Dusek v. JPMorgan Chase & Co.

CourtUnited States District Courts. 11th Circuit. United States District Court of Middle District of Florida
Citation132 F.Supp.3d 1330
Docket NumberCase No. 2:14–cv–184–FtM–29CM.
Parties Russell DUSEK, Marsha Peshkin, David Abel, Carol Difazio, as Tic, Ben Heller, Warren M. Heller, Norma Hill, Jaba Associates, Carol Kamenstein, David Kamenstein, Peter Kamenstein, Tracy Kamenstein, Peerstate Equity Fund, LP, Robert Getz, Rar Entrepreneurial Fund, Ltd., Judith Rechler, Sage Associates, Jeffrey Shankman, Lori Sirotkin, Stony Brook Foundation, Yesod Trust, Melvin H. and Leona Gale Joint Revocable Living Trust, Frederick and Susan Konigsberg Jtwros, Edyne Gordon As Executrix of the Estate of Allen Gordon, Joel Busel Revocable Trust, Sandra Busel Revocable Trust, Robert Yaffe, Palmer Family Trust, Martin Lifton, Marlene Krauss, Sloan Kamenstein, Sylvan Associates Limited Partnership, Joan Roman, Wilenitz Trust U/Art Fourth o/w/o Israel Wilenitz, Robert Roman, Jerome Goodman, Frank & Carol Difazio as Tic, Eugene Kissinger Trust u/a/d 12/6/99, Nancy Dver–Cohen Rev TST DTD 11/20/00, Nancy Dver–Cohen and Ralph H. Cohen Tstees, and Donald A. Benjamin, Plaintiffs, v. JPMORGAN CHASE & CO., JPMorgan Chase Bank N.A., J.P. Morgan Securities LLC, J.P. Morgan Securities, Ltd., John Hogan, and Richard Cassa, Defendants.
Decision Date17 September 2015

John Kevin Miller, Becker & Poliakoff, PA, Ft. Myers, FL, Helen Davis Chaitman, Becker & Poliakoff, LLP, New York, NY, Michael R. Whitt, Robins, Kaplan, Miller & Ciresi, LLP, Naples, FL, for Plaintiffs.

Carlos J. Canino, Eugene E. Stearns, Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson, PA, Miami, FL, Emil A. Kleinhaus, John F. Savarese, Stephen R. Diprima, Wachtell, Lipton, Rosen & Katz, New York, NY, for Defendants.



, Senior District Judge.

This matter comes before the Court on review of defendants' Motion to Dismiss the Second Amended Complaint (Doc. # 55) filed on October 17, 2014. Plaintiffs filed a Memorandum of Law in Opposition (Doc. # 57) on November 26, 2014. Defendants filed a Reply (Doc. # 61) on December 22, 2014, and plaintiffs filed a Surreply (Doc. # 64) on January 7, 2015. For the reasons set forth below, the motion is granted.


On March 28, 2014, thirty-eight of Bernard L. Madoff's (Madoff) former investors initiated this action against JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, J.P. Morgan Securities, Ltd. (collectively, "JPMC"), John Hogan, and Richard Casa (collectively with JPMC, "defendants") to recover the value of the securities listed on the account statements issued by Bernard L. Madoff Investment Securities LLC on November 30, 2008. Plaintiffs' Second Amended Complaint forth the following ten claims arising out of defendants' alleged participation in the biggest Ponzi scheme in history: (1) violations of Section 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"); (2) violation of the Florida Securities and Investor Protection Act; (3) aiding and abetting embezzlement; (4) aiding and abetting breach of fiduciary duty; (5) unjust enrichment; (6) breach of fiduciary duty; (7) commercial bad faith; (8) gross negligence; (9) violation of the federal civil Racketeer Influenced and Corrupt Organizations Act (RICO); and (10) violation of the Florida Civil Remedies for Criminal Practices Act. (Doc. # 52.) The underlying facts, as set forth in the Second Amended Complaint and the attached exhibits, are as follows:1

A. The Defendants

Defendant JPMorgan Chase & Co. (JPMorgan) is a federally-insured financial holding company incorporated under Delaware law with its principal place of business in New York. (Doc. # 52, ¶ 4.) JPMorgan operates six business segments: Investment Banking; Commercial Banking; Treasury and Security Services; Asset Management; Retail Financial Services; and Card Services. (Id. ¶ 22.) JPMorgan's activities are further divided among numerous divisions and groups that are located within or alongside these various business segments. (Id. ) Plaintiffs allege that JPMorgan does not operate its various business segments, divisions, and groups within the confines of separate legal entities. Rather, plaintiffs contend that JPMorgan "operates through many legal entities under the umbrella that is the financial holding company, JPMorgan Chase." (Id. )

JPMorgan's principal banking subsidiary is defendant JPMorgan Chase Bank, N.A. (Chase). (Id. ¶ 15.) Chase is a national banking association organized under the laws of the United States with its principal place of business in Ohio. Chase maintains offices in 23 states, including Florida. (Id. )

Defendant J.P. Morgan Securities LLC (JPM Securities (US)) is the principal non-bank subsidiary of JPMorgan and is organized under the laws of Delaware. (Id. ¶ 16.) JPM Securities (US) is responsible for JPMorgan's investment banking in the United States. JPM Securities (US) is registered with the SEC as a broker-dealer and investment adviser, and is a member of both the Securities Investor Protection Corporation (SIPC) and the Financial Industry Regulatory Authority (FIRA). (Id. ) Defendant J.P. Morgan Securities, Ltd. (JPM Securities (UK)) is an indirect subsidiary of JPMorgan and is organized under the laws of England. (Id. ¶ 18.) JPM Securities (UK) serves as JPMorgan's investment banking arm in the United Kingdom, through which it conducts security underwriting and engages in security dealings and brokerage activities. (Id. )

Defendant John Hogan (Hogan) began working for Chase Manhattan Bank in 1999 as a capital markets credit officer. (Id. ¶ 19.) After Chase Manhattan Bank and JPMorgan merged in September 2000, Hogan became responsible for the credit portfolio group, which managed the retained credit risk of Chase's Investment Bank. (Id. ) In January 2012, Hogan was named the Chief Risk Officer for all of JPMorgan and in June 2013, he became JPMorgan's Chairman of Risk. (Id. )

Defendant Richard Cassa (Cassa) was a Client Relationship Manager in the Broker/Dealer Group at Chase. (Id. ¶ 20.) Cassa was responsible for the accounts held by Madoff from approximately 1993 until his retirement in March 2008. (Id. )

B. JPMC's Legal Obligations

Congress enacted the Currency and Foreign Transactions Reporting Act of 1970, commonly known as the "Bank Secrecy Act," 31 U.S.C. §§ 5311

–5332, "in response to increasing use of banks and other institutions as financial intermediaries by persons engaged in criminal activity," Ratzlaf v. United States, 510 U.S. 135, 139, 114 S.Ct. 655, 126 L.Ed.2d 615 (1994). The Bank Secrecy Act mandates that federally-insured financial institutions, such as JPMorgan, take certain steps to ensure compliance with the Bank Secrecy Act and to guard against money laundering. 31 U.S.C. § 5318(a)(2).

In order to guard against money laundering through financial institutions, the Bank Secrecy Act provides that financial institutions must establish and maintain effective anti-money laundering compliance programs. 31 U.S.C. § 5318(h)(1)

. The compliance programs shall, at a minimum: (1) provide for a system of internal controls to assure ongoing compliance; (2) provide for independent testing for compliance to be conducted by national bank or savings association personnel or by an outside party; (3) designate an individual or individuals responsible for coordinating and monitoring day-to-day compliance; and (4) provide training for appropriate personnel. 31 U.S.C. § 5318(h)(1) ; 12 C.F.R. § 21.21(d).

The Bank Secrecy Act further provides that financial institutions are required "to report any suspicious transaction relevant to a possible violation of law or regulation." 31 U.S.C. § 5318(g)(1)

. The regulations promulgated under the Bank Secrecy Act provide that a transaction is reportable if it is "conducted or attempted by, at, or through the bank, it involves or aggregates at least $5,000 in funds or other assets, and the bank knows, suspects, or has reason to suspect that ... [t]he transaction involves funds derived from illegal activities," or that the "transaction has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction." 31 C.F.R. § 1020.320(a)(2).

A separate Bank Secrecy Act regulation provides that a bank must file a Suspicious Activity Report (SAR) when it detects any known or suspected federal criminal violation, or pattern of criminal violations, aggregating $5,000 or more in funds or other assets if the bank believes that it was used "to facilitate a criminal transaction, and the bank has a substantial basis for identifying a possible suspect or group of suspects." 12 C.F.R. § 21.11(c)(2)

. If a transaction involves or aggregates $25,000 or more in funds or other assets, a bank must file a SAR whenever it "detects any known or suspected Federal criminal violation, or pattern of criminal violations," even if "there is no substantial basis for identifying a possible suspect or group of suspects." 12 C.F.R. § 21.11(c)(3). Financial institutions satisfy their obligation to report such a transaction by filing a SAR with the Financial Crimes Enforcement Network (the "FinCEN"), a part of the United States Department of Treasury. 12 C.F.R. § 21.11(c) ; 31 C.F.R. § 1020.320(a)(1).

At all relevant times, JPMC had designated an executive to serve as the head of its anti-money laundering program and as the individual ultimately responsible for ensuring JPMC's ongoing compliance with its Bank Security Act obligations, including the filing of SARs when required. (Doc. # 52–1, p. 24.) As part of its anti-money laundering program, JPMC employed individuals in the United States and other countries that were responsible for filing SARs in the relevant jurisdiction. (Id. )

C. The Business of BLMIS

Bernard L. Madoff ran the largest known Ponzi scheme in history through Bernard L....

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