Opinion ID: 783603
Heading Depth: 4
Heading Rank: 1

Heading: The Zip Transaction

Text: 26 In 1999, Phansalkar introduced AW to two opportunities. The first was an opportunity to raise funds for Zip Global Network, Ltd. (Zip), a company based in India that was developing a payphone network there. AW accepted the opportunity and raised approximately $10 million for Zip from AW partners and from outside investors. The Zip Transaction closed in September 1999. As a result of the transaction, AW received a cash fee and stock warrants. AW also received the right to designate two directors to the Zip Board of Directors. Technically, this right belonged to an entity called AW Zip, LLC, which AW had created for the purpose of pooling funds for the transaction, and which was managed by AW partners. Through AW Zip, LLC, AW selected Phansalkar as one of its two designees. 27 As a Zip director, Phansalkar received 40,000 options to purchase shares of Zip (the Zip Options), and 600 shares of Zip Telecom Holdings, Ltd. (the Zip Shares). 5 He received the Zip Options on October 15, 1999, and the Zip Shares in early 2000. The district court found that Phansalkar served on the Zip Board, and received the Zip Options and the Zip Shares, as a representative of AW. See Phansalkar II, at , 2001 WL 1524479 at -18. 28 In violation of firm policy with regard to Directors' Compensation, Phansalkar did not report to AW his receipt of either the Zip Options or the Zip Shares. See id. at , 2001 WL 1524479 at . In deciding whether Phansalkar's non-disclosure amounted to fraud, the court below found it important that Phansalkar had given Loretta Loomie (Loomie), an AW employee, a copy of the Minutes of the Zip Board of Directors Meeting for October 15, 1999 (the Minutes), which included a reference to Phansalkar's Zip Options (but not his Zip Shares). The Minutes were kept in an unlocked file cabinet in a hallway in AW's office. In addition, Loomie testified at trial that she was aware of the grant of the Zip Options to Phansalkar. Based on these facts, the court found that, although Phansalkar failed to disclose the Zip Options and the Zip Shares, AW did not show that he intentionally concealed either of them. See id. at , 2001 WL 1524479 at .