SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK -------------------------------------------------------------------X In the Matter of the Application of ERIC T. SCHNEIDERMAN, Attorney General of the State of New York, Petitioner, for an order pursuant to Section 2308(b) of the CPLR to compel compliance with the subpoenas on BROADWAY HOSPITALITY GROUP, INC. and DAVID HAKIMIAN, PETITION IN SUPPORT OF THE OFFICE OF THE ATTORNEY GENERAL S MOTION TO COMPEL COMPLIANCE WITH ITS INVESTIGATORY SUBPOENAS Index No. Motion Sequence Justice Respondents. -------------------------------------------------------------------X Petitioner ERIC T. SCHNEIDERMAN, Attorney General of the State of New York ( OAG ), complaining of the Respondents Broadway Hospitality Group, Inc. ( BHG ) and BHG s owner, David Hakimian ( Hakimian ) (collectively, Respondents ) herein, alleges as follows: INTRODUCTION 1. This petition arises out of Respondents failure to fully comply with subpoenas issued by OAG in connection with an investigation under Executive Law 63(12) into violations of New York law in connection with their resale of thousands of tickets to concerts, sports events and plays in New York from 2011 through at least 2016. 2. OAG has evidence that Respondents on their own and in partnership with other resellers to whom they provided financing and with whom they split profits, resold tickets without obtaining ticket reseller licenses, or posting bonds, or submitting bi-annual reports on their reselling to the state, all of which are required under the New York Arts & Cultural Affairs 1 1 of 10
Law. Indeed, Respondents continued to resell in violation of these requirements for a year and a half after they became aware that the OAG was investigating their apparent non-compliance with the law. 3. Additionally, OAG has evidence that Respondents and their reseller-partners used illegal ticket purchasing software known as bots to buy the tickets they resold, and they used multiple identities, payment methods, and internet addresses on ticketing site ticketmaster.com to fraudulently make their many purchases to a given show appear to have been made by separate, unrelated buyers to conceal their violation of Ticketmaster s ticket limits and anti-bot security measures. 4. As a result of their violations, Respondents earned millions of dollars in illegal profits by beating out New York consumers in the primary market for tickets at face value on ticketmaster.com, and then forcing these consumers to either pay inflated prices for the tickets on secondary market platforms such as stubhub.com or else miss out on cultural events altogether. 5. Pursuant to its authority under New York Executive Law 63(12), OAG issued an investigative subpoena seeking documents from BHG in December 2014 and another investigative subpoena seeking testimony from Hakimian in August 2015. 6. Respondents failed to fully comply with the subpoenas. 7. Specifically, BHG submitted transaction records for 2011 through January 2015 that had gaps and inaccuracies without submitting more accurate data from the accounts under its possession and control with resale sites such as stubhub.com and other resale platforms, and it refused to produce any records for February 2015 through 2016; it failed to produce any of the requested communications with its reseller-partners; and it failed to produce the requested list of payment accounts used for its ticket purchases. 2 2 of 10
8. Additionally, Respondent Hakimian refused to appear to provide testimony. 9. On February 14, 2017, Respondents counsel represented that his clients would drop their objection to producing BHG s communications with the reseller-partners; the list of its payment accounts used for purchasing; and Hakimian s testimony. Respondents have not produced any of this evidence to date. 10. Additionally, Respondents maintain their objections to producing data exports from BHG s stubhub.com and other resale platform accounts, and any purchase and resale records for the period February 2015 through 2016 despite the fact that they continued to violate the law during that period. 11. Consequently, OAG requests that the Court order Respondents to fully comply with OAG s investigative subpoenas including to: (1) produce within 10 days the documents they previously agreed to produce (i.e., BHG s communications with the reseller-partners and the list of its payment accounts used for purchasing); (2) produce spreadsheet exports from BHG s stubhub.com and other resale platform accounts; (3) produce its records of purchases and resales for the period from February 2015 through 2016; and (4) provide Hakimian s agreed-to testimony within 10 days after producing documents. PARTIES 12. Petitioner Eric T. Schneiderman is the Attorney General of the State of New York. 13. Respondent BHG is a corporate ticket reseller with its primary offices at 1384 Broadway, Room 1207, New York, New York. On information and belief, BHG is a New York corporation. 3 3 of 10
14. Respondent Hakimian is the manager of BHG and its sole owner. Hakimian resides at 200 W. 67th Street, Apt. 32A, New York, New York. JURISDICTION 15. This Court has jurisdiction pursuant to Executive Law 63(12), under which OAG is authorized to take proof and make a determination of relevant facts and to issue subpoenas in accordance with the CPLR into whether a person or business entity has engaged in repeated fraudulent or illegal acts or persistent fraud or illegality in the carrying on, conducting, or transacting of business, and to seek injunctive relief, restitution, disgorgement and damages for such violations. FACTS Investigation of Respondents 16. In 2013, OAG began an investigation into the ticket reselling industry that ultimately revealed rampant illegality, including enormous volumes of reselling unlicensed reselling and the illegal use of ticket-purchasing software known as bots and other fraudulent and deceptive purchasing practices. In January 2016, OAG issued a report based on comprehensive data that showed how resellers use these illegal practices to scoop up most desirable face-value tickets on sites such as ticketmaster.com beating out ordinary consumers and then demand exorbitant markups for those tickets on resale sites such as stubhub.com. See Stein Aff. 4-18 & Ex. 4 (Obstructed View: What s Blocking New Yorkers from Getting Tickets (Jan. 28, 2016)). 17. BHG s transaction records for January 2011 through January 2015 show that it resold hundreds of thousands of tickets to New York events, generating tens of millions of dollars in revenue and millions in profits during that period alone. See Stein Aff. 22 & Ex. 14. 4 4 of 10
18. Public records show that BHG engaged in that reselling in violation of New York law requiring having the required ticket reseller s license or submitting the required bond or biannual reports to the state. See Stein Aff. 23. 19. Respondents admitted that they also financed purchases by at least two other resellers, Tun Aung ( Aung ) and his company T&M Tkts. d/b/a T&M Tickets ( T&M ), and David Arking ( Arking ) both in his capacity as an employee of BHG and as owner of a company called Take2Seats LLC d/b/a Take2Seats Inc. ( Take2 ). See Stein Aff. 24-27. 20. Respondents admitted that they resold these tickets acquired by its partners and split the profits with Aung, Arking, and their respective companies. See Stein Aff. 24-28. 21. Transaction records and informant testimony show that BHG and its partners Aung, Arking, T&M, and Take 2 each had a history of using fraudulent and illegal practices in purchasing these tickets that BHG resold. See Stein Aff. 29-33. 22. Public records show that T&M and Take2 illegally engaged in their ticket reselling without ever having obtained licenses or having submitted bonds and bi-annual reports to the state. See Stein Aff. 29. 23. Additionally, Ticketmaster transaction records and other evidence including informant testimony establishes that Aung, Arking, and their companies used illegal bots and fraudulent practices on BHG s behalf and that Resondents paid for the bots. See Stein Aff. 30-33. OAG s Subpoenas to Respondents 24. As part of that investigation, OAG issued a subpoena duces tecum dated December 2, 2014 to Respondent ticket reseller BHG (the Document Subpoena ), See Stein Aff. 19 & Ex.7. 5 5 of 10
25. The Document Subpoena sought transaction records and communications documenting BHG s reselling activities and relationships with suppliers, customers, and partners. See Stein Aff. Ex. 7. 26. The OAG also issued a subpoena ad testificandum dated August 19, 2015 to BHG s owner, Respondent Hakimian, with a return date of September 2, 2015 (the Testimonial Subpoena ). See Stein Aff. 19 & Ex. 8. Deficiencies in BHG s Response to the Subpoenas 27. Although BHG produced certain responsive documents, its production contained gaps and inaccuracies and it improperly withheld records for its transactions after January 2015. First, BHG failed to produce responsive records concerning purchase and resale data called for in Requests 7, 8, and 9 of the Documents Subpoena. See Stein Aff. 34-35. a. For the period from 2011 through January 2014, the material BHG produced which came from BHG s own internal sales-tracking software was incomplete due to what BHG has conceded has been inaccurate record-keeping, and OAG sought to compel it to correct these inaccuracies and omissions by producing spreadsheet exports of its resale records in the accounts it maintains with websites through which it resells tickets, including stubhub.com and other ticket resale platforms it has used. See Stein Aff. 35(a)-(g); Reply at 7-9. b. Additionally, BHG failed to produce any records of transactions for the period from February 2015 forward, despite being required to do so under both (1) its continuing obligation to supplement disclosures in response to the Documents Subpoena, and (2) a disclosure requirement in Arts Law 25.25 even absent any subpoena. See Stein Aff. 35(h), 43-44; Reply at 7-9. BHG waived any objections to such production because it did not timely interpose any written objections thereto, and on May 3, 2016, its counsel represented to OAG 6 6 of 10
that BHG intends to produce documents, not just object (although he never made any such production or objection). See Stein Aff. 43-48. 28. Second, BHG refused to produce responsive emails and other communications called for in Request No. 10 of the Documents Subpoena, including communications with Arking, Aung, T&M and Take2. See Stein Aff. 36. 29. Third, BHG refused to list the credit card and other payment accounts it used to make the purchases at issue in its resale business in response to Request No. 11 of the Documents Subpoena. See Stein Aff. 37. 30. Hakimian also refused to comply with the Testimonial Subpoena, without moving to quash it or offering any valid justification for his noncompliance. See Stein Aff. 38-42. 31. Additionally, even after receiving OAG s Document Subpoena in December 2014 which inter alia inquired into BHG s licensing status BHG persisted in reselling tickets without a license, bond, or reports for another year and a half, through July 2016. See Stein Aff. 23 & fn.1 Prior Proceedings & BHG s Consent to Producing Some Materials 32. On November 10, 2016, OAG moved by order to show cause for a court order compelling compliance with its subpoenas, which the Court signed on November 14, 2016, and designated Motion Sequence 001. See Index No. 452171/2016, Docket Entry Nos. 1-35. 33. Due to an oversight, however OAG was unable to serve the order to show cause by the service deadline and filed for a new order to show cause seeking identical relief, which the Court signed on November 25, 2016, and designated Motion Sequence 002. See Index No. 452171/2016, Docket Entry No. 36. 7 7 of 10
34. On February 14, 2017, the Court heard oral argument on Motion Sequence 002. During oral argument before Justice Bluth, Respondents counsel confirmed the following: a. Respondent Hakimian agreed to appear to provide testimony in response to the Testimonial Subpoena; b. BHG agreed to produce all communications with Arking, in both his capacity as an employee of BHG and in his capacity as owner and manager of Take2, and all communications with Aung including but not limited to in his capacity as owner and manager of T&M; and c. BHG agreed to produce a list of the credit card and other payment accounts it used to make the purchases at issue in its resale business. d. Respondents continued to object to providing spreadsheet exports of resale records in the accounts BHG maintains on stubhub.com and other resale platforms it has used for reselling tickets; and e. Respondents continued to object to providing records of its ticket resale transactions for February 2015 forward. See Stein Aff. 51. 35. In light of these positions by Respondents, OAG at oral argument requested that the Court: a. Order Respondent BHG to produce within a reasonable time the materials it had agreed at oral argument to produce, i.e.: i. All communications with Arking, in both his capacity as an employee of BHG and in his capacity as owner and manager of Take2, and all communications with Aung including but not limited to in his capacity as owner and manager of T&M; 8 8 of 10
ii. a list of the credit card and other payment accounts it used to make the purchases at issue in its resale business by a date certain; and b. Order Respondent BHG to produce spreadsheet exports of resale records in the accounts BHG maintains on stubhub.com and other resale platforms it has used for reselling tickets; c. Order Respondent BHG to produce its internal ticket resale records for February 2015 through 2016; and d. Order Respondent Hakimian to comply with the Testimonial Subpoena within a reasonable time after producing documents, so that OAG could question him in a timely fashion after having received such documents. See Stein Aff. 53. 36. Respondents have not produced any of the documents or testimony they agreed at oral argument on February 14, 2017 to produce to OAG. See Stein Aff. 55. 37. On April 4, 2017, the Court dismissed the proceeding without reaching the merits, on the grounds that OAG had submitted an affirmation in support of its motion but not a petition. See Stein Aff. 54 & Ex. 30. 38. On April 28, 2017, OAG moved by order to show cause for a court order compelling compliance with its subpoenas, specifically for the relief outlined in paragraph 53 above, which was designated Motion Sequence 003, providing a petition according to the suggestion in Judge Bluth s Order dated April 4, 2017. 1 See Stein Aff. 56. 39. On May 1, 2017, Judge Bluth declined to sign OAG s proposed order to show cause from its April 28 filing, on grounds that the case was disposed by Her Honor s Order dated 1 OAG patterned its petition and supporting papers on the petition and papers submitted by the petitioner in one of the cases Judge Bluth cited in her April 4, 2017 Order, i.e., Tullett Prebon Fin. Servs., LLC v. Tradition Asiel Securities, Inc., Sup. Ct., NY County, Index No. 650386/2013 (see Stein Aff. Ex. 30). 9 9 of 10
April 4, 2017, and that OAG would need to seek relief using a new index number. See Stein Aff. 57 & Ex. 31. AS AND FOR A FIRST CAUSE OF ACTION ORDER COMPELLING COMPLIANCE WITH INVESTIGATORY SUBPOENAS 63(12). 40. OAG has the authority to issue the subpoenas pursuant to Executive Law 41. Executive Law 63(12) does not set forth a procedure through which the Attorney General shall enforce subpoenas he has issued under that statutory provision but does provide that such subpoenas be issued in accordance with the civil practice law and rules. 42. Respondents have failed to comply with the subpoenas. 43. OAG therefore seeks an Order pursuant to CPLR Section 2308(b)(1) enforcing the subpoenas against the Respondents. WHEREFORE, by virtue of the foregoing acts complained of, OAG respectfully requests that an Order be entered instructing Respondents to comply with the Subpoenas within ten (10) days of the issuance of such an Order. Respectfully submitted, Date: May 9, 2017 NOAH STEIN Assistant Attorney General Bureau of Internet & Technology Office of the Attorney General of the State of New York 120 Broadway, 3rd Floor New York, NY 10271 10 10 of 10