Chancery Court Tosses Derivative Suit Over Loans to LLC
The Delaware Court of Chancery on April 14 dismissed a derivative lawsuit by a creditor of a limited liability company, who tried to dissolve the firm in connection with allegations that its managing members had defrauded lenders and drained the company's assets.
April 17, 2017 at 07:43 PM
3 minute read
The Delaware Court of Chancery on April 14 dismissed a derivative lawsuit by a creditor of a limited liability company, who tried to dissolve the firm in connection with allegations that its managing members had defrauded lenders and drained the company's assets.
The creditor, Steven B. Trusa, had accused XION Management's brass of misappropriating more than $417,500 of about $1.1 million loaned to the corporate debt-funding company. The total haul included a $200,000 loan in 2010 from Trusa, a financial adviser in New York City. When Trusa's loan matured in 2012, however, XION defaulted, and Trusa began to probe activity within the company's management structure. Last March, he filed suit in the Court of Chancery, accusing managing members of fraud and breaches of fiduciary duty, among other claims. Trusa also sought to have the company dissolved because management had driven it into insolvency.
According to Trusa, the XION's three managing members hid conflicts of interest within the company and broke with promises to use all of the loans to buy convertible bonds in publicly traded companies. Instead, they paid themselves and funneled investment proceeds to entities they owned and left the company with no money to operate its business, he said.
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