Anwar et al v. Fairfield Greenwich Limited et al

Filing 1341

ENDORSED LETTER addressed to Judge Victor Marrero from David A. Barrett dated 11/20/2014 re: Counsel writes on behalf of the Anwar Plaintiffs in response to the Citco Defendants' November 17, 2014 letter regarding the Second Circuit's recent decision in Pennsylvania Pub. Sch. Employees' Ret. Sys. v. Morgan Stanley & Co., 2014 WL 5487666 (2d Cir. Oct. 31, 2014). The Morgan Stanley decision lends no support to the Citco Defendants' arguments against class certification. ENDORSEMENT: The Clerk of Court is directed to enter into the public record of this action the letter above submitted to the Court by Anwar plaintiffs. (Signed by Judge Victor Marrero on 11/21/2014) (tro)

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BOIES SCHILLER

SCHILLER

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FLEXNER

LLP

K, NY 10022 •PH. 212.446.2300 •FAX [phone]
575 LEXINGTON AVENUE• 7TH FLOOR' NEW YOR

November 20, 2014

BY FAX
The Honorable Victor Marrero
United States District Court
Southern District of New York
500 Pearl Street
New York, New York 10007
Re:

Anwar, et al, v. Fairfield Greenwich Limited, et al., 09-CV-00118

Dear Judge Marrero:
We write on behalf of the Anwar Plaintiffs in response to the Citco Defendants'
November 17, 2014 letter regarding the Second Circuit's recent decision in Pennsylvania Pub.
Sch. Employees' Ret. Sys. v. Morgan Stanley & Co., 2014 WL 5487666 (2d Cir. Oct. 31, 2014).
The Morgan Stanley decision lends no support to the Citco Defendants' arguments against class
certification.
The focus of Citco's letter is that Morgan Stanley rejected the plaintiffs' argument that
the commonality element was satisfied by the fraud-created-the-market theory. 1 The Anwar
Plaintiffs have argued that their claims against Citco, to the extent they include the element of
reliance, 2 do not present individualized issues because reliance can be shown on a classwide
basis through (i) common circumstantial evidence, PL Br. at 14-17; and (ii) the Affiliated Ute
presumption. PL Br. at 18-19.
The Morgan Stanley decision broke no new ground, and certainly said nothing that alters
well-established Second Circuit and New York law that common circumstantial evidence can be
used to show classwide reliance. See Pl. Br. at 14-17 (collecting cases). As Judge Forrest
recently concluded on the basis of an in-depth analysis of Second Circuit law concerning
reliance, "[m ]isrepresentation claims do not always require individualized proof of reliance" and
any "assertion to the contrary simply ignores Second Circuit case law." Osberg v. Foot Locker,

1

It bears noting that the Second Circuit's relatively brief discussion of the fraud-created-themarket theory stops short of outright rejection, as the Court stated that "[w]hatever may be the
merits ofthis putative doctrine in other contexts, we see no reason to give it weight here."
Morgan Stanley, 2014 WL 5487666, at *6.
2

As discussed in Plaintiffs' Supplemental Memorandum in Support of Motion for Class
Certification, dated August 1, 2014 ("Plaintiffs' Brief' or "Pl. Br."), "[rJeliance is not an element
of Plaintiffs' claims [against the Citco Defendants] for breach of fiduciary duty, negligence,
breach of contract, and aiding and abetting breach of fiduciary duty." Pl. Br. at 20-22.
WWW.BSF'LLP.COM

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BOIES,

BOIES SCHILLER

SCHILLER

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FLEXNER

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LLP

The Honorable Victor Marrero
November 20, 2014
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inc., 2014 WL 5800501, at *2 (S.D.N.Y. Nov. 7, 2014) (reaffirming certification of a class
alleging misrepresentations and omissions in ERISA plan documents). 3

Likewise, Morgan Stanley does not discuss the Affiliated Ute presumption of reliance,
which both federal and state courts in New York have endorsed. See, e.g., Osberg, 2014 WL
5800501, at *6 ("Reliance is presumed in cases where material omissions are asserted."); In re
Beacon Assocs. Litig., 282 F.R.D. 315, 328 (S.D.N.Y. 2012) (certifying investor class in Madoff
feeder fund case based on omissions to disclose); Dkt No. 776 at 20-23 (collecting cases); PL
Br. at 18-19; 23 (collecting cases).
The facts of Morgan Stanley also make its relevance here negligible. The case involved
fraud claims against rating agencies alleging that the defendants knew their ratings "were based
on outdated models and data." Morgan Stanley, at * 1. As a result, the investment vehicle that
plaintiffs bought "received a triple-A rating despite being loaded with very risky assets,
including a significant profile of subprime residential mortgage-backed securities." Id
Defendants' ratings allegedly misled plaintiffs about the resulting risk of the investment vehicle,
which initially had substantial value, but went bankrupt several years later when the housing
market collapsed in 2007. Id. Based on these allegations, the Second Circuit reasoned that "[i]t
is quite possible that some buyers of the notes might have known the underlying facts, believed
in the models, and held the same rosy view of the residential housing market as did many
government and private financial officers." Id at *6.
In stark contrast, the Anwar Plaintiffs allege that for more than IO years, in over 120
monthly account statements and thousands of purchase confirmations, Citco repeatedly and
recklessly misrepresented the existence of billions of dollars of fund assets when, in fact,
virtually none of those assets existed. It is inconceivable that any investor would knowingly
invest in a Ponzi scheme. See Basic Inc. v. Levinson, 485 U.S. 224, 24 7 (1988) ('"Who would
knowingly roll the dice in a crooked crap game?"') (quoting Schlanger v. Four-Phase Systems
Inc., 555 F.Supp. 535, 538 (S.D.N.Y. 1982)); Osberg, 2014 WL 5800501, at *6 (reliance could
be shown on a classwide basis by "circumstantial proof," because "no reasonable juror would
assume that a person knowingly receiving a pension benefit lower than that to which they are
otherwise entitled would simply ignore that fact"). It is for that reason that the Anwar Plaintiffs
are able to point to a consistent line of authority that has certified classes in Ponzi scheme cases.
See Pl. r. at 24.

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DATE

3

Although the Osberg decision was filed a week after Morgan Stanley, it does not discuss the
case, no doubt because Morgan Stanley was no more probative of the classwide reliance issue in
Osherg than it is here.