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LITTLETON JOYCE

UGHETTA PARK & KELLY LLP


4 Manhattanville Road, Suite 202 L:
FLED
Purchase, New York 10577
914-417-3400 JAN 2 6 ral
Fax 914-417-3401
Attn: Bryon L. Friedman, Esq. USDC Vy_p SONy
Email Bryon.Friedman@UttletonJoyce.com

Attorneys for Plaintiffs

UNITED STATES DISTMCT COURT


SOUTHERN DISTRICT OF NEW YORK
X

VICIS CAPITAL, LLC, and


VICIS CAPITAL MASTER FUND LTD.,: CASE NO.

Plaintiffs,

-against-

RITCHIE CAPITAL MANAGEMENT, LLC,


RITCHIE SPECIAL CREDIT: COMPLAINT
INVESTMENTS, LTD., RHONE HOLDINGS
II, LTD., PALI CAPITAL, INC. d/b/a
BURNHAM HILL PARTNERS, BURNHAM
HILL PARTNERS LLC, JASON ADELMAN,.
and MICHAEL LISS,,

Defendants. 77. :7. 77

Vicis Capitnl, LLC, and Vicis Capital Master Fund Ltd. (collectively, "Vicis"), as its

Complaint against Ritchie Capital Management, LLC, Ritchie Special Credit Investments, Ltd.,

Rhone Holdings II, Ltd_ (collectively, "Ritchie"), Pali Capital, Inc. d/b/a Burnham Hill Partners,

Burnham Hill Partners LLC (collectively, "Burnham Hill"), Jason Adelman ("Adelman"), and

Michael Liss ("Liss"), alleges:

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SUMMARY

1. This is an action for purchase transaction rescission or, in the alternative,

compensatory and punitive damages arising out of Ritchie's and Burnham Hill's sale to Vicis of

Notes (hereafter, the "Ritchie Notes") reflecting a portion of loans made by Ritchie to Thomas J.

Petters and Petters Group Worldwide Ltd. ("PGW"). On February 19, 2008, Vicis purchased two

Ritchie Notes having a value of $25 million. Vicis made this investment in reliance on due

diligence by Adelman, Liss and Burnham Hill, and based on information provided in connection

with the offer and sale of these Notes by these Defendants. Although Vicis believed this

information was accurate, in fact it was false and misleading, and Defendants were aware of that.

As a result of Defendants' actions, Vicis has lost more than $8 million of its investment, plus

substantial interest. Thomas J. Petters has gone to prison for rurming a Ponzi scheme that bilked

investors out of hundreds of millions of dollars, and Vicis now risks losing millions of dollars

more in a preference action brought by the Trustee in a Minnesota Bankruptcy Proceeding,

Petters Company, Inc., et al., Court File No. 08-45257 (U.S. Bankruptcy Court, District of

Minnesota).

JURISDICTION AND VENUE

2. The Court has original subject matter jurisdiction over this action pursuant to 28

U.S.C. 1331 because the acts and events complained of herein, among other actionable wrongs,

violations of the Securities and Exchange Act of 1934, 10(b), 15 U.S.C. 78j(b), and Rule

10b-5 promulgated thereunder, 17 C.F.R. 240.1013-5. This Court has supplemental jurisdiction

over the remaining claims pursuant to 28 U.S.C. 1367.

3. The Court has personal jurisdiction over the defendants because they reside in or

work in the State of New York (Adelman, Liss, Burnham Hill), and/or have sufficient contacts

with the State of New York because, among other things, their communications and securities

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offerings were directed into the State of New York (Ritchie Capital, Rhone Holdings II, Ritchie

Special Credit).

4. Venue is proper in this District under 28 U.S.C. 1391(a) because a substantial

part of the events or omissions giving rise to Vicis' claims occurred in this District.

PARTIES

5. Vicis Capital, LLC is a Delaware limited liability company, with its principal

place of business at 445 Park Avenue, 16th Floor, New York, NY 10022.

6. Vieis Capital Master Fund Ltd. is a series of the Vieis Capital Master Series Trust,
a Caymans Island trust, managed by Vicis Capital LLC, with its principal place of business at

445 Park Avenue, 16th Floor, New York, NY 10022.

7. On information and belief, Ritchie Capital Management LLC ("Ritchie Capital")

is a limited liability company organized and existing under the laws of the State of Delaware,

with its principal place of business at 801 Warrenville Road, Suite 650, Lisle, Illinois 60532.

8. On information and belief, Ritchie Special Credit Investments, Ltd. ("Ritchie

Special Credit") is a Cayman Islands exempted company, managed by Ritchie Capital, c/o

Ritchie Capital Management, LLC, 801 Warrenville Road, Suite 650, Lisle, Illinois 60532.

9. On information and belief, Rhone Holdings II, Ltd. ("Rhone") is a Cayman


Islands exempted company, managed by Ritchie Capital, c/o Ritchie Capital Management, LLC,
801 Warrenville Road, Suite 650, Lisle, Illinois 60532.

10. On information and belief, Ritchie Capital was Ritchie Special Credit's and

Rhone's investment manager and agent in connection with the purchase and sale of the Ritchie

Notes. Unless separately identified, Ritchie Capital, Ritchie Special Credit and Rhone are

referred to collectively herein as "Ritchie."

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11. On information and belief, Pali Capital, Inc. d/b/a Burnham Hill Division is a

Delaware company, with its principal place of business at 590 Madison Avenue, Fifth Floor,

New York, New York 10022.

12. On information and belief, Burnham Hill Partners LLC, is a New York limited

liability company formed in July 2003, with its principal place of business at 590 Madison

Avenue, Fifth Floor, New York, New York 10022. Burnham Hill Partners LLC, according to

documents filed with the Financial Industries Regulatory Authority ("FINRA") is owned by
Burnham Hill Capital Group, which in turn, is 100% owned, operated and controlled by

Adelman and Liss.

13. On information and belief, Jason Adelman is a resident of the State of New York,

who was and is a controlling person in Burnham Hill. From in or about July 2003 through

December 2008, Mr. Adelman was registered as a securities representative for Pali Capital; from

in or about November 2008 to the present, he was registered as securities representative with

Burnham Hill Partners LLC.

14. On information and belief, Michael Liss is a resident of the State of New York,

who was and is a controlling person in Burnham Hill. From in or about July 2003 through

December 2008, Mr. Liss registered as a securities representative for Pali Capital; from in or

about November 2008 to the present, he was registered as securities representative with Burnham
Hill Partners LLC.

15. On information and belief, Burnham Hill, at all times material to this complaint,
was a stand-alone business entity, owned, operated and controlled by Adelman and Liss.

Burnham Hill Partners LLC was licensed by FINRA as a broker-dealer beginning in mid-

November 2008, but, on information and belief, was acting as a broker-dealer prior to such time.

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On further information and belief, Burnham Hill Partners LLC was the "Burnham Hill Division"

of Pali Capital, Inc., and/or its direct corporate successor.

FACTUAL ALLEGATIONS

Ritchie's Loan to Thomas Petters and the Petters Group (the "Ritchie Notes")

16. On or about January 31, 2008, Ritchie received an email from a broker bearing

the subject line: "GREAT OPPORTUNITY: UNIQUE SITUATION (FAST ACTION

NEEDED)." The email described a short-term secured financing deal; namely, a 90-day loan at

20% interest (80% annualized), "backed by the entire Polaroid corporation."

17. On or about February 1, 2008, Ritchie participated in a conference call with the

broker and Thomas Petters, one of the borrowers, regarding this financing deal. Mr. Petters,

through Polaroid Holding Company, LLC, was owner of 100% of the stock in Polaroid

Corporation ("Polaroid").

18. During this call, Ritchie was told that short-term financing was sought to pay off a

revolving credit facility issued by J.P. Morgan to Polaroid, and serve as short-term "bridge

financing until Polaroid could sell certain of its trademarks to a brand licensing company.

Ritchie was told that the J.P. Morgan credit facility would expire in February 2008, with the sale

of trademarks set to occur in or about April 2008.

19. During this call, Ritchie was told that Petters/PGW had an immediate need for

$31 million, with this sum represented to be the then-outstanding amount owed by Polaroid on

the J.P. Morgan credit facility.

20. Ritchie was told that Petters/PGW were seeking to borrow $150 million on a

short-term basis, and that the loan would be secured by a set of 90-day notes, with 20% interest

(80% per annum), payable on the maturity date.

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21. Ritchie was told that the loan would be personally guaranteed by Thomas Petters.

22. On or about February 1, 2008, Ritchie consented to provide this bridge financing

to Thomas Petters and PGW. The same day, Ritchie wired $31 million to PGW, as the first

installment of funds to be loaned to Petters/PGW per this funding agreement.

23. Between February 1 through February 19, 2008, Ritchie loaned a total of $155

million to Petters/PGW. This funding was secured by a series of Notes, issued by PGW, and

personally guaranteed by Petters, including the following two Notes, which were later sold by

assignment to Vicis:

Lender Loan Amount Date Maturity Date

Rhone Holdings II $16, 000, 000 2/4/2008 5/4/2008

Ritchie Special Credit 9, 000, 000 2/4/2008 5/4/2008

Burnham Hill Is Engaged to Find Investors In the Ritchie Notes

24. On or sometime soon after February 1, 2008, Ritchie decided it would offer some

of the Ritchie Notes for sale.

25. On or about February 6, 2008, a broker at CalibraX Capital ("CalibraX")

contacted Jason Adelman, a principal of Burnham Hill, regarding the potential sale of some of

the Ritchie Notes.

26. On February 6, 2008, CalibraX sent Adelman/Burnham Hill drafts of the legal

documents relating to the Ritchie Notes, including the Note Purchase Agreement, Subordination

Agreement, and Pledge Agreement ("Ritchie Note Documents"). CalibraX also sent Adelman a

non-disclosure agreement and certain financial data regarding Polaroid.

27. On information and belief, on February 6, 2008, or shortly thereafter, and in any

case prior to Vicis' purchase of the Ritchie Notes, Burnham Hill and Petters/PGW reached an

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agreement whereby Petters/PGW would pay Burnham Hill 2 points (2% of funds invested) for

finding investors to purchase the Ritchie Notes.

Burnham Hill Solicits Vicis to Invest in the Ritchie Notes

28. On or about February 6, 2008, Adelman/Burnham Hill contacted Vieis for the

purpose of soliciting an investment in the Ritchie Notes. In an email Adelman told Vicis: "We

are working on a time sensitive opportunity on a $150 million short term loan backed by 100%

ownership in a globally recognized brand. $100 million has been funded this week. There is an

opportunity to take the remaining $50 million."

29. The following day, on February 7, 2008, in an email to Vicis, Adelman/Burnham

Hill stated that the collateral for the Ritchie Note transaction "looks really good, and that

payment within the 90 day time frame "looks good, adding: "When can we speak?"

30. Vicis did not immediately respond to Adelman's solicitation, yet Adelman, on

February 13, 2008, emailed CalibraX to indicate that Burnham Hill would purchase $25 to $50

million worth of Ritchie Notes in a secondary market transaction.

31. On February 13, 2008, Adelman again contacted Vicis, stating: "We need to talk

about the $25-50 million secondary paper.... 20% money for 90 days."

32. The following day, February 14, 2008, Vicis tentatively rejected the offer of

Ritchie Notes in an email to Adelman. In this email, Shad Stastney, a principal of Vicis, stated:

"my gut reaction is no--debt markets generally are seized up to an extent not seen in some time,

so those terms are frankly not as exceptional as you might think right now. But happy to

discuss."

33. Adelman/Burnham Hill responded to Vicis' February 14 email by again

recommending that Vicis invest in the Ritchie Notes. Adelman told Vicis that the Notes were

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100% secured by Polaroid stock, and that, while the original deal for $150 million in Ritchie
Notes was already subscribed, he had "carved a piece for us by my persistence in doing the ropa

dope until you and I have spoken."

34. On February 14, 2008, Adelman spoke with Stastney. In reliance on Adelman's

representations and on Vicis' behalf, Stastney verbally agreed to invest $25 million in the Ritchie

Note transaction. Neither Stastney nor anyone else at Vicis received information about the

Ritchie Notes from any person other than Ritchie, Adelman, Liss and Burnham Hill.

35. Shortly thereafter, also on February 14, 2008, Adelman emailed an attorney for

Ritchie Capital to state that Vicis would invest in some of the Ritchie Notes.

36. On February 15, 2008, Adelman/Burnham Hill received a revised set of the

Ritchie Note loan documents. These draft loan documents, as with the previous drafts received

by Burnham Hill, were not provided to Vicis.

37. On February 19, 2008, Adelman/Burnham Hill sent a


confirming email to Vicis

relating to its purchase of $25 million in Ritchie Notes. Adelman's email stated that Vicis would

receive "notes with a face value of $25 million and maturity of 90 days from the date of original
issuance which occurred on or around February 4th, 2008.

38. On February 19, 2008, Michael Liss, a principal of Burnham Hill, provided Vicis

with wiring instructions for purchase of the Ritchie Notes. The same day, following these

instructions, Vicis sent two wire transfers: $16, 105,205.48 to Rhone, and $9, 059, 178.08 to

Ritchie Special Credit.

39. The two Vicis wire transfers were for the purchase of the Ritchie Notes identified

in paragraph 22, above. Both Notes were scheduled to be paid off in full, with interest, on May

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4, 2008. The amount in excess of $25 million ($164, 383.56) was interest to Ritchie for the time

period these Notes were held by Ritchie.

Documentation Re!aline to the Ritchie Notes

40. On February 19, 2008, just as Vicis was wiring funds for the purchase of the

Ritchie Notes, an attorney for Ritchie emailed Burnham Hill and Ritchie to advise that there

would be no pledge of Polaroid stock, only the personal guarantee from Tom Petters. This email

was not forwarded to Vicis.

41. On February 19, 2008, Liss/Burnham Hill emailed Vicis an Assignment and

Assumption Agreement ("Assignment Agreement"), which identified the two Ritchie Notes that

Vicis was purchasing. Keith Hughes, Chief Financial Officer for Vicis Capital, LLC, executed

this Assignment Agreement on Vicis' behalf.

42. On February 19, 2008, the same day Vicis purchased two of the Ritchie Notes,

Petters and PGW entered into a Note Purchase Agreement ("Note Agreement") with Ritchie.

43. The Note Agreement gave Petters/PGW "sole discretion" over the loan funds, and

thus imposed no limit on how Petters/PGW, as borrowers, may use these funds.

44. The Note Agreement irrevocably appointed Ritchie Capital as "administrative

agent" for the notes, with the power, among other things, to collect any and all payments under

the Notes, and to enforce the rights and remedies of the Note holders with respect to the

borrowers.

45. The Note Agreement provided that, in the event of default, Vicis could not pursue

any rights or remedies against Petters/PGW without the approval of investors holding a majority

of the Ritchie Notes--i.e., without the approval of Ritchie, which held more than 50% of the

outstanding value of the Notes.

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46. Vicis was provided with a copy of the Notes it purchased from Ritchie on or

about February 26, 2008, well after it purchased the Ritchie Notes.
47. Vicis was provided a copy of the executed Ritchie Note Documents (i.e., Note

Purchase Agreement, Subordination Agreement, and Pledge Agreement) on or about February

28, 2008, also well after it purchased the Ritchie Notes.

Burnham Hill's Commission

48. On February 19, 2008, the day Vicis purchased the two Ritchie Notes, Burnham

Hill billed Petters/PGW for its $500, 000 Financial Advisory Origination Fee. This sum was 2%

of Vicis' $25 million investment. Burnham Hill's invoice directed Petters/PGW to wire the funds

to "Pali Capital, Inc. (Burnham Hill Division)."

49. On information and belief, Petters/PGW paid Burnham Hill this $500, 000

commission on or about March 10, 2008.

50. Burnham Hill did not disclose to Vicis that it was being paid this commission by

Petters/POW.

Defendants' Misrepresentations

51. Defendants' had substantially more information in their possession relating to the

Ritchie Notes than they provided to Vicis, and deliberately failed to disclose much of this

information when they offered the Ritchie Notes to Vicis.

52. Adelman, Liss and Burnham Hill told Vicis they had performed due diligence on

Petters/PGW and the Ritchie Note transaction when, in fact, they had not. See, e.g., FINRA

NTM 03-71 (Non-Conventional Investments).

53. Defendants made the following misrepresentations and omissions of material fact,

among others, when they offered the Ritchie Notes to Vicis:

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a. Adelman, Liss and Burnham Hill failed to disclose that they had a conflict

of interest because of their agreement with Petters/PGW whereby

Burnham Hill would receive a 2% conunission for securing Vicis'

investment in the Ritchie Notes.

b. Adelman, Liss and Burnham Hill told Vicis that the Ritchie Note

investment was a time-sensitive opportunity, available only through

Burnham Hill's "ropa dope" efforts, and that other investors were waiting

in the wings to snap up the deal.

c. Adelman and Burnham Hill told Vicis that Petters "check[s] out as a

straight shooter."

d. Adelman and Burnham Hill told Vicis the prospect for repayment of the

Ritchie Notes within the 90-day time frame "looks good."

e. Adelman, Liss and Burnham Hill failed to provide Vicis with a copy of the

draft Ritchie Note Documents received on or about February 6 and 15,

2008.

f. Defendants failed to disclose that Burnham Hill was participating in the

drafting the Note Purchase Agreement, Subordination Agreement, and

Pledge Agreement relating to the Ritchie Notes.

g. Defendants failed to disclose that there was no restriction on

Petters/PGW's use of the loan proceeds;

h. Defendants failed to disclose that there was no pledge of Polaroid

Corporation stock to support the Ritchie Notes, only Petters' personal

guarantee;

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i. Defendants failed to disclose that Ritchie's approval was required before

Vicis could pursue its rights and remedies against Petters/PGW in the

event of default; and

j. Defendants failed to disclose that Ritchie Capital was the irrevocable

collection agent for the Notes, as well as a controlling person of the

lenders on the Notes (Rhone Holdings II and Ritchie Special Capital), and

that this conflict of interest would cause Ritchie to later negotiate benefits

for the Ritchie Note Holders that excluded Vicis.

k. Adelman, Liss and Burnham Hill failed to disclose that in connection with

their offer of the Ritchie Notes they acted as unregistered brokers.

54. Defendants knew that their representations and omissions of fact were false and

misleading, and that their statements were material to Vicis' decision about whether to purchase
the Ritchie Notes.

55. Defendants' misrepresentations and omissions of fact were material to Vicis'

decision, and Vicis relied on Defendants' misrepresentations and omissions when it made the
decision to invest in the Ritchie Notes.

56. Vicis has been directly damaged by Defendants' actions, misrepresentations, and

omissions in an amount to be proven at trial.

Petters/PGW's Default on the Ritchie Notes Purchased by Vicis; Lulline Behavior by


Adelman, Liss and Burnham Hill

57. The two Ritchie Notes purchased by Vicis were scheduled to be repaid, with

interest, on May 4, 2008 90 days from February 4, 2008.

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58. As contemplated in the Loan Documents, the funds were to be paid to Ritchie

Capital, as administrative agent. Ritchie Capital would deduct a fee from the funds, and then

wire repayment to Vicis.

59. On or about May 1, 2008, Vicis emailed Ritchie with instructions on where to

wire funds expected from Petters/PGW's repayment of the Notes.


60. On May 5, 2008, Vicis emailed Adelman at Burnham Hill to ask if the Notes were

Adelman responded: "I think it will hit Wed (with the additional interest as well). If not
paid.

we will use the personal guarantee and capture additional value and visibility. My gut is 90

percent it goes smoothly.... The reference to "Wed" was to Wednesday, May 7, 2008.

61. What followed was a series of repeated promises by Petters/PGW to repay the

two Ritchie Notes held by Vicis, and lulling behavior by Adelman, Liss and Burnham Hill, who

repeatedly sought to reassure Vicis that payment would be forthcoming and to dissuade Vicis

from taking legal action.

62. On May 7, 2008, Adelman emailed Vicis: "It would appear like we are on a good

path to a successful transaction (his explanation for late payment is a bit dubious in my opinion),

but he is paying well for the extra time."

63. On May 12, 2008, after the Notes were not repaid, Burnham Hill told Vicis that

Petters had committed to repaying the $25 million, with additional interest, by May 19, 2008.

64. On May 18, 2008, Adelman emailed Vicis: "Based on the current communication,

there should be cleared funds to Vicis by Wednesday [May 2 1]. If not, we will quickly move to

enforce the personal guarantee at which point it gets more public (bad outcome for the Petters

empire) and more profitable upon full payment."

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65. Throughout May and June 2008, Adelman and Liss engaged in
were
increasingly
hysterical, behind-the-scenes efforts to obtain repayment of the $25 million Vicis investment.

During this time period, Adelman and Liss purported to be working exclusively for Vicis, and

assisting Vicis in taking legal action against Petters/PGW when in fact, on information and

belief, they were working behind the scenes to forestall any legal action.
66. When Petters/PGW failed to provide the funds on either May 19 or 21, 2008,

Burnham Hill told Vicis that Petters had committed to repaying the loan by May 29, 2008.
67. On May 28, 2008, Adelman emailed Vicis: "Latest communication below. Things

are in order."

68. On May 29, 2008, Petters/PGW again failed to pay. Adelman forwarded to Vicis

an email from Petters in which Petters promised to repay the loan "at the latest" by June 9, 2008.
Commenting on this new promise, Adelman stated: "This is going to be quite lucrative. Petters

has a $50 million receivable coming from Wal Mart on the 9th." This information was false and,

on information and belief, Adelman did no investigation to confirm its accuracy.

69. On June 5, 2008, Adelman emailed Vicis: "Here is the latest... We are in very

good shape here."

70. On June 9, 2008, Petters/PGW again failed to repay the loan.

71. Beginning on June 13, 2008, Petters/POW began making occasional, partial

payments on the Ritchie Notes held by Vicis

72. On June 13, 2008, Vicis received $2, 612, 005 from Petters/POW. The funds were

channeled from Petters/POW through Ritchie, as administrative agent, which deducted a fee

prior to passing the funds along to Vicis.

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73. On June 16, 2008, Liss sent Vicis an engagement letter to sign and return from

Schwartz Cooper, the law firm, Liss said, "representing Vicis in the Petters matter." In fact, this

law firm was managed by Burnham Hill.

74. On June 16 and 17, 2008, Vicis received two further wires from Ritchie totaling

$8, 626, 661, representing funds being repaid by Petters/PGW.

75. On June 17, 2008, Adelman, in an email, told Vicis: "Chipping away nicely. The

PG [personal guarantee] is very powerful."

76. On June 17, 2008, Liss told Vicis that Schwartz Cooper, on Vicis' behalf, had sent

Petters a Demand Notice.

77. On June 18, 2008, Liss and Adelman forwarded Vicis an email from Petters

wherein Petters stated: "We are very confident that all the notes will be extinguished in next 3-4

days..

78. On June 19, 2008, Liss told Vicis: "We are drafting the complaint to pursue

Petters personally for service Monday, subject to any new information and/or developments."

79. On June 20, 2008, Petters emailed Liss stating: "Just got a call... that wires

totaling far in excess of what we owe on your notes [notes held by Vicis] will be wired on

Tuesday and Wednesday to Petters Co. Inc. from Sams Club." Liss forwarded this email to

Vicis.

80. On June 22, 2008, Liss told Vicis: "Whatever [Petters] owes at close of business

on Wednesday [June 25, 2008] will be what is included in a complaint to be served on

Thursday."

81. On June 25, 2008, Liss sent Vicis the draft of a legal complaint against Petters,

which Vicis reviewed and returned the same day.

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82. On June 29, 2008, in an internal Burnham Hill email, Liss instructed Adelman-

"We do not include shad [Vicis] in emails to petters directly."

83. On July 1, 2008, Adelman emailed Tom Petters stating: "Given the dynamic of

the relationships involved here I have been to [sic] lobbying hard behind the scenes to delay the

legal action by Vicis in an effort to create a positive resolution for all involved." Adelman

further stated: "My ability to influence further the delay of the filing of the suit is really waning

at this point."

84. Between July 1 and July 23, 2008, Vicis, through Ritchie, received a series of

payments from Petters/PGW totaling $3, 635, 838.80.

85. On July 17, 2008, Petters emailed Adelman and Liss telling them that the claimed

payment from Sam's Club, which he had said would allow complete repayment to Vicis, "was

not coming as plamied and delayed due to an audit."

86. On July 23, 2008, Petters promised Liss the Vicis loan would be "[c]ompletely

paid off next week [week of July 28]. Liss relayed this pledge to Vicis,

87. In August, Vicis received an additional $2, 258, 244.30 in repayment from

Petters/POW.

88. On August 21, 2008, Adelman emailed Vicis, stating that Petters/POW owed

$16, 385,721.61, including current interest, on the Ritchie Notes purchased by Vicis. "We are

staying on him [Petters] hard and it is getting done, Adelman stated. "Numbers look good on

this."

89. Vicis received no further payments from Petters/POW thereafter.

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Adelman and Liss Received Negative Information on Petters/PGW That Did Not
Communicate to Vicis

90. After February 19, 2008, Adelman and Liss received significant and material

negative infoimation about Petters/POW, and Petters/POW's ability to repay the Ritchie Notes,

but they did not share this information with Vicis.

a. In June, on information and belief, Adelman and Liss learned that Polaroid

assets being relied on to secure the Ritchie Notes, via Petters' personal

guaranty, were encumbered by another, undisclosed security interest;

b. By no later than July 1, 2008, Adelman and Liss learned that two other

hedge funds had sustained significant losses on loans made to Petters;

c. Adelman, Liss and Burnham Hill repeatedly and deliberately downplayed

the severity of the situation in communications with Vicis, and carefully

selected which communications with Petters/PGW to pass along to Vicis.

Burnham Hill's practice was not to copy Vicis on emails to Petters/POW.

d. By no later than early September 2008, Adelman and Liss had concluded

Petters was a "liar, but did not relay this assessment to Vicis.

Ritchie's September 19, 2008 Extension Agreement

91. Ritchie loaned additional funds to Petters/POW after February 19, 2008, including

a short-term, three-week loan of $8, 000, 000, from Ritchie Capital Structure Arbitrage Trading,

Ltd., loaned on May 9, 2008, bearing an annual interest rate of 362.1%.

92. On September 19, 2008, Petters and Ritchie Capital entered into an Extension and

Amendment Agreement, acknowledging that one or more defaults had occurred under the

Ritchie Notes and agreeing to extend the maturity dates of these Notes. In exchange, Ritchie

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received a security interest in collateral from the Polaroid Company, as security for the Ritchie
Notes they held.

93. Vicis was not a party to the Extension and Amendment Agreement, nor were its

interests protected by Ritchie as its agent with respect to the Ritchie Notes. Among other things:

a. Vicis did not receive the benefit of the security interest granted to Ritchie

in collateral from Polaroid.

b. The Extension Agreement provided that a default of the remaining Ritchie

Note held by Vicis would not constitute a default vis-à-vis the Ritchie

Notes held by Ritchie itself.

94. On September 24, 2008, the FBI executed a search warrant at Petters' house and

the corporate offices of PGW.

95. Even after learning of this development, Adelman emailed Vicis to state: "Ritchie

has now secured additional security interests" as security for repayment of the Ritchie Notes, and

that "Vicis holds the pari passu rights with Ritchie...." The statement that Vicis held "pari passu

rights with Ritchie" by virtue of the Extension and Amendment Agreement was false when

made.

96. On or about September 26, 2008, one week after receiving various protections,

covenants and commitments via the Ritchie Extension Agreement, Ritchie Capital declared a

default and accelerated all amounts due under the Ritchie Notes.

97. On September 26, 2008, Burnham Hill received a copy of the September 19, 2008

Extension Agreement, which did not cover the Ritchie Notes sold to Vicis. This infoll lation was

not communicated to Vicis.

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98. Even as late as October 3, 2008, Adelman/Burnham Hill assured Vicis that the

FBI search did not signal trouble in light of the Ritchie Extension Agreement, stating: "We are

aligned financially with Ritchie, who is well positioned here. The transaction was made at the

parent level. The stuff in the news deals with PCI (Petter Corp. Inc.). We did not have loans to

that entity."

COUNT ONE
(Violation of 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5--Ritchie,
Adelman, Liss and Burnham Hill)

99. Vicis realleges paragraphs 1-98, above, as if fully set forth herein.

100. Section 10(b) of the Securities Exchange Act of 1934 forbids the "use or employ,

in connection with the purchase or sale of any security... [of] any manipulative or deceptive

device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe

as necessary or appropriate in the public interest or for the protection of investors." 15 U.S.C.

78j (b).
101. Rule 1 Ob-5 (Employment of Manipulative and Deceptive Practices), issued under

the Securities Exchange Act of 1934, states:

It shall be unlawful for any person, directly or indirectly, by the


use of any means or instrumentality of interstate commerce, or of

the mails, or of any facility of any national securities exchange,


(a) to employ any device, scheme, or artifice to defraud;
(b) to make any untrue statement of a material fact or to omit to
state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were

made, not misleading, or


(c) to engage in any act, or course of business which
practice,
operates or would operate fraud or deceit upon any person,
as a

in connection with the purchase or sale of any security.

17 C.F.R. 240.10b-5.

102. By reason of the conduct alleged herein, Defendants knowingly violated 10(b)

of the Exchange Act and Rule 10b-5 promulgated thereunder in that they: (i) employed devices,

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schemes, and artifices to defraud; (ii) made untrue statements of material fact or omitted to state

material facts necessary to make statements made, in light of the circumstances under which they

were made, not misleading; and/or (iii) engaged in acts, practices and a course of business that

operated as a fraud or deceit upon Vicis in connection with their offer of the Ritchie Notes to

Vicis.

103. Adelman and Liss were and are controlling persons within the meaning of §20(a)

of the Exchange Act. By reasons of their ownership and management of Burnham Hill they had

the power and authority to cause Burnham Hill to engage in the wrongful conduct complained of

herein, and by reason of such conduct are liable pursuant to §20(a) of the Exchange Act.

104. Vicis has been damaged by Defendants' actions, misrepresentations and omissions

of material fact in an amount to be proven at trial.

COUNT TWO
(Violation of 15(a) of the Exchange Act--Adelman, Liss and Burnham Hill)

105. Vicis realleges paragraphs 1-98, above, as if fully set forth herein.

106. Adelman, Liss and Burnham Hill, by engaging in the conduct described above,

including arranging for and receiving a commission paid to the "Burnham Hill Division" of Pali

Capital, Inc., made use of the mails or means or instrumentalities of interstate commerce to effect

transactions in, or to induce or attempt to induce the purchase or sale of securities, without being

registered as a broker or dealer in accordance with Section 15(b) of the Exchange Act, 15 U.S.C.

78o(b).

107. Vicis has been damaged by Adelman, Liss and Burnham Hill's actions in an

amount to be proven at trial.

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COUNT THREE
(Common Law Fraud, Illinois and New York Law--Ritchie, Adelman, Liss
and Burnham Hill)

108. Vicis realleges paragraphs 1-98, above, as if fully set forth herein.

109. Adelman, Liss and Burnham Hill were in the business of advising others,

including Vicis, with respect to financial transactions, and recommending financial transactions

to third parties such as Vicis.


110. Defendants made statements of material fact regarding the Ritchie Notes that

were false and misleading. Defendants also failed to disclose material facts relating to the
Ritchie Notes, which facts were necessary in order to make their statements, in light of the

circumstances when made, accurate and not misleading.


111. Defendants made these misrepresentations and omissions knowingly,

intentionally, and/or with conscious disregard for the truth, accuracy and completeness of such

statements.

112. Vicis relied on the statements and information provided by Defendants when

deciding to invest in the Ritchie Notes, and Defendants intended that Vicis rely on such

statements and information.

113. Vicis has been damaged by Defendants' actions, misrepresentations, and

omissions in an amount to be proven at trial.

WHEREFORE, Plaintiffs Vicis Capital LLC and Vicis Capital Master Fund pray for

relief and judgment as follows:

1. Rescission of the Assignment and Assumption Agreement dated February 19,

2008 or, in the alternative, compensatory and/or restitutional damages in an

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amount to be established at trial, including the costs of corrective action and

interest;

2. Punitive damages;

3. Vicis' costs and disbursements, including reasonable attorneys' and expert witness

fees;

4. Pre- and post-judgment interest at the highest rate allowed by law; and

5. Such other and further relief as the Court deems just and proper.

JURY TRIAL DEMANDED

Plaintiffs Vicis Capital LLC and Vicis Capital Master Fund Ltd. demand a jury trial on

all matters so triable.

Dated: New York, New York


January 28, 2011

LITTLETON JOYCE
UGHETTA PARK & KELLY LLP

By:
Bryon. iedman, Esq.
4 Manhattanville Road, Suite 202
Purchase, New York 10577
(914) 417-3400
Fax (914) 417-3401
Email Bryon.FriedmangLittletonJoyce.com
File No. 00136.00002

Attorneys for Plaintiffs


Vicis Capital LLC and
Vicis Master Capital Fund, Ltd.,

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