# Securities Investor Protection Corporation v. Bernard L. Madoff Investment Securities, LLC. et a

> United States Bankruptcy Court, S.D. New York · April 18, 2023

URL: https://www.frixlaw.com/law-library/cases/10460900

## Case

- **Court:** United States Bankruptcy Court, S.D. New York
- **Decided:** April 18, 2023
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10460900

## How later opinions describe it (automated extraction)

- explaining that an averment of facts is necessary only after discovery
- stating that the burden of proof is on the defendant asserting a mere conduit defense
- applying the dominion and control test to subsequent transferees

## Opinion text

UNITED STATES BANKRUPTCY COURT NOT FOR PUBLICATION
SOUTHERN DISTRICT OF NEW YORK

SECURITIES INVESTOR PROTECTION
CORPORATION, No. 08-01789 (CGM)

Plaintiff-Applicant, SIPA LIQUIDATION

v. (Substantively Consolidated)

BERNARD L. MADOFF INVESTMENT
SECURITIES LLC,

Defendant.

In re:

BERNARD L. MADOFF,

Debtor.

IRVING H. PICARD, Trustee for the Substantively

Consolidated SIPA Liquidation of Bernard L. Madoff

Investment Securities LLC and the Chapter 7 Estate of

Bernard L. Madoff,
Adv. Pro. No. 12-01195 (CGM)

Plaintiff,

v.

SIX SIS AG,

Defendants.

MEMORANDUM DECISION DENYING DEFENDANT’S MOTION TO DISMISS

A P P E A R A N C E S :
Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA
Liquidation of Bernard L. Madoff Investment Securities LLC and the Chapter 7 Estate of
Bernard L. Madoff
Baker & Hostetler LLP
45 Rockefeller Plaza
New York, NY 10111
By: David Sheehan
Keith R. Murphy
Ferve E. Khan
Anat Maytal

Special Counsel for Irving H. Picard, Trustee for the Substantively Consolidated SIPA
Liquidation of Bernard L. Madoff Investment Securities LLC and the Chapter 7 Estate of
Bernard L. Madoff
Windels Marx Lane & Mittendorf, LLP
156 West 56th Street
New York, New NY 10019
By: Kim M. Longo

Attorneys for Defendant Six Sis
CHAFFETZ LINDSEY LLP
1700 Broadway, 33rd Floor
New York, New York 10019
By: Andreas Frischknecht
Erin E. Valentine

CECELIA G. MORRIS
UNITED STATES BANKRUPTCY JUDGE

Pending before the Court is Defendant’s, Six Sis AG (“Six Sis”), motion to dismiss the
complaint of Irving Picard, the trustee (“Trustee”) for the liquidation of Bernard L. Madoff
Investment Securities LLC (“BLMIS”) seeking to recover subsequent transfers allegedly
consisting of BLMIS customer property. Six Sis seeks dismissal for lack of personal jurisdiction
and for failure to state a claim due to the statute of limitations. Defendant raises the “good faith”
and “mere conduit” defenses. For the reasons set forth herein, the motion to dismiss is denied in
its entirety.
Jurisdiction
This is an adversary proceeding commenced in this Court, in which the main underlying
SIPA proceeding, Adv. Pro. No. 08-01789 (CGM) (the “SIPA Proceeding”), is pending. The
SIPA Proceeding was originally brought in the United States District Court for the Southern
District of New York (the “District Court”) as Securities Exchange Commission v. Bernard L.
Madoff Investment Securities LLC et al., No. 08-CV-10791, and has been referred to this Court.
This Court has jurisdiction over this adversary proceeding under 28 U.S.C. § 1334(b) and (e)(1),
and 15 U.S.C. § 78eee(b)(2)(A) and (b)(4).
This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (F), (H) and (O). This Court
has subject matter jurisdiction over these adversary proceedings pursuant to 28 U.S.C. §§
1334(b) and 157(a), the District Court’s Standing Order of Reference, dated July 10, 1984, and

the Amended Standing Order of Reference, dated January 31, 2012. In addition, the District
Court removed the SIPA liquidation to this Court pursuant to SIPA § 78eee(b)(4), (see Order,
Civ. 08– 01789 (Bankr. S.D.N.Y. Dec. 15, 2008) (“Main Case”), at ¶ IX (ECF No. 1)), and this
Court has jurisdiction under the latter provision. Personal jurisdiction has been contested by this
Defendant and will be discussed infra.

Background
The Court assumes familiarity with the background of the BLMIS Ponzi scheme and its
SIPA proceeding. See Picard v. Citibank, N.A. (In re BLMIS), 12 F.4th 171, 178–83 (2d Cir.
2021), cert. denied sub nom. Citibank, N.A. v. Picard, 142 S. Ct. 1209, 212 L. Ed. 2d 217 (2022).
This adversary proceeding was filed on March 22, 2012. (Compl., ECF1 No. 1). The
Trustee filed an amended complaint on October 17, 2022. (Am. Compl., ECF No. 126). Via the

amended complaint (“Amended Complaint”), the Trustee seeks to recover $52,653,947 in
subsequent transfers made to Six Sis. (Id. ¶ 2). Six Sis is a corporation organized under the laws
of Switzerland and maintains two places of business in Switzerland. (Id. ¶ 61).
The subsequent transfers were derived from investments with BLMIS made by Fairfield
Sentry Limited (“Fairfield Sentry”) and Fairfield Sigma Limited (“Fairfield Sigma”)

1 Unless otherwise indicated, all references to “ECF” are references to this Court’s electronic docket in adversary
proceeding 12-1195-cgm.
(collectively, the “Fairfield Funds”). (Id. ¶¶ 69, 73). Fairfield Sentry and Fairfield Sigma are
considered “feeder funds” of BLMIS because the intention of the funds was to invest in BLMIS.
(Id. ¶ 2).
Following BLMIS’s collapse, the Trustee filed an adversary proceeding against Fairfield
Sentry and related defendants to avoid and recover fraudulent transfers of customer property in

the amount of approximately $3 billion. (Id. ¶ 62). In 2011, the Trustee settled with Fairfield
Sentry. (Id. ¶ 63). As part of their settlement, Fairfield Sentry and Fairfield Sigma consented to
judgments in the amounts of $3.054 billion and $752.3 million, respectively. (Consent Js., 09-
01239-cgm, ECF Nos. 109–10). Only $70 million has been paid to the BLMIS customer
property estate. (Settlement Agreement, 09-01239-cgm, ECF No. 169). The Trustee then
commenced a number of adversary proceedings against subsequent transferees, like Defendant,
to recover the approximately $3 billion in missing customer property.
In its motion to dismiss, Defendant argues that the Trustee has failed to plead personal
jurisdiction and that the subsequent transfers the Trustee seeks to recover in the Amended

Complaint that were not in the original complaint are barred by the statute of limitations. The
Defendant raises the “good faith” and “mere conduit” defenses. The Trustee opposes the motion
to dismiss. For the reasons set forth herein, the motion to dismiss is denied in its entirety.
Discussion
Personal Jurisdiction
Defendant objects to the Trustee’s assertion of personal jurisdiction. (Mem. L. ¶ 4–14,
ECF No. 134). In the Complaint, the Trustee argues that Defendant purposefully availed itself to
the laws of the United States and New York. (Am. Compl. ¶¶ 8–16).
To survive a motion to dismiss for lack of personal jurisdiction pursuant to Rule 12(b)(2)
of the Federal Rules of Civil Procedure, the Trustee “must make a prima facie showing that
jurisdiction exists.” SPV Osus Ltd. v. UBS AG, 882 F.3d 333, 342 (2d Cir. 2018) (quoting
Penguin Grp. (USA) Inc. v. Am. Buddha, 609 F.3d 30, 34–35 (2d Cir. 2010)). A trial court has
considerable procedural leeway when addressing a pretrial dismissal motion under Rule 12(b)(2).

Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 84 (2d Cir. 2013). “‘It may
determine the motion on the basis of affidavits alone; or it may permit discovery in aid of the
motion; or it may conduct an evidentiary hearing on the merits of the motion.’” Dorchester Fin.
Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 84 (2d Cir. 2013) (quoting Marine Midland Bank,
N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981)); see also Picard v. BNP Paribas S.A. (In re
BLMIS), 594 B.R. 167, 187 (Bankr. S.D.N.Y. 2018) (same).
“Prior to discovery, a plaintiff challenged by a jurisdiction testing motion may defeat the
motion by pleading in good faith, legally sufficient allegations of jurisdiction.” Dorchester Fin.,
722 F.3d at 84–85 (quoting Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d

Cir. 1990)); Picard v. Fairfield Greenwich Grp. (In re Fairfield Sentry Ltd.), 627 B.R. 546, 565
(Bankr. S.D.N.Y. 2021) (same). In the absence of discovery, “a plaintiff’s prima facie showing
of jurisdiction ‘may be established solely by allegations.’” Paroni v. GE UK Holdings Ltd.,
2021 U.S. Dist. LEXIS 148930 (N.D.N.Y. 2021) (quoting Ball, 902 F.2d at 197
In this case, the Trustee has alleged legally sufficient allegations of jurisdiction simply by
stating that Defendant “knowingly direct[ed] funds to be invested with, and then redeemed from,
New York-based BLMIS via the Fairfield Funds.” (Am. Compl. ¶ 11). This allegation alone is
sufficient to establish a prima facie showing of jurisdiction over Defendant in the pre-discovery
stage of litigation. At the pre-discovery stage, the allegations need not be factually supported.
See Dorchester Fin. Sec. Inc. v. Banco BRJ, S.A., 722 F.3d 81, 85 (2d Cir. 2013) (explaining that
an averment of facts is necessary only after discovery). That being stated, this was not the only
allegation made by the Trustee.
In order to be subjected to personal jurisdiction in the United States, due process requires
that a defendant have sufficient minimum contacts with the forum in which defendant is sued

“‘such that the maintenance of the suit does not offend traditional notions of fair play and
substantial justice.’” Picard v. Bureau of Labor Ins. (In re BLMIS), 480 B.R. 501 (Bankr.
S.D.N.Y. 2012), 480 B.R. 501, 516 (Bankr. S.D.N.Y. 2012) (quoting Int’l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945)). The pleadings and affidavits are to be construed “‘in
the light most favorable to the plaintiffs, resolving all doubts in their favor.’” Chloé v. Queen
Bee of Beverly Hills, LLC, 616 F.3d 158, 163 (2d Cir. 2010) (quoting Porina v. Marward
Shipping Co., 521 F.3d 122, 126 (2d Cir. 2008)); Picard v. BNP Paribas S.A. (In re BLMIS), 594
B.R. 167, 187 (Bankr. S.D.N.Y. 2018).
The Supreme Court has set out three conditions for the exercise of specific
jurisdiction over a nonresident defendant. First, the defendant must have
purposefully availed itself of the privilege of conducting activities within the
forum State or have purposefully directed its conduct into the forum State.
Second, the plaintiff's claim must arise out of or relate to the defendant’s forum
conduct. Finally, the exercise of jurisdiction must be reasonable under the
circumstances.

U.S. Bank Nat’l Ass’n v. Bank of Am. N.A., 916 F.3d 143, 150 (2d Cir. 2019) (cleaned up).

Purposeful Availment
“[M]inimum contacts . . . exist where the defendant purposefully availed itself of the
privilege of doing business in the forum and could foresee being haled into court there.” Charles
Schwab Corp. v. Bank of Am. Corp., 883 F.3d 68, 82 (2d Cir. 2018). “Although a defendant’s
contacts with the forum state may be intertwined with its transactions or interactions with the
plaintiff or other parties, a defendant’s relationship with a third party, standing alone, is an
insufficient basis for jurisdiction.” U.S. Bank Nat’l Ass’n v. Bank of Am. N.A., 916 F.3d 143, 150
(2d Cir. 2019) (cleaned up). “It is insufficient to rely on a defendant’s random, fortuitous, or
attenuated contacts or on the unilateral activity of a plaintiff with the forum to establish specific
jurisdiction.” Id.

A party “purposefully avail[s] itself of the benefits and protections of New York laws by
knowing, intending and contemplating that the substantial majority of funds invested in Fairfield
Sentry would be transferred to BLMIS in New York to be invested in the New York securities
market.” Picard v. Bureau of Labor Ins. (In re BLMIS), 480 B.R. 501, 517 (Bankr. S.D.N.Y.
2012).
Minimum Contacts
In the Complaint, the Trustee alleges that Six Sis “knowingly directed funds to be
invested with and then redeemed from New York-based BLMIS via the Fairfield Funds” (Am.
Compl. ¶ 11, ECF No. 126). The Trustee has also alleged that Fairfield Sentry invested almost

all of its assets in BLMIS. See 09-01239 Compl. ¶ 228 (“Under Fairfield Sentry’s offering
memorandum, the fund’s investment manager was required to invest no less than 95% of the
fund’s assets through BLMIS.”) (adopted by reference, at paragraph 96, of this Complaint).
The Trustee has alleged that Six Sis signed subscription agreements with the Fairfield
Funds and that each time they signed defendant affirmed that they read the fund’s private
placement memoranda. (Id. ¶ 12). Based on this defendant having acknowledged reading the
private placement memoranda, the Trustee has alleged that Six Sis knew it was transacting
business in New York in connection with its investments in the Fairfield Funds. (Id.). The
private placement memoranda alerted Six Sis that:
Fairfield Sentry invested at least 95% of its assets with New York-based BLMIS,
and Sigma invested substantially all of its assets in Fairfield Sentry; BLMIS
performed all investment management duties for these assets; BLMIS was
registered with the U.S. Securities and Exchange Commission. . . ; BLMIS was
the executing broker for Fairfield Sentry’s investments, and purportedly operated
and executed the split strike conversion strategy . . . on the funds’ behalf;
BLMIS’s [split strike conversion [s]trategy purportedly involved the purchase of
U.S. equities, U.S. options, and U.S. Treasury securities . . . and the decisions
regarding which U.S. securities to purportedly purchase, and when to make such
purchases, were made by BLMIS in New York; BLMIS was the custodian of
Fairfield Sentry’s investments with BLMIS; and BLMIS was ‘essential to the
continued operation of’ Fairfield Sentry.

(Id.).
The Trustee also alleges that by executing the subscription agreements with Fairfield
Sentry, Six Sis submitted to the jurisdiction of New York as the agreement specified that
Defendant:
(i) ‘[A]greed that any suit, action, or proceeding . . . with respect to this
Agreement and the Fund may be brought in New York,’ (ii) ‘irrevocably
submit[ted] to the jurisdiction of the New York courts with respect to any
[p]roceeding,’ (iii) ‘consent[ed] to the service of process out of any New York
court,’ and (iv) agreed that ‘[t]his Agreement shall be governed and enforced in
accordance with the laws of New York . . . .

(Id. at ¶ 16). Though the subscription agreements do not, alone, give this Court
jurisdiction over Six Sis as discussed infra in footnote two, the agreements show that Defendant
were willing to, and knew that they could, face litigation in New York courts.
The Trustee has alleged that Six Sis used New York bank accounts to receive redemption
payments from and remit subscription payments to Fairfield Sentry. (Id. ¶ 15). Six Sis used a
bank account at Brown Brother Harriman to receive subsequent transfers on at least forty-seven
occasions and to remit subscription payments on at least 35 occasions. (Id.). The Trustee has
alleged that Six Sis also used an account at HSBC Bank USA in New York to receive
redemptions and remit subscriptions. (Id.).
Where a defendant chooses to use a United States bank account to receive funds,
exercising personal jurisdiction over the defendant for causes of action relating to those transfers
is constitutional. Off. Comm. of Unsecured Creditors of Arcapita v. Bahrain Islamic Bank, 549
B.R. 56, 71 (S.D.N.Y. 2016); Bahrain Islamic Bank v. Arcapita Bank (In re Arcapita Bank
B.S.C.(C)), 640 B.R. 604, 618 (S.D.N.Y. 2022) (stating that a bank submits to personal

jurisdiction in the United States when it is “free to accept or reject the proposed terms” and still
chooses to use a United States bank account); see also Eldesouky v. Aziz, No. 11–CV–6986
(JLC), 2014 WL 7271219, at *6–7 (S.D.N.Y. Dec. 19, 2014) (finding jurisdiction under New
York long-arm statute based solely on defendant’s use of New York account to receive payment
at issue: “receiving Plaintiffs’ money at a New York bank account suffices to establish personal
jurisdiction over [Defendant].”); HSH Nordbank AG N.Y. Branch v. Street, No. 11 CIV. 9405
DLC, 2012 WL 2921875, at *4 (S.D.N.Y. July 18, 2012) (“District courts in this Circuit have
upheld personal jurisdiction based upon a defendant’s use of a correspondent bank account in
New York where the use of that account was held to lay at the very root of the plaintiff’s

action.”) (quoting Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 673 F.3d 50, 66 (2d Cir.
2012)); Dandong v. Pinnacle Performance Ltd., 966 F. Supp.2d 374, 382–83 (S.D.N.Y. 2013)
(same).
The Complaint contains allegations that are legally sufficient to constitute a prima facie
showing of jurisdiction over Six Sis. Dorchester Fin. Sec. Inc. v. Banco BRJ, S.A., 722 F.3d 81,
85 (2d Cir. 2013). “[A]lthough physical presence in the forum is not a prerequisite to
jurisdiction, physical entry into the State—either by the defendant in person or through an agent,
goods, mail, or some other means—is certainly a relevant contact.” Walden v. Fiore, 571 U.S.
277, 285 (2014). Defendant “intentionally tossed a seed from abroad to take root and grow as a
new tree in the Madoff money orchard in the United States and reap the benefits therefrom.”
Picard v. Bureau of Labor Ins. (In re BLMIS), 480 B.R. 501, 506 (Bankr. S.D.N.Y. 2012).
Defendant’s alleged contacts with New York are not random, isolated, or fortuitous.
Arise out of or relate to the defendant’s forum conduct
As to the second prong, the suit must “arise out of or relate to the defendant’s contacts

with the forum.” Ford Motor Co. v. Mont. Eighth Jud. Dist. Ct., __ U.S. __, 141 S. Ct. 1017,
1026, 209 L. Ed. 2d 225 (2021) (emphasis in original). “[P]roof that a plaintiff’s claim came
about because of the defendant’s in-state conduct” is not required. Id. at 1027. Instead, the court
need only find “an affiliation between the forum and the underlying controversy.” Goodyear
Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011); Picard v. BNP Paribas S.A.
(In re BLMIS), 594 B.R. 167, 190 (Bankr. S.D.N.Y. 2018) (“Where the defendant’s contacts with
the jurisdiction that relate to the cause of action are more substantial, however, it is not
unreasonable to say that the defendant is subject to personal jurisdiction even though the acts
within the state are not the proximate cause of the plaintiff's injury.”) (internal quotations

omitted).
Here, the Trustee is asserting subsequent transfer claims against Defendant for monies it
received from the Fairfield Funds. (Am. Compl. ¶¶ 69–78, ECF No. 126). These allegations are
directly related to their investment activities with BLMIS via the Fairfield Funds. BNP Paribas
S.A., 594 B.R. at 191 (Bankr. S.D.N.Y. 2018) (finding that the redemption and other payments
the defendants received as direct investors in a BLMIS feeder fund arose from the New York
contacts such as sending subscription agreements to New York, wiring funds in U.S. dollars to
New York, sending redemption requests to New York, and receiving redemption payments from
a Bank of New York account in New York, and were the proximate cause of the injuries that the
Trustee sought to redress).
The suit is affiliated with the alleged in-state conduct. Goodyear Dunlop Tires
Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011).
Reasonableness

Having found sufficient minimum contacts, the Court must determine if exercising
personal jurisdiction over Defendant is reasonable and “comport[s] with fair play and substantial
justice.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476 (1985) (internal quotations
omitted). Factors the Court may consider include the burden on the defendants, the forum
State’s interest in adjudicating the dispute, the plaintiff's interest in obtaining convenient and
effective relief, the interstate judicial system’s interest in obtaining the most efficient resolution
of controversies, and the shared interest of the several States in furthering fundamental
substantive social policies. Id. at 477.
The exercise of jurisdiction is reasonable. Defendant is not burdened by this litigation.

Defendant actively participated in this Court’s litigation for over ten years. It is represented by
U.S. counsel and intentionally invested in the Fairfield Funds. Further, Defendant held bank
accounts in New York and submitted to the jurisdiction of New York courts’ when it signed
subscription agreements with the Fairfield Funds.2 (Am. Compl. ¶ 16). The forum and the
Trustee both have a strong interest in litigating BLMIS adversary proceedings in this Court.

2 Even though this Court held that the Defendant’s consent to jurisdiction in New York courts contained in the
subscription agreements it signed prior to investing with Fairfield Sentry could not be used as the sole basis for this
Court’s exercise of personal jurisdiction over an action by foreign liquidators to recover redemption payments under
British Virgin Island law, the fact that Defendant agreed to submit to the jurisdiction of this Court is certainly a
relevant factor in determining whether the exercise of jurisdiction over Defendant is reasonable. In Fairfield Sentry
v. Theodoor GGC Amsterdam (In re Fairfield Sentry Ltd.), Case No. 10-13164 (SMB), Adv. No. 10-03496 (SMB),
2018 WL 3756343, at *12 (Bankr. S.D.N.Y. Aug. 6, 2018) (“Defendants’ consent to the Subscription Agreement
does not constitute consent to personal jurisdiction in the U.S. Redeemer Actions.”), aff’d, Fairfield Sentry Ltd. v.
Citibank, N.A. London, No. 19-CV-3911 (VSB), 2022 WL 3644436, at *9 (S.D.N.Y. Aug. 24, 2022).
Picard v. Maxam Absolute Return Fund, L.P. (In re BLMIS), 460 B.R. 106, 117 (Bankr.
S.D.N.Y. 2011), aff’d, 474 B.R. 76 (S.D.N.Y. 2012); Picard v. Chais (In re BLMIS), 440 B.R.
274, 278 (Bankr. S.D.N.Y. 2010); Picard v. Cohmad Sec. Corp. (In re BLMIS), 418 B.R. 75, 82
(Bankr. S.D.N.Y. 2009); Picard v. Fairfield Greenwich Grp., (In re Fairfield Sentry Ltd.), 627
B.R. 546, 568 (Bankr. S.D.N.Y. 2021); see also In re Picard, 917 F.3d 85, 103 (2d Cir. 2019)

(“The United States has a compelling interest in allowing domestic estates to recover
fraudulently transferred property.”).
By alleging that Defendant intentionally invested in BLMIS, the Trustee has met his
burden of alleging jurisdiction as to each subsequent transfer that originated with BLMIS. And
by alleging that Defendant used a New York bank account, the Trustee has met his burden of
alleging jurisdiction over each transfer that received through that New York bank account.
As recognized by the Second Circuit, “[w]hen these [subsequent transfer] investors chose to buy
into feeder funds that placed all or substantially all of their assets with Madoff Securities, they
knew where their money was going.” In re Picard, 917 F.3d 85, 105 (2d Cir. 2019). The

Trustee has made a prima facie showing of personal jurisdiction with respect to all of the
Fairfield Funds subsequent transfers at issue in this Complaint.
12(b)(6) standard
“To survive a motion to dismiss, the complaint must contain sufficient factual matter,
accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (cleaned up). The claim is facially plausible when a plaintiff pleads facts
that allow the Court to draw a “reasonable inference that the defendant is liable for the
misconduct alleged.” Id. “The plausibility standard is not akin to a ‘probability requirement,’
but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.; see also
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007) (“Asking for plausible grounds to infer an
agreement does not impose a probability requirement at the pleading stage; it simply calls for
enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal
agreement.”). In deciding a motion to dismiss, the Court should assume the factual allegations
are true and determine whether, when read together, they plausibly give rise to an entitlement of

relief. Iqbal, 556 U.S. at 679. “And, of course, a well-pl[ed] complaint may proceed even if it
strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very
remote and unlikely.” Twombly, 550 U.S. at 556.
In deciding the motion, “courts must consider the complaint in its entirety, as well as
other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in
particular, documents incorporated into the complaint by reference, and matters of which a court
may take judicial notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322
(2007). A complaint is “deemed to include any written instrument attached to it as an exhibit[,] .
. . documents incorporated in it by reference[,]” and other documents “integral” to the complaint.

Chambers v. Time Warner, Inc., 282 F.3d 147, 152–53 (2d Cir. 2002) (citations omitted). A
document is “integral” to a complaint when the plaintiff has “actual notice” of the extraneous
information and relied on it in framing the complaint. DeLuca v. AccessIT Grp., Inc., 695 F.
Supp. 2d 54, 60 (S.D.N.Y. 2010) (citing Chambers, 282 F.3d at 153).
The Trustee is seeking to recover approximately $52.6 million in subsequent transfers
made to Defendant by Fairfield Sentry and Fairfield Sigma. (Am. Compl. ¶ 2, ECF No. 126).
Recovery of Subsequent Transfers
Pursuant to § 550(a) of the Bankruptcy Code, a trustee is entitled to recover avoided
transfers of customer property from initial transferees as well as from “any immediate or mediate
transferee of such initial transferee.” 11 U.S.C. § 550(a). “To plead a subsequent transfer claim,
the Trustee must plead that the initial transfer is avoidable, and the defendant is a subsequent
transferee of that initial transferee, that is, that the funds at issue originated with the debtor.”
Picard v. BNP Paribas S.A. (In re BLMIS), 594 B.R. 167, 195 (Bankr. S.D.N.Y. 2018); see also
SIPC v. BLMIS (In re Consol. Proc. On 11 U.S.C. § 546(e)), No. 12 MC 115, 2013 WL

1609154, at *7 (S.D.N.Y. Apr. 15, 2013). “Federal Civil Rule 9(b) governs the portion of a
claim to avoid an initial intentional fraudulent transfer and Rule 8(a) governs the portion of a
claim to recover the subsequent transfer.” BNP Paribas, 594 B.R. at 195 (citing Sharp Int’l
Corp. v. State St. Bank & Trust Co., (In re Sharp Int’l Corp.), 403 F.3d 43, 56 (2d Cir. 2005).
The Trustee only needs to provide “a short and plain statement of the claim showing that
the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The plaintiff’s burden at the pleading
stage does not require exact accounting of the funds at issue. BNP Paribas, 594 B.R. at 195.
Rather “[t]he plaintiff must allege the necessary vital statistics – the who, when, and how much –
of the purported transfers to establish an entity as a subsequent transferee of the funds.” Id.

However, the plaintiff’s burden at the pleading stage does not require dollar-for-dollar
accounting of the exact funds at issue.” Picard v. BNP Paribas S.A. (In re BLMIS), 594 B.R.
167, 195 (Bankr. S.D.N.Y. 2018).
While the Trustee must allege that the initial transfer from BLMIS to Fairfield Sentry is
avoidable, he is not required to avoid the transfer received by the initial transferee before
asserting an action against subsequent transferees. IBT Int’l Inc. v. Northern (In re Int’l Admin
Servs., Inc.), 408 F.3d 689, 706-07 (11th Cir. 2005). The Trustee is free to pursue any of the
immediate or mediate transferees, and nothing in the statute requires a different result. Id.
The Trustee pleaded the avoidability of the initial transfer (from BLMIS to Fairfield
Sentry) by adopting by reference the entirety of the complaint filed against Fairfield Sentry in
adversary proceeding 09-1239 (“Fairfield Complaint”). (Am. Compl. ¶ 66). Whether the
Fairfield Complaint properly pleads the avoidability of the initial transfer, is governed by Rule
9(b). Rule 9(b) states: “In alleging fraud or mistake, a party must state with particularity the

circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a
person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b).
Where the actual fraudulent transfer claim is asserted by a bankruptcy trustee,
applicable Second Circuit precedent instructs courts to adopt a more liberal view
since a trustee is an outsider to the transaction who must plead fraud from second-
hand knowledge. Moreover, in a case such as this one, where the Trustee’s lack of
personal knowledge is compounded with complicated issues and transactions that
extend over lengthy periods of time, the trustee’s handicap increases, and even
greater latitude should be afforded.

Picard v. Cohmad Secs. Corp., (In re BLMIS), 454 B.R. 317, 329 (Bankr. S.D.N.Y. 2011) (cleaned
up).
Relation Back
The Trustee’s Amended Complaint alleges $33,000,038 in recently added transfers. (See
Am. Compl.). Six Sis argues that the Trustee’s new allegations of subsequent transfers are time-
barred. (Mem. L. 18–21, ECF No. 155).
Under Rule 15, “[a]n amendment to a pleading relates back to the date of the original
pleading when . . . the amendment asserts a claim or defense that arose out of the conduct,
transaction, or occurrence set out—or attempted to be set out—in the original pleading[.]” Fed. R.
Civ. P. 15(c)(1)(B). Rule 15 “does not set a high bar for relation back, so long as the claims
attempted to be asserted in the new complaint share a reasonable measure of common ground with
the allegations in the original pleading.” Picard v. Madoff (In re BLMIS), 468 B.R. 620, 633 (Bankr.
S.D.N.Y. 2012) (“Peter Madoff”) (quoting Silverman v. K.E.R.U. Realty Corp. (In re Allou Distribs.,
Inc.), 379 B.R. 5, 27 (Bankr. E.D.N.Y. 2007)). Rule 15(c) should be “liberally construed.” Siegel v.
Converters Transp., Inc., 714 F.2d 213, 215 (2d Cir. 1983). This is because “[t]he purpose of Rule
15 is to provide maximum opportunity for each claim to be decided on its merits rather than on
procedural technicalities.” Picard v. Fairfield Inv. Fund (In re BLMIS), No. 08-01789 (CGM), Adv.
Pro. No. 09-01239, 2021 WL 3477479, at *12 (Bankr. S.D.N.Y. Aug. 6, 2021) (quoting Siegel, 714
F.2d at 217). Thus, “[t]he principal inquiry . . . is whether the general fact situation alleged in the
original pleading provides adequate notice to the opposing party of the matters raised in the amended
pleading.” Peter Madoff, 468 B.R. at 633 (quotations omitted).

New fraudulent transfer claims relate back to the original pleading where the newly alleged
transfers occurred as part of the “same ‘course of conduct’” as the originally alleged transfers. Peter
Madoff, 468 B.R. at 633 (citing Adelphia Recovery Trust v. Bank of Am., N.A., 624 F. Supp. 2d 292,
334 (S.D.N.Y. 2009)). When examining “conduct” under Rule 15, courts typically analyze whether
“the [recently added transfers] occurred as part of the same course of conduct as the transfers alleged
in the original complaint,” and whether “the original complaint gave sufficient notice to the
defendants that the Trustee may sue for additional transfers that were part of the same course of
conduct.” Hill v. Oria (In re Juliet Homes, LP), Bankr. No. 07-36424, Adv. No. 09-03429, 2011 WL
6817928, at *7 (Bankr. S.D. Tex. Dec. 28, 2011) (citations omitted) (cleaned up).
The additional transfers relate back to the original complaint. The original complaint states:
“[T]he Trustee seeks to recover at least $7,023,692 in subsequent transfers of [c]ustomer [p]roperty
made to Defendant Six Sis.” (Compl. ¶ 2, ECF No. 1). As to Fairfield Sentry, the Trustee goes on to
state: “[t]he Trustee’s investigation is ongoing, and the Trustee reserves the right to: (i) supplement
the information on the Fairfield Sentry [i]nitial [t]ransfers, the the Fairfield Sentry [s]ubsequent
[t]ransfers, and any additional transfers, and (ii) seek recovery of such additional transfers.” (Id. ¶
42). As to Fairfield Sigma, the Trustee makes a similar statement: “[t]he Trustee’s investigation is
ongoing, and the Trustee reserves the right to: (i) supplement the information on the Fairfield Sentry
[i]nitial [t]ransfers, the Fairfield Sigma [s]ubsequent [t]ransfers, and any additional transfers, and (ii)
seek recovery of such additional transfers.” (Id. ¶ 44).
As this Court stated about another defendant in a similar litigation, “Defendant[] had over 10
years notice that they would be asked to account for these transfers.” Picard. v. Fairfield Inv. Fund
(In re BLMIS), No. 08-01789 (CGM), Adv. Pro. No. 09-01239, 2021 WL 3477479, at *13 (Bankr.
S.D.N.Y. Aug. 6, 2021). Six Sis was adequately appraised that the Trustee intended to collect any
additional subsequent transfers that were uncovered. The recently added transfers “relate back” and
are properly brought.

Good Faith Defense
Defendant argues that it took subsequent transfers “for value, in good faith, and without
knowledge of the voidability of the transfer avoided.” (Mem. L. 23–27, ECF No. 134).
i. For Value
The “value” that a subsequent transferee must provide is “merely consideration sufficient
to support a simple contract, analogous to the ‘value’ required under state law to achieve the
status of a bona fide purchaser for value.” Picard v. Legacy Capital Ltd. (In re BLMIS), 548
B.R. 13, 37 (Bankr. S.D.N.Y. 2016) (citation omitted); accord Enron Corp. v. Ave. Special
Situations Fund II, L.P. (In re Enron Corp.), 333 B.R. 205, 236 (Bankr. S.D.N.Y. 2005). In
addition, the “value” element under § 550(b)(1) looks to what the transferee gave up rather than

what the transferor received. The Amended Complaint contains no mention of Six Sis
exchanging shares for consideration. (See Am. Compl., ECF No. 126). Therefore, the “value”
defense is not asserted on the face of the Amended Complaint.
Defendant argues that the payments it received were given in exchange for the
redemption of shares in the Fairfield Funds. (Mem. L. at 24). If Defendant knew at the time it
redeemed its shares that the shares were worthless, then it did not receive the subsequent transfer
funds “for value” as is required under § 550. See Fairfield Sentry Ltd. v. Theodoor GGC
Amsterdam (In re Fairfield Sentry Ltd.), 596 B.R. 275, 301 (Bankr. S.D.N.Y. 2018), aff'd sub
nom. Fairfield Sentry Ltd. v. Citibank, N.A. London, No. 19-CV-3911 (VSB), 2022 WL
4391023 (S.D.N.Y. Sept. 22, 2022) (“The only exception concerns the Knowledge Defendants
that received redemption payments with the knowledge that the NAV was wrong. In those

circumstances, the Liquidators may seek to impose a constructive trust.”). It has not yet been
determined whether Defendant knew if the shares it redeemed from the Fairfield Funds had
value.
“Value” is Defendant’s burden to plead and prove. Picard v. BNP Paribas S.A. (In re
BLMIS), 594 B.R. 167, 198 (Bankr. S.D.N.Y. 2018). Whether the Defendant gave value is a
question of fact to be resolved either at the summary judgment stage or at trial. Picard, 2021
WL 3477479, at *9.
ii. Good Faith
Where, in light of surrounding circumstances, a transferee should have known of the

debtor’s precarious financial condition, the transferee will be deemed to have taken in bad faith,
unless an investigation into the debtor’s financial condition actually discloses no reason to
suspect financial trouble. 2 Bankruptcy Desk Guide § 19:105. The District Court recently
explained that good faith is a fact-intensive inquiry that almost always requires a trial: “[t]he
Second Circuit made clear . . . that the inquiry notice standard requires a ‘fact-intensive inquiry
to be determined on a case-by-case basis, which naturally takes into account the disparate
circumstances of differently-situated transferees.’” In re BLMIS, No 20-cv-02586(CM), 2022
WL 1304589, at *3 (S.D.N.Y. May 2, 2022) (citing Picard v. Citibank, N.A. (In re BLMIS), 12
F.4th 171 (2d Cir. 2021), cert. denied No. 21-1059 (Feb. 28, 2022). And that “such a fact-based
determination can only be made based on the entirety of the factual record after discovery . . . .”
Id. (internal quotation omitted).
The burden of proving good faith falls squarely on Defendant, and this Court cannot
make a determination on Defendant’s affirmative defense until after a fact-intensive inquiry.
Discovery is required on this issue.

iii. Knowledge of Avoidability
Good faith is linked with whether one had knowledge of the voidability of the transfer.
Picard v. Citibank, N.A. (In re BLMIS), 12 F.4th 171, 189 (2d Cir. 2021) (“[A] transferee does
not act in good faith when he has sufficient actual knowledge to place him on inquiry notice of
the debtor’s possible insolvency.”), cert. denied sub nom. Citibank, N.A. v. Picard, 212 L. Ed. 2d
217, 142 S. Ct. 1209 (2022). Having determined that “good faith” cannot be found on the face of
a complaint, the Court must deny the Defendant’s motion on this element. Additionally, §
550(b)(1) provides a defense to recovery making lack of knowledge Defendant’s burden to plead
and prove. It is a fact-intensive inquiry that requires a three-step inquiry into 1) what Six Sis

subjectively knew; 2) “whether these facts put [it] on inquiry notice of the fraudulent purpose
behind a transaction—that is, whether the facts the transferee[s] knew would have led a
reasonable person in [its] position to conduct further inquiry into a debtor-transferor’s possible
fraud; and 3) whether “diligent inquiry by [Six Sis] would have discovered the fraudulent
purpose of the transfer.” Id. at 192.
It is not appropriate for the Court to resolve these factual issues at this stage of the
litigation.
Mere Conduit
Six Sis argues that the Trustee has failed to allege that it was a transferee of any
subsequent transfers because it was a “mere conduit” and not a subsequent transferee. Six Sis
asserts that the Trustee need allege an averment of facts that Six Sis exercised dominion and
control over the money it received from the Fairfield Funds. (Mem. L. 19–22, ECF No. 134).
The Court of Appeals for the Second Circuit held in In re Finley that a financial intermediary is

not an “initial transferee” for purposes of § 550. Finley v. Alexander (In re Finley), 130 F.3d 52,
57 (2d Cir. 1997). Some courts have applied the “dominion or control” test to subsequent
transferees. See Miller v. Porush (In re Stratton Oakmont, Inc.), 234 B.R. 293, 313 n.9 (Bankr.
S.D.N.Y. 1999) (applying the dominion and control test to subsequent transferees) (citing
Bonded Fin. Servs., Inc. v. Eur. Am. Bank, 838 F.2d 890, 894 (7th Cir. 1988)).
It is not beyond doubt that Six Sis was a “mere conduit.” Six Sis has failed to even
identify for whom they were allegedly acting as a conduit. The Trustee has alleged that Six Sis
was a customer of Fairfield Sentry and Fairfield Sigma. (Am. Compl. ¶¶ 72, 76). Six Sis signed
subscription agreements with Fairfield Sentry and Fairfield Sigma. (Id. ¶ 16). The Trustee has

plausibly alleged that Six Sis exercised dominion and control over the investments and
redemption of BLMIS customer property. Defendant is free plead and prove otherwise at a later
stage of litigation. See Enron Corp. v. J.P. Morgan Sec. Inc. (In re Enron Corp.), 361 B.R. 36,
49 (Bankr. S.D.N.Y. 2006) (stating that the burden of proof is on the defendant asserting a mere
conduit defense); Isaiah v. JPMorgan Chase Bank, 960 F.3d 1296, 1304 (11th Cir. 2020) (“[T]he
mere conduit defense is an affirmative defense that must be proved by the defendant seeking its
protection.”).
Conclusion
For the foregoing reasons, Defendant’s motion to dismiss is denied. The Trustee shall
submit a proposed order within fourteen days of the issuance of this decision, directly to
chambers (via E-Orders), upon not less than two days’ notice to all parties, as required by Local
Bankruptcy Rule 9074-1(a).

/s/ Cecelia G. Morris
pated: Apri oe k oy Hon. Cecelia G. Morris
ougnkeepsie, New Yor ee ee U.S. Bankruptcy Judge
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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10460900. Public record. Not legal advice.