### Glenmede Trust Co., N.A. v Infinity Q Capital Mgt. LLC 2024 NY Slip Op 30809(U) March 13, 2024 Supreme Court, New York County Docket Number: Index No. 160830/2022 Judge: Melissa A. Crane Cases posted with a "30000" identifier, i.e., 2013 NY Slip

Op 30001(U), are republished from various New York State and local government sources, including the New

York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication.

### [FILED: NEW YORK COUNTY CLERK 03/13/2024 04:45 P~ NYSCEF DOC. NO. 208 INDEX NO. 160830/2022 RECEIVED NYSCEF: 03/13/2024

PRESENT: 

### SUPREME COURT OF THE STATE OF NEWYORK NEWYORK COUNTY HON. MELISSA A. CRANE PART Justice SOM ---------------------------------------------------------------------------------X INDEX NO. 160830/2022

THE GLENMEDE TRUST COMPANY, N.A., Plaintiff,

- V - INFINITY Q CAPITAL MANAGEMENT LLC,JAMES VELISSARIS, LEONARD POTTER, SCOTT LINDELL, SONDERMAN FAMILY LIMITED PARTNERSHIP, LP, INFINITY Q MANAGEMENT EQUITY LLC,TRUST FOR ADVISED PORTFOLIOS, U.S. BANCORP FUND SERVICES, LLC,EISNERAMPER LLP, QUASAR DISTRIBUTORS, LLC,JOHN C. CHRYSTAL, ALBERT J. DIULIO, CHRISTOPHER E. KASHMERICK, HARRY E. RESIS, RUSSELL B. SIMON, STEVEN J. JENSEN, Defendant.

---------------------------------------------------------------------------------X MOTION DATE 11/16/2023 MOTION SEQ. NO. 013

DECISION + ORDER ON MOTION

The following e-filed documents, listed by NYSCEF document number (Motion 013) 142, 143, 144, 145, 146, 152, 157, 162, 181 were read on this motion to/for DISMISSAL Defendant Scott Lindell ("Lindell") has moved to dismiss PlaintiffThe Glenmede Trust Company, N.A.'s ("Glenmede" or "Plaintiff') amended complaint pursuant to CPLR 321 l(a)(7). The amended complaint alleges causes ofaction against Lindell for violation ofsections 11 and 15 ofthe Securities Act of 1933. For the following reasons, the court dismisses both causes of action againstLindell. 

### FACTUAL AND PROCEDURAL BACKGROUND This matter arises in connection to the collapse of a mutual fund called Infinity Q Diversified AlphaFund ("Mutual Fund"). Defendant Infinity Q Capital Management ("Infinity Q Mgmt.") managed the Mutual Fund, selecting the Mutual Fund's portfolio of investments (Amended Complaint, NYSCEF Doc. No. 101, 

## ,r,r 28, 54). Individual defendants Lindell, James

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Velissaris ("Velissaris") and Leonard Potter ("Potter") launched Infinity Q Mgmt. in 2014 with non-party David Bonderman ("Bonderman"), allegedly to act as investment advisor for both the Mutual Fund and a separate private hedge fund ("Hedge Fund") (id., 

### ,i 4). Ratherthan stock the Mutual Fund with traditional stocks and bonds, Infinity QMgmt. purchasedvariance swaps aspart of its strategy to "generate absolute returns that did not depend on what direction the market moved, butrather on howmuch the market moved (i.e., how volatile the market was)" (id., 

### ,i 5). 1 These types ofsecurities had no readily available market prices (id., 

### ,i 7). Therefore, Infinity Q Mgmt. hadto generate its ownnetassetvalue ("NAV") ofthe assets in the MutualFund on a daily basis (id., ,i,i 6-7). Infinity Q Mgmt. generated this NAV using the third-party valuation service Bloomberg offered, called BVAL (id., 

### ,i 131). However, for many years, Velissaris managed to inflate artificially the value ofthe Mutual Fund by hundreds ofmillions ofdollars (id., 

### ,i,i 9-11). Thisresulted in an SEC investigationbeginning in 2020 andthe subsequentcollapse ofthe Mutual Fund (id., 

### ,i,i 11-13). US Bankallegedlyhasestablishedmultiple seriestrusts as partofits mutual fund business, of which Defendant Trust for Advised Portfolios ("Trust") is one (id., ,i,i 64, 67). The Trust established the Mutual Fund under its umbrella (id., 

### ,i 69). As is relevant for this motion, the Trust issued shares in the Mutual Fund pursuant to a Post-Effective Amendment to its Registration Statement on December 20, 2019 ("December 2019 Registration Statement") (id., ,i 142). Defendant Christopher Kashmerick signed the December 2019 Registration Statement as the President and Principal Executive Officer ofthe Trust (December 2019 Registration Statement, NYSCEFDoc. 127, p. 118).AnumberofotherindividualssignedtheDecember2019Registration

1 According to the amended complaint, variance swaps allowbuyers to "bet on the volatility ofan underlying asset, security, index, or currency exchange" (see Amended Complaint, ,i 116). For each variance swap, the parties determine a "strike price" (id., ,i 118). Ifvolatility "exceeds the strike price, the buyer ofthe swap ...receives the payment,"but ifvolatility "is belowthe strike price, the seller ofthe swap ...receives the payment" (id.).

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Statement, including Treasurer and Principal Financial Officer Russell Simon and Mutual Fund trustees John Chrystal, Albert DiUlio, and Harry Resis (id.; Amended Complaint, 

## ,r,r 37-40). Potter, Velissaris, and non-party Director Neil Gray all signed on behalfofnon-party Infinity Q Commodity Fund, Ltd. (December 2019 Registration Statement, p. 119). Despite the amended complaint alleging thatLindell was one ofthe multiple defendants who "signed or authorized the signing oftheDecember2019 SecuritiesActFiling and/or[] otherwise activelyparticipated in the sales process" (AmendedComplaint,

## ,r297), Lindell did not sign the December2019 Registration Statement (see December 2019 Registration Statement, pp. 118-119). Nor did Lindell "consent[] to having been named as the person[] who prepared or certified parts ofthe December 2019 Securities Act Filing" anywhere in the document or its exhibits (see Amended Complaint,

## ,r 274; December2019 Registration Statement). Thefocal pointofPlaintiff'scase againstLindell and the other defendants is thatthe December2019 Registration Statement "contained false statements of material fact and/oromitted material facts that were required to be disclosed ornecessaryto make the statements therein not misleading" (Amended Complaint,

## ,r 270). Aside from his alleged role in the execution ofthe December2019 Registration Statement, Plaintiff alleges that Lindell was the "Chief Risk Officer ('CRO'), head of operations, Chief Compliance Officer, a portfolio manager, and a member ofthe valuation committee oflnfinity Q Mgmt. (id., 

## ,r 30). According to the amended complaint, Lindell, despite being in a position to learn ofVelissaris's fraud, ignored red flags. In particular, Plaintiffalleges that Infinity Q Mgmt.,
as a result ofVelissaris improperly adjusting inputs to BVAL, reported valuations on variance swaps that were mathematically impossible (id., 

## ,r,r 204-206). Infinity 

### Q allegedly reported valuations high enough that volatility would have needed to be negative for the remainder ofthe term, which is notpossible(id.,

## ,r205). Theamended complaintallegesthatMutualFundTreasurer

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and CFO Russell Simon asked Lindell in an email about one instance of a mathematically impossible valuation, and Lindell failed to provide a satisfactory response (id., 

### ,i 208). Plaintiff also alleges that Lindell "noticed that there were inputs in BV AL that were inconsistent with the term sheets," that he "reviewed the counterparty marks that were different from Infinity 

### Q [Mgmt.]'s marks," and that he "recognized a trend whereby Infinity 

### Q [Mgmt.J's final valuations ofvariance swaps upon settlement dropped drastically from Velissaris's interim valuations (id., 

### ,i 214). Despite being aware ofthese red flags related to Infinity Q [Mgmt.]'s valuations, Lindell allegedly "turned a blind eye to Velissaris's manipulated valuations" (id., 

### ,i 215). Afterthe Mutual Fund collapsed in March 2021, shareholders filed class action lawsuits related to the collapse ofthe Mutual Fund, and the parties reached a settlement that the court preliminarily approved on October 17, 2022 

### (In re Infinity Q DiversifiedAlpha FundSecurities Litig., Index No. 651295/2021, NYSCEF Doc. No. 181). The court then held a final approval hearing on June 14, 2023. Plaintiffdetermined to opt out ofthe class action settlement and filed the complaintin this action onDecember 19, 2022 (Complaint, NYSCEF Doc. No. 2). Defendants, including Lindell, then moved to dismiss. However, on May 3, 2023, after Plaintiff informed Defendants that it intended to amend its complaint as ofright, Defendants, including Lindell, stipulated to withdraw their pending motions to dismiss (Stipulation Withdrawing Motions to Dismiss, NYSCEF Doc. No. 94). Plaintiffthen filed the amended complaint on May 26, 2023. Defendants, including Lindell, movedto dismissthe amended complaintfor failure to state aclaim pursuant to CPLR 321 l(a)(7), and the court held oral argument on the motions to dismiss on November 15-16, 2023. Forthe following reasons, the court dismissesthe causesofaction against Lindell in theirentirety.

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DISCUSSION INDEX NO. 160830/2022 RECEIVED NYSCEF: 03/13/2024

On a motion to dismiss pursuant to CPLR 321l(a)(7), the court must "accept the facts as allegedinthe complaintastrue, accordplaintiffsthe benefitofeverypossible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" (Leon v Martinez, 84NY2d 83, 87-88 [1994]; seealso Chapman, Spira & Carson, LLCvHelixBioPharma Corp., 115 AD3d 526, 527 [1stDept2014]). The court notes that, despite attaching to his motion papers the affirmation of Deepa Devanathan (NYSCEF Doc. No. 144) and exhibits referenced therein (NYSCEF Doc. Nos. 145- 146), Lindell has not moved to dismiss the amended complaint pursuant to CPLR 321 l(a)(l) on the basis of a "defense [] founded upon documentary evidence" (CPLR 3211(a)(l); Opening Memo., NYSCEF Doc. No. 143, p. 1 ). Rather, the motion is limited to failure to state a cause of action underCPLR321 l(a)(7). Nevertheless, dismissal maybe appropriate based ondocumentary evidence where the documentary evidence "flatly reject[s]" the plaintiffs cause of action (see Basis YieldAlphaFund(Master) v GoldmanSachs Group, Inc., 115 AD3d 128, 134-135 [Ist Dept 2014]). When a defendant submits documentary evidence, the standard shifts from "whetherthe plaintiffstated a cause ofactionto whetherit has one" (id. at 135 [internal citations and quotation marks omitted]; Kaplan v Conway & Conway, 173 AD3d 452, 453 [1st Dept 2019] [finding that the motion court "properly considered the emails submitted by defendants in dismissing the complaint"]). Therefore, the court will consider the documentary evidence that Lindell has submitted. 1. Section 11 Section 11 ofthe Securities Actof 1933 allows a purchaser ofsecurities to sue where a

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registration statement "contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading" (15 USCA § 77k[a]). To state a cause ofaction under section 11, a plaintiffmust allege that they "(l) purchased a registered security
. . . (2) the defendant participated in the offering in the manner specified by the statute; and (3) the registration statement contained an untrue statement ofa material fact or omitted to state a material fact" (Mahar v General Electric Company, 188 AD3d 534, 535 [lst Dept 2020] [internal citation and quotation marks omitted]; Hoffman vAT& TInc., 67 Misc3d 1212(A), *5 [Sup Ct, NY County 2020]). However, liability under section 11 is limited to discrete categories ofdefendants, and "courtshave construedthe list strictly" (In re Global Crossing, Ltd. Sec. Litig., 2005 WL 1907005, *8 [SDNY Aug 8, 2005]). Section 11 liability may apply to signatories of the registration statement, directors or partners ofthe issuer, whether named in the registration statement or not, underwriters, and "every accountant, engineer, or appraiser, or any person whose profession gives authority to a statement made by him, who has with his consent been named as having prepared
or certified any part ofthe registration statement" (15 USC § 77k[a]; Winter v StrongholdDigital Mining, Inc., 2023 WL 5152177, *5 [SONY Aug 10, 2023] ["Section 11 applies to registration statements filed with the SEC and provides redress against a security's issuer, underwriter, and certain other statutorily enumerated parties."]; Banerjee v Zhangmen Education Inc., 2023 WL 2711279, *5 [SONYMar30, 2023]). While liability is "virtuallyabsolute"for issuersofsecurities, "experts such as accountants" are accorded a "due diligence defense" (In re Wachovia Equity Securities Litigation, 753 F Supp 2d 326, 378-379 [SDNY 2011] [internal citations and quotation marks omitted]; Winter, 2023 WL 5152177, at *5 ["Section 11 thus imposes strict liability on issuers ofsecurities, and negligence liability on the issuers' officers, directors and experts."]).

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The court grants Lindell's motion to dismiss the section 11 claim because Lindell has established that he did not fall into any of the enumerated categories of defendants. First, notwithstandingthe amended complaint's allegation thatLindell wasone ofthe individuals liable for "having signed or authorized the signing of the December 2019 Securities Act Filing" (Amended Complaint,

## ,r297), Plaintiffadmits in its oppositionpapersthatLindell did not signthe December 2019 Registration Statement (Opposition, NYSCEF Doc. No. 162, p. 20). The only individuals who signed theDecember2019 Registration Statementwere ChristopherKashmerick, John Chrystal, Albert DiUlio, Harry Resis, Russell Simon, Potter, Velissaris, and Neil Gray (December 2019 Registration Statement, pp. 118-119; Ex. I to Devanathan Aff., NYSCEF Doc. No. 145). Further, Plaintiffmakesno allegationthatLindell was a directororpartnerofthe issuer, the Trust. Rather, the December 2019 Registration Statement makes it clear that Lindell was the Chief Risk Officer of Infinity Q Mgmt., who was "primarily responsible for the day-to-day management ofthe Fund" (id., pp. 14, 25). Nor does the amended complaint allege that Lindell
was in any way an underwriter for purposes ofsection 11. Rather, Plaintiffstheory ofsection 11 liability against Lindell relies on the assertion that Lindell is "referenced as Infinity Q's risk-management expert throughout the [December 2019 Registration Statement]" (Opposition, p. 20). However, this characterization of Lindell as an "expert" appears nowhere in the December2019 Registration Statement. Nordoes the December 2019 Registration Statement refer to Lindell as either an "accountant, engineer, or appraiser," which are examples ofindividuals who can be held liable under section ll(a)(4). Even ifLindell couldhavebeentreated as a "personwhoseprofession givesauthorityto astatementmade byhim" pursuant to section 11(a)(4), Lindell correctly argued that no liability would attach because the December 2019 Registration Statement does notreflect Lindell's consentto being named (Reply,

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NYSCEF Doc. No. 181. pp. 4-5; see In re LehmanBros. Mortgage-BackedSecuritiesLitigation, 650 F3d 167, 175 [2d Cir 2011] [noting that section 11 is limited to "statutorily enumerated parties,"including "accountantsorotherexperts consentingtobe namedaspreparingorcertifying part ofthe registration statement"] [emphasis added]). Contrary to the conclusory allegation that Lindell "consented to having been named as [a] person[] who prepared or certified parts ofthe December 2019 Securities Act Filing" (Amended Complaint, 

## ,r 274), the December 2019 Registration Statement contains no reference to such consent. Rather, the only reference in the December 2019 Registration Statement to a consent by any purported expert is the Index of Exhibits' reference to the "Consent ofIndependent Registered Public Accounting Firm," which allegedly relates to EisnerAmper (December 2019 Registration Statement, p. 120; Ex. 2 to Devanathan Aff., NYSCEF Doc. No. 146; Amended Complaint, 

## ,r 145). Therefore, because Lindell does not fall within one of the strictly construed statutorily enumerated categories of defendants, the court dismissesthe section 11 claim against him. 2. Section 15 The court also dismisses the section 15 claim against Lindell. Section 15 provides that "[e]veryperson who, by orthrough stock ownership, agency, orotherwise
...controls any person liable under sections [11] or [12] of[the Securities Act], shall also be liablejointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable" (15 USCA § 770; Matter of NIO Inc. Securities Litigation, 211 AD3d 464, 466 [1st Dept 2022]; Erie County Employees'RetirementSystem vNN, Inc., 205 AD3d 644, 646 [1st Dept 2022]). To state a claim for a section 15 violation, a plaintiffmust allege "(a) a primary violation by a controlled person, and (b) control by the defendant ofthe primary violator" (In re GlobalCrossing. Ltd. SecuritiesLitig., 2005 WL 1907005, *11 [SDNYAug 8, 2005]; Erie County

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# . ; 

### Employees'RetirementSystem, 205 AD3d at646). In orderto allegecontrol, aplaintiffmustallege the "power to direct or cause the direction of the management and policies of [the primary violators], whetherthrough the ownership ofvoting securities, by contract, orotherwise" 

### (City of Omaha Police andFire Retirement System v Evoqua Water Technologies Corp., 450 F Supp 3d 379, 427 [SONY 2020]). The amended complaint alleges that Lindell was a "control person[] of Infinity Q, the Mutual Fund, and/or [the Trust] by virtue of [his] management position[] with and/or ownership ofInfinity Q" (Amended Complaint, 

## ,r 295). However, Lindell cannot be held liable as a control person ofeither Infinity Q Mgmt. orthe Mutual Fund because the amended complaint lacks any remaining underlying section 11 or 12(a)(2) claims against those parties. A section 15 claim is "dependent on the existence ofan underlying Securities Actclaim" 

### (Feinberg vMarathon Patent Group Inc., 193 AD3d 568, 571 [1st Dept 2021] [finding lower court properly dismissed section 15 claim afterdismissingunderlying section 11 and 12(a)(2)claims]; 

### Matter ofNIOInc. Securities Litigation, 211 AD3d 464, 466 [1st Dept 2022] [holding that lower court properly dismissed control person liability claims under section 15 because plaintiffs failed to allege a primary violation under sections 11 or 12(a)(2)]). The amended complaint never claimed an underlying section 11 or 12(a)(2) violation by the Mutual Fund, and the court dismissed any section 11 or 12(a)(2) claim against Infinity Q Mgmt. in the decision and order on Infinity Q Mgmt.'s motion to dismiss 

### (see February 26, 2024 Decision and Order, NYSCEF Doc. No. 205). Nor does Plaintiff sufficiently allege control person liability over the Trust. Plaintiff's opposition apparently abandoned the claim of control person liability over the Trust, focusing solely on alleged control of Infinity Q Mgmt. (Opposition, p. 16). In any event, neither the amended complaint northe December2019 Registration Statementprovide any basis for a claim

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of control person liability as to the Trust. The amended complaint alleges that, along with Sonderman, Potter, and Velissaris, Lindell "created Infinity

### O" and took on a number ofroles at Infinity 

### 0, including ChiefRisk Officer (Amended Complaint, 

## ,r,r 4, 30, 214 [emphasis added]). The December 2019 Registration Statement confirms that any role Lindell had was with Infinity Q, describing that "Scott Lindell is the ChiefRisk Officer of Infinity Q, andjoined the firm in 2014" (December 2019 Registration Statement, p. 25). The court dismisses the section 15 claim against Lindell because there are no non-conclusory allegations that indicate Lindell had any role in the Trust, much less control ofthe Trust. Accordingly, it is ORDERED that Lindell's motion to dismiss the amended complaint's causes of action against him under sections 11 and 15 ofthe Securities Act is granted in its entirety.



## \1 03""2024 DATE MELISSA A. CRANE, J.S.C.
CHECK ONE: APPLICATION: CHECK IF APPROPRIATE: 

# § ASE DISPOSED GRANTED**DENIED**

ETTLE ORDER NCLUDES TRANSFER/REASSIGN 

# § ON-FINAL DISPOSITION RANTED IN PART UBMITORDER IDUCIARY APPOINTMENT

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