Plan Agent Sam S. Leslie, through his counsel SulmeyerKupetz, has filed his fifth Amended Consolidated Complaint in the Chapter 11 case of Art and Architecture Books of the 21st Century, Inc., better known as Ace Gallery, alleging that the company’s principal wrongly diverted funds from the estate during its Chapter 11 case. The Complaint adds additional defendants, including Cathay Bank, and expands upon the original allegations of fraud with extensive new detail and exhibits.
The Complaint alleges that, before filing for bankruptcy, Ace Gallery’s founder, Douglas Chrismas, used several million dollars of the company’s funds to pay rent for another entity, the non-profit Ace Museum. When Ace Gallery’s business began to decline and bankruptcy became inevitable, Chrismas incorporated a new company, known as Ace Gallery New York, just five days before filing Ace Gallery’s bankruptcy petition. He then diverted a substantial percentage of Ace Gallery’s sales through the bank account of Ace Gallery New York to pay Ace Museum’s rent.
Chrismas did not report these diverted sales in his monthly operating reports and other financial records filed in the bankruptcy court, and he kept Ace Gallery’s bank account at near-zero, applying all excess sale proceeds to Ace Museum’s rent, and other personal obligations and judgments that he faced. He diverted more than $17 million of gross sale proceeds over three years.
The amended Complaint adds the principals of Ace Museum’s landlord and its lender, Cathay Bank to claims for recovery of avoidable transfers, and alleges that these defendants were aware that Ace Gallery had been the source of funds for payment of Ace Museum’s rent. It also adds claims for breach of fiduciary duty/aiding and abetting breach of fiduciary duty against Jennifer Kellen, who is married to Chrismas and served both as the Debtor’s Director of Ace Gallery’s Beverly Hills location and as Secretary of Ace Museum.
