:CANNED ON 712612007

SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK
X
Lehman Brothers Inc. : Index No.
Plaintiff 1
:
Plaintiff designates New York 4x6 82 5 1. 7
the place of trial. The basis of venue is
vs. : Plaintiffs placc of business.
: SUMMONS
Martin Shkrcli, Elea Capital Managerncnt LLC, :
Elea Partners LP, Elea Investors LLC and J osiah T. :
Austin,
PlaintifPs placc of business is located at
745 Seventh Avenue, New York, New
TO THE ABOVE-NAMED DEFEN a
YOU ARE HEREBY SUMMO ed to serve upon plaintiffs
attorney an answer to the complaint in this action within tw 0) days after the service of this
summons, cxclusive of the day of service, or within thirty (30) days after service is complete if
this summons is not personally delivered to you within the State of New York. In case of your
failure to answer, judgment will be taken against you by default for the relief demanded in the
complaint.
-4
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Plainti F designates New York County as the place of trial. Tk
basis for the
venue dcsignated is pursuant to 9 503(c) of the Civil Practice Law and Rules.
Dated: New York, New York
J uly 25,2007
HERRICK, FEINSTEIN LLP
-.
an Brothers Inc.
2 Park Avenue
New York, New York 10016
(212) 592-1400
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HF 373266Sv.l #99999/1000
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De fendaii t s :
Elea Partners LP
708 Third Avenue
5"' Floor
New York, New York 10017
Elea Capital Management LLC
708 Third Avenue
51hFloor
New York, New York 10017
Martin Shkreli
2080 Ocean Avcnue, Apartment 6C
Brooklyn, New York 1 1230-73 18
Elea Invcstors LLC
160 West 2Znd Street, Suite 1001
New York, New York 1001 1
J osiah T. Austin
4673 Christopher Place
Dallas, Texas 75204
andlor
J osiah T. Austin
91 22 South Highway
Willcox, Arizona 85625
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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW Y O N
X
Lehnan Brothers Inc.
: Index No.
Plaintiff
vs . : COMPLAINT
Martin Shkreli, Elea Capital Management LLC, :
Elea Partners LP, Elea Invcstors LLC and J osiah T. :
Austin,
Defendants :
F)
Y
>
Y
Plaintiff, Lchman Brothers Inc. (Lchman), by it errick, Feinstein LLP, for
LLC, Elea Partners
LP, Elea Investors LLC and J osiah T. Austin (collectively, the Defendants), alleges as follows:
NATURE OF THE ACTION
1. This is an action to recover monies owed to Lehman as a result of a
transaction effected by Lehman as ordered by Defendant Martin Shkreli, acting as portfolio
manager for a partnershiphedge fund account maintained at Lehman and/or acting as an
undisclosed agent of Defendant J osiah T. Austin. We request expedited discovery in light of
facts to be further developed to ensure that the obligations of the Defendants to Lehman are fully
satisfied.
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PARTIES
2. Lehman is a global investment bank duly organized and existing under the
laws of thc State of Delaware having its principal place of business at 745 Seventh Avenue, New
York, New York 10019.
3. Defendant Elea Partners LP (the Partnership) is a hedge fund and has its
principal place of business at 708 Third Avenue, 5th Floor, New York, New York 10017.
4. Defendant Elca Capital Management LLC (thc Advisor) is responsible
for managing the Partnership and has its principal place of business at 708 Third Avenue, 5h
Floor, New York, New York 1001 7.
5. Defendant Martin Shkreli (Shkreli) is the portfolio manager for
Defendant Partncrship, and on information and bclief residcs at 2080 Ocean Avenue, Apartment
6C, Brooklyn, New York 11230-7318.
6. On information and belief Defendant Elea Investors LLC (the General
Partner) is the solc general partner of the Partnership. Thc General Partner oversees the
Advisor, as well as the management and control of the Partnership. On information and belief
Dcfendant Gcneral Partncr is a Delaware limited liability company and is located at 160 West
22d Street, Suite 1001, New York, New York 1001 1.
7. On information and belief, Defendant Shkreli is an agent for Defendant
J osiah T. Austin (Austin).
8. On information and belief, Defendant Austin is a majority shareholder of
the Partnership and is thc undisclosed principal on whose bchalf Defendant Shkreli effected
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transactions with Lehman.
Christopher Place, Dallas, Texas 75204 andlor 9122 South Highway, Willcox, Arizona 85625.
On information and belief, Defendant Austin resides at 4673
JUFUSDICTION AND VENUE
9. This Court has jurisdiction over this matter pursuant to N.Y. C.P.L.R. 302
because Defendants Martin Shkreli, Elea Capital Management LLC, Elea Investors LLC and
Elea Partners LP all rcside in New York and do business or are authorized to do business in New
York.
10. This Court has personal jurisdiction over Defendant Austin pursuant to
N.Y. C.P.L.R. 302 (a)(l) because upon information and belief he transacted business within New
York.
11. Plaintiffs choice of venue is proper pursuant to N.Y. C.P.L.R. 503(c)
because Plaintiff maintains a place of business in New York County.
Allepations Common To All Causes Of Action
12. In or about March 2006, Defendant Shkreli on behalf of the Partnership
opened a securities account with Lehman (the Account). The Account was not a plain vanilla
securities account, but rather it was an account in which transactions were cleared through a third
party financial institution, Mcrrill Lynch & Co., Inc. (Merrill). Accordingly, with respect to
the Account Lehman acted as execution agent only and did not act as clearing or settling broker.
13. For this institutional account, Lehman functioncd solely as the executing
broker, i.e, the broker executing as agent transactions for the Partnership. Although Lehman had
the Account of Defendant Partnership on its books, Lehman did not hold the clients assets and
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was not responsible for effecting clearance, settlement or payment on its behalf. Rather, trades
executed on behalf of the Partnership were designated by the client to be cleared and settled at
Merrill, a carrying clearing member, that housed the clients assets and effected payments for
Partnership transactions. The designation of a clearing and settlement broker in industry
parlance is called Clearing Member Transfer Assignment or CMTAing the trade.
14. On information and belief, including representations made by Defendant
Shkreli, Defendant Austin functioned as an undisclosed principal for the Account and in fact
effected substantial control over the Account. In addition, on information and belief Defendant
Austin was a substantial investor in the Account as well.
15. On J uly 11, 2007, Defendant Shkreli engaged in certain put option
transactions on the SPY fund by placing orders through a representative of Lehman. The SPY
fund is a Standard & Poor (S&P) 500 Index Exchange Traded Fund (ETF), a common tool
to invest in the S&P 500, which is a broad market index of stocks, More specifically, Defendant
Shkreli purchased a total of 20,000 J uly 151 puts at a price of $131.25 per contract for a total
financial commitment of $2,625,000 (plus transactional costs), hereinafter referred to as the
Transaction. In effecting the Transaction, Defendant Shkreli was investing with the hope and
expectation that the market would decline, in which case the position would be closed out at a
profit. Concomitantly, should the market risc, the position would result in a loss which could be
significant if the market moved significantly, especially given the size of the position.
16. Applicable laws, rules and regulations known to Defendants required that
Lehman get paid for the Transaction within one (1) business day (in the morning before the
market opened) from the datc the Transaction was executed, which is commonly known in the
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industry as T +1. In reliance upon Defendants representation that they would comply with such
replations, Plaintiff, in good faith and as is common in the industry, executed the Transaction
for thc Account to be cleared and settled in its Merrill account for a total dollar commitment of
$2,625,000 without payment being made in advance by the Defendants. Per the ordinary course
of business described above, Lehman then CMTAd the Transaction to Merrill.
17. However, in this case, on J uly 12, 2007 Merrill rejected the Transaction.
On information and belief it did so because, among other reasons: (1) the client did not at such
time have sufficient assets to pay for thc transaction, and/or (2) the Defendants had wrongfully
instructed Merrill to reject the trade, and/or (3) the Defendants purposcfully omitted to providc
sufficient details to Merrill necessary to clear the transaction.
18. However, Defendant Shkreli reprcsented to Plaintiff that a separate second
financial institution, UBS Financial Services Lnc. (UBS), would step into the role of clearance
and settlement broker and thus honor the Dcfendants commitment to pay for the Transaction.
Specifically, Defendant Shkreli advised Plaintiff in writing that it should refer to Defendant
Austins portfolio company, El Coronado Holdings L.L.C. (El Coronado), in assigning the
Transaction to UBS. Following that conversation, Plaintiff assigncd the Transaction to UBS.
Howcver, Defendant Shkrelis promises turned out be unsubstantiated. Indeed, on J uly 13,2007
(after the Transaction failed to settle) UBS rejected the request for payment claiming that it did
not know the Transaction (or DKd it as is known in thc industry).
19. At no time did any of the Defendants inform Plaintiff that they had
intended to free ride the Transaction, i.e. not pay for the Transaction unless its market value
increased, in which case payment would bc made from the sale proceeds.
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20. Similarly, at no time did any of the Defendants inform Plaintiff that they
did not have the financial ability to honor the purchase commitment.
21. In view of the fact that payment was never cffected for the aforementioned
Transaction and Plaintiff was at further market risk as it was holding an unpaid for position that
already failed to settle, Plaintiff exercised its right to remove the Transaction from the Defendant
Partnerships account and sought to mitigate the loss on the Transaction that had already moved
in a substantially unfavorable direction.
22. On J uly 13, 2007 Plaintiff ultimately sold 1,100 contracts at twenty dollars
($20) pcr contract for $22,000 and 18,900 contracts at sixteen dollars ($16) per contract for a
total of $302,400, for a total liquidation amount of $324,400. As the aggregate purchase price
was $2,625,000, the liquidation pricc of the securities was $324,400, and the commission for the
Transaction was $61,750, the total loss on the Transaction was $2,362,350.
23.
which have been rejected to date.
Plaintiff has made numerous demands for payment from Dcfendants
24. In fact, Defendmt Shkreli has made various representations ranging from
promises to pay the legitimate debt owed on an installment basis, to claims of complete financial
inability to pay and finally veiled threats of filing a bankruptcy to avoid Defendants otherwise
financial obligation in this matter.
25. Dcfendants account currently possesses a deficit/loss in the amount of
approximately $2,362,350 which remains unpaid.
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FIRST CAUSE OF ACTION -
BREACH OF ORAL CONTRACT
(AS TO DEFENDANTS SHKRELI, THE PARTNERSHIP,
THE ADVISOR AND THE GENERAL PAFtTNER)
26. Lehman repeats and realleges each and every allegation set forth in
paragraphs 1 through 25 as if fully set forth herein.
27. On J uly 11, 2007, Defendant Shrekli requested Lehman to execute the
Transaction on behalf of Defendants Partnership, the Advisor, and the General Partner and, in
accordance with industry custom and practice, Lehman executed such Transaction, In doing so,
Dcfcndants entered into a valid, binding and enforceable oral contract. This contract was
affirmed in writing by Defendant Shkreli.
28. As set forth above, Lehman has not been paid the amounts due as a result
of the Transaction effected by Defendant Shkreli on behalf of the Defendants. If it is ultimately
determined that Defendants Shkreli, the Partnership, the Advisor, and the General Partner (and
not Defendant Austin) are the true parties in interest, then Defendants Shkreli, Partnership, the
Advisor, and the General Partner, on whose behalf the Transaction was executed, should be held
liable for failure to pay amounts due for the Transaction made on their behalf and at their request
which caused Plaintiff a loss of $2,362,350.
29. Plaintiff has demanded that the Defendants Shkreli, Partnership, the
Advisor, and the General Partner pay Plaintiff the amounts due which have not been paid and the
Defendants Shkreli, Partnership, the Advisor, and the General Partner have failed to pay Plaintiff
such amounts due.
30. As a rcsult, Defendants Shkreli, Partnership, the Advisor, and the General
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Partner have breached their oral agreement to pay Plaintiff the amounts due for transactions
executed on their behalf which caused Plaintiff a loss of $2,362,350.
31. Plaintiff is entitled to recover damages from the Defendants Shkreli,
Partnership, the Advisor, and the General Partner for the said breach of the oral agreement in a
sum which is no less than $2,362,350, together with interest, costs and expenses.
SECOND CAUSE OF ACTION
BREACH OF ORAL CONTRACT
(AS TO DEFENDANT AUSTIN AND THE OTHER NAMED DEFENDANTS)
32. Lehman repeats and realleges each and every allegation set forth in
paragraphs 1 through 3 1 as if fully set forth herein.
33. As noted above, Defendant Shkreli advised Plaintiff to assign the
Transaction that had been made on behalf of the Partnership to UBS. In doing so, Defendant
Shkreli advised Plaintiff to reference El Coronado when assigning thc Transaction to UBS.
34. If it is ultimately determined that Defendant Austin (and not Defendant
Shkreli) is the true party in interest, then Defendant Austin as well as the other named
Defendants should be held liable for failure to pay amounts due for the Transaction made on his
behalf and at his request which caused Plaintiff a loss of $2,362,350.
35. Plaintiff has demanded that Defendant Austin, via his agent Defendant
Shkreli, pay Plaintiff the amounts due which havc not been paid and Defendant Austin has failed
to pay Plaintiff such amounts due.
36. As a result, Defendant Austin has breached his oral ugreement to pay
Plaintiff the amounts due for transactions executed on his behalf.
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37. Plaintiff is entitled to recover damages from Defendant Austin as well as
the other named Defendants for the said breach of the oral agreement in a sum which is no less
than $2,362,350, together with interest, costs and expenses.
THIRD CAUSE OF ACTJON
UNJUST ENRICHMENT/CONVERSJON
38. Lehman repeats and realleges each and every allegation set forth in
paragraphs 1 through 37 as if fully set forth herein.
39. Plaintiff, acting as a broker-dealer, performed brokerage services.
Pursuant to Dcfendants instructions, Plaintiff effected the Transaction ordered by the
Defendants based upon the expectation that Defendants would pay for the Transaction
irrespective of whether the Transaction was profitable or unprofitable.
40. As a result, Defendants were conferred the benefit of receiving Plaintiffs
services in connection with the Transaction. In settling thc trade, Lehman paid for the
Defendants obligation and thus, by virtue of Plaintiffs payment, Defendants effectively used
Plaintiffs money to pay for the Transaction.
41. In fact, Defendants ordcred the purchase of said securities in amounts
beyond their ability to pay and/or with the intention of not paying for said securities in the event
that such securities did not appreciate in value.
42. By reason of the forcgoing, Plaintiff has been damaged in an amount not
less than $2,362,350, with the exact amount of Plaintiffs damages to be determined at trial.
WHEREFORE, Plaintiff Lehman Brothers Inc. demands judgment:
a. Awarding Lehman Brothers Inc. damages in an amount to be
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determined at trial but, in no event, no less than two million three hundred thousand six hundred
dollars plus interest;
b. Expediting discovery as against all Dcfcndants, including but not
limited to determining promptly who all thc real parties in interest are; and
c. Awarding Lehman Brothers Inc. such other and further relief as
this Court may deterrninc.
Dated: J uly 25,2007
Yours, etc.
HERRICK FEINSTEIN LLP
Attorneys for Plaintiff Lehman Brothers Inc.
2 Park Avenue, 20th Floor
New York, NY 10016
Tel: (212) 592-1400
HF 3731515v.l #9YY99/1000
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