Case: 1:13-cv-07896 Document #: 197 Filed: 05/15/15 Page 1 of 10 PageID #:1570
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
U.S. COMMODITY FUTURES
TRADING COMMISSION,
Plaintiff,
v.
ALPHAMETRIX, LLC,
Defendant.
ALPHAMETRIX GROUP, LLC,
Relief Defendant.
)
)
)
)
)
)
)
)
)
)
)
)
)
)
Case No. 13-cv-7896
Honorable Joan H. Lefkow
EIGHTH REPORT OF DEBORAH L. THORNE,
TEMPORARY EQUITY RECEIVER OF ALPHAMETRIX, LLC
AND RELATED ALPHAMETRIX ENTITIES
Deborah L. Thorne, Temporary Equity Receiver (“Receiver”) for AlphaMetrix, LLC and
its related AlphaMetrix Entities1 (“AlphaMetrix”), makes this eighth report to the Court
concerning activities from the period of January 1, 2015 through April 30, 2015 (“Reporting
Period”). This report does not constitute an audit of financial condition and is intended only to
provide information for use by the Court in assessing the progress of the Receiver.
Summary of Prior Activity
As previously reported to this Court, the Receiver redeemed 100% of the net asset value
(“NAV”) to investors as determined by AlphaMetrix in October 2013. By the end of January
2014, the Receiver redeemed approximately $681 million in various commodities and returned
to investors 100% of the net asset value (“NAV”) as determined in October 2013 by
1
The related AlphaMetrix Entities include AlphaMetrix LLC and the following: AlphaMetrix Group, LLC,
AlphaMetrix Alternative Investment Advisors, LLC, AlphaMetrix Financial Software Solutions, LLC, AlphaMetrix
Financial Investigations, LLC, AlphaMetrix Securities, LLC, AlphaMetrix Events, LLC, AlphaMetrix360, LLC and
AlphaMetrix Monaco SARL.
Case: 1:13-cv-07896 Document #: 197 Filed: 05/15/15 Page 2 of 10 PageID #:1571
AlphaMetrix.2 These commodity investments were held in 105 different commodity pools.
During previous reporting periods, the Receiver paid October commodity trading advisor fees
and October rebates calculated for the October 2013 period. October rebates paid were in the
approximate amount of $29,514.00 and October management fees paid were in the approximate
amount of $48,800.00.
In prior reporting periods, the Receiver was authorized to employ Syntel Ltd. as her
consultant for preserving and evaluating the technology assets (“Technology Assets”). She was
also authorized to employ Rosenblatt Securities, Inc. (“Rosenblatt”) as her sales agent for the
sale of the Technology Assets.
The Technology Assets include software commonly known as Risk Tools, Virtual
Backroom Office (“VBO”) and AlphaMetrix Global Market (the “AGM Software”). VBO was
originally owned by Spectrum Global Fund Administration (“Spectrum”) and purchased by
AM360 in 2010. The AGM Software had been under development from 2011 through 2013.
VBO was used for the administrative services provided by AM360 as well as by AlphaMetrix
LLC in administering the numerous pools on the AlphaMosaic platform and certain other pools
which operated independently from the AlphaMosaic platform. VBO essentially captured trade
data received from prime brokers, fund managers and custodians. It maintained investment trade
processing, confirmations and contract notes issued by the underlying investment funds. It then
provided the needed data to set up and maintain investment fund information for accounting
purposes and NAV calculations for AlphaMetrix LLC and for pools utilizing the services of
AM360.
2
The Receiver used the NAV as determined by AlphaMetrix so that redemptions could be made quickly. As the
Receiver has previously stated on the record and elsewhere, she disagrees with the NAV as struck because
thousands of dollars were removed from investor funds by AlphaMetrix Group to fund daily operations and to fund
the liquidation. In the event the Receiver is able to recover sufficient assets, she intends to recommend to the Court
the return of these customer funds through the distribution process.
2
Case: 1:13-cv-07896 Document #: 197 Filed: 05/15/15 Page 3 of 10 PageID #:1572
AlphaMetrix Global Market Place was a web based platform that allowed a full gamut of
institutional and retail investors to invest in alternative assets. Through the AGM technology, an
investor was able to search, analyze, track and invest in separate managed accounts, selfsponsored funds and third-party hedge funds. It contained unique features which were not
provided by other software providers in the integrated manner as AGM.
The Risk module provided customers with comprehensive daily and intra-day risk
analysis. It was capable of computing risk on traditional exchanges as well as complex and
illiquid assets such as distressed debt and over-the-counter derivatives. Customers were able to
generate detailed risk reports that highlight exposures by asset, geography, manager and other
variables. Subscribers to the Risk component were able to request customized risk analytic
reports, many which were available within 24 hours. The Risk module was never translated into
code but the blueprints for the code were created.
The Technology Assets were developed at a cost of approximately $34 million (including
the cost of original purchase). The cost is broken down as follows:
Acquisition Price
Programmer Salaries over 3 years
Software and Consulting
Additional Operating Costs
Total Development Costs
$17,000,000
$10,000,000
$ 5,000,000
$ 2,000,000
$34,000,000
Although many software and consulting vendors were left unpaid, certain of the operating
expenses were paid by increasing the fees charged to the various commodity pools under
management on the AlphaMosaic Platform or other management agreements. At the time the
Receiver was appointed, in spite of the huge increase in fees assessed, many unsecured trade
vendors and consultants were left unpaid and with claims against AlphaMetrix Group or its
3
Case: 1:13-cv-07896 Document #: 197 Filed: 05/15/15 Page 4 of 10 PageID #:1573
related entities.3
Current Reporting Period Activity
Efforts to Sell Technology Assets
During the prior reporting periods, Syntel evaluated and reported to the Receiver the
current state of the Technology Assets. Beginning in January 2015, the sales process began in
earnest. Rosenblatt contacted approximately 180 potential purchasers with a “teaser” designed
to provide preliminary information about the Technology purchased from Spectrum by
AlphaMetrix360, LLC in 2010 and the additions developed by AlphaMetrix Group LLC from
2011 through 2013.
Out of the approximately 180 parties contacted, 30 parties requested nondisclosure
agreements (“NDA”). Twenty-five parties executed an NDA. Once an interested purchaser
executed an NDA, it was allowed to view a demonstration of the Technology with Rosenblatt,
Hind Bensalem of Syntel and Chris Lamb, a former AlphaMetrix employee. The Receiver sat
through several demonstrations and adjustments were made to the presentation to insure that the
Technology features were easily understood by potential purchasers as well as possible purchase
structures. Chris Lamb was able to speak about the actual use and Hind Bensalem about the
technical features.
As of the end of April 30, sixteen demonstrations were provided to interested parties
(several requesting follow-up demonstrations). The interested parties ranged from small
companies operating or hoping to operate as fund administrators to large institutions
administering their own customers’ funds. As of the date of this Report, Rosenblatt is in the
final stages of negotiating offers with several of the parties. White Oak, a secured lender to
3
The Receiver is analyzing the amounts removed from the various pools and will be using these figures at the time
she makes a recommendation to the Court regarding any distribution to the investors in the individual commodity
pools.
4
Case: 1:13-cv-07896 Document #: 197 Filed: 05/15/15 Page 5 of 10 PageID #:1574
AlphaMetrix has executed an NDA and Rosenblatt and the Receiver have shared information
concerning the various offers and the sales process. The Receiver expects that she will have a
recommendation to make to the Court regarding acceptance of an offer during the month of June.
Prior to making a recommendation to the Court, the Receiver anticipates sharing her
recommendation with White Oak and seeking its input.
If one of the current interested offers is recommended by the Receiver to the Court and
the Court approves the Receiver’s recommendation, the Receiver’s estate will be entitled to
reimbursement for expenses paid to protect the Technology Assets (including maintaining the
servers and employing Syntel) which as of April 30, 2015 are in the approximate amount of
$961,085.00. Likewise, White Oak will also receive reimbursement for approximately $175,000
advanced to pay expenses for the preservation of the Technology Assets. Rosenblatt is entitled
to certain fees for the sales phase as follows based upon the sale price4:
•
Less than or equal to $10,000,000 will be 9% of the total transaction
value (total amount paid by the buyer);
•
Between $10,000,001 to $15,000,000 will be 8% of the total
transaction value;
•
Between $15,000,001 to $20,000,000 will be 7% of the total
transaction value;
•
Between $20,000,001 to $30,000,000 will be 6% of the total
transaction value; and
•
Greater than $30,000,001 will be 5% of the total transaction value.
After the reimbursement of costs previously paid by the Receiver and White Oak, and the
4
$50,000 of the amount previously paid to Rosenblatt will be deducted against any amount that it is entitled to under
the formula described herein. See Docket Nos. 140 and 142.
5
Case: 1:13-cv-07896 Document #: 197 Filed: 05/15/15 Page 6 of 10 PageID #:1575
fees of Rosenblatt, the receiver’s estate is entitled to 12.5% of the net proceeds and White Oak is
entitled to 87.5% of the net proceeds up the value of the White Oak secured claim [Docket No.
98]. To date, the value of the White Oak secured claim amount has not been determined. The
Receiver has previously recognized that the principal amount of the White Oak secured claim is
approximately $23 million.5 In the event that the Technology Assets sell for more than an
amount sufficient to pay $23 million to White Oak, the Receiver and White Oak will be required
to determine the proper amount of White Oak interest and fees. In the event that the Technology
Assets sell for less than an amount sufficient to pay $23 million to White Oak, the amount of
interest and other fees will not be required to be determined as a secured claim but will be an
unsecured deficiency claim.6
The Receiver believes based upon the tentative offers currently under discussion, she will
be able to recommend an interim distribution to the Court after any sale closes.
Litigation and Other Investigations
In March 2014, the Receiver initiated a complaint, Deborah L. Thorne, not individually
but as Court-Appointed Receiver of AlphaMetrix, LLC and AlphaMetrix Group, LLC v. Aleks
Kins, Charley Penna, David Young, Geoff Marcus and George Brown, case number 14-cv-2472
(the “Complaint”) seeking judgment against Aleks Kins, Charley Penna, George Brown, David
Young and Geoff Marcus. The case was assigned to the Honorable Milton Shadur of this Court.
The Receiver was successful in obtaining an Order denying the motions to dismiss.
During the current Reporting Period, the parties to the litigation have been reviewing thousands
5
The $23 million is comprised of the original $16 million loaned at the time AlphaMetrix360 purchased the
Spectrum assets plus additional amounts loaned from 2010 through 2013. Five million dollars were loaned to
AlphaMetrix Group and there was an attempt to add a security interest in all AlphaMetrix Group assets to that
previously held by White Oak. The Receiver and White Oak agreed to the settlement spread forth in Docket Nos.
98 and 106 which avoided litigation between the parties.
6
The Receiver does not believe that the assets will sell for an amount sufficient for the parties or the Court to
determine this issue except as it applies to the amount of deficiency.
6
Case: 1:13-cv-07896 Document #: 197 Filed: 05/15/15 Page 7 of 10 PageID #:1576
of emails and other documents and have been involved in a rolling production process. The
Receiver and her colleagues have reviewed thousands of documents, including emails of the
defendants and other employees of AlphaMetrix in preparation for discovery and trial.
The Receiver has received written discovery from the defendants and is also reviewing
these productions. QDiscovery, the outside vendor for the Receiver is still processing additional
custodians that have been requested by the defendants. The Receiver is producing her responses
on a rolling basis as documents become available.
The Receiver has also responded to inquiries from various governmental agencies and
reviewed documents to prepare her response to their inquiries.
The next status in the case is May 27, 2015 at 8:45 a.m.
Tax Issues
The Receiver with the assistance of Arthur Bell CPA prepared all K-1s for investors that
had not previously received a final K-1 for 2013. Tax forms were prepared for employees of the
Receiver who continued to provide services in 2014. The Receiver filed tax returns for the
Receivership as required.
The Receiver assisted the State of Illinois in its Use Tax audit by providing copies of
invoices and books and records reflecting purchases of goods during the period of 2012 through
January 2014. The audit is now complete and resulted in an assessed liability of $12,400 in tax,
$2,728 in penalty and $498.92 in principal. Recently, the City of Chicago has indicated that it
asserts unpaid Use Tax for Non-titled Personal Property, Employment Expense Tax and Personal
Property Lease Transaction Tax. The Receiver has not learned the extent of any liability and is
waiting for additional information from the City of Chicago.
7
Case: 1:13-cv-07896 Document #: 197 Filed: 05/15/15 Page 8 of 10 PageID #:1577
Claims Asserted in the Receivership
The Receiver has received claims and verified certain amounts asserted against
AlphaMetrix. The review is not complete and the Receiver does not intend to finalize the review
process until such time as it is apparent that a distribution can be made. In an effort to provide
interested parties and the Court a view of the claims asserted7, the following summary of asserted
claims is below:
Type of Claim
Investor Rebates
White Oak (Principal only)8
Commodity Trading Advisors
General Unsecured
Subordinated Debt
Agreed Aggregate Amount
$3,485,471.87
$23,591,619.00
$7,164,619.68
$21,964,676.14
$3,550,000.00
As indicated above, the Receiver believes that Investors in the various commodity pools
administered by AlphaMetrix LLC also hold claims to amounts removed from their investor
funds which largely funded the cash flow and paid business operating expenses of AlphaMetrix
Group. The Receiver believes that once these claims are determined, these amounts will be
added to those claims listed above. To date, this amount is still being analyzed.
Assets Currently Held by the Receiver
The Receiver is currently holding the following cash assets:
J.P. Morgan Funds (Ending Market
Value 12/31/2014)
JPMorgan Chase Checking Account
Total Cash Assets
$1,350,059.93
$33,103.65
$1,383,163.50
Budget and Funds Expended during the Reporting Period
During the period of January 1, 2015 through April 30, 2015, the Receiver spent
7
This summary should not be considered an admission by the Receiver as to the validity of any claims. It is merely
provided for informational purposes only.
8
White Oak asserts that it has a secured claim that includes several types of interest for a total claim of
approximately $33,626,000.
8
Case: 1:13-cv-07896 Document #: 197 Filed: 05/15/15 Page 9 of 10 PageID #:1578
$481,145.30 to fund the administration of the receivership,9 excluding professional fees.
Professional fees of $164,321.00 and expense reimbursement of $702.60 were paid to Barnes &
Thornburg during the Reporting Period as authorized by this Court. The expenses incurred for
the Reporting Period are attached as Exhibit A to this Report.
The Receiver continues to post relevant pleadings and other information on the
Receiver’s web page at www.btclientconnect.com.
Dated: May 15, 2015
Respectfully submitted,
/s/ Deborah L. Thorne
Temporary Equity Receiver for AlphaMetrix Group
LLC, AlphaMetrix, LLC and the other Related
AlphaMetrix Entities
Deborah L. Thorne (ARDC #6186482)
BARNES & THORNBURG LLP
One North Wacker Drive, Suite 4400
Chicago, IL 60606
Telephone: (312) 214-8307
Facsimile: (312) 759-5646
[email protected]
9
Of the amount of administrative expenses, the Receiver expects that from the sale proceeds she will be entitled to
reimbursement of $414,090.34.
9
Case: 1:13-cv-07896 Document #: 197 Filed: 05/15/15 Page 10 of 10 PageID #:1579
CERTIFICATE OF SERVICE
I, Deborah L. Thorne, the undersigned attorney, certify, pursuant to penalties of perjury,
that I caused the Eighth Report of Deborah L. Thorne, Temporary Equity Receiver of
AlphaMetrix, LLC and Related AlphaMetrix Entities to be served upon the following ECF
service list by electronic filing on this 15th of May 2015:
Rosemary C. Hollinger
[email protected], [email protected], [email protected]
Brooke Elizabeth Conner [email protected], [email protected],
[email protected]
Stephanie Lynn Reinhart
Juris Kins
[email protected], [email protected], [email protected]
[email protected]
David A. Terrell
[email protected], [email protected], [email protected], [email protected]
Randall Marc Lending [email protected], [email protected],
[email protected]
Stephen Richard Tetro
[email protected]
Scott Robert Williamson
[email protected], [email protected], [email protected]
Jeremy Daniel Schreiber
[email protected]
/s/ Deborah L. Thorne.
CHDS01 DTHORNE 961629v1
10
Case: 1:13-cv-07896 Document #: 197-1 Filed: 05/15/15 Page 1 of 2 PageID #:1580
EXHIBIT A
Case: 1:13-cv-07896 Document #: 197-1 Filed: 05/15/15 Page 2 of 2 PageID #:1581
Exhibit A
Receivership Budget
Alphametrix Group, LLC
January-April 2015
Vendor
Equinix, Inc. - #774252
Zayo Group, LLC
Todd Sipka
Public Storage
Chase Bank (7053 account)
Arthur Bell
Barnes & Thornburg
Qdiscovery
Syntel
Rosenblatt Securities
Grandview Analytics
Secure Docs.
ADP
New York State
Total
JANUARY
FEBRUARY
MARCH
EXPENDITURES EXPENDITURES EXPENDITURES
11,124.50
11,124.50
11,124.50
1,309.10
1,309.10
1,309.10
305.00
85.55
305.00
89.70
15,150.00
165,023.60
15,150.00
40,000.00
305.00
100.76
15,150.00
144,000.00
95,000.00
2,150.00
900.00
APRIL
EXPENDITURES
11,125.50
1,309.10
1,400.00
305.00
93.06
15,207.73
72,000.00
11,204.94
883.16
1,625.00
28,857.31
233,001.90
271,664.36
112,645.33
TOTALS
44,499.00
5,236.40
1,400.00
1,220.00
369.07
165,023.60
60,657.73
256,000.00
95,000.00
13,354.94
900.00
883.16
1,625.00
646,168.90