Roberts v. UBS AG
| Decision Date | 30 January 2013 |
| Docket Number | CASE NO. CV F 12-0724 LJO SKO |
| Court | U.S. District Court — Eastern District of California |
| Parties | NADIA ROBERTS, et al., Plaintiffs, v. UBS AG, et al., Defendants. |
ORDER ON DEFENDANT UBS AG'S
F.R.Civ.P. 12 MOTION TO DISMISS
(Doc. 26.)
Defendant UBS AG seeks to dismiss as improperly pled and legally barred plaintiffs'1 fraud, breach of fiduciary duties, malpractice and related claims arising from tax penalties plaintiffs incurred in connection with foreign investments and tax shelters with defendant UBS AG. Plaintiffs filed no timely papers to oppose UBS AG's F.R.Civ.P. 12(b)(6) motion to dismiss. This Court considered UBS AG's motion to dismiss on the record without a hearing, pursuant to Local Rule 230(c). For the reasons discussed below, this Court DISMISSES plaintiffs' claims subject to the UBS AG's motion to dismiss.
UBS AG is a Swiss corporation and provides global financial services, including banking, securities, trading, brokerage and wealth management services. The FAC also names as defendants four individuals associated with UBS AG, three Swiss business entities, two private Swiss banks, and a Bermuda corporation. The individual plaintiffs are residents of California, Texas, Washington and New York and are former UBS AG clients. The FAC alleges that UBS AG defendants3 induced plaintiffs "to conceal offshore assets from the U.S. Government using a variety of means, disguises, schemes, tactics, and covers" and "engaged in unlawful trading of U.S. securities" to result in plaintiffs' failure to pay U.S. taxes on their UBS AG investments. The FAC alleges that each plaintiff "faced criminal investigation relating to the shell company structure set up and carried out by Defendants" and "agreed to pay millions of dollars in tax penalties, plus interest, on top of related costs and professional fees." UBS AG challenges the FAC's multiple tort and related claims as lacking sufficient facts and as barred by plaintiffs' own conduct.
Internal Revenue Service ("IRS") Form 1040, Schedule B, Line 7a ("Line 7a") asks: "did you have a financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account located in a foreign country?" Schedule B indicates that if a taxpayer has a foreign account, the taxpayer generally must identify the account's location and complete IRS Form TD F 90-22.1 known as the Report of Foreign Bank and Financial Accounts ("FBAR"). FBAR instructions require a taxpayer to file a FBAR if the taxpayer has more than $10,000 in foreign accounts and to disclose maximum account values and financial institutions holding accounts.
In 2001, the U.S. Treasury required UBS AG to enter into a Qualified Intermediary ("QI")Agreement to require UBS AG clients to complete Internal Revenue Service ("IRS") forms to identify beneficial account owners believed or known to be U.S. citizens or residents.4 UBS AG developed a plan "to manipulate its U.S. customers such that UBS would avoid its own compliance with the QI Agreement while also misleading its customers regarding taxes and reporting" in that UBS AG "advised the use of third party trust entities" which "did not comply with its advisement-disclosure-withholding duties under the QI Agreement" and "encouraged inherited offshore accounts to remain in said offshore accounts and concealed the QI Agreement requirements." UBS AG contracted professional service firms "to create the appearance of legality and independent recommendation and counsel in order to perpetrate their unlawful scheme to avoid the terms of the QI Agreement."
UBS AG feigned compliance with the IRS and QI Agreement but "failed to disclose this illegal activity to Plaintiffs or any of its other U.S. clients." UBS AG "schemed to defraud U.S. authorities and solicited, offered, and induced U.S. clients to conceal offshore assets," "anticipated and planned to retaliate against their own clients by creating or positing evidence contrary to the truth should UBS AG clients come forward to the IRS," and "failed to disclose this illegal activity to Plaintiffs."
The Roberts are married. In 2004, Sean Roberts ("Mr. Roberts") owned a UBS AG account in the Isle of Mann and UBS AG banker Claude Ullman convinced Mr. Roberts to transfer his account to UBS AG's Swiss location. UBS AG engaged defendant Beda Singenberger ("Mr. Singenberger") to create a third-party trust for Mr. Roberts but neither UBS AG nor Mr. Singenberger "advised plaintiffs of the illegal nature of said third party trust and/or plaintiffs' reporting requirements." UBS AG failed to advise the Roberts of the QI Agreement, that their accounts violated the QI Agreement, and that the Roberts "needed to take steps to advise the IRS and mitigate their damages." In February 2009, UBS AG sent information to the IRS about the Roberts but delayed until November 2009 to advise the Roberts of an amnesty Voluntary Disclosure program.
In June 2011, the Roberts entered into plea agreements to plead guilty to filing a false tax return.
The Gubsers were married during 1978-2008 and held a Swiss UBS AG account which they allowed to sit and which experienced income growth during 2004-2009. UBS AG never advised the Gubsers that they were subject to the QI Agreement. In December 2010, the Gubsers "realized that they may be subject to prosecution by the IRS for failing to declare a 40-year old account originating in Switzerland." The Gubsers participated in the Voluntary Disclosure program.
In 2000, UBS AG banker Gian Gisler ("Mr. Gisler") advised Dr. Ginzburg to change the structure of Dr. Ginzburg's UBS AG funds. UBS AG representatives advised Dr. Ginzburg to close a Liechtenstein-based trust structure in favor of a Hong Kong-based trust, that Dr. Ginzburg "would not have to pay any taxes on any capital gains or dividends until the funds were repatriated" to Dr. Ginzburg's country of future domicile, the United States or Israel, and that he would pay only taxes on possible capital gains and dividends when he repatriated the funds. Dr. Ginzburg was never informed of the QI Agreement, and in November 2008, UBS AG froze his accounts to prevent him to mitigate market losses. UBS AG representatives refused to disclose information about Dr. Ginzburg's accounts and liquidated the stock portfolio at 2009 levels to result in a $1.5 million loss.
In July 2011, Dr. Ginzburg pled guilty to criminal tax fraud.
Mr. Eisenberg held a UBS AG account in the Grand Caymans and during a vacation there, entered a UBS AG branch to inquire about the account. He was informed that his account was on the "abandoned accounts" list and transferred to Switzerland. Mr. Eisenberg traveled to Switzerland and defendant Hansredi Schumacher ("Mr. Schumacher") advised Mr. Eisenberg to set up a trust. Mr. Eisenberg permitted Mr. Schumacher to set up a Liechtenstein account and was advised "that he would not be required to disclose his account because of the trust formation." In 2010, Mr. Eisenberg discovered that UBS AG double charged fees during the account's life.
UBS AG failed to advise Mr. Eisenberg of the QI Agreement, the need to report his account for taxes, and release by UBS AG of his name to the United States to preclude Mr. Eisenberg to correctdefects or seek voluntary disclosure. The IRS prosecuted Mr. Eisenberg who entered into a December 2010 agreement to plead guilty to filing a false tax return and paid $2.5 million penalties on a $65,000 tax bill.
Mr. Chernick succeeded in manufacturing toys with his Shumba corporation. In 2000, UBS AG executive director Phillip Bigger ("Mr. Bigger") recommended to move Mr. Chernick's Cayman Islands account to UBS AG's Hong Kong office, and Mr. Chernick opened up UBS AG Hong Kong accounts. Mr. Chernick was advised to hold U.S. securities in the Hong Kong accounts "without disclosing that Chernick would have to report such holdings to the U.S. or otherwise advising him of the QI Agreement terms." In 2002, defendant Matthias Rickenbach with UBS AG's authorization "caused the setup of a sham entity to hold Shumba and Simba." In 2006, Mr. Bigger caused Mr. Chernick to close his Shumba account at the UBS Hong Kong office and transferred the account's assets, including U.S. securities, to a UBS AG Zurich account. UBS AG failed to inform Mr. Chernick of the QI Agreement requirements to file IRS forms or UBS AG withholding of taxes.
Mr. Chernick entered into a July 2009 agreement to plead guilty to filing a false tax return.
As to all plaintiffs, the FAC alleges that:
In November 2008, the United States government filed indictments against UBS AG executives, managers and bankers. On February 18, 2009, UBS AG and the United States government entered into a Deferred Prosecution Agreement ("DPA") by which UBS AG admitted that during 2000-2007, UBS AG "participated in a scheme to defraud the United States and its agency, the IRS by actively assisting...
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