Irving H. Picard v. Saul B. Katz et al

Filing 31

DECLARATION of Fernando A. Bohorquez, Jr., in Opposition re: 20 MOTION to Dismiss THE AMENDED COMPLAINT OR, IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT.. Document filed by Irving H. Picard. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5, # 6 Exhibit 6, # 7 Exhibit 7, # 8 Exhibit 8, # 9 Exhibit 9, # 10 Exhibit 10, # 11 Exhibit 11, # 12 Errata 12, # 13 Exhibit 13-1, # 14 Exhibit 13-2, # 15 Exhibit 14, # 16 Exhibit 15, # 17 Exhibit 16, # 18 Exhibit 17, # 19 Exhibit 18, # 20 Exhibit 19, # 21 Exhibit 20, # 22 Exhibit 21, # 23 Exhibit 22, # 24 Exhibit 23, # 25 Exhibit 24, # 26 Exhibit 25, # 27 Exhibit 26, # 28 Exhibit 27, # 29 Exhibit 28, # 30 Exhibit 29, # 31 Exhibit 30, # 32 Exhibit 31, # 33 Exhibit 32, # 34 Exhibit 33, # 35 Exhibit 34, # 36 Exhibit 35, # 37 Exhibit 36, # 38 Exhibit 37, # 39 Exhibit 38, # 40 Exhibit 39, # 41 Exhibit 40, # 42 Exhibit 41, # 43 Exhibit 42, # 44 Exhibit 43, # 45 Exhibit 44, # 46 Exhibit 45, # 47 Exhibit 46, # 48 Exhibit 47, # 49 Exhibit 48, # 50 Exhibit 49, # 51 Exhibit 50, # 52 Exhibit 51, # 53 Exhibit 52, # 54 Exhibit 53, # 55 Exhibit 54, # 56 Exhibit 55, # 57 Exhibit 56, # 58 Exhibit 57, # 59 Exhibit 58)(Bohorquez, Fernando)

Exhibit 31

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CONFIDENTIAL
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
ADV. PRO. NO. 08-01789 (BRL)

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SECURITIES INVESTOR PROTECTION
CORPORATION,
Plaintiff-Applicant,

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v.

Rule 2004
Examination of:

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BERNARD L. MADOFF INVESTMENT
SECURITIES, LLC,
Defendant.
-------------------------------x
In Re:

ASHOK CHACHRA

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BERNARD L. MADOFF,
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Debtor.
-------------------------------x

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TRANSCRIPT of testimony as taken by and before

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MONIQUE VOUTHOURIS, Certified Court Reporter, RPR,

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CRR and Notary Public of the States of New York and

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New Jersey, at the offices of Baker & Hostetler, 45

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Rockefeller Plaza, New York, New York, on Friday,

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October 8, 2010, commencing at 10:16 a.m.

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BENDISH REPORTING, INC.
Litigation Support Services
877.404.2193
www.bendish.com

ASHOK CHACHRA 10/8/10

CONFIDENTIAL

SIPC v. BLMIS

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A. I've told you I don't recall. You've
asked the question five different ways.
Q.
But I'm now asking you about certain
documents, and your recollection is you can't recall
any memos concerning this issue. Right?
A. Yes.
Q.
And your recollection is that the
issue may have been discussed in e-mails. Correct?
Is that a "yes"?
A. Yes.
Q.
Other than in any e-mails, would
there be any documents concerning the possibility of
Merrill Lynch acquiring an interest in Sterling
Stamos that you can recall?
A. I don't recall.
MS. BIEBER: Is this a good time for
a break?
MR. BOHORQUEZ: Sure. We've been
going for what, about an hour?
(Brief recess.)
BY MR. BOHORQUEZ:
Q.
Just to clear up a couple of things
for the record, before we took a break you had
mentioned that Merrill Lynch became a distribution
agent for Sterling Stamos at around late 2004.

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Q.

Anyone else you recall?

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A.

Not really. I don't remember anyone

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else. I mean, there may have been. He was the

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primary point.

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process.

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you in connection with Merrill's diligence prior to

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becoming a distribution agent?

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A.

What do you mean by that?

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Q.

Well, did he ask you for information

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don't remember if he asked me -- what do you mean if 11:53:28
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met.

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process, Merrill's due diligence process becoming a

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distribution agent, did Mr. Dunleavy have any

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Q.

And by primary point, what do you

A.

He was involved at all points of the

Q.

Right?
A.
Yes.
Q.
What does that mean?
A.
They -- they served the role of a
third-party marketer for the fund -- for our funds.
Q.
And as a role of a third-party
marketer for your funds, what did Merrill Lynch do
for Sterling Stamos?
A.
Introduced Sterling Stamos to
clients.
Q.
Prior to Merrill Lynch becoming a
distribution agent in late 2004 for Sterling Stamos,
you said that Merrill Lynch had conducted some
diligence of Sterling Stamos. Right?
A.
Um-hmm.
Q.
You have to say "yes."
A.
Yes.
Q.
Do you recall who was involved from
the Merrill Lynch side in connection with that due
diligence process?
A.
Yes.
Q.
And who were those people for Merrill
Lynch?
A.
Kevin Dunleavy was the primary point
of contact.

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Funds that we had invested in, funds

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In connection with the due diligence

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Okay. And what did you talk about at

we did not invest in.
Q.

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We had had conversations. I mean, I

those meetings?
A.

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Did Mr. Dunleavy make inquiries of

concerning Sterling Stamos?
A.

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mean by that?

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discussions or any meetings with Saul Katz or David
Katz that you're aware of?
A. I don't know.
Q.
With respect to the due diligence
process that Merrill Lynch conducted prior to its
acquisition of its interest in Sterling Stamos, so
we're talking about between late 2004 and June 2007,
who from Merrill Lynch was involved in that due
diligence process?
A. Kevin Dunleavy. I mean, I don't
think I can vouch for everyone that was involved. I
can just vouch for people that I interacted with.
Q.
That's all I'm asking you.
A. An individual by the name of Guy
Hurley and Michael Regy.
Q.
Regy, how do you spell that?
A. R-e-g-y. There is some accents in
there because he's French, so it's Regy.
Q.
And in connection with Merrill's due
diligence prior to its acquisition of its interest
in Sterling Stamos, did you have any meetings with
Mr. Dunleavy?
A. When you say did I have any meetings,
you mean one-on-one?
Q.
Either one-on-one or with other

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Q.
There is a reference to, "Sterling
Stamos is able to leverage Sterling Equities' 40
years of alternative investment experience." Do you
know what alternative investment experience that is
referring to?
A. You know, real estate is alternative
asset class or alternative strategy, and that's
where the family made their money. They were -private equity is another alternative strategy and
they were part of the founders of American
Securities, which is a buyout firm. They also had
had their investment in Madoff, which was thought of
as a hedge fund, and so they had had a successful
record of investing with Madoff. So they had a long
experience in alternatives.
Q.
And how did you become familiar with
the alternative investments that the Sterling
Partners had?
A. Conversations with Peter.
Q.
Was it based on any conversations
with any of the Sterling Partners?
A. Not so much. It was really with
Peter.
Q.
If you can go down to the fourth
bullet, the one that says, "Alignment of GP and LP

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A.
Or a potential, more likely a
potential limited partner.
Q.
A potential, okay, that's what I
thought.
So, then, if you could turn to page
18, which ends in 045, Bates number 045, if you can
just review that quickly and tell me whether or not
that accurately summarizes Sterling Stamos' due
diligence processes at that time in February '05.
A.
I mean, look, I can't say exactly
what it was in 2005, so I would have to go back and
look at notes and try to figure it out, but it seems
reasonable.
Q.
So, generally accurate, more or less?
A.
I believe so.
Q.
Okay. Was -- the due diligence
process is one of the five or six key components of
your investment strategy. Right?
A.
Yeah. I would assume so, yeah.
Q.
Was the due diligence process, do you
know if it was ever shared or communicated to the
general partners or the limited partners?
A.
So we actually made a rule by which
it would not be shared, because whatever we thought
I guess when I was told by our compliance -- head of

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Interests," can you explain to me what that means?
A.
I didn't write this document.
Q.
Well, I mean to the extent that you
know. If you don't know, you don't know.
A.
What they were referring to here I
didn't write it, so I don't know.
Q.
What's your understanding of aligning
GP and LP interests, what does that mean to you?
A.
That would imply that the general
partner and the limited partner would participate in
investments in a similar way.
Q.
So the LPs?
A.
The general and limited would
participate in the same way.
Q.
These types of marketing materials
for the funds and for Sterling Stamos in general,
were they ever shared with any of the general
partners?
A.
I believe so. I mean, I have no
reason to believe they weren't.
Q.
And were they provided to the limited
partners as well?
A.
This, from my understanding, was for
a limited partner.
Q.
Okay.

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Whether they are a GP or LP?

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Yeah, exactly, and also because every

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GP was an LP and it could be misinterpreted, so we

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pretty much tried not to share anything.

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Q.

Other than what's in this document?

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Yeah. But whatever we sent out,

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rule, if you call it, that was implemented

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post-registration as an investment advisor?

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Because of compliance reasons?

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Because of compliance reasons.

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Q.

Okay. If you can turn to page 23,

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which ends in Bates number 050, this page identifies

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the senior investment team, and at that time in

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February 2005 who did you understand to be the

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senior investment team for Sterling Stamos?

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Q.

A.

So that, just so I understand, that

I think it became more explicit

I mean, day-to-day it was --

day-to-day was Peter and myself.

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post-registration.

A.

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Stamos redeeming its fund from Bayou?
A. I vaguely remember having a
conversation where I had -- I mean, I had to answer
to that, as to why we redeemed.
Q.
What do you mean you had to answer
to?
A. I was working with Peter on that
investment. There were many people working on that
investment, but we were -- two of us were closer to
it.
Q.
Okay. And walk me through what
happened.
A. We would invest with the fund
managers a hundred million dollars. He was growing
his business. He said to 500 million he was going
from just trading equities to trading currencies and
commodities, so he was substantially growing and
shifting his strategy, and he wasn't adding a lot of
back office infrastructure personnel.
So we had the manager in, we talked
to him about it. He said he would do it in three
months. We said it takes more than three months.
We'll redeem, and when you do it, let us know, maybe
we'll come back. And that's what I told Saul Katz.
Q.
In addition to what you just

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redeeming -A. Yup.
Q.
-- was that in a memo or over the
phone or in person? How was that done?
A. I think that was -- I can't remember.
It was definitely verbal. We also had a Bayou
redemption memo, but he would have never seen that,
not from me at least.
Q.
But he had -- you had a discussion
with him about the reasons for the redeeming?
A. Yes, I believe -- I remember having a
discussion with him. You know, I felt awful about
the situation, so I felt like it was important that
I describe to him exactly why we made our decision.
And basically just said -- you know, I mean, he just
acknowledged it. It wasn't much discussion,
actually.
Q.
And was that in person or over the
phone?
A. I can't remember. I remember we had
the conversation. I don't remember if it was in
person.
Q.
The reason why I'm asking because if
it was in person, I would want to know if there was
anybody else in the room, if you recall.

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discussed, did you identify any other problems or
concerns with Bayou that caused you to redeem?
A. Those were the primary -- those were
the reasons. Obviously, in hindsight after the
fraud had come out -Q.
Right.
A. -- you know, we learned that there
was a false auditor -Q.
Right.
A. -- there was affiliated
broker-dealers, those became two areas that we paid
more attention to.
Q.
Okay. But that was after -A. That was after.
Q.
-- after the fraud was revealed.
A. Yeah. We acknowledged not the
fraudulent auditor. We acknowledged that there was
an affiliated broker-dealer in advance of investing.
Just we -- we were lied to about the risk -Q.
I see.
A. -- associated with it.
Q.
So I just want to be specific as to
time frame. With respect to the redemptions from
Bayou before it was discovered that it was a fraud,
and you explained to Saul Katz the bases for

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A. I don't remember.
Q.
Then let's go to the different time
frame, after the fraud was revealed, the Bayou
fraud, and these other two issues were identified,
the fraudulent auditor and the
broker-dealer/investment advisor issue, were those
two issues -A. I'm sorry -MS. BIEBER: Let him finish his
question first.
Q.
Let me try to clarify because I think
you're getting at it -- after the lawsuit was filed
in Bayou and it was -- it was revealed that Bayou
was a fraud, what discussions, if any, did you have
with Saul Katz concerning Bayou?
A. Once the lawsuit was filed against
Sterling Stamos, I did not talk to anyone except for
counsel regarding what was going on with Bayou and
Sterling Stamos.
Q.
So after the lawsuit was filed, you
had no discussions with Saul Katz concerning Bayou?
A. I don't remember them. And I was
very particular and had very strict advice about who
I could talk to about Bayou once the lawsuit was
filed.

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