Anwar et al v. Fairfield Greenwich Limited et al

Filing 1226

ENDORSED LETTER: addressed to Judge Victor Marrero from Sharon L. Nelles dated 11/12/2013 re: for the foregoing reasons, SCB respectfully requests a conference to discuss a motion for Judgment on the pleadings pursuant to SLUSA. ENDORSEMENT: The Clerk of Court is directed to enter into the public record of this action the letter above submitted to the Court by Chartered defendant. (Signed by Judge Victor Marrero on 11/13/2013) (js)

SULLIVAN & CROMWELL LLP
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LOS ANQ£LES • PALO ALTO. WASHINCPTON,

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November 12,2013
By Fax
Honorable Victor Marrero,
United States District Judge,
Daniel Patrick Moynihan United States Courthouse,
500 Pearl Street,
New York, New York 10007.
Re:

Anwar, et al. v. Fairfield Greenwich Ltd., et al., No. 09-CV-118
(S.D.N.Y.) - Standard Chartered Cases

Dear Judge Marrero:
We write on behalf of the Standard Chartered Bank. Defendants ("SCB") to
request a pre-motion conference regarding SCB's contemplated motion to dismiss all claims
pending against it in the above-captioned multi-district litigation ("MDL") under the Securities
Litigation Uniform Standards Act of 1998 ("SLUSA") and Rule 12(c) of the Federal Rules of
Civil Procedure. On May 10,2010, the Court determined that it would not consider SLUSA in
the context ofSCB's then-pending motion to dismiss, but ruled that SLUSA could "be raised
later in these proceedings." (Dkt. # 448 at 2.) SCB respectfully submits that in light of the
Second Circuit's recent decision in Trezziova v. Kohn (In re Herald, Primeo, & Thema
Securities Litigation), 730 F.3d 112 (2d Cir. 2013), now is an appropriate time for the Court to
consider the application ofSLUSA to these proceedings.
SLUSA precludes state-law claims in a "covered class action" alleging "a
misrepresentation or omission of a material fact in connection with the purchase or sale of a
covered security." 15 U.S.C. § 78bb(f)(I)(A).1 Separate from the SCB Cases, in the Anwar
1ms MDL is a covered class action, and the 57 "SCB Cases" that remain in the MDL
also independently qualify as a "group of lawsuits" that are considered a "covered class action"
because they seek damages on behalf of more than 50 persons. 5 U.S.C. § 78bb(f)(5)(B)(ii).
1ms Court has issued the following opinions addressing the claims asserted in the SCB Cases:
Anwar v. Fairfield Greenwich Ltd., 891 F. Supp. 2d 548 (S.D.N.Y. 2012) ("SeB IV"); Anwar v.
Fairfield Greenwich Ltd., 826 F. Supp. 2d 578 (S.D.N.Y. 2011) ("SeB IIr'); Anwar v. Fairfield
Greenwich Ltd., 745 F. Supp. 2d 360 (S.D.N.Y. 2010) ("SeB Ir');Anwar v. Fairfield Greenwich
Ltd.,742 F. Supp. 2d 367 (S.D.N.Y. 2010) ("SeB r').

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Honorable Victor Marrero

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class action that is also part of this MDL, this Court declined to apply SLUSA to claims arising
from investments in Fairfield Sentry Ltd. ("Sentry") and related funds (the "Funds"), finding that
the alleged wrongdoing was not "in connection with the purchase or sale of a covered security."
Anwar v. Fairfield Greemvich Ltd., 728 F. Supp. 2d 372,398 (S.D.N.Y. 2010). The Court
reached this detennination although Sentry and the Funds purportedly had implemented Bernard
Madoff's "split-strike conversion strategy," which was based on transactions in covered
securities from the S&P 100 Index. The Court reasoned that there were too many "layers of
separation" between Madoff's purported transactions and '"the financial interests Plaintiffs
actually purchased" to meet SLUSA's "in connection with" requirement. Id.
Recently. the Second Circuit, in Trezziova, adopted an "in connection with" test
that applies SLUSA to bar claims brought by investors in Madoff feeder funds where the factual
predicate underlying the alleged liability relates in some way to covered securities transactions.
In Trezziova, feeder fund investors asserted claims against two banks that allegedly railed to
disclose Madoff's fraud despite performing banking services for his business. 730 F.3d at 116­
19 & n.7. Like plaintiffs in Anwar, the plaintiffs in Trezziolla argued that their claims were not
barred by SLUSA because their feeder fund investments were not made Hin connection with"
Madoff s ... downstream' transactions in covered securities." Id. at ] ] 8. The Second Circuit
disagreed. Rather than assessing the layers of separation between plaintiffs' investments and
Madoffs covered transactions, the Second Circuit examined whether the covered transactions
had any relation, beyond being an "extraneous detail," to the factual predicate of the banks'
alleged liability. Id. at 118-19. Because the banks provided banking services to Madoff and
allegedly failed to disclose his fraud, which involved purported covered transactions, the Second
Circuit held that the alleged wrongdoing was sufficiently "in connection with the purchase or
sale of a covered security" to trigger SLUSA. Id. at 118-19 & n.5.
This broad application of SLUSA is consistent with the Second Circuit's decision
in Romano v. Kazacos, 609 F.3d 5] 2 (2d Cir. 2010), which he1d that misleading statements are
made "in connection with" a securities transaction if they "inducel]" a transaction or if
"plaintiffs' claims 'tum on injuries caused by acting on misleading investment advice'-that is,
where plaintiffs claims 'necessarily allege,' 'ne~essarily involve,' or 'rest on' the purchase or
sale of securities." Id. at 521-23 (internal citations omitted). In Romano, plaintiffs alleged that
Morgan Stanley & Co. ("MSC") induced them to retire early, receive Jump sum benefits and live
off of savings that plaintitls subsequently invested at MSC. ld at 515. When plaintiffs learned
that their savings would not sustain their retirement, they brought various claims against MSC
for providing allegedly misleading and negligent retirement advice. Id. at 515-16. Plaintiffs
argued that SLUSA's "in connection with" requirement was not met because they (i) challenged
MSC's advice on retirement, not investments; (ii) sought to recover their foregone wages, not
investment losses; and (iii) did not transact in covered securities at MSC for up to 18 months
following the challenged advice. Id at 522-24. The Second Circuit rejected these arguments
and applied SLUSA, finding that the "essence" of plaintiffs' claims necessarily involved and
rested. on the securities purchases because "this was a string of events that were all intertwined."
and plaintiffs, "in essence, assert[ed] that defendants fraudulently induced them to invest in
securities with the expectation of achieving future returns that were not realized." Id.
Trezziova and Romano compel the dismissal of plaintiffs' claims against SeB.
SCB's alleged wrongdoing and plaintiffs' losses both relate directly to Sentry's covered

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Honorable Victor Marrero

securities transactions. Panicularly, plaintiffs assert various state-law claims based on the

following two principal theories of liability arising from SeB allegedly recommending Sentry:
• Plaintiffs' first theory is that SCB "failed to disclose that ... [Sentry] was nothing more
than a funnel to BLMIS." (E.g., Complaint, 12-cv-9423, Okt # 1 ("Uzie/ Comp!."), ~ 64.)
This Court has interpreted claims based on this theory as turning on seB's alleged failure
to disclose "that Madoffwas actually executing the split-strike conversion strategy, that
he did so from the Fund's inception to its collapse, and that those transactions [e.g., the
transactions in . covered securities'] purportedly were Fairfield Sentry's lifeblood."
SCB 11, 745 F. Supp. 2d at 373 n.7; !lee also seB III. 826 F. Supp. 2d at 586.
• Plaintiffs' second theory is that SeB was required to conduct-and misled plaintiffs to
believe that it had conducted-due diligence to confirm that Sentry actually executed its
stated investment strategy and delivered its reported returns; and that by failing to
conduct such due diligence, SCB "merely passed on andJor actively recommended ... the
misrepresentations being made by" Fairfield and others about Sentry's returns and
covered securities transactions. (E.g., Uziel CompI. ~~ 6, 9,40,43-45, 52(b) & (n), 53­
54; see abm Complaint, IO-cv-6186, Dkt # 1 Ex. A,
1,4,36,41-45, 56(a).)

n

Under both theories, SeB's liability rests on aHeged misstatements about covered securities
transactions, rrezziova, 730 F.3d at 118-19. and plaintiffs' losses arose because, allegedly
contrary to SeB's advice, those transactions were fraudulent, Romano, 609 F.3d at 522-24.
Moreover, independent from plaintiffs' express allegations, the "essence" of
plaintiffs' claims is that SeB fraudulently induced plaintiffs to invest in Sentry based on the
mistaken assurance that Sentry was a safe fund that was executing a strategy involving the
purchase and sale of covered securities. Such claims '''necessarily involve" and "rest on" covered
securities transactions because, by investing in Sentry, plaintiffs were investing in Sentry's
strategy involving covered securities transactions, and plaintiffs' losses arc due to the fact that
those transactions were fraudulent. Jd. at 522-24; see also. e.g., Yale A1. Fishman 1998 Ins. Trust
v. Gen. Am. Life Ins. Co., No. 11-cv-1284, 2013 WL 842642, at ·6 (S.D.N.Y. Mar. 7,2013)
(collecting cases applying SLUSA to bar claims of Madoff feeder fund investors).
Finally, the procedural history oithe SCB Cases "lends credence to the notion
that plaintiffs' allegations are the vel)' types of claims Congress intended to preclude in enacting
SLUSA," because plaintiffs "originally pleaded federal securities fraud claims based on the same
underlying 'realities' of the case." Trezz;ova, 730 F.3d at 119 n.6; see SCB II, 745 F. Supp. 2d at
369-71 (dismissing § lOeb) securities fraud claims against SeB).
For the foregoing reasons, SCB respectfully requests a conference to discuss a
Respectfully submitted,

Sharon L. Nelles

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