In Re Optimal U.S. Litigation
2011 U.S. Dist. LEXIS 46745
| S.D.N.Y. | 2011Background
- This putative class action concerns investments in Optimal U.S., a Bahamas-based fund that funneled 100% of its assets to Madoff and BMIS, allegedly exposing Plaintiffs to fraud and improper fees.
- Defendants include Optimal Investment Management Services (OIS) and Banco Santander entities, plus Clark, with Pioneer and Santander Plaintiffs representing non-U.S. and Bahamian investor bases.
- Pioneer and Optimal Multiadvisors signed a Private Placement Agreement containing a Bahamian forum selection clause; Santander Plaintiffs invested via Santander U.S. accounts with SBT Bahamas and were subject to SBT Terms & Conditions with a Bahamas forum clause.
- Madoff’s Ponzi scheme is undisputed; plaintiffs allege red flags were concealed and due diligence inadequate, while fees were collected despite alleged mismanagement.
- Defendants move to dismiss all counts on forum-clause, extraterritoriality of the Exchange Act, and standing grounds, with the court conducting a four-part forum clause analysis and subsequent sections on Exchange Act claims and common law standing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Pioneer’s claims fall within the PPA’s Bahamian forum clause | Pioneer’s claims arise from misrepresentations, not the PPA’s fee disputes. | Pioneer claims arise from the PPA and are barred by the Bahamas forum clause. | Forum clause does not apply to Pioneer claims. |
| Whether Santander Plaintiffs are bound by the SBT forum clause | SBT terms govern only banking, not investment disputes. | Disputes relate to SBT investment accounts and arise out of those terms. | Santander Plaintiffs’ action relates to SBT accounts and is governed by the Bahamas forum clause; Counts XII dismissed for these plaintiffs. |
| Whether Exchange Act claims apply to the 'foreign-cubed' transactions | Purchases occurred in the United States; Exchange Act applies. | Transactions are offshore; Morrison v. NABL requires careful analysis of locus of purchase. | The Court finds the Exchange Act applies to Plaintiffs’ purchases and survives as to the Pioneer Plaintiffs; further briefing scheduled. |
| Whether the common law claims are direct or derivative standing | Plaintiffs have direct misrepresentation claims against the Defendants. | Claims are mismanagement of the Funds, thus derivative. | Common law claims are derivative; Plaintiffs granted leave to replead as derivative with futility considerations discussed. |
| Whether the 10(b) and control-person claims survive dismissal | OIS, Clark liable under 10(b); Banco Santander liable under 20(a). | Extraneous to the claims, scienter, and reliance insufficiently pled. | Exchange Act claims survive for OIS and Clark; 20(a) claim as to Banco Santander survives pending conference briefings. |
Key Cases Cited
- Phillips v. Audio Active Ltd., cdn. 494 F.3d 378 (2d Cir. 2007) (forum clause scope; 'arise out of' meaning)
- Morrison v. National Australia Bank Ltd., U.S. , 130 S. Ct. 2869 (Supreme Court 2010) (extraterritorial reach of §10(b))
- Anwar v. Fairfield Greenwich Ltd., 728 F. Supp. 2d 372 (S.D.N.Y. 2010) (forum selection and standing in Madoff feeder-fund cases)
- Fraternity Fund Ltd. v. Beacon Hill Asset Mgmt. LLC, 376 F. Supp. 2d 385 (S.D.N.Y. 2005) (misrepresentation vs. mismanagement; standing considerations)
- Druck v. Macro Fund Ltd., 290 Fed. Appx. 441 (2d Cir. 2008) (internal affairs and standing; reflectiveness of losses)