Trezziova v. Kohn
2013 U.S. App. LEXIS 19132
| 2d Cir. | 2013Background
- Investors in foreign feeder funds Thema, Herald SPC, Herald Lux, Primeo funds, and Primeo Executive Fund allegedly funneled assets to Madoff Securities, a Ponzi scheme, causing substantial losses.
- Madoff Securities’ fraud was revealed and its assets frozen; Thema entered receivership; Herald SPC and Herald Lux suffered significant losses; Primeo funds also incurred losses.
- In 2009-2010, SDNY consolidated actions for pretrial purposes and appointed lead plaintiffs for each fund family; Davis and Repex filed amended complaints naming JPMorgan and BNY as defendants.
- The district court dismissed JPMorgan’s and BNY’s claims as precluded by SLUSA and preempted by New York’s Martin Act; plaintiffs appealed.
- The appellate court reviews Rule 12(b)(6) dismissals de novo, considering factual allegations as true and drawing reasonable inferences in plaintiffs’ favor.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SLUSA precludes the claims against JPMorgan and BNY | Trezziova argues SLUSA does not apply because feeder funds hold uncovered interests | Defendants contend the claims are tied to Madoff’s covered securities and thus fall within SLUSA | Yes, SLUSA precludes the claims against JPMorgan and BNY |
| Whether the complaints allege misrepresentation in connection with a covered security | Plaintiffs allege banks knew of and aided the Madoff fraud, not misrepresentations in feeders | Defendants argue the focus is on fees and services to feeder funds, not securities transactions | Yes, allegations are in connection with covered securities via Madoff transactions |
| Whether the Martin Act preemption argument must be reached | Plaintiffs argue Martin Act preemption should apply | Defendants rely on Martin Act preemption as alternative basis | Not reached; SLUSA dispositive |
Key Cases Cited
- Romano v. Kazacos, 609 F.3d 512 (2d Cir. 2010) ( PSLRA and SLUSA interplay; artful pleading not allowed)
- LaSala v. Bordier et Cie, 519 F.3d 121 (3d Cir. 2008) (SLUSA ‘in connection with’—allegations tied to securities trades suffice)
- Instituto De Prevision Militar v. Merrill Lynch, 546 F.3d 1340 (11th Cir. 2008) (SLUSA satisfaction when funds accept investor money for securities)
- Ring v. AXA Financial, Inc., 483 F.3d 95 (2d Cir. 2007) (CTR/insurance product not aggregated with covered security in Ring facts)
- Rowinski v. Salomon Smith Barney Inc., 398 F.3d 294 (3d Cir. 2005) (SLUSA preemption cannot be avoided by artful pleading)
- Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (U.S.) (SLUSA breadth to prevent private state securities actions)