Broker-Dealer Litigation - Greenberg Traurig LLP

willfully ignored numerous red flags that should have made them aware of numerous
improprieties committed by Madoff, thereby aiding and abetting Madoff’s Ponzi scheme.
Plaintiffs conceded that they were bringing covered class actions under state law, but asserted
that because Madoff never actually purchased any securities, their claims did not involve
“covered securities” and denied that the fourth prong of SLUSA was met because their complaint
did not allege any misrepresentations or omissions by the defendants. The court held that it was
sufficient that Madoff represented its trading strategy to involve covered securities and it was not
necessary that the securities transactions actually transpired. The court also held that plaintiffs’
allegations that BNY and JPM knew or should have known of Madoff’s fraud and failed to
disclose that to plaintiffs was sufficient to fall squarely within the ambit of SLUSA, even if fraud
was not an essential element of the claims. The court also rejected plaintiffs’ argument that
SLUSA did not apply on the basis that federal securities claims are limited to securities
transactions that take place within the United States, holding that the application of SLUSA
depended only on whether it was brought in a state or federal court in the United States.
In re Mutual Funds Inv. Litig., 767 F. Supp. 2d 542 (D. Md. 2011).
The district court, overseeing a multi-district litigation (“MDL”), considered defendants’
motion to administratively close and terminate an action originally brought in Illinois state court
on behalf of investors who claimed that their mutual fund advisors had charged excessive fees.
The underlying case, Kircher v. Putnam Funds Trust, had been the subject of numerous removal
and remand proceedings in Illinois, as plaintiffs attempted to avoid removal and preclusion under
the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”). Most recently, the Illinois
appellate court found that plaintiffs’ action was covered by SLUSA and mandated that the
Illinois circuit court dismiss the case. After the Illinois circuit court dismissed plaintiffs’ action
with prejudice, plaintiffs moved to modify the order so that dismissal would be without prejudice
and for leave to file an amended complaint. In the meantime, defendants removed the action to
federal court in Illinois and plaintiffs again moved to remand. While those motions were
pending, the MDL panel transferred the case to the federal court in Maryland to be considered as
part of the ongoing Mutual Funds MDL. The court first rejected plaintiffs’ argument that
defendants’ most recent removal was improper because it was untimely. The court noted that
defendants’ notice of removal appeared to be timely because SLUSA’s 30-day window for
removal did not begin to run until plaintiffs’ time to appeal the Illinois appellate court’s decision
had expired and the Illinois appellate court issued a mandate enforcing its decision. The court
found, however, that plaintiffs had waived any objection they might have had to any procedural
defect with the removal because plaintiffs had actively engaged for the last six months in
settlement negotiations in the Mutual Funds MDL. Finally, the court rejected plaintiffs’
argument that they could amend their complaint to state a negligence claim that would not be
precluded by SLUSA because plaintiffs “market timing” claims essentially alleged that
defendants misrepresented the value of securities sold or consideration received in return to the
detriment of shareholders. Accordingly, the court granted defendants’ motion and closed the
action.
E.
213