Athens: An ongoing breach of contract litigation in New York has been beset with fraud allegations related to a NewLead Holdings company and group CEO Michael Zolotas, according to court documents seen by Splash.
TransAsia Commodities in January filed a civil case against NewLead JMEG, its chief executive Jan Berkowitz and Michael Zolotas. The lawsuit is currently being heard at the Supreme Court of the County of New York.
The London-based trader seeks $6.2m in compensation over a failed agreement to buy 110,000 tonnes of coal from NewLead JMEG, a coal mining joint venture with NewLead Holdings. The coal was never delivered to the trader, which alleges that NewLead JMEG signed the multimillion-dollar sales agreements to inflate its share price and to obtain credit from banks. The defendants deny the allegations.
The latest court session began with Judge Charles E Ramos calling the claim an “open and shut case” and a “slam dunk”, according to a newly released transcript from April 13. Later, the raft of new accusations of fraud brought by the plantiff prompted the judge to remind the court the purpose of the litigation was for breach of a sales contract.
During the April court session, TransAsia’s counsel accused NewLead CEO Michael Zolotas and his business associate Jan Berkowitz of fraudulently altering a sales contract for the trader’s purchase of coal from the Five Mile coal mine in Kentucky.
TransAsia says it included due diligence provisions in its original purchase contract for coal from the Five Mile mine, but these provisions had been removed when Berkowitz return his signed version via email.
Zolotas emailed Berkowitz a copy of the altered Five Mile sales contract, saying “use this one”. Berkowitz then forwarded to TransAsia a version of the altered contract in which the digital signature of TransAsia’s principal had been copied and pasted by way of forgery, the trader alleges. Meta-data from the MS Word document shows that this was done by Jan Berkowitz, the plaintiff said. The defence has not yet denied this allegation.
The plaintiff says it conducted due diligence before signing off the deal by visiting the coal mine. The trader, which is now in receivership, stated NewLead JMEG had said it owned the mine, which the defendants deny.
Another part of TransAsia’s due diligence was to have the Five Mile coal analysed by independent firm SGS, which provides base metal assays. The trader’s counsel told the court it deposed SGS by way of a subpoena, which NewLead tried to quash.
The deposition found around 15 of SGS’s assay reports for the coal had been fraudulently altered, TransAsia’s lawyers said, but it could not be established by whom they were changed. The judge granted the plantiff’s request to see more communications by NewLead relating to SGS and mineral lab reports.
The plantiff says it believes NewLead JMEG to be an “empty shell company” and last August requested a variety of information from the defendant to show its financials, much of which has yet to be produced.
“It’s a joint venture with Newlead Holdings. We don’t even have the joint venture agreement from defendants,” Melissa Brill, TransAsia’s attorney from law firm Cozen O’Connor, told the court. The judge ordered that the agreement or an affidavit stating its non-existence must be produced in court.
The defence stated it could produce the agreement and information about who the members of NewLead JMEG were, much of which has been included in previous court filings.
TransAsia’s counsel has requested a variety of documents from the defence to show NewLead JMEG was a fully functional company that had fulfilled sales contracts with previous clients. The judge requested that NewLead JMEG produce any purchase agreement that showed it had at least once sold coal and delivered it successfully to a buyer.
“We ask for documents concerning loans or other financing that defendants used coal purchase agreements for collateral, because that’s what we believe is part of this whole scheme; is that they are getting these coal purchase agreements with no intention of ever selling coal and that they are using it as collateral for loans,” Brill told the court.
She added that her firm has obtained emails in which the defendants talk about using these contracts. The judged ordered that this claim be held in abeyance for now, it being beyond the scope of the breach of contract case.
“It’s more than a breach of contract. There is a fraud count that had survived that is still in this case and is viable. That goes directly to the fraud. It explains what they were doing to our client so that if and when we have a jury in the box, we can say this is why they did it, ladies and gentlemen; to pump up the stock price and to go to banks and obtain credit which otherwise they would not have been able to obtain to keep this enterprise operating,” added Eric D Freed, TransAsia’s other attorney.
“There have not been any other lawsuits against any of my clients related to any of the events at issue here. So I am not aware of any banks coming after them saying you have made fraudulent representations in loan applications or anything like that,” said defence attorney Evan K Farber, with whom the judged agreed on this point. “If they had done that, one would expect that they would have said something by now.”
The judge ruled that the defence must produce Michael Zolotas’ computer hard drive, which is said to be in Greece, plus the rest of his emails and those from NewLead JMEG that relate to the case but have not yet been supplied. The defence must produce these materials and all others requested by the plaintiff by May 13.
The litigation has been adjourned until May 20.