Business partner transferred funds to trading account – $2,644,500 Verdict

Plaintiffs, both Afghani nationals who lived in Kabul, along with the defendant, who lived in Fairfax County, formed Rosta Construction Company. Rosta bid on and won a subcontract to build out seven buildings and the surrounding area at the Kabul International Airport. Construction commenced in April 2011 and lasted approximately one year. During this time, construction was managed and overseen by the two plaintiffs in Afghanistan. The defendant U.S. partner handled the finances from the U.S. side, as well as procurement of some of the materials the plaintiffs were unable to procure in Kabul.

Defendant, on behalf of Rosta, received $7,331,633 from the general contractor. Defendant transferred $2,644,500 of Rosta money to a TD Ameritrade trading account in his name. Over the course of two and a half years, defendant lost $2,080,250 on options contracts, including a loss of more than $1.2 million in October 2012 alone.

Defendant alleged that that the partners had full knowledge of his investment of the funds, and argued that the reason the account was not in the name of Rosta was because two of the owners did not have Social Security numbers, being non-citizens. The plaintiffs presented testimony via deposition transcript and a remote de bene esse video deposition from Dubai, as neither was able to get a visa to attend trial. The plaintiffs testified that they had no knowledge of the TD Ameritrade account, nor were they aware that the defendant was using Rosta money to fund his trading activity.

The evidence at trial showed that while there were more than 10,000 emails between the parties relating to Rosta, there were no email communications mentioning the TD Ameritrade account, nor any emails in which the plaintiffs asked how the account was doing. The court ultimately found that the Afghani partners had no knowledge of the defendant’s use of the Rosta money.

Defendant also claimed that the investment of the funds was for the benefit of the Rosta, but the court relied on the fact that when the investment account made money, the defendant spent those proceeds on himself. The court held that this investment account was not for the benefit of Rosta.

After a three-day trial, the court ultimately ruled that the transfer of the funds to the TD Ameritrade account was either a larceny or embezzlement and the damage to Rosta occurred at the moment the funds were transferred to that account. The court ruled that the defendant owed Rosta $2,644,500, and found that amount to be nondischargeable under 11 U.S.C. § 523(a)(4).

The court also awarded prejudgment interest on the date, and in the amount of, each transfer into the TD Ameritrade account. The court additionally awarded a constructive trust for the benefit of the plaintiffs on a property owned by the defendant, on which he had made payment from the TD Ameritrade account.

[15-T-207]

Type of action: Bankruptcy – money judgment and ruling of nondischargeability
Injuries alleged: Money damages for embezzlement/larceny, prejudgment interest
Name of case: Khan v. Sadeq
Court: U.S. Bankruptcy Court, Alexandria Division
Case no.: 14-01189-RGM
Tried before: Judge
Judge: Robert Mayer
Date resolved: Dec. 1, 2015
Verdict or settlement: Verdict
Amount: $2,644,500
Attorneys for plaintiff: Nathan D. Baney, Fairfax; J. Chapman Petersen, Fairfax
Attorneys for defendant: Bennett Brown, Fairfax; Kevin M. O’Donnell, Alexandria
Plaintiff’s expert: Michael J. Kresslien