DS9 Document EFTA01082356

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Daniel B. Zwirn February 18, 2010 1 2 3 4 5 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 205 bears Bales stamp DBZCOPR-00661225 through 861226. Please take a moment to review the document MR. SIEFERT: Thank you. (Witness perusing document.) A Okay. O Okay, Mr. Zwlm, why don't we go from the bottom up? And, you're not on every e-mad, so we're going to &dr:, one or two. But, if you'll 9010 tie Bates-stamp that ends In 226, which is the second page? A Okay. O There is an e-mail from a Craig Bergstrom. The 1 date time stamp Is Wednesday, October 25th, 2006, 6:37 . It's to yourself and Chris Suan. you sea that e-man? A Urn hmm. O Okay. Mr. Zwim, do you recall receiving this e-mait? A No, I don't recall. O Okay. Do you know who Craig Bergstrom is? A He is a investment professional ancVor principal at Corbin Capital Partners, the - a - a fund of hedge funds. O And you say he's a - ! apologize. I should have asked at the time, was Mr. Bergstrom in the same capacity 207 MR. SIEFERT: You have to say yes' or 'no.' 2 A Oh, I'm sorry. That's what it look Ilke. I 3 agree that it looks like that But I don't recall the 4 e-m.911. 5 0 You don't recall receNing this e-mail? 6 A No, I don't 7 0 Looking at ft today, do you know - and I'm 8 looking at the - the George Sard e-mail - 9 A Um hmm. 1 o 0 - do you have an underStarkfing as to vthal he was 11 speaking about when he said am, unfortunately, not 12 surprised that this Is starting to leak'? Do you know what 13 the this' referred to? 14 A I don't know. 15 0 Okay. 16 A I don't recall. 17 0 d you go to the next e-mall, -- 18 A Um hmm. 19 0 — which Is from Chris Suan, the date 20 stamp Is Thursday, October 26th, 2006, at 1:49 - 21 A Um hmm. 22 Q - to David lee, yourself, Vasan Kesavan, 23 Lawrence Cutler, and David Proshan. 24 Do you see that e-mai!? 25 A Um hmm. 206 1 al Corbin Capital? 2 A I don't know a he was a principal or a partner. 3 I don't know what the - but he was an investment 4 professional. Q Okay. Looking at this e-mail today, do you 6 recall receiving d? 7 A Id°. I dont. Q And do you know what the nimor that Mr. Bergstrom is referring to was? He says, 'I think there is a rumor going around about accounting or valuation issues at your shop.' A I don't recall. O Okay. MI right Let's go to the next page. which is the front page, please? The one that ends in 225. There's an e-mail in the middle of the page. It's from David Lee to yourself Chits Saran, Vasan Kesavan, Lawrence Cutler, Dawd Proshan. The date arid time gam? is Wednesday, October 25th, 20:32 hours. And, is October 25th, 2006. Do you see that? A Urn trim. CI Okay. It looks like Mr. Loo forwarded you the e-mai below. A Um hmm. O Is that your understanding? 209 1 0 Okay. 2 MR. liFERT: Say yes.' 3 A Oh, sorry, sorry about that. Are there any 4 "urn hmms' that we have to go back? MR. SIEFERT: No, lust say -Yee 6 A Okay. yes. 7 Q Mr. Saran - well first, do you recall receiving B this e-mail? 9 A No, I don't. 10 Q Okay. 11 A I don't retail. 12 0 Mr. Suan wrote I agree this is going to the SEC, 13 whether we like or not. So, I salt think we should be 14 seriously oonsidedng the self-reporting option." 15 Looking al this now, do you have any 16 undo:stem:fang as to what the --the 'this' Mr. Suan was 17 referring to, in 'this is going to the SEC"? 18 A I don't meat 19 0 Did the "this* refer to any of the accounting or 20 control issues, like the management fees or the plane that 21 were discovered prior to the date of this e-mail? 22 A 1- I don't recall what it was specifically 23 regarding, because subsequent - there were issues before 24 we separated from Perry, and then there were subsequent 25 iSSues that ultimately led to a second round of calls and 52 (Pages 205 to 208) DIVERSIF 1IIIIIIIIIIIIIr ERVICES CONFIDENTIAL DZ_FTC 00079 EFTA01082356 Daniel B. Zwirn February 18, 2010 209 disclosures. So. I cont know what the 'this' is referdng 2 to. 3 0 And those 'subsequent issues' were? 4 A I don) recall. I don) recall the specifics. I 5 believe there's a — a script covering the second round of 6 calls. but I just don) recall. 7 MR. SIFFERT: May I ask — B MR. ALTENBACH: Go ahead. 9 MR. SIFFERT: MOO saying what was said. was 10 one of the subject matters that you discussed when you were 11 talking with counsel — 12 THE WITNESS: Urn hmm. 13 MR. SIFFERT: - namely Schulte -- 14 THE WITNESS Right. 15 MR. SIFFERT: -was one of the subject matters 16 that was discussed - 17 THE WITNESS: Um hmm. 18 MR. SIFFERT: - back in early summa -- 19 19 THE WITNESS: Urn hmm. 2o MR. SIFFERT: — the possibility of 21 sell-reporting/ 22 THE WITNESS To the SEC? 23 MR. SIFFERT: Yes. 24 MR. ALTENBACH: Yeah just to be clear. 25 THE WITNESS: Not that I recall. 211 1 — I couldn't tee you when, or who was present. or -- or 2 the subject, or the, you know, subsets of — 3 MR. SIFFERT: Well — well. let me ask you this. 4 THE WITNESS: Yeah. MR. SIFFERT: Was the issue of whether to report 6 to the SEC - 7 THE WITNESS: Urn hmm. MR. SIFFERT: —*ken by whether or not there 9 was going to be press? Or, was that just an issue of 10 timing, of when to report it to the SEC? 11 THE WITNESS: Was what just an issue of timing? 12 MR. SIFFERT: Was the fact that there was going 13 to be press — a press story — 16 THE WITNESS: Urn hmm. 15 MR. SIFFERT: a reason the reason that was 16 that this matter was self-reported to the SEC, or was 17 the tact that there was press something that merely 18 affected the timing of the decision Mich to go to the SEC? 19 THE WITNESS: I don) believe the fact that a 20 report was supposedly coming affected whether we went to 21 the SEC. I don't know that II even affected the timing. 22 BY MR. ALTENBACH: 23 0 And with respect to the last part of Mr. Sean's 24 e-mail, where it says 'I still think we should be seriously 25 considering the self-reportkig option' - 210 MR. SIFFERT: To the SEC. Was one of the 2 subject matters that you just - that was the - was the 3 subject matter, without Saying who said what to whom, - a THE WITNESS: Urn hmm. MR. SIFFERT: - of reporting, -- 6 THE WITNESS Urn hmm. 7 MR. SIFFERT: - discussed with Schulte after a their investigation? 9 [No response.] 10 MR. SIFFERT: Was that a subject matter that was 11 discussed? Don't say what was said, and what was -- 12 THE WITNESS: You mean after their investigation 13 and before we terminated Perry? 14 MR. SIFFERT: Yes. is THE WITNESS: Not that I recall. 16 MR. SIFFERT: Do you see Chris Suan saying here 17 this is going tome SEC whether or not ... so I still 18 Mink we should be seriously considering the self-reporting 19 options'? Do you See that? 20 THE WITNESS: Yes. 21 MR. SIFFERT: Does that refresh your memory that 22 prior to this date of October 26th, there was some 23 discussion, at leas: internally, about self-reporting to 24 the SEC? 25 THE WITNESS: I would say I believe se. I just 212 1 A Um hmm. 2 Q —can you tell me if, prior to this 3 October 26th, 2006, e-mail, there had been a derision 4 withiM firm not to self-report? 5 A Not that I recall. 6 (Pause) 7 Q Do you recall when the firm retained Fried Frank? A I don't recall. I mean, in the — in the fall. 9 I don't know Nit was October, or November, or some in 10 around that area. 11 Q Okay. Was It before or after Mr. Gruss's 12 separation from the firm? 13 A I hOneStly dent know. 14 MR. SIFFERT: Who made that decision to hire is them? 16 THE WITNESS: It was recommended to me by our 17 head of compliance, and I said 'Go ahead and do It.' le Because he, you know, — 19 BY MR. ALTENBACH: 20 () And that was Mr. Cutler? 21 A Correct. I guess, at that point, CAO and CCO. 22 0 And do you know when Mr. Cutler made that 23 recommendation? 24 A 1 don't 25 (Pause) 53 (Pages 209 to 212) DIVERSIFINEID ERVICES CONFIDENTIAL DZ_FTC 00080 EFTA01082357 Daniel B. Zwirn April 7, 2010 Page 441 1 talked about some investment strategic initiatives, 2 but that was the prime vehicle through which I 3 understood what was going on with the major 4 initiatives on the non-investment side of the firm 5 and that continued to be clear during bucket three. 6 even during the delegation of the authority period. 7 BY MR. ALTENBACH: a Al the management committee meetings — 9 first, how often did the management committee meet? 10 A. Typically weekly. 11 O. Was it done the same day every week? 32 A. No, because I had probably certainly 13 by the late '06 period, I probably had 40 internal 14 meetings weekly across, you know, domestic lending, 15 U.S. real estate, private lending, assets in • 16 structured finance. Eurcpe illiquid, South Asia 17 itfiquid, Australia Illiquid, Japan illiquid, Korea 18 iliquid, credit arbitrage, domestic credit 19 arbitrage. international, domestic merger arbitrage, 20 domestic event-driven, domestic REITs, domestic 21 utilities, domestic corporate private equity, 22 domestic private real estate, domestic private 23 investments In public equities, and so on. 24 So typteally the people setting those 25 meetings up would have different times. I might do 1 2 3 4 5 6 7 e 10 11 12 13 14 15 16 1."? 18 19 20 21 22 23 24 25 Page 443 O. Did anyone provide some type of analysis that here is what these things are going to cost and here is the impact of that cost on the management company's performance? A. In bucket two, similar to what we already descnbed. I have seen in the management company, and in bucket three It became far more detailed because we had substantially — quite frankly because we were incurring massive additional expenses associated with this process. O. At least during bucket two, was the firm Mil expanding aster as number of elites, office locations throughout the world? A. Sure. Q. There is cost associated with opening those offices, correct? A. On an incremental basis, 'Slivery small. A number of their International offices ware started as basically Regus offices. O. What does that mean? A. Temp space, so it would be very. very incremental. O. But people worked in those offices. correct? A. Yes. Page 442 I Central Asia at 5:00 in the morning and 9:00 at 2 night, so those people who were the heads of those 3 different meetings would kind of go into typically 4 Trish Peters and kind of fie the holes up. And so, 5 depending on all their relative schedules. she would 6 book it all in. 7 O. And at these management comMatee a meetings, did someone give a presentation or provide 9 Information on the finances of the management 10 company? 11 A. They were not a presentation per se. but 12 at some of those we could have also seen what we 13 were -- what I was being Shown in tens 01 management 14 company meetings that stalled during bucket two. 15 But as a general matter. It would be 26 bigger initiatives Ike we are going to add Asian 17 asset management and how many people we are going to 38 add to that and why. Or we are going to upgrade from 19 one IT system to another and we are updating for this 20 reason, or Ms is the status of this wait-Ilion 21 exercise or this financing structure. 22 O. The types of things like adding people 23 or doing particular IT protects had costs ttre-4-ted 24 with them, right? 25 A. Yes. Page 444 1 O. Wasn't there incremental head count 2 test? 3 A. Yes, but that would be added on in a 4 very incremental way also in terms of level of 5 seniority. I believe we perviously discussed It was 6 - It was the case across the fine, we frequently had 7 a person of a certain level based on where we were e and what we were doing in a certain area, so they 9 were sent to that area-Mont. rid or bad< officer — °mil to prolred Itself out or h El to be added on. So 11 there would be increasing numbers but also increasing 12 levels of seniority. Similar to what we just 13 discussed about the management company coaptr011er. 14 how that went from Tim to the other, the next guy, to 15 Mike Sabatell. 16 Q. The office move from when DEQ & Co. 17 leaves the Highbridge office space and gets Its own 18 stand-alone office space? 19 A. Yes. 20 O. When did that occur? 21 A. Very early 2004 I believe. 22 O. Were there a Id of costs associated 23 with that moving process? 24 A. There was some decent amount. I don't 25 know what they were. I do know, the big picturil Diversifi CONFIDENTIAL 13 (Pages 441 to 444) Services DZ FTC 00225 EFTA01082358 Daniel B. Zwirn April 7, 2010 1 2 3 4 5 6 a 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 445 wanted as short a lease as possible. so I believe it was only about three and a hall years. It was a sublet to give us maximum flexibility and as little expense as possible. And it was also as close to Highbridge as possZale, it as Iwo buildings over in order to keep them' ---4•6 ° and as much as possible involved in business of our firm. And It was we got then space I know, since it was very, very significant expense relative to other expenses at S38 a foot and that space lopped out at 130, so It was a very opportunistic thing also. It was not my idea to move. We ran out of space at Highbridge and it was their idea that we move. Q. Did someone prepare a budget that was shown to you that scheduled out costs that were expected to be incurred with the move to your separate office space? By you, I Mean DBZ & Go. A. No, not that i recall. At that point we still were effectively subsidized by Highbridge. I know we were certainly getting ready to be on our own, but we still, as I said, we were as close to them as possible. We still leveraged off of them In terms of several non-front office functions. And, again, up to that point. l it had they had covered Wind of all the overhead. So we wouldn't 1 2 3 4 5 6 7 e 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 447 what the implications ol that were or what drove his decision making. 0. Were you personally involved with approving any al the costs associated with the move? A. Just the lease that I can mai. O. Things like office furniture or carpeting, the fixed asset-Ace acenclitures. new servers, new compilers, things We that? k No, not that I recall I certainly could have seen some sheet summarizing k all. I just &et know. I am sure the management committee as a whale, particularly with regard to that at that point likely incltring Glennthe CFO, et cetera, would have seen the numbers. O. You say you could have seen a Sheet that scheduled out things Ire this. Do you Feta swing such a sheet? A. I dont It was over six years ago now. O. When you were here in February, I believe you said that you believe by the time Schulte Roth was engaged by the management company. Mild) was Sometime, I think you saidi rougNy n Jute al 2006 — A. Yes. O. - you were aware ol the management fee 1 2 3 4 6 7 8 9 10 1 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 446 have moved - It was their Idea. We didn't ask 10 move. We wouldn't have moved if we couldn't have afforded 0. on a stand-alone basis Uwe couldn't have afforded It. We only would have moved had they then subsidized rt. O. So is a your underStanding that Highbridge covered either at or a substantial portion of the costs associated with moving to a separate office space? A. I don't know the precise time at which we stopped having subsidization from them. I don't recall the specific time. Around that time. But again, this was at their behest for their benefit, both not only the physical move but the structural one. It was my understanding -- I might have said this before, tea me If I am repeating — there was a notion, and again I don't know the mechanics of this, that Highbridge had two broker-dealers that were somehow involved, I believe, In rerY I recall ivie4r convertible bond business, I am not sure why or how. And that the notion of a spin off was because Ron Resnick. the general counsel of Highbridge, specifically said we heed not want us to be a 'supervised' branch ofproker-dealer. I am not sure 1 2 3 4 5 6 7 9 10 17 12 13 14 15 16 17 is 19 20 21 22 23 24 25 Page 448 issue and the alrerall purchase issued the early withdrawal management tees and the use of the fund towards the plane purchase? A. Yes. Again, you can check the transcript, I referred to an Gale: meeting where David Proshan and Lawrence Cutler came to me first, and l feel confident that they talked about the management lee issue at that time, I think I said this. I don't know precis* whether they told me about the advance or the airplane equity Issue then or at the subsequent meeting where they recommended retaining Schulte. 0. But by the time Schulte was retained. you were aware Cl both issues, coned? A. Yos. 0. Did you ever speak with Gross directly about these issues? Did you ever ask him why management fees were taken earlyc.or why the certain funds were used towards Mean purchase? A. I dont recall. In the time between those two meetings. I. might have said I am speculating — MR. SIEFERT: Do you remember? THE WITNESS: I dont nave a specific recollection. 14 (Pages 445 to 445) Diversifi ervices CONFIDENTIAL DZ FTC 00226 EFTA01082359 Daniel B. Zwirn April 7, 2010 Page 449 1 A. I maybe said something to the effect 2 what is thtS, because I remember hawing II in my 3 mindMiere had been some sort of clerical error in 4 the junkx part of the department. but I can't tell I 5 said to Perry - I just can't remember. 6 Then by the time I did know the facts. 7 you know, we definitely did not speak about It. 8 O. When you found out about these two 9 issues and what they were, were you displeased. were 10 you unhappy? 11 A. Yes. 12 Oi Did you try and find out — again, this 13 is just on your own. you personally making inquiries 14 of Gruss or anyone eke in the fiwn — why these Is events occurred? 16 A. Beyond potentially calling Perry in that 17 intervening period, no. Lawrence and Oavid Proshan 1 e carne to rim they said we have these couple rid Issues. 19 Andrald it they are issues that came10 US. we are 20 going to get to the bottom;,Thentaii came to me in 21 Ike May or June and said something to the effect 22 end again, I don't recall the Specific words ol the 23 conversation but the bottom line was that they 24 thought they were potential issues and recommended we 25 retain Schulte. 1 2 3 4 5 6 7 8 9 ci 11 12 13 14 15 16 17 18 19 20 21 22 23 29 25 Page 451 A. That I can recall, it wou‘d have been a team of Schulte lawyers led primanly by Harry Davis and Mark Elovitz. O. Was anyone else present when you had this conversation? A. I don't remember whether it could have been multiple conversations. I know there were at least multiple meetings. I think we talked about attendance last time but we might not have. But depending on the meeting, It included people, including myself. Chris Suan, Vasan Kesavan, Glenn Dubin, I think Lawrence Cuter, David Proshan, Mark Elovitz, Harry Davis, Holy Weiss. MR. MURPHY: Who is Holly Weiss? THE WITNESS: She Is an employment partner at Schulte. A. Paul Roth, Fred Ragucci O. Who Is Mr. Ragucci? A. He was a management Committee memt>er, but he was my op!SOnal primary contact. He was lead lending partnerndeal person. BY MR. MURPHY: O. At Schulte? A. Yes. O. And the preceding name was? Page 450 At that point. I said absolutely. go 1 2 ahead. And then I did rot -. I was not made aware or 2 3 any finding until the Sunday night at Schuttettrces 3 4 in September. I believe. 4 5 And to be clear, the only other thing 6 for clarity, I was one of the interviewees of 6 7 SCI1U808 8 O. I will preface my next question with I 8 9 am not asking you for anything that is privileged in 9 10 your response to the next question but I am going to 10 11 ask you now. Did you become aware at some point as 11 12 TO why? Did someone give you a mason why the early 12 13 vAthdrawal of management fees occurred? 13 14 MR. SIEFERT: Start with yes' or 'no' 19 as and whether it's a privileged conversation. 15 16 Do you have a memory of anybody telling 16 17 you why? 17 18 A. I have a memory of , es eculatima asoneme418 19 to why but not sayingi they y and that 19 20 conversation would have been a privileged 20 21 conversation. 21 22 O. Can you tee me who the conversation was 22 23 with? Again, I am not asking what the 23 24 conversation's contents were, but who gave you the 20 25 speculation? 25 Page 452 A. Paul Roth. Steve Fredman, F.R O. Another Schulte — A. He ran the fund legal, law few funds departmentlund management department BY MR. ALTENBACH: O. I know in previous testimony where we were talking about this roster of attendees at meetings. I believe we were talking about the -- A. This is preterrnination, to be dear. O. This is preterminatIon of Mr. Gruss? A. Yes. O. Are these the same meetings where the contents of, if you remember the exhibits we looked at last time, the scripts or calls related to Mr. Gruss's termination and the — A. Well, each of the scripts — Mk REYNOLDS: Did you finish the question? THE WITNESS: sorry. O. And the calls later in October, both of 2006? MR. REYNOLDS: You said was this the same meeting as. MR. ALTENBACH: sorry. 15 (Pages 449 to 452) Services CONFIDENTIAL n7 Fr!` nn777 EFTA01082360 Daniel B. Zwirn April 7, 2010 Page 453 1 0. You were describing that — we were 2 talking about you learning of the management fee 3 Issue and we were talking about you mentioned it was 4 privileged and that it could have been at a Meeting S with these attendees? 6 MR. REYNOLDS: No. When he first 7 learned about the Issue or the second set of e questions, maybe I am wrong, with regard to 9 speculation as to why. 10 Those are two separate Issues. MR. ALTENBACH: You are exactly right. 12 Thank you. 13 0. The speculation as to why the management 14 fees were withdrawn early, that took place at S meetings where you just described attendees, correct? 16 MR. SIFFERT: He said he didn't 17 remember. but you asked who were the attendees al 18 these meetings where it could have happened and these 19 were attendees. 20 BY MR. ALTENBACH: 21 0. SO It could have been — strike that. 22 A. Just to answer your question, I think 23 you said, you tel me, is that where you described 24 the Iwo scripts and the phone calls, all that was 25 post termination. 1 2 3 4 5 6 7 B 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 455 A. I discussed It with Harold Kahn. 0. And did the purchase take place? A. No. 0. In early 2006 did you purchase a unit at 50 Central Park South? A. There was an entity of mine that did. 0. Did you own the entity that purchased it? A. I believe I did or a substantial majority. O. Did anyone else have an ownership interest in an entity that purchased 50 Central Park South? A. I don't recall. 0. Do you know the name of the entity that purchased 50 Central Park South? A. Lebo something. LE.S.O. BY MR. MURPHY: 0. What does that name mean? A. It's a shorthand term for Mount Lebanon, my home town In the suburbs of Pittsburgh. BY MR. ALTENBACH: • 0. Did you provide the capital for this entity, for Lebo? A. Yes. Or my or management company did 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 454 0. Okay. Just to be clear here, those three things you testified were post termination? MR. SIFFERT: Three things.. A. The actual defivenrof the message regarding the two scripts as well as the round of phone calls, both what we previously referred to as round one and round two, those four Items were after • Perry was terminated. The meetings we were discussing were before he was terminated but also included after he was terminated. But in the ones alter he was terminated, there were then a growing number of additional potential attendees. 0. Thank you. Also when you were here in February I asked it you ever owned home in Connecticut. A. Yes. 0. You answered no. Did you investigate the purchase of a home in Conrtecticut at any point in 2005? A. Yes. 0. Did you task someone with investigating the purchase of a home in Connecticut during 2005, someone within D9Z? I don't want to know about outside. • 1 2 3 4 '5 6 7 8 9 10 11 12 13 14 IS 14 17 18 19 20 21 22 33 24 25 Page 456 win knowledge of my ability to of h to be advanced effectively against my - the income that was coming to me. That was for equity again, not for the entire purchase. 0. You used the tonn just recently for the capital flowing Into Lebo: is that correct? A. Correct. 0. Was there a deposit required for purchase of this unit et SO Central Park South? Quite possible. I just don't recall. O. Was q unit 33 specifically? A. It was second from the top. I don't 0. You don't know the number. I am trying to think of an easier way to refer to if than 50 Central Park South. Do you know what the total purchase price of the unit al 50 Central Park South was? A. I think h was about 17 million. And, again, abotA 510 million was in a non-recourse first mortgage and then 7 million of equity. I think. Rough numbers. O. Other than the S10 mitlion that was provided by the non-recourse mortgage or what wastyou think was Ste miMon provided by the non-recourse Diversifi 15 (Pages 453 to 450 ervices CONFIDENTIAL 132 FTC 00228 EFTA01082361 Daniel B. Zwirn April 7, 2010 3 4 5 company? 6 A. 7 million. Page 457 1 mortgage, do you know where the other funds towards 2 the purchase came from? A. I betleve from the management company. O. Do you know how much irom the management 7 O. Do you know when the 7 mfilion was taken a from the management company? 9 A. No. It's a process guile Sirniar to the 10 one we talked about with the aira nNich was I 11 worked with Harold to ascertain that it was possible. 12 feasible and adequately, per his recommendation, 13 papered Ina proper way. 14 And a key point, like the other issue, 15 was that it was non-recourse financing. 16 O. Do you know tl the management company 17 secured an ad:littoral 510 million loan in March of 18 20067 19 A. Additional? I am not sure what you 20 mean. 21 0. Strike the word additional. 2 2 DM the management company obtain, to 23 your knowledge, a $10 million loan in March of 2006? 24 A. is that the Citibank one that we have 25 already discussed that you mean? 2 3 6 a 7 10 11 12 13 14 IS 16 17 11 19 20 21. 22 23 24 25 Page 459 O. Ora unit at 50 Central Park South? A. No. O. Can yoU tell me why that is? A. It was demolished. O. Was It demolished in preparation for your eventual occupation and residence there? A. Yes. O. Did you ever move in to SO Central Park South? k -No. O. Why did you not move into 50 Central Park South as your residence? A. Again, as I mentioned before, we had substantial additional costs resulting from these activities and — MR. SIFFERT: 'These activities' meaning? THE WITNESS: Perrys and assoclated3' Wise Iff`cfrt.°°1 BY MR. ALTENBACH: O. 'We' meaning who? A. The management company well, what I perceive to be the management company. It turned out ka be me. MR. SIFFERT: What do you mean? Page 458 1 Q. I am just asking 2 A. That's the only one I can re-ase 3 0. 1 am just asking whether you know a the 4 management company obtained a SID million loan In s March of 2006? 6 A, I recall the $10 million Citibank 7 management company loan that we previously discussed. Whether — the precise date it came, I recap. 9 am not sure II what you are referring to is 20 that or not. 11 O. Did Mr. Kahn apprise you of when the 12 balance of the payments. the 7 mason in equity of 13 the payments were made towards the purchase of the 14 condo? 15 A I have no recollection of that, of the 16 conversation. It would not surpnse me 4 he did 17 It would have been within the context of something he 1 Et wottid have kept me abreast 01. 19 O. When I say apprised you, whenl use the 0 word conversation, I also mean e-maa? 21 A. I took it that way. itM • Just to be clear, 1 didn't do ciliser. 23 O. Did you actually occupy SO Central Park 24 South? 25 k No. 1- 2 3 4 5 6 a 10 11 12 13 14 15 16 17 18 19 20 21 22 21 24 25 Page 460 THE WITNESS: Well, basically I cowed MR. SIFFERT: Personally? THE WITNESS: I personally covered Crete's piece of this, Chris Suan's piece of this, Vasan Kesavan's piece of this, obviously Perry's piece of this, and more than covered Glorts piece. His actual contritxrtIon to this was negative, he took a distribution when capital account was negative. BY MR. ALTENBACH: O. Just so we are clear, when you say you covered it, It is from your interest in the management company, not from your personal Interest am I understanding that correctly? MR. SIFFERT: What's the differences? MR. ALTENBACH: Well, you have other investments, interestrotriskle the financial company. A. it was from income from the management company as well as previously - es well as tens of millions of dollars, and we can get the figure for you, of previously deferred income that was broken. I think we talked about this process of breaking the tax deferral structure. O. We talked about deferral of the management fees, yes. 17 (Pages 457 to 460) Diversifi Sr vices rnmFIDENTIAL DZ_F1'C 00229 EFTA01082362 Daniel B. Zwirn April 7, 2010 Page 461 1 A. So those were broken and also 2 contributed to this process. So David Lee basically 3 told me we need to — I recall, we need to husband 4 the resources because we didn't want to go and ask 5 our investors for this. He said you should go and 6 sell the apartment and said do so after the one-year 7 mark because there was some son of tax If you bought 8 and sold an apartment within one year. 9 O. Was It SOW so A. Yes. 11 O. When was that, roughly? 12 A. I think ki April of whatever, maybe 13 Aprl 2007. It would have been lust after the 14 one-year mark of the purchase. 15 O. Can you just help me, I Just struggle 16 connecting with how a unit that was purchased through 17 eventually serve as your personal residence, correct? 18 A. Yes. 19 O. That's bought by an entity set up by you 2 0 and the majority is owned by you; Is that right? 21 A. Yes. 22 O. How that results in additional expense 23 to the management company similar to the way legal 24 costs in connection with things like the GIoson Dunn 25 investigation or the Schulte investigation or work 1 2 3 4 6 7 a 9 so 11 12 13 14 15 15 17 18 19 20 21 22 23 74 25 Page 463 BY MR. MURPHY: O. How could he require h? A. Well, he invited myself and David Lee to his office. This Is during I don't know if It was before or after the conclusion of Gibson Dunn. Bob Cautiso attended with him. And he said, I believe, that I should have $30 million and you are going to give me S30 million or I am going to sue you. Jisaid for what? He said something to the trhat I don't know, but I am going to. said, I am trying to do the best here I can for our Investors and for the management company and my family. He said 1 don't care about your Investors - our Investors really, because he was my partner or you or your family, I want S30 million. So we were trying to protect the best. Interest 04 the Investors. An unfounded gratuitous suit horn a super well-regarded person would have threatened -- you know, would have created, you know, a definitely weakened potion In the marketplace, which ullimaffilYleritniounded stories, et cetera, did anyway, risking our Investors. And so, we created a plan, a structured plan where the management company. I.e.. me, because I already Page 462 1 that did or something like that? 2 A. It doesn't. 3 MR. SIFFERT: That's not what he said. 4 What he said was that he needed - s A. I did not know that 1 was not Roleng to 6 have to in addition to spending ovefibundred million 7 dollars of my personal money in the various forms that it came in addition to losing well over half a 9 billion dollars in valve in the entity. I did not 1 0 know whether I would also be then writing additional 3.1 checks, which, in fact, I effectively (Id by not — 12 by foregoing distributions that otherwise would have 13 gone to me. 14 O. I am just trying to make sure I am is understanding what you are saying. 16 A. Irs a bit emotional for me. 17 0. When you say 'husband the resources,' 1 e you are talking about your share of the management 19 company's resources? 2 0 A. Well, at the time I didn't realize I 21 would be subsidizing all the other partners. I took 2 2 the view that I would cover Chris Suan and Vasan 2 3 Kesavan. As I mentioned, when his capital account 24 was negative, GleriOubin required a very substantial 25 distribution, which I also covered. 1 2 3 4 5 6 8 10 11 12 13 14 IS 16 17 18 19 20 21 22 23 24 25 Page 464 previously covered Perry, well he obviously wasn't going to contribute to that but committed previously sto Chris Sian and Vasan Kesavan, so effectively I paid him S13 million bucks and then we signed a note for 17 more. And we said — and we reiterated and showed him backup for the information that said his capital account was negative. O. When you talk about covering Stan and Kesavan — A. Just making sure they were not financially hurt by Penys action. MR. SIFFERT: Can I clarity one thing. Mr. Zwim is not saying that the agreement to pay GlefeDubin was a personal obligation of his which he undertook as a personal oblication. He is saying It was an obligation the management company undertook', h was the management company). obligation and he funded it. It didn't require anybody else who was an owner of the management company to pay.Itiasn't as If Mr. Zwim took on a personal obligation vis-a-vis Mr. Dubin; it was management company Sting on the obligation to Mr. Dubin, which he then underwrote. MR. MURPHY: 'He' meaning? MR. SIFFERT: Mr. Zwim. 18 (Pages 461 to 464) Diversifi ' Services ( CONFIDENTIAL DZFTC 00230 EFTA01082363 Daniel B. Zwirn April 7, 2010 Page 465 1 8Y MR. MURPHY: 2 0. When you talk about covering for 3 Kesavan, are you talking about to the extent that 4 they might have had pro rata obligations to pay for 5 the management company expenses in connection with 6 the investigation? 7 A. Correct. yes. MR. SIFFERT: There is another piece 9 that Mr. Zwim left out, which is that pad of this, 10 it was also determined that the some investors in one 11 fund benefitted by virtue of another of the other 12 funds, the money being taken from it. And while 13 Mr. Zwim reimbursed the people who were in the fund 14 whose money was lost. plus interest, he did not 15 require the other investors to remit the money that is they had benefitted from by virtue of the 17 transaction, so he had an erne expense. 19 THE WITNESS: That was another B 19 million. 20 MR. ALTEN8ACH: John. when you say 21 Mr. Zwim reimbursed, I assume It was the same 22 mechanism through the management company? 23 MR. SIFFERT: Yes, basically he has 24 personally seen to It that investors personally have 2 S not been hurt and that none of his partners were 1 2 3 4 5 6 7 B 10 11 12 13 14 IS 16 17 18 19 20 21 22 23 24 25 Page 467 one that indicates it's from Sunday. January 8, 2006. actually the one right below that, sent Saturday, January 7, 2006 10:54 do you see that? A. Yes. a The front line indicates that Ifs from you? A Yes. O. Do you recall sending this e-mail, Mr. Zwirn? A No. 0. It is to Mr. Kahn. The last sentence where 0 says, 'Realize this is a personal thing like the plane. This is quite helpful to me' ft Yes. 0. Do you recall writing that? A. No. O. Sitting here today reading !Ns, do you know what you meant by writing that to Mr. Kahn? A. Welt, to the extent that people were doing their job by giving me additional bandwidth, we talked about the Mont of my schedule, which we can talk about again. I said I appreciated it and I am Just trying to - I am basically saying I realize he is busy too but at the end of the day, this was very helpful to the firm by virtue of giving me excess Page 466 hurt. 2 BY MR. ALTENBACH: 3 0. Mr. Zwim, the Lebo entity used in the 4 purchase of the condo, was there a specific reason to s use that entity as opposed to you personally 6 purchasing and owning the condo? 7 A. Privacy. 0. Can you elaborate? 9 A. My personal affairs. where I live, how I 10 live, where my family is are not the business of 11 other people. 12 MR. ALTENBACH: I will ask the redone( 13 to mark this as Exhibit 146. 14 (January 2006 e-mall string was 15 marked as Exhibit 146 for 16 identification.) 17 0. Mr. Zwim, I am going to give you a 18 one-page document which has been marked 146 bearing 19 the Bates number OBZ COPR-01395871. h purports to 2 o be a suing of e-mails from January 2006. 21 Please take a moment to review the 22 document. 22 (Witness candies.) 24 A. Okay. 25 0. Just looking at the e-mail co top, the 1 2 3 4 S 9 10 11 12 13 14 15 16 17 1B 19 20 21 22 23 24 25 Page 468 bandwidth to deal with the mechanics of ; etc; ettm9„, 0. Okay. I will take that back from you. please. (Witness handing.) 0. Mr. Zwirn, the last time you were here you mentioned how to your understanding investors are concerned with performance, the periormance of their investment? A. Yes. 0. You used NAV a few times, they were concerned with what NAV is? A. Yes. 0. Were investors also concerned with assets under management as a mettle Tbs is only from what you understand through your dealing with investors. A. I ant not sure of the context. I don't understand. 0. Is the fact that a firm has 6 billion under management versus a firm that has 1 billion under management, is the fact that one firm has more under management. from your industry experience, something that is important to trwestors? A. It depends on the business Plan and the strategies of the firm. So I think what is important Diversifi 19 (Pages 465 to 468) Services CONFIDENTIAL In FTC. 0023 I EFTA01082364 Daniel B. Bwirn April 7, 2010 Page 469 • Val e( 1 in that context Lsithe amount of the capital they 2 have commensirrale with the strategies they are 3 pursuing. 4 MR. ALTENBACH: Why dont we go off the record. 6 (Luncheon recess taken.) 7 MR. ALTENBACH: We are back on the a record at 1:45g. 9 BY MR. ALTENBACH: o Q. Mr. Zwirn, during the break, did you 11 have any substantive conversations with any member of 12 the gad? 13 A No. 14 O. Mr. ZwIm, when you teamed of the 15 occurrence of the early withdrawal of the management 16 fees, at that time, did you think that the tact that 17 the early withdrawals had occurred was something that te should be disclosed to investors? 19 A. When I learned of It, I didn't know what 20 II was. I don't recall whether I thought of that. I • 21 was advised by internal counsel and Lawrence Cutler 22 they were going to look into It, they themselves 23 didn't know what it was, and brought It back to me. 24 I think that was the spring time. Again, late May, 25 early June they carne back and said we think this can - Page 471 1 I thought Mr. Zwim's nailer testimony 2 indicated he was at least aware of both the aircraft 3 purchase before Schulte was retained. 4 MR. SIFFERT: He said actually the opposite. I believe his t estimony has been that 6 Mr. Proshan and Mr. Cutler came to him and told him 7 there may be an issue or issues. He doesn't remember 8 whether the airplane was one of them. He does 9 believe that the early withdrawal management fees was 10 one, that they didn't knave the scope of what it was. 11 They said they wanted to look into IL He said fine. 12 They came back a few months later ortmonth later. 13 They said they thought it was sufficiently important 14 to go and seek Schulte's advice on this. He said 15, fine. Schulte looked into II and then brought to him 16 what they found. 17 A. On a Sunday night in September. 18 BY MR. ALTENBACH: 19 O. My question didn't relate to any 20 communications you made with or to Schulte or 21 received from Schulte or Mr. Proshan. It just 22 related solely to the extent someone within the firm, 23 it sounds Ilkr s Lee and/or Cutler came to you? a A. No, sony, David Proshan. If I said 25 David Instead of clarifying that it was David Page 470 I be an issue, we want to bring In Schulte, and I said 2 okay. 3 O. When you say you didn't know what it 4 was, what do you mean by that? 5 A. I said, to be clear I thought they told 6 me they didn't know what It was se pieviousty to 7 that. 0. I thought you said when you first 9 learned you didn't know whet it was? 10 A. Yes, I didn't know It because they 11 didn't know it. 12 O. My question is: What didn't you know about the early withdrawal management lees when you 14 first found out abaft It7 15 A. Anything of the nature of it. How many, 16 how big. who did it, why they did IL 17 O. What was the first tact related to the 18 early withdrawal of management fees that you found 19 out about? 20 MR. SIFFERT: Lets be careful because. 21 I am not sure he learned anything other than from 22 Schulte as a result of this investigation and seeking 23 arid getting legal advice. 24 MR. ALTENBACH: I completely appreciate 25 that concern. Page 472 1 Proshan. My rnistake. 2 Q. David Lee initially came to you? 3 A. No. David Proshan, general counsel, and 4 Lawrence Cutler. David Lee was not in anything but a S front office role until he became acting CFO in 6 Conjunction With Perry's termination. .7 0. Mr. Zvrim, I am going to hand you what is has previously been marked as ExhiSt 136. And we 9 are going to talk about a paragraph that's on the 10 second page, which is page 14. 11 A. May I read this? 12 0. Absolutely. 13 (Witness perusing document.) 14 A. Okay. 15 0. If you would please turn to the second 16 page. It has Bates stamp DBZ 14, please. 17 The full paragraph above there is a like 18 a heading at the bottom of the page that says 'Firm 19 Response'. 20 Do you see that? 21 A. Yes, l do. 22 Q. Just above there is a paragraph, I will 23 read you a portion of it, It says, 'We also become 24 aware of certain intertund transfers over a 13-month 25 period that should not have occurred. The net OW Diversifi ( 20 (Pages 469 to 472) Services CONFIDENTIAL DZ_FTC 00232 EFTA01082365