EFTA01124872.pdf

CONFIDENTIAL Page 1 1 ** CONFIDENTIAL ** CONFIDENTIAL * * 2 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK 3 Civil Action No. 09 Civ 6441 (DC) 4 PERRY A. GRUSS, 5 6 Plaintiff, 7 -against- 8 DANIEL B. ZWIRN, D.B. ZWIRN & CO., LP, 9 and D.B. ZWIRN PARTNERS, LLC., 10 11 Defendants. r 12 x 13 June 28, 2010 9:30 a.m. 14 ***CONFIDENTIAL*** 15 16 DEPOSITION of PERRY GRUSS, 17 the Plaintiff in the above-captioned action, 18 taken by Defendants, held at the offices of 19 Cooley, LLP, 1114 Avenue of the Americas, New 20 York, New York, before Eileen Mulvenna, CSR/RMR, 21 Certified Shorthand Reporter, Registered Merit 22 Reporter and Notary Public of the State of New 23 York. 24 25 VERITEXT REPORTING COMPANY 212-267-6868 www.veritext.com 516-608-2400 EFTA01124872 JAIT EFTA01124873  Page 2 Page I " CONFIDENTIAL " CONFIDENTIAL " 2 APPEARANCES: 1 Gross - CONFIDENTIAL 3 2 PERRY GROSS, 4 LIDDLE & ROBINSON, LIE 3 having been duly sworn by Eileen Mulvenna, 5 Ammer for Phimiff 4 a Notary Public of the State of New York, 800 Third Avenue 6 Nc-*Yoek, New York 10022 5 was examined and testified as follows: BY: ETHAN A. BUCHER, ILSQ. 6 EXAMINATION JENNIFER ROD 7 BY MR. LEVINE: a 9 8 Q. State your name and address for the 10 9 record, please. LANKIER SIFFERTA WOK, LIP 11 Mwmcpe for Defendant Daniel& 2onen 10 Perry A. Gruss, 500 Fifth Meese 12 New Pod/. New York 10110 11 BY: DANIEL& REYNOLDS, ESQ. 12 THE REPORTER: Usual stipulations? 13 JOHN SIEFERT. ESQ. 13 MR. SIFFERT: It will be done by the 14 14 Federal Rules of Civil Procedure. ANDREW S. LEE. ESQ. IS 15 MR. LEVINE: Nothing other than what 16 16 the Federal Rules of Civil provides. 17 COOLEY, LIE 17 THE ' • RTF-R: Okay. IS Af10111L)S for Defendant D.B. Rutin! & co., LP and O.B. ZwImPattnen.11C 18 MR. BRECHER: Are there stipulations 19 1114 Averse of Os Americas 19 or are there not? New Yak, New York 10036 20 BY. ALAN LEVINE ESQ. 20 MR SIFFERT: Federal Rules of Civil 21 MILAN H. O'BRIEN, ESQ. 21 Procedure controls. 22 MR. LEVINE: Don't need speaking 22 MAXINE SLEEPER. ESQ. 23 objections. I won't argue with you. If I 23 24 sense your objection is a good one, I may 24 25 25 rephrase the question. You'll get an Page 3 Pege5 1 **CONFIDENTIAL ** CONFIDENTIAL ** 1 QV.% - CONFIDENTIAL 2 IT IS HEREBY STIPULATED AND AGREED, 2 opportunity to review the transcript and 3 by and between the attorneys for the respective 3 sign it and do an errata sheet. 4 parties herein, that fi ling and sealing be and 4 BY MR. LEVINE: 5 the same are hereby waived. 5 Q. Mr. Gross, my name is Alan Levine, 6 6 and I represent D.B. Zwim & Co. L.P. and 7 IT IS FURTHER STIPULATED AND AGREED 7 D.B. Zwim Partners, LLC, defending them in a 8 that all objections, except as to the form of the 8 lawsuit which you filed in the Federal Court, 9 question, shall be reserved to the time 9 Southern District of New York, July 20, 2009, 10 of the trial. 10 Civ. No. 096441. 11 11 Is that a lawsuit that you Sled? 12 IT IS FURTHER STIPULATED AND AGREED 12 A. Yes. 13 that the within deposition may be signed and 13 Q. Have you ever been deposed before? 14 sworn to before any officer authorized to 14 A. Yes. 15 administer an oath, with the same force and 15 Q. How many times? 16 effect as if signed and sworn to before the 16 A. I believe four. 17 officer before whom the within deposition was 17 Q. In what matters? 18 taken. 18 A. By the SEC in the matter of D.B. 19 19 Zwirn & Co. — Fm not exactly sure of the rest. 20 20 Q. Have you given any other sworn 21 21 testimony in your career 22 22 A. No. 23 23 Q. — of any kind? 24 24 A. No, I don't believe so. 25 25 Q. Never been in a lawsuit personally? 2 (Pages 2 - 5) VERITEXT REPORTING COMPANY 212-267-686R www.veritext.emm 516-60R-74M EFTA01124874  Page 6 Page 1 Gruss - CONFIDENTIAL 1 Grass - CONFIDENTIAL 2 A. No. 2 Q. What did you do at Nomura 3 Q. Other than this matter. 3 Securities? 4 A. No. 4 A. I was a product controller for their 5 Q. lust a couple of ground rules. I S real estate group. 6 ask the questions, you answer them. Pm going to 6 Q. What did that job entail? 7 try very hard not to interrupt you in the middle 7 A. I was the one who calculated the P&L 8 of an answer. Please don't guess what my 8 for the front office. 9 answer -- my question's going to be because there 9 Q. What skill-set did you need to do 10 could be a word at the end that surprises you. 10 that? 11 So let me get it all out of my mouth. And 11 A. Brains. 12 nodding -- understand all of this; correct? 12 Q. Did you have a math background? 13 A. Yes. 13 A. No. 14 Q. Also, your lawyer has a right to 14 Q. So give me more of an idea what you 15 object, as you just heard, so don't jump on my 15 did even, day. 16 questions because then you deprive him of an 16 A. Reports would — the front office 17 opportunity to work. Okay? 17 would trade. Reports would come out. I would 18 And if you don't understand any 18 calculate the reports, produce a P&L, and then it 19 question that I ask, tell me you don't understand 19 would be verified against the front office P&L 20 it and I'll rephrase it. 20 that they produced. 21 And subject, of course, to what your 21 Q. What kind of trades? 22 lawyer says, I'm entitled to an answer on the 22 A. CMBS trades. 23 record for every question that i ask unless he 23 Q. What are CMBS trades? 24 directs you otherwise. 24 A. Collateralized mortgage-backed 25 Understand all of this? 25 securities. 9$8* 7 Page 9 1 Gruss - CONFIDENTIAL 1 Grass - CONFIDENTIAL 2 A. Yes. 2 Q. When did you first learn about 3 Q. Where did you graduate from college? 3 collateralized mortgage-backed securities? 4 A. Oneonta State University New York. 4 A. Around 1994. 5 Q. What year? 5 Q. Where did you learn about that? 6 A. 1989. 6 A. Nomura. 7 Q. What did you do after you graduated? 7 Q. Who taught you about that? 8 A. I was employed by American 8 A. The controller at the time. 9 International Group. 9 Q. Who was that? 10 Q. Doing what? 10 A. Bob Rottman. II A. I was a — 'would say I was a 11 Q. What did Nomura Securities do with 12 systems accountant. 12 respect to collateralized mortgage-backed 13 Q. Did you take accounting in college? 13 securities? 14 A. No. 14 A. They packaged, securitized and sold. 15 Q. Did you take any accounting courses 15 Q. Did they also trade in the secondary 16 in college? 16 market? 17 A. Not one. 17 A. Yes. 18 Q. What did you do at AIG? 18 Q. So they were an originator and 19 A. i worked in the systems group. 19 trader? 20 Q. For how long did you work in the 20 A. Exactly. 21 systems group? 21 Q. Did all of those functions come 22 A. From 1989 through — I don't want to 22 within the group that you were working in? 23 guess -- 1994. 23 A. Yes. 24 Q. What did you do after that? 24 Q. What were the entities that you were 25 A. Worked at Nomura Securities. 25 calculating the P&L for? 3 (Pages 6 - 9) VERITEXT REPORTING COMPANY "111 ICI 4040 .............«0....1a"... C C 4110 41A AA EFTA01124875  Page 10 Page 12 1 Gruss - CONFIDENTIAL Onuss - CONFIDENTIAL 2 A. I don't recall. 2 you sell them. 3 Q. I take it P&L stands for profit and 3 Q. Package into what? 4 loss? 4 A. CMBS, commercial mortgage-backed 5 A. Correct. 5 securities. 6 Q. Were the transactions that you were 6 Q. Are you saying that you take, in 7 calculating the profit and loss trades in the 7 your example, ten commercial loans and aggregate 8 secondary market for the collateralized 8 them into one security which is then sold as a 9 mortgage-backed securities? 9 security? 10 A. Some were. Some weren't. 10 A. It wouldn't be one security. It 11 Q. What were the ones that were not? II would be several securities spreading the risk I2 A. The ones that were originated. 12 across individual trenches. 13 Q. Were these proprietary trades for 13 Q. What is a tranche? 14 Nomura or were these trades on behalf of funds? 14 A. The single A, triple A, double A. 15 A. Proprietary. 15 My example earlier. 16 Q. How long did you stay at Nomura? 16 Q. And those are rating agency credit 17 A. Through 2002. 17 ratings? 18 Q. Some eight years? 18 A. Correct. 19 A. Yes. In different capacities. 19 Q. How do the rating agencies decide 20 Q. What was the second capacity that 20 what rating to give each of these trenches? 21 you functioned in at Nomura? 21 A. I don't know. 22 A. I worked for the production side of 22 Q. Were you involved in that process at 23 the business securitizing and structuring CMBS. 23 all? 24 Q. What did that job involve? 24 A. No. 25 A. More -- more detail and analysis. 25 Q. Were you involved in selecting the Page II Page 13 1 Grass - CONFIDENTIAL Gruss - CONFIDENTIAL 2 Q. What kind of detail and what kind of 2 commercial loans for the diffacat trenches? 3 analysis? 3 A. No. 4 A. Just packaging of the real estate 4 Q. What was your job? 5 loans, the commercial real estate loans, and then 5 A. I was a -- just an analyst. 6 assisting with the rating agencies in 6 Q. What were the nature of your duties 7 structuring. 7 as an analyst? 8 Q. Could you explain what you mean by 8 A. I would say once you received all 9 packaging a loan or just give us as freshman in 9 the loans, the ten loans — let's go back to 10 high school an explanation of what a CMS [sic] 10 that — the ten loans, I would be helping the 11 is? 11 head of structuring accumulating investment memos 12 MR. BRECHER: Objection. 12 on the real estate loans, et cetera. 13 Q. You may answer. 13 Q. Were you participating in the 14 A. For instancy, you have ten 14 decision which tranche the different commercial 15 commercial mortgages, you pool them together and 15 loans applied? 16 they you securitize them and you tranche them 16 A. No. 17 out. There could be triple A securities, double 17 Q. Was this assignment within the same 18 A, single A. 18 group as the group that you joined in '94? 19 Q. What is the -- 19 A. No. 20 A. Then you sell them through a 20 Q. The P&L work that you were doing 21 broker/dealer. 21 before was for a different group? 22 Q. What do you mean by securitize them 22 A. No, the P&L work was for the same 23 out? 23 group. 24 A. Like I said, ten loans, you package 24 Q. Right. 25 them, get a rating agency to rate them and then 25 A. Yes. I thought you asked if it was 4 (Pages 10 - 13) VERITEXT REPORTING COMPANY a ••••••• EFTA01124876  Page 14 Page t6 1 Gruss - CONFIDENTIAL 1 Gruss - CONFIDENTIAL 2 the same group. It was not the same group. 2 You described a proprietary business 3 Q. You just described two different 3 at Nomura; correct? 4 jobs that you had — 4 A. Correct. 5 A. Exactly. 5 Q. How large a business was it? 6 Q. -- at Nomura? 6 A. I don't know. 7 A. That's correct. 7 Q. How many people were employed in the 8 MR.. BRECHER: Let him finish the 8 proprietary trading business at Nomura at the 9 question. 9 time, late '90s? 10 THE WITNESS: Pm sorry. 10 A. Over 50, below a thousand. 11 Q. What did you do next at Nomura after 11 Q. So you went back to the back office, 12 you worked on the production of these securitized 12 were promoted to the title of director — 13 loans? 13 A. Uh-huh. 14 A. I went back to the back office where 14 Q. — and who did you report to? 15 I had started with the P&Ls and just — and just 15 A. Bob Rottman. 16 took on more responsibility. 16 Q. Who was Bob Rottman? 17 Q. What was your title at that time? 17 A. He was the CFO at the time. 18 A. Director. 18 Q. And how many people reported to Bob 19 Q. What was your area of 19 Rottman? 20 responsibility? 20 A. I don't recall. 21 A. The same -- it was the same 21 Q. How long did you stay as a director 22 responsibility, but now for the real estate 22 in the back office? 23 group, the fixed income group, and I believe 23 A. About 2002. 24 emerging markets; but can be — can't be sure 24 Q. So when you left Nomura, you left in 25 about the latter. 25 that position? Page 15 Page 17 1 .Gruss - CONFIDENTIAL 1 Omss - CONFIDENTIAL 2 Q. What was that responsibility? 2 A. Correct. 3 A. I was now managing those individuals 3 Q. Had you been promoted again before 4 that did the P&I, not unlike the P&L I did for 4 you left Nomura? 5 real estate. 5 A. I don't recall. 6 Q. What were the nature of the 6 Q. Did you -- withdrawn. 7 businesses that you were analyzing the Pa for? 7 Where did you go next to work? 8 A. The fixed income division traded a A. At D.B. Zwirn & Co. 9 corporate bonds. They traded residential 9 Q. How did it come about that you left 10 mortgage-backed securities -- not commercial 10 Nomura to go D. B. Zwim in 2002? 11 mortgage-backed securities -- and treasuries, 11 A. I got a call from a recruiter that 12 repos, reverse repos. 12 D.B. Zwim & Co. — HighbridgetZwim — 13 Q. And you calculated the P&L for all 13 Higbbridge at the time was looking for a CFO to 14 of these different proprietary trading accounts? 14 run the distressed special opportunities group. 15 A. At that point, the people who worked 15 Q. Who did you meet with at D.B. Zwim 16 for me did. 16 and Co.? 17 Q. And how many people at that point 17 A. I met with Dan Zwim, Glenn Dubin, 18 were working on your team? 18 and possibly one or two other people. 19 A. I don't recall. 19 Q. When did those initial meetings take 20 Q. Approximately. 20 place? 21 A. Ten. 21 A. Summer of 2002. 22 Q. How large a business was this — 22 Q. When were you actually hired? 23 MR. BRECHER: Objection. 23 A. Summer of 2002. 24 Q. — with Nomura. 24 Q. Am I correct, then, that you left 25 Withdrawn. 25 Nomura Securities on good terms? 5 (Pages 14 -17) VERITEXT REPORTING COMPANY EFTA01124877  Par IS Page20 I Gruss - CONFIDENTIAL 1 Gruss - CONFIDENTIAL 2 A. Oh, yes, very good. 2 recites what someone other than yourself said, 3 Q. Did Mr. Rottman or anybody else at 3 that you are not verifying the accuracy of that 4 Nomura make any effort to keep you there? 4 statement? 5 A. Mr. Rottman moved on to Wachovia 5 A. Do you — 6 Securities in Charlotte. His replacement 6 MR. BRECHER: Objection. 7 absolutely tried to retain me. 7 A. Can you drum that down for me, what 8 Q. When you joined D.B. Zwim, who was 8 you're trying to say? 9 your actual employer? 9 Q. There are a lot of allegations in 10 A. I believe Highbridge Capital 10 here about yourself; correct? 11 Management. 11 A. Yes. 12 Q. Let me show you what we marked -- 12 Q. And allegations that you've made 13 we'll mark as Gruss 1. 13 about what other people did; correct? 14 (Gruss Exhibit 1, Complain and Jury 14 A. Correct. 15 Demand, marked for identification.) 15 Q. To the best of your knowledge, these 16 Q. Are you familiar with that? 16 are accurate? 17 A. Yes. 17 A. Yes. 18 Q. Is this a copy of the complaint that 18 Q. And are you prepared to take an oath 19 you filed in this action? 19 that they're accurate? 20 A. Yes, but it's not the original. 20 A. Yes. 21 Yes. 21 Q. And do you so swear that they're 22 Q. Did you review it before it was 22 accurate? 23 filed? 23 MR. BRECHER: Objection. 24 A. Yes. 24 A. Yes. 25 Q. Did you make corrections to it 25 Q. Do I understand you to be saying Page 19 Page 21 1 (buss - CONFIDENTIAL 1 Gruss - CONFIDENTIAL 2 before it was filed? 2 that you believe that statements that were made 3 A. I don't recall. 3 about you were inaccurate? 4 Q. Does this represent your statement 4 A. Correct. 5 of what happened for the matters that are 5 Q. And it's those statements that 6 asserted in it? 6 you're not verifying are accurate? 7 MR BRECHER: Objection. 7 A. Correct. Thank you. 8 You can answer. 8 MR. LEVINE: Let's mark this 9 A. Oh, I'm sorry. I apologize. 9 Gruss 2. 10 Generally. 10 (Gruss Exhibit 2, Bates Nos. DBZ 11 Q. Well, is there any statement in this 11 0000038 through 39, 6/7/02 Letter to Gruss 12 complaint that you don't believe is accurate? 12 from Zwim, marked for identification.) 13 A. All the statements that were made on 13 Q. Do you recognize the document? 14 my behalf are accurate. 14 A. Yes. 15 Q. Is there -- did you make any 15 Q. What is it? 16 corrections to any of the statements that you saw 16 A. It appears to be my offer letter 17 in it before it was filed? 17 from Highbridge Capital. 18 A. I don't -- I don't recall. 18 Q. Is that your signature? 19 Q. Do I understand you correctly that 19 A. Yes, it appears to be. 20 to the extent that this complaint quotes what 20 Q. Was there any other employment 21 other people or institutions purport to have 21 agreement in June of 2002 that applied to you? 22 said, you're not attesting to that accuracy? 22 A. I don't recall. 23 A. Can you repeat that 23 Q. In 2002, in June, what was the 24 Q. Do I understand you correctly that 24 structure of the different investment vehicles at 25 to the extent that the complaint repeats or 25 Highbridgc Capital Management? 6 (Pages 18 - 21) VERITEXT REPORTING COMPANY EFTA01124878  Page 22 Page 24 Gruss - CONFIDENTIAL I Gruss - CONFIDENTIAL 2 A. This — just to be clear, this says 2 Q. Did you read, for instance -- 3 !joined in July of 2002. I think you said June. 3 withdrawn. 4 Q. Now please answer my question. 4 Was there offering memoranda for 5 A. I'm sorry, can you repeat it. fm 5 investors for sure each of those two funds? 6 sorry. 6 A. Yes. 7 MR. LEVINE: Eileen, you want to 7 Q. Did you read the offering materials, 8 read it back to him. 8 including the offering memoranda, for each of 9 (Record read.) 9 those two funds? 10 A. There were several. I can't recall. 10 A. I'm sure I did. 11 Q. What was Highbridge Capital 11 Q. Were you generally familiar with the 12 Management? 12 terms of those offering memoranda as it applied 13 A. The hedge fund. Highbridge Capital 13 to the investors for each of those funds? 14 Management was the management company that 14 A. Generally. 15 managed hedge fluids, to be clear. 15 Q. Did you have copies of those 16 Q. What was your understanding in 16 materials in your office to refer to as you were 17 July 2002 of what a hedge fund was? 17 doing your job in 2002? 18 A. A pool of capital that would make 18 A. At one time of another, yes. 19 investments on behalf of investors. 19 Q. And did you always have those 20 Q. What did you understand your job was 20 materials available to you if you had any 21 supposed to be in July of 2002 at Higbbridge 21 questions about what the terms were for any of 22 Capital Management? 22 those funds? 23 A. I was going to be the CFO of the 23 A. Yes. 24 Ffighbridge/Zwim Special Opportunities Funds as 24 Q. Did you understand, in July 2002, 25 well as the managed account that Dan Zwirn ran on 25 that — withdrawn. Page 23 Page 25 1 Gruss - CONFIDENTIAL 1 Gruss - CONFIDENTIAL 2 behalf of Highbridge Capital Management. 2 Who did you understand were the 3 Q. And what were the different funds 3 investors in L.P. and Ltd.? 4 that made up the Highbridge/Zwim Special 4 MR. BRECHER: Objection. 5 Opportunity Funds as of July 2002? 5 A. I don't recall. 6 A. I believe at the time there were 6 Q. Were they — I don't mean by name. 7 two. Highbridge/Zwirn Special Opportunities 7 A. Right. 8 Fund, L.P. And Highbridge/Zwim Special 8 Q. I mean by type. Were they 9 Opportunity Funds, Ltd. 9 individuals? 10 Q. What was the difference between the 10 A. At that time? II Special Opportunities Fund identified by L.P. 11 Q. Yes. 12 with the fund identified by Ltd.? 12 A. I don't recall. 13 A. The L.P. was onshore investors. 13 Q. Do you recall the nature of any of 14 Domestic investors could invest in it. And Ltd. 14 the investors at that time? 15 was offshore. Foreign investors invested through 15 A. The nature, can you -- 16 it. 16 Q. Were they individuals? Were they 17 Q. Was July of 2002 the first time that 17 partnerships? Were they LLCs? 18 you ever confronted an investment structure of 18 A. It could have been individuals, but 19 that kind? 19 I don't — I don't recall. 20 A. Yes. 20 MR. BRECHER: Don't guess. If 21 Q. How did you learn what that 21 you -- 22 structure was made up of? 22 Q. Do you recall how many investors 23 MR. BRECHER: Objection. 23 there were in each? 24 A. By way of reading the material that 24 A. Na 25 existed. 25 Q. Did you understand, in July of 2002 7 (Pages 22 - 25) VER1TEXT REPORTING COMPANY ^Orb seem /nen MO • •• /SS OD • II Ib EFTA01124879  Page 26 Page 28 1 Gruss - CONFIDENTIAL 1 Gruss - CONFIDENTIAL 2 or shortly thereafter, that if an investor were 2 the onshore, it would have to be expensed by the 3 invested in the limited, the L.P., the onshore 3 onshore fund. And the same goes for if there was 4 entity, that that investor was called a limited 4 an expense of the offshore fund, it would be 5 partner? 5 expensed on the offshore fund. 6 A. Yes. 6 Q. Did you understand that investors of 7 Q. Did you understand that an investor 7 the onshore could not pay — should not pay for 8 in Ltd., the offshore fund, was also called a 8 expenses of the offshore fund? 9 limited partner? 9 MR. BRECHER: Objection. 10 A. No, I don't believe so. 10 A. If the onshore did not incur the 11 Q. What did you understand they were 11 expenses, they should not have incurred the 12 called? 12 expenses. 13 A I don't know. 13 Q. And did you understand that it would 14 Q. Who do you understand was the 14 not be proper if investors of the onshore fund 15 manager of each of these funds? IS were charged for expenses of the offshore fund? 16 A. I don't recall. At that time, I 16 MR. BRECHER: Objection. 17 don't recall. 17 A. 1don't know. 18 Q. You don't recall the specific name 18 Q. Well, did you think that maintaining 19 of the management company or you don't recall 19 separate expenses was convenience or something 20 generally who was the manager? 20 required by the agreements? 21 A. I dont recall generally. 21 A. As I said earlier, if there was an 22 Q. Who did you report to? 22 onshore expense, it should have been expensed to 23 A. I reported to Dan Zwim. 23 the onshore. If there was an offshore expense, 24 Q. Did you understand you were working 24 it could have been expensed to the offshore. 25 for the investment adviser to the funds or to the 25 Q. When you say "should have been Page 27 Page 29 1 Gruss - CONFIDENTIAL 1 thuss - CONFIDENTIAL 2 administrative manager for the funds? 2 expensed," is that because that's what was 3 A. The management company. 3 required by the legal agreements? 4 Q. And what did you understand the job 4 A. I believe so. 5 was of the management company withdrawn. 5 Q. Did you understand that as CFO, you 6 What did you understand the duties 6 have a fiduciary duty to investors to maintain 7 were of the management company? 7 separate records of their investments and the 8 A. To manage the assets on behalf of 8 expenses attributable to the investments? 9 the investors. 9 MR. BRECHER: Objection. 10 Q. Did you understand that the 10 A. Oh, Pm sorry. Yes. 11 investors of the limited partnership were 11 Q. There's no question about that; 12 separate and distinct from the investors of Ltd.? 12 correct? 13 A. Yes. 13 A. No, there would be a question. 14 Q. Did you understand that L.P.'s funds 14 Q. What would the question be? 15 were to be segregated and kept separate from 15 A. 1would need to see all of the 16 Ltd.'s funds? 16 expenses attributable to all of the expenses that 17 A. The investor investments, yes. 17 tan through the funds on the management company. 18 Q. Did you understand that expenses 18 Q. Am I correct that as CFO, it was 19 attributable to the offshore fund could not be 19 your job to set up a system so that all of the 20 paid by the onshore? 20 expenses got attributed correctly as between the 21 A. What type of expenses? 21 onshore and the offshore fund? 22 Q. Any kind of expenses. Did you 22 A. It was my job to manage the 23 understand that the expenses of each of the funds 23 individuals whose responsibility it was. 24 had to be kept separately? 24 Q. Was it ultimately, as CFO, your 25 A. If there was an expense incurred by 25 responsibility to make sure that they did the 8 (Pages 26 - 29) VERITEXT REPORTING COMPANY EFTA01124880  Page 30 Page 32 1 Gruss - CONFIDENTIAL 1 Cress - CONFIDENTIAL 2 correct job? 2 A. [don't recall. It would be the 3 A. It was my responsibility to manage 3 same entity that employed myself. 4 them. 4 Q. Did you understand that there were 5 Q. Did managing them involve making 5 investments that were made that were invested — 6 sure they did a correct job? 6 withdrawn. 7 A. Part of the responsibility, yes. 7 Did you understand that there were 8 Q. There's no question about that; 8 assets that were invested in by both L.P. and 9 right? 9 Ltd.? 10 MR. BRECHER: Objection. 10 A. Yes. 11 A. No, there is a question about that. 11 Q. Was part of your job making mire 12 I just went through it. 12 that the people that worked for you kept track of 13 Q. The question is that it's a 13 that apportionment of investment where there was 14 challenge, but there's no question it was part of 14 each -. where it was a situation each of the 15 your job? 15 funds was investing in the same asset? 16 A. To manage the individuals, no 16 A. Insofar as it was appropriate for an 17 question. 17 asset to be invested in by both the onshore and 18 Q. And there's no question that it was 18 the offshore fund, yes. 19 part of your job of managing the individuals to 19 Q. And sometimes a separate entity was 20 make sure that the allocation of expenses was 20 created so that the onshore could invest in a 21 done correctly? 21 particular asset and the offshore fund 22 A. It was my responsibility to manage 22 essentially invests in the same asset, but 23 these individuals insofar as what exactly they 23 through a different entity? 24 did on a day-to-day basis. I couldn't 24 A. Pm sorry, can you repeat that. 25 micromanage exactly what they did. 25 (Record read.) Page 31 Page 33 1 Gnus - CONFIDENTIAL 1 Gruss - CONFIDENTIAL 2 Q. Did you give all of the people that 2 A. I don't recall. 3 were responsible for doing this work on a 3 Q. Did you understand that part of the 4 day-today basis the rules that we just recited a 4 fiduciary duty to keep the investments in the 5 few minutes ago? 5 fund separately was because you were — you were 6 MR. BRECHF.R: Objection. 6 keeping track of investments made by individuals 7 A. They — they knew the rules. They 7 or entities that had every right not to have to 8 had access to the offering memorandums, as did L 8 pay for investments made by people or entities in 9 Q. Did you make sure that they knew the 9 a different fund? 10 rules? 10 MR. BRECHER: Objection. 11 A. I don't recall. 11 THE WITNESS: That was a long one. 12 Q. Did you take steps to make sure that 12 Could you ... 13 they complied with the rules? 13 (Record read.) 14 A. I believe I did. 14 A. I don't know. 15 Q. Am I correct that Highbridge Capital 15 Q. Well, wasn't that the essence of 16 Management controlled -- withdrawn. 16 keeping the funds separate? 17 (Discussion off the record.) 17 MR. BRECHER: Objection. 18 Q. Who — who did you understand was 18 A. I would just ask if you can ask the 19 making investment advisory decisions on behalf of 19 question a little simpler. 20 the fimds? 20 Q. Well, people in the onshore — 21 A. Dan Zwim. 21 withdrawn. 22 Q. And who did you understand - 22 Did you understand that there are 23 withdrawn. 23 rules -- actual investment rules as applied to 24 What did you understand was the 24 who can invest in an onshore and who can invest 25 entity that employed Dan Zwim for that purpose? 25 in an offshore fund? 9 (Pages 30 - 33) VERITEXT REPORTING COMPANY EFTA01124881  Page14 Page 36 1 Gruss - CONFIDENTIAL 1 Oruss - CONFIDENTIAL 2 A Yes. 2 he or she would invest in the onshore fund. If 3 Q. There are tax rules that apply; 3 there was an offshore investor, he or she would 4 correct? 4 invest on the offshore fund. Based on what 5 A. In some Stances. 5 criteria, I don't know. 6 Q. These are rules and laws that are in 6 Q. Did you understand that it was 7 force in the United States; correct? 7 simply convenience or did you understand laws 8 MR. BRECHER: Objection. 8 actually applied to it? 9 A In some instances. 9 A. There is clearly a reason beyond 10 Q. Keeping them separate — keeping 10 convenience. 11 investors in these funds separate is part of 11 Q. Did you understand that a person 12 complying with Federal tax laws; isn't that 12 living domestically could not as a matter of law 13 right? 13 invest in the offshore fund and vice versa? 14 MR. BRECHER: Objection. 14 A. I didn't know. I don't know. 15 A. I don't know. I'm not a tax expert. 15 Q. What would be the reason for keeping '16 Q. Just generally, in July of 2002 — 16 them separate? 17 withdrawn. 17 MR. BRECHER: Objection. 18 In July of 2002, was that the first 18 A. I'm not — rm not a tax accountant 19 time ever that you had learned about what an 19 or lawyer, but I would assume it's tax based. 20 onshore fund was and what an offshore fund was? 20 MR. BRECHER: Don't assume anything. 21 A. Yes. 21 Q. Didn't you know that it was tax 22 Q. Do you understand that there were 22 based? 23 federal tax laws that applied to what an onshore 23 A. I don't recall whether or not I 24 fund was and what an offshore fund was? 24 knew. 25 A. I don't believe at the time of my 25 Q. What did you think was possibly the Page 35 Page 37 Gruss - CONFIDENTIAL 1 Gruss - CONFIDENTIAL 2 hiring. 2 reason for the separation? 3 Q. What did you understand was the 3 MR. BRECHER: Objection. 4 reason that they were separate? 4 Q. Was it just to keep addresses 5 A. The -- I don't recall 5 separate or convenient — 6 Q. What was it based on? 6 MR. BRECHER: Objection. 7 A. Whether or not an investor was an 7 Q. — or was it a law that applied to 8 domestic investor or an offshore investor. 8 the people? 9 Q. What did you — how was it 9 MR. BRECHER: Objection. 10 determined -- how was it determined whether an 10 A. I don't recall at the time what I 11 investor was an onshore investor or an offshore 11 thought. 12 investor? 12 Q. Did you think it mattered to keep 13 A. I don't know. 13 them separate or just a matter of convenience? 14 Q. Did you know there were laws that 14 A. Clearly at the time, I did not 15 applied? 15 recall. 16 MR. BRECHER Objection. 16 Are you asking me today? 17 A. I don't recall if I knew there were 17 Q. No, I'm asking you did you read the 18 laws. 18 offering memorandum at the time? 19 Q. What did you think there was? 19 A. Yes. 20 A. I wasn't the general counsel. 20 Q. So that did you understand what the 21 Q. I'm not asking you your 21 offering memorandum said as to how one qualified 22 understanding as a lawyer. I'm asking you your 22 to be an investor in either one of the funds? 23 understanding as what became the chief financial 23 A. I don't recall if I read that 24 officer of the entities. 24 specific ... 25 A. If there were an onshore investor, 25 Q. Did you ever tell anybody when you 10 (Pages 34 - 37) VERITEXT REPORTING COMPANY PI 4 P. ••• tem • • • P e end, n.nn EFTA01124882  Page 38 Page40 1 Gluts - CONFIDENTIAL 1 °MSS - CONFIDENTIAL 2 started work there that you didn't understand the 2 A. Yes. The entities and the 3 rules that apply? 3 individuals. 4 A. No, I never told anyone that. 4 Q. Please take a look at page 20, 5 Q. Did you have confidence when you 5 paragraph 131. 6 started there that you understood the rules as 6 (Witness peruses the exhibit.) 7 they applied to the extent you had to do your 7 Q. So 'just would like to go through 8 job? 8 paragraph 131 with you. 9 A. Not