The US Court of Appeals for the Second Circuit affirmed the district court’s dismissal of two class action suits by European investors on behalf of all investors in certain funds (Funds), against JPMorgan Chase & Co. (JPMorgan) and Bank of New York Mellon (BNY) arising from Bernard L. Madoff’s Ponzi scheme. In their complaints, the plaintiffs alleged that JPMorgan and BNY, among a number of other defendants, ignored “red flags” of Madoff’s fraud and continued to funnel investor money through the Funds into Madoff’s Ponzi scheme in order to collect fees. The plaintiffs further alleged that JPMorgan and BNY aided and abetted Madoff’s fraud, engaged in a civil conspiracy with other defendants, aided and abetted conversion and breaches of fiduciary duties by the Funds, and were unjustly enriched at the expense of the investors in the Funds. The lower court found that the plaintiffs’ claims were subject to the Securities Litigation Uniform Standards Act (SLUSA), which precludes certain class actions based on state law and arising from alleged misrepresentations or omissions made in connection with the purchase or sale of certain securities. In affirming the district court’s decision, the Second Circuit held that even though the plaintiffs’ interests in the Funds were not “covered securities,” SLUSA nonetheless applied because Madoff’s purported trading strategy involved “covered securities.” Additionally, the Second Circuit held that SLUSA preempted the actions, even though the plaintiffs did not style their claims as securities fraud claims. Because the complaints essentially alleged that JPMorgan and BNY were part of Madoff’s fraud, the Second Circuit held that the requirements of SLUSA were met. 

Trezziova et al. v. Repex Ventures SA et al., Nos. 12-0156, 12-0162 (2d Cir. September 16, 2013).