Pension Committee v. Banc of America Securities
| Decision Date | 05 January 2009 |
| Docket Number | No. 05 Civ. 9016 (SAS).,05 Civ. 9016 (SAS). |
| Citation | 592 F.Supp.2d 608 |
| Parties | The PENSION COMMITTEE OF the UNIVERSITY OF MONTREAL PENSION PLAN, et al., Plaintiffs, v. BANC OF AMERICA SECURITIES, LLC, Citco Fund Services (Curacao) N.V., The Citco Group Limited, International Fund Services (Ireland) Limited, PricewaterhouseCoopers (Netherland Antilles), John W. Bendall, Jr., Richard Geist, Anthony Stocks, Kieran Conroy, and Declan Quilligan, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Scott Berman, Esq., Anne E. Beaumont, Esq., Amy C. Brown, Esq., Robert S. Landy, Esq., Lili Zandpour, Esq., Friedman Kaplan Seiler & Adelman LLP, New York, NY, for the Plaintiffs.
Lewis Brown, Esq., Dyanne E. Feinberg, Esq., Terence M. Mullen, Esq., Elizabeth A. Izquierdo, Esq., Gilbride, Heller & Brown, P.A., Miami, FL, Eliot Lauer, Esq., Michael J. Moscato, Esq., Curtis, Mallet-Prevost, Colt & Mosle LLP, New York, NY, for Defendants Citco Group and the Citco Defendants.
I. INTRODUCTION
A group of investors brings this action to recover losses stemming from the liquidation of two British Virgin Islands ("BVI") based hedge funds in which they held shares: Lancer Offshore, Inc. ("Lancer Offshore") and OmniFund Ltd. ("Omni-Fund" and together with Lancer Offshore, the "Lancer Funds" or the "Funds").1 Plaintiffs bring various claims under federal securities laws and common law claims under New York law against former directors, administrators, the auditor, and the prime broker and custodian of the Funds.2 Following the close of discovery, former administrator, Citco Fund Services (Curacao), N.V. ("Citco NV"), its parent company, The Citco Group Limited ("Citco Group") and former Lancer Offshore directors who were Citco officers ("Citco Directors," and collectively with Citco NV, the "Citco Defendants") now move for partial summary judgment with respect to all claims against them.3 For the reasons that follow, their motions for partial summary judgment are granted in part and denied in part.
II. BACKGROUND
This action involves the claims of twenty sophisticated investors5—some domestic, but mostly foreign6—who allege damages in connection with their purchase and retention of shares in the Lancer Funds.7 In July 2003, the Funds were placed into receivership in the Southern District of Florida.8 Plaintiffs allege that almost all of the capital invested in the Funds—totaling over $550 million—has been lost.9
The Lancer Funds were managed by Lancer Management Group LLC and its principal, Michael Lauer.10 Lancer Management's principal place of business is New York City.11 Lauer and Lancer Management are not parties in this action,12 but were significant actors in the current action.
The Funds were administered until late 2002 by Citco NV,13 a business entity organized in the Netherlands Antilles, with places of business in Curacao, Netherlands Antilles and the British Virgin Islands.14 Citco Group is Citco NV's parent company.15 Citco Group is an "integrated financial services holding company that operates through numerous subsidiaries, including defendant Citco NV."16 Its principal place of business is in the Cayman Islands.17
The Citco Directors are three Citco N.V. officers—Anthony Stocks, Declan Quilligan, and Kieran Conroy—who also "served as directors of Lancer Offshore at different points in time."18 Stocks served as a director of Lancer Offshore from 1998 until 2001, when he resigned as a director of the Fund.19 Conroy, a managing director of Citco NV, resides in Dublin, Ireland, and was a director of Lancer Offshore from 1998 until early 2002.20 Quilligan was a director of Lancer Offshore from 2001 to early 2002 while he was General Manager and a Managing Director of Citco NV.21 While engaged in those positions, he was a resident of Curacao, Netherlands Antilles.22
Citco NV was retained by the Lancer Funds to perform certain administrative duties as detailed in the Administrative Services Agreements ("ASAs").23 These duties included the computation of the monthly net asset values ("NAVs") and the "independent[] pricing [of] the fund by reference to ... independent pricing sources, or as agreed by the Board of Directors pursuant to the [Private Placement Memorandum]."24 In addition to sending out monthly NAV statements, Citco NV was responsible for responding to investor inquiries.25 Lancer Offshore's Private Placement Memorandum ("PPM") also provided that Citco NV's obligations included "maintaining a registry of the shares, accepting payment for subscriptions, performing acts relating to redemptions, and keeping the financial books and records of the [F]unds ...."26
According to the PPM, the Fund's NAV is equal to the gross assets minus the gross liabilities of the Fund.27 The PPM also provides that "[s]ecurities [that are] listed on a securities or exchange market are to be valued at their last sales prices on the date of determination."28 Finally, the PPM directs that the pricing of unlisted securities was to be based "upon the advice of the Fund's Investment Manager and Prime Broker."29
The PPM indicates that the Funds were directed at sophisticated investors who were aware that the Funds invested primarily in small-cap companies and that many of the investments would lack liquidity.30 Despite warnings in the PPM,31 the Funds were able to attract a number of institutional investors.32
Beginning in March 2000, the Funds began to lose money, but such losses were hidden from investors through a scheme allegedly perpetrated by Lauer and Lancer Management.33 Under the scheme, the Funds would make large investments in shell companies for "pennies per share, or sometimes nothing at all."34 Prior to the end of the month, the Fund would purchase additional shares of these companies for higher prices than the initial acquisition prices.35 Lauer and Lancer Management would then use these artificial market prices to inflate the NAVs of these investments and have them reported to investors each month.36 Because the management fees paid to Lancer Management were based on the NAVs of the Funds, higher NAVs also meant increased fees for Lauer.37
Beginning in June 2001, PricewaterhouseCoopers NA ("PWC NA"), the Funds' independent auditor, began questioning Lauer's valuation methodology with respect to warrants while auditing the 2000 financial statements.38 PWC NA sent its analysis of warrant valuations to Citco NV, indicating concerns with the NAVs calculated by Citco NV.39 Thereafter, Citco NV became more actively involved in questioning the valuations of the portfolio securities.40 Citco NV's valuation concerns were first communicated to William Keunen, Division Director of Fund Services, by Quilligan in September 2001.41 Keunen eventually informed the Executive Committee of Citco Group of the problems in May 2002.42 Citco NV finally resigned as administrator of Lancer Offshore on July 16, 2002 and as administrator of OmniFund on November 30, 2002.43
Plaintiffs filed their Second Amended Complaint on August 25, 2006, alleging claims for violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, against PWC NA, Citco NV, and the Citco Directors.44 Plaintiffs also bring a claim under Section 20(a) of the Securities Exchange Act of 1934 against Citco Group, based on its alleged status as a control person of Citco NV.45
Plaintiffs also assert various common law claims under New York law against International Fund Services (International) Ltd. ("IFSI"), the entity that became administrator of the Funds after Citco NV resigned, PWC NA, and Banc of America Securities, LLC ("BAS"), the former prime broker and custodian of the Funds.46 Regarding the Citco Defendants, plaintiffs bring claims alleging common law fraud; breach of fiduciary duty; negligence, negligent misrepresentation, and professional malpractice; aiding and abetting common law fraud; and aiding and abetting breach of fiduciary duty.47
On September 25, 2006, BAS made a motion to dismiss the claims against it. On October 4, 2006, the Citco Defendants and Citco Group similarly moved to dismiss the claims with respect to them. By opinion and order dated February 20, 2007, BAS's and certain of the Citco Directors' motions to dismiss were granted.48 Following a year and a half of discovery, the remaining defendants now move for summary judgment. By opinion and order dated October 29, 2008, this Court granted IFSI's motion for summary judgment.49 This opinion considers the motion of the Citco Defendants and Citco Group.
III. LEGAL STANDARD
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."50 An issue of fact is genuine "`if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'"51 A fact is material when it "`might affect the outcome of the suit under the governing law.'"52 "It is the movant's burden to show that no genuine factual dispute exists."53
In turn, to defeat a motion for summary judgment, the non-moving party must raise a genuine issue of material fact. "Summary judgment is properly granted when the non-moving party `fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.'"54 To do so, the...
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