Anwar et al v. Fairfield Greenwich Limited et al

Filing 1280

ENDORSED LETTER addressed to Judge Victor Marrero from Richard E. Brodsky dated 6/17/2014 re: This letter responds to the June 9, 2014 letter to Your Honor from counsel for the Standard Chartered Defendants ("SC Defendants"). 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 Plaintiffs. (Signed by Judge Victor Marrero on 6/17/2014) (tn)

From: Richard E, Brodsky

To: Hen, Victor Marrero

Fax: 18S8) 391-5819

Page 2 of 5 01311712014 2:58

Fay: +1 \2121 805-6382

THE BRODSKY LAW FIRM, PL
RICHARD

E. BRODSKY, ATTORNEY AT LAW

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June 17, 2014

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By fax to [phone]

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Honorable Victor Marrero
United States District Judge
Daniel Patrick Moynihan U.8. Courthouse
500 Pearl Street
New York, New York 10007-1312

Re:

Anwar, et al. v. Fairfield Greenwich Limited, et al.,
09-cv-llB (VM) (THKJ
Standard Chartered Cases

Dear Judge Marrero:
I v.'Tite as the Liaison Counsel for, and on behalf of, the Standard Chartered
Plaintiffs ("SC Plaintiffs"), in the Standard Chartered Cases (the "SC Cases"). This letter
responds to the June 9, 2014 Jetter to Your Honor from counsel for the Standard
Chartered Defendants ("SC Defendants").
The SC Defendants' latest letter-their fourth since November 12,2013 (DEs
1226,1236, 1246, 1276), concerning the Securities Litigation Uniform Standards Act
("SLUSA'}-argues that the Second Circuit's denial, in In re Herald (Irezziova v.
Kohn), Nos. 12-156 (L) and 12-162,2014 WL 2199774 (2d Cie. May 28, 2014)
(,'Trezziova 11'), ofthe appellants' motion for reconsideration of In re Herald (Irezziova
v, Kohn), 730 F.3d 112 (2d Cie_ 2013) ("Trezziova f,), mandates dismissal of the SC
Cases under SLUSA. Trezziova I held that the claims in that case were covered by
SLUSA because they alleged "a misrepresentation or omission of a material fact in
connection with the purchase and sale of covered securities," 15 U.S.C. § 78bb(f)(l )(A).
Trezziova II denied reconsideration of the earlier decision and also held that reversal was
not mandated by the interverung Supreme Court decision in Chadbourne & Park UP v.
Troice, 134 S.Ct 1058 (2014), which held that the claims in that case did not satisfy
SLUSA's "in connection with" requirement. The SC Defendants argue, conclusorily, that
Trezziova II mandates a dismissal of the SC Case,
This letter supplements our previous letters to this Court on SLUSA (DEs 1249,
1244, and 1223), in which we showed that SLUSA does not apply to the SC Cases

200 S. RISC"Y"'I: BOUU,VAIW, Sn. 1930' MIAMI, FLORIDA 3'3131

WWW:(HEIlRODSI\)'1 AWrIRM.COM

786-220-3328. RIlItODSK. Y@lH[lUtO!)SKYLAWI'JRM.COM

From: Richard E. Brodsky

Fax: [phone]

To: Hon. Victor Marrero

Fay: [phone]

Page 3 of 5 06117120142:58

Honorable Victor Marrero
June 17,2014
Page 2
because the SC Cases are not "covered class actions" under SLUSA, 1 and even if they
were, they do not allege fraud "in connection with the purchase and sale of a covered
security. "

It is important to remember what Troice actually held: "[a] fraudulent
misrepresentation or omission is not made 'in connection with' .. _a
'purchase or sale of a covered security' unless it is material to a decision by
one or more individuals (other than the fraudster) to buy or to sell a 'covered security. '"
134 S.Ct. at 1066. Later in the opinion, in discussing the dissenting opinion's cases, the
Court does state that the dissent "cannot escape the fact that every case it cites involved a
victim who took, tried to take, or maintained an ownership position in the statutorily
relevant securities through 'purchases' or 'sales' induced by the fraud_" ld. at 1067. Even
here, however, the tenn "ownership position" is not llsed, as the SC Defendants imp1icitly
argue, June 19,2014 Ltr., 1, to eliminate the involvement of Fairfield Sentry (as well as
Fairfield Greenwich's outside administrator) in depositing Sentry investors' funds with
Madoff Securities. See In Anwar v. Fairfield Greenwich, Ltd., 728 F. Supp. 2d 372, 398­
99 (S.D.N.Y. 2010) ("Anwar If') ("The allegations in this case present multiple layers of
separation between whatever phantom securities Madoff purported to be purchasing and
the financial interests Plaintiffs actually purchased .... Though the Court must broadly
construe SLUSA's 'in connection with' phrasing, stretching SLUSA to cover this chain
of investment-from Plaintiffs' initial investment in the Funds, the Funds' reinvestment
with Madoff, Madofrs supposed purchases of covered securities, to Madoffs sale of
those securities and purchases of Treasury bills-snaps even the most flexible rubber
band."
In analyzing Trezziova II, we are constrained to point out that the court
mistakenly states that "the closest that the plaintiffs in Troice could get to statutorily
defined 'covered securities' was the allegation that Stanford induced purchase of the
ITo summarize, the various SC Cases are not a "group of lawsuits" under 15 U.S.c. § 78uu(f)(5)(8)(iii).
None of the SC Cases was filed as a class action. All cases were filed as separate actions by separate
lawyers at separate times. They were not filed as a subterfuge to avoid application of the PSLRA, the
prevention of which is the purpose ofSLUSA. They were transferred to this Court against the SC
Plaintiffs' will by the Judicial Panel on Multidistrict Litigation, where they were consolidated for pretrial
purposes with Anwar v. Fairfield Greefl'Wich Ltd., 09-cv-l J8, but have been separately administered
pursuant to separate pretrial orders.
To conclude these cases are a "covered" class action would be to pervert the plain legislative intent of the
Congress, which was to stop ingenious plaintiffs' lawyers from skirting the intent of the Private Securities
Litigation Reform Act by filing state-law-based class actions rather than lOb-5 class actions. Such a
decision would bathe a bank that separately put hundreds of its private banking clients into Sentry (totaling,
at the peak, $600,000,000 in client investments) with immunity from separate state-law-based lawsuits
solely because so many of its clients lost money through Sentry's investing in a Ponzi scheme. Under the
SC Defendants' theory, had fewer than the requisite number (fifty) of the bank's clients invested in Sentry,
SLUSA would have been inapplicable. Applying SLUSA because the bank: breached its fiduciary duty to
what amounts to too many clients would be an absurdity that would collide with conunon sense and plain
legislative intent. The Court should therefore find that the SC Cases are not a "group of lawsuits" within the
meaning ofSLUSA.

From: Richard E. Brodsky

Fax: (S88) 391-5819

To: Hon. Victor Marrero

Fay: +1 \2121 805-6382

Page 4 of 5 06/17/2014 2:58

Honorable Victor Marrero
June 17,2014
Page 3
uncovered securities by, among other misrepresentations, vague promises that the
Stanford Investment Bank had significant holdings in various covered securities."
Trezziova II, 2014 WL 2199774 at *1 (emphasis added). But Troice is definitely not
limited to fraudulent misrepresentations that the crooked bank. already owned covered
securities. The Supreme Court plainly states that the allegations of the plaintiffs included
that they purchased Stanford CDs "expect[ing] that Stanford International Bank would
use the money it received [from the sale of the CDs to the investors] to buy highly
lucrative assets," 134 S.Ct. at 1064 (emphasis added), and that "[a]t most, the complaints
aJlege misrepresentations about the Bank's ownership of covered securities-fraudulent
assurances that the Bank o'Mled, would own, or would use the victims' money to buy for
itself shares of covered securities." Id. at I071 (emphasis in original). In other words, the
fraud alleged in Troice was based, at least in part, on misrepresentations to purchasers of
uncovered securities by the fraudster financial institution that funds invested in the
uncovered securities would be later used to acquire covered securities-which allegation
the Supreme Court held to be insufficient to satisfY SLUSA's "in connection with" test.
We know of no doctrine that requires a federal district court to accept its circuit court's
plainly erroneous description, in another case, of the underlying allegations in a separate
Supreme Court decision. 2 The factually correct reading of the plainly expressed
allegations in Troice make it impossible to distinguish the SC Cases from the decision in
Troice.
Even if the Trezziova II court did not intend to distinguish the case before it from
Troice based on its recitation of the Troice allegations, the only other basis it mentions to
support the conclusion that SLUSA applies, despite Troice, in fact distinguishes the SC
Cases (and Anwar) from Trezziova. Thus, the Trezziova Il court states that investors
bought uncovered securities issued by "feeder funds (not alleged in the instant complaints
as anything other than intermediaries)." ld. at 2. But on this very point, as to Sentry and
the other Fairfield funds, this Court has previously concluded the opposite. In Anwar II,
this Court held that Sentry, et al. "were not a cursory> pass-through entity. The Funds also
placed up to 5 percent of their assets in non-Madoffinvestments, a relatively small
2For example, the Second Circuit's reading of the allegations in Troice is not "the law of the case," which
"posits that when a court decides upon a rule of law, that decision should continue to govern the same
issues in subsequent stages in the same case." Christianson v. Colt Indus. Operating Corp.,4S6 U.S. 800,
816 (1988). Nor could the Second Circuit's recitation of the allegations made in a case that ended up being
decided in the Supreme Court be deemed to be an interpretation or pronouncement of Jaw. What the
plaintiffs in Troice alleged is a factual question. Therefore, the doctrine of stare decisis does not apply,
since "stare decisis is concerued with rules oflaw," Complaint o/Tug He/en B. Moran. Inc., 607 F.2d
1029, 1031 (2d eif. 1979) (quoting I B Moore's Federal Practice P 0.402(2), at 117). The Second Circuit is
no more capable than this Court of reviewing a Supreme Court decision to determine the nature of the
factual allegations in the cases decided. Moreover, to the extent that Trezziova II announces a rule of law.
which is not the case, the doctrine of stare decisis does not require the district court's automatic adherence
to that legal interpretation. "Stare decisis is not an inexorable command; rather. it 'is a principle of policy
and not a mechanical fonnula of auherence to the latest decision.'" Payne v. Tenn., 501 U.S. 808,828
(1991) (quoting Helvering v. Hallock. 309 U.S. 106, 119 (1940». Where, as here, the superior appellate
court has erroneously characterized the factual allegations underlying a Supreme Court decision. the district
court is free to disregard that mischaracterization; indeed, fidelity to the law virtually mandates that result.

From: Richard E Brodsky

Fax: [phone]

To: Hon, Victor Marrero

Fax: [phone]B2

Page 5 of 5 06117120142:5S

Honorable Victor Marrero
June 17,2014
Page 4
portion overall but representing many millions of dollars." 728 F. Supp. 2d at 398. Thus,
on this basis as well, Trezziova II leaves the result in Anwar II undisturbed; SLUSA does
not apply.
In this connection, it should not pass notice that the SC Defendants make no
attempt to argue that Trezziova II requires this Court to disown its earlier decision in
Anwar II, where this Court held that state-law claims against the promoters of Fairfield
Sentry and related funds were not "in connection with the purchase and sale of covered
securities." Because of the many layers of transactions between the plaintiffs and the
Madoff fraud, this Court concluded that "stretching SLUSA to cover this [caseJ... snaps
even the most flexible rubber band." Id. at 399. We have amply demonstrated to the
Court, DEs] 249 and 1223, that the SC Plaintiffs were even further removed than the
plaintiffs in Anwar II from the Madofffraud. Thus, if, as this Court held, applying
SLUSA to Anwar II would "snap" SLUSA's "rubber band," then applying SLUSA to the
SC Cases "would positively shred it." See DE 1223 at 3.
Thank you for your consideration of this letter.
Respectfully submitted,
The Brodsky Law Finn, PL

Richard E. Brodsky
cc:

Counsel in Standard Chartered Cases

The Clerk of Court is directed to enter into the public record
of t is action the letter a ove submitted to e Court by

S
SO ORDI:~RED.