Preview
FILED: NEW YORK COUNTY CLERK 07/16/2015 06:31 PM INDEX NO. 603611/2008
NYSCEF DOC. NO. 662 RECEIVED NYSCEF: 07/16/2015
EXHIBIT 4
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- ------------- ------------------------------ --------------------------- )(
GENTRY T. BEACH and ROBERT A. VOLLERO,
Inde)( No. 603611/08
Plaintiffs,
IAS Par 56
- against - (Lowe, J.)
TOURJI CAPITAL MANAGEMENT, LP and
PAUL TOURAJI,
Defendants.
---- ------- ------- - ----------------------------- ------------ ----------- )(
TOURAJI CAPITAL MAAGEMENT, LP and
PAUL TOURJI,
Counterclaim Plaintiffs,
- against -
GENTRY T. BEACH and ROBERT A. VOLLERO,
Counterclaim Defendants.
---- ------- ------------ - -------------------- -------- -------- ----------- )(
TOURAJI CAPITAL MANAGEMENT, LP,
DEEPROCK VENTUR PARTNERS, LP and
PAUL TOURAJI,
Counterclaim Plaintiffs,
- against -
VOLLERO BEACH CAPITAL PARTNERS LLC,
VOLLERO BEACH CAPITAL FUND, LP,
VOLLERO BEACH ASSOCIATES LLC,
VOLLERO BEACH CAPITAL OFFSHORE, LTD.,
AND GARY BEACH
Counterclaim Defendants.
---- --- ----------- ------------------------------ --- --- ---- ---------- --- )(
THE TOURAJI DEFENDANTS' COUNTERCLAIMS
AND ANSWER TO FIRST AMENDED COMPLAINT
TABLE OF CONTENTS
NATURE OF THE CASE ............................................................................................................. 1
ALLEGATIONS COMMON TO ALL CLAIMS .......................................................................5
A. Beach And V ollero Join Touradji Capital As At-Wil Employees After
Their Mai Investor Pulls Out Of Their Prior Employer's Fund............................ 5
B. Beach And Vollero Are Paid Milions Of Dollars For 2005.................................. 8
C. Beach And Vollero Fail To Deliver Capital As Represented................................ 8
D. Beach And Vollero Cause The Small-Cap Debacle In 2006 ............................... 10
E. Beach and Vollero Are Well Compensated For 2006 Despite Their Poor
Performance .. ......... ........... ... ....... .... ........ ... ........ ... .............. ..... ........... .... .... ... .... ... 11
F. Beach And Vollero's Lackluster 2007 Performance ........................................... 12
G. Beach And V ollero Constrct And Supervise An Abysmal Private Equity Effort
...............................................................................................................................12
H. Playa Oil & Gas: Beach Creates And Takes Advantage Of A Confict
Of Interest To Benefit His Father, And The Two Men Abscond With
Investor Capital.......... ......... .............. .......... ..................... ........ ...... ..................... 13
i. Beach Is Demoted Back To Analyst................................................................... 18
J. Beach's Failures In Private Equity Come To Light............................................. 20
K. Beach Apologizes For His Repeated Failures And Misconduct.......................... 21
L. Beach's Demotion Is Communcated To Investors ............................................. 22
M. Beach And His Father Implement Their Conspiracy To Abscond With
Capital From Playa ............................................................................................ 23
N. Beach And Vollero Invent Claims OfConstrctIve Discharge............................ 24
O. Beach and His Father Abscond With Investor Capital......................................... 26
P. Vollero Remains At Touradji Capital In An Attempt To Manufactue
A Lawsuit.... ....... ...... ........... ... ... ... .... ............ ..... ....... ............... ....... ... ...... ... ... ... ..... 27
Q. Beach And V ollero Raise Capita For The V ollero Beach Parership
By Misrepresenting Their Track Record And Roles ............................................ 29
1
R. Beach And V ollero Manufactue Claims Of Improper Trading By
Touradji Capital................................................................................................. 31
COUNTERCLAIMS..................................................................................................................... 34
ANSWER...................................................................................................................................... 44
AFFIRMATIVE DEFENSES ..................................................................................................... 51
PRAYER FOR RELIEF .............................................................................................................52
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Defendant and Counterclaim Plaintiff Touradji Capital Management, LP and
Counterclaim Plaintiff DeepRock Venture Parners, LP (collectively "Touradji Capital") and
Defendant and Counterclaim Plaintiff Paul Touradji ("Touradji"), for their counterclaims against
Plaintiffs and Counterclaim Defendants Gentry T. Beach ("Beach"), and Robert A. V ollero
("Vollero") and against Counterclaim Defendants Vollero Beach Capital Parers LLC, Vollero
Beach Capital Fund, LP, V ollero Beach Associates LLC, V ollero Beach Capital Offshore, Ltd.
(collectively, the "Vollero Beach Funds"), and Gar Beach, and for their answer to Plaintiffs'
First Amended Complaint, respectfully allege and aver as follows:
NATURE OF THE CASE
1. While they were employed at Touradji Capital, Gentry Beach and Robert Vollero
were responsible for the destrction of milions of dollars of investor capital through a pattern of
fraud, breaches of fiduciar duty, mismanagement and utter disregard for the interests of the
investors whose capital they were obligated to protect.
2. In addition, Gentry Beach and his father, Gar Beach, together stole investor
capital from one ofTouradji Capital's private equity investments, Playa Oil & Gas, LP
("Playa"). Touradji Capital's investigation has revealed that Gentr Beach's father, Gar Beach,
wired $500,000 of investor fuds from Playa to himself, and then secretly shared that money
with Gentry Beach. Contemporaneously with these events, on September 26, 2008, Gentry
Beach claied that he was "forced to resign" from Touradji Capital- even filing a false police
report in which he claimed he had been theatened - when in fact he had already set up a
competing business well before that time.
3. After these events occurred, throughout the fall of 2008, V ollero remained at
Touradji Capital deviously and unethically gathering confidential information about the firm and
creating a fraudulent record concerning his compensation - all the while falsely representing that
he had ended his association with Beach. In fact, the evidence now shows, Beach and V ollero
had been planng to form a competing hedge fud - called the "V ollero Beach Funds" - well
prior to their supposedly forced depares from the firm. Indeed, one oftheIr new employees
was already callng Gentr Beach his "boss" while Beach was stil employed by Touradji
CapitaL.
4. Not content to have inficted ths har on Touradji Capital and its investors,
Beach and V ollero - who were paid milions of dollars while at Touradji Capital- have now
fied a complaint in which they demand over $50 milion dollars in additional compensation.
They base this claim upon a supposed agreement entitling them to, among other thngs, a
majority of the profits to be eared by Touradji Capital based upon its energy equity portfolios-
an agreement that by their own admission was never setforth in a written contract, and never
corresponded to their actual compensation.
5. The reason that ths alleged guaranteed "bonus" component of Beach and
V ollero' s employment agreement was never set forth in a wrtten agreement - and was never
referred to in a single email sent by these men in the three years that they worked at Touradji
Capital - is that it never e)(isted. Beach and V ollero' s claim for millons of dollars in additional
bonus compensation is therefore a paricularly brazen e)(ample of the sort of stomach-tung
greed and entitlement that has made headlines for the past year.
6. Beach and Vollero's claim for additional compensation is based upon the false
premise that they were hired as, and acted as, portfolio managers throughout their employment at
Touradji Capital, and that they alone were responsible for successfully managing Touradji
Capital's equity trading books. It is also based upon the false premise they had nothing to do
with the poor performance of Touradji Capital's private equity investments.
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7. In fact, afer Beach and Vollero were given responsibility for portfolio
management, it became clear that Beach, in paricular, was fudamentally incapable of managing
a trading portfolio - as even his co-plaintiff and closest frend, Robert V ollero, admitted on many
occasions. As V ollero put it, Beach merely "star( edJ at tickers," acted "rashly" and in a way that
was inconsistent with well researched conclusions, and did not even understand "how the
portfolio was actually strctued." As a result, even Vollero ultimately agreed that Beach should
be demoted and should fuction as nothing more than an analyst.
8. Vollero also secretly confided to Beach that both of them 'Just look at tickers and
go with them when we need something to buy and when we need something to selL." To others,
however, V ollero misrepresented himself as a careful and measured portfolio manager.
9. Put simply, the idea that Beach and Vollero - who raised virtally no capital and
who did not even possess the e)(perience or skills that they had represented to Touradji at the
time they were hired - would themselves be entitled to a majority of the profits to be eared by
Touradji Capital from its Funds' equity portfolios, is preposterous.
10. Beach's arrogant refusal to follow even the simplest directions, and his disregard
for the interests ofTouradji Capital's investors, is even more evident in connection with his
oversight of Touradji Capital's private equity investments.
11. Notably, Beach and V ollero now seek to misrepresent their roles in ths area, and
their complaint makes no mention of their private equity activities. That is because that effort
was an obvious failure and could never be squared with a demand for $50 milion in additional
compensation. As Vollero put it in a 2008 e-mail:
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(G) entr spent a few years running our private equity practice
and, to be honest, this was not something for which he was well
suited. Our PE effort has been disappointing and chaotic and it
has shown in the results, e.g. (Madagascar Oil, which resulted in a
hundred millon dollar write-down).
12. Beach's fudamentally dishonest natue - and the lengths to which he will go to
generate a false record in support of his claims - is fuher revealed by his allegation that
Touradji threatened to "ruin (Beach's) mariage and family" even ifit meant "saying things that
are untre." This false allegation was made by Beach out of a fear that his betrayals of his wife
and family - about which he had boasted withn Touradji Capital- would surface in the course
of this dispute. The trth is, Beach has for years caried on an ilicit affair with a young
Argentinean student, a relationship which included his makng secret wire transfers to support
her financially. Beach had thus long ago "runed" his own mariage, yet now has cynically
tued that conduct into a false allegation about Touradji.
13. Nor were Beach and Vollero's lies and misconduct limited to their business
dealings while at Touradji CapitaL. For e)(ample, they plainly misrepresented their own roles
while at their prior employer, Solstice, and Beach agreed to lie for his Argentinean mistress in
connection with her visa documentation. Furhermore, Beach and V ollero are now
misrepresenting their roles at Touradji Capital and their trading strategy in the marketing of the
V ollero Beach Funds. Gentr Beach and his father have also repeatedly lied under oath in a
separate litigation between Gar Beach and Touradji Capital in Te)(as. Beach and Vollero also
falsely disparaged Touradji and Touradji Capital in the press, in the marketplace, and in their
communcations with potential investors in the V ollero Beach Funds.
14. As Beach once secretly confided to Vollero, "We can overcome our weakesses
together." This statement also aptly describes ths very lawsuit: A collusive effort by two young
men to fabricate a claim for compensation when the evidence defeats such a claim absolutely.
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15. Touradji Capital fies the present counterclaims and cross-claims to recover from
Beach, V ollero, the V ollero Beach Funds, and Gar Beach for their breaches of fiduciar duty,
defamation and unfair competition directed at the fir. The goal is not only to ensure that Beach
and V ollero do not wrongfully wrest additional money from Touradji Capital, but also to ensure
that Touradji Capital's investors are made whole and to repair the damage done by the Beaches
and V ollero. Touradji Capital seeks the retu of all compensation paid to Beach and V ollero
during the period of their disloyalty, compensatory damages for all of the defendants'
misconduct in an amount no less than $250 millon, as well as punitive damages in light of the
knowing and malicious natue of their conduct.
ALLEGATIONS COMMON TO ALL CLAIMS
A. Beach And Vollero Join Touradji Capital As At-Wil Employees
After Their Main Investor Pulls Out Of Their Prior Emnlover's Fund
16. Touradji launched the Touradji Global Resources Master Fund, Ltd. and its
related family of fuds (the "TGR Funds") in January 2005, with initial commtted capital of
appro)(imately $1 bilion, all of which was raised by Paul Touradji.
17. In the spring of2005, a third pary recommended that Touradji speak with Beach
and V ollero, who were then employees of Solstice Equity Management ("Solstice"). At that
time, Solstice was an advisor to the BBT Fund, LP, an entity that managed investments on behalf
of the Fort Worth-based Bass family.
18. Touradji met with Beach and Vollero on several occasions in or around May
2005. Beach and V ollero represented to Touradji that they had been the portfolio managers for
Solstice, and that they had been primarily responsible for ruing the energy equity portfolio
there. Beach and V ollero provided Touradji with a track record purortedly reflecting their
successful performance as portfolio managers for Solstice.
5
19. Beach informed Touradji that he (Beach) had "built" Solstice, and that he and
V ollero were leaving Solstice because they wanted to star their own fud and because,
according to Beach, the Bass famly "didn't know what they were doing." Touradji has since
leared that ths was untre: Beach was nothing more than an analyst at Solstice, and Solstice
was obligated to shut down because its principal investor withdrew its capital from the fud.
20. At the time, Beach and V ollero also informed Touradji that they had made efforts
to form their own fud, and had already lined up investors wiling to contrbute $500 millon of
capitaL.
21. Based upon these and other representations (now known to be false), Touradji
agreed to take on Beach and V ollero, as well as several of their co-workers from Solstice, as
employees ofTouradji Capital.
22. From the beginning, Touradji made clear to Beach and Vollero that if they joined
Touradji Capital, they would be "at will" employees. Touradji told Beach and V ollero that he
was not considering an arangement where Touradji Capita would simply provide the facilties
for Beach and Vollero to ru their own fud. Instead, Touradji informed them that they would
be e)(pected to be his eyes and ears on energy equities. Touradji fuher informed Beach and
V ollero that he e)(pected them to operate as par of a team contrbuting to the success of the
overall firm, and that their compensation would be discretionary and would be based upon all
such contributions.
23. Touradji specifically informed Beach and Vollero that he would not agree to any
form of compensation "guarantee." Instead, Touradji told Beach and Vollero that if they came to
the Funds and performed well overall, a potential discretionar bonus "pool" could be allocated
to the entire team. Again, however, Touradji made plain that there were no guarantees when it
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came to compensation, apar from the $200,000 anual salar Beach and Vollero each would
receive, and that any additional compensation would be determined in Touradji's sole discretion
based upon their entire contributions and Touradji Capital's overall performance. Beach and
v ollero agreed to ths and stated that they were happy with this arangement.
24. As a result, no written contract was ever entered into between Beach, Vollero, and
Touradji or Touradji CapitaL.
25. Contrar to the present lies that Beach and V ollero have used to prop up their
Amended Complaint, this purely discretionar bonus arangement is reflected in due diligence
documents distributed to investors in Touradji Capital by Beach and Vollero themselves:
Compensation
The (Touradji Capital) team members receive a fi)(ed salar and a
discretionary bonus which mayor may not be driven by the performance
of the Fund or the performance ofthe individual traders.
(emphasis supplied.)
26. Not only is Beach and Vollero's claim to an absolute entitlement to a majority of
the profit on certain fuds contrary to fact, the claim is ludicrous as a matter of industry practice.
Paul Touradji was the "key man" for every Touradji Capital-related fud and portfolio, and Paul
Touradji was responsible for bringing in essentially all of the capital that Touradji Capital
managed. The idea that two individuals employed by the firm would themselves be entitled to a
majority of the profit to be made by Touradji Capital on, among other thngs, trading portfolios
for which Beach and V ollero raised no capital and as to which Beach and V ollero were not even
named as key men, is nonsensicaL.
27. Beach and Vollero accepted employment with Touradji Capital and reported for
duty in May 2005. Beach and Vollero helped manage investments in the TGR Fund's "OG
Book," a trading book composed of energy equity securties, under Touradji's supervision.
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28. Consistent with this sharing of responsibilties - and contrar to their claims that
they were hired purely as portfolio managers from day one - both Beach and V ollero were
originally identified in Touradji marketing documents as analysts, rather than as portfolio
managers.
29. Beach and Vollero also convinced Touradji to hire other former Solstice
employees as well, including Taylor Beach, Gentr Beach's sister. Vollero in paricular told
Touradji that Taylor Beach was smar, hard working and irreplaceable. Later, after Beach left
Touradji Capital, V ollero stated that Taylor Beach was incompetent and overpaid.
30. While Beach and V ollero were responsible for day-to-day trading decisions in
connection with the OG Book, Touradji remained the primar portfolio manager responsible for
the book, and provided Beach and V ollero with risk management and directional supervision in
connection with their trading activities.
31. In late 2005, Beach and V ollero lobbied Touradji Capita to form the ST Book,
which traded both public and private securties.
B. Beach And Vollero Are Paid Milions Of Dollars For 2005
32. The TGR Funds generated meaningful retus in 2005. At the end of2005, based
in par upon this performance, Touradji Capital awarded Beach and V ollero cash bonuses of $2.4
milion each. In addition, Touradji Capital awarded Beach and Vollero conditional deferred
bonuses of over $300,000 each. At the time, Beach and Vollero were very appreciative of these
amounts, and never complained that they had not been paid in accordance with a supposed
agreement.
C. Beach And V ollero Fail To Deliver Canital As Renresented
33. Touradji DeepRock Master Fund Ltd. and its related family of fuds (the
"DeepRock Funds") were launched in Februar 2006 to focus solely on investing in energy
8
equity securities. It was anticipated that Beach and V ollero would apply the e)(perience they
supposedly obtained managing energy equities at Solstice to assist in managing the DeepRock
Funds under Touradji's supervision, and would bring at least $500 milion of dollars in
supposedly committed capital to the Funds.
34. By the spring of 2006, however, it became evident that Beach and V ollero did
not, as they had earlier represented, have commitments for any meanngful amount of capitaL.
35. Also by that time, information had begu to surace suggesting that Beach and
V ollero had misrepresented their e)(perience at Solstice. Specifically, while Beach had described
himself to Touradji, as a "founder" and portfolio manager of Solstice and Vollero had similarly
described himself as a portfolio manager, the Chief Operating Offcer of Solstice, Ken McCary,
when asked by Touradji to confirm the information provided by Beach and V ollero, stated in par
as follows:
It is my recollection. . . that Mr. Beach was neither a "founder" nor a "member"
of Solstice, but worked as an employee for Jon Olesky, who was the portfolio
manager for the time period of the retu history.
36. When questioned about these inconsistencies, Beach and V ollero informed
Touradji that McCary was out to get them for "political" reasons. Beach complained that
Olesky was an impediment to makng money, and insisted that Beach and Vollero were
responsible for Solstice's track record. Beach, in paricular, stated that Olesky "didn't know
anytg about anytng."
37. In light of Beach and Vollero's representations, and in light of the positive
performance of the TGR Funds in 2005, including the OG Book, Touradji continued to allow
them a certain degree of discretion in making the day-to-day trading decisions for the energy
equity books under his supervision.
9
38. As it tued out, however, Beach and Vollero's misrepresentations concerning
their roles at Solstice were only the beginnng of a pattern of similar lies.
D. Beach And Vollero Cause The Small-Can Debacle In 2006
39. By the spring of2006, Touradji had become concerned about the size of the
positions that Beach and V ollero had built up in various relatively iliquid small-cap energy
equity securities. When Touradji e)(pressed these concerns to Beach and Vollero, they assured
him that they were comfortable with the size ofthese positions.
40. In May 2006, however, the equities markets e)(perienced an across-the-board sell-
off. Small cap energy equities suffered signficantly in the May sell-off and continued to
languish for the following months. As V ollero himself later admitted, "they became an out-of-
favor asset class. Investors generally felt trapped in these names, liquidity dried up, and the
stocks suffered to the downside when the energy sector sold off but did not paricipate in the
upside moves."
41. In addition to these substantial iliquid small-cap positions, Beach and V ollero
had accumulated significant concentrated positions in a number of companies. These positions,
which also were illquid, also suffered durng and after the market sell-off and liquidity cruch of
May 2006.
42. As V ollero later admitted, the poor performance in these two classes of securities
combined to have a "dramatic effect on (the Funds') P&L" in 2006.
43. Shortly after the May 2006 sell-off, Touradji took control of the energy equity
book, and immediately undertook efforts to liquidate as many of the small cap positions as he
could at a reasonable price. As V ollero later admitted, the Funds were able to do this "largely
due to a very adroit view (Paul Touradji) had as to market appetite for these types of investments
through the course ofthe year."
10
44. By late 2006, Touradji had successfully reduced DeepRock's small cap e)(posure
and had cut DeepRock's concentrated energy equity e)(posure as well.
45. Reducing the size of these positions at an acceptable cost, and thereby restoring
liquidity to the Funds, required Touradji himself to devote substantial time and effort to
managing and repairing the energy equity book.
46. In sumarizing what had gone wrong in 2006, V ollero admitted that he and
Beach had had limited the equity book in 2006 to "mostly iliquid crap." Vollero also admitted
that he and Beach had "totally messed up" by accumulating such a large volume of iliquid
investments. He also flatly admitted that ths "wasn't PT's (Paul Touradji's) fault, it was ours
(referring to himself and Gentr Beach J."
47. Despite Vollero's contemporaneous admissions that he and Beach were
responsible for the "small cap blow up," as he referred to it at the time, and that Touradji had
been largely responsible for getting them out of the mess they had created, he now seeks to
blame Touradji for these events in an effort to create a false record in support of his
compensation claims.
E. Beach and Vollero Are Well Compensated
For 2006 Desnite Their Poor Performance
48. Despite Beach and Vollero's substandard trading performance in 2006, Touradji
Capital nonetheless paid Beach and V ollero each a $1 milion bonus for the year in an effort to
encourage them to work toward improving their futue performance. At the time they were
awarded these amounts, neither Beach nor V ollero complained, nor did they suggest that there
e)(isted an agreement under which they were entitled to a majority of the profits of paricular
trading books they purportedly managed. Even if there had been such an agreement, by that
ii
measure they would have been entitled to nothing, or indeed less than nothing, for their
performance in 2006. Instead, they were paid $1 millon each.
49. Yet in their Amended Complaint, Beach and V ollero now claim an entitlement to
over $5.0 millon in bonuses eared for their supposedly successful work in 2006, with no
mention at all of the small cap blow up, or the fact that their poor management forced Touradji to
place severe constraints on their trading discretion and tighten all risk controls.
F. Beach And Vollero's Lackluster 2007 Performance
50. After a tuultuous 2006, 2007 was a quieter year. Whle the ST Book
e)(perienced sizeable losses, the OG Book and DeepRock retued respectable retus due to
Touradji's increased involvement in managing those portfolios.
51. By mid-2007, however, contemporaneous documents show, Beach's severe
"weakesses" had already become a serious issue and source of internal debate among his co-
Plaintiff Robert V ollero and others. In paricular, these documents reflect that it had become
clear to Robert V ollero and Benjamin Bram, a Touradji Capital equities trader, that Gentr
Beach simply lacked the skils and intellgence necessar to manage an equity securities
portfolio.
G. Beach And Vollero Construct And
Sunervise An Abvsmal Private Equity Effort
52. Wholly aside from their failures in managing of the Firm's public equities, Beach
in paricular was responsible for a disastrous series of investments in Touradji Capital's private
equity portfolio. Notably, Beach and Vollero do not even mention in their Amended Complaint
their key roles in building and managing the Funds' private equity portfolio. That is because the
results of that effort were so bad that they canot be squared with an after-the-fact claim for $50
millon dollars in additional compensation.
12
53. Vollero himself has admitted that Beach was responsible for rung private
equity at Touradji. In late 2007, Vollero wrote that Beach "should continue to spend a lot of his
time as the point person on private equity. . . ." (emphasis added).
54. In fact, even Gentr Beach's father has testified under oath that Gentry Beach was
in charge ofTouradji's private equity portfolio:
Q: Who did you understand to be was responsible for Touradji's
private equity investments. . . ?
A: Well, Gentry was.
55. Yet tre to form, since filing his lawsuit, Gentr Beach has misrepresented under
oath his role in overseeing the private equity portfolio, denying that he was responsible for that
effort. But again his co-plaintiff, Robert Vollero, admitted the trth in an e-mail written in 2008:
(G) entry spent a few years running our private equity practice
and, to be honest, this was not something for which he was well-
suited. Our PE effort has been disappointing and chaotic and it
has shown up in the results (e.g.) (Madagascar Oil, which resulted
in a hundred milion dollar wrte down).
56. "Disappointing" and "chaotic" are understatements. Madagascar Oil resulted in a
write-down of over $ I 00 milion, and Playa Oil and Gas LP tued into a vehicle by which
Gentr Beach and his father absconded with $500,000 of investor capital and are now seeking
milions more though fabricated claims offraud.
H. Playa Oil & Gas: Beach Creates And Takes
Advantage Of A Conflct OfInterest To Benefit His
Father. And The Two Men Abscond With Investor Canital
57. In marketing himself to Touradji Capita in the spring of2005, one of Gentry
Beach's selling points had been his family's supposed decades of e)(perience in the oil and gas
industr.
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58. Thus, shortly after joining Touradji Capita, in the sumer of 2005, Gentry Beach
proposed that the TGR Funds invest in a private oil and gas parnership to be managed by Gentry
Beach's father, Gar Beach.
59. Prior to that time, Touradji Capital's investigation has now revealed, Gary Beach
had been attempting without success to locate outside investors to fud a proposed drillng
project.
60. In persuading Touradji to approve the investment on behalf of the TGR Funds,
Gentry Beach falsely represented that his father was an e)(perienced businessman with a history
of successfully locating and developing oil and gas properties, and that his father was being hotly
pursued by other potential investors. He and his father also represented that they possessed
valuable rights to oil and gas properties that would be contributed to the ventue.
61. Based upon Gentr Beach's representations as to his father's e)(perience and
abilities, as well as their representations concerng the valuable oil and gas interests that they
owned, Playa was established in October 2005. Through affliates, Touradji Capital controls
Playa.l
62. Beach Capital Parnership, L.P. ("Beach Capital LP), a limited parnership
controlled by Gar Beach, is a limited parner of Playa.
63. Gentr Beach and Vollero spearheaded the negotiation of the Playa LP
parnership agreement (the "Original LP Agreement"), which Gentry Beach signed on behalf of
Touradji CapitaL.
The name of Touradji Capital's affliate that made the investment and acts as a limited parer in Playa is
DeepRock Ventue Parters, LP ("DeepRock Ventues"). For puroses of this pleading, we refer to DeepRock
Ventues as "Touradji CapitaL."
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64. Under that Agreement, Touradji Capital contrbuted every dollar of the capital
that went into Playa. That money, of course, was investor capitaL. The Original LP Agreement
required that Touradji Capital contrbute only $8 milion of initial capital, and set a ma)imum
capital contribution of $30 milion.
65. The Original LP Agreement required that Gary Beach contrbute "(a)ll rights,
title, and interest" in a variety of oil and gas leases, prospects and joint ventures.
66. At the time Playa was formed, and over the ne)(t few years, Gar Beach
represented that the interests he contrbuted were worth milions of dollars.
67. In reality, and contrar to this representation, Gar Beach contributed nothing of
economic value to Playa. Instead, what Beach Capital appears to have "contributed" to Playa is
the opportunty to pay milions of dollars to acquire and develop certain oil and gas properties
located in remote, barely accessible swampland in southern Louisiana. No "leases," no
"properties," and no "Prospect Generation Joint Ventues" of any value were contrbuted to
Playa.
68. In fact, in an audit memo written by Playa's auditor in 2007 - but not provided to
Touradji Capital until it was subpoenaed in litigation - the auditor concluded as follows with
respect to Beach's purorted contribution to Playa:
"Beach had no basis in the assets. There was no determinable value to the
assets."
69. Even worse, Touradji Capital's investigation has revealed that - in another
egregious conflict of interest - Gentry Beach himself possessed an undisclosed personal financial
interest in one of the entities allegedly constituting these supposed properties, an entity called the
"Beach Energy Group." Gentry Beach flatly misrepresented to Touradji Capita at the time that
he possessed no such interest.
15
70. In addition, at the outset of Playa the paries contemplated that Gar Beach would
receive a portion of the profits of Playa only afer Touradji Capital and its investors received the
full retu of their initial invested capitaL.
71. By early 2007, however, an employee of Touradji Capital, Holbrook Dorn, had
reviewed the Original LP Agreement and concluded that it was not suffciently clear on this
point. Dorn therefore spoke to Gentr Beach and Robert V ollero about the issue.
72. Beach and V ollero both specifically confirmed that the intent of the paries had
been that Touradji Capital should recover all of its invested capital before Gar Beach became
entitled to share in any assets held or distrbuted by the parnership. V ollero even stated to
Gentry Beach in Dorn's presence: "You need to fi)( this," and Beach promised that he would do
so. Dorn thereafter spoke directly with Gar Beach, who confirmed his agreement to these
terms.
73. Gar Beach also communicated this agreement to Playa's auditors at around this
same time. Specifically, in an audit work paper dated December 31, 2007 (but again, only
recently provided to Touradji Capital pursuant to subpoena), the auditor wrote:
Per G. Beach. . .
The parners have verbally agreed that (Touradji Capita) would
recoup all their investments before Beach Capita Parership, LP
receives any payments.
74. Nevertheless, succumbing to the conflict of interest posed by his father's
involvement in the transaction and placing his family's interests directly alead of those of
Touradji Capital's investors, Gentr Beach purosefully failed to obtain his father's written
acknowledgement of this arangement, and the two men now deny that Touradji Capital was
entitled to recoup its invested principal before Gary Beach would be entitled to share in profits.
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Even more egregiously, the two men now claim in a lawsuit that Gar Beach is owed $8 millon
of investor capital that was previously distributed to Touradji Capital as a retu of principal.
75. Based upon the understanding that Touradji Capital was to receive a retu of its
invested capita prior to Gar Beach's sharing in the profits, Gentry Beach recommended, and
Touradji Capital agreed, to continue to contribute millons of dollars to Gar Beach's oil and gas
e)(ploration efforts, including milions of dollars in e)(cess of the $8 milion in principal
originally committed. Touradji Capital did so, only to find that the Beaches now claim an
absolute and automatic entitlement to 20 percent of that money. In other words, the Beaches
Preview
FILED: NEW YORK COUNTY CLERK 07/16/2015 06:31 PM INDEX NO. 603611/2008 NYSCEF DOC. NO. 662 RECEIVED NYSCEF: 07/16/2015 EXHIBIT 4 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK - ------------- ------------------------------ --------------------------- )( GENTRY T. BEACH and ROBERT A. VOLLERO, Inde)( No. 603611/08 Plaintiffs, IAS Par 56 - against - (Lowe, J.) TOURJI CAPITAL MANAGEMENT, LP and PAUL TOURAJI, Defendants. ---- ------- ------- - ----------------------------- ------------ ----------- )( TOURAJI CAPITAL MAAGEMENT, LP and PAUL TOURJI, Counterclaim Plaintiffs, - against - GENTRY T. BEACH and ROBERT A. VOLLERO, Counterclaim Defendants. ---- ------- ------------ - -------------------- -------- -------- ----------- )( TOURAJI CAPITAL MANAGEMENT, LP, DEEPROCK VENTUR PARTNERS, LP and PAUL TOURAJI, Counterclaim Plaintiffs, - against - VOLLERO BEACH CAPITAL PARTNERS LLC, VOLLERO BEACH CAPITAL FUND, LP, VOLLERO BEACH ASSOCIATES LLC, VOLLERO BEACH CAPITAL OFFSHORE, LTD., AND GARY BEACH Counterclaim Defendants. ---- --- ----------- ------------------------------ --- --- ---- ---------- --- )( THE TOURAJI DEFENDANTS' COUNTERCLAIMS AND ANSWER TO FIRST AMENDED COMPLAINT TABLE OF CONTENTS NATURE OF THE CASE ............................................................................................................. 1 ALLEGATIONS COMMON TO ALL CLAIMS .......................................................................5 A. Beach And V ollero Join Touradji Capital As At-Wil Employees After Their Mai Investor Pulls Out Of Their Prior Employer's Fund............................ 5 B. Beach And Vollero Are Paid Milions Of Dollars For 2005.................................. 8 C. Beach And Vollero Fail To Deliver Capital As Represented................................ 8 D. Beach And Vollero Cause The Small-Cap Debacle In 2006 ............................... 10 E. Beach and Vollero Are Well Compensated For 2006 Despite Their Poor Performance .. ......... ........... ... ....... .... ........ ... ........ ... .............. ..... ........... .... .... ... .... ... 11 F. Beach And Vollero's Lackluster 2007 Performance ........................................... 12 G. Beach And V ollero Constrct And Supervise An Abysmal Private Equity Effort ...............................................................................................................................12 H. Playa Oil & Gas: Beach Creates And Takes Advantage Of A Confict Of Interest To Benefit His Father, And The Two Men Abscond With Investor Capital.......... ......... .............. .......... ..................... ........ ...... ..................... 13 i. Beach Is Demoted Back To Analyst................................................................... 18 J. Beach's Failures In Private Equity Come To Light............................................. 20 K. Beach Apologizes For His Repeated Failures And Misconduct.......................... 21 L. Beach's Demotion Is Communcated To Investors ............................................. 22 M. Beach And His Father Implement Their Conspiracy To Abscond With Capital From Playa ............................................................................................ 23 N. Beach And Vollero Invent Claims OfConstrctIve Discharge............................ 24 O. Beach and His Father Abscond With Investor Capital......................................... 26 P. Vollero Remains At Touradji Capital In An Attempt To Manufactue A Lawsuit.... ....... ...... ........... ... ... ... .... ............ ..... ....... ............... ....... ... ...... ... ... ... ..... 27 Q. Beach And V ollero Raise Capita For The V ollero Beach Parership By Misrepresenting Their Track Record And Roles ............................................ 29 1 R. Beach And V ollero Manufactue Claims Of Improper Trading By Touradji Capital................................................................................................. 31 COUNTERCLAIMS..................................................................................................................... 34 ANSWER...................................................................................................................................... 44 AFFIRMATIVE DEFENSES ..................................................................................................... 51 PRAYER FOR RELIEF .............................................................................................................52 11 Defendant and Counterclaim Plaintiff Touradji Capital Management, LP and Counterclaim Plaintiff DeepRock Venture Parners, LP (collectively "Touradji Capital") and Defendant and Counterclaim Plaintiff Paul Touradji ("Touradji"), for their counterclaims against Plaintiffs and Counterclaim Defendants Gentry T. Beach ("Beach"), and Robert A. V ollero ("Vollero") and against Counterclaim Defendants Vollero Beach Capital Parers LLC, Vollero Beach Capital Fund, LP, V ollero Beach Associates LLC, V ollero Beach Capital Offshore, Ltd. (collectively, the "Vollero Beach Funds"), and Gar Beach, and for their answer to Plaintiffs' First Amended Complaint, respectfully allege and aver as follows: NATURE OF THE CASE 1. While they were employed at Touradji Capital, Gentry Beach and Robert Vollero were responsible for the destrction of milions of dollars of investor capital through a pattern of fraud, breaches of fiduciar duty, mismanagement and utter disregard for the interests of the investors whose capital they were obligated to protect. 2. In addition, Gentry Beach and his father, Gar Beach, together stole investor capital from one ofTouradji Capital's private equity investments, Playa Oil & Gas, LP ("Playa"). Touradji Capital's investigation has revealed that Gentr Beach's father, Gar Beach, wired $500,000 of investor fuds from Playa to himself, and then secretly shared that money with Gentry Beach. Contemporaneously with these events, on September 26, 2008, Gentry Beach claied that he was "forced to resign" from Touradji Capital- even filing a false police report in which he claimed he had been theatened - when in fact he had already set up a competing business well before that time. 3. After these events occurred, throughout the fall of 2008, V ollero remained at Touradji Capital deviously and unethically gathering confidential information about the firm and creating a fraudulent record concerning his compensation - all the while falsely representing that he had ended his association with Beach. In fact, the evidence now shows, Beach and V ollero had been planng to form a competing hedge fud - called the "V ollero Beach Funds" - well prior to their supposedly forced depares from the firm. Indeed, one oftheIr new employees was already callng Gentr Beach his "boss" while Beach was stil employed by Touradji CapitaL. 4. Not content to have inficted ths har on Touradji Capital and its investors, Beach and V ollero - who were paid milions of dollars while at Touradji Capital- have now fied a complaint in which they demand over $50 milion dollars in additional compensation. They base this claim upon a supposed agreement entitling them to, among other thngs, a majority of the profits to be eared by Touradji Capital based upon its energy equity portfolios- an agreement that by their own admission was never setforth in a written contract, and never corresponded to their actual compensation. 5. The reason that ths alleged guaranteed "bonus" component of Beach and V ollero' s employment agreement was never set forth in a wrtten agreement - and was never referred to in a single email sent by these men in the three years that they worked at Touradji Capital - is that it never e)(isted. Beach and V ollero' s claim for millons of dollars in additional bonus compensation is therefore a paricularly brazen e)(ample of the sort of stomach-tung greed and entitlement that has made headlines for the past year. 6. Beach and Vollero's claim for additional compensation is based upon the false premise that they were hired as, and acted as, portfolio managers throughout their employment at Touradji Capital, and that they alone were responsible for successfully managing Touradji Capital's equity trading books. It is also based upon the false premise they had nothing to do with the poor performance of Touradji Capital's private equity investments. 2 7. In fact, afer Beach and Vollero were given responsibility for portfolio management, it became clear that Beach, in paricular, was fudamentally incapable of managing a trading portfolio - as even his co-plaintiff and closest frend, Robert V ollero, admitted on many occasions. As V ollero put it, Beach merely "star( edJ at tickers," acted "rashly" and in a way that was inconsistent with well researched conclusions, and did not even understand "how the portfolio was actually strctued." As a result, even Vollero ultimately agreed that Beach should be demoted and should fuction as nothing more than an analyst. 8. Vollero also secretly confided to Beach that both of them 'Just look at tickers and go with them when we need something to buy and when we need something to selL." To others, however, V ollero misrepresented himself as a careful and measured portfolio manager. 9. Put simply, the idea that Beach and Vollero - who raised virtally no capital and who did not even possess the e)(perience or skills that they had represented to Touradji at the time they were hired - would themselves be entitled to a majority of the profits to be eared by Touradji Capital from its Funds' equity portfolios, is preposterous. 10. Beach's arrogant refusal to follow even the simplest directions, and his disregard for the interests ofTouradji Capital's investors, is even more evident in connection with his oversight of Touradji Capital's private equity investments. 11. Notably, Beach and V ollero now seek to misrepresent their roles in ths area, and their complaint makes no mention of their private equity activities. That is because that effort was an obvious failure and could never be squared with a demand for $50 milion in additional compensation. As Vollero put it in a 2008 e-mail: 3 (G) entr spent a few years running our private equity practice and, to be honest, this was not something for which he was well suited. Our PE effort has been disappointing and chaotic and it has shown in the results, e.g. (Madagascar Oil, which resulted in a hundred millon dollar write-down). 12. Beach's fudamentally dishonest natue - and the lengths to which he will go to generate a false record in support of his claims - is fuher revealed by his allegation that Touradji threatened to "ruin (Beach's) mariage and family" even ifit meant "saying things that are untre." This false allegation was made by Beach out of a fear that his betrayals of his wife and family - about which he had boasted withn Touradji Capital- would surface in the course of this dispute. The trth is, Beach has for years caried on an ilicit affair with a young Argentinean student, a relationship which included his makng secret wire transfers to support her financially. Beach had thus long ago "runed" his own mariage, yet now has cynically tued that conduct into a false allegation about Touradji. 13. Nor were Beach and Vollero's lies and misconduct limited to their business dealings while at Touradji CapitaL. For e)(ample, they plainly misrepresented their own roles while at their prior employer, Solstice, and Beach agreed to lie for his Argentinean mistress in connection with her visa documentation. Furhermore, Beach and V ollero are now misrepresenting their roles at Touradji Capital and their trading strategy in the marketing of the V ollero Beach Funds. Gentr Beach and his father have also repeatedly lied under oath in a separate litigation between Gar Beach and Touradji Capital in Te)(as. Beach and Vollero also falsely disparaged Touradji and Touradji Capital in the press, in the marketplace, and in their communcations with potential investors in the V ollero Beach Funds. 14. As Beach once secretly confided to Vollero, "We can overcome our weakesses together." This statement also aptly describes ths very lawsuit: A collusive effort by two young men to fabricate a claim for compensation when the evidence defeats such a claim absolutely. 4 15. Touradji Capital fies the present counterclaims and cross-claims to recover from Beach, V ollero, the V ollero Beach Funds, and Gar Beach for their breaches of fiduciar duty, defamation and unfair competition directed at the fir. The goal is not only to ensure that Beach and V ollero do not wrongfully wrest additional money from Touradji Capital, but also to ensure that Touradji Capital's investors are made whole and to repair the damage done by the Beaches and V ollero. Touradji Capital seeks the retu of all compensation paid to Beach and V ollero during the period of their disloyalty, compensatory damages for all of the defendants' misconduct in an amount no less than $250 millon, as well as punitive damages in light of the knowing and malicious natue of their conduct. ALLEGATIONS COMMON TO ALL CLAIMS A. Beach And Vollero Join Touradji Capital As At-Wil Employees After Their Main Investor Pulls Out Of Their Prior Emnlover's Fund 16. Touradji launched the Touradji Global Resources Master Fund, Ltd. and its related family of fuds (the "TGR Funds") in January 2005, with initial commtted capital of appro)(imately $1 bilion, all of which was raised by Paul Touradji. 17. In the spring of2005, a third pary recommended that Touradji speak with Beach and V ollero, who were then employees of Solstice Equity Management ("Solstice"). At that time, Solstice was an advisor to the BBT Fund, LP, an entity that managed investments on behalf of the Fort Worth-based Bass family. 18. Touradji met with Beach and Vollero on several occasions in or around May 2005. Beach and V ollero represented to Touradji that they had been the portfolio managers for Solstice, and that they had been primarily responsible for ruing the energy equity portfolio there. Beach and V ollero provided Touradji with a track record purortedly reflecting their successful performance as portfolio managers for Solstice. 5 19. Beach informed Touradji that he (Beach) had "built" Solstice, and that he and V ollero were leaving Solstice because they wanted to star their own fud and because, according to Beach, the Bass famly "didn't know what they were doing." Touradji has since leared that ths was untre: Beach was nothing more than an analyst at Solstice, and Solstice was obligated to shut down because its principal investor withdrew its capital from the fud. 20. At the time, Beach and V ollero also informed Touradji that they had made efforts to form their own fud, and had already lined up investors wiling to contrbute $500 millon of capitaL. 21. Based upon these and other representations (now known to be false), Touradji agreed to take on Beach and V ollero, as well as several of their co-workers from Solstice, as employees ofTouradji Capital. 22. From the beginning, Touradji made clear to Beach and Vollero that if they joined Touradji Capital, they would be "at will" employees. Touradji told Beach and V ollero that he was not considering an arangement where Touradji Capita would simply provide the facilties for Beach and Vollero to ru their own fud. Instead, Touradji informed them that they would be e)(pected to be his eyes and ears on energy equities. Touradji fuher informed Beach and V ollero that he e)(pected them to operate as par of a team contrbuting to the success of the overall firm, and that their compensation would be discretionary and would be based upon all such contributions. 23. Touradji specifically informed Beach and Vollero that he would not agree to any form of compensation "guarantee." Instead, Touradji told Beach and Vollero that if they came to the Funds and performed well overall, a potential discretionar bonus "pool" could be allocated to the entire team. Again, however, Touradji made plain that there were no guarantees when it 6 came to compensation, apar from the $200,000 anual salar Beach and Vollero each would receive, and that any additional compensation would be determined in Touradji's sole discretion based upon their entire contributions and Touradji Capital's overall performance. Beach and v ollero agreed to ths and stated that they were happy with this arangement. 24. As a result, no written contract was ever entered into between Beach, Vollero, and Touradji or Touradji CapitaL. 25. Contrar to the present lies that Beach and V ollero have used to prop up their Amended Complaint, this purely discretionar bonus arangement is reflected in due diligence documents distributed to investors in Touradji Capital by Beach and Vollero themselves: Compensation The (Touradji Capital) team members receive a fi)(ed salar and a discretionary bonus which mayor may not be driven by the performance of the Fund or the performance ofthe individual traders. (emphasis supplied.) 26. Not only is Beach and Vollero's claim to an absolute entitlement to a majority of the profit on certain fuds contrary to fact, the claim is ludicrous as a matter of industry practice. Paul Touradji was the "key man" for every Touradji Capital-related fud and portfolio, and Paul Touradji was responsible for bringing in essentially all of the capital that Touradji Capital managed. The idea that two individuals employed by the firm would themselves be entitled to a majority of the profit to be made by Touradji Capital on, among other thngs, trading portfolios for which Beach and V ollero raised no capital and as to which Beach and V ollero were not even named as key men, is nonsensicaL. 27. Beach and Vollero accepted employment with Touradji Capital and reported for duty in May 2005. Beach and Vollero helped manage investments in the TGR Fund's "OG Book," a trading book composed of energy equity securties, under Touradji's supervision. 7 28. Consistent with this sharing of responsibilties - and contrar to their claims that they were hired purely as portfolio managers from day one - both Beach and V ollero were originally identified in Touradji marketing documents as analysts, rather than as portfolio managers. 29. Beach and Vollero also convinced Touradji to hire other former Solstice employees as well, including Taylor Beach, Gentr Beach's sister. Vollero in paricular told Touradji that Taylor Beach was smar, hard working and irreplaceable. Later, after Beach left Touradji Capital, V ollero stated that Taylor Beach was incompetent and overpaid. 30. While Beach and V ollero were responsible for day-to-day trading decisions in connection with the OG Book, Touradji remained the primar portfolio manager responsible for the book, and provided Beach and V ollero with risk management and directional supervision in connection with their trading activities. 31. In late 2005, Beach and V ollero lobbied Touradji Capita to form the ST Book, which traded both public and private securties. B. Beach And Vollero Are Paid Milions Of Dollars For 2005 32. The TGR Funds generated meaningful retus in 2005. At the end of2005, based in par upon this performance, Touradji Capital awarded Beach and V ollero cash bonuses of $2.4 milion each. In addition, Touradji Capital awarded Beach and Vollero conditional deferred bonuses of over $300,000 each. At the time, Beach and Vollero were very appreciative of these amounts, and never complained that they had not been paid in accordance with a supposed agreement. C. Beach And V ollero Fail To Deliver Canital As Renresented 33. Touradji DeepRock Master Fund Ltd. and its related family of fuds (the "DeepRock Funds") were launched in Februar 2006 to focus solely on investing in energy 8 equity securities. It was anticipated that Beach and V ollero would apply the e)(perience they supposedly obtained managing energy equities at Solstice to assist in managing the DeepRock Funds under Touradji's supervision, and would bring at least $500 milion of dollars in supposedly committed capital to the Funds. 34. By the spring of 2006, however, it became evident that Beach and V ollero did not, as they had earlier represented, have commitments for any meanngful amount of capitaL. 35. Also by that time, information had begu to surace suggesting that Beach and V ollero had misrepresented their e)(perience at Solstice. Specifically, while Beach had described himself to Touradji, as a "founder" and portfolio manager of Solstice and Vollero had similarly described himself as a portfolio manager, the Chief Operating Offcer of Solstice, Ken McCary, when asked by Touradji to confirm the information provided by Beach and V ollero, stated in par as follows: It is my recollection. . . that Mr. Beach was neither a "founder" nor a "member" of Solstice, but worked as an employee for Jon Olesky, who was the portfolio manager for the time period of the retu history. 36. When questioned about these inconsistencies, Beach and V ollero informed Touradji that McCary was out to get them for "political" reasons. Beach complained that Olesky was an impediment to makng money, and insisted that Beach and Vollero were responsible for Solstice's track record. Beach, in paricular, stated that Olesky "didn't know anytg about anytng." 37. In light of Beach and Vollero's representations, and in light of the positive performance of the TGR Funds in 2005, including the OG Book, Touradji continued to allow them a certain degree of discretion in making the day-to-day trading decisions for the energy equity books under his supervision. 9 38. As it tued out, however, Beach and Vollero's misrepresentations concerning their roles at Solstice were only the beginnng of a pattern of similar lies. D. Beach And Vollero Cause The Small-Can Debacle In 2006 39. By the spring of2006, Touradji had become concerned about the size of the positions that Beach and V ollero had built up in various relatively iliquid small-cap energy equity securities. When Touradji e)(pressed these concerns to Beach and Vollero, they assured him that they were comfortable with the size ofthese positions. 40. In May 2006, however, the equities markets e)(perienced an across-the-board sell- off. Small cap energy equities suffered signficantly in the May sell-off and continued to languish for the following months. As V ollero himself later admitted, "they became an out-of- favor asset class. Investors generally felt trapped in these names, liquidity dried up, and the stocks suffered to the downside when the energy sector sold off but did not paricipate in the upside moves." 41. In addition to these substantial iliquid small-cap positions, Beach and V ollero had accumulated significant concentrated positions in a number of companies. These positions, which also were illquid, also suffered durng and after the market sell-off and liquidity cruch of May 2006. 42. As V ollero later admitted, the poor performance in these two classes of securities combined to have a "dramatic effect on (the Funds') P&L" in 2006. 43. Shortly after the May 2006 sell-off, Touradji took control of the energy equity book, and immediately undertook efforts to liquidate as many of the small cap positions as he could at a reasonable price. As V ollero later admitted, the Funds were able to do this "largely due to a very adroit view (Paul Touradji) had as to market appetite for these types of investments through the course ofthe year." 10 44. By late 2006, Touradji had successfully reduced DeepRock's small cap e)(posure and had cut DeepRock's concentrated energy equity e)(posure as well. 45. Reducing the size of these positions at an acceptable cost, and thereby restoring liquidity to the Funds, required Touradji himself to devote substantial time and effort to managing and repairing the energy equity book. 46. In sumarizing what had gone wrong in 2006, V ollero admitted that he and Beach had had limited the equity book in 2006 to "mostly iliquid crap." Vollero also admitted that he and Beach had "totally messed up" by accumulating such a large volume of iliquid investments. He also flatly admitted that ths "wasn't PT's (Paul Touradji's) fault, it was ours (referring to himself and Gentr Beach J." 47. Despite Vollero's contemporaneous admissions that he and Beach were responsible for the "small cap blow up," as he referred to it at the time, and that Touradji had been largely responsible for getting them out of the mess they had created, he now seeks to blame Touradji for these events in an effort to create a false record in support of his compensation claims. E. Beach and Vollero Are Well Compensated For 2006 Desnite Their Poor Performance 48. Despite Beach and Vollero's substandard trading performance in 2006, Touradji Capital nonetheless paid Beach and V ollero each a $1 milion bonus for the year in an effort to encourage them to work toward improving their futue performance. At the time they were awarded these amounts, neither Beach nor V ollero complained, nor did they suggest that there e)(isted an agreement under which they were entitled to a majority of the profits of paricular trading books they purportedly managed. Even if there had been such an agreement, by that ii measure they would have been entitled to nothing, or indeed less than nothing, for their performance in 2006. Instead, they were paid $1 millon each. 49. Yet in their Amended Complaint, Beach and V ollero now claim an entitlement to over $5.0 millon in bonuses eared for their supposedly successful work in 2006, with no mention at all of the small cap blow up, or the fact that their poor management forced Touradji to place severe constraints on their trading discretion and tighten all risk controls. F. Beach And Vollero's Lackluster 2007 Performance 50. After a tuultuous 2006, 2007 was a quieter year. Whle the ST Book e)(perienced sizeable losses, the OG Book and DeepRock retued respectable retus due to Touradji's increased involvement in managing those portfolios. 51. By mid-2007, however, contemporaneous documents show, Beach's severe "weakesses" had already become a serious issue and source of internal debate among his co- Plaintiff Robert V ollero and others. In paricular, these documents reflect that it had become clear to Robert V ollero and Benjamin Bram, a Touradji Capital equities trader, that Gentr Beach simply lacked the skils and intellgence necessar to manage an equity securities portfolio. G. Beach And Vollero Construct And Sunervise An Abvsmal Private Equity Effort 52. Wholly aside from their failures in managing of the Firm's public equities, Beach in paricular was responsible for a disastrous series of investments in Touradji Capital's private equity portfolio. Notably, Beach and Vollero do not even mention in their Amended Complaint their key roles in building and managing the Funds' private equity portfolio. That is because the results of that effort were so bad that they canot be squared with an after-the-fact claim for $50 millon dollars in additional compensation. 12 53. Vollero himself has admitted that Beach was responsible for rung private equity at Touradji. In late 2007, Vollero wrote that Beach "should continue to spend a lot of his time as the point person on private equity. . . ." (emphasis added). 54. In fact, even Gentr Beach's father has testified under oath that Gentry Beach was in charge ofTouradji's private equity portfolio: Q: Who did you understand to be was responsible for Touradji's private equity investments. . . ? A: Well, Gentry was. 55. Yet tre to form, since filing his lawsuit, Gentr Beach has misrepresented under oath his role in overseeing the private equity portfolio, denying that he was responsible for that effort. But again his co-plaintiff, Robert Vollero, admitted the trth in an e-mail written in 2008: (G) entry spent a few years running our private equity practice and, to be honest, this was not something for which he was well- suited. Our PE effort has been disappointing and chaotic and it has shown up in the results (e.g.) (Madagascar Oil, which resulted in a hundred milion dollar wrte down). 56. "Disappointing" and "chaotic" are understatements. Madagascar Oil resulted in a write-down of over $ I 00 milion, and Playa Oil and Gas LP tued into a vehicle by which Gentr Beach and his father absconded with $500,000 of investor capital and are now seeking milions more though fabricated claims offraud. H. Playa Oil & Gas: Beach Creates And Takes Advantage Of A Conflct OfInterest To Benefit His Father. And The Two Men Abscond With Investor Canital 57. In marketing himself to Touradji Capita in the spring of2005, one of Gentry Beach's selling points had been his family's supposed decades of e)(perience in the oil and gas industr. 13 58. Thus, shortly after joining Touradji Capita, in the sumer of 2005, Gentry Beach proposed that the TGR Funds invest in a private oil and gas parnership to be managed by Gentry Beach's father, Gar Beach. 59. Prior to that time, Touradji Capital's investigation has now revealed, Gary Beach had been attempting without success to locate outside investors to fud a proposed drillng project. 60. In persuading Touradji to approve the investment on behalf of the TGR Funds, Gentry Beach falsely represented that his father was an e)(perienced businessman with a history of successfully locating and developing oil and gas properties, and that his father was being hotly pursued by other potential investors. He and his father also represented that they possessed valuable rights to oil and gas properties that would be contributed to the ventue. 61. Based upon Gentr Beach's representations as to his father's e)(perience and abilities, as well as their representations concerng the valuable oil and gas interests that they owned, Playa was established in October 2005. Through affliates, Touradji Capital controls Playa.l 62. Beach Capital Parnership, L.P. ("Beach Capital LP), a limited parnership controlled by Gar Beach, is a limited parner of Playa. 63. Gentr Beach and Vollero spearheaded the negotiation of the Playa LP parnership agreement (the "Original LP Agreement"), which Gentry Beach signed on behalf of Touradji CapitaL. The name of Touradji Capital's affliate that made the investment and acts as a limited parer in Playa is DeepRock Ventue Parters, LP ("DeepRock Ventues"). For puroses of this pleading, we refer to DeepRock Ventues as "Touradji CapitaL." 14 64. Under that Agreement, Touradji Capital contrbuted every dollar of the capital that went into Playa. That money, of course, was investor capitaL. The Original LP Agreement required that Touradji Capital contrbute only $8 milion of initial capital, and set a ma)imum capital contribution of $30 milion. 65. The Original LP Agreement required that Gary Beach contrbute "(a)ll rights, title, and interest" in a variety of oil and gas leases, prospects and joint ventures. 66. At the time Playa was formed, and over the ne)(t few years, Gar Beach represented that the interests he contrbuted were worth milions of dollars. 67. In reality, and contrar to this representation, Gar Beach contributed nothing of economic value to Playa. Instead, what Beach Capital appears to have "contributed" to Playa is the opportunty to pay milions of dollars to acquire and develop certain oil and gas properties located in remote, barely accessible swampland in southern Louisiana. No "leases," no "properties," and no "Prospect Generation Joint Ventues" of any value were contrbuted to Playa. 68. In fact, in an audit memo written by Playa's auditor in 2007 - but not provided to Touradji Capital until it was subpoenaed in litigation - the auditor concluded as follows with respect to Beach's purorted contribution to Playa: "Beach had no basis in the assets. There was no determinable value to the assets." 69. Even worse, Touradji Capital's investigation has revealed that - in another egregious conflict of interest - Gentry Beach himself possessed an undisclosed personal financial interest in one of the entities allegedly constituting these supposed properties, an entity called the "Beach Energy Group." Gentry Beach flatly misrepresented to Touradji Capita at the time that he possessed no such interest. 15 70. In addition, at the outset of Playa the paries contemplated that Gar Beach would receive a portion of the profits of Playa only afer Touradji Capital and its investors received the full retu of their initial invested capitaL. 71. By early 2007, however, an employee of Touradji Capital, Holbrook Dorn, had reviewed the Original LP Agreement and concluded that it was not suffciently clear on this point. Dorn therefore spoke to Gentr Beach and Robert V ollero about the issue. 72. Beach and V ollero both specifically confirmed that the intent of the paries had been that Touradji Capital should recover all of its invested capital before Gar Beach became entitled to share in any assets held or distrbuted by the parnership. V ollero even stated to Gentry Beach in Dorn's presence: "You need to fi)( this," and Beach promised that he would do so. Dorn thereafter spoke directly with Gar Beach, who confirmed his agreement to these terms. 73. Gar Beach also communicated this agreement to Playa's auditors at around this same time. Specifically, in an audit work paper dated December 31, 2007 (but again, only recently provided to Touradji Capital pursuant to subpoena), the auditor wrote: Per G. Beach. . . The parners have verbally agreed that (Touradji Capita) would recoup all their investments before Beach Capita Parership, LP receives any payments. 74. Nevertheless, succumbing to the conflict of interest posed by his father's involvement in the transaction and placing his family's interests directly alead of those of Touradji Capital's investors, Gentr Beach purosefully failed to obtain his father's written acknowledgement of this arangement, and the two men now deny that Touradji Capital was entitled to recoup its invested principal before Gary Beach would be entitled to share in profits. 16 Even more egregiously, the two men now claim in a lawsuit that Gar Beach is owed $8 millon of investor capital that was previously distributed to Touradji Capital as a retu of principal. 75. Based upon the understanding that Touradji Capital was to receive a retu of its invested capita prior to Gar Beach's sharing in the profits, Gentry Beach recommended, and Touradji Capital agreed, to continue to contribute millons of dollars to Gar Beach's oil and gas e)(ploration efforts, including milions of dollars in e)(cess of the $8 milion in principal originally committed. Touradji Capital did so, only to find that the Beaches now claim an absolute and automatic entitlement to 20 percent of that money. In other words, the Beaches