In re Herald, Primeo and Thema Funds Securities Litigation

Filing 343

DECLARATION of Evan A. Davis in Support of the HSBC Defendants' Reply in Further Support of the Motion to Dismiss re: #333 Reply Memorandum of Law in Support of Motion,,,,, #252 JOINT MOTION to Dismiss.. Document filed by Bank of Bermuda (Cayman) Limited, Bank of Bermuda (Luxembourg) S.A., Bank of Bermuda Limited, HSBC Bank USA, N.A., as a proposed defendant, HSBC Holdings plc, HSBC Institutional Trust Services (Ireland) Ltd., HSBC Securities Services (Ireland) Ltd., HSBC Securities Services (Luxemburg) S.A.. (Attachments: #1 Exhibit 1, #2 Exhibit 2)(Davis, Evan)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ECF CASE
IN RE HERALD, PRIMBO AND THEMA
FUNDS SECURITIES LITIGATION

Civil Action No. 09 Civ. 0289 (RMB)
(Consolidated with Nos. 09 Civ. 2032 and
09 Civ. 2558)

This documents relates to: All Actions

ATTORNEY DECLARATION OF EVAN A. DAVIS IN SUPPORT OF THE HSBC
DEFENDANTS' REPLY IN FURTHER SUPPORT OF THE MOTION TO DISMISS

CLEARY GOTTLIEB STEEN & HAMILTON LLP
Evan A. Davis
One Liberty Plaza
New York, New York 10006
[phone]
Counsel for Defendants HSBC Holdings plc
("Holdings"), HSBC Securities Services
(Luxembourg) S.A., Bank of Bermuda (Luxembourg)
S.A. ("HSSL"), Bank of Bermuda (Cayman) Limited,
The Bank of Bermuda Limited, HSBC Institutional
Trust Services (Ireland) Ltd. ("HTIE"), and HSBC
Securities Services (Ireland) Limited ("HSSI"), and
Proposed Defendant HSBC Bank USA, N.A.
("HBUS") (together, "HSBC" or the "HSBC
Defendants")

I, Evan A. Davis, declare under penalty of perjury as follows:
1.

I am a member of the bar of this Court and a partner at Cleary Gottlieb Steen &

Hamilton LLP, counsel for the HSBC Defendants. I respectfully submit this Declaration as a
supplement to the Joint Reply in support of HSBC's motion to dismiss.
2.

Plaintiffs' Opposition fails to show that they have alleged a factual basis for

personal jurisdiction over Holdings. Plaintiffs point to the New York offices of HBUS, a
defendant proposed to be added by amendment, Pls.' Opp. at 24, and an entity that would not
challenge jurisdiction, but this is irrelevant to jurisdiction over Holdings because Plaintiffs have
not alleged a basis to justify disregarding HBUS' and Holdings' separate and independent legal
existences. Joint Br. at 9- 10. Plaintiffs' repetition of generalized and conclusory allegations that
"HSBC Defendants" wired funds to BLMIS and that an "HSBC representative met with
Madoff[Jf' Pls.' Opp. at 24, is insufficient unless those allegations address what Holdings
specifically did, which they do not. Plaintiffs' allegation that Brian Pettitt, the "HSBC
Representative" alleged to have met with Madoff held that meeting as the representative of the
holding company of a global financial institution is implausible on its face and is directly refuted
by specific evidence in the D'Aubney declaration, as is the allegation of wiring funds. D'Aubney
Decl. at 4 ("To the best of my knowledge, HSBC Holdings did not transact business in New
in
York. ... connection with any of the matters referenced in Plaintiffs' Complaints, including
wire transfers related to or for the benefit of the Herald Funds, the Primeo Fund or the Thema
Fund. Equally, no one from HSBC Holdings has had any contact with New York relating to any
of the matters alleged in Plaintiffs' Complaints.

...

Brian Pettitt is not and never was a

representative or employee of HSBC Holdings[J").
3.

Plaintiffs likewise provide no basis to impute the conduct of other separate and

independent HSBC entities to Holdings, because their bare and conclusory allegations of control,
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HC at 39; PC at 46; TC at

41, fail to establish a plausible factual predicate for the required

Brands, LLC v.
agency or alter ego relationship. Joint Br. at 29; see also 1MG Fragrance
Houbigant, Inc., 679 F.Supp.2d 395, 403-04 (S.D.N.Y. 2009) (a parent can be held liable for a
subsidiary's breach of contract if plaintiff can show that the parent exercised complete
domination of the subsidiary in respect to the transaction attacked); JHW Greentree Capital, L.P.
v. Whittier Trust Co., No. 05 Civ. 2985 HB 2005 WL 3008452, at *5 (S.D.N.Y. Nov. 10, 2005)
(to bind parent, plaintiffs must show subsidiary was delegated authority).
4.

As to the exculpatory language in the Primeo and Herald SPC Offering

Memoranda on which HSBC relies, Joint Br. at 27, Plaintiffs concede that the language
"4purports to protect the [fu~nds'] administrators and custodians[.]" Pls.' Opp at 89. The relevant
language plainly allocates to investors the risk of "any loss arising as a result of an investment in
[a managed] accountE,]" Priim Decl. at

59-6 1, unless (for Herald SPC only) the loss is caused

by the Investment Manager or Investment Advisor(s)'s "fraud, gross negligence or willful
default," in which case those entities (not the administrator or custodian) would bear such risk.
5.

At the outset of their Opposition, Plaintiffs devote much rhetoric to HSBC 's

engagement of KPMG to conduct reviews of fraud and operational risks at BMIS. Pls.' Opp. at
4-6. They fail to explain or attach legal significance to these engagements, which are not
addressed or mentioned again in the remaining 95 pages of the Opposition. It seems no more
than a chance to mischaracterize the KPMG engagements in a highly misleading way by
suggesting that KPMG reported indicia that Madoff might be engaged in fraud. Pls.' Opp. at 5
("Chillingly, despite KPMG's detailed review of Madoff s fraud, the HSBC Defendants forged
ahead in their complicity with Madoftlj"). To the contrary, as shown in U.S. Department of
Justice and U.S. Securities and Exchange Commission pleadings, KPMG's failure to uncover
any indicia of Madoff s fraud occurred because its review and testing of BMIS accounts for,

among other things, sham transactions was foiled by BLMIS' provision of falsified documents,
including documents purporting to tie Madoff s records to external Depository Trust Company
reports.

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6.

Contrary to Plaintiffs' assertion, Pls.'

Opp. at

17, the important witnesses with

regard to the conduct of the Ireland and Luxembourg domiciled HSBC Defendants are their
present and former employees who are obviously largely located overseas. Herald SPC, for
example, has identified such current and former LISSL employees as witnesses in its action
against HSSL in Luxembourg. HSSI and HTIE have also identified witnesses with knowledge
of relevant facts in the administration and custody of the Thema Fund. Supp. Memn. Ex. B,
Potential Witness List, Dkt. No. 75-2, In re Banco Santander Secs.

-

Optimal Litig., No. 09-MD-

02073 (S.D. Fla. filed Mar. 15, 2010) (dismissed on forum non conveniens grounds), including
former employees.
7.

The HSBC Defendants rely on the supplemental foreign law declarations

submitted in reply to Plaintiffs' Opposition, except those paragraphs of the supplemental
declaration of Mark Sanfey relating to the enforceability of a class action judgment in Ireland.
8.

Annexed hereto are true and correct copies of the following documents:

Exhibit 1
Exhibit 2

Supplemental Declaration of Andrd Prfim, dated October 27, 2011
Declaration of Frangois Kremer, dated October 27, 2011

Executed on October 28, 2011, at New York, New York.

TVAkX .A
See, e.g., Information filed in United States v. DiPascali,Jr., 09 Cr. 764 (RJS) (S.D.N.Y. filed
Aug. 11, 2009), available at http://wwwjustice.gov/usao/nys/depascali.html; Indictment filed in
United States v. Bonventre, 10 Cr. 228 (LTS) (S.D.N.Y. filed Nov. 18, 2010); available at
http://wwwjustice.gov/usao/nys/oharaperez.html; Complaint filed in Secs. & Exch. Comm 'n v.
Bonventre, 10 Civ. 1576 (LLS) (S.D.N.Y. filed Feb. 25, 2010, available at
www.sec.gov/litigation/complaints/201 0/comp2l1424.pdf.
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