Anwar et al v. Fairfield Greenwich Limited et al

Filing 1223

LETTER addressed to Judge Victor Marrero from Richard E. Hrodsky dated 11/19/2013 re: Thus, as an alternative to considering the Defendants' request to file a SLUSA motion, this Court may wish to choose to defer ruling on the Standard Chartered Defendants' request until Chadboume is decided. Document filed by Standard Chartered Bank.(cd)

From: Richard E. Brodsky

Page 2 of 14111191201311:59

Fax: [phone]

To:

Fax: 18S8) 391-5819

THE BRODSKY LAW FIRM, PL
RICHARD

E.

November 19,2013
By fax to [phone]
Honorable Victor Marrero
United States District Judge
Daniel Patrick Moynihan U.S. Courthouse
500 Pearl Street
New York, New York 10007-1312

Re:

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Anwar, et aL v. Fairfield Greenwich Limiled, et aL,
09-cv-118 (VM) (THK)
Standard Chartered Cases

Dear Judge Marrero:
I write as the Liaison Counsel for, and on behalf of, the Standard Chartered
Plaintiffs, in the Standard Chartered Cases (the "SC Cases"). This letter responds to the
November 12, 20131etter to Your Honor from counsel for the Standard Chartered
Defendants ("Standard Chartered" or "SC Defendants"). They seek a pre-motion
conference regarding a possible defense motion to dismiss the SC Cases under the
Securities Litigation Uniform Standards Act ("SLUSA"). Such a motion would be futile
and would squander judicial resources ifthe Court were to allow it to be filed.

1.

The Standard Chartered Cases

Standard Chartered Bank International (Americas) Limited ("SCar'), a self­
styled "private bank," recommended and sold investments in the Fairfield Sentry and
Sigma funds to many of its clients. At one point, SCBI clients had over $600,000,000
invested in these funds.
It was revealed in December 2008 that investments in those funds were worthless.
At various times in 2009, four "separately-filed actions," Anwar v. Fairfield Greenwich
Ltd, 745 F. Supp. 2d 360, 363 (S.D.N.Y. 2010), were brought against SCBI. The cases
were filed by four different law firms in three different courts in Florida and California. l

1 Headway filed its claim in state court in Florida. The Standard Chartered Defendants removed the case to
the District Cowt for the Southern District of Florida under 12 U.S.C. § 632, which pennits removal by
Edge Act banks, such as SCSI, in cases involving international banking transactions. Valladolidwas filed
in state court in California and was later removed to the Central District of California under 12 U.RC. §
632. Afaridom and Lopez were separately filed by different counsel in federal court in Florida. Jurisdiction
in these cases was based on 12 U.S.C. § 632.

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From: Richard E, Brodsky

Fax: (88S) 391·5819

To:

Fay: +1 (212) 805·6382

Page j

of 14 1111912013 11 :59

Honorable Victor Marrero
November 19,2013
Page 2
There was no coordination in filing these separate individual lawsuits. None of the cases
was brought as a class action.
The four Complaints "[w]ere not entirely consistent with each other, and certain
of Plaintiffs' allegations [were] specific to individual Plaintiffs." Id
• In Alaridom and Lopez, SCBI alone was sued. Valladolidnamed SCBI, a SCBI
employee and two parent companies. Headway sued not only SCBI and some of
its officers but also Fairfield Greenwich and several entities providing services to
Fairfield (accountants, service companies, etc.).

• Lopez involved both state-law claims and federal securities law claims that this
Court dismissed, while the plaintiffs in the other three cases sued only under state
common law. 2
• All four of the plaintiffs sued Standard Chartered for breach of fiduciary duty and
negligence or gross negligence; two (lvfaridom Plaintiffs and Lopez) added claims
of fraud or negligent misrepresentation, while the other two made no such
allegations.
After the Joint Panel for Multidistrict Litigation ("JPML") transferred these four
cases to this Court and consolidated them with Anwar for pre-trial purposes, 55 other
cases were filed at various times against Standard Chartered, either directly in this Court
or in the Southern District of Florida, and the Florida cases were transferred to this Court.
44 were filed by one lawyer, who had filed one ofthe four original cases (Lopez). Six
were filed by a second lawyer. One was filed by a third lawyer. One was filed by a fourth
lawyer. Two were filed by a fifth lawyer. One was filed by a sixth lawyer. The 59 cases
were thus filed by nine different lawyers from April 2009 (Headway) to at lea')t
December 2012 (Optic Blue).
For the most part, but not entirely, the later-filed claims arise from SCBI's having
recommended and sold the Fairfield investments without a proper basis. In at least one
case, Barbachano, the complaint sues over other investments as well. Two other
previously consolidated cases, Coso and Pujals, were filed as class action, but both have
long been since dismissed. No other cases were pled as a class action.

The letter (at 3) mischaracterizes the facts by stating that the SC Cases' "procedural history,
'lends
credence to the notion that plaintiffs' allegations are the very types of claims Congress intended to preclude in
enacting SLUSA,' because plaintifft 'originally pleadedfoderal securities fraud claims based on the same
underlying "realities" ofthe case, ", (citation omitted; empha<;is added). This is simply not true for nearly all
ofthe Standard Chartered Cases, Only one of the cases, Lopez, alleged federal securities law claims, whlch
were promptly dismissed', the rest did not.

2

From: Richard E. Brodsky

Fax: 188B) ~91-5819

To:

Pag& 4 of 14111191201311:59

Honorable Victor Marrero
November 19, 2013
Page 3

2.

Summary of Argument

First, SLUSA does not apply because the SC Cases do not constitute a "covered
class action." The "group of lawsuits" prong of the definition of "covered class action"
cannot be stretched to cover separately-filed actions brought at different times, without
coordination, by separate counsel on behalf of separate plaintiffs in four diflerent courts,
just because they were transferred for pre-trial purposes, over the plaintiffs' separate
objections, to this Court. The term "group oflawsuits," as used in SLUSA,
unquestionably refers to a number of lawsuits purposefully gathered together, not thrust
together, as occurred here. This conclusion is mandated by a facial reading ofSLUSA, as
enacted, and ifthere is any ambiguity, by its legislative history.
Second, even if these individual cases amounted to a "covered class action," and
even if the various disparate complaints (including those in which no claims of
misrepresentation are advanced) can be viewed as having alleged some specie of fraud,
the various individual Plaintiffs have not alleged a fraud "in connection with the purchase
and sale of a covered security." The SC Cases are plainly distinguishable from the case
on which the Defendants place primary reliance, Trezziova v. Kohn (In re Herald,
Primeo, & ThemaSec. Litig.), 730 F.3d 112 (2d Cir. 2013) ("Trezziova,,).3 Trezziovais
entirely consistent with this Court's earlier decision in Anwar v. F aiifield Greemvich Ltd
("Anwar IF'), 728 F. Supp. 2d 372,399 (S.D.N.Y. 2010) (in express class action, holding
SLUSA "in connection with" requirement not met; construing SLUSA to apply "snaps
even the most flexible rubber band."). Trezziova and AmvarII differ not in their
underlying rationale but in the significant factual differcnces between thc two-the
relationships between the plaintiffs and the defendants, on the one hand, and the
defendants and Bemard L. MadoffInvestment Securities, LLC CBLMIS"), on the other.
Anwar II should be followed here, because if that case sl1appedthe SLUSA "rubber
band," applying Sf,USA here would positively shred it.
Standard Chartered's position amounts to saying that even if, as a private bank
with admitted fiduciary duties to its clients, it separately counseled many of its clients to
invest in Fairfield Sentry or Sigma without a proper basis, it cannot be sued for breach of
fiduciary duty by any of those clients because there are just too many disgnmtled clients
suing the bank. Theirs is a preposterous, and frankly cheeky, argument. If SLUSA were
to be applied to the SC Cases, it would raise the most serious questions about the power

This Court is bound by the holding In Trezziova until It is overruled by the Second Circuit or the Supreme
Court Nevertheless, a'5 more fully discussed below at 12-13, the viability of Trezziova and its holding that
"in connection With" does not require any actual "purchase or sale" are in doubt because of a case pending
in the Supreme Court-that IS, Chadbourne & Parke LI~P v. Toice, No 12- 79 The Clerk of the Second
CirCUit has informed counsel In the Trezziova appeal that the Court has postponed decision on the pending
rehearing pehtion until the Supreme Court decides Chadbourne. The Court heard argument on Chadbourne
m October and It IS sub Judice.
3

From: Richard E. Brodsky

Fax: 18B8) 391-S819

To:

Fax: "1 (212} 805-6382

Page S of 1411119/20011 :59

Honorable Victor Marrero
November 19, 2013
Page 4
4

of the Congress to defeat the plaintiffs' rights in this manner. But this Court need not
reach that constitutional question, for, without doing so, it can and should rule that the SC
Cases are not "covered class actions" that allege fraud "in connection with the purchase
or sale of covered securities."
3.

Argument

A

The SC Cases are Not a "Covered Class Action"

The Standard Chartered Defendants' argument fails because this is not, as
required by SLUSA, a "covered class action." 15 U.S.C. § 78bb(f)(5)(B). TIns is clear
from the face ofSLUSA, as enacted, and if there is any ambiguity, from its legislative
Instory.
As is pertinent to this case, "covered class action" is defined in the statute to

include:
(ii) any group C!f lawsuits filed in or pending in the same court and

involving common questions of law or fact, in which­
(I) damages are sought on behalf of more than 50 persons; and

(II) the lawsuits are joined, consolidated, or otherwise proceed as a single
action for any purpose.
15 U.S.c. § 78bb(f)(5)(B)(ii) (emphasis added).
The key term is "group oflawsuits," and, within that phrase, the key word is
"group." The issue is whether this tenn and this word can apply to the SC Cases while
adhering to the stated congressional objective, expressly stated in SLUSA itself, of "not
clumging the current treatment if individuallcrwsuils." Section 2( 5) of SLUSA, Pub. L.
No. 105-353, 112 Stat. 3227 (1998) ("Findings") (emphasis added).

Stretching SLlJSA to cover the SC Cases would violate the petition clause of the First Amendment and
the due-process clause of the Fifth Amendment by eliminating the plamtiffs' right to sue Standard
Chartered under state law. Borough ofDuryea. Pa v. Guarnien, 131 S.Ct 2488,2494, 180 L.Ed.2d 408
(20 II) ("[T]he right of access to courts for redress of iNTongs is an aspect of the First Amendment right to
petition the government"); Jones v. Clinton, 72 F.3d 1354, 1360 (8th Cir. 1996), affd, 520 lJ.3. 681 (1997)
(".Mrs. Jones is constitutionally entitled to access to the courts and to the equal protection of the laws [to
sue the President for conduct before he assumed the Presidency]. 'The very essence of civil liberty certainly
consists m the right of every indiVldual to claim the protection of the laws, whenever he receives an injury ..
Marburyv. Madison, 5 US. (I Cranch) 137,163,2 LEd. 60 (1803)."); see also Carol Rice Andrews. A
Right ofAccess to Court Under the Petition Clause ofthe First Amendment: Defining the Right, 60 OhiO
st. L. J 558 (1999) The Standard Chartered Plaintiffs are not argumg that SLUSA is unconstitutional as
iNTltten, but rather it~ application to the SC Cases
4

From: Richard E Brodsky

Fax: (388) 391·5819

To:

Fay'. +1 (2121805.8382

Page 6 of 14111191201311:59

Honorable Victor Marrero
November 19,2013
Page 5
The underlying issue, therefore, is when "individual lawsuits" morph into a
"group oflawsuits." The answer is not "when there are 50 individual lawsuits," for it is
plain from section 2(5) of the statute, that truly "individual" lawsuits are not deemed
"class actions." To understand the meaning of this tenn, therefore, requires not only an
understanding of the meaning of the words "group of lawsuits" standing by themselves
but also an understanding of their meaning in context. As the Court held in AfcNeill v.
United States, 131 S. Ct. 2218, 2221 (2011 )(Thomas, 1.), citing Robinson v. Shell Oil
Co., 519 U.S. 337, 341,117 S.Ct. 843, 136 L.Ed.2d 808 (1997), "[a]s in all statutory
construction cases, we begin with 'the language itself [and] the specific context in which
that language is used.'
"[T]he plainness or ambiguity of statutory language is detennined by reference to
the language itself, the specific context in which that language is used, and the broader
context ofthe statute as a whole ....Our inquiry must cease if the statutory language is
unambiguous and the statutory scheme is coherent and consistent." Robinson, 519 U.S. at
340-41 (quotation marks and citation omitted). Two additional rules of ~tatutory
construction also are pertinent: (i) that "when the statute's language is plain, the sole
function of the courts--at least where the disposition required by the text is not absurd-­
is to enforce it according to its tenns," Doddv. UniledStates, 545 U.S. 353, 359 (2005)
(citation and quotation marks omitted; emphasis added); and (ii) that "[t]he plain meaning
of legislation should be conclusive, except in the 'rare cases [in which] the literal
application of a statute will produce a result demonstrably at odds with the intentions of
its drafters. '" United States v. Ron Pair Enter., Inc., 489 U.S. 235, 242 (1989) (citation
omitted).
The word "group" is not defined in the statute, which requires it to be given its
ordinary meaning. Sebelius v. Cloer, 133 S. Ct. 1886, 1893 (2013). Resort to a dictionary
is, of course, an accepted method of detennining ordinary meaning. The pertinent
definitions of "group" in the online edition of the authoritative Webster's ThirdNew
International DictiOl1aJY, htlp:!iunabridged.merriam-webster.com, are as follows:
2.a: relatively small number of individuals assembled or standing together
2.b: an assemblage of objects regarded as a unit because of their

comparative segregation from others

3: a number of individuals bound together by a community of interest,
purpose, or function: such as
a( 1): a social unit comprising individuals in continuous contact through
intercommunication and shared participation in activities toward some
commonly accepted end
(2): class
(3): a relatively small number of persons associated fom1ally or 111fonnally
for a common end or drawn together through an affinity of views or
interests.

From: Richard E. Brodsky

Fax: [phone]

Fay' +1 \2121 805·6382

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Honorable Victor Marrero
November 19, 2013
Page 6

See also The New Intemational Webster's Comprehensive Dictionary a/the English
Language (1996), at 559, defining "group" to mean "a number of persons ... existing or
brought together; an assemblage; cluster"; defining "assemblage" to mean "an
assembling," id, at 87; and defining "a")semble" to mean "to collect or convene; come
together; congregate, as a group or meeting." Jd
These definitions strongly point to a group's being a purposeful gathering
together, rather than, as here, the forced or involuntary association of one plaintiff with
another. "Group," in other words, means more than a number of individual persons
involuntarily thrust together. The argument could and should end here.
If this alone were not enough to end the inquiry, resort would properly be made to
the legislative findings in the statute itself to divine legislative intent. Ge11. Dynamics
LandSys., Inc. v. Cline, 540 U.S. 581, 589-90 (2004) (reviewing legislative findings to
assist in detennining whether, in banning "age" discrimination, Congress intended to
protect younger workers against discrimination in favor of older workers). Accord Sutton
v. UnitedAir Lines, Inc., 527 U.S. 471, 484 (1999) ("Finally, and critically, findings
enacted as part of the ADA require the conclusion that Congress did not intend to bring
under the statute's protection all those whose uncorrected conditions amount to
disabilities."). See A1cCreary Cnty., Ky. v. Am. Civil Liberties Union a/Ky., 545 U.S.
844, 861 (2005) ("Examination of purpose is a staple of statutory interpretation that
makes up the daily fare of every appellate court in the country. ").
The findings in section 2 of SLUSA ("Findings"), Pub. L. No.1 05-353, 112 Stat.
3227 (1998), buttress the conclusion that the SC Cases are not swept up into the term
"group of lawsuits. " Subsections 2(2) and (3) of SLUSA state that, since the passage of
the PSLRA, "a number of securities class action lawsuits have shifted from Federal to
State courts," which "has prevented that Act from fully achieving its objectives." (Tllis is
far removed from what occurred here, and speaks to a detennined, coordinated attempt in
class acti ons filed as such to evade the effects of the PSLRA.) Thus, Congress found:

[1]11 order to prevent certain State private securities class action lawsuits
alleging fraud from being used to frustrate the objectives of the Private
Securities Litigation Refonn Act of 1995, it is appropriate to enact
national standards for securities class action lawsuits involving nationally
traded securities, while preserving the appropriate enforcement powers of
State securities regulators and not changing the current treatment of
individual lawsuits.
SLUSA, § 2(5) (emphasis added).
The last words in this section-"not changing the current treatment of
individual lawsuits"-are vital and can mean only one thing: if "individual
lawsuits" are not within the scope of SLUSA, then all lawsuits filed on an
independent, isolated, non-concurrent basIS must be considered to come within

From: Richard E. Brodsky

Fax: lSaS) 391-5819

To:

Fax: [phone]

Page 8 of 14111191201311:59

Honorable Victor Marrero
November 19, 2013
Page 7
the meaning of that phrase_ Otherwise, how many "individual" lawsuits would
Congress pennit before they become a "group," and what would it take to make
them a "group"? Coupled with the obvious legislative intent to prevent one
la'Wyer, or a coterie of la'W)'ers, from attempting to evade the PSLRA by filing ten
different suits, Congress could not have rationally intended to reach the SC cases.
Finally, to the extent that the language in question is ambiguous-"capable of
being understood in two or more possible senses or ways," Chickasaw Nation v. United
States, 534 U.S. 84, 90 (2001 )-resort to legislative history is appropriate. The
Conference Report on SLUSA, contained in H.R. Conf. Rep. No. 803, 105th Cong., 2d
Sess. 1998, makes the legislative intent behind SLUSA's passage clear:
TIle purpose of this title is to prevent plaintiffs from seeking to evade the
protections that Federal law provides against abusive litigation by filing
suit in State, rather than in Federal, court. The legislation is designed to
protect the interests of shareholders and employees of public companies
that are the target of meritless 'strike' suits. ld. at 13,
TIle language concerning "covered class action" establishes that in expanding the
definition of class action beyond those labeled or otherwise pleaded as such, Congress
did not intend to cover the SC cases:
'Class actions' that the legislation bars from State court include actions
brought on behalf of more than 50 persons, actions brought on behalf of
one or more unnamed parties, and so-called 'mass actions,' in which a
group of lawsuits filed in the same cow-r are joined or otherwise proceed
as a single action. (emphasis added) ld.
The Conference Report then specitically zeros in on "plaintitfs' la'Wyers [who]
have sought to circumvent the Act's provisions by exploiting differences between Federal
and State laws by filing frivolous and speCUlative lawsuits in State court, where
essentially none of the Retonn Act's procedural or substantive protections against
abusive suits are available." ld. at 15. This is further evidence that Congress intended to
cover evasive collusive or collective action, not a situation like this, when, unrelated,
different parties represented by different la'W)'ers filed separate actions against Standard
Chartered at different times and got involuntarily thrown into a foreign court of the
defendant's choosing.
The Conference Report's reference to "so-called 'mass actions'" is the final nail
in the coffin ofSLUSA's application to the SC Cases. The term "mass action" was used
in the Class Action Faimess Act of 2005 ("CAFA"), Pub.L No. 109-2, 119 Stat. 4
Vihile the actual language of SLGSA is "filed in or pending In the same court," the wording in the
Conference Report is additional evidence of Congress's true intent, which is inhibiting plaintiffs' class
action la\Vyers' ability to scheme to "beat" the PSLRA

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From: Richard E. Brodsky

Fa)( (B88) 391-5B19

To:

Fa~: +1 \212) 805-6382

Page \) of 141111912013 11 :59

Honorable Vi ctor Marrero
November 19,2013
Page 8
(2005), codified at 28 U.s.C. § 1332(d)(11 )(B), to mean, in pertinent part, "any civil
action ... in which monetary relief claims of 100 or more persons are proposed to be
tried jointly on the ground that the plaintiffs' claims involve common questions of law or
fact, except that jurisdiction shall exist only over those plaintiffs whose claims in a mass
action satisfy the jurisdictional amount requirements under subsection (a)."
Not only are the SC Cases not "mass actions" as defined in CAFA for, among
other reasons, the fact that it is not "proposed [that they] be tried jointly," but the
legislative history, once again, shows that the SC Cases are not intended to be within the
definition ofa "mass action." See Anwarv. FailjieldGreenwichLtd, 676 F. Supp. 2d
285,297 (S.D.N.Y. 2009) (holding CAFA inapplicable to derivative actions against
Fairfield Greenwich on behalf of Sentry and its limited partners and remanding cases to
state court)6
In sum, the contra'>t between these cases and those covered by SLUSA's
definition of "covered class action" could not be starker. 7

B

n,e SC Cases Do Not Satisfy SLUSA 's "In Connection

WlIh " Standard

As set forth above, this Court previously held that the "in connection with" test in
SLUSA was not satisfied as to the Anwar II class action, because "[t]he allegations in this
case present mUltiple layers of separation between whatever phantom securities Madoff
purported to be purchasing and the tinancial interests Plaintiffs actually purchased."
Amvar II, 728 F.Supp. at 398. In the SC Cases, there is one additional, and highly
6

This Court found:
AFA's legislative histcry makes clear that Congress envisioned 'mass actions' as claims
by multiple plaintiffs 'consolidated by State court rules; but not otherwise pled as class
actions. See 151 Congo Rec. S1151 (daily ed. Feb. 9, 2005) (statement of Sen. Reid)
More specifically, Congress drafted the 'mass action' provision ofCAFA primarily to
cover actions brought by multiple plaintifIs in states such as Mississippi that' do not
provlde a class action devIce.' See 151 Congo Rec. S 1081 (daily ed. Feb. 8, 2005)
(statement of Sen. Lott); see uh'o 151 Cong. Rec. S1235-36 (daily ed. Feb. 10,2005)
(statement of Sen. Durbm) (' And I understand ... that these so-called mass actions are
currently filed only in lvf1sslssippi and West Virginia ... I agree with the proponents that
the scope ofth[e] [mass action proVIsion] is limited. ') As the Senate Report on the
statute noted, 'lawsuits that resemble a purported c:ass action should be considered class
actIOns., .. ' S.Rep. No. 109-14, at 35, as reprinted in 2005 US,C,C,AN at 34. Recent
case law further supports the intent of the Act's drafters. See Bullard v. Burlmgton N.
Santa Fe Ry. Co., 535 F.3d 759, 762 (7th Cir2008) ('Think of 15 suits, with (say) 10
plaintiffs each, that are proposed to be tried jointly. The prospect of a single trial with 150
plamtiffs would convert all 15 SUIts mto one 'mass action' under § 1332(d)(l1 XB) .. ,.)

While there are contrary decislOns in thlS District on both "covered class actlOn" and "in connection
with," they either do not analyze the term "group of lawsuits" in the context ofthe legIslative findings
underpinnmg SLUSA or are, respectfully, \-Hong on the Issue of "in connection with," or both.

7

From: Richard E. Brodsky

Fax: ISBS) 391-5819

To:

Fa~:

+1 \212/805-6382

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Honorable Victor Marrero
November 19,2013
Page 9
significant "layer[] of separation": each of the Standard Chartered Plaintiffs are suing
their "private bank," which, individually and separately, and through a broad array of
separate Standard Chartered "Relationship Managers," recommended and counseled that
each invest in Fairfield Sentry.
None of the complaints allege that Standard Chartered is liable to their fomler
private banking customers for not having discovered that BLMIS was running a Ponzi
scheme. Rather, they allege that Standard Chartered breached its fiduciary duty to them
and was negligent by failing to take account of "red flags" that created too great a risk
that Fairfield Sentry was not properly managing their money. Indeed, some of the
Plaintiffs have sued Standard Chartered for not having disclosed to them that it received a
1% per annum "trailer fee" (kickback/rebate) from Fairfield Greenwich for placing them
in Sentry. That allegation has nothing to do with securities transactions, let alone nOI1­
existent transactions in "covered securities."s
Yet, seizing on the Trezziova decision~~which involved the very banks where
BLMIS did business-and mischaracterizing its holding, the Standard Chartered
Defendants urge this Court to reverse itself. Trezziova does conclude that covered
securities transactions do not have to occur for the "in connection with" test to be
satisfied, but so did this Court in Anwar II. Indeed, the approach taken by this Court in
Anwar II was identical to the approach taken by the appellate court in Trezziova: analyze
the relationship between the parties and the relationship between the defendant and
BLMIS. It is the nature ofthose relationships that require Anwar II to be followed in the
SC Cases and the "in connection with" test to be deemed unsatisfied.
In Trezziova, investors in hedge funds filed putative class actions against J.P.
Morgan Chase and Bank of New York Mellon, two banks that had no connection with the
investors or the funds but were themselves bankers to BLMIS. The Second Circuit
affimled the dismissal of the complaints under SLUSA, but not on the basis advocated by
the Standard Chartered Defendants in their letter. The Defendants argue that Trezziova
"applies SLUSA to bar claims brought by investors in Madoff feeder funds where the
factual predicate underlying the alleged liability relates in some wtry.' to covered security
transactions." Letter at 2 (emphasis added). As we discuss below, "relates in some way"
simply is not the standard, was not followed in Trezziova, and would amount to no
9
standard at all. What is more, it directly conflicts with the Supreme Court's opinion in
a In addition, the Court denied the lvlandom Plaintiffs' and Headway's requests for leave to amend their
complamt to add the "trailer fee" allegation, which came out only in discovery, but the Court stated that
"Plaintiffs are free to advance evidence of this contention in support of their existing claims." Anwar '1-:
FairfteldGreenwich Ltd, ;\0 09-cv-OI18 (VM) (THK), 2012 \\L 1415621, *4 (SDNY Apr. 13, 2012),
recons. den'd, 283 FRO. 193 (SDN. Y 2012)

Nor was the purported "relates in some way" standard applied by the other decision Standard Chartered
principally relies on, Romano v. Kazacos, 609 F3d 512, 523 (2d CiL 2010) In Romano the court held that
allegatIOns m class actIOns tiled in state court, that (a) stockbrokers fraudulently induced retirees to part
WIth their money so It could be mvested by the brokers, and (b) the retirees lost money when the covered
securities acquired by the brokers lost value, could "satisfy SLUSA's 'in cormection with' requirement

9

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Honorable Victor Marrero
November 19, 2013
Page 10

SE.c. v. ZaJ1c!ford, 535 U.S. 813, 820 (2002), in which the Court defined "in connection
with" in the context of section lO(b) of the Securities Exchange Act. There, the Court
made clear that "the statute must not be construed so broadly as to convert every
common-law fraud that happens to involve securities into a violation of § 10(b)," Id at
820, and held that the defendant's conduct must "coincide" with securities transactions to
be in connection with those transactions. Id at 825. In other words, there are limits,
which Standard Chartered's suggested test would eliminate.
Instead, the Trezziava court focused exclusively on the relationship ofthe
defendants to BLMIS and the fraud:
[Their] relationship to the Madofffraud is alleged to be far more than
incidental. The complaints, fairly read, charge that JPMorgan and BNY
knew of the fraud, failed to disclose the fraud, and helped the fraud
succeed-in essence, that JPMorgan and BNY were complicity [sic] in
MadoIT's fraud. These allegations are more than sufficient to satisfy
SLUSA's requirement that the complaint allege a "misrepresentation or
omission of a material fact in connection with the purchase or sale of a
covered security."
730 F.3d at 119.
Additionally, the Trezziova court found that "on the very face of plaintiffs'
complaints, the liability of JPMorgan and BNY is predicated not on these banks'
relationship with plaintiffs or their investments in the feeder funds but on the banks'
relationship with, and alleged assistance to, Madoff Securities' Ponzi scheme, which
indisputably engaged in purported investments in covered securities on U.S. exchanges."
730 F.3d at 118-19. The Trezziava banks' direct relationshi p with BLMIS was the very
fact on which the plaintiffs premised their claim. See Complaint, In re Herald Primeo, &
171ema Sec. Litig., No. 09-cv-00289-RMB-HBP, D.E. 76, at ~ 585-597 (the banks
"knowingly facilitated and provided services to Madoff in furtherance of the Ponzi
scheme . . ..").
In sharp contra'it with the claims in Trezziova, the claims in the various SC Cases
are that Standard Chartered breached its fiduciary duty to each of its aggrieved clients,
separately and one-by-one, by recommending that they purchase interests in Fairfield
Sentry and Sigma. Unlike the bank defendants in Trezziova, which had no relationship
whatsoever with the plaintiffs, but were in privity with BLMIS, Standard Chartered was
not BLMIS's bank and had no direct contact with BLMIS. It was not even Fairfield
Greenwich Group's bank. Standard Chartered wa'> in direct (and separate, individualized)
contact with each of the Standard Chartered Plaintiffs and admitted to having a fiduciary
relationship with them to manage their money properly. Standard Chartered was several

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because [the retirees], in essence, assert that defendants fraudulently induced them to invest in securities
with the expectation of achieving future returns that were not reahzed."

From: Richard E. Brodsky

Fax.: (S88) 391·5819

To:

Fay: +1 \212) 805·6382

Pag" i20f 14111191201:111:59

Honorable Victor Marrero
November 19,2013
Page 11
"layers" removed from whatever banking or investment transactions Madoff engaged in
(or claimed to engage in). This vital distinction goes to the central core of the court's
rationale in Trezziova and that of this Court in Anwar II.
In short, the Second Circuit in Trezziova did not apply a different test than the one
this Court applied in Anwar II, and il1neither case did the courts apply the purported
"relate in any way" test suggested by the Defendants. Both cases analyzed the
relationship between the plaintiffs and the defendants and between the defendants and
BLMIS. The difference between the two decisions is the vastly different sets of
relationships in the two cases. Trezziova, therefore, does not come close to requiring this
Court to abandon the approach it followed in Anwar If Instead, this Court should follow
both Trezziova and Anwar II and hold that the "in connection with" test is not met in the
Standard Chartered Cases. 10
4.

A Proper Alternative Approach \Vould be to Defer

Ruling Until the Supreme Court Decides

Chadbourne & Parke LLP v. Troice

The Standard Chartered Plaintiffs have demonstrated that this Court can and
should hold that SLUSA does not govern the SC Cases. This position is not only
consistent with the rationale of Trezziova but rests on grounds unrelated to that decision
and SLUSA's "in connection with" standard.
Nevertheless, a pending Supreme Court case may result in the abrogation of the
holding in Trezziova that the "in connection with" test can be met in a case where no
purchases or sales of "covered securities" actually occurred. The Supreme Court has
granted certiorari and held oral argument in Chadboume & Parke UP v. Troice, No. 12­
79, 133 S. Ct. 977 (2013). The Court granted certiorari on the question of "[w]hether
SLUSA precludes a state-law class action alleging a scheme offraud that involves
misrepresentations about transactions in SLUSA-covered securities." See
http://www.supreme-court.gov/qp/12-00079qp.pdf. Oral argument was held in October
2013. See http://www.supremecourt.gov/-Search.aspx?-FileName-=/docketfiles/12­
79.htm. 1be oral argument focused exclusively on the "in connection with" test, and

10 The "in connection with" requirement is not met for another reason: the SC Cases do not all allege "an
untrue statement or omlSSlOn of a material fact m connection with the purchase or sale of a covered
security," even U, as TrezzlOva holds, this proVIsion does not require an actual purchase or sale. As noted
above, several of the actions do not allege any misrepresentatIOn or omission, and others allege Standard
Chartered's faJlure to disclose its receipt of a "trailer fee" from Fairfield Greenwich, which has nothing to
do with a "covered security". See Pension Comln. ofUniv. ofAfontrea/ Pension Plan v. Banc ofAm. Sec.,
UC, 750 F. Supp. 2d 450, 451 (SD.N Y 2010) (holding that mlSIepresentation of performance of feeder
fund not made "in connection with the purchase and sale of a covered security"). Thus, even though tnal
courts, lI1 interpreting SLUSA's ":n connection with" requirement, are to examine "the pleadings and the
realities underlying the claims," Romano, 609 F.3d at 523, SLUSA cannot be mterpreted so as to elIminate
the restrictions, however loosely dra\\'n, inherent in its application.

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From: Richard E. Brodsky

Fax: (888) 391·5819

To:

-

.. -------~---.----

Fay: +1 \2121 805·6382

Page Dot 14111191201311:59

Honorable Victor Marrero
November 19,2013
Page 12
several Justices pointedly questioned whether the "in connection with" test can be
satisfied where no purchases or sales of covered securities occurred. http://www.­
supremecourt.gov/oral_arguments/argument transcriptsl12-79.-Jc03.pdf.
Meanwhile, a petition for rehearing of Trezziova is pending in the Second Circuit.
The Clerk of the Second Circuit has infonned counsel in that appeal that the Court has
postponed decision on the pending rehearing petition until the Supreme Court decides
Chadboume. A copy of the letter is attached. Thus, as an alternative to considering the
Defendants' request to file a SLUSA motion, this Court may wish to choose to defer
ruling on the Standard Chartered Defendants' request until Chadboume is decided.
Thank you for your consideration ofthis letter.
Sincerely yours,
The BrodskY' Law Firnl, PL

Richard E. Brodsky
Enclosure
cc:

Counsel in Standard Chartered Cases

From: Richard E Brodsky

Fa¥: +1 \212/80::'·6:182

10:

Falc 188B) 391"S8H;

Document: 474

Case: 12-156

Page: 1

Page 1401 1411119120n 11:59

1067158

10/16/2013

1

UNITED STATES COURT OF APPEALS
THURGOOD MARSHALL UNITEO STATES COURTHOUSS;

40 FOLEY saUARE

NEW YORK. NY 10007

CATHERINE O'HAGAN WOLFE

FAX

Cu;RK OF COURT

(2121 857-8585
(212.1857·8710

October 16, 2013

Francis A. Bottini, Jr., Esq.
Bottini & Bottini, Inc.
781 i Ivanhoe Avenue, Suite 102
La Jolla, CA 92037

Timothy Joseph Burke, Esq.
Stull, Stull & Brody
9430 Olympic Boulevard, Suite 400

Beverly Hills, CA 90212

Re: In Re: Herald. Primeo and Them, Docket Nos. 12-156, 12-162
Dear Counsel,

This letter i~ to advise you that the panel has determined to postpone the decision on the pending
petition for panel rehearing unti! the United States Supreme Court decides Chadbourne & Parke LLP v.
Troice, No. 12-179, which was argued on Monday, October 7,2013,
If either counsel is of the view that this postponement causes undue harm to his or her client,
.
please advise me by letter. Also, r am available to answer any questions you may have.
Very truly yours,

~O/tt~U-o~
Catherine 0' Hagan Wolfe
cc: Susan L. Saitzstein, Esq.
Michael Edward Wiles, Esq.
Thomas 1. Moloney, Esq.
Patricia M. Hynes. Esq.
Thomas G. Rafferty, Esq.
James C. Dugan, Esq.

Price O. Gk-len, E1>q.
Franklin B. Velie, Esq.
Brett S. Moore, Esq.

Joseph Serino, Jr., Esq.
Jeff G. Hammell, Esq.
Lewis .I. Liman, Esq.
Sanford M. Litvack, Esq.
Michael S. Flynn, Esq.
Fraser L. Hunter, Jr., Esq ..
William R. Maguire, Esq.
Richard A. Martin, Esq.
Claudius O. SOkCIlU, Esq.

The Clerk of Court is directed to enter into the public record
ab.ove submitt;ed to thl.? ~ou!J, by

oft~is actio~)he lett~r

S~~~,;~~£ ..7jre{ ~~

~? . e?t.·<:--?-~
":sO ORDERED

S

.

{1-/9"/5
bATE

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