AMERICAN ARBITRATION ASSOCIATIONINTERNATIONAL CENTRE FOR DISPUTE RESOLUTION

DAEWOO INTERNATIONAL CORPORATION, ))

Claimant, ))

vs. ) CASE NO:) 50 501 T 00009 13

AMERICA METALS TRADING LLP, )LUIS GUILHERME MARIANO MONTEIRO, )LUIS EDUARDO MARIANO MONTEIRO, )LUIS CLAUDIO MARIANO MONTEIRO, )and LUIS FERNANDO MARIANO MONTEIRO )

)Respondents. )

EXPERT REPORT OF SAMUEL P. GUNTHER, CPA

QUALIFICATIONS

I have been a Certified Public Accountant in New York since 1967 and have spent my

entire career practicing public accounting. I received a BS in Economics (major in accounting)

from the Wharton School of Finance and Commerce of the University of Pennsylvania in 1961,

an LLB from New York University School of Law in 1966, and an LLM in Taxation from the

Graduate Division of New York University School of Law in 1971. I have been Certified in

Financial Forensics (CFF) by the American Institute of Certified Public Accountants since 2008,

and have been a Neutral Arbitrator for the American Arbitration Association since 2009. I have

served as a member of the Auditing Standards Board of the American Institute of Certified

Public Accountants, the Financial Accounting Standards Board’s Business Combinations Task

Force and its Financial Accounting Standards Advisory Council, and the New York State Board

for Public Accountancy. My qualifications are further set forth in my curriculum vitae, which is

attached hereto as Exhibit A.

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SCOPE OF ENGAGEMENT

I have been engaged by Lee & Ko, counsel to the Claimant, Daewoo International

Corporation, (“Daewoo”): (a) to investigate certain factors relevant to the Tribunal’s inquiry into

Daewoo’s claim of alter ego liability of Luis Guilherme Mariano Monteiro, Luis Eduardo

Mariano Monteiro, Luis Claudio Mariano Monteiro, and Luis Fernando Mariano Monteiro

(together, the “Monteiro Brothers”) for the debts of America Metals Trading LLP (“AMT”), and

(b) to provide this Report and hearing testimony stating my conclusions.

INFORMATION REVIEWED

In preparing this Report, I have reviewed the following documents made available to me

by counsel: (1) AMT’s audited financial statements for 2004-2011; (2) selected bank records of

AMT and its control persons and affiliates; (3) the transcript and exhibits from the August 18,

2013 hearing in this matter; (4) various court filings; and (5) certain other materials obtained

through independent research.

APPLICABLE LAW

I am informed by counsel that, in order to pierce the corporate veil under New York law,

an allegedly aggrieved party must show that the corporate entity was “dominated as to the

transaction attacked and that such domination was the instrument of fraud or otherwise resulted

in wrongful or inequitable consequences.” TNS Holdings v. MKI Sec. Corp., 92 N.Y.2d 335,

339 (1998). Domination, in turn, is determined by factors such as inadequate capitalization,

intermingling of funds, and a lack of arms’ length transactions. See Freeman v. Complex

Computing Co., 119 F.3d 1044, 1052 (2d Cir. 1997). Evidence that a control person “stripped [a]

corporation of its assets and rendered it judgment proof” supports a finding of alter ego liability.

Flushing Plaza Associates No. 2 v. Albert, 102 A.D.3d 737, 737 (2d Dep’t 2013).

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CONCLUSIONS

Based upon my review of the foregoing materials, I conclude as follows: (1) AMT was at

all times dominated and controlled by the four Monteiro Brothers. (2) The Monteiro Brothers

used their domination and control of AMT to take over $100 million from banks and customers

received by AMT, and caused AMT to transfer those funds to themselves and related party

entities which they also control, leaving AMT with no apparent assets to pay its debts. (3) In

2012, the Monteiro Brothers caused AMT to dissipate approximately $14.5 million received

from Daewoo to accounts they controlled in the Bahamas and elsewhere, while falsely

representing to Daewoo that those funds were used to purchase pig iron in Brazil for delivery to

Daewoo. Lastly, I understand that the Monteiro Brothers have appeared through counsel in

related proceedings, but to date have never offered any alternative, reasonable explanation for

these facts.

DISCUSSION

Control. In each of its annual audited financial statements for 2004-2011, AMT

acknowledges that it is “controlled” by the Monteiro Brothers. (Claimant Exhs. 2, 25-28, 38)

They are the sole signatories on each of the corporate bank accounts discussed below. (Claimant

Exhs. 17, 29) AMT has no personnel or staffing costs, and no other employees. (Claimant Exhs.

2, 25-28, 38) The Monteiro Brothers also control a series of affiliated companies, including

Cosipar, Usipar (until that entity was “sold” in 2010), American Metals Trading USA (“AMT

USA”), and MC Log. (Claimant Exhs. 2, 22, 103 at AMT LLP 566-567) AMT’s business has

admittedly always been conducted primarily with these family entities. (Claimant Exhs. 2, 25-28,

38) Emails with Daewoo reflect that the Monteiro Brothers treated their companies

interchangeably, without meaningful distinction among them. (Claimant Exhs. 47, 49, 50)

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Undercapitalization. Neither when the Monteiro Brothers formed AMT in 2004, nor at

any time since, did the Monteiro Brothers contribute to AMT any cash capital, either directly or

through any of their other companies. (Claimant Exhs. 25) To the contrary, at all times from

2004-2011, the Monteiro Brothers used AMT as a vehicle for ever-increasing borrowings, and

causing it to transfer cash to related parties under their control (principally Cosipar and Usipar),

while mischaracterizing those transfers as “prepayments” and “receivables” owed to AMT.

(Claimant Exhs. 2, 25-28, 38) According to Court filings by AMT’s creditors, over $118

million of this debt remains outstanding. (Claimant Exhs. 82-88) Meanwhile, AMT’s bank

accounts were reduced to zero before being attached. (Claimant Exhs. 74, 91-92) In late 2012 –

early 2013, while attachment proceedings were underway, Luis Eduardo Monteiro also cashed

out both of his IRA accounts (held through AMT USA), even though, by doing so at his age, he

incurred substantial early withdrawal penalties. (Claimant Exhs. 76-78)

AMT’s audited financial statements reveal how the Monteiro Brothers steadily diverted

cash from the company, while causing AMT to borrow through bank loans. Schedule B,

annexed hereto, summarizes the portions of these financials relevant to this analysis. At every

year-end from 2004 through 2010, AMT had no inventory (and had $12 million of inventory in

transit at year-end 2011 only because the revenue recognition (delivery) criterion for recording

the sale of that inventory had not occurred). (Claimant Exhs. 2, 25-28, 38) According to its

audited financial statements, AMT at all times was only in the trading business; i.e., “the

purchase and sale of metals/trading materials in the steel and casting market.” (Id.) Thus, it ran

what might be called a “matched book” (i.e., it purchased product only to the extent necessary to

fulfill the orders it received).

Each year the Monteiro Brothers caused AMT to make cash prepayments to two of their

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other entities, Cosipar and Usipar (i.e., Cosipar and Usipar thus owed receivables to AMT)

substantially in excess of the amounts AMT received from customers as advances against future

deliveries. (Claimant Exhs. 2, 25-28, 38) That practice ballooned in 2011. Because AMT

always had an excess of receivables owed to it by related parties over payables owed by AMT for

customer advances, AMT was always, and increasingly, cash short. AMT financed those cash

shortages by increasing its bank debt from $6 million at year-end to 2004 to $100.1 million at

year-end 2011 ($62.0 million of it was current indebtedness). (Id.)

Prepaid receivables owed by related parties to AMT increased from $85.7 million at year-

end 2009 to $94.1 million at year-end 2010 to $102.0 million at year-end 2011. (Claimant Exhs.

2, 38) That makes no business sense because of the continuing low level of sales in each of

those years; i.e., 2009 produced AMT’s lowest sales on record and 2011 produced AMT’s second

lowest sales on record. (Id.) Moreover, although AMT purchased no inventory to carry (matched

book) and produced continuous low sales and had no apparent need for increases in borrowings

during that timeframe, prepaid receivables owed to AMT by Cosipar and Usipar, funded by bank

loans, increased to an all-time high at year-end 2011, so as to finance cash transfers from AMT to

related parties with no apparent connection to operations (i.e., low sales and no inventory).

In 2010, AMT “purchased” another family company, Usipar, for $40 million, $30.9

million of which was paid by forgiving receivables to AMT owed by Cosipar, directly and

adversely affecting AMT’s liquidity, and requiring AMT to correspondingly increase bank debt

payables. The remaining $9.1 million was “borrowed” from the Monteiro Brothers directly and,

almost entirely, repaid to them in 2011. (Claimant Exhs. 2, 38) In the same transaction, the

Monteiro Brothers then caused AMT to exchange its ownership of Usipar for a 25% interest in

R.A.M. Participations S.arl (“RAM”), a joint venture with little or no connection to AMT’s core

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business (the description of which did not change in the financials). (Claimant Exh. 2) In July

2013, RAM’s only other asset, Mir Steel – purportedly representing 75% of the value of the joint

venture – was apparently sold to a third party, with no evidence that any proceeds were paid or

payable to AMT, RAM’s minority owner. (Claimant Exhs. 75, 80)

Notably, on our about September 22, 2009, in connection with the issuance of AMT’s

2008 audited financial statements, a “going concern” uncertainty reference about AMT’s future

was added to AMT’s financial statements. (Claimant Exh. 2) After reporting sales of $567.4

million for 2008, AMT’s sales collapsed to $123.1 million in 2009, and thereafter never

recovered – sales in 2010 were $186.3 million and in 2011 were $135 million. (Claimant Exhs.

2, 38) The Monteiro Brothers obviously were aware of this. Indeed, a news article in Brazil

which appeared on October 27, 2012 referred to the pig iron sector there as having been “in

collapse since 2008.” (Claimant Exh. 67)

In 2010 and 2011, AMT’s “going concern’ reference stated that: “[t]he directors [i.e., the

Monteiro Brothers] believe the going concern basis of accounting to be appropriate based on

continued trading performance, the renewability of the working capital facilities and anticipated

repayment of amounts due from related parties.” (Claimant Exhs. 2, 38) In other words, AMT’s

solvency was dependent upon the Monteiro Brothers’ intention and ability to cause Cosipar and

Usipar to repay what they owed AMT. (After AMT paid $40 million to acquire the illiquid

investment in RAM, even if all prepaid receivables owed to it had been collected, AMT would

not have been able to repay the aggregate bank debt and amounts owed to customers at year-end

2011.) In any event, the Monteiro Brothers decided not to have these related parties repay AMT.

As set forth in the annexed Schedule C, at least $118 million of AMT’s obligations to Daewoo

and third-party complainants remains unpaid, and AMT has no cash.

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Dissipation of Assets. By 2012, as the carrying cost of servicing and repaying AMT’s

debt increased, the Monteiro Brothers’ ability to continue diverting customer payments to their

other entities, while borrowing from banks, became unsustainable. At some point in the year,

the Monteiro Brothers apparently decided to “cash out” by stopping the deliveries promised to

customers and retained customer payments for their own benefit.

As the hearing testimony and exhibits made clear, the Monteiro Brothers induced

Daewoo to make $21.3 million in payments to AMT in 2012 by causing another Monteiro entity,

MC Log, to present Daewoo with “Forward Certificate Receipts” which falsely represented that

the pig iron had already been delivered to Daewoo (and that Daewoo had title to that pig iron),

when in fact no such pig iron had been delivered by AMT. (Claimant Exh. 6) Because of the

time lag time between transfer of title at the terminal in Brazil and receipt of the product at the

port in New Orleans, Daewoo did not initially realize the pig iron shipments were missing. The

Monteiro Brothers were then able to obtain several additional payments from Daewoo through a

series of further misrepresentations to Daewoo, including, inter alia, by showing Daewoo

representatives piles of pig iron, labeled as owned by Daewoo, which did not belong to Daewoo.

(Claimant Exh. 10, AMT Tr. 63-64) As late as October 3, 2012, the Monteiro Brothers were

still trying to goad Daewoo into paying for additional orders. (Claimant Exh. 20 (“When do you

intend to pay it? We thought the limit was 50,000mt. Even if it is paid today, it will not exceed it.

We really need it for our cash flow plan. What do you say?”))

As the annexed Schedule D demonstrates, Daewoo ultimately paid approximately $21.4

million in total to AMT, but only received about $6.9 million worth of pig iron. In an October 3,

2012 email to Daewoo, one of the Monteiro Brothers admitted that: “So far we have managed to

give you the shipping documents for some 7,000mt” and “your inventory is down from

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$16.8MM to $15M.” (Claimant Exh. 20) The information in those admissions ties precisely to

Daewoo’s internal payment records. (Schedule D.)

In the same email, one of the Monteiro Brothers offered Daewoo various “Reasons for

delays” such as “issues with the logistics.” (Claimant Exh. 20) Mr. Monteiro further claimed

that AMT had “real need for [additional cash payments from Daewoo] for our future cash plans,”

that “this has not been an easy market to handle,” and that “to operate a trading company such as

AMT in this difficult scenario has been a challenge.” (Id.) At that time, Mr. Monteiro did not

disclose to Daewoo that AMT and Cosipar had not only failed to deliver the promised pig iron to

Daewoo, but that Cosipar was about to shut down. In the same month, on October 27, 2012,

media in Brazil reported that “the closure of Cosipar” constituted “one more blow” since “the pig

iron sector collapsed in 2008,” and that since then, “Cosipar worked with a deficit and reached a

point where it could not longer continue.” (Claimant Exh. 67) That news was consistent with

the hearing testimony in this arbitration by Mr. Choi, that on November 2, 2012, “Cosipar was

shutting down their plant and laying off all of their employees.” (AMT Tr. 62) Mr. Choi further

testified that, around this time, Daewoo had received notice from ABN-AMRO that Daewoo

owed $8 million to ABN-AMRO, based on shipping documents presented by AMT to ABN-

AMRO. Those documents were fabrications. (Claimant Exhs. 11, 12)

Misappropriation of Daewoo’s Payments. The subpoenaed bank records present a

different story from the one the Monteiro Brothers told Daewoo. The bank documents show

that the Monteiro Brothers caused AMT to divert Daewoo’s payments to various offshore

accounts under their control. AMT has suggested, in a spreadsheet which their counsel provided

to Daewoo’s counsel “in the spirit of cooperation” and for Daewoo’s “convenience,” that

Daewoo’s payments to AMT were fully transferred to Cosipar, presumably to purchase pig iron.

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(Claimant Exh. 73 at cover letter) In fact, counsel’s spreadsheet shows no relationship between

the cash AMT received from Daewoo in 2012 and the payments it then made to Cosipar. (Id. at

AMT LLP 135)

Counsel’s spreadsheet also fails to show what became of Daewoo’s money. To “follow

the money trail,” I reviewed the bank records made available to me, and then summarized them

in the annexed Schedules E and F. Specifically, during the period at issue (June 15 – October 15,

2012), Daewoo paid AMT $14.5 million for unfulfilled orders. (Schedule D) During this very

same timeframe, AMT’s bank records show that it diverted approximately $14.6 million to

various offshore accounts in the Caribbean. (Claimant Exh. 73, Schedule E.) This makes no

apparent sense if, as represented, AMT intended to buy Brazilian pig iron, but it does make sense

if the goal was to prevent payments to corporate creditors in Brazil. During this time, as noted

above, Cosipar, much like AMT, was descending into insolvency. (Claimant Exh. 67)

I understand that the Bahamian bank, Banco Itau, was served with a subpoena but refused

to produce records of offshore accounts. (Claimant Exh. 97) Thus, we have no direct

information as to what became of the Daewoo payments diverted to that account; we do know

they were not used to purchase pig iron, as promised by the Monteiro Brothers.

In the last year, the Monteiro Brothers have incorporated several new entities in the

British Virgin Islands for apparent use as investment vehicles. (Claimant Exh. 90) In their

accompanying paperwork, the Monteiro Brothers identify “SOURCE OF FUNDS” as “Working

Capital related party.” (Id.) While they do not suggest which of their entities provided the

“working capital,” $1,120,458.33 was wired from AMT directly into four such entities (Quisatro

Partners, Tututix Enterprises, Cyborg Developments Group, and High Financial Corp.) in a four-

day span between August 10-14, 2012. (Claimant Exh. 81) That was just a few business days