Anwar et al v. Fairfield Greenwich Limited et al

Filing 1246

ENDORSED LETTER addressed to Judge Victor Marrero from Sharon L. Nelles dated 3/3/2014 re: counsel writes in response to the letters sent to the Court on February 27 and February 28 concerning the Supreme Court's February 26, 2014 decision in Chadbourne & Parke LLP v, Troice. ENDORSEMENT: The Clerk of Court is directed to enter into the public record of this action the letter above submitted to the Court by Standard Chartered Bank Defendants. (Signed by Judge Victor Marrero on 3/4/2014) (tn)

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March 3, 20}4

The Honorable Victor Marrero,

United States District Judge,

Daniel Patrick ]\"1 C'lynihan United States Courthouse.

500 Pearl Street,

New York. New York 10007.

Re:

Anwar v. Fairfield Cireelnvich LId.
No. 09-CV-118 (S.D.N.Y.) - Standard Chartered Cases

Dear Judge :v1arrero:
We \"Tite on behalf of the Stan.dard Chartered Bank Defendants ("SCB" or the
"Bank'') in response [0 [he letters sent to the Court on february 27 and February 28 concerning
the Supreme Court's February 26, 2014 decision in Chadbourne & Parke LLP v, Tmice, No. 12­
79 ("Chadbourne"). Plaintiffs contend that Chadbourne negates the Bank's contemplated
motion to dismiss plaintiffs' claims under the Securities Litigation Uniform Standards Act
C'SLUSA"). As the Bank noted in its November 26,2012 letter to this Court seeking a pre~
motion conference, however, and as the Supreme Court's decision in Chadbourne now confirms,
Chadbourne has no application to the SCB Cases.
The Court's decision in Chadbourne turns on the fact that no plaintiff had an
interest in a covered .5ecurity; rather, the sole purported investments or interests in covered
securities belonged to the fraudster. (Slip Op. at 18.) More specificaliy, plaintiffs in
Chadbourne purchased certificates of deposit ("CDs") with fixed rates of return from Stanford
International Bank ("SIB"), whose owner, Allen Stanford, was subsequently convicted for
operating a Panzi scheme in the sale of the CDs. (Slip Op. at 5-6.) Those CDs were not
"covered securities" under SL USA and the fixed rates of return were not represented to be tied to
any such securities. (Slip Op, at 2, 5; see also Roland v. Green, 675 F.3d 503, 522 (5th Cir.
2012) ("The CDs were debt assets that promised a fixed rate of return not tied to the success of
any of SIB's purported investments ....") Thus, no plaintiff had any relevant interest or
investment, and the only possible connection to "covered securities" was SIB's repre:;entation
that it ·'ov.rned, would o\\·n. or would use the victims' money to buy for itselfshares of covered
securities," (Slip Op. at I S (emphasis in original).) The Supreme Court held that this was not
enough: there was no connection ".ith the purchase or sale of a covered security because SIB's
fraud and its own fictitious securities positions were "not a 'connection' that matters" (Slip Op.
at 9). and any other connection was plainly too "remote" because "no [other] person actually
believed he was taking an o~nership position" in covered securities (Slip Op. at 16).

2~:

The Honorable Victor .\1arrero

LLP 125 80 2SFL

@ (if):3./

-2­

This Court is confronted with an entirely different set of circumstances. First,
SCB plaintiffs. unlike plaintiffs in Chadbourne, either ..took" or "tried to take ... an ownership
interest" in covered securities when purchasing shares in Sentry. (Slip Op. at 9-10 (emphasis in
original); .\'ee, e.g, Complaint. l1-n-3480-VM. Dkt # 1. ~
(alleging the Bank "misstated to
Plaintiffs that Plaintiff.s· funds would be invested through a strategy of 'split-strike conversion,'
whereby a basket of stocks intended to correlate with the S&P 100 index would b[e] bought").)
As SeB plaintiffs themselves acknowledge in their most recent correspondence with the Court,
they expected the money they invested "would be used to buy covered securities." (Pls.' Feb.
27,20]4 Letter at 2.) Chadbou.rne expressly recognizes that SLUSA extends ro cases where. as
here. plaintiffs intended to obtain (and believed they did obtain) an interest in "covered
securities" through a third party who purchased such securities on their behalf j (Slip. Op. at 9­
to (reaffirming that securities transaction is "in connection with" alleged misrepresentations
where ··victims \\'ere 'duped into believing' that the defendant would cim'es( their assets in the
stock market" (quoting SEC v. Zand(ord, 535 L:".S. 813. 822 (2002»).)
Second, there is no dispute that the fund in which SCB plaintiffs invested, Sentry,
did take an interest in covered securities. This is enough: ··Madoff s announced intention to
purchase covered securitks (i. e., stocks and options) for the henefit of Fund\' in which Plainllffs
invested satisfies the requirement that Plaintiffs' claims against JP\1 and BNY, Madoffs
bankers, were made 'In connection with the purchase or sale of a co,,"ered security.. ,. In rc
Herald. Primeo. & Thelma Sec. Litig., 1'0. 09-c,,"-289. 2011 WL 5928952. at "'8 (S.D.N. Y. Kov.
29.2011) (emphasis added), a/rd .ruh l1um Trczziova v. Kuhn, 730 F.3d 112 (2d Cir. 2013). The
''connection'' benveen SCB plaintiffs' allegations that the Bank misled them concerning covered
securities and Sentry's transactions in those covered securities'
SLLTSA under the
Supreme Court' 5 decision in Merrill L.vnch. Pierce, Fenner & Smith Inc. v. Dahil, 547 U.S. 71
(2006;, where the Supreme Court held that SLUSA bars claims based on alleged
misrepresentations that ., coincide' with a securities transaction - whether by the plaintiff or
someone eL<;e.·' Id at 85. Chadhourne expressly preserves that holding. (Slip Op. at 8-9.)

Finally, SCB plaintlf15 allege, as a premise in each
their claims, that the Bank
provided misleading investment advice about covered securities bought and sold by Sentry, that
this misleading advice induced them to mvest in those securities, and that they suffered losses as
a result of those covered securities being fraudulent. SUJSA bars covered class actions alleging
"a misrepresentation or omission of a material fact in connection with the purchase or sale of a
covered security," 15 USc. ~ 78bb(flO)(Al. 2 An alleged misrepresentation is "10 connection

The parties in Chadbourne repeatedly acknowledged their view that MadotT-relatcd cases
were factually dissimilar. Respondent conceded that SLUSA may apply in Madoff­
related cases. hut argued that Chadhourne was distinguishable for the very reasons
discussed herein-namely, that nobody other than the fraudster purported to invest in
covered securities (See Brief of Respondents at 16, No. 12-79 (July 18.20\3).) The
distinctions were addressed expressly at oral argument. (Transcript at 20-21, :; 7-38. 42­
44 (Oct 7,2013).)
2

SCB plaintiffs' argument that joint proceedings like the SCB Cases are not "covered
class actions" continues to be rejected in this District. See. e.g., Sec. 11'11'. Pro!. Corp. v.

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3,1):3/' 14 18 (1:3;:'A

58

l2J

The Honorable Victor ;Y1arrero

-3­

covered security." 15 U.S.c. § 78bb(f)(1 )(A). 2 An alleged misrepresentation is "in connection
with" a purchase or sale of a covered security v..·here it "coincides" with the transaction. Dabif,
547 U.S. at 85. It is well settled that allegedly misleading investment advice "coincides" with a
covered transaction where a plaintiff is induced to take action-by, for example, providing funds
to an investment firm-·, for the purpose of engaging in a covered transaction, or where plaintiffs'
claIms ·'turn on injurie.~ caused by acting- on misleading investment advice-that
where
plaintjffs claims necessarily allege, necessarily involve, or rest on the purchase or sale of
[covered] securities." See Romano v. Kazacos. 609 F.3d 512, 522 (2d Cir. 2010) (citation and
internal quotation marks omitted). Chadbourne does not alter this standard. and SCB plaintiffs'
claims fall squarely within its scope.
In short, seB plaintiffs' claims rest on allegedly misleading investment advice "in
connection with the purchase of a covered security" and therefore should be dismissed]
Respeclfully submitted,

--4iUU/ni·
Sharon
cc:

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Standard Chartered Plaintiffs' Steering Committee (via E-mail)
The Clerk of Court is directed to enter into the public record
flhis ~ction th/e lette~ abo:,e submitJed to the Court by

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SO ORDERED.

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DATE

SCB plaintiffs' argument that j oint proceedings like the SCB Cases are not "covered
class actions" continues to be rejected in this Di"trict See, e.g., Sec. Inv. PrOf. Corp. v.
Bernard [ ;\.fado((Inv Sec. LLC, No. l2 Me 115(JSR). 2013 WL 6301415, at *6-7
(S.D.N.Y. Dec. 5, 2013) (Rakoff, 1.) (claims brought by the \1adoff Trustee as assignee);
see a/so In re Cirip.;roup Inc, Sec. Lirig., No. 11 Civ. J827(SHS), 2013 WL 6569875. at
*7-9 (S.D.~.Y Dec. 13,2013) (Stein, J.) (multiple actions proceeding jointly inan
MDL); In re Bank a/Am. Corp. Sec. Derivarive. and ERISA Litig.. No. 12 Civ.
5210(PKC), 2013 WL 6504801. at *7 (S.D.KY. Dec. 11,2013) (Castel. J.) (same).
There are tvJo cases that relate to the application of SLUSA to \'ladoff-related
investments currently before the Second Circuit. In re Kingare, ~o. 11-1397 (2d Cir.
2011), \,,'as argued un April 9, 20 J 3. Plainti ffs a1;;0 filed a petition for rehearing in
Trezziova on October L 2013. The Bank submits, however. that Chadhournc does not
call into question. much less overrule, either Trezziol'u or Romano and, moreover, neither
Tre::.zioVCl nor Kfngall::' involves the application of SLUSA to allegedly misleading.
in....estment advice. Thus, with respect to the SCB Cases, there is no need to await further
guidance to conSider the dismissal of SCB plaintiffs' claims.

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