (Mike Spitler) to go over where you guys are, what progress you have made YTD, and what we can expect going forward. Mike is extremely nervous about this credit, as you guys have not met financial projections and we are full up on the line when we expected to be paid out and you flush with cash already. Needless to say, both Neil I [sic] have taken a ton of heat on this and, due to our team's restructuring, your relationship is about to get a whole lot more visibility than any of us want right now. I need to get Mike back on the reservation, otherwise increasing your line to $10MM will be out of the question. (emphasis added). 49. Netherland and Brody knew – just as Fifth Third did – that without a major cash infusion, there was no way that Netherland and Brody's debts to Fifth Third, including enormous amounts of personal debt, would be repaid. Once again, Netherland and Brody needed a bailout. V. NINA IS FRAUDULENTLY INDUCED INTO RELEASING CONTROL OVER THE WAREHOUSE FUND. 50. Fifth Third, Netherland, and Brody understood and agreed that Nina was the solution to their collective problems. As Ross explained in an email to Netherland's management team: “I need you guys to convince CN [Nina] that getting Ed [Netherland] enough money to clear his loan to us or at least give him some cash and release his residuals so that I © 2018 Thomson Reuters. No claim to original U.S. Government Works. 8 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... could lend the deficiency against them would be in the best interest of [Concord].” Fifth Third knew and intended that Netherland and Brody would execute this directive, and induce Nina to make additional funds available to pay down their debts to Fifth Third. 51. At Fifth Third's urging, and with Fifth Third's knowledge and substantial assistance, Netherland and Brody concocted a scheme to siphon additional funds from Nina. The $75 million Warehouse Fund that Nina had established was mostly untapped, principally because Netherland and Brody – despite their representations – had failed to make significant inroads with the IBS business. If Nina gave up its strict control over the Warehouse Fund, and released that money into Concord's operating accounts, Concord, Netherland, and Brody would have enough money to pay down their debts to Fifth Third. 52. To pique Nina's interest, Netherland and Brody touted a new class of insurance-finance products known generically as “policy value premium-finance” loans. Unlike traditional premium-finance loans – where the cash surrender value of the underlying policy and letters of credit served as collateral – these “policy value” products were collateralized solely by the market value of the underlying policies. 53. The “new” product touted by Netherland and Brody had been in the pipeline for several years. Fifth Third had been working with Netherland on this product from approximately July 2004. In an email forwarding information about a premium-financing deal Fifth Third had recently rejected, Ross explained that he and Netherland still had to work on the structure of the deal and the pitch to Fifth Third's credit officers: I wanted to forward the following segment from a series of emails that was floating around here regarding the “financing of life premiums” … as it provides some insight to how our credit people in Cincinnati view deals where a) there is no source of repayment other than death; b) there is no ancillary business available to the bank; and c) the bank is “funding” capital utilized to make payments on the loan.... Although this is significantly different from our transaction, the fact that Cincinnati has already shat on it has resulting [sic] evaporating [sic] any chance that our chief credit officer in Chicago approving our deal without some form of guidance from Cincinnati.... [W]e are going to have to patch up as many holes in the model as financially possible .... The more “bulletproof” the deal is the better chance we have of them not saying “NO”. 54. Fifth Third and Netherland knew that this new premium-financing product was unlikely to pass muster unless the premium-finance loans were secured by a source of repayment other than the underlying collateral (the life insurance policy). With an outside investor – like Nina – this problem would be resolved. 55. In pitches to Nina's representatives, Netherland, Brody, and their executive team hyped the “No-Collateral PFP” as part of a new generation of structured financial products capable of generating substantial revenue. Thus, in June 2006 (and again on August 24, 2006), Netherland, Brody, and their executive team caused a presentation to be made to Nina's representatives – which copied the very structure Fifth Third had proposed in July 2004 – that devoted an entire section, with numerous slides, to Concord's new “Structured Premium Finance” offerings, or the No-Collateral PFP. According to the June 2006 presentation, the No-Collateral PFP offered investors “a unique opportunity to capture equity-like returns on exposure to high grade credit (AA- or better) insurance companies that are not otherwise available in the capital markets.” 56. Netherland and Brody falsely represented that the proposed structure of this new product, combined with their existing premium-finance platform and license structure, would: • allow size and scale in execution, which was not otherwise available in the life settlement market; © 2018 Thomson Reuters. No claim to original U.S. Government Works. 9 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... • be developed with the assistance of top securities and insurance law firms and would require the implementation of a detailed Consent and Acknowledgement process, thereby providing a high degree of comfort to insureds, carriers, and investors; • provide for investment diversification in a new mortality-related asset class, generally not correlated to traditional capital markets' instruments, and specifically as to duration, not correlated to interest rates; and • provide the opportunity to rapidly develop a significant portfolio of collateral due to widespread acceptance of premium finance in the insurance and consumer marketplace. 57. Netherland and Brody also falsely represented that Concord would earn annual gross fees and commissions of $30-$90 million based on $300 million to $1.1 billion in life insurance policies over at least three years from this new product, a very attractive business opportunity for any investor. These projections were based on the assumption that fees would fall within a range of 1.5% to 3% of the face value of the underlying insurance policies. These fees seemed reasonable, particularly when Netherland's highly credentialed management team endorsed the product. In addition, Fifth Third's participation in developing the product and its willingness to finance the program unequivocally indicated its endorsement of the product and its conclusion that this was a sound investment. 58. What Netherland and the Defendants failed to disclose to Nina was that the “holes in the model” had not been patched up, and the effective fee that would be charged in each case – i e, the fees they would have to charge to meet their revenue projections – would be closer to (and in some cases would exceed) 30% of the loan amount on each premium financing transaction. At the time, Netherland and the Defendants knew that a No-Collateral PFP could not legitimately generate the projected fees touted in the June and August presentations to Nina. The only way to generate the projected fees was to manipulate the value of the collateral (the underlying insurance policy) supporting the loan, i.e, the higher the apparent policy value, the larger the loan that could be made, and thus the higher the fees that could be charged. 59. Nevertheless, Netherland and Brody continued to tout the No-Collateral PFP as a sound investment, with Fifth Third urging them to do so, based on the purportedly lucrative prospects of the No-Collateral PFP, so that Netherland and Brody could pay down their debts to Fifth Third. 60. In addition to misrepresenting the revenue prospects of the No-Collateral PFP, Netherland and Brody misrepresented the volume of transactions Concord could reasonably expect to achieve in the proposed target market. The target market for the No-Collateral PFP comprised high net-worth individuals with good credit. Individuals in this demographic rarely need or want premium financing, so the likelihood of finding clients with the right credit profile was remote. In addition, the economics of the No-Collateral PFP required the insured (the borrower) to have a life expectancy between 2 and 12.5 years, which would further limit the size of the target market for this new product. In other words, the likelihood of successfully marketing the No-Collateral PFP to the target market was slim, which further diminished any chances of the No-Collateral PFP successfully generating the projected revenue. Again, Netherland and Brody continued to tout the No-Collateral PFP as a worthwhile investment, with Fifth Third urging them to do so, while they were all well aware that the demographic for their product was too small to support the number and size of transactions Netherland and Brody had promised Nina. 61. In short, the extraordinary revenues projected for the No-Collateral PFP were fraudulent, and had been conjured up for the sole purpose of inducing Nina to convert the Warehouse Fund into funds that could be easily accessed and looted by Netherland and Brody, so they could repay their debts to Fifth Third while still maintaining the lavish lifestyles to which they were accustomed. Well aware that the No-Collateral PFP could not legitimately earn its projected fees, Netherland, Brody, and their executive team – with the encouragement, knowledge, and agreement of Fifth Third – continued their aggressive marketing campaign in a “2006 Business Plan” that they presented to Nina's representatives © 2018 Thomson Reuters. No claim to original U.S. Government Works. 10 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... in August 2006. The presentation, which contemplated drawing $22.5 million of Nina's Warehouse Fund investment to pay off existing business debts, explicitly discussed “No/Partial Collateral Premium Finance.” The presentation also represented that a large insured pool with $4 billion in insurable capacity was “ready to get insured,” and that Netherland, Brody, and their executive team were “working with Lehman on financing.” 62. In addition to misrepresenting the potential revenues and market for the No-Collateral PFP, Netherland, Brody, and their executive team exploited a draft term sheet proposing a direct investment in Concord by Deutsche Bank to help induce Nina into converting the Warehouse Fund. According to the draft term sheet, Deutsche Bank would invest $55 million in Concord Management to expand existing product lines and market the new No-Collateral PFP. Under this proposal, $25 million of Deutsche Bank's $55 million investment would be used to pay off existing business debts, much of which – unbeknownst to Nina – had been incurred by Netherland and Brody for illegitimate purposes, and an additional $5 million for liquidity and general corporate purposes. 63. Netherland, Brody, and their team of executives misrepresented the Deutsche Bank term sheet to bolster their own credibility, using it as evidence that a leading international bank had recognized the value of, and was prepared to invest in, the new No-Collateral PFP. In reality, the contemplated Deutsche Bank investment – which never closed – was based largely on other components of Concord's business. This fact, too, was concealed from Nina. 64. The misrepresentations about the No-Collateral PFP accomplished Netherland and the Defendants' intended purpose. Unaware that Netherland and Brody had misrepresented both the potential returns from the No-Collateral PFP and the viability of attracting the right clients for this new product, and unaware that Fifth Third was aware of and actively encouraging those misrepresentations, Nina agreed to convert the Warehouse Fund into a series of senior secured loans to Concord – secured by Concord's assets – and a limited equity investment in Concord. In doing so, Nina gave up most of the protections of the warehouse funding arrangement, including the stringent control it had over the purposes for which its money could be used. 65. If Nina had known the truth about the No-Collateral PFP, including that there was no way to legitimately earn the projected fees and that there was no way to feasibly reach the targeted volume of transactions to support the earnings promised to Nina, it would not have agreed to convert its Warehouse Fund into a secured loan, let alone make an additional equity investment. 66. In September 2006, Nina signed a term sheet for the restructuring of the Warehouse Fund and its equity investment in Concord. The effect of the September term sheet would be to convert the Warehouse Fund into less restricted funds available for general corporate purposes, all of which were now readily available to Netherland and Brody for their personal benefit. 67. In October 2006, an amendment to the September term sheet resulted in Nina's making an additional $1.5 million bridge loan to Concord. 68. By December 2006, the restructuring of the Warehouse Fund was complete (the “December Conversion”). Following the December Conversion, the money released to Concord's operating accounts was used to immediately pay down the $7.5 million credit line with Fifth Third, as well as an additional $14.8 million in individual liabilities that Netherland had accumulated. 69. As part of the 2006 restructuring transactions, Nina appointed two of its representatives, Michael Sloan and Jason Epstein, to Concord's Board of Directors as outside directors (the “Nina Directors”). The Nina Directors were not involved in Concord's day-to-day operations and management. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 11 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... VI. NETHERLAND AND BRODY FAIL TO CLOSE A SINGLE LEGITIMATE ULTRA LOAN. 70. The No-Collateral PFP transaction, known as the “Ultra” program, closed on September 27, 2007, with a $100 million credit facility from Fifth Third. As a respected bank, subject to strict oversight and regulation, Fifth Third gave Nina the false impression that Netherland and Brody's No-Collateral PFP was a legitimate and sound investment by agreeing to underwrite the “Ultra” program, and by working closely with Netherland and Brody to structure, develop, and market Ultra. Well aware of the flaws in the new product, however, Fifth Third was careful to limit its own exposure to Ultra, by: (i) obtaining indemnities from Concord for losses sustained in connection with any loans that failed to conform to stringent underwriting requirements, (ii) retaining the option to “put” any non-conforming loans back to Concord, and (iii) making arrangements to securitize and sell off the Ultra loan portfolio, thus pawning off any exposure it had to Ultra on an unsuspecting market. 71. Because there was no legitimate way to sustain the excessive fees promised to Nina while also providing adequately for repayment of the premium-financing loan and payment of the death benefit, the only way for Ultra to generate any revenue was for Netherland and Brody to manipulate the purported market value of the underlying insurance policies, so that each policy appeared to be sufficiently collateralized to support the required premium repayments and fees. Fifth Third regularly approved and benefited from these illegitimate transactions, earning approximately $10 million in fees from Ultra, safe in the knowledge that any exposure it did not pawn off in a securitization (earning Fifth Third even more fees as originator) would be offset by Fifth Third's right to “put” non-compliant or under-collateralized loans back to Concord under the Ultra transaction documents. In short, Fifth Third would not be left “holding the bag” when the economic realities of Ultra emerged. VII. ILLEGITIMATE LOANS AND LOOTING AT CONCORD ARE EXPOSED, BUT FIFTH THIRD MANAGES TO CONCEAL ITS INVOLVEMENT. 72. Brody resigned, as of December 31, 2008, to pursue a position as Treasurer for the State of Tennessee. After Brody left, information about numerous acts of looting and illegitimate Ultra loans began to emerge. 73. The Nina Directors – who were not involved in the day-to-day management of Concord's affairs – caused Concord's Board of Directors to form a special investigation committee and to retain the law firm of Skadden, Arps, Slate, Meagher & Flom (“Skadden”), which prepared a report detailing Netherland's and Brody's misconduct in charging unauthorized fees and/or commissions on Ultra loans. Skadden was hired to investigate the illegitimate Ultra loans, but Skadden did not uncover Fifth Third's central role in approving the illegitimate Ultra loans and fraudulent fees, or its role in facilitating the underlying policy valuation fraud. 74. Once Skadden's investigation was complete, the Nina Directors enlisted Skadden's assistance in reporting the illegitimate Ultra loans and unauthorized fees, and the outcome of Skadden's investigation, to state regulators. 75. Fifth Third concealed its role in facilitating the illegitimate Ultra loans, and fraudulent Ultra fees, from Nina. Worse still, in internal memoranda, Fifth Third senior executives admitted that they knew about the illegitimate Ultra loans and policy valuation fraud, but in the face of numerous red flags and warning signs, did nothing. 76. Fifth Third commissioned Q Capital to assist in concealing its role in the fraud. In or about early March 2009, Q Capital provided Fifth Third with a valuation – based solely on market-based metrics – that showed the Ultra portfolio was severely under-collateralized. With Q Capital's knowing and substantial assistance, Fifth Third deliberately concealed that valuation from Nina. To carry out this cover-up, Fifth Third directed Q Capital to change its valuation of the Ultra portfolio, and to use non-market-based metrics to conceal the true value of the Ultra portfolio. Q Capital readily complied, despite knowing that a valuation based on those metrics had no utility and could not be relied upon © 2018 Thomson Reuters. No claim to original U.S. Government Works. 12 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... to provide a fair estimate of the value of the Ultra loans. On or about March 24, 2009, after an in-person meeting with Ross, Bob Finley, a Senior Vice President at Fifth Third Bank, Andrew Jones, an Assistant Vice President, and Clayton Bruce, also an Assistant Vice President at Fifth Third Bank, Q Capital capitulated on its valuation – exactly as Fifth Third had directed – and produced a new report. This second valuation, provided just hours after Q Capital's meeting with Fifth Third, showed all the loans in the Ultra portfolio as fully collateralized. As a result, to Nina it appeared that Ultra was still a fundamentally profitable business that could be replicated, and that Concord would thrive if premium finance loans could be funded under a rebranded version of Ultra. 77. The unauthorized Ultra fees and willfully inaccurate valuations had resulted in several wholly illegitimate loans – $19.5 million worth – that Fifth Third would need to “put” back to Concord. Fifth Third knew that Concord was a sinking ship that would likely go out of business. Because Fifth Third had failed to securitize the Ultra loans before the illegitimate loans were exposed, Fifth Third knew that it would lose $19.5 million on the Ultra loans if it did not reel Nina in to cover its losses. To that end, Fifth Third insisted that Concord take a loan for the $19.5 million it owed on the non-compliant Ultra loans and demanded that Nina, or another cash-rich affiliate, guarantee Concord's indebtedness to Fifth Third. 78. To keep Concord afloat long enough for this fraudulent scheme to succeed, Fifth Third demanded that Nina: (a) continue fronting Concord's operating expenses, (b) induce a cash-rich third party, CNI IV, to guaranty repayment of Concord's $19.5 million debt to Fifth Third, which required Nina to pay CNI IV $1 million; and (c) refrain from foreclosing on its collateral (i e., Concord's assets). 79. Thus, from early 2009 onwards, Fifth Third knowingly and actively concealed its role in the policy valuation fraud, and repeatedly misrepresented to Nina's representatives that Concord could earn its way out — i e, generate enough revenues to pay back the fraudulent fees and then start generating real profits – if Concord and Fifth Third structured a new credit facility (“Ultra Plus”), and that Fifth Third was negotiating in good faith to extend to Concord a new $50-$100 million facility to fund this new and improved premium finance loan program. What Fifth Third failed to disclose to Nina was that Ultra, and therefore the promised return on Ultra Plus, was a sham because of the Ultra policy valuation fraud, which had yet to be discovered by Nina (i.e, the manipulation of valuations and waiver of underwriting requirements), and that Fifth Third was not, and had no intention of, providing the required financing. Accordingly, Nina was unaware that lending opportunities would be negligible or non-existent under Ultra Plus when the facility requirements were actually followed. 80. To maintain the appearance that Ultra was fundamentally sound, Fifth Third continued to approve and fund Ultra deals that did not meet loan requirements during the first few months of 2009. 81. As a result, to Nina it appeared that there was still a fundamentally profitable business that could be replicated, and that Concord would thrive if premium finance loans could be funded under Ultra Plus, thus inducing Nina to spend millions more to keep afloat what looked like a profitable business venture. In the absence of Fifth Third's misrepresentations, Nina would have discovered that Ultra was a sham in at least the first quarter of 2009. Instead, Nina remained unaware of the policy valuation fraud until the first quarter of 2010, when Fifth Third's role in approving the fraudulent Ultra loans came to light. If Nina had been aware of the policy valuation fraud in 2009, it would have taken immediate steps to mitigate its losses, first by terminating any additional lending to Concord, and then by exercising its rights with respect to the collateral securing its loans, including Concord's lucrative asset management business. By concealing the policy valuation fraud, and its role in waiving loan criteria and signing off on inadequately collateralized loans, Fifth Third decimated Nina's collateral, induced Nina to plow millions more into Concord, and induced Nina to pay for a third party guaranty. 82. Well aware that Ultra Plus would not make money (legitimately), Fifth Third nevertheless established a new $35 million facility for Concord in September 2009. Not one loan was approved or funded under Ultra Plus. Even if Concord © 2018 Thomson Reuters. No claim to original U.S. Government Works. 13 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... had used the entire facility to originate legitimate Ultra Plus loans, it would have been impossible for Concord to earn its way out; it could not generate $19.5 million in fees from making $35 million worth of loans. VIII. NINA UNCOVERS FIFTH THIRD'S ROLE WHILE FIFTH THIRD CONCEALS ITS LOSSES FROM ITS SHAREHOLDERS. 83. In early 2010, an outside consultant hired by Nina's management company discovered that Fifth Third had played a central role in the policy valuation fraud. However, it was not until early in 2012, after Concord had pursued its own claims against Fifth Third in New York, that information began to surface about the depth and breadth of the role that Fifth Third played in working in concert with Netherland and Brody to defraud Nina. The central role that Fifth Third played in facilitating and assisting Netherland and Brody's fraudulent scheme against Nina – particularly the senior executives who deliberately turned a blind eye to misconduct in aid of their do “whatever it takes to get the deal done” attitude – is only now being uncovered in its entirety, but was deliberately concealed from Nina until at least 2012. 84. Nina has learned, through documents produced by Fifth Third in 2013, that Fifth Third had been aware of the fraud at Concord as early as 2008. In an August 2010 email to Graeme Jack and Neil Prendergast, Clayton Bruce, an Assistant Vice President of the Insurance Finance Group that Ross helped to establish, admitted that, “[a]s an institution, we knew about these empty trusts back in March 2008.” In fact, Bruce had written a detailed memorandum to Michael Spitler in May 2009 detailing the history of the fraud, “recommend[ing] a detailed investigation into both the fraud perpetrated at InsCap by Ira Brody (and possibly other InsCap employees) as well an [sic] internal investigation into Fifth Third's controls and ethics regarding both the InsCap and LIPF II deals” (emphasis added). By August 2010, Bruce had clearly had enough of senior management's inertia and cover-ups, and, in an email to Alan Carlyle, warned that he “refuse[d] stay [sic] quiet about this deal any longer in any capacity.” By the time Nina discovered Fifth Third's role in the fraud against it, there was no prospect of Nina recovering any part of its multi-million dollar senior secured loan, its equity investment, or the additional millions of dollars it had sunk into Concord over time. 85. In or about the second quarter of 2010, Concord advised Fifth Third that it had uncovered the policy valuation fraud. However, through at least the second quarter of 2011, Fifth Third was still using misleading valuations showing that the majority, if not all, of the Ultra loans were adequately collateralized. Further, Fifth Third continued to report the loans to Concord and the Ultra loans at par in its public financial statements, knowingly hiding losses on these loans from its investors and banking regulators. 86. By the end of 2010, despite a multitude of Fifth Third employees demanding that it do so, Fifth Third still had not properly reported the impairment charges on the Ultra facility and its loans to Concord, thus allowing Fifth Third to continue to hide Ultra and Concord-related losses from its regulators and shareholders. There can be no question that Fifth Third knew the Ultra portfolio was severely under-collateralized. In July 2010, David Dorr at Life-Exchange, Inc., an outside consultant hired by Fifth Third, forwarded to Clayton Bruce an email in which he confronted principals of Life Asset Group (“LAG”), the original Ultra valuation provider, about their role in blatantly manipulating the Ultra policy valuations: The valuations that LAG signed off on are mind blowing. These valuations were used to the detriment of both the borrower and lender. I submit the attached as just one such example … For starters LAG used an 11% IRR when the market was frozen like the Arctic … It looks like you were making the modeling fit to get these loans pushed through … [Gary] and Norm are experts in the secondary market. You guys profited at the expense of the bank and borrowers and you did this with full knowledge that the valuations being relied upon were completely inappropriate … (emphasis added) © 2018 Thomson Reuters. No claim to original U.S. Government Works. 14 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... 87. In the second quarter of 2011, Fifth Third finally liquidated a large proportion of the Ultra portfolio and took an additional $60 million write off against the Ultra loans, as it could no longer hide the massive losses they had been covering up from regulators and investors for the previous two years. IX. THE HARM TO NINA. 88. As set forth below, the fraud orchestrated by Netherland and the Defendants caused Nina to suffer damages of no less than $72 million. All of the damages sought by Nina relate to transactions and obligations that it would have rejected but for the fraudulent misrepresentations by Netherland and the Defendants. Among other things, that harm included -but was not limited to – the following: 89. First, as a result of the December Conversion in 2006, Nina gave up the stringent protections of the warehouse funding structure, lending almost $56 million based on Netherland's and Brody's fraudulent misrepresentations regarding the superior fees that would be generated by Ultra. Unaware that the No-Collateral PFP (Ultra) was a sham, Nina traded the security of the warehouse funding structure for what was represented to Nina as viable, valuable collateral. Nina had no idea that Netherland and Brody's rampant looting and fraud was slowly bleeding Concord dry, and that the Ultra program, as devised by Fifth Third and Netherland, was incapable of generating legitimate revenue. The Ultra fraud effectively decimated Nina's collateral and any chance of repayment. 90. Second, in April 2008, Fifth Third demanded that Nina subordinate more than half of its secured debt to Fifth Third's right to recover on a multi-million-dollar line of credit it had extended to Netherland and Brody. Again, unaware that Ultra was a sham and that Netherland and Brody were continually incurring mountains of debt to Fifth Third with the expectation that it would be repaid by Nina, Nina readily agreed to subordinate the debt owed to it, in the interests of ensuring the continued growth and success of the business in which it had invested. In subordinating its debts to Fifth Third, the initial harm to Nina from the December Conversion was compounded. 91. Third, based on Fifth Third's misrepresentations about the value of the Ultra portfolio, Nina paid $1 million to a third party to provide a guaranty to Fifth Third, paid an additional $15 million in operating and other expenses in a wasted effort to resuscitate and recoup its investment in a business model that appeared to be profitable due to Fifth Third's active concealment of the policy valuation fraud, subordinated the remainder of its outstanding loans to Fifth Third's debt, and was deprived of any opportunity to mitigate its losses. 3 CAUSES OF ACTION COUNT I Fraud/Fraudulent Inducement (Against Brody) 92. Plaintiff repeats and realleges paragraphs 1 through 91 hereof as if fully set forth herein. 93. Between 2005 and 2006, at in-person meetings with and in presentations submitted to Nina's representatives, Brody misrepresented the nature, value, market, and risks associated with (a) the new “No-Collateral PFP” developed by Fifth Third and Netherland, and (b) the premium loan financing product known as “Ultra.” 94. When Brody made his misrepresentations he knew they were false, but he intended for Nina to act on his misrepresentations to secure access to funds he and Netherland could use to pay down their massive debts. In particular, Brody knew that: (a) there was no way in which the No-Collateral PFP could legitimately earn the astronomical fees © 2018 Thomson Reuters. No claim to original U.S. Government Works. 15 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... he had promised Nina because the only way to generate such fees would be to charge illegitimate fees or falsify the underlying collateral (policy) values to support higher fees; (b) there was no way in which the No-Collateral PFP could legitimately earn the astronomical fees he had promised Nina because the demographic of individuals that would qualify for the product was too small to generate the number and size of transactions Brody had promised Nina; (c) Deutsche Bank was not going to invest $55 million in Concord for the purpose of underwriting the No-Collateral PFP Netherland had developed with Fifth Third; and (d) for the same reasons that the No-Collateral PFP could not legitimately earn the astronomical fees promised to Nina, it would be impossible for Ultra to generate the revenues he and Netherland had promised Nina. In short, from the outset, Brody knew that his representations to Nina regarding the projected revenues from the No-Collateral PFP and Ultra were false. 95. At the time that Brody made his misrepresentations to Nina, he knew or should have known that they were false, but intended for Nina to rely and act upon his misrepresentations. Nina reasonably relied on Brody's misrepresentations in converting the money in the Warehouse Fund into a direct loan and equity investment in December 2006, based on: (a) Brody's impressive personal background and experience in high-level positions, and positions of trust, in both the public and private sector; (b) the impressive array of financial and insurance industry expertise that Brody and Netherland commanded at Concord; and (c) Fifth Third's relationship as Concord's principal banker, financing the products marketed by Brody and Netherland, thus giving the impression that Netherland's No-Collateral PFP and Ultra products were legitimate and sound investments. 96. Absent Brody's wholesale misrepresentations regarding the No-Collateral PFP and Ultra, Nina would not have converted the money in the Warehouse Fund into a direct loan and equity investment in December 2006 and would not have funded an additional $15 million of Concord's day-to-day operating expenses or a $1 million payment for a third party guaranty of Concord's indebtedness to Fifth Third, after certain aspects of Brody's and Netherland's fraudulent misconduct were exposed. 97. As a result, Nina was unable to recover on its loans and lost the entirety of its approximately $72 million investment. 98. By reason of the foregoing, Nina has been damaged and is entitled to compensatory damages, in an amount of at least $72 million, to be determined at trial, as well as punitive damages, in an amount of at least $72 million, to be determined at trial. COUNT II Aiding and Abetting Fraud/Fraudulent Inducement (Fifth Third and Ross) 99. Plaintiff repeats and realleges paragraphs 1 through 98 hereof as if fully set forth herein. 100. As set forth in the preceding paragraphs, Fifth Third and Ross aided and abetted Netherland, Brody, and others in fraudulently inducing Nina to: (a) convert the money in the Warehouse Fund into a direct loan and equity investment in December 2006, and (b) fund an additional $15 million of Concord's day-to-day operating expenses, as well as the payment of an additional $1 million for a third party guaranty of Concord's indebtedness to Fifth Third, after certain portions of Netherland and Brody's fraudulent scheme were exposed. The December Conversion 101. As set forth above, between 2005 and 2006, Netherland and Brody set out to fraudulently induce Nina to convert the money in the Warehouse Fund into a direct loan and equity investment in December 2006 by intentionally © 2018 Thomson Reuters. No claim to original U.S. Government Works. 16 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... misrepresenting the nature, value, market, and risks associated with the No-Collateral PFP, a new product developed by Fifth Third and Netherland. 102. Fifth Third and Ross knowingly and substantially assisted and facilitated that fraud by: (a) working directly with Netherland and Brody to structure, develop, and market the No-Collateral PFP even though Fifth Third and Ross were well aware that there was no way this product could legitimately earn the astronomical fees promised to Nina, because the only way to generate such fees would be to falsify the underlying collateral (policy) values; (b) directing Netherland and Brody to pursue an investment from Nina, based on the purportedly lucrative prospects of the No-Collateral PFP, so that Netherland and Brody could pay down their debts to Fifth Third, even though Fifth Third and Ross knew that there was no way to legitimately earn the fees Netherland and Brody had promised Nina from this new product; (c) directing Netherland and Brody to pursue an investment from Nina, based on the purportedly lucrative prospects of the No-Collateral PFP, so that Netherland and Brody could pay down their debts to Fifth Third, even though Fifth Third and Ross knew that the demographic that qualified for the product was too small to generate the number and size of transactions Netherland and Brody had promised Nina; (d) underwriting the “Ultra” program, thereby giving the impression that the No-Collateral PFP was a legitimate and sound investment; and (e) approving illegitimate “Ultra” loans to give Nina the false impression that the No-Collateral PFP was a successful product capable of generating the superior revenues promised to Nina. During this time, Fifth Third and Ross were regularly aware that their assistance in structuring and developing the No-Collateral PFP, and in facilitating and encouraging the December Conversion based on projected revenues from the No-Collateral PFP, was part of an overall scheme to defraud Nina. 103. At all relevant times, Ross acted on behalf of Fifth Third, within the course and scope of his employment, and for the benefit of Fifth Third. Fifth Third made millions of dollars in fees from its relationship with Netherland and Brody, and therefore benefited directly from Netherland and Brody's fraud, and from its own misconduct. Accordingly, Ross's conduct is properly imputed to Fifth Third. 104. In addition, senior Fifth Third executives supervised, reviewed, and approved of Ross's conduct while well aware that Ross's conduct did not comply with internal financial controls and procedures or Ultra's underwriting requirements, which were designed to minimize risk to Fifth Third's shareholders. Time and time again, Fifth Third executives willfully ignored obvious indicia of misconduct on the part of Netherland, Brody, and Ross, to reap the benefit of additional fees. Even if Ross's own conduct were not imputed to Fifth Third, Fifth Third would still be liable for the wrongdoing described herein. 105. By reason of the foregoing, Nina has been damaged and is entitled to compensatory damages, in an amount of at least $72 million, to be determined at trial, as well as punitive damages, in an amount of at least $72 million, to be determined at trial. COUNT III Conspiring to Commit Fraud/Fraudulent Inducement (Fifth Third, Ross, and Brody) 106. Plaintiff repeats and realleges paragraphs 1 through 105 hereof as if fully set forth herein. 107. Brody, Fifth Third, and Ross knowingly joined in a conspiracy with Netherland that had the objective of defrauding Nina. At all times during the conspiracy, Brody, Fifth Third, and Ross understood the objective of the conspiracy and accepted its aim: Brody, as the architect of the underlying fraud, and Fifth Third, who provided assistance and guidance, agreed to target Nina as a “deep pocket” that could provide funds that could not be legitimately earned. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 17 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... 108. As set forth in the preceding paragraphs, Brody, Fifth Third, and Ross conspired with Netherland and others in fraudulently inducing Nina to: (a) convert the money in the Warehouse Fund into a direct loan and equity investment in December 2006, and (b) fund an additional $15 million of Concord's day-to-day operating expenses, as well as the payment of an additional $1 million for a third party guaranty of Concord's indebtedness to Fifth Third, after certain aspects of Netherland's and Brody's fraudulent misconduct were exposed. The December Conversion 109. As set forth above, between 2005 and 2006, Netherland and Brody set out to fraudulently induce Nina to convert the money in the Warehouse Fund into a direct loan and equity investment in December 2006 by intentionally misrepresenting the nature, value, market, and risks associated with the No-Collateral PFP, a new product developed by Fifth Third and Netherland. Fifth Third and Ross knowingly agreed to work with Netherland and Brody to accomplish that goal. 110. To accomplish their fraudulent purpose, Fifth Third and Ross: (a) worked directly with Netherland and Brody to structure, develop, and market the No-Collateral PFP even though Netherland, Brody, Fifth Third, and Ross were well aware that there was no way this product could legitimately earn the astronomical fees promised to Nina, because the only way to generate such fees would be to falsify the underlying collateral (policy) values; (b) directed Netherland and Brody to pursue an investment from Nina, based on the purportedly lucrative prospects of the No-Collateral PFP, so that Netherland and Brody could pay down their debts to Fifth Third, even though Netherland, Brody, Fifth Third, and Ross knew that there was no way to legitimately earn the fees Netherland and Brody had promised Nina from this new product; (c) directed Netherland and Brody to pursue an investment from Nina, based on the purportedly lucrative prospects of the No-Collateral PFP, so that Netherland and Brody could pay down their debts to Fifth Third, even though Netherland, Brody, Fifth Third, and Ross knew that the demographic that qualified for the product was too small to generate the number and size of transactions Netherland and Brody had promised Nina; (d) underwrote the “Ultra” program, thereby giving the impression that the No-Collateral PFP was a legitimate and sound investment; and (e) approving illegitimate “Ultra” loans to give Nina the false impression that the No-Collateral PFP was a successful product capable of generating the superior revenues promised to Nina. During this time, Brody, Fifth Third, and Ross were regularly aware that their assistance in structuring and developing the No-Collateral PFP, and in facilitating and encouraging the December Conversion based on projected revenues from the No-Collateral PFP, were part of an overall scheme to defraud Nina. 111. At all relevant times, Ross acted on behalf of Fifth Third, within the course and scope of his employment, and for the benefit of Fifth Third. Fifth Third made millions of dollars in fees from its relationship with Netherland and Brody, and therefore benefited directly from Netherland's and Brody's fraud, and from its own misconduct. Accordingly, Ross's conduct is properly imputed to Fifth Third. 112. In addition, senior Fifth Third executives supervised, reviewed, and approved of Ross's conduct while well aware that Ross's conduct did not comply with internal financial controls and procedures, or Ultra's underwriting requirements, which were designed to minimize risk to Fifth Third's shareholders. Time and time again, Fifth Third executives willfully ignored obvious indicia of misconduct on the part of Netherland, Brody, and Ross to reap the benefit of additional fees. Even if Ross's own conduct were not imputed to Fifth Third, Fifth Third would still be liable for the wrongdoing described herein. 113. By reason of the foregoing, Nina has been damaged and is entitled to compensatory damages, in an amount of at least $72 million, to be determined at trial, as well as punitive damages, in an amount of at least $72 million, to be determined at trial. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 18 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... COUNT IV Fraud/Fraudulent Inducement (Fifth Third and Ross) 114. Plaintiff repeats and realleges paragraphs 1 through 113 hereof as if fully set forth herein. 115. Between 2009 and 2010, at in-person meetings, on telephone calls, and in written communications with Nina's representatives, Ross, on behalf of Fifth Third, misrepresented: (a) Fifth Third's knowledge of, and role in facilitating, Netherland and Brody's fraud in connection with the December Conversion; and (b) Fifth Third's good faith intention to establish a new premium financing loan facility, for at least $50-100 million, to facilitate repayment of Concord's $19 5 million indebtedness to Fifth Third, while well aware that senior executives at Fifth Third already had expressed their intention to recoup the entirety of Concord's indebtedness through a third party guaranty secured by Nina, rather than by seeking repayment directly from Concord, which they understood was not possible. 116. At the time Ross, on behalf of Fifth Third, made these misrepresentations to Nina, Ross knew that they were false, but intended for Nina to act on those misrepresentations and (a) secure the third party guaranty of a cash-rich affiliate to pay off Concord's $19.5 million debt to Fifth Third; and (b) continue funding Concord's operations long enough for Fifth Third to recover on the $19.5 million loan to Concord. 117. Nina reasonably relied on Fifth Third's misrepresentations because: (a) Fifth Third is a large and reputable bank subject to strict regulatory oversight and controls; (b) Fifth Third specifically represented that it wanted to work with Nina to assist in resolving Concord's financial problems following the exposure of Netherland and Brody's fraud; and (c) the information that would have exposed Fifth Third's role in facilitating Netherland and Brody's fraud was within Fifth Third's control, and deliberately concealed from Nina. 118. Absent Fifth Third's misrepresentations, Nina would not have plowed an additional $15 million into Concord's operating expenses, nor would it have paid $1 million to secure a third party guarantee for Concord's indebtedness to Fifth Third. 119. By reason of the foregoing, Nina has been damaged and is entitled to compensatory damages, in an amount of at least $16 million, to be determined at trial, as well as punitive damages, in an amount of at least $16 million, to be determined at trial. PRAYER FOR RELIEF WHEREFORE, Plaintiff respectfully demands judgment: A. on the First Cause of Action against Brody, awarding compensatory and punitive damages in amounts to be determined at trial, but at least $72 million and $72 million, respectively; B. on the Second Cause of Action against Fifth Third and Ross, awarding compensatory and punitive damages in amounts to be determined at trial, but at least $72 million and $72 million, respectively; C. on the Third Cause of Action against Fifth Third, Ross, and Brody, awarding compensatory and punitive damages in amounts to be determined at trial, but at least $72 million and $72 million, respectively; © 2018 Thomson Reuters. No claim to original U.S. Government Works. 19 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... D. on the Fourth Cause of Action against Fifth Third and Ross, awarding compensatory and punitive damages in amounts to be determined at trial, but at least $16 million and $16 million, respectively; E. all interest, penalties, and accruing amounts through the date of judgment and thereafter at the maximum postjudgment rate provided for by applicable law; F. costs of suit, including reasonable attorneys' fees and expenses; and G. such other and further relief as the Court deems just and proper. JURY DEMAND Plaintiff demands trial by jury on all counts of this Complaint for which trial by jury is available. Dated: April 3, 2014 Respectfully submitted, NINA INVESTMENTS, LLC By: <> One of its attorneys Marc E. Kasowitz Andrew K. Glenn Jed I. Bergman Shalini Kisten Rajoo KASOWITZ, BENSON, TORRES & FRIEDMAN, LLP 1633 Broadway New York, New York 10019 (212) 506-1700 (212) 506-1800 (fax) Michael Rachlis Kevin B. Duff John E. Murray RACHLIS DUFF ADLER PEEL & KAPLAN, LLC © 2018 Thomson Reuters. No claim to original U.S. Government Works. 20 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2014 WL 12461312... 542 South Dearborn, Suite 900 Chicago, Illinois 60605 (312) 733-3950 (312) 733-3952 (fax) Footnotes “Concord” includes Concord Capital Management, LLC and Concord Partners, LLC. 2 See note 3, infra 1 Nina incorporates by reference the allegations concerning Netherland, Rita Hill, and Q Capital from the Amended Complaint, 3 dated July 22, 2013, as well as the cause of action for fraud/fraudulent inducement asserted against Netherland in Count I, and the cause of action for conspiracy to commit fraud asserted against Q Capital and Hill in Count III, solely for purposes of preserving Nina's right to appeal this Court's January 15, 2014 order dismissing those claims (Netherland being dismissed with prejudice, Q Capital and Hill dismissed without prejudice). End of Document © 2018 Thomson Reuters. No claim to original U.S. Government Works. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 21 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... 2012 WL 2616394 (Ill.Cir.Ct.) (Trial Pleading) Circuit Court of Illinois, County Department, Law Division. Cook County NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD BANK, Matthew P. Ross, Ira L. Brody, Edward H. Netherland, Q Capital Strategies, LLC, and Rita Hill, Defendants. No. 2012-L-007547. July 5, 2012. Jury Demanded Complaint Nina Investments, LLC, One of its attorneys, Marc E. Kasowitz, Andrew K. Glenn, Jed I. Bergman, Shalini Kisten Rajoo, Kasowitz, Benson, Torres & Friedman, LLP, 1633 Broadway, New York, New York 10019, (212) 506-1700, (212) 506-1800 (fax), One of its attorneys, Michael Rachlis, Kevin B. Duff, John E. Murray, Rachlis Durham Duff Adler & Peel, LLC, 542 South Dearborn, Suite 900, Chicago, Illinois 60605, (312) 733-3950, (312) 733-3952 (fax). Plaintiff Nina Investments, LLC (“Plaintiff” or “Nina”), by and through its undersigned attorneys, as and for its complaint against Defendants Fifth Third Bank (“Fifth Third”), Matthew P. Ross (“Ross”), Ira L. Brody (“Brody”), Edward H. Netherland (“Netherland”), Q Capital Strategies, LLC (“Q Capital”), and Rita Hill (“Hill,” and collectively, the “Defendants”), upon knowledge as to its own actions, and otherwise upon information and belief, hereby alleges as follows: PRELIMINARY STATEMENT 1. By this action, plaintiff Nina seeks to recover over $80 million that it was fraudulently induced to invest in the Concord companies through a conspiracy involving rampant looting, bribery, and forgery. 2. At the front and center of this fraudulent scheme are defendants Netherland and Brody (the “Insiders”), who perpetrated this scheme to advance their personal interests, in cahoots with their longtime banker, defendant Fifth Third, and assisted by defendants Q Capital, Hill, and Ross. Based on false representations, these defendants together deceived Nina into handing more than $80 million to the Insiders to keep Concord afloat and help the Insiders pay off the mountain of personal debt they had racked up while living lavish lifestyles. 3. Defendant Netherland, who founded Concord, was a successful entrepreneur with an extensive background in the insurance industry. Like many others at the time, he entered the structured financial products industry with hopes of striking it rich. While he enjoyed some success in this industry with the securitization of insurance-related products (insurance-backed securities, or “IBS”), his extravagant lifestyle far outpaced his income and Netherland soon found himself more than $18 million in debt, $6.5 million owed to defendant Fifth Third. 4. In an effort to attract a large investor -- and therefore a new pool of money that Netherland could use to pay off his debt to Fifth Third -- Netherland assembled a group of executives with impressive resumes hailing from leadership positions at © 2018 Thomson Reuters. No claim to original U.S. Government Works. 1 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... prestigious investment banks and formed the group of companies known as Concord. With this team of industry experts behind him, Netherland set out to reel in an unsuspecting investor based on false promises of the substantial profitability of the IBS industry. At the time, Netherland was well aware that due to changes in industry practice and regulation, the window for successful IBS transactions was quickly closing. Nevertheless, Netherland forged ahead knowing that if he could just find an investor, he could keep his business afloat and continue living the lifestyle to which he had become accustomed. 5. By April 2005, Netherland was able to induce Nina to invest in Concord. Nina made a $6.5 million direct equity investment, and also established a $75 million “warehouse” fund that Netherland (and Brody, who had just recently joined his team) could use, subject to defined lending criteria, to finance new IBS transactions. 6. Immediately upon closing, the entirety of Nina's $6.5 million equity investment went to defendant Fifth Third to repay Netherland's personal pre-Concord debts. And immediately after that repayment, the Insiders racked up still more debt in Concord's name, using Concord's credit line and accounts as their personal piggy bank. Fifth Third had no qualms about continuing to extend credit to the Insiders, even increasing their corporate credit line to $7.5 million, because Fifth Third knew that Netherland had access to a deep pocket: Nina. 7. Within a year, the Insiders had exhausted this new line of credit and -- with the IBS business at a virtual standstill -- found themselves once again deep in debt. At the same time, Fifth Third started to apply pressure on the Insiders to begin repaying their new mountain of debt. 8. With Fifth Third's knowledge and consent, the Insiders devised a new plan to get more money from Nina. In September 2006, they fraudulently induced Nina to release its money from the controlled warehouse fund by touting the prospect of a new structured financial product known variously as “structured,” “no collateral,” “low collateral,” and “collateral free” premium finance, later known as “Ultra.” The Insiders misrepresented the revenue-generating potential of these new products, promising “substantial returns” to Nina, and as much as $30-$90 million annually in gross fees and commissions over at least three years from this new product. 9. As the Insiders -- and Fifth Third -- well understood, however, the market price for this product would never be sufficient to generate the extraordinary returns they had represented to Nina. Indeed, there was no way the Insiders could legitimately earn the fees that they projected on a product of this nature. The Insiders and Fifth Third knew that the only way to earn the exorbitant fees that the Insiders had promised would be to manipulate or falsify the value of the collateral securing these premium financing loans, i.e., the underlying insurance policies (the “Valuation Fraud”). 10. Ultimately, the Insiders, at the direction of Fifth Third executive Ross and with the knowledge of Ross's superiors, induced Nina to convert its controlled warehouse facility into a direct debt-and-equity investment in a transaction that closed in December 2006. With Fifth Third repaid and the Insiders once again flush with cash, they proceeded to develop the promised no-collateral premium financing product known as “Ultra,” which would supposedly generate the enormous profits Nina had been promised. 11. Ultra, however, was nothing more than another sub-prime scheme similar in almost every respect to the sub-prime mortgage schemes that would ultimately lead to the collapse of the real estate markets. Ultra was a sham and corrupt from start to finish. Ultra was incapable of generating the projected fees legitimately, and only succeeded in closing transactions because of fraud, willfully inaccurate valuations, Fifth Third's willingness to waive loan conditions to perpetrate the fraud, and, in some cases, outright forgery. And, while Nina all along was given the false impression that Ultra was generating legitimate revenues, in fact the Insiders and Fifth Third were looting Concord of its illegitimate Ultra fees and destroying its business. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 2 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... 12. When the truth first began to emerge, in 2009, Fifth Third succeeded in concealing its role in the fraud. Playing the role of the innocent dupe, Fifth Third persuaded Nina to make additional investments in Concord, and to agree to another premium-finance facility, known as “Ultra Plus,” which Fifth Third represented to Nina would permit Concord to earn its way out of the financial troubles caused by the Ultra fraud. Defendant Q Capital, a valuation firm, helped Fifth Third perpetrate this fraud by concocting inflated policy valuations to support the myth that Ultra and Ultra Plus could legitimately earn the huge fees that the Insiders had originally promised to Nina. In peddling Ultra Plus as the answer to Concord's problems, Fifth Third was simply seeking a “deep pocket” -- that of Nina's affiliate, CNI Investments IV, Ltd. (“CNI”) -- to guarantee Concord's debt and ensure that Fifth Third could recoup its own losses. Only in 2010 did Nina and its affiliates discover the truth about Fifth Third's role in the Insiders' fraud. 13. In the second quarter of 2010, Nina confronted Fifth Third regarding the Valuation Fraud. Even though Fifth Third acknowledged that the Ultra portfolio was substantially impaired, Fifth Third continued to hide the Ultra losses on its balance sheet from the bank's shareholders and regulators for over a year, until the portfolio was finally liquidated after acknowledging the impairment. 14. Accordingly, Nina brings this action seeking redress from the various co-conspirators for fraud/fraudulent inducement, aiding and abetting fraud/fraudulent inducement, and conspiracy. PARTIES 15. Plaintiff Nina Investments, LLC is a limited liability company registered in Delaware. 16. Upon information and belief, Defendant Fifth Third Bank is an Ohio banking corporation with its principal place of business in the State of Ohio. 17. Upon information and belief, Defendant Q Capital Strategies, LLC is a limited liability company registered in Delaware. 18. Upon information and belief, Defendant Ira Brody is an individual who resides in the State of Tennessee. 19. Upon information and belief, Defendant Rita Hill is an individual who resides in the State of Tennessee. 20. Upon information and belief, Defendant Edward Netherland is an individual who resides in the State of Tennessee. 21. Upon information and belief, Defendant Matthew Ross is an individual who resides in the State of Illinois. JURISDICTION AND VENUE 22. This Court has jurisdiction over this matter pursuant to 735 ILCS 5/2-209(a)(7) because this action arises from the making or performance of contracts substantially connected with the State of Illinois. This Court also has jurisdiction over this matter pursuant to 735 ILCS 5/2-209(a)(2) because many of the fraudulent and otherwise tortious activities alleged herein took place within Cook County and Defendant Ross resides in this County. 23. Venue is proper in Cook County pursuant to 735 ILCS 5/2-101 because Defendant Ross resides in this county and is joined as a defendant in this action in good faith and with probable cause for the purpose of obtaining judgment against him. Venue is also proper in Cook County pursuant to 735 ILCS 5/2-101 because the transactions out of which this action arises, or some part of thereof, occurred in Cook County. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 3 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... FACTUAL BACKGROUND I. NETHERLAND CREATES CONCORD A. Netherland's IBS Business 24. In 2003, Netherland established and became the sole member of Inscap, LLC, a company that eventually grew into a multi-tiered family of entities known generally as “Inscap,” and later, generally, as “Concord.” 25. Netherland had been active in the insurance industry for several years, beginning his career at a family-owned insurance business in Tennessee in 1974. Netherland quickly earned industry-wide recognition as a top-flight insurance agent. 26. Eventually, Netherland branched out of the traditional insurance industry and became involved in the development and sale of a more esoteric class of insurance-related products known as insurance-backed securities (“IBS”). Like any other asset-backed security, the value of an IBS, and the source of investor payouts, is the pool of assets that serve as its collateral. In the case of IBS, the pool of assets that serve as the underlying collateral consists of life insurance policies and life annuity contracts. Some of the IBS products that Netherland was responsible for developing and marketing included Life Insurance and Life Annuity-backed Charitable Securities (“LILACS”), Trust Owned Life Insurance-backed Private Securities (“TULIPS”), and Life Insurance Level Income Equity Securities (“LILIES”). 27. Netherland's IBS business was initially very successful. Between the second half of 2003 and early 2004, he structured, arranged, rated, and priced six IBS transactions that generated aggregate commissions and fees of approximately $60 million. 28. In or about June 2004, Netherland took steps to expand his IBS business and formed Inscap Management, LLC, later known as Concord Capital Management, LLC (“Concord Management”), to serve as the Managing Member of new IBS funds he intended to establish. Initially, Netherland was the sole member of Concord Management, but membership interests were later issued to a number of Concord executives, including defendant Brody. 29. Netherland assembled an impressive executive management team for Concord Management with a wide array of insurance, capital markets, and structured-financial-products experience. This team included: a. Ira L. Brody. Prior to joining Concord as the Managing Director for Government Affairs, Brody was an Executive Director of the New York State Olympic Games Commission. His previous experience included serving in the administration of Governor George Pataki and serving as an Acting Assistant Commissioner for Mayor Rudolph Giuliani. b. Jamshid Ehsani. Ehsani spent 10 years at the World Bank where he held various positions including a position as Principal Financial Officer responsible for the Bank's activities in the derivatives markets and its multi-billion dollar global borrowing programs. Ehsani was also Global Head, Strategic Solutions Group for Merrill Lynch responsible for more than $1 billion in revenue in North America, Europe and Japan, the President and CEO of Marsh McLennan Securities and MMC Enterprise Risk Management, managing a team of more than 200 brokers and financial representatives worldwide, and Head of the UBS Insurance Agency, responsible for UBS structural insurance business and its $1 billion premium finance program. c. Harish Raghavan. Raghavan was previously the Global Head of the Structured Products and Strategic Solutions Group for UBS's Investment Bank. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 4 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... d. Rene Stuifzand. Stuifzand had 15 years of experience at ING, originally as Head of Capital Markets, and later as CEO and President of ING Finance LLC while holding the post of Vice-Chairman of ING's International Private Bank. Rene also served as CEO of ING Furman Selz, a 650-employee investment bank. e. Robert Thompson. Thompson served as Vice President with UBS Financial Services, Group Head of the CIBC World Markets Special Transactions Group, and Vice President at Salomon Smith Barney. B. Nina Invests In Netherland's IBS Business 30. By late 2004, Netherland's lavish lifestyle and grand business schemes caused him to amass a mountain of debt, including $6.5 million owed to defendant Fifth Third. Netherland was anxious to locate a deep pocket to bail him out of debt and keep his business afloat. Netherland's efforts led to a meeting with a representative of Nina and discussions about a possible investment in Concord's IBS business. 31. Netherland's projections for the success of Concord's IBS business were very attractive. According to an April 2005 private placement memorandum that was prepared for a potential transaction with Nina, the IBS business was expected to generate a “cash return on equity of at least 15% per year... generated primarily by fees and policy payments rather than by leverage.” 32. What Netherland concealed, however -- and what Nina did not know -- was that the profitability of the IBS business was dwindling rapidly. Earlier successes in the IBS industry had exploited an arbitrage opportunity arising from the misor under-pricing of insurance policies. As soon as insurance carriers realized that third parties were making money from this pricing anomaly, they took action to close the gap. In addition, regulatory changes would continue to restrict the profitability of the IBS sector as regulators pushed to strengthen the regulations limiting the origination of life insurance policies by investors and third parties. By the time Netherland started to talk to Nina about a possible investment in Concord, late in 2004, the profitability of the IBS sector was marginal, a fact that would only have been understood by someone with substantial expertise in IBS. 33. Netherland had substantial experience in the industry and was well aware of these facts, but misrepresented to Nina that by investing in Concord's IBS business, it would be gaining a “first-mover” advantage in the IBS sector that he proclaimed was still profitable. The impressive array of management, insurance industry, and capital markets expertise that Netherland commanded at Concord Management gave Netherland's promises precisely the air of legitimacy that he needed to reel Nina in. 34. By March 2005, Netherland -- and Brody, who had just joined Concord -- had succeeded in persuading Nina of Concord's IBS prospects. Nina agreed to provide financing for Concord's IBS transactions, and also agreed to make a limited direct investment in Concord Management to facilitate the successful management of the IBS business. Nina conditioned its IBS investment on Concord's establishing a separate “warehouse” fund that would be subject to specific controls designed to limit Nina's financial risk. The most important of these controls -- typical for warehouse fund transactions -- ensured that the warehouse funds could be used only for the business purposes specified by Nina. 35. Nina's initial investment in Concord closed in April 2005. The investment was made in two parts. First, Nina agreed to invest $6.65 million directly in Concord Management, with an option to contribute an additional $3.35 million one year later. As a result of this equity investment, Nina held an 11.67% non-voting interest in Concord Management with certain distribution preferences. While Nina did not have voting rights, two executives from Nina's management company, Michael Sloan and Jason Epstein, were appointed to Concord Management's board as outside directors (the “Nina Directors”). © 2018 Thomson Reuters. No claim to original U.S. Government Works. 5 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... 36. Second, Nina agreed to set up a warehouse fund of $75 million for future IBS transactions (the “Warehouse Fund”) by investing in a separate entity, Inscap Partners, LLC, later renamed Concord Partners, LLC (“Concord Partners”). Under the Subscription Agreement and an Amended and Restated LLC Agreement governing the Warehouse Fund, both dated as of April 7, 2005, Concord was only permitted to use the Warehouse Fund for specified purposes. The “Approved Activities” for the Warehouse Fund consisted of “insurance investment activities,” which were summarized in the Fund's Private Placement Memo as follows: “(i) Insurance Backed Securities, (ii) the Capital Markets functions attendant to Insurance Backed Securities, (iii) Premium Finance opportunities, (iv) Settlement opportunities, (v) Creation of New Financial Structures, and (vi) Geographical Market expansion.” The Warehouse Fund had other specific controls to limit use of the facility for these specified purposes. C. The Insiders Rack Up More Debt 37. Despite Netherland's promise of “substantial returns” on Nina's investment -- and entirely unsurprisingly, given the facts that Netherland knew, but concealed -- attempts at expanding the IBS business failed. Netherland managed to close a handful of IBS deals, but came nowhere close to generating the kind of revenue that he had promised Nina. 38. In the meantime, the Insiders had run up millions of dollars in debt in Concord's name, to keep Concord afloat and to continue funding the extravagant lifestyles to which the Insiders had become accustomed. According to a complaint filed by Fifth Third in Illinois state court captioned Fifth Third Bank v. Concord Capital Management, LLC, Case No. 2010 L 006868 (Circuit Court, Cook Cty., Illinois) (the “Illinois Complaint”), Fifth Third provided Concord with a $5 million line of credit in May 2005. Within approximately two months, the Insiders had drawn $4.7 million of this credit line. (Illinois Complaint ¶ 71.) Fifth Third subsequently approved two increases in the line of credit -- one in December 2005 and one in April 2006 -- bringing the total line to $7.5 million. The Insiders drew down the entire amount within ten days of Fifth Third's extending this additional credit. (Illinois Complaint ¶ 72.) D. Fifth Third Demands Repayment 39. Before increasing Concord's credit line to $7.5 million in April 2006, Fifth Third had demanded that any indebtedness to Nina be subordinated to Concord's pile of debt to Fifth Third. In an email from Ross to Brody on March 23, 2006, Ross clearly articulated his expectation that Nina would be the source of repayment on the debts owed to Fifth Third: Just got out of my meeting with Mike [Spitler] and Neil [Prendergast]. I sold my soul for the following: 1. Increase the InsCap line to $7.5MM....I will need a signed term sheet from CN [Nina] before I fund and a stipulation that when the money comes in, it will first go to paying me down to $0 and then to pay off shareholder notes. I am also going to need to get some sort of comfort that 5/3 is going to get some of the balances when the cash in InsCap Partners goes away and is transferred in the new Risk Fund (let's talk about this when you get back). 2. To get some breathing room from a timing perspective. [sic] I am going to move the expiry of the facility to June 30. This will give you guys some time to complete the Columbus Nova [Nina] ... deal[] .... 40. In the meantime, the Insiders' greed and the failure of the IBS business pushed Concord deeper into debt. By May 2006, Concord's financial problems were so severe that Nina had to give Concord Management a bail-out loan of $3 million just to pay its operating expenses. 41. Concord's mounting debt had drawn the attention of certain senior executives at Fifth Third. On May 11, 2006, Ross emailed Brody, Netherland, Harish Raghavan, and Rene Stuifzand: © 2018 Thomson Reuters. No claim to original U.S. Government Works. 6 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... Gentlemen: I want to schedule a meeting in NYC with my boss (Neil) and our chief credit officer (Mike Spitler) to go over where you guys are, what progress you have made YTD, and what we can expect going forward. Mike is extremely nervous about this credit, as you guys have not met financial projections and we are full up on the line when we expected to be paid out and you flush with cash already. Needless to say, both Neil I have taken a ton of heat on this and, due to our team's restructuring, your relationship is about to get a whole lot more visibility than any of us want right now. I need to get Mike back on the reservation, otherwise increasing your line to $1 MM will be out of the question. 42. Fifth Third and the Insiders thus understood that without a major cash infusion, Concord would not be able to pay its debts. In addition, the Insiders would not be in a position to pay off the enormous personal debts they each carried -a large proportion of which was owed to Fifth Third (including personal guarantees of Concord's debt to Fifth Third). As a result, the Insiders had a strong personal incentive to keep Concord from defaulting. 43. On September 14, 2006, Fifth Third sent Concord Management a formal “Notice of Default” with respect to its $7.5 million line of credit, specifying a number of defaults, including (i) failure to make required prepayments, (ii) failure to provide required financial information, and (iii) violating financial covenants. 44. Concord's situation was dire. With no prospect of earning their way out of debt and repaying Fifth Third through new IBS transactions, Fifth Third and the Insiders identified the “solution” to their problems: Nina. 45. When Raghavan responded to the September 14 Notice of Default by asking what he could do, Ross made Fifth Third's position clear: “I need you guys to convince CN [Nina] that getting Ed [Netherland] enough money to clear his loan to us or at least give him some cash and release his residuals so that I could lend the deficiency against them would be in the best interest of Inscap....” II. NINA IS FRAUDULENTLY INDUCED INTO DIRECTLY INVESTING MORE THAN $80 MILLION IN CONCORD A. Fifth Third's Collusion With The Insiders 46. By its own admission, and as set forth in more detail below, Fifth Third through its employees knowingly and substantially assisted the Insiders' scheme to defraud Nina. 47. Netherland and defendant Ross had a long-standing business and social relationship that predated Ross's employment at Fifth Third. (Illinois Complaint ¶ 30.) Unbeknownst to Nina, Netherland and Ross had been partners in Shareholder Liquidity Group, LLC, an entity in which they were the sole members, and when Ross was hired by Fifth Third in or about November 2002, he brought Netherland along as a customer, establishing checking accounts for Netherland's businesses, and supporting any requests for credit that came from Netherland or his cronies. (Id.) 48. This longstanding relationship between Netherland and Ross became the platform for Fifth Third's collusion with the Insiders. In return for generous fees and what appeared to be a very successful corporate account, Fifth Third colluded with the Insiders to help pass off their fraudulent transactions as legitimate business activity. As Fifth Third acknowledges in its Illinois Complaint, “Concord drew funds from its line of credit for purposes having nothing to do with its life insurance premium financing business. Various payments out of the Concord operating account at Fifth Third, which was funded through draws on its Fifth Third line of credit, had no legitimate purpose at all.” (Illinois Complaint ¶ 73.) © 2018 Thomson Reuters. No claim to original U.S. Government Works. 7 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... 49. At all relevant times, Ross was acting in his capacity as a Fifth Third banker -- ultimately, its Managing Director of Structured Finance -- and within the scope of his employment. All extensions of credit and other business decisions made by Fifth Third with respect to Concord, the Insiders, and Netherland's associates, such as defendant Hill, were made not by Ross alone, but with the involvement, participation, and approval of senior Fifth Third executives. 50. With Fifth Third's participation and substantial assistance, the Insiders siphoned millions of dollars out of Concord Management's accounts. In 2005, Ross authorized a $1 million line of credit for Agency One Insurance Marketing Group, Inc. (“Agency One”), a Netherland affiliate, and then allowed Brody, who was not even an authorized signatory on the account, to draw on this line of credit. (Id.) As Agency One got closer to exhausting its credit limit, Brody instructed Fifth Third to draw on Concord Management's operating account to pay off Agency One's debt to Fifth Third. And Ross, acting on Fifth Third's behalf, authorized this fraudulent transfer of funds. (Illinois Complaint ¶ 80.) 51. Fifth Third allowed Brody to funnel funds from Concord Management to Lone Star Volunteers, a sham lobbying firm set up by Brody from which he and Netherland drew money for personal expenses and to reward those who assisted their fraudulent conduct. (Illinois Complaint ¶ 74.) Between 2005 and 2008, Brody fraudulently transferred approximately $4.5 million dollars from Concord Management's accounts. Again, fully aware that there was no legitimate business purpose for these fraudulent transfers, Ross authorized these transactions on behalf of Fifth Third thereby allowing the Insiders to maintain their extravagant lifestyles and reward their co-conspirators for their complicity in the fraud. 52. Fifth Third regularly allowed withdrawals from Concord's accounts to satisfy the Insiders' personal debts. For instance, in or about September 2006, Fifth Third allowed Brody to transfer $700,000 from Concord's accounts to Brody's personal account at Fifth Third. (Illinois Complaint ¶ 75.) Brody promptly transferred these funds to Netherland's personal account at Fifth Third, which Netherland then used to pay off a pre-Concord personal debt to Fifth Third. (Id.) 53. Fifth Third also worked with defendant Hill to help Netherland siphon money from Concord's accounts. In April 2006, Ross recommended that Fifth Third approve a $500,000 line of credit to Legacy Life, LLC (“Legacy Life”), a company in which Hill is the sole member. (Illinois Complaint ¶ 81.) Eighty percent of Legacy Life's line of credit was redirected to Netherland's personal accounts, and on or about September 12, 2008, Legacy Life wired an amount of $75,100 into Ross's personal account at Charles Schwab & Co., a payoff for his assistance in supporting Netherland's fraudulent schemes. (Illinois Complaint ¶¶ 81-82.) 54. In short, and as explained further below, Fifth Third has a long and well-established history of approving illegitimate and fraudulent transactions designed specifically to further the Insiders' fraudulent schemes. B. The Insiders Promise Nina Superior Revenues From Their New “No-Collateral” Premium Financing Product 55. In or about the summer of 2006, the Insiders concocted a scheme to dig themselves out of Concord's and their own dire financial straits. The $75 million Warehouse Fund that Nina had established was mostly untapped, principally because the Insiders -- despite their promises -- had failed to make significant inroads with their declining IBS business. The Insiders knew that if they could persuade Nina to give up its strict control over the Warehouse Fund, and release that money into Concord's operating accounts, they would have enough money to pay down the Fifth Third debt -- with enough left over for their personal use and enjoyment. 56. To whet Nina's interest, the Insiders began touting a new class of insurance products known generically as “policy value premium finance” products. Unlike the traditional premium-finance product that was part of Concord's original stable of insurance-related products -- where the cash surrender value of the underlying policy and letters of credit served as collateral -- these “policy value” products were collateralized by the market value of the underlying policies. The Insiders claimed that such products would be attractive to potential clients: because the market value of an insurance policy often exceeds its cash surrender value, the insured would be able to borrow the full amount required to finance © 2018 Thomson Reuters. No claim to original U.S. Government Works. 8 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... the purchase of an insurance policy with little or no out-of-pocket expense. The Insiders hyped up these “no collateral premium finance products” (“No-Collateral PFP”) as part of a new generation of structured financial products capable of generating significant revenue. 57. Thus, in June 2006 (and again on August 24, 2006), the Insiders made a presentation to Nina that devoted an entire section, with numerous slides, to Concord's new “Structured Premium Finance” offerings, or No-Collateral PFPs. According to the Insiders' June 2006 presentation, the proposed No-Collateral PFPs offered investors “a unique opportunity to capture equity-like returns on exposure to high grade credit (AA- or better) insurance companies that are not otherwise available in the capital markets.” 58. In addition, the Insiders represented that the proposed structure of this new product, combined with the Concord premium-finance platform and license structure, would: • allow size and scale in execution, which was not otherwise available in the life settlement market; • be developed with the assistance of top securities and insurance law firms and would require the implementation of a detailed Consent and Acknowledgement process, thereby providing a high degree of comfort to insureds, carriers, and investors; • provide for investment diversification in a new mortality-related asset class, generally not correlated to traditional capital markets' instruments, and specifically as to duration, not correlated to interest rates; and • would provide the opportunity to rapidly develop a significant portfolio of collateral due to widespread acceptance of premium finance in the insurance and consumer marketplace. 59. The Insiders represented to Nina that Concord would earn annual gross fees and commissions of $30-$90 million based on $300 to $1.1 billion in life insurance policies over at least three years from this new product, a very attractive business opportunity for any investor. These projections were based on the assumption that fees would fall within a range of 1.5% to 3% of the face value of the underlying insurance policies. These fees seemed reasonable, particularly when Netherland's highly credentialed management team endorsed those fees as being market-based. 60. What the Insiders and Fifth Third failed to disclose to Nina was that the effective fee the Insiders would have to charge in each case -- i.e., the fees they would have to charge to meet their revenue projections -- would be closer to (and in some cases would exceed) 30% of the loan amount on each premium financing transaction. At the time, the Insiders knew that a No-Collateral PFP could not legitimately generate the projected fees touted in the June and August presentations to Nina. The only way to guarantee the Insiders' projected fees was to manipulate the value of the collateral (the underlying insurance policy) supporting the loan, i.e., the higher the apparent policy value, the higher the fees that could be charged. 61. In addition to misrepresenting the revenue prospects of their No-Collateral PFPs, the Insiders misrepresented the volume of transactions they could reasonably expect to achieve in the proposed target market. The target market for the No-Collateral PFP comprised high net-worth individuals with good credit. Individuals in this demographic rarely need or want premium financing, so the likelihood of finding clients with the right credit profile was remote. In addition, the economics of the No-Collateral PFP required the insured (the borrower) to have a life expectancy between 2 and 12.5 years, which would further limit the size of the target market for this new product. In other words, the likelihood of successfully marketing the No-Collateral PFP to the target market was slim, which further diminished any chances of the No-Collateral PFPs successfully generating the projected revenue. 62. In short, the extraordinary revenues that the Insiders projected for the No-Collateral PFP were fraudulent, and had been conjured up by the Insiders for the sole purpose of inducing Nina to convert the Warehouse Fund into an © 2018 Thomson Reuters. No claim to original U.S. Government Works. 9 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... equity investment. Well aware that the No-Collateral PFPs could not legitimately earn their projected fees, the Insiders nevertheless continued with their aggressive marketing campaign in a “2006 Business Plan” that they presented to Nina in August 2006. The presentation by the Insiders, which contemplated drawing $22.5 million of Nina's Warehouse Fund investment to pay off Concord's existing liabilities, explicitly discussed “No/Partial Collateral Premium Finance.” The Insiders' presentation also represented that Concord had identified a large insured pool with $4 billion in insurable capacity that was “ready to get insured,” and that Concord was “working with Lehman on financing.” C. The Deutsche Bank Term Sheet 63. In addition to misrepresenting the potential revenues and market for the No-Collateral PFPs, the Insiders exploited a draft term sheet proposing a direct investment in Concord by Deutsche Bank to help induce Nina into converting the Warehouse Fund. According to the draft term sheet, Deutsche Bank would invest $55 million in Concord Management for purposes of expanding Concord's existing product lines and marketing the new No-Collateral PFPs. Under this proposal, the Insiders would be allowed to use $25 million of Deutsche Bank's $55 million investment to pay off Concord's existing liabilities, and an additional $5 million for liquidity and general corporate purposes. 64. The Insiders misrepresented the Deutsche Bank term sheet to bolster their own credibility, using it as evidence that a leading international bank had recognized the value of, and was prepared to invest in, the new No-Collateral PFPs. In reality, the contemplated Deutsche Bank investment -- which never closed -- was based largely on IBS transactions and other existing components of Concord's business. This fact, too, was concealed from Nina. 65. Upon information and belief, Fifth Third was aware of the Insiders' fraudulent scheme. Matt Ross -- and upon information and belief, others at Fifth Third -- understood that Nina was the key to fixing the Insiders' self-induced financial problems. Fifth Third assisted the Insiders' scheme by endorsing the economic viability of the No-Collateral PFPs. At the time, Fifth Third, like the Insiders, was fully aware that there was no way the No-Collateral PFPs could legitimately generate the astronomical fees that the Insiders had projected, and the possibility of generating the volume of business that the Insiders predicted from the proposed target market was remote. D. Based On The Fraud, Nina Agrees To Convert Its Warehouse Fund Into A Direct Investment 66. The Insiders' misrepresentations about the No-Collateral PFP accomplished their intended purpose. Unaware that the Insiders had blatantly misrepresented both the potential returns from the No-Collateral PFPs, and the viability of attracting the right clients for this new product, Nina agreed to convert the Warehouse Fund into a direct investment in Concord Management. In doing so, Nina gave up the protections of the warehouse funding arrangement, including any control it had over the purposes for which its money could be used. 67. If Nina had known the truth about the No-Collateral PFPs, including that there was no way to legitimately earn the projected fees and that there was no way the Insiders could feasibly reach the targeted volume of transactions to support the earnings promised to Nina, it would not have agreed to convert its Warehouse Fund into a direct investment in Concord. 68. In September 2006, Nina signed a term sheet (the “September Term Sheet”) for the restructuring of the Warehouse Fund and its equity investment in Concord Management. The effect of the September Term Sheet would be to convert most of the Warehouse Fund into unrestricted funds available for general corporate purposes, which would be readily available to the Insiders. 69. In October 2006 an amendment to the September Term Sheet resulted in an additional bridge loan of $1.5 million to Concord Management. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 10 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... 70. By December 2006, the restructuring of the Warehouse Fund was complete (the “December Conversion”). The money released to Concord from the December Conversion was immediately used to pay down its $7.5 million credit line with Fifth Third, as well as an additional $14.8 million in individual liabilities that Netherland had accumulated prior to Nina's April 2005 investment in Concord. 71. The December Conversion also provided for the repayment of $3.3 million to the Warehouse Fund for premiums paid to Northwestern Mutual Life Insurance (“NML”). Early in 2006, the Insiders had requested a draw of $3.3 million from the Warehouse Fund for the purchase of policies that were purportedly required for an IBS deal that was on the verge of closing. This was a blatant misrepresentation of the basis for the funding request. In reality, Brody and Netherland caused the insured executives to purchase the policies with Nina's funds so that they could receive kickbacks from NML agents that were funneled through Lone Star. III. THE INSIDERS AND FIFTH THIRD CONTINUE THE FRAUD AGAINST NINA THROUGH “ULTRA” A. The Sham No-Collateral PFP Known As “Ultra” 72. Having induced Nina to convert the Warehouse Fund into a direct investment, the Insiders purported to begin developing their new No-Collateral PFP, known as “Ultra.” 73. Fifth Third was an active participant in the creation and structuring of Ultra. As a commercial lender in the insurance and life settlement industries, Fifth Third understood premium finance and the secondary market for life insurance policies, and worked hand-in-hand with the Insiders to develop Ultra. 74. Premium finance loans made under the Ultra facility allowed wealthy individuals (the “insured”) to obtain life insurance policies for up to five years without any cash outlay, through irrevocable life insurance trusts (“Trusts”). True to the No-Collateral PFP model, the loans were secured by the market value, rather than the cash surrender value, of the underlying policies. 75. The Ultra transaction closed on September 27, 2007, with a $100 million credit facility from Fifth Third. Fifth Third had carefully limited its exposure to the Ultra fraud by limiting the amount of the credit facility. Given the structure of the facility and the policies to be financed, the entire $100 million credit facility would only be sufficient to fund Ultra premiums for the policies' first year. Since insurance policies cannot be sold during the contestability period -- a period of no less than two years, and in some states, a period of five years from the date of origination -- additional funds would be required to fund those additional years' premiums. Upon information and belief, Fifth Third intended to pawn off any exposure it had to Ultra through the securitization of the loan portfolio. 76. Under the Ultra transaction documents, loans would be made as follows: the insured would form a Trust to purchase a life insurance policy, with Bank of America, N.A. (“Bank of America”) serving as trustee, collateral agent, and servicer on the transaction. The Trust would borrow the money to purchase the policy from Concord, and Concord, in turn, would obtain the money for the loan by selling a 100% participation interest in the loan to a special-purpose entity known as LIPF Funding Program II, LLC (“LIPF”). LIPF would then borrow from Fifth Third an amount equal to the premiums payable on the insured's policy, plus all related financing fees and expenses for making the loan. 77. Pursuant to the Ultra transaction documents, funding would only be provided for “Eligible Premium Loans,” which imposed strict underwriting criteria and required, among other things, that: (i) the loan be secured by an eligible life insurance policy; (ii) the insured was a member of the target demographic, i.e., they met certain age, net worth, and liquidity requirements; (iii) a valid life expectancy evaluation had been provided by one of three specialized life expectancy providers, showing that the insured had a life expectancy of between 2 and 12.5 years; (iv) a valid life settlement evaluation © 2018 Thomson Reuters. No claim to original U.S. Government Works. 11 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... had been provided; (v) a funding model analysis had been delivered; and (vi) the minimum collateral requirements had been met and would continue to be met for the life of the loan. The market value of the policy had to be sufficient to meet the minimum collateral requirement for the term of the loan. If it was not, a letter of credit would need to be provided by the insured, but in practice this was never requested. Thus, the enforcement of the eligibility requirements was critical to ensuring that the Ultra loans were adequately collateralized and that the loans were being made to wealthy insureds with a legitimate need for the insurance. 78. Bank of America, as servicer and collateral agent, was required to certify that all required Ultra documentation had been received and was in compliance. Pursuant to the Ultra transaction documents, if a funded premium finance loan did not qualify for Ultra, Concord could be forced to repurchase the participation interest in the loan, and LIPF would pay the money back to Fifth Third. In addition, Concord agreed to indemnify Fifth Third with respect to such ineligible transactions. Fifth Third thus had the option of “putting” non-conforming loans back to Concord. 79. As with other subprime schemes, the Insiders and Fifth Third structured the Ultra program so that they would receive substantial upfront fees from the borrowing Trusts, which were rolled into the non-recourse loan balances where borrowers would not notice them. While the fees were disclosed, they were stated in terms that seemed innocuous, i.e., between 1.5% and 3% of the face value of the insurance policies. While these figures seem reasonable on their face, the reality is that because the “face value” of the policies was far greater -- often ten times greater -- than the amount of the loan, the fees ultimately charged to the Trusts often exceeded 30% of the loan amount. 80. The Insiders and Fifth Third knew that there was no legitimate way to sustain these excessive fees while also providing adequately for repayment of the premium-financing loan and payment of the death benefit. The exorbitant fees that they included in the insured's loan balances would ensure that almost every Ultra loan was under-collateralized from the outset. B. Ultra Is Plagued by Fraud, Forgeries, Illegitimate “Fees,” and Looting 81. As set forth above, the Insiders and Fifth Third knew that they would have to manipulate and falsify the value of the collateral underlying the Ultra loans to support the astronomical fees they needed to generate from this new product. As a result, the Insiders and Fifth Third waived compliance with the Ultra transaction documents, and approved numerous Ultra transactions on the basis of false policy valuations, to give the impression that the underlying collateral could adequately support repayment of the loan, payment of the death benefit AND payment of their fees. 82. To assist in this fraudulent endeavor, Fifth Third had recruited a “cooperative” valuation provider, Life Asset Group (“LAG”), to sign off on any policy valuation necessary to support the fraudulent fees being charged on the Ultra loans. When Ultra was being structured, Fifth Third had insisted that LAG be hired to perform the policy valuation work for Ultra -- even though LAG had absolutely no experience in this area, and before working with Concord had operated only as a life settlement broker. Ross had a meeting with LAG principal Gary Brecka about getting involved with the Ultra Program as early as February 2007, several months before the Ultra deal actually closed. Ross also arranged for a $2.5 million loan to Concord, which Concord would lend to LAG. In truth, this was not a loan at all, but a payoff to guarantee Brecka's silence and cooperation in perpetrating the Ultra fraud on Nina. And almost immediately after LAG received Concord's “investment,” two million dollars out of that payment made its way into Brecka's personal account. The loan to Brecka has never been repaid. 83. Prior to Fifth Third approving the investment in LAG, Fifth Third's deal lawyers had pointed out that using LAG for policy valuations would ultimately create a conflict of interest with respect to any Ultra transactions because of Concord's “potential investment” in the company. Fifth Third promptly terminated the law firm's services, disregarded their advice, and proceeded to approve numerous Ultra loans based on LAG's fraudulently inflated policy valuations. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 12 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... Fifth Third admits that it regularly approved Ultra transactions based on policy valuations that it knew to be false. (Illinois Complaint ¶¶ 140, 149.) 84. Fifth Third and the Insiders also knew that many of the bogus “credit,” “service,” and other fees they charged to Ultra borrowers would not pass muster if the relevant insurance companies, brokers, agents, or insureds ever actually saw them in the Ultra documentation. On at least two occasions, Brody eliminated this problem by simply forging the relevant Ultra documentation and omitting the illegitimate fees and charges on documentation that would be reviewed by third parties such as insurance carriers or brokers. 85. In addition, Brody “Photo-shopped” signatures onto various letters and documents such as the CPA letters that were required under the Ultra transaction documents, or letters from insureds purporting to consent to additional postclosing “service fees” to help legitimize the exorbitant fees being charged to the Trusts. 86. In addition to the forgeries, the Insiders also collected illegitimate fees from loans extended to “empty Trusts” (i.e., Trusts that had not even purchased insurance policies) and illegitimate fees based on higher policy face amounts than those of the policies actually purchased by the Trusts. Fifth Third admits that it approved these transactions despite having first-hand knowledge that the Insiders had provided false information, inflated policy valuations, and forged documents in support of their funding requests. (Illinois Complaint ¶ 149.) 87. Fifth Third was aware that the financing it was extending for Ultra was, in many cases, based on fake documentation. For example, in one case, in March 2008, a loan to an empty Trust was approved, notwithstanding that not all required documents had been provided, and there was no policy collateral for the loan. In fact, Brody forged the documents that needed the insured's signature. In an email exchange, Ross asked Brody about a missing acknowledgement of policy assignment from the carrier, to which Brody responded: “We are at risk for [rescission], just like with [another previous case] we cover it. Remember.” Ross replied: “Shhhh. Not so loud,” while Brody reassured him: “I did not cc everyone else. I went [to] Spitzer school of secrecy.” 88. Fifth Third also learned that some Ultra deals had no collateral from Bank of America, which raised this issue with Fifth Third in September 2008. Previously, Brody had instructed Bank of America's employee, Robert Bockrath, to wire $2 million from an empty Trust into the personal Fifth Third pledge account of a Concord officer. Ross had confirmed this instruction by e-mail. And despite the fact that the Ultra program did not allow Bank of America to wire funds directly to a personal account, Bank of America disbursed the funds. (Illinois Complaint ¶ 85.) 89. In a September 11, 2008, e-mail to Ross, Bank of America's Robert Donaldson referenced the empty Trusts described above. He wrote: “It is our understanding that you have been kept informed by Concord of the situation we have with several of the advances taken under the LIPF II facility that have not yet been used to purchase policies.” Donaldson further stated that: In our servicing capacity, we should be reflecting on our collateral reports the fact that there is effectively a policy valuation of zero and therefore the Minimum Collateral Requirement is not satisfied for these loans. I'm not sure what the fallout on your end will be when we start reporting in this manner-maybe an alternative could be to use the guarantee as “Other Collateral” for the loan? I would need your approval to do this. Donaldson copied his colleague, Robert Bockrath, on his e-mail to Ross. 90. The first of these “several” advances caused the entire Ultra facility to be in default in March 2008, but Bank of America failed to declare an event of default under the Ultra transaction documents. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 13 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... 91. Fifth Third and the Insiders used Ultra to loot Concord of millions of dollars in corporate assets. They used the funds to pay for their extravagant lifestyles without any benefit to Concord. In particular, they used Concord's funds to, among other things, pay for their personal expenses and to pay for wholly inappropriate business expenses. For instance, the Insiders used the ill-gotten gains from Ultra to pay for tuition at Rye Country Day School, a Disney World vacation, 200 computers, home furnishings, outings to Miami night clubs, private jets, limousines, ticket brokers, boxes at sports arenas, jewelry, and other luxury goods. 92. The Insiders also used their illegitimate rewards to buy others' silence and cooperation in the fraud against Nina, upon information and belief, with payments funneled through Lone Star -- a total of almost $4.5 million between 2005 and 2008 -- and Legacy Life, and by showering “friends” with inappropriate gifts, such as spa retreats at Canyon Ranch, vacations in Miami and Las Vegas, electronics, sports equipment, and home remodeling. 93. Fifth Third knew that Concord was in deep financial trouble (again) because of looting by the Insiders. Among other things, Fifth Third issued and maintained records for all of Concord's credit cards, to which many of these inappropriate expenses had been charged. As Concord's long-time banker, Fifth Third monitored Concord's ability to repay the loans it had extended to Concord and knew that the Insiders' spending far exceeded Concord's revenues. Moreover, Ross was a direct beneficiary of the looting, as he was showered with money, gifts of travel, sports, concert and theater tickets, and political access, among other things. 94. Instead of putting a stop to the Insiders' looting, Fifth Third participated in and enjoyed the fruits of the Insiders' fraud, earning approximately $10 million in fees off Ultra. Any risks associated with improper underwriting or noncompliant loans would be mitigated by Fifth Third's right to “put” the loans back to Concord. Upon information and belief, at the time Ultra was created, Fifth Third planned to securitize the Ultra loans and sell them in the secondary market. Thus, Fifth Third would not be left “holding the bag” when the economic realities of Ultra emerged. And, incredibly, despite Netherland's obvious inability to contain his spending, Fifth Third released Netherland from any obligation to guarantee Concord's debts to Fifth Third at the height of the Ultra fraud. (Illinois Complaint ¶ 92.) Fifth Third and Ross thus joined the Insiders in milking the Ultra program for illegitimate revenues and in looting Concord of its assets. IV. THE INSIDERS' LOOTING IS REVEALED; FIFTH THIRD CONCEALS ITS INVOLVEMENT A. Brody Resigns And Concord Discovers A Portion Of The Insiders' Fraud 95. Brody resigned, as of December 31, 2008, to pursue a position as Treasurer for the State of Tennessee. After Brody left, the truth about the forgeries, empty trusts, and looting at Concord began to emerge. 96. In January 2009, even after his departure, Brody tried to charge a $2 million service fee on an existing loan to a Trust by forging a letter to Bank of America. Bank of America forwarded the forged letter to Concord's legal department. The legal department was baffled by the letter. The Ultra facility did not permit these secondary fees, and it was apparent that the letter, which had originally been prepared to reflect the fees that could legitimately be charged on an Ultra loan, had simply been “recycled” by Brody for the purpose of charging illegitimate fees on Ultra deals. 97. When the legal department told Bank of America that the letter looked unusual and that it was investigating, Bank of America volunteered that it had received and disbursed monies after receiving other such secondary fee letters, which it had viewed as suspicious at the time -- though it took five months to communicate these suspicions to Concord's legal department -- due to the appearance of the signatures. After an investigation, the legal department discovered that these letters, purportedly signed by the insureds, had all been forged. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 14 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... 98. The Nina Directors -- who were not involved in the day-to-day management of Concord's affairs -- caused Concord's board of directors to form a special investigation committee and to retain the law firm of Skadden, Arps, Slate, Meagher & Flom (“Skadden”), which prepared a report detailing the Insiders' fraud in generating illegitimate fees from Ultra. Because Skadden's investigation was limited to uncovering the fraudulent Ultra fees generated by the Insiders, Skadden did not investigate or uncover Fifth Third's integral role in the Ultra fee fraud, or the underlying Valuation Fraud that allowed both the Insiders and Fifth Third to collect unwarranted and excessive fees from the Ultra Program. 99. Once Skadden's investigation was complete, the Nina Directors enlisted Skadden's assistance in reporting the Ultra fee fraud and the outcome of Skadden's investigation to state regulators. B. Fifth Third Conceals Its Role And Fraudulently Induces Nina And Its Affiliate To Repay And Guarantee Fifth Third's Debt 100. Fifth Third was able to conceal its role in the Ultra fraud, and in dealing with Nina after the Insiders' fraud was revealed, acted as if it had innocently been led astray by dishonest corporate insiders. 101. Fifth Third concocted a fraudulent scheme to induce Concord to incur additional debt to Fifth Third in order to repay the fraudulent fees, and to persuade CNI, rather than Nina, to guarantee that debt, by a series of misrepresentations. As he explained in an email to Brody, Ross chose CNI as the new guarantor because CNI had “a shit-pile (this is a new technical financial term) of assets.” 102. To convince CNI to guarantee the loan, and Nina to continue fronting Concord's operating expenses, Fifth Third falsely represented, among other things: (i) that Fifth Third was negotiating in good faith to extend to Concord a new $50-$100 million facility to fund a new, improved premium finance loan program free of Ultra's forgeries and fraud, when in fact it was not acting, and had no intention of acting, in good faith; and (ii) material facts concerning the new facility and its economics. Crucially, Fifth Third fraudulently concealed from Nina and CNI the fact of its own participation in, and assistance with, the Insiders' fraudulent conduct. 103. Thus, in or about January 2009, Ross knowingly misrepresented to Nina Director Epstein that Concord could earn its way out -- i.e., generate enough revenues to pay back the fraudulent fees and then start generating real profits -- if Concord and Fifth Third structured a new credit facility (“Ultra Plus” or the “Ultra Plus Facility”). What Ross failed to disclose was that Ultra, and therefore the promised returns on Ultra Plus, was a sham because of the Valuation Fraud (i.e., the manipulation of valuations and waiver of underwriting requirements). Accordingly, the Nina Directors, Nina, and CNI were unaware that lending opportunities would be negligible or non-existent under Ultra Plus when the facility requirements were actually followed. 104. To maintain the appearance that Ultra was fundamentally sound, Ross continued to approve and fund Ultra deals that did not meet loan requirements during the first few months of 2009. C. Q Capital Conceals The Fraud Against Nina 105. After the Insiders' looting of Ultra was revealed, Fifth Third insisted that Concord engage Q Capital to replace LAG as the policy valuation provider for any future Ultra loans and to provide a current mark-to-market valuation of the existing Ultra portfolio. The purpose of this exercise was to provide all parties, including the Special Committee, Nina and its affiliates, and Fifth Third, with the assurance that the Ultra portfolio was fundamentally sound and could be stripped of the bad loans. Q Capital signed an engagement letter with Concord representing that its policy valuations would be based solely on market-based metrics. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 15 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... 106. Q Capital's initial valuation of the existing Ultra loans -- which was shared with Fifth Third but not with Nina -- revealed that the portfolio was massively impaired. In fact, in or about early March 2009, Q Capital provided Fifth Third with a valuation that showed the Ultra portfolio as severely under-collateralized. If Nina had become aware of this information, it would have raised questions that could have revealed Fifth Third's role in the valuation fraud. 107. To avoid being caught in its lies, Fifth Third directed Q Capital to change its valuation of the Ultra portfolio, and to use non market-based metrics to do so. Q Capital readily complied. On or about March 23, 2009, after an in-person meeting with Ross, Bob Finley, a Senior Vice President at Fifth Third Bank, Andrew Jones, an Assistant Vice President, and Clayton Bruce, also an Assistant Vice President at Fifth Third Bank, Q Capital capitulated on its valuation and produced a new report. The valuation provided after Q Capital's meeting with Fifth Third showed all the loans in the Ultra portfolio as fully collateralized. 108. As a result, to Nina it appeared that Ultra was still a fundamentally profitable business that could be replicated and that Concord would thrive if premium finance loans could be funded similarly under Ultra Plus, thus inducing Nina to continue to invest in Concord. In the absence of Q Capital's deliberate falsification of the Ultra valuations, the Ultra Valuation Fraud, and the roles of both the Insiders and Fifth Third in perpetrating that fraud on Nina, would have been revealed early in 2009 instead of more than a year later. 109. When Fifth Third agreed to make a $19.5 million loan to remediate the fee fraud, Nina and CNI did not know -- because Fifth Third had concealed -- that Fifth Third had aided and abetted the Insiders' fraudulent conduct, and that Ultra was merely a sham. Had Nina and CNI known of these facts and of Fifth Third's complicity in the Insiders' fraud, CNI would not have agreed to guarantee Concord's new indebtedness to Fifth Third, and Nina would not have continued plowing money into Concord to fund its day-to-day operating expenses. 110. Despite the fact that it knew Ultra Plus could not make money, Fifth Third established a new facility for Concord in September 2009, albeit for a wholly-insufficient $35 million. Not one loan was ever approved or funded under Ultra Plus. Even if Concord had used the entire facility to originate legitimate Ultra Plus loans, it would have been impossible for Concord to earn its way out; it could not generate $19.5 million in fees from making $35 million worth of loans. V. NINA UNCOVERS FIFTH THIRD'S ROLE WHILE FIFTH THIRD CONCEALS ITS LOSSES FROM ITS SHAREHOLDERS 111. In early 2010, an outside consultant hired by Nina's management company helped get to the roots of the Ultra fraud and discovered Fifth Third's central role in bleeding Concord dry, and helping the Insiders to perpetrate their fraud against Nina. And it was not until early in 2012 that Nina first uncovered Fifth Third's role in fraudulently inducing the Warehouse Fund conversion. 112. By the time Nina discovered Fifth Third's role in the fraud, Concord had become insolvent. There was no prospect of Nina recovering any part of its multi-million dollar investment, or the additional millions of dollars it had sunk into Concord over time. 113. In or about the second quarter of 2010, Concord advised Fifth Third that it had uncovered the Valuation Fraud. However, through at least the end of that quarter, Q Capital was still providing valuation reports showing that the majority, if not all, of the Ultra loans were still adequately collateralized. Further, Fifth Third continued to report the loans to Concord and the Ultra loans in its public financial statements, at par -- knowingly hiding losses on these loans from its investors and banking regulators. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 16 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... 114. By the end of the first quarter of 2011, Fifth Third had still not properly reported the impairment charges on the Ultra facility and its loans to Concord. Based on Fifth Third's earnings report in the first quarter of 2011, it is apparent that Fifth Third took a $22 million write off against the Ultra loans. 115. In the second quarter of 2011, Fifth Third finally liquidated a large proportion of the Ultra portfolio and took an additional $60 million write off against the Ultra loans, as they could no longer hide the massive losses they had been covering up from regulators and investors for the previous two years. VI. CONCORD SEEKS DAMAGES ARISING FROM THE ULTRA FEE FRAUD AND THE VALUATION FRAUD 116. In September 2010, Concord filed a complaint in New York seeking: (i) damages from Brody for breach of fiduciary duty and conversion; (ii) damages from Fifth Third Bank for aiding and abetting breach of fiduciary duty and breach of the implied covenant of good faith and fair dealing; and (iii) damages from Bank of America for breach of contract and gross negligence. 117. As set forth above, Fifth Third has initiated litigation against, among others, Concord, CNI, Brody, Netherland, Hill, and Brecka. Notably, in its amended complaint, Fifth Third acknowledges the fraud at Concord and the active role of its own employee, Matthew Ross, in that fraud. CAUSES OF ACTION COUNT I Fraud/Fraudulent Inducement (Against Brody and Netherland) 118. Plaintiff repeats and realleges paragraphs 1 through 117 hereof as if fully set forth herein. 119. As set forth above, the Insiders falsely presented to Nina the financial prospects, riskiness, and bona fides of(i) the IBS business, (ii) their proposed No-Collateral PFPs, and (iii) Ultra. 120. When they made these representations, the Insiders knew, or should have known, that they were false. First, the Insiders knew that, contrary to their representations, there would be no “first mover advantage” to investing in Concord's IBS business because the market for successful IBS transactions had all but closed. Second, the Insiders knew that there was no way to legitimately earn the astronomical fees they promised from their No-Collateral PFPs, nor was there any way for Concord to generate the volume of No-Collateral PFP transactions that the Insiders had projected given the small demographic to which this product could be sold. Third, the Insiders knew that Ultra, a No Collateral PFP, could not legitimately earn the projected fees promised to Nina and that the underlying collateral values would have to be manipulated to make any of the Ultra transactions work. In short, from the outset, the Insiders knew that their representations to Nina regarding Concord's projected revenue from IBS transactions, No Collateral PFPs, and Ultra, were false. 121. Nina reasonably relied on the Insiders' misrepresentations first in deciding to lend money to Concord in April 2005, and again in December 2006 when Nina released its money from the Warehouse Fund and converted it into a direct loan to Concord. Absent the Insiders' wholesale misrepresentations regarding the financial prospects of the IBS business, No Collateral PFPs, and Ultra, Nina would not have made its initial loan to the Insiders, would not have released its money © 2018 Thomson Reuters. No claim to original U.S. Government Works. 17 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... from the protections of the Warehouse Fund, and would not have continued to plow money into Concord to fund its day-to-day operating expenses. 122. As a result, when the Insiders launched Concord's IBS business, and then when they launched Ultra and looted the fees for themselves and Fifth Third, Nina lost the entirety of its investment. 123. By reason of the foregoing, Nina has been damaged and is entitled to compensatory damages, in an amount of at least $80 million, to be determined at trial, as well as punitive damages, in an amount of at least $80 million, to be determined at trial. COUNT II Aiding and Abetting Fraud/Fraudulent Inducement (Fifth Third) 124. Plaintiff repeats and realleges paragraphs 1 through 123 hereof as if fully set forth herein. 125. As set forth in detail above, Fifth Third knew, or recklessly disregarded the fact, that the Insiders had fraudulently induced Nina to convert its Warehouse Fund and invest directly in Concord. 126. As alleged above, Fifth Third knowingly and substantially assisted the Insiders' fraud by, among other things: (i) approving the Insiders' unauthorized transfers of money in and out of Concord's accounts despite the absence of any apparent business purpose for these transfers; (ii) assisting the Insiders in creating the impression that No-Collateral PFPs, and Ultra, were legitimate and economically viable businesses; (iii) participating in the structuring and execution of the Ultra program; and (iv) authorizing numerous illegitimate loans that clearly violated the terms of the Ultra facility. In doing so, Fifth Third helped to conceal the Insiders' fraudulent scheme from Nina by giving their activities an air of legitimacy. Absent Fifth Third's substantial and knowing assistance, the Insiders' fraud would have failed. 127. The conduct of Fifth Third was outrageous, willful, wanton, and perpetrated with malice, and a reckless indifference to the rights of Nina. 128. Fifth Third's wrongdoing was accomplished through, among others, its Vice President of Structured Finance, Matt Ross. At all relevant times, Ross was acting on behalf of Fifth Third and within the scope of his employment. Fifth Third made millions of dollars in fees from its relationship with Concord. Accordingly, Ross's conduct is properly imputed to Fifth Third. 129. Moreover, upon information and belief, numerous other executives at Fifth Third reviewed, approved, and participated in Ross's activities. Even if Ross's own conduct were not imputed to Fifth Third, Fifth Third would still be liable for the wrongdoing described herein. 130. By reason of the foregoing, Nina has been damaged and is entitled to compensatory damages, in an amount of at least $80 million, to be determined at trial, as well as punitive damages, in an amount of at least $80 million, to be determined at trial. COUNT III Conspiracy to Commit Fraud © 2018 Thomson Reuters. No claim to original U.S. Government Works. 18 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... (Against Fifth Third, Ross, Brody, Netherland, Q Capital, and Hill) 131. Plaintiff repeats and realleges paragraphs 1 through 130 hereof as if fully set forth herein. 132. As set forth in the preceding paragraphs, Fifth Third and the Insiders conspired to fraudulently induce Nina to (i) lend money to the Insiders in April 2005, and (ii) to take its money out of the Warehouse Fund and convert it in December 2006 into a series of loans and equity investments to provide the Insiders with access to the cash they needed to pay off their massive debts. 133. Both in April 2005, and again in December 2006, Fifth Third and the Insiders were highly motivated to induce Nina to lend money to the Insiders -- the Insiders by the urgent need to pay off their mountains of debt while maintaining their extravagant lifestyles, and Fifth Third, by the desire to secure repayment of the debts that Concord owed them. The April 2005 Transaction 134. In or about April 2005, the Insiders reached an agreement to induce Nina, by fraudulent and unlawful means, to provide them with financing so that they could pay off their personal and business debts, including debts to defendant Fifth Third. 135. In furtherance of that agreement, the Insiders intentionally misrepresented to Nina the financial prospects, riskiness, and bona fides of the IBS business, while fully aware that, contrary to their representations, there would be no “first mover advantage” to investing in Concord's IBS business because the market for successful IBS transactions had all but closed. 136. Based on the Insiders' misrepresentations, Nina loaned money to Concord for its IBS business in or about April 2005. Upon information and belief, Fifth Third, acting through Ross, knew and approved of the Insiders' misrepresentations to Nina regarding the potential for successfully closing new IBS transactions. The December Conversion 137. In or about Spring 2006, defendants Netherland, Brody, Ross, and Fifth Third reached an agreement to induce Nina, by fraudulent and unlawful means, to convert its Warehouse Fund into a direct investment in Concord. 138. In furtherance of this agreement, the Insiders intentionally misrepresented the bona fides and financial prospects of Concord's new No-Collateral PFPs, while fully aware that (i) there was no way to legitimately earn the astronomical fees the Insiders promised from their No-Collateral PFPs, and (ii) there was virtually no chance that Concord could generate the volume of No-Collateral PFP transactions that the Insiders had projected given the small demographic to which this product could be sold. Based on the Insiders' misrepresentations Nina did, in fact, release the money from the Warehouse Fund to Concord. Upon information and belief, Fifth Third, acting through Ross, was aware of the Insiders' misrepresentations to Nina at the time they were made. 139. Alternatively, even if Fifth Third was not aware of the Insiders' fraud against Nina from its inception, Fifth Third became aware of the Insiders' fraud when Ultra was being structured. Upon information and belief, at the time Ultra was being structured, Fifth Third acting through Ross knew and approved of the Insiders' earlier fraud in inducing Nina to release its money from the Warehouse Fund. 140. Fifth Third assisted the Insiders in their fraudulent scheme against Nina by participating in the Ultra program, authorizing numerous illegitimate loans that clearly violated the terms of the Ultra facility, and approving unauthorized transfers of money in and out of Concord's accounts, despite the absence of any apparent business purpose for these © 2018 Thomson Reuters. No claim to original U.S. Government Works. 19 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... transfers. In doing so, Fifth Third gave the Insiders' fraudulent activities the air of legitimacy that helped them conceal their fraud from Nina. Defendants Q Capital and Hill 141. Defendants Q Capital and Hill each committed unlawful or tortious acts in furtherance of the conspiracy against Nina. Q Capital, in concert with Fifth Third, deliberately concealed the fact that the Ultra loan portfolio was severely under-collateralized to prevent Nina (and CNI) from finding out that the Ultra program had been nothing but a sham and a conduit through which the Insiders and Fifth Third funneled money to themselves. In the absence of Q Capital's fraudulent valuation of the Ultra loan portfolio, Nina would not have continued to plow money into Concord, and CNI would not have guaranteed the additional loan of $19.5 million. 142. Defendant Hill furthered the conspiracy against Nina by acting as a conduit for money from Concord's accounts to Netherland's accounts and by disbursing payoffs to Netherland's co-conspirator, Ross, among others. By posing as an insurance agent entitled to commissions and other fees, Hill was able to divert substantial sums of money from Concord's accounts for Netherland's personal benefit. The Insiders Acted To Further Their Own Pecuniary Interests 143. In conspiring against Nina, the Insiders acted to further their own pecuniary interests. 144. The Defendants' conduct in conspiring against Nina was malicious, wanton, oppressive, and reckless. 145. By reason of the foregoing, Nina has been damaged and is entitled to compensatory damages, in an amount of at least $80 million, to be determined at trial, and punitive damages, in an amount of at least $80 million, to be determined at trial. PRAYER FOR RELIEF WHEREFORE, Plaintiff respectfully demands judgment: A. on the First Cause of Action against Brody and Netherland, awarding compensatory and punitive damages in amounts to be determined at trial, but at least $80 million and $80 million, respectively; B. on the Second Cause of Action against Fifth Third, awarding compensatory and punitive damages in amounts to be determined at trial, but at least $80 million and $80 million, respectively; and C. on the Third Cause of Action against Fifth Third, Ross, Brody, Netherland, Q Capital, and Hill, awarding compensatory and punitive damages in amounts to be determined at trial, but at least $80 million and $80 million, respectively; D. all interest, penalties, and accruing amounts through the date of judgment and thereafter at the maximum postjudgment rate provided for by applicable law; E. costs of suit, including reasonable attorneys' fees and expenses; and F. such other and further relief as the Court deems just and proper. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 20 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... JURY DEMAND Plaintiff demands trial by jury on all counts of this Complaint for which trial by jury is available. Dated: July 5, 2012 Respectfully submitted, NINA INVESTMENTS, LLC By: <> One of its attorneys Marc E. Kasowitz Andrew K. Glenn Jed I. Bergman Shalini Kisten Rajoo KASOWITZ, BENSON, TORRES & FRIEDMAN, LLP 1633 Broadway New York, New York 10019 (212) 506-1700 (212) 506-1800 (fax) By: <> One of its attorneys Michael Rachlis Kevin B. Duff John E. Murray RACHLIS DURHAM DUFF ADLER & PEEL, LLC 542 South Dearborn, Suite 900 Chicago, Illinois 60605 (312) 733-3950 © 2018 Thomson Reuters. No claim to original U.S. Government Works. 21 NINA INVESTMENTS, LLC, Plaintiff, v. FIFTH THIRD..., 2012 WL 2616394... (312) 733-3952 (fax) End of Document © 2018 Thomson Reuters. No claim to original U.S. Government Works. © 2018 Thomson Reuters. No claim to original U.S. Government Works. 22