Court File and Parties

Court File No.: CV-23-00692861-0000 Date: 2023-01-16 Superior Court of Justice - Ontario

Re: BAD GREMLIN LLC, REMORA VENTURES LLC, PATRICK BUCK, THOMAS BUCK, NANCY BEAUMONT, NOVEMBER ACQUISITIONS SPV LLC and DECEMBER ACQUISITIONS SPV LLC, Plaintiffs – and – SEAN GRUSD, JILLIAN PERLIS and SG CANADA LP, Defendants

Before: Justice E.M. Morgan

Counsel: Maureen Ward, Amanda McLachlan, Michael James, for the Plaintiff

Heard: January 16, 2023

Ex-Parte Motion

[1] This motion is brought without notice by the Plaintiff for a Mareva injunction and an Anton Pillar order. The action is issued by a group of investors in aid of litigation being pursued in the United States District Court for the Southern District of New York.

[2] In the U.S. action, the Plaintiffs are seeking, among other things, a temporary restraining order in the amount of some US $20.9 million. In that action, the Plaintiffs have alleged causes of action for violations of the Securities Exchange Act of 1934, 15 U.S.C. §78aa, and 28 U.S.C. §1331, fraudulent inducement, breach of fiduciary duty, breach of contract and breach of the implied covenant of good faith and fair dealing. In several lengthy affidavits, the Plaintiffs have presented evidence of a complex fraud perpetrated by the Defendant, Sean Grusd (“Grusd”), against the Plaintiffs.

[3] Grusd is ordinarily resident in Chicago, but is currently living in a condominium in the Four Seasons development in Toronto. A copy of his Four Seasons lease is in the record. His fiancé (or former fiancé) and collaborator, the Defendant, Jillian Perlis (“Perlis”), is a Chartered Accountant who ordinarily resides in Montreal but who appears to currently be living and working in the Liberty Village area of Toronto. The U.S. litigation alleges fraud against Grusd; in the current litigation, the other two Defendants, Perlis and Grusd’s company, SG Canada LP, are included as alleged constructive trustees of property and funds misappropriated from the Plaintiffs and transferred to them by Grusd.

[4] The evidence in the record before me shows that Grusd has confessed to the essential elements of the fraud, including the forgery of share certificates. That said, the confession appears to be only partial and does not explain the questionable balance sheet and net worth statement that he has provided to the Plaintiffs. Grusd also has never explained where the Plaintiffs’ money has gone. His own financial disclosure to the Plaintiffs indicates that he had personal net worth of hundreds of millions of dollars; yet upon being confronted by the Plaintiffs of what appear to be forgeries and fraudulent transactions, he now claims to have insufficient assets to repay what the Plaintiffs have lost.

[5] As a matter of full disclosure, Plaintiffs’ counsel has indicated that Grusd is still communicating with the Plaintiffs by telephone and WhatsApp, and has made some partial compensation by signing over to them certain properties he owned in the Czech Republic. Nevertheless, he has not provided a full accounting of the funds at issue in the New York litigation. The Plaintiffs depose that many of Grusd’s explanations and proposed “solutions” appear to be vague and incomprehensible. He also has deleted previous WhatsApp messages that would have been helpful in tracing the arch of the transactions that amount to what the Plaintiffs claim is an overarching fraud.

[6] Accordingly, and in light of all of this, the Plaintiffs submit that there is a real and genuine risk that he will move his assets beyond the reach of the U.S. court where the matter is being litigated on its merits. They also submit that there is a real and genuine risk that Grusd will destroy documents and information in his possession that are relevant to the Plaintiffs’ claim.

[7] The details of the alleged fraud are rather complicated. They involve a number of different investment schemes in which the Plaintiffs have either together or separately invested and which have turned out to be falsified by Grusd. The record submitted by the Plaintiffs in this motion establishes a series of transactions, which can be summarized as follows:

• In the Fall of 2021, Grusd approached the Plaintiffs, in particular, John Stafford III (“Stafford”), about a potential investment in Klarna Bank AB ("Klarna") and, at a later point, in Stripe Inc. (“Stripe”). Grusd represented first to Stafford and then to the other Plaintiffs that he owned shares in those two companies ant that he wanted to sell some of those shares. Grusd proposed setting up an investment fund that the Plaintiffs would put money into and to which he would sell his shares in Klarna and Stripe. In that way, he proposed that the Plaintiffs would become indirect shareholders of Klarna and Stripe.
• In fact, Grusd owned no shares in Klarna or Stripe. Instead, he formed two special purpose entities, November Acquisitions SPV LLC (“November”) and December Acquisitions SPV LLC (“December”), to be funded by the Plaintiffs. Grusd produced to the Plaintiffs materials purporting to show that both entities were controlled by well-known, successful tech investors, and that the shares in Klarna and Stripe were being sold to them at advantageous discounts.
• The Plaintiffs invested over US $10 million in each of these two entities. Grusd, in turn, sent them falsified investor reports, statements, stock certificates and bank statements purporting to show that November and December owned shares in the underlying companies, Klarna and Stripe. Bank records show that, in fact, Grusd transferred the funds to himself. No shares in Klarna and Stripe were sold to November or December by Grusd, and none of the investment funds were used to purchase shares in Klarna and Stripe.
• Grusd forwarded email correspondence to the Plaintiffs that appeared to be from equity management company, Carta.com, stating that on February 5, 2022, he had received a CS-38 certificate issued by Klarna to November purportedly certifying that November was the owner of a total of 34,482 shares of Klarna, purchased on November 29, 2021 for US $50 million. Grusd also forwarded similar emails that appeared to be from Carta.com asserting that he had received CS-12 certificates showing that December was the owner of a total of 2,858,000 shares of Stripe, purchased on January 21, 2022 for US $100 million.
• In the months following these “investments”, Grusd advised the Plaintiffs that he had arranged for December to enter into a Share Purchase Agreement dated April 27, 2022 with Karmel Capital Management LLC ("Karmel") for the sale, slated for May 20, 2022, of 214,711 Class B shares of Stripe for US $20 million.
• Grusd’s story subsequently changed, and he then represented that December had entered into another agreement on June 13, 2022, in which it would sell 2,858,000 Class B shares of Stripe to Karmel for US $266,079,800 on July 5, 2022. He later changed the story again, and advised the Plaintiffs that on August 15, 2022 he had entered into an amended share purchase agreement moving the closing date to September 15, 2022. The record shows that none of these agreements were real.
• Grusd then advised the Plaintiffs that Karmel had failed to secure the required investment funds and had failed to complete its acquisition under the share purchase agreement. Grusd went so far as to have December retain lawyers to prepare a draft complaint naming Karmel, which he circulated to certain of the Plaintiffs on October 12, 2022. The complaint was never actually filed. Instead, in October 2022, Grusd advised the Plaintiffs that he was now working on a new share purchase agreement with D1 Capital Partners L.P. (“D1 Capital”), a company he identified as being a 50% owner of December. Grusd represented that under this new agreement December would sell its shares in Stripe to D1 Capital for US $133,039,900, which would be distributed to the remaining 50% interest holders and would represent a large return on their investment.
• In furtherance of this story, Grusd advised the Plaintiffs by email on November 22, 2022 that he had initiated the share transfer. Then, on December 1, 2022, he sent the Plaintiffs a further message confirming that all of the documents needed for the sale transaction had been signed and were in compliance with regulatory requirements. Grusd advised the Plaintiffs that on December 7, 2022, Stripe would be issuing new share certificates to D1 Capital for approval and signature, and that these were the last steps required for funding of the transaction. Grusd then advised the Plaintiffs that the funds for the deal had been received and were being held in escrow. However, no sale to D1 Capital was ever made.
• In early December 2022, the Plaintiffs began seriously questioning the D1 Capital transaction and sought confirmation that the funds had actually been received and were in escrow as Grusd claimed. In response, Grusd produced a document he claimed was a balance sheet dated December 1, 2022 for December’s account at Silicon Valley Bank, which showed an account balance of US $133,093,900. Upon close examination of the font and unusual security settings in the document, it became apparent that the document was not a real bank statement. The Plaintiffs then contacted Silicon Valley Bank, which confirmed December had a $0 balance in its account.
• The Plaintiffs depose that when confronted with this information during a telephone call on December 21, 2022, Grusd confessed to having perpetrated a fraudulent scheme. According to the Plaintiffs’ evidence, Grusd stated that he never owned any Stripe or Klarna shares, and that the Stripe and Klarma share certificates were forged. An examination of the metadata for the PDF file for the share certificates as forwarded to the Plaintiffs by Grusd shows that they were created on Perlis’ computer.
• The Plaintiffs further depose that Grusd conceded to them that he had lied about the existence of other prominent investors in November and December, and that, more generally, the deal documents that he had generated in respect of the Plaintiffs’ investment were fabricated. He also stated that he did not know where the Plaintiffs’ money had gone.

[8] An investigation by the Plaintiffs shows that Grusd holds bank accounts in Canada at the Royal Bank of Canada. It also shows that SG Canada, a corporation controlled by Grusd, owns a condominium property at 377 Des seigneurs Apt. 407, Montreal, Quebec. The condominium was acquired in August 2022, after receiving the Plaintiffs’ funds. Grusd also was revealed to own properties in the Czech Republic worth roughly US $2.2 million, which have now been turned over to the Plaintiffs. The Plaintiffs do not know what other assets, whether in Canada or elsewhere, that Grusd may own or may have acquired with their investment funds.

[9] The Plaintiffs have good reason to believe that Grusd may seek to destroy evidence pertaining to this matter and/or abscond with the Plaintiffs’ funds. This includes evidence of assets held by him or possible private investments he has made, as well as information pertaining to the whereabouts of the investment funds that are at the core of this case. This belief is premised on Grusd having perpetrated a long, factually complex fraud that includes a massive misrepresentation of his own net worth of supposedly US $900 million. It also includes Grusd having falsified stock certificates and a bank statement, and the fact that Grusd hid all of his dealings with the Plaintiffs’ funds from the Plaintiffs until confronted with the Plaintiffs’ discovery of the falsified bank statement.

[10] The Plaintiffs are also concerned about Grusd’s course of conduct due to the fact that he has admitted fraud to them. Their evidence is that Grusd has repeatedly promised to pay them back, but has failed to reveal where the US $20 million delivered to him by the Plaintiffs has gone. The Plaintiffs are also understandably concerned that Grusd has moved assets, as well as his own personal residence, out of the United States where the main action in this matter is being litigated. All of this leads to a genuine belief that he will attempt to dispose or relevant documents and digital information, and/or transfer assets or hide them in places beyond the reach of any judgment that the Plaintiffs may receive.

[11] Further, the evidence in the record justifies the Plaintiffs in believing that Perlis may have assisted Grusd in fabricating documents. Information on Grusd’s and Perlis’ computers, phones, or other electronic devices could potentially be deleted by either or both of them. From what I have seen in the Plaintiffs’ motion record, there is a real possibility that Grusd, possibly with the assistance of Perlis, may destroy such material if a claim were served on them without some pre-emptive relief. As a consequence, in addition to a Mareva injunction and an Anton Pillar order, a sealing order appears necessary until such time as Grusd is served with the Mareva injunction and the Anton Pillar order is executed.

[12] In all, the record establishes that the Plaintiffs have a strong prima facie case. Grusd, Perlis, and SG Canada will suffer no particular prejudice if their assets were frozen on an interim basis. By contrast, if the funds are not preserved by injunction, the Plaintiffs may suffer irreparable harm, including financial harm that cannot be compensated for in damages, because Grusd will have moved assets beyond the reach of this Court and the courts in the United States. The balance of convenience thus favours the Plaintiffs here. In support of an injunction, the corporate Plaintiffs have provided an undertaking as to damages.

[13] In B.M.W. E. v. Canadian Pacific Ltd., [1996] 2 SCR 495, at para. 16, the Supreme Court of Canada held that, “[t]he Court has the power to grant interlocutory relief based on a cause of action recognized by English law against a defendant duly served where such relief is ancillary to a final order whether to be granted by the English court or some other court or arbitral body”. Accordingly, while the underlying cause of action has been commenced in the United States, this Court has jurisdiction to grant relief whose objective is to preserve assets and evidence in assistance of the US-based proceedings.

[14] Plaintiffs’ counsel submit that there is no alternative forum in which the relief sought can be granted, as Grusd, Perlis, and SG Canada are all resident in Ontario. Likewise, the evidence sought to be preserved is located in Ontario. Under these circumstances, the Court has authority to grant equitable orders such as a Mareva injunction and an Anton Pillar order in aid of foreign litigation: Obégi v. Kilani, 2011 ONSC 1636, at paras 78-81.

[15] I am satisfied that the grounds for a Mareva injunction and an Anton Pillar order have been met. Plaintiffs’ counsel has proposed adequate safeguards in their draft orders, including supervision of the Anton Pillar’s execution by an independent firm, a provision in the Mareva injunction for the Defendants to move on short notice for access to funds for ordinary living expenses, and a requirement that the Plaintiffs renew the injunction after 10 days if they wish to extend it. I am also of the view that a sealing order is also necessary until the Anton Pillar order has been executed.

[16] Although I think it is obvious in a case brought in aid of foreign proceedings, the usual “deemed undertaking” rule applies with limitations here. Any information obtained by means of the orders issued here may be used by the Plaintiffs in pursuit of their case in the United States. After all, that is the very purpose of granting the orders sought: see Canadian Derivatives Clearing Corp. v. EFA Software Services Ltd., 2001 ABQB 425, at para 56.

[17] Costs of this motion are reserved to a judge hearing the matter on full notice.

[18] There will be Orders to go as submitted by Plaintiffs’ counsel.

Released: January 16, 2023 Morgan J.