Manhattan Club Lawsuit

Yes Irene related to my employment with TMC, as you are well aware. Tonya is what redweek assigned me when I registered with redweek.

Tony

Has Redweek invited the media (especially the WSJ and NY Times — although the Post could run with this, too!) to the Aug. 2 meeting?

I've never received a survey from the AGs office. How do I get one?

Re: Inheritance Issue APOLOGIES

My sincere apologies re wrong info. My comment was solely based on the NYC ACRIS (Property) website where I've seen deeds that state, "The estate of..." I see now they must bill the estate. The "in perpetuity" is very important. Thank you for highlighting it to Jeff. Corinne

TONYA420 aka Tony

THANK YOU for posting the link to the 70 page Counter- Claim Filed 7-2-2015 instigated by Eichner's attorneys TRYING TO TAKE THEM OFF THE INVESTIGATION!

I knew the AG attorneys would be fuming by now but never expected such an awesome response, pages of case law, longing Table of Contents & after only 6 pages of reading, I'm in heaven with the AG response!

Usually, I read the Court documents as soon as they're filed but this time I waited. I had thought Andrew Meier, Asset AG, was going to write a letter to the Court but this is breath taking!

Congratulations on your Court win too!

Can you please send me the link.

Thanks, I hopeful that you owners will be victorious in obtaining some type of relief and compensation through the AG's effort.

Here is the link reposted--direct to the AG's counter-claim in pdf download format (after copying to browser)

https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=arMAhc2Z8epneiTXUbb_PLUS_yQ==&system=prod

The AG's counter-claim to the Eichners move to dismiss themselves from the investigation is fascinating reading, and raises many new questions about what was really going on at the Manhattan Club during the past few years. This document should be required reading for all owners.

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ------------------------------------------------------------------------x In the Matter of an Inquiry by ERIC T. : SCHNEIDERMAN, Attorney General of the : State of New York, : : Petitioner, : : Pursuant to Article 23-A of the New York General : Business Law in regard to the acts and practices of : : IAN BRUCE EICHNER, LESLIE H. EICHNER, : STUART P. EICHNER, SCOTT L. LAGER, : T. PARK CENTRAL LLC, O. PARK CENTRAL LLC, : PARK CENTRAL MANAGEMENT LLC, THE : MANHATTAN CLUB MARKETING GROUP LLC, : and NEW YORK URBAN OWNERSHIP : MANAGEMENT LLC, : : Respondents, : : in promoting the issuance, distribution, exchange, : advertisement, negotiation, purchase, investment advice : or sale of securities in or from New York State. : ------------------------------------------------------------------------x Index No. 451536/2014 Hon. Eileen A. Rakower Part 15 MEMORANDUM OF LAW IN OPPOSITION TO RESPONDENTS’ MOTIONS (MOTION SEQUENCE #1 AND #2) AND IN SUPPORT OF PETITIONER NEW YORK STATE ATTORNEY GENERAL’S CROSS-MOTION (MOTION SEQUENCE #3) ERIC T. SCHNEIDERMAN Attorney General of the State of New York 120 Broadway New York, New York 10271 T: (212) 416-8122 Petitioner FILED: NEW YORK COUNTY CLERK 07/02/2015 09:03 PM INDEX NO. 451536/2014 NYSCEF DOC. NO. 138 RECEIVED NYSCEF: 07/02/2015

Petitioner, Eric T. Schneiderman, the Attorney General of the State of New York (“NYAG”), submits this memorandum of law and the accompanying affirmation of Serwat Farooq, dated July 2, 2015 (“2d Farooq Aff.”), with exhibits, in opposition to the motions by Respondents Ian Bruce Eichner, Leslie H. Eichner, and Stuart P. Eichner (together “the Eichners”), and T. Park Central LLC and O. Park Central LLC (together the “Sponsor”) and Sponsor’s managing member, Park Central Management LLC, Sponsor’s selling agent, The Manhattan Club Marketing Group LLC, and a company identified by Respondents as the timeshare’s management company, New York Urban Ownership Management LLC (together with Sponsor, the “Respondent-Entities”), and by Respondent Scott L. Lager, and in support of NYAG’s cross motion.

PRELIMINARY STATEMENT NYAG has received hundreds of complaints from the owners of a timeshare located in New York City called the Manhattan Club. These complaints center on the Respondents’ failure to deliver to the owners their contracted right – the ability to reserve a room in the Manhattan Club after having paid upwards of $20,000 for the privilege. In the Spring of last year, NYAG opened an investigation. On three separate occasions, undercover investigators attended and video recorded Respondents’ sales presentation. What NYAG found was a startling bait and switch. During the Respondents’ sales presentation, prospective purchasers were baited with the promise of building equity in some of the most valuable real estate in the world. They were told that for less than the cost of staying in a comparable hotel, purchasers could stay in a luxurious room at the Manhattan Club not just as overnight guests, but as owners. Purchasers were told that reservations were easy to make, few restrictions applied, and only Manhattan Club owners can stay at the Manhattan Club. They were even told that they had to make a purchase decision the day of the presentation because it was required by NYAG.

The “switch” came after a purchase agreement was signed, when the owners discovered the many differences between what they were promised in the sales presentation and what they bought. For example, the written terms of the offering plan, which is unlawfully withheld at the time of purchase, discloses that certain rooms are not available for rent because they are provided to the public or given to other companies to rent out – both of these reducing the available inventory. As a result, many owners find that it is extremely difficult, if not impossible, for them to actually reserve a room. Moreover, far from building equity in a valuable real estate investment, some owners have sold their ownership interests back for a mere $1 just to escape the burdens of paying rising yearly maintenance fees. And of course NYAG never required that a purchase decision be made the day of the presentation.

Given the evidence collected at that time, which Respondents do not dispute, on July 24, 2014, NYAG commenced a pre-action proceeding under General Business Law § 354, a provision of the Martin Act, allowing NYAG to continue its investigation into Respondents’ conduct publicly. Section 354 provides that it is the “duty” of a court to grant the requested discovery and it also allows for the issuance of an injunction that is “proper and expedient.” The Honorable Arthur F. Engoron issued an order on the same date (the “Order”). The Order requires that (i) the Respondent-Entities produce certain documents, (ii) the Respondent- Individuals appear and publicly testify in court, (iii) all Respondents are prohibited from engaging in any act directly or indirectly related to the offer, sale, purchase, transfer or exchange of ownership interests in the Manhattan Club, and (iv) bank accounts in the name of Sponsor, Park Central Management LLC, and The Manhattan Club Marketing Group LLC be frozen.

Respondents now seek to narrow the Order and otherwise close the NYAG’s investigation. Not only is there no basis to cut off an investigation conducted by NYAG, Respondents have wilfully and repeatedly violated the Order. And despite the Respondents’ delays in producing the Court-ordered discovery, NYAG has uncovered substantial new evidence of fraud necessitating not only the continuation of the Order and the investigation, but requiring the issuance of new relief.

Since Judge Engoron issued the Order, NYAG uncovered additional evidence of widespread fraud. For example, in the offering plan the Respondents misrepresent their reservation policies. Although they promise equality they give some owners preferential treatment. Further, Sponsor has failed to comply with its obligation to pay yearly maintenance fees in a timely manner. Despite this, Sponsor was allowed to rent its inventory of rooms, a privilege denied to all other owners who failed to pay maintenance fees (and earned millions of dollars in the process). At the same time, to address cash flow problems, some owners were charged for yearly maintenance fees ahead of the dates they were actually due.

Some of the most egregious conduct involves Respondent New York Urban Ownership Management LLC (“Urban”) and its relationship with The Manhattan Club Timeshare Association, Inc. (the “Timeshare Association”), the corporation set up to operate the Manhattan Club. While the offering plan and Respondents’ motion papers claim that Urban manages Manhattan Club’s operations, and in return receives a $6.4 million fee per year, a review of Urban’s bank statements and other business records indicate that Urban actually does not provide any services to the Timeshare Association. Indeed, until the Order was issued, Urban had no payroll at all. In addition, as a not-for-profit, the Timeshare Association is allowed to make an “incidental profit” from the charging of maintenance fees and from renting rooms to the general public. However, any incidental profit must be applied to the maintenance, expansion or operation of the corporation, and in no case may be divided or distributed among the members, directors or officers of the corporation. In violation of the New York Not-for-Profit Corporation Law (“N-PCL”), Urban has been diverting approximately 20% of the Timeshare Association’s annual revenues to Sponsor, the Eichners and Lager. These acts are just some of the fraud that has been uncovered in the past ten months in NYAG’s ongoing investigation.

Meanwhile, the Eichners and Lager (together, the “Respondent-Individuals”) have yet to publicly testify, and the Respondent-Entities have belatedly and only partially complied with the Order’s discovery requirements. As they concede, the Respondent-Entities have not completed their productions of documents pursuant to the Order. Most recently, they refused to produce the Eichners’ e-mails that are in the Respondent-Entities’ possession, custody or control, willfully defying this Court’s Order.

Thus, the NYAG cross-moves for three forms of relief. NYAG requests an order requiring the immediate production of the Eichners’ e-mails. NYAG also requests that the Court expand the Order to require Urban to escrow the monthly management fee it collects from the Timeshare Association with the Court for the duration of the investigation. In the absence of such an order, there is nothing preventing Respondents from continuing to dissipate the Timeshare Association’s assets (i.e., the annual maintenance fees paid by Manhattan Club owners). This is particularly important given Respondents behavior as to the initial Order. In direct contravention of the Order, on multiple occasions certain Respondents have withdrawn funds from the court-ordered frozen accounts totally over $650,000. Thus, NYAG also cross-moves for an order holding T. Park Central LLC, Park Central Management LLC, The Manhattan Club Marketing Group LLC, and Lager in criminal and civil contempt of Court. To punish their criminal conte mpt, the Court should impose a $1,000 fine per violative act, and imprison Lager for 30 days. To punish the civil contempt, the Court should impose a fine of $694,996.62, the amount of monies illegally withdrawn between July 25 and November 31, 2014, and imprison Lager for up to six months and until the fine is paid.

THE STATUTORY AND REGULATORY FRAMEWORK A. The Martin Act Prohibits Fraud in the Sale of Real Estate Securities NYAG is charged with enforcing New York’s blue sky law, known as the Martin Act. See General Business Law (“GBL”) § 352 et seq. The Martin Act protects the public from fraudulent practices in the public offer and sale of securities. See id. The statute’s antifraud protections apply to the offer and sale of real estate securities including ownership interests in a timeshare hotel. Id. § 352-e; see Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. P’ship, 12 N.Y.3d 236, 243 (2009); e.g., Gurney’s Inn Resort & Spa Ltd. v. Benjamin, 878 F. Supp. 2d 411, 422 (E.D.N.Y. 2012). The Martin Act’s prohibitions against fraud apply to “any person, partnership, corporation, company, trust or association, or any agent or employee thereof [who] make or take part” in a public offering of real estate securities in or from New York State. GBL § 352-e(1)(a).

The Martin Act requires that before engaging in marketing and sales activity, an offeror of securities, known as the sponsor, must file a broker-dealer registration statement with NYAG to disclose the business history of the sponsor and every person or entity controlling the sponsor, each of whom is a principal of the sponsor. GBL § 359-e(3). This registration statement is effective from the date of filing for a period of four years, and must be renewed prior to its expiration. Id. § 359-e(3)(c). Unregistered sponsors may not sell securities in New York. A sponsor must also submit an offering plan to NYAG. GBL § 352-e(2). The plan must provide adequate information from which potential purchasers may make an investment decision, id. § 352-e(1)(b), and the plan “shall not omit any material fact or contain any untrue statement of material fact.” Id. NYAG does not approve offering plans. Charles H. Greenthal & Co. v. Lefkowitz, 32 N.Y.2d 457, 462 (1973). Instead, NYAG reviews a proposed plan to confirm that it contains the disclosures required by law. Id. If the disclosures appear sufficient, NYAG accepts the plan for filing and the sponsor is permitted to begin marketing and selling units. GBL § 352-e(2). The sponsor and its principals are the guarantors of the representations in the plan, upon which prospective purchasers have a right to rely. People v. Katz, 428 N.Y.S. 2d 982, 984 (Sup. Ct., Special Term, N.Y. Cnty.), aff’d, 77 A.D.2d 501 (1st Dep’t 1980). Indeed, as part of the disclosures mandated by the regulations applicable to the Manhattan Club, Sponsor and its principals must explicitly and prominently certify in the offering plan that the representations in the plan are true and complete, and that the sponsor and its principals are responsible for compliance with the Martin Act. 13 NYCRR § 24.4(b). B. The Martin Act Requires that the Offering or Sale of Real Estate Securities Be Made Only on the Basis of the Representations Contained in the Offering Plan The Martin Act prohibits the offering or sale of real estate securities “except on the basis of information, statements, literature, or representations” contained in the offering plan that must first be filed with NYAG. GBL § 352-e(5). Thus, the Martin Act requires that all advertising, in whatever form including oral statements, explain that no offer of real estate securities is made except pursuant to the offering plan filed with NYAG. Id. § 352-e(3). All advertising must be “consistent with the representations and information” set forth in the offering plan. Id. § 352- e(1)(c). 7 C. GBL § 354 Authorizes Ex Parte Court-Ordered Discovery, and Injunctive Relief that Is Proper and Expedient The Legislature assured investigation and enforcement of the Martin Act’s antifraud provisions by granting to NYAG a “broad mandate of power” to root out and “curb ‘fraudulent practices,’” and to hold sponsors accountable. In re Cenvill Cmtys., Inc., 82 Misc. 2d 418, 420- 21 (Sup. Ct., Special Term, N.Y. Cnty. 1975). NYAG “may pursue his investigative goals either through confidential investigations conducted under compulsion of subpoena ([GBL] § 352) or through public investigations conducted pursuant to court order ([GBL] §§ 354, 355).” State v. 7040 Colonial Rd. Assocs., 671 N.Y.S. 2d 938, 942 (Sup. Ct. N.Y. Cnty. 1998). “The Martin Act provides the Attorney-General with what one commentator has characterized as ‘the broadest and most easily triggered investigative and prosecutorial powers of any securities regulator, state or federal.’” Id. at 941-42 (quoting Kaufmann, Introd. and Comm. Overview, McKinney's Cons. Laws of NY, Book 19, General Business Law art 23-A, at 9). The Martin Act authorizes NYAG, upon his determination to bring an action for fraud in violation of the Act, to apply ex parte for a court order directing witness testimony and the production of documents related to the contemplated action. GBL § 354. Upon such application, “it shall be the duty of the justice of the supreme court to whom such application for an order is made to grant such application.” Id. (emphasis added). NYAG is entitled to examine parties and witnesses before trial “almost upon mere request.” Ottinger v. Civil Serv. Comm’n, 240 N.Y. 435, 439 (1925) (Cardozo, J.). NYAG is not required to make a final decision to commence a Martin Act action before seeking court-ordered discovery under the Act. Gonkjur Assocs. v. Abrams, 88 A.D.2d 854, 856 (1st Dep’t 1982). “A broadly-defined determination that such a proceeding will be commenced is sufficient.” Id. In addition, GBL § 354 authorizes this Court to grant “such preliminary injunction or stay 8 as may appear to such justice to be proper and expedient.” GBL § 354 (emphasis added); see In re Schneiderman, 2014 N.Y. Slip. Op. 31118(U), 2014 N.Y. Misc. LEXIS 2007 (Sup. Ct. N.Y. Cnty. Apr. 25, 2014). The purpose of the inquiry under GBL § 354 is to preserve the status quo while NYAG determines whether a case can be made out. Abrams v. Long Beach Oceanfront Assocs., 136 Misc. 2d 137, 140 (Sup. Ct. N.Y. Cnty. 1987). In sum, the Martin Act and its related regulations set out a trade-off. In return for the privilege of selling real estate securities in New York State, a sponsor and its principals must provide disclosure to purchasers, agree to be held responsible to those purchasers for promises made in the offering plan, and open themselves up to investigation and enforcement proceedings by NYAG. See People v. Katz, 428 N.Y.S.2d 982, 985 (Sup. Ct., Special Term, N.Y. Cnty.) (noting that sponsor must comply with NYAG’s regulations in order to secure the “privilege” of offering cooperative apartments in New York State), aff’d, 77 A.D.2d 501 (1st Dep’t 1980). By choosing this approach, the Legislature put the burden of disclosure and corresponding duty to investigate upon sellers, not purchasers. People v. Federated Radio Corp., 244 N.Y. 33, 41 (1926); accord People v. Royal Sec. Corp., 165 N.Y.S.2d 945, 951 (Sup. Ct., Special Term, N.Y. Cnty. 1955). D. Sponsor Control and the Essence of Timeshare Ownership As defined by NYAG’s regulations, a timeshare is an interest in a plan wherein three or more people each have the right to use and occupy a unit of real estate for less than a full year. See 13 NYCRR § 24.1(c)(3) and (4). The structure of a timeshare, the rights and obligations of timeshare owners and the sponsor, and the authority of the board of directors of the timeshare association are determined by the offering plan, timeshare declaration, and by-laws. If there is a conflict between the offering plan and other documents used in the timeshare offering, the 9 offering plan controls. 13 NYCRR § 24.3(r)(14); e.g., Gurney's Inn Resort & Spa Ltd. v. Benjamin, 878 F. Supp. 2d 411, 422 (E.D.N.Y. 2012). Owners in a timeshare have no direct control over either the common elements or the finances of the timeshare. 13 NYCRR § 24.3(d)(10). Rather, exclusive authority to manage the common elements, joint finances of the timeshare, and other elements is vested in the board of directors, with the day-to-day affairs of the timeshare handled by a managing agent. Id. The declaration and by-laws vest the board with broad power over a wide range of issues affecting owners, from financial decision-making to promulgating rules to entering contracts and bringing suit on behalf of owners. Cf. Levandusky v. One Fifth Ave. Apartment Corp., 75 N.Y. 2d 530, 536 (1990) (describing the role of the board of directors that governs a cooperative or condominium association). The goal of this governance structure is protection of the interest of the entire community through management by the board for the common interest. See id. Unlike a traditional condominium, in a timeshare, control of the board of directors never transfers from sponsor to the owners. See 13 NYCRR § 24.3(d)(10). This is because each timeshare owner has a relatively small interest, and is away from the timeshare property for most of the year, thus making it unlikely that the many timeshare owners could be effectively organized into a voting block. Id. The conflict of interests in a sponsor-controlled board has long been recognized by courts. On the one hand, the board is “vested with great power over the property interests of unit owners while at the same time it receives its authority from the profit-motivated sponsor.” Board of Managers v. Fairways, 193 A.D.2d 322, 325 (2nd Dep’t 1993). As such, there is a great risk that “the board might gear their decisions to benefit the sponsor at the expense of the association or its members.” Id. Because sponsor control of a board inherently creates a conflict 10 of interest, the disclosures made in an offering plan, and a sponsor’s fulfillment of those representations, are vital to prospective purchasers and, ultimately, timeshare owners. STATEMENT OF THE FACTS A. The Manhattan Club The Manhattan Club is a timeshare hotel located in Midtown Manhattan. Farooq Aff. ¶ 16. A typical timeshare plan allows a member or owner to use a specific property during a specific or “fixed” week every year. The Manhattan Club is not a typical timeshare, as the vast majority of owners were sold “flex time” or “flexible ownership” whereby they own a fractional interest of a particular unit, but nevertheless have the ability to reserve any unit of the same accommodation type at any time of the year, subject to availability. 2d Farooq Aff., Ex. A at 10. Thus, in theory, an “annual ownership interest” in the Manhattan Club means the ability to reserve and use a particular accommodation type for seven consecutive or nonconsecutive nights per year, on a first come, first served basis. Farooq Aff. ¶ 18; 2d Farooq Aff., Ex. E. According to the eighth restated plan, accepted for filing in 2012 (the “Plan”), the Manhattan Club timeshare hotel consists of 286 physical units that are available for use by Manhattan Club owners, of four different accommodation types: 129 one-bedroom units; 112 executive suites; 24 penthouse suites; and 21 metropolitan suites. 2d Farooq Aff., Ex. A at 8. According to the Plan, as of 2012, the purchase price of an annual “Gold Flex” ownership interest in a full one-bedroom was $45,000, in an executive suite was $37,800, and in a metropolitan suite was $30,750. The Plan represents that as of 2012, the purchase price of an annual interest in a penthouse suite started at $39,700. 2d Farooq Aff., Ex. A at 41. Sponsor offered purchasers the option of financing up to 90% of the purchase price, at a rate of up to 18% per year. Id. (Plan at 62-63). 11 The Manhattan Club’s day-to-day affairs are run by the Manhattan Club Timeshare Association, Inc., a not-for-profit corporation organized and existing under N-PCL. 2d Farooq Aff., Ex. V. The purpose of the Timeshare Association is to “manage, operate and maintain a timeshare use plan and time-share units for the benefit of, and to promote the welfare of, the timeshare ownership interests.” Id. The powers and duties of the Timeshare Association are exercised by a seven member Board of Directors. 2d Farooq Aff., Ex. A at 80-83. Sponsor appoints four of the members of the Board of Directors. Id. (Plan at 80). Two of the Respondent-Individuals – Stuart P. Eichner and Scott L. Lager – are Sponsor-appointed members of the Board of Directors. Farooq Aff., ¶¶ 8-9. Stuart P. Eichner is the Timeshare Association’s President, and Scott L. Lager is its Vice- President. Id. Nonparties Joshua A. Wirshba and Salvatore Reale are the other two Sponsorappointed members of the Board of Directors. 2d Farooq Aff. ¶ 84. The other three members of the Board of Directors are elected by Manhattan Club owners on an annual basis. 2d Farooq Aff., Ex. A at 80. Separate from the purchase price, and payments on any mortgage paid to Sponsor, Manhattan Club owners must pay annual maintenance fees and real estate taxes to the Timeshare Association. Id. (Plan at 46). As of March 2015, there are 14,147 “active” Manhattan Club contracts, meaning the owners of those contracts are current on all maintenance fees, taxes and mortgage payments related to their ownership interests. 2d Farooq Aff. ¶ 205 n.14. As of March 2015, 2,265 contracts are inactive, meaning that the owners of those contracts are considered by the Timeshare Association to be delinquent in paying their maintenance fees, taxes and/or mortgage payments, id., and therefore are unable to make reservations at the Manhattan Club. 2d Farooq Aff., Ex. E ¶ 15. 12 NYAG commenced an undercover investigation in or around April 2014, after receiving nearly 100 complaints concerning the Manhattan Club. Farooq Aff. ¶ 26. Many of those complaints concerned the difficulty of obtaining reservations at the Club, and the increase in the amount of maintenance fees due each year. B. All Respondents are Involved in the Offering of Real Estate Securities at the Manhattan Club Respondent T. Park Central LLC, together with Respondent O. Park Central LLC, is the Sponsor of the Manhattan Club timeshare, and they are primarily responsible for selling ownership interests in the Club. Farooq Aff. ¶¶ 13-14. According to the Plan, Sponsor sells the ownership interests through Respondent The Manhattan Club Marketing Group LLC (the “Marketing Group”), id. ¶ 16, and Sponsor is managed by Respondent Park Central Management LLC. Id. ¶ 15. Respondents Ian Bruce Eichner, Leslie H. Eichner, and Stuart P. Eichner, by their own admission, are the managing members of Park Central Management LLC, 2d Farooq Aff. ¶ 9, and are the principals and owners of Sponsor and the Marketing Group. Farooq Aff. ¶¶ 6-8.1 Respondent New York Urban Ownership Management LLC is the purported 1 It is unclear what purpose Park Central Management LLC serves, other than to pay the Eichners’ medical bills. See 2d Farooq Aff., Ex. KKK at 2. The Marketing Group’s role is also unclear, as most of Sponsor’s sales staff received 1099 forms from O. Park Central LLC, not the Marketing Group. 2d Farooq Aff. ¶ 97 n.6. 13 management company for the Manhattan Club that was delegated all of powers and duties of the Timeshare Association’s Board of Directors. Id. ¶¶ 11, 108-111; 2d Farooq Aff., Ex. N. However, Urban had no employees until August 2014, less than a month after the Order was issued, and to date Urban’s role remains unclear. 2d Farooq Aff., Ex. O. Employees of the Timeshare Association, which is not currently a respondent, do all the day-to-day work involved in operating the Manhattan Club, and are paid by the Timeshare Association for their labor. Nonetheless, the Timeshare Association also pays a $6.4 million annual management fee to Urban, which in turn pays all of that money (i.e., about 20% of the Timeshare Association’s annual revenue) out to Sponsor and the Respondent-Individuals. 2d Farooq Aff. ¶¶ 101-111, Exs. Q-U. Ian Bruce Eichner, Leslie H. Eichner, Stuart P. Eichner and Hospitality Advisors, LLC, a company owned by Respondent Scott L. Lager, are members of Urban. 2d Farooq Aff., Ex. A at 97; Ex. W. C. Sponsor and the Eichners Certified the Offering Plan Along with Sponsor, three of the Respondent-Individuals – the Eichners – certified in the Plan that they had read the entire Plan, and the Plan (i) does not omit any material fact, (ii) does not contain any untrue statement of material fact, (iii) does not contain any fraud, deception, concealment, suppression, or false pretense, and (iv) does not contain any representation that is false where they knew the truth, with reasonable effort could have known the truth, made no reasonable effort to ascertain the truth, or did not have knowledge concerning the representation made. 2d Farooq Aff., Ex. B. In addition, they represented to the purchasing public that they have primary responsibility for compliance with the Martin Act. See id. 14 D. In 2014, NYAG Opened an Investigation and Uncovered Fraud in the Offering of Real Estate Securities at the Manhattan Club 1. Sponsor’s Sales Staff Directly Contradicted the Offering Plan’s Representations Concerning the Product Being Offered After receiving nearly 100 complaints, NYAG commenced an undercover investigation. On three separate occasions, NYAG sent undercover investigators to the Manhattan Club to observe and video record Sponsor’s sales practices. Farooq Aff. ¶ 28. First, in April of 2014, NYAG undercover investigators Karon Richardson and Louis Carter, posing as a married couple, rented a room at the Manhattan Club and received a reduced rate in exchange for attending the “Vacation Ownership Experience” sales presentation. Id. ¶ 33. In May of 2014, Richard Friedman, another undercover investigator, rented a room at the Manhattan Club and received a reduced rate in exchange for attending the Vacation Ownership Experience. Id. ¶ 35. Finally, also in May of 2014, Sylvia Rivera, an NYAG undercover investigator, rented a room at the Manhattan Club, and in exchange for a reduced rate, attended the Vacation Ownership Experience. Rivera Aff. ¶ 3. What the undercover officers found has been further corroborated by conversations with other individuals who attended sales presentations at the Manhattan Club. 2d Farooq Aff. ¶ 152. a. Sponsor’s Selling Agents Made Material Representations Concerning the “Equity Component” of the Ownership Interests Being Offered The Plan represents that the decision to purchase an ownership interest should be based on its value as a vacation experience, or for other personal use, not for purposes of acquiring an appreciating asset. Farooq Aff. ¶ 59. Yet, Sponsor’s selling agents made bold representations to the undercover agents about the increasing investment value of the ownership interests in the Manhattan Club. For example, touting the location of the Manhattan Club in Midtown Manhattan, a sales agent “Jeanine” told Investigators Richardson and Carter that: 15 Our address is 200 West 56th Street. At 157 West 57th Street, what they’ve built is called Billionaires’ Haven. And they are selling individual apartments for between 50 and 90 million. . . . So there has been a significant equity component here that you would not have – normal timeshare has zero resale value . . . So what you own is Manhattan. . . . The only reason people buy this here is because it’s the last chance to own a tiny piece of Manhattan. Id. ¶ 53; see also id. ¶ 53 n.7. Similar representations about equity were also made to Investigator Friedman. “Arnie,” who identified himself as a broker, asserted that ownership in the Manhattan Club is “better than your money in the bank. . . . t is going up about 15-20% a year . . . There is equity.” Id. ¶ 58. Besides equity, Sponsor’s selling agents also repeatedly used the words “market value” to describe the nature of the ownership interests in the Manhattan Club. For example, the undercover investigators were told that Sponsor retains a 30-day right of first refusal, allowing it to buy back the ownership interest at the owner’s offering price, and that “this is really important because . . . that’s how we maintain the market value.” Id. ¶ 54 n.8. Jeanine explained that “you’re building equity and after it pays for itself, you have it forever. You sell it, you sell it . . .” Id. ¶ 56; see also id. ¶ 56 n.9. But, in reality, the resale value of an ownership interest is uncertain, and likely extremely limited. Id. ¶ 60; see also 2d Farooq Aff., Ex. A at 3. Reportedly, because there is no resale market for ownership interests in the Manhattan Club, Sponsor has compiled a waitlist of Manhattan Club owners who are trying to sell their interests back to Sponsor, but there is no guarantee that Sponsor will buy back an ownership interest from anyone on that waitlist.2 Indeed, in the last several years, Sponsor almost always paid less than $1,000, usually paid $100, and on a few occasions paid only $1 to reacquire an ownership interest. See Farooq Aff. ¶ 62. 2 See http://therealdeal.com/blog/2012/07/23/timeshare-owners-in-eichners-manhattan-club-are-desperate-to-sell/ (last visited June 25, 2014). 16 b. Sponsor’s Selling Agents Made Material Misrepresentations Concerning the Manhattan Club’s Rental of Rooms to the General Public The Plan represents that Urban rents rooms to the general public using so-called “unreserved use periods” in rooms that would otherwise be available to Manhattan Club owners. Id. ¶ 67. Yet, NYAG’s investigators were told that “we don’t rent to the general public.” Id. ¶¶ 63, 66. The selling agents’ oral misrepresentations that they do not rent to the general public are not only false, they are also particularly troubling in light of the volume of complaints NYAG has received from Manhattan Club owners who allege that it is very difficult if not impossible to reserve a room. See, e.g., Farooq Aff., Ex. F. If these purchasers had known that the inventory was decreased by rentals to the general public, they might not have purchased ownership interests in the Manhattan Club. c. Sponsor’s Selling Agents Misrepresented the Reservation Policies Applicable to Owners of Flexible Interests The Plan represents that most owners of so-called “flexible” interests can reserve rooms nine months ahead of the desired check-in date, unless the type of flexible interest owned allows them to reserve seven nights, in which case a room may be reserved 12 months ahead of the desired check-in date. Id. ¶ 86. Marie explained that “you have maximum nine months in advance to make your reservation, and you have until the last minute. But you have to be logical when you want to come. From January to October, not a big deal. For Christmas season, I recommend to make a reservation well in advance.” Id. ¶ 74. Jeanine made similar representations to Investigators Richardson and Carter. Id. ¶¶ 76-77. In reality, Manhattan Club’s reservation policies have always been, and remain today, much more complicated than what Marie and Jeanine described to NYAG’s undercover investigators. At its inception in 1996, T. Park Central LLC offered four types of ownership 17 interests in the Manhattan Club. See Farooq Aff., Ex. G. Sponsor’s offering plan has been amended 88 times, including seven amendments that entirely revised, or restated, the offering plan. Farooq Aff. ¶ 84. Through those revisions, Sponsor’s offering has become even more complicated, in part because Sponsor now offers numerous different kinds of flexible interests, with varying restrictions against the owners’ ability to reserve rooms. Farooq Aff., Ex. A at 11- 12. Sponsor has also entered into contracts with third parties including Resorts Condominiums International, Inc. (“RCI”) and Bluegreen Vacations Unlimited, Inc., whereby non-owners are able to use Manhattan Club inventory, thereby decreasing inventory available to owners. Farooq Aff. ¶¶ 96-97, 101. d. Sponsor Required NYAG’s Undercover Investigators to Make their Investment Decision Based Only on Oral Representations The Plan represents that the Plan and all exhibits referred therein will be available for inspection by prospective purchasers at 200 West 56th Street, New York, New York, the Manhattan Club’s address. Farooq Aff. ¶¶ 48-50. But none of the investigators were provided the Plan before purchase – instead the very existence of the Plan was concealed. At the end of the sales presentation to Investigators Richardson and Carter, they were offered the opportunity to buy an interest in the timeshare. Id. ¶ 33. When Investigator Richardson asked for literature explaining the terms of the offer, a sales manager stated “you’re looking at it – that’s pretty much it,” referring to a single sheet of paper. Id. ¶ 34. When Investigator Friedman asked Marie if she “has some literature, prospectus, something like that,” Marie responded “oh, I don’t.” Id. ¶ 36. Investigator Rivera actually bought a flexible ownership interest at the end of the sales presentation, but did not receive the Plan on that date. Rivera Aff. ¶¶ 4-5. Instead, she was advised to return to the Manhattan Club sales office the next morning to pick up the purchasing documents. Id. ¶ 5. Investigator Rivera was not given a copy of the Plan until a day after she 18 signed purchasing documents to become an owner in the Manhattan Club. Id. ¶ 6. Moreover, all of the undercover investigators were told that they had to make a decision whether to become an owner the “day of,” and could not take materials home to review and make an informed decision. Farooq Aff. ¶¶ 40, 42, 44. In fact, Marie and Doris invoked NYAG as the reason why the Manhattan Club does business “day of.” Id. ¶¶ 44-45. Contrary to Marie’s and Doris’ statements, NYAG does not require that Sponsor sell timeshare interests the “day of.” Id. ¶ 46. The whole purpose of the Martin Act’s disclosure requirements is to set forth in writing all the terms of the offering and provide prospective purchasers with the knowledge necessary to make an informed decision. Id. ¶ 47. 2. Sponsor Failed to Disclose an Arrangement for the Hypothecation or Sale of Notes Executed by Purchasers in Conjunction with the Sale of Ownership Interests Many purchasers elect to use the financing offered by Sponsor in paying for a Manhattan Club ownership interest. See 2d Farooq Aff., Ex. A at 62-63. The Plan fails to disclose that Sponsor was hypothecating, or selling, the notes that purchasers executed in connection with their purchase of timeshare interests in the Manhattan Club to Colebrook Financial Company and Capital Source Bank, despite being legally required to do so under NYAG’s regulations. Id. ¶¶ 102-16. 3. Sponsor Was Selling Securities Without a Valid Broker- Dealer Registration Statement or an Active Offering Plan Sponsor’s broker-dealer registration statements expired in 2004 (for T. Park Central LLC) and 2008 (for O. Park Central LLC). Id. ¶¶ 109-11. And, Sponsor’s Plan expired on May 22, 2014. 2d Farooq Aff. ¶¶ 146-49. Despite this, Sponsor continued to engage in sales. Farooq Aff. ¶¶ 110, 112; 2d Farooq Aff. ¶ 149. Selling securities without an active broker-dealer registration statement and active offering plan is unlawful. 19 E. The Order On July 24, 2014, NYAG applied ex parte for an order, pursuant to GBL § 354, for courtordered discovery and preliminary injunctive relief. On the same date, the Court issued the Order. The Order requires that the Respondent-Entities produce documents, and that the Respondent-Individuals testify in connection with NYAG’s investigation. 2d Farooq Aff., Ex. CC at 2-6. The Order enjoins Respondents, and their principals and agents from (i) engaging in any activity directly or indirectly related to the sale, purchase or transfer of ownership interests in the Manhattan Club, (ii) from commencing new foreclosure proceedings against Manhattan Club owners who are delinquent on maintenance fee, tax, and/or mortgage payments, and (iii) withdrawing funds from accounts in the name of Sponsor, the Marketing Group, or Park Central Management LLC. Id. (Order at 6-7). F. New Evidence of Fraud Attained During the Public Investigation Nearly every week NYAG discovers new evidence of potential wrongdoing. Much of it is under continued investigation. But to give the Court a sense of some of the new evidence the Office has uncovered we include the following facts: 1. Respondents Misrepresented the Number of Available Units in the Club a. From at Least May 1, 2009 to May 24, 2012, Rooms Were Rented to the General Public in a Manner that Violated the Offering Plan Under the terms of the Manhattan Club offering plan as it existed from May 1, 2009 to May 24, 2012, the ability of Manhattan Club owners to make reservations in the Manhattan Club was restricted only by certain enumerated contingencies. 2d Farooq Aff. ¶ 13. One of these was Urban’s right to rent rooms to the general public if they had not been reserved by Manhattan Club owners within 48 hours of the date of the reservation (for example, the offering plan allowed Urban to accept reservations from any member of the general public on July 1, 2009 for 20 a stay to begin on July 3, 2009). Id. ¶ 14. Reservations for the general public further in advance than 48 hours were not permitted. Id. ¶ 15. Nonetheless, Manhattan Club’s reservation records demonstrate that between May 1, 2009 and May 24, 2012 hundreds, if not thousands, of reservations were made more than 48 hours in advance by members of the general public. Id. ¶ 19. Every single one of these reservations was a violation of the disclosures in the offering plan and infringed on the ability of Manhattan Club owners to make reservations under the terms they had been promised. Id. ¶ 20. b. The Offering Plan Continues to Misrepresent the Manhattan Club’s Reservation System The Plan currently states that reservations are accepted on a “first come, first served” basis. Id. ¶ 22. The only means in the Plan for making reservations are: (i) submitting a request for a reservation in writing to Urban by mail to the Manhattan Club’s address; or (ii) calling 1- 888-956-CLUB. Id. ¶ 23. Despite these clear representations, NYAG has learned that many Manhattan Club owners make reservations by either directly e-mailing the Director of Inventory Management, or by requesting reservations from the sales force. Id. ¶¶ 24-34. And, based on the documents that NYAG has reviewed to date, it seems that not all Manhattan Club owners are treated equally. Special attention is paid to getting reservations for new owners, particularly ones who ask for reservations while they are still in the rescission period, which lasts for seven days after the purchase agreement is signed. Id. ¶¶ 29-35. Similarly, special priorities are given to Manhattan Club owners who were willing to pay their yearly maintenance fees early. Id. ¶¶ 36-38. These irregularities help to explain why NYAG has received hundreds of complaints about the difficulty for Manhattan Club owners face in making reservations, and are particularly egregious when viewed together with the misrepresentation made in the sales pitch – captured by 21 NYAG’s undercover investigators – that reservations are easy to make. c. The Offering Plan Misrepresents the Amount of Units Available to Manhattan Club Owners According to the Plan, 286 rooms have been built and are dedicated to the use of Manhattan Club owners. Id. ¶ 39. However, Louise Church, the Manhattan Club’s former Director of Inventory Management, has testified that for the entire time she held that title, from 2005 to 2014, she removed two or three rooms from the inventory available to Manhattan Club owners for Sponsor to use as “show rooms” for marketing purposes. Id. ¶¶ 41-42. This testimony is corroborated by records produced by the Respondent-Entities, which show that two or three rooms were consistently held aside as “out of order,” to be used by Sponsor as show rooms. Id. ¶¶ 43-46. 2. Sponsor Fails to Pay Maintenance Fees on Time and Nevertheless Earns Millions of Dollars in Rental Income on its Inventory, While Reducing Inventory that Would Otherwise Be Available to Manhattan Club Owners Under the plain terms of the Plan, all owners of interests in the Manhattan Club are required to pay maintenance fees, and no owner is allowed to make reservations in the Club unless they pay all fees as they come due. Id. ¶ 48. The yearly maintenance fees are due at the beginning of an owner’s use year, which is the anniversary date of their becoming a Manhattan Club owner. Id. ¶ 49. These terms expressly apply to Sponsor. Id. ¶ 51, Ex. A at 73. However, Chet Zimmerman, Chief Financial Officer of the Timeshare Association, recently testified that Sponsor paid maintenance fees late – i.e., after each use year, rather than at the beginning of the use year. Id. ¶¶ 52-53. Documents produced by the Respondent-Entities indicate that Sponsor earned more than $4 million in 2012, more than $3.7 million in 2013, and more than $4.2 million in 2014, by renting out their own rooms while in arrears of their obligation to pay maintenance fees. Id. ¶¶ 22 56-57. In fact, Sponsor currently owes the Timeshare Association approximately $300,000 in fees, but continues to be able to reserve rooms. Id. ¶ 55. Despite failing to pay its maintenance fees, Sponsor is also able to use its inventory to provide housing for sales staff, business partners, executives of the various Respondent-Entities, and even for recipients of a fellowship program run through Ian Bruce Eichner’s alma mater. Id. ¶¶ 59-68. If the rules were implemented fairly, the revenue generated from these rentals would be used to offset the maintenance fees due from owners (or the rooms would have been made available to owners who paid their maintenance fees on time). 3. In Violation of the Offering Plan’s Representations, the Manhattan Club Charged Owners for Yearly Maintenance Fees and Real Estate Taxes Before the Owners’ Anniversary Dates While Sponsor has not been required to keep current on its maintenance fees, other Manhattan Club owners have been required to pay their fees before they were even due. Id. ¶¶ 69-78. According to the Plan, maintenance fees are due each year on the anniversary of the closing of the sale. Id. ¶¶ 69-73. However, Zimmerman, the CFO of the Timeshare Association, has testified that since 2007 the Manhattan Club has been billing some owners early – whenever it was deemed necessary to bring in extra cash flow. Id. ¶¶ 74-78. He further testified that Lager was personally involved in deciding which owners would be billed early. Id. ¶ 77. 4. The Offering Plan’s Representations Concerning the Relationship Between the Timeshare Association and Urban Are Misleading a. The Plan Represents that the Sponsor-Controlled Board of Directors of the Timeshare Association Delegated All of its Powers to Urban, and Paid Urban for Providing Services The Timeshare Association’s Declaration, by-laws, and the amended and restated contract between the Timeshare Association and Urban are included in, and are a part of, the Plan. Id. ¶ 80. The by-laws prohibit compensation, direct or indirect, from the Timeshare 23 Association to any member of the Board of Directors, or any Officer of the Timeshare Association, for acting as a Director or Officer. 2d Farooq. Aff., Ex. M ¶¶ 3.11, 4.9. The bylaws also represent that Sponsor controls the Timeshare Association by appointing four of seven members of its Board of Directors. 2d Farooq Aff., Ex. M (Article 3). Pursuant to the management agreement between the Timeshare Association and Urban, Urban is responsible for operating the physical units in the Manhattan Club, security, check-in and check-out services, housekeeping, the reservation system, maintaining the books of account, maintaining a complete list of names and addresses of all owners, and preparing the annual budget. 2d Farooq Aff., Ex. N (fourth amendment to the management agreement, ¶ 6). Urban is also required to act in a fiduciary capacity with respect to the protection of and the accounting for the Timeshare Association’s assets. Id. ¶ 7. In exchange for services set forth in the management agreement, as amended, the Timeshare Association agreed to pay Urban a percentage of revenues collected by the Timeshare Association per year. Id. The Timeshare Association has paid Urban $6,482,049 per year, every year since 2010. 2d Farooq Aff., Ex. A at 47. b. Urban Had No Employees Until August 2014, When It Added 12 Employees from the Marketing Group and/or The Continuum Company Regardless of its stated responsibilities under the management agreement, Urban did not have any employees until after Justice Engoron issued the Order, and does not appear to have paid any of the operating expenses of the timeshare hotel for the last several years. 2d Farooq Aff. ¶¶ 101-13. In fact, the Respondent-Entities produced a document in which they stated that Urban did not have any employees on its payroll until August 15, 2014. 2d Farooq Aff., Ex. O. According to other documents produced by the Respondent-Entities, 12 individuals received W24 2 forms from Urban for 2014. 2d Farooq Aff. ¶ 94. All 12 of those individuals also received a W-2 form from the Marketing Group for 2014. Id. ¶ 95. It appears that after the Court issued the Order prohibiting the Marketing Group from withdrawing funds from bank accounts in its name, 12 of the Marketing Group’s employees were put on Urban’s payroll. Urban’s bank accounts were not subject to the Order. At least some of the individuals on Urban’s payroll in 2014 may actually work for The Continuum Company, the real estate development firm founded by Ian Bruce Eichner. The names of seven of the 12 individuals previously appeared on the Marketing Group’s lists of employees in 2013 and/or 2014, under the heading “Continuum.” Id. ¶ 97. An Aol.com article identified one of them as Ian Bruce Eichner’s assistant. 2d Farooq Aff. ¶ 134, Ex. P. And, eight of the individuals maintain profiles on Linkedin.com that note the individual’s relationship to The Continuum Company, not Urban or the Manhattan Club. Id. c. Urban Was Set Up as a Pass-Through Entity by Which Distributions Were Made to Sponsor and the Respondent-Individuals, Using the Timeshare Association’s Monies Urban’s operating account (Signature Bank account ending 0178) is exclusively funded by wire transfers from the Timeshare Association. 2d Farooq Aff., Ex. Q. Each month, Urban transfers funds from this operating account (0178) to one of Sponsor’s accounts (0224) and to another Urban account (5134), both at Signature Bank. See id. Prior to the Order, the sole purpose of Urban’s 5134 bank account was to make distributions to the Respondent-Individuals. 2d Farooq Aff., Ex. R. The application to open the 5134 bank account stated in a section entitled “Detailed Business Description” that Urban is “set up to make distributions to principals” (the Respondent-Individuals) from the Timeshare Association’s funds: 25 See id. at 1. Ian Bruce Eichner and Leslie H. Eichner signed this application on May 24, 2011. See id. From 2011 to at least 2013, Urban’s 5134 bank account was exclusively funded by monies from Urban’s operating account (0178), which in turn was funded by the Timeshare Association’s reserve account: See 2d Farooq Aff. ¶¶ 101-10, Exs. Q-U. From the second-half of 2011 through 2013, Urban paid over $4.8 million to Ian Bruce Eichner; over $976,000 to Stuart P. Eichner; and over $5.4 million to Lager, Hospitality Advisors, LLC and/or Leslie H. Eichner. 2d Farooq Aff. ¶¶ 108-10, Exs. S-U. Thus, despite being identified in the Plan as the management company, and despite having been vested with nearly all of the Timeshare Association’s duties and powers, Urban seems to exist for the sole purpose of funneling money to the Respondent-Individuals and Sponsor. 26 It appears that Respondents have attempted to conceal these facts. On or about August 8, 2014, the Respondent-Entities purported to produce payroll reports and 1099 forms for 2008 through 2013 for Urban. Id. ¶ 112. In those documents, the Respondent-Entities state that Urban made no disbursements in 2011, 2012 or 2013. 2d Farooq Aff., Ex. V. However, documents obtained from Signature Bank demonstrate that Urban actually did make millions of dollars of disbursements to Sponsor, and the Respondent-Individuals in all three of those years. Id. ¶¶ 108-10, Exs. S-U. 5. Lager Sent Owners Forbearance and Deed-in-Lieu of Foreclosure Agreements in Violation of the Order Between July and November 2014, Lager was involved in sending forbearance and deedin- lieu of foreclosure agreements to 28 Manhattan Club owners in violation of the Order. Id. ¶¶ 131-37, Exs. DD-EE. Pursuant to these agreements, the Timeshare Association offered to waive past due maintenance fees and forego commencing a foreclosure proceeding if the owner transferred their ownership interest in accordance with the agreement. Id. ¶ 132. The agreements also sought to have the owners release the Timeshare Association and its affiliates, officers, directors and agents from any and all claims. Id. ¶ 136. Each of those agreements contained a signature line for Lager to sign on behalf of the Timeshare Association and on behalf of Sponsor. Id. ¶ 135. G. Sponsor’s Broker-Dealer Registration Statements Still Have Not Been Filed with NYAG, and There is No Evidence that Sponsor Served the 89th Amendment to the Offering Plan on Purchasers in Contract In or around March 2015, Sponsor submitted proposed broker-dealer registration statements to NYAG, but failed to respond to NYAG’s deficiency comments. Id. ¶ 143-45. As a result, Sponsor’s broker-dealer registration statements still have not been filed with NYAG. Id. ¶ 145. 27 The 89th amendment to the Plan, accepted for filing on March 24, 2015, did not extend the term of the offering. Id. ¶ 148. Pursuant to so-ordered stipulation, Sponsor was required to serve the 89th amendment to the Plan on owners and purchasers in contract on or before April 3, 2015, to advise all of them of NYAG’s investigation, and to advise purchasers in contract of their right to rescind. See 2d Farooq Aff., Ex. FF. Despite NYAG’s request for an affidavit of service, there is no evidence that Respondents served the 89th amendment on anyone. Id. ¶¶ 154-58. H. NYAG Routinely Contacts Victims of Fraud under Investigation NYAG receives thousands of complaints a year from the public. Accordingly, NYAG regularly communicates with complainants to interview them and understand and potentially resolve their complaints. Id. ¶ 163. Complainant affidavits are often used as evidence in actions brought by NYAG. Id. In addition, NYAG communicates with the general public in a variety of ways including by issuing press releases, drafting op-ed pieces to be published in newspapers, and using Facebook (www.facebook.com/Eric.Schneiderman), Twitter (@AGScheiderman), YouTube (https://www.youtube.com/user/AGSchneiderman), and Instagram (agschneiderman). Id. ¶ 164. In May 2015, NYAG sent out a survey to Manhattan Club owners. Id. ¶ 165. NYAG did not use information contained in the Respondent-Entities’ SAM and NEXT databases in distributing this survey, although there was no prohibition against doing so. Id. I. Respondents Have Withheld Material Information about Their Business Practices and Have Prolonged NYAG’s Investigation with Dilatory Conduct Respondents have engaged in conduct seemingly designed to delay and stall the momentum of the investigation. What follows is a few examples. 28 1. The Respondent-Entities Delayed Production of E-mails and Have Yet to Complete Production The Order requires that the Respondent-Entities produce documents relevant to NYAG’s investigation, and defines “documents” to include e-mails. 2d Farooq Aff., Ex. CC at 2-5. From August to October 2014, the Respondent-Entities produced almost no e-mails. 2d Farooq Aff. ¶ 170. In December 2014, NYAG wrote two separate letters detailing missing documents including e-mails. Those two letters were ignored until February 2015 when the Respondent- Entities sought to limit their search of e-mails by custodians and search terms. Id. ¶¶ 172-73, Ex. MM. On March 23 and April 29, 2014, about eight months after the Court issued the Order requiring the production of documents including e-mails, the Respondent-Entities began producing e-mails. Id. ¶¶ 177-178. The Respondent-Entities also refused to produce the Eichners’ e-mails that are in the entities’ possession, custody or control, despite the Order and a so-ordered stipulation expressly authorizing NYAG to demand those documents. 2d Farooq Aff., Exs. CC, NN, OO. 2. The Respondent-Entities’ Document Productions Relating to the Transfer of All Inventory in the Manhattan Club Raise New Questions One particularly good example of the difficulty with Respondents involves determining who owns interests in the Manhattan Club. The Order requires the Respondent-Entities to produce documents sufficient to show all transfers of title to fractional ownership interests in units in the Manhattan Club involving any Respondent or the Timeshare Association. 2d Farooq Aff., Ex. CC at 4. On August 1, 2014, at the first hearing before Special Referee Steven Liebman, counsel for the Respondent-Entities indicated that they would have to use publicly filed documents on ACRIS to respond to this portion of the order. 2d Farooq Aff. ¶ 195. Using publicy-filed documents to identify Manhattan Club owners seemed inappropriate, so NYAG 29 asked for the closing binders for each real estate transaction involving ownership in any unit in the Manhattan Club. Id. On August 6, 2014, NYAG sent a letter to the Respondent-Entities asking when they would produce the closing binders. 2d Farooq Aff., Ex. RR. The next day, the Respondent-Entities advised it was their understanding that NYAG did not want the closing binders, and that this information could be provided using publicly available information from a website known as ACRIS. 2d Farooq Aff., Ex. SS. On August 27, 2014, to avoid further delay, NYAG acknowledged that the Respondent-Entities were going to produce spreadsheets based on publicly available information, while reserving the right to ask for closing binders. 2d Farooq Aff., Ex. TT. To date, the Respondent-Entities produced spreadsheets showing the sales recorded on ACRIS for only 40 units. Id. ¶ 199. Meanwhile, it took the Respondent-Entities eight months, and three attempts, to otherwise account for current inventory. Id. ¶¶ 200-05. Along the way, the Respondent-Entities produced multiple spreadsheets that were incomplete, and raised new inconsistencies. Eventually, NYAG obtained access to the SAM and NEXT databases in May 2015, which contains information about Sponsor’s sales, and inventory in the Manhattan Club. Even that information raises questions. Id. ¶ 193. NYAG has sought – and still seeks – to determine not only whether Sponsor had oversold any units in the timeshare plan, at any time, but also whether anyone at the Manhattan Club was keeping accurate records as to the inventory that Sponsor has sold, has yet to sell, and has bought back and re-sold. Id. ¶ 192. 3. Respondents Failed to Comply With Additional Discovery Demands The Respondent-Entities have still failed to produce other documents required under the Order that are relevant to NYAG’s investigation. The Respondent-Entities have withheld sales materials claiming that responsive documents cannot be produced because they are subject to an 30 attorney’s lien. Id. ¶¶ 185-91. The Respondent-Entities have also failed to produce affidavits of compliance for all documents produced this year, as required by the so-ordered stipulation. Id. ¶ 206. And, pursuant to the so-ordered stipulation, the Respondent-Entities were required to produce an itemized privilege log, which the Special Referee ordered produced by April 23rd. Id. ¶¶ 207-08. Respondents missed that deadline, and in May 2015 asked the Special Referee to rule that they were entitled to produce a less-detailed log on account of the mere fact that they brought these motions in the Commercial Division. Id. ¶ 209-16. Despite the Special Referee’s rejection of that application, and the plain terms of the so-ordered stipulation that they agreed to, two months after it was due they still have not produced a privilege log. See id. ¶ 221. J. The Respondent-Individuals Have Not Testified Yet The Respondent-Individuals have not yet testified in this investigation. Id. ¶ 167. NYAG seeks to have the Respondent-Entities complete the production of documents, and have an opportunity to review those documents before scheduling dates for testimony of the Respondent-Individuals. Id. ¶ 168. K. T. Park Central LLC, Park Central Management LLC, the Marketing Group, and Lager Repeatedly Violated Court Orders During this Investigation by Withdrawing Funds from Frozen Accounts Respondents were served with the Order by service on their attorney on July 24, 2014. Id. ¶ 225. Despite the prohibition against transferring funds in accounts in the names of Sponsor, the Marketing Group and Park Central Management LLC, numerous transactions were made. From July 25, 2014 to July 31, 2014, Lager issued 103 checks from accounts in the name of T. Park Central LLC and the Marketing Group that were processed by the originating bank on or before July 31, 2014. Id. ¶ 226, Ex. VV. In addition, T. Park Central LLC transferred $3,135 to Leslie H. Eichner and $8,269.23 to Hospitality Advisors, LLC (Lager’s company) by wire 31 transfer on July 25, 2015. Id. ¶ 229, Ex. VV. In August and September, pursuant to three so-ordered stipulations, Respondents were permitted to withdraw funds to make certain payments from August 1, 2014, through and inclusive of the pay period ending September 26, 2014, but only from certain bank accounts. 2d Farooq Aff., Exs. WW, XX, and YY. During August and September, monies were actually withdrawn from accounts that were not identified in the first three stipulations, resulting in over $200,000 of improper withdrawals in August, and over $64,000 of improper withdrawals in September. 2d Farooq Aff., Ex. ZZ. In addition, many of the expenses paid in August and September did not comply with the stipulations, or the spirit and purpose of the so-ordered stipulations, which was to allow the Respondent-Entities to avoid violating the New York Labor Law, and to avoid defaulting on other essential obligations. For example, T. Park Central LLC wrote a check to pay a portion of Lager’s American Express Centurion Card bill – a card held by Scott, Sean, and Sabrina Lager. 2d Farooq Aff., Ex. AAA. Those expenses include a $560.83 dinner at Trattoria Dell’Arte New York; a $250.96 lunch at Red Eye Grill; $281 for maintenance of a Porsche; and the $2,500 annual membership fee for the credit card. See id. NYAG repeatedly advised the Respondent-Entities that they were violating the Order. 2d Farooq Aff., Exs. BBB, CCC. NYAG also required that future so-ordered stipulations identify the maximum amount of funds the Respondent-Entities could withdraw from the frozen accounts in a particular time period. 2d Farooq Aff., Exs. HH, DDD, EEE. That did not curtail the violations. In October, pursuant to the fourth, fifth, and sixth soordered stipulations, the Respondent-Entities were permitted to withdraw a maximum of 32 $38,188.57 from the frozen accounts. See 2d Farooq Aff., Exs. HH, DDD, and EEE. 3 However, during October, the Respondent-Entities actually withdrew $341,385 from several accounts. 2d Farooq Aff., Ex. FFF. Of that amount, at least $82,353.19 of the withdrawn funds are directly attributable Lager’s actions:  The Marketing Group issued 50 checks from Wells Fargo account ending 5826, totaling $38,543.87, all signed by Lager.  The Marketing Group issued 40 checks from Signature Bank account ending 0208, totaling $17,084.32, all signed by Lager.  T. Park Central LLC issued 22 checks from account ending 0224, totaling $26,725, all signed by Lager. None of these payments were payroll-related; all were unauthorized withdrawals. Id. In November, pursuant to the order, as then amended by six stipulations, no monies should have been withdrawn from accounts in the name of T. Park Central LLC, O. Park Central LLC, Park Central Management LLC or the Marketing Group. 2d Farooq Aff. ¶ 242. Despite this, in November T. Park Central LLC withdrew $8,887.59 from one account (including $5,000 transferred to Park Central Management LLC); $75.15 from another account; and $11,553.42 from a third account (excluding checks). 2d Farooq Aff., Ex. GGG. And, Park Central Management LLC withdrew over $4,800 from yet another account. Id. ¶ 243. From December 10, 2014 to January 16, 2015, pursuant to the seventh stipulation, Respondents were permitted to withdraw a maximum of $200,018.43 (excluding $550,000 tendered to NYAG to be held in escrow pursuant to a so-ordered stipulation). See 2d Farooq 3 The fourth stipulation authorized Respondents to make withdrawals for the purpose of satisfying obligations as to employee payroll for the week ending October 17, 2014, in the amount of $7,826.35. The fifth stipulation authorized Respondents to make withdrawals for the purpose of satisfying obligations as to employee payroll for the week ending October 24, 2014, in the amount of $7,000.96. The sixth stipulation authorized Respondents to make withdrawals for the purpose of satisfying obligations as to employee payroll for the week ending October 31, 2014, in the amount of $6,074.49, to pay $945 of filing fees to this Office’s Real Estate Finance Bureau, and to pay $16,341.77 of medical premiums to Aetna/US healthcare. 33 Aff., Ex. FF. In December, Respondents violated the Order, as amended by the seventh stipulation, by withdrawing $230,798.63 from frozen bank accounts. 2d Farooq Aff., Ex. HHH. On or around April 3, 2015, NYAG demanded that Respondents comply with the Order, as amended, pursuant to CPLR § 5104, and return all funds illegally withdrawn by April 17, 2015. See id. ¶ 250, Ex. JJJ. NYAG advised Respondents that failure to do so would result in a motion for contempt. The Respondents refused to return any of the illegally withdrawn funds. Id. ¶ 252. Between July 25 and November 30, 2014, $694,996.62 was illegally withdrawn from frozen accounts. Id. ¶ 225-43. On or around April 1, 2015, NYAG requested Signature Bank and J.P. Morgan Chase to freeze all accounts in the names of Sponsor, the Marketing Group and Park Central Management LLC. Id. ¶ 251. ARGUMENT RESPONDENTS’ MOTIONS SHOULD BE DENIED I. THE INJUNCTIVE RELIEF GRANTED BY JUSTICE ENGORON WAS PROPER AND EXPEDIENT AS TO THE EICHNERS, LAGER AND URBAN. A. The Proper Standard Is Proper and Expedient. Respondents seek to vacate the portion of the Order that grants preliminary injunctive relief as against the Respondent-Individuals and Urban. Eichner Mem. at 15; Lager Mem. at 3. The Respondent-Entities do not join this branch of the motion (except with regard to the 21 pending sales).4 To obtain injunctive relief in a § 354 proceeding, the Attorney General need only “set forth reasonable cause to believe that violations of the Martin Act have occurred.” Abrams v. Long Beach Oceanfront Assocs., 136 Misc. 2d 140, 142 (Sup. Ct. N.Y. Cnty. 1987). As 4 It is also odd that it took the Eichners, Lager and Urban ten months to bring this motion, given that the crux of their argument is that the Order was overbroad when issued. Eichner Mem. at 15: Lager Mem. at 3. 34 demonstrated below, NYAG has more than satisfied that burden. Moreover, the type of preliminary injunctive relief granted here has been granted before and simply preserves the status quo.5 The Respondent-Entities are prevented from dissipating assets, and all Respondents are prohibited from engaging in the offer and sale of timeshare interests in the Manhattan Club and thereby avoiding defrauding future purchasers. Similar relief has been granted before on the basis of similar evidence. See, e.g., Bradford Audio Corp. v. Pious, 392 F.2d 67, 72 (2d Cir. 1968) (upholding ex parte § 353 and § 354 injunctions preserving assets and appointing a temporary receiver pending disposition in litigation); In re Cenvill Cmtys., Inc. 82 Misc. 2d at 421 (granting stay of securities-related activities and noting that such a stay is appropriate where there is evidence of Martin Act violations combined with a record of noncompliance with NYAG’s requests for documentary evidence). Respondents acknowledge that the standard for injunctive relief is “proper and expedient.” See Eichner Mem. at 6; Lager Mem. at 3. However, Respondents still attempt to apply State v. Fine, which by its own terms expressly does not apply to § 354 proceedings, and applied the typical CPLR standard for a preliminary injunction. See State v. Fine, 72 N.Y.2d 967, 969 (1988) (distinguishing from the standard applicable for preliminary injunctive relief pursuant to § 354). State v. Fine concerned an action brought by the NYAG under Section 353 of the Martin Act, an entirely different part of the Act. See State v. Fine, 133 A.D.2d 304, 307 (1st Dep’t 1987), rev’d, 72 N.Y.2d 967 (1988); see In re Schneiderman, Index No. 450454/2014, 2014 N.Y. Slip. Op. 31118(U), 2014 N.Y. Misc. LEXIS 2007, *5-*6 (Sup. Ct. N.Y. Cnty. Apr. 25, 2014) (following Fine in ruling that the CPLR standard for a preliminary injunction does not apply to § 354 proceedings). Thus, it is inapplicable. 5 The status quo is properly understood as the status quo as it would have existed “absent [Respondents’] wrongful action.” See Padberg v. McGrath-McKechnie, 108 F. Supp. 2d 177, 184 (E.D.N.Y. Aug. 14, 2000) (citing Johnson v. Kay, 860 F.2d 529, 541 (2d Cir. 1988); Abdul Wali v. Coughlin, 754 F.2d 1015 (2d Cir. 1985)). 35 B. NYAG Is Not Obligated to Establish Liability to Secure an Injunction Against a Party Under Section 354. The entire purpose of a GBL § 354 proceeding is to give NYAG the ability to investigate securities fraud prior to commencing an action, thus, the pleading standards that might apply to the sufficiency of a complaint have no bearing here. Upon the NYAG’s determination to bring an action for fraud in violation of the Martin Act, Section 354 authorizes him to apply ex parte for a court order directing witness testimony, the production of documents, and a preliminary injunction related to the contemplated action. GBL § 354. NYAG is not required to make a final decision to commence an action before seeking an order under § 354. Gonkjur Assocs. v. Abrams, 88 A.D.2d 854, 856 (1st Dep’t 1982). Thus, it is well settled that NYAG “need not establish a prima facie case for a § 354 order, [because] the purpose of the inquiry is to preserve the status quo while determining whether a case can be made out.” Abrams v. Long Beach Oceanfront Assocs., 136 Misc. 2d 137, 140 (Sup. Ct. N.Y. Cnty. 1987) (citing Matter of Edge Ho Holding Corp., 256 N.Y. 374 (1931). As such, contrary to the Respondents’ contention, there is no requirement in the Martin Act or in the cases interpreting it that NYAG must establish a claim to secure preliminary injunctive relief or obtain discovery. See In re Attorney-General, 10 N.Y.2d 108, 113 (1961) (“In our opinion, the courts below have applied to the merely inquisitorial order the measure of proof that would be required at a trial. We should not so narrow the scope of the Attorney- General’s power under article 23-A of the General Business Law”). Indeed, by definition such proof is not possible because a § 354 proceeding occurs before an action to establish liability under the Martin Act is brought – it is a public investigation. C. The-Respondent-Individuals Are Properly Subject of the Order. Respondents do not dispute that violations of the Martin Act occurred. Eichner Mem. at 36 15-16. Instead, they attempt to lay blame for those violations at the feet of their sales staff. Id. But liability under the Martin Act attaches not only where participants commit fraud or had knowledge of fraud, but where they failed to perform their duty to investigate the truth of the representations in the offering plan. See People v. Federated Radio Corp., 244 N.Y. 33, 41 (1926); GBL § 352-c(1)(c). Thus, if the investigation demonstrates that the Eichners and Lager should have known about the sales practices, they would be liable. At this point, NYAG only need show that there is reasonable cause to believe a violation has occurred. Lager was responsible for the sales force so there is more than a reasonable basis to believe he should have known about the sales practices. And as principals who certified the offering plan, there is more than reasonable cause to believe the Eichners had a duty to investigate and failed to do so. Moreover, the evidence demonstrates that Manhattan Club purchasers were victims not only of misrepresentations during oral sales pitches, but also of misrepresentations in the written Plan that was certified by Sponsor and the Eichners. 2d Farooq Aff. ¶¶ 7-116. Thus, there is reasonable cause to believe that the Eichners had knowledge of those misrepresentations. See id. 1. As a Matter of Law, the Eichners Are Properly Named in the Order, Based on their Active Involvement in the Offering, and Responsibility for Compliance with the Martin Act. NYAG is not required to establish scienter to prevail on a Martin Act claim. People v. Greenberg, 95 A.D.3d 474, 483 (1st Dep’t 2012). 6 As explained in Point I(C) above, under the Martin Act, liability attaches where participants commit fraud, had knowledge of fraud, or failed 6 Two of the total four cases cited by Respondents actually support the proposition that the Respondent-Individuals may be estopped from denying knowledge of an agent’s bad acts, and held liable for those acts under the doctrine of respondeat superior, without knowledge of fraud. Marine Midland Bank v. John E. Russo Produce Co., 50 N.Y. 2d 31, 44 (1980); Greenberg, 95 A.D.3d at 483; Marine Midland Bank, 50 N.Y. 2d at 44. Respondents’ reliance on Marine Midland Bank is further misplaced because the case addresses a common law fraud claim, and whether scienter may be imputed from an agent to a principal. See Marine Midland Bank, 50 N.Y.2d at 43. 37 to perform their duty to investigate the truth of the representations in the offering plan. See Federated Radio Corp., 244 N.Y. at 41; GBL § 352-c(1)(c). In support of the prior Order, NYAG presented the Court with evidence that the Eichners are principals of Sponsor. Farooq Aff. ¶¶ 6-8. As such, the Eichners are primarily responsible for compliance with the Martin Act, and legally responsible for making sure that the sales force obey the law – they cannot simply turn a blind eye. See GBL § 352-c(1)(c) (wherein it is deemed unlawful to make a false statement to promote the sale of securities where the sponsor “made no reasonable effort to ascertain the truth” or “did not have knowledge concerning the representation or statement made”); In re Cenvill Cmtys., Inc., 82 Misc. 2d 418, 420-21 (Sup. Ct., Special Term, N.Y. Cnty. 1975) (“By the Martin Act, [NYAG] is given authority to curb ‘fraudulent practices’. These involve knowledge of improper methods of operations, with a concomitant duty to make reasonable effort to ascertain the facts.”). Thus, the Eichners may be held liable if they should have known about the misrepresentations being made in the sales presentations. See Federated Radio Corp., 244 N.Y. at 41; GBL § 352-c(1)(c). By their own admissions, the Eichners are actively involved in the Manhattan Club offering as a matter of law. See State v. Sonifer Realty Corp., 212 A.D.2d 366 (1st Dep’t 1995); State v. Manhattan View Dev., Ltd., 191 A.D.2d 259 (1st Dep’t 1993). The Eichners certified that they “understand that we have primary responsibility for compliance with the provisions of Article 23-A of the General Business Law, the regulations promulgated by the Department of Law in Part 24 and such other laws and regulations as may be applicable.” 2d Farooq Aff., Ex. B. In addition, all three Eichners certified that: We have read the entire offering plan. We have investigated the facts set forth in the offering plan and the underlying facts. We have exercised due diligence to form the basis for this certification. We jointly and severally certify that the offering plan does, and 38 that documents submitted hereafter by us which amend or supplement the offering plan will . . . set forth the detailed terms of the transaction and be complete, current and accurate. Id. They further certified that the Plan does not omit any material fact; not contain any untrue statement of material fact; does not contain any fraud, deception, concealment, suppression, or false pretense; and does not contain any representation that is false where they knew the truth, with reasonable effort could have known the truth, made no reasonable effort to ascertain the truth, or did not have knowledge concerning the representation made. Id. In further support of the prior Order, NYAG also presented the Court with evidence of Sponsor’s failure to disclose the hypothecation loans and maintain valid broker-dealer registrations, violations of law committed by Sponsor, which is controlled by the Eichners. See 2d Farooq Aff., Ex. B (Sponsor and principal certification). Thus, the injunctive relief in the Order against the Eichners is proper based on their primary responsibility for compliance with the Martin Act, evidence of fraud in the oral sales presentations, a material omission in the Plan, and the fact that Sponsor was engaging in sales activity while being an unregistered brokerdealer. Moreover, NYAG may submit supplemental affidavits or affirmations to bolster the Court’s prior Order. In re Cenvill Cmtys., Inc., 82 Misc. 2d 418 (Sup. Ct. N.Y. Cnty. 1975). Since the Order was issued, NYAG has uncovered additional evidence of fraud that further justifies injunctive relief against the Eichners: contrary to their certification that the Plan was complete, current and accurate, the Plan misrepresents numerous material facts. For example, from at least 2009 to 2012, the Timeshare Association rented rooms to the general public more than 48 hours ahead of a desired check-in date, despite that the seventh restated plan prohibited that practice. 2d Farooq Aff. ¶¶ 12-20. The Plan misrepresents that reservations may only be 39 made by mail or telephone, and are granted on a first come, first served basis. Id. ¶¶ 21-38. And, the Plan misrepresents the amount of inventory available to Manhattan Club owners, by stating there are 286 rooms dedicated to the timeshare plan when only 284 rooms are available to owners. Id. ¶¶ 39-47. In addition, Sponsor failed to pay maintenance fees on time, but nevertheless earned millions of dollars in rental income, and reserved rooms at will, contrary to its representation in the Plan that it would follow all of the timeshare’s governing rules. Id. ¶¶ 48-68. At the same time, the Timeshare Association automatically charged Manhattan Club owners’ credit cards before their anniversary dates, and prohibited some owners from making reservations if they refused to pay fees ahead of their due dates, in violation of the Plan. Id. ¶¶ 69-78. The Eichners made millions of dollars per year in connection with another Plan misrepresentation: the Plan states that Urban earned approximately $6.4 million per year by providing services to the Timeshare Association, when Urban has historically served as a passthrough entity by which Timeshare Association’s monies were siphoned off and transferred to Sponsor and the Respondent-Individuals. Id. ¶¶ 79-111. Thus, based on the evidence attained to date, the Order’s injunctive relief against the Eichners is proper and expedient. 2. Lager Is Properly Named in the Order, Based on His Active Involvement in the Offering, Including Managing the Sales Staff. Lager argues that the Order should be vacated as against him because his “position and relationship with certain of the Respondents, alleged in only the most general terms, is insufficient.” Lager Mem. at 3. This argument is simply a parroting of the argument made by the Eichners and Urban, and it fails for the same reasons. No sufficiency-of-pleadings argument applies here. Nonetheless, the evidence submitted in support of the Order, and further evidence obtained since, plainly demonstrates that Lager was extensively involved in, and personally 40 controlled, many aspects of the offering of securities at the Manhattan Club. In support of the Order, NYAG presented the Court with evidence that Lager communicated directly with NYAG on behalf of “The Manhattan Club” for various reasons including to urge NYAG to accept a pending amendment to the Manhattan Club’s Plan. Farooq Aff. ¶¶ 145-47. Since then, Lager has demonstrated his continued involvement in Sponsor’s affairs, having caused Sponsor and the Marketing Group to repeatedly violate the Order. For example, Sponsor sent forbearance and deed-in-lieu of foreclosure agreements to 28 Manhattan Club owners in violation of the Order’s prohibition against engaging in any act related to the transfer of ownership interests. 2d Farooq Aff. ¶¶ 130-37. Those agreements contained signature lines for Lager to sign on behalf of Sponsor and the Timeshare Association. See Farooq Aff., Ex. DD. In addition, Lager issued at least 215 checks in violation of the Order’s prohibition against the withdrawal of monies from accounts in the name of T. Park Central LLC and the Marketing Group. 2d Farooq Aff., Exs. VV, FFF. An organizational chart produced by the Respondent-Entities demonstrates that Lager was in charge of Sponsor’s sales. 2d Farooq Aff., Ex. W. E-mails produced by the Respondent- Entities demonstrate that Lager subjected the sales staff to close scrutiny, specifically authorized incentives that were given out by the sales staff to encourage purchasers to buy, and was aware that the sales staff required prospective purchasers to make the decision to buy “day of,” as NYAG’s undercover investigators caught on camera. 2d Farooq Aff. ¶¶ 122-29, Exs. X-BB; Farooq Aff. ¶¶ 44-45. Accordingly, Lager is properly subject to the Order as a party who made or took part in the offering. See GBL § 353(1).7 And, Lager is a properly named a party in the § 354 7 The fact that Lager, unlike the Eichners, is not identified as a principal of Sponsor in the Plan and did not sign the certification does not spare him from potential liability. In fact, under the Martin Act and its regulations, any 41 proceeding. See e.g., New York v. 820 Assocs., 116 Misc. 2d 901 (Sup. Ct., Special Term, N.Y. Cnty. 1982) (granting § 354 order against two respondents affiliated with sponsor and principals but not named as sponsor in plan). D. Urban Is Properly Named in the Order, Based on Its Purported Role as the Management Company for the Timeshare Association. Respondents also argue that there is no allegation of wrongdoing by Urban. Eichner Mem. at 9. The argument fails not only because there is no sufficiency of pleading requirement, but also because Urban is sufficiently implicated in NYAG’s investigation. In the Farooq Affirmation, NYAG set forth that it is extremely difficult for Manhattan Club owners to actually reserve rooms, that those reservations are subject to Urban’s priority reservation rights, and that Sponsor repeatedly failed to answer basic questions about the timeshare’s operations including questions about reservations. Farooq Aff. ¶¶ 20, 88, 113, 120. Based on these facts, the Order requires that Urban produce documents, and enjoins Urban from engaging in the purchase or sale of ownership interests in the Manhattan Club. More importantly, it is now apparent that Urban is involved in wrongdoing that is costing the Manhattan Club owners millions of dollars per year in unwarranted expenses. According to the Plan (and Respondents’ motion papers), Urban manages the Timeshare Association. See 2d Farooq Aff., Ex. A at 91; Eichner Mem. at 10. Despite that representation, however, until recently Urban had no employees and rendered no services to the Timeshare Association. 2d Farooq Aff., Ex. O. Instead, it has acted as a pass-through entity by which the Timeshare individual who directly or indirectly controls a sponsor and actively participates in the planning or consummation of the offering should be named as a principal of the sponsor, and explicitly certify their duty to fulfill the representations in the plan. 13 NYCRR §§ 24.1(c)(2), 24.4(b). Thus, if Lager controlled Sponsor and was actively involved in the offering, and meets the regulatory definition of a principal, as the evidence supports, see 2d Farooq Aff. ¶¶ 81-101, he will have further violated the law by failing to disclose that he was a principal of Sponsor. See 13 NYCRR § 24.4(b). 42 Association’s monies are transferred to Sponsor and the Respondent-Individuals. 2d Farooq Aff. ¶¶ 101-16. Thus, the Plan’s representation as to the nature of the Timeshare Association’s relationship with Urban constitutes a fraudulent practice within the meaning of GBL § 353. In addition, as a not-for-profit corporation, the Timeshare Association is allowed to make an “incidental profit” from charging maintenance fees and from renting rooms to the general public, but the profit must be applied to the maintenance, expansion or operation of the corporation. N-PCL § 508. N-PCL § 508 specifically prohibits distribution of profits to members, directors, or officers of the not-for-profit corporation. N-PCL § 508. By definition, the not-for-profit corporation does not have shareholders to whom profits are distributed. 64th Assocs., L.L.C. v. Manhattan Eye, Ear & Throat Hosp., 2 N.Y.3d 585 (2004). Despite the law, Urban has served as a vehicle by which millions of dollars of the Timeshare Association’s monies – approximately 20% of the revenue generated by the Timeshare Association – were distributed to the three Eichners, Lager, and Sponsor each year. 2d Farooq Aff. ¶¶ 101-16. Stuart P. Eichner and Lager are officers of the Timeshare Association, and all three Eichners control Sponsor, which controls a majority of seats on the Timeshare Association’s board. Thus, the transfers of funds from the Timeshare Association to the Respondent-Individuals and Sponsor through Urban appear to violate N-PCL § 508. These transfers may violate other New York laws as well, depending on the circumstances surrounding the transfers, which requires further investigation. Moreover, there is no question that all of the Respondent-Individuals and Urban have received millions of dollars in revenues due to the efforts of Sponsor’s sales force, and they do not deny that those efforts were tainted by fraudulent misrepresentations. Thus, NYAG is entitled to pursue those millions of dollars and seek to return them to their rightful owners. See 43 People v. Barrington & Co., 137 N.Y.S.2d 54, 56 (Sup. Ct. N.Y. Cnty. 1954) (“The intent of Article 23-A of the General Business Law is that property derived by means of fraudulent practices shall go back, as far as possible, to the person from whom it was obtained”); see also GBL § 353-a. Accordingly, the injunctive relief in the Order against the Respondent-Individuals and Urban is proper and expedient and should be sustained. II. RESPONDENTS’ REQUESTS THAT THE INJUNCTIVE RELIEF PROHIBITING SPONSOR FROM FINALIZING 21 SALES AND FROM WITHDRAWING FUNDS FROM ACCOUNTS BE MODIFIED SHOULD BE REJECTED. Respondents argue that the Order should be modified to allow Sponsor to finalize 21 sales that have been in “limbo” for the past year. Eichner Mem. at 11-12. They argue that: [Purchasers in contract] were repeatedly told that they could rescind their purchase, terminate their contract, and have their deposit returned in full. Even after receiving and reviewing all this information, they have decided not to rescind. They want to complete their purchase of a timeshare interest in the Manhattan Club. Eichner Mem. at 18 (emphasis in original). Respondents also seek to “allow the generated capital to be used to fund the operating expenses of The Manhattan Club.” Id. However, Sponsor has not satisfied the statutory prerequisites required to engage in any sales activity. Moreover, the injunctive relief set out in the Order is based on evidence of fraud in Sponsor’s sales presentations and Respondents have not demonstrated that any purchasers actually seek to close. Finally, allowing Sponsor to finalize these sales would not benefit the Manhattan Club. A. Sponsor Cannot Finalize the 21 Sales Because the Offering Plan Expired, and Sponsor is Not Registered as a Broker-Dealer of Securities, Which are Prerequisites to the Sale of Timeshare Interests in New York. Respondents cannot legally sell timeshare interests. The disclosure provisions of the 44 Martin Act relevant here, §§ 352-e and 359-e, require that before a sponsor may offer or sell timeshare interests, the sponsor must submit an offering plan and a broker-dealer registration statement to NYAG. GBL §§ 352-e(2), 359-e. The term of the offering plan lapses after 12 months, unless the sponsor files an amendment that extends the term. 13 NYCRR §§ 24.3(a)(5), 24.5(c), 24.5(d)(1). A broker-dealer registration statement expires after four years. GBL § 359- e(3)(c). The Manhattan Club Plan, as amended, expired on May 22, 2014. 2d Farooq Aff. ¶¶ 146-49. T. Park Central LLC’s broker-dealer registration statement expired in 2004, and O. Park Central LLC’s broker-dealer registration statement expired in 2008. Id. ¶¶ 141-45. Accordingly, Respondents are not in a position to legally sell any timeshares and their request to modify the Order to allow Sponsor to finalize 21 sales should be denied. B. Respondents Provide No Evidence that They Notified Purchasers in Contract of Their Right to Rescind or that Any Purchasers Actually Seek to Immediately Close. When the Court issued the Order, 64 purchasers were in contract. 2d Farooq Aff. ¶ 150. Since then, 43 purchasers have rescinded their contracts. As to the remaining 21 purchasers, there is no evidence to suggest that they have been afforded notice of their right to rescind their contracts, as required by a so-ordered stipulation. 2d Farooq Aff., Ex. HH. Respondents’ attorney affirmations fail to allege that the required notice was ever served on the purchasers in contract. See generally Shargel Aff.; Rotenberg Aff. Respondents also failed to provide any evidence to support their assertion that any purchasers in contract seek to immediately finalize the transaction. See Eichner Mem. at 17-19; see generally Shargel Aff.; Rotenberg Aff. In addition, Sponsor’s counsel failed to respond to NYAG’s June 2, 2015 request for an affidavit of service of the required notice. 2d Farooq Aff. ¶¶ 157-58. 45 Respondents failed to provide the Court with any information concerning the 21 pending sales. As a result, this Court lacks the information necessary to evaluate the relief sought by Respondents and their request for permission to finalize 21 sales should be denied. C. The Proceeds from the Sales Would Not Benefit the Timeshare Hotel. Respondents’ contention that the funds generated by the sales would fund the Manhattan Club is vague and misleading. The timeshare hotel’s day-to-day affairs are funded primarily by the yearly maintenance fees paid by existing owners to the Timeshare Association. 2d Farooq Aff., Ex. A at 45. There is no evidence that sales proceeds go to the running of the Club. Thus, sales of timeshare interests will simply further enrich Sponsor and its undisclosed lenders. 2d Farooq Aff. ¶ 116. III. RESPONDENTS’ REQUEST TO SET A CUT-OFF DATE FOR NYAG’S INVESTIGATION AND TO BAR NYAG FROM CONTACTING VICTIMS SHOULD BE DENIED. Respondents seek to impose a cut-off date for NYAG’s investigation, and to prohibit NYAG from “mass mailings,” arguing that the fact that NYAG sent a survey to individuals who own ownership interests in the Manhattan Club shows that the investigation has reached an end. Eichner Mem. at 19. This branch of their motion not only is fatally procedurally improper8 it is also completely baseless in law and fact. NYAG is in the midst of an investigation and there is no justification for cutting it short. 8 Respondents are asking the Court to set a deadline for disclosure in this matter to be completed, and are further asking the Court to limit the scope of disclosure available to NYAG. As this relief is plainly “relating to disclosure,” Respondents were required by the Rules of this Court to confer with counsel for the opposing party in a good faith effort to resolve the issues raised by the motions. See 22 N.Y.C.R.R. § 202.7(a). Despite this rule, Respondents never asked NYAG to consider agreeing to the relief sought in their motions. See 2d Farooq Aff. ¶ 214. Accordingly, their motions, to the extent they relate to disclosure, must be denied. See Hernandez v. City of New York, 100 A.D.3d 433, 434 (1st Dep’t 2012); AQ Asset Mgt. LLC v. Levine, 2014 N.Y. Misc. LEXIS 584, 2014 NY Slip Op 30341(U) (Sup. Ct. N.Y. Cnty. Feb. 4, 2014). Respondents’ refusal to meet and confer is particularly egregious here, as the Petitioner and Respondents have been appearing before Special Referee Liebman in this matter since July of 2014. Referee Liebman is empowered by the Order, by statute (GBL § 356), and by numerous so-ordered stipulations to preside over this matter and make rulings regarding the scope of disclosure available pursuant to Order. 46 A. There is No Basis to Curtail the Duration or Scope of this Investigation. This investigation will not go on forever, but it is not up to the Respondents to choose the expiration date. Even though NYAG has already uncovered a pattern of fraud, NYAG is entitled to additional information – for example, the production of the Eichners’ e-mails, and testimony from them and Lager – to completely understand the scope of each Respondent’s role in the fraud.9 Because there still are questions warranting an investigation, NYAG is entitled to courtordered examination of witnesses and the production of documents pursuant to GBL § 354. See Gonkjur Assocs. v. Abrams, 88 A.D.2d 854, 856 (1st Dep’t 1982) (So long as “there are questions warranting an investigation,” NYAG is entitled to an order directing the examination of witnesses or production of documents pursuant to GBL § 354.). Indeed, the Court is obligated to order such discovery in a Section 354 proceeding. Ottinger v. Civil Serv. Comm’n, 240 N.Y. 435, 439 (1925) (Cardozo, J.) (NYAG is entitled to examine parties and witnesses before trial “almost upon mere request”). The Court of Appeals has repeatedly rejected individuals’ attempts to dictate the course and manner of NYAG investigations. In Carlisle v. Bennett, 268 N.Y. 212 (1935), plaintiff sought to enjoin NYAG from examining plaintiff regarding the sale of securities under the Martin Act. 268 N.Y. at 215. The Court of Appeals dismissed the complaint. Id. at 218. Similarly, in Dunham v. Ottinger, 243 N.Y. 423 (1926), the Court of Appeals rejected a stockbroker’s attempt to enjoin NYAG from investigating securities fraud. Accordingly, there is no basis for Respondents to arbitrarily insist that all disclosure in this matter end on August 1, or for granting a “prohibition against sending further ‘mass mailings’ to timeshare owners.” See 9 NYAG’s power under the Martin Act is “exceedingly broad,” and he is entitled to a presumption of good faith and regularity in the performance of his duties. See In re Attorney-General, 10 N.Y.2d 108, 111 (1961); Pavilion Agency, Inc. v. Spitzer, 9 Misc. 3d 626, 631 (Sup. Ct. N.Y. Cnty. 2005) (quoting Amer. Dental Co-op., Inc. v. Attorney General, 127 A.D.2d 274 (1st Dep’t 1987)). 47 Carlisle v. Bennett, 268 N.Y. 212 (1935); see also People v. Bunge Corp., 54 Misc. 2d 325 (Sup. Ct., Special Term, N.Y. Cnty. 1967) (“[T]here is ample authority for the proposition that in the exercise of such discretion [NYAG] cannot be hampered by the courts. . . . It would be a vexatious practice for a court to substitute its own judgment for that of the Attorney General”). Moreover, NYAG’s investigation into Respondents’ conduct could continue pursuant to NYAG’s statutory subpoena powers. See generally, GBL § 352 and Executive Law § 63. Pursuant to those powers, NYAG could require Respondents to produce testimony and documents and could continue to communicate with their victims and customers by any means that were convenient. The significant difference, however, would be that Respondents would no longer be subject to Court supervision. Given their pattern of ceaseless non-compliance in this matter, escaping Court supervision may be the entire point of these motions. B. Respondents Have Not Satisfied the Order. Respondents have not fully complied with all the discovery requirements of the Order; accordingly, it would be premature and improper to grant their application for an August 1 cutoff date. While Respondents assert that they have been cooperative during the investigation, this assertion remains unsupported by facts. 10 NYAG respectfully refers the Court to the timeline annexed to the Second Farooq Affirmation as Exhibit UU. While this timeline is for illustrative purposes, and does not include all actions taken by NYAG during the course of this investigation, it demonstrates that NYAG is pursuing all leads diligently and expeditiously, while at the same time Respondents have engaged in a pattern of dilatory conduct. For example, the Respondent-Entities still need to produce e-mails in their possession 10 There are numerous examples of foot dragging and delay. One such example involves the discovery of how many timeshare interests actually exist. The Respondents’ production has gone from trying to produce only publicly available information to producing several internally inconsistent spreadsheets, to producing an actual database. Yet, in over eight months of seeking an answer, the facts remain unclear. 48 involving all three Eichners, but have refused to produce those e-mails prior to the Court’s ruling on this motion. 2d Farooq Aff., Ex. OO. Each of these individuals is required to testify before the Order can be deemed satisfied, but to avoid recalling these witnesses, NYAG is awaiting the production of their e-mails. See 2d Farooq Aff. ¶ 168. Knowing this, Respondents are trying to force NYAG to take their testimony before August 1 while at the same time refusing to produce the documentary evidence necessary for NYAG to prepare for that testimony. In addition, Respondents’ handling of the privilege log is emblematic of their conduct in the investigation. The Respondent-Entities have failed to produce privilege logs for any of the documents they produced in 2015, including a privilege log for over 25,000 e-mails withheld based on privilege. 2d Farooq Aff. ¶ 221. Despite a February 11, 2015 so-ordered stipulation that requires the Respondent-Entities to produce an itemized privilege log, and despite the Special Referee ordering the Respondent-Entities to produce it by April 23rd, they have missed that deadline, and in May 2015 sought to negotiate a categorical log. Id. ¶¶ 207-09. They still have not produced a privilege log, but recently represented that they would do so by mid-August. Id. ¶ 221. The Respondent-Entities also have failed to produce affidavits of compliance for all documents produced this year, which is also required by the February 11, 2015 so-ordered stipulation. Id. ¶ 206. Respondents’ dilatory conduct makes it impossible, at this time, to estimate an end-date for the investigation and their motion should be denied. NYAG’S CROSS-MOTION SHOULD BE GRANTED IV. THE COURT SHOULD ORDER PRODUCTION OF THE EICHNERS’ E-MAILS. NYAG respectfully cross-moves for an order for a date certain for the production of emails involving the three Eichners that are in the Respondent-Entities’ possession, custody, or 49 control. The Order requires that “documents” be produced and expressly includes e-mails within the definition of documents. See 2d Farooq Aff., Ex. CC at 2. Nevertheless, the Respondent- Entities produced almost no e-mails from August to October 2014. Id. ¶ 170. As a result, on December 17, 2014, NYAG demanded that the Respondent-Entities produce certain e-mails including the Respondent-Individuals’ e-mails. Id. ¶ 171. Then, in February 2015, the parties entered into a so-ordered stipulation that set forth requirements for the production of e-mails under the December 17, 2014 letter, by limiting the initial production to specific search terms, dates, and custodians. See 2d Farooq Aff., Ex. MM. The February 11, 2015 so-ordered stipulation also expressly reserved NYAG’s right to demand an expansion of the e-mail searches. See id. On or about April 29, 2015, the Respondent-Entities produced e-mails of the Respondent- Individuals. Id. ¶ 178. In the production, Ian Bruce Eichner was the source custodian of a total of 23 e-mails; Leslie H. Eichner was the source custodian of a total of 30 e-mails; and Stuart P. Eichner was the source custodian of just two e-mails. Id. ¶ 179. On May 26, 2015, NYAG once again demanded that the Respondent-Entities produce the e-mails of Ian Bruce Eichner, Leslie H. Eichner and Stuart P. Eichner that relate to the Manhattan Club: i. All e-mails to or from IBE@continuum.com (including cc and bcc) that involve any manhattanclub.com or tmcny.com e-mail address or Scott L. Lager, for the past six years; ii. All e-mails to or from stuarteichner@gmail.com (including cc and bcc) that involve any manhattanclub.com or tmcny.com e-mail address or Scott L. Lager, for the past six years; and iii. All e-mails to or from LeslieE@tmcny.com for the past six years. 50 See 2d Farooq Aff., Ex. NN. On June 4, 2015, Respondents advised in writing that they would not produce these emails because their “position is that these individual Respondents should not be subjected to the terms of the Order.” 2d Farooq Aff., Ex. OO. However, the May 26, 2015 demand was addressed to the Respondent-Entities, not the Respondent-Individuals. See 2d Farooq Aff., Ex. NN. These respondents’ failure to produce books and records in their possession or control is contrary to the Order. See 2d Farooq Aff., Ex. CC. Because the Respondent-Entities are willfully violating the Order, NYAG respectfully requests that the Court issue an order requiring the production of e-mails demanded by NYAG’s May 26, 2015 letter by a date certain. Because the e-mails sought are material to NYAG’s investigation, pursuant to GBL § 354, it is the Court’s duty to grant this relief. Ottinger v. Civil Serv. Comm’n, 240 N.Y. 435, 439 (1925) (Cardozo, J.) (NYAG is entitled to examine parties and witnesses before trial “almost upon mere request”). V. IT IS PROPER AND EXPEDIENT FOR THE COURT TO GRANT FURTHER PRELIMINARY INJUNCTIVE RELIEF REQUIRING THAT URBAN ESCROW THE MONTHLY FEE PAID BY THE TIMESHARE ASSOCIATION. To preserve assets, NYAG also cross-moves for an expansion of the Order’s injunctive relief to include a requirement that Urban escrow the fee paid to it by the Timeshare Association of approximately $6.4 million per year. NYAG had not initially sought to sequester Urban’s assets because NYAG assumed that those assets were used to pay the timeshare hotel’s employees. That assumption, based on Urban’s purported role as the timeshare hotel’s management company, was wrong. NYAG has since reviewed bank account records and other records concerning Urban demonstrating that the transfers of funds from the Timeshare Association to Urban are illegal. 51 As explained in Point I(D) above, Respondents committed fraudulent practices within the meaning of the Martin Act by misrepresenting to prospective purchasers and Manhattan Club owners (and this Court) that Urban is rendering services for payments. 2d Farooq Aff., Ex. A at 91. Historically, however, there were no employees on Urban’s payroll, and the very purpose of Urban’s bank accounts was to funnel money to Sponsor and the Respondent-Individuals. 2d Farooq Aff., Exs. Q-U. Urban’s role recently changed, after the Court issued the Order freezing the accounts of Sponsor, the Marketing Group and Park Central Management LLC. In August 2014, Urban put 12 individuals on its payroll. 2d Farooq Aff. ¶ 96. However, at least nine of those individuals appear to work for Ian Bruce Eichner and/or his real estate development firm, The Continuum Company, not the Timeshare Association. Id. ¶¶ 97-99, Ex. P. Thus, it appears that Urban has never provided any services to the Timeshare Association, contrary to the Plan representations. As further explained in Point I (D) above, the Timeshare Association’s transfers of funds to Urban violate N-PCL § 508, which allows the Timeshare Association, a not-for-profit corporation, to generate only incidental profit, by the collection of maintenance fees and renting rooms to the general public, to be used to maintain the operations of the Timeshare Association. See 2d Farooq Aff., Ex. L. In violation of N-PCL § 508, approximately 20% of the Timeshare Association’s revenues are diverted to Sponsor and the Respondent-Individuals. 2d Farooq Aff. ¶¶ 101-11, Ex. A at 45, Exs. Q-U. The payments to Lager and Stuart P. Eichner, two members of the Board of Directors, are particularly egregious, as the Timeshare Association’s governing rules expressly prohibit compensation for the Timeshare Association’s officers and directors. 2d Farooq Aff., Ex M. Accordingly, to address this ongoing fraud, NYAG seeks to expand the injunctive relief 52 to require that Urban place all the monies paid by the Timeshare Association in escrow with the Court pending the duration of NYAG’s investigation. In the absence of an escrow requirement, Respondents, who control the Timeshare Association, would continue to divert the yearly $6.4 million management fee from the Timeshare Association to any unfrozen account, including any of the Respondent-Individuals’ accounts. Moreover, an escrow requirement is especially necessary in light of Respondents’ willful violations of the prior Order, which are discussed in detail in Points VI and VII below. VI. THIS COURT SHOULD FIND T. PARK CENTRAL LLC, PARK CENTRAL MANAGEMENT LLC, THE MARKETING GROUP AND LAGER IN CRIMINAL CONTEMPT. A. T. Park Central LLC, Park Central Management LLC, the Marketing Group and Lager Willfully Disobeyed the Requirements of this Court’s Order, as Amended, and Therefore, Should Be Held in Criminal Contempt. It is well-settled that an order of a court must be obeyed so long as the court has jurisdiction and its order is not void on its face. See, e.g., State v. Cong. of Racial Equal., 92 A.D.2d 815 (1st Dep’t 1983). Judiciary Law § 750(A)(3) authorizes the Court to punish for criminal contempt a person guilty of willful disobedience to the Court’s lawful mandate. The Court’s mandate must be clear before disobedience can subject a person to punishment for contempt. See Spector v. Allen, 281 N.Y. 251, 259 (1939). The element that elevates a contempt from civil to criminal is the level of willfulness with which the conduct is carried out, although the same act may be punishable as both a civil and criminal contempt. McCormick v. Axelrod, 59 N.Y.2d 574, 583 (1983). A criminal contempt is imposed to preserve the power and vindicate the dignity of the Court and its orders. State v. Cong. of Racial Equal., 92 A.D.2d 815 (1st Dep’t 1983). Here, the Court’s mandate is clear. In the Order, the Court: 53 ORDERED that all Respondents, their principals and agents are preliminarily restrained from making further withdrawals from any account in the name of Respondents T. Park Central, LLC, O. Park Central LLC, Park Central Management LLC or Manhattan Club Marketing Group LLC at any bank, savings and loan association or other financial depository located inside or outside New York. 2d Farooq Aff., Ex. CC at 7. It is beyond doubt that all Respondents had formal and actual notice of their obligations under the Order, by service of the Order on them on July 24, 2014. 2d Farooq Aff. ¶ 225. Nevertheless, in the last week of July, in violation of the Order, T. Park Central LLC and the Marketing Group withdrew $104,894.58. 2d Farooq Aff. ¶¶ 226-29, Ex. VV. Of that amount, $93,490.25 is directly attributable to Lager’s actions: he signed 103 checks that resulted in $93,490.25 of withdrawals from those accounts on or before July 31, 2015. See id. In August, in violation of the Order as amended, Respondents withdrew $201,860.85 from frozen accounts. 2d Farooq Aff. ¶¶ 231-33, Exs. WW, XX, YY, and ZZ. In September, in violation of the Order as amended, Respondents withdrew $64,728.76 from frozen accounts. 2d Farooq Aff. ¶ 234, Exs. YY, ZZ. And, in October, T. Park Central LLC and the Marketing Group again violated the Order by withdrawing over $341,385 from their accounts. See 2d Farooq Aff. ¶¶ 239-41, Exs. HH, DDD, EEE, FFF. The Order as then-amended permitted a maximum of $38,188.57 in withdrawals in October. See 2d Farooq Aff. ¶ 239, Exs. HH, DDD, EEE. Of that amount, $82,353.19 of withdrawals are directly attributable to Lager’s actions: he signed 112 checks in October. 2d Farooq Aff. ¶ 241, Ex. FFF. In November, pursuant to the Order, no monies should have been withdrawn from accounts in the name of T. Park Central LLC, O. Park Central LLC, Park Central Management LLC and the Marketing Group. Despite this, in November, T. Park Central LLC and Park Central Management LLC violated the Order by withdrawing over $20,316 from their accounts. 54 2d Farooq Aff. ¶ 243, Ex. GGG. The willful and contemptuous character of T. Park Central LLC’s, Park Central Management LLC’s, the Marketing Group’s and Lager’s conduct can be inferred from their failure to comply with the Order, as amended. See, e.g., Ferraro v. Ferraro, 272 A.D.2d 510 (2d Dep’t 2000) (“Proof of noncompliance established a prima facie case of criminal contempt”); accord Siskind v. Schael, 33 A.D.3d 806, 806 (2d Dep’t 2006). Furthermore, they refused to comply with NYAG’s Demand for Compliance. See McArthur v. New York City Hous. Auth., 48 A.D.3d 431 (2d Dep’t 2008) (“The willful and contemptuous character of a party’s conduct can be inferred from the party’s repeated failure to respond to demands and/or to comply with discovery orders”); Horne v. Swimquip, Inc., 36 A.D.3d 859, 861 (2d Dep’t 2007) (inferring that plaintiff willfully failed to comply with two court orders where she failed to comply with the orders, and she offered an inadequate explanation to excuse that failure); Sowerby v. Camarda, 20 A.D.3d 411 (2d Dep’t 2005) (concluding that the “willful and contemptuous character of the appellant’s failure to respond to discovery demands can be inferred from his repeated failures to comply with the court’s orders, as well as the absence of any explanation offered to excuse his failures to comply”). Respondents have argued that some of the payments made in violation of the Order were “automatic” or “mandatory.” See 2d Farooq Aff., Ex. KKK. However, from August 1, 2014 until January 16, 2015, the parties negotiated the purposes for which funds could be withdrawn from frozen accounts, and the amount authorized in a particular time period. See 2d Farooq Aff., Exs. FF, HH, WW, XX, YY, DDD, EEE. All payments outside of the scope of the so-ordered stipulations violated the Order, and T. Park Central LLC, the Marketing Group, Park Central Management LLC and Lager cannot rebut the inference of willfulness of those violations. See, 55 e.g., Ferraro v. Ferraro, 272 A.D.2d 510, 512 (2d Dep’t 2000); see also In re Jeacock, 269 A.D. 725, 725 (4th Dep’t 1945) (“Orderly jurisprudence forbids that litigants should be permitted, under plea of hardship or injustice, real or pretended, to nullify or set at nought orders or decrees.”) (internal quotation and citation omitted). In fact, Respondents were repeatedly advised of violations of the Order, in August and October 2014, and in March 2015, and T. Park Central LLC and the Marketing Group nevertheless continued to withdraw monies from their accounts in violation of the Order. Thus, T. Park Central LLC, Park Central Management LLC, the Marketing Group and Lager are guilty of willful disobedience to the Court’s Order, and therefore, should be punished for criminal contempt. B. The Court Should Punish T. Park Central LLC, Park Central Management LLC, and the Marketing Group for Criminal Contempt by a Fine in the Amount of $1,000 Per Violative Act, and Lager by a Fine in the Amount of $1,000 Per Violative Act and Imprisonment for a Period of 30 Days. Here, T. Park Central LLC’s, Park Central Management LLC’s, the Marketing Group’s and Lager’s conduct is egregious as they continued to violate the Order, even after repeatedly being advised to stop. 2d Farooq Aff., Exs. BBB and CCC. Accordingly, the Court should subject them to the full extent of the law in order to deter future contemptuous behavior. McCormick v. Axelrod, 59 N.Y.2d 574, 583 (1983) (“Inasmuch as the objective is deterrence of disobedience of judicial mandates, the penalty imposed is punitive in nature”); accord People v. Hooks, 64 A.D.3d 1075, 1077 (3d Dep’t 2009). In addition, in determining the punishment to impose for criminal contempt, the Court should consider the continuing nature of the violations of the Order. Orchard Park Cent. Sch. Dist. v. Orchard Park Teachers Ass’n, 50 A.D.2d 462, 468 (4th Dep’t 1976). Specifically, T. Park Central LLC, Park Central Management LLC, the Marketing Group and Lager should be levied a fine not to exceed $1,000 per violative act, and 56 Lager should be imprisoned for a period not exceeding 30 days in the jail of the County of New York. Judiciary Law § 751(1) and (4). This relief is necessary here because NYAG has repeatedly caught these Respondents in the act of violating the Order, cautioned them to stop, and been ignored. In August, NYAG advised that payments to consultants’ limited liability companies did not comport with the first and second so-ordered stipulations’ authorization to pay employees’ salaries and wages, as defined under New York Labor Law. 2d Farooq Aff., Ex. BBB. At the same time, NYAG advised that the documents provided by the Respondent-Entities failed to demonstrate the hours worked, gross wages, payroll deductions and net wages for executives including Lager, Leslie H. Eichner, Chet Zimmerman, and Michael Heller as required by so-ordered stipulations. Id. Then, on October 1st, NYAG again protested the payments made to individuals’ limited liability companies, when those companies are not employees for purposes of the Labor Law. 2d Farooq Aff., Ex. CCC. NYAG also protested the payment of travel expenses for non-parties Michael Heller, and Louise Church, and the use of frozen funds to pay a portion of Lager’s American Express bill, including a $560 dinner on July 23, a $250 lunch on July 24, $281 for maintenance of a Porsche, and the $2,5000 annual fee for the credit card. Id. Thereafter, subsequent so-ordered stipulations that allowed certain payments to be made in October specified the names of employees to be paid, the amount, and whether any other expenses were payable under a particular stipulation. 2d Farooq Aff., Exs. HH, DDD, EEE. Despite these specific limitations, T. Park Central LLC, the Marketing Group, and Lager continued to withdraw monies improperly in October. 2d Farooq Aff., Ex. FFF. And in November, when no monies were to be withdrawn, T. Park Central LLC and Park Central Management LLC nevertheless continued to do so. 2d Farooq Aff., Ex. GGG. As a result, 57 between July 25 and November 30, 2014, over $694,996.62 was improperly withdrawn from the Respondent-Entities’ bank accounts. 2d Farooq Aff. ¶¶ 226-43. Accordingly, given the blatant disregard of T. Park Central LLC, the Marketing Group, Park Central Management LLC, and Lager for the requirements of this Court’s Order, and the so-ordered stipulations, it is respectfully requested that the Court punish T. Park Central LLC, the Marketing Group, Park Central Management LLC, and Lager for criminal contempt by imposing the maximum fine, in the amount of $1,000 per violative act, each, and by imprisoning Lager for 30 days in the jail in the County of New York. VII. THIS COURT SHOULD HOLD T. PARK CENTRAL LLC, PARK CENTRAL MANAGEMENT LLC, THE MARKETING GROUP, AND LAGER IN CIVIL CONTEMPT OF COURT, AND PUNISH THEM BY A FINE IN THE AMOUNT OF $694,996.62 AND BY IMPRISONING LAGER FOR SIX MONTHS, AND UNTIL THE FINE IS PAID. A. Respondents Refused to Comply With the Requirements of this Court’s Orders, Prejudicing NYAG’s Rights, and Therefore, Should Be Held in Civil Contempt. CPLR § 5104 authorizes this Court to punish for civil contempt a party who refuses, or willfully neglects, to obey a judgment or order. “To find that a civil contempt has occurred, it must be determined that the party charged with the contempt had knowledge of and disobeyed a clear, explicit and lawful order of the court and that the offending conduct prejudiced the right of the opposing party.” Daniels v. Guntert, 256 A.D.2d 940, 942 (3d Dep’t 1998) (citation omitted). Civil contempt is imposed to preserve and enforce the rights of a party and to compel obedience to orders and decrees made for the benefit of such party. State v. Cong. of Racial Equal., 92 A.D.2d 815 (1st Dep’t 1983). Thus, civil contempt is imposed when 1) a party has knowledge of an order; 3) disobeys it; 3) causing prejudice to another party. As demonstrated in Point VI above, not only did Respondents have knowledge of the 58 Order, as amended, but NYAG reprimanded them for violating the Order on August 27, 2014, October 1, 2014, and at a status conference before Special Referee Steven Liebman on March 20, 2015. 2d Farooq Aff. ¶¶ 237, 249, Exs. BBB, CCC. Nevertheless, T. Park Central LLC, the Marketing Group, Park Central Management LLC and Lager continued to willfully disobey the Order, as amended. Id. ¶¶ 238-48. Their contemptuous conduct has prejudiced NYAG’s right to sequester funds during an investigation pursuant to GBL § 354. Accordingly, this Court should hold Respondents in civil contempt. B. The Court Should Punish Respondents for Civil Contempt by Imprisoning Lager For Six Months, and Until Respondents Pay a Fine for Civil Contempt in the Amount of $694,996.62. The Supreme Court has power to punish civil contempt by fines or imprisonment, or both. Pitterson v. Watson, 299 A.D.2d 467, 468 (2d Dep’t 2002). Judiciary Law § 773 authorizes the Court to impose a fine in an amount “sufficient to indemnify the aggrieved party” for civil contempt, where actual damage has resulted from a party’s contemptuous acts. Here, NYAG and the victims of Respondents’ fraud were aggrieved by withdrawals from the Respondent-Entities’ accounts that violated the Order, as amended. As previously demonstrated, between July 25 and November 30, 2014, over $694,996.62 was improperly withdrawn from the Respondent-Entities’ bank accounts. 2d Farooq Aff. ¶¶ 226-43. Accordingly, the Court should award fines in the amount of $694,996.62, payable to the State of New York, for civil contempt. Further, pursuant to Judiciary Law § 774(1), the offender may be “imprisoned for a reasonable time, not exceeding six months, and until the fine, if any, is paid; and the order, and the warrant of commitment, if any, must specify the amount of the fine, and the duration of the imprisonment.” Judiciary Law § 774(1). Here, Judiciary Law § 774(1) authorizes this Court to 59 imprison Lager for up to six months, and until the civil contempt fine is paid. Given Lager’s repeated and flagrant disobedience to this Court’s prior orders, the only remedy left is imprisonment and the payment of a fine for civil contempt, in the amount of $694,996.62 payable to the State of New York.11 CONCLUSION For the foregoing reasons, NYAG respectfully requests that the Court issue an order: 1) denying Respondents’ motions in their entireties; 2) specifying a date certain for the production of all of the Eichners’ e-mails in the possession, custody or control of the Respondent-Entities, for the past six years; 3) requiring that Urban escrow the fee it receives from the Timeshare Association with the Court each month for the duration of NYAG’s investigation; 4) holding T. Park Central LLC, the Marketing Group, Park Central Management LLC, and Lager in criminal contempt and punishing each of them by a fine in the maximum amount, $1,000 each, per violative act, and by imprisoning Lager for a period of 30 days; 5) holding T. Park Central LLC, the Marketing Group, Park Central Management LLC, and Lager in civil contempt, imposing a $694,992.62 fine, and imprisoning Lager for six months, and until the fine is paid; and 6) granting such other and further relief as the Court deems proper. 11 NYAG would place the civil contempt fine in escrow, as it has done with $550,000 previously tendered by T. Park Central LLC during the investigation, to be disbursed pursuant to a final determination in an enforcement action brought by NYAG against Respondents, or an agreement between the parties. However, if the Court imposes a fine for criminal contempt, those monies would be paid to the State. See Wilwerth v. Levitt, 262 A.D. 112 (1st Dep’t 1941).

I have one question. What if they keep putting this off waiting for the NYSAG to leave office and a new AG takes over and decides to just back off. Can that happen?

TMC timeshare owners need to provide the Attorney General's office with their own written complaints about their general inability to secure vacation time they request, how the value of their ownership was misrepresented in the sales presentation, and how they were assured that their annual maintenance dues would increase only marginally (I was actually advised that they would decrease over time as more of the timeshares were sold!).

Counselors Schneiderman & Farooq appear to be working hard to bring justice to these omnipotent criminals. Help them by writing a letter of your own experience and loss, both financially and to your family for your inability to secure vacation time. State any promises you recall being made during your sales presentation.

We just re-elected Attorney General Eric Schneiderman and should continue to do so until we receive justice. Below is the letter I sent. Unfortunately this blog does not maintain the format of cut & pasted text but you can reformat the letter yourselves for easier reading and to copy it if you would like to use it as a template:

Eric Schneiderman, Esq. New York Attorney General’s Office The Capitol Albany, New York 12224-0341

Re: Timeshare Owners vs. The Manhattan Club

Counselors Schneiderman and Farooq,

The purpose of this writing is to formalize my complaint and to contribute to the evidence pool on Plaintiff's behalf in the above referenced action.

My wife and I responded to a direct mail campaign of the defendant in 2001, met briefly with TMC Sales Executive Vicky Tree, and purchased one week of a one bedroom suite, Gold Flexible Interest. During the sales presentation we were assured that the maintenance fees had not and likely would not increase in the foreseeable future, and that they may even decrease over time. We were also verbally assured that these time shares were steadily increasing in value and could always be sold at a profit in the future, as prior owners were purportedly doing.

In the course of the 13 years we have owned this property we were able to secure our stay there only once. We have called or written to TMC to try to plan a family vacation every year since purchasing 13 years ago and, other than the one occasion, have consistently been denied availability.

During this time our maintenance fees were increased from the initial agreed upon $610 ... to $2,659 annually. That's $2,659 for a week hotel stay (that we cannot even obtain!) on top of another $24,493. that we originally paid for the privilege.

We have dutifully paid all of the fees and maintenance expenses as billed trusting that the State was about to intervene and disallow this continued fraud and the personal threats. We are willing to testify or sign an affidavit attesting to the untruths and misstatements made by the defendant in the course of presenting and selling this property, as well as to our inability to claim what we paid for over the course of our 13 years of ownership.

Sincerely, Charles & Robyn McGill

Timeshare Unit Number - 1715 Owner Number - 14049 Contract - One Week Gold Flex Interest Purchase Price - $24,493. Maintenance Fee - $610 ... now $2,659.33 Date of Purchase - 2/3/2001 Sales Executive - Vicky Tree Owners - Charles & Robyn McGill

Charles McGill XX Harborview Drive Northport, NY 11768

(cell) 516.902.XXXX

I have been a concerned owner for a number of years now and an owner from 1996. For the first 5-6 years our maintenance fee was less than $600, then it went through the roof for no known reason. The treatment by some workers were less than cordial and was threatening. I will not be able to attend the August meeting since I will be out of state on that date. Give them crooks H... in August. Thanks, Pat Hamina

Pat ... have you written your formal complaint to the Attorney General investigating this for us?

Reading this blog are only a small number of the total number of TMC timeshare owners. That is why it is imperative that each of us is proactive in formally registering a complaint ... and not assume that the outcome of this case will otherwise be successful!

I have a question, I just received an email for me to pay my maintenance and Tax fee, (Over $2000) should I send it in or wait for the outcome of this lawsuit?

I have advocate to Pay all Maintenance fees and I own 4 weeks and really cant afford the outrageous fees but I try to stay up to date asif there is a settlement or judgment for owners, I don't want to be left out, my thinking is owners in good standing will be given first preference to Compensation, Imaybee wrong, my 2 cents

Howard Beswick

This is from TMC owner Clifford S.

It seems to me that the real estate taxes should be challenged, the actual value (of $1) is much less than the assessed value I'm sure.

Contest your assessment Not a bad idea.

Contest your assessment Skip Left Navigation Property Taxes And Assesments Forms The STAR program STAR home Eligibility Apply Forms STAR savings Exemption amounts Maximum ... View on www.tax.ny.gov Preview by Yahoo

Hi Jeff,

Thanks so much for posting the AG's counter motion in response to Eisner's attempts to get off of the case. The AG evidence and citations of precedence are really awesome! I remember someone saying we should also send our complaints about TMC's fraudulent practices to the US Consumer Protection Agency? What was the contact information, and do you recommend that we also pursue this route?

thanks, joy

Since both our maintenance fees and mortgages have literally been stolen all these years, FACTS as per the counter- claim AND it states that ANYONE who was sold flex interest based on false information AND it is the responsibility of The Seller NOT The Buyer ASSESS THE INVESTMENT, as stated, we would legally be entitled to get our money back. So.. what to do? The injunction States NO FORECLOSURES which includes maintenance and mortgages (specified in another part of this action, previously just stated in original investigation as "no foreclosures," which I've been assuming meant wait and see, proof provided above that money goes to Eichners and Lager ONLY, Urban Management is a total shell company that does nothing, I believe Guidance is needed by the AG about payments. They've stolen so much already.

I'm also filing a fraud case with the FBI/DOJ on their website, having the CFPB contact the credit reporting agencies for me (a service they provide) to deal with Equiant which "T Park Central"has no Control over (I have that in writing). The AG's office INSISTED ON PAPER copies of information but though I officially filed a Complaint *(EVERYONE NEEDS TO DO SO)* they don't have halfof the documentation I have. After reading this, I'm sending everything electronically via email. It would be probative to copy everything and I don't think they realize the info that I can give them to utilize. I've been literally studying Eichner for 6yrs now, read every article about him, studied his Continuum Corp which he's going to bring down by "hiring" persons there to have non-workers workers at Urban Management and see the downfall inevitably coming. NOT ONE CENT I'VE GIVEN THEM HAS GONE TOWARDS TIMESHARE MAINTENANCE! After this counter - claim was filed, Out of the Blue I get a bill for maintenance with outrageous penalties with a total cost of $5000 for a Metro Suite (though we purchased a Jr Executive Suite called an enhanced Metro at the time) AND NO DECISION ON THIS CLAIM HAS BEEN MADE TO PLACE MAINTENANCE IN ESCROW WHICH IS BEING ASKED OF BY THE COURT, why would I hand the Eichner family and Scott Lager my money for their lifestyle? I had ascertained the 20% hedge fund Eichner is running, not just for his family/Lager but for bulk investors in 2010. When confronted, they responded with a threat of a lawsuit. I got it right. This Document Speaks to PREFERENTIAL TREATMENT. After asking to give back my unit, Jody Bouchell in NYC Financial Services put in writing, "THE TIMESHARE BOARD IS NOT WILLING TO TAKE YOUR UNIT BACK BECAUSE OF THE 2 FRIVOLOUS LAWSUITS YOU FILED." Sheppard and Smith are in the AG's original papers relating to owners trying to sue. That's us, co-owners. I have in writing from Jose Rosario (finally after years of complaint) that it sounds like we purchased a Jr. Executive Suite, not a Metropolitan Suite and he'd review our contract. Never did so, but instead felt free to be abusive last summer when we stayed there. We were KICKED OUT for NO reason our 7th night at 5pm, way after housekeeping left. It also appears that the AG hasn't dug up that Leslie Eichner owns and Sal Reale works for the Housekeeping services at TMC! I've got proof of that as well.

I dream of testifying.

Eichner, in interviews, always says, "I don't get revenge, I get even." He's no longer above the law! And since my Money is going to him to pay attorneys that are simply and blatantly stalling, it's crazy to pay maintenance, imho, unless a SAFE escrow fund is established as stated. Corinne

I agree with you...we will not pay this years fees in light of where our funds are going...not to maintain TMC but to these crooks. I did receive a threatening call a few weeks back, but I ignored it. I sincerely hope the AG puts these guys in jail.

We are planning to attend the Aug 2 meeting in nyc. Would u please post an update in regard to location, time and agenda.

Thank you Bert Boyson, Ruth Holt