LAUTENBERG FOUNDATION, THE et al v. MADOFF

Filing 37

Transcript of Proceedings (motions) held on 8/11/2009, before Judge Stanley R. Chesler. Court Reporter/Transcriber Jacqueline Kashmer, Telephone number 908 229-6496. NOTICE REGARDING REDACTION OF TRANSCRIPTS: The parties have seven (7) calendar days to file with the Court a Notice of Intent to Request Redaction of this Transcript. If no such notice is filed, the transcript will be made remotely available in electronic format to the public without redaction after ninety(90) calendar days. The redaction policy is located on our website at www.njd.uscourts.gov. Transcripts may be viewed at the court public terminal or purchased through the Court Reporter/Transcriber before the deadline for release of transcript restriction. After that date it may be obtained through PACER. Redaction Request due 12/30/2009. Redacted Transcript Deadline set for 1/9/2010. Release of Transcript Restriction set for 3/9/2010. (mn, )

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U N I T E D STATES DISTRICT COURT D I S T R I C T OF NEW JERSEY C I V I L NO. 09-816-SRC-MAS LAUTENBERG FOUNDATION, THE MOTIONS

4 Plaintiff, 5 VS . 6 P E T E R MADOFF, 7 8 9 10 11 B E F O R E: 12 13 14 15 16 17 18 19 20 21 22 23 24 25 J A C Q U E L I N E KASHMER , C.S.R. O F F I C I A L COURT REPORTER P . O. Box 12 P i t t s t o w n , NJ 08867 ( 9 0 8 ) 229-6496 S / J a c q u e l i n e Kashmer JACQUELINE KASHMER O f f i c i a l Court Reporter P u r s u a n t to Section 753 Title 28 United States Code, the following transcript is certified to be an accurate record as taken stenographically in the above-entitled proceedings . HONORABLE STANLEY R. CHESLER, USDJ Defendant. __ ___ ___ ___ ___ ___ ___ ___ ___ _ A u g u s t 11, 2009 N e w a r k , New Jersey

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 S A I B E R , LLC O n e Gateway Center 1 3 t h Floor N e w a r k , NJ 07102-5311 B Y : WILLIAM F. MADERER , ESQ. and L A N K L E R SIFFERT & WOHL, LLP 5 0 0 Fifth Avenue N e w York , NY 10110-3398 B Y : CHARLES T. SPADA, ESQ. J E A N N I E RUBIN, ESQ. J O A N N E HARVEY, ESQ. F o r the Defendant M c E L R O Y DEUTSCH MULVANEY & CARPENTER, LLP 1 3 0 0 Mount Kemble Avenue P . O . Box 2075 M o r r i s t o w n , NJ 07962-2075 BY : RONALD J. RICCIO, ESQ. S T E P H E N GREENBERG , ESQ. and G I B B O N S , PC Gateway I N e w a r k , NJ 07102 B Y : MICHAEL GRIFFINGER, ESQ. F o r the Plaintiff

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor .

T H E COURT:

Be seated.

Good afternoon .

Lautenberg

Foundation vs. Madoff, 09-816. appearances for the record. MR . RICCIO:

Please note your

Good morning -- good afternoon, your

Ronald J. Riccio for the plaintiffs. MR . GREENBERG: I'm Stephen Greenberg. I'm with

Ronald Riccio. MR . GRIFFINGER : Riccio. MR . MADERER: Good afternoon , your Honor. William Michael Griffinger , also with

Maderer of the Saiber firm on behalf of the defendant . MR . SPADA: Siffert & Wohl . Your Honor, Charles Spada from Lankler, With me are my colleagues Joanne Harvey

and Jean n i e Rubin on behalf of defendant, Peter Madoff, also. THE COURT: Good afternoon to you. All right. Mr .

Spada , you're going to be arguing this for the defendants? MR . SPADA: THE COURT: Yes, your Honor. And Mr. Riccio, you're going to be

arguing it for plaintiffs? MR . RICCIO: THE COURT: Yes, your Honor. All right. Mr. Spada, it's your motion.

Why don't you start. MR . SPADA: Thank you, your Honor. May it please

the Court, my name is Charles Spada on behalf of the

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d e f e n d a n t , Peter B. Madoff. As your Honor is aware, we brought a motion to dismiss the complaint brought by the plaintiffs , which there are three plaintiffs here, The Lautenberg Foundation and two individual plaintiffs . The complaint here alleges violations of the federal securities laws Section 10(b) and also 20(a), controlling personal liability, as well as various state law claims for breach of fiduciary duty, aiding and abetting a breach of fiduciary duty , negligent misrepresentation and negligence. I f it would please the Court, I will address first the federal securities law. THE COURT: start off with . MR . SPADA: Yes, your Honor. As your Honor is aware Fine. Why don't we focus on that to

I'm sure from looking at the complaint , this case arises out of the Ponzi scheme committed by Bernard Madoff. There ' s no dispute as to that Mr. Madoff committed the scheme, that he's pled guilty, that he's in jail. Everybody's read all about that. The scheme occurred at Madoff Securities, and I'll refer to the company as The Company or Madoff Securities . It's alleged that my client, Peter Madoff, who is Bernard Madoff's brother, worked at The Company and plaintiffs do not describe much of anything but allege that he was the

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c o m p l i a n c e officer, senior managing director , general counsel of Madoff Securities and that he worked with his brother there. The plaintiffs do not allege many facts in their complaint with respect to the conduct of Peter Madoff. Plaintiffs allege his position, that he worked side-by-side with his brother, that he was highly skilled in the use of technology and the business operations of the company , and that he ignored various alleged red flags. As the complaint is pled, it is pled as a misstatement or omissions case with respect to the 10 ( b ) ( 5 ) claim , although plaintiffs in their brief claim that they're alleging scheme liability. It's clear if you look It

at the complaint, it doesn't allege that at all.

doesn ' t mention scheme liability with respect to the defendant at all. It ' s clear what they're saying is that this is a misstatements and omissions case and that they allege that the defendant was responsible as a compliance officer , senior director, to ensure the accuracy of, and they point to essentially three statements; marketing materials, SEC filings of the financial condition of the firm, and monthly account statements that go to the investors. N o w , beyond that, they allege nothing as to the defendant's activity in connection with making any of these

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s t a t e m e n t s and, as we point out in our brief, you know, the law is clear that you have to -- one of the first elements if you're making a misstatements or omissions claim, you have to allege and show that there's some misstatement that the defendant participated in making. to allege he's the compliance officer. It's not enough just There are false

filings, false account statements, therefore , he is responsible for them. The federal securities laws require more under 10(b)(5) and, as your Honor is aware, the heightened pleading standards of 9(b) apply to the federal securities laws claims and you have to have some concrete allegations of what participation the defendant is alleged to have had with each of the particular statements that are claimed to be false . And here the complaint alleges nothing about was

the defendant involved with the preparation of the financial statements . Although some marketing materials

are referenced , it's not even alleged whether -- when those misstatements were made, whether the defendant had any participation with the creation or publication of those misstatements. THE COURT: MR . SPADA: THE COURT: Let me stop you for just one second. Yes, your Honor. All right. In your brief, one of the

first arguments you make is that they haven't even pled

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t h a t was in connection with the sale or offering or purchase or sale of a security, which of course is a basic requirement for any 10(b)(5) claim. MR . SPADA: THE COURT: Correct , your Honor. Now, the Supreme Court has given us sort

of an expansive interpretation of what constitutes in connection with the sale of a security . MR . SPADA: THE COURT: Correct?

Yes, your Honor, that's correct . If I recall correctly, SEC vs. Zanford,

reported at 122 Supreme Court 1899 does, in fact, give an expansive view of what constitutes in connection with the sale or offer of a security. MR . SPADA: THE COURT: That's correct, your Honor. Are you seriously arguing that the

complaint does not meet that, the requirement of the SEC standard at this point? MR . SPADA: I'm saying that the complaint doesn't

particularize what purchase or sale they're referring to and what the misstatement goes to, whether it was at the opening of the account, was it subsequent purchases or sales . It's not clear to me from the complaint how they ' r e What is the purchase or

saying there's a nexus there. sale?

I'm not saying that they couldn't allege it. just saying that as drafted, you can't tell.

I'm

But I agree

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w i t h your Honor that the Supreme Court precedent in other cases , that does take a very expansive definition of what is a security. I'm saying here there is no

particularization of what they're saying as to what that security is . THE COURT: MR . SPADA: Honor . As to what the nexus is. That's correct, that's correct, your

So, where here they're not alleging that the

defendant signed, created any of the misrepresentations, he's not alleged to have prepared them, there's no allegation at all except for this general allegation that he is responsible for ensuring the accuracy. We submit under the federal securities laws that is not enough for a misstatement or omissions case. cases in this area involve where somebody had some involvement with a misstatement or omission that can be pled. And there is a lack of facts in the complaint here All the

alleging anything other than the defendant's position . THE COURT: issue . MR . SPADA: THE COURT: M R . RICCIO: THE COURT: the complaint? Sure. All right. Mr. Riccio. All right. Let me hear from them on that

Yes, your Honor. First of all, is scheme liability pled in

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M R . RICCIO: THE COURT: MR . RICCIO:

Yes, it is, Judge. Show me where. If you look at paragraph 39, we allege

that Peter Madoff is a primary violator of Section 10 ( b ) of the Exchange Act. We do not limit ourselves to A, B or C.

Scheme liability is A and C. THE COURT: MR . RICCIO: Yeah. Misleading misrepresentations is B. We

are alleging two things.

We're alleging that the conduct

of the defendant was manipulative and deceptive , and I can explain the details for that in a moment, and we're also alleging they're misleading misrepresentations. Let me address, if I can, what I consider to be a fairly cramped reading of the complaint by the defendant. The suggestion is that we don't allege many facts and the suggestion is that perhaps the reasonable inferences that should be drawn from these facts should not be viewed in a light most favorable to the plaintiff, which is what the standard is even under Iqbal and the new approach to 12(b)(6) motions. But if I could , Judge, let me get into what the complaint does allege. First of all, I think you need to

begin with the underlying fraud, which Mr. Spada correctly identifies as a Ponzi scheme. Everybody knows something

about the Bernard Madoff scandal, but there's more to it

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t h a n just that .

This Ponzi scheme lasted for 20 years.

During that 20 - y e a r time period, the defendant was the chief compliance officer, senior managing director , general counsel, head of trading, and in a document filed with the SEC by BMIS , which Bernard Madoff testified in his plea allocution was prepared by him, identified Peter Madoff as a co-control person of BMIS. THE COURT: MR . RICCIO: page 20. Where is that pled? That's in Exhibit C to our complaint,

If your Honor turns, your Honor, to page 20 of

31, Exhibit C to our complaint, you'll see that there are some boxes, and beneath the name Bernard Madoff is the name Peter Madoff. Then it has title or status, director of Date or title of status

trading, chief compliance officer. acquired , 1969 .

So, he held this position for 40 years.

And then under the label control person, the letter "Y" appears, indicating yes. T h e n your Honor, if you look at paragraph 15 of our complaint, the allegations -- actually that would be paragraph 17 of our complaint -- the allegations very clearly spell out Peter Madoff's duties and responsibilities at BMIS as a control person and the senior managing director , director of trading , chief compliance officer, and general counsel of BMIS. So , when Mr . Spada says that Peter Madoff worked at

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B M I S , that might be the understatement of the century . controlled BMIS with Bernard Madoff.

He

He was the person who

was responsible for ensuring, as we allege in our complaint, that BMIS adhered to the law. For 20 years, while Peter Madoff worked side-by-side with his brother, there was a Ponzi scheme afoot which he did nothing about . The Ponzi scheme resulted in Bernard

Madoff taking money from some investors, paying it out to other investors, filtering some of the money into the so-called legitimate arm of his enterprises, and keeping the rest of it for himself and his family and his friends. I n his plea allocution Bernard Madoff tells the Court how he perpetrated the fraud. He says I lied to the SEC , I

lied to my clients, but then he also says things that are directly attributable to Peter Madoff. THE COURT: MR . RICCIO: THE COURT: MR . RICCIO: Let me stop you again. Yes. Where is this in the complaint? The plea allocution is attached as an

exhibit to Mr. Spada ' s motion papers and it's appropriate to consider it , your Honor, as a public record. This came

up in the In Re Able Labs case where matters outside the complaint can be considered if they're integral to an understanding of the complaint and if they're matters of public record, you can take judicial notice of the plea

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allocution. They submit t e d it to your Honor, so it's not -THE COURT: I understand -- look, I know I can take

and consider some things on a 12(b)(6) but, by and large , the factual allegations of a complaint are taken from the complaint. Correct? That is correct, your Honor. But they

MR . RICCIO:

can be augmented when the complaint -- and this was an after - o c c u r r e n c e event from the filing of the complaint. But if your Honor doesn't want to take into account the plea allocution, that's fine. THE COURT: It may be very well material which, in

fact, could appropriate l y be submitted in connection with a repleading if that's appropriate but, in short, you know , and I've had some experience with taking into consideration matters outside of the complaint , but generally the Third Circuit law has been you look at matters outside the complaint which are essentially referred to or incorporated or relied upon by the complaint. You know, that's the

basic rule in the Third Circuit, at least. MR . RICCIO: Well, I'm referring to it, your Honor ,

because they presented it to your Honor in their papers. THE COURT: And I thank you for doing that and I

thank them for doing it, but I will tell you, all right, I mean, I've used material outside the complaint, as I've

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s a i d , where the complaint in fact relies upon that material . There have been situations and the Third Circuit

has upheld looking at material outside the complaint for purposes of dealing with statute of limitations issues because the Court can take judicial notice of the fact that, for example, newspaper articles put people on notice of various things . But quite frankly, the mere fact that

they have submitted or you submit a certification is not something which I am at least at this point inclined to be using in determining the sufficiency of the complaint -all right -- because, quite frankly , then I've got people changing the complaint in front of my eyes. MR . RICCIO: allocution. THE COURT: And then I get confused and, you know, We don't need to consider the plea

Mr. Riccio, I'm very easily confused. MR . RICCIO: Your Honor, you're not easily confused

and if you are confused by the plea allocution, we don't need this -T H E COURT: MR . RICCIO: THE COURT: Okay. -- to sustain this complaint. Let's go back for a second. All right .

I was asking you whether the complaint pleads scheme liability. MR . RICCIO: Yes.

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T H E COURT:

All right.

And as I am reading the

complaint, I've got his responsibilities laid out here, yes, and certainly the complaint alleges that Bernard Madoff admitted to a Ponzi scheme and, indeed, paragraph 28 says the day before he confessed to the FBI, he told Peter Madoff and other BMIS employees that the investment advisory arm of BMIS was a fraud, that it was all just one big lie, and that they lost $50 billion. What I'm not seeing is how that pleads essentially his integral involvement in a scheme to defraud . As I

recall the scheme liability theory, it is that the Supreme Court has asserted, number one, there need not be a misrepresentation or an omission where there's a duty to -an omission to disclose when there's a duty to disclose, conduct can be deceptive and that that is one of the hallmarks of scheme liability . And then we have all the

case law which goes into great detail distinguishing between scheme liability and aider and abettor liability, and how one should not confuse one with the other, and then we really have the problem of figuring out where that line is supposed to be drawn. But in the first instance I'm trying to see where this is really essentially asserting that Peter Madoff is part of this Ponzi scheme. MR . RICCIO: Yes. Well, your Honor, what we need to

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s h o w is that he engaged in a deceptive act or a manipulative act. T H E COURT: M R . RICCIO: Okay. In order to establish, from my pleading

perspective , liability under 10(b)(5)(A) or (C) -THE COURT: MR . RICCIO: Right. -- we need only show that he, Peter

Madoff, engaged in a deceptive act or a manipulative act . In paragraph 46 of our complaint we allege that he effectively covered up for years what his brother confessed was the largest financial fraud in history. So , what did he do in covering up the largest financial fraud in history , and that takes you to what his function was at BMIS. THE COURT: MR . RICCIO: Paragraph 46 does that? Well, you know, your Honor, it's It's either

either -- we have two copies of the complaint. 46, right at the end of 46, the last sentence -THE COURT:

It says Peter Madoff confessed that he --

confessed that he and BMIS violated the Securities Act of 1934 and the regulations promulgated thereunder by intentionally engaging in a common plan, scheme, artifice to defraud and unlawful course of conduct , which he described as a giant Ponzi scheme that operated as a fraud and deceit upon plaintiffs in connection with the purchase

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a n d sale of securities. MR . RICCIO: THE COURT: MR . RICCIO: Your Honor, then take a look at 38. Maybe I am. 38 is what was attached to Mr. Spada's It's on page 16. I've got it on page 15 of mine.

submission, paragraph 38. THE COURT: All right. MR . RICCIO: 16. THE COURT: MR . RICCIO: THE COURT: Okay. MR . RICCIO: Okay. Okay.

But the cover-up allegation is on page

We have the same complaint. All right. Now, I think we've got it.

Very good.

Then you're working off of I'm working off the

the exhibit to Mr . Spada's motion. same copy of the complaint . the cover-up.

In any event, we've alleged

Now, we don't just say in a conclusory We explain why this

manner that he engaged in a cover-up. is our theory.

Bearing in mind this is a motion to

dismiss, we ' r e not determining whether or not we're ultimately going to win this allegation but whether or not there ' s enough pled here. What we have alleged is the following: Ponzi scheme, which is admitted. It involved billions of dollars. There was a

It lasted for 20 years . Peter Madoff's function

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w a s to work side-by-side with his brother for 20 years. His brother in an SEC filing identified Peter Madoff as a control person . When you are a control person, you take responsibility for what's happening at the entity that you're controlling. What was happening at the entity that Peter Madoff , along with Bernard Madoff, were controlling for 20 years was a vibrant, vicious, merciless Ponzi scheme. Who was

in charged of complying with the law during that time period? Madoff. Madoff. Peter Madoff. Who was the general counsel? Peter Peter

Who was the senior managing director?

Who was in control of the management and policies

of the business at the time the Ponzi scheme was being perpetrated according to Bernard Madoff? D i d he just say that arbitrarily ? Peter Madoff. No. He put in it

a sworn filing with the SEC, which, while Mr. Bernard Madoff admitted a lot of lying and a lot of fraud and a lot of deceit, the one thing he never said was that the statement in the SEC form describing his brother as a control person was not true and correct. Now, given all of his functions, who's responsible for sending out the monthly statements ? for the confirms? Who's responsible

Who's responsible for the SEC filings? All of

Who's responsible for the financial statements?

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t h a t is the responsibility we allege of Peter Madoff, not because he's Bernard Madoff's brother but because he has all of these functions. W h e n you have these functions and consciously avoid doing them and recklessly disregard looking into the facts, when you ignore the obvious, when you turn your back on crimes that are being committed under your nose, not for a week but for 20 years, we allege that's deceptive, manipulative actions. We allege that violates subsections

(A) and (B) of 10 ( b ) ( 5 ) . So , this again , your Honor, we haven't had any discovery. basis . We tried to take his deposition on an emergency He

We did not succeed in getting his deposition.

has not submitted a word -- not that it's his obligation to do so on a motion to dismiss -- but there's nothing from Peter Madoff saying I wasn't a control person, I wasn't the senior managing director, I'm not responsible for the fraudulent monthly statements and confirms. By the way, monthly statements and confirms are generated by technology . We allege in our complaint that

the technological genius behind BMIS was Peter Madoff. We're not talking about an occasional confirmation statement or monthly statement. We're talking about over a

period of 20 years thousands of confirmation and monthly statements.

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N o t one of those thousands of transactions ever happened , and who's the cop on the beat while these technologically-generated confirms and monthly statements are going to customers? Peter Madoff. This conscious

avoidance of the obvious, reckless disregard to look into how the business is going on, how could a compliance officer even on a random sampling conclude that everything was okay when not one customer, according to the confirms and the monthly statements , lost a penny? impossible. W e say that ' s evidence of deceptive , manipulative acts within the meaning of 10(b)(5)(A) and (C). In addition , you have the red flags that we allege in some detail in the complaint which are ignored by Peter Madoff, and what do these red flags show? These are not Statistically

casual matters that might require your Honor or I to look into or not look into. These are some glaring problems

that are front and center for 20 years which the co-control person of BMIS did nothing about. T h e 17th floor of the lipstick building where the Ponzi scheme was operated was off limits to people at BMIS. If you're the head of compliance , Judge, or the general counsel or a control person, wouldn't you want to know why the 17th floor was called the cage and nobody was allowed there ? Wouldn ' t you want, maybe after the first or second

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y e a r , to look into that? In addition , the returns, as I mentioned, the returns on the monthly statements, nobody ever lost money. Every b o d y , whether the market is up or down, everybody is making money. If you're the head of compliance , you can ' t That's the point.

just turn your back on it. THE COURT: MR . RICCIO: THE COURT:

Let me ask you a question. Yeah. If you bought into Berkshire Hathaway in

1960 and you kept it until 1990, I don't know when Berkshire -- all right -- but let's say you kept it for 30 years , did Berkshire Hathaway ever lose money? MR . RICCIO: Every single month? I don't know what

Berkshire Hathaway's -MR . GREENBERG: Honor . THE COURT: Last year? Before that, Mr. Greenberg . They lost money last year, your

M R . GREENBERG:

I don't know, but that's -- they were They were totally

investing in privately held companies. transparent .

Here, your Honor, as the dean is pointing out, year in, year out, if Bernard Madoff met Judge Chesler, he ' d say, hmm, Judge Chesler, he needs 11 percent . Judge Chesler gets 11 percent . Every year Hmm,

He meets Dean Riccio.

Dean Riccio , he needs 14 percent .

Every year he gets 14

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percent.

With all due respect, that's not Warren Buffett,

your Honor. MR . RICCIO: And your Honor, if I might, we're not We're talking about

talking about year-end performance. every single month.

H e r e ' s another fact that was ignored. brokers were ever used by BMIS.

No outside

In order for BMIS to

operate its Ponzi scheme, the monthly statements that went out needed to show trades, buys and sells. BMIS used no

outside brokers and they did not use the so-called proprietary arm of BMIS to execute trades. Well, if you're the compliance officer , wouldn't you say to your brother, gee, Bernie, I see you're doing a lot of trades here from the account statements that are going out. Who's executing the trades? Answer, nobody.

W o u l d n ' t Peter say to Bernie, well, somebody ' s got to be doing it . you using? We're not doing it. Answer, none. What outside broker are

Of course we know now why there were no brokers executing the trades , because there were no trades. for 20 years you're asleep at the switch? question ? You turn your back? But

You don't ask a

You don't get your brother

alone and say what's going on here? THE COURT: All right. Let me stop you for a second.

Let me hear what their response is to that.

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M R . SPADA:

Thank you, your Honor.

I do think we

need the deposition of Mr. Buffett in this case to find this out but, your Honor, I think plaintiff has conflated a bunch of issues in the argument that was just made. I

think the issues of scheme liability and misstatement , omission have been conflated, as well as the issue of control person , that designation and that form of liability. THE COURT: Okay. But let's take the basic argument

which I've heard -- all right -- which is essentially Peter Madoff, who's there for 20, 30 years, whatever it is, the complaint does say that he held specific positions , which included general counsel, which included chief of compliance. He was named as a control person, let's see , All right.

director of trading, senior managing director.

If I recall correctly, those are the positions which are held. MR . SPADA: THE COURT: Yes, your Honor. Now, you have correctly pointed out in

your papers that saying that someone holds a position does not in and of itself demonstrate culpable participation, etc., or responsibility . MR . SPADA: THE COURT: Right?

Correct , your Honor. Okay. In paragraph 15 of the complaint,

however, and I hope that we're all on the same page with

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t h e complaint, what's asserted is that his duties and responsibilities in these positions included directing the management and policies of BMIS, regularly verifying and accurately reporting the financial condition of BMIS, establishing, implementing , controlling, monitoring and enforcing a compliance program of internal controls designed to en s u r e BMIS's compliance with all laws, the detection, prevention and reporting of all violations of any laws or regulations by BMIS or its employees. then it explains his varied experience . N o w , does that recitation of the duties that he has cure any of the problems which you see with the complaint? MR . SPADA: THE COURT: MR . SPADA: No, your Honor, because -Why not? -- our position is that portion of And

paragraph 15, those are legal conclusions , and as the Supreme Court has said in Iqbal and the judge has recently cited in one of his opinions, you essentially take those legal conclusions for purposes of assessing the sufficiency of the complaint and you can't rely on them. look at well-pleaded factual allegations. These are legal conclusions drawn, as far as I could tell, made up just from what they think the title means should be his responsibilities. factual allegations. These are not well-pled You have to

They're purely legal conclusions and

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t h e y deserve no weight for purposes of assessing the merits of the securities law claim. THE COURT: Now, if they weren't legal conclusions ,

in fact they described what I set forth have been the job responsibilities of Peter Madoff in some filings or documentation, would that be different ? MR . SPADA: I don't believe so, your Honor, because It talks about

it still doesn ' t talk about an affirmative. sort of a policing role, enforcing role.

It's still, for

purposes of whether he was involved in the misstatement or omissions being made, it still says nothing as to what he's actually doing with respect to the creation of those misstatements or omissions . It might be saying he had these responsibilities and he didn't do them , but the securities laws, 10(b)(5), the case law I think demands more. THE COURT: MR . SPADA: And what does it demand? I think here where, as we're saying, if

you look at the complaint carefully , they do not allege scheme liability. liability. They allege misstatement and omission

The case law talks about that for the

misstatements, they have to have been involved in the making of them . The case law says were they a signer ? Were they involved

Were they involved in the preparation?

in sending the monthly reports out and such?

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A mere compliance role where you're maybe responsible for looking at something, I don't think under the 10(b)(5) case law under a misstatement or omission case standing alone is enough. THE COURT: It's not enough participation. Let's ask Mr. Riccio about that. First,

what misstatements is Peter Madoff alleged to have made? MR . RICCIO: The misstatements he's alleged to have

made pertain to the sales brochure which is exhibit, I think it ' s A-1 or A-2, in which they talk about BMIS being a highly ethical business. Quality has been our hallmark. You can count on us to

The owner's name is on the door. treat you correctly. That's a misstatement.

He's, as a control person,

he's responsible for that under the law as a control person. This is not a legal -Let's do 10(b)(5). All right.

THE COURT: MR . RICCIO: statements. THE COURT:

In addition, we have the monthly

Okay.

Wait a second.

What is there in

the complaint which says that he said that, that he said what is in -MR . RICCIO: He didn't say it but he is responsible Plus, you r

for the entity that promulgates the document .

Honor , we don't have everything that got filed with the SEC. I fully expect to see his name appear on audit forms

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t h a t you have to file with the SEC, on financial statements and things of the like. We don't need to show that he signed it. need to show that it came out of his mouth under 10(b)(5)(A) and (C). THE COURT: (C). All right . No. But I'm not talking about (A) and We don't

Right now I'm talking about -(B). -- I'm talking about (B). Under (B), I

MR . RICCIO: THE COURT:

want to know affirmative misrepresentations or omissions where there ' s duty to speak. MR . RICCIO: All right. Then your Honor, on that, if

I could, I would refer you for starters, paragraph 38 of the complaint in which we describe not the scheme and not the deceptive acts, but we describe what are the statements that we say are attributable to him. pertain to the sales literature. The statements

It's the monthly

statements, it ' s the confirms , the financial statements, the SEC filings. false statements. These are all false. We know they're

There's no issue about materiality , no The only issue is who gets blamed for

issue about falsity. lying . THE COURT:

Okay.

Now, this is paragraph 38, the

paragraph starts off notwithstanding the -MR . RICCIO: Yes, yes.

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T H E COURT:

And in it what you do is you say he

recklessly ignored and/or controlled and/or failed to disclose and/or consciously disregarded. MR . RICCIO: And later on we say recklessly made and/

or acquiesced in the making of, he made or acquiesced in the making of. Your Honor, at the end of the day is

Bernard Madoff the only person to be responsible for lying when the entity that is controlled by him and his brother is filing false statements all over the place to which Bernard Madoff pled guilty, to which he's serving 150 years in jail? I think not. I think there's got to be joint

responsibility here when there's two people that are identified unmistakably , undisputedly as in control of the entity that ' s lying to the SEC, that's lying to customers. THE COURT: Okay. And Mr. Riccio, don't I have to

have a complaint which complies with specificity requirements as the Supreme Court has now interpreted Rule 8 and with the PSLRA ? MR . RICCIO: Your Honor, we don't dispute that

there ' s got to be more specificity required when you're plead i n g a claim under 10(b)(5), not under control person, but under 10(b)(5). THE COURT: M R . RICCIO: Right now we're talking about 10(b)(5). And I would say to your Honor I don't

know what more specificity you can put into a complaint

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t h a n the document in which the lie appears, namely, the sales literature, than the identification of the documents where the lies occurred , the financial statements, than his role as control person in a document that's sworn to and filed with the SEC. I mean, I think the only question for your Honor is does Peter Madoff have no responsibility for lying to the government and customers because he's not the entity, he ' s only a co-control person. To state the question is to answer it. If you are a

co-control person of an entity that lies to your customers and lies to the government and files false financial statements, if that doesn't satisfy Rule 9(b), nothing does. Impossible to satisfy it short of starting a lawsuit

and taking depositions and then coming back and amending the complaint, which is not what 9(b) requires. They

require specificity so that they can know what it is we're saying. Is there any doubt that they know what we're accusing Peter Madoff of? Is there any doubt? Are they saying what It's in the We

documents did he lie in? complaint.

Of course not.

Are they saying we don't know how he lied? Bernard Madoff tells you how he lies.

say how he lied.

So , the only question for your Honor is does Bernard (sic) Madoff get a pass because he's a human being who

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c o n t r o l l e d an entity that filed the documents, and I don ' t think he can hide behind -- Peter Madoff can't hide behind the entity and he can't hide behind his brother . He's got

to stand up for what he is and was at BMIS, control person, chief compliance officer, senior managing director , general counsel, director of trading. a person have. What more responsibility can

To say that he worked at BMIS, as I said at He

the outset, is the understatement of the century. controlled the entity. THE COURT:

How, apart from the titles and the filing

as a control person, what pleads -- what pleads facts which say that -- let me ask you this. All right. From this,

what I'd like to know is what do I have which does not -which demonstrates, for example, that Bernard Madoff concluded that Peter Madoff is his dumber younger brother and we're going to give him some titles and stick him in an office? MR . RICCIO: For you to conclude that he's the dumber

younger brother, your Honor, given the person's record in the industry, he's a lawyer. He's been in the business for

40 years and he's pleaded to be the technology expert is a beginning premise that is flawed. He ' s a highly intelligent, very skilled, very experienced , very talented individual who had functions that he ignored. And if you read paragraph 15 in

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c o n j u n c t i o n with paragraph 38, and you read what we've alleged his functions are, and when you read what we know is false , the nexus is obvious. He was the person who was

there on the job when these false statements were filed. He was the person there. If you were to say as between Bernard Madoff and Peter Madoff who had responsibility for those statements , it would be Peter Madoff. compliance. Bernard Madoff wasn't head of He wasn't

He wasn't senior managing director.

a general counsel, director of trading .

He was none of

those things, so, why he is getting all the blame for this and Peter has the potential for a pass because the entity might have filed the form that he didn't sign. the law. That ' s not the law of control person. That's not

When you are in control of an entity, you are responsible for management and policies. Management and

policies is the whole kit and caboodle for the entity. THE COURT: Are you arguing that I should throw out

the 10(b)(5) and I should simply maintain the Section 20 claim ? MR . RICCIO: No. What I'm saying is these claims are We have a 20(a) claim which we

pled in the alternative . haven ' t talked about yet. THE COURT: MR . RICCIO:

But you've been arguing Section 20. No.

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T H E COURT: MR . RICCIO:

You've been arguing control person. No. What I'm -- no, your Honor. Under

control person you can be a control person without performing all of the functions that Peter Madoff performed here. What we ' r e saying under 10(b)(5) is that his control

person status, combined with the other functions that he performed, hold him accountable at the pleading stage as a primary violator. THE COURT: And their argument is that your

description of his responsibilities is purely legal conclusion. MR . RICCIO: Your Honor, it is not a legal conclusion I think your Honor's -- he That's not a

to describe his functions.

directed the management and policies of BMIS. legal conclusion.

He was responsible for verifying the That's not a legal conclusion. He

financial condition.

was responsible for internal controls. conclusion.

That's not a legal

Detection, prevention and reporting of all

violations of any laws or regulations, that's not a legal conclusion. facts . I f he wanted to, he could have come forward and said something in response, but we're dealing with the facts in this complaint and with the responsibility to allege them with particularity under 10(b)(5), which I think we've done Those are all facts. We've alleged those

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i n paragraph 38, but also, your Honor, under Iqbal, Iqbal talks about plausibility on its face and talks about your Honor using your judicial experience and common sense in deciding whether the complaint goes forward. I think that tells the whole story here. What does

your Honor's common sense tell you about this complaint? Does your Honor's common sense tell you that at the pleading stage , Peter Madoff should be cut loose because there isn't enough here or does your common sense tell you there ' s something here, it's pled with a degree of specificity ? Considering it's a fraud case and it's hard to learn all the facts about a fraud from the defendant before the depositions start , does your common sense tell you in a case like that the complaint goes forward ? If it goes

forward and if we cannot substantiate these claims, then there ' s always summary judgment or even a voluntary dismissal for that matter, but at this juncture , given what we have to work with, give what we know the undisputed facts are, I can't imagine what more would be required by way of particularity to hold Peter Madoff accountable in the exact same way, perhaps even more so, than his brother Bernard under 10(b)(5), because Bernard, while he may have pleaded guilty , the reality is that the person running the day-to-day operation of the Ponzi scheme was Peter Madoff.

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T h a t ' s our allegation, unrefuted . THE COURT: Well, I've got to tell you, I'm not

seeing that from this complaint, that Peter Madoff is accused of running the day-to-day operations of the Ponzi scheme. MR . RICCIO: Running the day-to-day operations of the

Ponzi scheme in the sense that the confirmation statements are going out without any inquiry into the validity, the monthly statements are going out, the financial statements are going out. He's facilitating it. Perhaps the word He's

running is an overstatement.

He's facilitating it.

allowing it to happen by a conscious avoidance of the obvious. THE COURT: So, all right. Now I've gotten down to

what is essentially you're arguing conscious avoidance. MR . RICCIO: From a scienter standpoint we're arguing

that his failure to monitor, which is what the cases say under the Infinity case, Judge McKee's Infinity case, the failure to monitor even in the belief that what was going on was honest is not a good enough defense. Even a neophyte, Judge McKee in Infinity says, even a neophyte looking at this situation, looking at what was going on for 20 years should know that something was amiss at BMIS. Peter Madoff found nothing amiss at BMIS. We say

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t h a t constitutes a violation under 10(b)(5)(A) and (C), and (B), the statements consist of the items that I identified for your Honor . THE COURT: That's our position. All right. So, the PSLRA demonstration

of scienter you're relying upon is essentially that same thing plus the flags . MR . RICCIO: THE COURT: MR . RICCIO: I got it.

For the scienter ? Yes. We are alleging for scienter , your I don't know

Honor , well , much more than that, if I could.

if your Honor wants me to go through it but I can. THE COURT: MR . RICCIO: Yeah. Certainly the existence of the

underlying fraud, the length of it and the magnitude of it. I think, Judge , you have to look at this and, in fact, Iqbal says this, you have to look at the complaint in a context. So, I've got to put in it a context to understand

where we are coming from at this juncture without there having been any discovery. You have the underlying fraud. You have the various You

functions that we allege in detail in paragraph 15. have his technological expertise .

You have the fact that

we allege he worked side-by-side with his brother for 40 years , 20 of which were the Ponzi scheme. We have the We have

sales literature which we've already talked about.

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t h e ADV form in which Peter Madoff is identified as the control person , which I think is the most important document in the case at this juncture. And what you then How does he

have is the cover - u p , Peter Madoff cover-up. cover it up ?

He covers it up, and this is where conscious

avoidance, reckless disregard of the obvious , whatever, knowing indifference , what I describe it as the cop turning his back on a crime occurring in his presence and pretending it's not happening . did. Compliance controls, nonexistent . compliance if there were any, none. Enforcement of This is what Peter Madoff

How could he allow the How

17th floor to be off limits to people for 20 years?

could he allow the 17th floor to generate trades when there was no broker executing the trades? How could this be?

How could any person , reasonably thinking person who has those functions ignore those obvious facts; the filings with the SEC, the false financial statements . B u t then look at the red flags. He's got an

accountant doing the books of BMIS who operates out of a strip mall. He's now under indictment but at the time we

allege the complaint , it was a two-person accounting firm auditing a billion dollar business and you're the control person of that entity, you're the compliance officer, general counsel, head of trading , and you have a strip mall

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a c c o u n t a n t now under indictment auditing your books? That's the definition of conscious avoidance , if not actual knowledge that something is amiss. You want to have an accountant who's compliant, who will do whatever you say or doesn't know the difference between right and wrong. I n addition , you have the Markopolos correspondence. This is the person, your Honor may have heard his name before, this is the person who in 1999 and again in 2005 identified in detail the BMIS Ponzi scheme. W e l l , if , your Honor, you're a control person of an entity and somebody twice sends a 40-page missive to the SEC explaining why your business enterprise is a Ponzi scheme, wouldn ' t you do something to stop it or to find out about it ? Nothing. That gets ignored .

And then again , the trading patterns, the success all the time . We also have the commingling of funds. Bernard

Madoff testified and, your Honor, this was in his plea allocution so if you don't want to hear it, I'll push it -THE COURT: MR . RICCIO: I don't want to hear it. -- I'll push it to the side. But in any

event , Judge, those are the factors that we believe show -they certainly show a 20(a) valid cause of action as well as the state common law claims. All we're debating at the moment is 10(b)(5). These

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a r e the allegations on which we base 10(b)(5).

The

scienter requirement does not need to be an actual intent to deceive. It can be a reckless disregard. Judge McKee

pointed that out in Infinity.

And when these two guys who

claimed we thought everything was on the up-and-up, Judge McKee said your good faith in thinking everything was on the up-and-up isn't the answer. You have scienter because

you recklessly disregarded knowing the truth, and if you recklessly disregard knowing the truth at least at the pleading stage , you have scienter under 10(b)(5). the Infinity case . I n Re Able Labs says the same exact thing. who have compliance functions , when the company is violating the law and do nothing to stop it, cannot avoid liability under 10(b)(5) by simply saying I didn't know, I thought everything was on the up-and-up. should have known . The answer is you People That's

You should have known everything was on

the up-and-up, and if you did what your job required you to do, in even a modicum of careful n e s s , this Ponzi scheme would have stopped 20 years ago. It wouldn't have got more

than a week into operation if Peter Madoff did what he was supposed to do . THE COURT: wrong ? MR . SPADA: As your Honor correctly pointed out, the Let's hear from Mr. Spada. Why is he

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c o n s c i o u s avoidance or the regular flags argument goes to scienter . It does not go to the issue we were talking

about before, which is can this defendant have been said to made or had a duty to speak with regard to the omissions or is scheme liability pled. We submit they failed on both those accounts . Court doesn ' t even need to reach scienter . address the scienter argument . The

However, I will

First off, plaintiff's

counsel pointed to this 40-page missive by Markopolos to the SEC. There ' s no allegation that the defendant saw what was sent to the SEC or was made aware of it. makes no allegation of that at all. The complaint

Moreover, as the Court

is probably aware , that the conduct has to be so highly unreasonable or an extreme departure from the standards of ordinary care. In a recent case involving the Bayou Hedge Fund, which was also a Ponzi scheme, the court found that purported red flags that were reported publicly or to a regulatory agency and where you're saying they were alerted to the fraud by then but the SEC didn't act or the IRS didn't act, it doesn ' t rise to the level of creating sufficient scienter. Here even, the red flags they're pointing to, investors were aware of, so to say that it's an extreme

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d e p a r t u r e from the standards of ordinary care where the SEC is alerted to them, the red flags they're talking about are obvious and open to the public, that they don't rise to the level under the securities laws of an extreme departure from the standards of ordinary care and, as I said, they do not even allege in this complaint that this supposed Markopolos complaint to the SEC, that the defendant was ever made aware of this, so, as pled, they certainly don ' t plead enough as to that, your Honor, and so, we don't think scienter is met. We don't even think you need to get to

that issue, however. THE COURT: Assuming that the complaint properly

pleads not as conclusory language but properly pleads his duties with regard to BMIS, wouldn't a two-person accounting firm be something which would be raising your hackles a little bit for a multi-billion dollar fund? MR . SPADA: I don't believe that the complaint

pleads that the defendant was responsible for the audit of the fund . THE COURT: It does plead he's responsible for Right?

compliance, however. MR . SPADA: THE COURT:

Yes. And verifying and accurately reporting Correct ?

the financial condition of BMIS. MR . SPADA: Correct .

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T H E COURT:

Okay.

I mean, if I am -- I see Dean

Riccio being very vigorous in his argument or whatever and is certainly dramatic, but if I cut through some of the dramatics and at least focus on his common sense argument, which is does common sense at least sort of stop at the door of a two-person accounting firm doing certified -doing audits of this kind of operation ? MR . SPADA: Your Honor, I don't know that that rises

to the level of being highly unreasonable , especially where there are sparse allegations with respect to the defendant having any responsibility for the auditing of the fund. THE COURT: Well, and their argument to a certain

degree is that , yeah, the only people who knew about this are the people who are inside. I mean, to a certain degree

and, I mean , there is no doubt that Iqbal does indeed require specific pleading. MR . SPADA: THE COURT: MR . SPADA: THE COURT: 10(b)(5), is it? MR . SPADA: THE COURT: That's correct. My typical 10(b)(5) ends up with Correct . All right. In context.

Correct , your Honor. But in some ways this is not my typical

misrepresentations about cash flow, about, let's see, what are the last few I've had --

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M R . SPADA: THE COURT:

Loading. -- cash flow, the medical profile of a

pharmaceutical , channel stuffing allegations , so on and so forth . MR . SPADA: THE COURT: Correct , your Honor. Here it is a very different fish, isn't

It is Mr. Bernard Madoff's black box. Q u e s t i o n , is Iqbal going to in fact be a bar to

pleading where what's been occurring is indeed to be extraordinarily different for anyone to get full specifics about ? MR . SPADA: Full specifics at this stage, your

Honor , for purposes of pleading it? THE COURT: Yeah. Let me put it this way. All

I'm sure you folks on both sides, before you have

argument before a judge, run Lexis and Westlaw and run every darn opinion that is ever issued, so, I'm sure you ' r e not in the least bit unaware of the fact that I've got a securities fraud case which is going up to the Supreme Court on statute of limitations. Question , as the plaintiffs start walking an incredibly fine line between having sufficient information to be able to plead in a manner to satisfy both the PSLRA and Iqbal and, on the other hand, waiting too long and being told by a district judge that you are on inquiry

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n o t i c e two years before you filed the complaint and that you've blown the statute of limitations. MR . SPADA: Respectfully, your Honor, and I

understand the dilemma your Honor is talking about, I don't think that's present here or what accounts for the lack of specificity in the complaint. THE COURT: Then what do you think accounts for the

lack of specificity in the complaint? MR . SPADA: I believe what it accounts for, as your

Honor is aware and given the nature as your Honor points out, this is a very unique, highly publicized biggest Ponzi scheme ever . The U.S. Attorney's Office is actively

investigating it and gathering the facts. T h e r e is a SIPC trustee that is actively investigating it and gathering the facts. possession of all the records . They're in

They've been talking to and These

have access to the witnesses that are available .

plaintiffs wanted to get out in front for fear that either the U.S. Attorney ' s Office or the SIPC trustee will, in gathering and have facts, potential l y be able to bring claims where they won't be able to recover in this court for their own behalf but, rather, assets will be gathered for the benefit of all investors , so, I submit that's the rush that's going on here. That's why there are no facts

in the complaint and they're just legal conclusions being

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pled . THE COURT: Doesn't that usually get resolved by

applications before the panel on multi-district litigation to consolidate proceedings when push comes to shove? MR . SPADA: It may, although when you're dealing

with a SIPC trustee, you might not be dealing with consolidation. The SIPC trustee is going to be arguing

that they usurp the claim and essentially they have the rights to the assets for the distribution to all creditors and individual plaintiffs can't come in and make a claim just for themselves. THE COURT: Well, then, that will resolve the whole

problem if they assert that, won't it? MR . SPADA: For them maybe. But I think that is why

we see a complaint that was rushed to be filed with no facts and only legal conclusions . And I don't think, you

know, that it was filed because there is some danger of a statute of limitations running. THE COURT: But there is, in fact, a set of

conflicting prerogatives or issues, is there not? MR . SPADA: THE COURT: MR . SPADA: That's correct, your Honor. Let's go to Section 20. Sure. As your Honor is aware, we've

also moved to dismiss the Section 20 claim. THE COURT: Right. And apparently, the bulk of my

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c o l l e a g u e s in New Jersey conclude that pleading culpable involvement is not a pleading requirement but is merely a proof requirement . Apparently, the bulk of the judges in

the Southern District of New York have held to the contrary and there appear to be outliers in both districts which have gone the other way. Your position obvious l y is that

culpable participation is required to be pled. MR . SPADA: Yes, your Honor, and I know your Honor

has not ruled in a case -THE COURT: yes. MR . SPADA: to your doorstep. So, I apologize to bring this mess now We both agree that the Third Circuit has I have been totally out of that issue,

said that culpable participation is an element that's required under 20 ( a ) . The Third Circuit has found that.

There ' s some difference of opinion out there but that's been made clear in the Third Circuit. It is an element of

20(a) and the plaintiffs concede that in their brief. The question is, does it need to be pled in the complaint, and I've read the cases. Quite honestly, your If something is an And

Honor , I don't understand the argument .

element, I think that answers it, it needs to be pled. the statute itself, in talking about controlling person liability, talks about that the defendant must have been alleged to directly or indirectly induce the act or the

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acts .

It's not mere nonfeasance .

It requires an

inducement and a participation. And so, I think it's clear, if, as the Third Circuit says, it is an element, you have to plead your elements, and the language of the statute is clear. You need to

plead an act of inducement , a participation in the underlying fraud. So, here again, there is a fatal flaw in

that there is no inducing act being pled and, so, I understand that certain of your colleagues have found that at this stage you don't need to plead it but I would submit that the Judge Lechner decision in In Re Nice Systems and also the Southern District cases we cite to make more sense . If you're saying it is an element , you have to They're not -- the Third Circuit is not saying

plead it .

it's not plaintiff's burden. THE COURT: it? MR . SPADA: THE COURT: No, your Honor. Their argument would be that the And if it is an element , have they pled

pleadings which they've done in connection with the 10(b)(5) are -- those factual allegations would be more than sufficient to plead culpable participation. MR . SPADA: And we don't believe they are, your

Honor , and that goes to a second layer of confusion in the courts which is, does the 9(b) heightened pleading standard

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a p p l y to 20 ( a ) or is it just the (A)(B) pleading standard, and I would submit, and I think the cases follow this, if you agree that culpable participation is an element, and the Third Circuit does, if you agree that culpable participation needs to be pled up front, then I think you really have to conclude that the 9(b) heightened pleading standard applies to that. I would submit it only makes sense to apply the federal Rule 8 standard if you're saying it doesn't need to be pled. And if you're talking about pleading culpable

participation under a 9(b) pleading standard , again, the same issues we were talking about before, I think it's a fatal flaw, which is what was the participation by the defendant. I'm hearing a lot of allegations of nonfeasance based on title but I'm hearing nothing as to what did he do directly or indirectly to induce the act constituting the violation, induce the act, not merely let it happen, and so, I would submit under the plain language of 20(a) and the logical conclusion of the Third Circuit decision in Rochez Brothers and In Re Suprema, that culpable participation in is an element that plaintiffs are going to require to prove for 20(a) liability. you have to be able to plead it. THE COURT: Let me hear from Dean Riccio. It's only logical

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M R . RICCIO:

On the pleading versus proof dichotomy,

the decision in In Re Able Labs, which is a 2008 decision from this district, Judge Greenaway I believe does a very detailed careful analysis of all of the cases back and forth and comes to the definite conclusion that, number one, culpable participation need not even be pled at all if the complaint says nothing about culpable participation. It still satisfies the pleading standard which is not the 9(b) pleading standard but the 8(a)(2) pleading standard . So, we don't even need to plead culpable participation, although I think we did. A n d while we were debating , your Honor, the sufficiency of the factual allegations regarding 10(b)(5) under the 9(b) standard , we're now only judged by the 8(a)(2) standard, which, as your Honor knows, is much less demanding by way of detail than is the 9(b) standard. As far as pleading -- I'm sorry -- as far as proving culpable participation is concerned , the Rochez case out of the Third Circuit may be the only -- and I don't want to say it is the only case -- but it might be the only case left in the circuit courts where culpable participation is required to be proven by the plaintiff as an element of the plaintiff's control person claim. Most other circuits, if

not all others , say that the culpable participation is interwoven with the good faith defense that would be

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a v a i l a b l e to the defendant in defending the 20(a) claim, so, where then does that leave us on Section 20(a)? First of all, the underlying violation , which is an element of Section 20(a), is admitted. about that. admitted . There's no dispute

Defendant's status as a control person is There's no argument about that. So, most 20(a)

cases involve whether the person is a control person or not. We don't have that. Or whether there's an underlying We don ' t

violation that the control person controlled . have that. So , the only issue is pleading culpable participation. it.

In Re Able Labs say you don't have to plead

If you do have to plead it, it's under the 8(a)(2)

standard , not the 9(b) standard, which then takes us to have we pled culpable participation. And I don't want to

repeat everything I said before dramatically and nondramaticall