Berdeaux v. OneCoin Ltd.

• Decision Date: 20 September 2021
• Docket Number: 19-CV-4074 (VEC)
• Citation: Berdeaux v. OneCoin Ltd., 561 F.Supp.3d 379 (S.D. N.Y. 2021)
• Parties: Donald BERDEAUX and Christine Grablis, Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. ONECOIN LTD.; Ruja Ignatova; Sebastian Greenwood; Mark Scott; David Pike; Nicole J. Huesmann; Gilbert Armenta; and The Bank of New York Mellon Corporation, Defendants.
• Court: U.S. District Court — Southern District of New York

561 F.Supp.3d 379

Donald BERDEAUX and Christine Grablis, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,

v.ONECOIN LTD.; Ruja Ignatova; Sebastian Greenwood; Mark Scott; David Pike; Nicole J. Huesmann; Gilbert Armenta; and The Bank of New York Mellon Corporation, Defendants.

19-CV-4074 (VEC)

United States District Court, S.D. New York.

Signed September 20, 2021

Donald J. Enright, Levi & Korsinsky LLP, Washington, DC, Michael Louis Braunstein, Kantrowitz Goldhamer & Graifman, P.C., Chestnut Ridge, NY, Adam M. Apton, Levi & Korsinsky, LLP, New York, NY, for PlaintiffChristine Grablis.

Larry Howard Krantz, Hugh Daniel Sandler, Krantz & Berman LLP, New York, NY, for DefendantGilbert Armenta.

Gilbert Armenta, Pro Se.

OPINION AND ORDER

VALERIE CAPRONI, United States District Judge:

Since the rapid ascension of Bitcoin in the early 2010s, each month seems to bring with it the emergence of a new cryptocurrency that captures the attention of investors across the world.Touted for benefits including decentralization, technological advancement, and security, cryptocurrencies also carry with them risk — and not just in the sense of frequent and significant fluctuations of value inherent in many financial products.As a new and ever-developing concept, and with new cryptocurrencies popping up like dandelions, cryptocurrencies have evaded significant regulation, raising the risk for fraud and other misconduct.So it is with OneCoin, the alleged Ponzi scheme that masqueraded as a cryptocurrency that is at the heart of this case.On these motions, however, the central fraud takes a back seat to the conduct of several individual Defendants and a New York bank, whose assistance allegedly helped the primary perpetrators of the OneCoin fraud profit from the scheme.

Named Plaintiffs("Plaintiffs") invested in OneCoin offerings and report having suffered losses from their investments totaling in the hundreds of thousands of dollars.¹They seek to represent a class of investors consisting of all individuals who invested in a OneCoin offering between April 2014 and March 2018 and who suffered financial losses.Plaintiffs’ Second Amended Complaint ("SAC") asserts eleven claims against eight defendants, whom Plaintiffs silo into smaller groups.See generallySAC, Dkt. 125.The "OneCoin Defendants" comprise the corporate entity, OneCoin Ltd., and OneCoin's founders, Ruja Ignatova and Sebastian Greenwood, whom Plaintiffs label the "Founder Defendants."Against the OneCoin Defendants, Plaintiffs assert claims arising under the federal securities laws, common law claims for fraud, fraudulent misrepresentation, negligent misrepresentation, conversion, and civil conspiracy, and breach of contract claims.Seeid. at 1–2.The "Scott Group Defendants" comprise Mark Scott, David Pike, Nicole Huesmann, and Gilbert Armenta, against whom Plaintiffs assert claims for aiding and abetting fraud, unjust enrichment, and civil conspiracy.²Seeid.Finally, Plaintiffs sue The Bank of New York Mellon Corporation("BNYM") for aiding and abetting fraud and commercial bad faith.³Seeid.

While Plaintiffs accuse the OneCoin Defendants of carrying out the fraudulent cryptocurrency scheme, Plaintiffs seek to hold the Scott Group Defendants liable for allegedly assisting the fraud by laundering millions of dollars of fraudulently obtained funds.Similarly, Plaintiffs sue BNYM for allegedly facilitating the Scott Group Defendants’ money laundering.

Defendants Scott, Pike, and Huesmann each moved to dismiss the complaint for lack of personal jurisdiction, pursuant to Federal Rule of Civil Procedure 12(b)(2), and for failure to state a claim, pursuant to Rule 12(b)(6).SeeNotices ofMot., Dkts. 152, 155, 160.BNYM has moved to dismiss the complaint against it for failure to state a claim pursuant to Rule 12(b)(6).SeeNotice ofMot., Dkt. 157.For the following reasons, the motions to dismiss are GRANTED.

BACKGROUND⁴

OneCoin Ltd., a foreign corporation headquartered in Dubai, with offices in Bulgaria, the United Arab Emirates, and Hong Kong, was founded in 2014 by DefendantsRuja Ignatova and Sebastian Greenwood.SAC ¶¶ 21–23, 99.Investors in OneCoin received packages of "educational materials" that provided access to tokens, which investors could purportedly use to mine for OneCoins, the actual cryptocurrency.Id.¶¶ 24, 101, 107–108, 111.OneCoin operated pursuant to a multi-level marketing scheme, in which members were paid commissions for recruiting others to invest in OneCoin offerings.Id.¶¶ 25, 125–127, 136.Between 2014 and 2016, OneCoin's referral program and recruitment efforts led OneCoin to experience immense success, generating more than €3.3 billion in sales revenue and €2.2 billion in profits.Id.¶ 25.

Sebastian Greenwood oversaw OneCoin's marketing efforts.Seeid.¶¶ 33, 36–38, 41.One of Greenwood's primary deputies was Simon Le, a California domiciliary living in either Vietnam or Dubai, who actively promoted OneCoin to investors, including to some in New York City.Id.¶¶ 41, 76, 148.

Plaintiffs allege that, despite appearances to the contrary, OneCoin has never been a true cryptocurrency — or even a cryptocurrency at all.Instead, OneCoin has at all times been a multi-level marketing scheme promoting and selling a fake cryptocurrency under the name OneCoin.According to Plaintiffs, OneCoin was "nothing more than an old-fashioned Ponzi scheme cloaked in a thin façade of new technology," in which investment returns paid out to investors were not generated based on the rising valuation of the OneCoin cryptocurrency but by redirecting incoming investments from new investors.Id.¶¶ 3–4, 102–103, 153–154, 156.The "educational materials" investors obtained were plagiarized from free internet sources including Wikipedia.Id.¶ 109.The OneCoin currency never traded on an actual exchange or blockchain; instead, OneCoin manipulated an internal "exchange" by setting prices and artificially manufacturing volatility.Id.¶¶ 104–105, 123.Similarly, no mining of OneCoins ever occurred; OneCoin Defendants instead created new OneCoins at will using "an Excel worksheet masquerading as a blockchain."Id.¶ 117.⁵

While the OneCoin Defendants were the primary fraudsters, they enlisted the assistance of numerous others to launder the fraudulently-obtained proceeds.⁶Plaintiffs allege that the Scott Group Defendants used shell companies and bank accounts all over the world to launder more than $400 million in criminal proceeds derived from the OneCoin fraud, in exchange for which they received more than $60 million.Seeid.¶¶ 6–8, 45, 158, 171–72.

The purported leader of the Scott Group was Mark Scott, a Florida lawyer licensed to practice in both Florida and New York.Seeid.¶¶ 44–46.Scott first met Ignatova in September 2015.Id.¶ 162.Scott's primary role in the fraud appears to have been creating and operating foreign hedge funds, which were used to launder OneCoin proceeds.Seeid.¶ 44.Assisting Scott in this venture was David Pike, also a resident of Florida.Id.¶ 49.Specifically, in February 2016, Scott registered MSS International Consultants Limited("MSSI") — the sole two directors of which were Scott and Pike — in the British Virgin Islands; Scott and Pike opened numerous investment funds through MSSI to facilitate their money laundering activities.Id.¶ 164.In particular, they registered funds in the British Virgin Islands, the Cayman Islands, and Ireland (collectively the "Fenero funds").Id.¶ 164 & n.4.The Fenero funds received and transmitted by wire hundreds of millions of euros in 2016 and 2017.Several of the wire transfers involved bank accounts associated with the OneCoin fraud; the wire transfers spanned the globe, involving banks in Singapore, Bulgaria, Germany, and Ireland.Seeid.¶¶ 165, 167, 169.Although Scott originally enlisted a separate company to provide administration services for the Fenero funds, when that company raised questions regarding the origin of certain funds transferred into Fenero bank accounts, Scott terminated the relationship.Id.¶ 168.Thereafter, Scott directed banks, including some that transact significant business in the Southern District of New York, to transfer money that was the proceeds of the OneCoin fraud; he structured the transactions in order to evade anti-money laundering ("AML") procedures.Seeid.¶¶ 166–168, 170.

Plaintiffs provide detail regarding only one money transfer in which Scott was involved.In July 2016,⁷ Scott, on behalf of Ignatova, disguised the transfer of OneCoin fraud proceeds by misrepresenting that the money was the proceeds of a $30 million loan; he did so to evade detection by banks and to convince financial institutions to transfer the funds.Id.¶ 184.The transfer was to be made to an account at DMS Bank, a Cayman bank, but was routed through a BNYM correspondent bank account located in Manhattan.⁸Id.¶ 185.Scott knew of BNYM's involvement in the transfer because he forwarded himself an email containing the incoming wire instructions for the transfer.Id.Plaintiffs allege generally that, in addition to the July 2016 transaction, Scott and co-Defendant Huesmann "knowingly directed their money laundering efforts [through]Defendant BNY[M]."Id.¶ 175.

Nicole Huesmann is a Florida lawyer who, under the guise of providing routine legal services, allegedly assisted Scott launder the fraud proceeds.Id.¶ 52.Plaintiffs allege that Huesmann participated in deals structured to launder funds between OneCoin-controlled entities, and she facilitated Scott's investment of laundered proceeds in real estate and luxury items.Seeid.¶ 53.By repatriating funds fraudulently obtained as part of the OneCoin scheme, Huesmann helped Scott use fraud proceeds to acquire, inter alia , three Massachusetts homes, a yacht, and multiple luxury cars.Seeid.¶¶ 171, 174, 176–178.

According to the complaint, BNYM, a bank headquartered in New York, assisted the...