UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

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In re : Chapter 11
:
PALI HOLDINGS, INC., : Case No. 10-11727
:
Debtor. :
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AFFIDAVIT OF GERALD BURKE

PURSUANT TO RULE 1007-2 OF THE LOCAL BANKRUPTCY RULES
FOR THE SOUTHERN DISTRICT OF NEW YORK

STATE OF NEW YORK )

) ss.:
COUNTY OF NEW YORK )

GERALD BURKE, being duly sworn, deposes and says:

1. I am a Director of Pali Holdings, Inc., the above-captioned debtor and debtor-in-

possession ( “Pali Holdings”). In that capacity I am familiar with Pali Holdings’ business

operations and financial affairs. I submit this Affidavit in accordance with Rule 1007-2 of the

Local Bankruptcy Rules for the Southern District of New York (the “Local Bankruptcy Rules”)

and to assist the Court in understanding the Debtor’s commencement of its case (the “Chapter 11

Case”) pursuant to Chapter 11 of Title 11, United States Code (the “Bankruptcy Code”) on the

date of this Affidavit (the “Petition Date”).

2. Except as otherwise stated, I have personal knowledge of the facts set forth in this

Affidavit. If called upon to testify, I would testify competently to the facts set forth in this

Affidavit. I am duly authorized to submit this Affidavit on behalf of Pali Holdings.

999940/285-1810447.5
 The Nature Of Pali Holdings’ And Its Subsidiaries’ Business

3. Pali Holdings is a privately held corporation organized and existing under the

laws of the State of New York. Pali Holdings is a holding company which conducts all of its

business operations through its wholly-owned subsidiaries (collectively, with Pali Holdings, the

“Pali Group”) (a) Pali Holdings GmbH (“Pali GmbH”),1 itself a holding company and sole

owner of the Pali Group’s operating entities Pali Capital, Inc. (“Pali Capital”) and Pali

International Ltd. (“Pali International”), (b) Pali Futures, LLC (“Pali Futures”), and (c) Pali

Performance, LLC (“Pali Performance”). The primary operating entity of the Pali Group is Pali

Capital, a corporation organized and existing under the laws of the State of Delaware authorized

to conduct business in the State of New York. The Pali Group maintains its principal place of

business at 650 Fifth Avenue, New York, New York 10019 (the “New York Headquarters”),

other than Pali International which is based in London, England.

4. Pali Capital is a full service broker-dealer registered with the United States

Securities Exchange Commission (the “SEC”) under the Securities and Exchange Act of 1934, as

amended. Pali Capital is a member of each of the Financial Industry Regulatory Authority, Inc.

(“FINRA”), the Securities Investors Protection Corporation (“SIPC”), the International

Securities Exchange, the NASDAQ Stock Market, NYSE Arca and the BATS Exchange, and is

registered as a broker-dealer in all 50 states of the United States and in Washington, D.C.

5. Pali Capital provided securities brokerage services primarily to hedge funds and

other large institutions, and to a lesser extent to individual investors, in both the equity and fixed

income markets. It also derived revenue from investment banking, management buy-outs and

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Pali Holdings GmbH is a company with limited liability organized under the laws of the Republic of Austria.

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leveraged buy-outs, corporate finance fees, referral fees, currency gain and loss, and interest and

dividends. It assisted in market making, recapitalizations, mergers and acquisitions, mezzanine

financing and bridge financing. It invested in hedge funds and other entities, and provided

online trading services for its clients. Along with its principal place of business at the New York

Headquarters, Pali Capital had “offices of supervisory jurisdiction” in Boston, Massachusetts and

Minnetonka, Minnesota, and branch offices located in Boca Raton, Florida, Newport Beach,

California, Greenbrae, California, Summit, New Jersey and South Norwalk, Connecticut. Pali

Capital had clearing relationships with (i) Pershing LLC with respect to its institutional equity

and fixed income business, and approximately 100 of its retail clients, and (ii) J.P. Morgan

Clearing Corp. with respect to its options business and its other retail clients, who number

approximately 350 in total.

6. Pali International provided equity brokerage services in the United Kingdom. It

also offered equity research, distribution, and execution services. It had offices in London,

England and Edinburgh, Scotland and conducts business operations in the United Kingdom,

Germany, France, Belgium, Holland, and Portugal. Pali Futures is registered with the National

Futures Association as an “introducing broker” offering execution services, research, and market

knowledge. It focused on institutional clients, providing execution access to all exchange traded

futures and options markets, as well as emerging markets. Pali Performance is without business

operations and is used by Pali Capital as a vehicle for holding certain illiquid securities received

in investment banking transactions.

The Circumstances Leading To The Commencement Of The Chapter 11 Case

7. Pali Capital experienced consistent pre-tax losses commencing with the second

quarter of 2008 and continuing through and including the fourth quarter of 2009, caused by,

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among other things, a substantial slowdown in sales and trading by Pali Capital’s primary

institutional clients. These losses are projected to continue into at least the first quarter of 2010.

As a result, it was difficult for Pali Capital to maintain adequate levels of excess regulatory net

capital to support normal business operations, although Pali Capital is in compliance with its

minimum regulatory net capital requirements through February 28, 2010.

8. These losses, coupled with certain disputes that arose with former officers and

directors, and the distracting and expensive litigation which resulted, caused Pali Capital’s senior

management to conclude that Pali Capital was without long-term viability or the ability to

withstand further negative financial events. Accordingly, in March 2009, Pali Capital retained

Freeman & Co. LLC (“Freeman”) as investment banker for a transaction under which Pali

Capital could either merge with a third party broker-dealer of greater financial strength, or

undertake an alternative transaction such as an asset sale, in all cases so that going concern

and/or asset values could be maximized and Pali Capital could avoid prejudicing their customers

and employees to the greatest extent possible. Pali Capital also retained AMJ Advisors LLC

(“AMJ”), Alan M. Jacobs, President, as its financial advisor.

9. The combined efforts of Pali Capital’s senior management, Freeman and AMJ

resulted in a thorough and complete marketing effort during the fourth quarter of 2009, and

serious negotiations with three potential transaction candidates in the first quarter of 2010.

These negotiations did not prove fruitful, resulting in the cessation of Pali Capital’s business

operations and the commencement of an orderly liquidation and wind-down of Pali Capital

overseen by Pali Holdings. Pali Holdings filed the instant Chapter 11 Bankruptcy Case to obtain

protection from its creditors while it continues to liquidate and wind-down Pali Capital, so that

both entities can preserve and maximize the value of their assets including pursuing various

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litigations of Pali Holdings and Pali Capital.

Additional Information Required To Be Provided By Local Bankruptcy Rule 1007-2

10. Statement pursuant to Local Bankruptcy Rule 1007-2(a)(2): Pali Holdings’

Chapter 11 Case was not originally commenced under any other chapter of the Bankruptcy Code.

11. Statement pursuant to Local Bankruptcy Rule 1007-2(a)(3): To the best of my

knowledge, information and belief, no creditors’ or other committees were organized with

respect to Pali Holdings prior to the commencement of its Chapter 11 Case on the Petition Date.

12. Statement pursuant to Local Bankruptcy Rule 1007-2(a)(4): Information with

respect to the holders of the twenty largest unsecured claims against Pali Holdings is provided on

Exhibit “A” attached to this Affidavit.

13. Statement pursuant to Local Bankruptcy Rule 1007-2(a)(5): Information with

respect to the holders of the five largest secured claims against Pali Holdings is provided on

Exhibit “B” attached to this Affidavit.

14. Statement pursuant to Local Bankruptcy Rule 1007-2(a)(6) with respect to assets:

Pali Holdings’ principal assets are its equity interests in the other members of the Pali Group.

Pali Holdings also has loan receivables arising from a 2007 private placement. Pali Holdings

also holds pending and prospective claims and causes of action against third parties, including

without limitation (a) claims against certain former officers and directors, (b) malpractice claims

against certain former retained professionals, and (c) reimbursement claims against its D&O

liability insurance carrier.

15. Statement pursuant to Local Bankruptcy Rule 1007-2(a)(6) with respect to

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liabilities: Pali Holdings’ primary liabilities are as follows: (a) an unsecured loan payable to

JPMorgan Chase Bank, N.A. and Custodial Trust Company in outstanding principal amount of

$4,500,000.00, (b) loans payable to certain present and former shareholders of Pali Holdings in

aggregate outstanding principal amount of $2,850,000.00, some of which are secured by pledges

of certain securities, (c) unsecured obligations in the aggregate outstanding principal amount of

$20,000,000 arising under certain Subordinated Convertible Debentures due August 18, 2028

currently held by Mandeville Holding Ventures Corporation (c/o Grupo Mundial), (d) a guaranty

of Pali International’s leasehold obligations in London, England, (e) contingent, unliquidated and

disputed litigation claims asserted by certain former officers and directors, and (f) loans payable

to certain former shareholders of Pali Holdings in the aggregate outstanding principal amount of

$2,604,000.00.

16. Statement pursuant to Local Bankruptcy Rule 1007-2(a)(7): There are no shares

of stock, debentures or other securities of Pali Holdings that are publicly traded.

17. Statement pursuant to Local Bankruptcy Rule 1007-2(a)(8): To the best of my

knowledge, information and belief, there is no property of Pali Holdings that is in the possession

or custody of any custodian, public officer, mortgagee, assignee of rents, secured creditor or

agent for any of such entities.

18. Statement pursuant to Local Bankruptcy Rule 1007-2(a)(9): Pali Holdings

maintains its principal place of business at the New York Headquarters pursuant to a non-

residential real property leasehold between Pali Capital as tenant and 650 Fifth Avenue

Company as landlord. The current term of such leasehold expires on August 15, 2012 pursuant

and subject to the terms of the written agreements of the parties.

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 19. Statement pursuant to Local Bankruptcy Rule 1007-2(a)(10): Pali Holdings’

substantial assets and books and records are located at the New York Headquarters. Pali

Holdings holds no assets outside of the territorial limits of the United States, except that its

indirect wholly-owned subsidiary Pali International owns assets in the United Kingdom.

20. Statement pursuant to Local Bankruptcy Rule 1007-2(a)(11): There are no

actions or proceedings, pending or threatened, against Pali Holdings or its property where a

judgment against Pali Holdings or a seizure of its property may be imminent.

21. Statement pursuant to Local Bankruptcy Rule 1007-2(a)(12): The names, tenure,

responsibilities and experience of Pali Holdings’ senior management are as follows:

(a) Gerald Burke is a Director of Pali Holdings and the former Co-Chief Executive
Officer and Chief Operating Officer of Pali Capital, and has had such positions
since January 2009. Prior to his resignation from Pali Capital in March 2010 his
primary responsibilities were overseeing business operations and professional
services. Mr. Burke was previously at Merrill Lynch for 17 years, where he most
recently served as Managing Director, Chief Financial Officer of Merrill’s
Operations, Technology and Corporate Services Division. Mr. Burke, a Certified
Public Accountant, had responsibility for finance, accounting and product control
for all aspects of that business unit, and also served as Chief Financial Officer for
the firm’s Global Treasury Division. Prior to that, he was the Chief Financial
Officer of Merrill’s Global Equities Division.

(b) Kevin Fisher is the President of Pali Holdings and the Chief Executive Officer of
Pali Capital, and has been at Pali Capital since 1998. His primary responsibilities
are in overseeing business operations, sales and U.S. equity trading. Mr. Fisher
was previously an institutional sales trader at Cantor Fitzgerald where he
facilitated and executed equity orders for fifty institutional clients.

22. Statement pursuant to Local Bankruptcy Rule 1007-2(b): Pali Holdings does not

have business operations that could be continued in the instant Chapter 11 Case. As such,

(a) there is no weekly payroll to be estimated pursuant to Local Bankruptcy Rule 1007-2(b)(1),

(b) there are no amounts paid and proposed to be paid by Pali Holdings for services during the

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thirty days following the Petition Date to officers, stockholders and directors, or to financial or

business consultants as none have been retained by Pali Holdings, to be disclosed pursuant to

Local Bankruptcy Rule 1007-2(b)(2), and (c) there are no cash receipts and disbursements, net

cash gain or loss, or obligations and receivables expected to accrue or remain unpaid, to be

disclosed pursuant to Local Bankruptcy Rule 1007-2(b)(3).

__/s/__Gerald_Burke__________________
GERALD BURKE

Sworn to before me this

1st day of April, 2010

_/s/ Mark S. Indelicato_________

Notary Public, State of New York

Mark S. Indelicato
NOTARY PUBLIC, State of New York
No. 4867556
Qualified in New York County
Commission Expires September 14, 2010

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 EXHIBIT A TO RULE 1007-2 AFFIDAVIT
List Of Creditors Holding Twenty Largest Unsecured Claims

1. MANDEVILLE HOLDING VENTURES CORP.

c/o Grupo Mundial (Attn: F. Martin)
Ave. Balboa y Calle 41 E. Bella Vista
Panama, Republic of Panama

2. JPMORGAN CHASE
Attn: Joe Triarsi
1 Chase Manhattan Plaza
New York, NY 10005-1401

3. GE CAPITAL CORPORATION
10 Riverview Drive
Danbury, CT 06810

4. QUADRA GLOBAL HOLDINGS, LLC

601 Union Street
Suite 4223
Seattle, WA 98101

5. MITCHELL KOPIN
3100 Dundee Road
Suite 703
Northbrook, IL 60062

6. LEON BRENNER
75 Monte Carlo
15 Boulevard Louis 11
Monaco, MC 98000

7. INTERNAL REVENUE SERVICE

10th Street & Pennsylvania Ave.
Washington, DC 20004

8. JARNO, LTD.
c/o Bryan Cave LLP (Attn: R. Wieder)
33 Cannon Street
London, UK EC4M5TE

9. MARTIN PETERS
7-10 Chandos Street
3rd Floor
London, UK W1G9DQ

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10. ARI NATHAN
25 West Houston St.
Apt. 5C
New York, NY 10012

11. ARNOLD & PORTER LLP

399 Park Avenue
New York, NY 10022

12. BAKER MCKENZIE

1114 Avenue of the Americas
New York, NY 10036

13. BERT COHEN

5000-4A Estate Enighed #65
St. John, VI 00830

14. BRIAN LAPIN

300 East 77th St.
Apt. 20B
New York, NY 10021

15. CAPLIN & DRYSDALE

375 Park Avenue
New York, NY 10152

16. DRISCOLL & REDLICH

821 Fifth Avenue
Suite 3300
New York, NY 10175

17. EDWARD SUGAR

785 Fifth Ave
Apt. 11C
New York, NY 10022

18. ERVIN COHEN & JESSUP LLP

9401 Wilshire Blvd.
9th Floor
Beverly Hills, CA 90212

19. J.H. COHN

100 Jericho Quadrangle
Suite 223
Jericho, NY 11753

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20. JENNER & BLOCK
919 Third Avenue
37th Floor
New York, NY 10022

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 EXHIBIT B TO RULE 1007-2 AFFIDAVIT
List Of Creditors Holding Five Largest Secured Claims

Description and
Principal Claim or
Creditor Estimated Value
Amount Lien Disputed
of Collateral

1. Bert Cohen $350,000 No Capital Stock of Pali

5000-4A Estate Enighed #65 Capital, Inc. Estimated
St. John, USVI 00830 Value: Unknown

2. Leon Brenner $350,000 No Capital Stock of Pali

75 Monte Carlo Capital, Inc. Estimated
15 Boulevard Louis 11 Value: Unknown
Monaco, MC 98000

3. Savile Opportunity Fund $350,000 No Capital Stock of Pali

150 E. 58th Street Capital, Inc. Estimated
28th Floor Value: Unknown
New York, NY 10128

4. Ari Nathan $300,000 No Capital Stock of Pali

25 W. Houston Street Capital, Inc. Estimated
Apt. 5C Value: Unknown
New York, NY 10012

5. Kevin Fisher $300,000 No Capital Stock of Pali

25 N. Moore Street Capital, Inc. Estimated
Apt. 15B Value: Unknown
New York, NY 10013

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