Anwar et al v. Fairfield Greenwich Limited et al

Filing 1473

ENDORSED LETTER addressed to Judge Victor Marrero from Sharon L. Nelles dated 12/3/2015 re: Request that the Court defer its decision on remand until 12/22/2015. ENDORSEMENT: Request GRANTED. Any Standard Chartered Plaintiff who seeks to amend the complaint herein solely for the purpose of pleading the uniform negligence claim referred to above and attached to this letter is directed to do so by 12-22-15. (Signed by Judge Victor Marrero on 12/3/2015) (spo)

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December 3, 2015
Bv Facsimile
Honorable Victor Marrero,
United States District. Judge,
Daniel Patrit=k Moynihan United States Courthouse,
500 Pearl Street,
New York, New York 10007.
Re:

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

Dear Judge Marrero:
We write on behalf of the Standard Chartered Defendants ("SC
Defendants"), with the agreement of the Standard Chartered Plaintiffs
Plaintiffs"),
to inform the Court that the parties in the Standard Chartered Cases ("SC Cases") have
reached agreement regarding a uniform negligence count. Pursuant to the Court's prior
orders granting certain plaintiffs leave to replead or plead a uniform negligence count,
plaintiffs have proposed a uniform count in the form attached hereto as Exhibit A, to
which the SC Defendants do not object. The SC Defendants reserve all factual and legal
defenses with respect to the plaintiffs' proposed negligence count, including the legal
sufficiency of the allegations put forth in that count to plead a cognizable negligence
claim. The SC Defendants understand that any eligible plaintiff in the SC Cases who
wishes to add this uniform count will file an amended complaint for that sole purpose.
The parties agree that such amended complaints should be filed no later than December
22, 2015, and hereby request that the Court set that deadline by order.

r·sc

In addition, although the SC Defendants greatly appreciate the Court's
significant efforts, the SC Defendants believe that the SC Cases are appropriately
remanded to the transferor courts and thus do not consent to retention or the SC Cases by
this Court for trial. The SC Plaintiffs reserve all rights to file a motion to transfer their
cases back to the Southern District of New York once remand is effected. Because the
parties currently are working cooperatively to resolve certain outstanding matters, they

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Honorable Victor Marrero
-2-

request that the Court defer its decision on remand until December 22, 2015, in order to
give the parties opportunity to complete that process.

x. '12.du.t_

Respectfully submitted.

~

Sharon L. Nelles

Enclosure
cc:

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

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Exhibit A

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Count _ -- Negligence
Plaintiff adopts the allegations contained in the previous paragraphs. This is an
action for negligence against Defendants.
1.

At all material times, Defendants owed a duty to Plaintiff to exercise

reasonable care.
2.

Defendants breached that duty to exercise reasonably care and failed to

use the care that a reasonably careful person would use under like circumstances, by
among other things, doing or failing to do the following:
a.

Making units in the Fairfield Sentry Fund available to Plaintiff and

other customers to purchase and recommending the purchase of units of the Fairfield
Sentry Fund to Plaintiff and other customers while:
i.

Knowing that Madoff Securities was functioning in the

multiple roles of investment manager, broker, an~ custodian for the assets of Fairfield
Sentry and, therefore, ~mowing that no indepen~ent third party served as either the
investment manager, the broker for the supposed execution of trades, or the custodian
and no independent means existed for, among other things, verifying the accuracy of
the trades being reported by monthly statements and trade confirmations, the accuracy
of the reports of the value of the assets that supposedly were under management and
held in custody, and the accuracy of the performance record being reported;
ii.

Knowing that financial institutions that invest in Fairfield

Sentry were not allowed to go and visit Madoff or Madoff Securities for due diligence
purposes and knowing that American Express Bank would not be permitted to speak
with Madoff about any aspect of Madoffs management, brokerage, and custody of the

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assets of Fairfield Sentry;
111.

Failing to conduct a reasonable due diligence investigation

directly of Madoff Securities including, but not limited to. failing to review documents and
actual trade ticl<ets, failing to conduct reasonable due diligence interviews of Madoff and
the alleged traders and analysts who supposedly implemented the strategy, and failing
to observe them during trading hours;
iv.

Failing to conduct a reasonable due diligence investigation

into the alleged due diligence (both initial and ongoing) and supervision conducted by
Fairfield Greenwich and Fairfield Sentry into Madoff, Madoff Securities, Madoffs twoperson accounting firm, the counterparties on the alleged option trades, the alleged
trading, the review of alleged trades, and the systems to prevent fraud and the gaps in
those systems as actually being implemented;
v.

Failing to conduct a reasonable due diligence investigation

into the performance record being reported by Fairfield Sentry and whether it was
reasonable given the reports in industry publications, the nature of the split-strike
conversion strategy, the movement of the S&P 100, and the negative skew of put to call
premiums on the S&P 500 since 1986 as published by the Chicago Board of Options
Exchange ("CBOE");
vi.

Failing to conduct a reasonable due diligence investigation

into the split strike conversion strategy as it was supposedly being employed by Madoff
for Fairfield Sentry;
vii.

Failing to conduct a reasonable due diligence investigation

of the alleged counter-parties on the over-the-counter options allegedly being

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purchased and sold by Madoff for Fairfield Sentry, including an investigation of the
identity of these counter-parties, interviews of the counter-parties, review of the
contracts for the options with these counter-parties, and investigation of the financial
wherewithal of these counter-parties to perform their obligations under the option
agreements;
viii.

Failing to conduct a reasonable due diligence investigation

of the two-person public accounting firm hired by Madoff to audit and report on the
trading conducted for f aijrfield Sentry and the other feeder funds;
ix.

Failing to communicate to its relationship managers and

investment specialists the essential facts relating to the due diligence investigation,
which, if so communicated, would have prevented relationship managers and
investment specialists from recommending Fairfield Sentry;
x.

Failing to recognize as part of its due diligence investigation

that a new version of the Private Placement Memorandum removed all references to
Madoff and Madoff Securities and their multiple roles as the investment manager, the
broker, and the custodian;
xi.

Failing to recognize that since 1986 the premiums for

equidistant puts on the S&P 500 Index have been higher than equidistant calls, which is
known and published ein the website of the CBOE

as the Skew Index, and that

therefore, the carry neutral explanation given by Madoff was impossible and the
performance record of Fairfield Sentry was highly suspect;
b.

Failing to monitor the Plaintiff's investment in Fairfield Sentry after

Defendant recommended the purchase of the units of Fairfield Sentry to Plaintiff and

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other customers, including but not limited to, failing to take or advise that action be
taken in order to protect Plaintiffs investment while:
i.

Knowing that Madoff Securities continued to function in the

multiple roles of investment manager, broker, and custodian for the assets of Fairfield
Sentrywith no independent third party serving as either the investment manager, the
broker for the supposed execution of trades, or the custodian and with no independent
means existing to, among other things, verify the accuracy of the trades being reported
by monthly statements and trade confirmations, the accuracy of the reports of the value

of the assets that supposedly were under management and held in custody, and the
accuracy of the performance record being reported;
ii.

Knowing that Madoff and Madoff Securities continued to

prohibit financial institutions that invested in Fairfield Sentry from being allowed to go
and visit Madoff or Madoff Securities for due diligence purposes and knowing that
American Express Bank would not be permitted to speak with Madoff about any aspect
of Madoffs management, brokerage, and custody of the assets of Fairfield Sentry;
iii.

Failing to conduct a reasonable ongoing due diligence

investigation directly of Madoff Securities including, but not limited to, failing to review
documents and actual trade tickets, failing to conduct probing interviews of Madoff and
the alleged traders and analysts who supposedly implemented the strategy, and failing
to observe them during trading hours;
iv.

Failing to conduct a reasonable ongoing due diligence

investigation into the alleged due diligence (both initial and ongoing) and supervision
conducted by Fairfield Greenwich and Fairfield Sentry into Madoff, Madoff Securities,

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Madoff's two-person accounting firm, the counterparties on the alleged option trades,
the alleged trading, the review of alleged trades. and the systems to prevent fraud and
the gaps in those systems as actually being implemented;
v.

Failing to conduct a reasonable ongoing due diligence

investigation into the performance record being reported by Fairfield Sentry and whether
it was reasonable given the nature of the split-strike conversion strategy, the movement
of the S&P 100, and the negative skew of put to callpremiums on the S&P 500 since
1986 as published by the Chicago Board of Options Exchange ("CBOE");
vi.

Failing to conduct a reasonable ongoing due diligence

investigation into the split strike conversion strategy as it was supposedly being
employed by Madoff for Fairfield Sentry;
vii.

Failing to conduct a reasonable ongoing due diligence

investigation of the alleged counter-parties on the over-the-counter options allegedly
being purchased and said by Madoff for Fairfield Sentry, including an investigation of
the identity of these counter-parties, interviews of the counter-parties, review of the
contracts for the options with these counter-parties, and investigation of the financial
wherewithal of these counter-parties to perform their obligations under the option
agreements;
viii.

Failing to conduct a reasonable ongoing due diligence

investigation of the two-person public accounting firm hired by Madoff to audit and
report on the trading conducted for Fairfield Sentry and the other feeder funds;
ix.

Failing to communicate to its relationship managers and

investment specialists the essential facts relating to the due diligence investigation,

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which, if so communicated, would have prevented relationship managers and
investment specialists from continuing to recommend Fairfield Sentry;
x.

Failing to recognize as part of its due diligence investigation that a

new version of the Privat•e Placement Memorandum removed all references to Madoff and
Madoff Securities and their multiple roles as the investment manager, the broker, and the
custodian;

xi.

Continuing to fail to recognize that since 1986 the premiums

for equidistant puts on the S&P 500 Index have been higher than equidistant calls,
which is known and published on the website of the CBOE as the Skew Index, and that
therefore, the carry neutral explanation given by Madoff was completely fallacious and
the performance record of Fairfield Sentry was highly suspect;
xii.

Failing at a meeting on April 15, 2008, with Madoff to

recognize that the "asymmetric" profit profile descrribed by Madoff was impossible since
1986, failing to question Madoff competently and thoroughly about his strategy and the
scope of his supposed assets under management. failing to question Madoff
competently and thoroughly about the systems in place to prevent fraud and the gaps in
those systems as actually being implemented; and failing to send personnel to the
meeting who possessed an adequate basic knowledge of the equity and over-thecounter options markets to understand that Madoffs explanations made no sense.
3.

As a direct and proximate result of the foregoing negligence of Defendants,

Plaintiff suffered damages in the amount of the investment made by Plaintiff in Fairfield Sentry
and interest thereon.

WHEREFORE, Plaintiff demands judgment against Defendants for
compensatory damages, plus pre-judgment interest, costs and for such further relief

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as the Court deems just and proper.

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