Anwar et al v. Fairfield Greenwich Limited et al

Filing 998

MEMORANDUM OF LAW in Support re: #997 MOTION to Approve preliminarily the partial settlement, preliminary certification of the class for purposes of the partial settlement, approval of notice to the class, and scheduling of a settlement hearing.. Document filed by Pasha S. Anwar. (Barrett, David)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
PASHA ANWAR, et al.,
Plaintiffs,
v.

FAIRFIELD GREENWICH LIMITED, et al.,

Master File No. 09-cv-118 (VM) (FM)

Defendants.
This Document Relates To: 09-cv-118 (VM)

PLAINTIFFS' MEMORANDUM IN SUPPORT OF MOTION
FOR (I) PRELIMINARY APPROVAL OF PARTIAL SETTLEMENT, (II)
PRELIMINARY CERTIFICATION OF THE CLASS FOR PURPOSES OF
SETTLEMENT, (III) APPROVAL OF NOTICE TO THE CLASS,
AND (IV) SCHEDULING OF A FINAL APPROVAL HEARING

BOIES,SCHILLER FLEXNER
&
LLP
David A. Barrett
Howard L. Vickery, II
575 Lexington Avenue
New York, NY 10022
Telephone: [phone]
Facsimile: [phone]

WOLFPOPPERLLP
Robert C. Finkel
James A. Harrod
Natalie M. Mackiel
845 Third Avenue
New York, NY 10022
Telephone: [phone]
Facsimile: [phone]

BOIES,SCHILLER FLEXNER
&
LLP
Stuart H. Singer
Carlos Sires
Sashi Bach Boruchow
401 East Las Olas Boulevard, #1200
Ft. Lauderdale, Florida 33301
Telephone: [phone]
Facsimile: [phone]

LOVELLSTEWARTHALEBIAN
JACOBSONLLP
Christopher Lovell
Victor E. Stewart
61 Broadway, Suite 501
New York, NY 10006
Telephone: [phone]

Interim Co-Lead Counsel for Plaintiffs and Lead Counsel for PSLRA Plaintiffs

TABLE OF CONTENTS

INTRODUCTION

.2

ARGUMENT

6

I.

The Proposed Partial Settlement Warrants Preliminary Approval

II.

Certification of a Settlement Class Is Appropriate

12

A.

The Settlement Class Satisfies the Requirements of Rule 23(a)

13

1.

The Class Members Are Too Numerous to Be Joined

14

2.

There Are Common Questions of Law or Fact

14

3.

The Class Representatives'

16

4.

The Class Representatives Will Fairly and Adequately Protect the
Interests of the Class
17

B.

Claims Are Typical

6

The Proposed Settlement Class Satisfies the Requirements of Rule
23(b)(3)

19

1.

Common Questions Predominate

19

2.

A Class Action Is the Superior Method of Adjudication

21

a.

b.

c.

III.
CONCLUSION

Any Individual Interest in Controlling the Prosecution of
Separate Actions Is Limited

21

Litigating All of the Claims in this Forum Is the Most
Desirable Course of Action

22

Settlement-Only Class Certification Moots Manageability
Analysis

22

Notice to the Class Should Be Approved

23
25

The Representative Plaintiffs in this putative class action (the "Action"),l move for: (i)
preliminary approval of a proposed partial Settlement under which the Settling Defendants,
funded by the FG Individual Defendants," will pay $80,250,000, including a minimum of
$50,250,000 that will be distributed to the Settlement Class (the "Settlement Fund") upon final
approval and an additional $30,000,000 that will be distributed if not used to resolve other
claims; (ii) preliminary certification of the requested Settlement Class" for purposes of the
Settlement; (iii) approval of the form and manner of giving notice to Settlement Class Members;
and (iv) the scheduling of a hearing (the "Final Settlement Hearing") on the Representative
Plaintiffs' motion for final approval of the Settlement, and for an award of attorneys' fees and for
reimbursement of litigation expenses, including incentive awards and reimbursement of lost
wages to Representative Plaintiffs.
The proposed partial Settlement resolves the claims asserted in this Action against all
defendants associated with Fairfield Greenwich Group, which established and managed the

The "Representative Plaintiffs" are Pacific West Health Medical Center Employees
Retirement Trust, Harel Insurance Company Ltd., Martin and Shirley Bach Family Trust, Natalia
Hatgis, Securities & Investment Company Bahrain, Dawson Bypass Trust, and St. Stephen's
School.
1

The "Settling Defendants" are Fairfield Greenwich Limited ("FGL") and Fairfield Greenwich
(Bermuda) Ltd. ("FGBL"). The "FG Defendants" are the Settling Defendants as well as
Fairfield Greenwich Group, Fairfield Greenwich Advisors LLC, Fairfield Risk Services Ltd.,
Fairfield Heathcliff Capital LLC, and Fairfield Greenwich (UK) Limited (collectively, the "FG
Entity Defendants"); and Walter M. Noel, Jr., Jeffrey H. Tucker, Andres Piedrahita, Lourdes
Barreneche, Robert Blum, Cornelis Boe1e, Gregory Bowes, Vianney d'Hendecourt, Yanko Della
Schiava, Harold Greisman, Jacqueline Harary, David Horn, Richard Landsberger, Daniel E.
Lipton, Julia Luongo, Mark McKeefry, Charles Murphy, Corina Noel Piedrahita, Maria Teresa
Pulido Mendoza, Santiago Reyes, Andrew Smith, Philip Toub, and Amit Vijayvergiya
(collectively, the "FG Individual Defendants").
2

Unless otherwise indicated, capitalized terms used in this Memorandum are defined in the
accompanying Stipulation of Settlement. The "Settlement Class" is also defined at p. 12 below.

3

Funds. The settlement does not resolve Plaintiffs' claims against Defendants PwC Netherlands,
PwC Canada, the Citco entities, or GlobeOp, which Plaintiffs continue to litigate vigorously.
INTRODUCTION
The FG Defendants comprised the sponsors, managers, and advisors to several feeder
funds to Bernard L. MadoffInvestment

Securities ("BLMIS"), as well as individuals affiliated

with Fairfield Greenwich Group. Plaintiffs' Second Consolidated Amended Complaint
("SCAC"), filed September 29, 2009 (ECF No. 273), asserts claims against the FG Defendants
for common law fraud (Counts 1 and 2), federal securities fraud and control person liability
(Counts 3 and 4), negligent misrepresentation (Counts 5 and 6), gross negligence (Count 7),
breach of fiduciary duty (Count 8), third-party beneficiary breach of contract (Count 9),
constructive trust (Count 10), mutual mistake (Count 11), and unjust enrichment (Count 33).
Those claims were sustained in significant part by this Court in decisions of July 29,2010,
Anwar v. Fairfield Greenwich Ltd. ("Anwar F'), 728 F. Supp. 2d 354; and August 18,2010
Anwar v. Fairfield Greenwich Ltd. ("Anwar IF'), 728 F. Supp. 2d 372. The Court thereafter
denied two separate motions to reargue Anwar II (see 800 F. Supp. 2d 571 and 2012 WL
3245478), except the Court, on the second motion to reargue, limited the claims against the PwC
Defendants to subsequent investor and holder claims asserted by already existing investors in the
Funds.
The Representative Plaintiffs and the Settling Defendants (the "Settling Parties") have
reached agreement to settle and release all claims against the FG Defendants as provided in a
Stipulation of Settlement dated as of November 6,2012 (the "Stipulation") filed herewith.
Under the proposed Settlement, the Settling Defendants, funded by the FG Individual
Defendants, will pay a total of $80,250,000, as well as giving other consideration.

2

The

Settlement provides a substantial, up-front monetary benefit to the Settlement Class of
$50,250,000 in cash (the "Settlement Fund"). These funds, less administration expenses and
attorneys' fees and expenses as may be awarded by the Court, will be distributed to Settlement
Class Members as soon as the proposed Settlement is finally approved.
In addition to this guaranteed recovery of $50,250,000, the Settling Defendants, funded
by the FG Defendants, also will transfer $30,000,000 into a separate account (the "Escrow
Fund"), which will be distributed to the Settlement Class to the extent it is not used to pay certain
other claims or judgments against the FG Defendants.

See Stipulation

,m 5, 18 and 30.

In the

event that the Escrow Fund is used to settle claims against the Settling Defendants that have been
brought by the Trustee in the liquidation ofBLMIS, the Settling Defendants must make an
additional payment to the Settlement Fund of up to $5,000,000, measured by 50% of the amount,
if any, by which such a settlement exceeds $50,125,000. See Stipulation ~ 7.4
As additional consideration, the Settling Defendants have agreed to waive (i)
indemnification claims they hold against the Funds for the $80,250,000 payments that they will
make under the Settlement; and (ii) $20,000,000 of indemnification claims they hold against the
Funds for legal fees and expenses incurred in defending the Action. See Stipulation, ~ 6.
The Stipulation also contains provisions barring the remaining defendants in the Action,
including without limitation various PricewaterhouseCoopers,

Citco and GlobeOp entities (the

"Non-Dismissed Defendants") from asserting claims against the FG Defendants for contribution
and indemnification and providing for reduction of any judgment that may be entered against the

Because a settlement of $50, 125,000 with the Trustee would exhaust the Escrow Fund, the
Settlement Fund ultimately may be enhanced either by the net amount of the Escrow Fund or the
supplemental payment up to $5 million (or neither), but not both.

4

3

Non-Dismissed Defendants to account for Plaintiffs' recovery under the instant Settlement. See
Stipulation,

,m 26-27.

Further, in connection with the Settlement, Plaintiffs' Lead Counsel conducted
informational interviews ofFG Individual Defendants on matters relevant to the Settlement and
to Plaintiffs' continued prosecution of claims against the remaining Non-Dismissed Defendants.
The Stipulation is subject to additional terms, including terms contained in a
Supplemental Agreement dated as of November 6,2012, which provides that if class members
representing a Net Loss of principal in excess of a certain amount seek exclusion from the
Settlement Class, the Settling Defendants may terminate the Settlement. See Stipulation, ~ 47.
In the event the Settling Defendants elect to terminate, but the Net Loss of opt-outs does not
exceed a separate threshold specified in the Supplemental Agreement, the Settling Defendants
shall incur a break-up fee in the amount of$l,OOO,OOOwhich shall remain in the Settlement
Fund. Id
The Settling Parties reached this Settlement after strenuous and protracted negotiations at
a time when the Settling Parties fully understood the strengths and weaknesses of their respective
positions. Since Representative Plaintiffs filed this case in December 2008, the Settling Parties
have engaged in substantial motion practice, including motions to dismiss, motions to reconsider
rulings on motions to dismiss and a motion for class certification.

The Settling Parties have

conducted, and continue (with respect to the Non-Dismissed Defendants) to conduct, extensive
discovery, including 20 depositions of persons associated with the Representative Plaintiffs or
other Named Plaintiffs, 30 depositions of persons affiliated with the Defendants, with many
more depositions scheduled in the next several months. The Settling Defendants and the NonDismissed Defendants produced, and Plaintiffs' Lead Counsel reviewed, more than six million

4

pages of documents with production still continuing; and Plaintiffs' Lead Counsel reviewed and
produced to defense counsel more than 75,000 pages of documents on behalf of the
Representative Plaintiffs and other Named Plaintiffs. In total, Plaintiffs' Counsel expended over
58,000 hours of attorney and paralegal in prosecuting the Action through July 31, 2012, and have
incurred in excess of$1,450,000

in out-of-pocket expenses.

The Representative Plaintiffs and Plaintiffs' Lead Counsel believe that the proposed
Settlement is an excellent result that is in the best interests of the Settlement Class. The
Settlement must be considered in the context of the risk that protracted litigation, including a
decision on class certification, motions for summary judgment, motion practice with respect to
experts and trial evidence, trial itself, and likely appeals, could result in a lesser recovery against
the FG Defendants, or no recovery at all. In this connection, the FG Defendants vigorously
maintain that they did not know about wrongdoing at BLMIS until it was revealed to the public
in December 2008, lost more than $72 million of their own and family members' money in the
fraud, maintained a full-time professional staff to perform due diligence and risk monitoring, and
were among many financial firms and regulators that were fooled by Madoff including the
Securities and Exchange Commission.

They also point to the efforts to conceal the fraud by

Madoff and seven others who pleaded guilty to crimes, including creating false trade blotters,
trade confirmations and DTC reports which they were shown, and aspects of Madoff's activities
that were not typical of a Ponzi scheme, including refusing new investments and redeeming
billions of dollars upon request over many years.
Plaintiffs' Lead Counsel has conducted financial due diligence of the assets held by the
Founding Shareholders ofFGG - Walter Noel, Jeffrey Tucker and Andres Piedrahita - and of
the remaining FG Individual Defendants.

This included review of assets and liabilities and

5

written certifications by the Defendants of the material accuracy of the information provided.
Plaintiffs' Lead Counsel are satisfied that the settlement consideration represents a substantial
portion of the assets that might be recovered from these FG Defendants - but only if Plaintiffs
were to prevail on dispositive motions, at trial, on appeal and in potentially long and hard-fought
judgment enforcement proceedings.
The Stipulation anticipates entry of the accompanying Preliminary Approval Order
approving forms of mailed and publication notice to members of the proposed Settlement Class.
See Stipulation, ~ 20. The proposed Notice (Ex. A-I to the Stipulation) informs Settlement Class
Members of the scheduling of the Final Settlement Hearing to consider final approval of the
Settlement and the request for an award of attorneys' fees and reimbursement of expenses. The
Notice also informs Settlement Class Members of the opportunity to request exclusion from the
Settlement Class, to object to the terms of the proposed Settlement, and to file Proofs of Claim to
share in the Settlement proceeds. Inasmuch as (i) the proposed Settlement is well within the
range of approvable settlements; (ii) the request for certification of a proposed Settlement Class
meets the requirements for certification under Rule 23; and (iii) the plan for giving notice of the
Settlement complies with applicable law, including the Private Securities Litigation Reform Act
and due process, the Representative Plaintiffs respectfully request that the proposed Preliminary
Approval Order be entered by this Court.
ARGUMENT
I.

The Proposed Partial Settlement Warrants Preliminary Approval
The settlement of complex class action litigation is favored by public policy and strongly

encouraged. See Wal-Mart Stores, Inc. v. Visa US.A. Inc., 396 F.3d 96, 116-17 (2d Cir. 2005)

6

("We are mindful of the strong judicial policy in favor of settlements, particularly in the class
action context. The compromise of complex litigation is encouraged by the courts and favored
by public policy") (internal quotation marks and citation omitted). Approval of a proposed
settlement is within the discretion of the district court, to be exercised in accordance with public
policy strongly favoring pretrial settlement of class action lawsuits. Karpus v. Borelli, (In re
Interpublic Sec. Litig.v; Nos. 02-6527, 03-1194,2004 WL 2397190, at *7 (S.D.N.Y. Oct. 26,
2004); see also Riltmaster v. Paine Webber Group (In re Paine Webber Ltd P 'ships Litig), 147
F.3d 132, 138 (2d Cir. 1998).
"Review of a proposed class action settlement generally involves a two-step process:
preliminary approval and a 'fairness hearing.'

First, the court reviews the proposed terms of

settlement and makes a preliminary determination on the fairness, reasonableness and adequacy
of the settlement terms." In re Initial Pub. Offering Sec. Litig., 226 F.RD. 186, 191 (S.D.N.Y.
2005) (citation omitted). During this first step, a court must consider whether the settlement
warrants preliminary approval, providing notice to the proposed class and the scheduling of a
final settlement hearing. In the second step, after notice of the proposed settlement has been
provided to the class and a hearing has been held to consider the fairness and adequacy of the
proposed settlement, the court considers whether the settlement warrants "final approval." Id. at
200 n. 71.5 See also In re NASDA Q Market-Makers Antitrust Litig., 176 F .RD. 99, 102

A final approval determination is based on an analysis of nine factors established in Detroit v.
Grinnell Corp., 495 F.2d 448,463 (2d Cir. 1974). The Grinnell factors are: (1) the complexity,
expense and likely duration of the litigation being settled; (2) the reaction of the class to the
settlement; (3) the stage of the proceedings; (4) risks of establishing liability; (5) risks of
establishing damages; (6) risks of maintaining the litigation as a class action through trial; (7)
ability of defendants to withstand a greater judgment; (8) the range of reasonableness of the
settlement in light of the best possible recovery; and (9) the range of reasonableness of the
settlement to a possible recovery in light of the attendant risks of litigation. Id.
5

7

(S.D.N.Y. 1997) (citations omitted); In re Initial Pub. Offering Sec. Litig., 243 F.RD. 79, 87
(S.D.N.Y. 2007).
The terms of the proposed Settlement here are clearly "within the range of possible
approval." Initial Pub. Offering, 243 F.RD. at 87. Although the Representative Plaintiffs and
Plaintiffs' Lead Counsel believe that the claims asserted in the Action against the FG Defendants
are meritorious, continued litigation poses the real risk that, following the Court's decisions on
contested motions, and a trial on the merits and likely subsequent appeals, a lesser recovery (or
no recovery at all) would result, or that collection of the full amount of any judgment would be
difficult, if not impossible, against these defendants.
The Settlement was negotiated at arm's length, by counsel who were well-informed of
the facts and issues in the Action, and are experienced in complex securities litigation. Among
the reasons the Representative Plaintiffs believe that the proposed Settlement is in the best
interests of the Settlement Class are:
(i)

The Settlement will result in simplifying the remaining discovery, motion practice and
trial by enabling Plaintiffs' Lead Counsel to focus on the remaining defendants,
PricewaterhouseCoopers,

Citco and GlobeOp. Among other things, the Citco Defendants

acted as administrators of the Funds and custodians of the Funds' assets and were
responsible for monitoring BLMIS as subcustodian of those assets, and PwC Netherlands
and PwC Canada were the auditors of the Funds' financial statements. These defendants
are believed to have substantial assets that may through settlement or judgment provide
significant additional compensation to the Settlement Class.

8

(ii)

The FG Entity Defendants lack assets to fund a judgment in excess of the Settlement indeed, they essentially are out-of-business and could not be a source of substantial
recovery by judgment or settlement.

(iii)

The FG Individual Defendants acted primarily through the FG Entity Defendants and the
Representative Plaintiffs may have difficulty in successfully prosecuting individual
claims against the FG Individual Defendants.

For example, the Representative Plaintiffs'

claims for third-party beneficiary breach of contract are against the FG Entity
Defendants, and the claims for common law fraud, federal securities fraud, negligent
misrepresentation, gross negligence, and breach of fiduciary duty may be limited to those
FG Defendants that had a fiduciary duty to investors or to whom a false statement in an
Offering Memorandum or marketing materials may be attributed.
(iv)

There exist substantial risks in proving the Representative Plaintiffs' claims that the FG
Defendants held out Fairfield Greenwich Group as a legal partnership and that the FG
Individual Defendants should be held liable as individual partners of a Fairfield
Greenwich Group partnership.

(v)

The FG Individual Defendants have limited financial resources and are being sued by
other parties with respect to the same or similar claims as those asserted in this Action;
they are incurring substantial legal expenses to defend the Action and such other
proceedings; and they could well be unable to pay a substantially greater judgment or
settlement to the putative class at a later time.

(vi)

Certain of the FG Individual Defendants reside overseas and/or had transferred assets to
trusts and retirement accounts prior to discovery of the Madoff fraud and the BLMIS
bankruptcy.

The Representative Plaintiffs may not be successful in enforcing judgments,

9

even if obtained against these defendants, in amounts greater than provided in the
Settlement.
(vii)

The FG Defendants continue to assert significant defenses to the Representative
Plaintiffs' claims, including in opposition to class certification, and substantive defenses
to the merits under the Securities Litigation Uniform Standards Act of 1998 ("SLUSA");
r\/ln!rr7!~nn

V

'I Australta

,IS.

v.

131 S.
state
(viii)

There is significant risk that the Representative Plaintiffs' claims could be dismissed or
limited prior to or at trial, or on appeal from a jury verdict.

(ix)

There exists a risk that no class will be certified and the Action would have to proceed
through a series of individual trials.

(x)

Continued litigation and delay would cause the FG Defendants to expend their limited
resources on litigation fees and costs and otherwise result in dissipation of their assets.

(xi)

The Funds are either in liquidation proceedings in the British Virgin Islands or
bankruptcy proceedings in the U.S. and are actively marshaling assets and pursuing
sources of recovery on their own behalf, including recovery on claims against the BLMIS
estate. Investors are expected to receive recoveries in addition to those obtained in this
Action and through the Settlement as a result of the Funds' liquidation proceedings.
The Settlement is proposed to be allocated among class members based on their Net Loss

of principal, defined as, "the total cash investment made by a Beneficial Owner in a Fund,
directly or indirectly through one or more intermediaries, less the total amount of any
redemptions or withdrawals or recoveries by that Beneficial Owner in the same Fund." See

10

Notice, at 24 (Plan of Allocation). The Representative Plaintiffs cannot now determine the
aggregate Net Losses that may be reflected in the claims that will be filed by Settlement Class
Members. As described in the proposed Notice, estimates of the percentage recovery on the
potential claims that may be filed vary depending on a number of factors including (i) the
difference between losses at the Fund level (which are known and are estimated to equal
approximately $1.33 billion) compared to losses at the beneficial owner level (which are not
known), (ii) the number of Settlement Class Members who file claims and the aggregate Net
Loss of those claims, and (iii) the ultimate amount distributed to the Settlement Class from the
Escrow Fund, if any.
Based on the $1. 33 billion in reported losses of investments in BLMIS at the Fund level
(i.e., the aggregate Net Loss of principal of the Sentry, Greenwich Sentry and Greenwich Sentry
Partners funds"), distributions from the Settlement Fund, before deduction of Court-awarded
attorneys' fees and expenses, are estimated at approximately 4% to 6% of the Funds' Net Loss of
principal, depending on the amount distributed to the Settlement Class from the Escrow Fund, if
any. That percentage recovery would be increased to the extent Settlement Class Members do
not file claims and would be reduced to the extent the aggregate Net Losses of beneficial owners
who file claims exceed $1.33 billion.'

The Sigma and Lambda funds are not included in this analysis because they were investors in
Sentry. Including their net losses or net gains would double count their impact on the Sentry
fund.
6

Information from the Liquidator of the Sentry, Lambda and Sigma funds in early 2011
indicated that aggregate Net Losses of beneficial owners could exceed $5 billion. See
Declaration of Sashi Bach Boruchow In Support of Motion for Class Certification (ECF No.
777). More recent information suggests this estimate may be high, although the amount may be
several billion dollars depending on the claims filed.
7

11

The total amounts recovered by Settlement Class Members in respect of their investments
in the Funds will be increased, perhaps substantially, by any amounts (i) recovered from the
Non-Dismissed Defendants in the continuing litigation of the Action; and (ii) paid in liquidation
through the bankruptcy proceedings of the Funds, which have entered into settlements entitling
them to distributions from the BLMIS Trustee, and also are pursuing legal actions for their own
direct claims and other recoveries.
II.

Certification of a Settlement Class Is Appropriate
The proposed Settlement Class consists of:
All Beneficial Owners of shares or limited partnership interests in the Funds as of
December 10, 2008 (whether as holders of record or traceable to a shareholder or limited
partner account of record), who suffered a Net Loss of principal invested in Fairfield
Sentry Limited, Fairfield Sigma Limited, Fairfield Lambda Limited, Greenwich Sentry
L.P. or Greenwich Sentry Partners, L.P.

Stipulation, ~ less). Excluded from the Settlement Class are (i) those individuals who timely and
validly opt out of the Settlement; (ii) Fairfield Sigma Limited, (iii) Fairfield Lambda Limited,
(iv) any Settlement Class Member who has been dismissed from this Action with prejudice; and
(v) the FG Defendants and any entity in which the FG Defendants have a controlling interest,
and the officers, directors, affiliates, legal representatives, immediate family members, heirs,
successors, subsidiaries and/or assigns of any such individual or entity in their capacity as such.
Id Fairfield Sigma Limited and Fairfield Lambda Limited are excluded to avoid potential
double recovery because their shareholders are included as members of the Settlement Class.
Pursuant to the Stipulation, the parties have agreed to request certification under Rules
23 (a) and (b)(3) of the Federal Rules of Civil Procedure, for settlement purposes only, of
Plaintiffs' claims against the Settling Defendants, and that the Final Judgment would provide for
the dismissal with prejudice and releases of all FG Defendants.

12

The Second Circuit recognizes the propriety of certifying a class solely for purposes of a
class action settlement. See In re Am. Int'l Group Inc. Sec. Litig., 689 F.3d 229,238-39

(2d Cir.

2012); Weinberger v. Kendrich, 698 F.2d 61, 73 (2d Cir. 1982). See also In re Marsh &

McLennan Cos. Inc. Sec. Litig., No. 04 Civ. 8144 (CM), 2009 WL 5178546, at *8 (S.D.N.Y.
Dec. 23,2009).

Indeed, certification of a settlement class "has been recognized throughout the

country as the best, most practical way to effectuate settlements involving large numbers of
claims by relatively small claimants." In re Prudential Sec., Inc., Ltd P'ships Litig., 163 F.RD.
200, 205 (S.D.N.Y. 2005). "[S]ettlement classes are favored when there is little or no likelihood
of abuse, and the settlement is fair and reasonable and under the scrutiny of the trial judge." Id.
(quoting In re Beef Indus. Antitrust Litig., 607 F.2d 167, 174 (5th Cir. 1979».
A settlement class, like other certified classes, must satisfy the requirements of Rule
23(a) and (b). Am. Int'l Group Inc., 689 F.3d 229; Denney v. Deutsche BankAG, 443 F.3d 253,
270 (2d Cir. 2006). Nevertheless, the manageability concerns of Rule 23(b )(3) are not at issue
with respect to the settlement class analysis. See Amchem Prods., Inc. v. Windsor, 521 U.S. 591,
593 (1997) ("Whether trial would present intractable management problems ... is not a
consideration when settlement-only certification is requested.").

Here, the proposed Settlement

Class meets the requirements of Rule 23 (a) and Rule 23 (b)(3), there is no likelihood of abuse of
the class action device, and the settlement is fair, reasonable, and subject to the Court's approval.
In fact, this Court in denying in part Defendants' motions to dismiss the SCAC noted that "core
facts [are] implicated in every cause of action in this lawsuit." Anwar II, 728 F. Supp. 2d at 400.
A.

The Settlement Class Satisfies the Requirements of Rule 23(a)

Certification is appropriate under Rule 23(a) where: (1) the class is so numerous that
joinder of all members is impracticable; (2) there are questions of law or fact common to the

13

class; (3) the claims or defenses of the representative parties are typical of the claims or defenses
of the class; and (4) the representative parties will fairly and adequately protect the interests of
the class. Fed. R Civ. P. 23(a). Inasmuch as Plaintiffs have already filed opening and reply
memoranda in support of class certification, with supporting Declarations (ECF Nos. 776-84 and
865). Plaintiffs will summarize the bases for certification of a settlement class.
1.

The Settlement Class Members Are Too Numerous to Be Joined

Certification requires that the class be so numerous that joinder of all members is
impracticable.

Fed. R Civ. P. 23(a)(I).

Joinder need not be impossible, only difficult.

Robidoux v. Celani, 987 F.2d 931, 935 (2d Cir. 1993). "[T]here is no fixed number which either
compels or precludes class certification,"

Zupnick v. Thompson Parking Partners Ltd P 'ship III,

No. 89 Civ. 6607, 1990 WL 113197, at *3 (S.D.N.Y. Aug. 1, 1990), and even "the difficulty in
joining as few as 40 class members should raise a presumption that joinder is impracticable."
Robidoux, 987 F.2d at 936 (citations omitted). Here, there are in excess of 1,000 record owners
of shares in the Funds and a larger number of Settlement Class Members are beneficial owners.
The sheer number of potential Settlement Class Members coupled with their widely-dispersed
locations in the United States and dozens of different countries around the world makes joinder
impracticable and class treatment appropriate. See, e.g., Zupnick, 1990 WL 113197, at *3; Allen
v. Isaac, 99 F.RD. 45, 53 (N.D. Ill. 1993).
2.

There Are Common Questions of Law or Fact

The commonality requirement of Rule 23(a) is met if the claims involve questions oflaw
or fact that are common to the class. See Robinson v. Metro-North Commuter R.R., 267 F.3d
147, 155 (2d Cir. 2001). Factual variations among class members' claims will not defeat the
commonality requirement so long as the claims arise from a common nucleus of operative facts.

14

Teachers 'Ret. Sys. of La. v. ACLN Ltd, No. 01 Civ. 11814,2004 WL 2997957, at *4 (S.D.N.Y.
Dec. 27,2004).

Because plaintiffs can "'identify some unifying thread among the members'

claims," commonality is satisfied. Cutler v. Perales, 128 F.RD. 39,44 (S.D.N.Y. 1989)
(citation omitted).
Consistent with this, "[t]he commonality requirement has been applied permissively in
securities fraud litigation" and is easily met "where putative class members have been injured by
similar material misrepresentations and omissions." Fogarazzo v. Lehman Bros. Inc., 232 F.RD.
176,180 (S.D.N.Y. 2005) (footnotes omitted). Such "course of conduct cases" are particularly
well suited to class treatment because the heart of plaintiffs' claim is that defendants withheld the
same material information or made the same material misrepresentations to the entire class. See
Stott v. Capital Financial Services, Inc., 277 F.RD. 316, 324 (N.D. Tex., 2011) (finding
commonality where common questions included whether "a broker-dealer can be held liable for
the misrepresentations in the PPMs [], [and] whether the PPMs contained misrepresentations or
omissions of material facts ... "); In re Indep. Energy Holdings PLC Sec. Litig., 210 F.RD. 476,
479 (S.D.N.Y. 2002); In re Oxford Health Plans, Inc. Sec. Litig., 191 F.RD. 369, 374 (S.D.N.Y.
2000).
The SCAC identifies numerous common issues offact and law (SCAC at ~ 353),
including without limitation the following:
•

Whether documents, including offering memoranda, annual reports, account statements,
audit reports and other materials disseminated to Plaintiffs, including information on the FG
Defendants' web sites, misrepresented, omitted or were otherwise misleading with respect to
material facts about the Funds.

•

Whether the FG Defendants acted knowingly, recklessly or negligently in misrepresenting or
omitting material facts about the Funds.

•

Whether the FG Defendants breached duties owed to the Plaintiffs.

15

•

Whether Plaintiffs' losses would have been prevented had the FG Defendants fulfilled their
respective duties, and acted in accordance with their representations concerning due
diligence.

•

Whether the Settling Parties shared a mutual mistake that the assets of the Funds were in fact
being invested by BLMIS.

•

Whether the FG Defendants were unjustly enriched at Plaintiffs' expense.

•

Whether a valid contract governed the relationship between Plaintiffs and each of the FG
Defendants.
Because Plaintiffs' allegations implicate a common course of conduct that caused injury

to all members of the putative Settlement Class, the commonality requirement of Rule 23(a)(2) is
satisfied.
3.

The Class Representatives' Claims Are Typical

Rule 23(a)(3) requires that "the claims or defenses of the representative parties are typical
of the claims or defenses of the class." Fed. R Civ. P. 23(a)(3). Like the test for commonality,
"[t]he typicality requirement is 'not demanding. '" In re Initial Public Offering Sec. Litig., 227
F.RD. 65, 87 (S.D.N.Y. 2004) (citations omitted). Typicality is established where "'the claims
of the named plaintiffs arise from same practice or course of conduct that gives rise to the claims
of the proposed class members. '" In re Vivendi Sec. Litig., 242 F.RD. 76, 84-85 (S.D.N.Y.
2007) (citation omitted); see also Oxford Health Plans, 191 F.RD. at 375.
The Representative Plaintiffs' claims are typical of the claims of other Settlement Class
Members because their losses all derive from the same course of the FG Defendants' conduct.
Where, as here, "the lead plaintiff alleges a common pattern of wrongdoing and will present the
same evidence, based on the same legal theories, to support its claim as other members of the
proposed class, courts have held the typicality requirement to be satisfied ...." Teachers' Ret. Sys.
of La. , 2004 WL 2997957, at *4. See also In re WorldCom,lnc.

16

Sec. Litig., 219 F.RD. 267, 280

(S.D.N.Y. 2003) ("'When it is alleged that the same unlawful conduct was directed at or affected
both the named plaintiff and the class sought to be represented, the typicality requirement is
usually met .... "') (citations omitted); In re Blech, 187 F.RD. 97, 106 (S.D.N.Y. 1999)
(typicality satisfied because "plaintiffs' claims of fraud arise from the same course of conduct"
as the rest of the class); In re NASDAQ Market-Makers Antitrust Litig., 169 F.RD. 493, 511
(S.D.N.Y. 1996) (typicality shown where claims "all [arose] from the same price-fixing
conspiracy") .
4.

The Class Representatives Will Fairly and Adequately Protect the
Interests of the Settlement Class

Rule 23(a)(4) requires that the representative parties "will fairly and adequately protect
the interests of the class." Fed. R Civ. P. 23(a)(4). This requirement is met where: (1) the
representative plaintiffs' interests are not antagonistic to those of the remainder of the class; and
(2) class counsel is qualified, experienced and generally able to conduct the litigation. See In re
Drexel Burnham Lambert Group, Inc., 960 F.2d 285,291 (2d Cir. 1992).
The Representative Plaintiffs and the Settlement Class share the common objective of
maximizing their recovery, and no conflict exists between Representative Plaintiffs and the
members of the Settlement Class. See Drexel, 960 F.2d at 291; In re Polaroid ERISA Litig., 240
F.RD. 65, 77 (S.D.N.Y. 2006) ("Where plaintiffs and class members share the common goal of
maximizing recovery, there is no conflict of interest between the class representatives and other
class members"). Plaintiffs' Lead Counsel (Boies Schiller & Flexner LLP, Wolf Popper LLP,
and Lovell Stewart Halebian & Jacobson LLP) have extensive experience and expertise in
complex securities litigation and class action proceedings throughout the United States, and are
qualified and able to conduct this litigation. See Declarations attached as Exhibits B, C, and D to

17

Plaintiffs' Memorandum of Law in Support of Motion for Consolidation of All Actions and
Appointment ofInterim Co-Lead Counsel dated January 27,2009 [ECF No. 22].
On January 27,2009, Plaintiffs' Lead Counsel were appointed Interim Co-Lead Counsel
for the putative class and on July 7,2009 the firms were appointed Lead Counsel for the PSLRA
Plaintiffs. In this capacity, Plaintiffs' Lead Counsel have (i) conducted an extensive
investigation of public and non-public information with respect to the class' claims; (ii) prepared
initial complaints, a Consolidated Amended Complaint, and the subsequent SCAC; (iii)
overcome in large part Defendants' motions to dismiss the SCAC; (iv) secured entry of a case
management plan and scheduling order; and (v) commenced discovery including serving and
responding to demands, including third party subpoenas, and obtaining and producing
documents. In all, Plaintiffs have produced approximately 75,000 pages of documents and have
received and reviewed approximately six million pages of documents; (vi) conducted 30
depositions of persons affiliated with Defendants to date, with many more scheduled, and
defended 20 depositions of Representative and other Named Plaintiffs; (vii) filed a Memorandum
and Reply Memorandum in Support of Plaintiffs' motion for class certification, accompanied by
14 opening and reply certifications of foreign law experts and a compendium of 62 factual
exhibits; (viii) briefed and defeated in part two motions by the PwC Defendants and others to
reargue the denial of dismissal of the SCAC; (ix) participated with defense counsel in dozens of
meet and confer sessions with respect to document, deposition, and other aspects of merits
discovery; (x) prepared written letter-briefs and argued to Magistrate Judges Katz and Maas
multiple discovery disputes; (xi) retained and consulted with experts on investment fund auditing
and administration; (xii) protected the interests of putative class members even outside the
confines of this Action by, among other things, initiating proceedings for the liquidation of

18

Fairfield Sentry Fund in the British Virgin Islands, succeeding in a motion before the High Court
of the Eastern Caribbean to appoint a Liquidator for Sentry, and actively participating in the
liquidation process through the Sentry Liquidation Committee; and (xiii) otherwise vigorously
represented the interests of putative class members in this extraordinarily complex dispute.
Plaintiffs' Lead Counsel are amply qualified, experienced and capable of prosecuting this
litigation. Therefore, Rule 23 (a)( 4) is satisfied.
B.

The Proposed Settlement Class Satisfies the Requirements of Rule 23(b )(3)

Rule 23 (b)(3) requires that the common questions of law or fact predominate over any
questions affecting only individual class members and that a class action is superior to other
available methods of adjudication. Both of these requirements are met.
1.

Common Questions Predominate

Rule 23(b )(3) does not require a complete absence of any individual issues. See DuraBilt Corp. v. Chase Manhattan Corp., 89 F.RD. 87, 99 ("To be sure, individual issues will likely
arise in this as in all class action cases."). Rather, it requires predominance, which entails that
"some of the legal or factual questions" can be resolved through "generalized proof' and that
"these particular issues are more substantial than the issues subject only to individualized proof."
Moore v. Paine Webber, Inc., 306 F.3d 1247, 1252 (2d Cir. 2002).
In cases that involve a single, common scheme, the predominance requirement is met
notwithstanding that there may be questions of individualized reliance. See In re Beacon, 2012
WL 1123728, at *8 (S.D.N.Y. Apr. 4, 2012) (Sand, J.); Jenson v. Fiserv Trust Co., 256 Fed.
App'x 924, 926 (9th Cir. 2007) (a Ponzi scheme presented a "center of gravity" for the fraud that
predominated over individual issues); In re HealthSouth Corp. Sec. Litig., 261 F.RD. 616, 645
(N.D. Ala. 2009) ("individual issues of reliance do not predominate over questions common to

19

the class" where the class' claims are based on a "single, common fraudulent scheme"); Waleo
Invs., Inc. v. Thenen, 168 F.RD. 315, 333 (S.D. Fla. 1996) (certifying a class in a case involving
a Ponzi scheme, where (as here) defendants included third-party service providers because
common issues predominated in spite of concerns over individualized reliance); Bresson v.
Thomson Mckinnon Secs., Inc., 118 F.RD. 339, 343 (S.D.N.Y. 1988) (same); In re Home-Stake
Prod Co. Sec. Litig., 76 F.RD. 351, 368 (N.D. Okla. 1977) (same). This is because such
situations present an "overwhelming number of common factual and legal issues ... common to
the class" that "predominate over any questions affecting only individual members." Waleo, 168
F.RD. at 334.
Consistent with these decisions, class treatment is appropriate in this case. This case
involves the type of "common nucleus of operative facts and issues with which the
predominance inquiry is concerned."

In re Nassau County Strip Search Cases, 461 F.3d 219,

228 (2d Cir. 2006). With respect to the claims against the FG Defendants, there are multiple
common questions of law or fact that apply to the entire Settlement Class. Plaintiffs' claims of
negligence, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust
enrichment and third-party breach of contract focus on the "the conduct of the defendants, not
the plaintiffs." Bunnion v. Conso!. Rail Corp., No. 97-4877, 1998 WL 372644, at *6, (E.D. Pa.
May 14, 1998). See, e.g., Bruhl v. PriceWaterhouseCoopers

Int'l., 257 F.RD. 684, 698 (S.D.

Fla. 2008) (granting class certification on breach of fiduciary duty claims where defendants owed
same duty to each class member and breach could be established on class-wide basis); Dupler v.
Costco Wholesale Corp., 249 F.RD. 29, 34 (E.D.N.Y. 2008) (granting class certification on
unjust enrichment and breach of contract claims); Westway World Travel, Inc. v. AMR Corp.,
218 F.RD. 223, 224 (C.D. Cal. 2003) (granting class certification on unjust enrichment claims);

20

In re Towers Fin. Corp. Noteholders Litig., 177 F.RD. 167, 172 (S.D.N.Y. 1997) (granting class
certification on pendent state claims including negligence and breach of fiduciary duty in
securities fraud action). As the Court has recognized, "core facts [are] implicated in every cause
of action in this lawsuit." Anwar 11,728 F.Supp.2d at 400.
2.

A Class Action Is the Superior Method of Adjudication

Rule 23(b )(3) sets forth the following non-exhaustive factors to be considered in making
a determination of whether class certification is the superior method oflitigation: "(A) the class
members' interests in individually controlling the prosecution ... of separate actions; (B) the
extent and nature of any litigation concerning the controversy already begun by ... class
members; (C) the desirability or undesirability of concentrating the litigation of the claims in the
particular forum; and (D) the likely difficulties in managing a class action." Considering these
factors, proceeding by means of a class action is clearly "superior to other available methods for
fairly and efficiently adjudicating" the claims against the FG Defendants.
a.

Any Individual Interest in Controlling the Prosecution of
Separate Actions Is Limited

The sheer scope and complexity of this controversy would make individual litigation
difficult for the vast majority of Settlement Class Members. This is particularly true because
thousands of Settlement Class Members reside outside the United States and are unfamiliar with
the U. S. court system. Separate actions would also "risk disparate results among those seeking
redress, [] encourage a race to judgment given the limited funds available to fund recovery here,
[] exponentially increase the costs of litigation for all, and [] be a particularly inefficient use of
judicial resources."

Cromer Fin. Ltd v. Berger, 205 F.RD. 113, 133 (S.D.N.Y. 2001) (footnote

21

omitted). Apart from a single action in this Court", there is no indication that Settlement Class
Members - let alone a significant number of Settlement Class Members - are interested in
individually controlling the prosecution of separate actions against the FG Defendants.
b.

Litigating All of the Claims in this Forum Is the Most
Desirable Course of Action

The third superiority factor considers "the desirability or undesirability of concentrating
the litigation of the claims in the particular forum." Fed. R. Civ. P. 23(b)(3)(C). For a number
of reasons, this litigation should continue to proceed in the Southern District of New York. First,
litigating this dispute in one forum - rather than in numerous courts throughout the world - is the
most efficient method of resolving these claims. See Anwar II, 728 F. Supp. 2d at 417-418
("[O]f any forum in the world with connections to the underlying transactions, New York has the
most contacts with the litigation.").

Second, this Court has presided over this action for nearly

four years and is already deeply involved in the legal issues and the factual circumstances,
having written exhaustive opinions on Defendants' motions to dismiss and for reconsideration.
Finally, all Defendants are subject to the Court's personal jurisdiction.

These factors weigh

strongly in favor of litigating Plaintiffs' claims in this Court as a class action.
c.

Settlement-Only Class Certification Moots Manageability
Analysis

The final factor asks the Court to consider "the difficulties likely to be encountered in the
management ofa class action." Fed. R. Civ. P. 23(b)(3)(D).

Although management of this case

as a class action is not so difficult as to render individual actions a better alternative, the Court
need not address this factor. As the Supreme Court explained in Amchem, and the Second
Circuit recently highlighted in In re Am. Int'l Group Inc., "[c]onfronted with a request for

8

Headway Investment Corporation v. American Express Bank Ltd, et al., No. 09-27777.
22

settlement-only class certification, a district court need not inquire whether the case, if tried,
would present intractable management problems for the proposal is that there be no trial." 521
US. at 620; 2012 US. App. LEXIS 16911, at *22-23 (internal citation omitted). Accordingly,
the requirements of Rule 23(b )(3) are satisfied.
III.

Notice to the Settlement Class Should Be Approved
As set forth in the Preliminary Approval Order, Plaintiffs will notify Settlement Class

Members of the Settlement by mailing the Notice and Proof of Claim to all potential Settlement
Class Members who can be identified with reasonable effort. The Notice will advise
Settlement Class Members of (i) the pendency of the class action; (ii) the essential terms of
the Settlement; and (iii) information regarding the motion for attorneys' fees and
reimbursement of litigation expenses by Plaintiffs' Counsel, as well as reimbursement of
expenses including lost wages for Representative Plaintiffs.9 The Notice also will provide
specifics on the date, time and place of the Settlement Hearing and set forth the procedures for
opting out of the Settlement Class and for objecting to the Settlement, the proposed Plan of
Allocation and the motion for attorneys' fees and reimbursement of litigation expenses.

The

proposed Preliminary Approval Order further provides for the Summary Notice to be published
twice in the global editions of The Wall Street Journal and to be issued globally over PR

9 The Notice states that Plaintiffs' Counsel may seek an award of attorneys' fees of up to 25%
of the Settlement Fund, and Plaintiffs and Plaintiffs' Counsel are seeking reimbursement of
expenses of$1,450,000, and incentive awards and lost wages with respect to the Representative
Plaintiffs of up to $225,000. See Notice (Ex. A-I to the Stipulation) at 10. Although the PSLRA
limits class representative plaintiffs to recovery of "reasonable costs and expenses (including lost
wages)" (15 US.C. 78u-4(a)(4)), the SCAC contains, and Plaintiffs are settling, state law claims
where incentive awards may be appropriate.

23

Newswire.

Plaintiffs' Lead Counsel also will post the Notice on their web sites and on a

dedicated settlement website.

10

The Preliminary Approval Order directs that the Settling Defendants, and the Citco and
GlobeOp defendants (who served as Fund administrators) provide the Claims Administrator with
the last known names and addresses of record owners of the Funds and known Beneficial
Owners. The Claims Administrator will distribute copies of the Notice and Proof of Claim to all
such persons, as well as to record and Beneficial Owners who are identified (i) as having filed
proofs of interest in the U. S. Bankruptcy Court proceedings involving the Greenwich Sentry and
Greenwich Sentry Partners funds, and (ii) are on lists of record owners with whom the BVI
Liquidator of the Fairfield Sentry, Lambda and Sigma funds regularly communicates.

The

Preliminary Approval Order and Notice further direct that record owners either mail directly to
Beneficial Owners or provide the Claims Administrator with the names and addresses of
Beneficial Owners for the mailing of notice.
The form and manner of providing notice to the Settlement Class satisfy the
requirements of due process, Rule 23, and Section 21D of the Securities Exchange Act of
1934, 15 U.S.C. §78u-4(a)(7), as amended by the PSLRA. The Notice and Summary Notice will
"fairly apprise the prospective members of the class of the terms of the proposed settlement and
of the options that are open to them in connection with the proceedings," Wal-Mart, 396 F.3d at
114 (internal quotation marks omitted). The manner of providing notice, which includes
individual notice by mail to all Settlement Class Members who can be reasonably identified, as
well as publication in worldwide press and on the internet, represents the best notice practicable

10 In the event that the Court were to grant Plaintiffs' pending motion for class certification as
to the Non-Dismissed Defendants, the Stipulation provides (~ 23) that the Court may order a
revised, combined Notice.

24

under the circumstances and satisfies the requirements of due process and Rule 23. See In re
Warner Chilcott Ltd Sec. Litig., No. 06 Civ. 11515 (WHP), 2008 WL 5110904, at *3 (S.D.N.Y.
Nov. 20,2008); In re Global Crossing Sec. & ERISA Litig., 225 F.RD. 436, 448-49 (S.D.N.Y.
2004).
Plaintiffs respectfully suggest that the following schedule may be appropriate for notice
and final approval of the Settlement:
Wednesday, November 28,2012 (estimated) - Court grants preliminary approval
Tuesday, December 18, 2012 (20 days after preliminary order) - Last date for mailing of
Notice to record owners and known Beneficial Owners.
Thursday, January 10, 2012 (43 days after preliminary order) - Last date for publication
of the Summary Notice in global editions of The Wall Street Journal and for issuance of
the Summary Notice over PR Newswire.
Thursday, January 24, 2013 (35 days after mailing of Notice and at least 50 days prior to
the Settlement Hearing) - Motion is filed for final approval of Settlement.
Wednesday, February 13, 2013 (56 days after mailing of Notice and at least 35 days prior
to the Settlement Hearing) - Deadline for objections and opt-outs; Settling Defendants
notified of opt-outs.
Wednesday, March 6,2013 (at least 14 days before the Settlement Hearing) - Responses
to objections and reply in further support of settlement are filed.
Wednesday, March 20,2013 or thereafter (at least 35 days after opt-out deadline) - Final
hearing.
CONCLUSION
Plaintiffs respectfully request that the Court enter the proposed Preliminary Approval
Order submitted herewith.

25

November 6,2012
Respectfully submitted,
By:

lsi David A. Barrett

Robert C. Finkel
James A. Harrod
WOLFPOPPERLLP
845 Third Avenue
New York, NY 10022
Telephone: [phone]
Facsimile: 212.486.2093

David A. Barrett
Howard L. Vickery, II
BOIEs, SCHILLER FLEXNER
&
LLP
575 Lexington Avenue
New York, NY 10022
Telephone: [phone]
Facsimile: [phone]

Christopher Lovell
Victor E. Stewart
LOVELLSTEWARTHALEBIAN
JACOBSONLLP
61 Broadway, Suite 501
New York, NY 10006
Telephone: [phone]

Stuart H. Singer
Carlos Sires
Sashi Bach Boruchow
BOIEs, SCHILLER FLEXNER
&
LLP
401 East Las Olas Boulevard, #1200
Ft. Lauderdale, Florida 33301
Telephone: [phone]
Interim Co-Lead Counselfor Plaintiffs and
Lead Counsel for PSLRA Plaintiffs

26

CERTIFICATE OF SERVICE
I hereby certify that on November 6, 2012, I caused true and correct copies of the
foregoing to be served by ECF on all parties registered with the Court's ECF system under
docket number 09-CV-118 (VM).

lsi Eli J. Glasser
Eli J. Glasser