In re J.P. Jeanneret Associates Inc., No. 09 Civ. 3907(CM).

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Writing for the CourtDECISION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS THE SECOND AMENDED CLASS ACTION COMPLAINT
Citation769 F.Supp.2d 340
PartiesIn re J.P. JEANNERET ASSOCIATES, INC., et al.This Document Relates To: Securities Actions.
Decision Date31 January 2011
Docket NumberNo. 09 Civ. 3907(CM).

769 F.Supp.2d 340

In re J.P. JEANNERET ASSOCIATES, INC., et al.This Document Relates To: Securities Actions.

No. 09 Civ. 3907(CM).

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

Jan. 31, 2011.


[769 F.Supp.2d 346]

Amy C. Williams–Derry, Derek W. Loeser, Havila C. Unrein, Lynn Lincoln Sarko, Havila C. Unrein, Lynn Lincoln Sarko, Keller Rohrback L.L.P., Seattle, WA, Barbara J. Hart, Stephen Lowey, Deborah A. Rogozinski, Thomas Michael Skelton, Todd Seth Garber, Lowey Dannenberg Cohen & Hart, P.C., White Plains, NY, David Steven Preminger, Keller Rohrback L.L.P., Milo Silberstein, Dealy & Silberstein, LLP, New York, NY, Shannon O. Lack, Edward W. Ciolko, Joseph H. Meltzer, Peter H. Levan, Jr., Shannon O. Lack, Cheri R. Tolin, Barroway Topaz Kessler Meltzer & Check, LLP, Radnor, PA, for Plaintiffs.Brian E. Whiteley, Carolyn Anne Marcotte, Hiscock & Barclay, LLP, Boston, MA, Gabriel Mark Nugent, Hiscock & Barclay, LLP, Evan Glassman, Steptoe & Johnson, LLP, Jeffrey A. Rosenthal, Lewis J. Liman, Cleary Gottlieb Steen & Hamilton, LLP, New York, NY, John Donald Cook, Hiscock & Barclay, LLP, Syracuse, NY, Nowell D. Bamberger, Steven J. Kaiser, Cleary Gottlieb Steen & Hamilton LLP, Jeffrey E. McFadden, Steptoe & Johnson, LLP, Stephen Aaron Silverman, United States Dept. of Labor, Washington, DC, for Defendants.

DECISION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS THE SECOND AMENDED CLASS ACTION COMPLAINT
McMAHON, District Judge:
INTRODUCTION

This is one of a series of actions (all pending before different judges of this court) in which investors in so-called “feeder—funds” funds that invested client assets with Bernard J. Madoff—seek to recover from those feeder funds and their fiduciaries.

In this case, the defendants fall into three groups: Ivy Asset Management and related parties, including Ivy's principal, Lawrence Simon (the “Ivy Defendants”); and John P. Jeanneret and entities associated with him (the “Jeanneret Defendants”); and Margolin (the “Accounting Defendants” or “Margolin Defendants”). Plaintiffs also sue the Bank of New York (“BONY”), which acquired Ivy in 2000.

In deciding these motions, the Court has the advantage of being able to refer to a thorough and well-reasoned decision by my colleague, The Hon. Leonard B. Sand, who in the main denied motions to dismiss virtually identical claims against the Ivy and Jeanneret Defendants in cases relating to another of the Madoff feeder funds, Beacon Associates. Judge Sand also dismissed analogous claims against a different accounting firm and BONY.

The Margolin Defendants' motion to dismiss is granted; the Jeanneret Defendants' motion to dismiss the federal securities law claims against them is denied; the Ivy Defendants' motion to dismiss the federal securities law claims against them is granted in part and denied in part. The various state law claims are disposed of in the same manner that Judge Sand disposed of identical claims in the Beacon Associates litigation.

BACKGROUND 1
I. Statement of Factual AllegationsThe Madoff Scheme

As Judge Sand wrote in his recent opinion and order in

[769 F.Supp.2d 347]

In re Beacon Associates Litigation, 745 F.Supp.2d 386 (S.D.N.Y.2010), the basic facts surrounding Madoff's historic Ponzi scheme are by now well known. In the interest of brevity, I will not repeat them here, but simply adopt Judge Sand's description of the Madoff fraud.

Plaintiffs

The named Plaintiffs in the securities class actions represent two classes of investors.

The first class, known as the “Income Plus Class,' ” is made up of persons who invested in a hedge fund called the Income–Plus Investment Fund, which was promoted through Offering Memoranda (OMs) that were issued in 1993, and again in 2003. (December 17, 2010 Letter from Barbra Hart (“Hart Letter”) at 1.)

The second class, the so-called Direct Investor Class, is made up of persons who entrusted money to John P. Jeanneret Associates (JPJA) pursuant to Discretionary Investment Management Agreements (“DIMAs”), with the understanding that the money so entrusted would be invested with Madoff or his enterprise, Bernard Madoff Investment Securities (“BMIS”). ( Id. at 2–3.) To the extent that persons who had DIMAs with JPJA invested in Madoff by a more circuitous route—as, for example, by having JPJA place them into Beacon Associates or Income Plus, which in turn invested in/with Madoff—such individuals are not members of the Direct Investor Class. ( Id. at 2.) Although Plaintiffs counsel refers to this class as the “Ivy Direct Investor Class,” a more appropriate moniker, and the one this court will use, is the JPJA Direct Investor Class.

Defendants

The Ivy Defendants: Ivy Asset Management Corp., and later its successor in interest, Ivy Asset Management, LLC, were investment advisors to the Income–Plus Fund. (Second Amended Class Action Complaint (“SCAC”) ¶ 1.) Ivy was founded in 1983 by Lawrence Simon and Howard Wohl, who are also named as Defendants in this action. Ivy is a registered investment advisor. It serves as an investment advisor to asset managers and other investment advisors, and it manages the assets of high net worth individuals and institutions. ( Id.) Ivy also maintains and manages certain proprietary Funds of Funds. ( Id. ¶¶ 36–38.)

Beginning in or about 1987 and continuing until around 2000, Ivy invested the assets of some of its proprietary funds with Madoff. (N.Y. AG Compl. ¶ 31.)

Ivy was acquired by Defendant Bank of New York Mellon Corp. (BONY) in October 2000. ( Id. ¶ 7.)

Other Ivy-related Defendants include various individuals who worked for Ivy during the late 1990s and into the following decade:

Adam Geiger who began working at Ivy in 1997 and eventually served as Ivy's Chief Investment Officer until at least May 2006. ( Id. ¶ 39.)

Jeffrey Lindenbaum who served as Ivy's Chief Financial Officer from before 2000 until March of 2001. ( Id. ¶ 40.)

John Rogers, who began working at Ivy in July 2000, and eventually served as Managing Director in the Ivy Investment Products Group until March of 2004. ( Id. ¶ 41.)

[769 F.Supp.2d 348]

Sean Simon, who began working at Ivy in July of 2000, and eventually served as Managing Director in the Ivy Investment Products Group until April 2007. ( Id. ¶ 42.)

Kevin Bannon, who served as a member of the Ivy Board of Directors and Chief Investment Officer from sometime prior to March 31, 2004 until April 2007. ( Id. ¶ 43.)

Steven Pisarkiewcz, who served as Chairman of the Ivy Board of Directors from July 2003 until April 2007. ( Id. ¶ 44.)

Robert Meschi, who began working at Ivy in January 2000 in a position referred to as the “Director of Research” and eventually served as a Director of Ivy Investments from April 2002 until May 2006. ( Id. ¶ 45.)

Susan Rabinowitz, who served as Ivy's Vice President of Investments from 2003 until March 2004. ( Id. ¶ 46.)

Alan Chuang, who served as Ivy's Director of Investments and Head of Portfolio Management from January 2006 until May 2006. ( Id. ¶ 47.)

Gregory Van Inwegen who, from January 2007 until after December 2008, served as a Director of Ivy's Investments Quantitative Research and Risk Management division and ultimately Managing Director and Chief Investment Risk Officer of Ivy. (SCAC ¶ 48.)

Sean Cumiskey who, from January 2006 until after December 2008, served as Managing Director, Head of Ivy's Investment Strategies Group, Capital Markets Coverage Team, and as a member of the Manager Approval Committee. ( Id. ¶ 49.)

Stuart Davies who from January 2006 until sometime before January 2009, worked in numerous positions at Ivy including Managing Director and Head of Ivy's Investments in Europe and Asia, as a Member of Ivy's Manager Approval Committee, and Global Head of Investments. ( Id. ¶ 50.)

Joseph Burns, who worked at Ivy from January 2006 until after December 2008 eventually serving as Ivy's Director of Investments and Head of Long/Short Equity. ( Id. ¶ 51.)

Mark Santero, who served as a Managing Director in Ivy's Investments from January 2006 until February 2007 and also as a member of Ivy's Manager Approval Committee. ( Id. ¶ 52.)

Peter Noris, who served as Ivy's Chief Investment Officer from February 2007 until sometime after March 2008 and as chair of Ivy's Manager Investment Committee. ( Id. ¶ 53.)

Farzine Hachemian, who worked at Ivy from May 2007 until December 2008 and, starting March 2008, headed Ivy's Portfolio Management Group. ( Id. ¶ 54.)

Scott Wennerholm, who served on Ivy's Board of Directors from March 2008 until December 2008. ( Id. ¶ 55.)

Jonathan Little, who served on Ivy's Board of Directors from March 2008 until December 2008. ( Id. ¶ 56.)

Ronald P. O'Hanley, who served on Ivy's Board of Directors from March 2008 until December 2008. ( Id. ¶ 57.)

The Jeanneret Defendants: In the late 1980s, Simon met John P. Jeanneret, who, through his company, J.P. Jeanneret Associates, Inc., (JPJA), offered asset management and investment consulting services to upstate New York union pension and welfare funds. Paul L Perry, who is also named as a defendant in this action, was Jeanneret's associate and a director of JPJA. ( Id. ¶¶ 33–35.)

The Accounting Defendants: Margolin, Winer & Evens LLP (“Margolin”) was the accounting firm retained as the independent auditor to the Income Plus Fund. In its role as auditor of the Income Plus Fund. Margolin regularly issued audit

[769 F.Supp.2d 349]

opinions regarding the financial statements issued by Income Plus. (SCAC ¶ 61.)

Ivy/Jeanneret Contract

In or about 1990. Ivy introduced Jeanneret to Madoff. The Second Amended Class Action Complaint does not allege whether Jeanneret sought the introduction or if the idea originated with Ivy.

In 1991, Ivy and JPJA entered into an “Consulting Agreement” pursuant to which JPJA agreed to pay Ivy 50% of any fees that JPJA earned by placing investors with Madoff or other Ivy-recommended investment managers. (SCAC ¶ 80, 81, 161–162.) If the number of JPJA clients who invested with...

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66 practice notes
  • In re Facebook, Inc., IPO Sec. & Derivative Litig., MDL No. 12-2389
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • December 11, 2013
    ...the time they were made, when [a Defendant] learn[s] that its prior statement . . . [i]s untrue." In re J.P. Jeanneret Assoc., Inc., 769 F. Supp. 2d 340, 375 (S.D.N.Y. 2011) (having represented an enterprise as legitimate, defendant had a continuing obligation to apprise the class of inform......
  • In re Facebook, Inc., MDL No. 12–2389.
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • February 14, 2014
    ...at the time they were made, when [a Defendant] learn [s] that its prior statement ... [i]s untrue.” In re J.P. Jeanneret Assoc., Inc., 769 F.Supp.2d 340, 375 (S.D.N.Y.2011) (having represented an enterprise as legitimate, defendant had a continuing obligation to apprise the class of informa......
  • Balestra v. ATBCOIN LLC, 17-CV-10001 (VSB)
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • March 31, 2019
    ...omitted). "In fact, a finding of horizontal commonality requires a sharing or pooling of funds." In re J.P. Jeanneret Assocs., Inc. , 769 F.Supp.2d 340, 359 (S.D.N.Y. 2011) (quoting Revak , 18 F.3d at 87 ); see also Kaplan v. Shapiro , 655 F.Supp. 336, 339–40 (S.D.N.Y. 1987) ("Courts espous......
  • Sec. & Exch. Comm'n v. Constantin, No. 11 Cv. 4642(MHD).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • April 2, 2013
    ...and selling of securities is itself sufficient to satisfy the ‘in connection with’ requirement.” In re J.P. Jeanneret Assocs., Inc., 769 F.Supp.2d 340, 361–63 (S.D.N.Y.2011). The fact that Windham purported to invest client funds in the purchase of Leeward convertible promissory notes ( see......
  • Request a trial to view additional results
65 cases
  • In re Facebook, Inc., IPO Sec. & Derivative Litig., MDL No. 12-2389
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • December 11, 2013
    ...the time they were made, when [a Defendant] learn[s] that its prior statement . . . [i]s untrue." In re J.P. Jeanneret Assoc., Inc., 769 F. Supp. 2d 340, 375 (S.D.N.Y. 2011) (having represented an enterprise as legitimate, defendant had a continuing obligation to apprise the class of inform......
  • In re Facebook, Inc., MDL No. 12–2389.
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • February 14, 2014
    ...at the time they were made, when [a Defendant] learn [s] that its prior statement ... [i]s untrue.” In re J.P. Jeanneret Assoc., Inc., 769 F.Supp.2d 340, 375 (S.D.N.Y.2011) (having represented an enterprise as legitimate, defendant had a continuing obligation to apprise the class of informa......
  • Balestra v. ATBCOIN LLC, 17-CV-10001 (VSB)
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • March 31, 2019
    ...omitted). "In fact, a finding of horizontal commonality requires a sharing or pooling of funds." In re J.P. Jeanneret Assocs., Inc. , 769 F.Supp.2d 340, 359 (S.D.N.Y. 2011) (quoting Revak , 18 F.3d at 87 ); see also Kaplan v. Shapiro , 655 F.Supp. 336, 339–40 (S.D.N.Y. 1987) ("Courts espous......
  • Sec. & Exch. Comm'n v. Constantin, No. 11 Cv. 4642(MHD).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • April 2, 2013
    ...and selling of securities is itself sufficient to satisfy the ‘in connection with’ requirement.” In re J.P. Jeanneret Assocs., Inc., 769 F.Supp.2d 340, 361–63 (S.D.N.Y.2011). The fact that Windham purported to invest client funds in the purchase of Leeward convertible promissory notes ( see......
  • Request a trial to view additional results
1 books & journal articles
  • REGULATION OF DECENTRALIZED SYSTEMS: A STUDY OF UNISWAP.
    • United States
    • Harvard Journal of Law & Technology Vol. 35 Nbr. 1, September 2021
    • September 22, 2021
    ...make profits or sustain losses independent of the fortunes of other purchasers."). (122.) See In re J.P. Jeanneret Assocs., Inc., 769 F. Supp. 2d 340, 359 (S.D.N.Y. 2011) (quoting Revak, 18 F.3d at (123.) See Brodt v. Bache & Co., Inc., 595 F.2d 459, 461 (9th Cir. 1978) (citing Hector v......

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