### Glenmede Trust Co., N.A. v Infinity Q Capital Mgt. LLC 2024 NY Slip Op 30933(U) March 20, 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.NYSCEF DOC. NO. 209 INDEX NO. 160830/2022 RECEIVED NYSCEF: 03/20/2024

PRESENT: 

### SUPREME COURT OF THE STATE OF NEWYORK NEW YORK COUNTY HON. MELISSA A. CRANE PART 60M Justice ----X INDEX NO. 160830/2022 THE GLENMEDE TRUST COMPANY, N.A., Plaintiff,

- V - INFINITY Q CAPITAL MANAGEMENT LLC,JAMES VELISSARIS, LEONARD POTTER, SCOTT LINDELL, BONDERMAN 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 11/15/2023 MOTION SEQ. NO. 011

DECISION + ORDER ON MOTION

The following e-filed documents, listed by NYSCEF document number (Motion 011) 132, 133, 134, 135, 136, 150, 155, 160, 182, 183, 184 were read on this motion to/for DISMISSAL 

### Defendants Leonard Potter ("Potter") and Bonderman Family Limited Partnership, LP ("BFLP") have moved to dismiss PlaintiffThe Glenmede Trust Company, N.A.'s ("Plaintiff') amended complaintpursuantto CPLR 321 l(a)(7). The amended complaint alleges a claim against Potter for violation of section 11 ofthe Securities Act of 1933 and alleges claims against both Potter and BFLP for violation ofsection 15 ofthe Securities Act of 1933. During oral argument, the court dismissed the section 11 claim against Potter (see 

### November 15, 2023 Transcript, p. 89; November 16, 2023 Transcript, pp. 112-113). For the following reasons, the court dismisses the section 15 claims against Potterand BFLP as well. 

### FACTUAL AND PROCEDURAL BACKGROUND

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The courtrefers to its decisions on the other defendants' motions to dismiss for a complete recitation ofthe factual background ofthis matter 

### (see December 21, 2023 Decision and Order, NYSCEF Doc. No. 199; January 31, 2024 Decision and Order, NYSCEF Doc. No. 203; February 26, 2024 Decision and Order, NYSCEF Doc. No. 205; March 13, 2024 Decision and Order, NYSCEFDoc.No. 208). However,thecourtprovidesbrieffactual backgroundapplicableto Potter and BFLP. The amended complaint alleges that Potter, along with James Velissaris ("Velissaris"), Scott Lindell ("Lindell"), and non-party David Bonderman ("Bonderman") created Infinity 

### Q Capital Management LLC ("Infinity Q Mgmt.") in 2014, to act as an investment advisor both to Infinity Q Diversified Alpha Fund ("Mutual Fund") and a private hedge fund ("Hedge Fund") (Amended Complaint,NYSCEF Doc. No. 101,,4). Potter was the chairman ofInfinity Q Mgmt. 

### (id.,,29). BFLP, the family office ofBonderman, allegedly "has an ownership interest in Infinity Q that is greater than 25% and is a control person ofInfinity Q" 

### (id., , 31). US Bankcarried out "regulatory and compliance functions" relatedto the Mutual Fund for Infinity 

### QMgmt. 

### (id., , 62). In particular, US Bank has established multiple series trusts to allow investment managementfirms to house their mutual fund products 

### (id.,, 64). Defendant Trust for Advised Portfolios ("Trust") is one such multiple series trust 

### (id, , 67). Defendants established the Mutual Fund underthe umbrella ofthe Trust

### (id., , 69). Subsequently, the Trust offered shares in the Mutual Fund to investors pursuant to a December 20, 2019 Post-Effective Amendment to its Registration Statement 

### (id.,, 142; December 2019 Registration Statement, NYSCEF Doc. No. 127). Accordingto the December2019 Registration Statement, Infinity Q Mgmt. wasthe Mutual Fund's investment adviser, and Potter was the Chief Executive Officer of Infinity Q Mgmt.

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(December 2019 Registration Statement, p. 24). Potter, along with Velissaris and Lindell, were "the portfolio managers principally responsible for the day-to-day management of the Fund's portfolio" 

### (id., p. 78). While Potter signed the December 2019 Registration Statement, 

### he signed
as a director ofnon-party Infinity Q Commodity Fund, Ltd., 

### not Infinity 

### Q Mgmt. (id., p. 119). Further, the December 2019 Registration Statement's signature page indicates that Potter signed "with respect only to information that specifically relates to Infinity Q Commodity Fund, Ltd." 

### (id., p. 119). Rather than purchase traditional stocks and bonds, Infinity Q Mgmt. invested in "variance swaps," 1thatgeneratedreturns that "didnotdepend onwhatdirectionthemarketmoved,butrather
on how much the market moved (i.e., how volatile the market was)" (Amended Complaint, 

### ,i 5). However, because these "esoteric derivative securities" lacked a public market price, Infinity Q Mgmt. utilized Bloomberg'svaluation software, BYAL, to value the variance swaps and calculate the Mutual Fund's net asset value ("NAV") daily (id., 

### ,i,i 5-7, 131). The precipitating cause of extensive litigation related to Infinity Q Mgmt. is that Velissaris, for many years, artificially inflated the Mutual Fund'svalue by hundreds ofmillions ofdollars 

### (id, 

### ,i,i 9-11). This resulted in
an SEC investigation andthe subsequent collapse ofthe Mutual Fund (id., 

### ,i,i 11-13). The focal point of the case against Potter, BFLP, and the other defendants is that the December2019Registration Statement "containedfalse statementsofmaterial fact and/oromitted material facts that were required to be disclosed or necessary to make the statements therein not misleading" (id., 

### ,i 270). The amended complaint alleges that Potter is liable under section 11 of the Securities Act of 1933 because he signed the December 2019 Registration Statement and

1According to the amended complaint, variance swaps allow buyers to "bet on the volatility ofan underlying asset, security, index, orcurrency exchange" (see Amended Complaint,

### 1 116). Foreach variance swap, the parties determine a "strike price" (id, 

### 1 I 18). Ifvolatility "exceeds the strike price, the buyerofthe swap ...receives the payment," but ifvolatility "isbelow the strike price, the seller ofthe swap ...receives the payment" (id.).

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"consentedto having beennamed as the person[] who prepared orcertified parts ofthe December 2019 [Registration Statement]" (id, 

### ,i,i 272,274). The amended complaint also alleges that both Potter and BFLP are liable under section 15 ofthe Securities Act of 1933 under a control person liability theory because they were "control persons ofInfinity Q, the Mutual Fund, and/or [the Trust] by virtue oftheir managementpositions with and/or ownership oflnfinity Q [Mgmt.]" (id, 

### i/ 295). During oral argument, Defendants asserted that Potter could not be held liable under section 11 because he signed on behalfofnon-party Infinity Q Commodity Fund, Ltd., and that there were "really no allegations that any statements related to the commodity fund were inaccurate" (November 15, 2023 Transcript, pp. 79-80). The court agreed and dismissed the section 11 claimagainst Potter

### (see 

### id., p. 89 ("I am dismissing any allegationsrelatedto Mr. Potter signing the registration statement, because he only signed it for the commodity fund"). For the following reasons, the court also dismisses the section 15 claims against both Potter and BFLP. 

### DISCUSSION On a motion to dismiss pursuant to CPLR 321 l(a)(7), the court must "accept the facts as alleged in the complaint as true, 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];

### see also Chapman, Spira 

### &Carson, LLCvHelix BioPharma Corp., 115 AD3d 526,527 [1st Dept 2014]). While the defendants only seek dismissal pursuantto CPLR 321 l(a)(7) for failure to state
a cause ofaction (Opening Memo., NYSCEF Doc. No. 133, p. 1), dismissal may be appropriate based on documentary evidence where the documentary evidence "flatly reject[s]" the plaintiff's
cause ofaction 

### (see Basis YieldAlpha Fund (Master) v Goldman Sachs Group, Inc., 115 AD3d

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128, 134-135 [1st Dept 2014]). When a defendant submits documentary evidence, the standard shiftsfrom "whetherthe plaintiffstated a causeofaction to whetherit has one" (id at 135 [internal citations and quotation marks omitted]; Kaplan v Conway & Conway, 173 AD3d 452, 453 [1st Dept2019] [finding thatthemotioncourt "properly consideredthe emails submittedby defendants in dismissing the complaint"]). Therefore, the court will consider the documentary evidence that PotterandBFLPhave submitted (see Exs. l and 2to HershonAff., NYSCEFDoc. Nos. 135-136). The court dismisses the section 15 claims against both Potter and BFLP. Section 15 provides that "[ e]very person who, by or through stock ownership, agency, or otherwise
. controls any person liable under sections [11] or [12] of [the Securities Act], shall also be liable jointly and severally with and to the same extent as such controlled personto any personto whom such controlled person is liable" (15 USCA § 770; Matter of NJO Inc. Securities Litigation, 211 AD3d464,466 [1st Dept2022]; Erie CountyEmployees'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 violationby a controlledperson, and (b) control by the defendant ofthe primary violator" (In re Global Crossing. Ltd. Securities Litig., 2005 WL 1907005, 

### *11 [SDNY Aug 8, 2005]; Erie County Employees' Retirement System, 205 AD3d at 646). In order to allege control, a plaintiff must allege the "power to direct or cause the direction ofthe management and policies of [the primary violators], whetherthroughthe ownership ofvoting securities, by contract, orotherwise" (City ofOmaha Police and Fire Retirement System v Evoqua Water Technologies Corp., 450 F Supp 3d 379,427 [SDNY2020]). TheamendedcomplaintallegesthatbothPotterandBFLPwere "controlpersonsoflnfinity Q, the Mutual Fund, and/or TAP by virtue oftheir management positions with and/or ownership of Infinity Q [Mgmt.]" (Amended Complaint, 

## ,r 295). However, neither can be held liable as

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control persons ofeither Infinity Q Mgmt. or the Mutual Fund because there are no remaining underlying section 11 or 12(a)(2) claims against either Infinity Q Mgmt. or the Mutual Fund. A section 15 claim is "dependent on the existence ofan underlying Securities Act claim" 

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

### Matter of NIO Inc. 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 

### QMgmt. in the decision and order on Infinity 

### Q Mgmt.'s motionto dismiss 

### (see February 26, 2024 Decision and Order, NYSCEF Doc. No. 205). Nor does Plaintiffallege sufficiently control person liability over the Trust. Plaintiffhas waived any argumentofcontrol personliability overthe Trustby failing to raise it inits opposition 

### (see Bosco Credit VTrust Series 2012-1 v Johnson, 177 AD3d 561, 562 [1st Dept 2019] [finding that defendants waived an argument by "failing to raise it intheir opposition to plaintiffs motion for summary judgment, in their reply in further support oftheir cross motion and opposition to plaintiffs motion, or during oral argument onthe motions"]; 

### Steffan v Wilensky, 150 AD3d 419, 420 [1st Dept_2017] [finding that "[b]y his silence inhis opposition brief, defendant concedes
... that the second, third, and sixth affirmative defenses should be dismissed"]). In any event, the amended complaint fails to support claims against Potter or BFLP of controlpersonliability overthe Trust. NeitherPotternorBFLPhadany allegedrolewiththe Trust. Rather, the amended complaintalleges that Potterwas the "Chairman

### oflnfinity

### O[Mgmt.]" and "President and CIO of 

### Wildcat Capital Management" (Amended Complaint,**~** 29 [emphasis

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### added]). The amended complaint alleges that BFLP "has an ownership interest in Infinity Q 

### that is greater than 25% and is a control person ofInfinity 

### Q" (Amended Complaint, ,i 

### 31 [emphasis added]). Further, the December 2019 Registration Statement reflects that other individuals, not 

### Potter or BFLP, managed the Trust. Christopher Kashmerick signed on behalfofthe Trust as its President and Principal Executive Officer, Russell Simon signed as the Treasurer and Principal Financial Officer, andJohnChrystal, AlbertDiUlio, andHarry Resis signed as trustees (December 2019 Registration Statement, p. 118). Potter, on the contrary, signed on behalf of Infinity Q 

### Commodity Fund, Ltd. 

### (id, p. 119). No one signed the December 2019 Registration Statementon behalfofBFLP. To the extent the amended complaint alleges that Potter or BFLP controlled the Trust "by virtue oftheir management positions with and/or ownership ofInfinity Q," 

### Defendants correctly argue that such "tertiary" liability (i.e., holding Party A liable for its control over Party B, which in turn controlled the primary wrongdoer, Party C), absent actual control, is not a valid basis of control person liability under section 15 

### (see Tarsavage v Citic Trust Co., Ltd, 3 F Supp 3d 137, 149-150 [SONY 2014] [rejectingtheory of"indirectliability"basedondefendant's alleged control ofindividual who allegedly controlled the "primary violator"]). The court has considered the parties' remaining contentions and finds them unavailing. Accordingly, it is ORDERED 

### that the court grants the motion to dismiss (MS 11) ofDefendants Leonard Potter and Bonderman Family Limited Partnership, LP in its entirety. 

### 2o 03/.,,2024 DATE MELISSA A. CRANE, J.S.C.
CHECK ONE: APPLICATION: CHECK IF APPROPRIATE: ASE DISPOSED RANTED**DENIED** ETTLEORDER NCLUDES TRANSFER/REASSIGN ON-FINAL DISPOSITION GRANTED IN PART

UBMIT ORDER IDUCIARY APPOINTMENT 160830/2022 THE GLENMEDE TRUST COMPANY, N.A. vs. INFINITY Q CAPITAL MANAGEMENT LLC ET AL Motion No. 011 7 of 7 DTHER**REFERENCE** Page 7 of 7 

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