 (Fraud)   (Conversion)   19.  From 1975 through April 1993, Hoffenberg served as Chief Executive Officer of  TFC, a corporation which provided a wide array of financial services and assistance to its clients.   Specifically, TFC was in the business of purchasing large volumes of outstanding receivables, and  then collecting on them.    20.  TFC also owned and operated subsidiaries including Towers Credit Corporation,  which purchased and purportedly collected on commercial accounts receivables; Towers Collection  Services, Inc., which collected past-due accounts receivable for third parties on a contingency basis;  and Towers Healthcare Receivables Funding Corporations I, II, III, IV and V (collectively the  “THRFC Bond Funds”), which issued hundreds of millions of dollars in bonds and engaged in  factoring healthcare receivables.   21.  Hoffenberg and Epstein joined forces in the mid-1980s.  Prior to that, Epstein had  been running International Assets Group Inc., a consulting company, out of his apartment in New  York City.    22.  In or around 1987, Hoffenberg and TFC hired Epstein as an associate and expert  consultant.  This “consulting” engagement entailed Epstein assisting Hoffenberg full-time in all  matters of business operations and management of TFC, as well as working with Hoffenberg to  raise capital for TFC from investors.     23.  Defendant Epstein, through entities including TFC and the Defendant Entities,  raised over five hundred million dollars ($500,000,000) from investors in the course of carrying out  the TFC Ponzi Scheme.        25.  For example, in 1987, TFC acquired a controlling interest in United Diversified  Corporation (“UDC”), which conducted business through two Illinois insurance company  subsidiaries, Associated Life Insurance Co. (“Associated”) and United Fired Insurance Co.  (“United Fire”).    26.  Epstein was the architect of the plan to secure the approval from Illinois state  regulators for TFC’s acquisition of the insurance companies. Indeed, approval was obtained  because Epstein represented to regulators that TFC would contribute three million dollars  ($3,000,000) to the surplus of United Fire – two million dollars ($2,000,000) immediately and an  additional one million dollars ($1,000,000) at a later date.    27.  Thereafter, in or around November 1987, Hoffenberg and Epstein used Associated  and United bonds as collateral in securities brokerage accounts, controlled by Epstein, in a failed  take-over attempt of Pan American Airways, Inc. (“Pan Am”). When the take-over failed, largely  due to the bombing of Pan Am Flight 103 over Lockerbie, Scotland, United Fire and Associated  suffered devastating trading losses, resulting in attendant losses for investors in TFC.   28.  Epstein and Hoffenberg diverted investor funds to hide those catastrophic losses,  while at the same time lining their own pockets with millions of dollars of investment capital to  keep up with their lavish lifestyles.     29.  Notably, between November 1987 and July 1988, checks were issued by TFC from  UDC and United Fire’s accounts for a number of improper expenditures, including the payment of  investment consultant fees for TFC consultants, including Epstein.    31.  In the wake of these losses to TFC, Epstein manipulated the price of Emery stock to  minimize the losses when the share price began to fall. In order to do so, Epstein opened and  maintained a number of brokerage accounts to execute false trades in order to artificially inflate the  price of Emery stock – while the company was in reality useless.  Because Epstein did not have a  license to trade, Epstein traded, purchased and sold stocks, bonds and other securities by what he  referred to as “making the orders” through licensed brokers.    32.  As the puppet master of Emery stock fraud, Epstein was making sizeable profits off  his trading on insider information.  According to Hoffenberg’s sworn affidavit, annexed hereto,  Epstein misappropriated the proceeds for not only his personal use, but also to start his own  company, Defendant TFTC.      33.  United Fire and Associated lost over one million dollars ($1,000,000) on the  purchase of Emery securities, due to the fact that the stock was purchased with funds borrowed by  using insurance company bonds as collateral.    35.  By the late 1980s, TFC became insolvent as a result of the massive losses it had  incurred over the years.  According to Hoffenberg, Epstein then devised a new fraudulent scheme  to raise capital for TFC – namely, by selling Promissory Notes.    36.  From January 1988 through March 1992, TFC sold the Promissory Notes in private  placements by means of six (6) separate private placement offering memoranda (the “TFC  Promissory Notes”). Defendant Epstein and TFC, represented to investors that the TFC Promissory  Notes were collateralized by accounts receivable owned by TFC.   37.  The six private placement offerings resulted in the sale of approximately two  hundred seventy two million dollars ($272,000,000) in TFC Promissory Notes throughout the  United States.     38.  Epstein fraudulently induced investors to purchase the TFC Promissory Notes by  assisting in the preparation and the distribution of financial statements which used falsified income  and asset figures to deceitfully conceal TFC’s true financial condition. The falsified income and  asset figures were a key component of continuing Defendant Epstein’s Ponzi scheme.  Since TFC  had taken such heavy losses on a series of failed investments, the company was deep in the red.  In  order to sell investors on the idea of future profits from investment in the TFC Promissory Notes,  it was necessary to show investors that TFC was profitable.   39.  As set forth in the accompanying Affidavit of Hoffenberg, annexed hereto, Epstein  participated, directly and indirectly, in arranging to have a certified public accountant falsely verify  that the financial statements reflected TFC’s financial condition.    41.  Defendant Epstein, directly and indirectly, represented to investors that the face  value of the collateral exceeded the face value of the TFC Promissory Notes. Instead, the collateral  was a fiction backed by falsified receivables which did not exist.   42.  In or about July 1990, Epstein, through TFC and in furtherance of the Ponzi scheme,  made additional efforts to raise capital and expand TFC by offering and selling additional debt  instruments in the form of bonds to investors (“TFC Bonds”).    43.  Moreover, Defendant Epstein, directly and indirectly, created, or caused to have  created, TFC subsidiaries, the THRFC Bond Funds, which were a series of corporate entities that  issued the TFC Bonds.  The TFC Bonds were sold pursuant to five (5) separate private placement  memoranda which indicated that the proceeds from the sales of the TFC Bonds would be used by  the THRFC Bond Funds, in whole or in part, to purchase healthcare receivables from TFC and that  the healthcare receivables purchased from TFC would collateralize the TFC Bonds.   44.  Defendant Epstein and Hoffenberg deliberately misrepresented how investor funds  would be used and subsequently misused the proceeds from the sale of the TFC Bonds.    46.  Despite the intended and stated purpose in the offering documents, Epstein diverted  the funds and funneled a substantial amount of the proceeds of the sale of the TFC Bonds to pay  TFC’s operating expenses.   47.    To cover up the fraud, Defendant Epstein directed collateral to be moved from one  THRFC Bond Fund to another and falsified collateral records in the periodic reports to investors  and SEC filings. Further, Epstein and Hoffenberg created phony receivables, then included those  items in reports designed to misrepresent the true financial picture of the THRFC Bond Funds.  Despite Defendant Epstein’s central role in this now widespread, massive Ponzi scheme, his actions  were taken on behalf of TFC – Hoffenberg’s company for which Epstein only “consulted”.   48.  Between July 1990 and May 1992, TFC sold approximately two hundred ten million  ($210,000,000) dollars in TFC Bonds. Like the TFC Promissory Notes, the financial statements  provided to potential investors used falsified income and asset figures to conceal TFC’s true  financial condition.   49.  In February 1993, following a lengthy investigation, the Securities and Exchange  Commission ("SEC") filed suit against Hoffenberg, TFC, and other TFC officials for, among other  things, securities fraud through the circulation of false and misleading financial statements to  investors regarding TFC's financial condition.   50.  In or around March 1993, TFC filed for Chapter 11 bankruptcy protection, and the  Noteholders and Bondholders filed claims with the Bankruptcy Court to support their loss claims.5    52.   The very next day, on April 20, 1994, Hoffenberg was indicted in the Southern  District of New York on numerous charges resulting from the SEC investigation and lawsuit,  including mail fraud, securities fraud in connection with the sale of the TFC Promissory Notes and  TFC Bonds, unlawful conspiracy and obstruction of justice. The indictment pending in the Northern  District of Illinois was transferred to the Southern District of New York in April 1995.    53.  In the course of the trial, Prosecutors in this District offered Hoffenberg a reduced  sentence in exchange for information about his co-conspirators in the TFC Ponzi Scheme – namely  Defendant Epstein’s role. However, Hoffenberg did not disclose any details about Defendant  Epstein’s involvement, let alone orchestration, of the fraudulent scheme.  It was only in May 2016  that Hoffenberg provided the first insight to the public and authorities regarding Defendant  Epstein’s role.6      54.  As a result of Hoffenberg’s refusal to implicate Defendant Epstein, Epstein was  never indicted for his role in the TFC Ponzi Scheme. Epstein was never charged with any crime in  connection with the TFC Ponzi Scheme.  Rather, Epstein has been permitted to use the ill-gotten  gains and misappropriated investor funds from his role in the TFC Ponzi Scheme to start and grow  Defendant TFTC.   56.  In or around April 1996, the Bankruptcy Court determined that the claims of the  TFC Noteholders and Bondholders, in the total amount of $475,157,340, were valid and actionable.    57.  On March 7, 1997, for his role in the TFC Ponzi Scheme, Hoffenberg was sentenced  to twenty years' in prison, a term of supervised release, as well as a one million dollar ($1,000,000)  fine, approximately four hundred seventy-five million dollars ($475,000,000) in restitution, and  court surcharges.   58.  The Sentencing Opinion sets forth fraudulent wrongful acts which were committed  by Hoffenberg “and his co-conspirators.”  The Affidavit of Hoffenberg, annexed hereto, makes  abundantly clear that Defendant Epstein and the Defendant Entities were Hoffenberg’s co- conspirators.    60.  Beginning in the early 1990’s, approximately one hundred (100) lawsuits, including,  but not limited to, the cases listed below, were filed in the District Court of the Southern District of  New York against Hoffenberg and TFC in connection with the TFC Ponzi Scheme:  1:89-cv-0 1689-RO  Foti v. Towers Financial Corp.                       filed 03/13/89    closed 01/04/90   1:92-cv-08998-SS  United Air Fleet v. Hoffenberg, et al             filed 12/14/92   closed 11/16/93   1:93-cv-00810-WK-AJP Gold, et a! v. Towers Financial, et al             filed 02/10/93    closed 01/05/00   I:93-cv-00855-WK-KAR Field v. Twrs Financial Corp., etl                 filed 02/11/93   closed 10/31/95  1:93-cv-00987-WK  Ziegler v. Twrs Financial Corp., et al            filed 02/19/93    closed 01/05/00   1:93-cv-0 1045-WK  Izzo v. Towers Financial, et al                        filed 02/23/93    closed 01/05/00   1:93-cv-01047-WK  Batten, et a1 v. Towers Financial, et al          filed 02/23/93    closed 01/05/00   1:93-cv-01094-WK  Casey, et al v. Twrs Financial Corp., et al     filed 02/25/93    closed 01/05/00  1:93-cv-0 1095-WK  Leibman, et a! v. Towers Financial, et al      filed 02/25/93     closed 01/05/00  1:93-cv-01155-WK  Penner v. Towers Financial, et al                   filed 03/01193   closed 01/05/00  1:93-cv-0 1303-WK  Thorn, et al v. Twrs Financial Corp., et al     filed 03/04/93    closed 01/05/00  1:93-cv-01543-WK  Siudmak, et al v. Towers Financial, et al       filed 03/12/93    closed 01/05/00   1:93-cv-01686-WK-KAR Bank Of Cape Verde v. TFC Funding Corp., eta  filed 03/17/93    closed 03/10/97   1:93-cv-04449-WK  Dinsmore v. Towers Financial, et al              filed 06/30/93   closed 08/19/98  1:94-cv-00619-WK-KAR Davis v. Hoffenberg, et al                               filed 02/01/94    closed 08/02/00  1:94-cv-00724-WK  Rothman v. Hoffenberg                                   filed 02/04/94   closed 08/02/00   1:94-cv-00725-WK  General Retirement, et al v. Hoffenberg, et al       filed 02/04/94   closed 04/30/98   1:94-cv-00814-WK  Izzo, et al v. Hoffenberg, et al                         filed 02/08/94   closed 08/02/00  1:94-cv-02727-WK  Amer. Int’l. Lines, et al v. Towers Financial, et al filed 04/14/94   closed 11/30/98  1:94-cv-09344-WK-AJP Sheridan, et al v. Hoffenberg, et al                 filed 12/29/94   closed 06/26/96  1:96-cv-04656-MGC  Cohen, et al v. Hoffenberg, et al                     filed 06/21/96    closed 06/28/96  1:96-cv-05125-PKL  Cohen, et al v. Hoffenberg, et al                     filed 07/08/96   closed 07/15/96   1:93-cv-01080-WK-KAR Shawmut Bank v. Towers Financial, et al      filed 02/25/93    closed 03/18/98  1:94-cv-0 1792-WK  Shawmut Bank Conn. v. Hoffenberg, et al    filed 03/15/94    closed 08/02/00  1:90-cv-00056-LBS  Sahlen & Assoc. v. Towers Financial Cor     filed 01/04/90    closed 12/10/90  1:88-cv-09178-RWS  Associated Dry Goods v. Towers Financial  filed 12/28/88   closed 03/06/91   1:93-cv-00992-WK  Riviera v. Towers Financial, et al                   filed 02119/93   closed 01/05/00  1:93-cv-0 1543-WK  Siudmak, et al v. Towers Financial, et al        filed 03/12/93   closed 01/05/00  1:93-cv-04449-WK  Dinsmore v. Towers Financial, et al               filed 06/30/93   closed 08/19/98   1:91-cv-05231-LJF  Superstock, Inc. v. Towers Fin. Corp., et al   filed 08/01/91   closed 04/28/92  1:93-cv-00961-WK  Murphy, et al v. Twrs Financial Corp., et al  filed 02/18/93   closed 03/24/97   1:93-cv-0 1927-WK  Von Stange v. Twrs Financial Corp., et al     filed 03/24/93   closed 02/21/97   62.  The full extent of Defendant Epstein’s involvement in the TFC Ponzi Scheme and  related frauds, which harmed Plaintiffs and the Class, could not have been discovered prior to  Hoffenberg’s execution of the Affidavit annexed hereto. Hoffenberg’s Affidavit, dated August 17,  2018, sets forth for the first time, under the penalty of perjury, Defendant Epstein’s full involvement  in the TFC Ponzi Scheme.7   63.  While Plaintiffs and the Class were aware of the illegal activities which caused them  and many others to lose hundreds of millions of dollars, Plaintiffs and the Class only knew that  Hoffenberg had “co-conspirators” who remained unnamed, uncharged, and unindicted.    64.  Defendant Epstein continues to control the Defendant Entities which wrongfully  received money fraudulently acquired from the Noteholders and Bondholders through the TFC  Ponzi Scheme and the profits earned from monies misappropriated by Epstein and transferred as  capital to the Defendant Entities including, but not limited to, Defendant TFTC.   65.  Defendant Epstein, individually, and by and through the Defendant Entities,  continuously engaged in the fraudulent activities by concealing his fraudulent Ponzi schemes from  banks, financial institutions and current investors of his margin account syndication.   66.  Defendant Epstein continues to deny his involvement in the TFC Ponzi Scheme and  continues to wrongfully possess the funds to which Plaintiffs and the Class are entitled as victims  of the TFC Ponzi Scheme.  68.  This suit is a class action brought on behalf of a Class consisting of and defined as  all investors, Noteholders, and/or Bondholders of TFC who, directly or indirectly, purchased the  TFC Bonds and TFC Promissory Notes sold by TFC between 1987 and 1993.     69.  Excluded from the Class are Defendants, any entity in which any Defendant has a  controlling interest, and the officers, directors, legal representatives, heirs, successors, subsidiaries  and/or assigns of any such individual or entity.   70.  The members of the Class are so numerous that joinder of all members individually,  in one action or otherwise, is impracticable. Plaintiffs believe that there are hundreds (if not  thousands) of proposed Class members.   72.  Plaintiffs’ claims are typical of the claims of the members of the Class, and it is a  member of the Class described herein.   73.  Plaintiffs are willing and prepared to serve the proposed Class in a representative  capacity with all of the obligations and duties material thereto.  Plaintiffs will fairly and adequately  protect the interests of the Class and has no interests adverse to, or which conflict with, the interests  of other members of the Class.   74.  Plaintiffs’ interests are co-extensive with and not antagonistic to those of the absent  Class members.  Plaintiffs will undertake to represent and protect the interests of absent Class  members.   75.  Plaintiffs have engaged the services of the undersigned counsel. Counsel is  experienced in complex class action litigation, will adequately prosecute this action, and will assert  and protect the rights of, and otherwise represent, Plaintiffs and absent Class members.   76.  The questions of law and fact common to the Class, as summarized above,  predominate over any questions affecting only individual members, in satisfaction of Rule 23(b)(3),  and each such common question warrants class certification under Rule 23(c)(4).   77.  A class action is superior to other available methods for the adjudication of this  controversy.  Individualized litigation increases the delay and expense to all parties and the court  system given the complex legal and factual issues of the case, and judicial determination of the  common legal and factual issues essential to this case would be far more fair, efficient, and  economical as a class action maintained in this forum than in piecemeal individual determinations.   79.  Defendants have acted or refused to act on grounds generally applicable to the Class,  thereby making appropriate final and injunctive relief with respect to the Class.  81.   Plaintiffs repeat, reiterate and re-allege each and every allegation contained in all  preceding paragraphs with the same force and effect as if more fully set forth herein.   82.  With the intent to derive the use, enjoyment and profits from TFC, Plaintiffs and the  Class, and with the intent to injure such individuals, Epstein actively participated in devising the  TFC Ponzi Scheme and he participated in acquiring assets and funds from such entities and  individuals though TFC for his own personal gain or use, or the gain or use of the Defendant  Entities.   83.  Under the guise of acting on behalf of TFC, Plaintiffs and the Class, Epstein actively  participated in creating and executing several fraudulent Ponzi schemes.    85.  Epstein utilized securities and cash,  which properly belonged to TFC, Plaintiffs  and the Class, and for which his co-conspirator Hoffenberg is court ordered to pay restitution, for the  benefit of himself and/or the Defendant Entities.   86.  Epstein utilized these funds in contravention of their intended, disclosed purpose,  and Epstein, ignoring the intended, disclosed purpose, transferred the funds to himself and/or to the  Defendant Entities, for his own personal gain or use.   87.  TFC reasonably relied upon the Ponzi scheme, which was created and executed by  Epstein, and that such scheme was in the best interests of TFC.   88.  Plaintiffs and the Class reasonably relied upon the fraudulent Ponzi scheme, which  was created and executed by Epstein, and that such scheme was in the best interests of Plaintiffs  and the Class.   89.  In an effort to continue to conceal this fraud from Plaintiffs and the Class, Epstein  continues to hide and refuses to identify the assets and funds which were improperly transferred to  Epstein and/or the Defendant Entities.     90.  In an effort to conceal the fraud from banks, financial institutions and current  investors of his holdings and syndication of margin accounts, Epstein continues to hide and refuses  to identify the assets and funds which were improperly transferred to Epstein and/or the Defendant  Entities.     91.  As a direct and proximate result of the foregoing fraudulent acts, Plaintiffs and the  Class have been damaged.    92.  The Defendants at all times acted with malice.   94.  Plaintiffs repeat, reiterate and re-allege each and every allegation contained in all  preceding paragraphs with the same force and effect as if more fully set forth herein.   95.  From approximately 1987 through 1993, Epstein as a “consultant” to TFC, caused  the transfer of securities, cash and assets from TFC to himself and/or to the Defendant Entities.   96.  Through these transfers and his intentional diversion of cash and assets, Epstein, by  and through the Defendant Entities, purposefully interfered with the rights of TFC, Plaintiffs and  the Class deprived Plaintiffs and the Class of use and benefit of the cash and interest earned on the  securities.    97.  Instead Epstein, by and through the Defendant Entities dishonestly usurped the  benefit and/or use of the cash and interest earned on the securities for himself and/or for the  Defendant Entities.   98.  As a result, because of use of the fraudulent means described herein, Epstein and/or  the Defendant Entities have continued to enjoy, use, and benefit from funds diverted from TFC,  Plaintiffs and the Class.   99.  As a direct and proximate result of these improper acts by Epstein and/or the  Defendant Entities, Plaintiffs and the Class have been damaged in an aggregate amount in excess  of $500,000,000. 