Lasala v. Bank of Cyprus Public Co. Ltd.

• Decision Date: 15 August 2007
• Docket Number: No. 06 Civ. 6673(CSH).,06 Civ. 6673(CSH).
• Citation: 510 F.Supp.2d 246
• Parties: Joseph P. LaSALA and Fred S. Zeidman, as Co-Trustees of the AremisSoft Corporation Liquidating Trust, Plaintiff, v. BANK OF CYPRUS PUBLIC COMPANY LIMITED, Defendant.
• Court: U.S. District Court — Southern District of New York

510 F.Supp.2d 246

Joseph P. LaSALA and Fred S. Zeidman, as Co-Trustees of the AremisSoft Corporation Liquidating Trust, Plaintiff, v. BANK OF CYPRUS PUBLIC COMPANY LIMITED, Defendant.

No. 06 Civ. 6673(CSH).

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

August 15, 2007.

COPYRIGHT MATERIAL OMITTED

Hal Mitchell Hirsch, Ronald Daniel Lefton, Greenberg, Traurig, LLP, New York, NY, for plaintiffs.

Sarah Loomis Cave, John Fellas, Hughes, Hubbard & Reed, LLP, New York, NY, for defendants.

MEMORANDUM OPINION AND ORDER

HAIGHT, Senior District Judge.

In this diversity action, plaintiffs seek to hold defendant Bank of Cyprus Public Company Limited ("Bank of Cyprus" or "the Bank") responsible for its alleged role in connection with a massive "pump and dump" scheme perpetrated by two corporate insiders of a software company, who fraudulently inflated the company's value and then sold their shares and funneled these funds through banks in Cyprus and elsewhere. In this motion defendant seeks to dismiss the complaint on three separate grounds: (1) forum non conveniens; (2) preemption of the claims by the Securities Litigation Uniform Standards Act, 15 U.S.C. §§ 77, 78 ("SLUSA"); and (3) failure to state a claim upon which relief may be granted pursuant to Fed.R.Civ.P. 12(b)(6). For the following reasons, I dismiss the complaint on the ground of forum non conveniens.

I. BACKGROUND

A. The Scheme Perpetrated by Kyprianou and Poyiadjis

Much of the following account is drawn from the Amended Complaint (the "complaint"), whose well-pleaded factual allegations are taken as true on this motion. AremisSoft Corporation ("AremisSoft" or "the Company") was a software company, incorporated in Delaware, whose main business was development and sale of computer software technology. Compl. ¶ 9. From about 1998 through July of 2001, Lycourgos Kyprianou and Roys Poyiadjis, two officers of the Company,¹ caused the Company to issue false public statements and regulatory filings representing to the public that it was experiencing rapid growth when in fact its growth nowhere neared the stated revenues. Id. ¶ 20. The two men caused AremisSoft to announce publicly that it had acquired other software companies of significant value, when, in reality, the companies were small and had been acquired for much less than the announced price. They fabricated records in support of these falsehoods. Id.

The effect of these fraudulent misrepresentations was that the value and profitability of the Company were perceived to be much greater than they actually were, and consequently the price at which the Company's shares were traded on the open market was artificially high. Kyprianou and Poyiadjis sold their shares at these inflated prices to investors who were not privy to their knowledge concerning the true value of the Company. Kyprianou also looted money directly from AremisSoft by converting tens of millions of dollars from AremisSoft to his own accounts. Id. ¶ 4.

By May 2001 attention began to be focused on AremisSoft for reporting inflated income. On May 17, the New York Times reported that the true value of an AremisSoft contract with the Bulgarian government was not the $37.5 million claimed by the Company but rather less than $4 million. Id. ¶ 24. By May 24, 2001, at least one class action lawsuit against AremisSoft and its directors had been filed. Id. On July 31, 2001, the day after AremisSoft was due to release its second quarter 2001 earnings, the Company announced that Kyprianou had resigned and that it was delaying the earnings release. On July 31, 2001, the Company was delisted from NASDAQ. Id. On or about October 4, 2001, the SEC sued Kyprianou and Poyiadjis in a civil injunction action, alleging that they had sold millions of shares of their AremisSoft stock in violation of U.S. securities laws. Id. ¶ 25. In an action before this Court, the SEC succeeded in freezing $175 million of Poyiadjis's proceeds lodged in bank accounts in the Isle of Man. In December 2001, an indictment was obtained against Poyiadjis in the Southern District of New York, and in June 2002, a superseding indictment was returned against Kyprianou, Poyiadjis, and M.C. Mathews, the top AremisSoft executive in India, on counts of securities fraud and money laundering, and conspiracy to commit both crimes. Id. ¶¶ 26, 29. On March 15, 2002, AremisSoft filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. Id. ¶ 27.

B. The Parties

Neither the swindlers or any of their co-conspirators, whose acts of fraud and theft are undisputed, are parties to this case. Kyprianou is in Cyprus, and Poyiadjis is awaiting sentencing in this Court, having pleaded guilty to fraud. See United States v. Poyiadjis et al., 01 Cr. 1177, 2002 WL 1941481 (S.D.N.Y. Aug.21, 2002). Defendant is a banking corporation with its principal place of business in Nicosia, Cyprus. Decl. Louis Pochanis in Supp. Def.'s Mot. Dismiss, dated Nov. 30, 2006 ("Pochanis Decl."), at ¶¶ 1, 4. The Bank operates 146 branches in Cyprus and is the leading financial services organization in Cyprus, with a market share in total banking system deposits and loans in Cyprus of over 25%. Id. ¶ 4. The Bank also operates more than 240 branches worldwide and maintains correspondent relationships with more than 2300 banks, which allow the Bank to engage in transactions in United States currency. See Compl. ¶¶ 12, 14. The Bank maintains a representative office in New York. Id. ¶ 11.

AremisSoft was a depositor of the Bank of Cyprus. Plaintiffs are co-trustees of the AremisSoft Corporation Liquidating Trust (the "Trust"), a Delaware trust formed pursuant to three orders by District Judge Pisano of the District of New Jersey in connection with AremisSoft's voluntary bankruptcy: (1) a July 2002 order confirming the First Amended Joint Plan of Reorganization of AremisSoft ("Plan of Reorganization"); (2) an August 2002 order approving a Class Action Settlement with AremisSoft; and (3) an August 2002 order correcting the Order and Final Judgment previously entered in respect of AremisSoft's Chapter 11 bankruptcy petition. Id. ¶ 5. The governing documents for the Trust are the Plan of Reorganization and the Liquidating Trust Agreement ("Trust Agreement").

This action seeks to pursue some of the claims assigned to the Trust. The Trust was assigned four categories of assets: (1) AremisSoft's pre-confirmation causes of action; (2) causes of action arising under the Bankruptcy Code; (3) proceed assets irrevocably transferred to the Trust pursuant to the Plan; and (4) investor claims. Pl.'s Mem. in Opp'n, at 4. The Trust beneficiaries are Softbrands, Inc., the successor corporation into which all the viable operating assets of AremisSoft were vested, and the former AremisSoft investors. Id. at 14. Plaintiffs state in their brief that "[w]hile the Trust is authorized to pursue litigation on behalf of its beneficiaries, including Softbrands — which, notably, is not a former investor but the corporate successor of AremisSoft — it also engages in other non-litigation activities consonant with those of any other post-confirmation trust. These activities include the collection of assets, liquidation of those assets, investment of the liquid assets, and distribution of the net proceeds to the Trust beneficiaries." Id.

C. The Allegations Against the Bank

This case, along with the related cases filed by the plaintiff Trustees against UBS, AG ("UBS") and Lloyds TBS Bank, PLC ("Lloyds"),² turns on the role of a bank in facilitating the fraud and/or the money laundering of one or both of the swindlers and their co-conspirators. In the captioned case against the Bank of Cyprus, Kyprianou is the central villain. The gravamen of the complaint is that "Defendant, knowingly and in breach of its duties and obligations to AremisSoft Corporation (`AremisSoft' or the `Company') as its depositor, allowed AremisSoft's former Chairman and CEO Lycourgos Kyprianou (`Kyprianou') to loot Company assets for Kyprianou's personal gain and benefit and to launder through bank accounts at Bank of Cyprus millions of dollars in proceeds of the massive, international fraud Kyprianou and his co-conspirators perpetrated on AremisSoft." Compl. ¶ 2.

The Bank of Cyprus administered at least eight accounts in the name of AremisSoft, as well as numerous accounts for AremisSoft affiliates and other alter ego companies controlled or owned by Kyprianou. Pl.'s Mem. in Opp'n, at 5; Compl. ¶¶ 3, 33-34. The Bank also extended a loan, secured by AremisSoft stock, to one of Kyprianou's alter ego companies. Id. ¶¶ 3, 41. The accounts in question were, in plaintiffs' words, "funded" by AremisSoft's accounts at Commerce Bank in New Jersey, and transactions in and out of them were facilitated by correspondent banks in New York. Pl.'s Mem. in Opp'n, at 5, Kyprianou and his wife also maintained numerous personal accounts at the Bank. Compl. ¶ 36.

The complaint details a number of transactions in which Kyprianou moved funds from AremisSoft accounts into accounts of alter ego companies for which he was the beneficial owner and/or into personal accounts. The following are particular transactions cited by plaintiffs:

• Kyprianou was the beneficial owner of the accounts of Southwood Management Ltd ("Southwood"), an alter ego entity. In 2000, the Southwood accounts at Bank of Cyprus received large deposits that were the proceeds of sales of AremisSoft stock, money which was then transferred to an account at HSBC in London jointly owned by Kyprianou and his wife. Kyprianou also transferred close to $12 million of AremisSoft's corporate cash to Southwood's bank accounts at Bank of Cyprus. Compl. ¶¶ 37, 38, 63; Pl.'s Mem. in Opp'n, at 5.

• Kyprianou controlled at least three bank accounts at Bank of Cyprus in the name of another alter ego entity called Semark Consultancy Services ("Semark"). In 2001, Kyprianou transferred more than $10 million of AremisSoft's corporate cash to these...