Attorneys for the chief financial officer accused by a former general counsel of fixing finances to avoid auditors say in a motion to dismiss that the lawyer does not have the standing to sue because he is bringing these claims to "gain leverage in his other litigation."

Steven Berkovitch filed suit Dec. 6 on behalf of Five Hole LLC, a merchant cash advance company, against Oded Segev in Delaware Chancery Court claiming breach of fiduciary duties, unjust enrichment and conversion. Berkovitch is seeking a court order requiring an independent audit of Five Hole's 2017 and 2018 finances, disgorgement of all bonuses improperly paid in 2017 and/or 2018, removal of Segev as CFO, and awards to be determined by the court.

Berkovitch was formerly the general counsel of Pearl Capital Business Funding LLC, a company owned by Five Hole, and created a law firm, Berkovitch & Bouskila, to make collections for the company and for other companies looking to outsource the work as a way to bring himself and Pearl more revenue. He claims the company did not pay him bonuses that were promised and Segev was fixing the books.

Attorneys for Segev, however, claim that Berkovitch does not have the standing to file a claim against Segev. Segev's attorneys argue in the motion to dismiss that Berkovitch failed to name a necessary party in the suit; he does not have derivative standing to pursue his claims because he does not own an interest in Five Hole; he made a demand of the board of managers only 23 days before filing the complaint, which is not enough time under Delaware law; and because he is not an adequate derivative plaintiff.

"Berkovitch has filed disputes in multiple forums against Five Hole and its subsidiaries or officers, and the disparity between the value of those claims and the claims he seeks here is strong evidence that he is bringing these claims merely to gain leverage in his other litigation," the motion to dismiss says. "Under Delaware law, Plaintiff cannot show that he can meet his ongoing fiduciary obligations and, therefore, cannot establish that he is an adequate derivative plaintiff."

In a statement to Corporate Counsel, Joseph Tuso, a partner at Reed Smith in Philadelphia, representing Segev, said Segev denies the claims in Berkovitch's complaint and the claims are without merit.

"This most recent filing is now the fifth proceeding initiated by Mr. Berkovitch, who has already been ordered to pay Mr. Segev and Five Hole LLC $96,000 in attorneys' fees following the dismissal of a similar complaint that had been filed in New York," Tuso said. "That same court denied and dismissed a separate action brought by Mr. Berkovitch seeking to stay an arbitration that he initiated on behalf of Berkovitch & Bouskila. Mr. Segev and Five Hole fully intend to hold Mr. Berkovitch accountable for his continued vexatious filings and demonstrably false statements."

Segev is also represented by Wayne Stansfield and Nicholas Rodriguez of Reed Smith in Philadelphia; Brian Rostocki of Reed Smith in Wilmington, Delaware; and Blake Rohrbacher and Matthew Murphy of Richards, Layton & Finger in Wilmington.

Berkovitch is represented by Marc Casarino and Nicholas Wynn of White and Williams in Wilmington. A representative for the law firm did not respond to request for comment Thursday. A spokesperson for the firm previously said they do not comment on ongoing litigation.

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