F EB-21-2I:'I12

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JUDGE RAKQFF

P. Bit'18

Chambers of Hon, Jed S. Rakoff

United States District Court United States Courthouse

500 Pearl Street, Chambers 1340 New York, New York 10007

(212) 805-0401 fax (212) 805-7935

To:

Timothy Pfeifer Baker k Hostetler LLP (NYC) 45 Rockefeller Plaza New York City, NY 10111 Marco Schnabl Skadden, Arps, Slate, Meagher dhFlom LLP Four Times Square, 42nd iloor New York, NY 10036 Franklin B. Velie Sullivan 4 % orcester LLP(NY) 1290 Avenue of the Americas 29th Floor New York, NY 10104 Eliot Lauer Curtis, Mallet-Prevost, Colt 4 Mosle, LLP(NYC)
101 Park Av enue

Fax: (212) 589-4201

Fax: (917) 777-2$12

Fax: (212) 660-3001

Fax: (212) 697-1559

New York, NY 10178 Christopher H. LaRosa

Securities Investor Protection Corporation

Fax; (202) 371-6728

805 15th Street, N,W,, Suite 800 Washington, DC 2000$

From:

Caleb Deats Law Clerk to Hon. Jed S, R alcoff

February 21, 2012

Date'.

Re:

Picard v. Kohn e . ,

11 C iv. 1181 (JSR)

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JUDGE RAKQFF

P. 82r'18

Message:

Please see attached,

Pages:

18 (including cover)

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JUDGE RAKQFF

U NITED S T A T E S D I S T R I C T C O U R T S OUTHERN D I S T R I C T O F N E W Y O R K
X

I RVING H ,

P ZC A R D ,

Plaintiff, -v
SON JA KOH N E RW Z N K Q H N RO B E R T K O H N ( RZNA H ARTS T E ZN , M Q I S H E H A R T S T E Z N , M O R D E C H A I L A&%AU , E R K O , I N C . , E U R Q V A L E U R , I N C . ,

INFOVALEUR, INC., TECNO DEVELOPMENT &

R ESEARCH S . R . L . , T E C N O D E V E L OPMENT & R ESEARC H L T D . , S H L O M Q A M S E L E M , H A S S A N S I NTERN A T I O N A L L A W F I R M , H E R A L D A S S E T

MANAGEMENT LTD., 20:20 MEDZCZ AG, PETER

SCHEIT H A U E R , R O B E R T R E U S S , U N I C R E D I T B A N K : A USTRI A A G , GE R H AR D R A N DA , S T E P A N Z APOTO C K Y ( B A N K A U S T R I A W O R L D W Z D E F U N D M ANAGEMENT L T D . , URS U L A R A D E L L ESZCZYNSKI , UN Z C R E DI T S . g . A . , A L E S S A N D RO : P ROFUMO , P I O N E E R G L O B A L A S S E T M A N A G E M E N T , S .P .A. , e t a l . , P A L L A D I U M C A P I T A L A DVIS OR S L L C , W I N D S O R Z B C , I n c . ( MARIA D E L MA R R A U L E , F R A N C O M U G N A I , P A U L d e : S URY, D A N I E L E C O S U L I C H , A B S O L U T E P ORTF O LI O M A N A G E M E N T L T D . , M E D I C Z P Z N A N Z C ONSU L T IN G GtnbH, M E D I C X S . R . L . , M E D I C I C AYMAN I S L A N D L T D . , B A N K M E D I C I A G ( GIBRALT A R ) , REV I T R U S T S E R V Z CE S E S T . , H ELMUTH F R EY , M A N F RE D K A S T N ER ( J O S E F D UREGG ER , A N D R E A S P IRKNER , W E R N E R T RIPO LT , A N D R E A S S C H I N D L E R , F R I E D R I C H K ADRN O S KA , W E R N E R K R E T S C H M E R , W I L H E L M H EMET S B E R G E R , H A R A Z D N O G R A S E K ( B A N K A USTRIA C A Y M A N I S ~ S LTD ., G I A N F R A N C O G UTTY , S O F Z P O A U S T R I A G m b H , M - T e c h S ERVI CE S G m b H , B R E R A S E R V I Z Z A Z Z E N D I A L E S . R . L . , RED C R ES T I N V E S T MENTS , I NC . , L 1 NE G ROUP L T D . , L I N E M A N A G E M E N T S E R V I C E S L TD., L ZN E H O L D I N G S L T D . , H E R A L D C O N S U L T L TD. , J O H N A N D J A N E D OES 1 - 10 0 ,

l l

Ci v .

1 181

( J SR)

M EM O R A N D U M

ORD ER

D efend a n t s .

J ED S ,

R A K OFF , U . S . D . J .

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P. 84r'18

I n a 177-page Second Amended complaint ("sAc" ), Irving P i c ar d

(the

"Trustee" ), as trustee for the estate of Bernard i. Madoff Znvestment Securities LLC ("Madoff Securities" ), sues the dozens of defendants listed above for, among much else, violations o f the Racketeer Influenced and Corrupt Organizations Act ("RICO") (Counts One and. Two) and common law claims of unjust enrichment, conversion, and, money had and received (Counts Twenty through Twenty-Two). O n J u ly 25, 2011,

four defendants - specifically, UniCredit S.p.A. ("UniCredit"), Pioneer Global Asset Management S,p.A. (" Pioneer" ), UniCredit Bank Austria AG (" Bank Austria" ), and Alessandro Profumo - moved to dismiss Counts One, Two, Twenty, Twenty-One, and Twenty-Two of the Complaint as to them.' Th e parties extensively briefed the relevant issues, and the Court heard. oral argument on October 5, 2011 . H a v ing now fully

considered the matter, the Court hereby grants the defendants' motions in their entirety. With respect to Counts Twenty, Twenty-One, and Twenty-Two of the
S AC, thi s C o u r t has a l r eady held as a m a t ter of law t ha t th e T r u s t e e

lacks standing to bring common law claims such as those advanced in these three counts. Se e P i c ard v. HSBC Bank PLC, 454 B.R. 25, 37

(S.D.N.Y, 2011) ("[T] he Trustee does not have standing to bring his common law claims either on behalf of customers directly or as bailee

' The motions were originally addressed to the First Amended Complaint, but in a telephonic conference between the parties and Chambers on
A ugust 2 5 , 2 011 the T r u s tee re qu ested le ave to s u b mi t the S A C

containing additional factual allegations. T h e C o urt allowed the Trustee to submit the SAC , B e c a use the parties thereafter treated the motion to dismiss as directed at the SAC, the Court recognizes the SAC
a s the a u t h o r i t a t iv e comp la int and h e r eby o r d ers it d o c k e t e d ,

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P. 85r 18

of customer property, enforcer of SZPC's subrogation rights, or assignee of customer claims , . . ."). J u d g e McMahon of this District S e e P i card v. JP Nor an ( " T he T r ust e e

subsequently reached the same conclusion, Chase & C o . , 2 011 W L 5 1 7 0 4 3 4 a t

* 18 ( S . D .N . Y . 2 01 1 )

lacks standing to pursue the common law claims against Defendants,") . Accordingly, the Court dismisses Counts Twenty, Twenty-One, and Twenty-Two, with prejudice, as to the four moving defendants. With respect to Counts One and Two, i. e., the RICO claims, the SAC alleges an extensive criminal enterprise centered around Sonja Kohn, which it dubs the "Medici Enterprise." S A C $ 1 . E x p l o i ting her

relationship with Bernard. Madoff, Kohn allegedly used the purported enterprise to feed $9,1 billion of investments into Madoff Securities (the "Money zn" component), in return for kickbacks that Madoff and. Kohn fraudulently disguised as payments for research (the "Money Out" component). Id , gtt 13, 19. B a s e d. on this conduct, the Trustee

alleges that various defendants conducted (Count One) and. conspired to conduct (count Two) the Nedici Enterprise's affairs through a pattern of racketeering activity consisting of money laundering, money transactions involving property known to be derived from unlawful activity, wire fraud, financial institution fraud, mail fraud, transportation of funds taken by fraud, transportation of persons to defraud, receiving funds taken by fraud, and violation of the Travel Act. I d . $ $ 7 , 571 . T he Tr u s t ee a s s er t s t h at , by t h e s e c r i me s ,

defendants "fed, perpetuated, and profited from" Nadoff Securities' Ponzi scheme. Zd. 5 4. B e c a u se Nadoff Securities' Ponzi scheme

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allegedly "could not have continued for as long as it did" without defendants' assistance, the Trustee seeks to recover the entire $19.6 bil l i on l o s t by i nv e s t o r s i n Ma d o f f Sec u r i t i es . Id. I d . tt 8 . Un de r RI I 0 ,

damages would be trebled.

As to the four moving defendants, the Trustee alleges that UniCredit, Pioneer, Bank Austria, and Profumo primarily participated in the conduct of the "Money In" component of the purported enterprise. T h e " c rux" of the "Money Zn" component consisted of

attracting investors to supposedly diversified. investment funds that, in reality, did nothing more than feed money into Madoff Securities. Id, tltI 19-24, To a t t ract investors, members of the purported enterprise allegedly "conspired to conceal" the feeder funds' true natures, engaging in "deception." Id . tt 21, M o r e over, because

members of the purported enterprise pretended to oversee the feeder funds' supposedly diversified investments, they received hundreds of millions of dollars in fees from their customers. Id . $ 2 2 .

Specifically, Bank Austria allegedly conspired with Kohn and others to market Primeo Fund., a Madoff Securities feeder, as a diversified fund of funds when, in reality, it invested exclusively with Madoff. Zd , tI 341. A c c o r ding to the SAC, Bank Austria received Zd ,

at least $55 million in fees based on investment in Primeo Fund. 359. B a n k Austria also allegedly helped Kohn acquire a banking

license for Bank Mediei, which allowed Bank Mediei to set up its own Madoff investment vehicles.
t hese in v e s t m e n t

Id . $ 3 9 4.

T h e s AC a lleges that one of

("HAM"), allowed

v eh i c l es, Herald As set M an agement

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Bank Austria to funnel an additional $1.5 billion into Madoff S ecur i t i es , Z d . $ 3 98 ,

Similarly, the SAC alleges that, beginning in 1999, Pioneer offered multiple opportunities to invest in Madoff Securities, including feeder funds related to Kohn. Zl , $ 4 6 1. A c c o r d i ng to the

SAC, UniCredit purchased Pioneer in May 2000 and acquired Bank Austria and. Bank Me d i c i i n 20 05 , Z d . l td[ 4 6 2 , 4 64 . Fo l l owi ng t h e l a t t er

acquisitions, UniCredit and Pioneer allegedly identified concerns and defects - e.cC,, the absence of written contracts between Primeo and Madoff Securities associated with those of their new funds that inves t e d e xc l u s i v e l y wi t h Mad o f f , z d . tt 4 67 . Th e SAC a l l eg e s t h a t ,

in response to these concerns, UniCredit and Pioneer attempted to disguise the fact that Primeo invested. exclusively with Madoff. 468. M o r e over, UniCredit allegedly stifled criticism of its i nv e s t m e nt s w i t h M a d o f f Sec u r i t i es . Fo r ex am p l e , t h e S A C al l eg e s t ha t Zd .

UniCredit fired. John Absood, an analyst who identified defects in UniCredit's relationship with a Madoff feeder fund, Zd . $ 4 8 4 .

According to the SAC, Absood initiated a wrongful termination suit. Zd. Ot h e r internal documents questioning UniCredit's decision to

acquire access to Madoff through Kohn were allegedly suppressed or ign o r e d , Zd,. tt 4 85 .
was the CEO of U n i C redit from 1 997 to 2 0 10 . Zd .

Finally , P r o f um o

143. H e

a l legedly enjoyed a "close working relationship" with Kohn .

141. A c c o rding to the SAC, he may have received. an email

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describing Absood's concerns about Madoff's lack of transparency. 5 482 . For the most part, the SAC only vaguely hints at what role, if

Zd.

any, the four moving defendants played in the "Money Out" component of the purported enterprise. T h e SA C does allege that, in order to

disguise her kickbacks from Madof f Securities, Kohn billed Madof f Securities for zesearch that her employees either plagiarized or simply made up. Id . f[ 13. A c c o r ding to the Trustee, Kohn set up

several sham entities in New York, such as Znfovaleur and. Erko, that had no legitimate purpose and existed only to receive payments from Madoff Securities for fake or plagiarized zesearch. Zd . f$ 2 69-281.

A Bank Austria employee allegedly gave Kohn access to one of Bank Austria's proprietary databases, and Kohn allegedly plagiarized some of her sham entities' research from this database. Zd . tt 14.

Turning to the RICO claims, under 18 U.S.C. 5 1964(c) and 5 1964(d), plaintiffs lack standing to bring these RICO claims unless the "defendant's injurious conduct is both the factual and. the pz'oximate cause of the injury alleged." 318 F.3d 113, 120 (2d Cir. 2003), Te r n er v, Fleet, Bank, N.A.,

P r o x imate cause, in this context,

refers not to the foreseeability of harm to a plaintiff, but instead to the directness of the relationship between the purported enterprise's alleged criminal acts and the plaintiff's injuries. MCBreart v . v a n uard Grou , Inc., 353 F. App'x 640, 641-42 & n,l (2d A c t s that merely f u r t h ered, facilitated, permitted oz'

Cir, 2009).

concealed an injury which happened or could have happened

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independently of the act" do not directly cause that injury, and thus d o not proximately cause it ,
J ewi s h He a l t h S s . , I nc , ,

D e S i lva v. North Shore-Lon I s l a n d

2d 4 9 7 , 524 (E , D. N . Y . 2011 )

7 7 0 F . Su p p ,

(quoting Red Ball Interior Demolition Cor . v, Palmades sa, 8 74 F . SL1pp, 57 6 , 58 7 ( S . D . N . Y. 1 9 9 5 ) ) . Here, as noted, the Trustee alleges that the purported criminal conspizaey and conduct "fed, perpetuated, and profited from [Madoff Securities'] Ponzi scheme," S A C $ 4 . T h i s i s the kind of causal

assertion that is too indirect to satisfy the proximate cause requirement of 5 l964(c). T h e T r u stee acknowledges that Madoff Securities operated independently of defendants' conduct, instead alleging only that defendants extended Madoff Securities' duration by providing it with a "flood of cash." Zd . $ 8. B e c a u s e the injury

Madoff Securities' investors suffered "could have happened independently" of the "flood of cash" by which defendants merely "facilitated" Madoff Securities' operations, the Trustee has failed to plead proximate cause, and thus lacks standing to bring claims under
RICO.

Arguing that he has pled proximate cause, the Tzustee cites a discussion in Holmes v, SZPC, 503 U.S. 258 (1992), of three reasons why courts insist on a tight showing of direct causation to support
R ICO s t a n d i n g : (1 ) "the less d i r ect an in jury is , the m or e d i f f icu lt

it becomes to ascertain the amount of a plaintiff's damages attributable to the violation, as distinct from other, independent, factors"; (2) "recognizing claims of the indirectly injured would

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force courts to adopt complicated rules apportioning damages among

plaintiffs removed at different levels of injury from the violative acts, to obviate the risk of multiple recoveries"; and (3) "the need to grapple with these problems is simply unjustified by the general interest in deterring injurious conduct, since directly injured victims can generally be counted on to vindicate the law as private attorneys general, without any of the problems attendant upon suits by p l a i n t i f f s i n j u r ed m o r e r em o t e l y . " 5 03 U . S . at 26 9- 7 0 .

Contrary to the Trustee's arguments, however, each of these reasons favors finding that the Trustee has not here pled proximate cause, F i r st , neither the Court nor any jury has any reliable method

of ascertaining how much damage Madoff Securities would have caused if i t had not allegedly received a "flood of cash" from defendants . Any

attempt to estimate that amount of damage would have to consider such imponderable counterfactuals as whether Madoff Securities might have obtained funds from other sources and how much earlier Madoff Securities would have been caught or entered bankruptcy without defendants' alleged contributions. S e c o nd, neither the Court nor any

jury has any reliable method for apportioning damages among leadoff Securities' investors, H o w m uch should Nadoff Securities' investors

who invested before the advent of HAM in 2004 receive compared to those who invested afterwards? F i n a l ly, the Court lacks a reason to

"grapple with these problems" since those who invested in Bank Austria's, Unicredit's, and Pioneer's Madoff securities feeder funds have direct causes of action for fraud, in Europe if not in the Unitec3.

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States. I n

o t her words, application of the very reasons that Holmes

identified for the tight zequirement of proximate cause in RICO cases here indicates that the Trustee has not satisfied that requirement. Accordingly, the Court finds that the Trustee lacks standing to bring the RICO claims, and dismisses those claims as to the four moving d efen d a n t s , The Trustee's RICO claims fail foz another, independent reason, namely that, after the Court excludes allegations in the SAC that it cannot considez under the so-called 'RICQ amendment' set forth in the Private Securities Litigation Reform Act ("pSLRA"), the SAC fails to state any RICO claim , U n d e r the RICO amendment, "no person may rely

upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962." l 8 U . S .C. 5 1964(c), T h e S e cond Circuit has recently held

that this language bars civil RICO claims, including claims for wire and mail fzaud, "alleging predicate act8 of securities fraud, even where a plaintiff cannot itself pursue a securities fraud action against the defendant."
F .3 d 268 , 27 7

ML S M K Z nv. Co. v. JP Mar an Chase & Co., 651

8 e e a l s o H . R . Rep . 104 - 3 69 , at 41

( 2 d Ci r . 2 0 1 1 ) ;

amendment would bar plaintiffs from "plead[ing] other specified offenses, such as mail or wire fraud, as predicate acts under civil RICO if such offenses are based on conduct that would have been actionable as securities fraud"). T h e s e cond circuit also quoted with

approval the Third cizcuit'8 holding that the Rico amendment bars RIco

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claims based on conduct that perpetuates a Ponzi scheme.

NL S M K , 6 5 1

P.3d at 277 n. 11 ("[C]onduct undertaken to keep a securities fraud. Ponzi scheme alive is conduct undertaken in connection with the purchase and sale of securities." (quoting Bald Ea le Area Sch. Dist. v, Ke stone Fin., inc., 189 F.3d 321, 330 (3d. Cir, 1999))) In connection with the "Money In" component of the purported enterprise, the SAC alleges not only that UniCredit, Pioneer, Bank Austria, and Profumo kept Madoff Securities' Ponzi scheme alive, but also that they did so by "conspir[ing] to conceal" the fact that their funds' only fed. into Madoff Securities, engaging in "deception" in order to attract investors - who could have invested with Madoff S ecurities directly to Primeo, HAM, and other feeder funds . SAC

3[ 21. As a result, under MLSMK, the PSLRA's RICQ amendment prevents the Trustee from basing his RICO claims on any conduct related to the "Money In" component of the purported. scheme,' The Trustee argues that the PSLRA does not bar prosecution here because the connection between the foreign investors and Madoff Secur'ities is too attenuated to support a claim under the Securities Exchange Act based on Madoff Securities' fraud. Se e A n w ar v,

Fairfield Greenwich Ltd., 728 F, Supp. 2d. 372, 399 (S.D.N.Y. 2010)

because the defendants' actions perpetuated the Ponzi scheme merely by providing money, much as if they had invested. the proceeds of armed robbery in Madoff Securities. B u t t his argument ignores the fact that, here, the defendants obtained the money they provided by engaging in conduct that could. be prosecuted as securities fraud. That the Trustee characterizes this conduct as wire fraud does not
U .S C C, A . N . 730 , 746 ,

10

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P .13/ 1 8

(finding that the relationship between Madoff Securities and an investor in a fund that fed money to Madoff Securities so attenuated that it s n a p s even the most flexible rubber hands") . N o n e t heless,

the Second Circuit has made it clear that the RICO Amendment does not apply only where a valid fraud. claim exists as an alternative to a RIco claim. ML s M K , 651 F,3d at 277 (barring a RIco claim "even where

a plaintif f cannot itself pursue a securities fraud. action against the defendant" ). Moreover, ae the Court's previous discussion of standing shows, the Court would have to altogether pervert existing doctrine to arrive at an interpretation of the RICO amendment that prevented those like the plaintiff in MLSMK, who were directly injured, from invoking RICO, but allowed the Trustee to sue for indirect injury based on the s ame f a c t s . Next, the Trustee argues that the Securities Exchange Act, and thus the RICO amendment, does not apply to financial products that, like those the defendants sold here, did not trade on an American exchange. Se e M o r r ison v. Nat'1 Australia Bank Ltd., 130 S. Ct. 2869,

2884 (2010) ("[I] t is in our view only transactions in securities l isted o n do m e s t i c ex c h a n g e s , a n d d o m e s t i c t r an s a c t i o ns i n ot h er

securities, to which 5 10(b) applies,"),' A c c ording to the Trustee,

RICO i t s e l f h a s i t s o w n e x t r a t e r r i t o r ia l l i m i t a t i o n s , se e N o r e x Petroleum L t d , v . A c c e s s I n d u s . , I n c . , 6 3 1 F . 3 d 2 9 , 3 3 ( 2 d C i r . 2 0 1 0 ) ;

see also Cedeno v. Intech Gr ., Inc., 733 F, Supp, 2d 471, 473

( S. D . N , Y , 2 0 1 0 ) , a f f ' d su b n om . Ce d e n o v . Ca s t i l l o , 2 0 1 2 WL 2 0 5 9 6 0 (2d

Cir, Jan, 25, 2012), but the Trustee argues that the "Money Out" component of the purported. enterprise included American participants, and thus that the enterprise has sufficient contacts with the United States to support a RICO claim.
11

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then, even though he can neither prosecute foreign securities fraud nor base a RZCO claim on domestic securities fraud, he can base a RICO claim on the prosecution of fozeign securities fraud . I n e f f e ct, the

Trustee would fashion a RICO exception to the Exchange Act's territorial reach, allowing artfully pled prosecution of foreign conduct that constitutes securities fzaud whenever such conduct potentially relates to alleged RICO enterprise activity occurring in the United States.' Th e implausibility of this exception is highlighted by the fact that, in order not to exceed RZCO"s territorial reach, the foreign securities fraud must constitute racketeering activity conducted in furtherance of an at least partly domestic enterprise, yet, in order not to offend the PSLRA, the e nterprise's domestic activity cannot include securities fraud . This

is too clever by half and would in many cases allow artful pleading to eviscerate either the territorial reach of the Securities Exchange Act o r the purpose of the "RICO Amendment" to the PSLRA , T h e Couzt

therefore rejects the Trustee's argument and holds that the Trustee cannot predicate the RICO claims against UniCredit, Pioneer, Bank Austria, and Profumo on any conduct related to the "Money Zn" component of the purported, scheme, because such conduct falls within
t he scop e o f the PSLRA's prohibition .

' As described below, the SAC does not claim that UniCredit, Pioneer, Bank Austria, oz' Profumo meaningfully participated in the allegedly domestic "Money Out" component of the Enterprise. For example, the allegation that Kohn "kicked back" $10 million to Pioneer in. order to "invest Primeo Fund through Herald Fund" clearly relates to the allegation that the defendants disguised the nature of
t he F u n d s ' i n v e s t me n t s wi t h Ma d o f f Se c u r i t i e s ,
12

SA C 5 4 7 9 .

Be c a u s e

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JUDGE RAKQFF

P.15r'18

Excluding all allegations related to the "Money In" component of the purported. scheme, the Trustee's remaining allegations utterly fail to state a claim under Fed. R, Civ. P. 12(b)(6), T o s u r vive a motion

to dismiss for failure to state a claim under Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'"
~lbal, ~Twombl , 1 29 S, C t. 1 93 7, 1949 55 0 U . S . 5 4 4 , 5 7 0 ( 2 0 0 9 ) ( C u o t l nS B e l l A t l . C o r

As h c r o ft v.
. v.

( 2 0 0 7 ) ) . Me re

co n c l us ory s t a t e ments in a

complaint and "formulaic recitation[s] of the elements of a cause of

action" ar e no t s u S S i c i e n t . ~T w o m b l , 55 0 ( ).S. at 5 5 5 , Zn th e c o n t e x t

of RlCO, to state a claim under 5 1962(c), a plaintiff must allege a defendant's "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." (2d C i r . 20 0 1) 496 (1985)). ( qu o t i n g Sed i ma , De F a l co v. Bernas, 244 F.3d. 286, 306 S . P , R, L , v . I mr ex Co . , 473 U . S . 4 79 ,

S i m i larly, to state a claim for RICO conspiracy under

5 1962(d), a plaintiff must allege "some factual basis for a finding of a conscious agreement among the defendants."
C le a r i n Ho u se , I nc . , 8 9 7 F . 2d 2 1 , 26 n . 4

H e c h t v . Commerce
19 9C ) )

( 2 d Ci r .

Yet, other than suggesting that Kohn plagiarized some of Bank Austria's research, the SAC provides almost no indication that UniCredit, Pioneer, Bank Austria, and Profumo meaningfully participated in the "Money Out" component of the purported enterprise.

such alleged disguises and payments perpetuated the "Money In"

d i s r e g a r d t h em . 13

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See SAC Ex. B (suggesting only that Bank Austria received. a $2,000 transfer from Infovaleur in 2002). Choosing an example at random, the SAC alleges that UniCredit e stablished three insurance companies in Liechtenstein. SAC $ 498.

Kohn allegedly communicated with UniCredit officials about these companies and, through Bank Medici and HAM, ultimately invested $5.3 mil l i on i n t h em . I d , f[tt 49 8- 5 0 3 . Non et he l es s , t he c r ea t i on a nd

funding of companies does not qualify as a predicate offense under RICO. C l a i m ing that UniCredit's actions did constitute such an

offense, the Trustee alleges that "[o] n information and belief," UniCredit allowed Kohn to use these companies "as a mechanism to transfer stolen Customer Property from Bank Medici and HAM to a jurisdiction remote from the impending . . . collapse" of Madoff Securities. Id . $ 5 0 3. M o r e o v e r, without providing additional

detail, the Trustee alleges that these companies "triggered a criminal investigation in Liechtenstein," Id , $ 5 0 6. T h e s e a llegations have an t i ~rbal find

exactly the conclusory chazacter that ~Twombl inadequate. U n d er ~Twombl,

wh e ze several difterent theoz ice might

explain the same conduct, a complaint must provide a factual basis for the specific theory on which its legal claims rely. Se e ~Twombl, 5 5 0

U. S. at 557 (" LW] hen allegations of parallel conduct are set out in order to make a 5 1 claim, they must be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action."). H e r e , the

Trustee has made factual allegations concerning only the defendants'

F EB-21-281 2

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JUDGE RAKQFF

P.17r'18

creation and financing of three companies. interpretation of this conduct

T o j u s tify his Chosen

i. e,, that Kohn and UniCredit Created

and financed these companies in order to hide assets they knew Madoff Securities had stolen from customers the Trustee relies on "information and. belief" and vague references to foreign criminal investigations, references that mention neither what conduct prompted the investigation, nor what crimes foreign authorities alleged, nor even that the investigation related, in any way, to UniCredit's evasion of claims by Madoff Securities' customers. Those of the Trustee's allegations that do not relate to the "Money In" component of the purported enterprise all suffer from this same defect: r a t her than using factual allegations to show that Bank

Austria, UniCredit, pioneer, and Profumo conducted the affairs of an enterprise through a pattern of racketeering activity, the SAC begs the fundamental question, invoking the specter of a purported enterprise in order to give a sinister cast to its paltry, and otherwise unexceptional, factual allegations. A s a r e s u lt, the

conduct the Trustee alleges lacks the "further factual enhancement" it needs to suggest that these defendants engaged in racketeering act i v i t y , mu c h l es s t ha t s u ch ac t i v i t y c on s t i t u t ed a p at t e r n o r t h at

defendants Conducted the larger enterprise that the Trustee posits,

~Twomhl , 55 0 U ,s. at 55 7. Fo r th e s a m e z 'easoos, t he T r u s t e e ' s

allegations fail to provide "some factual basis for a finding of a conscious agreement among the defendants,"
M mt . , I n c . v , Sa t i n wo o d , I nc , ,

S e e F i rst Ca ital Asset

182 ( 2 d Ci r . 2 0 0 4 )

3 B5 F . 3 d 1 5 9 ,

F EB-21-281 2

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JUDGE RAKQFF

P.18r'18

(" Finally, because Plaintiffs did not adequately allege a substantive violation of RICO[,] the District Court properly dismissed [a

parallel claim alleging] a RICO conspiracy in violation of 18 U,S,C, 5 1962(d).") . Thus, stripped of allegations relating to the "Money In" component of the purported scheme, the SAC fails to state a claim under either 5 1962(c) or g 1962(d), and the Court dismisses Counts One an d T w o a c c o r d i ng l y .

Zn sum, for the reasons stated above, the Court hereby dismisses, with prejudice, Counts One,, Two, Twenty, Twenty-Qne, and Twenty-Two of t he SAC against UniCredit, Pioneer, Bank Austria, and Profumo . Court further directs the return of what remains of advezsary proceeding No, 10-05411 (BRL) to the Bankruptcy Court for furthez proceedings consistent with this Memorandum Order . T h e C l erk of the The

Court is oz'dez'ed to close docket numbers thirty-eight, forty, and forty-fouz' on the docket of this case,
SO ORDERED. J S , RA F, U. S .D .J .

D ated :

New York , New York

February +

, 20 11

16