Anwar et al v. Fairfield Greenwich Limited et al

Filing 1333

ENDORSED LETTER addressed to Judge Victor Marrero from Sharon L. Nelles dated 10/31/2014 re: For the foregoing reasons, the Court should dismiss the SCB Cases pursuant to SLUSA. To the extent that the Court does not dismiss all claims, the Bank should be permitted to file a unified motion for summary judgment following the procedure set forth in Rule 56 of the Federal Rules of Civil Procedure and the Local Rules of this District. 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 defendants. (Signed by Judge Victor Marrero on 11/4/2014) (lmb)

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By Hand
Honorable Victor Marrero,
United States District Judge,
Southern District of New York,
Daniel Patrick Moynihan United States Courthouse,
500 Pearl Street,
New York, New York 10007.
Re:

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

Dear Judge Marrero:
As requested by the Court on September 29, 2014, we write on behalf of the
Standard Chartered Bank Defendants ("SCB" or the "Bank") to (1) address further why the
Securities Litigation Uniform Standards Act of 1998 ("SL USA") bars all claims pending against
the Bank in these actions (the "SCB Cases") and requires dismissal of the SCB Cases in their
entirety; and (2) respond to plaintiffs' September 12, 2014 letter asking this Court to take the
extraordinary step of preventing the Bank from filing its contemplated motion for summary
judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, even though the motion, if
granted, would dispose of 11 SCB Cases ripe for summary judgment in their entirety and
effectively dispose of the remaining 46 SCB Cases, or at a minimum provide critical guidance to
the parties and transferor courts.

Honorable Victor Marrero

I.

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THE SCB CASES ARE SQUARELY PRECLUDED BY SL USA
SLUSA bars any group of lawsuits brought on behalf of more than 50 plaintiffs,

based upon state law, that allege a misrepresentation or omission in connection with the purchase
or sale of covered (nationally traded) securities. All of those elements are met here. There are
75 plaintiffs in the 57 SCB Cases currently consolidated before this Court. Each plaintiff asserts
state law claims based on alleged misrepresentations and/or omissions in the Bank's investment
recommendations of Fairfield Sentry Ltd. or Fairfield Sigma Ltd. (the "Fairfield Funds"). Those
funds purported to use brokerage accounts at Bernard L. Madoff Investment Securities LLC
("BLMIS") to invest in some of the most heavily traded U.S. stocks in the S&P 100 Index.
Plaintiffs' fundamental allegation-that the Bank induced them to invest in
Madoffs Ponzi scheme based on omissions and representations about the Fairfield Funds and
BLMIS that the Bank knew or should have known were false-is the stuff of a classic securities
fraud claim. Thus, in accordance with Congress's intent to limit private securities litigation,
plaintiffs' claims must be brought, if at all, under the federal securities laws such that they are
subject to the Private Securities Litigation Reform Act of 1995 ("PSLRA") and its heightened
pleading requirements. This Court already has held that plaintiffs' allegations are insufficient to
plead a federal securities fraud claim, and plaintiffs cannot now evade the PSLRA by pursing
those same claims under state law. Accordingly, SLUSA requires the dismissal of all of the SCB
Cases.

A.

Background and Procedural History
1.

Plaintiffs in the First-Filed SCB Cases Asserted Federal Securities
Fraud Claims.

Shortly after Madoff s fraud was revealed in December 2008, the first wave of
what are now 57 SCB Cases were filed by 28 plaintiffs. Three cases were filed in the Southern

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District of Florida, one in the Central District of California, and two in this District. 1 Each of the
original 28 plaintiffs sought damages for losses on their investments in the "split strike
conversion" ("SSC") strategy through the Fairfield Funds, the largest of the so-called "feeder
funds" to the now-notorious securities fraud perpetrated by BLMIS, an SEC-registered brokerdealer. BLMIS claimed to be buying and selling billions of dollars in publicly traded S&P 100
stocks, S&P 100 Index options, and U.S. Treasury bill-related investments on behalf of plaintiffs
and other investors in the SSC strategy, but in fact was simply absconding with investors'
money.
Twenty three plaintiffs framed the Bank's alleged wrongdoing as violating the
Securities Exchange Act of 1934. In particular, plaintiffs alleged that the Bank committed
federal securities fraud by inducing plaintiffs to invest in the Fairfield Funds based on
unsupported investment advice that contained misrepresentations and omissions about the
Fairfield Funds, BLMIS and the SSC strategy, and that "[r]easonable due diligence, including
typical quantitative analysis, would have established that Fairfield Sentry, Ltd., Madoff and
B[L]MIS were involved in a fraudulent scheme and that the investment returns touted by [the
Bank] were not possible." (Lopez Am. Compl. if 49; Bhatia Am. Compl. if 32; Tradewaves
Compl. if 45.) Those plaintiffs also alleged that the Bank "knew or should have known that the
Fairfield Funds invested a large portion of their investors' funds with Madoff and B[L]MIS,"
(Lopez Am. Compl. if 48; see also Bhatia Am. Compl. if 31; Tradewaves Compl. if 44), and

therefore it was BLMIS, not the Fairfield Funds' creator and manager Fairfield Greenwich
Bhatia v. Standard Chartered Int'/ (USA), No. 09-cv-2410 (S.D.N.Y.); Headway lnvs. Corp. v.
Am. Express Bank Ltd., No. 09-cv-21395 (S.D. Fla.); Tradewaves Ltd. v. Standard Chartered Int'/ (USA)
Ltd, No. 09-cv-9423 (S.D.N.Y.); Valladolidv. Am. Express Bank Ltd., No. 09-cv-6937 (C.D. Cal.);
Lopez v. Standard Chartered Bank Int'/ (Ams.)Ltd., 09-cv-22451 (S.D. Fla.); Maridom Ltd v. Standard
Chartered, 09-cv-22868 (S.D. Fla.).

Honorable Victor Marrero

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Group ("FGG"), that was purporting to execute the SSC strategy. Five plaintiffs in three other
SCB Cases (Maridom, Headway, and Valladolid) alleged the same wrongdoing on the part of the
Bank, but sought to advance those allegations as state law claims to avoid from the outset the
heightened pleading standards of the PSLRA.

2.

The Court Ruled That Plaintiffs in the Anwar Class Action
Adequately Pied Federal Securities Fraud Claims, but Dismissed the
Federal Securities Fraud Claims in the SCB Cases.

In October 2009 and February 2010, the Judicial Panel on Multidistrict Litigation
("JPML") transferred the first four SCB Cases then-pending in the Southern District of Florida
and Central District of California to this District for consolidated pretrial proceedings before this
Court. In re: Fairfield Greenwich Grp. Sec. Litig., 655 F. Supp. 2d 1352, 1353 (J.P.M.L. 2009);
Transfer Order, In re Fairfield Greenwich Grp. Sec. Litig., MDL No. 2088 (J.P.M.L. Feb. 3,
2010). The Court consolidated the SCB Cases for pretrial purposes with the consolidated class
action styled Anwar v. Fairfield Greenwich Ltd, No. 09-CV-118 (the "Anwar Class Action"),
which was brought by Fairfield Funds investors against FGG, as well as various
PricewaterhouseCoopers entities ("PwC") as the funds' auditors, and various Citco entities
("Citco") as the funds' administrator and custodian.
In March 2010, the Bank filed two unified motions to dismiss the then-pending
SCB Cases. While those motions were sub judice, the JPML transferred a related putative class
action against the Bank, Pujals v. Standard Chartered International (Americas) Ltd, No. 10CV-2878, to this Court. (Dkt. No. 430.)2 With the addition of Pujals, plaintiffs in the SCB

In addition to Pujals, three more SCB Cases were transferred to this Court to be consolidated
after the Bank submitted its motions to dismiss but before the Court ruled: Carrillo v. Standard
Chartered Bank International (Americas) Ltd, No. IO-CV-20762, Almiron v. Standard Chartered Bank
International (Americas) Ltd., No. 1O-CV-20763, and Lou-Martinez, et. al. v. Standard Chartered Bank
International Ltd., No. 10-CV-23469. The Lou-Martinez and Pujals actions were later

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Cases together sought damages on behalf of more than 50 persons, and accordingly, the Bank
sought leave to seek dismissal of the SCB Cases pursuant to SLUSA. (Dkt. No. 446.) The Court
denied that request without prejudice, ruling that "SLUSA preemption may be raised later in
these proceedings." Anwar, No. 09-CV-118, 2010 WL 1948566, at *l (S.D.N.Y. May 5, 2010).
In August 2010, the Court ruled on motions filed in the Anwar Class Action to
dismiss the federal securities fraud and state law claims in that case. 728 F. Supp. 2d 372, 39899, 462 (S.D.N.Y. 2010). Unlike the allegedly misleading investment advice in SCB Cases, the

Anwar Class Action focused on allegations that FGG, PwC and Citco ignored obvious "red
flags" of BLMIS's fraud in their roles as the Fairfield Funds' creator, manager and service
providers. Id at 389. The Court declined to apply SLUSA to the Anwar Class Action for two
principal reasons: First, the alleged "chain of investment" from Anwar plaintiffs to Citco, then to
BLMIS, and ultimately to the purported SSC investments in covered securities, was too
attenuated to satisfy SLUSA's requirement that an alleged misrepresentation be "in connection
with" covered securities transactions. Id at 399. Second, SLUSA's policy objective of not
allowing plaintiffs to "bypass the higher pleading standards of the PSLRA" was not implicated
because the Anwar plaintiffs adequately pled federal securities fraud claims. Id at 398-99.
On October 4, 2010, the Court ruled on the Bank's unified motion to dismiss
plaintiffs' claims in the SCB Cases. Anwar, 745 F. Supp. 2d 360 (S.D.N.Y. 2010) ("SCB f'). 3
The Court dismissed all federal securities fraud claims for failure to satisfy the heightened
pleading requirements of the PSLRA. Id. at 369-71. In particular, the Court found allegations
dismissed. Anwar, 826 F. Supp. 2d 578, 591-92 (S.D.N.Y. 2011) (dismissing Lou-Martinez); Anwar, 831
F. Supp. 2d 787, 789-90 (S.D.N.Y. 2011) (dismissing Pujals), aff'd sub nom, Pujals v. Standard
Chartered Bank, 533 Fed. App'x 7 (2d Cir. 2013).
3

On September 14, 2010, the Court granted the Bank's motion to dismiss two actions based on
forum selection clauses andforum non conveniens. Anwar, 742 F. Supp. 2d 367, 375 (S.D.N.Y. 2010).

Honorable Victor Marrero

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that the Bank "recommended Fairfield Sentry without conducting any diligence and that, if it
had, the fraud would have been revealed" were insufficient to plead the strong inference of
sci enter required under the PSLRA. Id. at 371. The Court determined that the same alleged
wrongdoing was sufficient to sustain certain state law claims under the more lenient pleading
requirements applicable to them.

3.

Additional Plaintiffs Filed a Flood of Cases Asserting State Law
Claims Against the Bank Based on the Same Allegations of
Misleading and Unsupported Investment Advice That Failed to
Satisfy the PSLRA.

Following the Court's October 2010 decision, 67 additional plaintiffs filed 51 new
actions against the Bank. 4 Each of those actions alleges the same wrongdoing as asserted in the
earlier-filed SCB Cases, including allegations made in support of the now-dismissed federal
securities fraud claims. Specifically, plaintiffs allege that the Bank induced them to invest in the
Fairfield Funds based on investment advice that contained misrepresentations and omissions
about the Fairfield Funds, the SSC strategy and BLMIS's role in executing the strategy.
Plaintiffs further allege that the Bank recommended the Fairfield Funds as legitimate investments
when it knew or should have known that the Fairfield Funds' reported returns from the strategy
were "too good to be true." (Ex.

A.)5 Plaintiffs in the later-filed SCB Cases, however,

knowingly couch their claims solely under Florida law, thus (like plaintiffs in Maridom,
Headway and Valladolid before them) avoiding from the outset any scrutiny under the
4

Two additional cases transferred to this Court, Leonardos v. Standard Chartered International
(USA) Ltd, 10-cv-24430 and Prionas Shipping Company Ltd v. Standard Chartered International (USA)
Ltd, No. 10-cv-24429, were voluntarily dismissed. (Dkt. No. 687.)
Exhibit A identifies for each of the SCB Cases, including cases where federal securities fraud
claims were asserted, the specific allegations that the Bank (i) induced plaintiffs' investments with
misrepresentations or omissions; (ii) failed to disclose Madoff s role in executing Sentry's investment
strategy; (iii) misrepresented the Fairfield Funds and the Bank's due diligence of those funds; and/or
(iv) should have known that the Fairfield Funds' returns were too good to be true.

Honorable Victor Marrero

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heightened pleading requirements of the PSLRA that the Court had ruled plaintiffs could not
meet. The same law firm that pled a federal securities fraud claim on behalf of the plaintiff in
Lopez (which was dismissed in SCB I) filed 41 of those new complaints on behalf of
53 plaintiffs. 6

B.

The SCB Cases Satisfy Every Element of SLUSA and its Policy Objectives.
Congress enacted SLUSA to prevent groups of plaintiffs from avoiding the

PSLRA's limitations on federal securities litigation by seeking damages based solely on state
law. See Anwar, 728 F. Supp. 2d at 398. In so doing, Congress "limit[ed] the availability of
remedies under state law" in order to impose "national standards for securities class action
lawsuits involving nationally traded securities," including groups oflawsuits brought by
plaintiffs acting as a de facto class. Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547
U.S. 71, 87 & 88 n.13 (2006). SLUSA accomplishes its purpose by precluding state law causes
of action where: (i) the action or actions being brought constitute a "covered class action" as
defined in the statute; (ii) plaintiffs allege a "misrepresentation or omission of a material fact" or
a manipulative or deceptive device; (iii) plaintiffs' claims involve the purchase or sale of
"covered securities"; and (iv) the alleged misrepresentations, omissions and/or manipulative or
deceptive devices are "in connection with" the purchase or sale of relevant covered securities.
15 U.S.C. § 78bb(t)(l). Due to its remedial purpose, courts employ a "presumption that
Congress envisioned a broad construction" of the statute. Dabit, 547 U.S. at 86.

6

Among the later-filed cases is a second putative class action, styled Caso v. Standard Chartered
Bank International (Americas) Ltd, No. 10-CV-9196, which was filed in this District and consolidated
with the SCB Cases in December 2010. The Court compelled the named plaintiff in Caso to individual
arbitration in May 2012. (Dkt. Nos. 882, 1151.)

Honorable Victor Marrero

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The SCB Cases are plainly precluded under SLUSA. The SCB Cases (i) make up
a consolidated "group of lawsuits" with 75 plaintiffs seeking damages based upon state law that
qualify as a "covered class action" under SLUSA; (ii) allege misrepresentations and/or omissions
in the Bank's investment advice; (iii) involve purchases and sales of "covered securities"
professedly by the Fairfield Funds and BLMIS; and (iv) allege that the Bank's investment advice
was given "in connection with" plaintiffs' attempts to take an interest in those covered securities
through the Fairfield Funds. The essence of plaintiffs' claims is that SCB's misleading and
unsupported investment advice induced them to attempt to invest in the covered securities
purchased and sold as part of the SSC strategy (through the Fairfield Funds) with the expectation
of achieving future returns that were not realized. The claims against the Bank necessarily
allege, necessarily involve, and rest on the covered securities transactions that BLMIS purported
to execute for the Fairfield Funds. Thus, SLUSA applies. Romanov. Kazacos, 609 FJd 512 (2d
Cir. 2010).
Further, as this Court recently observed, "[t]he SLUSA issue is one in which the
law has been evolving and [was] clarified recently by the Second Circuit." (9/29 Conf. Tr. at
10.) Since this Court's ruling on SL USA in the Anwar Class Action, the Second Circuit has held
expressly that SLUSA precludes claims alleging misrepresentations and/or omissions arising out
of investments in feeder funds to BLMIS's SSC strategy. In re Herald, Primeo & Thema Sec.

Litig., 730 FJd 112 (2d Cir. 2013) ("Herald I") reh 'g denied 753 F.3d 110 (2d Cir. 2014)
("Herald If'). (See also Dkt. Nos. 1226, 1236, 1246 and 1276 (SCB's prior submissions on
SLUSA's application in light of Herald.)) Finally, plaintiffs' claims here are based on alleged
wrongdoing originally pied as federal securities fraud claims. Knowing that their allegations fail
to meet the requirements of the PSLRA, plaintiffs have tried to avoid dismissal by filing

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complaints asserting only state law claims. This is precisely what SLUSA says you cannot doit is SLUSA's purpose "to negate the artful pleading by which certain plaintiffs evaded the
dictates of the PSLRA." Herald I, 730 F.3d at 118.

1.

The 57 SCB Cases Are a "Group of Lawsuits" That Qualify as a
"Covered Class Action" Under SLUSA.

A "covered class action" for purposes of SLUSA includes "any group of lawsuits
filed in or pending in the same court and involving common questions of law or fact," as long as
"(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(t)(5)(B). Individual cases that are coordinated and/or consolidated in a multidistrict
litigation constitute a "group of lawsuits" and thus a covered class action under SLUSA. Markey
v. Citigroup, Inc., No. 09 MD 2070 (SHS), 2013 WL 6728102, at *5 (S.D.N.Y. Dec. 20, 2013)
(collecting cases); Amorosa v. Ernst & Young LLP, 682 F. Supp. 2d 351, 373-77 (S.D.N.Y.
2010) ("an action need not have been formally joined or consolidated with other actions in order
to be a 'covered class action' and subject to SLUSA's preemption provision"); In re WorldCom,
Inc. Sec. Litig., 308 F. Supp. 2d 236, 246-47 (S.D.N.Y. 2004) (consolidation for pretrial purposes
sufficient to qualify as a "group of lawsuits" under SLUSA).
The SCB Cases are a "group of lawsuits." First, the SCB Cases seek damages on
behalf of 75 named plaintiffs. Second, the SCB Cases have been consolidated for pretrial
purposes before this Court. (See, e.g., Dkt. No. 282, 607.) 7 Third, the SCB Cases involve "the

7

These cases also have been coordinated throughout pretrial proceedings. At plaintiffs' request,
the Court appointed the Standard Chartered Plaintiffs' Steering Committee to, among other things,
"initiate, coordinate and conduct all discovery on behalf of all plaintiffs," "[ s]peak for all Standard
Chartered Plaintiffs at pretrial proceedings and in response to any inquiries by the Court," and to
"[n]egotiate and enter into stipulations on behalf of the Standard Chartered Plaintiffs ... regarding this

Honorable Victor Marrero

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same or substantially similar underlying events and operative facts"-i.e., they all allege that the
Bank induced them to invest in the Fairfield Funds based on unsupported investment advice that
contained misrepresentations and/or omissions about the Fairfield Funds, the SSC strategy and
BLMIS's role in executing that strategy. (Ex. A.) Therefore, there are "more than 50 actions
pending in this district as a multidistrict litigation in which damages are sought for more than 50
people. It is plainly a covered class action which cannot be maintained in this or any state
court." Jn re Adelphia Commc 'ns. Corp. Sec. & Derivative Litig., No. 03 MDL 1529, 2010 WL
3528872, at *5 (S.D.N.Y. Aug. 30, 2010).
Plaintiffs contend that the SCB Cases are not a "group of lawsuits" because
plaintiffs did not "voluntarily" join their lawsuits together. (See Dkt. No. 1223; 9/ 29 Conf. Tr.
at 33-35.) But SLUSA does not require that a group of plaintiffs voluntarily band together. As
has been recognized in this District, it is irrelevant that some SCB Cases are being handled by
different lawyers, or were transferred to this Court by the JPML over objection:

It is true that [plaintiff] did not purposefully direct his lawsuit to
this Court, nor is his complaint a verbatim copy of the other
complaints, nor is he represented by the same counsel as other
plaintiffs. SLUSA, however, does not instruct the Court to
consider any of these factors .... Instead, it directs the Court to
consider whether the lawsuits proceeded "as a single action for any
purpose."
In re Citigroup Sec. Litig., 987 F. Supp. 2d 377, 388 (S.D.N.Y. 2013) (citations omitted); see
also 15 U.S.C. § 78b(f)(5)(B) (group of lawsuits requires only that "damages are sought on
behalf of more than 50 persons" and that cases "are joined, consolidated, or otherwise proceed as
a single action for any purpose"). Indeed, SLUSA's remedial purpose would be undermined

litigation." (Dkt. No. 602). At plaintiffs' request, the Steering Committee included counsel for the
named plaintiff in the Caso putative class action. (Dkt. No. 739.)

Honorable Victor Marrero

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completely if plaintiffs could evade it simply by engaging separate counsel and claiming lack of
intent to "join."

2.

SLUSA's Second Requirement That Plaintiffs Allege "a
Misrepresentation or Omission of a Material Fact" or the Use of "any
Manipulative or Deceptive Device or Contrivance" Is Met Here.

SLUSA applies to actions "alleging ... a misrepresentation or omission of a
material fact" or ''that the defendant used or employed any manipulative or deceptive device."
15 U.S.C. § 78bb(f)(l). As set forth, supra, pp. 3-6, the gravamen of plaintiffs' claims is that the
Bank's investment advice was misleading and unsupported by any due diligence, and contained
misrepresentations and omissions of material fact. (Ex. A.) 8 In fact, plaintiffs consistently have
attempted to frame the Bank's wrongdoing in terms of fraud. And plaintiffs are attempting now
to double down on their fraud theory by advancing the same type of argument often advanced in
securities fraud claims-namely, that the Bank induced them to invest in the Fairfield Funds in
order to receive "kickbacks" from FGG. (9/12 Ltr. at 3.)

3.

The SCB Cases Involve Purchases and Sales of "Covered Securities."

SLUSA also requires that plaintiffs' claims involve "a purchase or sale of covered
securities." 15 U.S.C. § 78bb(f)(l)(A). They do-plaintiffs attempted to invest in covered
securities through the Fairfield Funds. 9 For purposes of SLUSA, a "covered security is one
traded nationally and listed on a regulated national exchange," Dabit, 547 U.S. at 85; see also 15

8

Plaintiffs label their claims in terms of a "breach of fiduciary duty, negligence and fraudulent and
negligent misrepresentations and omissions of material fact," but all contend that the Bank wrongly
"recommended that each of the SC Plaintiffs invest in [the Fairfield Funds]" which "were worthless
because of Bernard Madofrs fraud." (9/12 Ltr. at I.)
9

In the Court's ruling on SLUSA in the Anwar Class Action, the Court had no occasion to
consider whether investments in the Fairfield Funds were tantamount to investments in covered securities,
because the defendants there "d[id] not argue that the Plaintiffs' investments ... amount[ed] to 'covered
securities' under SLUSA." Id at 398.

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U.S.C. § 77r(b)(l), and the relevant purchase or sale must have been made by or on behalf of
someone other than the fraudster, Chadbourne & Parke LLP v. Troice, 134 S. Ct. 1058, 1069
(2014) ("Chadbourne"). The Second Circuit has considered and held that investments in feeder
funds to BLMIS's SSC strategy are sufficient to satisfy SLUSA's "covered securities" element.
Herald II, 753 F.3d at 113; Herald I, 730 F.3d at 118-20.

In Herald I, the Second Circuit applied SLUSA to bar claims asserted by
investors in feeder funds to BLMIS's SSC strategy because the alleged wrongdoing related to the
covered securities transactions supposedly executed in connection with that strategy. 730 F.3d at
118-20 & n.7. Following Herald I, the Supreme Court held in Chadbourne that SLUSA's
"covered securities" element was not satisfied in a case where the purported investments in
covered securities only were made by and on behalf of the fraudster. Chadbourne, 134 S. Ct.
at 1069. In denying a request for rehearing based on Chadbourne, the Second Circuit held that
investors in Madoff feeder funds, unlike plaintiffs in Chadbourne, tried to purchase and sell
covered securities. Herald II, 753 F.3d at 113.

10

Specifically, because "Madoff Securities .

. . fraudulently induced attempted investments in covered securities, albeit through feeder funds
(not alleged in the instant complaint as anything other than intermediaries)," plaintiffs "tried to
take ... an ownership position in the statutorily relevant securities," which triggers SLUSA. Id.
In short, where, as here, Madoffs victims "'attempted investments in covered
securities, albeit through feeder funds,"' SLUSA's "covered securities" element is satisfied. In
re Harbinger Capital Partners Funds Inv. Litig., No. 12-CV-1244, 2014 WL 3694991, at *2
10

In Chadbourne, plaintiffs' investments were not themselves "covered securities" and were not
represented to be tied to any such securities. Id at 1064; see also Rolandv. Green, 615 F.3d 503, 522
(5th Cir. 2012) ("The CDs were debt assets that promised a fixed rate ofretum not tied to the success of
any of SIB's purported investments .... ") Thus, unlike here, no plaintiff had attempted to take any
interest in covered securities by purchasing the investments at issue.

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(S.D.N.Y. July 7, 2014) (applying Herald II); see also Goodman v. AssetMark, Inc., No. 09-CV5603, 2014 WL 5302962, at *5 (E.D.N.Y. Oct. 17, 2014) (applying Herald !Ito preclude breach
of fiduciary duty claims alleging defendant provided unsupported and misleading investment
advice related to covered securities, even though plaintiffs themselves did not directly purchase
any covered securities). 11 It does not matter for SLUSA purposes that the Fairfield Funds
purported to purchase and sell covered securities through BLMIS, rather than plaintiffs trading
those securities themselves. "[I]t is enough that the fraud alleged 'coincide' with a [covered]
securities transaction-whether by the plaintiff or by someone else." Dabit, 547 U.S. at 85
(SL USA bars claims even where purchases or sales of covered securities were made by third
parties and not plaintiffs).

4.

The SCB Cases Allege Misrepresentations and Omissions in the
Bank's Investment Advice That Were Made "in Connection with"
Purchases and Sales of Covered Securities.

Finally, SLUSA requires that the Bank's alleged wrongdoing be "in connection
with" the purchase or sale of covered securities. 15 U.S.C. § 78bb(t)(l)(A). The Second Circuit
has articulated three tests that govern SLUSA's "in connection with" requirement. The first two
tests apply to actions, like the SCB Cases, that are founded on allegedly misleading investment
advice. Under these tests, set forth in Romanov. Kazacos, SLUSA's "in connection with"
requirement is satisfied where (i) the advice allegedly induced an investment in covered
11

Plaintiffs' attempts to distinguish Herald I and Herald II on the facts are unavailing. First,
plaintiffs' contention that the Bank is further removed from Madoff s fraud than plaintiffs in Herald is
beside the point. (9/29 Conf. Tr. at 30-31.) The proximity of the Herald defendants' wrongdoing to
Madoffs fraud had nothing to do with the Second Circuit's holding that plaintiffs had "tried to take ...
an ownership interest" in covered securities for purposes of SLUSA. See Herald II, 753 F.3d at 113.
That is exactly what plaintiffs have done here. Second, plaintiffs' suggestion that the Fairfield Funds
were more than a mere intermediary to BLMIS's SSC strategy (Id. (arguing Fairfield Funds not "a
cursory pass[-]through entity")), which the feeder funders in Herald //were alleged to have been, 753
F.3d at 113, ignores the fact that plaintiffs here too allege the Fairfield Funds were a mere "funnel" to
Madoff, SCH I, 745 F. Supp. 2d at 371-72.

Honorable Victor Marrero

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securities, or (ii) plaintiffs' claims "necessarily allege," "necessarily involve," or "rest on" a
subsequent purchase of covered securities. 609 F.3d at 522 (internal quotation marks omitted).
The third test is set forth in the Second Circuit's recent Herald I decision and is not specific to
actions based on allegedly misleading investment recommendations. Under the Herald I test,
SLUSA's "in connection with" requirement is met if the alleged wrongdoing "relates to"
purchases and sales of covered securities. Herald I, 730 F.3d at 119 & n.5. Plaintiffs' claims
meet all of these tests. 12
Under Romano's Tests, the Bank's Allegedly Misleading Investment Advice
Was "in Connection with" Covered Securities Transactions. In Romano, the plaintiffs asserted
state law claims for negligence, breach of fiduciary duty, negligent misrepresentation, breach of
contract and unfair and deceptive practices against Morgan Stanley & Co. ("Morgan Stanley"),
alleging that Morgan Stanley gave misleading advice to plaintiffs concerning the sufficiency of
their assets to retire early and take lump sum retirement benefits. After Morgan Stanley advised
that they could retire, plaintiffs invested some of their retirement benefits in covered securities
and lost money. Romano, 609 F.3d at 515-16. The Romano plaintiffs' claimed that Morgan
Stanley knew or should have known that their retirement assets were not sustainable over the
long term, but did not allege that Morgan Stanley recommended any of the covered securities
that plaintiffs purchased. Id at 515-17. The Second Circuit nevertheless held that Morgan
Stanley's investment recommendations were "in connection with" the covered securities
purchases, and plaintiffs' claims were barred under SLUSA. Id. at 523-24.

12

In this Court's prior SLUSA ruling in the Anwar Class Action, the Court had no occasion to
apply these tests. The tests set forth in Romano govern application of SLUSA's "in connection with"
requirement in the context of misleading investment recommendations, and the Court did not have the
benefit of the Herald decisions, which the Second Circuit issued after its ruling.

Honorable Victor Marrero

-15-

In Romano, the Second Circuit applied two independent tests, both of which are
also satisfied in the SCB Cases. Under the first test, the "in connection with" requirement is met
where the challenged investment advice "somehow induced" a covered securities transaction. Id
at 522 (quotation marks and citations omitted). This test was satisfied in Romano because,
although not expressly alleged, "[plaintiffs in Romano], 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. at 523. 13 Likewise here, plaintiffs in the SCB Cases (unlike plaintiffs
in the Anwar Class Action), assert that they were induced to invest in the SSC strategy through
the Fairfield Funds based on allegedly unsupported and misleading investment recommendations
about the funds and BLMIS's role in executing the funds' supposed covered securities trading. 14
The second test applied by the Second Circuit in Romano "is met where plaintiffs
claims 'tum on injuries caused by acting on misleading investment advice'-that is, where
plaintiffs claims 'necessarily allege,' 'necessarily involve,' or 'rest on' the purchase or sale of
securities." 609 F.3d at 522 (citation omitted). That standard was satisfied in Romano because
"the injury complained of resulted from the diminution in value of [plaintiffs'] investment
accounts," which held the covered securities. 15 Id at 522-24. Again, the same is true in the SCB

13

Key for the Romano Court was that "this was a string of events that were all intertwined." Id. at
524 (citation and internal quotation marks omitted). It was of no moment that eighteen months passed
between the allegedly unsupported investment recommendation (to retire and take a lump sum benefit)
and the purchase or sale of securities. Id.
14

Plaintiffs further allege that the Bank represented the Fairfield Funds "were like a cash substitute"
and were "risk reducers" for their portfolios. (See, e.g., Lopez Am. Comp!. ,, 25-26; 9/29 Conf. Tr.
at 37.)
15

The Romano plaintiffs characterized their losses as "employment damages" resulting from the
lost wages they incurred due to Morgan Stanley's alleged advice to retire early. Id. at 522-23. This did
not deter the Second Circuit from concluding that their claims were barred by SLUSA because it was
"apparent ... that the injury complained ofresulted from the diminution in the value of [plaintiffs']
investment accounts. Id. at 524.

Honorable Victor Marrero

-16-

Cases-plaintiffs' alleged injuries resulted from the diminution of value of shares in the Fairfield
Funds, nearly all of the assets of which were supposed to be invested in covered securities
through the SSC strategy but were instead stolen by BLMIS.

16

Under the Test Set Forth in Herald, SCB's Alleged Wrongdoing Is Also "in
Connection with" Covered Securities Transactions Because It "Relates to" Those
Transactions. The Bank's alleged wrongdoing also "relates to" covered securities transactions.
In Herald, investors in three Madoff feeder funds brought state law claims against two banks for
allegedly aiding, abetting and failing to disclose Madofrs fraud. Herald/, 730 F.3d at 116-17.
Plaintiffs argued that their claims were not barred by SLUSA because it was not appropriate to
"elide their purchase of 'uncovered' interests in the foreign feeder funds with Madoff's
'downstream' transactions in covered securities." Id at 118. The Second Circuit rejected
plaintiffs' layers of separation argument, focusing instead on whether the attempted investments
in the SSC strategy through feeder funds had any relation, beyond being an "extraneous detail,"
to the factual predicate of the defendants banks' alleged liability. Id at 118-19. The Second
Circuit held that because plaintiffs alleged that the defendants' wrongdoing "relate[ed] directly to
Madoff's purported transactions in covered securities," 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.

16

Plaintiffs' have attempted to distinguish Romano by arguing that Romano "could 'satisfy
SLUSA's in connection with' requirement because [the retirees], in essence, assert[ed] that defendants
fraudulently induced them to invest in securities with the expectation of achieving future returns that were
not realized." (11/19/2013 Ltr. at 9 n.9.) But that description perfectly mirrors plaintiffs' uniform theory
against SCB-namely, that the Bank's misrepresentations and omissions about Madoff's role and the
Bank's due diligence induced plaintiffs to invest in the Fairfield Funds' SSC strategy (covered securities)
with the expectation of future returns that were not realized.

-17-

Honorable Victor Marrero

Here too plaintiffs' allegations with the respect to the Bank relate directly to
Madoffs purported transactions in covered securities-the SSC strategy. Plaintiffs allege a
failure to disclose BLMIS's role in executing the SSC strategy, and that the Bank should have
concluded that the Fairfield Funds' reported returns were too good to be true and could not have
been generated from the SSC strategy. (Ex. A.) 17 As the Second Circuit has made clear, this is
more than sufficient to satisfy SLUSA's "in connection with" requirement under Herald. 730
F.3d at 118-19 & n.5.

*

*

*

In sum, the SCB Cases are a covered class action that allege misrepresentations
and omissions in the Bank's investment advice made in connection with plaintiffs' attempted
investments in covered securities through the Fairfield Funds. As such, the SCB Cases are
precluded by SLUSA. This Court already has held that plaintiffs' allegations of wrongdoing do
not meet the PSLRA's heightened pleading requirements; therefore, the SCB Cases should be
dismissed in their entirety.
II.

THE COURT SHOULD NOT GRANT PLAINTIFFS' REQUEST TO PREVENT
THE BANK FROM MOVING FOR SUMMARY JUDGMENT.

The Bank's contemplated motion for summary judgment, if granted, would
dispose entirely of the SCB Cases ripe for summary judgment. In addition, the Court's ruling
would provide crucial guidance to the parties in the remaining actions on what, if any, plaintiffspecific issues remain for discovery and/or further consideration by the Court (there may be no
17

Among other things, plaintiffs allege the Fairfield Funds were "highly risky, if not a vehicle
investing in an outright fraud" because "the Fairfield Sentry Fund was supposedly receiving returns from
BLMIS that, over time, were substantially out of line with prevailing market trends in the types of
securities in which the Fairfield Sentry Fund was supposedly investing (stocks included in the S&P 100
index and out-of-the-money puts and calls related to those stocks)." (Ex. A (listing cases making this or
similar allegations that Fairfield Funds returns were too good to be true).)

Honorable Victor Marrero

-18-

need for further discovery or consideration other than to apply the Court's summary judgment
rulings to the remaining SCB Cases). Critically, at minimum, the Court's ruling would make
clear what factual issues remain in the SCB Cases, and the legal standard that governs any
surviving claims, before the actions sent to this Court by the JPML are remanded to a transferor
court in Florida or California for trial. Respectfully, the Bank submits that the Court's
consideration of SCB's contemplated motion is necessary for the purpose of judicial economy
and avoidance of inconsistent judgments, see In re: Fairfield, 655 F. Supp. 2d at 1353, and the
Court should not deprive the Bank of the opportunity to make its motion under the Rule 56 of the
Federal Rules of Civil Procedure.
The Court has permitted plaintiffs to pursue to date two types of claims: (I) that
the Bank allegedly breached a common law duty by recommending an investment in the
Fairfield Funds without "studying it sufficiently to become informed as to its nature, price, and
financial prognosis" (the "Due Diligence Claims"), SCB /, 745 F. Supp. 2d at 376; Anwar, 826 F.
Supp. 2d 578, 590 (S.D.N.Y. 2011); Anwar, 891 F. Supp. 2d 548, 557 (S.D.N.Y. 2012); and (2)
that the Bank allegedly made a fraudulent or negligent misrepresentation by failing to disclose
"that Madoff was actually executing the split-strike conversion strategy" (the "Omission
Claims"). SCB I, 745 F. Supp. 2d 360 at 375-78. Eleven of the 57 SCB Cases have proceeded
through full discovery on their Due Diligence Claims and Omission Claims and are ready for
consideration pursuant to Rule 56. The parties in 42 other SCB Cases, all of which also assert
Due Diligence Claims and/or Omission Claims, agreed to a Court-approved procedure to defer

Honorable Victor Marrero

-19-

plaintiff-specific discovery pending guidance from the Court's summary judgment rulings. (Dkt.
No. 826; Dkt. No. 1193.) 18
On August 29, 2014, SCB submitted a letter to the Court requesting a pre-motion
conference to schedule briefing on the Bank's contemplated unified motion for summary
judgment with respect to the 11 ripe cases. (Dkt. No. 1314.) SCB proposed to move for
summary judgment on three grounds: (1) that the Due Diligence and Omission Claims of certain
plaintiffs are time-barred by Florida's four-year statute of limitations; (2) that all of plaintiffs'
Due Diligence Claims fail because plaintiffs cannot establish that the Bank conducted no due
diligence or that the Bank otherwise breached its Florida common law duty to conduct due
diligence; and (3) that plaintiffs' Omissions Claims fail because they cannot establish the
elements of scienter, reliance or proximate cause.
In response, on September 12, 2014, plaintiffs submitted a IO-page, single-spaced
letter seeking to preclude the Bank from filing its contemplated motion altogether. Plaintiffs'
letter wholly ignores statute of limitations issues and devotes just a single paragraph to the
Omission Claims. Rather, plaintiffs focus on the Due Diligence Claims, urging that there is "a
plethora of evidence" that SCB "fail[ed] to conduct serious due diligence" or had an "utter lack
of candor with its own clients," such that factual issues prevent summary judgment. (9/12 Ltr. at
1-2.) Plaintiffs' entire argument, however, is devoid of any relevant legal authority and is based
on a false due diligence duty of plaintiffs' own creation. That expert created duty would have
required the Bank to ferret out BLMIS's Ponzi scheme, a fraud that persisted without public

18

In so doing, the parties and the Court recognized that ''judicial economy would best be served, if
plaintiff-specific discovery was limited to a subset of actions, which actions would then be the subject of
any dispositive motions, including any summary judgment motions, because the Court's rulings in those
actions likely will make clear what (if any) plaintiff-specific issues remain for trial[.]" (Dkt. No. 826.)

Honorable Victor Marrero

-20-

detection for at least 20 years (until Bernard Madoffhimselfrevealed it on December 11, 2008).
That is not the duty set by Florida law, which is what controls here.
At the September 29, 2014 pre-motion conference, the Court requested that the
Bank provide further briefing on SLUSA and respond to plaintiffs' September 12 letter in 25
pages. (9/12 Conf. Tr. at 47-50.) Plaintiffs have been given an opportunity to submit a 25-page
reply letter. (Id. at 50-51.) Further, in an effort to resolve plaintiffs' "weaker claims" without
the need for motion practice (id. at 4), the Court requested that the Bank identify for plaintiffs
any claims subject to statute of limitations defenses so that the affected plaintiffs would have "an
opportunity to examine (the Bank's] theory" and either "find a theory under which the statute"
does not apply "or perhaps withdraw those claims on statute of limitations grounds." (Id. at 46.)
The Bank did so, but plaintiffs declined to engage.
The SCB Cases should be disposed of on SLUSA grounds. In the event they are
not, the Court should allow for proper briefing and full consideration of the three grounds on
which the Bank intends to move for summary judgment. As the Court recognized during the
September 29 conference, "[t]his is a very complicated case" that has proceeded through years of
discovery and several important pretrial rulings. (Id. at 2-3.) Before 55 of the 57 SCB Cases are
potentially remanded back to their original transferor courts for separate trials before multiple
federal district judges, this Court should determine whether any triable issues remain, and, if so,
which ones. 19

19

Although plaintiffs have been afforded a full opportunity to address their "motion" to prevent
summary judgment motion practice (with both an opening 10-page single spaced letter and a 25-page
reply), the Bank has not been afforded the same opportunity to present the law and facts which entitle it to
summary judgment. Fed. R. Civ. P. 56(a) (authorizing party to move on "each claim ... or the part of
each claim ... on which summary judgment is sought") As the Supreme Court has recognized, summary
judgment motion practice "is properly regarded not as a disfavored procedural shortcut, but rather as an
integral part of the Federal Rules as a whole, which are designed to secure the just, speedy and

Honorable Victor Marrero

A.

-21-

Plaintiffs Have Refused To Withdraw Any Time-Barred Claims, Making
Them Appropriate for Resolution on Summary Judgment.
On October 2, 2014, the Bank identified for plaintiffs the claims in the 11 cases

barred by Florida's statute oflimitations, and the legal basis. (Oct. 2, 2014 Letter with attached
chart, Ex. B.) Plaintiffs refused to withdraw those claims or to provide any theory as to why they
are timely. (Oct. 6, 2014 email, Ex. C.)
Plaintiffs' Due Diligence and Omission Claims are all subject to a four-year
statute of limitations period under Florida law. Fla. Stat. § 95.031; Fla. Stat. § 95.1 l.(3)(a) (fouryear limitations period for actions founded on negligence); Fla. Stat. § 95.11.(3)0) (four-year
limitations period for actions founded on fraud); Berg v. Wagner, 935 So. 2d 100, 102 (Fla. Dist.
Ct. App., 4th Dist. 2007) (four-year limitations period for breach of fiduciary duty claims).
Plaintiffs in 8 of the 11 cases assert untimely Due Diligence Claims, and plaintiffs in 5 of the 11
cases assert untimely Omission Claims. The Bank's anticipated motion, if granted, would
resolve all claims in 4 of the 11 cases, and limit claims in 4 others. Equally important, the
Court's ruling will inform whether claims in the remaining 46 cases are also barred, and could
substantially curtail deferred plaintiff-specific discovery.

B.

Plaintiffs Provide No Basis To Preclude the Bank's Summary Judgment
Motion on the Due Diligence Claims.
There is only one Florida common law duty to conduct due diligence on an

investment before recommending it. Whether couched in terms of fiduciary duty, negligence or

inexpensive determination of every action." Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986) (citations
omitted). "Absent extraordinary circumstances, such as a demonstrated history of frivolous and vexatious
litigation, or a failure to comply with sanctions imposed for such conduct, a court has no power to prevent
a party from filing pleadings, motions or appeals authorized by the Federal Rules of Civil Procedure."
Richardson Greensheilds Sec. Inc. v. Lau, 825 F.2d 647, 652 (2d Cir. 1987) (internal citations omitted)).

Honorable Victor Marrero

-22-

gross negligence claims, that duty is "to recommend an investment only after studying it
sufficiently to become informed as to its nature, price, and financial prognosis." Anwar, 891 F.
Supp. 2d at 557 (quoting Wardv. Atlantic Sec. Bank, 777 So.2d 1144, 1147 (Fla. Dist. Ct. App.
2001)). That duty is breached in the context of fraudulent investments only if plaintiffs can
establish the Bank acted in bad faith or willful ignored obvious "red flags" of BLMIS's Ponzi
scheme. See In re Old Naples Sec., Inc., 343 B.R. 310, 323-24 (M.D. Fla. Bankr. 2006) (citing
evidence, not expert opinions, establishing that certain red flags were obvious signs of fraud).
In their September 12 letter, plaintiffs substitute this legal standard-recognized
numerous times by this Court in these proceedings-with one created by their own experts.

20

Plaintiffs tell this Court that the Bank owed a duty to conduct "rigorous" due diligence, which,
according to their experts, required testing the plausibility of BLMIS's reported trading results,

21

gaining "reasonable assurance that the claimed assets actually existed,"22 meeting with Madoff
and others at his firm prior to April 2008, 23 and/or "investigat[ing] Sentry's ... risks, including
proper mitigation (satisfaction) of those risks." (9/12 Ltr. at 2-3, 5, 7, 9; 9/29 Conf. Tr. at 36.)
But Florida law does not impose a duty to ferret out well-concealed fraud, and certainly does not

20

The Court explicitly recognized the relevant duty in Anwar, 891 F. Supp. 2d 548, 556 (S.D.N.Y.
2012), Anwar, 826 F. Supp. 2d 578, 590 (S.D.N.Y. 2011), and SCB I, 745 F. Supp. 2d at 376.
21

There is no admissible evidence that the trading reported by BLMIS was implausible. None of
plaintiffs' experts ever looked at BLMIS's reported trades.

22

There is no dispute that the Bank obtained audited financial statements for the Fairfield Funds for
each year plaintiffs invested, which showed billions of dollars of assets on the books. PwC signed off on
each and every one of those statements, representing that its audit plan included "examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements," which provided PwC
with "reasonable assurance" that Sentry actually possessed and correctly valued its assets. (See Plaintiffs'
exhibits referenced in n.18 of their Sept. 12, 2014 letter.) There is no basis in Florida law to impose on
the Bank a duty to redo the work of a Big Four auditor.
23

The Bank's anticipated motion will also demonstrate that there is no dispute the Bank met with
Madoff in April 2008 and did not uncover obvious signs of his well-concealed fraud. There is no
evidence to suggest that meeting with Madoff earlier in time would have yielded a different result.

Honorable Victor Marrero

-23-

frame the duty as turning on whether, after the fact, "experts" armed with the benefit of hindsight
can second guess the recommendation. See Rich v. Wachovia Bank, N.A., 2010 U.S. Dist.
LEXIS 59483, at *24 n.5 (S.D. Fla. Apr. 7, 2010) (under Florida law, banks have no due
diligence duty to be "clairvoyant in [their] investment recommendations"). Indeed, as set forth
in Exhibit D, most of the assertions plaintiffs make in their September 12 letter in an attempt to
create material issues are wholly irrelevant to the grounds on which the Bank intends to move.
Others in fact support the Bank's contemplated motion.
Plaintiffs here were permitted by this Court to proceed to discovery on their Due
Diligence Claims based on the theory that the Bank conducted no due diligence. SCB I, 745 F.
Supp. 2d at 376-77. Discovery has revealed that premise to be false. The Bank will
demonstrate, based on undisputed evidence, that the Bank obtained information on the Fairfield
Fund's nature, price and financial prognosis, and it made an informed and good faith judgment
that the Fairfield Funds were what they appeared to be at the time-legitimate and desirable
investments for clients, many of whom were clamoring for access to the SSC strategy.
Moreover, there is no admissible evidence from which a jury could reasonably conclude that the
Bank ignored obvious risks ofMadoffs fraud. 24 Plaintiffs cannot prove their Due Diligence
Claims as a matter of law.

24

Numerous courts have held, and plaintiffs' experts did not dispute, that the supposed "red flags"
surrounding BLMIS and the SSC strategy were not obvious indicia that BLMIS was operating a Ponzi
scheme. See, e.g., McBride v. KMPG Int'/, 2014 WL 4063044, at *14 n.4 (Sup. Ct., N.Y Cnty. Aug. 15,
2014) (collecting cases); see also Newman v. Family Mgmt. Corp., 530 F. App'x 21, 26 (2d Cir. 2013); In
re Tremont Sec. Law, State Law & Ins. Litig., 2013 WL 5179064, at *6 (S.D.N.Y. Sept. 16, 2013);
Prickett v. New York Life Ins. Co., 896 F. Supp. 2d 236, 246-47 (S.D.N.Y. 2012); Meridian Horizon
Fund, LP v. Tremont Grp. Holdings, Inc., 747 F. Supp. 2d 406, 413 (S.D.N.Y. 2010), aff'd, 487 Fed.
App'x 636 (2d Cir. 2012); SECv. Cohmad Sec. Corp., 2010 WL 363844, *3-4 (S.D.N.Y. Feb. 2, 2010);
In re Beacon Assocs. Litig., 745 F. Supp. 2d 386, 414 (S.D.N.Y. 2010); In re Tremont Sec. Law, State
Law and Ins. Litig., 703 F. Supp. 2d 362, 371(S.D.N.Y.2010); SSR II, LLC v. John Hancock Life Ins.
Co. (U.S.A.), 2012 WL 4513354, at *6 (Sup. Ct., N.Y. Cnty. Sept. 28, 20l2); Bakerv. Andover Assocs.

Honorable Victor Marrero

C.

-24-

Plaintiffs Provide No Basis To Preclude the Bank's Summary Judgment
Motion on the Omission Claims.
Plaintiffs' Omission Claims all fail for lack of evidence on the essential elements

of those claims. Plaintiffs provide no basis on which to preclude the Bank's anticipated motion
on this ground, and, if granted, the Bank's anticipated motion would resolve all Omission Claims
in the 11 cases ripe for summary judgment. 25
To prove their Omission Claims, plaintiffs must establish, among other elements,
that the Bank omitted a material fact as part of its recommendations of the Fairfield Funds with
the intention to induce reliance, and that plaintiffs would not have invested had that fact been
disclosed. See Ward, 777 So.2d at 1146 (fraud claim); SCB /, 745 F. Supp. 2d at 372 (citing
Jaffe v. Bank ofAm., NA., 667 F. Supp. 2d 1299, 1319 (S.D. Fla. 2009) (negligent
misrepresentation have the same elements except no actual knowledge of falsity required).) As
implicit from the silence in plaintiffs' September 12 letter, discovery has revealed no evidence
that the Bank intended to induce anyone to invest by omitting information about BLMIS 's role in
the Fairfield Funds. That alone is fatal. Moreover, if given the opportunity, the Bank will
establish through undisputed evidence that BLMIS's role in the Fairfield Funds was either

Mgmt. Corp., 2009 WL 7400085, at *20 (N.Y. Sup. Ct., Westchester Cnty. Nov. 30, 2009). Moreover,
the proffered recollection from former Bank "salesman" Sebastian Gonzalez, who was never identified as
a potential witness in the SCB Cases, cannot create a triable issue. Gonzalez's declaration was obtained
and disclosed in violation of the Rule 26 of the Federal Rules of Civil Procedure and its contents are
inadmissible under the Federal Rules of Evidence. See Litton Sys., Inc. v. Am. Tel. & Tel. Co., 700 F.2d
785, 816 (2d Cir. 1983) (holding employee's out-of-court statement summarizing what other employees
said does not "bring the events [the declarant] summarized within the scope of his agency or employment
under 80l(d)(2)(D)" (internal quotation marks omitted)); Thomas v. Stone Container Corp., 922 F. Supp.
950, 957 (S.D.N.Y. 1996) ("[O]ffice ... gossip does not become admissible simply because it is put into
the mouth of someone whose statements are not subject to hearsay objection.").
25

In any event, the Court's decision would provide guidance with respect to deferred plaintiffspecific discovery for the 46 other SCB Cases.

-25-

Honorable Victor Marrero

(i) adequately disclosed through private placement memoranda, marketing materials or other
publicly available information; or (ii) would not have altered plaintiffs' decisions to invest.

26

I

CONCLUSION
For the foregoing reasons, the Court should dismiss the SCB Cases pursuant to
SLUSA. To the extent that the Court does not dismiss all claims, the Bank should be permitted
to file a unified motion for summary judgment following the procedure set forth in Rule 56 of
the Federal Rules of Civil Procedure and the Local Rules of this District.

(Attachments)
cc:

26

Standard Chartered Plaintiffs' Steering Committee (by E-mail)

Rather than confront these fundamental deficiencies in the evidence, plaintiffs contend only that
certain private placement memoranda were "false and misleading." (9112 Ltr. at 10.) Even if correct, this
would not preclude summary judgment where disclosures were made to plaintiffs elsewhere, or where the
omitted facts would not have altered plaintiffs' decision to invest. With respect to plaintiffs' belated
claim that the Bank "did not disclose the highly material fact that it received half of
Fairfield' smanagement fee for recommending investments in Sentry," (id.), only one plaintiff ever pied a
fraud or negligent misrepresentation claim based on the nondisclosure of fees, and the Court promptly
dismissed that claim as a matter of law. Anwar, 286 F.R.D. 258, 260 (S.D.N.Y. 2012) ("Barbachano's
allegation that Standard Chartered engaged in fraudulent conduct due to its receipt of 'trailer fees' is the
sort of 'generalized motive ... which could be imputed to almost any bank' and is therefore not
sufficiently concrete to serve as a foundation for inferring fraudulent intent." (citation omitted)).