In re Herald, Primeo and Thema Funds Securities Litigation

Filing 29

MEMORANDUM OF LAW in Opposition re: #15 MOTION to Appoint Counsel. MOTION to Appoint Dr. Shmuel Cabilly to serve as lead plaintiff(s). MOTION to Consolidate Cases 09-2032., #23 MOTION to Appoint Nurnberger Verischerung Aktiengesellschaft Osterreich to serve as lead plaintiff(s).. Document filed by Repex Ventures S.A. (Burke, Timothy)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK REPEX VENTURES S.A., on Behalf of Itself and All Others Similarly Situated, Plaintiff, v. BERNARD L. MADOFF; BANK MEDICI S.A.; SONJA KOHN; PETER SCHEITHAUER; HERALD USA FUND; HERALD LUXEMBURG FUND; BANK AUSTRIA CREDITANSTALT; UNICREDIT S.A.; PRIMEO SELECT FUND; PRIMEO EXECUTIVE FUND; PIONEER ALTERNATIVE INVESTMENTS; THEMA INTERNATIONAL FUND PLC; ERNST & YOUNG S.A., AND HSBC SECURITIES SERVICES, S.A., Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

Civil Action No. 09-CV-289-RMB CLASS ACTION ECF CASE

MEMORANDUM OF LAW IN FURTHER SUPPORT OF THE MOTION OF THE REPEX GROUP FOR APPOINTMENT AS LEAD PLAINTIFF PURSUANT TO § 21D(A)(3)(B) OF THE SECURITIES EXCHANGE ACT OF 1934 AND APPROVAL OF SELECTION OF LEAD COUNSEL

I.

INTRODUCTION This securities fraud class action was brought against Bank Medici S.A. ("Medici" or the

"Company") and others involved in a Ponzi-scheme run by Bernard L. Madoff ("Madoff") and Bernard L. Madoff Investment Securities LLC ("BMIS"), pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. The action was brought on behalf of purchasers of funds that were controlled or managed by Medici and in turn provided to Madoff ("Medici Controlled Funds") Movants Repex Ventures S.A. and Radovan Fijember (the "Repex Group" or "Movant") invested $700,000 in the Herald U.S. Absolute Return Fund and $133,617.851 in the Primeo Executive Fund, respectively during the period from January 12, 2004 and January 12, 2009, inclusive (the "Class Period"). Both of these funds were Medici Controlled Funds. Movant respectfully submits this Memorandum of Law in further support of its motion for: (i) appointment as Lead Plaintiff, pursuant to Section 21D of the Exchange Act, as amended by the Private Securities Litigation Reform Act of 1995 (the "PSLRA"), 15 U.S.C. § 78u-4 and (ii) approval of Movant's selection of Lead Counsel. II. PROCEDURAL HISTORY On January 12, 2009, plaintiff in the action filed a complaint on behalf of a proposed class consisting of all persons who purchased Medici Controlled Funds between January 12, 2004 and January 12, 2009. Pursuant to 15 U.S.C. § 78u-4(a) (3) (A) (i), on January 12, 2009,

This amount is converted from Euros using the exchange rate of one Euro to 1.34798 Dollars. This exchange rate was retrieved from Oanda.com and is the rate as of January 12, 2009, the date of the filing of the initial complaint in this action and the publication of notice of the action.
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notice of pendency of the action was published over a widely-available, national businessoriented wire service, Business Wire, ("January 12 Notice") advising members of the proposed class of their right to move the Court to serve as lead plaintiff no later than 60 days from the date of publication of the Notice, i.e., by March 13, 2009. See Declaration of Timothy J. Burke in Support of the Motion of the Repex Group, March 13, 2009, Docket No. 21, Ex. A. An amended complaint was filed on January 26, 2009. On March 5, 2009, the action Leonhardt v. Madoff, et al., Case No. 09-cv-2032, was filed in this District alleging substantially similar claims on behalf of investors in Medici Controlled Funds. That same day notice was published regarding the Leonhardt action notifying investors in various funds that they had until May 4, 2009 to request the Court appoint them as lead plaintiff ("March 5 Notice"). Four separate movants filed on March 13, 2009 requesting appointment of lead plaintiff and lead counsel: the Repex Group, Nürnberger Versicherung Aktiengesellschaft Österreich, Dr. Shmuel Cabilly, and Peter Brandhofer. Movant Peter Brandhofer withdrew his application for appointment as lead plaintiff on March 27, 2009. III. ARGUMENT. A. Ruling upon the Pending Motions for Consolidation and/or Appointment of Lead Plaintiffs and Counsel Should Be Stayed or the Motions Should be Ordered to Be Refiled

Per the Court's Endorsement of March 12, 2009 (Docket # 18), the May 4, 2009 deadline for application for appointment as lead plaintiff in the Leonhardt action is undisturbed. As the Leonhardt action is substantially similar to this action, Movant requests that ruling upon the presently pending motions for appointment of lead plaintiff in the Repex Ventures action be stayed until after May 4, 2009 so that all investors that desire to be appointed as Lead Plaintiff

will have a chance to do so. In the alternative, the pending motions should be ordered to be refiled on May 4, 2009. The March 5 Notice added substantial information to that provided in the January 12 Notice and was necessary as a expanded class of investors was identified in the March 5 Notice. Had the notice not been issued, these investors would have been prejudiced by not being informed of their right to apply for appointment as lead plaintiff. As such, Movant submits that the corrected March 5 Notice should be regarded as the operative notice for both the Repex Ventures and Leonhardt actions. The PSLRA describes the procedure for proper notice to the purported class: (3) Appointment of lead plaintiff. (A) Early notice to class members. (i) In general. Not later than 20 days after the date on which the complaint is filed, the plaintiff or plaintiffs shall cause to be published, in a widely circulated national business-oriented publication or wire service, a notice advising members of the purported plaintiff class-- (I) of the pendency of the action, the claims asserted therein, and the purported class period. . . 15 USCS § 78u-4 (emphasis added). The March 5 Notice corrected the purported class period described in the January 12 Notice, stating that the class period runs from January 12, 2004 to January 12, 2009, as opposed to extending from January 12, 2004 to only January 12, 2008. Furthermore, an entirely new group of investors, those investing in the Primeo Executive Fund, were notified of their rights to move for lead plaintiff in the March 5 Notice. This Court has confronted a similar situation before. See Teamsters Local 445 Freight Div. Pension Fund v. Bombardier Inc., 05 Civ. 1898, 2005 U.S. Dist. LEXIS 10780 (S.D.N.Y.

June 1, 2005). In Teamsters, as here, new securities were added to the purported class action in a subsequent complaint. Id. at *2. There, as here, the purported class period was also expanded. Id. The Court, given these facts, ordered plaintiffs to publish a new notice with respect to the additional securities and expanded class period. Id. at *9. The Court in Marsden v. Select Med. Corp. similarly considered when a notice issued pursuant to the PSLRA was proper or required a new issuance: A class member reading notice published pursuant to the PSLRA should be able to (1) determine whether she is eligible for lead plaintiff status based on the class period; (2) learn enough about the asserted claims to make an initial judgment as to whether to obtain a copy of the full Complaint (which will in turn inform her final judgment about whether to pursue lead plaintiff status); and (3) contact the clerk's office to obtain a copy of the Complaint and discover the procedures for filing a motion. 2005 U.S. Dist. LEXIS 714, at *12 (E.D. Pa. Jan. 18, 2005). Here, any investors relying only on the January 12, 2009 notice who purchased shares of any of Medici Controlled Funds between January 13, 2008 and January 12, 2009 would not be able to determine whether he or she is eligible for lead plaintiff status. Furthermore, purchasers of the Primeo Executive Fund would be unaware that their purchases qualified them for application as lead plaintiff. While these potential lead plaintiffs could be prejudiced by a preceding determination of the pending lead plaintiff motions in a case that will in all likelihood be consolidated with Leondhardt, the current movants would not be prejudiced by the minor delay of decision on their motions to May 4, 2009. In fact, many of the possible defendants and facts regarding the allegations of the complaints in the Repex Ventures and Leonhardt actions are still coming to light and new, similar actions are still being filed against many of the same defendants alleging many of the same facts. See, e.g., Perrone et al v. Benbassat et al., Case No. 1:09-cv-02558-UA (S.D.N.Y. March 19, 2009) (also brought on behalf of purchasers of Thema,

Primeo, and Herald funds and also naming defendants Sonja Kohn, Peter Scheithauer, Thema International Fund PLC, HSBC Securities Services S.A. as defendants) (see Declaration of Timothy J. Burke in Further Support of the Motion of the Repex Group, March 30, 2009 ("Burke Decl.") Ex. A. As this Court noted in Teamsters, "`in deciding a motion for the appointment of lead plaintiff under the PSLRA, courts have an independent duty to scrutinize the published notice and ensure that the notice comports with the objectives of the PSLRA.'" 2005 U.S. Dist. LEXIS 10780, at *5, quoting Marsden v. Select Med. Corp., 2005 U.S. Dist. LEXIS 714, No. Civ. A. 044020, 2005 WL 113128, at *3 (E.D. Pa. Jan. 18, 2005). Here we submit that the Court should delay consideration of the pending motions for appointment of Lead Plaintiff until the May 4, 2009 deadline stated to investors in the March 5 Notice. B. Alternatively, the Repex Group Should be Appointed Lead Plaintiff As Part of a Broader Lead Plaintiff Group

While the Repex Group does not believe that competing lead plaintiff motions should be decided now, if the Court is inclined to appoint lead plaintiffs at this time, Repex Ventures should be appointed Lead Plaintiff to represent purchasers of the Herald Funds. The other movants, Nürnberger Versicherung Aktiengesellschaft Österreich and Dr. Shmuel Cabilly, both purchasers of Primeo Funds, cannot be appointed lead plaintiffs for the Herald Fund purchasers because they do not satisfy Rule 23's requirement that they have standing to sue on behalf of Herald fund purchasers. In determining the appropriate lead plaintiff, the PSLRA provides, in pertinent part: "the court shall adopt a presumption that the most adequate plaintiff in any private action arising under this chapter is the person or group of persons that (aa) has either filed the complaint or made a motion [to be designated as lead plaintiff]; (bb) in the determination of the court, has the

largest financial interest in the relief sought by the class; and (cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure." Baughman v. Pall Corp., 250 F.R.D. 121, 125 (E.D.N.Y. 2008). However, this presumption . . . "may be rebutted only upon proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff (aa) will not fairly and adequately protect the interests of the class; or (bb) is subject to unique defenses that render such plaintiff incapable of adequately representing the class." § 78u-4(a)(3)(B)(iii). As explained by the Second Circuit, "[t]wo objective factors inform the district court's appointment decision: the plaintiffs' respective financial stakes in the relief sought by the class, and their ability to satisfy the requirements of Rule 23." Hevesi v. Citigroup, Inc., 366 F.3d 70, 81 (2d Cir. 2004). In assessing whether a proposed lead plaintiff satisfies the criteria set forth in Rule 23, the district court focuses on the typicality and adequacy requirements of Rule 23. Sofran v. LaBranche & Co., Inc., 220 F.R.D. 398, 402 (S.D.N.Y. 2004); In re Cavanaugh, 306 F.3d 726, 730 (9th Cir. 2002). Consequently, in deciding a motion to serve as lead plaintiff, the moving plaintiff must make a preliminary showing that the adequacy and typicality requirements under Rule 23 have been met. In re Crayfish Co. Sec. Litig., No. 00-CV-6766, 2002 U.S. Dist. LEXIS 10134 at * 14 (S.D.N.Y. June 6, 2002). Typicality is satisfied if "the defendants 'committed the same wrongful acts in the same manner against all members of the class'" Hevesi, 366 F.3d at 8283 366 F.3d at 82-83. (quoting In re Prudential Sec. Inc. Ltd. P'ships Litig., 163 F.R.D. 200, 208 (S.D.N.Y. 1995)). Here, Primeo Fund investors do not satisfy Rule 23's "typicality" requirements when they seek to be appointed lead plaintiffs to represent Herald Fund investors. Primeo Fund purchasers do not have standing to bring claims on behalf of Herald Fund purchasers because they did not

they did not purchase or sell Herald funds. Ont. Pub. Serv. Emples. Union Pension Trust Fund v. Nortel Networks Corp., 369 F.3d 27, 31 (2d Cir. 2004). In Nortel the district court held that the JDS shareholders did not have standing to sue because they did not purchase or sell any Nortel stock. 369 F.3d at 31. The Second Circuit upheld the dismissal, holding that investors do not have standing to sue under Section 10(b) and Rule 10b-5 when the company whose securities they purchased is negatively impacted by the material misstatement of another company, whose securities they do not purchase. 369 F.3d at 34. The same reasoning holds true in the present case. Investors in the Primeo Funds do not have standing to sue the Herald Funds when they did not purchase any of the Herald Funds. Id. The Primeo Funds were at all relevant times owned by Pioneer Alternative Investments. ¶ 22. According to their website, Pioneer Alternative Investments is located in Dublin, Ireland. Burke Decl. Ex. B. The Herald Funds, on the other hand, were at all relevant times investment funds created and sold by Bank Medici. ¶ 20. Medici is based in Vienna, Austria with offices located in New York, Milan, Gibraltar and Zurich. ¶ 15. As the Herald Funds and the Primeo Fund had different issuers--which are located in different countries, investors in the different fund families should have different lead plaintiffs appointed to represent their respective interests. The adequacy inquiry under Rule 23(a)(4) serves to uncover conflicts of interest between named parties and the class they seek to represent. Amchem Prods. v. Windsor, 521 U.S. 591, 625-626 (U.S. 1997). Here, the inquiry has shown that investors in the Primeo funds cannot serve as lead plaintiffs for investors in the Herald Funds because they do not have standing. Hoffman v. UBS-AG, 591 F. Supp. 2d 522, 531 (S.D.N.Y. 2008)(plaintiffs lack standing for claims relating to funds that plaintiffs did not own); In re Merrill Lynch Inv. Mgmt. Funds Sec. Litig., 434 F. Supp. 2d 233, 236 (S.D.N.Y.

2006)(plaintiffs who only owned shares in Merrill Lynch mutual funds do not have standing to assert claims on behalf of shareholders of other funds). While courts often appoint purchasers of one type of securities to represent purchasers of other types of securities of the same issuer where the interests of those purchasers are aligned, (Lifschitz v. Hexion Specialty Chems., 08 Civ. 6394, 2009 U.S. Dist. LEXIS 21933 at * 4-5 (S.D.N.Y. Mar. 19, 2009) (emhpasis added)), here the required "same issuer" does not exist. Instead of having the same issuer, the Herald Funds and Primeo Funds have different issuers, which necessitates investors in the two different fund families each having their own lead plaintiff. 434 F. Supp. 2d at 236. In the present case, it is appropriate to appoint a lead plaintiff from the Herald Fund purchasers and a lead plaintiff from the Primeo Fund purchasers to serve as co-lead plaintiffs. When the possibility that conflicts could arise exists, it is appropriate to protect the interests of the class by appointing a co-lead plaintiff. Davidson v. E*Trade Fin. Corp., Civil Action No. 07 Civ. 10400, 2008 U.S. Dist. LEXIS 61265 at *21 (S.D.N.Y. July 16, 2008). Here, the appointment of co-lead plaintiffs provides that the lead plaintiffs will have standing to sue on behalf of both Herald and Primeo Fund purchasers. Id. Accordingly, although it is appropriate to consolidate all the Related Actions, in order to ensure that all individual fund purchasers are adequately represented, a separate lead plaintiff must be appointed for each family of funds. // // //

IV.

CONCLUSION Ruling upon the pending motions for consolidation and/or appointment of lead plaintiffs

and counsel should be stayed. In the alternative, Movant respectfully requests that the Court: (i) appoint Repex Ventures as a co-lead plaintiff in the action; and (ii) approve Repex Ventures' selection of lead counsel as set forth herein. Dated: March 30, 2009 Respectfully submitted, STULL, STULL & BRODY By: s/ Timothy J. Burke . Timothy J. Burke (Admitted Pro Hac Vice) 10940 Wilshire Boulevard Suite 2300 Los Angeles, CA 90024 Tel: [phone] Fax: [phone] STULL, STULL & BRODY Jules Brody (JB-9151) Patrick K. Slyne (PS-1765) James E. Lahm (JL-4335) 6 East 45th St. New York, NY 10017 Tel: [phone] Fax: [phone] Counsel for Movant the Repex Group and Proposed Lead Counsel For Plaintiffs and The Class

CERTIFICATE OF SERVICE I hereby certify, this 30th day of March, 2009, that I caused a true and correct copies of the MEMORANDUM OF LAW IN FURTHER SUPPORT OF THE MOTION OF THE REPEX GROUP FOR APPOINTMENT AS LEAD PLAINTIFF PURSUANT TO § 21D(a)(3)(B) OF THE SECURITIES EXCHANGE ACT OF 1934 AND APPROVAL OF SELECTION OF LEAD COUNSEL to be served via First Class Mail and First Class International Mail on all parties listed on the attached service list. Dated: March 30, 2009 STULL, STULL & BRODY By: s/ Timothy J. Burke . Timothy J. Burke (Admitted Pro Hac Vice) 10940 Wilshire Boulevard, Suite 2300 Los Angeles, CA 90024 Tel: [phone] Fax: [phone]

SERVICE LIST William P. Hammer, Esq. ERNST & YOUNG LLP 5 Times Square 36th Floor New York, NY 10036-6530 Tel: [phone] Fax: [phone] Lawrence J. Zweifach, Esq. GIBSON, DUNN & CRUTCHER LLP 200 Park Avenue New York, NY 10166-0193 Tel: [phone] Direct Fax: [phone] William J. O=Brien, Esq. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Four Times Square New York, NY 10036-6522 Tel: [phone] Fax: [phone] Steven J. Toll Daniel S. Sommers 1100 New York Avenue, N.W. Suite 500, West Tower Washington, DC 20005 Tel: [phone] Fax: [phone] Catherine A. Torell COHEN MILSTEIN SELLERS & TOLL PLLC 150 East 52nd Street 30th Floor New York, NY 10022 Tel: [phone] Fax: [phone]

Samuel H. Rudman David A. Rosenfeld COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP 58 South Service Road Suite 200 Melville, NY 11747 Tel: [phone] Fax: [phone] Sabrina E. Tirabassi COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP DOUGLAS WILENS 120 E. Palmetto Park Road Suite 500 Boca Raton, FL 33432-4809 Tel: [phone] Fax: [phone] JOHNSON BOTTINI, LLP Frank A. Bottini 655 W. Broadway Suite 1400 San Diego, CA 92101 Tel: [phone] Fax: [phone] Jacob Sabo, Esq. The Tower # 3 Daniel Frisch St. Tel Aviv Israel Tel: [phone] Fax: [phone] Bank Austria Creditanstalt 1010 Wien, Schottengasse 6-8 A-1010 Vienna Austria Bank Medici S.A. Operngasse 6/4 Vienna, 1010 Austria

Stéphane Benbassat 7, rue Versonnex CH-1207 Geneva Switzerland Gerald J. P. Brady Birch Hollow Upper Kilmacud Road Dundrum Dublin 14 Ireland Ernst & Young Global Limited Becket House, 1 Lambeth Palace Rd. London SE1 7EU United Kingdom Ernst & Young S.A. 7 Parc d=Activite Syrdall Munsbach L5365 Luxembourg Helmuth E. Frey Operngasse 6/4 Vienna, 1010 Austria Friehling & Horowitz 337 North Main Street New City, NY 10956-4310 Genevalor, Benbassat & Cie 7, rue Versonnex CH-1207 Geneva Switzerland Herald Luxemburg Fund Operngasse 6/4 Vienna, 1010 Austria Herald USA Fund Operngasse 6/4 Vienna, 1010 Austria

HSBC Holdings plc c/o Chris Wilcockson Managing Director, HSS 40 Avenue Monterey B.P. 413, L-2014 Luxembourg HSBC Institutional Trust Services (Ireland) Limited c/o Ronnie Griffin 1 Grand Canal Square Grand Canal Harbour Dublin 2 Ireland HSBC Securities Services S.A. c/o Chris Wilcockson 40 Avenue Monterey B.P. 413, L-2014 Luxembourg HSBC Securities Services (Ireland) Limited c/o Rosemary Leahy 1 Grand Canal Square Grand Canal Harbour Dublin 2 Ireland Daniel Morrissey William Fry Solicitors Fitzwilton House Wilton Place Dublin 2 Ireland Franco Mugnai Via Leone XIII_ n.27 I-20145 Milan Italy Friedrich Pfeffer WFE-Consulting Fuhrenweg 27 D-31515 Wunstorf Germany

Pioneer Alternative Investments 1 George=s Quay Plaza George=s Quay Dublin 2 Ireland PricewaterhouseCoopers, Chartered Accountants One Spencer Dock North Wall Quay Dublin 1 Ireland PricewaterhouseCoopers International Limited 1 Embankment Place London WC2N 6RH United Kingdom Primeo Executive Fund Attention: Mrs. R. Scott 13 Rue Goethe, B P 413 L-2014 Luxembourg Primeo Select Fund Attention: Mrs. R. Scott 13 Rue Goethe, B P 413 L-2014 Luxembourg Peter Scheithauer Operngasse 6/4 Vienna, 1010 Austria David T. Smith c/o Equus Asset Management Partners Bermudiana Arcade 27 Queen Street Hamilton HM 11 Bermuda

Thema International Fund plc c/o NCB Stockbrokers 3 George=s Dock IFSC Dublin 1 Ireland Unicredit S.A. Piazza Cordusio 20123 Milan Italy