Broker-Dealer Litigation - Greenberg Traurig LLP

E.
In re Refco Inc. Sec. Litig., 2011 WL 4035819 (S.D.N.Y. Sept. 6, 2011).
The special master recommended that defendants’ motion to dismiss plaintiffs’ claims as
precluded by the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) should be
denied. As liquidators of a family of hedge funds and trustees of a trust formed for purposes of
litigation, plaintiffs sought to recover cash that the hedge funds had diverted from customer
accounts to offshore accounts, where the assets were ultimately lost in the Refco scandal. While
plaintiffs were not entitled to be treated as a single “entity” because their trust was formed solely
for litigation, the special master concluded that the action was not a “covered class action”
because it did not seek damages on behalf of more than 50 persons. The special master rejected
defendants’ argument that the number of plaintiffs should be aggregated with plaintiffs in a
related action because the claims in the two cases were not sufficiently related to warrant
grouping. The special master also concluded that, although the hedge fund shares at issue were
not “covered securities,” the claims did involve “covered securities” as they related to the Refco
LBO and IPO. Nevertheless, the special master held that claims based on unauthorized transfers
of cash did not satisfy the “in connection with” requirement because the alleged wrongdoing did
not coincide with the Refco LBO and IPO. Accordingly, the special master found that SLUSA
preclusion was inappropriate and recommended that defendants’ motion to dismiss should be
denied.
In re Merkin and BDO Seidman Sec. Litig., 2011 WL 4435873 (S.D.N.Y. Sept. 23, 2011).
The district court dismissed plaintiffs’ class action alleging state law claims arising out of
investments in three hedge funds that invested in Madoff’s Ponzi scheme as precluded by the
Securities Litigation Uniform Standards Act of 1998 (“SLUSA”). The court rejected plaintiffs’
argument that their claims did not involve “covered securities” because they had purchased
shares in hedge funds. The court held that it was sufficient that the alleged fraud coincided with
the hedge funds’ subsequent purchases of covered securities. Accordingly, the court dismissed
plaintiffs’ state law claims as precluded by SLUSA and denied plaintiffs’ leave to replead as
futile.
In re Herald, Primeo, and Thema Sec. Litig., 2011 WL 5928952 (S.D.N.Y. Nov. 29, 2011).
The district court dismissed all three foreign plaintiffs’ class actions brought under New
York State common law as prohibited under the Securities Litigation Uniform Standards Act of
1998 (“SLUSA”). The named plaintiffs in each of the three class actions were foreign citizens
who purported to represent other foreign citizens who had invested in foreign investment funds
which had, in turn, invested the plaintiffs’ money in the notorious Ponzi scheme perpetrated by
Bernard L. Madoff and Bernard L. Madoff Investment Securities LLC (collectively, “Madoff”).
Their complaints included claims brought against Bank of New York (“BNY”) and various JP
Morgan entities (collectively, “JPM”), alleging that BNY and JPM, as Madoff’s bankers, had
E.
E.
212