Emet Investments, LLC, et al. v. Nations Academy LLC, et ...

1 Case 1:10-cv-06287-AKH Document 3 Filed 08/23/10 Page 1 of 50 UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORKEMET INVESTMENTS, LLC,a Nevis limited liability company,Plaintiff, against Nations Academy LLC,a Delaware limited liability company,GLOBAL EDUCATION MANAGEMENT Civil Action No. 10 Civ. 6287 SYSTEMS LIMITED, ECF Casea British Virgin Islands corporation, andGEMS AMERICAS, INC., Jury Trial Demandeda Delaware limited liability company,SUNNY VARKEY,an individual Dubai resident,CHRISTOPHER WHITTLE,an individual New York resident,SRINIVASAN KRISHNAN,an individual Dubai resident, emet investments , LLC ("Emet") through its attorneys Brune & RichardLLP, alleges as follows:NATURE OF ACTION1.

2 This action arises out of a brazen fraud committed by a purported international,for-profit education venture and its officers, directors, successors and alter egos, through whichthe plaintiff Emet was swindled out of more than five million dollars. In reasonable relianceupon numerous written and oral misstatements made by the defendants, Emet executed aSubscription Agreement whereby it agreed to make a cash capital contribution of $5 million toNations Academy LLC (" Nations "), in exchange for shares of preferred stock in Nations . TheCase 1:10-cv-06287-AKH Document 3 Filed 08/23/10 Page 2 of 50shares, however, would never be issued.

3 The Subscription Agreement, and the numerous oraland written communications that accompanied it, were a fraud perpetrated to line the pockets ofthe defendants at the plaintiff's discovering the fraud, Emet requested the return of its $5 million. WhenNations and its principals refused to return the money, Emet, through its counsel, made a formaldemand for its return. To avoid a lawsuit, defendant Sunny Varkey, one of the founders ofNations and the driving force behind the fraudulent scheme perpetrated by the defendants,entered into a Settlement Agreement and executed a Promissory Note (a true and correct copy ofwhich is attached hereto as Exhibit 1), pursuant to which Varkey agreed to pay back Emet's $5million plus interest, in consideration of Emet's agreement to forego commencing a legal actionagainst the 's promise to pay was unconditional and irrevocable.

4 He waived anydefenses to enforcement of his obligations and agreed to pay all of Emet's costs and expensesincurred in enforcing its rights under the Promissory Note. But the promise was nothing morethan a perpetuation of defendants' fraud. In blatant disregard of the agreed-upon terms of theSettlement Agreement and Promissory Note, Varkey failed to pay the amount due on the date setforth in the agreements. To date, Varkey has failed to pay Emet any of the $5 million inprincipal, plus interest, that he is personally obligated to and the other defendants, having recognized their obligation to makeEmet whole for the shares of preferred stock that Emet was fraudulently induced to buy, butwhich were never delivered, have since been engaged in a pattern of behavior designed toperpetuate the fraud, frustrate Emet, and avoid liability.

5 Specifically, Varkey and the otherdefendants have formed new corporate entities, given indebted entities new names and/or used-2-Case 1:10-cv-06287-AKH Document 3 Filed 08/23/10 Page 3 of 50shell corporations in a transparent effort to hide or shield the very assets from which Emet isentitled to ' fraud, willful and continued obfuscation, and outright refusal toadhere to the terms of binding agreements cannot be permitted. By this Complaint, Emet seeksto end Varkey's international shell game and mocking disregard for the rule of emet investments , LLC ("Emet") is a Nevis limited liability company,formed by the trustee of a foreign trust (the "Trust"), for the purpose of holding the $5 millioninvestment that is the subject of this action in its name as nominee for the trustee.

6 The trustee isthe only member of Emet and Counselor Trust reg. is its Manager. Lynn Tilton is the beneficialowner of the Trust, has a beneficial ownership interest in the Emet structure, and at all relevanttimes was acting in that information and belief, defendant Nations Academy LLC is a limitedliability company organized and existing under the laws of the State of Delaware, is or was dulyauthorized to conduct business within the state of New York, with its principal place of businesslocated at 767 Third Avenue, New York, New York. Upon information and belief, defendantsVarkey and Christopher Whittle were directors of Nations from its inception until at leastSeptember 2008; Dino Varkey was a director of Nations beginning on or about August 26, 2008;and Manny Rivera was a director of Nations beginning on or about September 1, 2008.

7 In oraround November 2008, Nations ' board of directors voted to change the name of NationsAcademy LLC to gems Americas LLC. In the alternative, Defendant gems Americas Inc.(" gems Americas"), a Delaware corporation incorporated on January 15, 2009, is the successorof Nations , maintaining offices at 767 ThirdAvenue, New York, New 3 -Case 1:10-cv-06287-AKH Document 3 Filed 08/23/10 Page 4 of information and belief, defendant Global Education Management SystemsLimited (" gems "), also doing business as gems Education, is a British Virgin Islandscorporation controlled by Sunny Varkey, duly authorized to conduct business within the State ofNew York, and maintains offices at 767 Third Avenue, New York, New York.

8 DefendantGEMS shares the same corporate address as defendants Nations and gems Americas, owns acontrolling interest in the stock of defendants Nations and gems Americas, shares common andoverlapping management with defendants Nations and gems Americas, and dominates andcontrols defendants Nations and gems information and belief, defendant Sunny Varkey is a resident of Dubai, andis Founder and Chairman of gems , which in turn owns and controls Nations and GEMSA mericas as described information and belief, defendant Christopher Whittle is a resident of NewYork, New York, Founder and Chairman of Edison Schools, one of the original investors inNations, and was the President and Chief Executive Officer of Nations from its inception until inor around September information and belief, defendant Srinivasan Krishnan is a resident ofDubai, and was the Chief Operating Officer of the Varkey Group, the parent company of GEMSand gems Americas, from its inception and through at least 2008.

9 Currently, Mr. Krishnan isExecutive Director, Pacific Rim, East Asia and China Region for AND VENUE action asserts claims under Sections I0(b) and 20(a) of the SecuritiesExchange Act of 1934 (the "Exchange Act"), 15 78j(b), t(a), and the rules andregulations promulgated thereunder by the SEC, including Rule l Ob-5, 17 240. l 1:10-cv-06287-AKH Document 3 Filed 08/23/10 Page 5 of 50 This Court has jurisdiction over the subject matter of this action under Section 27 of theExchange Act, 15 78aa, and pursuant to 28 1331. The Court has supplementaljurisdiction over the remaining claims under 28 1367(a) because those claims form partof the same case or controversy as the claims under the Exchange is appropriate in this District under 28 1391(b) and Section 27 ofthe Exchange Act, 15 78aa.

10 Substantial acts in furtherance of the alleged fraud or theeffects of the fraud have occurred in this District. Many of the acts alleged herein, and the actsgiving rise to defendants' misconduct, occurred in substantial part in this District. Moreover,Paragraph 12 of the Promissory Note dated February 17, 2010, executed by Sunny Varkey,provides that any suit or proceeding related to that Note shall be commenced exclusively in stateor federal courts located in New York County, New York, and Mr. Varkey explicitly consentedto the exclusive jurisdiction and venue of such connection with the acts, transactions, and conduct alleged herein, defendantsdirectly and indirectly used the means and instrumentalities of interstate commerce, including theUnited States mail, interstate telephone communications, email, and the facilities of a nationalsecurities OF Varkey is a Dubai-based entrepreneur and multi-millionaire at the helm ofthe Varkey Group a multinational corporation with interests in construction, healthcare andeducation.